-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LXYL4zQQHjBXp8yXEdFCi0c8r1LC+QZ61Nv+xIc7+cAZ3Zq2iFFlkNoPNidQPV28 9a7keQMRaaDvwbsEeTwz+Q== 0001193125-04-070719.txt : 20040427 0001193125-04-070719.hdr.sgml : 20040427 20040427141543 ACCESSION NUMBER: 0001193125-04-070719 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20040427 EFFECTIVENESS DATE: 20040430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILICO VARIABLE ANNUITY SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000353448 IRS NUMBER: 363050975 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-32840 FILM NUMBER: 04756452 BUSINESS ADDRESS: STREET 1: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 BUSINESS PHONE: 847-874-4000 MAIL ADDRESS: STREET 1: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 FORMER COMPANY: FORMER CONFORMED NAME: KILICO MONEY MARKET SEPARATE ACCOUNT DATE OF NAME CHANGE: 19890824 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILICO VARIABLE ANNUITY SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000353448 IRS NUMBER: 363050975 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03199 FILM NUMBER: 04756453 BUSINESS ADDRESS: STREET 1: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 BUSINESS PHONE: 847-874-4000 MAIL ADDRESS: STREET 1: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 FORMER COMPANY: FORMER CONFORMED NAME: KILICO MONEY MARKET SEPARATE ACCOUNT DATE OF NAME CHANGE: 19890824 485BPOS 1 d485bpos.txt POST-EFFECTIVE AMENDMENT #9 KILICO PREFERRED PROSPECTUS MAY 1, 2004 As filed with the Securities and Exchange Commission on April 27, 2004 Commission File Nos. 333-32840 811-31949 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] Pre-Effective Amendment No. [_] Post-Effective Amendment No. 9 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Amendment No. 95 [X] KILICO Variable Annuity Separate Account (Exact Name of Registrant) Kemper Investors Life Insurance Company (Name of Insurance Company) 1400 American Lane Schaumburg, Illinois 60196 (Address of Insurance Company's Principal Executive Offices) (Zip Code) Insurance Company's Telephone Number, including Area Code: (847) 605-6120 Debra P. Rezabek, Esq. 1400 American Lane Schaumburg, Illinois 60196-6801 (Name and Address of Agent for Service) Copies To: Frank J. Julian, Esq. Joan E. Boros, Esq. Federal Kemper Life Assurance Company Christopher S. Petito, Esq. 1600 McConnor Parkway Jorden Burt LLP Schaumburg, Illinois 60196-6801 1025 Thomas Jefferson Street, N.W. Suite 400E Washington, D.C. 20007 Approximate date of proposed public offering: Continuous It is proposed that this filing will become effective (check appropriate box) [_] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on April 30, 2004 at the close of business pursuant to paragraph (b) of Rule 485 [_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [_] on (date) pursuant to paragraph (a)(1) of Rule 485 If appropriate, check the following box: [_] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Being Registered: Units of Interest in Separate Account under variable annuity contracts No filing fee is due because an indefinite number of shares is deemed to have been registered in reliance on Section 24(f) of the Investment Company Act of 1940. PROSPECTUS FOR KEMPER INVESTORS LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- INDIVIDUAL AND GROUP VARIABLE AND MARKET VALUE ADJUSTED DEFERRED ANNUITY CONTRACTS - -------------------------------------------------------------------------------- ZURICH PREFERRED Issued By KILICO VARIABLE ANNUITY SEPARATE ACCOUNT and KEMPER INVESTORS LIFE INSURANCE COMPANY This Prospectus describes Variable and Market Value Adjusted Deferred Annuity Contracts (the "Contract") offered by Kemper Investors Life Insurance Company ("we" or "KILICO"). The Contract is designed to provide annuity benefits for retirement which may or may not qualify for certain federal tax advantages. The Contract may 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. Depending on particular state requirements, the Contracts may be issued on a group or individual 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. For purposes of this Prospectus, the term "Contract" refers both to certificates and to individual annuity contracts. You may allocate Purchase Payments to one or more of the variable options or the market value adjustment ("MVA") option, in states where the MVA Option is authorized. The MVA Option may not be available in all states. The Contract currently offers 62 variable investment options, each of which is a Subaccount of KILICO Variable Annuity Separate Account. Currently, you may choose among Subaccounts that invest in the following Portfolios or Funds: .. The Alger American Fund (Class O Shares) .. Alger American Growth Portfolio .. Alger American MidCap Growth Portfolio .. Alger American Small Capitalization Portfolio .. American Century Variable Portfolios, Inc. ("VP") (Class I Shares) .. American Century VP Income & Growth .. American Century VP Value .. Credit Suisse Trust .. Credit Suisse Trust-Emerging Markets Portfolio .. Dreyfus Investment Portfolios ("Dreyfus IP") (Service Shares) .. Dreyfus IP MidCap Stock Portfolio .. The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class) .. Dreyfus Variable Investment Fund ("Dreyfus VIF") (Service Shares) .. Dreyfus VIF Small Company Stock Portfolio .. Fidelity Variable Insurance Products Funds ("VIP") .. Fidelity VIP Contrafund(R) (Initial Class Shares) .. Fidelity VIP Equity-Income (Initial Class Shares) .. Fidelity VIP Growth (Initial Class Shares) .. Fidelity VIP Index 500 (Service Class 2 Shares) .. Franklin Templeton Variable Insurance Products Trust (Class 2 Shares) .. Franklin Rising Dividends Securities Fund .. Franklin Small Cap Value Securities Fund .. Franklin Strategic Income Securities Fund .. Franklin U.S. Government Fund .. Franklin Zero Coupon Fund 2010 .. Mutual Discovery Securities Fund .. Mutual Shares Securities Fund .. Templeton Developing Markets Securities Fund .. AIM Variable Insurance Funds (Series 1 Shares) (formerly INVESCO Variable Investment Funds, Inc.) .. AIM V.I. Real Estate Fund ( formerly INVESCO VIF--Real Estate Opportunity Fund) .. INVESCO VIF--Financial Services Fund .. INVESCO VIF--Health Sciences Fund .. INVESCO VIF--Utilities Fund .. J.P. Morgan Series Trust II .. JPMorgan International Equity Portfolio (formerly JPMorgan International Opportunities Portfolio) .. JPMorgan Mid Cap Value Portfolio .. JPMorgan Small Company Portfolio .. Janus Aspen Series (Institutional Shares) .. Janus Aspen Balanced .. Janus Aspen Growth .. Janus Aspen Mid Cap Growth .. Janus Aspen Worldwide Growth .. Janus Aspen Series (Service Shares) .. Janus Aspen Mid Cap Value Portfolio .. Janus Aspen Small Company Value Portfolio (formerly Janus Aspen Small Cap Value Portfolio) .. One Group Investment Trust .. One Group Investment Trust Bond Portfolio .. One Group Investment Trust Government Bond Portfolio .. One Group Investment Trust Balanced Portfolio .. One Group Investment Trust Large Cap Growth Portfolio .. One Group Investment Trust Equity Index Portfolio .. One Group Investment Trust Diversified Equity Portfolio .. One Group Investment Trust Mid Cap Growth Portfolio .. One Group Investment Trust Diversified MidCap Portfolio .. One Group Investment Trust Mid Cap Value Portfolio .. Oppenheimer Variable Account Funds (Service Shares) .. Oppenheimer Aggressive Growth Fund/VA .. Oppenheimer Capital Appreciation Fund/VA .. Oppenheimer Global Securities Fund/VA .. Oppenheimer High Income Fund/VA .. Oppenheimer Main Street Fund(R)/VA .. Oppenheimer Main Street Small Cap Fund(R)/VA .. Oppenheimer Strategic Bond Fund/VA .. Scudder Variable Series I (Class A Shares) .. Scudder Bond .. Scudder Capital Growth .. Scudder International .. Scudder Variable Series II (Class A Shares) .. Scudder Fixed Income .. Scudder Government & Agency Securities (formerly Scudder Government Securities) .. Scudder Growth .. Scudder High Income .. Scudder Money Market .. Scudder Small Cap Growth .. Scudder Technology Growth .. Scudder Total Return .. SVS Dreman Small Cap Value 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 writing us or calling (888) 477-9700. A table of contents for the SAI appears on page 48. 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, 2004 The Securities and Exchange Commission has not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. 2 TABLE OF CONTENTS ================================================================================
Page ---- DEFINITIONS................................................................................ 4 SUMMARY.................................................................................... 6 SUMMARY OF EXPENSES........................................................................ 8 CONDENSED FINANCIAL INFORMATION............................................................ 11 KILICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS................................. 18 THE CONTRACTS.............................................................................. 24 THE ACCUMULATION PERIOD.................................................................... 25 CONTRACT CHARGES AND EXPENSES.............................................................. 33 THE ANNUITY PERIOD......................................................................... 35 FEDERAL INCOME TAXES....................................................................... 38 DISTRIBUTION OF CONTRACTS.................................................................. 44 VOTING RIGHTS.............................................................................. 45 REPORTS TO CONTRACT OWNERS AND INQUIRIES................................................... 45 DOLLAR COST AVERAGING...................................................................... 45 SYSTEMATIC WITHDRAWAL PLAN................................................................. 46 ASSET ALLOCATION SERVICE................................................................... 46 EXPERTS.................................................................................... 48 LEGAL MATTERS.............................................................................. 48 SPECIAL CONSIDERATIONS..................................................................... 48 AVAILABLE INFORMATION...................................................................... 48 LEGAL PROCEEDINGS.......................................................................... 48 TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION..................................... 48 FINANCIAL STATEMENTS....................................................................... 49 CONTRACTS ISSUED MAY 1, 2001 THROUGH FEBRUARY 18, 2002..................................... 49 ANNUAL REPORTS AND OTHER DOCUMENTS......................................................... 51 APPENDIX A ILLUSTRATION OF A MARKET VALUE ADJUSTMENT....................................... 52 APPENDIX B Kemper Investors Life Insurance Company Deferred Fixed and Variable Annuity IRA, Roth IRA and Simple IRA Disclosure Statement............................................. 54
3 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 when you make premium payments to us. Accumulation Unit--A unit of measurement used to determine the value of each Subaccount during the Accumulation Period. Allocation Option--The 62 Subaccounts and the MVA Option available under the Contract for allocation of Purchase Payments, or transfers of Contract Value during the Accumulation Period. Annuitant--The person during whose lifetime the annuity is to be paid. Annuity Date--The date on which annuity payments from us to the Annuitant start. Annuity Option--One of several forms in which annuity payments can be made. Annuity Period--The period starting on the Annuity Date when we make annuity payments to the Annuitant. Annuity Unit--A unit of measurement used to determine the amount of Variable Annuity payments. Beneficiary--The person you designate to receive any benefits under a Contract upon your death or upon the Annuitant's death prior to the Annuity Period. Company ("we", "us", "our", "KILICO")--Kemper Investors Life Insurance Company. Our home office is located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, please write us at 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801. Contract--A Variable and Market Value Adjusted Deferred 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 Accumulated Guarantee Period Value and Separate Account Value during the Accumulation Period. Contract Year--Period between anniversaries of the Date of Issue of a Contract. Date of Issue--The date on which the first Contract Year commences. Debt--The principal of any outstanding loan plus any accrued interest. Requests for loans must be made in writing to us. Fixed Annuity--An annuity where we guarantee the amount of each annuity payment. Fund or Funds--The Alger American Fund, American Century Variable Portfolios, Inc., Credit Suisse Trust, Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Variable Investment Fund, Fidelity Variable Insurance Products Funds (which include Fidelity Variable Insurance Products Fund and Fidelity Variable Insurance Products Fund II), Franklin Templeton Variable Insurance Products Trust, AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc.), J.P. Morgan Series Trust II, Janus Aspen Series, One Group Investment Trust, Oppenheimer Variable Account Funds, Scudder Variable Series I and Scudder Variable Series II, including any Portfolios thereunder. General Account--All our assets other than those allocated to any legally segregated separate account. 4 Guaranteed Interest Rate--The rate of interest we set for a given Guarantee Period. Guarantee Period--The period of time for which a Guaranteed Interest Rate of an MVA Option is guaranteed. You may elect MVA Options having Guarantee Periods of from one to ten years. Guarantee Period Value--The sum of: . your Purchase Payments allocated to an MVA Option or amounts you transfer to an MVA Option, plus . interest credited, minus . your withdrawals and transfers, plus or minus . any applicable Market Value Adjustment previously made. Market Adjusted Value--A Guarantee Period Value adjusted by the market value adjustment formula. Market Value Adjustment--An adjustment of values under a Guarantee Period in accordance with the market value adjustment formula. 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 commenced. The adjustment is computed using the market value adjustment formula stated in the Contract. MVA Option--A fixed accumulation option to which Purchase Payments may be allocated or Contract Value transferred. Non-Qualified Contract--A Contract which does not receive favorable tax treatment under Section 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(s)--The underlying portfolios in which the Subaccounts invest. Each Portfolio is an investment company registered with the SEC or a separate investment series of a registered investment company. Purchase Payments--The dollar amount we receive in U.S. currency to buy the benefits this Contract provides. Qualified Contract--A Contract issued in connection with a retirement plan which receives favorable tax treatment under Section 401, 403, 408, 408A or 457 of the Internal Revenue Code. Separate Account--The KILICO Variable Annuity Separate Account. Separate Account Value--The sum of your Subaccount Values. Subaccounts--The 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 allocations to a Subaccount. Valuation Date--Each day when a Subaccount is valued. Subaccounts are normally valued every day the New York Stock Exchange is open for trading. 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) you specify. 5 SUMMARY Because this is a summary, it does not contain all of the information that may be important. Read the entire Prospectus, Statement of Additional Information and the Contract before deciding to invest. The Contracts provide for investment on a tax-deferred basis and payment of annuity benefits. Both Non-Qualified and Qualified Contracts are described in this Prospectus. The minimum initial Purchase Payment is $10,000 and, subject to certain exceptions, the minimum subsequent Purchase Payment is $100. Variable accumulations and benefits are provided by crediting Purchase Payments to one or more Subaccounts that you select. Each Subaccount invests in a corresponding Portfolio. (See "The Funds," page 19.) Contract Value allocated to the Separate Account varies with the investment experience of the selected Subaccount(s). The MVA Option provides fixed-rate accumulations, each for a specified Guarantee Period. The MVA Option is only available during the Accumulation Period. You may allocate amounts to one or more Guarantee Periods. We may offer additional Guarantee Periods at our discretion. We may limit to 3 the number of Guarantee Periods available. We credit a Guaranteed Interest Rate daily to amounts allocated to a Guarantee Period. Each Guaranteed Interest Rate is set at our discretion, but once set is guaranteed not to change for the duration of the Guarantee Period. At the end of a Guarantee Period, the amounts in the Guarantee Period will be transferred to the money market subaccount unless you timely elect another Allocation Option. Transfers between Subaccounts are permitted before and after annuitization, subject to limitations. A transfer from a Guarantee Period is subject to a Market Value Adjustment. The minimum withdrawal amount is $500 for the Subaccounts and $5,000 for the Guarantee Periods. A minimum $5,000 Contract Value plus Debt must remain after a withdrawal. If less than $5,000 remains after partial withdrawal, we will terminate the Contract. If a partial withdrawal is made in connection with a 1035 exchange, direct transfer, or direct rollover, a $5,000 Contract Value must also remain in the Contract after the transfer. If this withdrawal request would reduce the Contract Value to less than $5,000, and you have not terminated your Contract, your partial withdrawal request will be limited so that the Contract Value remaining will be $5,000. No transfer, rollover, or 1035 exchange is permitted if there is an outstanding loan on your Contract. Withdrawals will have tax consequences, including income tax and in some circumstances an additional 10% penalty tax. Withdrawals are permitted from Contracts issued with Section 403(b) Qualified Plans only under limited circumstances. (See "Federal Income Taxes," page 38.) A Market Value Adjustment also applies to any withdrawal (except during the "free look" period), transfer, or purchase of an annuity option from a Guarantee Period Value. The Market Value Adjustment does not apply to the death benefit. The Market Value Adjustment is applied to the amount being withdrawn. (See "The Contracts," page 24.) Contract charges include: . mortality and expense risk charge, . administration charge, . records maintenance charge, . applicable premium taxes, . optional death benefit charges, and . optional MIAA expense charge (See "Asset Allocation Service.") 6 (See "Contract Charges and Expenses," page 33.) In addition, the Funds pay their investment advisers varying fees for investment advice and also incur other operational expenses. (See the Funds' prospectuses for such information.) Dollar Cost Averaging and Automatic Asset Rebalancing are available to you. (See "Dollar Cost Averaging," page 45 and "Automatic Asset Rebalancing," page 33.) You may elect, where available, to enter into a separate investment advisory agreement with PMG Asset Management, Inc. ("PMG"). PMG provides asset allocation services under PMG's Managed Investment Advisory Account ("MIAA"). MIAA allocates Contract Value among certain Subaccounts. (See "Asset Allocation Service.") The MIAA and applicable fees are described more fully in a separate disclosure statement provided by PMG. MIAA is not available in all states or through all distributors. The Contract may be purchased as an Individual Retirement Annuity, Simplified Employee Pension--IRA, Traditional and Roth Individual Retirement Annuity, tax sheltered annuity, and as a nonqualified annuity. (See "Taxation of Annuities in General," page 39 and "Qualified Plans," page 42.) You may examine a Contract and return it for a refund during the "free look" period. If you decide to return your Contract for a refund during the "free look" period, please also include a letter of instruction. Upon receipt by us, the Contract will be cancelled and amounts refunded. The length of the free look period will depend on the state in which the Contract is issued. However, it will be at least ten days from the date you receive the Contract. (See "The Contracts," page 24.) In addition, a special free look period applies in some circumstances to Contracts issued as Individual Retirement Annuities, Simplified Employee Pensions--IRAs or as Roth Individual Retirement Annuities. 7 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, surrender the Contract, or transfer cash value between investment options. State premium taxes may also be deducted. Contract Owner Transaction Expenses Sales Load Imposed on Purchases (as a percentage of purchase payments): None Contingent Deferred Sales Load:........ None Maximum Transfer Fee:.................. $ 25/(1)/
- -------- /(1)/We reserve the right to charge a fee of $25 for each voluntary transfer of Contract Value in excess of twelve transfers per Contract 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. Quarterly Records Maintenance Charge.................... $ 7.50/(2)/ Separate Account Annual Expenses (as a percentage of average Separate Account Contract Value)................................................ 1.00% Mortality and Expense Risk Charge:................... Administration Charge: Current.......................................... 0.25% Maximum.......................................... 0.45%/(3)/ ------ Total Current Separate Account Annual Expenses:......... 1.25% ====== Total Maximum Separate Account Annual Expenses:......... 1.45% ====== Optional Benefits Guaranteed Minimum Death Benefit Charge.............. 0.15% Earnings Based Death Benefit Charge.................. 0.20% ------ Total Current Separate Account Annual Expenses including Optional Benefits..................................... 1.60% ====== Total Maximum Separate Account Annual Expenses including Optional Benefits:.................................... 1.80% ====== Other Optional Benefit Expenses MIAA Initial Set Up Fee................................ $30.00 MIAA Annual Expense (as a percentage of Contract Value) Current.............................................. 0.50%/(4)/ Maximum.............................................. 1.00%/(5)/
Qualified Plan Loan Interest Rates/(6)/ Loans not subject to ERISA -- 5.50% Loans subject to ERISA -- Moody's Corporate Bond Yield Average - Monthly Average Corporates (rounded to nearest 0.25%)
- -------- /(2)/The records maintenance charge is reduced to $3.75 for Contracts with Contract Value between $25,000 and $50,000 on the date of assessment. There is no charge for Contracts with Contract Value of $50,000 or more on the date of assessment. In certain circumstances we may reduce or waive the annual records maintenance charge. See "Records Maintenance Charge." 8 /(3)/We reserve the right for new Contracts to increase the administration charge up to a maximum of 0.45%. /(4)/Charged quarterly in arrears at the rate of .125% per calendar quarter of Contract Value subject to the MIAA Expense, using an average daily weighted balance methodology. MIAA charge is paid to PMG and is not retained by us. (See "Asset Allocation Service.") /(5)/The MIAA Expense charge may be increased for new Contracts up to a maximum of 1.00%. /(6)/Loans are only available under certain qualified plans. Interest rate depends on whether plan is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). The value securing the loan will earn interest at the loan interest rate reduced by not more than 2.5%. The next table shows the minimum and maximum total operating expenses charged by the Funds that you may pay periodically during the time that you own the Contract. More detail concerning each Fund's fees and expenses is contained in the prospectus for each Fund.
Minimum -- Maximum Total Annual Fund Operating Expenses/(7)/ (expenses that are deducted from Funds assets, including management fees, distribution and/or service (12b-1) fees, and other expenses, prior to any fee waivers or expense reimbursements) 0.51% -- 12.61%
- -------- /(7)/The expenses shown are for the year ended December 31, 2003, and do not reflect any fee waivers or expense reimbursements. 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 at least through May 1, 2004. Other Funds have voluntary fee reduction and/or expense reimbursement arrangements that may be terminated at any time. The minimum and maximum Total Annual Fund Operating Expenses for all Funds after all fee reductions and expense reimbursements are 0.51% and 1.80% respectively. 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 INFORMATION. 9 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, maximum 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 and that your Contract includes the Guaranteed Minimum Death Benefit, the Earnings Based Death Benefit and the optional MIAA program with a 1.00% MIAA expense. If these features were not elected or a less costly option were elected, the expense figures shown below would be lower. 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 or annuitize your Contract at the end of the applicable time period:
1 year 3 years 5 years 10 years ------ ------- ------- -------- $1,574 $4,233 $6,352 $9,950
(2)If you do not surrender your Contract at the end of the applicable time period:
1 year 3 years 5 years 10 years ------ ------- ------- -------- $1,574 $4,233 $6,352 $9,950
The fee table and example should not be considered a representation of past or future expenses and charges of the Subaccounts. Your actual expenses may be greater or less than those shown. The example does not include the deduction of state premium taxes, which may be assessed before or upon annuitization or any taxes or penalties you may be required to pay if you surrender the Contract. Similarly, the 5% annual rate of return assumed in the example is not intended to be representative of past or future performance of any Subaccount. 10 CONDENSED FINANCIAL INFORMATION The following tables list the Condensed Financial Information (the Accumulation Unit values for Accumulation Units outstanding) for Contracts without optional benefits yielding the lowest Separate Account charges possible under the Contract (1.25%) and Contracts with optional benefits yielding the highest Separate Account charges possible under the Contract as of December 31, 2003 (2.00%). Should the Separate Account charges applicable to your Contract fall between the maximum and minimum charges, and you wish to see a copy of the Condensed Financial Information applicable to your Contract, such information can be obtained in the Statement of Additional Information free of charge. In the table(s) below, no number is shown when there were fewer than 1,000 accumulation units outstanding at the end of the period. No Additional Contract Options Elected (Separate Account Charges of 1.25% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 2000 - ---------- -------- -------- -------- -------- Alger American Growth Subaccount Accumulation unit value at beginning of period*............................ $ 27.076 $ 40.912 $ 46.978 $ 57.684 Accumulation unit value at end of period................................... $ 36.144 $ 27.076 $ 40.912 $ 46.978 Number of accumulation units outstanding at end of period (000's omitted).. 4 3 2 1 Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period*............................ 19.548 28.092 30.431 32.447 Accumulation unit value at end of period................................... 28.535 19.548 28.092 30.431 Number of accumulation units outstanding at end of period (000's omitted).. 7 103 4 -- Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period*............................ 11.841 16.250 23.344 32.317 Accumulation unit value at end of period................................... 16.646 11.841 16.250 23.344 Number of accumulation units outstanding at end of period (000's omitted).. 2 2 1 -- American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period*............................ 5.093 6.395 7.066 7.779 Accumulation unit value at end of period................................... 6.506 5.093 6.395 7.066 Number of accumulation units outstanding at end of period (000's omitted).. 190 168 8 2 American Century VP Value Subaccount Accumulation unit value at beginning of period*............................ 6.374 7.386 6.629 5.539 Accumulation unit value at end of period................................... 8.119 6.374 7.386 6.629 Number of accumulation units outstanding at end of period (000's omitted).. 61 54 82 5 Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period*............................ 7.518 8.608 9.647 13.16 Accumulation unit value at end of period................................... 10.610 7.518 8.608 9.647 Number of accumulation units outstanding at end of period (000's omitted).. 3 1 1 -- Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A N/A Accumulation unit value at end of period................................... 12.618 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. 18 -- -- -- Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period*............................ 18.533 26.410 34.539 40.426 Accumulation unit value at end of period................................... 23.064 18.533 26.410 34.539 Number of accumulation units outstanding at end of period (000's omitted).. 2 1 1 -- Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A N/A Accumulation unit value at end of period................................... 13.623 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- -- Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period*............................ 18.307 20.447 23.593 25.267 Accumulation unit value at end of period................................... 23.227 18.307 20.447 23.593 Number of accumulation units outstanding at end of period (000's omitted).. 10 10 4 1 Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period*............................ 19.528 23.806 25.363 23.318 Accumulation unit value at end of period................................... 25.136 19.528 23.806 25.363 Number of accumulation units outstanding at end of period (000's omitted).. 44 41 23 4 Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period*............................ 24.354 35.279 43.380 51.935 Accumulation unit value at end of period................................... 31.954 24.354 35.279 43.380 Number of accumulation units outstanding at end of period (000's omitted).. 9 22 23 4 Fidelity VIP Index 500 Subaccount Accumulation unit value at beginning of period*............................ 98.329 128.376 148.249 165.363 Accumulation unit value at end of period................................... 124.398 98.329 128.376 148.249 Number of accumulation units outstanding at end of period (000's omitted).. 7 1 1 1 Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A N/A Accumulation unit value at end of period................................... 12.183 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. 1 -- -- --
11
Subaccount 2003 2002 2001 2000 - ---------- ------- ------ ------ ------ Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period***..................................... $10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. $13.227 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 10.904 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Franklin U.S. Government Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 10.003 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 87 -- -- -- Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 9.984 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 74 -- -- -- Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.408 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 1 -- -- -- Mutual Shares Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.002 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 14.493 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- AIM V.I. Real Estate Subaccount (formerly INVESCO VIF-Real Estate Opportunity Subaccount) Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 13.093 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 1 -- -- -- INVESCO VIF--Financial Services Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.234 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- INVESCO VIF--Health Sciences Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 11.854 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 1 -- -- -- INVESCO VIF--Utilities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 11.713 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities Subaccount) Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 13.275 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 94 -- -- -- JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.327 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- JPMorgan Small Company Subaccount Accumulation unit value at beginning of period*....................................... 10.056 12.996 14.315 16.058 Accumulation unit value at end of period.............................................. 13.506 10.056 12.996 14.315 Number of accumulation units outstanding at end of period (000's omitted)............. 29 41 126 -- Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period*....................................... 22.081 23.897 25.381 26.447 Accumulation unit value at end of period.............................................. 24.872 22.081 23.897 25.381 Number of accumulation units outstanding at end of period (000's omitted)............. 13 12 10 3 Janus Aspen Growth Subaccount Accumulation unit value at beginning of period*....................................... 14.813 20.408 27.457 33.237 Accumulation unit value at end of period.............................................. 19.272 14.813 20.408 27.457 Number of accumulation units outstanding at end of period (000's omitted)............. 35 7 8 3 Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period*....................................... 15.842 22.258 37.224 56.434 Accumulation unit value at end of period.............................................. 21.139 15.842 22.258 37.224 Number of accumulation units outstanding at end of period (000's omitted)............. 8 6 7 2 Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period*....................................... 22.228 30.210 39.439 48.945 Accumulation unit value at end of period.............................................. 27.221 22.228 30.210 39.439 Number of accumulation units outstanding at end of period (000's omitted)............. 16 13 12 6
12
Subaccount 2003 2002 2001 2000 - ---------- ------- ------ ------ ------ Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period***..................................... $10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. $13.394 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 13.447 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.019 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.327 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 14.161 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Oppenheimer High Income Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 11.080 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 2 -- -- -- Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 12.111 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 1 -- -- -- Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 13.729 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. 6 -- -- -- Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A N/A Accumulation unit value at end of period.............................................. 10.825 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- -- Scudder Bond Subaccount Accumulation unit value at beginning of period*....................................... 7.493 7.047 6.748 6.359 Accumulation unit value at end of period.............................................. 7.775 7.493 7.047 6.748 Number of accumulation units outstanding at end of period (000's omitted)............. 16 128 117 4 Scudder Capital Growth Subaccount Accumulation unit value at beginning of period*....................................... 12.771 18.260 22.927 26.577 Accumulation unit value at end of period.............................................. 16.004 12.771 18.260 22.927 Number of accumulation units outstanding at end of period (000's omitted)............. 2 2 1 -- Scudder International Subaccount Accumulation unit value at beginning of period*....................................... 7.802 9.677 14.172 16.428 Accumulation unit value at end of period.............................................. 9.845 7.802 9.677 14.172 Number of accumulation units outstanding at end of period (000's omitted)............. 15 120 70 1 Scudder Fixed Income Subaccount Accumulation unit value at beginning of period*....................................... 1.268 1.188 1.138 1.074 Accumulation unit value at end of period.............................................. 1.316 1.268 1.188 1.138 Number of accumulation units outstanding at end of period (000's omitted)............. 143 144 265 10 Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities Subaccount) Accumulation unit value at beginning of period*....................................... 1.346 1.262 1.189 1.123 Accumulation unit value at end of period.............................................. 1.360 1.346 1.262 1.189 Number of accumulation units outstanding at end of period (000's omitted)............. 523 671 131 -- Scudder Growth Subaccount Accumulation unit value at beginning of period*....................................... 1.601 2.296 2.993 3.890 Accumulation unit value at end of period.............................................. 1.971 1.601 2.296 2.993 Number of accumulation units outstanding at end of period (000's omitted)............. 16 11 15 7 Scudder High Income Subaccount Accumulation unit value at beginning of period*....................................... 0.909 0.923 0.911 0.985 Accumulation unit value at end of period.............................................. 1.119 0.909 0.923 0.911 Number of accumulation units outstanding at end of period (000's omitted)............. 282 48 53 26 Scudder Money Market Subaccount Accumulation unit value at beginning of period*....................................... 1.051 1.050 1.025 1.000 Accumulation unit value at end of period.............................................. 1.046 1.051 1.050 1.025 Number of accumulation units outstanding at end of period (000's omitted)............. 2,136 2,046 70,520 15,033
13
Subaccount 2003 2002 2001 2000 - ---------- ------- ------ ------ ------ Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period*............................ $ 0.994 $1.512 $2.151 $2.643 Accumulation unit value at end of period................................... $ 1.305 $0.994 $1.512 $2.151 Number of accumulation units outstanding at end of period (000's omitted).. 85 78 107 35 Scudder Technology Growth Subaccount* Accumulation unit value at beginning of period*............................ 0.586 0.920 1.379 2.034 Accumulation unit value at end of period................................... 0.849 0.586 0.920 1.379 Number of accumulation units outstanding at end of period (000's omitted).. 100 78 78 19 Scudder Total Return Subaccount Accumulation unit value at beginning of period*............................ 2.001 2.388 2.575 2.684 Accumulation unit value at end of period................................... 2.331 2.001 2.388 2.575 Number of accumulation units outstanding at end of period (000's omitted).. 56 89 38 7 SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A N/A Accumulation unit value at end of period................................... 13.660 N/A N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. 1 -- -- --
Additional Contract Options Elected (Total 0.75%) (Separate Account Charges of 2.00% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ---------- ------- ------- ------- Alger American Growth Subaccount Accumulation unit value at beginning of period**........................... $26.825 $40.835 $36.070 Accumulation unit value at end of period................................... $35.547 $26.825 $40.835 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period**........................... 19.367 28.039 23.664 Accumulation unit value at end of period................................... 28.063 19.367 28.039 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period**........................... 11.731 16.219 13.847 Accumulation unit value at end of period................................... 16.371 11.731 16.219 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period**........................... 5.046 6.383 5.809 Accumulation unit value at end of period................................... 6.399 5.046 6.383 Number of accumulation units outstanding at end of period (000's omitted).. 2 2 -- American Century VP Value Subaccount Accumulation unit value at beginning of period**........................... 6.315 7.372 6.472 Accumulation unit value at end of period................................... 7.984 6.315 7.372 Number of accumulation units outstanding at end of period (000's omitted).. -- -- 1 Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period**........................... 7.449 8.592 7.169 Accumulation unit value at end of period................................... 10.434 7.449 8.592 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A Accumulation unit value at end of period................................... 12.556 N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period**........................... 18.362 26.359 24.063 Accumulation unit value at end of period................................... 22.683 18.362 26.359 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A Accumulation unit value at end of period................................... 13.556 N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period**........................... 18.137 20.408 19.073 Accumulation unit value at end of period................................... 22.843 18.137 20.408 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period**........................... 19.347 23.761 21.717 Accumulation unit value at end of period................................... 24.721 19.347 23.761 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period**........................... 24.128 35.213 30.186 Accumulation unit value at end of period................................... 31.426 24.128 35.213 Number of accumulation units outstanding at end of period (000's omitted).. -- -- --
14
Subaccount 2003 2002 2001 - ---------- -------- -------- -------- Fidelity VIP Index 500 Subaccount Accumulation unit value at beginning of period**................................................ $ 97.419 $128.133 $116.190 Accumulation unit value at end of period........................................................ $122.341 $ 97.419 $128.133 Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 12.124 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 13.162 N/A N/A Number of accumulation units outstanding at end of period (000's omitted) -- -- -- Franklin Strategic Income Securities Subaccount................................................. Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 10.851 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... Franklin U.S. Government Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 9.954 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... 1 -- -- Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 9.935 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... 1 -- -- Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 12.347 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- Mutual Shares Securities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 11.943 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 14.422 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- AIM V.I. Real Estate Subaccount (formerly INVESCO VIF-Real Estate Opportunity Subaccount) Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 13.029 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- INVESCO VIF--Financial Services Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 12.173 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- INVESCO VIF--Health Sciences Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 11.795 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- INVESCO VIF--Utilities Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 11.655 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities Subaccount) Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 13.210 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... 1 -- -- JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period***............................................... 10.000 N/A N/A Accumulation unit value at end of period........................................................ 12.266 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- JPMorgan Small Company Subaccount Accumulation unit value at beginning of period**................................................ 9.963 12.972 10.738 Accumulation unit value at end of period........................................................ 13.283 9.963 12.972 Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- 1 Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period**................................................ 21.876 23.852 22.848 Accumulation unit value at end of period........................................................ 24.461 21.876 23.852 Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- -- Janus Aspen Growth Subaccount Accumulation unit value at beginning of period**................................................ 14.676 20.370 17.778 Accumulation unit value at end of period........................................................ 18.954 14.676 20.370 Number of accumulation units outstanding at end of period (000's omitted)....................... -- -- --
15
Subaccount 2003 2002 2001 - ---------- ------- ------- ------- Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period**...................................... $15.696 $22.216 $19.462 Accumulation unit value at end of period.............................................. $20.790 $15.696 $22.216 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period**...................................... 22.022 30.153 26.713 Accumulation unit value at end of period.............................................. 26.771 22.022 30.153 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 13.328 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 13.381 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 11.960 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 12.267 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 14.092 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer High Income Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 11.025 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 12.052 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 13.661 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period***..................................... 10.000 N/A N/A Accumulation unit value at end of period.............................................. 10.771 N/A N/A Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Scudder Bond Subaccount Accumulation unit value at beginning of period**...................................... 7.424 7.034 7.100 Accumulation unit value at end of period.............................................. 7.647 7.424 7.034 Number of accumulation units outstanding at end of period (000's omitted)............. -- 2 1 Scudder Capital Growth Subaccount Accumulation unit value at beginning of period**...................................... 12.652 18.225 15.863 Accumulation unit value at end of period.............................................. 15.740 12.652 18.225 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Scudder International Subaccount Accumulation unit value at beginning of period**...................................... 7.730 9.659 9.610 Accumulation unit value at end of period.............................................. 9.682 7.730 9.659 Number of accumulation units outstanding at end of period (000's omitted)............. -- 1 2 Scudder Fixed Subaccount Accumulation unit value at beginning of period**...................................... 1.256 1.186 1.197 Accumulation unit value at end of period.............................................. 1.295 1.256 1.186 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities Subaccount) Accumulation unit value at beginning of period**...................................... 1.334 1.259 1.268 Accumulation unit value at end of period.............................................. 1.337 1.334 1.259 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- -- Scudder Growth Subaccount Accumulation unit value at beginning of period**...................................... 1.586 2.291 2.077 Accumulation unit value at end of period.............................................. 1.939 1.586 2.291 Number of accumulation units outstanding at end of period (000's omitted)............. -- -- --
16
Subaccount 2003 2002 2001 - ---------- ------- ------ ------ Scudder High Income Subaccount Accumulation unit value at beginning of period**........................... $ 0.901 $0.921 $0.876 Accumulation unit value at end of period................................... $ 1.100 $0.901 $0.921 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Scudder Money Market Subaccount Accumulation unit value at beginning of period**........................... 1.042 1.048 1.048 Accumulation unit value at end of period................................... 1.029 1.042 1.048 Number of accumulation units outstanding at end of period (000's omitted).. 9 8 -- Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period**........................... 0.985 1.509 1.195 Accumulation unit value at end of period................................... 1.283 0.985 1.509 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Scudder Technology Growth Subaccount Accumulation unit value at beginning of period**........................... 0.581 0.919 0.708 Accumulation unit value at end of period................................... 0.835 0.581 0.919 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- Scudder Total Return Subaccount Accumulation unit value at beginning of period**........................... 1.982 2.384 2.251 Accumulation unit value at end of period................................... 2.292 1.982 2.384 Number of accumulation units outstanding at end of period (000's omitted).. -- -- -- SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period***.......................... 10.000 N/A N/A Accumulation unit value at end of period................................... 13.593 N/A N/A Number of accumulation units outstanding at end of period (000's omitted).. -- -- --
