-----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, SHXNtyh/AdCa3Hfyjm4AMt0BLAjMP0e8wYKPgAiN3SV4VfR9r3BZMF3ItxvxUjb7 JfP3pRguimWzDJMq8lS0eQ== 0000940180-02-000923.txt : 20020430 0000940180-02-000923.hdr.sgml : 20020430 ACCESSION NUMBER: 0000940180-02-000923 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20020430 EFFECTIVENESS DATE: 20020430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILICO VARIABLE SEPARATE ACCOUNT/IL CENTRAL INDEX KEY: 0000810369 IRS NUMBER: 363050975 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-79615 FILM NUMBER: 02628082 BUSINESS ADDRESS: STREET 1: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 BUSINESS PHONE: 847-874-4000 MAIL ADDRESS: STREET 1: C/O ZURICH LIFE STREET 2: 1600 MCCONNOR PARKWAY CITY: SCHAUMBURG STATE: IL ZIP: 60196-6801 485BPOS 1 d485bpos.txt DESTINATIONS LIFE -- POST-EFF. AMD. #5 TO FORM S-6 As filed with the Securities and Exchange Commission on April 30, 2002 Registration No. 333-79615 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 5 TO Form S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 A. Exact name of trust: KILICO Variable Separate Account B. Name of depositor: Kemper Investors Life Insurance Company C. Complete address of depositor's principal executive offices: 1600 McConnor Parkway Schaumburg, Illinois 60196-6801 D. Name and complete address of agent for service: DEBRA P. REZABEK, ESQ. Kemper Investors Life Insurance Company 1600 McConnor Parkway Schaumburg, Illinois 60196-6801 Copies To: FRANK J. JULIAN, ESQ. JOAN E. BOROS, ESQ. Kemper Investors Life Insurance Jorden Burt LLP 1600 McConnor Parkway 1025 Thomas Jefferson Street, N.W. Schaumburg, Illinois 60196-6801 Suite 400E Washington, D.C. 20007 It is proposed that this filing will become effective (check appropriate box) [ ] Immediately upon filing pursuant to paragraph (b), or [ ] 60 days after filing pursuant to paragraph (a)(1), or [X] on May 1, 2002 pursuant to paragraph (b), or [ ] on (date) pursuant to paragraph (a)(1) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. E. Title of securities being registered: Variable Portion of Modified Single Premium Variable Universal Life Insurance Policies. F. Approximate date of proposed public offering: Continuous. [ ] Check box if it is proposed that this filing will become effective on (date) at (time) pursuant to Rule 487. CROSS REFERENCE SHEET TO PROSPECTUS Cross reference sheet showing location in Prospectus of information required by Items of Form N-8B-2.
Item Number in Form N-8B-2 Caption in Prospectus - -------------------------- --------------------- ORGANIZATION AND GENERAL INFORMATION 1. (a) Name of trust ...................................... Cover, Definitions (b) Title of each class of securities issued ........... Cover, Purchase of Policy and Allocation of Premiums 2. Name & address of each depositor ................... Cover, Kemper Investors Life Insurance Company 3. Name & address of custodian ........................ Separate Account 4. Name & address of principal underwriter ............ Distribution of Policies 5. State in which organized ........................... Separate Account 6. Date of organization ............................... Separate Account 9. Material litigation ................................ Legal Proceedings GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST General Information Concerning Securities and Rights of Holders 10. (a),(b) Type of Securities ................................. Cover, Purchase of Policy and Allocation of Premiums (c) Rights of security holders re: withdrawal or redemption ........................... Cover, Amount Payable on Surrender of the Policy, Policy Loans, Cancellation (Free-Look Period) (d) Rights of security holders re: conversion, transfer or partial withdrawal ......................................... Cover, Cancellation (Free-Look Period), Amount Payable on Surrender of the Policy, Partial Withdrawals, Allocation of Premiums, Transfer of Cash Value (e) Rights of security holders re: lapses, default, & reinstatement ........................... No-Lapse Guarantee and Grace Period; Termination; Reinstatement (f) Provisions re: voting rights ....................... Voting Rights (g) Notice to security holders ......................... Reports to Owners (h) Consent of security holders ........................ Additions, Deletions, and Substitutions of Securities, Allocation of Premiums (i) Other principal features ........................... Charges and Deductions, Policy Benefits and Rights, Cash Value Information Concerning Securities Underlying Trust's Securities 11. Unit of specified securities in which security holders have an interest .................. Cover, Separate Account Investments: the Portfolios 12. (a)-(d) Name of company, name & address of its custodian ...................................... Cover, Separate Account Investments: the Portfolios
Item Number in Form N-8B-2 Caption in Prospectus - -------------------------- --------------------- Information Concerning Loads, Fees, Charges & Expenses 13. (a) With respect to each load, fee, charge & expense ................................... Charges and Deductions (b) Deductions for sales charges ....................... Withdrawal Charge (c) Sales load as percentage of amount invested .................................... Withdrawal Charge (d)-(g) Other loads, fees & expenses ....................... Charges and Deductions Information Concerning Operation of Trust 14. Procedure for applications for & issuance of trust's securities ..................... Application for a Policy, Allocation of Premiums, Distribution of Policies 15. Procedure for receipt of payments from purchases of trust's securities ............... Application for a Policy, Allocation of Premiums, Premiums,Transfer of Cash Value 16. Acquisition and disposition of underlying securities .............................. Cover, Separate Account Investments: the Portfolios 17. (a) Procedure for withdrawal ........................... Cover, Amount Payable on Surrender of the Policy, Partial Withdrawals, Cancellation (Free-Look Period) (b) Redemption or repurchase ........................... Cover, Amount Payable on Surrender of the Policy, Partial Withdrawals, Cancellation (Free-Look Period) (c) Cancellation or resale ............................. Not Applicable 18. (a) Income of the Trust ................................ Portfolios, Allocation of Premiums 19. Procedures for keeping records & furnishing information to security holders ......... Portfolios, Reports to Owners 21. (a)&(b) Loans to security holders .......................... Policy Loans 23. Bonding arrangements for depositor ................. Safekeeping of the Separate Account's Assets 24. Other material provisions .......................... General Policy Provisions ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR Organization & Operations of Depositor 25. Form, state & date of organization of depositor ...................................... KILICO 27. General character of business of depositor ........ KILICO 28. (a) Officials and affiliates of the depositor ......... KILICO, Officers and Directors of KILICO (b) Business experience of officers and directors of the depositor .................... Officers and Directors of KILICO Companies Owning Securities of Depositor 29. Each company owning 5% of voting securities of depositor ........................... KILICO
Item Number in Form N-8B-2 Caption in Prospectus - -------------------------- --------------------- Controlling Persons 30. Control of depositor .............................. KILICO DISTRIBUTION & REDEMPTIONS OF SECURITIES 35. Distribution ...................................... KILICO, Distribution of Policies 38. (a) General description of method of distribution of securities ........................ Distribution of Policies (b) Selling agreement between trust or depositor & underwriter ........................... Distribution of Policies (c) Substance of current agreements ................... Distribution of Policies Principal Underwriter 39. (a)&(b) Principal Underwriter ............................. Distribution of Policies 41. Character of Underwriter's business ............... Distribution of Policies Offering Price or Acquisition Value of Securities of Trust 44. Information concerning offering price or acquisition valuation of securities of trust. (All underlying securities are shares in registered investment companies.) ... Separate Account Investments: the Portfolios, Cash Value Redemption Valuation of Securities of Trust 46. Information concerning redemption valuation of securities of trust. (All underlying securities are shares in registered investment companies.) ....... Separate Account Investments: the Portfolios, Cash Value Purchase & Sale of Interests in Underlying Securities 47. Maintenance of Position ........................... Cover, Separate Account, Separate Account Investments: the Portfolios, Allocation of Premiums INFORMATION CONCERNING TRUSTEE OR CUSTODIAN 48. Custodian of trust ................................ Separate Account 50. Lien on trust assets .............................. Separate Account INFORMATION CONCERNING TRUSTEE OR CUSTODIAN 51. (a) Name & address of insurer ......................... Cover, KILICO (b) Types of Contracts ................................ Cover, Purchase of Policy and Allocation of Premiums, Federal Tax Considerations (c) Risks insured & excluded .......................... Death Benefit, Optional Insurance Benefits, Misstatement as to Age and Sex, Suicide
Item Number in Form N-8B-2 Caption in Prospectus - -------------------------- --------------------- (d) Coverage ........................................... Cover, Purchase of Policy and Allocation of Premiums (e) Beneficiaries ...................................... Death Benefit, Beneficiary (f) Terms of cancellations & reinstatement ............. Cancellation (Free-Look Period); No-Lapse Guarantee and Grace Period; Termination; Reinstatement (g) Method of determining amount of premium paid by holder ............................. Purchase of Policy and Allocation of Premiums POLICY OF REGISTRANT 52. (a)&(c) Selection of Portfolio securities .................. Additions, Deletions, and Substitutions of Securities Regulated Investment Company 53. (a) Taxable status of Trust ............................ Taxation of KILICO and the Separate Accounts FINANCIAL AND STATISTICAL INFORMATION 59. Financial Statements ............................... Financial Statements
* Items not listed are not applicable to this Registration Statement. PROSPECTUS - -------------------------------------------------------------------------------- MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (SINGLE LIFE AND SURVIVORSHIP) - -------------------------------------------------------------------------------- ISSUED BY KEMPER INVESTORS LIFE INSURANCE COMPANY THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 (800) 621-5001 This Prospectus describes Modified Single Premium Variable Universal Life Insurance Policies (the "Policies") offered by Kemper Investors Life Insurance Company ("we" or "KILICO") for prospective insured persons ages 0-90. This Prospectus describes Policies which provide insurance coverage on the life of one Insured ("Single Life Policies") and Policies which provide insurance on the lives of two Insureds ("Survivorship Policies"). You may pay a significant initial Premium and, subject to certain restrictions, additional Premiums. Under the Single Life Policies, when the Insured dies, we will pay a Death Benefit to a Beneficiary specified by you. Under the Survivorship Policies, the Death Benefit is payable upon the second death, as long as the Policy is in force. While the Policy is in force, the Death Benefit is at least the amount shown in the Policy specifications, unless you have loans or the Net Surrender Value is insufficient to pay the monthly expense charges. The Policy does not have a guaranteed minimum Cash Value. If you choose a Policy with our No-Lapse Guarantee (Return of Premium Guarantee in New Jersey), while this guarantee is in effect your Policy will never lapse, regardless of changes in Net Surrender Value. Instead, if the Net Surrender Value becomes insufficient to pay the monthly charges, the Death Benefit payable will at least equal your total Premiums paid (less any prior withdrawals of Premium). This guarantee is in effect while you have no outstanding Policy Debt. If you choose a Policy without this guarantee or if this guarantee is not in effect under your Policy, your coverage under the Policy may end if the Net Surrender Value of your Policy becomes insufficient to cover the monthly expense charges. The Securities and Exchange Commission Has Not Approved or Disapproved of these Securities or Passed upon the Accuracy or Adequacy of this Prospectus. Any Representation to the Contrary is a Criminal Offense. The Date of this Prospectus is May 1, 2002. You may allocate and reallocate your Policy's Cash Value among the Subaccounts of the KILICO Variable Separate Account (the "Separate Account"). Each Subaccount invests exclusively in shares of one of the following Portfolios: ...The Alger American Fund: . Scudder Growth Portfolio ... Alger American Balanced Portfolio . Scudder High Yield Portfolio ... Alger American Leveraged AllCap . Scudder International Select Equity Portfolio Portfolio (formerly Scudder International Research) ...Credit Suisse Trust (formerly Credit Suisse . Scudder Investment Grade Bond Warburg Pincus Trust): Portfolio ... Credit Suisse Trust-Emerging Markets . Scudder Money Market Portfolio Portfolio (formerly Credit Suisse Warburg . Scudder New Europe Portfolio Pincus Emerging Markets) . Scudder Small Cap Growth Portfolio ... Credit Suisse Trust-Global Post-Venture . Scudder Strategic Income Portfolio Capital Portfolio (formerly Credit Suisse . Scudder Technology Growth Portfolio Warburg Pincus Global Post-Venture . Scudder Total Return Portfolio Capital) . SVS Davis Venture Value Portfolio (formerly ...Dreyfus Investment Portfolios (Initial Share SVS Venture Value) Class): . SVS Dreman Financial Services Portfolio ... MidCap Stock Portfolio ("Dreyfus I.P. . SVS Dreman High Return Equity Portfolio MidCap Stock Portfolio") . SVS Dreman Small Cap Value Portfolio ...The Dreyfus Socially Responsible Growth (formerly Scudder Small Cap Value) Fund, Inc. (Initial Share Class) . SVS Eagle Focused Large Cap Growth Portfolio ...INVESCO Variable Investment Funds, Inc.: (formerly SVS Focused Large Cap Growth) ... INVESCO VIF-Utilities Fund . SVS Focus Value+Growth Portfolio ...Scudder Variable Series I (Class A Shares): . SVS Index 500 Portfolio ... Scudder 21st Century Growth Portfolio . SVS INVESCO Dynamic Growth Portfolio ... Scudder Capital Growth Portfolio (formerly SVS Dynamic Growth) ... Scudder Global Discovery Portfolio . SVS Janus Growth And Income Portfolio ... Scudder Growth and Income Portfolio (formerly SVS Growth And Income) ... Scudder Health Sciences Portfolio . SVS Janus Growth Opportunities Portfolio ... Scudder International Portfolio (formerly SVS Growth Opportunities) ...Scudder Variable Series II . SVS MFS Strategic Value Portfolio ... Scudder Aggressive Growth Portfolio . SVS Oak Strategic Equity Portfolio (formerly ... Scudder Blue Chip Portfolio SVS Strategic Equity) ... Scudder Contrarian Value Portfolio . SVS Turner Mid-Cap Growth Portfolio ... Scudder Global Blue Chip Portfolio (formerly SVS Mid-Cap Growth) ... Scudder Government Securities Portfolio
You may obtain more information about these Portfolios by reading the accompanying prospectuses for the Portfolios. Not all of the Subaccounts may be available under your Policy. You generally may cancel the Policy and receive a refund by returning it to us within ten days after you receive it. In some states, however, this free-look period may be longer. The Policies are modified endowment contracts for federal income tax purposes, except in certain cases as described in "Federal Tax Considerations" beginning on page 4. Accordingly, the death benefit under your Policy generally is not subject to federal income tax, and federal income tax on any growth in your Policy's Cash Value generally is deferred until you withdraw it by taking a loan, partial withdrawal, or other distribution from your Policy during the life of the Insured. In addition, any taxable withdrawal taken before age 59 will also be subject to an additional ten percent federal penalty tax, with certain exceptions. In certain states the Policies may be offered as group policies with individual ownership represented by Certificates. The discussion of Policies in this Prospectus applies equally to Certificates under group policies, unless the context specifies otherwise. The Policies and the investments in the Separate Account are not deposits, or obligations of, or guaranteed or endorsed by any bank. The Policies are subject to investment risks, including the possible loss of the principal amount invested. The Policies are not insured by the FDIC, the Federal Reserve Board or any other agency. If you already own a variable life insurance policy, it may not be advantageous for you to buy additional coverage or replace your existing policy with the Policy described in this Prospectus. This Prospectus is valid only if accompanied by the current prospectuses for the Portfolios listed above. If any of those prospectuses are missing or outdated, please contact us and we will send you the prospectus you need. You can find this Prospectus and other information about the Separate Account required to be filed with the Securities and Exchange Commission ("SEC") at the SEC's website at http://www.sec.gov. Please read this Prospectus carefully and retain it for your future reference. The Policies may not be available in all states. TABLE OF CONTENTS ================================================================================
Page ---- DEFINITIONS................................... 1 SUMMARY....................................... 3 FEES AND EXPENSES............................. 8 PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS. 12 INVESTMENT OPTIONS............................ 16 POLICY BENEFITS AND RIGHTS.................... 21 CHARGES AND DEDUCTIONS........................ 29 GENERAL POLICY PROVISIONS..................... 32 FEDERAL TAX CONSIDERATIONS.................... 35 DESCRIPTION OF KILICO AND THE SEPARATE ACCOUNT 39 DISTRIBUTION OF POLICIES...................... 42 LEGAL PROCEEDINGS............................. 42 LEGAL MATTERS................................. 42 REGISTRATION STATEMENT........................ 43 EXPERTS....................................... 43 FINANCIAL STATEMENTS.......................... 43
This Prospectus Does Not Constitute an Offering in any Jurisdiction in which Such Offering May Not Be Lawfully Made. We Do Not Authorize any Information or Representations Regarding the Offering Described in this Prospectus other than as Based in this Prospectus. DEFINITIONS Please refer to this list for the meaning of the following terms: Accumulation Unit--An accounting unit of measurement which we use to calculate the value of a Subaccount. Accumulation Unit Value--The value of an Accumulation Unit determined for a Valuation Period according to the formula stated in your Policy. Annuity Unit--An accounting unit of measurement which we use to calculate the amount of variable payments under a settlement option. Annuity Unit Value--The value of an Annuity Unit determined for a Valuation Period according to the formula stated in your Policy. Beneficiary(ies)--The person(s) named by you to receive the Death Benefit under the Policy. Cash Value--The sum of the Separate Account Value plus the Fixed Account Value plus the Loan Account Value. DCA Fixed Account--The portion of the Cash Value allocated to our general account for purposes of participating in our Dollar Cost Averaging program. Death Benefit--The amount payable to the Beneficiary under the Policy upon the death of the Insured(s), before payment of any unpaid Policy Debt or Policy charges. Deduction Day--The same day in each month as the Effective Date. The day of the month on which the Monthly Deduction is taken from your Cash Value. Effective Date--The effective date of insurance coverage under the Policy, as stated in the Policy specifications. It is used to determine Policy Anniversaries, Policy Years and the Deduction Day. If the Effective Date otherwise would be the 29th, 30th or 31st of a month, the Effective Date will be the 28th day of that month. Fixed Account--The portion of the Cash Value allocated to our general account. Fixed Account Value--The value of the Fixed Account, including the DCA Fixed Account and any initial Premium (plus interest) paid prior to the Issue Date. Guideline Single Premium--The "Guideline Single Premium" as defined in Section 7702 of the Tax Code. Insured--A person whose life is insured under the Policy. Under a Survivorship Policy, there initially are two Insureds. Investment Experience Factor--The factor we use to determine the change in value of an Accumulation Unit in any Valuation Period. We determine the Investment Experience Factor separately for each Subaccount. Issue Age--An Insured's age on his or her most recent birthday before the Effective Date. Issue Date--The issue date stated in the Policy specifications. It is the date all requirements for coverage and Premium have been received, and the Policy is approved. Loan Account--An account established for amounts transferred from the Subaccounts as security for outstanding Policy Debt. Loan Account Value--The value of the Loan Account. Maturity Date--For Single Life Policies, the Policy Anniversary nearest the Insured's 100th birthday. For Survivorship Policies, the Policy Anniversary nearest the younger Insured's 100th birthday. 1 Monthly Deduction--The amount deducted from the Cash Value on each Deduction Day for the cost of insurance charge, the Administration Charge, the Tax Charge, the Records Maintenance Charge (when due), and the cost of any benefit rider. Net Surrender Value--The Surrender Value minus all outstanding Policy Debt. No-Lapse Guarantee--Our guarantee that, if you have no outstanding Policy Debt, your Policy will never lapse regardless of changes in the Net Surrender Value. If the Net Surrender Value becomes insufficient to cover the monthly charges, however, your Death Benefit may be reduced to equal your total Premiums (less any prior withdrawals of Premium). The No-Lapse Guarantee is not available under all Policies. Owner ("you, your, yours")--The party(s) named as Owner in the application, unless later changed as provided in the Policy. The Owner, prior to the distribution of any Death Benefit, has the exclusive right to exercise every option and right conferred by the Policy. Policy Anniversary--The same day and month as the Effective Date for each subsequent year the Policy remains in force. Policy Debt--The sum of all unpaid Policy Loans and accrued loan interest. Policy Year--Each twelve-month period beginning on the Effective Date and each Policy Anniversary. Portfolio(s)--The underlying portfolios in which the Subaccounts invest. Each Portfolio is an investment company registered with the SEC or a separate investment series of a registered investment company. Premium--An amount paid to us as payment for the Policy by you or on your behalf. SEC--The United States Securities and Exchange Commission. Separate Account--KILICO Variable Separate Account, a unit investment trust registered with the SEC under the Investment Company Act of 1940. Separate Account Value--The sum of the Subaccount Values of the Policy on the Valuation Date. Specified Amount--The amount of insurance under your Policy. As of the Effective Date, the Specified Amount is the amount shown on your Policy's specifications page. Thereafter, the Specified Amount is reduced to reflect partial withdrawals. Subaccount--A division of the Separate Account, which invests wholly in shares of one of the Portfolios. Subaccount Value--The value of the assets held in a Subaccount. Surrender Value--The Cash Value less any applicable Withdrawal Charge. Tax Code--The Internal Revenue Code of 1986, as amended. Trade Date--On the Trade Date, we allocate your Cash Value to the Subaccounts and/or the DCA Fixed Account according to your instructions. In some states, the Trade Date is the same as the Issue Date. If your state requires us to return your Premium if you cancel your Policy during the free-look period, the Trade Date will be the Valuation Date which is on or immediately after the fifteenth day after the Issue Date. Valuation Date--Each business day that applicable law requires us to value the assets of the Separate Account. Currently this is each day that the New York Stock Exchange is open for trading. Valuation Period--The period that starts at the close of a Valuation Date and ends at the close of the next succeeding Valuation Date. We, Our, Us, KILICO--Kemper Investors Life Insurance Company. Withdrawal Charge--The surrender charge plus the unamortized state premium tax charge. 2 SUMMARY This section summarizes some of the more important features of your Policy. The Policy is described more fully in the remainder of this Prospectus. Please read this Prospectus carefully. Unless otherwise indicated, the description of the Policy contained in this Prospectus assumes that the Policy is in force, that there is no Policy Debt, and that current federal tax laws apply. This Policy is a modified single premium variable universal life insurance policy. The Policy has a Death Benefit, a Cash Value, and other features similar to life insurance policies providing fixed benefits. The Policy permits the Owner to pay a single significant initial Premium and, subject to restrictions, additional Premiums. It is a "variable" Policy because the Cash Value and, in some circumstances, the Death Benefit vary according to the investment performance of the Subaccounts to which you have allocated your Premium. The Cash Value is not guaranteed. This Policy provides you with the opportunity to take advantage of any increase in your Cash Value, but you also bear the risk of any decrease. We will issue Policies on the lives of prospective Insureds age 0-90 who meet our underwriting standards. You may purchase a Policy to provide insurance coverage on the life of one Insured ("Single Life Policy") or a Policy to provide insurance coverage on the lives of two Insureds ("Survivorship Policy"). Payment of Premium Your initial Premium must equal at least $10,000. You may choose a minimum initial Premium of 90% or 100% of the Guideline Single Premium, based on the initial Specified Amount. If you choose to pay 90% of the Guideline Single Premium, your current cost of insurance charge will be higher and your Policy will not include our No-Lapse Guarantee. You may pay additional Premiums, subject to the restrictions described in this Prospectus. We may refuse to accept any Premium that would cause an increase in the Death Benefit, other than a reinstatement Premium. We will accept any Premium at such time as it would not cause your Policy to lose its status as a life insurance contract under the Tax Code. Policy Effective Date In general, your Policy will be effective and your life insurance coverage under the Policy will begin as of the date we receive your initial Premium, after satisfaction of the applicable underwriting requirements. While your application is in underwriting, if you have paid your initial Premium, we may provide you with temporary life insurance coverage in accordance with the terms of our temporary insurance agreement. This temporary coverage will not exceed $500,000 plus the amount of your initial Premium. We may decline for any lawful reason to accept your initial Premium until the Issue Date. You may be eligible to purchase a Policy through simplified underwriting without a medical examination if you meet our simplified underwriting criteria. Simplified underwriting will only be available for Individual Policies and Survivorship Policies involving spouses. Other survivorship cases will be considered on a fully underwritten basis. You are not eligible for simplified underwriting if the Insured is under 35 years old or over 80 years old at the time of application. If we approve your application, and you paid all or a portion of your initial Premium prior to the Issue Date, we will credit interest to your Initial Premium at our then current declared rate for the period from the Effective Date to the Issue Date. On the Issue Date, if your state requires us to return your Premium if you cancel your Policy during the free-look period, we will initially allocate your initial Premium (and any interest) to the Scudder Money Market Subaccount. On the Trade Date, we will allocate your Cash Value to the Subaccounts you have selected or to the DCA Fixed Account (if you have selected it for Dollar Cost Averaging). In some states, the Trade Date will be the same as the Issue Date. In other states, however, which require us to return your Premium upon cancellation of your Policy during the free-look period, on the Issue Date we will initially allocate your initial Premium (plus any interest) to the Scudder Money Market Subaccount, and the Trade Date will be the Valuation Date which is on or immediately after the fifteenth day after the Issue Date. We will begin to deduct the Policy charges as of the Effective Date. If we reject your application, we will not issue you a Policy. We will return any Premium you have paid, adding interest as and at the rate required in your state. We will not subtract any Policy charges from the amount we refund to you. 3 Policy Benefits Cash Value. The Cash Value of your Policy on any Valuation Date is equal to the sum of the Separate Account Value, the Fixed Account Value (if any), and the Loan Account Value (if applicable). Your Cash Value will depend on the investment performance of the Subaccounts to which you have allocated your Premiums, the amount of interest we credit to the DCA Fixed Account and the Loan Account (if you have any Cash Value in those Accounts), as well as the Premiums paid, partial withdrawals, and charges assessed. We do not guarantee a minimum Cash Value. Surrender or Partial Withdrawals. While your Policy is in force, you may surrender it for the Net Surrender Value. We also will deduct the Records Maintenance Charge from your surrender proceeds, if your Cash Value on the Policy Anniversary was less than $50,000. Upon surrender, life insurance coverage under your Policy will end. You may also withdraw part of your Cash Value through a partial withdrawal, subject to the restrictions described in "Partial Withdrawals" beginning on page 24 below. If you take a partial withdrawal, we will reduce the Specified Amount as described in this Prospectus on page 24. Withdrawal Charge. If you surrender your Policy, the Withdrawal Charge will equal a percentage of your initial Premium net of all previous withdrawal amounts on which you paid a Withdrawal Charge. You pay a proportionate amount of Withdrawal Charge on partial withdrawals in excess of the free withdrawal amount described below. The Withdrawal Charge has two parts: (1) a surrender charge, which is intended to cover our distribution expenses; and (2) an unamortized state premium tax charge, which is intended to cover state premium tax expenses that are not recovered through the Tax Charge. The rate used to determine the Withdrawal Charge depends on the year the surrender or partial withdrawal is made. The maximum Withdrawal Charge is 10% of the initial Premium. It declines to zero percent after the ninth Policy Year, at the rates shown in the table on page 31. Free Withdrawals. In each Policy Year, we will waive the Withdrawal Charge for partial withdrawals equal to the greater of: 1. Ten percent of the Cash Value; or 2. Earnings not previously withdrawn. We will also waive the Withdrawal Charge for qualified medical stays and disability. For more detail see "Amount Payable on Surrender of the Policy" and "Partial Withdrawals" on pages 23-24. Policy Loans. You may borrow money from us using your Policy as security for the loan. Each Policy Loan must equal at least $1,000. Your total Policy Loans may not exceed 90% of the Surrender Value of your Policy. In most instances Policy Loans are treated as distributions for Federal tax purposes. Therefore, you may incur tax liabilities if you borrow a Policy Loan. For more detail, see "Policy Loans", beginning on page 23, and "Policies Which Are MECs", on page 37. Death Benefits. Under a Single Life Policy, while the Policy is in force, we will pay a Death Benefit to the Beneficiary upon the death of the Insured. Under a Survivorship Policy, we will pay the Death Benefit to the Beneficiary upon the death of the second Insured. While your Policy is in force, the Death Benefit will equal the greater of your Policy's then current Specified Amount and the Cash Value multiplied by a specified percentage, except as provided under "No-Lapse Guarantee" below. Before we pay the Death Benefit, we will subtract an amount sufficient to repay any outstanding Policy Debt and to pay any due and unpaid charges. No-Lapse Guarantee Under our No-Lapse Guarantee, your Policy will never lapse, regardless of changes in the Net Surrender Value as long as you do not have any outstanding Policy Debt at the time the Policy would otherwise lapse. Your Policy will remain in force until payment of the Death Benefit or the Maturity Date, unless you voluntarily surrender your Policy at an earlier date. If your Net Surrender Value is insufficient to cover a Monthly Deduction when due, we will give you a 61-day Grace Period to pay additional Premium. If you do not pay sufficient additional Premium, at the end of the Grace Period your Policy will stay in force but the Death Benefit will be reduced to equal your total Premium payments (less any prior partial withdrawals of Premium). The No-Lapse Guarantee applies to your Policy unless: (a) you paid 90% of the Guideline Single Premium at issue for your Policy or (b) your Policy has outstanding Policy Debt. 4 Duration of Coverage If the No-Lapse Guarantee does not apply to your Policy and your Net Surrender Value is insufficient to cover a Monthly Deduction when due, we will give you a 61-day Grace Period to pay additional Premium. If you do not pay sufficient additional Premium, your Policy will terminate at the end of the Grace Period. Allocation of Premiums When you apply for the Policy, you specify in your application how to allocate your initial Premium among the Subaccounts and/or the DCA Fixed Account. Total allocations must equal 100%. You may allocate all or a portion of your initial Premium to the DCA Fixed Account solely for the purpose of subsequent transfers to the Subaccounts under our Automatic Dollar Cost Averaging Program, as described on page 15. On the Issue Date, if your state requires us to return your Premium if you cancel your Policy during the free-look period, we will initially allocate your initial Premium (plus any interest) to the Scudder Money Market Subaccount. Subsequently, on the Trade Date, we will allocate your Cash Value to the Subaccounts and/or the DCA Fixed Account (if you have selected it for Automatic Dollar Cost Averaging) in accordance with your instructions. Transfers You may transfer Cash Value among the Subaccounts while the Policy is in force, by writing to us or calling us at (800) 621-5001. We currently do not charge a transfer fee. We reserve the right to charge a fee of $25 per transfer on each transfer after the first twelve transfers in each Policy Year, excluding transfers under our Automatic Dollar Cost Averaging or Automatic Account Rebalancing Programs. The minimum amount that may be transferred is $100 or the remaining value in the Subaccount, if the value that would remain in the Subaccount after the transfer would be less than $500. For more detail, see "Transfer of Cash Value" and "Transfers Authorized by Telephone", on page 14. You may also use our Automatic Dollar Cost Averaging program or our Automatic Account Rebalancing program. You may not use both programs at the same time. Under the Automatic Dollar Cost Averaging program, amounts are automatically transferred to the Subaccounts of your choice on a monthly, quarterly, semiannual, or annual basis. For more detail, see "Automatic Dollar Cost Averaging", on page 15. Under the Automatic Account Rebalancing program, you periodically can readjust the percentage of your Cash Value allocated to each Subaccount to maintain a pre-set level. Investment results will shift the balance of your Cash Value allocations. If you elect Automatic Account Rebalancing, we periodically transfer your Cash Value back to the specified percentages annually, semiannually, quarterly, or at your request. For more detail, see "Automatic Account Rebalancing", on page 15. The Separate Account You can allocate and reallocate your Cash Value among the Subaccounts, each of which in turn invests in a single Portfolio. Under the Policy, the Separate Account currently invests in the following Portfolios: . The Alger American Fund: . Alger American Balanced Portfolio . Alger American Leveraged AllCap Portfolio . Credit Suisse Trust (formerly Credit Suisse Warburg Pincus Trust): . Credit Suisse Trust-Emerging Markets Portfolio (formerly Credit Suisse Warburg Pincus Emerging Markets) . Credit Suisse Trust-Global Post-Venture Capital Portfolio (formerly Credit Suisse Warburg Pincus Global Post-Venture Capital) . Dreyfus Investment Portfolios (Initial Share Class): . Dreyfus I.P. MidCap Stock Portfolio 5 . The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class) . INVESCO Variable Investment Funds, Inc.: . INVESCO VIF-Utilities Fund . Scudder Variable Series I (Class A Shares): . Scudder 21st Century Growth Portfolio . Scudder Capital Growth Portfolio . Scudder Global Discovery Portfolio . Scudder Growth and Income Portfolio . Scudder Health Sciences Portfolio . Scudder International Portfolio . Scudder Variable Series II: . Scudder Aggressive Growth . Scudder Blue Chip Portfolio . Scudder Contrarian Value Portfolio . Scudder Global Blue Chip Portfolio . Scudder Government Securities Portfolio . Scudder Growth Portfolio . Scudder High Yield Portfolio . Scudder International Select Equity Portfolio (formerly Scudder International Research) . Scudder Investment Grade Bond Portfolio . Scudder Money Market Portfolio . Scudder New Europe Portfolio . Scudder Small Cap Growth Portfolio . Scudder Strategic Income Portfolio . Scudder Technology Growth Portfolio . Scudder Total Return Portfolio . SVS Davis Venture Value Portfolio (formerly SVS Venture Value) . SVS Dreman Financial Services Portfolio . SVS Dreman High Return Equity Portfolio . SVS Dreman Small Cap Value Portfolio (formerly Scudder Small Cap Value) . SVS Eagle Focused Large Cap Growth Portfolio (formerly SVS Focused Large Cap Growth) . SVS Focus Value+Growth Portfolio . SVS Index 500 Portfolio . SVS INVESCO Dynamic Growth Portfolio (formerly SVS Dynamic Growth) . SVS Janus Growth And Income Portfolio (formerly SVS Growth And Income) . SVS Janus Growth Opportunities Portfolio (formerly SVS Growth Opportunities) . SVS MFS Strategic Value Portfolio . SVS Oak Strategic Equity Portfolio (formerly SVS Strategic Equity) . SVS Turner Mid Cap Growth Portfolio (formerly SVS Mid-Cap Growth) Each Portfolio holds its assets separate from the assets of the other Portfolios. Each Portfolio has distinct investment objectives and policies, which are described in the accompanying prospectuses for the Portfolios. Charges Charges assessed on the Subaccounts. On each Valuation Date, we deduct a Mortality and Expense Risk Charge from the Separate Account. The Mortality and Expense Charge equals an annual rate of .90% of average daily net assets, and is intended to compensate us for expenses incurred and certain mortality and expense risks assumed under the Policies. See "Mortality and Expense Risk Charge" on page 29 below. Monthly Deduction. We also deduct a Monthly Deduction from your Cash Value. The Monthly Deduction consists of the cost of insurance charge, the Administration Charge, the Tax Charge and the cost of any benefit rider. We also deduct the Records Maintenance Charge on each Policy Anniversary, if your Policy's Cash Value was less than $50,000 on the Policy Anniversary. The cost of insurance charge covers our anticipated mortality costs. If your Initial Premium is more than $2,500,000, your cost of insurance charges may be lower. The Administration Charge is intended to compensate us for some of our administrative costs under the Policy. The Tax Charge covers state premium tax expenses under the Policies and certain federal tax liabilities resulting from our receipt of Premiums under the Policies, as required by law. The Records 6 Maintenance Charge reimburses us for certain administrative costs associated with the Policies. See "Monthly Deduction", on pages 29-31 below. Withdrawal Charge. We impose a Withdrawal Charge to cover a portion of our premium tax expenses and a portion of the sales expenses we incur in distributing the Policies. These sales expenses include agents' commissions, advertising, and the printing of Prospectuses. See "Withdrawal Charge" on page 4 above and in "Withdrawal Charge" on page 31-32 below. Transfer Fee. We currently do not charge a transfer fee. Under the Policy, however, we reserve the right to charge a fee of $25 per transfer on each transfer in excess of twelve transfers in a single Policy Year, excluding Automatic Account Rebalancing and Automatic Dollar Cost Averaging transfers. See "Transfer Fee" on page 32 below. The charges assessed under the Policy are summarized in the table entitled "Policy Charges and Deductions" on pages 8-9 below, and described in more detail in "Charges and Deductions", beginning on page 29. In addition to our charges under the Policy, each Portfolio deducts amounts from its assets to pay its investment advisory fee and other expenses. The prospectuses for the Portfolios describe their respective charges and expenses in more detail. We may receive compensation from the investment advisers or administrators of the Portfolios. Such compensation will be consistent with the services we provide or the cost savings resulting from the arrangement and therefore may differ between Portfolios. We also may receive fees from the Portfolios to assist us in distributing the Policies. Tax Treatment Under Current Federal Tax Law Your Policy is structured to meet the definition of a life insurance contract under the Tax Code. We may need to limit the amount of Premiums you pay under the Policy to ensure that your Policy continues to meet that definition. In most circumstances, your Policy will be considered a "modified endowment contract", which is a form of life insurance contract under the Tax Code. Special rules govern the tax treatment of modified endowment contracts. Under current tax law, death benefit payments under modified endowment contracts, like death benefit payments under other life insurance contracts, generally are excluded from the gross income of the beneficiary. Withdrawals and Policy Loans, however, are treated differently. Amounts withdrawn and Policy Loans are treated first as income, to the extent of any gain, and then as a return of Premium. The income portion of the distribution is includible in your taxable income. Also, an additional ten percent federal penalty tax is generally imposed on the taxable portion of amounts received before age 59 1/2. For more information on the tax treatment of the Policy, see "Federal Tax Considerations", beginning on page 35, and consult your tax adviser. Free-Look Period In most states, you may cancel your Policy by returning it to us no later than ten days after you receive it. In other states, however, this free-look period may be longer, as provided by state law. If you return your Policy, the Policy terminates and, in some states, we will pay you an amount equal to your Premium (less any Policy Debt). In some other states, however, we will return your Cash Value. Since state laws differ as to the consequences of returning a Policy, you should refer to your Policy for specific information about your circumstances. Illustration of How Policy Values Change with Experience At your request we will furnish you with a free, personalized illustration of Cash Value, Surrender Value and Death Benefit. The illustration will be personalized to reflect the proposed Insureds' age, sex, underwriting classification, proposed initial Premium, and any available riders requested. The illustrated Cash Value, Surrender Value and Death Benefit will be based on certain hypothetical assumed rates of return for the Separate Account. Your actual investment experience probably will differ, and as a result the actual values under the Policy at any time may be higher or lower than those illustrated. The personalized illustrations will follow the methodology and format of the hypothetical illustrations that we filed with the SEC in the registration statement. 7 FEES AND EXPENSES The following tables are designed to help you understand the fees and expenses that you bear, directly or indirectly, as a Policy Owner. The first table describes the Policy charges and deductions you directly bear under the Policy. The second table describes the fees and expenses of the Portfolios that you bear indirectly when you purchase a Policy. (See "Charges and Deductions", beginning on page 29). Policy Charges and Deductions Charges Deducted from the Separate Account: Mortality and Expense Risk Charge: 0.90% of average daily net assets(1) Federal Income Tax Charge: Currently none(2) Charges Deducted from Cash Value:(3) Monthly Cost of Insurance Charge: Current: The lower of: (i) the product of the applicable current asset-based cost of insurance charge times the Cash Value on the Deduction Day (4); and (ii) the product of the applicable guaranteed cost of insurance rate times the net amount at risk. If your initial Premium is no more than $2,500,000 and you paid 100% of the Guideline Single Premium, the current asset-based rate for Single Life Policies for the Standard (NT) (5) rate class is 0.55% annually of Cash Value for the first ten Policy Years and 0.25% thereafter and the rate for Survivorship Policies, when both insureds are in the Standard (NT) rate class, is 0.45% for the first ten Policy Years and 0.20% thereafter. If your initial Premium is more than $2,500,000 and you paid 100% of the Guideline Single Premium, the current asset-based rate for Single Life Policies for the Standard (NT) rate class is 0.25% for the first ten Policy Years and 0.10% thereafter and the rate for Survivorship Policies, when both insureds are in the Standard (NT) rate class, is 0.20% for the first ten Policy Years and 0.10% thereafter. Guaranteed: Ranges from $.06 per $1,000 of net amount at risk to $83.33 per $1,000 of net amount at risk(6). Administration Charge(7) 0.35% annually of monthly Cash Value for Policy Years 1-10 0.25% annually of monthly Cash Value for Policy Years 11 and later Tax Charge(7) 0.40% annually of the monthly Cash Value for Policy Years 1-10 0.00%for Policy Years 11 and later Records Maintenance Charge(8) $30.00 per year, deducted annually, if your Cash Value is less than $50,000 on the most recent Policy Anniversary. Transaction Charges: Transfer Fee:(9) Currently none Maximum Withdrawal Charge:(10) 10% of the initial Premium
- -------- (1)Deducted each Valuation Period at a rate equivalent to the effective annual rate shown, multiplied by the Separate Account Value on the relevant Valuation Date, times the number of days in the relevant Valuation Period. No mortality and expense risk charge is deducted from the Scudder Money Market II Subaccount, which is only available for Automatic Dollar Cost Averaging that will deplete the owner's Subaccount Value by the end of the first Policy Year. 8 (2)We currently do not assess a charge for federal income taxes that may be attributed to the operations of the Separate Account. We reserve the right to do so in the future. See "Charges and Deductions", beginning on page . (3)Assessed monthly, allocated pro rata among all active Subaccounts and the DCA Fixed Account. (4)The asset-based cost of insurance rate differs depending on Policy type and history of tobacco use of the Insured(s). The current asset-based cost of insurance rates also reflect whether you pay 90% or 100% of the Guideline Single Premium at issue (based on the initial Specified Amount). The asset-based rates that we set will reflect our expectations as to mortality experience under the Policies and other relevant factors, such that the aggregate actual cost of insurance charges paid under the Policies will compensate us for our aggregate mortality risks under the Policies. In our discretion, we may change the asset-based rate used in the current cost of insurance formula. Even if we change the asset-based rate, you will never be charged more than the amount determined using the guaranteed cost of insurance tables in your Policy. For further explanation, see "Charges and Deductions--Monthly Deduction--Cost of Insurance Charge", on pages - . (5)The Standard (NT) rate class is our best rate class for Insureds who have not used tobacco of any kind within the past 36 months. (6)The guaranteed cost of insurance charges are based on attained age, sex, and history of tobacco use of the Insured(s). The net amount at risk is the difference between the Death Benefit and the Cash Value. See "Charges and Deductions--Monthly Deduction--Cost of Insurance Charge", on pages - . (7)Deducted monthly in an amount equal to the annual rate shown, multiplied by the total Cash Value, including the Loan Account Value, on the relevant Deduction Day. The Administration Charge covers certain of our administrative expenses in connection with the Policies. The Tax Charge covers a portion of our state premium tax expense and certain federal income tax liability associated with the receipt of Premium. (8)The Records Maintenance Charge is deducted annually on each Policy Anniversary. If you surrender your Policy during a Policy Year, we will deduct the Records Maintenance Charge from your surrender proceeds. (9)We currently do not charge a transfer fee. Under the Policy, we reserve the right in the future to charge a transfer fee of $25 on each transfer after the first twelve transfers each Policy Year, excluding transfers under our Automatic Dollar Cost Averaging and Automatic Account Rebalancing Programs. (10)This charge only applies upon withdrawals of the initial Premium. It does not apply to withdrawals of any additional Premiums paid under a Policy. The Withdrawal Charge declines to zero percent after the ninth Policy Anniversary. It is imposed to cover a portion of our premium tax expenses and the sales expenses incurred by us in distributing the Policies. In any Policy Year, we will not charge any Withdrawal Charge on that portion of your withdrawals equal to the greater of (a) ten percent of the Cash Value, less any prior free partial withdrawal since the most recent Policy Anniversary, or (b) earnings not previously withdrawn. See "Charges and Deductions--Withdrawal Charge", on pages 31-32. 9 Portfolio Expenses (As a percentage of average net assets for the period ended December 31, 2001) (total expense figures shown in column titled "Total Portfolio Annual Expenses (Net)" are after fee waivers or reductions and expense reimbursements, as indicated in the notes)
Total Portfolio Total Portfolio Management Total Portfolio Annual Expenses Annual Expenses Portfolio Fees Other Expenses (Gross) (Net) - --------- ---------- --------------- --------------- --------------- Alger American Balanced Portfolio..................... 0.75% 0.10% 0.85% 0.85% Alger American Leveraged AllCap Portfolio............. 0.85% 0.07% 0.92% 0.92% Credit Suisse Trust-Emerging Markets (1).............. 1.25% 0.64% 1.89% 1.40% Credit Suisse Trust-Global Post-Venture Capital (1)... 1.25% 0.36% 1.61% 1.40% Dreyfus I.P. MidCap Stock (2)......................... 0.75% 0.14% 0.89% 0.89% The Dreyfus Socially Responsible Growth Fund, Inc. (2) 0.75% 0.03% 0.78% 0.78% INVESCO VIF-Utilities Fund (9)(10).................... 0.60% 0.77% 1.37% 1.15% Scudder 21st Century Growth (3)(4).................... 0.88% 0.28% 1.16% 1.15% Scudder Aggressive Growth (5)......................... 0.75% 0.11% 0.86% 0.86% Scudder Blue Chip (5)................................. 0.65% 0.04% 0.69% 0.69% Scudder Capital Growth................................ 0.46% 0.04% 0.50% 0.50% Scudder Contrarian Value (5).......................... 0.75% 0.04% 0.79% 0.79% Scudder Global Blue Chip (4)(5)....................... 1.00% 0.24% 1.24% 1.09% Scudder Global Discovery (3).......................... 0.98% 0.24% 1.22% 1.22% Scudder Government Securities......................... 0.55% 0.05% 0.60% 0.60% Scudder Growth........................................ 0.60% 0.03% 0.63% 0.63% Scudder Growth and Income............................. 0.48% 0.08% 0.56% 0.56% Scudder Health Sciences (3)........................... 0.75% 0.65% 0.95% 1.40% Scudder High Yield.................................... 0.60% 0.10% 0.70% 0.70% Scudder International................................. 0.84% 0.16% 1.00% 1.00% Scudder International Select Equity................... 0.75% 0.17% 0.92% 0.92% Scudder Investment Grade Bond (5)..................... 0.60% 0.04% 0.64% 0.64% Scudder Money Market.................................. 0.50% 0.05% 0.55% 0.55% Scudder New Europe (4)(5)............................. 1.00% 1.47% 2.47% 1.12% Scudder Small Cap Growth.............................. 0.65% 0.03% 0.68% 0.68% Scudder Strategic Income (5)(6)....................... 0.65% 0.13% 0.78% 0.78% Scudder Technology Growth (5)......................... 0.74% 0.07% 0.81% 0.81% Scudder Total Return.................................. 0.55% 0.03% 0.58% 0.58% SVS Davis Venture Value (5)........................... 0.95% 0.14% 1.09% 1.09% SVS Dreman Financial Services (5)..................... 0.75% 0.11% 0.86% 0.86% SVS Dreman High Return Equity (5)..................... 0.75% 0.07% 0.82% 0.82% SVS Dreman Small Cap Value (5)........................ 0.75% 0.04% 0.79% 0.79% SVS Eagle Focused Large Cap Growth (5)................ 0.95% 0.16% 1.11% 1.11% SVS Focus Value+Growth (5)............................ 0.75% 0.04% 0.79% 0.79% SVS Index 500 (4)(5)(7)............................... 0.37% 0.21% 0.58% 0.55% SVS INVESCO Dynamic Growth (4)(5)..................... 1.00% 0.97% 1.97% 1.30% SVS Janus Growth And Income (5)(8).................... 0.95% 0.10% 1.05% 1.05% SVS Janus Growth Opportunities (5)(8)................. 0.95% 0.15% 1.10% 1.10% SVS MFS Strategic Value (5)(11)....................... 0.95% 0.20% 1.15% 1.15% SVS Oak Strategic Equity (4)(5)....................... 0.95% 0.49% 1.44% 1.15% SVS Turner Mid-Cap Growth (4)(5)...................... 1.00% 0.82% 1.82% 1.30%
- -------- (1)The expense figures shown are for fiscal year ended December 31, 2001. Taking into effect certain fee waivers or reductions from the Portfolios' investment adviser and its affiliates, Management Fees and Total Portfolio Other Expenses for the Portfolios for the fiscal year ended December 31, 2001 were: 0.76% and 0.64%, respectively, for the Emerging Markets Portfolio; and 1.04% and 0.36%, respectively, for the Global Post-Venture Capital Portfolio. Fee waivers andexpense reimbursements may be discontinued at any time. The Total Portfolio Annual Expense (Net) figures set forth in the table above reflect the effect of the fee waiver and expense reduction arrangements described above. (2)The expenses shown are for the fiscal year ended December 31, 2001. Current or future expenses may be greater or less than those presented. Please consult the underlying mutual fund prospectus for more complete information. (3)Pursuant to their respective agreements with Scudder Variable Series I, the investment manager, the underwriter and the accounting agent have agreed, for the one year period commencing on May 1, 2002, to limit their respective fees and to reimburse other expenses to the extent necessary to limit total operating expenses of the following described Portfolios to the amounts set forth after the Portfolio names: Scudder Global Discovery Portfolio (1.25%), Scudder 21st Century Growth Portfolio (1.50%) and Scudder Health Sciences Portfolio (0.95%). 10 (4)The expense figures shown are for fiscal year ended December 31, 2001. Taking into effect certain fee waivers or reductions from the Portfolio's investment manager, Management Fees and Total Portfolio Other Expenses for the Portfolios for the fiscal year ended December 31, 2001 were: 0.88% and 0.27%, respectively, for the Scudder 21/st/ Century Growth Portfolio; 0.85% and 0.24%, respectively, for the Scudder Global Blue Chip Portfolio; 0.70% and 0.42%, respectively, for the Scudder New Europe Portfolio; 0.37% and 0.18%, respectively, for the SVS Index 500 Portfolio; 0.90% and 0.40%, respectively, for the SVS INVESCO Dynamic Growth Portfolio; 0.89% and 0.26%, respectively, for the SVS Oak Strategic Equity Portfolio; and 0.98% and 0.32%, respectively, for the SVS Turner Mid Cap Growth Portfolio. The Total Portfolio Annual Expense (Net) figures set forth in the table above reflect the effect of the fee waiver and expense reduction arrangements described above. (5)Pursuant to their respective agreements with Scudder Variable Series II, the investment manager, the underwriter and the accounting agent have agreed, for the one year period commencing on May 1, 2002, to limit their respective fees and to reimburse other expenses to the extent necessary to limit total operating expenses of the following described Portfolios to the amounts set forth after the Portfolio names: SVS MFS Strategic Value (1.15%); SVS INVESCO Dynamic Growth (1.30%), SVS Turner Mid Cap Growth (1.30%), SVS Oak Strategic Equity (1.15%), SVS Davis Venture Value (1.15%), SVS Dreman High Return Equity (0.87%), SVS Focus Value+Growth (0.84%), SVS Eagle Focused Large Cap Growth (1.15%), SVS Dreman Financial Services (0.99%), SVS Janus Growth Opportunities (1.15%), SVS Janus Growth And Income (1.15%), Scudder Aggressive Growth (0.95%), Scudder Technology Growth (0.95%), Scudder Contrarian Value (0.80%), SVS Dreman Small Cap Value (0.84%), Scudder Investment Grade Bond (0.80%), Scudder Strategic Income (1.05%), Scudder Blue Chip (0.95%), SVS Index 500 (0.55%), Scudder New Europe (1.12%) and Scudder Global Blue Chip (1.56%). In addition, for Scudder New Europe and Scudder Global Blue Chip, the investment manager has agreed to limit its management fees to 0.70% and 0.85%, respectively, of such Portfolios for one year, commencing May 1, 2002. (6)Other Expenses have been restated to reflect an estimate of current accruals. (7)Management fees have been restated to reflect a fee reduction to be effective at the close of the Deutsche Bank/Zurich Scudder transaction in April 2002. (8)SVS Janus Growth Opportunities and SVS Janus Growth And Income are only available under Contracts issued on or after May 1, 2000. (9)The Fund's actual Other Expenses and Total Annual Fund Operating Expenses were lower than the figures shown, because its custodian fees were reduced under an expense offset arrangement. (10)Certain expenses of the Fund were voluntarily absorbed by INVESCO pursuant to a commitment between the Fund and INVESCO. This commitment may be changed at any time following consultation with the Board of Directors. After absorption, but excluding any offset arrangement, the Fund's Other Expenses and Total Portfolio Annual Expenses were 0.55% and 1.15%, respectively. (11)Portfolio became effective and commenced operations 5/1/02, therefore other expenses are estimated and annualized. Actual expenses may be greater or less than shown. 11 PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS Application for a Policy You may apply to purchase a Policy by submitting a written application to us through one of our authorized agents. We will issue Policies to insure people who are 90 years of age or younger. When you apply for a Policy, we will require you to submit evidence of insurability satisfactory to us. If we do not issue a Policy to you, we will return your Premium to you. In general, we will deliver your Policy only when (1) we have received your initial Premium and (2) we have determined that your application meets our underwriting requirements. If you are paying Premium from more than one source, we will not issue your Policy until all Premium has been received. The Effective Date will be the effective date of insurance coverage under your Policy. We use the Effective Date to determine Policy Anniversaries, Policy Years, and Deduction Days. The Effective Date usually will be the date when we have received your initial Premium, after satisfaction of the applicable underwriting requirements. We will not accept your initial Premium with your application if it exceeds our then-current limit. In other cases, you may choose to pay the initial Premium with your application. If you did not submit your initial Premium with your application, we will require you to pay your entire Premium before we place your insurance in force. Acceptance of your application is subject to our underwriting rules. We reserve the right to reject your application for any lawful reason. We reserve the right to change the terms or conditions of your Policy to comply with differences in applicable state law. Variations from the information appearing in this Prospectus due to individual state requirements are described in supplements which are attached to this Prospectus or in endorsements to the Policy, as appropriate. Simplified Underwriting. Under our current underwriting rules, which we may change when and as we decide, proposed Insureds are eligible for simplified underwriting without a medical examination, if the application responses and requested initial Premium meet our simplified underwriting standards. Simplified underwriting is not available if the initial Premium exceeds the limits set in our simplified underwriting standards. For Survivorship Policies, simplified underwriting is available only when the proposed Insureds are husband and wife; both Insureds must meet our simplified underwriting requirements. Simplified underwriting limits may vary by state. Standard Underwriting. If you are not eligible for simplified underwriting, we will process your application in accordance with our customary underwriting requirements. While your application is in underwriting, if you have paid your initial Premium we may provide you with temporary life insurance coverage in accordance with the terms of our temporary insurance agreement. Any temporary coverage may not exceed $500,000 plus the amount of your initial Premium. If you did not pay your Premium with your application, we will require you to pay your entire Premium before we place your insurance in force. If you pay Premium through more than one source, e.g., through the rollover of another policy, we will not place your Policy in force until all Premium has been received. If we approve your application, you will earn interest and/or investment return on your Premium from the Effective Date. We will also begin to deduct the Policy charges as of the Effective Date. If we reject your application, we will not issue you a Policy. We will return any Premium you have paid, adding interest as and at the rate required in your state. We will not subtract any Policy charges from the amount we refund to you. Premiums You must pay an initial Premium to purchase a Policy. You may choose a minimum initial Premium of 90% or 100% of the Guideline Single Premium for your Policy's initial Specified Amount. Your choice will affect your current cost of insurance charge. In addition, if you choose to pay 90%, your Policy will not include our No-Lapse Guarantee. Under either option, the minimum initial Premium is $10,000. We may waive or change this minimum. You may pay additional Premiums at any time and in any amount necessary to avoid termination of your Policy. In addition, we will accept any additional Premium at such time as it would not disqualify your Policy as a life insurance contract under the Tax Code. If you wish to repay Policy Debt (if any), you must send written instructions with your payment; otherwise, we will treat any payment received from you as additional Premium. 12 Allocation of Premiums If you pay all or a portion of your initial Premium prior to the Issue Date, we will initially allocate your payment to our Fixed Account. If we approve your application, we will credit interest to that amount at an effective rate of not less than 3% annually for the period from the Effective Date to the Issue Date. On the Issue Date, if your state requires us to return your Premium if you cancel your Policy during the free-look period, we will initially allocate your initial Premium (and any interest) to the Scudder Money Market Subaccount. Subsequently, on the Trade Date, we will allocate your Cash Value to the Subaccounts and/or the DCA Fixed Account (if you have selected it for Automatic Dollar Cost Averaging) in accordance with your instructions. The Trade Date will occur on the Valuation Date on or next following fifteen (15) days after the Issue Date. In other states, on the Issue Date we will allocate your initial Premium according to your instructions, because the Trade Date will be the same as the Issue Date. You must specify your allocation percentages in your Policy application. The total allocation must equal 100%. We will allocate your subsequent Premiums in those proportions, until you give us new allocation instructions. You may change your allocation instructions orally or in writing. Your initial allocation to a Subaccount must equal at least $500. You may not allocate your Cash Value to more than 30 Subaccounts at one time. You may not allocate Premiums to the DCA Fixed Account after the initial Premium. We generally will allocate your additional Premiums to the Subaccounts as of the date your Premium is received in our Home Office. We may refuse to accept any Premium that would cause an increase in the Death Benefit, other than a reinstatement Premium. We will make all valuations in connection with the Policy, other than the initial Premium and other Premium payments requiring underwriting, on the date a Premium is received or your request for other action is received at our Home Office, if that date is a Valuation Date, or on the next succeeding Valuation Date. Cash Value Your Cash Value on any Valuation Date is the sum of the value of your interest in the Subaccounts you have chosen, your Fixed Account Value (if any), plus your Loan Account Value (if any). Your Cash Value may increase or decrease daily to reflect the performance of the Subaccounts you have chosen, the addition of interest credited to the Loan Account and the Fixed Account, the addition of Premiums, and the subtraction of partial withdrawals and charges assessed. There is no minimum guaranteed Cash Value. On the Effective Date, your Cash Value will equal the initial Premium less the Monthly Deduction for the first Policy Month. The Separate Account Value equals the sum of the Subaccount Values, each of which equals: a. The total value of your Accumulation Units in the Subaccount; plus b. Any Premium received and allocated to the Subaccount during the current Valuation Period; plus c. Any amount transferred to the Subaccount during the current Valuation Period; minus d. The pro-rata portion of any Monthly Deduction charged to the Subaccount when the Valuation Period includes a Deduction Day; minus e. Any amount transferred from the Subaccount during the current Valuation Period; minus f. Any amount withdrawn from the Subaccount during the current Valuation Period; minus g. Any amount loaned from the Subaccount during the current Valuation Period. Accumulation Unit Value The Accumulation Unit Value for each Subaccount will vary to reflect the investment experience of the corresponding Portfolio and the deduction of certain expenses. We will determine the Accumulation Unit Value for each Subaccount on each Valuation Date. A Subaccount's Accumulation Unit Value for a particular Valuation Date will equal the Subaccount's Accumulation Unit Value on the preceding Valuation Date multiplied by the Investment Experience Factor for that Subaccount for the Valuation Period then ended. 