- -------- *Commencement of Offering on July 3, 2000. **Commencement of Offering on October 1, 2001. ***Commencement of Offering on May 1, 2003. 17 KILICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS Kemper Investors 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 offices are located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, please write us at 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801. 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 Kemper Corporation, a nonoperating holding company. Kemper Corporation is a wholly-owned subsidiary of Zurich Group Holding ("ZGH"), a Swiss holding company. ZGH is owned by Zurich Financial Services ("ZFS"), a Swiss holding company. Effective September 3, 2003, KILICO 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 KILICO entered into a coinsurance agreement under which FKLA administers and 100% reinsures certain lines of business currently underwritten by KILICO, including the Contracts. The coinsurance arrangement does not change KILICO's obligations to Contractholders under the Contracts and does not create any obligations for FKLA to Contractholders under the Contracts. The issuer, benefits and provisions of the Contracts were not changed by any of the transactions and agreements described above. The MVA Option You may allocate amounts in the Market Value Adjustment ("MVA") Option to one or more Guarantee Periods with durations of one to ten years during the Accumulation Period. We may limit to three the number of Guarantee Periods available. You may choose a different Guarantee Period by preauthorized telephone instructions or by giving us written notice (see "Guarantee Periods of the MVA Option" below). The MVA Option is not available in all states. At our discretion, we may offer additional Guarantee Periods. The amounts allocated to the MVA Option under the Contracts are invested under the state insurance laws regulating our General Account. Assets supporting the amounts allocated to Guarantee Periods are held in a "non-unitized" separate account. However, our General Account assets are available to fund benefits under the Contracts. A non-unitized separate account is a separate account in which you do not participate in the performance of the assets through unit values. There are no discrete units for this separate account. The assets of the non-unitized separate account are held as reserves for our guaranteed obligations under the Contracts and other contracts we may issue. 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. 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 many factors in establishing Guaranteed Interest Rates, including the return available on the instruments in which General Account assets are invested when establishing Guaranteed Interest Rates. 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. (See "The Accumulation Period--Establishment of Guaranteed Interest Rates.") Our investment strategy 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 (4) 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; 18 . 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. Our General Account at December 31, 2003 included approximately 90.1 percent in cash, short-term investments and investment grade fixed maturities, 0.5 percent in below investment grade (high-risk) bonds, 8.7 percent in mortgage loans and other real estate-related investments and 0.7 percent in all other investments. 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. For more information concerning our General Account assets, consult our Annual Report For the Fiscal Year ended December 31, 2003. (See "Annual Reports and Other Documents.") The Separate Account We established the 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 KILICO. 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. Sixty-two Subaccounts of the Separate Account are currently available. Each Subaccount invests exclusively in shares of one of the corresponding Portfolios. We may add or delete Subaccounts in the future. The Separate Account purchases and redeems shares from the 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 Portfolio are reinvested in that 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 Funds The Separate Account invests in shares of the following Funds: . AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc.) . The Alger American Fund . American Century Variable Portfolios, Inc. . Credit Suisse Trust . Dreyfus Investment Portfolios . The Dreyfus Socially Responsible Growth Fund, Inc. . Dreyfus Variable Investment Fund . Fidelity Variable Insurance Products Funds . Franklin Templeton Variable Insurance Products Trust . J.P. Morgan Series Trust II . Janus Aspen Series 19 . One Group Investment Trust . Oppenheimer Variable Account Funds . Scudder Variable Series I . Scudder Variable Series II The Funds provide investment vehicles for variable life insurance and variable annuity contracts. 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 Funds. Currently, we do not foresee disadvantages to variable life insurance owners, variable annuity owners or qualified retirement plans. The Funds monitor events for material conflicts between owners and determine what action, if any, should be taken. In addition, if we believe that the Funds' responses to any of those events insufficiently protects Owners, we will take appropriate action. The Funds 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 62 Portfolios or Funds are summarized below: The Alger American Fund Alger American Growth Portfolio seeks long-term capital appreciation. Alger American MidCap Growth Portfolio seeks long-term capital appreciation. Alger American Small Capitalization Portfolio seeks long-term capital appreciation. American Century Variable Portfolios, Inc. American Century VP Income & Growth Portfolio seeks capital growth by investing in common stocks. Income is a secondary objective. American Century VP Value Portfolio seeks long-term capital growth. Income is a secondary objective. Credit Suisse Trust Credit Suisse Trust-Emerging Markets Portfolio seeks long-term growth of capital by investing in equity securities of companies located or conducting a majority of their business in emerging markets. Dreyfus Investment Portfolios Dreyfus IP MidCap Stock Portfolio seeks investment results that are greater than the total return performance of medium-size domestic companies in the aggregate as represented by the Standard and Poor's MidCap 400(R) Index. The Dreyfus Socially Responsible Growth Fund, Inc. The Fund's primary goal is to provide capital growth with current income as a secondary goal. To pursue this goal, the Fund normally invests at least 80% of its assets in common stocks of companies that, in the opinion of the Fund's management, not only meet traditional investment standards, but also conduct their business in a manner that contributes to the enhancement of the quality of life in America. Dreyfus Variable Investment Fund Dreyfus VIF Small Company Stock Portfolio seeks capital appreciation. 20 Fidelity Variable Insurance Products Funds Fidelity VIP Contrafund Portfolio (Initial Class Shares) seeks long-term capital appreciation. Fidelity VIP Equity-Income Portfolio (Initial Class Shares) seeks reasonable income. The fund will also consider the potential for capital appreciation. The fund seeks a yield which exceeds the composite yield on the securities comprising the S&P(R) 500. Fidelity VIP Growth Portfolio (Initial Class Shares) seeks capital appreciation. Fidelity VIP Index 500 Portfolio (Service Class 2 Shares) seeks investment results that correspond to the total return of common stocks publicly traded in the United States, as represented by the S&P(R) 500. Franklin Templeton Variable Insurance Products Trust Franklin Rising Dividends Securities Fund seeks long-term capital appreciation, with preservation of capital as an important consideration. Franklin Small Cap Value Securities Fund seeks long-term total return. Franklin Strategic Income Securities Fund seeks a high level of current income, with capital appreciation over the long term as a secondary objective. Franklin U.S. Government Fund seeks income. Franklin Zero Coupon Fund 2010 seeks as high an investment return as is consistent with capital preservation. Mutual Discovery Securities Fund seeks capital appreciation. Mutual Shares Securities Fund seeks capital appreciation, with income as a secondary goal. Templeton Developing Markets Securities Fund seeks long-term capital appreciation. AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds Inc.) AIM V.I. Real Estate Fund (formerly INVESCO VIF-Real Estate Opportunity Fund) seeks high total return. INVESCO VIF--Financial Services Fund seeks capital growth. INVESCO VIF--Health Sciences Fund seeks capital growth. INVESCO VIF--Utilities Fund seeks capital growth and current income. J.P. Morgan Series Trust II JPMorgan International Equity Portfolio (formerly JPMorgan International Opportunities Portfolio) seeks to provide high total return from a portfolio of equity securities of foreign companies. JPMorgan Mid Cap Value Portfolio seeks growth from capital appreciation. JPMorgan Small Company Portfolio seeks to provide high total return from a portfolio of small company stocks. Janus Aspen Series Janus Aspen Balanced Portfolio seeks long-term capital growth, consistent with preservation of capital and balanced by current income. 21 Janus Aspen Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. Janus Aspen Mid Cap Growth Portfolio seeks long-term growth of capital. Janus Aspen Mid Cap Value Portfolio seeks capital appreciation. Janus Aspen Small Company Value Portfolio (formerly Janus Aspen Small Cap Value Portfolio) seeks capital appreciation. Janus Aspen Worldwide Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. One Group Investment Trust One Group Investment Trust Bond Portfolio seeks to maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities. One Group Investment Trust Government Bond Portfolio seeks a high level of current income with liquidity and safety of principal. One Group Investment Trust Balanced Portfolio seeks to provide total return while preserving capital. One Group Investment Trust Large Cap Growth Portfolio seeks long-term capital appreciation and growth of income by investing primarily in equity securities. One Group Investment Trust Equity Index Portfolio seeks investment results that correspond to the aggregate price and dividend performance of securities in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) One Group Investment Trust Diversified Equity Portfolio seeks long-term capital growth and growth of income with a secondary objective of providing a moderate level of current income. One Group Investment Trust Mid Cap Growth Portfolio seeks growth of capital and secondarily, current income by investing primarily in equity securities. One Group Investment Trust Diversified Mid Cap Portfolio seeks long-term capital growth by investing primarily in equity securities of companies with intermediate capitalizations. One Group Investment Trust Mid Cap Value Portfolio seeks capital appreciation with the secondary goal of achieving current income by investing primarily in equity securities. Oppenheimer Variable Account Funds Oppenheimer Aggressive Growth Fund/VA seeks capital appreciation by investing in "growth type" companies. Oppenheimer Capital Appreciation Fund/VA seeks capital appreciation. Oppenheimer Global Securities Fund/VA seeks long-term capital appreciation. Oppenheimer High Income Fund/VA seeks a high level of current income. Oppenheimer Main Street Fund(R)/VA seeks high total return which includes growth in the value of its shares as well as current income from equity and debt securities. Oppenheimer Main Street Small Cap Fund(R)/VA seeks capital appreciation. 22 Oppenheimer Strategic Bond Fund/VA seeks a high level of current income principally derived from interest on debt securities. Scudder Variable Series I Scudder Bond Portfolio seeks to provide a high level of income consistent with a high quality portfolio of debt securities. Scudder Capital Growth Portfolio seeks to maximize long-term capital growth through a broad and flexible investment program. Scudder International Portfolio seeks long-term growth of capital primarily through diversified holdings of marketable foreign equity investments. Scudder Variable Series II Scudder Fixed Income Portfolio seeks high current income. Scudder Government & Agency Securities Portfolio (formerly Scudder Government Securities Portfolio) seeks high current income consistent with preservation of capital. Scudder Growth Portfolio seeks maximum appreciation of capital. Scudder High Income Portfolio seeks to provide a high level of current income. Scudder Money Market Portfolio seeks maximum current income to the extent consistent with stability of principal. Scudder Small Cap Growth Portfolio seeks maximum appreciation of investors' capital. Scudder Technology Growth Portfolio seeks growth of capital. Scudder Total Return Portfolio seeks a high total return, a combination of income and capital appreciation. SVS Dreman Small Cap Value Portfolio seeks long-term capital appreciation. - -------- *"Standard & Poor's(R)," "S&P(R)" and "S&P MidCap 400(R)" are trademarks of The McGraw-Hill Companies, Inc. The Dreyfus Corporation has been licensed to use such trademarks, as applicable. The Dreyfus IP MidCap Stock Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's(R), and Standard & Poor's(R) 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 objectives. More detailed information, including a description of risks involved in investing in the Portfolios, is found in the Funds' prospectuses accompanying this Prospectus, and Statements of Additional Information available from us upon request. Fred Alger Management, Inc. serves as the investment adviser for the available Portfolios of The Alger American Fund. American Century Investment Management, Inc. serves as the investment adviser for the two available Portfolios of the American Century Variable Portfolios, Inc. Credit Suisse Asset Management, LLC ("CSAM") is the investment adviser for the Credit Suisse Trust-Emerging Markets Portfolio CSAM's Australian and U.K. affiliates, located in Sydney, Australia and London, U.K., respectively, and each known as Credit Suisse Asset Management Limited, serve as sub-advisers for the Credit-Suisse Trust-Emerging Markets Portfolio. The Dreyfus Corporation serves as the investment adviser for the available Portfolio of the Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc. and the available Portfolio of the Dreyfus Variable Investment Fund. Fidelity Management & Research Company is the investment adviser for the available Portfolios of the Fidelity Variable Insurance Products Funds. Fidelity Management & Research (U.K.) Inc. (FMR U.K.), in London, England, Fidelity Management & Research (Far East), Fidelity Investments Japan Limited (FIJ), in Tokyo, Japan and FMR Co., Inc. (FMRC) serve as the sub-advisers for the 23 Fidelity VIP Contrafund(R) Portfolio. FMR Co., Inc. FMRC serves as the sub-adviser for the Fidelity VIP Equity-Income Portfolio and the Fidelity VIP Growth Portfolio. Geode Capital Management, LLC serves as sub-adviser for the Fidelity VIP Index 500 Portfolio. Franklin Advisory Services, LLC is the investment adviser for the Franklin Rising Dividends Securities Fund and the Franklin Small Cap Value Securities Fund. Franklin Advisers, Inc. is the investment adviser for the Franklin Strategic Income Securities Fund, the Franklin U.S. Government Fund and the Franklin Zero Coupon Fund 2010. Franklin Mutual Advisers, LLC is the investment adviser for the Mutual Discovery Securities Fund and the Mutual Shares Securities Fund. Templeton Asset Management Ltd. is the investment adviser for the Templeton Developing Markets Securities Fund. AIM Advisors, Inc. is the investment adviser for the available Portfolios of AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc.) INVESCO Institutional (N.A.), Inc. is the sub-adviser for the available Portfolios of AIM Variable Insurance Funds. J.P. Morgan Investment Management Inc. is the investment adviser for the available Portfolios of the J.P. Morgan Series Trust II. Janus Capital Management LLC (formerly Janus Capital Corporation) is the investment adviser for the available Portfolios of the Janus Aspen Series. Banc One Investment Advisors Corporation is the investment adviser for the available Portfolios of the One Group Investment Trust. Oppenheimer Funds, Inc. is the investment manager for the available Portfolios of the Oppenheimer Variable Account Funds. Deutsche Investment Management Americas Inc. serves as the investment manager for each of the available Portfolios of Scudder Variable Series I and Scudder Variable Series II. Dreman Value Management, L.L.C serves as the subadviser for the SVS Dreman Small Cap Portfolio. The investment advisers are paid fees for their services by the Funds they manage. We may receive compensation from the investment advisers of the Funds for services related to the Funds. Such compensation will be consistent with the services rendered or the cost savings resulting from the arrangement. Such compensation typically is a percentage of Separate Account assets invested in the relevant Fund and generally may range up to 0.30% annually of net assets. We may also receive Rule 12b-1 fees directly from the Funds for providing services related to shares of Portfolios offered in connection with a Rule 12b-1 plan. 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 reserve the right to eliminate the shares of any of the Portfolios and to substitute shares of another portfolio or of another investment company, if the shares of a Portfolio are no longer available for investment, or if in our judgment further investment in any Portfolio becomes inappropriate. We will not substitute any shares attributable to any shares held by 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 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 marketing, tax, or investment conditions warrant. We will notify all Owners of these changes. If we deem it to be in the best interests of persons having voting rights under the Contract, the Separate Account may be: . operated as a management company under the Investment Company Act of 1940 ("1940 Act"); . deregistered under that Act in the event such registration is no longer required; or . 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. THE CONTRACTS A. General Information. The minimum initial Purchase Payment is $10,000 and the minimum subsequent Purchase Payment is $100. Total Purchase Payments in excess of $1,000,000 per Contract Year require our prior approval. 24 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. You may examine a Contract and return it for a refund during the "free look" period. The length of the free look period depends upon the state in which the Contract is issued. However, it will be at least 10 days from the date you receive the Contract. The amount of the refund depends on the state in which the Contract is issued. Generally, it will be an amount at least equal to the Separate Account Contract Value plus the amounts of Purchase Payments in the Guarantee Periods on the date we receive the returned Contract, without any deduction for Records Maintenance Charges. Some states require the return of the Purchase Payment. In addition, a special free look period applies in some circumstances to Contracts issued as Individual Retirement Annuities, Simplified Employee Pensions--IRAs or as Roth Individual Retirement Annuities. You designate the Beneficiary. If you or the Annuitant dies, and no designated Beneficiary or contingent Beneficiary is alive at that time, we will pay your or the Annuitant's estate. Under a Qualified Contract, the provisions of the applicable plan may prohibit a change of Beneficiary. Generally, an interest in a Qualified Contract may not be assigned. During the Accumulation Period, you may change a Beneficiary at any time by signing our form. No Beneficiary change is binding on us until we receive it. We assume no responsibility for the validity of a Beneficiary change. Amounts payable during the Annuity Period may not be assigned. 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 payee's debts or obligations. THE ACCUMULATION PERIOD A. Application of Purchase Payments. You allocate your Purchase Payments to the Subaccount(s) or Guarantee Period(s). The amount of each Purchase Payment allocated to a Subaccount is based on the value of an Accumulation Unit, as computed after we receive the Purchase Payment. 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 is open for trading. Purchase Payments allocated to a Guarantee Period begin earning interest one day after we receive them. With respect to initial Purchase Payments, the amount is credited no later than 2 business days after the application for the Contract is complete. After the initial purchase, 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 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 may be 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 Records Maintenance Charge. The number of Accumulation Units and Accumulated Guarantee Period Value is reduced when the Records Maintenance Charge is assessed (see "Records Maintenance Charge" below). If we are not provided with information sufficient to establish a Contract or to properly credit the initial Purchase Payment, we will promptly request the necessary information. If the requested information is not furnished within five business days after we receive the initial Purchase Payment, or if we determine that we cannot issue the Contract within the five day period, we will return the initial Purchase Payment to you, unless you consent to our retaining the Purchase Payment until the application is completed. Our "Protect Your Future Program" allows you to choose a Guarantee Period and one or more Subaccounts. The percentage allocated to a Guarantee Period will depend on the current interest rate and length of the Guarantee Period chosen. At the end of the Guarantee Period, the Purchase Payment amount in 25 that account will have grown to the full value of the initial Purchase Payment. The balance will be invested in one or more Subaccounts. Due to interest rate changes, the amount of the Purchase Payment allocated to a Guarantee Period will not be known until the Contract is actually issued. B. Accumulation Unit Value. Each Subaccount has Accumulation Unit values. When Purchase Payments or other amounts are allocated to a Subaccount, the number of units credited is based on the Subaccount's applicable Accumulation Unit value at the end of the current Valuation Period. When amounts are transferred out of or deducted from a Subaccount, units are canceled 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 result of: . the net asset value per share of the investment held in the Subaccount determined at the end of the current Valuation Period; plus . the per share amount of any dividend or capital gain distributions made by the investments held in the Subaccount, if the "ex-dividend" date occurs during the current Valuation Period; plus or minus . a charge or credit 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 investment held in the Subaccount determined at the end of the preceding Valuation Period; (c) is the factor representing asset based charges (the mortality and expense risk and administration charges plus any applicable charges for optional death or income benefits). C. Guarantee Periods of the MVA Option. You may allocate Purchase Payments or transfer Contract Value to one or more Guarantee Periods then offered with durations of one to ten years. We may limt the number of Guarantee Periods to three. The number of Guarantee Periods may also vary by state. 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 minimum Purchase Payment is $5,000 per MVA Option per allocation. The following example illustrates how we credit Guarantee Period interest. EXAMPLE OF GUARANTEED INTEREST RATE ACCUMULATION Purchase Payment.......... $40,000 Guarantee Period.......... 5 Years Guaranteed Interest Rate.. 1.55% Effective Annual Rate
Interest Cumulative Credited Interest Year During Year Credited ---- ----------- ---------- 1.. $620.00 $ 620.00 2.. 629.61 1,249.61 3.. 639.37 1,888.98 4.. 649.28 2,538.26 5.. 659.34 3,197.60
26 Accumulated Value at the end of 5 years is: $40,000 + $3,197.60 = $43,197.60 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 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 or less than those shown. We send written notice 30 days before the beginning of a new Guarantee Period. If you do not elect a new Allocation Option, the MVA assets will be transferred automatically to the Scudder Money Market Subaccount on the Guarantee Period maturity date. You may choose a different Guarantee Period by preauthorized telephone instructions or by giving us written notice. (See "Market Value Adjustment" 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 us at 1-888-477-9700 or write to Kemper Investors Life Insurance Company, Customer Service, 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 for the new Guaranteed Interest Rates. D. Establishment of Guaranteed Interest Rates. We declare the Guaranteed Interest Rates for each of the ten durations of Guarantee Periods from time to time as market conditions and other factors dictate. 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 made or when a Guarantee Period renews. Withdrawals of Accumulated Guarantee Period Value are 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. E. 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 . Accumulated Guarantee Period Value. F. Transfers During the Accumulation Period. During the Accumulation Period, you may transfer your Contract Value among the Subaccounts and the Guarantee Periods, subject to the following provisions: . the Contract Value transferred into or out of the Guarantee Periods must be at least $5,000, unless the entire Guarantee Period Value is transferred; . we reserve the right to charge $25 for each transfer (that is not part of Automatic Asset Rebalancing or the Dollar Cost Averaging program) in excess of 12 transfers in a Contract Year. 27 In addition, transfers of Guarantee Period Value before the Guarantee Period end date are subject to a Market Value Adjustment. 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. If you authorize a third party to transact transfers on your behalf, we will reallocate the Contract Value pursuant to the third party's instructions. However, we take no responsibility for any third party asset allocation or investment advisory service or program. We may suspend or cancel acceptance of a third party's instructions at any time and may restrict the investment options available for transfer under third party authorizations. We make transfers pursuant to written or telephone instructions specifying in detail the requested changes. Transfers involving a Subaccount are based upon the Accumulation Unit values, as calculated after we receive transfer instructions. We may suspend, modify or terminate the transfer provision. We disclaim all liability if we follow in good faith instructions given 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. The following transfers must be requested through standard United States mail: . transfers in excess of $250,000 per Contract, per day, and . transfers into and out of the Credit Suisse Trust-Emerging Markets, the JPMorgan International Equity, the Janus Aspen Worldwide Growth, the Mutual Discovery Securities, the Oppenheimer Global Securities Fund/VA, the Scudder International and the Templeton Developing Market Securities Subaccounts in excess of $50,000, per Contract, per day. These administrative procedures have been adopted under the Contract to protect the interests of 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 Portfolios. We reserve the right to further amend the transfer procedures in the interest of protecting Contract Owners. Some of the Funds reserve the right to delay or refuse purchase requests from the Separate Account, as may be 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. G. Market Timing The Contract is not designed for organizations or individuals engaged in market timing strategies in response to short-term fluctuations in the market, involving frequent transfers, transfers into and out of a Subaccount over a short period of time, or transfers representing a substantial percentage of the assets of any Subaccount. You should not purchase the Contract if you intend to engage in such market timing strategies. Market timing strategies may be disruptive to the management of the underlying Portfolios in which the Subaccounts invest and therefore, may be detrimental to Contract Owners. We maintain policies and procedures in an effort to control disruptive market timing activity. We do not exempt any persons or class of persons from these policies. As part of our procedures, we will monitor trading activity. If we identify market timing strategies that we believe to be detrimental to Contract Owners, we reserve the right, in our sole discretion and without prior notice, to take action. The actions we may take include, but are not limited to: . Termination of transfer privileges, or termination of telephone or electronic transfer privileges; . Requiring a minimum time between transfers; . Limiting the total number of transfers; . Limiting the dollar amount that may be transferred at one time; . Refusing any transfer request; and 28 . Not accepting transfer requests of someone acting on behalf of more than one Owner (in which case, we will notify the person making the request by telephone or in writing of our decision not to accept the transfer requests). Although we will monitor transfer activity and as appropriate impose restrictions as described above, there is no assurance that we will be able to identify and curtail all potentially disruptive market timing activity. We review our policies and procedures from time to time and reserve the right to change them. H. Partial Withdrawals During the Accumulation Period. You may redeem some or all of the Contract Value minus previous withdrawals, plus or minus any applicable Market Value Adjustment. Withdrawals will have tax consequences. (See "Federal Income Taxes.") A withdrawal of the entire Contract Value is called a surrender. Your ability to surrender may be limited by the terms of a qualified plan. (See "Federal Income Taxes.") In any Contract Year, you may make a partial withdrawal, subject to the following: . the partial withdrawal from the Subaccounts must be at least $500, . the minimum withdrawal from the Guarantee Periods must be at least $5,000 (before any Market Value Adjustment), . at least $5,000 of Contract Value less Debt must remain in the Contract after the withdrawal, . if there is an outstanding loan the greater of $5,000 or 20% of Contract Value must be retained in the Contract, and . transfers, rollovers, and exchanges are not permitted if there is an outstanding loan. If Contract Value is allocated to more than one Allocation Option, you must specify the source of the partial withdrawal. If you do not specify the source, we (1) cancel Accumulation Units on a pro rata basis from all Subaccounts in which you have an interest and (2) redeem ratably from the Guarantee Periods. Election to withdraw shall be made in writing to Kemper Investors Life Insurance Company, Customer Service, 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 and should be accompanied by the Contract if surrender is requested. 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 on the Accumulation Unit values, as calculated after we receive the request. The Withdrawal Value attributable to the Subaccounts is paid within 7 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 Portfolio is restricted or the SEC determines that an emergency exists, or . as the SEC by order may permit. For withdrawal requests from the MVA Option, 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. I. Market Value Adjustment. Any withdrawal, transfer or annuitization of Guarantee Period Values, unless effected on the Guarantee Period end date or during the "free look" period, may be adjusted up or down by a Market Value Adjustment. The Market Value Adjustment reflects the relationship between . 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 . 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 29 Market Value Adjustment reduces Guarantee Period Value and results in a lower payment. Thus, if interest rates increase, the withdrawal could be less than the original Purchase Payment or the original amount allocated to a Guarantee Period. 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. The Market Value Adjustment (MVA) uses this formula: MVA = GPV x .075 x (J- I) x N Where: GPV is the Guarantee Period Value being withdrawn, 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 Guarantee Period for the Guarantee Period Amount subject to the Market Value Adjustment, and N is the number of months remaining in the Guarantee Period. The .075 factor used in the MVA formula is based on testing a number of interest rate scenarios so that the entire formula provides reasonable financial parity between terminating and continuing Contract Owners and between Contract Owners and us with respect to changes in interest rates and asset values during various time periods. For an illustration showing an upward and a downward adjustment, see Appendix A. J. Death Benefit. If you (or the last surviving Annuitant) die during the Accumulation Period, prior to attaining age 75, the Beneficiary will be paid the greatest of: . the Contract Value less Debt, or . the total amount of Purchase Payments, minus both Debt and the aggregate dollar amount of all previous partial withdrawals, or . the amount that would have been payable in the event of a full surrender on the date of death. If you (or the last surviving Annuitant) die at age 75 or later, the death benefit is the Contract Value minus Debt or, if larger, the amount that would have been paid in the event of a full surrender. You or the Beneficiary, 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. For Non-Qualified Contracts, if you are not the Annuitant and you die before the Annuitant, the death benefit will be paid to your designated Beneficiary. The available Annuity Options are limited by the Code, as described under "Annuity Options". The death benefit is determined as stated above, except your age at death is used in determining the amount payable. If the Beneficiary is your surviving spouse, the surviving spouse may elect to be treated as the successor Owner of the Contract and is not required to begin death benefit distribution. The issue age of the deceased Owner applies in computing the death benefit, payable at the death of a spouse who has elected to be treated as the successor Owner. Guaranteed Minimum Death Benefit Rider. The Guaranteed Minimum Death Benefit Rider ("GMDB") is an optional Contract rider. You must elect GMDB on the initial Contract application provided the oldest Owner is 80 years old or younger at the time the Contract is issued. You cannot elect the GMDB rider after the date we issue the Contract. We reserve the right to offer the GMDB rider to outstanding Contracts, and we may discontinue the offering of the GMDB rider at any time. GMDB coverage may not be terminated. The current charge for the GMDB rider is 0.15% of the Contract Value. The GMDB rider may not be available in all states or through all distributors. 30 If you elect the GMDB rider, a death benefit will be paid to the designated Beneficiary upon the death of the Owner, a joint Owner, or the last surviving Annuitant, during the Accumulation Period. If the Owner is not a natural person, we will pay the death benefit upon the death of any Annuitant. We will pay the death benefit to the Beneficiary when we receive due proof of death. We will then have no further obligation under the Contract. We compute (1) below at the end of the Valuation Period following our receipt of due proof of death and the return of the Contract. We compute (2) and (3) below as of the date of death. The proof may be a certified death certificate, or any other written proof satisfactory to us. The amount of the death benefit will be equal to the greater of items (1), (2) or (3) listed below, less Debt: (1) the Contract Value or, if greater, the amount that would have been payable in the event of a full surrender on the date of death; (2) the total amount of Purchase Payments less adjustments for withdrawals accumulated at 5.00% per year to the earlier of your 85th birthday or date of death, increased by Purchase Payments made from your 85th birthday to the date of death and decreased by any adjustments for withdrawals from your 85th birthday to the date of death; or (3) the greatest anniversary value immediately preceding the earlier of your 86th birthday or date of death, increased by Purchase Payments made since the date of the greatest anniversary value and decreased by any adjustments for withdrawals since that date. The anniversary value equals the Contract Value on each Contract anniversary during the Accumulation Period. An adjustment for a withdrawal is the sum of any amount available as a dollar for dollar reduction, and a proportionate reduction. The maximum dollar for dollar reduction is 5% of the Dollar for Dollar Base, less any prior dollar for dollar withdrawals in the Contract Year. The Dollar for Dollar Base is total premiums less withdrawals assessed a withdrawal charge and less any withdrawal charges. A proportionate reduction is applicable when the withdrawal and any withdrawal charges exceed the maximum dollar for dollar reduction. The proportionate reduction is the amount in (2) and/or (3), reduced by any dollar for dollar reduction, multiplied by (a) divided by (b), where: (a) is the withdrawal plus any withdrawal charges reduced by any dollar for dollar reduction, and (b) is the Contract Value, adjusted by any Market Value Adjustment, reduced by any dollar for dollar reduction. The death benefit may be paid in a lump sum. This sum may be deferred for up to five years from the date of death. Instead of a lump sum payment, the Beneficiary may elect to have the death benefit distributed as stated in Annuity Option 1 for a period not to exceed the Beneficiary's life expectancy, or Annuity Option 2 or Annuity Option 3 with the guarantee period based upon the life expectancy of the Beneficiary as prescribed by federal regulations. The Beneficiary must make this choice within 60 days of the time we receive due proof of death, and distribution must commence within one year of the date of death. If the Beneficiary is not a natural person, the Beneficiary must elect that the entire death benefit be distributed within five years of your death. Distribution of the death benefit must start within one year after your death. It may start later if prescribed by federal regulations. If the Contract was issued as a Non-Qualified Contract, an IRA or Roth IRA and your spouse is the only primary Beneficiary when you die, your surviving spouse may elect to continue the Contract under one of three surviving spouse options. Earnings Based Death Benefit Rider. The Earnings Based Death Benefit rider ("EBDB") is an optional Contract rider. The EBDB rider may be elected if the oldest Owner is 70 years old or younger at the time the Contract is issued. If you elect the EBDB rider, you must also elect the Guaranteed Minimum Death Benefit Rider (See "Guaranteed Minimum Death Benefit Rider" above). You must elect the GMDB rider on the initial Contract application. You cannot elect the EBDB rider after the date we issue the Contract. We reserve the right to offer the EBDB rider to outstanding Contracts, and we may discontinue the offering of the EBDB rider at any time. EBDB coverage may not be terminated. The current charge for the EBDB rider is 0.20% of the Contract Value. The EBDB rider may not be available in all states or through all distributors. 31 If elected, the death benefit will be as follows: . the Guaranteed Minimum Death Benefit (See "Guaranteed Minimum Death Benefit Rider" above); plus . the EBDB factor times the lesser of: a. remaining principal, or b. Contract Value minus remaining principal, but not less than zero. The EBDB factor is 0.40 if death occurs prior to the 10th Contract anniversary, 0.50 if death occurs between the 10th and 15th Contract anniversaries and 0.70 if death occurs on or after the 15th Contract anniversary Remaining principal equals total Purchase Payments less the total principal withdrawn. The amount of total principal withdrawn is calculated by totaling the amount of principal withdrawn with each withdrawal. For any withdrawal, the amount of principal withdrawn is the amount by which the withdrawal exceeds the earnings in the Contract at the time of the withdrawal. Earnings, at any given time, is the amount by which the Contract Value exceeds the excess of total Purchase Payments over total withdrawals. Purchase Payments which we receive less than one year prior to death (other than the initial Purchase Payment) are not used in calculating the amount of remaining principal. For purposes of determining EBDB, earnings will not be less than zero. The EBDB is calculated prior to the application of the Guaranteed Minimum Death Benefit. K. Loans. The Owner of a Contract issued as a tax sheltered annuity under Section 403 (b) of the Internal Revenue Code ("Code") or with a qualified plan under Code Section 401, may request a loan (if permitted by the qualified plan) any time during the Accumulation Period. The requirements and limitations governing the availability of loans, including the maximum amount that a participant may take as a loan, are subject to the rules in the Code, IRS regulations, and our procedures in effect at the time a loan is made. In the case of loans made under Contracts which are subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), additional requirements and limitations will apply such as those under the terms of the plan, Department of Labor regulations and ERISA. Because the rules governing loans under Code Section 403(b) contracts and ERISA qualified plans are complicated, you should consult your tax advisor before exercising the loan privilege. Failure to meet the requirements for loans may result in adverse income tax consequences to you. The loan agreement you sign will describe the restrictions and limitations applicable to the loan at the time you apply. For loans subject to ERISA, you also may wish to consult your plan administrator. Federal tax law requires loans to be repaid in a certain manner and over a certain period of time. For example, loans generally are required to be repaid within 5 years (except in cases where the loan was used to acquire the principal residence of the plan participant), with repayments made at least quarterly and in substantially level amortized payments over the term of the loan. Interest will be charged on your loan amount. Failure to make a loan repayment when due will result in adverse income tax consequences to you. Interest will be charged on your loan amount. If your Contract is not subject to ERISA, the interest rate is 5.50%. If your Contract is subject to ERISA, the interest rate is based on Moody's Corporate Bond Yield Average-Monthly Average Corporates (rounded to the nearest 0.25%). While a loan is outstanding, the value securing the loan will earn interest at the daily equivalent of the annual loan interest rate reduced by not more than 2.5%. If there is an outstanding loan balance when the Contract is surrendered or annuitized, or when a death benefit is paid, the amount payable will be reduced by the amount of the loan outstanding plus accrued interest. In addition, loans, whether or not repaid, will have a permanent effect on the Contract Value because the investment results of the investment accounts will apply only to the unborrowed portion of the Contract Value. The longer a loan is unpaid, the greater the effect is likely to be. The effect could be favorable or unfavorable. If investment results are greater than the rate being credited on amounts held in your loan account while your loan is unpaid, your Contract Value will not increase as rapidly as it would have if no loan were unpaid. If investment results are below that rate, your Contract Value will be greater than it would have been had no loan been outstanding. 32 L. Automatic Asset Rebalancing. You may elect Automatic Asset Rebalancing on a monthly, quarterly, semi-annual or annual basis. Contract Value held under the Dollar Cost Averaging program or MVA Option are not eligible for this option. There is no charge for this service. CONTRACT CHARGES AND EXPENSES We deduct the following charges and expenses: . mortality and expense risk charge, . administration charge, . records maintenance charge, . applicable premium taxes, . optional death benefit charges, and . optional MIAA expense charge (See "Asset Allocation Service.") Subject to certain expense limitations, you indirectly bear investment management fees and other Fund expenses. A. Charges Against the Separate Account. 1. Mortality and Expense Risk Charge. We assess each Subaccount a daily asset charge for mortality and expense risks at a rate of 1.00% 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. The mortality risk we assume arises from two contractual obligations. First, if you or the Annuitant die before you attain age 75, we may, in some cases, pay more than Contract Value. (See "Death Benefit".) 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. 2. Administration Charge. We assess each Subaccount a daily asset charge for administrative expenses at a rate of 0.25% per annum. For new Contracts we reserve the right to increase this charge to a maximum of 0.45% per annum. This charge reimburses us for expenses incurred for administering the Contracts. These expenses include your inquiries, changes in allocations, reports to you, 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 expenses of the particular Contract. 3. Guaranteed Minimum Death Benefit Rider Charge. The annual charge for the Guaranteed Minimum Death Benefit rider is 0.15% of the Contract Value. For Purchase Payments allocated to the General Account or any Guarantee Periods, the applicable credited rates will be reduced to reflect the relevant charge. This charge is not assessed after the Annuity Date. 4. Earnings Based Death Benefit Rider Charge. The annual charge for the Earnings Based Death Benefit rider is 0.20% of the Contract Value. For Purchase Payments allocated to the General Account or any Guarantee Periods, the applicable credited rates will be reduced to reflect the relevant charge. This charge is not assessed after the Annuity Date. 33 B. Asset Allocation Service Charge. The current annual charge for the optional MIAA program is 0.50% of the Contract Value allocated under the MIAA program. The MIAA annual charge deducted from your Contract is paid to PMG and is not a Contract charge retained by us. The annual charge may be increased for new Contracts up to a maximum of 1.00%. If the MIAA charge is increased, the higher charge will be applicable only to Contracts purchased on or after the effective date of the higher MIAA charge. The MIAA Expense is paid by quarterly withdrawals from your Contract Value. The quarterly MIAA expense with respect to the amount in each Subaccount covered by the MIAA program equals the average daily number of units in that Subaccount covered by the MIAA program, multiplied by the ending unit value for that Subaccount, and multiplied by 0.125%. You will also be charged an MIAA initial set up fee of $30.00. C. Records Maintenance Charge. We will assess a quarterly Records Maintenance Charge during the Accumulation Period against each Contract which has participated in one or more of the Subaccounts during the calendar quarter whether or not any Purchase Payments have been made during the year. The Records Maintenance Charge is: . $7.50 quarterly for Contracts with Contract Value under $25,000 on the date of assessment. . $3.75 quarterly for Contracts with Contract Value between $25,000 and $50,000 on the date of assessment. . No Records Maintenance Charge for Contracts with Contract Value of $50,000 or more on the date of assessment. The Record Maintenance Charge is not assessed during the Annuity Period. The Records Maintenance Charge is to reimburse us for expenses incurred in establishing and maintaining the records relating to a Contract's participation in the Separate Account. The Records Maintenance Charge will be assessed at the end of each calendar quarter, based on the Contract Value at that time, and will constitute a reduction in the net assets of each Subaccount. At any time the Records Maintenance Charge is assessed, the applicable charge will be assessed ratably against each Subaccount in which the Contract is participating and a number of Accumulation Units sufficient to equal the proper portion of the charge will be redeemed from such Subaccount. If necessary to meet the assessment, amounts are also redeemed from the Guarantee Periods. D. Withdrawal Charge. There is no withdrawal charge. E. Investment Management Fees and Other Expenses. Each 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.") Further detail is provided in the attached prospectuses for the Portfolios and the Funds' statements of additional information. F. State Premium Taxes. Certain state and local governments impose a premium tax ranging from 0% to 3.5% of Purchase Payments. If we pay state premium taxes, we may charge the amount paid against Contract Value upon annuitization, unless the tax was previously assessed. See "Appendix A--State Premium Tax Chart" in the Statement of Additional Information. It is our current practice under the Contract to pay premium tax directly and not charge you. This practice is subject to change without notice. G. Reduction or Elimination of Certain Charges. Contracts may be available for purchase in certain group or sponsored arrangements that qualify for reductions or elimination of certain charges, the time periods in which such charges apply, or both. Group arrangements include those in which a trustee, an employer or an association purchases Contracts covering a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer Contracts to its employees or members on an individual basis. 34 In certain circumstances, the risk of adverse mortality and expense experience for Contracts purchased in certain group or sponsored arrangements may be reduced. Then, the daily asset charge for mortality and expense costs may likewise be reduced. The administrative charge and the Records Maintenance Charge may also be reduced or eliminated if we anticipate lower administrative expenses. In certain other circumstances, sales expenses in certain group or sponsored arrangements may be reduced or eliminated. In determining whether a group or sponsored arrangement qualifies for reduced or eliminated charges, we will consider among other factors: . the size and type of group to which sales are to be made and administrative services provided, and the persistency expected from the group; . the total amount of Purchase Payments to be received and the method in which they will be remitted; . any prior or existing relationship with us; . the level of commission paid to selling broker-dealers; . the purpose for which the Contract is being purchased, and whether that purchase makes it likely that sales costs and administrative expenses will be reduced; and . the frequency of projected surrenders or distributions. We make any reductions or eliminations according to objective guidelines in effect when an application for a Contract is approved. We may change these guidelines from time to time. Any variation in the charges will reflect differences in costs or services and will be offered uniformly to all members of the group or sponsored arrangement. In no event will a charge reduction or elimination be permitted if it is unfairly discriminatory to any person or prohibited by law. We may also decrease the mortality and expense risk charge, the administration charge, and the Records Maintenance Charge without notice. However, beyond what is disclosed above, we guarantee that they will not increase. We bear the risk that such 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 offer reduced fees and charges, including but not limited to, Records Maintenance Charge and mortality and expense risk and administrative charges, for certain sales that may result in cost savings. Reductions in these fees and charges will not unfairly discriminate against any Owner. THE ANNUITY PERIOD Contracts may be annuitized under one of several Annuity Options, which are available either on a fixed or variable basis. You may annuitize any time after the first Contract Year but no later than the Annuitant's 90th birthday. We make annuity payments beginning on the Annuity Date under the Annuity Option you select. 1. 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. 35 2. Annuity Options. You may elect one of the Contract's Annuity Options. You may decide at any time (subject to the provisions of any applicable retirement plan and state variations) to begin annuity payments. You may change the Annuity Option before, but not after, the Annuity Date. Generally, annuity payments are made in monthly installments. However, we may make a lump sum payment if the net proceeds available to apply under an Annuity Option are less than $5,000. In addition, if the first monthly payment is less than $50 we may change the frequency of payments to quarterly, semiannual or annual intervals so that the initial payment is at least $50. The amount of periodic annuity payments may depend upon: . the Annuity Option you select; . the age and sex of the payee; . the investment experience of the selected Subaccount(s) (if variable annuitization is elected); and . the interest rates (if fixed annuitization is elected) at the time of annuitization. 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 payee also influences the amount of periodic annuity payments because an older payee is expected to have a shorter life span, resulting in larger payments. Finally, if you participate in a Subaccount with higher investment performance, it is likely you will receive a higher periodic payment. For Non-Qualified Contracts, if you die before the Annuity Date, available Annuity Options are limited. The Annuity Options available are: . Option 2, over the lifetime of the Beneficiary, or . Option 1 or 3 for a period no longer than the life expectancy of the Beneficiary (but not less than 5 years from your death). If the Beneficiary is not an individual, the entire interest must be distributed within 5 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. 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 payee'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 charges. You may elect to surrender the Contract or make partial withdrawals after annuity payments begin under Option 1. We will then pay the discounted value of the remaining payments. Option 2--Life Income. Option 2 provides for an annuity payable monthly over the lifetime of the payee. If Option 2 is elected, annuity payments terminate automatically and immediately on the payee'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. 36 Option 3--Life Income with Installments Guaranteed. Option 3 provides an annuity payable monthly during the payee'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 both payees are living. Upon either payee's death, the monthly income payable continues over the life of the surviving payee at a percentage specified when Option 4 is elected. Annuity payments terminate automatically and immediately upon the surviving payee's death without regard to the number or total amount of payments received. 3. Allocation of Annuity. You may elect payments on a fixed or variable basis, or a combination. Any Guarantee Period Value is annuitized on a fixed basis. Any Separate Account Contract Value is annuitized on a variable basis. The MVA Option is not available during the Annuity Period. You may exercise the transfer privilege during the Accumulation Period to arrange for variable or fixed annuitization. Transfers during the Annuity Period are subject to certain limitations. We reserve the right to restrict the number of Subaccounts available during the Annuity Period. 4. Transfers During the Annuity Period. During the Annuity Period, the payee may, by written request, transfer Subaccount Value from one Subaccount to another Subaccount, subject to the following limitations: . Transfers among Subaccounts 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 7 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 7 days before an annuity payment date, the transfer is effective during the Valuation Period after the annuity payment date. . Transfers to the General Account are available only on an anniversary of the first Annuity Date. We must receive notice at least 30 days prior to the anniversary. 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. 5. Annuity Unit Value. Annuity Unit value is determined independently for each Subaccount. Annuity Unit value for any Valuation Period is: . Annuity Unit value for the 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 Accumulation 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 Accumulation Unit value at the end of the preceding Valuation Period, plus or minus the per share charge or credit for taxes reserved. 37 6. First Periodic Payment Under Variable Annuity. When annuity payments begin, the value of the 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 . premium taxes. 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. 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. 7. 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. 8. 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. 9. Death Proceeds. If the payee dies after the Annuity Date while the Contract is in force, the death benefit, if any, depends upon the form of annuity payment in effect at the time of death. (See "Annuity Options.") FEDERAL INCOME TAXES A. INTRODUCTION This discussion is not exhaustive and is not intended as tax advice. A qualified tax adviser should always be consulted with regard to the application of the law to individual circumstances. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Department regulations, and interpretations existing on the date of this Prospectus. These authorities, however, are subject to change by Congress, the Treasury Department, and the courts. This discussion does not address state or local tax consequences nor federal estate or gift tax consequences, associated with buying a Contract. In addition, we make no guarantee regarding any tax treatment--federal, state, or local--of any Contract or of any transaction involving a Contract. B. OUR TAX STATUS We are taxed as a life insurance company and the operations of the Separate Account are treated as a part of our total operations. The Separate Account is not separately taxed as a "regulated investment company". Investment income and capital gains of the Separate Account are not taxed to the extent they are applied under a Contract. We do not anticipate that we will incur federal income tax liability attributable to the income and gains of the Separate Account, and therefore we do not intend to provide for these taxes. If we are taxed on investment income or capital gains of the Separate Account, then we may impose a charge against the Separate Account to provide for these taxes. 38 C. TAXATION OF ANNUITIES IN GENERAL 1. Tax Deferral During Accumulation Period Under the Code, except as described below, increases in the Contract Value of a Non-Qualified Contract are generally not taxable to you or the Annuitant until received as annuity payments or otherwise distributed. However, certain requirements must be satisfied for this general rule to apply, including: . the Contract must be owned by an individual, . Separate Account investments must be "adequately diversified", . we, rather than you, must be considered the owner of Separate Account assets for federal tax purposes, and . annuity payments must appropriately amortize Purchase Payments and Contract earnings. Non-Natural Owner. As a general rule, deferred annuity contracts held by "non-natural persons", such as corporations, trusts or similar entities, are not annuity contracts for federal income tax purposes. The investment income on these contracts is taxed each year as ordinary income received or accrued by the non-natural owner. There are exceptions to this general rule for non-natural owners. Contracts are generally treated as held by a natural person if the nominal owner is a trust or other entity holding the contract as an agent for a natural person. However, this special exception does not apply to an employer who is the nominal owner of a contract under a non-qualified deferred compensation plan for its employees. Additional exceptions to this rule include: . certain Contracts acquired by a decedent's estate, . certain Qualified Contracts, . certain Contracts used with structured settlement agreements, and . certain Contracts purchased with a single premium when the annuity starting date is no later than one year from contract purchase and substantially equal periodic payments are made at least annually. Diversification Requirements. For a contract to be treated as an annuity for federal income tax purposes, separate account investments must be "adequately diversified". The Treasury Secretary issued regulations prescribing standards for adequately diversifying separate account investments. If the separate account failed to comply with these diversification standards, the contract would not be treated as an annuity contract for federal income tax purposes and the owner would generally be taxed on the difference between the contract value and the purchase payments. Although we do not control Fund investments, we expect that each Portfolio of the Funds will comply with these regulations so that each Subaccount of the Separate Account will be considered "adequately diversified." Ownership Treatment. In certain circumstances, a variable annuity contract owner may be considered the owner of the assets of the separate account supporting the contract. In those circumstances, income and gains from separate account assets are includible in the owner's gross income. The Internal Revenue Service ("IRS"), in published rulings, stated that a variable contract owner will be considered the owner of separate account assets if the owner possesses the ability to exercise investment control over the assets. As of the date of this Prospectus, no comprehensive guidance has been issued by the IRS clarifying the circumstances when such investment control by a variable contract owner would exist. As a result, your right to allocate the Contract Value among the Subaccounts may cause you to be considered the owner of the assets of the Separate Account. We do not know what limits may be set forth in any guidance that the IRS may issue, or whether any such limits will apply to existing Contracts. We therefore reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the owner of the Separate Account assets. However there is no assurance that such efforts would be successful. Delayed Annuity Dates. If the Annuity Date occurs (or is scheduled to occur) when you have reached an advanced age, e.g., past age 85, the Contract might not be treated as an annuity for federal income tax purposes. In that event, the income and gains under the Contract could be currently includible in your income. 39 The following discussion assumes that the Contract is treated as an annuity contract for tax purposes and that we are treated as the owner of Separate Account assets. 2. Taxation of Partial and Full Withdrawals from Nonqualified Contracts Partial withdrawals from a Non-Qualified Contract are includible in income to the extent the Contract Value exceeds the "investment in the contract." This amount is referred to as the "income on the contract". Full withdrawals are also includible in income to the extent they exceed the "investment in the contract." Investment in the contract equals the total of Purchase Payments minus any amounts previously received from the Contract that were not includible in your income. Credits we make to your Contract in connection with Market Value Adjustments are not part of your investment in your Contract (and thus, for tax purposes, are treated in the same way as investment gains). Any assignment or pledge (or agreement to assign or pledge) of Contract Value, is treated as a withdrawal. Investment in the contract is increased by the amount includible in income with respect to such assignment or pledge. If you transfer a contract interest, without adequate consideration, to someone other than your spouse (or to a former spouse incident to divorce), you will be taxed on the income on the contract. In this case, the transferee's investment in the contract is increased to reflect the increase in your income. The Contract's optional death benefits, if elected, may exceed Purchase Payments or Contract Value. As described in the Prospectus, we impose certain charges with respect to these death benefits. It is possible that those charges (or some portion) could be treated as a partial withdrawal. As described elsewhere in the Prospectus, you may elect to enter into a separate investment advisory agreement pursuant to which you will receive asset allocation services ("MIAA"). For Non-Qualified Contracts, payments of MIAA Expense and Set Up Fees are treated as a taxable event. This means the MIAA Expense and Set Up Fee are taxable distributions to you and may subject you to an additional 10% tax penalty. If the Contract includes the Guaranteed Retirement Income Benefit rider (the "GRIB rider"), and the Guaranteed Retirement Income Benefit Base is greater than the Contract Value, it is possible that the income on the contract could be a greater amount than would otherwise be the case. This could result in a larger amount being included in your income in connection with a partial withdrawal, assignment, pledge or other transfer. There is also some uncertainty regarding the treatment of the market value adjustment for purposes of determining the income on the contract. This uncertainty could result in the income on the contract being a greater (or lesser) amount. There may be special income tax issues present in situations where the Owner and the Annuitant are not the same person and are not married to one another. A tax adviser should be consulted in those situations. 