13 The Investment Experience Factor for each Subaccount is (1) divided by (2) minus (3), where: (1)is the sum of (a) the net asset value per share of the corresponding Portfolio at the end of the current Valuation Period plus (b) the per share amount of any dividend or capital gains distribution by that Portfolio, if the "ex-dividend" date occurs in that Valuation Period; plus or minus (c) a credit or charge for any taxes reserved for the current Valuation Period which we determine to have resulted from the investment operations of the Subaccount; (2)is the net asset value per share of the corresponding Portfolio at the end of the last prior Valuation Period; and (3)is the factor representing the Mortality and Expense Risk Charge. You should refer to the prospectuses for the Portfolios which accompany this Prospectus for a description of how the assets of each Portfolio are valued, since that determination directly affects the investment experience of the corresponding Subaccount and, therefore, your Cash Value. Transfer of Cash Value While the Policy is in force before the Maturity Date, you may transfer Cash Value among the Subaccounts in writing or by telephone. We currently do not charge a transfer fee. However, under the Policy we reserve the right to charge a fee of $25 for each transfer in excess of twelve per Policy Year, excluding transfers under our Automatic Dollar Cost Averaging and Automatic Account Rebalancing Programs. You may not transfer Cash Value to the DCA Fixed Account. The minimum amount that may be transferred from a single Subaccount is $100, or the remaining value in the Subaccount, if the value that would remain in the Subaccount after the transfer would be less than $500. We reserve the right to waive or change these minimums. As a general rule, we only make transfers on days when the New York Stock Exchange ("NYSE") is open for business. If we receive your request on one of those days, we will make the transfer that day. Otherwise, we will make the transfer on the first subsequent day on which the NYSE is open. Transfers pursuant to an Automatic Dollar Cost Averaging or Automatic Account Rebalancing program will be made at the intervals you have selected in accordance with the procedures and requirements we establish. We may suspend, modify, or terminate the transfer provisions. Transfers Authorized by Telephone You may make transfers by telephone, if you so advise us in writing on our authorized forms. The cut off time for telephone transfer requests is 3:00 p.m. Central time. Timely requests will be processed on that day at that day's price. If we receive your request after 3:00 p.m. Central time, we will process your request at the next day's price. We use procedures that we believe provide reasonable assurance that telephone authorized transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. We may suspend, modify or terminate the telephone transfer privilege at any time without notice. Market Timing This Policy is not designed for professional market timing organizations, or other organizations or individuals engaged in market timing strategies in response to short-term fluctuations in the market, involving frequent transfers, or transfers representing a substantial percentage of the assets of any Subaccount. You should not purchase the Policy if you intend to engage in such market timing strategies. Market timing strategies may be disruptive to the Subaccounts and may be detrimental to Owners. Further, these short-term strategies are particularly inappropriate for attaining long-term retirement goals or for the protection of heirs. Consequently, we reserve the right, at our sole discretion and without prior notice, to take action when we identify market-timing strategies detrimental to Owners. 14 Automatic Dollar Cost Averaging Under our Automatic Dollar Cost Averaging program, while the Policy is in force you may authorize us to transfer a fixed dollar amount monthly, quarterly, semiannually, or annually to the Subaccounts of your choice in accordance with the procedures and requirements we establish. The transfers will continue until you instruct us to stop, or until your chosen source of transfer payments is exhausted. The minimum Automatic Dollar Cost Averaging transfer is $100 per transfer. Upon early termination of your Automatic Dollar Cost Averaging program, we will allocate the remaining amount from your source account to the Subaccounts in accordance with your instructions in our files, unless you have given us new instructions. You may make Automatic Dollar Cost Averaging transfers from any Subaccount. At issue, you may choose to allocate some or all of your initial Premium to the Scudder Money Market II Subaccount or to the DCA Fixed Account, for purposes of participating in the Automatic Dollar Cost Averaging Program. Amounts allocated to the Scudder Money Market II Subaccount or the DCA Fixed Account must be transferred to other Subaccounts by the first Policy Anniversary. The Scudder Money Market II Subaccount invests in the Scudder Money Market Portfolio. However, the Mortality and Expense Risk Charge is not charged to this Subaccount. We offer two DCA Fixed Account options in connection with the Automatic Dollar Cost Averaging Program: a six-month option and a twelve-month option. Amounts designated for one of these options will be transferred to the Subaccounts within six months or twelve months of the Effective Date, as appropriate. Until they are transferred, they will accrue interest at the rate we declare. We may declare different rates for the six-month and the twelve-month options. In our discretion, we may change the DCA Fixed Account options that we offer under the Policy. For more information, see "The DCA Fixed Account". Your request to participate in this program will be effective when we receive your completed application at our Home Office. Call or write us for a copy of the application and additional information concerning the program. You may not use Automatic Dollar Cost Averaging and Automatic Account Rebalancing at the same time. We may change, terminate, limit or suspend Automatic Dollar Cost Averaging at any time. The theory of automatic dollar cost averaging is that by spreading your investment over time, you may be able to reduce the effect of transitory market conditions on your investment. In addition, because a given dollar amount will purchase more units when the unit prices are relatively low rather than when the prices are higher, in a fluctuating market, the average cost per unit may be less than the average of the unit prices on the purchase dates. However, participation in this program does not assure you of a greater profit from your purchases under the program; nor will it prevent or necessarily reduce losses in a declining market. Moreover, other investment programs may not work in concert with Automatic Dollar Cost Averaging. Therefore, you should monitor your use of these programs, as well as other transfers or withdrawals, while Automatic Dollar Cost Averaging is being used. Automatic Account Rebalancing Automatic Account Rebalancing allows you to readjust the percentage of your Cash Value allocated to each Subaccount to maintain a pre-set level. Over time, the variations in each Subaccount's investment results will shift the balance of your Cash Value allocations. Under the Automatic Account Rebalancing feature, we periodically will transfer your Cash Value, including new Premiums (unless you specify otherwise), back to the percentages you specify in accordance with the procedures and requirements we establish. You may select the Subaccounts to include in an Automatic Account Rebalancing program. You may request Automatic Account Rebalancing when you apply for your Policy or by submitting a completed written request to us at our Home Office. You may not use Automatic Account Rebalancing and Automatic Dollar Cost Averaging at the same time. We may change, terminate, limit or suspend Automatic Account Rebalancing at any time. Please call or write us for a copy of the request form and additional information concerning Automatic Account Rebalancing. Automatic Account Rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Cash Value allocated to the better performing segments. Other investment programs may not work in concert with Automatic Account Rebalancing. Therefore, you should monitor your use of these programs, as well as other transfers or withdrawals, while Automatic Account Rebalancing is being used. We may change, terminate, limit or suspend Automatic Account Rebalancing at any time. 15 INVESTMENT OPTIONS Separate Account Investments: the Portfolios. Each of the Subaccounts invests in the shares of one of the Portfolios. Each Portfolio is an open-end management investment company or a separate investment series of an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"). We briefly describe the Portfolios below. You should read the current prospectuses for the Portfolios for more detailed and complete information concerning the Portfolios, their investment objectives and strategies, and the investment risks associated with the Portfolios. If you do not have a prospectus for a Portfolio, contact us and we will send you a copy. Each Portfolio holds its assets separate from the assets of the other Portfolios, and each Portfolio has its own distinct investment objective and policies. Each Portfolio operates as a separate investment fund, and the income, gains, and losses of one Portfolio have no effect on the investment performance of any other Portfolio. The Portfolios which currently are the permissible investments of the Separate Account under this Policy are the following registered investment companies or separate series thereof: . The Alger American Fund . Credit Suisse Trust (formerly Credit Suisse Warburg Pincus Trust) . Dreyfus Investment Portfolios . The Dreyfus Socially Responsible Growth Fund, Inc. . INVESCO Variable Investment Funds, Inc. . Scudder Variable Series I (Class A Shares) . Scudder Variable Series II The investment objectives of the Portfolios are briefly described below. Portfolios of The Alger American Fund Alger American Balanced Portfolio seeks current income and long-term capital appreciation. Alger American Leveraged AllCap Portfolio seeks long-term capital appreciation. Portfolios of Credit Suisse Trust (formerly Credit Suisse Warburg Pincus Trust) Credit Suisse Trust--Emerging Markets (formerly Credit Suisse Warburg Pincus Trust-Emerging Markets) Portfolio seeks long-term growth of capital by investing in equity securities of emerging markets. Credit Suisse Trust--Global Post-Venture Capital (formerly Credit Suisse Warburg Pincus Trust-Global Post-Venture Capital) Portfolio seeks long-term growth of capital by investing primarily in equity securities of U.S. and foreign companies considered to be in their post-venture-capital stage of development. Dreyfus Investment Portfolios (Initial Share Class) Dreyfus I.P. MidCap Stock Portfolio seeks investment results that are greater than the total return performance of publicly traded common stocks of medium-size domestic companies in the aggregate, as represented by the Standard & Poor's MidCap 400(R) Index. The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class) The Fund's primary goal is to provide capital growth, with current income as a secondary goal by investing 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. 16 INVESCO Variable Investment Funds, Inc. INVESCO VIF-Utilities Fund seeks capital appreciation and income by investing primarily in companies engaged in the utilities sector. Portfolios of Scudder Variable Series I (Class A Shares) Scudder 21st Century Growth Portfolio seeks long-term growth of capital by investing primarily in equity securities issued by emerging growth companies. Scudder Capital Growth Portfolio seeks to maximize long-term capital growth through a broad and flexible investment program. Scudder Global Discovery Portfolio seeks above-average capital appreciation over the long term by investing primarily in the equity securities of small companies located throughout the world. Scudder Growth and Income Portfolio seeks long-term growth of capital, current income and growth of income. Scudder Health Sciences Portfolio seeks long-term growth of capital by investing at least 80% of total assets, plus the amount of any borrowings for investment purposes, in common stocks of companies in the health care sector. Scudder International Portfolio seeks long-term growth of capital primarily through diversified holdings of marketable foreign equity investments. Portfolios of Scudder Variable Series II Scudder Aggressive Growth Portfolio seeks capital appreciation through the use of aggressive investment techniques. Scudder Blue Chip Portfolio seeks growth of capital and income. Scudder Contrarian Value Portfolio seeks to achieve a high rate of total return. Scudder Global Blue Chip Portfolio seeks long-term capital growth. Scudder Government Securities Portfolio seeks high current income consistent with preservation of capital. Scudder Growth Portfolio seeks maximum appreciation of capital. Scudder High Yield Portfolio seeks to provide a high level of current income. Scudder International Select Equity (formerly Scudder International Research) Portfolio seeks capital appreciation. Scudder Investment Grade Bond Portfolio seeks high current income. Scudder Money Market Portfolio seeks maximum current income to the extent consistent with stability of principal. Scudder New Europe Portfolio seeks long-term capital appreciation. Scudder Small Cap Growth Portfolio seeks maximum appreciation of investors' capital. Scudder Strategic Income Portfolio seeks high current return. Scudder Technology Growth Portfolio seeks growth of capital. 17 Scudder Total Return Portfolio seeks high total return, a combination of income and capital appreciation. SVS Davis Venture Value Portfolio (formerly SVS Venture Value) seeks growth of capital. SVS Dreman Financial Services Portfolio seeks to provide long-term capital appreciation. SVS Dreman High Return Equity Portfolio seeks to achieve a high rate of total return. SVS Dreman Small Cap Value Portfolio (formerly Scudder Small Cap Value) seeks long-term capital appreciation. SVS Eagle Focused Large Cap Growth Portfolio (formerly SVS Focused Large Cap Growth) seeks growth through long-term capital appreciation. SVS Focus Value+Growth Portfolio seeks growth of capital through a portfolio of growth and value stocks. A secondary objective of the Portfolio is the reduction of risk over a full market cycle compared to a portfolio of only growth stocks or only value stocks. SVS Index 500 Portfolio seeks returns that, before expenses, correspond to the total return of U.S. common stocks as represented by the Standard & Poor's 500 Composite Stock Price Index.* SVS INVESCO Dynamic Growth Portfolio (formerly SVS Dynamic Growth) seeks long-term capital growth. SVS Janus Growth And Income Portfolio (formerly SVS Growth And Income) seeks long-term capital growth and current income. SVS Janus Growth Opportunities Portfolio (formerly SVS Growth Opportunities) seeks long-term growth of capital in a manner consistent with the preservation of capital. SVS MFS Strategic Value Portfolio seeks capital appreciation. SVS Oak Strategic Equity Portfolio (formerly SVS Strategic Equity) seeks long-term capital growth. SVS Turner Mid Cap Growth (formerly SVS Mid-Cap Growth) Portfolio seeks capital appreciation. Not all Subaccounts may be available under your Policy. You should contact your representative for further information on the availability of the Subaccounts. Fred Alger Management, Inc. serves as the investment adviser for the Alger American Leveraged AllCap Portfolio and the Alger American Balanced Portfolio. Credit Suisse Asset Management, LLC is the investment adviser for the two available Portfolios of the Credit Suisse Trust (formerly Credit Suisse Warburg Pincus Trust). Abbott Capital Management LLC serves as sub-adviser for the private-equity portfolio portion of the Credit Suisse Trust-Global Post-Venture Capital Portfolio (formerly Credit Suisse Warburg Pincus Trust-Global Post-Venture Capital Portfolio). The Dreyfus Corporation is the investment adviser for the Dreyfus I.P. Midcap Stock Portfolio and The Dreyfus Socially Responsible Growth Fund, Inc. NCM Capital Management Group, Inc. serves as the sub-adviser for The Dreyfus Socially Responsible Growth Fund, Inc. INVESCO Funds Group, Inc. serves as the investment adviser for the available Portfolio of the INVESCO Variable Investment Funds, Inc. Deutsche Investment Management Americas, Inc. ("DeIM") is the investment manager for the six available Portfolios of Scudder Variable Series I and the twenty-eight available Portfolios of Scudder Variable Series II. 18 Dreman Value Management L.L.C. ("DVM") serves as sub-adviser for the SVS Dreman High Return Equity Portfolio, the SVS Dreman Financial Services Portfolio, and the value portion of the SVS Focus Value+Growth Portfolio. Under the terms of the Sub-Advisory Agreement between DeIM and DVM for each Portfolio, DVM manages the investment and reinvestment of each Portfolio's assets in accordance with its investment objectives, policies and limitations and subject to the supervision of DeIM and the Board of Trustees. - -------- * "Standard & Poor's(R)," "S&P(R)," "S&P500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Deutsche Investment Management Americas, Inc. The SVS Index 500 Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes norepresentation regarding the advisability of investing in the Portfolio. Additional information may be found in the Portfolio's Statement of Additional Information. Eagle Asset Management, Inc. ("Eagle") is the sub-adviser for the SVS Focused Large Cap Growth Portfolio. Under the terms of a Sub-Advisory Agreement with DeIM, Eagle will handle day-to-day investment and trading functions for the SVS Focused Large Cap Growth Portfolio under the guidance of DeIM. Janus Capital Corporation ("Janus") serves as the sub-adviser for the SVS Growth And Income Portfolio and the SVS Growth Opportunities Portfolio. Under the terms of Sub-Advisory Agreements with DeIM, Janus will handle day-to-day investment and trading functions for the SVSGrowth And Income Portfolio and the SVS Growth Opportunities Portfolio under the guidance of DeIM. Massachusetts Financial Services Company serves as the sub-adviser for the SVS MFS Strategic Value Portfolio. We do not promise that the Portfolios will meet their investment objectives. Amounts you have allocated to Subaccounts may grow in value, decline in value, or grow less than you expect, depending on the investment performance of the Portfolios in which those Subaccounts invest. You bear the investment risk that those Portfolios possibly will not meet their investment objectives. You should carefully review the Portfolios' prospectuses before allocating amounts to the Subaccounts. Each Portfolio is subject to certain investment restrictions and policies which may not be changed without the approval of a majority of the shareholders of the Portfolio. See the accompanying prospectuses of the Portfolios for further information. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. The income and realized and unrealized gains or losses on the assets of each Subaccount are separate and are credited to or charged against the particular Subaccount without regard to income, gains or losses from any other Subaccount or from any other part of our business. We will use the Premiums you allocate to a Subaccount to purchase shares in the corresponding Portfolio and will redeem shares in the Portfolios to meet Policy obligations or make adjustments in reserves. The Portfolios are required to redeem their shares at net asset value and to make payment within seven days. Some of the Portfolios have been established by investment advisers that manage publicly traded mutual funds having similar names and investment objectives. While some of the Portfolios may be similar to, and may in fact be modeled after, publicly traded mutual funds, you should understand that the Portfolios are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any similarly named Portfolio may differ substantially. Certain of the Portfolios sell their shares to separate accounts underlying both variable life insurance and variable annuity policies. It is conceivable that in the future it may be unfavorable for variable life insurance separate accounts and variable annuity separate accounts to invest in the same Portfolio. Although neither we nor any of the Portfolios currently foresees any such disadvantages either to variable life insurance or variable annuity owners, each Portfolio's Board of Directors intends to monitor events in order to identify any material conflicts between variable life and variable annuity owners and to determine what action, if any, should be taken in response thereto. If a Board of Directors were to conclude that separate investment funds should be 19 established for variable life and variable annuity separate accounts, Owners will not bear the attendant expenses. Voting Rights As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Subaccounts to which you have allocated your Cash Value. Under current interpretations, however, you are entitled to give us instructions on how to vote those shares on certain matters. We will notify you when your instructions are needed and will provide proxy materials or other information to assist you in understanding the matter at issue. We will determine the number of votes for which you may give voting instructions as of the record date set by the relevant Portfolio for the shareholder meeting at which the vote will occur. As a general rule, you are the person entitled to give voting instructions. However, if you assign your Policy, the assignee may be entitled to give voting instructions. Retirement plans may have different rules for voting by plan participants. If you send us written voting instructions, we will follow your instructions in voting the Portfolio shares attributable to your Policy. If you do not send us written instructions, we will vote the shares attributable to your Policy in the same proportions as we vote the shares for which we have received instructions from other Owners. We will vote shares that we hold in the same proportions as we vote the shares for which we have received instructions from other Owners. We may, when required by state insurance regulatory authorities, disregard Owner voting instructions if the instructions require that the shares be voted so as to cause a change in the subclassification or investment objective of one or more of the Portfolios or to approve or disapprove an investment advisory contract for one or more of the Portfolios. In addition, we may disregard voting instructions given by Owners with respect to proposed changes in the investment objectives or the investment adviser of the Portfolios if we reasonably disapprove of the proposed change. We would disapprove a proposed change only if the proposed change is contrary to state law or prohibited by state regulatory authorities or we reasonably conclude that the proposed change would not be consistent with the investment objectives of the Portfolio or would result in the purchase of securities for the Portfolio which vary from the general quality and nature of investments and investment techniques utilized by the Portfolio. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report to you. This description reflects our view of currently applicable law. If the law changes or our interpretation of the law changes, we may decide that we are permitted to vote the Portfolio shares without obtaining instructions from Owners, and we may choose to do so. Additions, Deletions, and Substitutions of Securities If the shares of any of the Portfolios are no longer available for investment by the Separate Account or if, in our judgment, further investment in the shares of a Portfolio is no longer appropriate in view of the purposes of the Policy, we may add or substitute shares of another Portfolio or mutual fund for Portfolio shares already purchased or to be purchased in the future by Premiums under the Policy. Any substitution will comply with the requirements of the 1940 Act. We also reserve the right to make the following changes in the operation of the Separate Account and the Subaccounts: (a) to operate the Separate Account in any form permitted by law; (b) to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable laws; (c) to transfer assets from one Subaccount to another, or from any Subaccount to our general account; 20 (d) to add, combine, or remove Subaccounts in the Separate Account; (e) to assess a charge for taxes attributable to the operation of the Separate Account or for other taxes, as described in "Charges and Deductions--Separate Account Charges" below; and (f) to change the way in which we assess other charges, as long as the total other charges do not exceed the maximum guaranteed charges under the Policies. If we deem it to be in the best interests of persons having voting interest under the Policies, the Separate Account may be (a) operated as a management company under the 1940 Act, (b) deregistered under the 1940 Act if such registration is no longer required; or (c) combined with our other separate accounts. To the extent permitted by law, we may also transfer assets of the Separate Account to another separate account, or to our General Account. If we take any of these actions, we will comply with the then applicable legal requirements. The DCA Fixed Account The portion of the Policy relating to the Fixed Account is not registered under the Securities Act of 1933, as amended ("1933 Act") and the Fixed Account is not registered as an investment company under the 1940 Act. Accordingly, neither the Fixed Account nor any interest in the Fixed Account is subject to the provisions or restrictions of the 1933 Act or the 1940 Act, and the disclosure regarding the Fixed Account has not been reviewed by the staff of the SEC. The statements about the Fixed Account in this Prospectus may be subject to generally applicable provisions of the federal securities laws regarding accuracy and completeness. You may allocate part or all of your initial Premium to the DCA Fixed Account, to be transferred subsequently to the Subaccounts under our Automatic Dollar Cost Averaging program. In addition, we allocate your initial Premium to our Fixed Account for the period prior to the Issue Date, if you pay all or a portion of your initial Premium prior to the Issue Date. No other Fixed Account option currently is available under the Policy. We reserve the right to discontinue offering or to offer additional Fixed Account options under the Policy, in accordance with applicable law. The interest rate credited to amounts allocated to the Fixed Account, including the DCA Fixed Account, will be shown in your Policy. We may change the rate credited to new Policies at any time in our discretion. We set interest rates in accordance with then current market conditions and other factors. Amounts allocated to the Fixed Account become part of the general account of KILICO. KILICO invests the assets of the general account in accordance with applicable laws governing the investments of insurance company general accounts. POLICY BENEFITS AND RIGHTS Death Benefit While your Policy is in force, we will pay the Death Benefit proceeds upon the death of the Insured or, if your Policy is a Survivorship Policy, upon the death of the second Insured to die. We will pay the Death Benefit proceeds to the named Beneficiary(ies) or, if none survives, to contingent Beneficiary(ies). We will pay the Death Benefit proceeds in a lump sum or apply them under the Policy's settlement options, which are described in "Settlement Option Payments". The Death Benefit proceeds payable to the Beneficiary equal the Death Benefit, less any Policy Debt and less any due and unpaid charges. We will determine the amount of the Death Benefit proceeds as of the end of the Valuation Period following the date of death of the Insured (or second Insured). We must receive due proof of death within 60 days after the death of an Insured, or as soon thereafter as reasonably possible. We usually will pay the Death Benefit proceeds within seven days after we have received all required documentation. Payment may be postponed in certain circumstances. See "Postponement of Payments". 21 The Death Benefit generally is the greater of: (1) the Specified Amount; or (2) the Cash Value at the date of death multiplied by a factor from the table of death benefit factors. The death benefit factors in the table reflect the "corridor percentages" for the guideline premium test under the Tax Code. We set the death benefit factors so as to ensure that Policies will qualify for favorable tax treatment. The death benefit factors vary according to the age of the Insured. Under this formula, an increase in Cash Value due to favorable investment experience may increase the Death Benefit above the Specified Amount, and a decrease in Cash Value due to unfavorable investment experience may reduce the Death Benefit (but not below the Specified Amount). However, as explained in "No-Lapse Guarantee and Grace Period" and "Termination" below, if your Policy's Net Surrender Value is insufficient to cover a Monthly Deduction when due, the Death Benefit may be reduced to equal your total Premium payments (less any prior withdrawals of Premium) or, if you have any outstanding Policy Debt, your Policy may lapse. Examples:
Example A Example B --------- --------- Specified Amount................ $100,000 $100,000 Insured's Age................... 60 60 Cash Value on Date of Death..... $ 80,000 $ 50,000 Applicable Death Benefit Factors 130% 130% Death Benefit................... $104,000 $100,000
In Example A, the Death Benefit equals $104,000, i.e., the greater of $100,000 (the Specified Amount) and $104,000 (the Cash Value at the date of death of $80,000, multiplied by the corridor percentage of 130%). This amount, less any Policy Debt and unpaid charges, constitutes the Death Benefit proceeds that we would pay to the Beneficiary. In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the Specified Amount) or $65,000 (the Cash Value of $50,000 multiplied by the corridor percentage of 130%). As explained in more detail in "Federal Tax Considerations", we have structured the Policy to satisfy the definition of a life insurance contract under Section 7702 of the Tax Code. As a result, the Death Benefit ordinarily will be excluded from the gross income of the Beneficiary, and any growth in the Cash Value of the Policy will not be taxable until distributed. However, because the Policy generally will be treated as a modified endowment contract for tax purposes, withdrawals and Policy Debt will be treated as coming first from any gain under your Policy, and then as a return of Premium. The income portion of the distribution is includible in your taxable income. In addition, a ten percent federal penalty tax may apply to the taxable portion of the distributions received before age 59 1/2. For advice about the tax consequences of purchasing a Policy or your specific circumstances, please consult your tax adviser. Accelerated Death Benefit Rider You may request payment of a portion of the Death Benefit as an Accelerated Death Benefit if the Insured becomes terminally ill. You generally may request an Accelerated Death Benefit of up to the lesser of 50% of the existing Death Benefit or $250,000. Before we pay your Accelerated Death Benefit, we will deduct a $150 administrative fee and an amount sufficient to repay any outstanding Policy Debt. In approved states, the Accelerated Death Benefit Rider will be issued with all Policies at no extra Premium. If you request an Accelerated Death Benefit, the balance of the Death Benefit is payable upon the Insured's death. We will reduce the Death Benefit payment by the amount previously paid, increased to reflect the early payment of a portion of the Death Benefit under this Rider. You may request an Accelerated Death Benefit only once. Under Survivorship Policies, the Accelerated Death Benefit may not be requested until after the death of one of the Insureds. The total Accelerated Death Benefits available under all life insurance policies issued to you by us or our affiliates is $250,000. In general, the tax treatment of accelerated death benefits is the same as the tax treatment of the Death Benefit, as described in "Federal Tax Considerations". Please consult your tax adviser for more information. 