3. Taxation of Annuity Payments Normally, the portion of each annuity payment taxable as income equals the payment minus the exclusion amount. The exclusion amount for variable annuity payments is the "investment in the contract" allocated to the variable annuity option and adjusted for any period certain or refund feature, divided by the number of payments expected to be made. The exclusion amount for fixed annuity payments is the payment times the ratio of the investment in the contract allocated to the fixed annuity option and adjusted for any period certain or refund feature, to the expected value of the fixed annuity payments. Once the total amount of the investment in the contract is excluded using these ratios, annuity payments will be fully taxable. If annuity payments stop because the annuitant dies before the total amount of the investment in the contract is recovered, the unrecovered amount generally is allowed as a deduction to the annuitant in the last taxable year. 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 Contract, the Company will treat a portion of such lump sum payment as includible in income, and will determine the taxable portion of subsequent annuity 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 that the 40 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. 4. Taxation of Death Benefits Amounts may be distributed upon your or the Annuitant's death. Before the Annuity Date, death benefits are includible in income and: . if distributed in a lump sum are taxed like a full withdrawal, or . if distributed under an Annuity Option are taxed like annuity payments. After the Annuity Date, where a guaranteed period exists and the Annuitant dies before the end of that period, payments made to the Beneficiary for the remainder of that period are includible in income as follows: . if received in a lump sum are includible in income to the extent they exceed the unrecovered investment in the Contract, or . if distributed in accordance with the selected annuity option are fully excludable from income until the remaining investment in the contract is deemed to be recovered. Thereafter, all annuity payments are fully includible in income. 5. Penalty Tax on Premature Distributions A 10% penalty tax applies to a taxable payment from a Non-Qualified Contract unless: . received on or after you reach age 591/2, . attributable to your disability, . made to a Beneficiary after your death or, for non-natural Owners, after the primary Annuitant's death, . made as a series of substantially equal periodic payments (at least annually) for your life (or life expectancy) or for the joint lives (or joint life expectancies) of you and a designated beneficiary (within the meaning of the tax law), . made under a Contract purchased with a single premium when the annuity starting date is no later than one year from Contract purchase and substantially equal periodic payments are made at least annually, or . made with annuities used with certain structured settlement agreements. Other exceptions may apply. 6. Aggregation of Contracts The taxable amount of an annuity payment or withdrawal from a Non-Qualified Contract may be determined by combining some or all of the Non-Qualified Contracts you own. For example, if you purchase a Contract and also purchase an immediate annuity at approximately the same time, the IRS may treat the two contracts as one contract. Similarly, if a person transfers part of his interest in one annuity contract to purchase another annuity contract, the IRS might treat the two contracts as one contract. In addition, if you purchase two or more deferred annuity contracts from the same company (or its affiliates) during any calendar year, these contracts are treated as one contract. The effects of this aggregation are not always clear. However, it could affect the taxable amount of an annuity payment or withdrawal and the amount which might be subject to the 10% penalty tax. 7. Loss of Interest Deduction Where Contracts are Held by or for the Benefit of Certain Non-Natural Persons For Contracts issued after June 8, 1997 to a non-natural owner, all or some portion of otherwise deductible interest may not be deductible by the owner. However, this interest deduction disallowance does not affect Contracts where the Owner is taxable each year on the investment income under the Contract. Entities considering purchasing the Contract, or entities that will be beneficiaries under a Contract, should consult a tax adviser. 41 D. QUALIFIED PLANS Qualified Contracts are used with retirement plans which receive favorable tax treatment as Individual Retirement Annuities, Simplified Employee Pensions--IRAs, Roth Individual Retirement Annuities, tax sheltered annuities, and certain deferred compensation plans ("qualified plans"). Numerous special tax rules apply to qualified plans and to Qualified Contracts. Therefore, we make no attempt to provide more than general information about use of Qualified Contracts. Persons intending to use the Contract in connection with qualified plans should consult a tax advisor. Under the Code, qualified plans generally enjoy tax-deferred accumulation of amounts invested in the plan. Therefore, in considering whether or not to purchase a Contract in a qualified plan, you should only consider the Contract's features other than tax deferral, including the availability of lifetime annuity payments and death benefit protection. The tax rules applicable to qualified plans vary according to the type, terms and conditions of the plan. For example, for both withdrawals and annuity payments under certain Qualified Contracts, there may be no "investment in the contract" and the total amount received may be taxable. Both the amount of the permitted contribution, and the corresponding deduction or exclusion, are limited under qualified plans. In Qualified Contracts, the Owner and Annuitant generally are the same individual. Also, if the joint Annuitant is not the Annuitant's spouse, the annuity options may be limited, depending on the difference in their ages. Furthermore, the length of any Guarantee Period may be limited in some circumstances to satisfy certain minimum distribution requirements under the Code. Qualified Contracts are subject to special rules specifying the time at which distributions must begin and the amount that must be distributed each year. In the case of Individual Retirement Annuities, 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. An excise tax is imposed for the failure to comply with the minimum distribution requirements. This excise tax generally equals 50% of the amount by which a minimum required distribution exceeds the actual l distribution. The death benefit or other optional benefits under your Contract may affect the amount of the minimum required distribution that must be taken from your Contract. If you purchased a Qualified Contract with a GRIB rider and elect to receive a lump sum payment of a portion of the annuity income payments, it is possible that the remaining annuity income payments 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. A 10% penalty tax may apply to the taxable amount of payments from Qualified Contracts. For Individual Retirement Annuities, the penalty tax does not apply to a payment: . received after you reach age 591/2, . received after your death or because of your disability, or . made as a series of substantially equal periodic payments (at least annually) for your life (or life expectancy) or for the joint lives (or joint life expectancies) of you and your designated beneficiary. In addition, the penalty tax does not apply to certain distributions used for qualified first time home purchases or for higher education expenses. Special conditions must be met to qualify for these exceptions. If you wish to take a distribution for these purposes you should consult your tax adviser. Other exceptions may apply. Qualified Contracts are amended to conform to plan requirements. However, you are cautioned that the rights of any person to any benefits under qualified plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the Contract. In addition, we are not bound by terms and conditions of qualified plans if they are inconsistent with the Contract. 1. Qualified Plan Types We may issue Contracts for the following types of qualified plans. Individual Retirement Annuities. The Code permits eligible individuals to contribute to an individual retirement annuity known as an "IRA." The Code limits the amounts contributed, the persons eligible and the 42 time when distributions start. Also, subject to direct rollover and mandatory withholding requirements, distributions from other types of qualified plans generally may be "rolled over" on a tax-deferred basis into an IRA. The Contract may not fund a "Coverdell Education Savings Account" (formerly known as an "Education IRA"). Simplified Employee Pensions (SEP-IRAs). The Code allows employers to establish simplified employee pension plans, using the employees' IRAs. Under these plans the employer may make limited deductible contributions on behalf of the employees to IRAs. Employers and employees intending to use the Contract in connection with these plans should consult a tax adviser. SIMPLE IRAs. The Code permits certain small employers to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their employees. Under SIMPLE IRAs, certain deductible contributions are made by both employees and employers. SIMPLE IRAs are subject to various requirements, including limits on the amounts that may be contributed, the persons who may be eligible, and the time when distributions may commence. Employers and employees intending to use the Contract in connection with these plans should consult a tax adviser. Roth IRAs. The Code permits contributions to an IRA known as a "Roth IRA." Roth IRAs differ from other IRAs in certain respects, including: . Roth IRA contributions are never deductible, . "qualified distributions" from a Roth IRA are excludable from income, . mandatory distribution rules do not apply before death, . a rollover to a Roth IRA must be a "qualified rollover contribution," under the Code, . special eligibility requirements apply, and . contributions to a Roth IRA can be made after the Owner reaches age 701/2 All or part of an IRA may be converted into a Roth IRA without taking an actual distribution. You may convert by notifying the IRA issuer or trustee. You must be eligible for a qualified rollover contribution to convert an IRA to a Roth IRA. A conversion typically results in the inclusion of some or all of the IRA value in gross income, except that the 10% penalty tax does not apply on the conversion. Persons with adjusted gross incomes in excess of $100,000 or who are married and file a separate return are not eligible to make a qualified rollover contribution or a transfer in a taxable year from a non-Roth IRA to a Roth IRA. Any "qualified distribution," as defined in Section 408A, from a Roth IRA is excludible from gross income. A qualified distribution includes a distribution made after you reach age 591/2, after your death, because of your disability, or made to a first-time homebuyer. A qualified distribution can only be made after the first five tax years after the year for which you (or your spouse) made a contribution to any Roth IRA established for your benefit. 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 gross income for tax purposes. 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 optional death benefits that in certain circumstances may exceed the greater of the Purchase Payments and the Contract Value (See "K. Guaranteed Minimum Death Benefit Rider" and "L. Earnings Based Death Benefit Rider" above). It is possible that such death benefits could be characterized as incidental death benefits. 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. 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, 43 . 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 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 Section 403(b)(7) custodial account.) Additional restrictions may be imposed by the plan sponsor. 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. Those who intend to use the Contracts in connection with such plans should seek competent advice. 2. Direct Rollovers If the Contract is used 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 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: . minimum distributions required under Section 401(a)(9) of the Code, and . certain distributions for life, life expectancy, or for 10 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 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, instead of receiving the eligible rollover distribution, you elect to have it directly transferred to certain types of qualified retirement plans. 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 withholding by electing a direct rollover. E. FEDERAL INCOME TAX WITHHOLDING We withhold and send to the U.S. Government a part of the taxable portion of each distribution unless the payee 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%. DISTRIBUTION OF CONTRACTS The Contracts are sold by licensed insurance agents in those states where the Contract may be lawfully sold. The agents are also registered representatives of registered broker-dealers who are members of the National Association of Securities Dealers, Inc. Sales commissions may vary, but are not expected to exceed 6.25% of Purchase Payments. In addition to commissions, we may pay additional promotional incentives, in the form of cash or other compensation, to selling broker-dealers. These incentives may be offered to certain 44 licensed broker-dealers that sell or are expected to sell certain minimum amounts during specified time periods. The Contracts are distributed through the principal underwriter for the Separate Account: Investors Brokerage Services, Inc. ("IBS") 1600 McConnor Parkway Schaumburg, Illinois, 60196-6801 IBS enters into selling group agreements with affiliated and unaffiliated broker-dealers. All of the investment options are not available to all Owners. The investment options are available only under Contracts that are sold or serviced by broker-dealers having a selling group agreement with IBS authorizing the sale of Contracts with the investment options specified in this Prospectus. Other distributors may sell and service contracts with different contract features, charges and investment options. 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 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 payee 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 Each quarter, we send you a statement showing amounts credited to each Subaccount and to the Guarantee Period Value. In addition, if you transfer amounts among the investment options or make additional unscheduled payments, you will 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 Portfolios that underlie the Subaccounts in which you invest and a list of the securities held by that Portfolio. You will have access to Contract information through the Interactive Voice Response System (IVR) at 1-888-477-9700. You will also be able to access your account information from our website www.zurichlifeus.com. You may also direct inquiries to the selling agent or may call 1-888-477-9700 or write to Kemper Investors Life Insurance Company, Customer Service, 1600 McConnor Parkway, Schaumburg, IL 60196-6801. DOLLAR COST AVERAGING Dollar Cost Averaging from the Subaccounts Under our Dollar Cost Averaging ("DCA") program, a predesignated portion of any Subaccount is automatically transferred on a monthly, quarterly, semi-annual or annual basis for a specified duration to any other accounts based on your allocation of accounts. The theory of a DCA program is that by investing at regular and level increments over time, you will be able to purchase more Accumulation Units when the Accumulation Unit value is relatively low and less Accumulation units when the Accumulation Unit value is relatively high. DCA generally helps reduce the risk of purchasing Accumulation Units when market prices are high and selling when market prices are low. 45 However, participation in the DCA program does not assure you of greater profit from your purchases under the program, nor will it prevent or necessarily reduce losses in a declining market. Moreover, while we refer to this program of periodic transfers generally as Dollar Cost Averaging, periodic transfers from a Subaccount (other than a Subaccount which maintains a stable net asset value), are less likely to produce the desired effect of the DCA program and may have the effect of reducing the average price of the Subaccount shares being redeemed. The Owner may select any day of the month except for the 29th, 30th or 31st for the DCA transfers to occur. The DCA program is available only during the Accumulation Period. You may enroll any time by completing our Dollar Cost Averaging form. We must receive the enrollment form at least five business days before the first transfer date. The minimum transfer amount is $100 per Subaccount. 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 will be transferred, . we receive your written termination at least five business days before the next transfer date, or . the Contract is surrendered or annuitized. Dollar Cost Averaging from our General Account Deposits and transfers into our General Account are restricted to amounts that will be automatically transferred into the Subaccounts and Guarantee Periods. At the time you allocate a Purchase Payment or transfer amounts to the General Account, you must choose a transfer schedule that is acceptable to us. We will credit interest on amounts allocated to the General Account at a minimum fixed interest rate not less than the minimum interest rate allowed by state law. At our discretion, we may credit interest in excess of the minimum rate. 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 from the Subaccounts or Guarantee Periods on a monthly, quarterly, semi-annual or annual basis. SWP is not available from the MVA accounts or under the DCA program. 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 thirty days' notice if we amend the SWP. The SWP may be terminated at any time by you or us. ASSET ALLOCATION SERVICE You may elect, where available, to enter into a separate investment advisory agreement with PMG Asset Management, Inc. ("PMG"). PMG is registered as an investment adviser with the SEC. For a fee, PMG provides a discretionary asset allocation service under its Managed Investment Advisory Account ("MIAA") which is fully described in a separate disclosure statement. Under an agreement with PMG, Ibbotson Associates, Inc. ("Ibbotson") performs certain functions for the MIAA program. Ibbotson is an unaffiliated registered investment adviser. MIAA is not available in all states or through all distributors. A. SUMMARY OF THE SERVICE PROVIDED. Under MIAA, your Contract Value is allocated among certain Subaccounts. PMG selects the appropriate allocation model based on your financial objectives and risk tolerance, utilizing Ibbotson's proprietary analysis of the Subaccounts and the underlying Funds. PMG then periodically transfers Contract Value between the Subaccounts in accordance with your selected allocation model. 46 B. MIAA CHARGES. PMG's current annual charge for the optional MIAA program is one-half of one percent (0.50%) of the Contract Value allocated under the MIAA program. The MIAA annual charge deducted from your Contract is paid to PMG and is not a Contract charge retained by us. The annual charge may be increased for new Contracts up to a maximum of one percent (1.00%). If the MIAA expense charge is increased, the higher charge will be applicable only to Contracts purchased on or after the effective date of the higher MIAA charge. The MIAA expense charge is paid by quarterly withdrawals from your Contract Value. The quarterly MIAA expense charge with respect to the amount in each Subaccount covered by the MIAA program equals the average daily number of units in that Subaccount covered by the MIAA program, multiplied by the ending unit value for that Subaccount, and multiplied by .125%. You will also be charged an MIAA initial set up fee ("Set Up Fee") of $30.00. C. TAX TREATMENT OF FEES AND CHARGES. This discussion is not exhaustive and is not intended as tax advice. A qualified tax adviser should always be consulted in the application of the law to individual circumstances. For Qualified Contracts, the MIAA expense charge and Set Up Fee will not be treated as taxable distributions. For Non-Qualified Contracts, payments of the MIAA expense charge and Set Up Fee are treated as a taxable event. This means the MIAA expense charge and Set Up Fee are taxable distributions to you and may subject you to an additional 10% tax penalty. D. RISKS TO YOU. When you elect the MIAA program, you understand that: . all investments involve risk, the amount of which may vary significantly, . performance cannot be predicted or guaranteed, and . the value of your allocations in the Subaccounts will fluctuate due to market conditions and other factors. PMG has not authorized anyone to make any guarantee, either written or oral, that your investment objectives will be met. PMG seeks to perform services in a professional manner. However, except for negligence, malfeasance, or violations of applicable law, PMG and its officers, directors, agents and employees are not liable for any action performed or omitted to be performed or for any errors of judgment in your asset allocation or in transferring your Contract Value. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith and, therefore, nothing herein in any way constitutes a waiver or limitation on any rights that you may have under federal securities laws. E. TERMINATION. You may terminate your participation in the MIAA program at any time by contacting us. If you terminate within 5 business days of enrolling in the MIAA program, you will not be charged any MIAA expense charge or Set Up Fee. Otherwise, you will be charged any unpaid MIAA expense charge for the period before your termination, and your Set Up Fee will not be refunded. PMG reserves the right, however, to waive the collection of unpaid MIAA expense charges upon termination. F. CONFLICTS OF INTEREST. The MIAA program is marketed directly by officers of PMG and through solicitors who recommend the MIAA program, but who have no discretionary investment authority. The PMG solicitor is a registered representative with a broker-dealer registered under the Securities Exchange Act of 1934. As such, the PMG solicitor may receive or may have received commissions for your purchase of your Contract. PMG solicitors may also receive a portion of the MIAA Expense (See "MIAA Charges") as compensation. You will be charged the same fees for the MIAA program whether or not a PMG solicitor is involved. Since the PMG solicitor may receive commissions for the purchase of your Contract and may receive a portion of the MIAA expense charge charged to your Contract, there is a potential for a conflict of interest. 47 EXPERTS The consolidated balance sheets of KILICO as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive income (loss), stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2003, are incorporated in this Prospectus by reference to the Statement of Additional Information. The statements of assets, liabilities and contract owners' equity of the KILICO Variable Annuity Separate Account as of December 31, 2003, and the related statements of operations and changes in contract owners' equity for the periods indicated, are incorporated in this Prospectus by reference to the Statement of Additional Information. Both documents have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting. 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 Debra P. Rezabek, our Vice President, General Counsel and Corporate Secretary. Jorden Burt LLP, Washington, D.C., has advised us on certain legal matters concerning federal securities laws applicable to the issue and sale of the Contracts. 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 advisor regarding the tax consequences, as an assignment may be a taxable event. AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934 and file reports and other information with the SEC. These reports and other information can be inspected and copied at the SEC's public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington, D.C. and 500 West Madison, Suite 1400, Northwestern Atrium Center, Chicago, Illinois. Copies also can be obtained from the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or at the SEC's Web Site (http://www.sec.gov). We have filed registration statements (the "Registration Statements") relating to the Contracts with the SEC under the Securities Act of 1933 and the Investment Company Act of 1940. This Prospectus has been filed as part of the Registration Statements and does not contain all of the information set forth in the Registration Statements. These Registration Statements contain further information about us and the Contracts. The Registration Statements may be inspected and copied, and copies can be obtained at prescribed rates, as mentioned above. LEGAL PROCEEDINGS KILICO has been named as defendant in certain lawsuits incidental to our insurance business. Based upon the advice of legal counsel, our management believes that the resolution of these various lawsuits will not result in any material adverse effect on our consolidated financial position. TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information, Table of Contents is: Services to the Separate Account; State Regulation; Experts; Financial Statements; Report of Independent Auditors; Financial Statements of the Separate Account; Report of Independent Auditors; Financial Statements of KILICO; Appendix A State 48 Premium Tax Chart; and Appendix B Condensed Financial Information. The Statement of Additional Information should be read in conjunction with this Prospectus. FINANCIAL STATEMENTS The financial statements of KILICO and the Separate Account are set forth in the Statement of Additional Information. The financial statements of KILICO 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 MAY 1, 2001 THROUGH FEBRUARY 18, 2002 Guaranteed Retirement Income Benefit: General The Guaranteed Retirement Income Benefit ("GRIB") was an optional Contract benefit available under Contracts issued on or after May 1, 2001 and before February 19, 2002. The GRIB rider is not offered on Contracts issued on or after February 19, 2002. We reserve the right to begin offering GRIB at any time. GRIB provides a guaranteed amount of annuity payments for the lifetime of the Annuitant or for a period certain upon annuitization as described below. GRIB may be exercised only within thirty days after a Contract anniversary after the end of your seven or ten year waiting period or after any subsequent Contract anniversary date. The waiting period may not extend beyond the Annuity Date. If you elected the GRIB rider, the charge is 0.40% and 0.30% of the Contract Value, respectively, for the seven and ten year waiting periods. The GRIB rider charge is in addition to the Contract charges and expenses appearing in the "Summary of Expenses". Within 30 days after the second Contract anniversary or any Contract anniversary thereafter, you are permitted to replace your existing GRIB rider with a GRIB rider, if any, then currently being offered by us. The new GRIB benefit and waiting period will begin on the day you elect to replace the existing GRIB rider. You may cancel the GRIB rider at any time by written notice to us. Once cancelled, 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 GRIB. Annuity Payments with GRIB Annuity payments are based on the greater of: (1) the income provided by applying the GRIB base to the guaranteed annuity factors, or (2) the income provided by applying the Contract Value to the current annuity factors. The GRIB base is the greater of (1), (2) or (3) listed below, less Debt: (1) the Contract Value or, if greater, the amount that would have been payable in the event of a full surrender on the date of death; (2) the total amount of Purchase Payments less adjustments for withdrawals accumulated at 5.00% per year to the earlier of the original Annuitant's 85th birthday or the GRIB exercise date, increased by Purchase Payments made from the 85th birthday to the GRIB exercise date and decreased by any adjustments for withdrawals from the 85th birthday to the GRIB exercise date; or (3) the greatest anniversary value immediately preceding the earlier of the original Annuitant's 86th birthday or the GRIB exercise date, increased by Purchase Payments made since the date of the greatest anniversary value and decreased by any adjustments for withdrawals since that date. The anniversary value equals the Contract Value on each Contract anniversary during the Accumulation Period. For joint Annuitants, the age of the older of the original two Annuitants will be used for purposes of (2) and (3) above. 49 An adjustment for a withdrawal is the sum of any amount available as a dollar for dollar reduction, and a proportionate reduction. The maximum dollar for dollar reduction is 5% of the Dollar for Dollar Base, less any prior dollar for dollar withdrawals in the Contract year. The Dollar for Dollar Base is total premiums less withdrawals assessed a withdrawal charge and less any withdrawal charges. A proportionate reduction is applicable when the withdrawal and any withdrawal charges exceed the maximum dollar for dollar reduction. The proportionate reduction is the amount in (2) and/or (3) above, reduced by any dollar for dollar reduction, multiplied by (a) divided by (b), where: (a) is the withdrawal plus any withdrawal charges reduced by any dollar for dollar reduction, and (b) is the Contract Value, adjusted by any Market Value Adjustment, reduced by any dollar for dollar reduction. The guaranteed annuity factors are based on the "1983 Table a" individual Annuity mortality table developed by the Society of Actuaries, projected using Projection Scale G, with interest at 2.5%. However, for GRIB elections, interest at 3.00% is assumed for all years. 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. Since 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, using the joint ages of the Annuitants. If you elect GRIB payable for the life of a single Annuitant, we will guarantee payment for a period certain of 5, 10, 15, or 20 years. If you elect GRIB payable for the lifetimes of two Annuitants, the period certain is 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. When the Annuitant dies, (or in the case of joint Annuitants, when both, have died) we will automatically continue any unpaid installments for the remainder of the elected period certain. However, if the Beneficiary so elects, we will pay a commuted value of the remaining payments. In determining the commuted value, the present value of the remaining payments in the period certain will be calculated based on the applicable interest rate plus an interest rate adjustment factor. The interest rate adjustment factor is equal to the following:
Number of years remaining in the period certain Interest rate Adjustment ------------------------- ------------------------ 15 or more years...... 1.00% 10-14 years........... 1.50% less than 10 years.... 2.00%
The interest rate adjustment factor is a part of the formula we use to determine the present value of the remaining annuity payments under a period certain variable annuity option if you elect to commute such payments under GRIB. 2% is the highest percentage adjustment. The actual rate will depend on the number of years remaining in the period certain. The amount of each payment for purposes of determining the present value of any variable installments will be determined by applying the Annuity Unit value next determined following our receipt of due proof of death. GRIB payments are also available on a quarterly, semi-annual or annual basis. We may make other annuity options available. Commutable Annuity Payments . If you exercise the GRIB option, you may elect partial lump sum payments during the Annuity Period. . 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, 20 or 25 year certain period that applies to the payout. 50 . Lump sum payments are available once in each Contract year and may not be elected until one year after you elect to exercise GRIB. . You 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 payee 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 Contracts, the sum of these percentages over the life of the Contract cannot exceed 75%. For Qualified 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 of 3% plus an interest rate adjustment. The interest rate adjustment is equal to the following:
Number of years remaining Interest rate in the period certain Adjustment ------------------------- ------------- 15 or more years...... 1.00% 10-14 years........... 1.50% Less than 10 years.... 2.00%
The interest rate adjustment factor is a part of the formula we use to determine the present value of the remaining annuity payments under a period certain variable annuity option if you elect to commute such payments under GRIB. 2% is the highest percentage adjustment. The actual rate will depend on the number of years remaining in the period certain. The amount of each payment for purposes of determining the present value of any variable installments will be determined by applying the Annuity Unit value next determined following our receipt of your request for commutation. ANNUAL REPORTS AND OTHER DOCUMENTS KILICO's annual report on Form 10-K for the year ended December 31, 2003 is incorporated herein by reference, which means that it is legally a part of this Prospectus. After the date of this Prospectus and before we terminate the offering of the securities under this Prospectus, all documents or reports we file with the SEC under the Securities Exchange Act of 1934 are also incorporated herein by reference, which means that they also legally become a part of this Prospectus. Statements in this Prospectus, or in documents that we file later with the SEC and that legally become a part of this Prospectus, may change or supersede statements in other documents that are legally part of this Prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this Prospectus. We file our documents and reports under the Securities Exchange Act of 1934, including our annual and quarterly reports on Form 10-K and Form 10-Q, electronically on the SEC's "EDGAR" system using the identifying number CIK No.0000353448. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. You also can view these materials at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of the SEC's Public Reference Room, call 1-800-SEC-0330. If you have received a copy of this Prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at Kemper Investors Life Insurance Company, 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 or 1-888-477-9700. 51 APPENDIX A ILLUSTRATION OF A MARKET VALUE ADJUSTMENT Purchase Payment.......... $40,000 Guarantee Period.......... 5 Years Guaranteed Interest Rate.. 5% Annual Effective Rate The following examples illustrate how the Market Value Adjustment may affect the values of a Contract upon a withdrawal. The 5% assumed Guaranteed Interest Rate is the rate required to be used in the "Summary of Expenses." In these examples, the withdrawal occurs one year after the Date of Issue. The Market Value Adjustment operates in a similar manner for transfers. The Guarantee Period Value for this $40,000 Purchase Payment is $51,051.26 at the end of the five-year Guarantee Period. After one year, when the 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. The Market Value Adjustment will be based on the rate we are then crediting (at the time of the withdrawal) on new Contracts with the same Guarantee Period as 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. Example of a Downward Market Value Adjustment A downward Market Value Adjustment results from a full or partial withdrawal that occurs when interest rates have increased. Assume interest rates have increased one year after the Purchase Payment and we are then crediting 6.5% for a four-year Guarantee Period. Upon a full withdrawal, the market value adjustment factor would be: .054 = .075 X 48 X (.065 -.05) The Market Value Adjustment is a reduction of $2,268.00 from the Guarantee Period Value: 2,268.00 = .054 X 42,000.00 The Market Adjusted Value would be: $39,732.00 = $42,000.00 -$2,268.00 If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn (partial withdrawal of 50%), the Market Value Adjustment would be 50% of that of the full withdrawal: $1,134.00 = .054 X $21,000.00 The Market Adjusted Value would be: $19,866.00 = $21,000.00-$1,134.00 Example 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: -.036 = .075 X 48 X (.04 -.05) The Market Value Adjustment is an increase of $1,512.00 to the Guarantee Period Value: -$1,512.00 = $42,000.00 X -.036 52 The Market Adjusted Value would be: $43,512.00 = $42,000.00 - (-$1,512.00) If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn (partial withdrawal of 50%), the Market Value Adjustment would be: -$756.00 = $21,000.00 X -.036 The Market Adjusted Value of $21,000.00 would be: $21,756.00 = $21,000.00 + $756.00 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. 53 APPENDIX B KEMPER INVESTORS 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 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 or Roth IRA, whichever is applicable. A. REVOCATION Within 7 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 Kemper Investors Life Insurance Company, 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801, or call 1-888-477-9700. 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. B. STATUTORY REQUIREMENTS This Contract is intended to meet the requirements of Section 408(b) of the Internal Revenue Code (Code), 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 not 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. 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"). However, 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. If you die 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 by December 31 of the calendar year containing the fifth anniversary of your death; except that: (1) if the interest is payable to 54 an individual who is your designated beneficiary (within the meaning of Section 401(a)(9) of the Code), the designated beneficiary may elect to receive the entire interest 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; and (2) if the sole designated beneficiary is your spouse, the Contract will be treated as his or her own IRA, or, where applicable, Roth IRA. 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. C. 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. 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. 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. D. 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, or (2) the maximum annual contributions under Section 219(b) of the Code, including "catch-up" contributions for certain individuals age 50 and older. The maximum annual contribution limit for IRA contributions is equal to $3,000 for 2002 through 2004, $4,000 for 2005 through 2007, and $5,000 for 2008. After 2008, the limit is 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 $500 for 2002 through 2005, and $1,000 for 2006 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 is compensation. If you are an active partner in a partnership and provide services to the partnership, your share 55 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 is 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 $6,000 for the year. 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 participants 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: Joint Returns
Taxable year beginning in: Phase-out range -------------------------- ---------------- 2003................... $60,000-$ 70,000 2004................... $65,000-$ 75,000 2005................... $70,000-$ 80,000 2006................... $75,000-$ 85,000 2007 and thereafter.... $80,000-$100,000
Single Taxpayers
Taxable year beginning in: Phase-out range -------------------------- --------------- 2003................... $40,000-$50,000 2004................... $45,000-$55,000 2005 and thereafter.... $50,000-$60,000
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 $150,000 and $160,000. 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. 56 7. For tax years beginning before January 1, 2007, a taxpayer may qualify for a tax credit for contributions to an IRA, depending on the taxpayer's adjusted gross income. E. 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 $40,000 (indexed for cost-of-living increases beginning after 2002) or 25% of compensation. 2. A SEP must be established and maintained by an employer (corporation, partnership, sole proprietor). F. 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 $8,000 for 2003, $9,000 for 2004, and $10,000 for 2005. After 2005, the limit is indexed annually, 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 $200,000 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 has passed since the individual first participated in the plan, the individual may treat the SIMPLE IRA as an IRA. G. 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. H. 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 70 1/2 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. 57 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. I. ROTH IRAs 1. If your Contract is a special type of individual retirement plan known as 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. We reserve 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. J. 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, or (2) the maximum annual contributions under Section 219(b) of the Code, including "catch-up" 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: (a) the excess of (i) your adjusted gross income for the taxable year, over (ii) the "applicable dollar amount", bears to (b) $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 $150,000 for a married individual filing a joint return, $0 for a married individual filing a separate return, and $95,000 for any other individual. 58 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. K. 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, 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. You may not make a qualified rollover contribution or transfer in a taxable year from an IRA to a Roth IRA if (a) your adjusted gross income for the taxable year exceeds $100,000 or (b) you are married and file a separate return. 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 percent 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. The conversion of an IRA to a Roth IRA is treated as a special type of qualified rollover contribution. Hence, you must be eligible to make a qualified rollover contribution in order to convert an IRA to a Roth IRA. A conversion typically will result in the inclusion of some or all of your IRA's value in gross income, as described above. 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. 59 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. L. 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 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. 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. M. 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. N. 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 2 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; 60 2. To a distribution which 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 which 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 which is used for qualified first-time homebuyer expenses, qualified high education expenses, certain medical expenses, or by an unemployed individual to pay health insurance premiums. O. IRA 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, Roth IRA or SIMPLE IRA excise taxes, you do not need Form 5329. Further information can be obtained from any district office of the Internal Revenue Service. P. 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.) Q. REPORTING We will provide you with any reports required by the Internal Revenue Service. R. ESTATE TAX Generally, the value of your IRA, including your Roth IRA, is included in your gross estate for federal estate tax purposes. S. FINANCIAL DISCLOSURE FOR THE SEPARATE ACCOUNT (VARIABLE ACCOUNT) AND MVA OPTION. 1. If on the enrollment application you indicated an allocation to a Subaccount, this Contract will be assessed a daily charge of an amount which will equal an aggregate of 1.25% per annum and the charge for any optional benefit you elected. 2. An annual records maintenance charge of $30.00 will be assessed against the Separate Account Value each Contract Year. If no values are in the Subaccounts, the charge will be assessed against Guarantee Period Value. 3. Withdrawal and early annuitization charges will be assessed based on the Contract Years elapsed since the Contract was issued as described in the prospectus under the heading "Withdrawal Charge." Withdrawals, transfers and early annuitizations of Guarantee Period Value may be subject to a Market Value Adjustment as described in the prospectus under the heading "Market Value Adjustment." 4. The method used to compute and allocate the annual earnings is contained in the prospectus under the heading "Accumulation Unit Value" for Separate Account Value and under the headings "Guarantee Periods of the MVA Option" and "Establishment of Guaranteed Interest Rates" for Guarantee Period Value. 5. The growth in value of your Contract is neither guaranteed nor projected but is based on the investment experience of the Subaccounts or rates of interest as declared by Kemper Investors Life Insurance Company. 61 STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2004 - -------------------------------------------------------------------------------- INDIVIDUAL AND GROUP VARIABLE AND MARKET VALUE ADJUSTED DEFERRED ANNUITY CONTRACTS - -------------------------------------------------------------------------------- ZURICH PREFERRED Issued By KILICO Variable Annuity Separate Account and KEMPER INVESTORS LIFE INSURANCE COMPANY HOME OFFICE: 1400 American Lane, Schaumburg, Illinois 60196(847)605-6120 This Statement of Additional Information is not a prospectus. This Statement of Additional Information should be read in conjunction with the Prospectus of the Separate Account dated May 1, 2004. The Prospectus may be obtained from Kemper Investors Life Insurance Company by writing to us at 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 or calling us at 1-888-477-9700. TABLE OF CONTENTS
Page ---- Services to the Separate Account......................................... 1 State Regulation......................................................... 2 Experts.................................................................. 2 Financial Statements..................................................... 2 Report of Independent Auditors........................................... 4 Financial Statements of the Separate Account............................. 5 Report of Independent Auditors .......................................... 62 Financial Statements of KILICO........................................... 63 Appendix A State Premium Tax Chart....................................... A-1 Appendix B Condensed Financial Information............................... B-1
SERVICES TO THE SEPARATE ACCOUNT Record Keeper and Independent Public Accountants for the KILICO Variable Annuity Separate Account Kemper Investors Life Insurance Company ("KILICO") maintains the books and records of the KILICO Variable Annuity Separate Account (the "Separate Account"). KILICO holds the assets of the Separate Account. The assets are kept segregated and held separate and apart from the general funds of KILICO. KILICO maintains records of all purchases and redemptions of shares of each Fund by each of the Subaccounts. All expenses incurred in the operations of the Separate Account, except the charge for mortality and expense risk and administrative expenses, and records maintenance charge (as described in the Prospectus) are borne by KILICO. Effective September 3, 2003, KILICO 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 KILICO entered into a coinsurance agreement under which FKLA administers and 100% reinsures certain lines of business currently underwritten by KILICO, including the Contracts. The coinsurance agreement does not change KILICO's obligations to Contractholders under the Contracts and does not create any obligations for FKLA to Contractholders under the Contracts. The issuer, benefits and provisions of the Contract were not changed by any of the transactions described above. The independent accountants for the Separate Account are PricewaterhouseCoopers LLP, Chicago, Illinois, for the years ended December 31, 2003, 2002 and 2001. The firm performed the annual audit of the financial statements of the Separate Account and KILICO for the years ended December 31, 2003, 2002 and 2001. The Contracts are sold by licensed insurance agents, where the Contracts may be lawfully sold, who are registered representatives of broker-dealers which are registered under the Securities Exchange Act of 1934 and are members of the National Association of Securities Dealers, Inc. The Contracts are distributed through the principal underwriter for the Separate Account, Investors Brokerage Services, Inc. ("IBS"), which enters into selling group agreements with the affiliated and unaffiliated broker-dealers. Subject to the provisions of the Contracts, units of the Subaccounts under the Contract are offered on a continuous basis. KILICO pays commissions to the selling broker-dealer which may vary but are not anticipated to exceed in the aggregate an amount equal to 6.25% of Purchase Payments. During 2003 and 2002, KILICO paid gross commissions of approximately $123 thousand and $140 thousand, respectively, to licensed insurance agents. STATE REGULATION KILICO 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. KILICO'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. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, KILICO is subject to regulation under the insurance laws of other jurisdictions in which it may operate. EXPERTS The consolidated balance sheets of KILICO as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive income (loss), stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2003, and the statements of assets, liabilities and contract owners' equity of the KILICO Variable Annuity Separate Account as of December 31, 2003, and the related statements of operations and changes in contract owners' equity for the periods indicated, have been included herein in reliance on the reports of PricewaterhouseCoopers LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting. FINANCIAL STATEMENTS This Statement of Additional Information contains financial statements for KILICO and the Separate Account. The financial statements of KILICO 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 reflect assets attributable to other variable annuity contracts offered by KILICO through the Separate Account. Effective as of September 3, 2003, FKLA administers and 100% reinsures the Contracts pursuant to a coinsurance agreement entered into with KILICO. Pursuant to the coinsurance agreement, KILICO transferred certain of its assets to FKLA. This Statement of Additional Information also contains an unaudited pro forma condensed consolidated income statement for KILICO and subsidiaries for the year ending December 31, 2003 to show how the coinsurance agreement might have affected the historical financial statements if the coinsurance agreement had been in effect during the applicable period. Kemper Investors Life Insurance Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Income Statement (in thousands) Year Ended December 31, 2003
December 31, 2003 Ceded Transfer of Assumed December 31, 2003 As Reported Reinsurance (1) Subsidiaries (2) Reinsurance (3) Pro Forma ----------------- --------------- ---------------- --------------- ----------------- REVENUE Net investment income $ 162,749 $ (122,725) $ (2,778) $ - $ 37,246 Realized capital gains (losses) 84,632 (83,318) 390 - 1,704 Premium income (1,072) 1,177 (105) - - Separate account fees and charges 83,364 (27,114) - - 56,250 Broker / dealer commission revenue 18,671 - (18,671) - - Other income 7,942 (3,409) (3,433) 7,387 8,487 ----------------- --------------- ---------------- --------------- ----------------- Total revenue 356,286 (235,389) (24,597) 7,387 103,687 ----------------- --------------- ---------------- --------------- ----------------- BENEFITS AND EXPENSES Interest credited to policyholders 114,885 (101,085) (367) - 13,433 Claims incurred and other benefits 13,562 (4,323) (49) - 9,190 Taxes, licenses and fees (1,832) (500) (200) - (2,532) Commissions 45,049 (25,325) (1,060) - 18,664 Broker / dealer commission expense 18,646 - (18,646) - - Operating expenses 31,079 (15,238) (4,003) - 11,838 Deferral of insurance acquisition costs (49,673) 27,608 1,535 - (20,530) Amortization of insurance acquisition costs 151,746 (108,109) (16) - 43,621 Amortization of value of business acquired 56,828 (56,828) - - - Amortization of goodwill 0 - - - - Amortization of other intangibles acquired 506 (506) - - - ----------------- --------------- ---------------- --------------- ----------------- Total benefits and expenses 380,796 (284,306) (22,806) 0 73,684 ----------------- --------------- ---------------- --------------- ----------------- ----------------- --------------- ---------------- --------------- ----------------- Income before income tax expense (24,510) 48,917 (1,791) 7,387 30,003 ----------------- --------------- ---------------- --------------- ----------------- Income tax expense (benefit) (15,323) 23,754 (289) 4,143 12,285 ----------------- --------------- ---------------- --------------- ----------------- Net income $ (9,187) $ 25,163 $ (1,502) $ 3,244 $ 17,718 ================= =============== ================ =============== =================
Kemper Investors Life Insurance Company and Subsidiaries Notes to Unaudited Proforma Condensed Consolidated Financial Statements (1) The amounts presented reflect the effect of the Coinsurance Agreement transaction with FKLA and represents the impact on income and expense related to the transferred reinsured assets and liabilities. (2) Represents the transfer of the KILICO's subsidiaries to FKLA per the Coinsurance Agreement. (3) The amounts presented reflect the effect of the Modified Coninsurance Agreement with Farmers New World Life Insurance Company, a Washington Corporation ("FNWL") an affiliated company. 3 Report of Independent Auditors To the Board of Directors and Stockholder of Kemper Investors Life Insurance Company and Contract Owners of the KILICO Variable Annuity Separate Account: In our opinion, the accompanying statement of assets, liabilities and contract owners' equity and the related statement of operations and changes in contract owners' equity present fairly, in all material respects, the financial position of the subaccounts of the KILICO Variable Annuity Separate Account (which includes the following subaccounts: Alger American Balanced, Alger American Growth, Alger American Leveraged AllCap, Alger American MidCap Growth, Alger American Small Capitalization, American Century VP Income & Growth, American Century VP Value, Credit Suisse Trust Emerging Markets, Credit Suisse Trust Global Post-Venture Capital, Dreyfus I.P. MidCap Stock, Dreyfus Socially Responsible Growth, Dreyfus VIF Small Company Stock, Fidelity VIP Asset Manager, Fidelity VIP Contrafund, Fidelity VIP Equity Income, Fidelity VIP Growth, Fidelity VIP Index 500, Franklin Rising Dividends Securities, Franklin Small Cap Value Securities, Franklin Strategic Income Securities, Franklin U.S. Government, Franklin Zero Coupon 2010, Mutual Discovery Securities, Mutual Shares Securities, Templeton Developing Markets Securities, ING VP Emerging Markets, ING VP Natural Resources Trust, INVESCO VIF - Financial Services, INVESCO VIF - Health Sciences, INVESCO VIF - Real Estate Opportunity, INVESCO VIF - Utilities, JPMorgan International Opportunities, JPMorgan MidCap Value, JPMorgan Small Company, Janus Aspen Balanced, Janus Aspen Capital Appreciation, Janus Aspen Growth, Janus Aspen Growth and Income, Janus Aspen Mid Cap Growth, Janus Aspen Worldwide Growth, Janus Aspen Mid Cap Value (Perkins), Janus Aspen Small Cap Value (Bay Isle), Oppenheimer Aggressive Growth, Oppenheimer Capital Appreciation, Oppenheimer Global Securities, Oppenheimer High Income, Oppenheimer Main Street, Oppenheimer Main Street Small Cap, Oppenheimer Strategic Bond, PIMCO Foreign Bond, PIMCO Low Duration, Scudder 21/st/ Century Growth, Scudder Bond, Scudder Capital Growth, Scudder Global Discovery, Scudder Growth and Income, Scudder Health Sciences, Scudder International, Scudder Money Market (Scudder Variable Series I), Scudder Aggressive Growth, Scudder Blue Chip, Scudder Contrarian Value, Scudder Fixed Income, Scudder Global Blue Chip, Scudder Government Securities, Scudder Growth, Scudder High Income, Scudder International Select Equity, Scudder Money Market (Scudder Variable Series II), Scudder New Europe, Scudder Small Cap Growth, Scudder Strategic Income, Scudder Technology Growth, Scudder Total Return, SVS Davis Venture Value, SVS Dreman Financial Services, SVS Dreman High Return Equity, SVS Dreman Small Cap Value, SVS Eagle Focused Large Cap Growth, SVS Focus Value + Growth, SVS Index 500, SVS INVESCO Dynamic Growth, SVS Janus Growth and Income, SVS Janus Growth Opportunities, SVS MFS Strategic Value, SVS Oak Strategic Equity, SVS Turner Mid Cap Growth and Scudder Real Estate Securities, at December 31, 2003 and the results of each of their operations and the changes in each of their contract owners' equity for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Kemper Investors Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of portfolio shares owned at December 31, 2003 with the underlying funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Chicago, Illinois March 4, 2004 4 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
American Century Dreyfus Variable Investment The Alger American Fund Portfolios, Inc. Credit Suisse Trust Portfolios ------------------------------------------------------ --------------------- --------------------- ---------- Credit Suisse Alger Credit Trust Alger Alger American American Suisse Global Dreyfus Alger Alger American American Small Century VP American Trust Post- I.P. American American Leveraged MidCap Capitali- Income & Century Emerging Venture MidCap Balanced Growth AllCap Growth zation Growth VP Value Markets Capital Stock Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------ --------------------- --------------------- ---------- ASSETS Investments in underlying portfolio funds, at current market value $ 110,755 23,931 70,229 23,627 6,879 27,249 32,639 31,302 17,881 144,655 Dividends and other receivables -- -- -- 2 1 -- -- -- -- -- ------------------------------------------------------ --------------------- --------------------- ---------- Total assets 110,755 23,931 70,229 23,629 6,880 27,249 32,639 31,302 17,881 144,655 LIABILITIES AND CON- TRACT OWNERS' EQUITY Liabilities - other payables -- -- -- -- -- -- 13 -- -- 6 ------------------------------------------------------ --------------------- --------------------- ---------- Contract owners' equity $ 110,755 23,931 70,229 23,629 6,880 27,249 32,626 31,302 17,881 144,649 ====================================================== ===================== ===================== ========== Accumulation period $ 110,687 23,908 70,226 23,629 6,861 27,233 32,584 31,290 17,881 144,536 Annuity period 68 22 3 -- 19 16 42 12 -- 113 ------------------------------------------------------ --------------------- --------------------- ---------- Total Contract Owners' Equity $ 110,755 23,931 70,229 23,629 6,880 27,249 32,626 31,302 17,881 144,649 ====================================================== ===================== ===================== ========== Units Outstanding 10,651 536 10,008 825 266 4,229 3,906 2,964 2,144 11,521 ====================================================== ===================== ===================== ==========
See accompanying notes to financial statements 5 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
The Dreyfus Socially Respon- Dreyfus sible Variable Growth Investment Franklin Templeton Variable Fund, Inc. Fund Fidelity Variable Insurance Products Fund Insurance Products Trust --------------------- ------------------------------------------------------ -------------------------------- Dreyfus Socially Dreyfus Fidelity Fidelity Franklin Franklin Franklin Respon- VIF Small VIP Fidelity VIP Fidelity Fidelity Rising Small Strategic sible Company Asset VIP Equity VIP VIP Dividends Cap Value Income Growth Stock Manager Contrafund Income Growth Index 500 Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount --------------------- ------------------------------------------------------ -------------------------------- ASSETS Investments in underlying portfolio funds, at current market value 14,313 272 9,958 71,994 66,640 65,681 115,585 2,782 376 1,571 Dividends and other receivables -- -- -- 76 -- -- 2 1 -- -- --------------------- ------------------------------------------------------ -------------------------------- Total assets 14,313 272 9,958 72,070 66,640 65,681 115,587 2,783 376 1,571 LIABILITIES AND CON- TRACT OWNERS' EQUITY Liabilities - other payables -- -- -- 13 12 -- -- -- -- -- --------------------- ------------------------------------------------------ -------------------------------- Contract owners' equity 14,313 272 9,958 72,057 66,628 65,681 115,587 2,783 376 1,571 ===================== ====================================================== ================================ Accumulation period 14,301 272 9,688 71,876 66,561 65,619 115,203 2,783 376 1,571 Annuity period 12 -- 270 181 67 62 384 -- -- -- --------------------- ------------------------------------------------------ -------------------------------- Total Contract Owners' Equity 14,313 272 9,958 72,057 66,628 65,681 115,587 2,783 376 1,571 ===================== ====================================================== ================================ Units Outstanding 1,698 20 424 2,537 2,149 1,497 879 229 28 144 ===================== ====================================================== ================================
See accompanying notes to financial statements 6 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
ING VP ING VP Emerging Natural Markets Resources INVESCO Variable Investment Franklin Templeton Variable Insurance Products Trust Fund, Inc. Trust Funds, Inc. ------------------------------------------------------ ---------- ---------- -------------------------------- INVESCO Franklin Templeton ING VP INVESCO VIF-Real Franklin Zero Mutual Mutual Developing ING VP Natural VIF- INVESCO Estate U.S. Coupon Discovery Shares Markets Emerging Resources Financials VIF-Health Opportu- Government 2010 Securities Securities Securities Markets Trust Services Sciences nity Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------ ---------- ---------- -------------------------------- ASSETS Investments in underlying portfolio funds, at current market value 11,628 10,535 1,447 911 1,177 7,287 3,684 511 1,058 1,288 Dividends and other receivables -- -- -- -- -- -- -- -- -- -- --------------------- -------------------------------- ---------- ---------- -------------------------------- Total assets 11,628 10,535 1,447 911 1,177 7,287 3,684 511 1,058 1,288 LIABILITIES AND CON- TRACT OWNERS' EQUITY Liabilities - other payables -- -- -- -- -- -- -- -- -- -- --------------------- -------------------------------- ---------- ---------- -------------------------------- Contract owners' equity 11,628 10,535 1,447 911 1,177 7,287 3,684 511 1,058 1,288 ===================== ================================ ========== ========== ================================ Accumulation period 11,628 10,535 1,447 911 1,177 7,243 3,684 511 1,058 1,288 Annuity period -- -- -- -- -- 44 -- -- -- -- --------------------- -------------------------------- ---------- ---------- -------------------------------- Total Contract Owners' Equity 11,628 10,535 1,447 911 1,177 7,287 3,684 511 1,058 1,288 ===================== ================================ ========== ========== ================================ Units Outstanding 1,163 1,056 117 76 82 773 228 42 89 98 ===================== ================================ ========== ========== ================================
See accompanying notes to financial statements 7 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
INVESCO Variable Investment Funds, Inc. J.P. Morgan Series Trust II Janus Aspen Series ---------- -------------------------------- ----------------------------------------------------------------- JPMorgan Janus Inter- Aspen Janus Janus Janus INVESCO national JPMorgan JPMorgan Janus Capital Janus Aspen Aspen Aspen VIF- Opportu- MidCap Small Aspen Apprecia- Aspen Growth and Mid Cap Worldwide Utilities nities Value Company Balanced tion Growth Income Growth Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- -------------------------------- ----------------------------------------------------------------- ASSETS Investments in underlying portfolio funds, at current market value 12,532 18,835 1,322 9,962 139,284 1,562 84,389 -- 62,097 136,087 Dividends and other receivables -- -- -- -- -- -- 1 -- -- 2 ---------- ---------- --------------------- ----------------------------------------------------------------- Total assets 12,532 18,835 1,322 9,962 139,284 1,562 84,390 -- 62,097 136,089 LIABILITIES AND CON- TRACT OWNERS' EQUITY Liabilities - other payables -- -- -- 1 -- -- 11 -- -- -- ---------- ---------- --------------------- ----------------------------------------------------------------- Contract owners' equity 12,532 18,835 1,322 9,961 139,284 1,562 84,379 -- 62,097 136,089 ========== ========== ===================== ================================================================= Accumulation period 12,532 18,835 1,322 9,952 138,224 1,562 84,221 -- 62,052 135,788 Annuity period -- -- -- 9 1,060 -- 158 -- 45 301 ---------- ---------- --------------------- ----------------------------------------------------------------- Total Contract Owners' Equity 12,532 18,835 1,322 9,961 139,284 1,562 84,379 -- 62,097 136,089 ========== ========== ===================== ================================================================= Units Outstanding 2,012 1,420 107 719 4,946 187 3,904 -- 2,722 4,891 ========== ========== ===================== =================================================================
See accompanying notes to financial statements 8 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
PIMCO Variable Insurance Janus Aspen Series Oppenheimer Variable Account Funds Trust --------------------- ---------------------------------------------------------------------------- ---------- Janus Oppen- Oppen- Janus Aspen Oppen- heimer Oppen- Oppen- Oppen- heimer Oppen- Aspen Mid Small Cap heimer Capital heimer heimer heimer Main heimer PIMCO Cap Value Value Aggressive Appreci- Global High Main Street Strategic Foreign (Perkins) (Bay Isle) Growth ation Securities Income Street Small Cap Bond Bond Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount --------------------- ---------------------------------------------------------------------------- ---------- ASSETS Investments in underlying portfolio funds, at current market value 395 916 292 1,571 7,318 785 1,435 3,309 1,370 220 Dividends and other receivables -- -- -- -- -- -- -- -- -- -- --------------------- ------------------------------------------------------ --------------------- ---------- Total assets 395 916 292 1,571 7,318 785 1,435 3,309 1,370 220 LIABILITIES AND CON- TRACT OWNERS' EQUITY Liabilities - other payables -- -- -- -- -- -- -- -- -- -- --------------------- ------------------------------------------------------ --------------------- ---------- Contract owners' equity 395 916 292 1,571 7,318 785 1,435 3,309 1,370 220 ===================== ====================================================== ===================== ========== Accumulation period 395 916 292 1,571 7,318 785 1,435 3,309 1,370 220 Annuity period -- -- -- -- -- -- -- -- -- -- --------------------- ------------------------------------------------------ --------------------- ---------- Total Contract Owners' Equity 395 916 292 1,571 7,318 785 1,435 3,309 1,370 220 ===================== ====================================================== ===================== ========== Units Outstanding 29 68 24 127 517 71 119 241 127 18 ===================== ====================================================== ===================== ==========
See accompanying notes to financial statements 9 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
PIMCO Variable Scudder Insurance Variable Trust Scudder Variable Series I Series II ---------- --------------------------------------------------------------------------------------- ---------- Scudder 21st Scudder Scudder Scudder Scudder Scudder Scudder Scudder PIMCO Low Century Scudder Capital Global Growth Health Inter- Money Aggressive Duration Growth Bond Growth Discovery and Income Sciences national Market Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- --------------------------------------------------------------------------------------- ---------- ASSETS Investments in underlying portfolio funds, at current market value 214 28,050 8,499 49,512 98,017 46,914 74,488 92,296 133 35,502 Dividends and other receivables -- -- -- -- -- -- -- 3 -- 1 ---------- --------------------------------------------------------------------------------------- ---------- Total assets 214 28,050 8,499 49,512 98,017 46,914 74,488 92,299 133 35,503 LIABILITIES AND CONTRACT OWNERS' EQUITY Liabilities - other payables -- -- -- -- -- -- -- -- -- -- ---------- --------------------------------------------------------------------------------------- ---------- Contract owners' equity 214 28,050 8,499 49,512 98,017 46,914 74,488 92,299 133 35,503 ========== ======================================================================================= ========== Accumulation period 214 28,050 8,499 49,507 97,996 46,914 74,488 92,200 133 35,501 Annuity period -- -- -- 5 21 -- -- 99 -- 2 ---------- --------------------------------------------------------------------------------------- ---------- Total Contract Owners' Equity 214 28,050 8,499 49,512 98,017 46,914 74,488 92,299 133 35,503 ========== ======================================================================================= ========== Units Outstanding 18 6,040 1,053 5,444 7,393 5,799 7,059 11,326 12 3,915 ========== ======================================================================================= ==========
See accompanying notes to financial statements 10 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
Scudder Variable Series II ------------------------------------------------------------------------------------------------------------- Scudder Inter- Scudder Scudder Scudder Scudder Scudder national Scudder Scudder Scudder Contrarian Fixed Global Government Scudder High Select Money Small Blue Chip Value Income Blue Chip Securities Growth Income Equity Market Cap Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------------------- ASSETS Investments in underlying portfolio funds, at current market value 137,124 149,049 98,750 30,965 163,000 239,672 235,033 96,753 181,839 141,227 Dividends and other receivables 3 5 3 -- -- 13 -- -- 134 -- ------------------------------------------------------------------------------------------------------------- Total assets 137,127 149,054 98,753 30,965 163,000 239,685 235,033 96,753 181,973 141,227 LIABILITIES AND CONTRACT OWNERS' EQUITY Liabilities - other payables -- -- 6 -- -- -- 3 -- -- 11 ------------------------------------------------------------------------------------------------------------- Contract owner's equity 137,127 149,054 98,747 30,965 163,000 239,685 235,030 96,753 181,973 141,216 ============================================================================================================= Accumulation period 136,960 148,736 98,495 30,961 162,203 238,008 233,502 96,449 180,690 141,049 Annuity period 167 318 252 4 797 1,677 1,528 304 1,283 167 ------------------------------------------------------------------------------------------------------------- Total Contract Owner's Equity 137,127 149,054 98,747 30,965 163,000 239,685 235,030 96,753 181,973 141,216 ============================================================================================================= Units Outstanding 18,296 32,630 16,883 2,918 37,820 53,620 40,437 33,625 34,208 44,561 =============================================================================================================
See accompanying notes to financial statements 11 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
Scudder Variable Series II ------------------------------------------------------------------------------------------------------------- SVS Dreman SVS Eagle Scudder Scudder Scudder SVS Davis SVS Dreman High SVS Dreman Focused SVS Focus Strategic Technology Total Venture Financial Return Small Cap Large Value + SVS Income Growth Return Value Services Equity Value Cap Growth Growth Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------------------------------------- ASSETS Investments in underlying portfolio funds, at current market value 28,082 153,806 440,915 161,895 72,507 435,252 222,553 59,386 53,599 203,543 Dividends and other receivables -- -- -- -- -- -- -- -- -- 1 ------------------------------------------------------------------------------------------------------------- Total assets 28,082 153,806 440,915 161,895 72,507 435,252 222,553 59,386 53,599 203,544 LIABILITIES AND CONTRACT OWNERS' EQUITY Liabilities - other payables -- 5 68 -- -- 2 2 -- -- -- ------------------------------------------------------------------------------------------------------------- Contract owners' equity 28,082 153,801 440,847 161,895 72,507 435,250 222,551 59,386 53,599 203,544 ============================================================================================================= Accumulation period 28,041 153,738 437,103 161,817 72,478 434,958 222,313 59,386 53,330 203,534 Annuity period 41 63 3,744 78 29 292 238 -- 269 10 ------------------------------------------------------------------------------------------------------------- Total Contract Owners' Equity 28,082 153,801 440,847 161,895 72,507 435,250 222,551 59,386 53,599 203,544 ============================================================================================================= Units Outstanding 2,474 25,760 74,476 16,169 5,779 34,882 39,751 7,149 14,973 25,469 =============================================================================================================
See accompanying notes to financial statements 12 KILICO Variable Annuity Separate Account Statement of Assets, Liabilities and Contract Owners' Equity December 31, 2003 (in thousands)
Scudder Invest- ments VIT Scudder Variable Series II Funds ----------------------------------------------------------------- ---------- SVS SVS Janus Scudder INVESCO SVS Janus Growth SVS MFS SVS Oak SVS Real Dynamic Growth and Oppor- Strategic Strategic Turner Mid Estate Growth Income tunities Value Equity Cap Growth Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------- ---------- ASSETS Investments in underlying portfolio funds, at current market value 26,296 128,067 90,168 28 60,811 85,147 16 Dividends and other receivables -- -- -- -- -- -- -- ----------------------------------------------------------------- ---------- Total assets 26,296 128,067 90,168 28 60,811 85,147 16 LIABILITIES AND CONTRACT OWNERS' EQUITY Liabilities - other payables -- 5 5 -- -- -- -- ----------------------------------------------------------------- ---------- Contract owners' equity 26,296 128,062 90,163 28 60,811 85,147 16 ================================================================= ========== Accumulation period 26,289 128,008 90,163 28 60,810 85,146 16 Annuity period 7 54 -- -- 1 1 -- ----------------------------------------------------------------- ---------- Total Contract Owners' Equity 26,296 128,062 90,163 28 60,811 85,147 16 ================================================================= ========== Units Outstanding 3,310 17,467 16,951 2 9,193 9,951 1 ================================================================= ==========
See accompanying notes to financial statements 13 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
The Alger American Fund ----------------------------------------------------------------------------- Alger Alger Alger American Alger Alger American American Leveraged American American Small Balanced Growth AllCap MidCap Growth Capitalization Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- REVENUE Dividend income $ 2,062 -- -- -- -- EXPENSES Mortality and expense risk charges 1,380 244 823 187 66 ----------------------------------------------------------------------------- Net investment income (loss) 682 (244) (823) (187) (66) ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (948) (928) (5,832) (179) (41) Change in unrealized appreciation (depreciation) of investments 16,319 6,604 23,082 5,400 1,784 ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 15,371 5,676 17,250 5,221 1,743 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations $ 16,053 5,432 16,427 5,034 1,677 =============================================================================
Dreyfus American Century Variable Investment Portfolios, Inc. Credit Suisse Trust Portfolios ---------------------------- ----------------------------- -------------- American Credit Suisse Credit Suisse Century VP American Trust Trust Global Income & Century Emerging Post-Venture Dreyfus I.P. Growth VP Value Markets Capital MidCap Stock Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------- ----------------------------- -------------- REVENUE Dividend income 218 276 -- -- 344 EXPENSES Mortality and expense risk charges 251 355 311 190 1,602 ---------------------------- ----------------------------- -------------- Net investment income (loss) (33) (79) (311) (190) (1,258) ---------------------------- ----------------------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments 125 (252) (361) (2,766) (261) Change in unrealized appreciation (depreciation) of investments 4,915 7,017 8,715 8,167 32,461 ---------------------------- ----------------------------- -------------- Net realized and unrealized gain (loss) on investments 5,040 6,765 8,354 5,401 32,200 ---------------------------- ----------------------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations 5,007 6,686 8,043 5,211 30,942 ============================ ============================= ==============
See accompanying notes to financial statements 14 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
The Dreyfus Socially Dreyfus Responsible Variable Growth Fund, Investment Inc. Fund Fidelity Variable Insurance Products Fund ---------------------------- ---------------------------------------------- Dreyfus Socially Dreyfus VIF Responsible Small Company Fidelity VIP Fidelity VIP Fidelity VIP Growth Stock Asset Manager Contrafund Equity Income Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------- ---------------------------------------------- REVENUE Dividend income 15 -- 215 269 871 EXPENSES Mortality and expense risk charges 173 1 88 768 681 ---------------------------- ---------------------------------------------- Net investment income (loss) (158) (1) 127 (499) 190 ---------------------------- ---------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (1,362) 1 (74) (162) (1,129) Change in unrealized appreciation (depreciation) of investments 4,352 21 1,022 15,148 14,839 ---------------------------- ---------------------------------------------- Net realized and unrealized gain (loss) on investments 2,990 22 948 14,986 13,710 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 2,832 21 1,075 14,487 13,900 ============================ ==============================================
Fidelity Variable Insurance Franklin Templeton Variable Insurance Products Fund Products Trust ---------------------------- ---------------------------------------------- Franklin Franklin Franklin Rising Small Cap Strategic Fidelity VIP Fidelity VIP Dividends Value Income Growth Index 500 Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------- ---------------------------------------------- REVENUE Dividend income 160 1,426 11 -- 3 EXPENSES Mortality and expense risk charges 757 1,276 8 1 6 ---------------------------- ---------------------------------------------- Net investment income (loss) (597) 150 3 (1) (3) ---------------------------- ---------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (1,933) (3,978) 1 -- 15 Change in unrealized appreciation (depreciation) of investments 18,392 27,567 164 35 62 ---------------------------- ---------------------------------------------- Net realized and unrealized gain (loss) on investments 16,459 23,589 165 35 77 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 15,862 23,739 168 34 74 ============================ ==============================================
See accompanying notes to financial statements 15 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
Franklin Templeton Variable Insurance Products Trust ------------------------------------------------------------------------------ Templeton Mutual Developing Franklin U.S. Franklin Zero Discovery Mutual Shares Markets Government Coupon 2010 Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------------------------ REVENUE Dividend income 3 3 1 1 1 EXPENSES Mortality and expense risk charges 61 55 5 4 4 ------------------------------------------------------------------------------ Net investment income (loss) (58) (52) (4) (3) (3) ------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (2) (5) 2 -- 108 Change in unrealized appreciation (depreciation) of investments 76 (140) 133 81 75 ------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 74 (145) 135 81 183 ------------------------------------------------------------------------------ Net increase (decrease) in contract owners' equity resulting from operations 16 (197) 131 78 180 ==============================================================================
ING VP ING VP Emerging Natural Markets Fund, Resources Inc. Trust INVESCO Variable Investment Funds, Inc. ------------- ------------- ---------------------------------------------- ING VP ING VP Natural INVESCO VIF- INVESCO VIF- INVESCO VIF- Emerging Resources Financials Health Real Estate Markets Trust Services Sciences Opportunity Subaccount Subaccount Subaccount Subaccount Subaccount ------------- ------------- ---------------------------------------------- REVENUE Dividend income -- -- 2 -- 18 EXPENSES Mortality and expense risk charges 73 38 2 4 5 ------------- ------------- ---------------------------------------------- Net investment income (loss) (73) (38) 0 (4) 13 ------------- ------------- ---------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments 171 21 10 2 19 Change in unrealized appreciation (depreciation) of investments 2,092 786 37 86 91 ------------- ------------- ---------------------------------------------- Net realized and unrealized gain (loss) on investments 2,263 807 47 88 110 ------------- ------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 2,190 769 47 84 123 ============= ============= ==============================================
See accompanying notes to financial statements 16 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
INVESCO Variable Investment Funds, Inc. J.P. Morgan Series Trust II ------------ --------------------------------------------- JPMorgan INVESCO VIF- International JPMorgan JPMorgan Utilities Opportunities MidCap Value Small Company Subaccount Subaccount Subaccount Subaccount ------------ --------------------------------------------- REVENUE Dividend income 138 -- -- -- EXPENSES Mortality and expense risk charges 137 81 5 119 ------------ --------------------------------------------- Net investment income (loss) 1 (81) (5) (119) ------------ --------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS Net realized gain (loss) on sale of investments (959) 122 3 (131) Change in unrealized appreciation (depreciation) of investments 2,401 2,872 101 2,804 ------------ --------------------------------------------- Net realized and unrealized gain (loss) on investments 1,442 2,994 104 2,673 ------------ --------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 1,443 2,913 99 2,554 ============ =============================================
Janus Aspen Series -------------------------------------------------------------------------------------------- Janus Aspen Janus Aspen Janus Aspen Janus Aspen Capital Janus Aspen Growth and Janus Aspen Worldwide Balanced Appreciation Growth Income MidCap Growth Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------------- REVENUE Dividend income 3,088 7 69 -- -- 1,436 EXPENSES Mortality and expense risk charges 1,838 20 1,067 105 730 1,680 -------------------------------------------------------------------------------------------- Net investment income (loss) 1,250 (13) (998) (105) (730) (244) -------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS Net realized gain (loss) on sale of investments (1,882) (150) (45,041) (32,978) (3,398) (9,038) Change in unrealized appreciation (depreciation) of investments 17,298 415 63,813 31,001 20,408 35,723 -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 15,416 265 18,772 (1,977) 17,010 26,685 -------------------------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 16,666 252 17,774 (2,082) 16,280 26,441 ============================================================================================
See accompanying notes to financial statements 17 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
Janus Aspen Series Oppenheimer Variable Account Funds ---------------------------- ---------------------------------------------- Janus Aspen Janus Aspen MidCap Small Cap Oppenheimer Oppenheimer Oppenheimer Value Value Aggressive Capital Global (Perkins) (Bay Isle) Growth Appreciation Securities Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------- ---------------------------------------------- REVENUE Dividend income -- -- -- -- -- EXPENSES Mortality and expense risk charges 2 4 1 5 19 ---------------------------- ---------------------------------------------- Net investment income (loss) (2) (4) (1) (5) (19) ---------------------------- ---------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss)on sale of investments 14 10 8 9 21 Change in unrealized appreciation (depreciation) of investments 49 84 4 111 744 ---------------------------- ---------------------------------------------- Net realized and unrealized gain (loss) on investments 63 94 12 120 765 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 61 90 11 115 746 ============================ ==============================================
PIMCO Variable Insurance Oppenheimer Variable Account Funds Trust ------------------------------------------------------------ -------------- Oppenheimer Oppenheimer Oppenheimer Oppenheimer Main Steet Strategic PIMCO Foreign High Income Main Street Small Cap Bond Bond Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ -------------- REVENUE Dividend income -- -- -- -- 6 EXPENSES Mortality and expense risk charges 4 5 13 5 3 ------------------------------------------------------------ -------------- Net investment income (loss) (4) (5) (13) (5) 3 ------------------------------------------------------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss)on sale of investments 8 11 22 2 3 Change in unrealized appreciation (depreciation) of investments 36 107 354 65 (4) ------------------------------------------------------------ -------------- Net realized and unrealized gain (loss) on investments 44 118 376 67 (1) ------------------------------------------------------------ -------------- Net increase (decrease) in contract owners' equity resulting from operations 40 113 363 62 2 ============================================================ ==============
See accompanying notes to financial statements 18 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
PIMCO Variable Insurance Trust Scudder Variable Series I ------------ -------------------------------------------------------------- Scudder 21st Scudder Scudder PIMCO Low Century Capital Global Duration Growth Scudder Bond Growth Discovery Subaccount Subaccount Subaccount Subaccount Subaccount ------------ -------------------------------------------------------------- REVENUE Dividend income 4 -- 769 173 72 EXPENSES Mortality and expense risk charges 3 335 192 578 1,056 ------------ -------------------------------------------------------------- Net investment income (loss) 1 (335) 577 (405) (984) ------------ -------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments 2 (4,525) 350 (4,151) (4,488) Change in unrealized appreciation (depreciation) of investments (2) 11,076 (246) 13,957 35,761 ------------ -------------------------------------------------------------- Net realized and unrealized gain (loss) on investments -- 6,551 104 9,806 31,273 ------------ -------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 1 6,216 681 9,401 30,289 ============ ==============================================================
Scudder Variable Scudder Variable Series I Series II ------------------------------------------------------------ -------------- Scudder Scudder Scudder Scudder Growth Health Inter- Scudder Aggressive and Income Sciences national Money Market Growth Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ -------------- REVENUE Dividend income 415 -- 667 1 -- EXPENSES Mortality and expense risk charges 560 845 1,147 2 431 ------------------------------------------------------------ -------------- Net investment income (loss) (145) (845) (480) (1) (431) ------------------------------------------------------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (1,931) (429) 558 -- (6,481) Change in unrealized appreciation (depreciation) of investments 11,262 18,129 19,746 -- 15,513 ------------------------------------------------------------ -------------- Net realized and unrealized gain (loss) on investments 9,331 17,700 20,304 -- 9,032 ------------------------------------------------------------ -------------- Net increase (decrease) in contract owners' equity resulting from operations 9,186 16,855 19,824 (1) 8,601 ============================================================ ==============
See accompanying notes to financial statements 19 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Contrarian Scudder Global Government Blue Chip Value Fixed Income Blue Chip Securities Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- REVENUE Dividend income 752 2,359 3,666 91 10,737 EXPENSES Mortality and expense risk charges 1,585 1,667 1,445 348 2,867 ----------------------------------------------------------------------------- Net investment income (loss) (833) 692 2,221 (257) 7,870 ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (9,868) (2,020) 1,282 (780) 2,107 Change in unrealized appreciation (depreciation) of investments 41,223 35,593 177 7,467 (8,686) ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 31,355 33,573 1,459 6,687 (6,579) ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 30,522 34,265 3,680 6,430 1,291 =============================================================================
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder Scudder High International Scudder Money Scudder Small Growth Income Select Equity Market Cap Growth Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- REVENUE Dividend income 253 16,705 966 1,881 -- EXPENSES Mortality and expense risk charges 2,872 2,747 1,033 3,306 1,574 ----------------------------------------------------------------------------- Net investment income (loss) (2,619) 13,958 (67) (1,425) (1,574) ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (19,652) (2,693) (3,685) -- (22,937) Change in unrealized appreciation (depreciation) of investments 70,479 31,121 24,271 -- 56,035 ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 50,827 28,428 20,586 -- 33,098 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 48,208 42,386 20,519 (1,425) 31,524 =============================================================================
See accompanying notes to financial statements 20 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder SVS Dreman Strategic Technology Scudder Total SVS Davis Financial Income Growth Return Venture Value Services Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- REVENUE Dividend income 387 -- 13,111 666 905 EXPENSES Mortality and expense risk charges 413 1,767 5,520 1,794 868 ----------------------------------------------------------------------------- Net investment income (loss) (26) (1,767) 7,591 (1,128) 37 ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments 1,842 (93,567) (14,047) (1,332) (266) Change in unrealized appreciation (depreciation) of investments (370) 142,110 70,863 36,038 15,023 ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1,472 48,543 56,816 34,706 14,757 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 1,446 46,776 64,407 33,578 14,794 =============================================================================
Scudder Variable Series II ----------------------------------------------------------------------------- SVS Dreman SVS Dreman SVS Eagle SVS Focus High Return Small Cap Focused Large Value Equity Value Cap Growth + Growth SVS Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- REVENUE Dividend income 7,079 4,217 -- 356 1,833 EXPENSES Mortality and expense risk charges 4,907 2,314 676 595 2,348 ----------------------------------------------------------------------------- Net investment income (loss) 2,172 1,903 (676) (239) (515) ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments 1,483 181 (1,314) (2,905) (8,297) Change in unrealized appreciation (depreciation) of investments 93,967 57,516 12,987 15,291 49,784 ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 95,450 57,697 11,673 12,386 41,487 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 97,622 59,600 10,997 12,147 40,972 =============================================================================
See accompanying notes to financial statements 21 KILICO Variable Annuity Separate Account Statement of Operations For the year ended December 31, 2003 (in thousands)
Scudder Investments Scudder Variable Series II VIT Funds -------------------------------------------------------------------------------------- ------------ SVS INVESCO SVS Janus SVS Janus SVS MFS SVS Oak SVS Scudder Real Dynamic Growth and Growth Strategic Strategic Turner Mid Estate Growth Income Opportunities Value Equity Cap Growth Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------------------------------------------------- ------------ REVENUE Dividend income -- 820 -- -- -- -- -- EXPENSES Mortality and expense risk charges 294 1,610 1,128 -- 607 863 -- -------------------------------------------------------------------------------------- ------------ Net investment income (loss) (294) (790) (1,128) -- (607) (863) -- -------------------------------------------------------------------------------------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of investments (171) (5,392) (11,664) -- (813) (897) -- Change in unrealized appreciation (depreciation) of investments 6,663 30,931 31,165 3 18,035 25,069 1 -------------------------------------------------------------------------------------- ------------ Net realized and unrealized gain (loss) on investments 6,492 25,539 19,501 3 17,222 24,172 1 -------------------------------------------------------------------------------------- ------------ Net increase (decrease) in contract owners' equity resulting from operations 6,198 24,749 18,373 3 16,615 23,309 1 ====================================================================================== ============
See accompanying notes to financial statements 22 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
The Alger American Fund ----------------------------------------------------------------------------- Alger Alger Alger Alger American Alger American American American Leveraged American Small Balanced Growth AllCap MidCap Growth Capitalization Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) $ 682 (244) (823) (187) (66) Net realized gain (loss) on sale of investments (948) (928) (5,832) (179) (41) Change in unrealized appreciation (depreciation) of investments 16,319 6,604 23,082 5,400 1,784 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 16,053 5,432 16,427 5,034 1,677 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 5,202 2,811 4,520 3,610 1,118 Net transfer (to) from affiliate and subaccounts 3,454 2,281 2,517 8,357 1,094 Payments for redemptions (3,718) (1,617) (1,782) (875) (293) Guaranteed retirement income benefit fees, maintenance fees, and other fees (267) (22) (170) (12) (6) Annuity payout reserve adjustment (5) (13) 0 (11) (26) ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 4,666 3,440 5,085 11,069 1,887 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 20,719 8,872 21,512 16,103 3,564 CONTRACT OWNERS' EQUITY Beginning of period 90,036 15,059 48,717 7,526 3,316 ----------------------------------------------------------------------------- End of period $ 110,755 23,931 70,229 23,629 6,880 =============================================================================
Dreyfus American Century Variable Investment Portfolios, Inc. Credit Suisse Trust Portfolios ---------------------------- ----------------------------- -------------- American Credit Suisse Credit Suisse Century VP American Trust Trust Global Income & Century Emerging Post-Venture Dreyfus I.P. Growth VP Value Markets Capital MidCap Stock Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------- ----------------------------- -------------- OPERATIONS Net investment income (loss) (33) (79) (311) (190) (1,258) Net realized gain (loss) on sale of investments 125 (252) (361) (2,766) (261) Change in unrealized appreciation (depreciation) of investments 4,915 7,017 8,715 8,167 32,461 ---------------------------- ----------------------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations 5,007 6,686 8,043 5,211 30,942 ---------------------------- ----------------------------- -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 3,215 4,328 1,503 602 6,688 Net transfer (to) from affiliate and subaccounts 5,452 (236) 3,356 1,010 9,907 Payments for redemptions (1,106) (2,111) (888) (298) (3,451) Guaranteed retirement income benefit fees, maintenance fees, and other fees (45) (22) (60) (38) (319) Annuity payout reserve adjustment (1) -- -- (1) 8 ---------------------------- ----------------------------- -------------- Net increase (decrease) from contract owners' equity transactions 7,515 1,959 3,911 1,275 12,833 ---------------------------- ----------------------------- -------------- Total increase (decrease) in contract owners' equity 12,522 8,645 11,954 6,486 43,775 CONTRACT OWNERS' EQUITY Beginning of period 14,727 23,981 19,348 11,395 100,874 ---------------------------- ----------------------------- -------------- End of period 27,249 32,626 31,302 17,881 144,649 ============================ ============================= ==============
See accompanying notes to financial statements 23 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
The Dreyfus Socially Dreyfus Responsible Variable Growth Fund, Investment Inc. Fund Fidelity Variable Insurance Products Fund ---------------------------- ---------------------------------------------- Dreyfus Dreyfus VIF Socially Small Company Responsible Stock Fidelity VIP Fidelity VIP Fidelity VIP Growth Subaccount Asset Manager Contrafund Equity Income Subaccount (a) Subaccount Subaccount Subaccount ---------------------------- ---------------------------------------------- OPERATIONS Net investment income (loss) (158) (1) 127 (499) 190 Net realized gain (loss) on sale of investments (1,362) 1 (74) (162) (1,129) Change in unrealized appreciation (depreciation) of investments 4,352 21 1,022 15,148 14,839 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 2,832 21 1,075 14,487 13,900 ---------------------------- ---------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 1,261 30 781 5,249 5,850 Net transfer (to) from affiliate and subaccounts (684) 224 3,080 4,774 6,784 Payments for redemptions (743) (3) (887) (6,538) (4,779) Guaranteed retirement income benefit fees, maintenance fees, and other fees (32) -- (8) (48) (61) Annuity payout reserve adjustment -- -- 33 79 -- ---------------------------- ---------------------------------------------- Net increase (decrease) from contract owners' equity transactions (198) 251 2,999 3,516 7,794 ---------------------------- ---------------------------------------------- Total increase (decrease) in contract owners' equity 2,634 272 4,074 18,003 21,694 CONTRACT OWNERS' EQUITY Beginning of period 11,679 -- 5,884 54,054 44,934 ---------------------------- ---------------------------------------------- End of period 14,313 272 9,958 72,057 66,628 ============================ ==============================================
Fidelity Variable Insurance Franklin Templeton Variable Insurance Products Fund Products Trust ---------------------------- ---------------------------------------------- Franklin Franklin Rising Small Franklin Dividends Cap Value Strategic Fidelity VIP Fidelity VIP Securities Securities Income Growth Index 500 Subaccount Subaccount Securities Subaccount Subaccount (a) (a) Subaccount (a) ---------------------------- ---------------------------------------------- OPERATIONS Net investment income (loss) (597) 150 3 (1) (3) Net realized gain (loss) on sale of investments (1,933) (3,978) 1 -- 15 Change in unrealized appreciation (depreciation) of investments 18,392 27,567 164 35 62 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 15,862 23,739 168 34 74 ---------------------------- ---------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 6,319 10,002 376 52 348 Net transfer (to) from affiliate and subaccounts (5,027) (5,702) 2,253 290 1,187 Payments for redemptions (5,213) (10,006) (13) -- (38) Guaranteed retirement income benefit fees, maintenance fees, and other fees (55) (107) (1) -- -- Annuity payout reserve adjustment (2) (3) -- -- -- ---------------------------- ---------------------------------------------- Net increase (decrease) from contract owners' equity transactions (3,978) (5,816) 2,615 342 1,497 ---------------------------- ---------------------------------------------- Total increase (decrease) in contract owners' equity 11,884 17,923 2,783 376 1,571 CONTRACT OWNERS' EQUITY Beginning of period 53,797 97,664 -- -- -- ---------------------------- ---------------------------------------------- End of period 65,681 115,587 2,783 376 1,571 ============================ ==============================================
(a) For the period (commencement of operations): May 12, 2003 - December 31, 2003 Dreyfus VIF Small Company Stock Subaccount (a) For the period (commencement of operations): May 6, 2003 - December 31, 2003 Franklin Rising Dividends Securities Subaccount (a) For the period (commencement of operations): May 16, 2003 - December 31, 2003 Franklin Small Cap Value Securities Subaccount (a) For the period (commencement of operations): May 15, 2003 - December 31, 2003 Franklin Strategic Income Securities Subaccount See accompanying notes to financial statements 24 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
Franklin Templeton Variable Insurance Products Trust ----------------------------------------------------------------------------- Franklin Mutual Templeton U.S. Franklin Zero Discovery Mutual Shares Developing Government Coupon 2010 Securities Securities Markets Subaccount Subaccount Subaccount Subaccount Securities (b) (b) (b) (b) Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (58) (52) (4) (3) (3) Net realized gain (loss) on sale of investments (2) (5) 2 -- 108 Change in unrealized appreciation (depreciation) of investments 76 (140) 133 81 75 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 16 (197) 131 78 180 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 1,808 1,468 288 65 70 Net transfer (to) from affiliate and subaccounts 10,091 9,510 1,051 792 909 Payments for redemptions (250) (211) (23) (24) (11) Guaranteed retirement income benefit fees, maintenance fees, and other fees (37) (35) -- -- -- Annuity payout reserve adjustment -- -- -- -- -- ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 11,612 10,732 1,316 833 968 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 11,628 10,535 1,447 911 1,148 CONTRACT OWNERS' EQUITY Beginning of period -- -- -- -- 29 ----------------------------------------------------------------------------- End of period 11,628 10,535 1,447 911 1,177 =============================================================================
ING VP ING VP Emerging Natural Markets Resources Fund, Inc. Trust INVESCO Variable Investment Funds, Inc. ------------ ------------- ---------------------------------------------- ING VP INVESCO VIF- INVESCO VIF- INVESCO VIF- ING VP Natural Financials Health Real Estate Emerging Resources Services Sciences Opportunity Markets Trust Subaccount Subaccount Subaccount Subaccount Subaccount (b) (b) (b) ------------ ------------- ---------------------------------------------- OPERATIONS Net investment income (loss) (73) (38) -- (4) 13 Net realized gain (loss) on sale of investments 171 21 10 2 19 Change in unrealized appreciation (depreciation) of investments 2,092 786 37 86 91 ------------ ------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 2,190 769 47 84 123 ------------ ------------- ---------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 396 183 134 174 213 Net transfer (to) from affiliate and subaccounts (47) 138 330 811 968 Payments for redemptions (482) (436) -- (11) (16) Guaranteed retirement income benefit fees, maintenance fees, and other fees (5) (3) -- -- -- Annuity payout reserve adjustment (1) -- -- -- -- ------------ ------------- ---------------------------------------------- Net increase (decrease) from contract owners' equity transactions (139) (118) 464 974 1,165 ------------ ------------- ---------------------------------------------- Total increase (decrease) in contract owners' equity 2,051 651 511 1,058 1,288 CONTRACT OWNERS' EQUITY Beginning of period 5,236 3,033 -- -- -- ------------ ------------- ---------------------------------------------- End of period 7,287 3,684 511 1,058 1,288 ============ ============= ==============================================
(b) For the period (commencement of operations): May 5, 2003 - December 31, 2003 Franklin U.S. Government Subaccount (b) For the period (commencement of operations): May 12, 2003 - December 31, 2003 Franklin Zero Coupon 2010 Subaccount (b) For the period (commencement of operations): May 5, 2003 - December 31, 2003 Mutual Discovery Securities Subaccount (b) For the period (commencement of operations): May 15, 2003 - December 31, 2003 Mutual Shares Securities Subaccount (b) For the period (commencement of operations): May 2, 2003 - December 31, 2003 INVESCO VIF - Financial Services Subaccount (b) For the period (commencement of operations): May 6, 2003 - December 31, 2003 INVESCO VIF - Health Sciences Subaccount (b) For the period (commencement of operations): May 8, 2003 - December 31, 2003 INVESCO VIF - Real Estate Opportunity Subaccount See accompanying notes to financial statements 25 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
INVESCO Variable Investment Janus Aspen Funds, Inc. J.P. Morgan Series Trust II Series ------------------------------------------------------------ -------------- JPMorgan JPMorgan INVESCO International MidCap JPMorgan VIF- Opportunities Value Small Janus Aspen Utilities Subaccount Subaccount Company Balanced Subaccount (c) (c) Subaccount Subaccount ------------------------------------------------------------ -------------- OPERATIONS Net investment income (loss) 1 (81) (5) (119) 1,250 Net realized gain (loss) on sale of investments (959) 122 3 (131) (1,882) Change in unrealized appreciation (depreciation) of investments 2,401 2,872 101 2,804 17,298 ------------------------------------------------------------ -------------- Net increase (decrease) in contract owners' equity resulting from operations 1,443 2,913 99 2,554 16,666 ------------------------------------------------------------ -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 1,207 1,195 206 1,510 10,846 Net transfer (to) from affiliate and subaccounts 1,496 15,115 1,042 (1,827) (15,302) Payments for redemptions (334) (333) (25) (534) (14,647) Guaranteed retirement income benefit fees, maintenance fees, and other fees (27) (55) -- (9) (96) Annuity payout reserve adjustment -- -- -- 2 8 ------------------------------------------------------------ -------------- Net increase (decrease) from contract owners' equity transactions 2,342 15,922 1,223 (858) (19,191) ------------------------------------------------------------ -------------- Total increase (decrease) in contract owners' equity 3,785 18,835 1,322 1,696 (2,525) CONTRACT OWNERS' EQUITY Beginning of period 8,747 -- -- 8,265 141,809 ------------------------------------------------------------ -------------- End of period 12,532 18,835 1,322 9,961 139,284 ============================================================ ==============
Janus Aspen Series ----------------------------------------------------------------------------- Janus Aspen Janus Aspen Growth and Janus Aspen Janus Aspen Capital Janus Aspen Income Mid Cap Worldwide Appreciation Growth Subaccount Growth Growth Subaccount Subaccount (c) Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (13) (998) (105) (730) (244) Net realized gain (loss) on sale of investments (150) (45,041) (32,978) (3,398) (9,038) Change in unrealized appreciation (depreciation) of investments 415 63,813 31,001 20,408 35,723 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 252 17,774 (2,082) 16,280 26,441 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 21 6,448 48 5,586 10,560 Net transfer (to) from affiliate and subaccounts 83 (40,760) (40,614) (11,026) (21,056) Payments for redemptions (146) (8,983) (387) (5,324) (13,712) Guaranteed retirement income benefit fees, maintenance fees, and other fees (4) (119) (5) (81) (124) Annuity payout reserve adjustment -- (2) -- (4) (51) ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions (46) (43,416) (40,958) (10,849) (24,383) ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 206 (25,642) (43,040) 5,431 2,058 CONTRACT OWNERS' EQUITY Beginning of period 1,356 110,021 43,040 56,666 134,031 ----------------------------------------------------------------------------- End of period 1,562 84,379 -- 62,097 136,089 =============================================================================
(c) For the period (commencement of operations): June 6, 2003 - December 31, 2003 JPMorgan International Opportunities Subaccount (c) For the period (commencement of operations): May 5, 2003 - December 31, 2003 JPMorgan MidCap Value Subaccount (c) For the period (cessation of operations): January 1, 2003 - March 7, 2003 Janus Aspen Growth and Income Subaccount See accompanying notes to financial statements 26 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
Janus Aspen Series Oppenheimer Variable Account Funds ---------------------------- ---------------------------------------------- Janus Aspen Janus Aspen Mid Cap Small Oppenheimer Oppenheimer Oppenheimer Value Cap Value Aggressive Capital Global (Perkins) (Bay Isle) Growth Appreciation Securities Subaccount Subaccount Subaccount Subaccount Subaccount (d) (d) (d) (d) (d) ---------------------------- ---------------------------------------------- OPERATIONS Net investment income (loss) (2) (4) (1) (5) (19) Net realized gain (loss) on sale of investments 14 10 8 9 21 Change in unrealized appreciation (depreciation) of investments 49 84 4 111 744 ---------------------------- ---------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 61 90 11 115 746 ---------------------------- ---------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 38 70 41 309 555 Net transfer (to) from affiliate and subaccounts 496 763 267 1,177 6,090 Payments for redemptions (200) (7) (27) (29) (72) Guaranteed retirement income benefit fees, maintenance fees, and other fees -- -- -- (1) (1) Annuity payout reserve adjustment -- -- -- -- -- ---------------------------- ---------------------------------------------- Net increase (decrease) from contract owners' equity transactions 334 826 281 1,456 6,572 ---------------------------- ---------------------------------------------- Total increase (decrease) in contract owners' equity 395 916 292 1,571 7,318 CONTRACT OWNERS' EQUITY Beginning of period -- -- -- -- -- ---------------------------- ---------------------------------------------- End of period 395 916 292 1,571 7,318 ============================ ==============================================
PIMCO Variable Insurance Oppenheimer Variable Account Funds Trust ------------------------------------------------------------ -------------- Oppenheimer Oppenheimer Oppenheimer Oppenheimer Main Steet Strategic PIMCO High Income Main Street Small Cap Bond Foreign Subaccount Subaccount Subaccount Subaccount Bond (d) (d) (d) (d) Subaccount ------------------------------------------------------------ -------------- OPERATIONS Net investment income (loss) (4) (5) (13) (5) 3 Net realized gain (loss) on sale of investments 8 11 22 2 3 Change in unrealized appreciation (depreciation) of investments 36 107 354 65 (4) ------------------------------------------------------------ -------------- Net increase (decrease) in contract owners' equity resulting from operations 40 113 363 62 2 ------------------------------------------------------------ -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 317 434 424 268 2 Net transfer (to) from affiliate and subaccounts 448 892 2,578 1,046 41 Payments for redemptions (20) (3) (51) (6) (35) Guaranteed retirement income benefit fees, maintenance fees, and other fees -- (1) (5) -- -- Annuity payout reserve adjustment -- -- -- -- -- ------------------------------------------------------------ -------------- Net increase (decrease) from contract owners' equity transactions 745 1,322 2,946 1,308 8 ------------------------------------------------------------ -------------- Total increase (decrease) in contract owners' equity 785 1,435 3,309 1,370 10 CONTRACT OWNERS' EQUITY Beginning of period -- -- -- -- 210 ------------------------------------------------------------ -------------- End of period 785 1,435 3,309 1,370 220 ============================================================ ==============
(d) For the period (commencement of operations): May 12, 2003 - December 31, 2003 Janus Aspen Mid Cap Value (Perkins) Subaccount (d) For the period (commencement of operations): May 28, 2003 - December 31, 2003 Janus Aspen Small Cap Value (Bay Isle) Subaccount (d) For the period (commencement of operations): May 15, 2003 - December 31, 2003 Oppenheimer Aggressive Growth Subaccount (d) For the period (commencement of operations): May 6, 2003 - December 31, 2003 Oppenheimer Capital Appreciation Subaccount (d) For the period (commencement of operations): May 12, 2003 - December 31, 2003 Oppenheimer Global Securities Subaccount (d) For the period (commencement of operations): May 2, 2003 - December 31, 2003 Oppenheimer High Income Subaccount (d) For the period (commencement of operations): May 5, 2003 - December 31, 2003 Oppenheimer Main Street Subaccount (d) For the period (commencement of operations): May 9, 2003 - December 31, 2003 Oppenheimer Main Street Small Cap Subaccount (d) For the period (commencement of operations): May 9, 2003 - December 31, 2003 Oppenheimer Strategic Bond Subaccount See accompanying notes to financial statements 27 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
PIMCO Variable Insurance Trust Scudder Variable Series I ------------ -------------------------------------------------------------- Scudder 21st Scudder Scudder PIMCO Low Century Capital Global Duration Growth Scudder Bond Growth Discovery Subaccount Subaccount Subaccount Subaccount Subaccount ------------ -------------------------------------------------------------- OPERATIONS Net investment income (loss) 1 (335) 577 (405) (984) Net realized gain (loss) on sale of investments 2 (4,525) 350 (4,151) (4,488) Change in unrealized appreciation (depreciation) of investments (2) 11,076 (246) 13,957 35,761 ------------ -------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 1 6,216 681 9,401 30,289 ------------ -------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales -- 1,747 2,678 2,075 3,064 Net transfer (to) from affiliate and subaccounts 10 79 (10,713) 3,238 2,958 Payments for redemptions (28) (759) (1,355) (1,654) (2,248) Guaranteed retirement income benefit fees, maintenance fees, and other fees -- (66) 10 (112) (212) Annuity payout reserve adjustment -- -- -- (5) (5) ------------ -------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions (18) 1,001 (9,380) 3,542 3,557 ------------ -------------------------------------------------------------- Total increase (decrease) in contract owners' equity (17) 7,217 (8,699) 12,943 33,846 CONTRACT OWNERS' EQUITY Beginning of period 231 20,833 17,198 36,569 64,171 ------------ -------------------------------------------------------------- End of period 214 28,050 8,499 49,512 98,017 ============ ==============================================================
Scudder Variable Scudder Variable Series I Series II ------------------------------------------------------------ -------------- Scudder Scudder Scudder Growth Health Scudder Scudder Money Aggressive and Income Sciences International Market Growth Subaccount Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ -------------- OPERATIONS Net investment income (loss) (145) (845) (480) (1) (431) Net realized gain (loss) on sale of investments (1,931) (429) 558 -- (6,481) Change in unrealized appreciation (depreciation) of investments 11,262 18,129 19,746 -- 15,513 ------------------------------------------------------------ -------------- Net increase (decrease) in contract owners' equity resulting from operations 9,186 16,855 19,824 (1) 8,601 ------------------------------------------------------------ -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 2,037 5,180 7,138 26 2,073 Net transfer (to) from affiliate and subaccounts 194 4,528 (14,680) 94 (1,681) Payments for redemptions (1,690) (1,764) (3,217) (16) (1,292) Guaranteed retirement income benefit fees, maintenance fees, and other fees (104) (174) (178) -- (88) Annuity payout reserve adjustment -- -- 3 -- -- ------------------------------------------------------------ -------------- Net increase (decrease) from contract owners' equity transactions 437 7,770 (10,934) 104 (988) ------------------------------------------------------------ -------------- Total increase (decrease) in contract owners' equity 9,623 24,625 8,890 103 7,613 CONTRACT OWNERS' EQUITY Beginning of period 37,291 49,863 83,409 30 27,890 ------------------------------------------------------------ -------------- End of period 46,914 74,488 92,299 133 35,503 ============================================================ ==============