22 Policy Loans While the Policy is in force, you may borrow money from us using the Policy as the only security for your loan. Loans have priority over the claims of any assignee or any other person. You may borrow up to 90% of the Surrender Value of your Policy as of the end of the Valuation Period in which we receive your loan request. Any outstanding Policy Debt will count against that limit. Thus, for example, if the Surrender Value of your Policy was $100,000 and you already had $50,000 in Policy Debt outstanding, you could borrow an additional $40,000 ($100,000X90%-$50,000). The minimum loan amount is $1,000. In addition, if you have named an irrevocable Beneficiary, you must also obtain his or her written consent before we make a Policy Loan to you. You may realize taxable income when you take a Policy Loan. In most instances, a Policy is treated as a "modified endowment contract" for federal tax purposes. As a result, Policy Loans are treated as withdrawals for tax purposes, and the amount of the loan equal to any increase in your Cash Value may be treated as taxable income to you. In addition, you may also incur an additional ten percent federal penalty tax. You should also be aware that interest on Policy Loans is generally not tax deductible. On the other hand, although a Policy Loan is treated as a withdrawal for tax purposes, it is treated differently for Policy purposes. For example, under the Policy, a Policy Loan, unlike a partial withdrawal, does not reduce the Specified Amount. Accordingly, before you take a Policy Loan, you should consult your tax adviser and carefully consider the potential impact of a Policy Loan on your rights and benefits under the Policy. While the Policy remains in force, you may repay a Policy Loan in whole or in part without any penalty at any time while the Insured is living. The loan interest rate on all Policy Loans will be 5.50% per year compounded daily. Interest not paid will be charged on a daily basis and will be added to the Policy Debt on this Policy and bear interest at the same rate. When we make a Policy Loan to you, an amount equal to the Loan will be transferred from the Subaccounts to the Loan Account until the loan is repaid. Unless you instruct us otherwise, the amount of the Loan will be deducted pro rata from the Subaccounts and DCA Fixed Account based on their relative Subaccount Values or DCA Fixed Account Values under your Policy. As explained in "No-Lapse Guarantee and Grace Period" below, if the Policy Debt outstanding under your Policy should ever equal or exceed the Net Surrender Value, your Policy will enter the grace period and may terminate if you do not pay sufficient additional Premium. We reserve the right to not permit you to borrow Cash Value derived from Premium paid in the form of a check or draft for up to 30 days after we deposit that check or draft. We will credit interest at an annual rate of 3.50% to your Loan Account Value that is not attributable to "Preferred Loans." As to any Loan Account Value attributable to "Preferred Loans", we currently credit interest at an annual rate of 5.50%. We may change that rate, but we will never reduce it to less than 3.5% annually. We will classify as "Preferred Loans" the portion of your total Loan Account Value equal to the difference between your Policy's Cash Value minus total Premiums paid (net of all prior withdrawals of Premium). If you purchase your Policy in exchange for a policy with another insurance company, we will accept up to 50% of the Cash Value as a rollover loan. We will treat the rollover loan as a Preferred Loan. A Policy Loan, whether or not repaid, will have a permanent effect on the Cash Value because the investment results of each Subaccount will apply only to the amounts remaining in those Subaccounts. The longer a loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If the Subaccounts earn more than the annual interest rate for amounts held in the Loan Account, your Cash Value will not increase as rapidly as it would if you had not taken a Policy Loan. If the Subaccounts earn less than that rate, then your Cash Value will be greater than it would have been if you had not taken a Policy Loan. Also, if you do not repay a Policy Loan, your Policy Debt will be subtracted from the Death Benefit and Surrender Value otherwise payable. Amount Payable on Surrender of the Policy While your Policy is in force, you may fully surrender your Policy. Upon surrender, we will pay you the Net Surrender Value determined as of the day we receive your written request at our Home Office. Your Policy will terminate on the day we receive your written request. We may require that you give us your Policy 23 document before we pay you the surrender proceeds. Before we pay a full surrender, you must provide us with tax withholding information. The Net Surrender Value equals the Cash Value less any applicable Withdrawal Charge, less any outstanding Policy Debt. We also will deduct the $30 Records Maintenance Charge, if it would otherwise be due at the end of the current Policy Year. We will determine the Net Surrender Value as of the end of the Valuation Period during which we received your request for surrender. We generally will pay you the surrender proceeds of the Policy within seven days of our receiving your complete written request or on the effective surrender date you have requested, whichever is later. The determination of the Withdrawal Charge is described in "Withdrawal Charge". You may receive the surrender proceeds in a lump sum or under any of the settlement options described in "Settlement Option Payments". The tax consequences of surrendering the Policy are discussed in "Federal Tax Considerations". Partial Withdrawals You may receive a portion of the Surrender Value of your Policy by making a partial withdrawal from your Policy. Your request may be by telephone or in writing. If you request a partial withdrawal by telephone, however, the amount withdrawn may not exceed our limit, which currently is $10,000; larger requests must be in writing. All partial withdrawals requested by telephone will be sent only to the address of record of the Owner. Your request, whether written or telephonic, will be effective on the date we receive it at our Home Office, provided we receive it before 3:00 p.m. Central time. If we are not provided with tax withholding information, we will withhold taxes from the amount withdrawn at the rate required by law. We reserve the right to change the terms of telephonic withdrawals, including our limit, at any time. When you request a partial withdrawal, we will pay you the amount requested and subtract the amount requested plus any applicable Withdrawal Charge from your Cash Value. We may waive the Withdrawal Charge on some or all of your partial withdrawal. The determination of the Withdrawal Charge is described in "Withdrawal Charge". You may specify how much of your partial withdrawal you wish taken from each Subaccount and the DCA Fixed Account. The amount requested from a specific option may not exceed the value of that option less any applicable Withdrawal Charge. If you do not specify the option from which you wish to take your partial withdrawal, we will take it pro rata from the Subaccounts and the DCA Fixed Account. You may take an unlimited number of partial withdrawals each Policy Year. The minimum withdrawal amount is $100 or the amount that remains in the Subaccount if less. The minimum balance in the Subaccount after the withdrawal is $500 unless the total Subaccount Value is withdrawn. If a partial withdrawal would reduce your Policy's Net Surrender Value below $5,000, we will treat your request as a request to surrender your Policy. When you take a partial withdrawal, your Specified Amount will decrease in proportion to the resulting reduction in Cash Value. We will notify you of the new Specified Amount. We will not permit a partial withdrawal that would reduce the Specified Amount below the minimum specified in your Policy. Partial withdrawals generally will be subject to income tax and may be subject to a ten percent federal penalty tax. The tax consequences of partial withdrawals are discussed in "Federal Tax Considerations". Systematic Withdrawals You may enroll in our systematic withdrawal program by sending a completed enrollment form to our Home Office. You may choose between payout schedules of monthly, quarterly, semiannually or annually. You may specify the amount of the withdrawal, the day of the month for each scheduled payment, and the Fixed Account or the Subaccount(s) from which the withdrawal will be taken. You may start, stop, increase, or decrease payment at any time. The minimum withdrawal amount is $100. 24 We will treat systematic withdrawals in the same way as other partial withdrawals in applying the Withdrawal Charge. In our discretion we may stop paying systematic withdrawals if your Cash Value falls below our current minimum. We reserve the right to modify or suspend the systematic withdrawal program. In our discretion, any change may apply to existing systematic plans. Write us at the address shown on the first page of this Prospectus or call us at (800) 621-5001 for more information about our systematic withdrawal program. Settlement Option Payments General. We will pay the Surrender Value or Death Benefit proceeds under the Policy in a lump sum or under one of the settlement options that we then offer. The option selected must result in a payment that is at least equal to our minimum payment, according to our rules, at the time the settlement option is chosen. If at any time the payments are less than the minimum payment, we have the right to increase the period between payments to quarterly, semi-annually, or annually so that the payment is at least equal to the minimum payment, or to make payment in one lump sum. The amount of the payments under a settlement option are based on: . the settlement option table specified in the Policy; . the selected settlement option; and . the investment performance of the selected Subaccount(s) (if variable payments are chosen). Under each settlement option, you and/or the payee may choose fixed payments or variable payments or a combination of the two, except that only fixed payments are available under Option 1. If fixed payments are chosen, the payee receives a fixed amount each month determined in accordance with the settlement option you have chosen. If variable payments are chosen, the payee receives the value of a fixed number of Annuity Units each month. An Annuity Unit's value reflects the investment performance of the Subaccount(s) selected by the payee. The amount of each payment varies accordingly. If you do not provide instructions, we will initially apply your Separate Account Value to variable payments and any Fixed Account Value to fixed payments. The payee may change the Subaccounts or the relative weighting of the Subaccounts on which variable payments are based, or increase the portion of each payment that is a fixed payment, subject to certain limitations, as described below under "Settlement Option Payments--Transfers". Before choosing variable payments, you should consider whether the allocation of proceeds among the Subaccounts for your periodic payments is the alternative best suited to your needs. You may request a settlement option by writing to us at our Home Office before the death of the Insured. If you change the Beneficiary, the existing choice of settlement option will become invalid and you may either notify us that you wish to continue the pre-existing choice of settlement option or select a new one. We will issue a supplementary contract reflecting the terms of the settlement option chosen. If payment is made as a Death Benefit distribution, the effective date of the supplementary agreement will be the date of death. Otherwise, you may choose the effective date. Settlement Options. The following settlement options are available under the Policy: Option 1--Fixed Installment Annuity. We will make monthly payments for a fixed number of installments. Payments must be made for at least 5 years, but not more than 30 years. Option 2--Life Annuity. We will make monthly payments while the payee is alive. It is possible for the payee to receive only one payment if the payee dies before the second payment is due. Option 3--Life Annuity with Installments Guaranteed. We will make monthly payments for a guaranteed period and thereafter while the payee is alive. The guaranteed period must be selected at the time the settlement option is chosen. The guaranteed periods available are 5, 10, 15, and 20 years. Option 4--Joint and Survivor Annuity. We will pay the full monthly income while both payees are alive. Upon the death of either payee, we will continue to pay the surviving payee a percentage of the original monthly payment. The percentage payable to the surviving payee must be selected at the time the settlement option is chosen. The percentages available are 50%, 66 2/3%, 75%, and 100%. It is possible for the payees to receive only one payment if they both die before the second payment is due. 25 Other Options. We may make other settlement options available. Payments are also available on a quarterly, semi-annual or annual basis. When the payee dies under Options 1 and 3, we will pay the commuted value of any unpaid installments in a lump sum to the estate of the payee, unless the supplementary agreement provides otherwise. We will determine the commuted amount based upon an interest rate of not less than 2.5%. You may not withdraw Cash Value once we begin making payments to you under any settlement option involving payments to the payee for life or any combination of payments for life and a minimum guaranteed payment period, such as Options 2, 3, and 4. Amount of Payment. The amount applied to a settlement option will equal the Cash Value on the first day preceding the date when the first annuity payment is due, less any applicable Withdrawal Charge and Records Maintenance Charge. The remainder will be used to determine the fixed or variable payment in accordance with the appropriate Settlement Option Table. The amount of each fixed payment is determined by multiplying the amount applied to the settlement option by the appropriate settlement option rate. We will use a rate at least as high as the rate shown in the appropriate Settlement Option Table. These tables show the monthly payment for each $1,000 of Cash Value allocated to fixed payments. The amount of each subsequent fixed payment does not change regardless of investment, mortality or expense experience. The amount of the first variable payment also is determined from the Settlement Option Tables, based on the Cash Value allocated to variable payments. Subsequent variable payments are determined by multiplying the number of Annuity Units in each Subaccount chosen by the payee times the Annuity Unit Value of each such Subaccount at the end of the Valuation Period that includes the date on which each variable payment is made. The first variable payment is divided by the Annuity Unit Value as of the Annuity Date to establish the number of Annuity Units representing each variable payment. We determine the number of Annuity Units separately for each Subaccount on which variable payments are based. This number does not change, unless the payee makes a transfer as described in "Settlement Option Payments--Transfers" below. The guaranteed monthly payments shown in the Settlement Option Tables are based on an interest rate of 2.50% per year and, where mortality is involved, the "1983 Table a", an individual mortality table developed by the Society of Actuaries, projected using Projection Scale G. Interest under a settlement option begins to accrue on the effective date of the supplementary agreement. If the effective date determined as described above would be the 29th, 30th or 31st day of a month, the 28th day of that month will be deemed the effective date. Transfers. While variable payments are being made under a settlement option, the payee may request, in writing, to change the Subaccounts or the relative weighting of the Subaccounts on which variable payments are based, or the relative proportions of variable and fixed payments. These changes may be effected by transferring Annuity Unit Value from one Subaccount to another or to fixed payments, or by making transfers from fixed payments to the Subaccounts. This type of transfer is subject to the following limitations: . The payee may make only one transfer during each twelve month period beginning on the date of the first annuity payment and each anniversary of that date. . We must receive the payee's written request at least 30 days before the effective date of the transfer. . Each transfer must consist of at least $1,000 of Annuity Unit Value or annuity reserve value. After the transfer, at least $1,000 of Annuity Unit Value or annuity reserve value must remain in the account from which the transfer was made, unless the entire amount is transferred. . After the transfer, the payee's variable payments may not be based on more than three Subaccounts. We will execute transfers using values as of the end of the Valuation Period preceding the effective date of the transfer. Transfers among the Subaccounts and transfers from fixed to variable payments will be effected at the Annuity Unit Value of the relevant Subaccounts. Transfers from variable to fixed payments will be based in part on the present value of the remaining payments under the chosen option, and will reflect the differences in the interest rates used to calculate fixed and variable payments. The method for calculating these 26 transfers is described in more detail in the Policy. We may suspend, change or terminate the transfer privilege at any time. Annuity Unit Value. Annuity Unit Value is determined independently for each Subaccount. Annuity Unit Value for any Valuation Period is: . Annuity Unit Value for the immediately preceding Valuation Period; times . the net investment factor for the current Valuation Period; times . an interest factor of .99993235 per calendar day of the current Valuation Period in order to offset the effect of the assumed rate of 2.50% per year used in the Policy's Settlement Option Tables. The net investment factor for a Subaccount for any Valuation Period is: (1) the sum of (a) the net asset value per share of the corresponding Portfolio at the end of the current Valuation Period; plus (b) the per share amount of any dividend or capital gains distribution by that Portfolio, if the "ex-dividend" date occurs in that Valuation Period; plus or minus (c) a credit or charge for any taxes reserved for the current Valuation Period which we determine to have resulted from the investment operations of the Subaccount; divided by (2) the net asset value per share of the corresponding Portfolio at the end of the last prior Valuation Period. A 2.50% per annum rate of investment earnings is assumed by the Policy's Settlement Option Tables. Under the formula for determining Annuity Unit Value, if the actual net investment earnings rate on the selected Subaccounts exceeds 2.50% per annum, variable payments increase accordingly. Conversely, if the actual earnings rate is less than 2.50% per annum, variable payments decrease. Annuity Reserve Value. Annuity reserve value is used in calculating transfers from variable payments to fixed payments. Annuity reserve value equals: (1) the number of Annuity Units transferred from a Subaccount; times (2) the Annuity Unit Value for that Subaccount; times (3) the present value of $1.00 per payment period using the attained age of the payee(s) and any remaining unpaid guaranteed payments at the time of the transfer. No-Lapse Guarantee and Grace Period Under our No-Lapse Guarantee, we guarantee that your Policy will remain in force regardless of changes in the Net Surrender Value, provided you have no outstanding Policy Debt. If the Net Surrender Value of your Policy is less than the Monthly Deduction for the next month, your Policy will enter the Grace Period. The Grace Period lasts 61 days. If the Insured dies during the Grace Period, the Death Benefit will be the amount determined as described in "Death Benefit", less any due and unpaid Monthly Deduction or other charge. During the Grace Period, you may pay additional Premium or loan repayment without evidence of insurability to keep your Policy in force. Your payment must equal at least three Monthly Deductions. No payment is required, however. This Grace Period will begin on the day we mail notice of the Grace Period to your last known address. If the No-Lapse Guarantee is in effect under your Policy and you do not pay sufficient additional Premium or loan repayment, your Policy will remain in force, but the amount paid upon death of the Insured after the Grace Period will be limited to the return of Premium paid (less any prior withdrawals of Premium). You may restore the Specified Amount, however, by complying with the reinstatement provisions. The No-Lapse Guarantee applies to your Policy unless: (a) you paid 90% of the Guideline Single Premium for your Policy or (b) your Policy has outstanding Policy Debt. If the No-Lapse Guarantee does not apply to your Policy and the Net Surrender Value of your Policy is less than the Monthly Deduction for the next month, your Policy also will enter the Grace Period, as described above. However, if you do not make the required payment, your coverage will terminate at the end of the Grace Period. You may reinstate your coverage by complying with the reinstatement provisions. 27 Termination The Policy will terminate and life insurance coverage will end when one of the following events first occurs: (a) you surrender your Policy; (b) the Insured dies or, for Survivorship Policies, the Surviving Insured dies; (c) the Policy matures; (d) the Grace Period ends and there is Policy Debt outstanding; or (e) the Grace Period ends and you paid 90% of the Guideline Single Premium for your Policy. Maturity Benefit and Extended Maturity In certain states, if the Insured is still living and your Policy is in force on the Maturity Date, we will pay you a Maturity Benefit. The Maturity Benefit will equal the Net Surrender Value on the Maturity Date. The Maturity Date is the Policy Anniversary nearest the Insured's 100th birthday. For Survivorship Policies, the Maturity Date is the Policy Anniversary nearest the younger Insured's 100th birthday. In states where approved, the Extended Maturity Rider will be issued with all Policies at no extra Premium. Under this Rider, you may choose from year to year to extend the Maturity Date for one year intervals. During the extension period, you may not take partial withdrawals or additional Policy Loans and the Death Benefit is the Cash Value. In addition, during the extension period, we will not charge the cost of insurance charge. We will, however, continue to charge other charges under your Policy, including the Mortality and Expense Risk Charge, even though there no longer will be a mortality risk under your Policy. We will continue to impose this charge because this charge reflects our expectations to the mortality risks and the amount of such charges expected to be paid under all Policies, including Policies covered by Extended Maturity Riders. All other riders still active end at the Policy Anniversary nearest the Insured's 100th birthday (or, for Survivorship Policies, at the Policy Anniversary nearest the younger Insured's 100th birthday). The tax treatment of the Maturity Benefit and the Extended Maturity Rider is discussed in "Treatment of Maturity Benefits and Extension of Maturity Date". Reinstatement If your coverage has been reduced pursuant to our No-Lapse Guarantee or has lapsed due to insufficient Cash Value (see "No-Lapse Guarantee and Grace Period" above), you may reinstate coverage by complying with the conditions described below. After reinstatement, your Policy will be in force and the minimum Death Benefit will equal the Specified Amount in effect before your coverage was reduced or lapsed. To reinstate your Policy, you must apply to us within three years of the end of the most recent Grace Period and meet the following conditions: (1) Provide evidence of insurability satisfactory to us; (2) Pay the unpaid Monthly Deductions due during the expired Grace Period; (3) Pay at least sufficient additional Premium to keep your Policy in force for three months; and (4) Pay or reinstate any Policy Debt that existed at the date of lapse. The effective date of reinstatement of a Policy will be the Deduction Day that coincides with or next follows the date on which we approve your application for reinstatement. You may not reinstate a Policy that has been surrendered. Under Survivorship Policies, if one of the Lives Insured dies during the lapse, upon payment of the reinstatement Premium the Policy will be reissued as a single life permanent policy. The suicide and incontestability provisions will apply from the effective date of reinstatement. Cancellation (Free-Look Period) In many states, you may cancel your Policy by returning it to us within ten days after you receive it. In some states, however, this free-look period may be longer, as provided by state law. If you return your Policy, 28 the Policy terminates and we will pay you your Cash Value or, in some states, an amount equal to your Premium (less any Policy Debt). We will pay the refund within seven days of receiving your request. No Withdrawal Charge is imposed upon return of a Policy within the free-look period. This free-look right may vary in certain states in order to comply with the requirements of state insurance laws and regulations. Accordingly, you should refer to your Policy for specific information about your circumstances. Postponement of Payments We may defer for up to fifteen days the payment of any amount attributable to a Premium paid by check to allow the check a reasonable time to clear. We ordinarily will pay any amount attributable to Separate Account Value within seven days, except: (1) whenever the NYSE is closed (other than customary weekend and holiday closings); (2) when trading on the NYSE is restricted or an emergency exists, as determined by the SEC, so that disposal of the Separate Account's investments or determination of the value of its net assets is not reasonably practicable; or (3) at any other time permitted by the SEC for your protection. We may delay payment of partial or full withdrawals from the DCA Fixed Account for up to six months from the date we receive your written withdrawal request. We may also defer payment of any Death Benefit in excess of the Specified Amount for up to six months from the date requested if those benefits are based upon Policy values that do not depend on the investment performance of the Separate Account. CHARGES AND DEDUCTIONS We assess charges and deductions under the Policies against the Subaccounts and the Cash Value. Additional deductions and expenses are paid out of the Portfolios' assets, as described in the prospectuses of the Portfolios. Separate Account Charges Mortality and Expense Risk Charge. On each Valuation Date, we will deduct a charge from each Subaccount at an annual rate of 0.90% of average daily net assets for mortality and expense risks we assume. The mortality risk assumed in relation to the Policy includes the risk that the cost of insurance charges specified in the Policy will be insufficient to meet claims and the risks under the No-Lapse Guarantee. We also assume a risk that, on the Deduction Day preceding the death of an Insured, the Death Benefit will exceed the amount on which the cost of insurance charges were based. The expense risk assumed is that expenses incurred in issuing and administering the Policies will exceed the Administration Charges set in the Policy. Reserve for Taxes. We currently are not maintaining a provision for taxes attributable to the operations of the Separate Account (as opposed to the federal tax related to the receipt of Premiums under the Policies). In the future, however, we may make such a charge. Charges for other taxes, if any, attributable to the Separate Account or to this class of Policies may also be made. Monthly Deduction On the Effective Date and on each monthly Deduction Day we will take a Monthly Deduction from your Cash Value. The Monthly Deduction equals the sum of the following: (1) The monthly cost of insurance charge for the Policy; plus (2) The monthly charge for any riders; plus (3) The Administration Charge; plus (4) The Tax Charge. 29 On each Policy Anniversary, we also will deduct the Records Maintenance Charge, if your Policy's Cash Value was less than $50,000 on the Policy Anniversary. Cost of Insurance Charge. The cost of insurance charge is intended to pay for the cost of providing life insurance coverage for the Insured(s). The current cost of insurance charge differs based on whether you paid 90% or 100% of the Guideline Single Premium at issue. We guarantee that this charge will not exceed the maximum cost of insurance charge determined on the basis of the rates shown in the mortality table guaranteed in the Policy. If your initial Premium is more than $2,500,000, your cost of insurance charge may be lower. The current monthly cost of insurance charge is the lesser of: (a) the applicable current asset-based cost of insurance rate times the Cash Value on the Deduction Day; or (b) the applicable guaranteed cost of insurance rate multiplied by the net amount at risk on the Deduction Day. If your initial Premium is no more than $2,500,000 and you paid 100% of the Guideline Single Premium, our current asset-based cost of insurance rate for the Single Life Policies for the Standard (NT) rate class is 0.55% annually of Cash Value for Policy Years 1-10, and 0.25% annually of Cash Value thereafter. Our current asset-based cost of insurance rate for Survivorship Policies, when both Insureds are in the Standard (NT) rate class, is 0.45% annually of Cash Value for Policy Years 1-10, and 0.20% annually of Cash Value thereafter. If your initial Premium is more than $2,500,000 and you paid 100% of the Guideline Single Premium, our current asset-based cost of insurance rate for the Single Life Policies for the Standard (NT) rate class is 0.25% annually of Cash Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter. Our current asset-based cost of insurance rate for Survivorship Policies, when both Insureds are in the Standard (NT) rate class, is 0.20% annually of Cash Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter. If you paid 90% of the Guideline Single Premium, your current cost of insurance rates will be higher. In addition, rates for other classes may differ based on the type of Policy and the history of tobacco use of the Insured(s). Your guaranteed cost of insurance rates are set forth in the mortality tables in your Policy. The net amount at risk is (a)-(b), where: (a) is the Death Benefit on the first day of the Policy Month; and (b) the Cash Value on that day before the deduction of the Monthly Deduction for the cost of insurance. Because your Cash Value and the net amount for which we are at risk under your Policy may vary monthly, your cost of insurance charge is likely to differ each month. In general, under these formulas, when your current monthly cost of insurance charge is determined using the asset-based rate, an increase in your Cash Value increases your current monthly cost of insurance charge, up to the guaranteed maximum cost of insurance charge determined as described above. Since that maximum charge is based on the net amount at risk, it declines as your Cash Value increases, unless an increase in Cash Value also would increase the Death Benefit under your Policy. Thus, if the asset-based charge would be higher than the guaranteed maximum charge, further increases in your Cash Value may reduce your current cost of insurance charge. The cost of insurance charge covers our anticipated mortality costs for standard and substandard risks. We determine the current cost of insurance rates based on our expectations as to our future mortality experience and other factors. We may change our current asset-based cost of insurance charge, but we guarantee that we will never charge you a cost of insurance charge higher than the amount determined using the maximum guaranteed cost of insurance rates shown in the Policy. We base our cost of insurance rates on the sex, issue age, Policy Year, rating class, and history of tobacco use of the Insured. However, we issue unisex Policies in Montana. Our cost of insurance rates are based on the 1980 Commissioners Standard Ordinary ("1980 CSO") Mortality Table based on the Insured's sex, age last birthday, and history of tobacco use. Our cost of insurance rates for unisex Policies will never exceed a maximum based on the 1980 CSO Table B assuming a blend of 80% male and 20% female lives. 30 Tax Charge. For the first ten Policy Years, on each Deduction Day, we charge a Tax Charge equal to an annual rate of 0.40% of the Cash Value. The Tax Charge covers a portion of our state premium tax expenses and certain federal income tax liability incurred as a result of the receipt of Premium. We expect to recover total premium tax expenses over the life of the Policies from the aggregate Tax Charges and the unamortized state premium tax charge portion of the Withdrawal Charge. However, the amount of premium taxes differs from state to state and some states have no premium tax. Accordingly, the amount of these charges paid under your Policy may be more or less than the premium taxes that we actually pay with respect to your Policy. Administration Charge. On each Deduction Day we will deduct the Administration Charge from Cash Value. This charge will equal an annual rate of 0.35% of Cash Value for the first ten Policy Years and 0.25% thereafter. This charge is intended to compensate us for certain administrative expenses related to the maintenance of the Policies, accounting and recordkeeping, and providing reports to Policy Owners. Records Maintenance Charge. We charge a Records Maintenance Charge of $30.00 per year on each Policy Anniversary. If you surrender your Policy during a Policy Year, we will deduct the full Records Maintenance Charge from your surrender proceeds. The Records Maintenance Charge is intended to compensate us for administrative expenses such as salaries, postage, telephone, office equipment and periodic reports. We currently waive the Records Maintenance Charge on a Policy, if the Cash Value is at least $50,000 on the Policy Anniversary. Portfolio Expenses You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Subaccounts to which you allocate your Cash Value. The Separate Account purchases shares of the Portfolios at net asset value. Each Portfolio's net asset value reflects investment advisory fees and administrative expenses already deducted from the Portfolio's assets. For a summary of current estimates of these charges and expenses, see the table of Portfolio Expenses above. For more information concerning the investment advisory fees and other charges against the Portfolios, see the prospectuses for the Portfolios, which are available upon request. We may receive compensation from the investment advisers or administrators of the Portfolios. Such compensation will be consistent with the services we provide or the cost savings resulting from the arrangement and therefore may differ between Portfolios. Withdrawal Charge If you surrender your Policy during the first nine Policy Years, we may subtract a Withdrawal Charge from the proceeds. The Withdrawal Charge will be calculated at the rate shown below. If you surrender your Policy, the Withdrawal Charge will equal a percentage of your initial Premium net of all previous withdrawal amounts on which you paid a Withdrawal Charge. The Withdrawal Charge consists of two components: a surrender charge and an unamortized state premium tax charge. The rate used to determine the Withdrawal Charge depends on the year the withdrawal is made. The Withdrawal Charge declines to zero percent after the ninth Policy Year. The Withdrawal Charge is assessed at the following rates:
Unamortized Total Policy Year Surrender Premium Withdrawal Since Issue Charge Tax Charge Charge ----------- --------- ----------- ---------- 1 7.75% 2.25% 10.00% 2 7.75% 2.00% 9.75% 3 7.50% 1.75% 9.25% 4 6.50% 1.50% 8.00% 5 5.75% 1.25% 7.00% 6 5.00% 1.00% 6.00% 7 4.25% 0.75% 5.00% 8 3.50% 0.50% 4.00% 9 2.75% 0.25% 3.00% 10+ 0.00% 0.00% 0.00%
31 We may also charge a Withdrawal Charge on partial withdrawals. The Withdrawal Charge will apply to any partial withdrawal in a given Policy Year in excess of the free withdrawal amount described below. Additional Premiums do not increase the amount of Withdrawal Charge you may be required to pay. Only your initial Premium is used in our formula for calculating Withdrawal Charges. The Withdrawal Charge is imposed to cover a portion of our actual premium tax expenses and sales expenses, which include agents' sales commissions and other sales and distribution expenses. The Unamortized Premium Tax Charge, together with a portion of the monthly Tax Charge, is intended to recover our state premium tax expenses. We also expect to recover total sales expenses of the Policies over the life of the Policies. However, to the extent distribution costs are not recovered by the Withdrawal Charge, we may make up any shortfall from the assets of our General Account, which includes funds derived from the Mortality and Expense Risk Charge and other fees and charges under the Policies. Free Withdrawal Amount and Waiver of Withdrawal Charge The free withdrawal amount in a Policy Year equals the greater of: (a) 100% of Policy earnings not previously withdrawn; or (b) 10% of the Cash Value, less any prior free withdrawals since the beginning of that Policy Year. Nursing Care Waiver of Withdrawal Charge Rider (not available in all states). We will waive the Withdrawal Charge if the Owner is confined to a skilled health care facility for at least 30 consecutive days. We also will waive the Withdrawal Charge after the Owner has been released from the facility, if your request is made within 30 days of release. This waiver is described in more detail in the Rider. Disability Waiver Rider (not available in all states). We will waive the Withdrawal Charge if the Owner becomes disabled after the Policy is issued and before attaining age 65 according to the following Social Security Administration definition: "Inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months." This waiver is described in more detail in the Rider. Transfer Fee The Policy permits us to charge a transfer fee of $25 per transfer, excluding transfers under our Automatic Dollar Cost Averaging and Automatic Account Rebalancing programs, on each transfer after the first twelve transfers in each Policy Year. We currently do not charge a transfer fee on any transfer. We reserve the right to begin to charge the transfer fee in the future. Reduction of Charges We may reduce certain charges and credit additional amounts in special circumstances that result in lower sales, administrative, or mortality expenses. For example, special circumstances may exist in connection with group or sponsored arrangements, sales to our Policy Owners, sales to employees or clients of members of the Kemper group of companies, or employees and registered representatives (and their families) of broker-dealers (or their affiliated financial institutions) that have entered into selling group agreements with Investors Brokerage Services, Inc., the distributor of the Policies. The amounts of any reductions will reflect the reduced sales effort and administrative costs resulting from, or the different mortality experience expected as a result of, the special circumstances. Reductions will not unfairly discriminate against any person, including the affected Policy Owners and owners of all other policies funded by the Separate Account. GENERAL POLICY PROVISIONS Reports to Owners We will maintain all records relating to the Separate Account and the Subaccounts. At least annually we will send you a report which will include information such as Premiums received, interest credited, investment experience, and charges made since the last report. The report will also show the current Death Benefit and 32 Cash Value, as well as any other information required by statute. If you ask us, we will send you an additional report at any time. We may charge you up to $25 for this additional report. We will tell you the current charge before we send you the report. In addition, we will send you the financial statements of the Portfolios and other reports as specified in the 1940 Act. We also will mail you confirmation notices or other appropriate notices of Policy transactions quarterly or more frequently within the time periods specified by law. Please give us prompt written notice of any address change. Please read your statements and confirmations carefully and verify their accuracy. Contact us promptly with any question. Limit on Right to Contest In the absence of fraud, we may not contest the insurance coverage under the Policy after the Policy has been in force for two years after the Issue Date while the Insured is alive. The two year incontestability period may vary in certain states to comply with the requirements of state insurance laws and regulations. If the Policy is reinstated, a new two year contestability period will apply from the issue date of the reinstatement and will apply only to statements made in the application for the reinstatement. In issuing a Policy, we rely on your application. Your statements in that application, in the absence of fraud, are considered representations and not warranties. In the absence of fraud, we will not use any statement made in connection with the Policy application to void the Policy or to deny a claim, unless that statement is a part of the application or an amendment thereto. Suicide If the Insured under a Single Life Policy dies by suicide, while sane or insane, within two years from the Issue Date, the Death Benefit proceeds will be limited to the Premiums paid less any partial withdrawals and Policy Debt. If the Insured dies by suicide, while sane or insane, within two years of any reinstatement, our total liability with respect to such reinstatement will be limited to the necessary Premium for reinstatement less any partial withdrawal and Policy Debt since such reinstatement. If the first death under a Survivorship Policy is by suicide, within two years of the Issue Date or date of reinstatement, whether the Insured was sane or insane, we will reissue the Policy. The new Policy on the survivor will be a single life permanent policy which is available at the time of reissue. The suicide provision for the new Policy will be effective as of the original Issue Date. If the second death is by suicide, within two years from the Issue Date, whether the Insured is sane or insane, we will pay only the Premiums paid less any partial withdrawals and Policy Debt. If the second death occurs within two years after the date of reinstatement, our total liability with respect to such reinstatement will be limited to the necessary Premium for reinstatement less any partial withdrawal and Policy Debt since such reinstatement. Misstatement as to Age and Sex If the age and/or sex of the Insured is incorrectly stated in the application, the Death Benefit and all Policy values will be adjusted based on what the initial Premium would have purchased using the correct age and/or sex. Beneficiary You name the original Beneficiary(ies) and Contingent Beneficiary(ies) in the application for the Policy. You may change the Beneficiary or Contingent Beneficiary at any time while the Insured(s) is alive, except irrevocable Beneficiaries and irrevocable Contingent Beneficiaries may not be changed without their consent. You must request a change of Beneficiary in writing. We will provide a form to be signed and filed with us. Your request for a change in Beneficiary or Contingent Beneficiary will take effect as of the date you signed 33 the form after we acknowledge receipt in writing. Until we acknowledge receipt of your change instructions, we are entitled to rely on your most recent instructions in our files. Accordingly, we are not liable for making a payment to the person shown in our files as the Beneficiary or treating that person in any other respect as the Beneficiary, even if instructions that we subsequently receive from you seek to change your Beneficiaries effective as of a date before we made the payment or took the action in question. If you name more than one Beneficiary, we will divide the Death Benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Benefit in equal shares to the Beneficiaries. If one of the Beneficiaries dies before you, we will divide the Death Benefit among the surviving Beneficiaries. If no Beneficiary is living, the Contingent Beneficiary will be the Beneficiary. The interest of any revocable Beneficiary is subject to the interest of any assignee. If no Beneficiary or Contingent Beneficiary is living, the Beneficiary is the Owner or the Owner's estate. Assignment While the Insured(s) is alive, you may assign your Policy as collateral security. You must notify us in writing if you assign the Policy. Until we receive notice from you, we are not liable for any action we may take or payments we may make that may be contrary to the terms of your assignment. We are not responsible for the validity of an assignment. Your rights and the rights of the Beneficiary may be affected by an assignment. An assignment may result in income tax and a ten percent federal penalty tax. You should consult your tax adviser before assigning your Policy. Creditor's Claims To the extent permitted by law, no benefits payable under this Policy will be subject to the claims of your or the Beneficiary's creditors. Dividends We will not pay any dividend under the Policy. Notice and Elections To be effective, all notices and elections under the Policy must be in writing, signed by you, and received by us at our Home Office. Certain exceptions may apply. Unless otherwise provided in the Policy, all notices, requests and elections will be effective when received at our Home Office complete with all necessary information. Modification We reserve the right to modify the Policy without your express consent, in the circumstances described in this Prospectus or as necessary to conform to applicable law or regulation or any ruling issued by a governmental agency. The provisions of the Policy will be construed so as to comply with the requirements of Section 7702 of the Tax Code. Survivorship Policies We offer Policies on a single life and "last survivor" basis. The Survivorship Policy operates almost identically to the Single Life Policy. The primary difference is that the Survivorship Policy has two Insureds and the Death Benefit is paid only upon the death of the last surviving Insured. Other significant differences are: (1) the cost of insurance charge differs because we base it on the anticipated mortality of two Insureds and we do not pay the Death Benefit until both Insureds have died; (2) for a Survivorship Policy to qualify for simplified underwriting, the proposed Insureds must be husband and wife and both Insureds must meet our standards; (3) under a Survivorship Policy, provisions regarding incontestability, suicide, and misstatements of age or sex apply to each Insured; and (4) the Accelerated Death Benefit is only available upon the terminal illness of the surviving Insured, as this term is defined in the Policy. 34 FEDERAL TAX CONSIDERATIONS NOTE: The following discussion is based upon our understanding of current federal income tax law applicable to life insurance policies in general. We cannot predict the probability that any changes in those laws will be made. Also, we do not guarantee the tax status of the Policies. You bear the complete risk that the Policies may not be treated as "life insurance policies" under federal income tax laws. In addition, this discussion does not include a detailed description of the federal income tax consequences of the purchase of these Policies or any discussion of special tax rules that may apply to certain purchase situations. We also have not tried to consider any other possibly applicable state or other tax laws, for example, the federal estate or gift tax consequences of the Policies. You should seek tax advice concerning the effect on your personal tax liability of the transactions permitted under the Policy, as well as any other questions you may have concerning the tax status of the Policy or the possibility of changes in the tax law. Taxation of KILICO and the Separate Account KILICO is taxed as a life insurance company under Subchapter L of the Tax Code. The operations of the Separate Account are taxed as part of the operations of KILICO. Investment income and realized capital gains are not taxed to the extent that they are applied under the Policies. Accordingly, we do not anticipate that KILICO will incur any federal income tax liability attributable to the operation of the Separate Account (as opposed to the federal tax related to the receipt of Premiums under the Policies). Therefore, we are not making any charge or provision for federal income taxes. However, if the tax treatment of the Separate Account is changed, we may charge the Separate Account for its share of the resulting federal income tax. In several states we may incur state and local taxes on the operations of the Separate Account. We currently are not making any charge or provision for them against the Separate Account. We do, however, use part of the Policy charges to offset these taxes. If these taxes should be increased, we may make a charge or provision for them against the Subaccounts. If we do so, the investment results of the Subaccounts will be reduced. Tax Status of the Policy The Policy is structured to satisfy the definition of a life insurance policy under the Tax Code. The Death Benefit ordinarily will be fully excluded from the gross income of the Beneficiary. The Death Benefit will be included in your gross estate for federal estate tax purposes if the proceeds are payable to your estate. The Death Benefit will also be included in your estate if the Beneficiary is not your estate, but you retained incidents of ownership in the Policy. Examples of incidents of ownership include the right to change Beneficiaries, to assign the Policy or revoke an assignment, and to pledge the Policy or obtain a Policy Loan. If you own and are the Insured under a Policy and if you transfer all incidents of ownership in the Policy more than three years before your death, the Death Benefit will not be included in your gross estate. State and local estate and inheritance tax consequences may also apply. In addition, certain transfers of the Policy or Death Benefit, either during life or at death, to individuals (or trusts for the benefit of individuals) two or more generations below that of the transferor may be subject to the federal generation-skipping transfer tax. In addition, you may use the Policy in various arrangements, including non-qualified deferred compensation or salary continuance plans, split-dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if you are contemplating the use of a Policy in any arrangement the value of which depends in part on its tax consequences, you should be sure to consult a qualified tax adviser regarding the tax treatment of the proposed arrangement. Diversification Requirements. Section 817(h) of the Tax Code requires that the underlying assets of variable life insurance policies be diversified. The Tax Code provides that a variable life insurance policy will not be treated as a life insurance policy for federal income tax purposes for any period and any subsequent period for which the investments are not adequately diversified. If the Policy were disqualified for this reason, you would lose the tax deferral advantages of the Policy and would be subject to current federal income taxes on all earnings allocable to the Policy. 35 The United States Treasury Department (the "Treasury Department") also has issued regulations that establish diversification requirements for the investment accounts underlying variable policies such as the Policies. These regulations amplify the diversification requirements set forth in the Tax Code and provide an alternative diversification test to the provision described above. These diversification standards are applied to each Subaccount by looking to the investments of the Portfolio underlying the Subaccount. One of our criteria in selecting the Portfolios is that their investment managers intend to manage them in compliance with these diversification requirements. Owner Control. In certain circumstances, variable life insurance owners will be considered the owners, for tax purposes, of separate account assets underlying their Policies. In those circumstances, they could be subject to taxation on the income and gains from the separate account assets. In published rulings, the Internal Revenue Service has stated that a variable insurance owner will be considered the owner of separate account assets, if the owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. When the diversification regulations were issued, the Treasury Department announced that in the future, it would provide guidance on the extent to which variable owners could direct their investments among Subaccounts without being treated as owners of the underlying assets of the separate account. As of the date of this Prospectus, no such guidance has been issued. As a result, your right to allocate Cash Values among the Subaccounts may cause you to be considered the owner of the assets of the Separate Account. We cannot predict when or whether the Treasury Department will issue that guidance or what position the Treasury Department will take. In addition, although regulations are generally issued with prospective effect, it is possible that regulations may be issued with retroactive effect. The ownership rights under the Policy are similar in many respects to those described in IRS rulings in which the owners were not deemed to own the separate account assets. In some respects, however, they differ. For example, under the Policy you have many more investment options to choose from than were available under the policies involved in the published rulings, and you may be able to transfer Cash Value among the investment options more frequently than in the published rulings. Because of these differences, it is possible that you could be treated as the owner, for tax purposes, of the Portfolio shares underlying your Policy and therefore subject to taxation on the income and gains on those shares. Moreover, it is possible that the Treasury Department's position, when announced, may adversely affect the tax treatment of existing Policies. We therefore reserve the right to modify the Policy as necessary to attempt to prevent you from being considered the owner for tax purposes of the underlying assets. The remainder of this discussion assumes that the Policy will be treated as a life insurance policy for federal tax purposes. Tax Treatment of Life Insurance Death Benefit Proceeds In general, the amount of the Death Benefit payable under a Policy is excludable from the beneficiary's gross income under the Tax Code. Certain transfers of the Policy, however, may result in a portion of the Death Benefit being taxable. If the Death Benefit is not received in a lump sum and is, instead, applied under one of the settlement options, payments generally will be prorated between amounts attributable to the Death Benefit, which will be excludable from the Beneficiary's income, and amounts attributable to interest (occurring after the Insured's death), which will be includible in the Beneficiary's income. Accelerated Death Benefit. In general, the tax treatment of an Accelerated Death Benefit is the same as the treatment of Death Benefits, as described above. Tax Deferral During Accumulation Period Under existing provisions of the Tax Code, except as described below, any increase in your Cash Value is generally not taxable to you unless you receive or are deemed to receive amounts from the Policy before the Insured dies. If you surrender your Policy, the Cash Value (less any annual Records Maintenance Charge paid upon surrender) will be includible in your income to the extent the amount received exceeds the "investment in the policy." The "investment in the policy" generally is the total Premiums and other consideration paid for the Policy, less the aggregate amount received under the Policy previously to the extent such amounts received were excludable from gross income. Whether partial withdrawals (or other amounts deemed to be distributed) from the Policy constitute income depends, in part, upon whether the Policy is considered a "modified endowment contract" ("MEC") for federal income tax purposes. 36 Policies Which Are MECs Characterization of a Policy as a MEC. In general, this Policy will constitute a MEC unless (1) it was received in exchange for another life insurance policy which was not a MEC, (2) no Premiums or other consideration (other than the exchanged policy) are paid into the Policy during the first 7 Policy Years, and (3) there is no withdrawal or reduction in the Death Benefit during the first 7 Policy Years. In addition, even if the Policy initially is not a MEC, it may, in certain circumstances, become a MEC if there is a later increase in benefits or any other "material change" of the Policy within the meaning of the tax law. Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. Because your Policy is a MEC, withdrawals from your Policy will be treated first as withdrawals of income and then as a recovery of Premiums. Thus, you may realize taxable income upon a withdrawal if the Cash Value exceeds the investment in the Policy. You may also realize taxable income when you take a Policy Loan, because any loan (including unpaid loan interest) under the Policy will be treated as a withdrawal for tax purposes. In addition, if you assign or pledge any portion of the value of your Policy (or agree to assign or pledge any portion), the assigned or pledged portion of your Cash Value will be treated as a withdrawal for tax purposes. Before assigning, pledging, or requesting a loan under a Policy which is a MEC, you should consult a tax adviser. Penalty Tax. Generally, withdrawals (or the amount of any deemed withdrawals) from a MEC are subject to a federal penalty tax equal to ten percent of the portion of the withdrawal that is includible in income, unless the withdrawals are made: (1) after you reach age 59 1/2, (2) because you have become disabled (as defined in the tax law), or (3) as substantially equal periodic payments over your life or life expectancy (or the joint lives or life expectancies of you and your beneficiary, as defined in the tax law). Certain other exceptions to the ten percent federal penalty tax may apply. Payments under our systematic withdrawal program possibly may not qualify for the exception from federal penalty tax for "substantially equal periodic payments" which is described above. Accordingly, this Policy may be inappropriate for Owners who expect to take substantially equal periodic payments prior to age 59 1/2. You should consult a qualified tax adviser before entering into a systematic withdrawal plan. Aggregation of Policies. All life insurance policies which are MECs and which are purchased by the same person from us or any of our affiliates within the same calendar year will be aggregated and treated as one policy for purposes of determining the amount of a withdrawal (including a deemed withdrawal) that is includible in taxable income. Policies Which Are Not MECs Tax Treatment of Withdrawals Generally. If your Policy is not a MEC, the amount of any withdrawal from the Policy will be treated first as a non-taxable recovery of Premiums and then as income from the Policy. Thus, only the portion of a withdrawal that exceeds the investment in the Policy immediately before the withdrawal will be includible in taxable income. Tax Treatment of Loans. If your Policy is not a MEC, a loan received under the Policy generally will be treated as indebtedness for tax purposes, rather than a withdrawal of Cash Value. As a result, you will not realize taxable income on any part of the loan as long as the Policy remains in force. If you surrender your Policy, however, any outstanding loan balance will be treated as an amount received by you as part of the Surrender Value. Accordingly, you may be subject to taxation on the loan amount at that time. Moreover, if any portion of your Policy Loan is a Preferred Loan described in "Policy Loans", it is unclear whether the Internal Revenue Service would consider some or all of your Policy Loan to be includible in your taxable income. Absent further guidance, we will treat all Policy Loans, including Preferred Loans, as indebtedness. Generally, you may not deduct interest paid on loans under the Policy, even if you use the loan proceeds in your trade or business. Survivorship Policies Although we believe that the Policy, when issued as a Survivorship Policy, meets the definition of life insurance policy under the Tax Code, the Tax Code does not directly address how it applies to Survivorship Policies. In the absence of final regulations or other guidance under the Tax Code regarding this form of 37 Policy, there is necessarily some uncertainty whether a Survivorship Policy will meet the Tax Code's definition of a life insurance policy. If you are considering purchasing a Survivorship Policy, you should consult a tax adviser. Loss of Interest Deduction Where Policies are Held by or for the Benefit of Corporations, Trusts, Etc. If an entity (such as a corporation or a trust, not an individual) purchases a Policy or is the beneficiary of a Policy issued after June 8, 1997, a portion of the interest on indebtedness unrelated to the Policy may not be deductible by the entity. However, this rule does not apply to a Policy owned by an entity engaged in a trade or business which covers the life of only one individual who is (a) a 20 percent owner of the entity, or (b) an officer, director, or employee of the trade or business, at the time first covered by the Policy. This rule also does not apply to a Policy owned by an entity engaged in a trade or business which covers the joint lives of the 20 percent owner of the entity and the owner's spouse at the time first covered by the Policy. Entities that are considering purchasing the Policy, or that will be Beneficiaries under a Policy, should consult a tax adviser. Treatment of Maturity Benefits and Extension of Maturity Date If your Policy does not have an Extended Maturity Rider, at the Maturity Date, the Net Surrender Value will be paid to you. Generally, the excess of the Cash Value (less any applicable Records Maintenance Charge) over your investment in the Policy will be includible in your taxable income at that time. If your Policy has an Extended Maturity Rider, we believe the Policy will continue to qualify as life insurance under the Tax Code. However, there is some uncertainty regarding this treatment. It is possible, therefore, that you would be viewed as constructively receiving the Surrender Value in the year in which the Insured attains age 100 and would realize taxable income at that time, even if the Policy proceeds were not distributed at that time. Actions to Ensure Compliance with the Tax Law We believe that the maximum amount of Premiums we intend to permit for the Policies will comply with the Tax Code definition of a life insurance policy. We will monitor the amount of your Premiums, and, if your total Premiums during a Policy Year exceed those permitted by the Tax Code, we will refund the excess Premiums no later than 60 days after the end of the Policy Year and will pay interest and other earnings (which will be includible in taxable income) as required by law on the amount refunded. We reserve the right to increase the Death Benefit (which may result in larger charges under a Policy) or to take any other action deemed necessary to ensure the compliance of the Policy with the federal tax definition of a life insurance contract. Other Considerations Changing the Owner, exchanging the Policy, changing from one Death Benefit option to another, and other changes under the Policy may have tax consequences (other than those discussed herein) depending on the circumstances of such change or withdrawal. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each Owner or Beneficiary. The exchange of one life insurance contract for another life insurance contract generally is not taxed (unless cash is distributed or a loan is reduced or forgiven). The insured under the new contract must be the same as the insured under the old contract. Thus, in the case of a Survivorship Policy, the other life insurance contract involved in the exchange must also cover the same two Insureds. Federal Income Tax Withholding We will withhold and remit to the federal government a part of the taxable portion of withdrawals made under a Policy, unless the Owner notifies us in writing at or before the time of the withdrawal that he or she chooses not to have withholding. As Owner, you will be responsible for the payment of any taxes and early distribution penalties that may be due on the amounts received under the Policy, whether or not you choose withholding. You may also be required to pay penalties under the estimated tax rules, if your withholding and estimated tax payments are insufficient to satisfy your total tax liability. Tax Advice This summary is not a complete discussion of the tax treatment of the Policy. You should seek tax advice from an attorney or other professional who specializes in tax issues. 38 DESCRIPTION OF KILICO AND THE SEPARATE ACCOUNT KILICO We were organized under the laws of the State of Illinois in 1947 as a stock life insurance company. Our offices are located at 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801. We offer life insurance and annuity 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 ("Kemper"), a non-operating holding company. Kemper is a 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. KILICO also acts as a sponsor for KILICO Variable Annuity Separate Account, KILICO Variable Separate Account--2 and Kemper Investors Life Insurance Company Variable Annuity Account C. The officers and employees of KILICO are covered by a fidelity bond in the amount of $20 million. Officers and Directors of KILICO Our directors and officers are listed below, together with information as to their dates of election and principal business occupations during the past five or more years (if other than their present occupation). Where no dates are given, the person has held that position for at least the past five years.
Name and Age Position with KILICO Year of Election Other Business Experience During Past 5 Years or More -------------------- ----------------------------------------------------- Gale K. Caruso (44) President and Chief Executive Officer of Federal Kemper Life President and Chief Executive Officer Assurance Company ("FKLA"), Fidelity Life Association ("FLA") since June 1999. Director since July and Zurich Life Insurance Company of America ("ZLICA"). 1999. President and Chief Executive Officer of Zurich Direct, Incorporated ("ZD") since April 2000. Director of FKLA, FLA and ZLICA since July 1999 and of ZD since March 2000. President and Chief Executive Officer of Zurich Kemper Life Insurance Company of New York ("ZKLICONY") since April 2000 and Director since October 1999. Chairman and Director of Investors Brokerage Services, Inc. ("IBS") since May 2000 and of Investors Brokerage Services Insurance Agency, Inc. ("IBSIA") since March 2000. Chairman and Director of PMG Asset Management, Inc. ("PMGAM"), PMG Life Agency Inc. ("PMGLA"), PMG Marketing, Inc. ("PMG Marketing") and PMG Securities Corporation ("PMG Securities") since March 2000. Executive Vice President and Director of Kemper Corporation ("Kemper") since February 2000. Chairman, President and Chief Executive Officer of Scudder Canada Investor Services, Ltd. from 1995 to June 1999. Managing Director of Scudder Kemper Investments, Inc. from July 1986 to June 1999. Frederick L. Blackmon (50) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. Chief Financial Officer since 2001. Chief Financial Officer of FKLA since December 1995. December 1995. Director since January Chief Financial Officer of FLA since January 1996. Chief 2001. Financial Officer of ZLICA and ZD since March 1996. Chief Financial Officer of ZKLICONY since April 2000. Director of FKLA, ZLICA and ZKLICONY since January 2001. Senior Vice President of KILICO and FKLA from December 1995 to June 2000. Senior Vice President of FLA from January 1996 to June 2000. Senior Vice President of ZLICA and ZD from March 1996 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Director of FLA since May 1998. Director of ZD from March 1996 to March 1997 and since January 2001. Chief Financial Officer of Kemper since January 1996. Treasurer of Kemper from January 1996 to February 2000.
39
Name and Age Position with KILICO Year of Election Other Business Experience During Past 5 Years or More -------------------- ----------------------------------------------------- Russell M. Bostick (45) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. Chief Information Officer since 2001. Chief Information Officer of FKLA, FLA, ZLICA and ZD April 1998. since April 1998. Chief Information Officer of ZKLICONY since April 2000. Senior Vice President of FKLA, FLA, ZLICA and ZD from March 1999 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Vice President of FKLA, FLA, KILICO, ZLICA and ZD from April 1998 to March 1999. Chief Technology Officer of Corporate Software & Technology from June 1997 to April 1998. Vice President, Information Technology Department of CNA Insurance Companies from January 1995 to June 1997. James C. Harkensee (43) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. 2001. Senior Vice President of ZKLICONY from April 2000 to May 2001 and Director since October 1999. Senior Vice President of KILICO, FKLA and FLA from January 1996 to June 2000. Senior Vice President of ZLICA and ZD from 1995 to June 2000. Director of ZD from April 1993 to March 1997 and since March 1998. President of Zurich Direct Insurance Agency, Inc. of Massachusetts since October 2001. Edward K. Loughridge (47) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. Corporate Development Officer 2001. Corporate Development Officer of FKLA and FLA since since January 1996. January 1996. Corporate Development Officer for ZLICA and ZD since March 1996. Corporate Development Officer of ZKLICONY since April 2000. Senior Vice President of KILICO, FKLA and FLA from January 1996 to June 2000. Senior Vice President of ZLICA and ZD from March 1996 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Debra P. Rezabek (46) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. General Counsel since May 2001.General Counsel of FKLA and FLA since 1992. General 1993. Corporate Secretary since Counsel ZLICA and ZD since March 1996. Corporate Secretary January 1996. Director since January of FKLA and FLA since January 1996. Corporate Secretary of 2001. ZLICA and ZD since March 1996. General Counsel and Corporate Secretary of ZKLICONY since April 2000. Director of FKLA and ZLICA since January 2001. Senior Vice President of KILICO, FKLA, FLA, ZLICA and ZD from March 1996 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Director of FLA since May 1998. Director of ZKLICONY since January 2001. Director of ZD from March 1996 to March 1997. Secretary of IBS and IBSIA since 1993. Secretary of PMGAM, PMGLA, PMG Marketing and PMG Securities since March 2000. Director of Government Affairs of FKLA and FLA from 1992 to April 1997 and of KILICO from 1993 to April 1997. Assistant Secretary of Kemper since January 1996.
40
Name and Age Position with KILICO Year of Election Other Business Experience During Past 5 Years or More -------------------- ----------------------------------------------------- Edward L. Robbins (62) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. Chief Actuary since March 1999. 2001. Chief Actuary of FKLA, FLA, ZLICA and ZD since March 1999 and of ZKLICONY since April 2000. Senior Vice President of KILICO, FKLA, FLA, ZLICA and ZD from March 1999 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Senior Actuary of FKLA, FLA, KILICO, ZLICA and ZD from July 1998 to March 1999. Principal of KPMG Peat Marwick LLP from May 1984 to July 1998. George Vlaisavljevich (59) Executive Vice President of FKLA, FLA, ZLICA and ZD since Executive Vice President since June June 2000. Executive Vice President of ZKLICONY since May 2000. Director since May 2001. 2001. Director of FKLA and ZLICA since May 2001. Director of FLA since January 2001. Senior Vice President of KILICO, FKLA, FLA and ZLICA since October 1996. Senior Vice President of ZD from March 1997 to June 2000. Senior Vice President of ZKLICONY from April 2000 to May 2001. Director of IBS and IBSIA since October 1996. Director of PMGAM, PMGLA, PMG Marketing and PMG Securities since March 2000. Executive Vice President of The Copeland Companies from April 1983 to September 1996. Martin D. Feinstein (53) Chairman of the Board of FKLA, FLA, ZLICA and ZKLICONY Chairman of the Board since January since January 2001. Chairman of the Board of Farmers Group, 2001. Inc.("FGI") since November 1997 and President since January 1995. Chief Executive Officer of FGI since January 1995 and Director since February 1995. Member of Group Management Board of Zurich Financial Services since March 1998. Director of Zurich Scudder Investments, Inc. since January 2001. Director of Farmers New World Life. Chief Operating Officer of FGI from January 1995 to January 1997. Director of B.A.T. from January 1997 to September 1998.