See accompanying notes to financial statements 28 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Scudder Contrarian Fixed Global Government Blue Chip Value Income Blue Chip Securities Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (833) 692 2,221 (257) 7,870 Net realized gain (loss) on sale of investments (9,868) (2,020) 1,282 (780) 2,107 Change in unrealized appreciation (depreciation) of investments 41,223 35,593 177 7,467 (8,686) ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 30,522 34,265 3,680 6,430 1,291 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 3,725 6,257 5,222 1,164 10,232 Net transfer (to) from affiliate and subaccounts 30,939 5,527 (1,776) 1,430 (61,239) Payments for redemptions (5,842) (10,336) (7,622) (857) (24,316) Guaranteed retirement income benefit fees, maintenance fees, and other fees (308) (245) (232) (66) (353) Annuity payout reserve adjustment (11) (11) (7) (1) 22 ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 28,503 1,192 (4,415) 1,670 (75,654) ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 59,025 35,457 (735) 8,100 (74,363) CONTRACT OWNERS' EQUITY Beginning of period 78,102 113,597 99,482 22,865 237,363 ----------------------------------------------------------------------------- End of period 137,127 149,054 98,747 30,965 163,000 =============================================================================
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder Scudder High International Scudder Money Scudder Small Growth Income Select Equity Market Cap Growth Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (2,619) 13,958 (67) (1,425) (1,574) Net realized gain (loss) on sale of investments (19,652) (2,693) (3,685) -- (22,937) Change in unrealized appreciation (depreciation) of investments 70,479 31,121 24,271 -- 56,035 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 48,208 42,386 20,519 (1,425) 31,524 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 7,325 8,810 4,792 29,869 9,113 Net transfer (to) from affiliate and subaccounts 30,599 29,360 3,643 (87,111) 9,534 Payments for redemptions (24,950) (24,850) (7,104) (65,095) (8,852) Guaranteed retirement income benefit fees, maintenance fees, and other fees (345) (310) (133) (518) (226) Annuity payout reserve adjustment 5 (38) (11) (58) (2) ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 12,634 12,972 1,187 (122,913) 9,567 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 60,842 55,358 21,706 (124,338) 41,091 CONTRACT OWNERS' EQUITY Beginning of period 178,843 179,672 75,047 306,311 100,125 ----------------------------------------------------------------------------- End of period 239,685 235,030 96,753 181,973 141,216 =============================================================================
See accompanying notes to financial statements 29 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------- Scudder Scudder SVS Dreman Strategic Technology Scudder Total SVS Davis Financial Income Growth Return Venture Value Services Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (26) (1,767) 7,591 (1,128) 37 Net realized gain (loss) on sale of investments 1,842 (93,567) (14,047) (1,332) (266) Change in unrealized appreciation (depreciation) of investments (370) 142,110 70,863 36,038 15,023 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 1,446 46,776 64,407 33,578 14,794 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 929 8,666 12,311 10,014 3,499 Net transfer (to) from affiliate and subaccounts 3,631 5,019 (2,747) 8,392 536 Payments for redemptions (2,421) (51,918) (48,531) (3,034) (2,725) Guaranteed retirement income benefit fees, maintenance fees, and other fees (76) (364) (481) (355) (165) Annuity payout reserve adjustment -- (2) (138) (3) (4) ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 2,063 (38,599) (39,586) 15,014 1,141 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 3,509 8,177 24,821 48,592 15,935 CONTRACT OWNERS' EQUITY Beginning of period 24,573 145,624 416,026 113,303 56,572 ----------------------------------------------------------------------------- End of period 28,082 153,801 440,847 161,895 72,507 =============================================================================
Scudder Variable Series II ----------------------------------------------------------------------------- SVS Dreman SVS Dreman SVS Eagle SVS Focus High Return Small Cap Focused Large Value + Equity Value Cap Growth Growth SVS Index 500 Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) 2,172 1,903 (676) (239) (515) Net realized gain (loss) on sale of investments 1,483 181 (1,314) (2,905) (8,297) Change in unrealized appreciation (depreciation) of investments 93,967 57,516 12,987 15,291 49,784 ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 97,622 59,600 10,997 12,147 40,972 ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 23,945 12,448 4,673 3,466 12,294 Net transfer (to) from affiliate and subaccounts 9,499 11,723 4,334 2,378 9,898 Payments for redemptions (11,807) (9,871) (1,053) (3,494) (5,581) Guaranteed retirement income benefit fees, maintenance fees, and other fees (971) (390) (131) (91) (467) Annuity payout reserve adjustment 9 (12) -- (1) -- ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 20,675 13,898 7,823 2,258 16,144 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 118,297 73,498 18,820 14,405 57,116 CONTRACT OWNERS' EQUITY Beginning of period 316,953 149,053 40,566 39,194 146,428 ----------------------------------------------------------------------------- End of period 435,250 222,551 59,386 53,599 203,544 =============================================================================
See accompanying notes to financial statements 30 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2003 (in thousands)
Scudder Variable Series II ------------------------------------------------------------- SVS INVESCO SVS Janus SVS Janus SVS MFS Dynamic Growth and Growth Strategic Growth Income Opportunities Value Subaccount Subaccount Subaccount Subaccount (e) ------------------------------------------------------------- OPERATIONS Net investment income (loss) (294) (790) (1,128) -- Net realized gain (loss) on sale of investments (171) (5,392) (11,664) -- Change in unrealized appreciation (depreciation) of investments 6,663 30,931 31,165 3 ------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations 6,198 24,749 18,373 3 ------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 1,622 7,289 4,703 25 Net transfer (to) from affiliate and subaccounts 739 (5,385) (5,979) -- Payments for redemptions (461) (3,500) (2,423) -- Guaranteed retirement income benefit fees, maintenance fees, and other fees (59) (318) (223) -- Annuity payout reserve adjustment -- 19 (4) -- ------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 1,841 (1,895) (3,926) 25 ------------------------------------------------------------- Total increase (decrease) in contract owners' equity 8,039 22,854 14,447 28 CONTRACT OWNERS' EQUITY Beginning of period 18,257 105,208 75,716 -- ------------------------------------------------------------- End of period 26,296 128,062 90,163 28 =============================================================
Scudder Investments Scudder Variable Series II VIT Funds ---------------------------- -------------- SVS Oak SVS Turner Scudder Real Strategic Mid Cap Estate Equity Growth Securities Subaccount Subaccount Subaccount (e) ---------------------------- -------------- OPERATIONS Net investment income (loss) (607) (863) -- Net realized gain (loss) on sale of investments (813) (897) -- Change in unrealized appreciation (depreciation) of investments 18,035 25,069 1 ---------------------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations 16,615 23,309 1 ---------------------------- -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 3,952 4,886 -- Net transfer (to) from affiliate and subaccounts 10,096 12,222 15 Payments for redemptions (1,136) (1,529) -- Guaranteed retirement income benefit fees, maintenance fees, and other fees (124) (173) -- Annuity payout reserve adjustment -- -- -- ---------------------------- -------------- Net increase (decrease) from contract owners' equity transactions 12,788 15,406 15 ---------------------------- -------------- Total increase (decrease) in contract owners' equity 29,403 38,715 16 CONTRACT OWNERS' EQUITY Beginning of period 31,408 46,432 -- ---------------------------- -------------- End of period 60,811 85,147 16 ============================ ==============
(e) For the period (commencement of operations): June 12, 2003 - December 31, 2003 SVS MFS Strategic Value Subaccount (e) For the period (commencement of operations): July 11, 2003 - December 31, 2003 Scudder Real Estate Securities Subaccount See accompanying notes to financial statements 31 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
The Alger American Fund ----------------------------------------------------------------------------- Alger Alger Alger Alger Alger American American American American American Leveraged MidCap Small Balanced Growth AllCap Growth Capitalization Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) $ 270 (236) (848) (93) (48) Net realized gain (loss) on sale of investments (1,724) (5,922) (10,217) (517) (580) Change in unrealized appreciation (depreciation) of investments (12,083) (1,809) (15,593) (1,930) (478) ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations (13,537) (7,967) (26,658) (2,540) (1,106) ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 15,601 3,549 10,314 3,483 1,421 Net transfer (to) from affiliate and subaccounts 8,194 (866) (5,513) 2,186 (325) Payments for redemptions (3,984) (1,434) (2,632) (470) (307) Guaranteed retirement income benefit fees, maintenance fees, and other fees (257) (24) (182) (8) (6) Annuity payout reserve adjustment (2) (1) -- -- 2 ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 19,552 1,224 1,987 5,191 785 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 6,015 (6,743) (24,671) 2,651 (321) CONTRACT OWNERS' EQUITY Beginning of period 84,021 21,802 73,388 4,875 3,637 ----------------------------------------------------------------------------- End of period $ 90,036 15,059 48,717 7,526 3,316 =============================================================================
American Century Variable Portfolios, Inc. Credit Suisse Trust ---------------------------- ----------------------------- American Credit Suisse Credit Suisse Century American Trust Trust Global VP Income & Century Emerging Post-Venture Growth VP Value Markets Capital Subaccount Subaccount Subaccount Subaccount ---------------------------- ----------------------------- OPERATIONS Net investment income (loss) (34) 1,271 (240) (189) Net realized gain (loss) on sale of investments (1,032) (1,707) (3,126) (3,595) Change in unrealized appreciation (depreciation) of investments (154) (4,403) (155) (2,109) ---------------------------- ----------------------------- Net increase (decrease) in contract owners' equity resulting from operations (1,220) (4,839) (3,521) (5,893) ---------------------------- ----------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 1,806 6,965 3,646 3,741 Net transfer (to) from affiliate and subaccounts 9,435 1,079 3,400 (5) Payments for redemptions (647) (2,666) (756) (390) Guaranteed retirement income benefit fees, maintenance fees, and other fees (58) (35) (58) (40) Annuity payout reserve adjustment 8 22 (24) -- ---------------------------- ----------------------------- Net increase (decrease) from contract owners' equity transactions 10,544 5,365 6,208 3,306 ---------------------------- ----------------------------- Total increase (decrease) in contract owners' equity 9,324 526 2,687 (2,587) CONTRACT OWNERS' EQUITY Beginning of period 5,403 23,455 16,661 13,982 ---------------------------- ----------------------------- End of period 14,727 23,981 19,348 11,395 ============================ =============================
See accompanying notes to financial statements. 32 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands) The Dreyfus Socially Dreyfus Responsible Investment Growth Fund, Portfolios Inc. ---------------------------- Dreyfus Socially Dreyfus I.P. Responsible MidCap Stock Growth Subaccount Subaccount ---------------------------- OPERATIONS Net investment income (loss) (1,105) (157) Net realized gain (loss) on sale of investments (1,459) (3,019) Change in unrealized appreciation (depreciation) of investments (13,674) (1,822) ---------------------------- Net increase (decrease) in contract owners' equity resulting from operations (16,238) (4,998) ---------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 17,744 2,612 Net transfer (to) from affiliate and subaccounts 18,564 (728) Payments for redemptions (3,356) (824) Guaranteed retirement income benefit fees, maintenance fees, and other fees (292) (37) Annuity payout reserve adjustment -- (1) ---------------------------- Net increase (decrease) from contract owners' equity transactions 32,660 1,022 ---------------------------- Total increase (decrease) in contract owners' equity 16,422 (3,976) CONTRACT OWNERS' EQUITY Beginning of period 84,452 15,655 ---------------------------- End of period 100,874 11,679 ============================
Franklin Templeton Variable Insurance Fidelity Variable Insurance Products Fund Products Trust ----------------------------------------------------------------------------- -------------- Templeton Fidelity VIP Developing Asset Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Markets Manager Contrafund Equity Income Growth Index 500 Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- -------------- OPERATIONS Net investment income (loss) 179 (288) 1,268 (707) 63 -- Net realized gain (loss) on sale of investments (1,015) (6,546) (5,414) (21,392) (20,822) -- Change in unrealized appreciation (depreciation) of investments 67 (130) (6,231) (3,782) (9,476) -- ----------------------------------------------------------------------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations (769) (6,964) (10,377) (25,881) (30,235) -- ----------------------------------------------------------------------------- -------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 736 5,865 7,841 10,414 12,103 -- Net transfer (to) from affiliate and subaccounts (627) (1,095) 3,741 (5,280) (19,384) (1) Payments for redemptions (677) (6,242) (6,271) (6,887) (11,947) -- Guaranteed retirement income benefit fees, maintenance fees, and other fees (8) (54) (97) (122) (125) -- Annuity payout reserve adjustment (1) 30 (34) (2) (6) -- ----------------------------------------------------------------------------- -------------- Net increase (decrease) from contract owners' equity transactions (577) (1,496) 5,180 (1,877) (19,359) (1) ----------------------------------------------------------------------------- -------------- Total increase (decrease) in contract owners' equity (1,346) (8,460) (5,197) (27,758) (49,594) (1) CONTRACT OWNERS' EQUITY Beginning of period 7,230 62,514 50,131 81,555 147,258 30 ----------------------------------------------------------------------------- -------------- End of period 5,884 54,054 44,934 53,797 97,664 29 ============================================================================= ==============
See accompanying notes to financial statements. 33 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
ING VP ING VP INVESCO Emerging Natural Variable J.P. Morgan Markets Resources Investment Series Fund, Inc. Trust Funds, Inc. Trust II ------------ ------------- ------------- ------------- ING VP ING VP Emerging Natural JP Morgan Markets Resources INVESCO VIF- Small Fund, Inc. Trust Utilities Company Subaccount Subaccount Subaccount Subaccount ------------ ------------- ------------- ------------- OPERATIONS Net investment income (loss) (76) (35) (72) (133) Net realized gain (loss) on sale of investments (1,282) (236) (604) (1,763) Change in unrealized appreciation (depreciation) of investments 600 132 (1,356) (1,417) ------------ ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations (758) (139) (2,032) (3,313) ------------ ------------- ------------- ------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 402 302 1,625 3,791 Net transfer (to) from affiliate and subaccounts 942 (191) 2,613 (1,468) Payments for redemptions (514) (273) (258) (1,425) Guaranteed retirement income benefit fees, maintenance fees, and other fees (6) (3) (26) (59) Annuity payout reserve adjustment 3 -- -- 1 ------------ ------------- ------------- ------------- Net increase (decrease) from contract owners' equity transactions 827 (165) 3,954 840 ------------ ------------- ------------- ------------- Total increase (decrease) in contract owners' equity 69 (304) 1,922 (2,473) CONTRACT OWNERS' EQUITY Beginning of period 5,167 3,337 6,825 10,738 ------------ ------------- ------------- ------------- End of period 5,236 3,033 8,747 8,265 ============ ============= ============= =============
Janus Aspen Series ------------------------------------------------------------ Janus Aspen Janus Aspen Janus Aspen Capital Janus Aspen Growth and Balanced Appreciation Growth Income Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ OPERATIONS Net investment income (loss) 1,728 (14) (1,943) (346) Net realized gain (loss) on sale of investments (10,277) (381) (58,656) (3,292) Change in unrealized appreciation (depreciation) of investments (3,888) 66 13,071 (11,247) ------------------------------------------------------------ Net increase (decrease) in contract owners' equity resulting from operations (12,437) (329) (47,528) (14,885) ------------------------------------------------------------ CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 16,300 35 9,737 1,180 Net transfer (to) from affiliate and subaccounts (9,125) (175) (27,088) (13,392) Payments for redemptions (14,416) (213) (14,460) (4,250) Guaranteed retirement income benefit fees, maintenance fees, and other fees (117) (5) (256) (145) Annuity payout reserve adjustment 223 -- (22) 3 ------------------------------------------------------------ Net increase (decrease) from contract owners' equity transactions (7,135) (358) (32,089) (16,604) ------------------------------------------------------------ Total increase (decrease) in contract owners' equity (19,572) (687) (79,617) (31,489) CONTRACT OWNERS' EQUITY Beginning of period 161,381 2,043 189,638 74,529 ------------------------------------------------------------ End of period 141,809 1,356 110,021 43,040 ============================================================
See accompanying notes to financial statements. 34 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
PIMCO Variable Insurance Janus Aspen Series Trust ---------------------------- ----------------------------- Janus Aspen Janus Aspen PIMCO Mid Cap Worldwide Foreign PIMCO Low Growth Growth Bond Duration Subaccount Subaccount Subaccount Subaccount ---------------------------- ----------------------------- OPERATIONS Net investment income (loss) (823) (705) 8 7 Net realized gain (loss) on sale of investments (45,198) (40,937) 10 3 Change in unrealized appreciation (depreciation) of investments 23,096 (11,177) 2 4 ---------------------------- ----------------------------- Net increase (decrease) in contract owners' equity resulting from operations (22,925) (52,819) 20 14 ---------------------------- ----------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 9,012 16,315 2 3 Net transfer (to) from affiliate and subaccounts (4,605) (24,441) (35) (21) Payments for redemptions (6,406) (17,000) (165) (43) Guaranteed retirement income benefit fees, maintenance fees, and other fees (99) (167) -- -- Annuity payout reserve adjustment (8) 2 -- -- ---------------------------- ----------------------------- Net increase (decrease) from contract owners' equity transactions (2,106) (25,291) (198) (61) ---------------------------- ----------------------------- Total increase (decrease) in contract owners' equity (25,031) (78,110) (178) (47) CONTRACT OWNERS' EQUITY Beginning of period 81,697 212,141 388 278 ---------------------------- ----------------------------- End of period 56,666 134,031 210 231 ============================ =============================
Scudder Variable Series I ----------------------------------------------------------------------------- Scudder 21st Scudder Scudder Scudder Century Capital Global Growth Growth Scudder Bond Growth Discovery and Income Subaccount Subaccount Subaccount Subaccount Subaccount ----------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (334) 754 (448) (994) (169) Net realized gain (loss) on sale of investments (3,006) (142) (4,866) (4,706) (4,502) Change in unrealized appreciation (depreciation) of investments (10,296) 425 (10,389) (11,367) (7,635) ----------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations (13,636) 1,037 (15,703) (17,067) (12,306) ----------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 6,417 3,933 7,059 8,241 6,602 Net transfer (to) from affiliate and subaccounts 2,796 880 2,047 1,678 1,735 Payments for redemptions (742) (2,008) (2,051) (3,067) (2,254) Guaranteed retirement income benefit fees, maintenance fees, and other fees (70) (102) (115) (207) (115) Annuity payout reserve adjustment -- -- -- 2 -- ----------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 8,401 2,703 6,940 6,647 5,968 ----------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity (5,235) 3,740 (8,763) (10,420) (6,338) CONTRACT OWNERS' EQUITY Beginning of period 26,068 13,458 45,332 74,591 43,629 ----------------------------------------------------------------------------- End of period 20,833 17,198 36,569 64,171 37,291 =============================================================================
See accompanying notes to financial statements. 35 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
Scudder Variable Series I Scudder Variable Series II -------------------------------------------- ----------------------------- Scudder Scudder Health Scudder Scudder Money Aggressive Scudder Blue Sciences International Market Growth Chip Subaccount Subaccount Subaccount Subaccount Subaccount -------------------------------------------- ----------------------------- OPERATIONS Net investment income (loss) (711) (595) -- (305) (902) Net realized gain (loss) on sale of investments (1,491) (11,981) -- (8,938) (4,896) Change in unrealized appreciation (depreciation) of investments (12,243) (1,962) -- (4,144) (18,545) -------------------------------------------- ----------------------------- Net increase (decrease) in contract owners' equity resulting from operations (14,445) (14,538) -- (13,387) (24,343) -------------------------------------------- ----------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 15,272 14,697 -- 4,595 10,004 Net transfer (to) from affiliate and subaccounts 6,138 9,059 19 (1,574) 311 Payments for redemptions (1,487) (7,790) (54) (1,731) (4,798) Guaranteed retirement income benefit fees, maintenance fees, and other fees (158) (293) -- (97) (227) Annuity payout reserve adjustment -- 3 -- -- (7) -------------------------------------------- ----------------------------- Net increase (decrease) from contract owners' equity transactions 19,765 15,676 (35) 1,193 5,283 -------------------------------------------- ----------------------------- Total increase (decrease) in contract owners' equity 5,320 1,138 (35) (12,194) (19,060) CONTRACT OWNERS' EQUITY Beginning of period 44,543 82,271 65 40,084 97,162 -------------------------------------------- ----------------------------- End of period 49,863 83,409 30 27,890 78,102 ============================================ =============================
Scudder Variable Series II ------------------------------------------------------------ Scudder Scudder Scudder Contrarian Scudder Fixed Global Government Value Income Blue Chip Securities Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ OPERATIONS Net investment income (loss) 172 1,427 (177) 3,491 Net realized gain (loss) on sale of investments (5,313) 470 (1,694) 2,549 Change in unrealized appreciation (depreciation) of investments (18,105) 3,597 (2,234) 6,173 ------------------------------------------------------------ Net increase (decrease) in contract owners' equity resulting from operations (23,246) 5,494 (4,305) 12,213 ------------------------------------------------------------ CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 12,265 13,631 3,410 24,071 Net transfer (to) from affiliate and subaccounts 8,089 21,053 1,899 60,831 Payments for redemptions (11,925) (5,577) (942) (20,032) Guaranteed retirement income benefit fees, maintenance fees, and other fees (245) (196) (63) (339) Annuity payout reserve adjustment (16) (5) -- (30) ------------------------------------------------------------ Net increase (decrease) from contract owners' equity transactions 8,168 28,906 4,304 64,501 ------------------------------------------------------------ Total increase (decrease) in contract owners' equity (15,078) 34,400 (1) 76,714 CONTRACT OWNERS' EQUITY Beginning of period 128,675 65,082 22,866 160,649 ------------------------------------------------------------ End of period 113,597 99,482 22,865 237,363 ============================================================
See accompanying notes to financial statements. 36 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
Scudder Variable Series II ---------------------------------------------------------------------------- Scudder Scudder New Scudder Scudder High International Scudder Money Europe Growth Income Select Equity Market Subaccount Subaccount Subaccount Subaccount Subaccount (a) ---------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (3,017) 15,525 (576) 668 (40) Net realized gain (loss) on sale of investments (85,980) (27,655) (22,137) -- (6,124) Change in unrealized appreciation (depreciation) of investments 1,769 10,241 12,519 -- 1,325 ---------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations (87,228) (1,889) (10,194) 668 (4,839) ---------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 12,590 11,455 4,417 134,454 3,746 Net transfer (to) from affiliate and subaccounts (17,224) 1,659 16,239 (64,194) (14,015) Payments for redemptions (30,881) (20,860) (8,495) (171,434) (573) Guaranteed retirement income benefit fees, maintenance fees, and other fees (283) (246) (97) (694) (41) Annuity payout reserve adjustment (85) 20 9 (2) -- ---------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions (35,883) (7,972) 12,073 (101,870) (10,883) ---------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity (123,111) (9,861) 1,879 (101,202) (15,722) CONTRACT OWNERS' EQUITY Beginning of period 301,954 189,533 73,168 407,513 15,722 ---------------------------------------------------------------------------- End of period 178,843 179,672 75,047 306,311 -- ============================================================================
Scudder Variable Series II ------------------------------------------------------------ Scudder Scudder Scudder Small Strategic Technology Scudder Total Cap Growth Income Growth Return Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ OPERATIONS Net investment income (loss) (1,615) 152 (2,227) 7,787 Net realized gain (loss) on sale of investments (54,429) 381 (28,246) (67,376) Change in unrealized appreciation (depreciation) of investments 1,841 1,226 (54,303) (29,917) ------------------------------------------------------------ Net increase (decrease) in contract owners' equity resulting from operations (54,203) 1,759 (84,776) (89,506) ------------------------------------------------------------ CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 16,468 2,287 20,336 21,722 Net transfer (to) from affiliate and subaccounts (3,665) 10,038 (1,847) (18,531) Payments for redemptions (10,774) (956) (5,157) (63,771) Guaranteed retirement income benefit fees, maintenance fees, and other fees (223) (55) (533) (537) Annuity payout reserve adjustment (13) 1 12 (331) ------------------------------------------------------------ Net increase (decrease) from contract owners' equity transactions 1,793 11,315 12,811 (61,448) ------------------------------------------------------------ Total increase (decrease) in contract owners' equity (52,410) 13,074 (71,965) (150,954) CONTRACT OWNERS' EQUITY Beginning of period 152,535 11,499 217,589 566,980 ------------------------------------------------------------ End of period 100,125 24,573 145,624 416,026 ============================================================
(a) For the period (cessation of operations): January 1, 2002 - November 1, 2002 See accompanying notes to financial statements. 37 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
Scudder Variable Series II ---------------------------------------------------------------------------- SVS Davis SVS Dreman SVS Dreman SVS Dreman SVS Eagle Venture Financial High Return Small Cap Focused Large Value Services Equity Value Cap Growth Subaccount Subaccount Subaccount Subaccount Subaccount ---------------------------------------------------------------------------- OPERATIONS Net investment income (loss) (1,393) (341) (398) (1,515) (595) Net realized gain (loss) on sale of investments (2,338) 580 (1,747) 3,050 (3,402) Change in unrealized appreciation (depreciation) of investments (17,214) (6,584) (71,516) (28,127) (11,050) ---------------------------------------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations (20,945) (6,345) (73,661) (26,592) (15,047) ---------------------------------------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 31,773 9,510 76,138 27,923 11,203 Net transfer (to) from affiliate and subaccounts 18,412 4,625 47,150 42,493 7,710 Payments for redemptions (3,070) (2,684) (12,194) (8,253) (1,073) Guaranteed retirement income benefit fees, maintenance fees, and other fees (327) (164) (930) (355) (125) Annuity payout reserve adjustment 2 -- 1 (44) -- ---------------------------------------------------------------------------- Net increase (decrease) from contract owners' equity transactions 46,790 11,287 110,165 61,764 17,715 ---------------------------------------------------------------------------- Total increase (decrease) in contract owners' equity 25,845 4,942 36,504 35,172 2,668 CONTRACT OWNERS' EQUITY Beginning of period 87,458 51,630 280,449 113,881 37,898 ---------------------------------------------------------------------------- End of period 113,303 56,572 316,953 149,053 40,566 ============================================================================
Scudder Variable Series II ------------------------------------------------------------ SVS Focus SVS INVESCO SVS Janus Value Dynamic Growth + Growth SVS Index 500 Growth and Income Subaccount Subaccount Subaccount Subaccount ------------------------------------------------------------ OPERATIONS Net investment income (loss) (375) (1,362) (274) (884) Net realized gain (loss) on sale of investments (7,198) (11,328) (1,184) (5,257) Change in unrealized appreciation (depreciation) of investments (7,620) (30,105) (6,540) (21,939) ------------------------------------------------------------ Net increase (decrease) in contract owners' equity resulting from operations (15,193) (42,795) (7,998) (28,080) ------------------------------------------------------------ CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 5,423 44,667 6,389 26,252 Net transfer (to) from affiliate and subaccounts 1,430 3,595 668 5,302 Payments for redemptions (4,206) (3,950) (410) (3,705) Guaranteed retirement income benefit fees, maintenance fees, and other fees (89) (442) (58) (327) Annuity payout reserve adjustment 19 1 -- (2) ------------------------------------------------------------ Net increase (decrease) from contract owners' equity transactions 2,577 43,871 6,589 27,520 ------------------------------------------------------------ Total increase (decrease) in contract owners' equity (12,616) 1,076 (1,409) (560) CONTRACT OWNERS' EQUITY Beginning of period 51,810 145,352 19,666 105,768 ------------------------------------------------------------ End of period 39,194 146,428 18,257 105,208 ============================================================
See accompanying notes to financial statements. 38 KILICO Variable Annuity Separate Account Statement of Changes in Contract Owners' Equity For the year ended December 31, 2002 (in thousands)
Scudder Variable Series II -------------------------------------------- SVS Janus SVS Oak SVS Turner Growth Strategic Mid Cap Opportunities Equity Growth Subaccount Subaccount Subaccount -------------------------------------------- OPERATIONS Net investment income (loss) (1,200) (488) (677) Net realized gain (loss) on sale of investments (6,881) (3,441) (2,235) Change in unrealized appreciation (depreciation) of investments (25,884) (15,438) (17,485) -------------------------------------------- Net increase (decrease) in contract owners' equity resulting from operations (33,965) (19,367) (20,397) -------------------------------------------- CONTRACT OWNERS' EQUITY TRANSACTIONS Proceeds from sales 14,687 11,879 15,286 Net transfer (to) from affiliate and subaccounts 4,545 4,500 11,982 Payments for redemptions (3,314) (946) (959) Guaranteed retirement income benefit fees, maintenance fees, and other fees (249) (100) (145) Annuity payout reserve adjustment -- -- -- -------------------------------------------- Net increase (decrease) from contract owners' equity transactions 15,669 15,333 26,164 -------------------------------------------- Total increase (decrease) in contract owners' equity (18,296) (4,034) 5,767 CONTRACT OWNERS' EQUITY Beginning of period 94,012 35,442 40,665 -------------------------------------------- End of period 75,716 31,408 46,432 ============================================
See accompanying notes to financial statements. 39 KILICO Variable Annuity Separate Account Notes to Financial Statements (1) Organization KILICO Variable Annuity Separate Account (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended, established by Kemper Investors Life Insurance Company ("KILICO"). KILICO is a wholly owned subsidiary of Zurich Group Holding ("ZGH") and an indirect wholly-owned subsidiary of Zurich Financial Services ("ZFS"), both of which are Swiss holding companies. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from KILICO'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 KILICO may conduct. The Separate Account is used to fund contracts or certificates (collectively referred to as "Contracts") for Kemper Advantage III periodic and flexible payment variable annuity contracts ("Kemper Advantage III"), Scudder Passport individual and group variable, fixed and market value adjusted deferred annuity contracts ("Scudder 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"), Scudder ZS4 individual and group variable and market value adjusted deferred annuity contracts ("Scudder 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 eighty-seven subaccounts with various subaccount options available to contract owners depending upon their respective Contracts. The Kemper Advantage III contracts have fifty-nine subaccount options available to contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, 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 Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the ING VP Emerging Markets Fund, Inc., the ING VP Natural Resources Trust, the INVESCO Variable Investment Funds, Inc., the J.P. Morgan Series Trust II, the Janus Aspen Series, the Oppenheimer Variable Account Funds, the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. The Scudder 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 Scudder Variable Series II, an open-end, diversified management investment company. The Scudder Destinations contracts have thirty-nine subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, the Credit Suisse Trust, the Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., the INVESCO Variable Investment Funds, Inc., the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified 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 Franklin Templeton Variable Insurance Products Trust, the Janus Aspen Series, the PIMCO Variable Insurance Trust, the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. The Zurich Preferred contracts have fifty-three subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, 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 Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the INVESCO Variable Investment Funds, Inc., the J.P. Morgan Series Trust II, the Janus Aspen Series, the 40 Oppenheimer Variable Account Funds, the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. The Zurich Preferred Plus contracts have fifty-three subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, 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 Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the INVESCO Variable Investment Funds, Inc., the J.P. Morgan Series Trust II, the Janus Aspen Series, the Oppenheimer Variable Account Funds, the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. The Scudder ZS4 contracts have forty-one subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, the Credit Suisse Trust, the Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., the INVESCO Variable Investment Funds, Inc., the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. The Zurich Archway contracts have fifty-two subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in The Alger American Fund, 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 Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the INVESCO Variable Investment Funds, Inc., the J.P. Morgan Series Trust II, the Janus Aspen Series, the Oppenheimer Variable Account Funds, the Scudder Variable Series I and the Scudder Variable Series II, all of which are open-end, diversified management investment companies. 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 reported net asset value of the respective portfolios. Security transactions Security transactions are generally accounted for on the trade date (date the order to buy or sell is executed). Dividend income, which includes capital gain distributions, 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. 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. Federal income taxes The operations of the Separate Account are included in the federal income tax return of KILICO. Under existing federal income tax law, investment income and realized capital gains and losses of the Separate Account affect liabilities under the contracts and are, therefore, not taxed. Thus, the Separate Account may realize net investment income and capital gains and losses without federal income tax consequences. 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 KILICO. 41 Estimates The preparation of financial statements in conformity with GAAP 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. Annuity Payouts Net assets allocated to contracts in the annuity payout (period) are computed according to the 1983a Individual Annuitant Mortality Table. The assumed investment return is 2.5 percent unless the annuitant elects otherwise, in which case the rate may vary from 2.5 percent to 7.75 percent, as regulated by the laws of respective states. The mortality risk is fully borne by KILICO and may result in additional amounts being transferred into the variable annuity account by KILICO to cover greater longevity of annuitants than expected. Conversely, if amounts allocated exceed amounts required, transfers may be made to the insurance company. (3) Purchases and Sales of Investments The cost of purchases and proceeds from sales of investments for the year ended December 31, 2003, are as follows (in thousands): Purchases Sales - -------------------------------------------------------------------------------- The Alger American Fund: Alger American Balanced Subaccount................... $ 11,427 $ 6,080 Alger American Growth Subaccount..................... 6,217 3,023 Alger American Leveraged AllCap Subaccount........... 9,254 4,992 Alger American MidCap Growth Subaccount.............. 12,611 1,724 Alger American Small Capitalization Subaccount....... 4,898 3,077 American Century Variable Portfolios, Inc.: American Century VP Income & Growth Subaccount....... 11,254 3,771 American Century VP Value Subaccount................. 5,651 3,750 Credit Suisse Trust: Credit Suisse Trust Emerging Markets Subaccount...... 12,791 9,215 Credit Suisse Trust Global Post-Venture Capital Subaccount.......................................... 3,546 2,462 Dreyfus Investment Portfolios: Dreyfus IP MidCap Stock Subaccount................... 22,641 11,071 The Dreyfus Socially Responsible Growth Fund, Inc.: Dreyfus Socially Responsible Growth Subaccount....... 1,709 2,067 Dreyfus Variable Investment Fund: Dreyfus VIF Small Company Stock Subaccount........... 254 4 Fidelity Variable Insurance Products Fund: Fidelity VIP Asset Manager Subaccount................ 4,235 1,109 Fidelity VIP Contrafund Subaccount................... 9,494 6,525 Fidelity VIP Equity Income Subaccount................ 13,697 5,746 Fidelity VIP Growth Subaccount....................... 5,841 10,424 Fidelity VIP Index 500 Subaccount.................... 11,298 16,977 42 (3) Purchases and Sales of Investments (continued) Purchases Sales - -------------------------------------------------------------------------------- Franklin Templeton Variable Insurance Products Trust: Franklin Rising Dividends Securities Subaccount...... $ 2,786 $ 169 Franklin Small Cap Value Securities Subaccount....... 352 11 Franklin Strategic Income Securities Subaccount...... 2,093 600 Franklin U.S. Government Subaccount.................. 12,058 504 Franklin Zero Coupon 2010 Subaccount................. 13,660 2,980 Mutual Discovery Securities Subaccount............... 1,442 129 Mutual Shares Securities Subaccount.................. 860 31 Templeton Developing Markets Securities Subaccount... 4,938 3,973 ING VP Emerging Markets Fund, Inc.: ING VP Emerging Markets Subaccount................... 2,393 2,615 ING VP Natural Resources Trust: ING VP Natural Resources Trust Subaccount............ 1,225 1,381 INVESCO Variable Investment Funds, Inc.: INVESCO VIF-Financials Services Subaccount........... 599 134 INVESCO VIF-Health Sciences Subaccount............... 1,011 42 INVESCO VIF-Real Estate Opportunity Subaccount....... 1,428 251 INVESCO VIF-Utilities Subaccount..................... 7,425 5,082 J.P. Morgan Series Trust II: JPMorgan International Opportunities Subaccount...... 16,741 901 JPMorgan MidCap Value Subaccount..................... 1,283 66 JPMorgan Small Company Subaccount.................... 3,072 4,047 Janus Aspen Series: Janus Aspen Balanced Subaccount...................... 9,877 27,602 Janus Aspen Capital Appreciation Subaccount.......... 137 197 Janus Aspen Growth Subaccount........................ 9,243 53,683 Janus Aspen Growth and Income Subaccount............. 140 41,199 Janus Aspen Mid Cap Growth Subaccount................ 2,498 14,092 Janus Aspen Worldwide Growth Subaccount.............. 12,995 37,626 Janus Aspen Mid Cap Value (Perkins) Subaccount....... 582 250 Janus Aspen Small Cap Value (Bay Isle) Subaccount.... 917 95 Oppenheimer Variable Account Funds: Oppenheimer Aggressive Growth Subaccount............. 374 94 Oppenheimer Capital Appreciation Subaccount.......... 1,555 104 Oppenheimer Global Securities Subaccount............. 7,476 923 Oppenheimer High Income Subaccount................... 1,418 678 Oppenheimer Main Street Subaccount................... 2,782 1,465 Oppenheimer Main Street Small Cap Subaccount......... 3,102 170 Oppenheimer Strategic Bond Subaccount................ 1,373 70 PIMCO Variable Insurance Trust: PIMCO Foreign Bond Subaccount........................ 56 46 PIMCO Low Duration Subaccount........................ 28 45 Scudder Variable Series I: Scudder 21/st/ Century Growth Subaccount............. 8,644 7,980 Scudder Bond Subaccount.............................. 7,424 16,226 Scudder Capital Growth Subaccount.................... 7,119 3,982 43 (3) Purchases and Sales of Investments (continued) Purchases Sales - -------------------------------------------------------------------------------- Scudder Variable Series I (continued): Scudder Global Discovery Subaccount.................. $ 9,675 $ 7,099 Scudder Growth and Income Subaccount................. 5,278 4,986 Scudder Health Sciences Subaccount................... 11,143 4,219 Scudder International Subaccount..................... 66,697 78,115 Scudder Money Market Subaccount...................... 109 6 Scudder Variable Series II: Scudder Aggressive Growth Subaccount................. 13,367 14,787 Scudder Blue Chip Subaccount......................... 45,797 18,136 Scudder Contrarian Value Subaccount.................. 19,212 17,349 Scudder Fixed Income Subaccount...................... 25,524 27,726 Scudder Global Blue Chip Subaccount.................. 4,133 2,720 Scudder Government Securities Subaccount............. 38,395 106,208 Scudder Growth Subaccount............................ 44,824 34,905 Scudder High Income Subaccount....................... 111,830 84,879 Scudder International Select Equity Subaccount....... 25,432 24,300 Scudder Money Market Subaccount...................... 253,531 377,863 Scudder Small Cap Growth Subaccount.................. 36,540 28,547 Scudder Strategic Income Subaccount.................. 29,029 26,988 Scudder Technology Growth Subaccount................. 27,406 67,756 Scudder Total Return Subaccount...................... 27,958 60,188 SVS Davis Venture Value Subaccount................... 21,904 8,017 SVS Dreman Financial Services Subaccount............. 8,326 7,148 SVS Dreman High Return Equity Subaccount............. 46,693 23,843 SVS Dreman Small Cap Value Subaccount................ 52,658 36,898 SVS Eagle Focused Large Cap Growth Subaccount........ 10,654 3,509 SVS Focus Value + Growth Subaccount.................. 8,185 6,149 SVS Index 500 Subaccount............................. 50,341 34,712 SVS INVESCO Dynamic Growth Subaccount................ 3,791 2,244 SVS Janus Growth and Income Subaccount............... 10,849 13,533 SVS Janus Growth Opportunities Subaccount............ 6,055 11,106 SVS MFS Strategic Value Subaccount................... 26 -- SVS Oak Strategic Equity Subaccount.................. 17,492 5,310 SVS Turner Mid Cap Growth Subaccount................. 18,321 3,777 Scudder Investments VIT Funds: Scudder Real Estate Securities Subaccount............ 15 -- (4) Expenses and Related Party Transactions KILICO assumes mortality risks associated with the annuity contracts as benefits paid to the contract owner or beneficiary may exceed contract value. KILICO also incurs all expenses involving administration and maintenance of the contracts, which may exceed charges assessed. In return, KILICO assesses that portion of each subaccount representing assets under the following contracts with a daily asset charge for mortality and expense risk and administrative costs: Kemper Advantage III flexible payment contracts an aggregate of one percent (1.00%) per annum. Kemper Advantage III periodic payment contracts an aggregate of one and three-tenths percent (1.30%) per annum. Scudder Passport contracts an aggregate of one and one-quarter percent (1.25%) per annum. Scudder Destinations contracts an aggregate of one and four-tenths percent (1.40%) per annum. Farmers Variable Annuity I contracts an aggregate of one and four-tenths percent (1.40%) per annum. Zurich Preferred contracts an aggregate of one and one-quarter percent (1.25%) per annum. Zurich Preferred Plus contracts an aggregate of one and one-half percent (1.50%) per annum. Scudder ZS4 contracts an aggregate of one and seven-tenths percent (1.70%) per annum. Zurich Archway contracts an aggregate of one and seven-tenths percent (1.70%) per annum. 44 The Scudder Passport and Scudder Destinations contracts offer a dollar cost averaging (DCA) program through the Money Market Subaccount and have no daily asset charge deduction. KILICO also assesses each Kemper Advantage III contract participating in one or more of the subaccounts at any time during the year a records maintenance charge. For contracts purchased prior to June 1, 1993, the charge is $25 and is assessed on December 31st of each calendar year. For contracts purchased June 1, 1993 and subsequent, the charge is a maximum of $36 per year and is assessed ratably every quarter of each calendar year, except in those states which have yet to approve these contract charges. The charge is assessed whether or not any purchase payments have been made during the year. KILICO also assesses against each Scudder Passport, Scudder Destinations, Farmers Variable Annuity I, Scudder ZS4 and Zurich Archway contract participating in one or more of the subaccounts a records maintenance charge of $30, generally taken at the end of each contract year. KILICO assesses each Zurich Preferred and Zurich Preferred Plus contract participating in one or more of the subaccounts a records maintenance charge of $7.50 quarterly for contracts with contract value under $25,000 and $3.75 quarterly for contracts with contract value between $25,000 and $50,000. The records maintenance charge for Kemper Advantage III, Scudder Passport, Scudder Destinations, Farmers Variable Annuity I, Zurich Preferred, Zurich Preferred Plus, Scudder ZS4 and Zurich Archway contracts are waived for all individual contracts whose investment value exceeds $50,000 on the date of assessment. KILICO assesses an annual charge for the Guaranteed Retirement Income Benefit ("GRIB") option, related to the Scudder Destinations and Farmers Variable Annuity I contracts. GRIB guarantees the minimum benefit value that will be applied to purchase an annuity option. The annual charge of .25% of contract value will be deducted pro rata from each invested subaccount quarterly. Proceeds payable on the redemption of units are reduced by the amount of any applicable contingent deferred sales charge due to KILICO. Investors Brokerage Services, Inc., formerly a wholly-owned subsidiary of KILICO, is the principal underwriter for the Separate Account. During September, 2003, this subsidiary was acquired by Banc One Insurance Holdings, Inc. (5) Changes in Units Outstanding The changes in units outstanding for the years ended December 31, 2003 and 2002, were as follows (in thousands):
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ The Alger American Fund: Alger American Balanced Subaccount 2003 3,480 2,994 486 2002 8,101 6,141 1,960 Alger American Growth Subaccount 2003 260 169 91 2002 252 230 22 Alger American Leveraged AllCap Subaccount 2003 3,533 2,750 783 2002 5,885 5,717 168 Alger American MidCap Growth Subaccount 2003 616 174 442 2002 355 145 210 Alger American Small Capitalization Subaccount 2003 277 185 92 2002 1,207 1,152 55 American Century VP Income & Growth Subaccount 2003 2,437 1,126 1,311 2002 3,313 1,248 2,065 American Century VP Value Subaccount 2003 1,340 1,076 264 2002 3,896 3,325 571
45 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ Credit Suisse Trust: Credit Suisse Trust Emerging Markets Subaccount 2003 2,183 1,800 383 2002 3,173 2,529 644 Credit Suisse Trust Global Post-Venture Capital Subaccount 2003 992 838 154 2002 1,494 1,090 404 Dreyfus Investment Portfolios: Dreyfus IP MidCap Stock Subaccount 2003 4,629 3,546 1,083 2002 9,897 7,000 2,897 The Dreyfus Socially Responsible Growth Fund, Inc: The Dreyfus Socially Responsible Growth Subaccount 2003 469 502 (33) 2002 1,052 941 111 Dreyfus Variable Investment Fund: Dreyfus VIF Small Company Stock Subaccount 2003 21 1 20 2002 N/A N/A N/A Fidelity Variable Insurance Products Fund: Fidelity VIP Asset Manager Subaccount 2003 221 89 132 2002 102 133 (31) Fidelity VIP Contrafund Subaccount 2003 743 607 136 2002 885 959 (74) Fidelity VIP Equity Income Subaccount 2003 762 458 304 2002 930 744 186 Fidelity VIP Growth Subaccount 2003 408 511 (103) 2002 630 673 (43) Fidelity VIP Index 500 Subaccount 2003 213 274 (61) 2002 345 492 (147) Franklin Templeton Variable Insurance Products Trust: Franklin Rising Dividends Securities Subaccount 2003 245 16 229 2002 N/A N/A N/A Franklin Small Cap Value Securities Subaccount 2003 30 2 28 2002 N/A N/A N/A Franklin Strategic Income Securities Subaccount 2003 218 74 144 2002 N/A N/A N/A
46 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ Franklin Templeton Variable Insurance Products Trust (continued): Franklin U.S. Government Subaccount 2003 1,288 125 1,163 2002 N/A N/A N/A Franklin Zero Coupon 2010 Subaccount 2003 1,468 412 1,056 2002 N/A N/A N/A Mutual Discovery Securities Subaccount 2003 131 14 117 2002 N/A N/A N/A Mutual Shares Securities Subaccount 2003 82 6 76 2002 N/A N/A N/A Templeton Developing Markets Securities Subaccount 2003 428 349 79 2002 1 1 -- ING VP Emerging Markets Fund, Inc.: ING VP Emerging Markets Subaccount 2003 374 408 (34) 2002 611 517 94 ING VP Natural Resources Trust: ING VP Natural Resources Trust Subaccount 2003 109 123 (14) 2002 119 134 (15) INVESCO Variable Investment Funds, Inc.: INVESCO VIF-Financial Services Subaccount 2003 55 13 42 2002 N/A N/A N/A INVESCO VIF-Health Sciences Subaccount 2003 96 7 89 2002 N/A N/A N/A INVESCO VIF-Real Estate Opportunity Subaccount 2003 130 32 98 2002 N/A N/A N/A INVESCO VIF-Utilities Subaccount 2003 1,954 1,580 374 2002 3,431 2,797 634 J.P. Morgan Series Trust II: JPMorgan International Opportunities Subaccount 2003 1,579 159 1,420 2002 N/A N/A N/A JPMorgan MidCap Value Subaccount 2003 116 9 107 2002 N/A N/A N/A JPMorgan Small Company Subaccount 2003 365 446 (81) 2002 1,358 1,361 (3)
47 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ Janus Aspen Series: Janus Aspen Balanced Subaccount 2003 946 1,660 (714) 2002 1,558 1,828 (270) Janus Aspen Capital Appreciation Subaccount 2003 104 110 (6) 2002 389 438 (49) Janus Aspen Growth Subaccount 2003 1,710 7,361 (5,651) 2002 3,899 6,593 (2,694) Janus Aspen Growth and Income Subaccount 2003 250 3,970 (3,720) 2002 1,719 2,983 (1,264) Janus Aspen Mid Cap Growth Subaccount 2003 547 1,137 (590) 2002 1,452 1,536 (84) Janus Aspen Worldwide Growth Subaccount 2003 1,327 2,328 (1,001) 2002 2,958 3,921 (963) Janus Aspen Mid Cap Value (Perkins) Subaccount 2003 51 22 29 2002 N/A N/A N/A Janus Aspen Small Cap Value (Bay Isle) Subaccount 2003 79 11 68 2002 N/A N/A N/A Oppenheimer Variable Account Funds: Oppenheimer Aggressive Growth Subaccount 2003 34 10 24 2002 N/A N/A N/A Oppenheimer Capital Appreciation Subaccount 2003 143 16 127 2002 N/A N/A N/A Oppenheimer Global Securities Subaccount 2003 618 101 517 2002 N/A N/A N/A Oppenheimer High Income Subaccount 2003 140 69 71 2002 N/A N/A N/A Oppenheimer Main Street Subaccount 2003 250 131 119 2002 N/A N/A N/A Oppenheimer Main Street Small Cap Subaccount 2003 273 32 241 2002 N/A N/A N/A Oppenheimer Strategic Bond Subaccount 2003 138 11 127 2002 N/A N/A N/A
48 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ PIMCO Variable Insurance Trust: PIMCO Foreign Bond Subaccount 2003 18 18 -- 2002 85 102 (17) PIMCO Low Duration Subaccount 2003 12 13 (1) 2002 43 48 (5) Scudder Variable Series I: Scudder 21/st/ Century Growth Subaccount 2003 3,776 3,526 250 2002 6,334 4,741 1,593 Scudder Bond Subaccount 2003 1,233 2,394 (1,161) 2002 2,094 1,714 380 Scudder Capital Growth Subaccount 2003 1,812 1,409 403 2002 3,382 2,693 689 Scudder Global Discovery Subaccount 2003 2,329 2,053 276 2002 4,749 4,168 581 Scudder Growth and Income Subaccount 2003 1,663 1,630 33 2002 4,972 4,320 652 Scudder Health Sciences Subaccount 2003 3,005 2,178 827 2002 6,424 4,414 2,010 Scudder International Subaccount 2003 13,719 14,837 (1,118) 2002 140,500 138,139 2,361 Scudder Money Market Subaccount 2003 30 21 9 2002 4 7 (3) Scudder Variable Series II: Scudder Aggressive Growth Subaccount 2003 2,528 2,683 (155) 2002 3,397 3,326 71 Scudder Blue Chip Subaccount 2003 10,002 7,921 2,081 2002 8,421 9,032 (611) Scudder Contrarian Value Subaccount 2003 7,157 10,504 (3,347) 2002 13,582 17,038 (3,456) Scudder Fixed Income Subaccount 2003 9,676 10,497 (821) 2002 14,398 12,146 2,252 Scudder Global Blue Chip Subaccount 2003 1,156 983 173 2002 2,641 2,176 465
49 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ Scudder Variable Series II (continued): Scudder Government Securities Subaccount 2003 13,489 26,194 (12,705) 2002 38,240 29,363 8,877 Scudder Growth Subaccount 2003 12,424 13,391 (967) 2002 8,300 19,296 (10,996) Scudder High Income Subaccount 2003 27,103 27,420 (317) 2002 27,915 32,435 (4,520) Scudder International Select Equity Subaccount 2003 13,066 16,291 (3,225) 2002 15,466 18,269 (2,803) Scudder Money Market Subaccount 2003 104,819 124,973 (20,154) 2002 1,059,200 1,133,637 (74,437) Scudder New Europe Subaccount 2003 N/A N/A N/A 2002 3,192 5,583 (2,391) Scudder Small Cap Growth Subaccount 2003 15,834 16,275 (441) 2002 49,142 53,749 (4,607) Scudder Strategic Income Subaccount 2003 4,883 4,809 74 2002 3,920 3,094 826 Scudder Technology Growth Subaccount 2003 16,912 19,159 (2,247) 2002 15,587 13,042 2,545 Scudder Total Return Subaccount 2003 7,648 17,012 (9,364) 2002 10,317 26,363 (16,046) SVS Davis Venture Value Subaccount 2003 6,286 4,610 1,676 2002 16,239 11,039 5,200 SVS Dreman Financial Services Subaccount 2003 2,082 2,000 82 2002 4,811 3,805 1,006 SVS Dreman High Return Equity Subaccount 2003 12,371 10,537 1,834 2002 30,845 21,435 9,410 SVS Dreman Small Cap Value Subaccount 2003 15,080 19,233 (4,153) 2002 39,866 29,945 9,921 SVS Eagle Focused Large Cap Growth Subaccount 2003 2,834 1,780 1,054 2002 5,982 3,933 2,049 SVS Focus Value + Growth Subaccount 2003 2,966 4,452 (1,486) 2002 5,198 7,614 (2,416) SVS Index 500 Subaccount 2003 14,167 11,816 2,351 2002 26,664 21,122 5,542
50 (5) Changes in Units Outstanding (continued)
Net Increase Units Issued Units Redeemed (Decrease) ------------ -------------- ------------ Scudder Variable Series II (continued): SVS INVESCO Dynamic Growth Subaccount 2003 1,367 1,131 236 2002 3,274 2,456 818 SVS Janus Growth and Income Subaccount 2003 6,404 6,614 (210) 2002 15,764 12,010 3,754 SVS Janus Growth Opportunities Subaccount 2003 5,111 5,955 (844) 2002 12,792 10,114 2,678 SVS MFS Strategic Value Subaccount 2003 2 -- 2 2002 N/A N/A N/A SVS Oak Strategic Equity Subaccount 2003 5,391 3,217 2,174 2002 8,384 6,072 2,312 SVS Turner Mid Cap Growth Subaccount 2003 4,798 2,794 2,004 2002 8,766 5,468 3,298 Scudder Investments VIT Funds: Scudder Real Estate Securities Subaccount 2003 1 -- 1 2002 N/A N/A N/A
(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 three years in the period ended December 31, 2003, follows.