The business address of each of the foregoing officers and directors is 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801. Separate Account KILICO Variable Separate Account was established on January 22, 1987, as a separate investment account under the laws of Illinois. The Separate Account receives and invests Premiums under the Policy. The Separate Account is registered with the SEC as a unit investment trust under the 1940 Act. The SEC does not supervise the management, investment practices or policies of the Separate Account or KILICO. Benefits provided under the Policies are our obligations. Although the assets in the Separate Account are our property, they are held separately from our other assets and are not chargeable with liabilities arising out of any other business we may conduct. Income, capital gains and capital losses, whether or not realized, from the assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to the income, capital gains and capital losses arising out of any other business we may conduct. Thirty-seven Subaccounts of the Separate Account are currently available. Each Subaccount invests exclusively in shares of one of the corresponding Portfolios. We may add or delete Subaccounts in the future. The Separate Account purchases and redeems shares from the Portfolios at net asset value. We redeem shares of the Portfolios as necessary to provide benefits, to deduct Policy charges and to transfer assets from 41 one Subaccount to another as requested by Owners. All dividends and capital gains distributions received by the Separate Account from a Portfolio are reinvested in that Portfolio at net asset value and retained as assets of the corresponding Subaccount. Safekeeping of the Separate Account's Assets We hold the assets of the Separate Account. We keep those assets physically segregated and held separate and apart from our general account assets. We maintain records of all purchases and redemptions of shares of the Portfolios. State Regulation of KILICO We are subject to the laws of Illinois and regulated by the Illinois Department of Insurance. Every year we file an annual statement with the Department of Insurance covering our operations for the previous year and our financial condition as of the end of the year. We are inspected periodically by the Department of Insurance to verify our Policy liabilities and reserves. Our books and records are subject to review by the Department of Insurance at all times. We are also subject to regulation under the insurance laws of every jurisdiction in which we operate. DISTRIBUTION OF POLICIES Investors Brokerage Services, Inc. ("IBS") serves as distributor of the Policies. IBS is located at 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801. IBS is our wholly-owned subsidiary. It is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member of the National Association of Securities Dealers, Inc. The Policies described in this Prospectus are sold by registered representatives of broker-dealers or bank employees who are licensed insurance agents appointed by us, either individually or through an incorporated insurance agency. IBS enters into selling agreements with the unaffiliated broker-dealers and banks whose personnel participate in the offer and sale of the Policies. In some states, the Policies may be sold by representatives or employees of banks which may be acting as broker-dealers without separate registration under the 1934 Act, pursuant to legal and regulatory exceptions. The maximum sales compensation payable by us is not more than the equivalent of 7.5% percent of each Premium. Trail Commissions of up to 1.0% of Cash Value may also be paid where a lower commission rate applies to Premiums. In addition, we may pay or permit other promotional incentives, in cash, or credit or other compensation. We also may pay asset-based expense allowances and service fees. The distribution agreement with IBS provides for indemnification of IBS by KILICO and the Separate Account for liability arising out of allegedly untrue statements in, or omissions of material fact from, the Prospectus or the registration statement. IBS agrees to indemnify KILICO and the Separate Account against claims arising from the conduct of IBS or unaffiliated broker-dealers that sell Policies. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. We are engaged in routine law suits which, in our management's judgment, are not of material importance to our total assets or material with respect to the Separate Account. LEGAL MATTERS All matters of Illinois law pertaining to the Policy, including the validity of the Policy and our right to issue the Policy under Illinois law, have been passed upon by Frank Julian, Esq., our Associate General Counsel. The law firm of Jorden Burt LLP, 1025 Thomas Jefferson St., Suite 400, East Lobby, Washington, D.C. 20007-5201, serves as special counsel to KILICO with regard to the federal securities laws. 42 REGISTRATION STATEMENT We have filed a registration statement with the SEC, Washington, D.C., under the 1933 Act, with respect to the Policies offered by this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and the exhibits filed as part of the registration statement. You should refer to the registration statement and the exhibits for further information concerning the Separate Account, KILICO, and the Policies. The descriptions in this Prospectus of the Policies and other legal instruments are summaries. You should refer to those instruments as filed for their precise terms. EXPERTS The consolidated balance sheets of KILICO as of December 31, 2001 and 2000 and the related consolidated statement of operations, comprehensive income, stockholder's equity and cash flows for each of the three years in the period then ended December 31, 2001, and the financial statements of assets and liabilities and contract owners' equity of Kemper Investors Life Insurance Company's KILICO Variable Separate Account as of December 31, 2001, and the related statements of operations for the year then ended and the statements of changes in contract owners' equity for each of the two years in the period then ended, have been included herein and in the registration statement in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Actuarial matters included in this Prospectus have been examined by Phillip N. Beyer, FSA, as stated in the opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS The included financial statements for KILICO only bear on our ability to meet our obligations under the Policy. They do not relate to the investment performance of the assets held in the Separate Account. 43 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Kemper Investors Life Insurance Company and Policy Owners of Kemper Investors Life Insurance Company's KILICO Variable Separate Account: In our opinion, the accompanying statement of assets, liabilities and policy owners' equity and the related statement of operations and changes in policy owners' equity present fairly, in all material respects, the financial position of Kemper Investors Life Insurance Company's KILICO Variable Separate Account (which includes the following subaccounts: Alger American Balanced, Alger American Growth, Alger American Income and Growth, Alger American Leveraged AllCap, Alger American MidCap Growth, American Century VP Income & Growth, American Century VP Income and Growth, American Century VP International, American Century VP Ultra, American Century VP Value, AST Alliance Growth & Income, AST American Century International Growth I, AST INVESCO Equity Income, AST JanCap Growth, AST Neuberger Mid-Cap Growth, AST PBHG Small Cap Growth, AST PIMCO Limited Maturity Bond, AST PIMCO Total Return Bond, AST T. Rowe Price Asset Allocation, Credit Suisse Trust Emerging Markets, Credit Suisse Trust Global Post-Venture Capital, Deutsche VIT EAFE Equity Index, Deutsche VIT Small Cap Index, Dreyfus Stock Index Fund, Dreyfus Socially Responsible Growth Fund, Dreyfus I.P. Mid Cap Stock, Dreyfus VIF Appreciation, Dreyfus VIF Small Cap, Fidelity VIP Equity Income, Fidelity VIP Growth, Fidelity VIP High Income, Fidelity VIP Overseas, Fidelity VIP II Contrafund, Fidelity VIP II Index 500, Fidelity VIP III Growth Opportunities, Templeton Asset Strategy, Templeton Developing Markets Securities, Templeton Global Income Securities, Templeton International Securities, INVESCO VIF Dynamics, INVESCO VIF Financial Services, INVESCO VIF Technology, INVESCO VIF Telecommunications, Janus Aspen Aggressive Growth, Janus Aspen Balanced, Janus Aspen Capital Appreciation, Janus Aspen Flexible Income, Janus Aspen Growth, Janus Aspen International Growth, Janus Aspen Worldwide Growth, PIMCO Foreign Bond, PIMCO Low Duration Bond, Scudder 21st 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 Global Blue Chip, Scudder Government Securities, Scudder Growth, Scudder High Yield, Scudder International Research, Scudder Investment Grade Bond, Scudder Money Market (Scudder Variable Series II), Scudder New Europe, Scudder Small Cap Growth, Scudder Small Cap Value, Scudder Strategic Income, Scudder Technology Growth, Scudder Total Return, SVS Dreman Financial Services, SVS Dreman High Return Equity, SVS Dynamic Growth, SVS Focus Value + Growth, SVS Focused Large Cap Growth, SVS Growth and Income, SVS Growth Opportunities, SVS Index 500, SVS Mid Cap Growth, SVS Strategic Equity, and SVS Venture Value) at December 31, 2001, and the results of its operations for the year then ended and the changes in policy owners' equity for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Kemper Investors Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with 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, which included confirmation of portfolio shares owned at December 31, 2001 by correspondence with the underlying funds, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois February 22, 2002 44 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY December 31, 2001 (in thousands)
American Century The Alger American Fund Variable Portfolios, Inc. --------------------------------------------------------- ------------------------- American Total Alger Alger Alger Century KILICO Alger American American American VP American Variable American Alger American Income and Leveraged MidCap Income & Century VP Separate Balanced Growth Growth AllCap Growth Growth International Account Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------- ---------- -------------- ---------- ---------- ---------- ---------- ------------- Assets Investments in underlying portfolio funds, at current market value.................... $45,724 $504 $389 $297 $192 $377 $14 $ 1 Dividends and other receivables.. 27 -- -- -- -- -- -- -- ------- ---- ---- ---- ----- ---- ---- --- Total assets............... $45,751 $504 $389 $297 $192 $377 $14 $ 1 ======= ==== ==== ==== ===== ==== ==== === Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $ 5 $ -- $ -- $ -- $ -- $ -- $-- $-- Other payables................ 135 -- -- -- -- -- -- -- ------- ---- ---- ---- ----- ---- ---- --- Total liabilities.......... 140 -- -- -- -- -- -- -- ------- ---- ---- ---- ----- ---- ---- --- Policy owners' equity............ $45,611 $504 $389 $297 $192 $377 $14 $ 1 ======= ==== ==== ==== ===== ==== ==== === Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $46,671 $521 $458 $338 $227 $428 $13 $ 1 Accumulated net investment income (loss)................... 6,449 (6) (20) (20) 2 30 -- -- Accumulated net realized gain (loss) on sales of investments.. 206 (3) (4) (4) (6) (32) -- -- Unrealized appreciation (depreciation) of investments... (7,715) (8) (45) (17) (31) (49) 1 -- ------- ---- ---- ==== ===== ==== ==== === Policy owners' equity............ $45,611 $504 $389 $297 $192 $377 $14 $ 1 ======= ==== ==== ==== ===== ==== ==== ===
See accompanying notes to financial statements. 45 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
American Century Variable Portfolios, Inc. American Skandia Trust ------------------------ ----------------------------------------------------------------------- AST AST American AST American American Alliance Century INVESCO AST AST AST PBHG Century Century Growth & International Equity JanCap Neuberger Small Cap VP Ultra VP Value Income Growth I Income Growth Mid-Cap Growth Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- ---------- ---------- -------------- ---------- Assets Investments in underlying portfolio funds, at current market value................. $ 3 $46 $ 1,392 $440 $802 $ 5,144 $1,635 $ 598 Dividends and other receivables.................. -- -- 1 -- -- 2 -- 1 --- --- ------- ---- ---- ------- ------ ----- Total assets............ $ 3 $46 $ 1,393 $440 $802 $ 5,146 $1,635 $ 599 === === ======= ==== ==== ======= ====== ===== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges.............. $-- $-- $ -- $ -- $ -- $ -- $ -- $ -- Other payables............. -- -- -- 28 -- -- -- -- --- --- ------- ---- ---- ------- ------ ----- Total liabilities....... -- -- -- 28 -- -- -- -- --- --- ------- ---- ---- ------- ------ ----- Policy owners' equity......... $ 3 $46 $ 1,393 $412 $802 $ 5,146 $1,635 $ 599 === === ======= ==== ==== ======= ====== ===== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..... $ 3 $44 $ 1,412 $384 $938 $ 8,444 $2,121 $ 879 Accumulated net investment income (loss)................ -- (1) 75 (3) (65) (615) 33 169 Accumulated net realized gain (loss) on sales of investments.................. -- -- 8 1 4 34 13 (122) Unrealized appreciation (depreciation) of investments.................. -- 3 (102) 30 (75) (2,717) (532) (327) --- --- ------- ---- ---- ------- ------ ----- Policy owners' equity......... $ 3 $46 $1,393... $412 $802 $ 5,146 $1,635 $ 599 === === ======= ==== ==== ======= ====== =====
See accompanying notes to financial statements. 46 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Deutsche Asset Management American Skandia Trust Credit Suisse Trust VIT Funds ------------------------------------------------ ---------------------- --------------------- Credit AST AST AST Credit Suisse Trust PIMCO PIMCO AST American Suisse Global Deutsche Limited Total T. Rowe Price Century Trust Post- VIT EAFE Deutsche Maturity Return Asset International Emerging Venture Equity VIT Small Bond Bond Allocation Growth II Markets Capital Index Cap Index Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ------------- ---------- ------------ ---------- ---------- Assets Investments in underlying portfolio funds, at current market value................. $63 $241 $545 $ -- $22 $25 $ 2 $ 3 Dividends and other receivables.................. -- -- -- -- -- -- -- -- --- ---- ---- ----- --- --- --- --- Total assets............ $63 $241 $545 $ -- $22 $25 $ 2 $ 3 === ==== ==== ===== === === === === Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges.............. $-- $ -- $ -- $ -- $-- $-- $-- $-- Other payables............. -- -- -- -- -- -- -- -- --- ---- ---- ----- --- --- --- --- Total liabilities....... -- -- -- -- -- -- -- -- --- ---- ---- ----- --- --- --- --- Policy owners' equity......... $63 $241 $545 $ -- $22 $25 $ 2 $ 3 === ==== ==== ===== === === === === Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..... $65 $247 $639 $ 233 $24 $38 $ 2 $ 3 Accumulated net investment income (loss)................ (4) (16) (36) 111 -- 2 -- -- Accumulated net realized gain (loss) on sales of investments.................. -- -- 12 (344) -- (7) -- -- Unrealized appreciation (depreciation) of investments.................. 2 10 (70) -- (2) (8) -- -- --- ---- ---- ----- --- --- --- --- Policy owners' equity......... $63 $241 $545 $ -- $22 $25 $ 2 $ 3 === ==== ==== ===== === === === ===
See accompanying notes to financial statements. 47 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Dreyfus Socially Dreyfus Responsible Dreyfus Life & Annuity Growth Fund, Investment Dreyfus Variable Fidelity Variable Insurance Index Fund Inc. Portfolios Investment Fund Products Fund -------------- ------------ ------------ ---------------------- -------------------------------- Dreyfus Dreyfus Fidelity Stock Socially Dreyfus I.P. Dreyfus Dreyfus VIP Fidelity Fidelity Index Responsible Mid Cap VIF VIF Equity VIP VIP Fund Growth Fund Stock Appreciation Small Cap Income Growth High Income Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount -------------- ------------ ------------ ------------ ---------- ---------- ---------- ----------- Assets Investments in underlying portfolio funds, at current market value....... $87 $149 $ 306 $29 $161 $324 $195 $57 Dividends and other receivables................ -- -- -- -- -- -- -- -- --- ---- ------- --- ---- ---- ---- --- Total assets.......... $87 $149 $ 306 $29 $161 $324 $195 $57 === ==== ======= === ==== ==== ==== === Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges............ $-- $ -- $ -- $-- $ -- $ -- $ -- $-- Other payables........... -- -- -- -- -- -- -- -- --- ---- ------- --- ---- ---- ---- --- Total liabilities..... -- -- -- -- -- -- -- -- --- ---- ------- --- ---- ---- ---- --- Policy owners' equity....... $87 $149 $ 306 $29 $161 $324 $195 $57 === ==== ======= === ==== ==== ==== === Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions................ $95 $184 $ 301 $32 $176 $372 $233 $74 Accumulated net investment income (loss)... (8) (4) -- (3) (10) (35) (22) (5) Accumulated net realized gain (loss) on sales of investments................ (1) (2) (2) -- (1) (3) (2) (5) Unrealized appreciation (depreciation) of investments................ 1 (29) 7 -- (4) (10) (14) (7) --- ---- ------- --- ---- ---- ---- --- Policy owners' equity....... $87 $149 $ 306 $29 $161 $324 $195 $57 === ==== ======= === ==== ==== ==== ===
See accompanying notes to financial statements. 48 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Fidelity Fidelity Fidelity Variable Variable Variable Insurance Insurance Insurance Products Products Products Franklin Templeton Variable Insurance Fund Fund II Fund III Products Trust ---------- -------------------- ------------- --------------------------------------------- Fidelity Templeton Templeton Fidelity Fidelity Fidelity VIP III Templeton Developing Global Templeton VIP VIP II VIP II Growth Asset Markets Income International Overseas Contrafund Index 500 Opportunities Strategy Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- Assets Investments in underlying portfolio funds, at current market value.................... $ 25 $1,616 $ 1,389 $ 537 $ 8 $19 $ 6 $12 Dividends and other receivables.. -- 2 -- -- -- -- -- 1 ---- ------ ------- ----- --- --- --- --- Total assets................. $ 25 $1,618 $ 1,389 $ 537 $ 8 $19 $ 6 $13 ==== ====== ======= ===== === === === === Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $ -- $ 1 $ -- $ -- $-- $-- $-- $-- Other payables................ -- -- -- 1 -- -- -- -- ---- ------ ------- ----- --- --- --- --- Total liabilities.......... -- 1 -- 1 -- -- -- -- ---- ------ ------- ----- --- --- --- --- Policy owners' equity............ $ 25 $1,617 $ 1,389 $ 536 $ 8 $19 $ 6 $13 ==== ====== ======= ===== === === === === Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $ 31 $2,160 $1,907 $ 825 $ 9 $25 $ 6 $14 Accumulated net investment income (loss)................... (3) (194) (307) (97) -- (4) -- 1 Accumulated net realized gain (loss) on sales of investments.. -- (20) 2 (19) (1) (1) -- -- Unrealized appreciation (depreciation) of investments... (3) (329) (213) (173) -- (1) -- (2) ---- ------ ------- ----- --- --- --- --- Policy owners' equity............ $ 25 $1,617 $ 1,389 $ 536 $ 8 $19 $ 6 $13 ==== ====== ======= ===== === === === ===
See accompanying notes to financial statements. 49 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
INVESCO Variable Investment Funds, Inc. Janus Aspen Series ------------------------------------------------------- ----------------------------------- INVESCO INVESCO INVESCO VIF INVESCO VIF INVESCO Janus Aspen Janus Aspen VIF Financial VIF Telecom- VIF Aggressive Janus Aspen Capital Dynamics Services Technology munications Utilities Growth Balanced Appreciation Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ----------- ---------- ----------- ----------- ------------ Assets Investments in underlying portfolio funds, at current market value.................... $10 $26 $35 $ 7 $-- $397 $238 $ 485 Dividends and other receivables.. -- -- -- -- -- 2 -- -- --- --- --- --- --- ---- ---- ----- Total assets............... $10 $26 $35 $ 7 $-- $399 $238 $ 485 === === === === === ==== ==== ===== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $-- $-- $-- $-- $-- $ -- $ -- $ -- Other payables................ -- -- -- -- -- -- -- -- --- --- --- --- --- ---- ---- ----- Total liabilities.......... -- -- -- -- -- -- -- -- --- --- --- --- --- ---- ---- ----- Policy owners' equity............ $10 $26 $35 $ 7 $-- $399 $238 $ 485 === === === === === ==== ==== ===== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $10 $26 $35 $ 8 $-- $564 $269 $ 866 Accumulated net investment income (loss)................... (1) (1) (2) (1) -- (64) (25) (237) Accumulated net realized gain (loss) on sales of investments.. -- -- -- -- -- (25) (1) (24) Unrealized appreciation (depreciation) of investments... 1 1 2 -- -- (76) (5) (120) --- --- --- --- --- ---- ---- ----- Policy owners' equity............ $10 $26 $35 $ 7 $-- $399 $238 $ 485 === === === === === ==== ==== =====
See accompanying notes to financial statements. 50 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
PIMCO Variable Scudder Variable Janus Aspen Series Insurance Trust Series I --------------------------------------------- -------------------- -------------------- Janus Janus Janus PIMCO Scudder Aspen Janus Aspen Aspen PIMCO Low 21st Flexible Aspen International Worldwide Foreign Duration Century Scudder Income Growth Growth Growth Bond Bond Growth Bond Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ---------- ---------- ---------- ---------- ---------- Assets Investments in underlying portfolio funds, at current market value.... $24 $393 $172 $365 $23 $14 $155 $ 19 Dividends and other receivables.... -- 2 -- -- -- -- -- -- --- ---- ---- ---- --- --- ---- ---- Total assets................. $24 $395 $172 $365 $23 $14 $155 $ 19 === ==== ==== ==== === === ==== ==== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges........................ $-- $ -- $ -- $ -- $-- $-- $ -- $ -- Other payables.................. -- -- -- -- -- -- -- -- --- ---- ---- ---- --- --- ---- ---- Total liabilities............ -- -- -- -- -- -- -- -- --- ---- ---- ---- --- --- ---- ---- Policy owners' equity.............. $24 $395 $172 $365 $23 $14 $155 $ 19 === ==== ==== ==== === === ==== ==== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions....................... $26 $536 $219 $460 $29 $20 $227 $ 27 Accumulated net investment income (loss)..................... (1) (59) (28) (46) (6) (6) (3) (9) Accumulated net realized gain (loss) on sales of investments.... -- (19) (3) (12) -- -- (19) -- Unrealized appreciation (depreciation) of investments..... (1) (63) (16) (37) -- -- (50) 1 --- ---- ---- ---- --- --- ---- ---- Policy owners' equity.............. $24 $395 $172 $365 $23 $14 $155 $ 19 === ==== ==== ==== === === ==== ====
See accompanying notes to financial statements. 51 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Scudder Variable Scudder Variable Series I Series II ------------------------------------------------------------------- -------------------- Scudder Scudder Scudder Scudder Scudder Scudder Capital Global Growth and Health Scudder Money Aggressive Scudder Growth Discovery Income Sciences International Market Growth Blue Chip Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- Assets Investments in underlying portfolio funds, at current market value.................... $266 $445 $ 500 $10 $ 334 $ 38 $412 $537 Dividends and other receivables.. -- -- -- -- -- 1 -- -- ---- ---- ----- --- ----- ---- ---- ---- Total assets............... $266 $445 $ 500 $10 $ 334 $ 39 $412 $537 ==== ==== ===== === ===== ==== ==== ==== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $ -- $ -- $ -- $-- $ -- $ 1 $ -- $ -- Other payables................ -- -- 1 -- -- 13 -- -- ---- ---- ----- --- ----- ---- ---- ---- Total liabilities.......... -- -- 1 -- -- 14 -- -- ---- ---- ----- --- ----- ---- ---- ---- Policy owners' equity............ $266 $445 $ 499 $10 $ 334 $ 25 $412 $537 ==== ==== ===== === ===== ==== ==== ==== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $346 $529 $ 673 $10 $ 547 $ 38 $505 $620 Accumulated net investment income (loss)................... 28 -- (105) -- 10 (13) (1) (2) Accumulated net realized gain (loss) on sales of investments.. (19) (24) (12) -- (28) -- (25) (24) Unrealized appreciation (depreciation) of investments... (89) (60) (57) -- (195) -- (67) (57) ---- ---- ----- --- ----- ---- ---- ---- Policy owners' equity............ $266 $445 $ 499 $10 $ 334 $ 25 $412 $537 ==== ==== ===== === ===== ==== ==== ====
See accompanying notes to financial statements. 52 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Scudder Variable Series II -------------------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Scudder Contrarian Global Government Scudder Scudder Horizon Horizon Scudder Value Blue Chip Securities Growth High Yield 10+ 20+ Horizon 5 Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Assets Investments in underlying portfolio funds, at current market value...... $126 $200 $5,352 $2,518 $ 691 $-- $-- $-- Dividends and other receivables...... -- -- -- 1 -- -- -- -- ---- ---- ------ ------ ------ --- --- --- Total assets................... $126 $200 $5,352 $2,519 $ 691 $-- $-- $-- ==== ==== ====== ====== ====== === === === Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges.......................... $ -- $ -- $ -- $ -- $ -- $-- $-- $-- Other payables.................... -- -- -- -- -- -- -- -- ---- ---- ------ ------ ------ --- --- --- Total liabilities.............. -- -- -- -- -- -- -- -- ---- ---- ------ ------ ------ --- --- --- Policy owners' equity................ $126 $200 $5,352 $2,519 $ 691 $-- $-- $-- ==== ==== ====== ====== ====== === === === Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions......................... $123 $216 $2,205 $1,037 $ (218) $-- $-- $(3) Accumulated net investment income (loss).............................. -- 2 2,362 1,694 1,159 -- -- 10 Accumulated net realized gain (loss) on sales of investments............. 1 (3) 592 245 (124) -- -- (7) Unrealized appreciation (depreciation) of investments....... 2 (15) 193 (457) (126) -- -- -- ---- ---- ------ ------ ------ --- --- --- Policy owners's equity............... $126 $200 $5,352 $2,519 $ 691 $-- $-- $-- ==== ==== ====== ====== ====== === === ===
See accompanying notes to financial statements. 53 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Scudder Scudder Scudder Scudder International Investment Money New Small Cap Small Cap Strategic Technology Research Grade Bond Market Europe Growth Value Income Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Assets Investments in underlying portfolio funds, at current market value.................... $ 364 $432 $2,809 $ 69 $ 2,512 $113 $ 2 $ 458 Dividends and other receivables.. -- -- 4 -- -- -- -- -- ----- ---- ------ ---- ------- ---- --- ----- Total assets............... $ 364 $432 $2,813 $ 69 $ 2,512 $113 $ 2 $ 458 ===== ==== ====== ==== ======= ==== === ===== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $ -- $ -- $ -- $ -- $ -- $ -- $-- $ -- Other payables................ -- -- 82 -- -- -- -- -- ----- ---- ------ ---- ------- ---- --- ----- Total liabilities.......... -- -- 82 -- -- -- -- -- ----- ---- ------ ---- ------- ---- --- ----- Policy owners' equity............ $ 364 $432 $2,731 $ 69 $ 2,512 $113 $ 2 $ 458 ===== ==== ====== ==== ======= ==== === ===== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $ 492 $426 $2,309 $ 88 $ 3,476 $106 $ 2 $ 685 Accumulated net investment income (loss)................... 66 4 422 -- 106 -- -- (4) Accumulated net realized gain (loss) on sales of investments.. (21) 1 -- (1) (33) -- -- (110) Unrealized appreciation (depreciation) of investments... (173) 1 -- (18) (1,037) 7 -- (113) ----- ---- ------ ---- ------- ---- --- ----- Policy owners' equity............ $ 364 $432 $2,731 $ 69 $ 2,512 $113 $ 2 $ 458 ===== ==== ====== ==== ======= ==== === =====
See accompanying notes to financial statements. 54 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Scudder Variable Series II ------------------------------------------------------------------------------------------ SVS SVS SVS Scudder Dreman SVS Dreman SVS SVS Focus Focused Growth Total Financial High Return Dynamic Value + Large Cap and SVS Growth Return Services Equity Growth Growth Growth Income Opportunities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ----------- ---------- ---------- ---------- ---------- ------------- Assets Investments in underlying portfolio funds, at current market value.................... $3,472 $298 $1,195 $ 1 $168 $482 $633 $ 349 Dividends and other receivables.. -- 5 -- -- 1 4 -- -- ------ ---- ------ --- ---- ---- ---- ----- Total assets............... $3,472 $303 $1,195 $ 1 $169 $486 $633 $ 349 ====== ==== ====== === ==== ==== ==== ===== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges...................... $ -- $ 1 $ -- $-- $ 1 $ 1 $ -- $ -- Other payables................ 2 4 -- -- -- 4 -- -- ------ ---- ------ --- ---- ---- ---- ----- Total liabilities.......... 2 5 -- -- 1 5 -- -- ------ ---- ------ --- ---- ---- ---- ----- Policy owners' equity............ $3,470 $298 $1,195 $ 1 $168 $481 $633 $ 349 ====== ==== ====== === ==== ==== ==== ===== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions..................... $ 738 $293 $1,258 $ 1 $187 $560 $703 $ 530 Accumulated net investment income (loss)................... 2,345 1 (84) -- -- -- (2) (6) Accumulated net realized gain (loss) on sales of investments.. 506 -- 10 -- (2) (8) (19) (54) Unrealized appreciation (depreciation) of investments... (119) 4 11 -- (17) (71) (49) (121) ------ ---- ------ --- ---- ---- ---- ----- Policy owners' equity............ $3,470 $298 $1,195 $ 1 $168 $481 $633 $ 349 ====== ==== ====== === ==== ==== ==== =====
See accompanying notes to financial statements. 55 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF ASSETS, LIABILITIES AND POLICY OWNERS' EQUITY (continued) December 31, 2001 (in thousands)
Scudder Variable Series II ------------------------------------------- SVS SVS SVS SVS Mid Cap Strategic Venture Index 500 Growth Equity Value Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- Assets Investments in underlying portfolio funds, at current market value...... $749 $ 4 $ 3 $164 Dividends and other receivables......................................... -- -- -- -- ---- --- --- ---- Total assets...................................................... $749 $ 4 $ 3 $164 ==== === === ==== Liabilities and policy owners' equity Liabilities: Mortality and expense risk charges................................... $ -- $-- $-- $ -- Other payables....................................................... -- -- -- -- ---- --- --- ---- Total liabilities................................................. -- -- -- -- ---- --- --- ---- Policy owners' equity................................................... $749 $ 4 $ 3 $164 ==== === === ==== Analysis of policy owners' equity Excess (deficiency) of proceeds from sales over payments for redemptions $798 $ 4 $ 3 $156 Accumulated net investment income (loss)................................ 1 -- -- -- Accumulated net realized gain (loss) on sales of investments............ (27) -- -- -- Unrealized appreciation (depreciation) of investments................... (23) -- -- 8 ---- --- --- ---- Policy owners' equity................................................... $749 $ 4 $ 3 $164 ==== === === ====