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- The Alger American Fund: Alger American Balanced Subaccount: 2003 10,651 $ 10.397 $ 11.306 $ 110,755 2.05% 1.40% 2.05% 16.35% 17.39% 2002 10,165 8.857 9.684 90,036 1.78% 1.40% 2.05% -5.43% -0.08% 2001 8,205 10.240 10.240 84,021 1.99% 1.40% 1.40% -3.29% -3.29% Alger American Growth Subaccount: 2003 536 $ 11.427 $ 46.250 $ 23,931 N/A 1.00% 2.25% 32.12% 33.82% 2002 445 8.649 34.560 15,059 0.04% 1.00% 3.00% -33.66% -7.97% 2001 423 40.912 52.093 21,732 14.04% 1.00% 3.00% -12.95% 13.13% Alger American Leveraged AllCap Subaccount: 2003 10,008 7.017 11.567 70,229 N/A 1.40% 2.05% 31.54% 32.87% 2002 9,225 5.281 8.763 48,717 0.01% 1.40% 2.05% -34.82% -4.68% 2001 9,057 8.103 8.103 73,387 3.24% 1.40% 1.40% -17.09% -17.09%
51 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- The Alger American Fund (continued): Alger American MidCap Growth Subaccount 2003 825 13.120 28.931 23,629 N/A 1.00% 2.25% 44.51% 46.33% 2002 383 9.079 19.771 7,526 N/A 1.00% 3.00% -30.24% -1.39% 2001 173 28.092 28.342 4,678 33.96% 1.00% 3.00% -8.01% -4.13% Alger American Small Capitalization Subaccount 2003 266 13.156 32.441 6,880 N/A 1.00% 2.25% 39.15% 40.94% 2002 174 9.454 23.018 3,316 N/A 1.00% 3.00% -26.96% 2.53% 2001 119 16.250 31.513 3,635 0.05% 1.00% 3.00% -30.78% -13.54% American Century Variable Portfolios, Inc.: American Century VP Income & Growth Subaccount 2003 4,229 6.329 12.086 27,249 1.04% 1.00% 2.25% 26.51% 28.07% 2002 2,918 4.947 9.514 14,727 0.53% 1.00% 3.00% -20.99% 1.88% 2001 853 6.323 6.395 5,410 0.83% 1.00% 3.00% -9.82% -8.37% American Century VP Value Subaccount 2003 3,906 7.922 12.205 32,626 0.97% 1.00% 2.25% 26.12% 27.68% 2002 3,642 6.224 9.636 23,981 6.91% 1.00% 3.00% -14.55% 1.63% 2001 3,071 7.350 7.723 23,380 0.53% 1.00% 3.00% 7.38% 11.70% Credit Suisse Trust: Credit Suisse Trust Emerging Markets Subaccount 2003 2,964 10.065 12.167 31,302 N/A 1.00% 2.25% 39.74% 41.46% 2002 2,581 7.203 8.660 19,348 0.23% 1.00% 3.00% -13.34% -4.47% 2001 1,937 8.326 8.611 16,663 N/A 1.00% 3.00% -11.37% -10.51% Credit Suisse Trust Global Post-Venture Capital Subaccount 2003 2,144 8.338 12.050 17,881 N/A 1.40% 2.05% 44.70% 45.62% 2002 1,990 5.725 8.299 11,395 N/A 1.40% 2.05% -35.07% -8.69% 2001 1,586 8.818 8.818 13,982 N/A 1.40% 1.40% -29.62% -29.62% Dreyfus Investment Portfolios: Dreyfus I.P. MidCap Stock Subaccount 2003 11,521 11.170 12.639 144,649 0.28% 1.00% 2.25% 14.94% 29.91% 2002 10,438 9.522 9.664 100,874 0.33% 1.40% 2.05% -13.70% 1.58% 2001 7,541 11.199 11.199 84,453 0.27% 1.40% 1.40% -4.60% -4.60% The Dreyfus Socially Responsible Growth Fund, Inc.: Dreyfus Socially Responsible Growth Subaccount 2003 1,698 $ 6.585 $ 23.801 $ 14,313 0.12% 1.00% 2.25% 23.23% 24.76% 2002 1,731 5.299 19.078 11,679 0.23% 1.00% 3.00% -29.93% -29.65% 2001 1,620 7.563 27.119 15,699 0.07% 1.00% 3.00% -23.91% -16.84%
52 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Dreyfus Variable Investment Fund: Dreyfus VIF Small Company Stock Subaccount (e) 2003 20 11.368 13.646 272 N/A 1.00% 2.25% 17.50% 40.84% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Fidelity Variable Insurance Products Fund: Fidelity VIP Asset Manager Subaccount 2003 424 23.072 23.999 9,958 2.71% 1.00% 2.05% 15.61% 16.81% 2002 292 19.957 20.546 5,884 4.03% 1.00% 2.80% -10.56% -9.63% 2001 323 22.326 22.736 7,226 5.70% 1.00% 2.80% -5.40% -5.05% Fidelity VIP Contrafund Subaccount 2003 2,537 12.007 29.355 72,057 0.43% 1.00% 2.25% 25.62% 27.19% 2002 2,401 9.558 23.079 54,054 0.85% 1.00% 3.00% -10.25% 0.22% 2001 2,475 19.897 25.714 62,588 3.63% 1.00% 3.00% -13.68% -5.32% Fidelity VIP Equity Income Subaccount 2003 2,149 11.893 33.046 66,628 1.56% 1.00% 2.25% 27.42% 29.04% 2002 1,845 9.334 25.609 44,934 4.04% 1.00% 3.00% -17.77% 0.96% 2001 1,659 22.475 31.143 50,216 5.91% 1.00% 3.00% -6.46% -5.90% Fidelity VIP Growth Subaccount 2003 1,497 11.962 46.493 65,681 0.27% 1.00% 2.25% 29.88% 31.53% 2002 1,600 9.210 35.347 53,797 0.25% 1.00% 3.00% -30.80% 0.59% 2001 1,643 33.204 51.078 81,527 6.97% 1.00% 3.00% -19.03% -13.14% Fidelity VIP Index 500 Subaccount 2003 879 11.875 134.882 115,587 1.34% 1.00% 2.25% 25.28% 27.14% 2002 940 9.460 106.090 97,664 1.24% 1.00% 3.00% -23.02% 1.56% 2001 1,087 127.922 137.84 146,877 1.10% 1.00% 3.00% -13.75% -9.67% Franklin Templeton Variable Insurance Products Trust: Franklin Rising Dividends Securities Subaccount (f) 2003 229 12.104 12.183 2,783 0.40% 1.00% 2.25% 21.85% 23.05% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Franklin Small Cap Value Securities Subaccount (f) 2003 28 13.141 13.227 376 0.00% 1.00% 2.25% 29.22% 30.49% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Franklin Strategic Income Securities Subaccount (f) 2003 144 10.833 10.904 1,571 0.19% 1.00% 2.25% 17.46% 18.62% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Franklin U.S. Government Subaccount (f) 2003 1,163 $ 9.938 $ 10.003 $ 11,628 0.03% 1.00% 2.25% -0.04% 0.95% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A
53 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Franklin Templeton Variable Insurance Products Trust (continued): Franklin Zero Coupon 2010 Subaccount (f) 2003 1,056 9.919 9.984 10,535 0.03% 1.00% 2.25% 1.13% 2.13% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Mutual Discovery Securities Subaccount (f) 2003 117 12.327 12.408 1,447 0.07% 1.00% 2.25% 26.15% 27.40% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Mutual Shares Securities Subaccount (f) 2003 76 11.923 12.002 911 0.11% 1.00% 2.25% 22.40% 23.60% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Templeton Developing Markets Securities Subaccount 2003 82 13.164 14.493 1,177 0.17% 1.00% 2.25% 49.66% 51.12% 2002 3 8.725 8.725 29 N/A 1.40% 1.40% -1.53% -1.53% 2001 3 8.860 8.860 30 N/A 1.40% 1.40% -12.68% -12.68% ING VP Emerging Markets Fund, Inc.: ING VP Emerging Markets Fund Subaccount 2003 773 6.686 9.661 7,287 N/A 1.00% 2.05% 44.25% 45.75% 2002 807 4.635 6.628 5,236 N/A 1.00% 2.80% -11.15% -10.23% 2001 713 7.247 7.384 5,432 21.69% 1.00% 2.80% -11.67% -11.31% ING VP Natural Resources Trust: ING VP Natural Resources Trust Subaccount 2003 228 15.889 16.576 3,684 N/A 1.00% 2.05% 27.91% 29.24% 2002 242 12.422 12.826 3,033 0.19% 1.00% 2.80% -4.06% -3.07% 2001 257 12.958 13.232 3,252 N/A 1.00% 2.80% -17.13% -16.77% INVESCO Variable Investment Funds, Inc.: INVESCO VIF-Financial Services Subaccount (g) 2003 42 12.154 12.234 511 0.39% 1.00% 2.25% 26.76% 28.00% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A INVESCO VIF-Health Sciences Subaccount (g) 2003 89 11.776 11.854 1,058 N/A 1.00% 2.25% 24.97% 26.21% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A INVESCO VIF-Real Estate Opportunity Subaccount (g) 2003 98 $ 13.008 $ 13.093 $ 1,288 1.40% 1.00% 2.25% 35.77% 37.11% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A
54 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- INVESCO Variable Investment Funds, Inc. (continued): INVESCO VIF-Utilities Subaccount 2003 2,012 6.186 11.713 12,532 1.30% 1.00% 2.25% 14.88% 16.02% 2002 1,638 5.340 9.919 8,747 0.59% 1.40% 2.05% -21.42% 4.21% 2001 1,004 6.796 6.796 6,825 0.92% 1.40% 1.40% -32.30% -32.30% J.P. Morgan Series Trust II: JPMorgan International Opportunities Subaccount (h) 2003 1,420 13.188 13.275 18,835 N/A 1.00% 2.25% 29.53% 30.81% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A JPMorgan MidCap Value Subaccount (h) 2003 107 12.246 12.327 1,322 N/A 1.00% 2.25% 26.78% 28.03% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A JPMorgan Small Company Subaccount 2003 719 12.228 14.187 9,961 N/A 1.00% 2.25% 32.99% 34.63% 2002 800 9.176 10.538 8,265 0.24% 1.00% 3.00% -22.43% 0.82% 2001 803 12.972 13.584 10,764 0.03% 1.00% 3.00% -9.54% -3.47% Janus Aspen Series: Janus Aspen Balanced Subaccount 2003 4,946 10.961 29.019 139,284 2.20% 1.00% 2.25% 11.44% 12.92% 2002 5,660 9.836 25.699 141,809 2.44% 1.00% 3.00% -7.37% 0.33% 2001 5,930 22.896 27.744 161,184 2.59% 1.00% 3.00% -6.17% -4.07% Janus Aspen Capital Appreciation Subaccount 2003 187 8.362 8.362 1,562 0.48% 1.40% 1.40% 18.87% 18.87% 2002 193 7.035 7.035 1,356 0.59% 1.40% 1.40% -16.84% -16.84% 2001 242 8.459 8.459 2,043 1.17% 1.40% 1.40% -23.67% -23.67% Janus Aspen Growth Subaccount 2003 3,904 11.815 22.305 84,379 0.07% 1.00% 2.25% 28.84% 30.43% 2002 9,555 7.687 17.102 110,021 N/A 1.00% 3.00% -27.24% -16.12% 2001 12,249 10.607 23.504 189,564 0.25% 1.00% 3.00% -26.05% -21.32% Janus Aspen Growth and Income Subaccount (i) 2003 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2002 3,720 11.570 11.570 43,040 0.77% 1.40% 1.40% -22.62% -22.62% 2001 4,984 14.953 14.953 74,529 1.32% 1.40% 1.40% -14.57% -14.57% Janus Aspen Mid Cap Growth Subaccount 2003 2,722 12.534 23.401 62,097 N/A 1.00% 2.25% 32.06% 33.77% 2002 3,312 9.491 17.494 56,666 N/A 1.00% 3.00% -28.65% 1.24% 2001 3,396 21.725 24.518 81,659 N/A 1.00% 3.00% -40.63% -23.00% Janus Aspen Worldwide Growth Subaccount 2003 4,891 $ 10.896 $ 28.553 $ 136,089 1.06% 1.00% 2.25% 21.20% 22.76% 2002 5,892 8.991 23.259 134,031 0.86% 1.00% 3.00% -26.24% -3.80% 2001 6,855 28.344 31.533 212,598 0.45% 1.00% 3.00% -23.77% -16.33%
55 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Janus Aspen Series (continued): Janus Aspen Mid Cap Value (Perkins) Subaccount (i) 2003 29 13.307 13.394 395 0.00% 1.00% 2.25% 33.14% 39.04% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Janus Aspen Small Cap Value (Bay Isle) Subaccount (i) 2003 68 13.359 13.447 916 N/A 1.00% 2.25% 38.98% 40.35% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Variable Account Funds: Oppenheimer Aggressive Growth Subaccount (j) 2003 24 11.941 12.019 292 N/A 1.00% 2.25% 22.68% 23.89% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Capital Appreciation Subaccount (j) 2003 127 12.247 12.327 1,571 N/A 1.00% 2.25% 27.82% 29.08% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Global Securities Subaccount (j) 2003 517 14.069 14.161 7,318 N/A 1.00% 2.25% 39.72% 41.10% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer High Income Subaccount (j) 2003 71 11.007 11.080 785 N/A 1.00% 2.25% 21.07% 22.27% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Main Street Subaccount (j) 2003 119 12.032 12.111 1,435 N/A 1.00% 2.25% 23.66% 24.88% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Main Street Small Cap Subaccount (j) 2003 241 13.639 13.729 3,309 N/A 1.00% 2.25% 41.07% 42.46% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A Oppenheimer Strategic Bond Subaccount (j) 2003 127 10.754 10.825 1,370 N/A 1.00% 2.25% 14.58% 15.71% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A PIMCO Variable Insurance Trust: PIMCO Foreign Bond Subaccount 2003 18 $ 11.943 $ 11.943 $ 220 2.79% 1.40% 1.40% 0.86% 0.86% 2002 18 11.841 11.841 210 4.34% 1.40% 1.40% 6.68% 6.68% 2001 35 11.099 11.099 389 4.37% 1.40% 1.40% 6.77% 6.77%
56 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- PIMCO Variable Insurance Trust (continued): PIMCO Low Duration Subaccount 2003 18 12.110 12.110 214 1.80% 1.40% 1.40% 0.93% 0.93% 2002 19 11.998 11.998 231 3.94% 1.40% 1.40% 5.57% 5.57% 2001 24 11.366 11.366 278 6.16% 1.40% 1.40% 6.73% 6.73% Scudder Variable Series I: Scudder 21st Century Growth Subaccount 2003 6,040 4.644 11.836 28,050 N/A 1.40% 2.05% 27.77% 29.07% 2002 5,790 3.598 9.232 20,833 N/A 1.40% 2.05% -42.07% -1.78% 2001 4,197 6.211 6.211 26,068 N/A 1.40% 1.40% -24.15% -24.15% Scudder Bond Subaccount 2003 1,053 7.647 12.210 8,499 5.99% 1.00% 2.25% 2.75% 4.02% 2002 2,214 7.424 11.785 17,198 6.35% 1.00% 3.00% 5.54% 6.17% 2001 1,834 7.034 11.100 13,450 3.25% 1.00% 3.00% 2.42% 5.47% Scudder Capital Growth Subaccount 2003 5,444 8.914 18.155 49,512 0.40% 1.00% 2.25% 23.98% 25.63% 2002 5,041 7.124 14.451 36,569 0.35% 1.00% 3.00% -29.89% -24.13% 2001 4,352 10.201 20.611 45,339 9.97% 1.00% 3.00% -20.72% -14.48% Scudder Global Discovery Subaccount 2003 7,393 13.257 13.753 98,017 0.09% 1.40% 2.05% 45.78% 47.03% 2002 7,117 9.017 9.402 64,171 N/A 1.40% 2.05% -17.62% -6.11% 2001 6,536 11.412 11.412 74,591 1.60% 1.40% 1.40% -25.64% -25.64% Scudder Growth and Income Subaccount 2003 5,799 8.080 11.541 46,914 0.99% 1.40% 2.05% 24.01% 24.99% 2002 5,766 6.464 9.274 37,291 1.06% 1.40% 2.05% -24.19% -0.70% 2001 5,114 8.527 8.693 43,629 2.74% 1.40% 1.40% -13.30% -12.52% Scudder Health Sciences Subaccount 2003 7,059 10.551 14.285 74,488 N/A 1.40% 2.05% 30.54% 31.86% 2002 6,232 8.002 10.906 49,863 N/A 1.40% 2.05% -24.16% 1.28% 2001 4,222 10.551 10.551 44,542 N/A 1.40% 1.40% 5.51% 5.51% Scudder International Subaccount 2003 11,326 8.005 11.137 92,299 0.76% 1.00% 2.25% 24.94% 26.49% 2002 12,444 6.354 8.882 83,409 0.88% 1.00% 3.00% -19.49% -17.17% 2001 10,083 7.892 10.723 82,158 16.43% 1.00% 3.00% -32.11% -23.44% Scudder Money Market Subaccount 2003 12 10.393 10.721 133 1.23% 1.40% 1.40% -0.58% 0.82% 2002 3 10.308 10.783 30 N/A 1.40% 1.40% 0.09% 1.49% 2001 6 10.773 10.773 65 4.26% 1.40% 1.40% 2.41% 2.41% Scudder Aggressive Growth Subaccount 2003 3,915 $ 9.066 $ 12.906 $ 35,503 N/A 1.40% 2.05% 30.75% 32.29% 2002 4,070 6.853 9.837 27,890 0.45% 1.40% 2.05% -27.08% -1.85% 2001 3,999 10.022 10.022 40,084 0.85% 1.40% 1.40% -22.84% -22.84% Scudder Blue Chip Subaccount 2003 18,296 1.126 11.690 137,127 0.70% 1.25% 2.05% 24.22% 25.68% 2002 16,215 0.896 9.379 78,102 0.40% 1.25% 2.05% -23.08% -3.11% 2001 16,826 1.164 9.680 97,162 0.36% 1.25% 1.40% -16.97% -16.86%
58 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Scudder Variable Series II: Scudder Contrarian Value Subaccount 2003 32,630 1.946 11.965 149,054 1.80% 1.00% 2.05% 29.54% 31.28% 2002 35,977 1.484 9.162 113,597 1.57% 1.00% 2.80% -16.69% -16.05% 2001 39,433 1.799 10.913 128,715 1.50% 1.00% 2.80% 0.46% 0.85% Scudder Fixed Income Subaccount 2003 16,883 1.233 12.556 98,747 3.70% 1.00% 2.25% 2.65% 4.09% 2002 17,704 1.188 12.110 99,482 3.12% 1.00% 3.00% 5.63% 6.52% 2001 15,452 1.135 11.369 64,981 3.41% 1.00% 3.00% 2.24% 4.66% Scudder Global Blue Chip Subaccount 2003 2,918 10.609 11.817 30,965 0.34% 1.40% 2.05% 26.38% 27.35% 2002 2,745 8.331 9.319 22,865 0.65% 1.40% 2.05% -10.43% -7.08% 2001 2,280 10.029 10.029 22,866 2.07% 1.40% 1.40% 1.40% 1.40% Scudder Government Securities Subaccount 2003 37,820 1.287 12.784 163,000 5.36% 1.00% 2.25% -0.22% 1.24% 2002 50,525 1.275 12.676 237,363 3.09% 1.00% 3.00% 5.67% 6.56% 2001 41,648 1.218 11.896 160,645 3.48% 1.00% 3.00% 3.52% 6.64% Scudder Growth Subaccount 2003 53,620 1.675 11.517 239,685 0.12% 1.00% 2.25% 21.70% 23.48% 2002 54,587 1.360 9.431 178,843 N/A 1.00% 3.00% -30.28% 0.73% 2001 65,583 1.951 8.272 302,393 8.78% 1.00% 3.00% -23.67% -14.32% Scudder High Income Subaccount 2003 40,437 0.957 12.499 235,030 8.06% 1.00% 2.25% 21.65% 23.39% 2002 40,754 0.778 10.239 179,672 9.68% 1.00% 3.00% -2.50% 5.29% 2001 45,274 0.805 9.271 189,316 11.65% 1.00% 3.00% -2.72% 1.61% Scudder International Select Equity Subaccount 2003 33,625 1.667 11.710 96,753 1.12% 1.00% 2.05% 26.83% 28.54% 2002 36,850 1.299 9.202 75,047 0.42% 1.00% 2.80% -15.22% -1.69% 2001 39,653 1.547 7.918 72,774 16.11% 1.00% 2.80% -25.53% -25.18% Scudder Money Market Subaccount 2003 34,208 0.984 12.143 181,973 0.77% 1.00% 2.25% -1.50% 0.72% 2002 54,362 0.990 12.056 306,311 1.39% 1.00% 3.00% -0.86% 1.36% 2001 128,799 1.008 11.894 407,432 3.31% 1.00% 3.00% 0.94% 3.85% Scudder New Europe Subaccount 2003 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2002 -- N/A N/A N/A 2.29% 1.40% 1.40% N/A N/A 2001 2,391 6.576 6.576 15,722 1.33% 1.40% 1.40% -30.83% -30.83% Scudder Small Cap Growth Subaccount 2003 44,561 $ 1.072 $ 12.586 $ 141,216 N/A 1.00% 2.25% 29.85% 31.63% 2002 45,002 0.817 9.660 100,125 N/A 1.00% 3.00% -34.93% 1.94% 2001 49,609 1.267 9.348 152,170 12.86% 1.00% 3.00% -32.12% -16.19% Scudder Strategic Income Subaccount 2003 2,474 1.282 12.239 28,082 1.47% 1.25% 2.05% 5.43% 6.52% 2002 2,400 1.204 11.507 24,573 2.28% 1.25% 1.40% 9.77% 9.93% 2001 1,574 1.095 10.483 11,501 0.61% 1.25% 1.40% 3.78% 3.92%
58 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Scudder Variable Series II (continued): Scudder Technology Growth Subaccount 2003 25,760 0.835 13.392 153,801 N/A 1.00% 2.25% 43.25% 45.15% 2002 28,007 0.575 9.317 145,624 0.11% 1.00% 3.00% -36.79% 2.62% 2001 25,462 0.920 9.079 217,576 0.18% 1.00% 3.00% -33.63% -7.58% Scudder Total Return Subaccount 2003 74,476 1.892 11.138 440,847 3.06% 1.00% 2.25% 15.19% 16.77% 2002 83,840 1.624 9.636 416,026 2.89% 1.00% 3.00% -16.22% -9.23% 2001 99,886 1.939 10.615 566,841 6.75% 1.00% 3.00% -7.39% -5.62% SVS Davis Venture Value Subaccount 2003 16,169 10.008 12.301 161,895 0.48% 1.40% 2.05% 26.82% 28.05% 2002 14,493 7.816 9.666 113,303 0.15% 1.40% 2.05% -16.95% 1.47% 2001 9,293 9.412 9.412 87,458 N/A 1.40% 1.40% -5.88% -5.88% SVS Dreman Financial Services Subaccount 2003 5,779 11.968 12.548 72,507 1.40% 1.40% 2.05% 25.16% 26.37% 2002 5,697 9.562 9.930 56,572 0.88% 1.40% 2.05% -9.78% -0.02% 2001 4,691 11.006 11.006 51,630 0.97% 1.40% 1.40% -6.17% -6.17% SVS Dreman High Return Equity Subaccount 2003 34,882 12.230 12.479 435,250 1.88% 1.40% 2.05% 28.85% 30.11% 2002 33,048 9.436 9.591 316,953 1.39% 1.40% 2.05% -19.17% -1.19% 2001 23,638 11.674 11.865 280,450 0.60% 1.40% 1.40% -0.34% 0.29% SVS Dreman Small Cap Value Subaccount 2003 39,751 1.553 13.660 222,551 2.27% 1.00% 2.25% 34.84% 40.63% 2002 43,904 1.116 8.945 149,053 0.41% 1.00% 2.80% -13.13% -12.10% 2001 33,983 1.285 10.177 113,833 N/A 1.00% 2.80% 16.04% 16.49% SVS Eagle Focused Large Cap Growth Subaccount 2003 7,149 8.302 11.339 59,386 N/A 1.40% 2.05% 23.61% 24.79% 2002 6,095 6.652 9.142 40,566 N/A 1.40% 2.05% -28.35% -2.40% 2001 4,046 9.367 9.367 37,898 N/A 1.40% 1.40% -18.10% -18.10% SVS Focus Value + Growth Subaccount 2003 14,973 1.451 12.183 53,599 0.77% 1.00% 2.05% 29.63% 31.35% 2002 16,459 1.106 9.366 39,194 0.56% 1.00% 2.80% -27.38% -4.81% 2001 18,875 1.538 9.839 51,767 6.41% 1.00% 2.80% -15.56% -15.21% SVS Index 500 Subaccount 2003 25,469 7.991 11.868 203,544 1.05% 1.40% 2.05% 25.01% 26.16% 2002 23,118 6.334 9.461 146,428 0.55% 1.40% 2.05% -23.41% 1.62% 2001 17,576 8.270 8.270 145,352 0.29% 1.40% 1.40% -13.27% -13.27% SVS INVESCO Dynamic Growth Subaccount 2003 3,310 $ 7.939 $ 12.753 $ 26,296 N/A 1.40% 2.05% 32.54% 33.66% 2002 3,074 5.940 9.589 18,257 N/A 1.40% 2.05% -31.87% 4.47% 2001 2,256 8.718 8.718 19,666 N/A 1.40% 1.40% -12.82% -12.82% SVS Janus Growth and Income Subaccount 2003 17,467 7.331 11.302 128,062 0.70% 1.40% 2.05% 21.46% 22.66% 2002 17,677 5.952 9.235 105,208 0.66% 1.40% 2.05% -21.65% -0.56% 2001 13,923 7.597 7.597 105,768 0.42% 1.40% 1.40% -13.50% -13.50%
59 (6) Unit Values and Financial Highlights (continued)
At December 31 For the year ended December 31 --------------------------------------- -------------------------------------------- Net Expense Total Units Unit Fair Value Assets (d) Investment Ratio (b) Return (c) ------------------ Income --------------- --------------- (000s) Lowest Highest (000s) Ratio (a) Lowest Highest Lowest Highest ------- -------- -------- ---------- ---------- ------ ------- ------ ------- Scudder Variable Series II (continued): SVS Janus Growth Opportunities Subaccount 2003 16,951 5.318 11.920 90,163 N/A 1.40% 2.05% 23.71% 24.99% 2002 17,795 4.255 9.603 75,716 N/A 1.40% 2.05% -31.58% 1.35% 2001 15,117 6.219 6.219 94,012 N/A 1.40% 1.40% -24.75% -24.75% SVS MFS Strategic Value Subaccount (k) 2003 2 11.769 11.829 28 N/A 1.70% 2.05% 23.81% 24.24% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A SVS Oak Strategic Equity Subaccount 2003 9,193 6.610 13.219 60,811 N/A 1.40% 2.05% 46.14% 47.72% 2002 7,019 4.474 9.015 31,408 N/A 1.40% 2.05% -40.57% 1.52% 2001 4,707 7.529 7.529 35,442 N/A 1.40% 1.40% -24.71% -24.71% SVS Turner Mid Cap Growth Subaccount 2003 9,951 8.556 13.753 85,147 N/A 1.40% 2.05% 45.11% 46.45% 2002 7,947 5.842 9.446 46,432 N/A 1.40% 2.05% -33.21% 0.48% 2001 4,649 8.748 8.748 40,665 N/A 1.40% 1.40% -12.52% -12.52% Scudder Investments VIT Funds: Scudder Real Estate Securities Subaccount (k) 2003 1 12.421 12.449 16 N/A 1.70% 2.05% 24.21% 24.49% 2002 N/A N/A N/A N/A N/A N/A N/A N/A N/A 2001 N/A N/A N/A N/A N/A N/A N/A N/A N/A
(a) 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. (b) 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. (c) 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. (d) Net Assets equals Contract Owners' Equity. (e) For the period (commencement of operations): May 12, 2003 - December 31, 2003 (f) For the period (commencement of operations): May 6, 2003 - Franklin Rising Dividends Securities Subaccount; May 16, 2003 - Franklin Small Cap Value Securities Subaccount; May 15, 2003 - Franklin Strategic Income Securities Subaccount; May 5, 2003 - Franklin U.S. Government Subaccount; May 12, 2003 - Franklin Zero Coupon 2010 Subaccount; May 5, 2003 - Mutual Discovery Securities Subaccount and May 15, 2003 - Mutual Shares Securities Subaccount to December 31, 2003. (g) For the period (commencement of operations): May 2, 2003 - INVESCO VIF - Financial Services Subaccount; May 6, 2003 - INVESCO IVF - Health Sciences Subaccount; May 8, 2003 - INVESCO VIF - Real Estate Opportunity Subaccount to December 31, 2003. (h) For the period (commencement of operations): June 6, 2003 - JPMorgan International Opportunities Subaccount and May 5, 2003 - JPMorgan MidCap Value Subaccount to December 31, 2003. (i) For the period (cessation of operations): January 1, 2003 - Janus Aspen Growth and Income Subaccount to March 7, 2003. For the period (commencement of operations): May 12, 2003 - Janus Aspen Mid Cap Value (Perkins) Subaccount and May 28, 2003 - Janus Aspen Small Cap Value (Bay Isle) Subaccount to December 31, 2003. 60 (j) For the period (commencement of operations): May 15, 2003 - Oppenheimer Aggressive Growth Subaccount; May 6, 2003 - Oppenheimer Capital Appreciation Subaccount; May 12, 2003 - Oppenheimer Global Securities Subaccount; May 2, 2003 - Oppenheimer High Income Subaccount; May 5, 2003 - Oppenheimer Main Street Subaccount; May 9, 2003 - Oppenheimer Main Street Small Cap Subaccount and May 9, 2003 - Oppenheimer Strategic Bond Subaccount to December 31, 2003. (k) For the period (cessation of operations): January 1, 2002 - Scudder New Europe Subaccount to November 1, 2002. For the period (commencement of operations): June 12, 2003 - SVS MFS Strategic Value Subaccount and July 11, 2003 - Scudder VIT Real Estate Subaccount to December 31, 2003. 61 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholder of Kemper Investors Life Insurance Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), stockholder's equity and cash flows present fairly, in all material respects, the financial position of Kemper Investors Life Insurance Company and its subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois March 26, 2004 62 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, December 31, 2003 2002 ------------ ------------ Assets Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2003, $627,793; December 31, 2002, $3,313,920)................. $ 619,055 $ 3,420,773 Equity securities (cost: December 31, 2003, $2,458; December 31, 2002 $52,627).................................................................... 2,774 58,615 Short-term investments........................................................ 55,098 -- Joint venture mortgage loans.................................................. 7,417 114,061 Third-party mortgage loans.................................................... 52,955 57,985 Other real estate-related investments......................................... 5,495 5,645 Policy loans.................................................................. -- 223,888 Other invested assets......................................................... 2,117 2,491 ----------- ----------- Total investments......................................................... 744,911 3,883,458 Cash.......................................................................... 7,414 47,436 Accrued investment income..................................................... 10,475 148,549 Reinsurance recoverable....................................................... 3,992,659 433,566 Deferred insurance acquisition costs.......................................... 273,307 431,915 Value of business acquired.................................................... -- 53,600 Other intangible assets....................................................... -- 5,502 Deferred income taxes......................................................... 88,783 73,228 Federal income tax receivable................................................. 33,067 11,232 Modified coinsurance receivable--related party................................ 762,480 -- Other assets and receivables.................................................. 71,131 30,420 Assets held in separate accounts.............................................. 15,122,214 13,547,376 ----------- ----------- Total assets.............................................................. $21,106,441 $18,666,282 =========== =========== Liabilities Future policy benefits........................................................ $ 4,319,667 $ 4,111,063 Other policyholder benefits and funds payable................................. 150,092 178,709 Payable to reinsurers......................................................... 97,573 14,340 Modified coinsurance payable--related party................................... 758,853 -- Other accounts payable and liabilities........................................ 19,748 91,015 Liabilities related to separate accounts...................................... 15,122,214 13,547,376 ----------- ----------- Total liabilities......................................................... 20,468,147 17,942,503 ----------- ----------- Commitments and contingent liabilities........................................... -- -- Stockholder's equity Capital stock--$10 par value, authorized 300,000 shares; outstanding 250,000 shares...................................................................... 2,500 2,500 Additional paid-in capital.................................................... 841,633 841,633 Accumulated other comprehensive income (loss)................................. (12,283) 54,009 Retained deficit.............................................................. (193,556) (174,363) ----------- ----------- Total stockholder's equity................................................ 638,294 723,779 ----------- ----------- Total liabilities and stockholder's equity................................ $21,106,441 $18,666,282 =========== ===========
See accompanying notes to consolidated financial statements. 63 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
Year Ended December 31, ------------------------------ 2003 2002 2001 -------- --------- --------- Revenue Net investment income................................................ $162,749 $ 228,330 $ 269,419 Realized investment gains (losses)................................... 84,632 (779) 20,660 Premium income (loss)................................................ (1,072) 1,002 486 Separate account fees and charges.................................... 83,364 110,013 70,993 Broker-dealer commission revenue..................................... 18,671 28,452 25,996 Other income......................................................... 7,942 13,744 10,743 -------- --------- --------- Total revenue.................................................... 356,286 380,762 398,297 -------- --------- --------- Benefits and Expenses Interest credited to policyholders................................... 114,885 152,945 159,127 Claims incurred and other policyholder benefits...................... 13,562 62,613 21,933 Taxes, licenses and fees............................................. (1,832) 19,244 10,714 Commissions.......................................................... 45,049 83,508 154,341 Broker-dealer commission expense..................................... 18,646 27,953 25,244 Operating expenses................................................... 31,079 67,474 66,026 Deferral of insurance acquisition costs.............................. (49,673) (96,509) (166,202) Amortization of insurance acquisition costs.......................... 151,746 34,941 18,052 Amortization of value of business acquired........................... 56,828 20,751 15,606 Goodwill impairment.................................................. -- 156,511 -- Amortization of goodwill............................................. -- -- 12,744 Amortization of other intangible assets.............................. 506 759 961 -------- --------- --------- Total benefits and expenses...................................... 380,796 530,190 318,546 -------- --------- --------- Income (loss) before income tax expense (benefit) and cumulative effect of accounting change, net of tax............................ (24,510) (149,428) 79,751 Income tax expense (benefit)......................................... (15,323) (2,377) 28,154 -------- --------- --------- Net income (loss) before cumulative effect of accounting change, net of tax............................................................. (9,187) (147,051) 51,597 Cumulative effect of accounting change, net of tax................... -- (21,907) -- -------- --------- --------- Net income (loss)................................................ $ (9,187) $(168,958) $ 51,597 ======== ========= =========
See accompanying notes to consolidated financial statements. 64 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands)
Year Ended December 31, ----------------------------- 2003 2002 2001 -------- --------- -------- Net income (loss).............................................................. $ (9,187) $(168,958) $ 51,597 -------- --------- -------- Other comprehensive income (loss), before tax: Unrealized holding gains (losses) on investments arising during period: Unrealized (losses) on derivatives.......................................... (4,500) (8,092) (5,003) Unrealized holding gains (losses) on investments............................ (8,060) 88,159 59,158 Adjustment to value of business acquired.................................... (7,098) (1,786) (5,914) Adjustment to deferred insurance acquisition costs.......................... (4,121) (15,344) (1,050) -------- --------- -------- Total unrealized holding gains (losses) on investments arising during the period..................................................... (23,779) 62,937 47,191 -------- --------- -------- Less reclassification adjustments for items included in net income (loss): Adjustment for (gains) losses included in realized investment gains (losses).................................................................. 124,155 19,394 (9,203) Adjustment for amortization of premium on fixed maturities included in net investment income (loss).............................................. (19,044) (9,400) (5,732) Adjustment for (gains) included in amortization of value of business acquired.................................................................. (10,326) (331) (1,705) Adjustment for (gains) losses included in amortization of insurance acquisition costs......................................................... (23,535) (4,185) 6,395 -------- --------- -------- Total reclassification adjustments for items included in net income (loss)................................................................ 71,250 5,478 (10,245) -------- --------- -------- Other comprehensive income (loss), before related income tax expense (benefit).................................................................... (95,029) 57,459 57,436 Related income tax expense (benefit)........................................... (28,737) 20,001 8,167 -------- --------- -------- Other comprehensive income (loss), net of tax........................... (66,292) 37,458 49,269 -------- --------- -------- Comprehensive income (loss)............................................. $(75,479) $(131,500) $100,866 ======== ========= ========
See accompanying notes to consolidated financial statements. 65 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
Year Ended December 31, ------------------------------ 2003 2002 2001 --------- --------- -------- Capital stock, beginning and end of period........................ $ 2,500 $ 2,500 $ 2,500 --------- --------- -------- Additional paid-in capital, beginning of period................... 841,633 804,347 804,347 Capital contributions from parent................................. -- 37,286 -- --------- --------- -------- End of period.................................................. 841,633 841,633 804,347 --------- --------- -------- Accumulated other comprehensive income (loss), beginning of period 54,009 16,551 (32,718) Other comprehensive income (loss), net of tax..................... (66,292) 37,458 49,269 --------- --------- -------- End of period.................................................. (12,283) 54,009 16,551 --------- --------- -------- Retained deficit, beginning of period............................. (174,363) (5,405) (44,002) Net income (loss)................................................. (9,187) (168,958) 51,597 Dividends to parent............................................... (10,006) -- (13,000) --------- --------- -------- End of period.................................................. (193,556) (174,363) (5,405) --------- --------- -------- Total stockholder's equity................................. $ 638,294 $ 723,779 $817,993 ========= ========= ========
See accompanying notes to consolidated financial statements. 66 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------------------- 2003 2002 2001 ----------- ----------- ----------- Cash flows from operating activities Net income (loss)....................................................................... $ (9,187) $ (168,958) $ 51,597 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Realized investment (gains) losses................................................... (84,632) 779 (20,660) Interest credited and other charges.................................................. 115,647 188,926 169,084 Deferred insurance acquisition costs, net............................................ 102,072 (61,569) (148,150) Amortization of value of business acquired........................................... 56,828 20,751 15,606 Amortization of goodwill............................................................. -- -- 12,744 Goodwill impairment.................................................................. -- 156,511 -- Amortization of net discount/premium on investments.................................. 19,044 9,400 5,731 Amortization of other intangible assets.............................................. 506 759 961 Deferred income taxes................................................................ 13,182 2,458 16,927 Net change in current federal income taxes........................................... (21,835) 2,634 (5,063) Benefits and premium taxes due related to separate account business-owned life insurance........................................................................... (37,540) 11,521 (6,392) Modified coinsurance receivable...................................................... (762,480) -- -- Other policyholder benefits and funds payable........................................ (15,384) 5,441 4,190 Funds withheld account transfer...................................................... -- (222,500) -- Change in premium suspense........................................................... -- (43,625) 41,938 Payable to reinsurers................................................................ 83,233 15,400 (3,612) Modified coinsurance payable......................................................... 758,853 -- -- Reinsurance with Federal Kemper Life Assurance (FKLA)................................ 192,104 -- -- Other accounts and notes receivable.................................................. (38,772) (2,522) (9,817) Cumulative effect of accounting change, net of tax................................... -- 21,907 -- Other, net........................................................................... (32,831) (13,116) (27,579) ----------- ----------- ----------- Net cash provided by (used in) operating activities............................... 338,808 (94,122) 97,505 ----------- ----------- ----------- Cash flows from investing activities Cash from investments sold or matured: Fixed maturity securities held to maturity........................................... 185,049 198,824 281,664 Fixed maturity securities sold prior to maturity..................................... 1,282,052 2,307,588 1,331,168 Equity securities.................................................................... 5,002 17,435 -- Mortgage loans, policy loans and other invested assets............................... 203,163 76,382 60,495 Reinsurance with FKLA................................................................ 3,192,609 -- -- Cost of investments purchased or loans originated: Fixed maturity securities............................................................ (1,656,619) (2,757,149) (1,481,699) Equity securities.................................................................... -- (4,244) -- Mortgage loans, policy loans and other invested assets............................... (63,029) (48,722) (41,395) Investment in subsidiaries........................................................... -- -- (2,690) Short-term investments, net............................................................. (55,098) 159,105 (143,205) Net change in receivable and payable for securities transactions........................ (4,991) 12,928 6,186 Net change in other assets.............................................................. 3,052 2,440 2,248 ----------- ----------- ----------- Net cash provided by (used in ) investing activities.............................. 3,091,190 (35,413) 12,772 ----------- ----------- ----------- Cash flows from financing activities Policyholder account balances: Deposits............................................................................. 255,383 601,045 680,106 Withdrawals.......................................................................... (191,392) (505,674) (733,521) Capital contributions................................................................... -- 37,286 -- Dividends paid to stockholders.......................................................... (10,006) -- (13,000) Cash overdrafts......................................................................... 6,110 (13,060) (20,589) Reinsurance with FKLA................................................................... (3,530,115) -- -- ----------- ----------- ----------- Net cash provided by (used in) financing activities............................... (3,470,020) 119,597 (87,004) ----------- ----------- ----------- Net increase (decrease) in cash................................................... (40,022) (9,938) 23,273 Cash, beginning of period.................................................................. 47,436 57,374 34,101 ----------- ----------- ----------- Cash, end of period........................................................................ $ 7,414 $ 47,436 $ 57,374 =========== =========== ===========
See accompanying notes to consolidated financial statements. 67 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Basis of presentation Kemper Investors Life Insurance Company (the "Company") is licensed in the District of Columbia and all states, except New York. Zurich Life Insurance Company of New York ("ZLICONY"), a wholly-owned subsidiary through September 3, 2003, is licensed to conduct business in the State of New York. The Company also owned the PMG group of companies ("PMG") and Investors Brokerage Services, Inc. through September 3, 2003. The Company is a wholly-owned subsidiary of Kemper Corporation ("Kemper"), a non-operating holding company. Kemper is an indirect wholly-owned subsidiary of Zurich Holding Company of America, Inc. ("ZHCA"), a holding company. ZHCA is an indirect wholly-owned subsidiary of Zurich Group Holding ("ZGH" or "Zurich"), a Swiss holding company. ZGH is wholly-owned by Zurich Financial Services ("ZFS"), a Swiss holding company. The financial statements include the accounts of the Company on a consolidated basis through the period ended August 31, 2003. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the 2002 and 2001 consolidated financial statements in order to conform to the 2003 presentation. The accompanying consolidated financial statements of the Company as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. As further discussed in the accompanying notes to consolidated financial statements, significant estimates and assumptions affect goodwill, deferred insurance acquisition costs, the value of business acquired, provisions for real estate-related losses and reserves, other-than-temporary declines in values for fixed maturity and equity securities, the valuation allowance for deferred income taxes and the calculation of fair value disclosures for certain financial instruments and future policy benefit reserves. Goodwill and Other Intangibles In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets. SFAS 142 primarily addresses the accounting that must be applied to goodwill and intangible assets subsequent to their acquisition. Effective January 1, 2002, SFAS 142 required that goodwill and indefinite-lived intangible assets no longer be amortized, but be tested, at least annually, for impairment at the reporting unit level. As a result of implementation of SFAS 142, the Company recorded an impairment of $21.9 million in the second quarter of 2002. In the following quarter, the Company wrote off the remaining balance of its goodwill asset, $156.5 million, under the direction of the Board of Directors of its indirect, 100% shareholder, ZFS. In September 2002, the Board of Directors of ZFS approved a plan designed to improve the profitability of ZFS and its subsidiaries. Under this plan, ZFS considered a number of strategic options, the completion of which could have a significant impact on the recoverability of the carrying value of certain assets. Among the assets affected by the approval of the plan was the goodwill associated with the 1996 acquisition of the Zurich Life companies by ZFS. The Company filed its Form 10-Q for the period ended June 30, 2002 prior to ZFS Board's 68 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) action. As a result, the Company recorded the complete write-down of the remaining goodwill of $156.5 million in the third quarter of 2002, the period during which the Company became aware of this action by ZFS' Board of Directors. Other definite-lived, intangible assets of $7.6 million, recorded in 2001 and 2000 in connection with the purchase of PMG, continued to be amortized on a straight-line basis over a ten-year period, until their transfer as part of the Purchase Agreement (see Note 3 of the Notes to Consolidated Financial Statements). As of December 31, 2003, the Company does not have any goodwill or intangible assets on its balance sheet. Value of Business Acquired The value of business acquired ("VOBA") reflects the estimated fair value of the Company's life insurance business in force and represents the portion of the cost to acquire the Company that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. For the Company, January 4, 1996, the date Kemper was acquired by ZFS, is the VOBA acquisition date. The VOBA is the present value of the actuarially determined projected cash flows for the acquired policies. The VOBA is amortized over the estimated contractual life of the business acquired in relation to the present value of estimated gross profits using current assumptions based on an interest rate equal to the liability or contract rate on the business acquired. During 2003, the remaining balance of the VOBA was amortized in conjunction with the asset transfer resulting from the Bank One Purchase Agreement (see Note 3 below). The amortization and accretion of interest for the VOBA acquired for each of the years through December 31, 2003 were as follows:
Projected Beginning Accretion of Ending Year Ended December 31, Balance Amortization Interest Balance ----------------------- --------- ------------ ------------ ------- (in thousands) 2001.......... $93,185 $(21,394) $5,788 $77,579 2002.......... 77,579 (24,464) 3,713 56,828 2003.......... 56,828 (58,951) 2,123 --
Life Insurance Revenue and Expenses Revenue for annuities, variable life insurance and interest-sensitive life insurance products consists of investment income and realized capital gains, policy charges such as mortality, expense and surrender charges, and expense loads for premium taxes on certain contracts. Expenses consist of benefits in excess of account balances, interest credited to contracts, policy maintenance costs, amortization of deferred insurance acquisition costs and VOBA. Premiums for term life policies are reported as earned when due. Profits for such policies are recognized over the duration of the insurance policies by matching benefits and expenses to premium income. 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. As such, these amounts paid, or deemed to have been paid, are recorded on the Company's consolidated balance sheet as reinsurance recoverables and ceded future policy benefits. 69 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company also has reinsurance agreements that transfer the investment risk for a portion of the Guaranteed Minimum Death Benefits ("GMDB"s) and Guaranteed Retirement Income Benefits ("GRIB"s) offered in certain variable contracts. The Company also enters into reinsurance agreements as the assuming party. These agreements provide a cash flow stream during the term of the agreement and obligate the Company to pay the ceding party according to terms of the agreement. Deferred Insurance Acquisition Costs The costs of acquiring new business, principally commission expense and certain policy issuance and underwriting expenses, have been deferred to the extent they are recoverable from estimated future gross profits ("EGPs") on the related contracts and policies. The deferred insurance acquisition costs ("DAC") for annuities, separate account business and interest-sensitive life insurance products are being amortized over the estimated contract life in relation to the present value of EGPs, arising principally from projected investment margins, mortality expense margins and surrender charges. DAC related to such interest-sensitive products also reflect the estimated impact of unrealized gains or losses on fixed maturity securities held as available-for-sale in the investment portfolio, through a charge or credit to accumulated other comprehensive income, net of income tax. The DAC for term life insurance products are being amortized over the premium paying period of the policies. Actual gross profits can vary from management's estimates, resulting in increases or decreases in the rate of amortization. The Company regularly evaluates its EGPs to determine if actual experience or other evidence suggests that earlier estimates should be revised. In the event that the Company were to revise its EGPs, the cumulative DAC amortization would be adjusted to reflect such revised EGPs in the period the revision was determined to be necessary. Several assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, estimated interest spread and estimated mortality. The separate account fund performance assumption is critical to the development of the EGPs related to the Company's variable annuity and to a lesser extent, variable universal life insurance businesses. Additionally, the Company continues to perform analyses with respect to the potential impact of a revision to future EGPs. If such a revision to EGPs was deemed necessary, the Company would adjust, as appropriate, the assumptions for products accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments", and reproject its future EGPs based on current account values at the end of the quarter in which a revision is deemed to be necessary. The overall recoverability of the DAC asset is dependant on the future profitability of the business. The Company monitors aggregate recoverability of the DAC asset by comparing the amounts deferred to the present value of total EGPs. In addition, the Company routinely monitors its DAC asset for recoverability against severe declines in its separate account assets, which could occur if the equity markets experienced another significant sell-off, as the majority of policyholders' funds in the separate accounts are invested in the equity market. Future Policy Benefits Liabilities for future policy benefits related to annuities and interest-sensitive life contracts reflect net premiums received plus interest credited during the contract accumulation period and the present value of future payments for contracts that have annuitized. A liability has been established for GMDB in excess of account values. The GRIB was an optional benefit to the DESTINATIONS/SM/ variable annuity, for an additional asset- based fee. It 70 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) allows for a proxy account value, called the GRIB Base, to be applied to the guaranteed annuity factors (settlement option purchase rates) in the contract. The GRIB and GMDB Base prior to attained age 80 is the greatest of: . the contract value (account value), . the greatest anniversary value before the exercise (annuitization) date, or . purchase payments minus previous withdrawals, accumulated at 5% interest per year to the annuitization date. GRIB reserves have been established to cover the present value of future benefits for policies that were deemed to have elected annuitization. In accordance with current GAAP guidance, no additional liabilities for future policy benefits related to guaranteed living benefits have been established. Current interest rates credited during the contract accumulation period range from 0.5% to 7.4%. Future minimum guaranteed interest rates vary from 2.0% to 4.5%. For contracts that have annuitized, interest rates used in determining the present value of future payments range principally from 2.5% to 12.0%. Liabilities for future term life policy benefits have been computed principally by a net level premium method. Anticipated rates of mortality are based on the 1975-1980 Select and Ultimate Table modified by Company experience, including withdrawals. Assumed investment yields are by policy duration and range from 4.2% to 4.6% over 20 years. Impairment Losses on Investments Management regularly reviews its fixed maturity and equity securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. A number of criteria are considered during this process including, but not limited to, the current fair value as compared to cost or amortized cost, as appropriate, of the security, the length of time the security's fair value has been below cost or amortized cost, and by how much, specific credit issues related to the issuer and current economic conditions. Also, the Company estimates the cash flows over the life of purchased beneficial interests in securitized financial assets. Based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment is recognized and the purchased beneficial interest is written down to fair value. Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment. Significant changes in the factors the Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements. Valuation Allowances on Mortgage Loans on Real Estate The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers and its investment committee. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the estimated value of the mortgage loan. Estimated value is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered impaired are placed on nonaccrual status. Interest received on nonaccrual status mortgage loans on real estate is included in net investment income in the period received. 70 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by the Company to absorb estimated credit losses. The Company's periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Significant changes in the factors the Company considers in determining the valuation allowance on mortgage loans on real estate could result in a significant change in the valuation allowance reported in the consolidated financial statements. Guaranty Fund Assessments The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during the years 2003 and prior. The Company's financial statements include provisions for all known assessments that are expected to be levied against the Company as well as an estimate of amounts (net of estimated future premium tax recoveries) that the Company believes it will be assessed in the future for which the life insurance industry has estimated the cost to cover losses to policyholders. Invested Assets and Related Income Investments in fixed maturity securities and equity securities are carried at fair value. Short-term investments are carried at cost, which approximates fair value. The amortized cost of fixed maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed and asset-backed securities, over the estimated life of the security. Such amortization is included in net investment income. Amortization of the discount or premium from mortgage-backed and asset-backed securities is recognized using a level effective yield method which considers the estimated timing and amount of prepayments of the underlying loans and is adjusted to reflect differences which arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. To the extent that the estimated lives of such securities change as a result of changes in prepayment rates, the adjustment is also included in net investment income. The Company does not accrue interest income on fixed maturity securities deemed to be impaired on an other-than-temporary basis, or on mortgage loans and other real estate loans where the likelihood of collection of interest is doubtful. Mortgage loans are carried at their unpaid principal balance, net of any applicable reserves or write-downs. Other real estate-related investments, net of any applicable reserves and write-downs, include notes receivable from real estate ventures and investments in real estate ventures, adjusted for the equity in the operating income or loss of such ventures. Real estate reserves are established when declines in collateral values, estimated in light of current economic conditions, indicate a likelihood of loss. Investments in policy loans and other invested assets, consisting primarily of venture capital investments and a leveraged lease are carried primarily at cost, net of any applicable reserves or write-downs. Realized gains or losses on sales of investments, determined on the basis of specific security identification on the disposition of the respective investment, recognition of other-than-temporary declines in value and changes in real estate-related reserves and write-downs are included in revenue. Net unrealized gains or losses on revaluation of investments are credited or charged to accumulated other comprehensive income (loss). Such unrealized gains are recorded net of deferred income tax expense and unrealized losses are tax benefited. However, the tax benefits from unrealized losses are offset by a valuation allowance, where appropriate. 72 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Derivative and Embedded Derivative Financial Instruments Derivative financial instruments include interest rate swaps and certain investment risk transfer reinsurance agreements. Derivatives that are required to be separated from the host instrument and accounted for as derivative financial instruments, ("subject to bifurcation"), are embedded in fixed income securities and equity indexed life and annuity contracts and reinsurance agreements. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (collectively, "the statements") require that all derivatives be recognized on the Consolidated Balance Sheets at fair value. Embedded derivative instruments subject to bifurcation are also accounted for on a fair value basis and are reported together with the host contract. The change in the fair value of derivatives embedded in assets and liabilities subject to bifurcation is reported in other income. Derivatives that are not hedges for accounting purposes must be adjusted to fair value through net income. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through net income or recognized in accumulated other comprehensive income until the hedged item is recognized in net income. When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. The hedged item may be either all or a specific portion of a recognized asset, liability or an unrecognized firm commitment attributable to a particular risk. At the inception of the hedge, the Company formally documents the hedging relationship and risk management objective and strategy. The documentation identifies the hedging instrument, the hedged item, the nature of the risk being hedged and the methodology used to assess how effective the hedging instrument is in offsetting the exposure to changes in the hedged item's fair value attributable to the hedged risk, or in the case of a cash flow hedge, the exposure to changes in the hedged transaction's variability in cash flows attributable to the hedged risk. The Company does not currently exclude any component of the change in fair value of the hedging instrument from the effectiveness assessment. At each reporting date, the Company confirms that the hedging instrument continues to be highly effective in offsetting the hedged risk. Ineffectiveness in fair value hedges and cash flow hedges is reported in realized capital gains and losses. For the years ended December 31, 2003 and 2002, there was no hedge ineffectiveness. The Company designates certain interest rate swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income. The Company's cash flow experience is associated with an existing liability. For hedging instruments utilized as cash flow hedges, the changes in fair value of the derivatives are reported in accumulated other comprehensive income. Amounts are reclassified to net investment income or realized capital gains and losses as the hedged transaction affects net income. If, subsequent to entering into a hedge transaction, a derivative becomes ineffective (including if the hedged item is sold or otherwise extinguished), the Company may terminate the derivative position. The Company may also terminate derivative instruments as a result of other events or circumstances. When a derivative financial instrument utilized in a cash flow hedge of an existing asset or liability is no longer effective or is terminated, the gain or loss recognized on the derivative is reclassified from accumulated other comprehensive income to net income as the hedged risk impacts net income, beginning in the period hedge accounting is no longer applied or the derivative instrument is terminated. If the derivative financial instrument is not terminated when a cash flow hedge is no longer effective, the future gains and losses recognized on the derivative are reported in realized capital gains and losses. 73 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Separate Account Business The assets and liabilities of the separate accounts represent segregated funds administered and invested by the Company for purposes of funding variable annuity and variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contractholders. 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 contractholders. The assets and liabilities of the separate accounts are carried at fair value. Federal Income Taxes Beginning with the year ended December 31, 2002, the Company files a consolidated federal income tax return with ZHCA. Deferred taxes are provided on the temporary differences between the tax and financial statement basis of assets and liabilities. The Company provides for federal income taxes based on amounts the Company believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain expenses and the realization of certain tax credits. In the event the ultimate deductibility of certain expenses or the realization of certain tax credits differs from its estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. A written agreement provides the method of allocating tax between the Company and ZHCA. In general, allocation is based upon a separate return calculation with no immediate benefit for a taxable loss which is utilized in the current year consolidated return. 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 Company's apportioned tax liability in accordance with the tax sharing agreement. (2) Cash Flow Information The Company defines cash as cash in banks and money market accounts. The Company received a federal income tax refund of $8.5 million and $2.7 million in 2003 and 2002, respectively, and paid taxes of $19.8 million directly to the United States Treasury Department during 2001. (3) Sales and Reinsurance Ceded/Assumed FKLA. On September 3, 2003 (the "Closing Date" or the "Closing"), the Company transferred portions of its business through a one hundred percent coinsurance arrangement, as well as the capital stock of its wholly-owned subsidiaries, to its former affiliate, Federal Kemper Life Assurance Company ("FKLA"). Prior to the Closing Date, the Company, FKLA, Zurich Life Insurance Company of America ("ZLICA") and Fidelity Life Association, a mutual legal reserve company ("FLA") operated under the trade name "Zurich Life" and were all, except FLA, direct, wholly-owned subsidiaries of Kemper. Following the Closing Date, the Company remains a direct, wholly-owned subsidiary of Kemper. These transfers were part of a larger transaction pursuant to a Stock and Asset Purchase Agreement, dated May 29, 2003 (the "Purchase Agreement"), among ZHCA, Kemper, the Company, ZFS, Banc One Insurance Holdings, Inc. ("BOIH") and Bank One Corporation ("Bank One"). Under the Purchase Agreement, Kemper, an indirect subsidiary of ZFS, agreed to sell the capital stock of FKLA, ZLICA and Zurich Direct Inc. to BOIH. BOIH also agreed to acquire indirect control of FLA via its acquisition of FKLA which, pursuant to a Management Agreement, directs the day-to-day operations of FLA. BOIH further agreed to acquire control of all 74 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the Company's Subsidiaries. "The Company's Subsidiaries" included Investors Brokerage Services, Inc., Investors Brokerage Services Insurance Agency, Inc., ZLICONY, PMG Life Agency, Inc., PMG Marketing, Inc., PMG Securities Corporation and PMG Asset Management, Inc. (collectively "PMG"). Upon the Closing of the transactions contemplated by the Purchase Agreement, including the Coinsurance Agreement, effective as of the Closing (the "Coinsurance Agreement"), the Company ceded to FKLA, and FKLA assumed on a coinsurance basis, 100% of the General Account Liabilities. The "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 (the "Reinsured Policies"), except for certain retained liabilities. The Reinsured Policies also included certain policies to be written by the Company for a period of twelve months subsequent to the Closing. Upon the Closing, the Company also ceded to FKLA, and FKLA assumed on a modified coinsurance basis, a majority of the Separate Account Liabilities. The "Separate Account Liabilities" are all liabilities that were reflected in the Company's separate accounts and that relate to the Reinsured Policies. Pursuant to the modified coinsurance framework under which Separate Account Liabilities are reinsured, ownership of the underlying separate account assets was not transferred to FKLA. At December 31, 2003, the reinsurance recoverable from FKLA was $3.6 billion. In consideration of FKLA's assumption of the General Account Liabilities, the Company transferred to FKLA the Transferred Coinsurance Assets, less a Ceding Commission, as described below. "Transferred Coinsurance Assets", as calculated on a statutory accounting basis, were defined as (a)(i) all of the issued and outstanding shares of the Company's Subsidiaries and certain other assets (software, fixtures, equipment, etc.), (ii) certain investment assets and (iii) cash or cash equivalents, having an aggregate market value equal to the amount as of the Closing Date of the General Account Reserves, as defined in the Coinsurance Agreement, plus (b) the Company's interest maintenance reserve as of the Closing Date (excluding interest maintenance reserve as a result of the realization of gain associated with transferring the Transferred Coinsurance Assets at market value rather than book value) minus (c) the aggregate amount of accruals with respect to the Reinsured Policies. Pursuant to the Coinsurance Agreement, FKLA established a trust account (the "Security Trust Account") for the exclusive benefit of the Company funded with assets equal to one hundred percent of the general account reserves reinsured by FKLA, adjusted on a quarterly basis. FKLA is required to maintain the Security Trust Account in effect until the general account reserves are $400 million or less. At December 31, 2003, the general account reserves were $4.3 billion. The Company also transferred to FKLA in consideration of FKLA's reinsurance of future liabilities and obligations, in respect of the Reinsured Policies, future premiums, premiums receivable, policy loan receivables, reinsurance recoverables, separate account revenues, agents debit balances and all other fees, charges and amounts. In addition, pursuant to the Coinsurance Agreement, the administerial actions required of the Company with respect to the Bank Owned Life Insurance policies (the "BOLI Policies") are performed by FKLA in exchange for an income stream of 8 to 12 basis points earned on the value of the invested assets of the BOLI Policies. The Company has also agreed that, for a period of three years following the Closing Date, it will not, except under limited circumstances, issue any new BOLI Policies going forward. The "Ceding Commission", discussed above, was $120 million, subject to a market value adjustment with respect to the Transferred Coinsurance Assets. The Ceding Commission was not transferred from FKLA to the Company, but rather was withheld from the investment assets transferred from the Company to FKLA as part of the Transferred Coinsurance Assets. Both the Company and FKLA finalized their settlement in February 2004. The resulting closing adjustment resulted in a decrease of $9.3 million in payable to reinsurers in the balance sheet as of February 2004. 75 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company remains primarily responsible to its policyholders for all future claims and policyholder benefits related to the blocks of business ceded to FKLA and is not relieved of its obligations. Assets in support of the reserves for future policyholder benefits ceded to FKLA as part of the Coinsurance Agreement totaled $3.5 billion. Separate account assets that support the Separate Account Liabilities, but were not ceded to FKLA under the modified coinsurance arrangement, totaled $2.0 billion. At December 31, 2003, the Company's reinsurance reserve credit from FKLA relating to the coinsurance transaction totaled approximately $3.5 billion. The following table is a summary of certain balance sheet and income statement line items affected by the accounting for the initial coinsurance transaction.