See accompanying notes to financial statements. 56 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS For the year ended December 31, 2001 (in thousands)
American Century The Alger American Fund Variable Portfolios, Inc. ----------------------------------------------------- ----------------------------- Alger Alger Alger American Total KILICO Alger Alger American American American Century VP American Variable American American Income and Leveraged MidCap Income & Century VP Separate Balanced Growth Growth AllCap Growth Growth International Account Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount (a) Subaccount (a) ------------ ---------- ---------- ---------- ---------- ---------- -------------- -------------- Revenue Dividend income............ $ 2,392 $ 9 $ 27 $ 11 $ 4 $ 80 $-- $-- -------- ---- ---- ---- ---- ---- --- --- Expenses Mortality and expense risk charges................... 375 2 1 1 2 1 -- -- Cost of insurance.......... 4,367 12 44 30 -- 46 -- -- -------- ---- ---- ---- ---- ---- --- --- Total expenses.......... 4,742 14 45 31 2 47 -- -- -------- ---- ---- ---- ---- ---- --- --- Net investment income (loss).................... (2,350) (5) (18) (20) 2 33 -- -- -------- ---- ---- ---- ---- ---- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments....... (2,917) (2) (4) (4) (6) (32) -- -- Change in unrealized appreciation (depreciation) of investments............... (5,457) (6) (40) (17) (11) (47) -- -- -------- ---- ---- ---- ---- ---- --- --- Net realized and unrealized gain (loss) on investments............... (8,374) (8) (44) (21) (17) (79) -- -- -------- ---- ---- ---- ---- ---- --- --- Net increase (decrease) in policy owners' equity resulting from operations................ $(10,724) $(13) $(62) $(41) $(15) $(46) $-- $-- ======== ==== ==== ==== ==== ==== === ===
- -------- (a)For the period (commencement of operations): August 17, 2001--American Century VP Income & Growth Subaccount; October 1, 2001--American Century VP International Subaccount; August 24, 2001--American Century VP Ultra Subaccount; August 7, 2001--American Century VP Value Subaccount and September 24, 2001--AST American Century International Growth I Subaccount to December 31, 2001 See accompanying notes to financial statements. 57 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
American Century Variable Portfolios, Inc. American Skandia Trust ---------------------------- ---------------------------------------------------------------------- AST American AST AST AST American American AST Alliance Century INVESCO AST Neuberger PBHG Century VP Century VP Growth & International Equity JanCap Mid-Cap Small Cap Ultra Value Income Growth I Income Growth Growth Growth Subaccount (a) Subaccount (a) Subaccount Subaccount (a) Subaccount Subaccount Subaccount Subaccount -------------- -------------- ------------ -------------- ---------- ---------- ---------- ---------- Revenue Dividend income........... $-- $-- $159 $ -- $ 26 $ -- $ 264 $ 126 --- --- ------ ---- ----- ------- ----- ----- Expenses Mortality and expense risk charges............. -- -- 12 (14) 6 39 13 3 Cost of insurance......... -- 1 189 17 131 948 260 85 --- --- ------ ---- ----- ------- ----- ----- Total expenses......... -- 1 201 3 137 987 273 88 --- --- ------ ---- ----- ------- ----- ----- Net investment income (loss)................... -- (1) (42) (3) (111) (987) (9) 38 --- --- ------ ---- ----- ------- ----- ----- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments... -- -- (6) 1 (9) (233) (30) (164) Change in unrealized appreciation (depreciation) of investments.............. -- 3 (151) 30 (95) (1,931) (749) (34) --- --- ------ ---- ----- ------- ----- ----- Net realized and unrealized gain (loss) on investments........... -- 3 (157) 31 (104) (2,164) (779) (198) --- --- ------ ---- ----- ------- ----- ----- Net increase (decrease) in policy owners' equity resulting from operations............... $-- $ 2 $(199) $ 28 $(215) $(3,151) $(788) $(160) === === ====== ==== ===== ======= ===== =====
- -------- (a)For the period (commencement of operations): August 17, 2001--American Century VP Income & Growth Subaccount; October 1, 2001--American Century VP International Subaccount; August 24, 2001--American Century VP Ultra Subaccount; August 7, 2001--American Century VP Value Subaccount and September 24, 2001--AST American Century International Growth I Subaccount to December 31, 2001 See accompanying notes to financial statements. 58 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
American Skandia Trust Credit Suisse Trust --------------------------------------------------- -------------------------- AST AST AST American Credit Suisse Credit Suisse AST PIMCO PIMCO T. Rowe Century Trust Trust Global Limited Total Return Price Asset International Emerging Post-Venture Maturity Bond Bond Allocation Growth II Markets Capital Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------- ------------ ----------- ------------- ------------- ------------- Revenue Dividend income..... $ 3 $ 8 $ 69 $ 124 $-- $-- --- ---- ----- ----- --- --- Expenses Mortality and expense risk charges............ -- 1 5 15 -- -- Cost of insurance... 8 28 92 49 -- -- --- ---- ----- ----- --- --- Total expenses... 8 29 97 64 -- -- --- ---- ----- ----- --- --- Net investment income (loss)...... (5) (21) (28) 60 -- -- --- ---- ----- ----- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........ -- 1 (5) (357) -- (7) Change in unrealized appreciation (depreciation) of investments........ 1 4 (91) 39 (2) (2) --- ---- ----- ----- --- --- Net realized and unrealized gain (loss) on investments........ 1 5 (96) (318) (2) (9) --- ---- ----- ----- --- --- Net increase (decrease) in policy owners' equity resulting from operations.... $(4) $(16) $(124) $(258) $(2) $(9) === ==== ===== ===== === ===
Deutsche Asset Management VIT Funds ----------------------------- Deutsche VIT Deutsche VIT EAFE Equity Small Cap Index Index Subaccount (b) Subaccount (b) -------------- -------------- Revenue Dividend income..... $-- $-- --- --- Expenses Mortality and expense risk charges............ -- -- Cost of insurance... -- -- --- --- Total expenses... -- -- --- --- Net investment income (loss)...... -- -- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........ -- -- Change in unrealized appreciation (depreciation) of investments........ -- -- --- --- Net realized and unrealized gain (loss) on investments........ -- -- --- --- Net increase (decrease) in policy owners' equity resulting from operations.... $-- $-- === ===
- -------- (b)For the period (commencement of operations): August 21, 2001--Deutsche VIT EAFE Equity Index Subaccount and August 10, 2001--Deutsche VIT Small Cap Subaccount to December 31, 2001. See accompanying notes to financial statements. 59 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Dreyfus Dreyfus Socially Life & Responsible Dreyfus Annuity Growth Investment Dreyfus Variable Fidelity Variable Insurance Index Fund Fund, Inc. Portfolios Investment Fund Products Fund ---------- ----------- ------------ ----------------------- ------------------------------- Dreyfus Dreyfus Socially Dreyfus I.P. Fidelity Fidelity Stock Responsible Mid Cap Dreyfus VIF Dreyfus VIF VIP Equity Fidelity VIP High Index Fund Growth Fund Stock Appreciation Small Cap Income VIP Growth Income Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ----------- ------------ ------------ ----------- ---------- ---------- ---------- Revenue Dividend income................. $ 1 $ -- $-- $-- $ 10 $ 11 $ 3 $ 2 --- ---- --- --- ---- ---- ---- ---- Expenses Mortality and expense risk charges........................ -- 1 1 -- -- 3 1 -- Cost of insurance............... 9 3 -- 3 20 44 24 7 --- ---- --- --- ---- ---- ---- ---- Total expenses............... 9 4 1 3 20 47 25 7 --- ---- --- --- ---- ---- ---- ---- Net investment income (loss).... (8) (4) (1) (3) (10) (36) (22) (5) --- ---- --- --- ---- ---- ---- ---- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments................. (1) (2) (2) -- (1) (2) (2) (3) Change in unrealized appreciation (depreciation) of investments................. 1 (25) 8 -- (4) (16) (13) (4) --- ---- --- --- ---- ---- ---- ---- Net realized and unrealized gain (loss) on investments..... -- (27) 6 -- (5) (18) (15) (7) --- ---- --- --- ---- ---- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations...... $(8) $(31) $ 5 $(3) $(15) $(54) $(37) $(12) === ==== === === ==== ==== ==== ====
- -------- (b)For the period (commencement of operations): August 21, 2001--Deutsche VIT EAFE Equity Index Subaccount and August 10, 2001--Deutsche VIT Small Cap Subaccount to December 31, 2001. See accompanying notes to financial statements. 60 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Fidelity Fidelity Variable Variable Insurance Fidelity Insurance Products Variable Insurance Products Franklin Templeton Fund Products Fund II Fund III Variable Insurance Products Trust ---------- -------------------- ------------- --------------------------------------------- Templeton Templeton Fidelity Fidelity Fidelity Fidelity VIP Templeton Developing Global Templeton VIP VIP II VIP II III Growth Asset Markets Income International Overseas Contrafund Index 500 Opportunities Strategy Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- Revenue Dividend income.................... $ 1 $ 51 $ 14 $ 2 $ 1 $-- $-- $ 1 --- ----- ----- ----- --- --- ---- --- Expenses Mortality and expense risk charges........................... -- 11 12 5 -- -- -- (1) Cost of insurance.................. 3 284 253 98 1 4 -- 1 --- ----- ----- ----- --- --- ---- --- Total expenses.................. 3 295 265 103 1 4 -- -- --- ----- ----- ----- --- --- ---- --- Net investment income (loss)....... (2) (244) (251) (101) -- (4) -- 1 --- ----- ----- ----- --- --- ---- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments....................... -- (33) (10) (18) (1) (1) -- -- Change in unrealized appreciation (depreciation) of investments....................... (3) (212) (167) (65) -- (1) -- (2) --- ----- ----- ----- --- --- ---- --- Net realized and unrealized gain (loss) on investments............. (3) (245) (177) (83) (1) (2) -- (2) --- ----- ----- ----- --- --- ---- --- Net increase (decrease) in policy owners' equity resulting from operations........................ $(5) $(489) $(428) $(184) $(1) $(6) $-- $(1) === ===== ===== ===== === === ==== ===
- -------- (d)For the period (commencement of operations): June 5, 2001--INVESCO Dynamics Subaccount and INVESCO Technology Subaccount; June 15, 2001 INVESCO Financial Services Subaccount; and July 24, 2001--Invesco Telecommunications Subaccount to December 31, 2001. See accompanying notes to financial statements. 61 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
INVESCO Variable Investment Funds, Inc. ---------------------------------------------------------------------- INVESCO VIF INVESCO VIF INVESCO INVESCO VIF Financial INVESCO VIF Telecom- VIF Dynamics Services Technology munications Utilities Subaccount (d) Subaccount (d) Subaccount (d) Subaccount (d) Subaccount -------------- -------------- -------------- -------------- ---------- Revenue Dividend income............. $-- $-- $-- $-- $-- --- --- --- --- --- Expenses Mortality and expense risk charges.................... -- -- -- -- -- Cost of insurance........... 1 1 2 1 -- --- --- --- --- --- Total expenses........... 1 1 2 1 -- --- --- --- --- --- Net investment income (loss) (1) (1) (2) (1) -- --- --- --- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........ -- -- -- -- -- Change in unrealized appreciation (depreciation) of investments............. 1 1 2 -- -- --- --- --- --- --- Net realized and unrealized gain (loss) on investments. 1 1 2 -- -- --- --- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations.. $-- $-- $-- $(1) $-- === === === === ===
Janus Aspen Series --------------------------------- Janus Janus Aspen Janus Aspen Aggressive Aspen Capital Growth Balanced Appreciation Subaccount Subaccount Subaccount ---------- ---------- ------------ Revenue Dividend income............. $ -- $ 5 $ 5 ----- ---- ----- Expenses Mortality and expense risk charges.................... (1) 1 1 Cost of insurance........... 61 27 190 ----- ---- ----- Total expenses........... 60 28 191 ----- ---- ----- Net investment income (loss) (60) (23) (186) ----- ---- ----- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........ (25) (1) (25) Change in unrealized appreciation (depreciation) of investments............. (62) (5) (65) ----- ---- ----- Net realized and unrealized gain (loss) on investments. (87) (6) (90) ----- ---- ----- Net increase (decrease) in policy owners' equity resulting from operations.. $(147) $(29) $(276) ===== ==== =====
- -------- (d)For the period (commencement of operations): June 5, 2001--INVESCO Dynamics Subaccount and INVESCO Technology Subaccount; June 15, 2001 INVESCO Financial Services Subaccount; and July 24, 2001--Invesco Telecommunications Subaccount to December 31, 2001. See accompanying notes to financial statements. 62 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
PIMCO Variable Scudder Variable Janus Aspen Series Insurance Trust Series I --------------------------------------------- -------------------- -------------------- Janus Janus PIMCO Scudder Aspen Janus Janus Aspen Aspen PIMCO Low 21st Flexible Aspen International Worldwide Foreign Duration Century Scudder Income Growth Growth Growth Bond Bond Growth Bond Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ---------- ---------- ---------- ---------- ---------- Revenue Dividend income.................... $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ -- $-- --- ----- ---- ---- --- --- ---- --- Expenses Mortality and expense risk charges. -- -- -- 1 -- -- 2 -- Cost of insurance.................. 2 55 29 43 6 6 -- 7 --- ----- ---- ---- --- --- ---- --- Total expenses.................. 2 55 29 44 6 6 2 7 --- ----- ---- ---- --- --- ---- --- Net investment income (loss)....... (1) (54) (28) (43) (5) (5) (2) (7) --- ----- ---- ---- --- --- ---- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments....................... -- (19) (2) (12) -- -- (16) -- Change in unrealized appreciation (depreciation) of investments..... -- (49) (14) (28) 1 -- (27) -- --- ----- ---- ---- --- --- ---- --- Net realized and unrealized gain (loss) on investments............. -- (68) (16) (40) 1 -- (43) -- --- ----- ---- ---- --- --- ---- --- Net increase (decrease) in policy owners' equity resulting from operations........................ $(1) $(122) $(44) $(83) $(4) $(5) $(45) $(7) === ===== ==== ==== === === ==== ===
- -------- (e)For the period (commencement of operations): October 15, 2001--December 31, 2001. See accompanying notes to financial statements. 63 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Scudder Variable Series I Series II ----------------------------------------------------------------------- -------------------- Scudder Scudder Scudder Scudder Scudder Scudder Capital Global Growth Health Scudder Money Aggressive Scudder Growth Discovery and Income Sciences International Market Growth Blue Chip Subaccount Subaccount Subaccount Subaccount (e) Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- -------------- ------------- ---------- ---------- ---------- Revenue Dividend income.................. $ 35 $ 6 $ 13 $-- $ 66 $ 1 $ 3 $ 1 ---- ---- ----- --- ----- --- ---- ---- Expenses Mortality and expense risk charges......................... 3 5 4 -- 3 -- 3 3 Cost of insurance................ 4 -- 96 -- 55 3 -- -- ---- ---- ----- --- ----- --- ---- ---- Total expenses................ 7 5 100 -- 58 3 3 3 ---- ---- ----- --- ----- --- ---- ---- Net investment income (loss)..... 28 1 (87) -- 8 (2) -- (2) ---- ---- ----- --- ----- --- ---- ---- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments.................. (17) (25) (11) -- (27) -- (25) (23) Change in unrealized appreciation (depreciation) of investments..................... (75) (59) (45) -- (161) -- (48) (43) ---- ---- ----- --- ----- --- ---- ---- Net realized and unrealized gain (loss) on investments........... (92) (84) (56) -- (188) -- (73) (66) ---- ---- ----- --- ----- --- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations...................... $(64) $(83) $(143) $-- $(180) $(2) $(73) $(68) ==== ==== ===== === ===== === ==== ====
- -------- (e)For the period (commencement of operations): October 15, 2001-December 31, 2001. See accompanying notes to financial statements. 64 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II ---------------------------------------------------------------------------------------- Scudder Scudder Scudder Contrarian Global Government Scudder Scudder Scudder Scudder Scudder Value Blue Chip Securities Growth High Yield Horizon 10+ Horizon 20+ Horizon 5 Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- ---------- ----------- ----------- ---------- Revenue Dividend income.................... $-- $ 3 $190 $ 282 $ 95 $-- $-- $10 --- ---- ---- ----- ---- --- --- --- Expenses Mortality and expense risk charges........................... -- 1 46 16 3 -- -- -- Cost of insurance.................. -- -- 75 170 45 -- -- -- --- ---- ---- ----- ---- --- --- --- Total expenses.................. -- 1 121 186 48 -- -- -- --- ---- ---- ----- ---- --- --- --- Net investment income (loss)....... -- 2 69 46 47 -- -- 10 --- ---- ---- ----- ---- --- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments....................... 1 (3) 19 (928) (86) -- -- (6) Change in unrealized appreciation (depreciation) of investments....................... 1 (16) 144 7 1 -- -- -- --- ---- ---- ----- ---- --- --- --- Net realized and unrealized gain (loss) on investments............. 2 (19) 163 (921) (85) -- -- (6) --- ---- ---- ----- ---- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations........................ $ 2 $(17) $232 $(875) $(38) $-- $-- $ 4 === ==== ==== ===== ==== === === ===
See accompanying notes to financial statements. 65 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------------------- Scudder Scudder Investment Scudder Scudder Scudder Scudder Scudder International Grade Money Scudder Small Cap Small Cap Strategic Technology Research Bond Market New Europe Growth Value Income Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenue Dividend income.................... $ 53 $ 9 $ 111 $ 1 $ 326 $-- $-- $ -- ----- --- ----- ---- ------- --- --- ----- Expenses Mortality and expense risk charges........................... 4 2 92 1 20 -- -- 2 Cost of insurance.................. 48 2 244 -- 374 -- -- -- ----- --- ----- ---- ------- --- --- ----- Total expenses.................. 52 4 336 1 394 -- -- 2 ----- --- ----- ---- ------- --- --- ----- Net investment income (loss)....... 1 5 (225) -- (68) -- -- (2) ----- --- ----- ---- ------- --- --- ----- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments....................... (24) 1 -- (1) (104) -- -- (111) Change in unrealized appreciation (depreciation) of investments..... (121) -- -- (16) (1,008) 7 -- (21) ----- --- ----- ---- ------- --- --- ----- Net realized and unrealized gain (loss) on investments............. (145) 1 -- (17) (1,112) 7 -- (132) ----- --- ----- ---- ------- --- --- ----- Net increase (decrease) in policy owners' equity resulting from operations........................ $(144) $ 6 $(225) $(17) $(1,180) $ 7 $-- $(134) ===== === ===== ==== ======= === === =====
See accompanying notes to financial statements. 66 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II ---------------------------------------------------------------------------------------------- SVS SVS SVS Scudder Dreman Dreman SVS Focus Focused SVS Total Financial High Return SVS Dynamic Value + Large Cap Growth and SVS Growth Return Services Equity Growth Growth Growth Income Opportunities Subaccount Subaccount Subaccount Subaccount (f) Subaccount Subaccount Subaccount Subaccount ---------- ---------- ----------- -------------- ---------- ---------- ---------- ------------- Revenue Dividend income............. $ 197 $ 2 $8 $-- $ 4 $ -- $ 2 $ -- ----- --- ---- --- ---- ---- ---- ----- Expenses Mortality and expense risk charges.................... 25 1 7 -- 1 -- 4 4 Cost of insurance........... 53 -- 70 -- 3 -- -- -- ----- --- ---- --- ---- ---- ---- ----- Total expenses........... 78 1 77 -- 4 -- 4 4 ----- --- ---- --- ---- ---- ---- ----- Net investment income (loss) 119 1 (69) -- -- -- (2) (4) ----- --- ---- --- ---- ---- ---- ----- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........ (422) -- 10 -- (2) (7) (15) (50) Change in unrealized appreciation (depreciation) of investments............. 18 1 (22) -- (16) (39) (34) (59) ----- --- ---- --- ---- ---- ---- ----- Net realized and unrealized gain (loss) on investments. (404) 1 (12) -- (18) (46) (49) (109) ----- --- ---- --- ---- ---- ---- ----- Net increase (decrease) in policy owners' equity resulting from operations.. $(285) $ 2 $(81) $-- $(18) $(46) $(51) $(113) ===== === ==== === ==== ==== ==== =====
- -------- (f)For the period (commencement of operations): November 13, 2001--SVS Dynamic Growth Subaccount; December 17, 2001--SVS MidCap Growth Subaccount and SVS Strategic Equity Subaccount and October 15, 2001--SVS Venture Value Subaccount to December 31, 2001. See accompanying notes to financial statements. 67 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF OPERATIONS (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II ---------------------------------------- SVS SVS Mid Cap SVS Strategic Index 500 Growth Equity Subaccount Subaccount (f) Subaccount (f) ---------- -------------- -------------- Revenue Dividend income........................................................... $ 1 $-- $-- ---- --- --- Expenses Mortality and expense risk charges........................................ 1 -- -- Cost of insurance......................................................... -- -- -- ---- --- --- Total expenses......................................................... 1 -- -- ---- --- --- Net investment income (loss).............................................. -- -- -- ---- --- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........................... (28) -- -- Change in unrealized appreciation (depreciation) of investments........... (14) -- -- ---- --- --- Net realized and unrealized gain (loss) on investments.................... (42) -- -- ---- --- --- Net increase (decrease) in policy owners' equity resulting from operations $(42) $-- $-- ==== === ===
SVS Venture Value Subaccount (f) -------------- Revenue Dividend income........................................................... $-- --- Expenses Mortality and expense risk charges........................................ -- Cost of insurance......................................................... -- --- Total expenses......................................................... -- --- Net investment income (loss).............................................. -- --- Net realized and unrealized gain (loss) on investments Net realized gain (loss) on sale of investments........................... -- Change in unrealized appreciation (depreciation) of investments........... 8 --- Net realized and unrealized gain (loss) on investments.................... 8 --- Net increase (decrease) in policy owners' equity resulting from operations $ 8 ===
- -------- (f)For the period (commencement of operations): November 13, 2001--SVS Dynamic Growth Subaccount; December 17, 2001--SVS MidCap Growth Subaccount and SVS Strategic Equity Subaccount and October 15, 2001--SVS Venture Value Subaccount to December 31, 2001. See accompanying notes to financial statements. 68 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY For the year ended December 31, 2001 (in thousands)
The Alger American Fund ----------------------------------------------------- Total Alger Alger Alger KILICO Alger Alger American American American Variable American American Income and Leveraged MidCap Separate Balanced Growth Growth AllCap Growth Account Subaccount Subaccount Subaccount Subaccount Subaccount -------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss).......... $ (2,350) $ (5) $(18) $(20) $ 2 $ 33 Net realized gain (loss) on sale of investments.......................... (2,917) (2) (4) (4) (6) (32) Change in unrealized appreciation (depreciation) of investments........ (5,457) (6) (40) (17) (11) (47) -------- ---- ---- ---- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations........................ (10,724) (13) (62) (41) (15) (46) -------- ---- ---- ---- ---- ---- Policy owners' equity transactions Proceeds from sales................... 21,148 70 164 137 17 171 Net transfer (to) from affiliate and subaccounts.......................... 3,248 310 249 194 126 190 Payments for redemptions.............. (5,222) (5) (4) (1) (5) (2) -------- ---- ---- ---- ---- ---- Net increase (decrease) from policy owners' equity transactions...................... 19,174 375 409 330 138 359 -------- ---- ---- ---- ---- ---- Total increase (decrease) in policy owners' equity............. 8,450 362 347 289 123 313 -------- ---- ---- ---- ---- ---- Policy owners' equity Beginning of period................... 37,158 142 42 8 69 64 -------- ---- ---- ---- ---- ---- End of period......................... $ 45,608 $504 $389 $297 $192 $377 ======== ==== ==== ==== ==== ====
American Century Variable Portfolios, Inc. ----------------------------- American Century VP American Income & Century VP Growth International Subaccount (a) Subaccount (a) -------------- -------------- Operations Net investment income (loss).......... $-- $-- Net realized gain (loss) on sale of investments.......................... -- -- Change in unrealized appreciation (depreciation) of investments........ -- -- --- --- Net increase (decrease) in policy owners' equity resulting from operations........................ -- -- --- --- Policy owners' equity transactions Proceeds from sales................... -- -- Net transfer (to) from affiliate and subaccounts.......................... 14 1 Payments for redemptions.............. -- -- --- --- Net increase (decrease) from policy owners' equity transactions...................... 14 1 --- --- Total increase (decrease) in policy owners' equity............. 14 1 --- --- Policy owners' equity Beginning of period................... -- -- --- --- End of period......................... $14 $ 1 === ===
- -------- (a)For the period (commencement of operations): August 17, 2001--American Century Income & Growth Subaccount; October 1, 2001--American Century International Subaccount; August 24, 2001--American Century Ultra Subaccount; August 7, 2001--American Century Value Subaccount and September 24, 2001--AST American Century International Growth I Subaccount to December 31, 2001. See accompanying notes to financial statements. 69 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
American Century Variable Portfolios, Inc. American Skandia Trust ---------------------------- ---------------------------------------------------------- AST AST American AST AST American American Alliance Century INVESCO AST Neuberger Century VP Century VP Growth & International Equity JanCap Mid-Cap Ultra Value Income Growth I Income Growth Growth Subaccount (a) Subaccount (a) Subaccount Subaccount (a) Subaccount Subaccount Subaccount -------------- -------------- ---------- -------------- ---------- ---------- ---------- Operations Net investment income (loss)....... $-- $(1) $ (42) $ (3) $(111) $ (987) $ (9) Net realized gain (loss) on sale of investments....................... -- -- (6) 1 (9) (233) (30) Change in unrealized appreciation (depreciation) of investments....................... -- 3 (151) 30 (95) (1,931) (749) --- --- ------ ---- ----- ------- ------ Net increase (decrease) in policy owners' equity resulting from operations...... -- 2 (199) 28 (215) (3,151) (788) --- --- ------ ---- ----- ------- ------ Policy owners' equity transactions Proceeds from sales................ 1 12 374 41 275 2,469 672 Net transfer (to) from affiliate and subaccounts................... 2 32 20 345 (45) (227) (24) Payments for redemptions........... -- -- (105) (2) (89) (439) (118) --- --- ------ ---- ----- ------- ------ Net increase (decrease) from policy owners' equity transactions................... 3 44 289 384 141 1,803 530 --- --- ------ ---- ----- ------- ------ Total increase (decrease) in policy owners' equity.......... 3 46 90 412 (74) (1,348) (258) --- --- ------ ---- ----- ------- ------ Policy owners' equity Beginning of period................ -- -- 1,303 -- 876 6,494 1,893 --- --- ------ ---- ----- ------- ------ End of period...................... $ 3 $46 $1,393 $412 $ 802 $ 5,146 $1,635 === === ====== ==== ===== ======= ======
AST PBHG Small Cap Growth Subaccount ---------- Operations Net investment income (loss)....... $ 38 Net realized gain (loss) on sale of investments....................... (164) Change in unrealized appreciation (depreciation) of investments....................... (34) ----- Net increase (decrease) in policy owners' equity resulting from operations...... (160) ----- Policy owners' equity transactions Proceeds from sales................ 23 Net transfer (to) from affiliate and subaccounts................... (63) Payments for redemptions........... (65) ----- Net increase (decrease) from policy owners' equity transactions................... (105) ----- Total increase (decrease) in policy owners' equity.......... (265) ----- Policy owners' equity Beginning of period................ 864 ----- End of period...................... $ 599 =====
- -------- (a)For the period (commencement of operations): August 17, 2001--American Century Income & Growth Subaccount; October 1, 2001--American Century International Subaccount; August 24, 2001--American Century Ultra Subaccount; August 7, 2001--American Century Value Subaccount and September 24, 2001--AST American Century International Growth I Subaccount to December 31, 2001. See accompanying notes to financial statements. 70 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
American Skandia Trust Credit Suisse Trust ---------------------------------------------- ----------------------- AST AST AST Credit PIMCO PIMCO AST American Suisse Credit Suisse Limited Total T. Rowe Century Trust Trust Global Maturity Return Price Asset International Emerging Post-Venture Bond Bond Allocation Growth II Markets Capital Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ----------- ------------- ---------- ------------- Operations Net investment income (loss).................... $(5) $(21) $ (28) $ 60 $-- $-- Net realized gain (loss) on sale of investments....... -- 1 (5) (357) -- (7) Change in unrealized appreciation (depreciation) of investments............... 1 4 (91) 39 (2) (2) --- ---- ----- ----- --- --- Net increase (decrease) in policy owners' equity resulting from operations............. (4) (16) (124) (258) (2) (9) --- ---- ----- ----- --- --- Policy owners' equity transactions Proceeds from sales........ 15 61 183 132 -- -- Net transfer (to) from affiliate and subaccounts. 8 58 (26) (369) 24 12 Payments for redemptions... (4) (15) (38) (42) -- -- --- ---- ----- ----- --- --- Net increase (decrease) from policy owners' equity transactions.... 19 104 119 (279) 24 12 --- ---- ----- ----- --- --- Total increase (decrease) in policy owners' equity......... 15 88 (5) (537) 22 3 --- ---- ----- ----- --- --- Policy owners' equity Beginning of period........ 48 153 550 537 -- 22 --- ---- ----- ----- --- --- End of period.............. $63 $241 $ 545 $ -- $22 $25 === ==== ===== ===== === ===