Debit/(Credit) -------------- (in millions) Invested assets............. $(3,192.6) Accrued investment income... (135.3) Initial ceding commission... (73.1) Other assets................ (5.0) Future policyholder benefits 3,530.1 Other liabilities........... 33.5 Payable to reinsurers....... (73.6)
Prior to the Closing, the Company and FKLA shared common management and employees and FKLA performed the administration of the Company's business through an administrative services arrangement. With the sale of FKLA to BOIH, the Company has established post-Closing Date service arrangements for the operation of its business on both a short-term and long-term basis. On a long-term basis, the overall corporate and business administration of the Company will be performed by its affiliate, Farmers New World Life Insurance Company ("FNWL"), subject to the oversight of our new officers, directors and employees. For an interim period of up to one year, pursuant to a transition services agreement, FKLA will provide transition services to the Company and FNWL with respect to the overall operations of the Company including legal support services, accounting and financial operations services and support, actuarial services and support, information technology services and support, policyholder and distributor services and support, distributor relationship management services, product management services, tax administration support services, disaster recovery, system conversion services and other services as required. The transition services agreement is designed to facilitate the Company's continued operations, in substantially the same manner as it operated prior to the Closing, while the Company transitions to a new management team and new employees. In addition, for a period of up to one year FKLA will provide administrative services with respect to the Company's DESTINATIONS/SM/ business. The Reinsured Policies and BOLI business will be administered by FKLA on a long-term basis subject to the oversight of the Company. As part of the Coinsurance Agreement, FKLA is responsible for providing certain administrative services with respect to the Reinsured Policies. This includes, but is not limited to, policy and policyholder administration, separate account administration, preparing accounting and actuarial information, and certain aspects of legal compliance. On September 3, 2003, Kemper, the sole shareholder of the Company, elected a new Board of Directors and a new senior management team. None of the individuals serving on the Company's Board of Directors or in senior management positions prior to the Closing Date, except for the General Counsel, continue to serve in any capacity as directors or officers of the Company. In the third quarter of 2003, the Company exchanged certain invested assets with FKLA, ZLICA and ZLICONY. These invested assets were to be excluded from the companies acquired by BOIH as outlined in the 76 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Purchase Agreement and substituted with different invested assets. The net difference between the excluded assets received by the Company and the substituted assets received by FKLA, ZLICA and ZLICONY was treated as a dividend to Kemper in the amount of approximately $10.0 million. As part of the Coinsurance Agreement, the Company cedes 100% of all direct individual life insurance renewal premiums to FKLA. Prior to the Coinsurance Agreement, the Company ceded 90% of all new direct individual life insurance premiums to outside reinsurers. All reinsurance agreements with outside reinsurers were novated to FKLA. The Company previously assumed from FKLA $100.0 million in premiums related to a Funding Agreement. Funding Agreements are insurance contracts similar to structured settlements, immediate annuities and guaranteed investment contracts ("GICs"). The contracts qualify as insurance under state laws and are sold as non-surrenderable immediate annuities to a trust established by a securities firm. The securities firm sold interests in the trust to institutional investors. This Funding Agreement has a variable rate of interest based upon LIBOR, is an obligation of the Company's general account and is recorded as a future policy benefit. At December 31, 2003, the Funding Agreement balance was $100.2 million. FNWL. The Company entered into a modified coinsurance treaty (the "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 Deferred ("NQ-FPDA") and Non-Qualified Individual Single Premium 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. Subsequent new issues by FNWL of NQ-FPDA and NQ-SPDA annuities will be assumed by the Company. In exchange, the Company will receive all reinsurance premiums and pay benefits to the policyholders relating to these contracts. The Company has a management and service agreement with FNWL to receive services reasonably necessary pursuant to this agreement. The Modified Coinsurance Agreement requires the separate recording of an embedded derivative in the financial statements of the Company per SFAS 133, DIG B36 (see Effects of New Accounting Pronouncements and Note 14 of the Notes to Consolidated Financial Statements). At December 31, 2003, the modified coinsurance receivable was $762.5 million and the modified coinsurance payable was $758.9 million. FLA. The Company's ceded future policy benefits reflect coinsurance (indemnity reinsurance) transactions where the Company insured liabilities of approximately $516 million in 1992 and $416 million in 1991 with FLA and ceded benefits related to its BOLI reinsurance discussed below. At December 31, 2003 and 2002, the reinsurance reserve credit from FLA relating to these coinsurance transactions totaled approximately $203.2 million and $215.3 million, respectively. The reinsurance recoverables were $207.7 million and $215.3 million at December 31, 2003 and 2002, 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 were ceded to outside reinsurers. As of December 31, 2003 and 2002, the reinsurance recoverable related to reinsuring the net amount at risk on these contracts with Transamerica Re amounted to $26.3 million and $24.7 million, respectively. ZICBB. The Company is also a party to a reinsurance agreement with a ZFS affiliated company, Zurich Insurance Company, Bermuda Branch ("ZICBB"). Under the terms of this agreement, the Company cedes, on a yearly renewable term basis, 100% of the net amount at risk (death benefit payable to the insured less the 77 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) insured's separate account cash surrender value) related to BOLI. As consideration for this reinsurance coverage, the Company cedes separate account fees (cost of insurance charges) to ZICBB and, under the original agreement, retained a portion of such funds in a funds withheld account ("FWA") which was included as a component of benefits and funds payable. During the first quarter of 2002, the Company amended the BOLI reinsurance agreement with ZICBB. Under the amended agreement, the balance in the FWA was transferred to a trust account that acts as security for the reinsurance agreement. On January 25, 2002, approximately $222.5 million in cash was transferred to the trust account. The trust account is not reflected in the Company's consolidated financial statements but is included in ZICBB's financial statements. At December 31, 2003, reinsurance recoverables totaling $206.2 million were secured by the trust agreement, which was supported by cash and invested assets with a fair value of approximately $235.4 million. The following table contains amounts related to the BOLI funds withheld reinsurance agreement with ZICBB: ZICBB Business Owned Life Insurance (BOLI) (in millions)
Year Ended December 31, ---------------------------- 2003 2002 2001 -------- -------- -------- Face amount in force........... $ 85,269 $ 85,592 $ 85,564 ======== ======== ======== Net amount at risk ceded....... $(74,567) $(75,288) $(76,283) ======== ======== ======== Cost of insurance charges ceded $ 177.9 $ 156.5 $ 168.1 ======== ======== ======== Funds withheld account......... $ -- $ -- $ 236.1 ======== ======== ========
The Company's FWA supported reserve credits on reinsurance ceded on the BOLI product at December 31, 2001. At December 31, 2003 and 2002, the trust supports reserve credits of $16.9 million and $15.8 million, respectively on the reinsurance ceded. Effective December 31, 2001, the Company entered into a quota-share reinsurance agreement with ZICBB. Under the terms of this agreement, the Company ceded 100% of the net amount at risk of the GMDB and GRIB portions of a small number of specific variable annuity contracts. As consideration for this reinsurance coverage, the Company ceded 100% of all charges to policyholders and all revenue sharing income received from fund managers related to such reinsured policies. In 2001, the Company received $7.9 million of ceding commissions and expense allowances, and paid $1.2 million of ceded premiums, related to this reinsurance agreement. The account values related to these policies were held in the Company's separate account during the accumulation period of the contracts. The reserve credits under this treaty were secured by a trust agreement that requires the fair market value of assets therein to at least equal 102 percent of such reserve credits. In January 2003, the specific annuities that comprised the block of business ceded to ZICBB were surrendered. Approximately $5.0 million in surrender charges collected on these specific annuities were paid to ZICBB at the end of February 2003, as the final settlement payment related to this reinsurance agreement. 78 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (4) Invested Assets and Related Income The Company is carrying its fixed maturity investment portfolio at estimated fair value as fixed maturity securities are considered available-for-sale. The carrying value of fixed maturity and equity securities compared with cost or amortized cost, adjusted for other-than-temporary declines in value, and gross unrealized gains and losses, were as follows:
Cost or Gross Unrealized Carrying Amortized ----------------- Value Cost Gains Losses ---------- ---------- -------- -------- (in thousands) December 31, 2003 U.S. treasury securities and obligations of U.S. government agencies and authorities..................... $ 93,163 $ 94,362 $ 63 $ (1,262) Obligations of states and political subdivisions, special revenue and nonguaranteed............................... 2,180 2,140 40 -- Debt securities issued by foreign Governments............. 1,142 1,142 -- -- Corporate securities...................................... 292,853 290,646 5,718 (3,511) Mortgage and asset-backed securities...................... 229,717 239,503 3,805 (13,591) ---------- ---------- -------- -------- Total fixed maturity securities....................... $ 619,055 $ 627,793 $ 9,626 $(18,364) ========== ========== ======== ======== Equity securities......................................... $ 2,774 $ 2,458 $ 316 $ -- ========== ========== ======== ======== December 31, 2002 U.S. treasury securities and obligations of U.S. government agencies and authorities..................... $ 265,400 $ 260,287 $ 5,140 $ (26) Obligations of states and political subdivisions, special revenue and nonguaranteed............................... 19,873 19,073 800 -- Debt securities issued by foreign Governments............. 4,793 4,506 287 -- Corporate securities...................................... 2,137,716 2,062,712 90,030 (15,026) Mortgage and asset-backed securities...................... 992,990 967,342 35,972 (10,324) ---------- ---------- -------- -------- Total fixed maturity securities....................... $3,420,773 $3,313,920 $132,229 $(25,376) ========== ========== ======== ======== Equity securities......................................... $ 58,615 $ 52,627 $ 5,988 $ -- ========== ========== ======== ========
The carrying value and amortized cost of fixed maturity investments, by contractual maturity at December 31, 2003, are shown below. Actual maturities may/will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because mortgage-backed and asset-backed securities provide for periodic payments throughout their life.
Carrying Amortized Value Cost -------- --------- (in thousands) One year or less.................................................................. $ 74,247 $ 73,887 Over one year through five years.................................................. 153,482 153,104 Over five years through ten years................................................. 117,313 115,436 Over ten years.................................................................... 44,295 45,863 Securities not due at a single maturity date, primarily mortgage- and asset-backed securities(1)................................................................... 229,717 239,503 -------- -------- Total fixed maturity securities................................................... $619,055 $627,793 ======== ========
- -------- (1) Weighted average maturity of 3.9 years 79 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Proceeds from sales of investments in fixed maturity securities prior to maturity were $1,282.1 million and $2,307.6 million during 2003, and 2002, respectively. Gross gains of $122.7 million and $81.2 million and gross losses, including write-downs of fixed maturity securities, of $39.4 million and $65.8 million were realized on sales and maturities in 2003, and 2002, respectively. Pre-tax write-downs amounted to $2.4 million and $18.5 million, for the years ended December 31, 2003, and 2002, respectively. Excluding agencies of the U.S. government, no other individual investment exceeded 10% of the Company's stockholder's equity at December 31, 2003 and 2002. At December 31, 2003, securities carried at approximately $3.5 million, were on deposit with governmental agencies as required by law. For its securitized financial assets, the Company recognizes an impairment loss if the fair value of a security is below book value and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent (prior) estimation date. The Company recorded no write-downs in 2003 and write-downs of $9.5 million in 2002, related to its securitized financial assets. Upon default or indication of potential default by an issuer of fixed maturity securities other than securitized financial assets, any issues of such issuer would be placed on nonaccrual status and, since declines in fair value would no longer be considered by the Company to be temporary, would be analyzed for possible write-down. Any such issue would be written down to its net realizable value during the fiscal quarter in which the impairment was determined to have become other-than-temporary. Thereafter, each issue on nonaccrual status is regularly reviewed, and additional write-downs may be taken in light of later developments. The Company recorded no write-downs on its fixed maturity securities other than securitized financial assets portfolio in 2003 and 2002. The Company's computation of net realizable value involves judgments and estimates, so such value should be used with care. Such value determination considers such factors as the existence and value of any collateral; the capital structure of the issuer; the level of actual and expected market interest rates; where the issue ranks in comparison with other debt of the issuer; the economic and competitive environment of the issuer and its business; the Company's view on the likelihood of success of any proposed issuer restructuring plan; and the timing, type and amount of any restructured securities that the Company anticipates it will receive. The Company's $65.9 million real estate portfolio at December 31, 2003 consists of joint venture and third-party mortgage loans and other real estate-related investments. At December 31, 2003 and 2002, total impaired real estate-related loans were as follows:
December 31, December 31, 2003 2002 ------------ ------------ (in thousands) Gross impaired loans, including accrued interest $7,059 $7,059 Reserves related to impaired loans.............. 2,061 2,061 ------ ------ Net impaired loans........................... $4,998 $4,998 ====== ======
At both December 31, 2003 and 2002, loans on nonaccrual status, before reserves, amounted to $7.1 million. The Company's nonaccrual loans are generally included in impaired loans. Cash payments received on impaired loans are generally applied to reduce the outstanding loan balance. 80 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Investment Income The sources of net investment income were as follows:
2003 2002 2001 -------- -------- -------- (in thousands) Interest on fixed maturity securities............ $132,077 $186,034 $214,505 Dividends on equity securities................... 2,521 4,508 4,598 Income from short-term investments............... 541 1,479 2,332 Income from mortgage loans....................... 12,051 15,598 30,771 Income from policy loans......................... 13,023 23,189 19,394 Income from other real estate-related investments -- 13 27 Income from other loans and investments.......... 5,094 951 646 -------- -------- -------- Total investment income....................... 165,307 231,772 272,273 Investment expense............................... 2,558 3,442 2,854 -------- -------- -------- Net investment income......................... $162,749 $228,330 $269,419 ======== ======== ========
Net Realized Investment Gains (Losses) Net realized investment gains (losses) for the years ended December 31, 2003, 2002, and 2001, were as follows:
2003 2002 2001 ------- -------- ------- (in thousands) Real estate-related..................................... $ 745 $ 961 $16,081 Fixed maturity securities............................... 77,279 15,444 4,284 Equity securities....................................... 6,691 346 262 Other................................................... (83) (17,530) 33 ------- -------- ------- Realized investment gains (losses) before income tax expense (benefit).................................. 84,632 (779) 20,660 Income tax expense (benefit)............................ 29,622 (273) 7,231 ------- -------- ------- Net realized investment gains (losses)........... $55,010 $ (506) $13,429 ======= ======== =======
The net realized investment gains on fixed maturity securities and equity securities for 2003 are primarily due to the transfer of assets to FKLA as part of the Coinsurance Agreement. (See Note 3 to the Notes to Consolidated Financial Statements.) The other losses, net, for 2002 consisted primarily of a write-down on a leveraged lease for two aircraft. The aircraft were leased by United Airlines ("UAL") and were written down to zero subsequent to UAL filing Chapter 11 bankruptcy in the fourth quarter of 2002. The pre-tax write-down totaled $17.5 million. 81 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table shows the Company's investments' fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.
Less Than 12 Months 12 Months or More Total ------------------ ----------------- ------------------ Description of Securities Fair Unrealized Fair Unrealized Fair Unrealized (in thousands) US Treasury obligations and direct obligations of US government agencies........................ $ 38,728 $(1,262) $ -- $ -- $ 38,728 $ (1,262) Mortgage backed and asset backed securities...................... 80,606 (5,709) 26,452 (7,882) 107,058 (13,591) Corporate bonds................... 64,062 (1,488) 10,074 (2,023) 74,136 (3,511) Foreign governments............... 1,142 0 -- -- 1,142 0 -------- ------- ------- ------- -------- -------- Subtotal, debt securities......... 184,538 (8,459) 36,526 (9,905) 221,064 (18,364) Common Stock...................... -- -- -- -- -- -- Preferred Stock................... -- -- -- -- -- -- -------- ------- ------- ------- -------- -------- Total temporarily impaired securities................... $184,538 $(8,459) $36,526 $(9,905) $221,064 $(18,364) ======== ======= ======= ======= ======== ========
At December 31, 2003, 62 different fixed maturity securities represented 100% of the Company's $18.4 million total unrealized loss. Unrealized losses in the fixed maturity investment portfolio, including US government agencies, mortgage and asset backed securities and corporate bonds, were primarily due to higher interest rates during 2003. The Company held no securities of a single issuer that were at an unrealized loss position in excess of 7% of the total unrealized loss amount as of December 31, 2003. 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, management's intent and ability to hold these securities, as well as the evaluation of the fundamentals of the issuers' financial condition and other objective evidence, the Company believes that the prices of the securities above were temporarily depressed. The evaluation for other-than-temporary impairments is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other-than-temporary. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition or near term recovery prospects and the effects of changes in interest rates. In addition, for securitized financial assets with contractual cash flows (e.g. asset-backed and mortgage-backed securities), projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. As of December 31, 2003, management's expectation of the discounted future cash flows on these securities was in excess of the associated securities' amortized costs. (5) Concentration of Credit Risk The Company generally strives to maintain a diversified invested asset portfolio; however, certain concentrations of credit risk exist in mortgage- and asset-backed securities and real estate. Approximately 14.4% of the investment-grade fixed maturity securities at December 31, 2003 were residential mortgage-backed securities, down from 16.2% at December 31, 2002. Approximately 8.6% of the investment-grade fixed maturity securities at December 31, 2003 were commercial mortgage-backed securities, 82 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) compared with 6.3% at December 31, 2002. The residential mortgage-backed securities consist primarily of marketable mortgage pass-through securities issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and other investment-grade securities collateralized by mortgage pass-through securities issued by these entities. The Company has not made any investments in interest-only or other similarly volatile tranches of mortgage-backed securities. The Company's mortgage-backed investments are generally of AAA credit quality, and the markets for these investments have been and are expected to remain liquid. Approximately 14.3% and 7.3% of the investment-grade fixed maturity securities at December 31, 2003 and 2002, respectively, consisted of asset-backed securities. At December 31, 2003, the majority of investments in asset-backed securities were backed by automobile loans (22.7%), credit card loans (21.9%), collateralized loan and bond obligations (19.4%), and manufactured housing loans (18.4%). At December 31, 2002, the majority of investments in asset-backed securities were backed by home equity loans (34.7%), manufactured housing loans (17.7%), collateralized loan and bond obligations (15.4%) and automobile loans (13.1%). The Company's real estate portfolio is distributed by geographic location and property type. The geographic distribution of a majority of the real estate portfolio as of December 31, 2003 was as follows: Washington (25.1%), Colorado (13.8%), Oregon (13.3%) and Illinois (11.3%). The property type distribution of a majority of the real estate portfolio as of December 31, 2003 was as follows: hotels (83.4%), office (11.3%), and residential (4.3%). To maximize the value of certain land and other projects, additional development has been proceeding or has been planned. Such development of existing projects would continue to require funding, either from the Company or third parties. In the present real estate market, third-party financing can require credit enhancing arrangements (e.g., standby financing arrangements and loan commitments) from the Company. The values of development projects are dependent on a number of factors, including Kemper's and the Company's plans with respect thereto, obtaining necessary construction and zoning permits and market demand for the permitted use of the property. There can be no assurance that such permits will be obtained as planned or at all, nor that such expenditures will occur as scheduled, nor that Kemper's or the Company's plans with respect to such projects may not change substantially. At December 31, 2003, loans to and investments in joint ventures in which Patrick M. Nesbitt or his affiliates ("Nesbitt"), a third-party real estate developer, have ownership interests constituted approximately $53.0 million of the Company's real estate portfolio. The Nesbitt ventures consist of nine hotel properties and one retail property. At December 31, 2003, the Company did not have any Nesbitt-related off-balance-sheet legal funding commitments outstanding. During 2003, the Company released the valuation reserve of $0.6 million for one of these properties as the loan was paid in full. At December 31, 2003, a loan to a joint venture amounted to $7.4 million. This affiliated mortgage loan was on an office property located in Illinois and owned by an affiliate, Zurich North America. During 2003, the Company received a paydown on this loan of $4.4 million. The remaining real estate-related investment amounted to $5.5 million at December 31, 2003 and consisted primarily of $4.9 million mortgage loans on various unzoned lots located in Hawaii. These properties are not currently producing income and the loans are on nonaccrual status. The Company is currently pursuing an out of court settlement with the City of Honolulu for the rezoning of certain unzoned properties. The Company is holding the other unzoned properties for future zoning and sales. Management is currently working with the City of Honolulu to obtain zoning that will allow development of the properties. Alternatively, we may completely dispose of all investments in Hawaii. At December 31, 2003, off-balance-sheet legal commitments related to Hawaiian properties totaled $4.0 million. 83 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (6) Income Taxes Income tax expense (benefit) was as follows for the years ended December 31, 2003, 2002, and 2001:
2003 2002 2001 -------- ------- ------- (in thousands) Current.... $(28,480) $(4,835) $11,228 Deferred... 13,157 2,458 16,926 -------- ------- ------- Total..... $(15,323) $(2,377) $28,154 ======== ======= =======
Additionally, the deferred income tax expense (benefit) related to items included in other comprehensive income was as follows for the years ended December 31, 2003, 2002, and 2001:
2003 2002 2001 -------- ------- ------- (in thousands) Unrealized gains and (losses) on investments $(36,662) $24,416 $12,246 Value of business acquired.................. 1,130 (509) (1,473) Deferred insurance acquisition costs........ 6,795 (3,906) (2,606) -------- ------- ------- Total.................................... $(28,737) $20,001 $ 8,167 ======== ======= =======
The actual income tax expense (benefit) for 2003, 2002, and 2001 differed from the "expected" tax expense for those years as displayed below. "Expected" tax expense was computed by applying the U.S. federal corporate tax rate of 35% in 2003, 2002, and 2001 to income before income tax expense.
2003 2002 2001 -------- -------- ------- (in thousands) Computed expected tax expense........................ $ (8,578) $(52,300) $27,913 Difference between "expected" and actual tax expense: State taxes....................................... (86) 342 (2,302) Goodwill impairment and amortization of other intangibles..................................... 177 55,045 4,797 Dividend received deduction....................... (3,601) (2,220) -- Foreign tax credit................................ (463) -- (15) Loss on asset substitution with affiliates........ (3,502) -- -- Prior year tax settlements........................ -- (3,594) (2,577) Other, net........................................ 730 350 338 -------- -------- ------- Total actual tax expense...................... $(15,323) $ (2,377) $28,154 ======== ======== =======
Deferred tax assets and liabilities are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The loss on asset substitution with affiliates relates to an exchange of certain invested assets between the Company and FKLA, ZLICA, and ZLICONY as required by the Purchase Agreement with BOIH. The exchange resulted in a net difference between fair market value of the assets surrendered and received by the Company. This difference was treated as a dividend to Kemper for book purposes but a deductible loss for tax purposes. The Company only records deferred tax assets if future realization of the tax benefit is more likely than not. The Company had established a valuation allowance to reduce the deferred federal tax asset related to real estate 84 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and unrealized losses on investments to a realizable amount. This amount was based on the evidence available and management's judgment. The valuation allowance is subject to future adjustments based upon, among other items, the Company's estimates of future operating earnings and capital gains. The tax effects of temporary differences that give rise to significant portions of the Company's net deferred federal tax assets or liabilities were as follows:
December 31, December 31, 2003 2002 ------------ ------------ (in thousands) Deferred federal tax assets: Deferred insurance acquisition costs ("DAC Tax").................... $105,816 $141,338 Unrealized losses on investments.................................... 6,151 -- Life policy reserves................................................ 11,743 82,584 Unearned revenue.................................................... 52,354 56,986 Tax loss carryforward............................................... 23,738 -- Other investment-related............................................ 7,091 13,365 Other............................................................... 2,641 6,131 -------- -------- Total deferred federal tax assets............................... 209,534 300,404 Valuation allowance................................................. 6,151 -- -------- -------- Total deferred federal tax assets after valuation allowance..... 203,383 300,404 -------- -------- Deferred federal tax liabilities: Value of business acquired.......................................... -- 13,439 Deferred insurance acquisition costs................................ 95,657 156,042 Depreciation and amortization....................................... 13,113 13,142 Other investment-related............................................ 1,488 4,848 Unrealized gains on investments..................................... -- 35,966 Other............................................................... 4,342 3,739 -------- -------- Total deferred federal tax liabilities.......................... 114,600 227,176 -------- -------- Net deferred federal tax assets........................................ $ 88,783 $ 73,228 ======== ========
The net deferred tax assets relate primarily to unearned revenue and the DAC Tax associated with a non-registered individual and group variable business-owned life insurance contract ("BOLI"). Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income over the ten year amortization period of the unearned revenue and DAC Tax to realize such deferred tax assets. The Company has loss carryforwards at December 31, 2003 totaling $23.7 million which will expire in 2018. The tax returns through the year 1999 have been examined by the Internal Revenue Service ("IRS"). Changes proposed are not material to the Company's financial position or results of operations. The tax returns for the years 2000 through 2002 are currently under examination by the IRS. (7) Other Related-Party Transactions The Company has loans to joint ventures, consisting primarily of mortgage loans on real estate, in which the Company and one of its affiliates has an ownership interest. At December 31, 2003 and 2002, joint venture mortgage loans totaled $7.4 million and $114.1 million, respectively, and during 2003 and 2002, the Company earned interest income on these joint venture loans of $12.1 million and $10.4 million, respectively. During 2003, the Company sold $113.0 million of joint venture loans to its parent, Kemper, at book value for no realized gain or loss. 85 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 2001, the Company sold a $60 million group variable life policy to FKLA, covering all current FKLA employees as of February 14, 2001. The transaction, as business-owned life insurance ("BOLI"), permits FKLA to indirectly fund certain of its employee benefit obligations. FKLA was a related party until September 2003. During the majority of 2003, and the full years 2002 and 2001, the Company's personnel were employees of FKLA. Expenses are allocated to the Company for the utilization of FNWL and FKLA employees and facilities as applicable. Expenses allocated to the Company amounted to $1.6 million from FNWL in 2003, $12.8 million from FKLA in 2003, $29.9 million from FKLA in 2002, and $27.4 million from FKLA in 2001. The Company also paid to Kemper's real estate subsidiaries, fees of $0.3 million, $0.4 million, and $0.5 million in 2003, 2002, and 2001, respectively, related to the management of the Company's real estate portfolio. Related party receivables and payables are settled each month. At December 31, 2003 and 2002, the Company reported the following amounts due from or (to) related parties:
December 31, December 31, 2003 2002 ------------ ------------ (in thousands) FNWL.................................... $ 762,579.2 $ -- Kemper.................................. 101.3 -- ZLICA*.................................. -- 18.0 Zurich Global Investment Advisors....... 58.2 -- Other................................... -- 1.0 ----------- ---------- Receivable from related parties...... $ 762,738.7 $ 19.0 =========== ========== FKLA*................................... $ -- $ (3,536.3) FNWL.................................... (758,852.6) -- Kemper.................................. (5,000.0) -- Zurich Direct........................... -- (52.6) Zurich Insurance Company--Bermuda Branch (28,462.7) (16,354.3) Other................................... -- (108.0) ----------- ---------- Payable to related parties........... $(787,315.3) $(20,051.2) =========== ========== Net payable to related parties....... $ (29,576.6) $(20,032.2) =========== ==========
- -------- * ZLICA and FKLA ceased being related parties in September 2003. (See Note 3 of the Notes to Consolidated Financial Statements). (8) Commitments and Contingent Liabilities The Company is involved in various legal actions for which it establishes liabilities where appropriate. In the opinion of the Company's management, the resolution of such litigation is not expected to have a material adverse effect on the consolidated financial statements. (9) Financial Instruments--Off-Balance-Sheet Risk At December 31, 2003 and 2002, the Company had future legal loan commitments and stand-by financing agreements totaling $29.0 million and $29.9 million, respectively, to support the financing needs of various real estate investments. To the extent these arrangements are called upon, amounts loaned would be collateralized by assets of the joint ventures, including first mortgage liens on the real estate. The Company's criteria in making these arrangements are the same as for its mortgage loans and other real estate investments. These commitments 86 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) are included in the Company's analysis of real estate-related reserves and write-downs. The fair values of loan commitments and standby financing agreements are estimated in conjunction with, and using the same methodology as, the fair value estimates of mortgage loans and other real estate-related investments. In 1994, the Company entered into a commitment to provide a financial guaranty in the form of an extended standby credit enhancement to a third party letter of credit supporting the purchase of bonds issued to finance the development of a certain retirement property in Texas. The amount of the secured guaranty was $25.0 million and expired on March 22, 2004. The guaranty was expected to retire without being funded; therefore, the contract amounts were not estimates of future cash flows. At December 31, 2003, fixed maturity securities with a carrying amount of $28.2 million were pledged as collateral to secure the letter of credit. As part of the guaranty agreement, upon the expiration of the guaranty period and in the event the third party cannot find an alternate guarantor, the bond indebtedness will be accelerated to mature immediately and the Company will be directly and contingently liable to purchase the bonds from the issuer of the letter of credit. In connection with the acceleration of the contingent liabilities, the Company will have full recourse to a collateral pool and the real property. The fair value of the recourse collateral pool was estimated to be $15.7 million, which was based upon the fair market value at December 31, 2003. The estimated fair value of the real property was approximately $9.0 million, based upon an independent appraisal at September 9, 2003. The guaranty has off-balance sheet credit risk because GAAP requires only the accruals for probable losses to be recognized until the guaranty expires. Credit risk represents the accounting loss that would be recognized at the reporting date if counter-parties failed to perform completely as contracted. The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and that no amounts could be recovered from other parties. On March 22, 2004, the third party informed the Company it was not able to obtain an alternate guarantor or financing arrangement. Management is currently in negotiation and active discussion with the third party to extend the guaranty in exchange for certain considerations. The Company does not believe it is practicable to estimate the impact to the financial position of the Company due to on-going negotiations. As of December 31, 2003, there was no impact to the Company's financial position or consolidated results of operations. In 1997, the Company entered into an agreement with a third party to guaranty certain indemnity obligations of an affiliated company, including environmental claims, over a period of 20 years. The maximum liability exposure would not exceed $4 million. The Company is fully insured for losses and liabilities related to the potential environmental claims for a period of 10 years. 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. Derivative instruments The Company is party to an interest rate swap agreement with Zurich Capital Markets, Inc. ("ZCM"), an affiliated counterparty. The Company invests primarily in fixed rate investments. A floating rate funding agreement was reinsured in 2000 and the Company subsequently entered into an interest rate swap agreement. Under the interest rate swap, the Company agrees with ZCM to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. No cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is made by one counterparty at each due date. The Company paid $4.6 million and $3.8 million in 2003 and 2002, respectively, as settlement for the difference between the fixed-rate and floating-rate interest. 87 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to the financial instruments, but it does not expect its counterparty to fail to meet its obligations given its high credit ratings. The credit exposure of the interest rate swap is represented by the fair value (market value) of the contract. At December 31, 2003 and 2002, an open swap agreement with a notional value of $100.0 million and an expiration date of November 2004, had a negative market value of $4.5 million, and $8.1 million, respectively. The negative market value was included as a component of other accounts payable and liabilities in the accompanying consolidated balance sheets. The Company has designated the interest swap as a cash flow hedge of the floating rate funding agreement. Each period, gains and losses resulting from changes in the fair value of the swap contract are recorded to accumulated other comprehensive income (loss). The terms of the swap contract have been structured to match the terms of the hedged item. No net gains or losses, resulting from hedge ineffectiveness, were recognized in results of operations, during the years ended December 31, 2003 or 2002. The Company entered into a Modified Coinsurance Agreement with FNWL. The Agreement required separate recording of an embedded derivative in the financial statements for the year ended December 31, 2003 (see Note 14 of the Notes to Consolidated Financial Statements). At December 31, 2003, the Company had an embedded derivative of $3.6 million included as a component of other assets in the accompanying consolidated balance sheet. (10) Fair Value of Financial Instruments Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. A significant portion of the Company's financial instruments are carried at fair value. Fair value estimates for financial instruments not carried at fair value are generally determined using discounted cash flow models and assumptions that are based on judgments regarding current and future economic conditions and the risk characteristics of the investments. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could significantly affect the estimates and such estimates should be used with care. Fair value estimates are determined for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and certain liabilities that are not considered financial instruments. Accordingly, the aggregate fair value estimates presented do not represent the underlying value of the Company. For example, the Company's subsidiaries are not considered financial instruments, and their value has not been incorporated into the fair value estimates. In addition, tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. The Company used the following methods and assumptions in estimating the fair value of its financial instruments: Fixed maturity securities and equity securities: Fair values were determined by using market quotations, or independent pricing services that use prices provided by market makers or estimates of fair values obtained from yield data relating to instruments or securities with similar characteristics, or fair value as determined in good faith by the Company's portfolio manager, DIM. Cash and short-term investments: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. 88 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mortgage loans and other real estate-related investments: Fair values were estimated based upon the investments observable market price, net of estimated costs to sell and where no observable price is available, by appraised value. The estimates of fair value should be used with care given the inherent difficulty in estimating the fair value of real estate due to the lack of a liquid quotable market. Mortgage loans and other real estate-related investments are stated at their aggregate unpaid balances, less a valuation allowance of $4.2 million and $4.8 million at December 31 2003 and 2002, respectively. The real estate portfolio is monitored closely and reserves are adjusted to reflect market conditions. This results in a carrying value that approximates fair value at December 31, 2003 and 2002. Policy loans: The carrying value of policy loans approximates the fair value as the Company adjusts the rates to remain competitive. Other investments: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. Separate account assets and liabilities: The fair value of assets held in separated accounts is based on quoted market prices. The fair value of liabilities related to separate accounts is the amount payable on demand, which is net of certain surrender changes. Life policy benefits: For deposit liabilities with defined maturities, the fair value was based on the discounted value of future cash flows. The discount rate was based on the rate that would be offered for similar deposits at the reporting date. For all other deposit liabilities, primarily deferred annuities and universal life contracts, the fair value was based on the amount payable on demand at the reporting date. Derivative Instruments: The fair values were based upon external valuation models, quotations furnished by dealers in such instruments or market quotations. The carrying values and estimated fair values of the Company's financial instruments at December 31, 2003 and 2002, were as follows:
December 31, 2003 December 31, 2002 ------------------------ ------------------------ Carrying Carrying Value Fair Value Value Fair Value ----------- ----------- ----------- ----------- (in thousands) Financial instruments recorded as assets: Fixed maturity securities.................... $ 619,055 $ 619,055 $ 3,420,773 $ 3,420,773 Cash and short-term investments.............. 62,512 62,512 47,436 47,436 Mortgage loans and other real estate-related assets..................................... 65,867 65,867 177,691 177,691 Policy loans................................. -- -- 223,888 223,888 Equity securities............................ 2,774 2,774 58,615 58,615 Other invested assets........................ 2,117 2,117 2,491 2,491 Assets held in separate accounts............. 15,122,214 15,122,214 13,547,376 13,547,376 Financial instruments recorded as liabilities: Life policy benefits, excluding term life reserves................................... 280,240 271,610 3,625,384 3,565,147 Liabilities held in separate accounts........ 15,122,214 15,122,214 13,547,376 13,547,376 Financial instruments recorded as derivatives: Interest rate swap(1)........................ (4,500) (4,500) (8,092) (8,092) Embedded derivatives(2)...................... 3,627 3,627 -- --
- -------- (1) included in Other Accounts Payable and Liabilities on the balance sheet (2) included in Other Assets and Receivables on the balance sheet 89 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (11) Stockholder's Equity--Retained Earnings The maximum amount of dividends which can be paid by insurance companies domiciled in the State of Illinois to stockholders without prior approval of regulatory authorities is restricted. In 2004, the Company cannot pay any dividends without Illinois Department of Insurance approval. In 2003, the Company paid cash dividends of $10.0 million to Kemper and in 2002, the Company did not pay any dividends. The 2003 dividend was a result of the purchase agreement and asset transfer agreement related to the Bank One transaction. The Company paid cash dividends of $13.0 million to Kemper during 2001. The Company's net income (loss) and capital and surplus as determined in accordance with statutory accounting principles were as follows:
2003 2002 2001 -------- -------- -------- (in thousands) Net income (loss)............ $ 90,377 $(84,871) $(71,854) ======== ======== ======== Statutory capital and surplus $359,402 $312,653 $332,598 ======== ======== ========
The Company's statutory net income in 2003 reflects the impact of the Coinsurance Agreement with FKLA as well as the improvement in the equity markets in 2003. The Company's statutory net loss in 2002 and 2001 reflected the market downturn and its impact on reserves for guaranteed death and living benefits consistent with statutory reserving methodology. (12) Unaudited Interim Financial Information The following table sets forth the Company's unaudited quarterly financial information:
Quarter Ended ------------------------------------------------------ March 31 June 30 September 30 December 31 Year -------- -------- ------------ ----------- --------- (in thousands) 2003 Operating Summary Revenue.................................... $ 93,302 $ 92,811 $ 135,868 $ 34,305 $ 356,286 Net operating income (loss), excluding net realized investment gains................ $ 3,720 $ 16,793 $ (96,728) $ 12,018 $ (64,197) ======== ======== ========= ======== ========= Net realized investment gains.............. 2,054 1,147 46,174 5,635 55,010 -------- -------- --------- -------- --------- Net income (loss)...................... $ 5,774 $ 17,940 $ (50,554) $ 17,653 $ (9,187) ======== ======== ========= ======== ========= 2002 Operating Summary Revenue.................................... $ 92,322 $105,170 $ 92,308 $ 90,962 $ 380,762 ======== ======== ========= ======== ========= Net operating income (loss), excluding net realized investment gains (losses), and cumulative effect of accounting change................................... $ 8,109 $ 394 $(169,309) $ 14,261 $(146,545) ======== ======== ========= ======== ========= Net operating income (loss), excluding net realized investment gains (losses)....... $(13,798) $ 394 $(169,309) $ 14,261 $(168,452) Net realized investment gains (losses)..... (841) 7,613 1,037 (8,315) (506) -------- -------- --------- -------- --------- Net income (loss)...................... $(14,639) $ 8,007 $(168,272) $ 5,946 $(168,958) ======== ======== ========= ======== ========= 2001 Operating Summary Revenue.................................... $ 91,072 $ 98,360 $ 85,013 $123,852 $ 398,297 ======== ======== ========= ======== ========= Net operating income (loss), excluding net realized investment gains................ $ 8,183 $ (1,364) $ (6,443) $ 37,792 $ 38,168 Net realized investment gains.............. 1,375 5,257 1,206 5,591 13,429 -------- -------- --------- -------- --------- Net income (loss)...................... $ 9,558 $ 3,893 $ (5,237) $ 43,383 $ 51,597 ======== ======== ========= ======== =========
90 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (13) Operations by Business Segment Prior to 2002, the Company along with FKLA, ZLICA and FLA, operated under the trade name of Zurich Life, formerly Zurich Kemper Life. Prior to 2002, Zurich Life was organized by Strategic Business Unit ("SBU"). Each SBU concentrated on specific distribution channels. However, the SBUs were not managed at the legal entity level, but rather at the Zurich Life level. Zurich Life's SBUs crossed legal entity lines, as certain similar products were sold by more than one legal entity or through more than one distribution channel. In 2002, the management team shifted its financial focus from SBU performance to a line of business performance, within each legal entity. The SBUs became primarily responsible for market management, including distribution management, product design, sales and marketing. As a result, the Company now has two primary operating segments, life insurance and annuities. These two operating segments reflect the way we manage our operations and make business decisions. Premiums received from the sale of annuity products and the majority of our life insurance products are treated as deposit-type funds and are not recorded as revenue within the consolidated statements of operations. However, revenues for both the life insurance and annuity segments are generated from investing these deposit-type funds. For universal life insurance products and fixed annuity products, deposits are primarily invested in fixed maturity securities from which we earn investment income. Variable life insurance deposits and variable annuity deposits are transferred to the separate account and invested in underlying investment funds that invest in stocks and bonds. The Company received cost of insurance charges and other separate account fees as revenues from this business. In addition, the Company received premium tax and DAC tax expense loads from certain policyholders. In the following table, the Company uses the captions "net operating income (loss)" and "operating income (loss)" as operating measures of segment performance. Net operating income (loss) is calculated by deducting net realized investment gains or losses, net of related income taxes, from net income (loss). Operating income (loss) is calculated by excluding amortization of goodwill and intangibles, goodwill impairment, and cumulative effect of accounting changes in addition to the removal of net realized gains and losses on investments, after tax, from net income (loss). Net realized investment gains or losses are excluded from net operating income (loss) because they can, in part, be discretionary and are not indicative of operational trends. 91 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Prior period information has been restated to conform to the composition of the Company's segments.
Twelve Months Ended December 31, 2003 ------------------------------------- Life Annuity Total ----------- ----------- ----------- (in thousands) Net income (loss)........................................................... $ 4,865 $ (14,052) $ (9,187) Net realized investment gains, net of tax................................... 419 54,591 55,010 ----------- ----------- ----------- Net operating income (loss)................................................. $ 4,446 $ (68,645) $ (64,199) ----------- ----------- ----------- Amortization of intangibles................................................. -- (506) (506) ----------- ----------- ----------- Operating income (loss) before amortization of intangibles.................. $ 4,446 $ (68,139) $ (63,693) =========== =========== =========== Total assets................................................................ $10,658,132 $10,448,309 $21,106,441 =========== =========== =========== Total reserve for policyholder benefits in the general account.............. $ 811,137 $ 3,508,530 $ 4,319,667 Total separate account liabilities.......................................... 9,518,812 5,603,402 15,122,214 ----------- ----------- ----------- Total reserve for policyholder benefits..................................... $10,329,949 $ 9,111,932 $19,441,881 =========== =========== =========== Twelve Months Ended December 31, 2002 ------------------------------------- Life Annuity Total ----------- ----------- ----------- (in thousands) Net loss.................................................................... $ (23,654) $ (145,304) $ (168,958) Net realized investment gains (losses), net of tax.......................... 753 (1,259) 506 ----------- ----------- ----------- Net operating loss.......................................................... $ (24,407) $ (144,045) $ (168,452) ----------- ----------- ----------- Amortization of intangibles................................................. (106) (653) (759) Goodwill impairment......................................................... (32,832) (123,679) (156,511) Cumulative effect of accounting change, net of tax.......................... -- (21,907) (21,907) ----------- ----------- ----------- Operating income before amortization of intangibles, goodwill impairment and cumulative effect of accounting change, net of tax......................... $ 8,531 $ 2,194 $ 10,725 =========== =========== =========== Total assets, net of tax.................................................... $ 9,840,840 $ 8,825,442 $18,666,282 =========== =========== =========== Total reserve for policyholder benefits in the general account.............. $ 808,389 $ 3,302,674 $ 4,111,063 Total separate account liabilities.......................................... 8,848,140 4,699,236 13,547,376 ----------- ----------- ----------- Total reserve for policyholder benefits..................................... $ 9,656,529 $ 8,001,910 $17,658,439 =========== =========== =========== Twelve Months Ended December 31, 2001 ------------------------------------- Life Annuity Total ----------- ----------- ----------- (in thousands) Net income.................................................................. $ 11,867 $ 39,730 $ 51,597 Net realized investment gains, net of tax................................... 3,274 10,155 13,429 ----------- ----------- ----------- Net operating income........................................................ $ 8,593 $ 29,575 $ 38,168 ----------- ----------- ----------- Amortization of goodwill and intangibles.................................... (3,152) (10,553) (13,705) ----------- ----------- ----------- Operating income before amortization of goodwill and intangibles............ $ 11,745 $ 40,128 $ 51,873 =========== =========== =========== Goodwill.................................................................... $ 6,601 $ 171,817 $ 178,418 Total assets................................................................ $ 8,841,469 $ 9,248,359 $18,089,828 =========== =========== =========== Total reserve for policyholder benefits in the general account.............. $ 628,899 $ 3,005,262 $ 3,634,161 Total separate account liabilities.......................................... 7,696,013 5,412,740 13,108,753 ----------- ----------- ----------- Total reserve for policyholder benefits..................................... $ 8,324,912 $ 8,418,002 $16,742,914 =========== =========== ===========
During 2003, the decrease in operating income before amortization of intangibles, for both the life and annuity segment, was largely due to the Purchase Agreement with Bank One (see Reinsurance section and Note 3 of the Notes to Consolidated Financial Statements). 92 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (14) Effects of New Accounting Pronouncements Effective December 31, 2003, the Company adopted the disclosure requirements of Emerging Issues Task Force ("EITF") Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". Under the consensus, disclosures are required for unrealized losses on fixed maturity and equity securities accounted for under SFAS No. 115, "Accounting for Certain Investment in Debt and Equity Securities", that are classified as either available-for-sale or held-to-maturity. The disclosure requirements include quantitative information regarding the aggregate amount of unrealized losses and the associated fair value of the investments in an unrealized loss position, segregated into time periods for which the investments have been in an unrealized loss position. The consensus also requires certain qualitative disclosures about the unrealized holdings in order to provide additional information that the Company considered in concluding that the unrealized losses were not other-than-temporary (see Note 4 of the Notes to Consolidated Financial Statements). In April 2003, the FASB released SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS is generally effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 on July 1, 2003 did not have any impact on the financial position of the Company. In April 2003, the FASB released Statement 133 ("SFAS 133") Implementation Issue B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("DIG B36"). DIG B36 addresses the need to separately account for an embedded derivative within a reinsurer's receivable and ceding company's payable arising from modified coinsurance or similar arrangements. Paragraph 12.a. of SFAS 133 indicates that an embedded derivative must be separated from the host contract (bifurcated) if the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract. DIG B36 concludes that bifurcation is necessary in a modified coinsurance arrangement because the yield on the receivable and payable is based on a specified proportion of the ceding company's return on either its general account assets or a specified block of those assets, rather than the overall creditworthiness of the ceding company. The effective date of implementation is the first day of the first fiscal quarter beginning after September 15, 2003 (October 1, 2003 for the Company), with earlier application as of the beginning of a fiscal quarter permitted. The Company adopted DIG B36 on October 1, 2003. On December 1, 2003, the Company entered into a Modified Coinsurance Agreement with FNWL which was impacted by the provisions of DIG B36. The Modified Coinsurance Agreement requires the separate recording of an embedded derivative. At December 31, 2003, the Company had an embedded derivative of $3.6 million recorded in other assets and with a corresponding amount in other income. FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS SOP 03-1 In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants ("AcSEC") issued a final Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (the "SOP"). The SOP will be effective for the Company's financial statements on January 1, 2004. The SOP addresses a wide variety of topics, some of which have a significant impact on the Company. The major provisions of the SOP require: . Recognizing expenses for a variety of contracts and contract features, including GMDB and GRIB, certain death benefits on universal-life type contracts and annuitization options, on an accrual basis versus the previous method of recognition upon payment; 93 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) . Reporting and measuring assets and liabilities of certain separate account products as general account assets and liabilities when specified criteria are not met; . Reporting and measuring the Company's interest in its separate accounts as general account assets based on the insurer's proportionate beneficial interest in the separate account's underlying assets; and . Capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred acquisition costs ("DAC"). Death Benefits and Other Insurance Benefit Features The Company sells variable annuity contracts that offer various guaranteed death benefits. For certain GMDB and GRIB, the Company pays the greater of (1) the account value at death; (2) the sum of all premium payments less prior withdrawals accumulated at 5%; or (3) the maximum anniversary value of the contract, plus any premium payments since the contract anniversary, minus any withdrawals following the contract anniversary. The Company currently reinsures approximately 35% of the benefit guaranties associated with its in-force block of business. As of December 31, 2003, prior to the adoption of SOP 03-1, the Company had recorded a liability for GMDB and GRIB benefits sold with variable annuity products of $46.6 million. The determination of the GMDB and GRIB liability and related reinsurance recoverable is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates, annuitization elections and mortality experience. The assumptions used are consistent with those used in determining estimated gross profits for purposes of amortizing deferred acquisition costs. Management is currently in the process of evaluating the impact of the SOP related to the GRIB and GMDB liability on our financial statements. Separate Account Presentation The Company has recorded certain market value adjusted ("MVA") fixed annuity products as separate account assets and liabilities through December 31, 2003. Notwithstanding the MVA feature in this product, all of the investment performance of the separate account assets is not being passed to the contractholder, and it therefore, does not meet the conditions for separate account reporting under the SOP. The Company is currently evaluating the impact that this SOP will have on its financial statements. 94 APPENDIX A STATE PREMIUM TAX CHART Rate of Tax --------------------------- Qualified Non-Qualified State Plans Plans - -------------------- ----------- ------------- California.......... 0.50%* 2.35%* Maine............... 2.00% 2.00% Nevada.............. 3.50% 3.50%* South Dakota........ -- 1.25% West Virginia....... 1.00% 1.00% Wyoming............. -- 1.00% * Taxes become due when annuity benefits commence, rather than when the premiums are collected. At the time of annuitization, the premium tax payable will be charged against the Contract Value. APPENDIX B CONDENSED FINANCIAL INFORMATION The following Condensed Financial Information is derived from the financial statements of the Separate Account. The data should be read in conjunction with the financial statements, related notes and other financial information included in the Statement of Additional Information. Each table shows the unit values under Contracts with a different combination of optional benefits, including the Guaranteed Retirement Income Benefit, which is no longer offered under new Contract. In the tables(s) below, no number is shown when there were fewer than 1,000 accumulation units outstanding at the end of the Period. Information for the least and most expensive combinations are shown in the Prospectus under the heading "Condensed Financial Information". - ------------------------------------------------------------------------------- Optional Benefits Annual Expense - ------------------------------------------------------------------------------- Guaranteed Minimum Death Benefit 0.15% - ------------------------------------------------------------------------------- Earnings Based Death Benefit 0.20% - ------------------------------------------------------------------------------- Guaranteed Retirement Income Benefit - 10 year 0.30% - ------------------------------------------------------------------------------- Guaranteed Retirement Income Benefit - 7 year 0.40% - ------------------------------------------------------------------------------- Additional Contract Options Elected (0.15%) Guaranteed Minimum Death Benefit (Separate Account Charges of 1.40% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 27.025 $ 40.897 $ 36.072 Accumulation unit value at end of period $ 36.024 $ 27.025 $ 40.897 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.512 28.081 23.666 Accumulation unit value at end of period 28.439 19.512 28.081 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.818 16.244 13.848 Accumulation unit value at end of period 16.591 11.818 16.244 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.083 6.393 5.809 Accumulation unit value at end of period 6.485 5.083 6.393 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.362 7.383 6.473 Accumulation unit value at end of period 8.092 6.362 7.383 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.504 8.605 7.170 Accumulation unit value at end of period 10.574 7.504 8.605 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.606 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.15%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* $ 18.499 $ 26.400 $ 24.064 Accumulation unit value at end of period $ 22.987 $ 18.499 $ 26.400 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.610 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.273 20.439 19.074 Accumulation unit value at end of period 23.150 18.273 20.439 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* 19.491 23.797 21.718 Accumulation unit value at end of period 25.052 19.491 23.797 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.308 35.266 30.187 Accumulation unit value at end of period 31.848 24.308 35.266 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 98.145 128.328 116.196 Accumulation unit value at end of period 123.982 98.145 128.328 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.171 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.214 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.894 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.993 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.974 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.15%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 12.396 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.990 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.479 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.221 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.842 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund (formerly INVESCO VIF-Real Estate Opportunity) Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.081 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.701 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.262 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.315 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 10.038 12.991 10.739 Accumulation unit value at end of period 13.461 10.038 12.991 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 22.040 23.888 22.849 Accumulation unit value at end of period 24.789 22.040 23.888 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.15%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* $ 14.785 $ 20.401 $ 17.779 Accumulation unit value at end of period $ 19.208 $ 14.785 $ 20.401 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.813 22.250 19.462 Accumulation unit value at end of period 21.068 15.813 22.250 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.381 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.434 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.186 30.199 26.714 Accumulation unit value at end of period 27.130 22.186 30.199 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.008 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.315 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.147 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.069 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.100 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.715 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.15%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 10.814 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.479 7.045 7.100 Accumulation unit value at end of period 7.749 7.479 7.045 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.747 18.253 15.864 Accumulation unit value at end of period 15.951 12.747 18.253 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder International Subaccount Accumulation unit value at beginning of period* 7.788 9.674 9.611 Accumulation unit value at end of period 9.812 7.788 9.674 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.265 1.188 1.197 Accumulation unit value at end of period 1.312 1.265 1.188 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities Subaccount) Accumulation unit value at beginning of period* 1.344 1.261 1.268 Accumulation unit value at end of period 1.355 1.344 1.261 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.598 2.295 2.077 Accumulation unit value at end of period 1.965 1.598 2.295 Number of accumulation units outstanding at end of period 4 -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.907 0.923 0.876 Accumulation unit value at end of period 1.115 0.907 0.923 Number of accumulation units outstanding at end of period 7 -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.049 1.050 1.048 Accumulation unit value at end of period 1.042 1.049 1.050 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.992 1.512 1.195 Accumulation unit value at end of period 1.301 0.992 1.512 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.585 0.920 0.708 Accumulation unit value at end of period 0.846 0.585 0.920 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.15%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder Total Return Subaccount Accumulation unit value at beginning of period* $ 1.997 $ 2.387 $ 2.251 Accumulation unit value at end of period $ 2.323 $ 1.997 $ 2.387 Number of accumulation units outstanding at end of period 3 -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.646 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted)
Additional Contract Options Elected (0.30%) Guaranteed Retirement Income Benefit - 10 year (Separate Account Charges of 1.55% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.975 $ 40.881 $ 36.072 Accumulation unit value at end of period $ 35.904 $ 26.975 $ 40.881 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.476 28.071 23.665 Accumulation unit value at end of period 28.345 19.476 28.071 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.796 16.238 13.848 Accumulation unit value at end of period 16.535 11.796 16.238 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.074 6.391 5.809 Accumulation unit value at end of period 6.463 5.074 6.391 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.350 7.380 6.473 Accumulation unit value at end of period 8.065 6.350 7.380 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.490 8.601 7.170 Accumulation unit value at end of period 10.539 7.490 8.601 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.593 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.464 26.389 24.064 Accumulation unit value at end of period 22.911 18.464 26.389 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.30%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.596 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.239 20.432 19.074 Accumulation unit value at end of period 23.073 18.239 20.432 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* 23.788 23.788 21.717 Accumulation unit value at end of period 24.969 19.455 23.788 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.263 35.253 30.187 Accumulation unit value at end of period 31.742 24.263 35.253 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.963 128.279 116.195 Accumulation unit value at end of period 123.569 97.963 128.279 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.159 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.201 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.883 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.984 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.965 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.383 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.30%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 11.978 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.464 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.209 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.830 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund Subaccout (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.068 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.690 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.249 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.303 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 10.019 12.986 10.738 Accumulation unit value at end of period 13.416 10.019 12.986 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.999 23.879 22.849 Accumulation unit value at end of period 24.706 21.999 23.879 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.758 20.393 17.779 Accumulation unit value at end of period 19.144 14.758 20.393 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.30%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* $ 15.783 $ 22.241 $ 19.462 Accumulation unit value at end of period $ 20.998 $ 15.783 $ 22.241 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.368 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.421 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.145 30.187 26.714 Accumulation unit value at end of period 27.039 22.145 30.187 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.996 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.303 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.133 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.058 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.088 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.702 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.803 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.30%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder Bond Subaccount Accumulation unit value at beginning of period* $ 7.465 $ 7.042 $ 7.100 Accumulation unit value at end of period $ 7.724 $ 7.465 $ 7.042 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.723 18.246 15.864 Accumulation unit value at end of period 15.898 12.723 18.246 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder International Subaccount Accumulation unit value at beginning of period* 7.773 9.670 9.611 Accumulation unit value at end of period 9.779 7.773 9.670 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.263 1.188 1.197 Accumulation unit value at end of period 1.308 1.263 1.188 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.341 1.261 1.268 Accumulation unit value at end of period 1.351 1.341 1.261 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.595 2.294 2.077 Accumulation unit value at end of period 1.958 1.595 2.294 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.906 0.922 0.876 Accumulation unit value at end of period 1.111 0.906 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.047 1.049 1.048 Accumulation unit value at end of period 1.039 1.047 1.049 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.990 1.511 1.195 Accumulation unit value at end of period 1.296 0.990 1.511 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.584 0.920 0.708 Accumulation unit value at end of period 0.843 0.584 0.920 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.994 2.387 2.251 Accumulation unit value at end of period 2.315 1.994 2.387 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.30%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.633 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.35%) Guaranteed Minimum Death Benefit and Earnings Based Death Benefit (Separate Account Charges of 1.60% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.958 $ 40.876 $ 36.071 Accumulation unit value at end of period $ 35.864 $ 26.958 $ 40.876 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.463 28.067 23.665 Accumulation unit value at end of period 28.313 19.463 28.067 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.789 16.236 13.848 Accumulation unit value at end of period 16.517 11.789 16.236 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.071 6.390 5.809 Accumulation unit value at end of period 6.456 5.071 6.390 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.347 7.379 6.473 Accumulation unit value at end of period 8.056 6.347 7.379 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.486 8.600 7.170 Accumulation unit value at end of period 10.527 7.486 8.600 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.589 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.453 26.386 24.063 Accumulation unit value at end of period 22.885 18.453 26.386 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.592 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.35%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* $ 18.227 $ 20.429 $ 19.073 Accumulation unit value at end of period $ 23.047 $ 18.227 $ 20.429 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* 19.443 23.785 21.717 Accumulation unit value at end of period 24.941 19.443 23.785 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.248 35.248 30.186 Accumulation unit value at end of period 31.706 24.248 35.248 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.902 128.262 116.194 Accumulation unit value at end of period 123.432 97.902 128.262 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.155 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.197 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.879 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.980 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.961 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.379 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.974 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.35%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 14.460 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.205 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.826 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund Subaccount (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.063 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.686 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.244 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.298 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 10.013 12.985 10.738 Accumulation unit value at end of period 13.401 10.013 12.985 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.985 23.876 22.849 Accumulation unit value at end of period 24.679 21.985 23.876 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.748 20.390 17.779 Accumulation unit value at end of period 19.123 14.748 20.390 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.773 22.239 19.462 Accumulation unit value at end of period 20.975 15.773 22.239 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.35%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.363 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.416 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 30.184 30.184 26.713 Accumulation unit value at end of period 27.009 22.131 30.184 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.992 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.299 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.129 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.054 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.084 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.697 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.800 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.461 7.041 7.100 Accumulation unit value at end of period 7.715 7.461 7.041 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.35%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* $ 12.715 $ 18.244 $ 15.864 Accumulation unit value at end of period $ 15.880 $ 12.715 $ 18.244 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder International Subaccount Accumulation unit value at beginning of period* 7.768 9.669 9.610 Accumulation unit value at end of period 9.768 7.768 9.669 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.262 1.187 1.197 Accumulation unit value at end of period 1.306 1.262 1.187 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.341 1.261 1.268 Accumulation unit value at end of period 1.349 1.341 1.261 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.594 2.294 2.077 Accumulation unit value at end of period 1.956 1.594 2.294 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.905 0.922 0.876 Accumulation unit value at end of period 1.110 0.905 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.047 1.049 1.048 Accumulation unit value at end of period 1.038 1.047 1.049 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.989 1.511 1.195 Accumulation unit value at end of period 1.295 0.989 1.511 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.584 0.920 0.708 Accumulation unit value at end of period 0.842 0.584 0.920 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.992 2.386 2.251 Accumulation unit value at end of period 2.313 1.992 2.386 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.629 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.40%) Guaranteed Retirement Income Benefit - 7 year (Separate Account Charges of 1.65% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.941 $ 40.871 $ 36.071 Accumulation unit value at end of period $ 35.824 $ 26.941 $ 40.871 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.451 28.064 23.665 Accumulation unit value at end of period 28.282 19.451 28.064 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.782 16.234 13.848 Accumulation unit value at end of period 16.499 11.782 16.234 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.068 6.389 5.809 Accumulation unit value at end of period 6.449 5.068 6.389 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.343 7.379 6.473 Accumulation unit value at end of period 8.047 6.343 7.379 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.481 8.599 7.170 Accumulation unit value at end of period 10.515 7.481 8.599 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.585 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.441 26.383 24.063 Accumulation unit value at end of period 22.860 18.441 26.383 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.587 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.216 20.427 19.073 Accumulation unit value at end of period 23.021 18.216 20.427 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.40%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* $ 19.431 $ 23.782 $ 21.717 Accumulation unit value at end of period $ 24.914 $ 19.431 $ 23.782 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.233 35.244 30.186 Accumulation unit value at end of period 31.671 24.233 35.244 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.841 128.246 116.194 Accumulation unit value at end of period 123.295 97.841 128.246 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.151 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.192 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.876 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.977 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.958 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.375 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.970 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.455 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.40%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 12.201 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.823 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Ral Estate Fund Subaccount (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.059 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.682 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.240 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.294 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 10.007 12.983 10.738 Accumulation unit value at end of period 13.386 10.007 12.983 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.971 23.873 22.849 Accumulation unit value at end of period 24.652 21.971 23.873 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.739 20.388 17.779 Accumulation unit value at end of period 19.101 14.739 20.388 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.764 22.236 19.462 Accumulation unit value at end of period 20.952 15.764 22.236 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.359 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.40%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.412 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.118 30.180 26.713 Accumulation unit value at end of period 26.979 22.118 30.180 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.988 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.295 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.124 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.050 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.080 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.693 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.796 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.456 7.040 7.100 Accumulation unit value at end of period 7.706 7.456 7.040 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.707 18.241 15.864 Accumulation unit value at end of period 15.862 12.707 18.241 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.40%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder International Subaccount Accumulation unit value at beginning of period* $ 7.764 $ 9.667 $ 9.610 Accumulation unit value at end of period $ 9.757 $ 7.764 $ 9.667 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.262 1.187 1.197 Accumulation unit value at end of period 1.305 1.262 1.187 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.340 1.260 1.268 Accumulation unit value at end of period 1.348 1.340 1.260 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.593 2.293 2.077 Accumulation unit value at end of period 1.954 1.593 2.293 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.904 0.922 0.876 Accumulation unit value at end of period 1.109 0.904 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.046 1.049 1.048 Accumulation unit value at end of period 1.037 1.046 1.049 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.989 1.511 1.195 Accumulation unit value at end of period 1.293 0.989 1.511 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.583 0.920 0.708 Accumulation unit value at end of period 0.841 0.583 0.920 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.991 2.386 2.251 Accumulation unit value at end of period 2.310 1.991 2.386 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.624 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.45%) Guaranteed Minimum Death Benefit and Guaranteed Retirement Income Benefit - 10 year (Separate Account Charges of 1.70% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.925 $ 40.866 $ 36.071 Accumulation unit value at end of period $ 35.784 $ 26.925 $ 40.866 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.439 28.060 23.665 Accumulation unit value at end of period 28.250 19.439 28.060 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.775 16.232 13.848 Accumulation unit value at end of period 16.480 11.775 16.232 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.064 6.388 5.809 Accumulation unit value at end of period 6.442 5.064 6.388 Number of accumulation units outstanding at end of period 2 2 -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.339 7.378 6.473 Accumulation unit value at end of period 8.038 6.339 7.378 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.476 8.598 7.170 Accumulation unit value at end of period 10.504 7.476 8.598 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.581 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.430 26.379 24.063 Accumulation unit value at end of period 22.834 18.430 26.379 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.583 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.205 20.424 19.073 Accumulation unit value at end of period 22.996 18.205 20.424 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.45%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* $ 19.419 $ 23.779 $ 21.717 Accumulation unit value at end of period $ 24.886 $ 19.419 $ 23.779 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.218 35.239 30.186 Accumulation unit value at end of period 31.636 24.218 35.239 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.781 128.230 116.193 Accumulation unit value at end of period 123.158 97.781 128.230 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.147 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.188 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.872 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.974 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.955 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.371 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.967 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.450 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.45%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 12.197 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.819 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund Subaccount (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.055 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.678 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.236 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.290 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 10.000 12.981 10.738 Accumulation unit value at end of period 13.371 10.000 12.981 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.958 23.870 22.849 Accumulation unit value at end of period 24.624 21.958 23.870 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.730 20.385 17.779 Accumulation unit value at end of period 19.080 14.730 20.385 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.754 22.233 19.462 Accumulation unit value at end of period 20.928 15.754 22.233 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.355 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.45%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.408 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.104 30.176 26.713 Accumulation unit value at end of period 26.949 22.104 30.176 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.984 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.291 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.120 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.047 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.076 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.688 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.793 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.452 7.039 7.100 Accumulation unit value at end of period 7.698 7.452 7.039 Number of accumulation units outstanding at end of period -- 1 -- (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.700 18.239 15.864 Accumulation unit value at end of period 15.845 12.700 18.239 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.45%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder International Subaccount Accumulation unit value at beginning of period* $ 7.759 $ 9.666 $ 9.610 Accumulation unit value at end of period $ 9.746 $ 7.759 $ 9.666 Number of accumulation units outstanding at end of period -- 1 -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.261 1.187 1.197 Accumulation unit value at end of period 1.303 1.261 1.187 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.339 1.260 1.268 Accumulation unit value at end of period 1.346 1.339 1.260 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.592 2.293 2.077 Accumulation unit value at end of period 1.952 1.592 2.293 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.904 0.922 0.876 Accumulation unit value at end of period 1.108 0.904 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.046 1.049 1.048 Accumulation unit value at end of period 1.035 1.046 1.049 Number of accumulation units outstanding at end of period 4 3 -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.988 1.511 1.195 Accumulation unit value at end of period 1.292 0.988 1.511 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.583 0.919 0.708 Accumulation unit value at end of period 0.840 0.583 0.919 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.990 2.386 2.251 Accumulation unit value at end of period 2.308 1.990 2.386 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.620 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.55%) Guaranteed Minimum Death Benefit and Guaranteed Retirement Income Benefit - 7 year (Separate Account Charges of 1.80% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.891 $ 40.855 $ 36.071 Accumulation unit value at end of period $ 35.705 $ 26.891 $ 40.855 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.415 28.053 23.665 Accumulation unit value at end of period 28.188 19.415 28.053 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.760 16.228 13.847 Accumulation unit value at end of period 16.444 11.760 16.228 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.058 6.387 5.809 Accumulation unit value at end of period 6.427 5.058 6.387 Number of accumulation units outstanding at end of period 3 2 -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.331 7.376 6.473 Accumulation unit value at end of period 8.020 6.331 7.376 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.467 8.596 7.169 Accumulation unit value at end of period 10.481 7.467 8.596 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.573 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.407 26.373 24.063 Accumulation unit value at end of period 22.784 18.407 26.373 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.574 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.182 20.419 19.073 Accumulation unit value at end of period 22.945 18.182 20.419 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.55%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* $ 19.395 $ 23.773 $ 21.717 Accumulation unit value at end of period $ 24.831 $ 19.395 $ 23.773 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.188 35.230 30.186 Accumulation unit value at end of period 31.566 24.188 35.230 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.660 128.198 116.192 Accumulation unit value at end of period 122.885 97.660 128.198 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.140 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.179 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.865 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.967 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.948 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.363 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.959 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.441 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.55%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 12.189 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.811 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund Subaccount (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.046 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.671 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.227 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.282 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 9.988 12.978 10.738 Accumulation unit value at end of period 13.342 9.988 12.978 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.931 23.864 22.849 Accumulation unit value at end of period 24.570 21.931 23.864 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.712 20.380 17.779 Accumulation unit value at end of period 19.038 14.712 20.380 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.734 22.227 19.462 Accumulation unit value at end of period 20.882 15.734 22.227 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.346 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.55%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janus Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.399 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.077 30.168 26.713 Accumulation unit value at end of period 26.889 22.077 30.168 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.976 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.283 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.110 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.040 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.068 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.679 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.786 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.442 7.037 7.100 Accumulation unit value at end of period 7.681 7.442 7.037 Number of accumulation units outstanding at end of period -- 2 -- (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.684 18.234 15.864 Accumulation unit value at end of period 15.810 12.684 18.234 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.55%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder International Subaccount Accumulation unit value at beginning of period* $ 7.749 $ 9.664 $ 9.610 Accumulation unit value at end of period $ 9.725 $ 7.749 $ 9.664 Number of accumulation units outstanding at end of period -- 1 -- (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.259 1.187 1.197 Accumulation unit value at end of period 1.300 1.259 1.187 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.337 1.260 1.268 Accumulation unit value at end of period 1.343 1.337 1.260 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.590 2.292 2.077 Accumulation unit value at end of period 1.947 1.590 2.292 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.903 0.922 0.876 Accumulation unit value at end of period 1.105 0.903 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.044 1.049 1.048 Accumulation unit value at end of period 1.033 1.044 1.049 Number of accumulation units outstanding at end of period 9 7 -- (000's omitted) Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.987 1.510 1.195 Accumulation unit value at end of period 1.289 0.987 1.510 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.582 0.919 0.708 Accumulation unit value at end of period 0.838 0.582 0.919 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.987 2.385 2.251 Accumulation unit value at end of period 2.302 1.987 2.385 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.611 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.65%) Guaranteed Minimum Death Benefit, Earnings Based Death Benefit and Guaranteed Retirement Income Benefit - 10 year (Separate Account Charges of 1.90% of the Daily Net Assets of the Separate Account)
Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Alger American Growth Subaccount Accumulation unit value at beginning of period* $ 26.858 $ 40.845 $ 36.070 Accumulation unit value at end of period $ 35.626 $ 26.858 $ 40.845 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American MidCap Growth Subaccount Accumulation unit value at beginning of period* 19.391 28.046 23.665 Accumulation unit value at end of period 28.125 19.391 28.046 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Alger American Small Capitalization Subaccount Accumulation unit value at beginning of period* 11.745 16.224 13.847 Accumulation unit value at end of period 16.407 11.745 16.224 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) American Century VP Income & Growth Subaccount Accumulation unit value at beginning of period* 5.052 6.385 5.809 Accumulation unit value at end of period 6.413 5.052 6.385 Number of accumulation units outstanding at end of period 3 3 -- (000's omitted) American Century VP Value Subaccount Accumulation unit value at beginning of period* 6.323 7.374 6.472 Accumulation unit value at end of period 8.002 6.323 7.374 Number of accumulation units outstanding at end of period -- -- 1 (000's omitted) Credit Suisse Trust-Emerging Markets Subaccount Accumulation unit value at beginning of period* 7.458 8.594 7.169 Accumulation unit value at end of period 10.457 7.458 8.594 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus IP MidCap Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.565 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus Socially Responsible Growth Subaccount Accumulation unit value at beginning of period* 18.384 26.366 24.063 Accumulation unit value at end of period 22.733 18.384 26.366 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Dreyfus VIF Small Company Stock Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.565 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Contrafund Subaccount Accumulation unit value at beginning of period* 18.160 20.414 19.073 Accumulation unit value at end of period 22.894 18.160 20.414 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.65%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Fidelity VIP Equity-Income Subaccount Accumulation unit value at beginning of period* $ 19.371 $ 23.767 $ 21.717 Accumulation unit value at end of period $ 24.776 $ 19.371 $ 23.767 Number of accumulation units outstanding at end of period 1 1 -- (000's omitted) Fidelity VIP Growth Subaccount Accumulation unit value at beginning of period* 24.158 35.221 30.186 Accumulation unit value at end of period 31.496 24.158 35.221 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Fidelity VIP Index 500 (SC) Subaccount Accumulation unit value at beginning of period* 97.539 128.165 116.191 Accumulation unit value at end of period 122.613 97.539 128.165 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Rising Dividends Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.132 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Small Cap Value Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.171 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin Strategic Income Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.858 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Franklin U.S Government Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.961 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) Franklin Zero Coupon 2010 Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 9.942 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) Mutual Discovery Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.355 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Mutual Shares Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.951 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Templeton Developing Markets Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.431 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.65%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- INVESCO VIF-Financial Services Subaccount Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 12.181 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Health Sciences Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.803 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) AIM V.I. Real Estate Fund Subaccount (formerly INVESCO VIF-Real Estate Opportunity) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.038 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) INVESCO VIF-Utilities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.663 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan International Equity Subaccount (formerly JPMorgan International Opportunities) Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.218 N/A N/A Number of accumulation units outstanding at end of period 1 -- -- (000's omitted) JPMorgan Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.274 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) JPMorgan Small Company Subaccount Accumulation unit value at beginning of period* 9.976 12.975 10.738 Accumulation unit value at end of period 13.312 9.976 12.975 Number of accumulation units outstanding at end of period -- 1 1 (000's omitted) Janus Aspen Balanced Subaccount Accumulation unit value at beginning of period* 21.904 23.858 22.848 Accumulation unit value at end of period 24.515 21.904 23.858 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Growth Subaccount Accumulation unit value at beginning of period* 14.694 20.375 17.778 Accumulation unit value at end of period 18.996 14.694 20.375 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Growth Subaccount Accumulation unit value at beginning of period* 15.715 22.222 19.462 Accumulation unit value at end of period 20.836 15.715 22.222 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Mid Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.337 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.65%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Janue Aspen Small Company Value Subaccount (formerly Janus Aspen Small Cap Value) Accumulation unit value at beginning of period** $ 10.000 N/A N/A Accumulation unit value at end of period $ 13.390 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Janus Aspen Worldwide Growth Subaccount Accumulation unit value at beginning of period* 22.049 30.161 26.713 Accumulation unit value at end of period 26.830 22.049 30.161 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Aggressive Growth Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.968 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Capital Appreciation Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.275 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Global Securities Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 14.101 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer High Income Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 11.032 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 12.060 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Main Street Small Cap Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.670 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Oppenheimer Strategic Bond Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 10.778 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Bond Subaccount Accumulation unit value at beginning of period* 7.433 7.036 7.099 Accumulation unit value at end of period 7.664 7.433 7.036 Number of accumulation units outstanding at end of period -- 2 3 (000's omitted) Scudder Capital Growth Subaccount Accumulation unit value at beginning of period* 12.668 18.230 15.864 Accumulation unit value at end of period 15.775 12.668 18.230 Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
Additional Contract Options Elected (0.65%) (continued) Subaccount 2003 2002 2001 - ------------------------------------------------------------------------- ---------- ---------- ---------- Scudder International Subaccount Accumulation unit value at beginning of period* $ 7.740 $ 9.661 $ 9.610 Accumulation unit value at end of period $ 9.703 $ 7.740 $ 9.661 Number of accumulation units outstanding at end of period -- 2 2 (000's omitted) Scudder Fixed Income Subaccount Accumulation unit value at beginning of period* 1.258 1.186 1.197 Accumulation unit value at end of period 1.298 1.258 1.186 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Government & Agency Securities Subaccount (formerly Scudder Government Securities) Accumulation unit value at beginning of period* 1.336 1.260 1.268 Accumulation unit value at end of period 1.340 1.336 1.260 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Growth Subaccount Accumulation unit value at beginning of period* 1.588 2.292 2.077 Accumulation unit value at end of period 1.943 1.588 2.292 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder High Income Subaccount Accumulation unit value at beginning of period* 0.902 0.922 0.876 Accumulation unit value at end of period 1.103 0.902 0.922 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Money Market Subaccount Accumulation unit value at beginning of period* 1.043 1.048 1.048 Accumulation unit value at end of period 1.031 1.043 1.048 Number of accumulation units outstanding at end of period 10 10 6 (000's omitted)
Scudder Small Cap Growth Subaccount Accumulation unit value at beginning of period* 0.986 1.510 1.195 Accumulation unit value at end of period 1.286 0.986 1.510 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Technology Growth Subaccount Accumulation unit value at beginning of period* 0.581 0.919 0.708 Accumulation unit value at end of period 0.837 0.581 0.919 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) Scudder Total Return Subaccount Accumulation unit value at beginning of period* 1.985 2.384 2.251 Accumulation unit value at end of period 2.297 1.985 2.384 Number of accumulation units outstanding at end of period -- -- -- (000's omitted) SVS Dreman Small Cap Value Subaccount Accumulation unit value at beginning of period** 10.000 N/A N/A Accumulation unit value at end of period 13.602 N/A N/A Number of accumulation units outstanding at end of period -- -- -- (000's omitted)
*Commencement of Offering on October 1, 2001 **Commencement of Offering on May 1, 2003 PART C OTHER INFORMATION Item 24 Financial Statements and Exhibits (a) Financial Statements included in Part B: Condensed Financial Information KILICO Variable Annuity Separate Account Report of Independent Auditors Statement of Assets and Liabilities and Contract Owners' Equity as of December 31, 2003 Statement of Operations for the year ended December 31, 2003 Statement of Changes in Contract Owners' Equity for the Years ended December 31, 2003 and 2002 Notes to Financial Statements Kemper Investors Life Insurance Company and Subsidiaries Report of Independent Auditors Kemper Investors Life Insurance Company and Subsidiaries Consolidated Balance Sheets, as of December 31, 2003 and 2002. Kemper Investors Life Insurance Company and Subsidiaries Consolidated Statements of Operations, years ended December 31, 2003, 2002 and 2001. Kemper Investors Life Insurance Company and Subsidiaries Consolidated Statements of Comprehensive Income (Loss), years ended December 31, 2003, 2002 and 2001. Kemper Investors Life Insurance Company and Subsidiaries Consolidated Statements of Stockholder's Equity, years ended December 31, 2003, 2002 and 2001. Kemper Investors Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows, years ended December 31, 2003, 2002 and 2001. Notes to Consolidated Financial Statements. Kemper Investors Life Insurance Company and Subsidiaries Unaudited Pro Forma Condensed Consolidated Income Statement, Year ended December 31, 2003. Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements (unaudited) (b) Exhibits: /3/1.1 A copy of resolution of the Board of Directors of Kemper Investors Life Insurance Company dated September 13, 1977. /3/1.2 A copy of Record of Action of Kemper Investors Life Insurance Company dated April 15, 1983. 2. Not Applicable. /2/3.1 Distribution Agreement between Investors Brokerage Services, Inc. and KILICO. /1/3.2 Addendum to Kemper Financial Services, Inc. Selling Group Agreement. /21/4.1 Form of Group Variable and Market Value Adjusted Annuity Contract. /21/4.2 Form of Certificate to Variable and Market Value Adjusted Annuity Contract. /21/4.3 Form of Individual Variable and Market Value Adjusted Annuity Contract. /21/4.4 Unisex Rider. /21/4.5 Qualified Plan Rider. /22/4.6 Form of Guaranteed Minimum Death Benefit Rider. /22/4.7 Form of Earnings Based Death Benefit Rider. /22/4.8 Form of Guaranteed Retirement Income Benefit Rider. /21/5.1 Form of Group Master Application. /21/5.2 Form of Variable Annuity Application. /2/6.1 Kemper Investors Life Insurance Company Articles of Incorporation. /4/6.2 Kemper Investors Life Insurance Company Bylaws. /25/7. Coinsurance Agreement between KILICO and Federal Kemper Life Assurance Company. /7/8.1 Fund Participation Agreement among KILICO, Kemper Investors Fund (now known as Scudder Variable Series II), Zurich Kemper Investments, Inc. and Kemper Distributors, Inc. /6/8.2(a) Participation Agreement between KILICO and Scudder Variable Life Investment Fund (now known as Scudder Variable Series I). /6/8.2(b) Participating Contract and Policy Agreement between KILICO and Scudder Kemper Investments, Inc. /6/8.2(c) Indemnification Agreement between KILICO and Scudder Kemper Investments, Inc. /5/8.3(a) Fund Participation Agreement by and among The Alger American Fund, KILICO and Fred Alger & Company, Incorporated. /5/8.3(b) Service Agreement between Fred Alger Management, Inc. and KILICO (redacted). /8/8.4(a) Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund and Fidelity Distributors Corporation. /9/8.4(b) Third Amendment to Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund and Fidelity Distributors Corporation. /8/8.4(c) Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund II and Fidelity Distributors Corporation. /10/8.4(d) Amendment to Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund II and Fidelity Distributors Corporation. /11/8.5(a) Fund Participation Agreement among KILICO, Janus Aspen Series and Janus Capital Corporation. /12/8.5(b) Service Agreement between KILICO and Janus Capital Corporation. /15/8.6 Fund Participation Agreement by and between KILICO and American Century Investment Management, Inc. /16/8.7 Fund Participation Agreement between KILICO and J.P. Morgan Series Trust II. /7/8.8(a) Participation Agreement By and Among KILICO 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.). /14/8.8(b) Service Agreement between Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Federal Kemper Life Assurance Company and KILICO. /17/8.8(c) Restatement of Participation Agreement among Counsellors Securities Inc., Warburg Pincus Asset Management, Inc. and/or the Warburg Pincus Funds and KILICO. /13/8.9(a) Fund Participation Agreement between KILICO and The Dreyfus Socially Responsible Growth Fund, Inc. /5/8.9(b) November 1, 1999 Amendment to Fund Participation Agreement between KILICO. /5/8.9(c) Administrative Services Agreement by and between The Dreyfus Corporation and KILICO (redacted). /5/8.9(d) November 1, 1999 Amendment to Administrative Services Agreement by and between The Dreyfus Corporation and KILICO (redacted). /23/8.10 Participation Agreement among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Kemper Investors Life Insurance Company. /24/8.11(a) Participation Agreement by and among Kemper Investors Life Insurance Company, INVESCO Variable Investment Funds, Inc. (now known as AIM Variable Insurance Funds), INVESCO Funds Group, Inc. and INVESCO Distributors, Inc. /24/8.11 (b) Administrative Services Agreement by and between INVESCO Funds Group, Inc. (now known as AIM Variable Insurance Funds) and Kemper Investors Life Insurance Company (redacted). /24/8.12(a) Form of Participation Agreement between KILICO and One Group Investment Trust. /24/8.12(b) Form of Supplemental Payment Agreement. /22/9. Opinion and Consent of Counsel. 10. Consent of PricewaterhouseCoopers LLP, Independent Accountants. /18/11.1 Schedule III: Supplementary Insurance Information (years ended December 31, 2003 and 2002). /18/11.2 Schedule IV: Reinsurance (year ended December 31, 2003). /19/11.3 Schedule IV: Reinsurance (year ended December 31, 2002). /20/11.4 Schedule IV: Reinsurance (year ended December 31, 2001). /18/11.5 Schedule V: Valuation and qualifying accounts (year ended December 31, 2003). /19/11.6 Schedule V: Valuation and qualifying accounts (year ended December 31, 2002). /20/11.7 Schedule V: Valuation and qualifying accounts (year ended December 31, 2001). 12. Not Applicable - ------------ /1/ Incorporated herein by reference to Exhibits filed with Amendment No. 32 to the Registration Statement on Form N-4 for KILICO Variable Annuity Separate Account (File No. 811-3199) filed on or about April 27, 1995. /2/ Incorporated herein by reference to Exhibits filed with the Registration Statement on Form S-1 for KILICO (File No. 333-02491) filed on or about April 12, 1996. /3/ Incorporated herein by reference to Exhibits filed with the Registration Statement on Form N-4 for KILICO (File No. 333-22375) filed on or about February 26, 1997. /4/ Incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form S-1 for KILICO (File No. 333-02491) filed on or about April 23, 1997. /5/ Incorporated herein 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. /6/ Incorporated herein 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. /7/ Incorporated herein 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. /8/ Incorporated herein by reference to Post-Effective Amendment No. 24 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 26, 1996. /9/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File No. 333-88845) filed on or about December 29, 1999. /10/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the Registration Statement on Form S-6 (File No. 33-65399) filed on or about April 23, 1999. /11/ Incorporated herein 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. /12/ Incorporated herein 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. /13/ Incorporated herein 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, 1998. /14/ Incorporated herein by reference to Post-Effective Amendment No. 4 to the Registration Statement of FKLA Variable Separate Account on Form S-6 (File No. 33-79808) filed on or about April 30, 1997. /15/ Incorporated herein by reference to the Initial Registration Statement on Form S-1 (File No. 333-32840) filed on or about March 20, 2000. /16/ Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 26, 2000. /17/ Incorporated herein 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. /18/ Incorporated herein by reference to Form 10-K for Kemper Investors Life Insurance Company for fiscal year ended December 31, 2003 filed on or about March 31, 2004. /19/ Incorporated herein by reference to Form 10-K for Kemper Investors Life Insurance Company for fiscal year ended December 31, 2002 filed on or about March 27, 2003. /20/ Incorporated herein by reference to Form 10-K for Kemper Investors Life Insurance Company for fiscal year ended December 31, 2001 filed on or about March 29, 2002. /21/ Incorporated herein by reference to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-32632) filed on or about June 21, 2000. /22/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the Registration Statement on Form N-4 (File No. 333-32840) filed on or about March 2, 2001. /23/ Incorporated herein by reference to Amendment No. 7 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 26, 2001. /24/ Incorporated herein by reference to Post-Effective Amendment No. 39 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 27, 2004. /25/ Incorporated herein by reference to Post-Effective Amendment No. 13 to the Registration Statement on Form N-4 (File No. 333-22375) filed on September 2, 2003. Item 25. Directors and Officers of Kemper Investors Life Insurance Company The directors and officers of KILICO are listed below together with their current positions. The address of each officer and director is 1400 American Lane, Schaumburg, Illinois 60196. Name Office with KILICO ---- ------------------ Diane C. Davis ............... President, Chief Executive Officer and Director Matthew Kindsvogel ........... Executive Vice President, Treasurer, Chief Financial Officer and Director Debra P. Rezabek ............. Vice President, General Counsel and Corporate Secretary David A. Bowers .............. Director David A. Levinson ............ Director Kenneth N. Owens ............. Director Item 26. Persons Controlled by or Under Common Control with the Insurance Company or Registrant Incorporated herein by reference to Post-Effective Amendment No. 39 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 27, 2004. Item 27. Number of Contract Owners As of March 31, 2004, the Registrant had approximately 474 qualified and non-qualified Zurich Preferred 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 Kemper Investors Life Insurance Company ("KILICO") 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 KILICO, or serving or having served, at the request of KILICO, 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 KILICO, 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 KILICO, 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 KILICO pursuant to the foregoing provisions, or otherwise, KILICO 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 KILICO of expenses incurred or paid by a director, officer, employee or agent of KILICO in the successful defense of any action, suit or proceeding) is asserted by such director, officer, employee or agent of KILICO in connection with variable annuity contracts, KILICO 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 KILICO 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 Investors Brokerage Services, Inc. acts as principal underwriter for KILICO Variable Annuity Separate Account, KILICO Variable Separate Account, Kemper Investors Life Insurance Company Variable Annuity Account C, One Life Variable Separate Account (formerly FKLA Variable Separate Account) and One Life Variable Annuity Separate Account (formerly FKLA Variable Annuity Separate Account). Item 29.(b) Information Regarding Principal Underwriter, Investors Brokerage Services, Inc. The address of each officer and director is 1600 McConnor Parkway, Schaumburg, IL 60196-6801. Name and Principal Position and Offices Business Address with Underwriter ---------------- ---------------- James L. Harlin .......................... Chairman and Director Michael E. Scherrman .................. President and Director Jamie L. Riesterer .................... Chief Financial Officer Thomas K. Walsh ....................... Asst. Vice President & Chief Compliance Officer Kenneth N. Olson ...................... Director Jeffrey A. Worf ....................... Secretary Frank J. Julian ....................... Assistant Secretary Item 29.(c) Not Applicable. 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 are maintained by Kemper Investors Life Insurance Company at 1400 American Lane, Schaumburg, Illinois 60196 or by Federal Kemper Life Assurance Company at 2500 Westfield Drive, Elgin, Illinois 60123-7836. 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 Kemper Investors Life Insurance Company ("KILICO") 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 KILICO. Representation Regarding Contracts Issued to Participants of Tax-Sheltered Annuity Programs KILICO, depositor and sponsor of Registrant, KILICO Variable Annuity Separate Account (the "Separate Account"), and Investors Brokerage Services, Inc. ("IBS"), the principal underwriter of the individual and Group Variable and Market Value Adjusted Deferred Annuity Contracts (the "Contracts") issued by Registrant, will issue 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, KILICO, the Separate Account and IBS represent that they will: 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. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, KILICO Variable Annuity Separate Account, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Amendment to the Registration Statement and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mercer Island and State of Washington on the 26/th/ day of April, 2004. KILICO VARIABLE ANNUITY SEPARATE ACCOUNT (Registrant) By: Kemper Investors Life Insurance Company By: /s/ Diane C. Davis ----------------------------------------- Diane C. Davis, President and Chief Executive Officer KEMPER INVESTORS LIFE INSURANCE COMPANY (Depositor) By: /s/ Diane C. Davis ----------------------------------------- Diane C. Davis, President and Chief Executive Officer As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following directors and principal officers of Kemper Investors Life Insurance Company in the capacities indicated on the 26/th/ day of April, 2004. Signature Title - --------- ----- /s/ Diane C. Davis President, Chief Executive Officer and Director - --------------------------- (Principal Executive Officer) Diane C. Davis /s/ Matthew Kindsvogel Executive Vice President, Treasurer, Chief - --------------------------- Financial Officer and Director (Principal Matthew Kindsvogel Financial Officer and Principal Accounting Officer) /s/ David A. Bowers Director - --------------------------- David A. Bowers /s/ David A. Levinson Director - --------------------------- David A. Levinson /s/ Kenneth E. Owens Director - --------------------------- Kenneth E. Owens EXHIBIT LIST Sequentially Exhibit Page Number Description Number* - ------ ----------- ------- 10. Consent of PricewaterhouseCoopers LLP, Independent Accountants. EX-99.10 2 dex9910.txt CONSENT OF PRICEWATERHOUSECOOPERS EXHIBIT 10. CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Kemper Investors Life Insurance Company and Contract Owners of contracts that participate in the KILICO Variable Annuity Separate Account: We hereby consent to the use in this Post-Effective Amendment No. 9 (File Nos.333-32840 and 811-3199) to the registration statement on Form N-4 (the "Registration Statement") of our report dated March 26, 2003, relating to the consolidated financial statements of Kemper Investors Life Insurance Company, and of our report dated March 4, 2004, relating to the financial statements of the KILICO Variable Annuity Separate Account, which are incorporated by reference into the Prospectus which constitutes part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus and the Statement of Additional Information. PricewaterhouseCoopers LLP Chicago, Illinois April 26, 2004 -----END PRIVACY-ENHANCED MESSAGE-----