Deutsche Asset Management VIT Funds ----------------------------- Deutsche VIT Deutsche VIT EAFE Equity Small Cap Index Index Subaccount (b) Subaccount (b) -------------- -------------- Operations Net investment income (loss).................... $-- $-- Net realized gain (loss) on sale of investments....... -- -- Change in unrealized appreciation (depreciation) of investments............... -- -- --- --- Net increase (decrease) in policy owners' equity resulting from operations............. -- -- --- --- Policy owners' equity transactions Proceeds from sales........ -- -- Net transfer (to) from affiliate and subaccounts. 2 3 Payments for redemptions... -- -- --- --- Net increase (decrease) from policy owners' equity transactions.... 2 3 --- --- Total increase (decrease) in policy owners' equity......... 2 3 --- --- Policy owners' equity Beginning of period........ -- -- --- --- End of period.............. $ 2 $ 3 === ===
- -------- (b)For the period (commencement of operations): August 21, 2001--Deutsche VIT EAFE Equity Index Subaccount and August 10, 2001--Deutsche VIT Small Cap Subaccount to December 31, 2001. See accompanying notes to financial statements. 71 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
Dreyfus Dreyfus Socially Life & Responsible Dreyfus Annuity Growth Investment Dreyfus Variable Fidelity Variable Index Fund Fund, Inc. Portfolios Investment Fund Insurance Products Fund ---------- ----------- ---------- ---------------------- ------------------------------- Dreyfus Socially Dreyfus Dreyfus Responsible I.P. Dreyfus Fidelity Fidelity Fidelity Stock Growth Mid Cap Dreyfus VIF VIF VIP Equity VIP VIP High Index Fund Fund Stock Appreciation Small Cap Income Growth Income Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ----------- ---------- ------------ ---------- ---------- ---------- ---------- Operations Net investment income (loss)........ $(8) $ (4) $ (1) $(3) $(10) $(36) $(22) $ (5) Net realized gain (loss) on sale of investments........................ (1) (2) (2) -- (1) (2) (2) (3) Change in unrealized appreciation (depreciation) of investments...... 1 (25) 8 -- (4) (16) (13) (4) --- ---- ---- --- ---- ---- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations....... (8) (31) 5 (3) (15) (54) (37) (12) --- ---- ---- --- ---- ---- ---- ---- Policy owners' equity transactions Proceeds from sales................. 34 39 19 12 94 116 94 18 Net transfer (to) from affiliate and subaccounts........................ 58 71 245 19 74 101 121 39 Payments for redemptions............ -- (7) (3) -- -- (13) (1) (4) --- ---- ---- --- ---- ---- ---- ---- Net increase (decrease) from policy owners' equity transactions.................... 92 103 261 31 168 204 214 53 --- ---- ---- --- ---- ---- ---- ---- Total increase (decrease) in policy owners' equity........... 84 72 266 28 153 150 177 41 --- ---- ---- --- ---- ---- ---- ---- Policy owners' equity Beginning of period................. 3 77 40 1 8 174 18 16 --- ---- ---- --- ---- ---- ---- ---- End of period....................... $87 $149 $306 $29 $161 $324 $195 $ 57 === ==== ==== === ==== ==== ==== ====
- -------- (b)For the period (commencement of operations): August 21, 2001--Deutsche VIT EAFE Equity Index Subaccount and August 10, 2001--Deutsche VIT Small Cap Subaccount to December 31, 2001. See accompanying notes to financial statements. 72 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
Fidelity Variable Insurance Fidelity Variable Products Franklin Templeton Variable Insurance Products Fund II Fund III Insurance Products Trust ------------------------------- ------------- --------------------------------------------- Fidelity Templeton Templeton Fidelity Fidelity Fidelity VIP III Templeton Developing Global Templeton VIP VIP II VIP II Growth Asset Markets Income International Overseas Contrafund Index 500 Opportunities Strategy Securities Securities Securities Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- Operations Net investment income (loss)....... $(2) $ (244) $ (251) $(101) $-- $(4) $-- $ 1 Net realized gain (loss) on sale of investments....................... -- (33) (10) (18) (1) (1) -- -- Change in unrealized appreciation (depreciation) of investments....................... (3) (212) (167) (65) -- (1) -- (2) --- ------ ------ ----- --- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations...... (5) (489) (428) (184) (1) (6) -- (1) --- ------ ------ ----- --- --- --- --- Policy owners' equity transactions Proceeds from sales................ 11 673 605 247 4 9 -- 4 Net transfer (to) from affiliate and subaccounts................... 11 (1) 8 (20) 5 3 6 6 Payments for redemptions........... -- (84) (67) (30) -- -- -- -- --- ------ ------ ----- --- --- --- --- Net increase (decrease) from policy owners' equity transactions................... 22 588 546 197 9 12 6 10 --- ------ ------ ----- --- --- --- --- Total increase (decrease) in policy owners' equity.......... 17 99 118 13 8 6 6 9 --- ------ ------ ----- --- --- --- --- Policy owners' equity Beginning of period................ 8 1,518 1,271 523 -- 13 -- 4 --- ------ ------ ----- --- --- --- --- End of period...................... $25 $1,617 $1,389 $ 536 $ 8 $19 $ 6 $13 === ====== ====== ===== === === === ===
- -------- (c)For the period (commencement of operations): June 5, 2001--INVESCO Dynamics Subaccount and INVESCO Technology Subaccount; June 15, 2001 INVESCO Financial Services Subaccount; and July 24, 2001--INVESCO Telecommunications Subaccount to December 31, 2001. See accompanying notes to financial statements. 73 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
INVESCO Variable Investment Funds, Inc. ---------------------------------------------------------------------- INVESCO INVESCO INVESCO INVESCO VIF INVESCO VIF VIF Financial VIF Telecommuni- VIF Dynamics Services Technology cations Utilities Subaccount (c) Subaccount (c) Subaccount (c) Subaccount (c) Subaccount -------------- -------------- -------------- -------------- ---------- Operations Net investment income (loss).......... $(1) $(1) $(2) $(1) $-- Net realized gain (loss) on sale of investments............ -- -- -- -- -- Change in unrealized appreciation (depreciation) of investments............ 1 1 2 -- -- --- --- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations.......... -- -- -- (1) -- --- --- --- --- --- Policy owners' equity transactions Proceeds from sales..... 3 11 13 2 -- Net transfer (to) from affiliate and subaccounts............ 7 15 22 6 -- Payments for redemptions............ -- -- -- -- -- --- --- --- --- --- Net increase (decrease) from policy owners' equity transactions........ 10 26 35 8 -- --- --- --- --- --- Total increase (decrease) in policy owners' equity.............. 10 26 35 7 -- --- --- --- --- --- Policy owners' equity Beginning of period..... -- -- -- -- -- --- --- --- --- --- End of period........... $10 $26 $35 $ 7 $-- === === === === ===
Janus Aspen Series --------------------------------- Janus Aspen Janus Janus Aspen Aggressive Aspen Capital Growth Balanced Appreciation Subaccount Subaccount Subaccount ---------- ---------- ------------ Operations Net investment income (loss).......... $ (60) $(23) $(186) Net realized gain (loss) on sale of investments............ (25) (1) (25) Change in unrealized appreciation (depreciation) of investments............ (62) (5) (65) ----- ---- ----- Net increase (decrease) in policy owners' equity resulting from operations.......... (147) (29) (276) ----- ---- ----- Policy owners' equity transactions Proceeds from sales..... 259 108 447 Net transfer (to) from affiliate and subaccounts............ 220 145 8 Payments for redemptions............ (4) (1) (13) ----- ---- ----- Net increase (decrease) from policy owners' equity transactions........ 475 252 442 ----- ---- ----- Total increase (decrease) in policy owners' equity.............. 328 223 166 ----- ---- ----- Policy owners' equity Beginning of period..... 71 15 319 ----- ---- ----- End of period........... $ 399 $238 $ 485 ===== ==== =====
- -------- (c)For the period (commencement of operations): June 5, 2001--INVESCO Dynamics Subaccount and INVESCO Technology Subaccount; June 15, 2001 INVESCO Financial Services Subaccount; and July 24, 2001--INVESCO Telecommunications Subaccount to December 31, 2001. See accompanying notes to financial statements. 74 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
PIMCO Variable Janus Aspen Series Insurance Trust Scudder Variable Series I --------------------------------------------- ------------------------ ------------------------ Janus Janus Aspen Janus Janus Aspen Aspen PIMCO Scudder Flexible Aspen International Worldwide PIMCO Low Duration 21st Century Scudder Income Growth Growth Growth Foreign Bond Bond Growth Bond Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ---------- ------------ ------------ ------------ ---------- Operations Net investment income (loss).. $(1) $ (54) $(28) $(43) $(5) $(5) $ (2) $(7) Net realized gain (loss) on sale of investments.......... -- (19) (2) (12) -- -- (16) -- Change in unrealized appreciation (depreciation) of investments............... -- (49) (14) (28) 1 -- (27) -- --- ----- ---- ---- --- --- ---- --- Net increase (decrease) in policy owners' equity resulting from operations................ (1) (122) (44) (83) (4) (5) (45) (7) --- ----- ---- ---- --- --- ---- --- Policy Owners' Equity Transactions Proceeds from sales........... 8 201 109 167 12 12 -- 16 Net transfer (to) from affiliate and subaccounts.... 17 211 80 201 -- -- 30 -- Payments for redemptions...... -- (4) (1) (3) (2) -- (2) (1) --- ----- ---- ---- --- --- ---- --- Net increase (decrease) from policy owners' equity transactions....... 25 408 188 365 10 12 28 15 --- ----- ---- ---- --- --- ---- --- Total increase (decrease) in policy owners' equity.................... 24 286 144 281 6 7 (17) 8 --- ----- ---- ---- --- --- ---- --- Policy Owners' Equity Beginning of period........... -- 109 28 83 17 7 172 11 --- ----- ---- ---- --- --- ---- --- End of period................. $24 $ 395 $172 $365 $23 $14 $155 $19 === ===== ==== ==== === === ==== ===
- -------- (d)For the period (commencement of operations): October 15, 2001-December 31, 2001. See accompanying notes to financial statements. 75 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Scudder Variable Series I Series II ----------------------------------------------------------------------- -------------------- Scudder Scudder Scudder Growth Scudder Scudder Scudder Capital Global and Health Scudder Money Aggressive Scudder Growth Discovery Income Sciences International Market Growth Blue Chip Subaccount Subaccount Subaccount Subaccount (d) Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- -------------- ------------- ---------- ---------- ---------- Operations Net investment income (loss)..... $ 28 $ 1 $ (87) $-- $ 8 $(2) $ -- $ (2) Net realized gain (loss) on sale of investments.................. (17) (25) (11) -- (27) -- (25) (23) Change in unrealized appreciation (depreciation) of investments..................... (75) (59) (45) -- (161) -- (48) (43) ---- ---- ----- --- ----- --- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations................... (64) (83) (143) -- (180) (2) (73) (68) ---- ---- ----- --- ----- --- ---- ---- Policy Owners' Equity Transactions Proceeds from sales.............. 17 107 273 -- 153 10 110 160 Net transfer (to) from affiliate and subaccounts................. 49 216 77 10 49 2 223 221 Payments for redemptions......... (4) (7) (17) -- (17) (3) (8) (17) ---- ---- ----- --- ----- --- ---- ---- Net increase (decrease) from policy owners' equity transactions.......... 62 316 333 10 185 9 325 364 ---- ---- ----- --- ----- --- ---- ---- Total increase (decrease) in policy owners' equity........ (2) 233 190 10 5 7 252 296 ---- ---- ----- --- ----- --- ---- ---- Policy Owners' Equity Beginning of period.............. 268 212 309 -- 329 18 160 241 ---- ---- ----- --- ----- --- ---- ---- End of period.................... $266 $445 $ 499 $10 $ 334 $25 $412 $537 ==== ==== ===== === ===== === ==== ====
- -------- (d)For the period (commencement of operations): October 15, 2001-December 31, 2001. See accompanying notes to financial statements. 76 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II -------------------------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Scudder Global Government Scudder Scudder Horizon Horizon Scudder Contrarian Value Blue Chip Securities Growth High Yield 10+ 20+ Horizon 5 Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss)................. $ -- $ 2 $ 69 $ 46 $ 47 $-- $-- $10 Net realized gain (loss) on sale of investments. 1 (3) 19 (928) (86) -- -- (6) Change in unrealized appreciation (depreciation) of investments............ 1 (16) 144 7 1 -- -- -- ---- ---- ------ ------ ----- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations..... 2 (17) 232 (875) (38) -- -- 4 ---- ---- ------ ------ ----- --- --- --- Policy owners' equity transactions Proceeds from sales..... 11 43 70 385 97 -- -- -- Net transfer (to) from affiliate and subaccounts............ 107 77 13 307 98 -- -- (4) Payments for redemptions............ (1) (2) (18) (313) (116) -- -- -- ---- ---- ------ ------ ----- --- --- --- Net increase (decrease) from policy owners' equity transactions........ 117 118 65 379 79 -- -- (4) ---- ---- ------ ------ ----- --- --- --- Total increase (decrease) in policy owners' equity.............. 119 101 297 (496) 41 -- -- -- ---- ---- ------ ------ ----- --- --- --- Policy owners' equity Beginning of period..... 7 99 5,055 3,015 650 -- -- -- ---- ---- ------ ------ ----- --- --- --- End of period........... $126 $200 $5,352 $2,519 $ 691 $-- $-- $-- ==== ==== ====== ====== ===== === === ===
See accompanying notes to financial statements. 77 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2001 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------------------- Scudder Scudder Investment Scudder Scudder Scudder Scudder Scudder Scudder International Grade Money New Small Cap Small Cap Strategic Technology Research Bond Market Europe Growth Value Income Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss).... $ 1 $ 5 $ (225) -- $ (68) $ -- $-- $ (2) Net realized gain (loss) on sale of investments................. (24) 1 -- (1) (104) -- -- (111) Change in unrealized appreciation (depreciation) of investments................. (121) -- -- (16) (1,008) 7 -- (21) ----- ---- ------- ---- ------- ---- --- ----- Net increase (decrease) in policy owners' equity resulting from operations.................. (144) 6 (225) (17) (1,180) 7 -- (134) ----- ---- ------- ---- ------- ---- --- ----- Policy owners' equity transactions Proceeds from sales............. 122 21 9,065 30 1,085 31 -- 95 Net transfer (to) from affiliate and subaccounts................ 39 408 (4,813) 27 227 76 2 239 Payments for redemptions........ (24) (15) (2,982) (1) (201) (1) -- (12) ----- ---- ------- ---- ------- ---- --- ----- Net increase (decrease) from policy owners' equity transactions......... 137 414 1,270 56 1,111 106 2 322 ----- ---- ------- ---- ------- ---- --- ----- Total increase (decrease) in policy owners' equity...................... (7) 420 1,045 39 (69) 113 2 188 ----- ---- ------- ---- ------- ---- --- ----- Policy owners' equity Beginning of period............. 371 12 1,686 30 2,581 -- -- 270 ----- ---- ------- ---- ------- ---- --- ----- End of period................... $ 364 $432 $ 2,731 $ 69 $ 2,512 $113 $ 2 $ 458 ===== ==== ======= ==== ======= ==== === =====
See accompanying notes to financial statements. 78 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the years ended December 31, 2001 (in thousands)
Scudder Variable Series II ------------------------------------------------------------------------------------------------- SVS SVS Dreman SVS SVS Scudder Dreman High SVS Focused Growth SVS Total Financial Return Dynamic SVS Focus Large Cap and Growth Return Services Equity Growth Value + Growth Growth Income Opportunities Subaccount Subaccount Subaccount Subaccount (e) Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- -------------- -------------- ---------- ---------- ------------- Operations Net investment income (loss)........ $ 119 $ 1 $ (69) $-- $ -- $ -- $ (2) $ (4) Net realized gain (loss) on sale of investments.......... (422) -- 10 -- (2) (7) (15) (50) Change in unrealized appreciation (depreciation) of investments.......... 18 1 (22) -- (16) (39) (34) (59) ------ ---- ------ --- ---- ---- ---- ----- Net increase (decrease) in policy owners' equity resulting from operations........ (285) 2 (81) -- (18) (46) (51) (113) ------ ---- ------ --- ---- ---- ---- ----- Policy owners' equity transactions Proceeds from sales... 229 27 212 -- 61 29 104 36 Net transfer (to) from affiliate and subaccounts.......... 717 235 835 1 82 375 366 79 Payments for redemptions.......... (228) (2) (14) -- (3) (4) (9) (8) ------ ---- ------ --- ---- ---- ---- ----- Net increase (decrease) from policy owners' equity transactions...... 718 260 1,033 1 140 400 461 107 ------ ---- ------ --- ---- ---- ---- ----- Total increase (decrease) in policy owners' equity............ 433 262 952 1 122 354 410 (6) ------ ---- ------ --- ---- ---- ---- ----- Policy owners' equity. Beginning of period... 3,037 36 243 -- 46 127 223 355 ------ ---- ------ --- ---- ---- ---- ----- End of period......... $3,470 $298 $1,195 $ 1 $168 $481 $633 $ 349 ====== ==== ====== === ==== ==== ==== =====
- -------- (e)For the period (commencement of operations): November 13, 2001--SVS Dynamic Growth Subaccount; December 17, 2001--SVS MidCap Growth Subaccount and SVS Strategic Equity Subaccount and October 15, 2001--SVS Venture Value Subaccount to December 31, 2001. See accompanying notes to financial statements. 79 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the years ended December 31, 2001 (in thousands)
Scudder Variable Series II ------------------------------------------------------- SVS Index SVS Mid Cap SVS Strategic SVS Venture 500 Growth Equity Value Subaccount Subaccount (e) Subaccount (e) Subaccount (e) ---------- -------------- -------------- -------------- Operations Net investment income (loss)........................................ $ -- $-- $-- $ -- Net realized gain (loss) on sale of investments..................... (28) -- -- -- Change in unrealized appreciation (depreciation) of investments..... (14) -- -- 8 ---- --- --- ---- Net increase (decrease) in policy owners' equity resulting from operations...................................................... (42) -- -- 8 ---- --- --- ---- Policy owners' equity transactions Proceeds from sales................................................. 401 -- -- -- Net transfer (to) from affiliate and subaccounts.................... 201 4 3 156 Payments for redemptions............................................ (21) -- -- -- ---- --- --- ---- Net increase (decrease) from policy owners' equity transactions.. 581 4 3 156 ---- --- --- ---- Total increase (decrease) in policy owners' equity............... 539 4 3 164 ---- --- --- ---- Policy owners' equity Beginning of period................................................. 210 -- -- -- ---- --- --- ---- End of period....................................................... $749 $ 4 $ 3 $164 ==== === === ====
- -------- (e)For the period (commencement of operations): November 13, 2001--SVS Dynamic Growth Subaccount; December 17, 2001--SVS MidCap Growth Subaccount and SVS Strategic Equity Subaccount and October 15, 2001--SVS Venture Value Subaccount to December 31, 2001. See accompanying notes to financial statements. 80 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY For the year ended December 31, 2000 (in thousands)
The Alger American Fund American Skandia Trust ----------------------------------------------------- ----------------------- Alger American Alger Alger AST Total Alger Alger Income American American AST American KILICO American American and Leveraged MidCap Alliance Century Variable Balanced Growth Growth AllCap Growth Growth & International Separate Subaccount Subaccount Subaccount Subaccount Subaccount Income Growth II Account (a) (a) (a) (a) (a) Subaccount Subaccount -------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- Operations Net investment income (loss).......... $ 2,370 $ -- $-- $-- $ -- $-- $ 116 $ 53 Net realized gain (loss) on sale of investments.......................... 311 -- -- -- -- -- 1 7 Change in unrealized appreciation (depreciation) of investments........ (8,646) (2) (4) -- (21) (2) (58) (171) ------- ---- --- --- ---- --- ------ ----- Net increase (decrease) in policy owners' equity resulting from operations........................ (5,955) (2) (4) -- (21) (2) 59 (111) ------- ---- --- --- ---- --- ------ ----- Policy owners' equity transactions Proceeds from sales................... 18,537 2 7 3 -- 18 452 205 Net transfer (to) from affiliate and subaccounts.......................... 1,174 142 40 5 90 50 (27) (27) Payments for redemptions.............. (9,909) -- (1) -- -- (2) (220) (103) ------- ---- --- --- ---- --- ------ ----- Net increase (decrease) from policy owners' equity transactions...................... 9,802 144 46 8 90 66 205 75 ------- ---- --- --- ---- --- ------ ----- Total increase (decrease) in policy owners' equity............. 3,837 142 42 8 69 64 264 (36) ------- ---- --- --- ---- --- ------ ----- Policy owners' equity Beginning of period................... 33,321 -- -- -- -- -- 1,039 573 ------- ---- --- --- ---- --- ------ ----- End of period......................... $37,158 $142 $42 $ 8 $ 69 $64 $1,303 $ 537 ======= ==== === === ==== === ====== =====
- -------- (a)For the period (commencement of operations): July 1, 2000--Alger American Balanced Subaccount; July 25, 2000--Alger American Growth Subaccount; July 31, 2000--Alger American Income and Growth Subaccount; August 15, 2000--Alger American Leveraged AllCap Subaccount and June 22, 2000--Alger American MidCap Growth Subaccount to December 31, 2001. See accompanying notes to financial statements. 81 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Credit Suisse American Skandia Trust Trust --------------------------------------------------------------------------- ---------- AST AST Credit AST AST AST PIMCO PIMCO AST T. Suisse INVESCO AST Neuberger PBHG Limited Total Rowe Price Trust Equity JanCap Mid-Cap Small Cap Maturity Return Asset Emerging Income Growth Growth Growth Bond Bond Allocation Markets Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss)........ $ 57 $ 553 $ 25 $ 157 $ 1 $ 5 $ 11 $-- Net realized gain (loss) on sale of investments........................ 2 157 34 26 -- (1) 9 -- Change in unrealized appreciation (depreciation) of investments...... (32) (3,566) (301) (1,066) 1 9 (28) -- ----- ------- ------ ------- --- ---- ----- --- Net increase (decrease) in policy owners' equity resulting from operations....... 27 (2,856) (242) (883) 2 13 (8) -- ----- ------- ------ ------- --- ---- ----- --- Policy owners' equity transactions Proceeds from sales................. 348 3,120 659 398 17 59 224 -- Net transfer (to) from affiliate and subaccounts........................ (40) 459 268 60 (4) (11) (15) -- Payments for redemptions............ (157) (1,528) (340) (238) (8) (25) (121) -- ----- ------- ------ ------- --- ---- ----- --- Net increase (decrease) from policy owners' equity transactions.................... 151 2,051 587 220 5 23 88 -- ----- ------- ------ ------- --- ---- ----- --- Total increase (decrease) in policy owners' equity........... 178 (805) 345 (663) 7 36 80 -- ----- ------- ------ ------- --- ---- ----- --- Policy owners' equity Beginning of period................. 698 7,299 1,548 1,527 41 117 470 -- ----- ------- ------ ------- --- ---- ----- --- End of period....................... $ 876 $ 6,494 $1,893 $ 864 $48 $153 $ 550 $-- ===== ======= ====== ======= === ==== ===== ===
- -------- (a)For the period (commencement of operations): July 1, 2000--Alger American Balanced Subaccount; July 25, 2000--Alger American Growth Subaccount; July 31, 2000--Alger American Income and Growth Subaccount; August 15, 2000--Alger American Leveraged AllCap Subaccount and June 22, 2000--Alger American MidCap Growth Subaccount to December 31, 2001. See accompanying notes to financial statements. 82 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Dreyfus Dreyfus Socially Life & Responsible Dreyfus Fidelity Variable Credit Suisse Annuity Growth Investment Dreyfus Variable Insurance Products Trust Index Fund Fund, Inc. Portfolios Investment Fund Fund ------------- ---------- ----------- ---------- ----------------------- -------------------- Dreyfus Credit Suisse Socially Trust Global Dreyfus Responsible Dreyfus Dreyfus Fidelity Post-Venture Stock Growth I.P. Mid Dreyfus VIF VIF Small Fidelity VIP Capital Index Fund Fund Cap Stock Appreciation Cap VIP Equity Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Income Subaccount (b) (b) (b) (b) (b) (b) Subaccount (b) ------------- ---------- ----------- ---------- ------------ ---------- ---------- ---------- Operations Net investment income (loss)....... $ 3 $-- $-- $ 1 $-- $-- $ 8 $-- Net realized gain (loss) on sale of investments....................... (1) -- -- (1) -- -- (1) -- Change in unrealized appreciation (depreciation) of investments....................... (7) -- (3) (1) -- -- 5 -- --- --- ---- --- --- --- ----- --- Net increase (decrease) in policy owners' equity resulting from operations...... (5) -- (3) (1) -- -- 12 -- --- --- ---- --- --- --- ----- --- Policy owners' equity transactions Proceeds from sales................ -- 1 -- 6 1 -- 91 6 Net transfer (to) from affiliate and subaccounts................... 27 2 80 35 -- 8 (12) 13 Payments for redemptions........... -- -- -- -- -- -- (43) (1) --- --- ---- --- --- --- ----- --- Net increase (decrease) from policy owners' equity transactions................... 27 3 80 41 1 8 36 18 --- --- ---- --- --- --- ----- --- Total increase (decrease) in policy owners' equity.......... 22 3 77 40 1 8 48 18 --- --- ---- --- --- --- ----- --- Policy owners' equity Beginning of period................ -- -- -- -- -- -- 126 -- --- --- ---- --- --- --- ----- --- End of period...................... $22 $ 3 $77 $40 $ 1 $ 8 $174 $18 === === ==== === === === ===== ===
- -------- (b)For the period (commencement of operations): September 27, 2000--Credit Suisse Global Post-Venture Capital Subaccount; June 27, 2000--Dreyfus Stock Index Fund Subaccount; August 29, 2000--The Dreyfus Socially Responsible Growth Fund Subaccount; September 5, 2000--Dreyfus I.P. MidCap Stock Subaccount; August 14, 2000--Dreyfus VIF Appreciation Subaccount; August 10, 2000--Dreyfus VIF Small Cap Subaccount; June 21, 2000--Fidelity VIP Growth Subaccount; September 18, 2000--Fidelity VIP Overseas Subaccount and May 10, 2000--Templeton Developing Markets Securities Subaccount to December 31, 2000. See accompanying notes to financial statements. 83 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Fidelity Variable Fidelity Variable Fidelity Variable Insurance Insurance Products Insurance Products Products Franklin Templeton Variable Fund Fund II Fund III Insurance Products Trust --------------------- -------------------- ------------- -------------------------------- Templeton Fidelity Developing Templeton Fidelity VIP Fidelity Fidelity Fidelity VIP Templeton Markets Global VIP High Overseas VIP II VIP II III Growth Asset Securities Income Income Subaccount Contrafund Index 500 Opportunities Strategy Subaccount Securities Subaccount (b) Subaccount Subaccount Subaccount Subaccount (b) Subaccount ---------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- Operations Net investment income (loss)........ $ 1 $-- $ 120 $ 9 $ 27 $-- $-- $-- Net realized gain (loss) on sale of investments........................ (1) -- 4 6 (5) -- -- -- Change in unrealized appreciation (depreciation) of investments...... (4) -- (240) (139) (118) -- (1) -- --- --- ------ ------ ----- --- --- --- Net increase (decrease) in policy owners' equity resulting from operations....... (4) -- (116) (124) (96) -- (1) -- --- --- ------ ------ ----- --- --- --- Policy owners' equity transactions Proceeds from sales................. 12 1 780 724 299 -- 2 -- Net transfer (to) from affiliate and subaccounts........................ (1) 7 135 75 38 -- 12 -- Payments for redemptions............ (5) -- (289) (280) (114) -- -- -- --- --- ------ ------ ----- --- --- --- Net increase (decrease) from policy owners' equity transactions.................... 6 8 626 519 223 -- 14 -- --- --- ------ ------ ----- --- --- --- Total increase (decrease) in policy owners' equity........... 2 8 510 395 127 -- 13 -- --- --- ------ ------ ----- --- --- --- Policy owners' equity Beginning of period................. 14 -- 1,008 876 396 -- -- -- --- --- ------ ------ ----- --- --- --- End of period....................... $16 $ 8 $1,518 $1,271 $ 523 $-- $13 $-- === === ====== ====== ===== === === ===
- -------- (b)For the period (commencement of operations): September 27, 2000--Credit Suisse Global Post-Venture Capital Subaccount; June 27, 2000--Dreyfus Stock Index Fund Subaccount; August 29, 2000--The Dreyfus Socially Responsible Growth Fund Subaccount; September 5, 2000--Dreyfus I.P. MidCap Stock Subaccount; August 14, 2000--Dreyfus VIF Appreciation Subaccount; August 10, 2000--Dreyfus VIF Small Cap Subaccount; June 21, 2000--Fidelity VIP Growth Subaccount; September 18, 2000--Fidelity VIP Overseas Subaccount and May 10, 2000--Templeton Developing Markets Securities Subaccount to December 31, 2000. See accompanying notes to financial statements. 84 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Franklin Templeton Variable Insurance Products Trust Janus Aspen Series ------------- -------------------------------------------------------------------------------- Janus Janus Templeton Aspen Janus Janus Janus Janus Aspen Aspen International Aggressive Aspen Janus Aspen Aspen Aspen International Worldwide Securities Growth Balanced Capital Flexible Growth Growth Growth Subaccount Subaccount Subaccount Appreciation Income Subaccount Subaccount Subaccount (c) (c) (c) Subaccount Subaccount (c) (c) (c) ------------- ---------- ---------- ------------ ---------- ---------- ------------- ---------- Operations Net investment income (loss)..... $-- $ -- $-- $ 2 $-- $ 1 $-- $ 1 Net realized gain (loss) on sale of investments.................. -- -- -- -- -- -- -- -- Change in unrealized appreciation (depreciation) of investments..................... -- (14) -- (61) -- (14) (2) (10) --- ---- --- ----- --- ---- --- ---- Net increase (decrease) in policy owners' equity resulting from operations.... -- (14) -- (59) -- (13) (2) (9) --- ---- --- ----- --- ---- --- ---- Policy owners' equity transactions Proceeds from sales.............. -- 31 9 316 -- 45 7 31 Net transfer (to) from affiliate and subaccounts................. 4 59 8 172 -- 83 23 65 Payments for redemptions......... -- (5) (2) (137) -- (6) -- (4) --- ---- --- ----- --- ---- --- ---- Net increase (decrease) from policy owners' equity transactions.......... 4 85 15 351 -- 122 30 92 --- ---- --- ----- --- ---- --- ---- Total increase (decrease) in policy owners' equity........ 4 71 15 292 -- 109 28 83 --- ---- --- ----- --- ---- --- ---- Policy owners' equity Beginning of period.............. -- -- -- 27 -- -- -- -- --- ---- --- ----- --- ---- --- ---- End of period.................... $ 4 $ 71 $15 $ 319 -- $109 $28 $ 83 === ==== === ===== === ==== === ====
- -------- (c)For the period (commencement of operations): May 10, 2000--Templeton International Securities Subaccount, Janus Aspen Aggressive Growth Subaccount, Janus Aspen Growth Subaccount and Janus Aspen International Growth Subaccount; April 15, 2000--Janus Aspen Balanced Subaccount; May 25, 2000--Janus Aspen Worldwide Growth Subaccount; August 28, 2000--Scudder 21st Century Growth Subaccount; July 25, 2000--Scudder Capital Growth Subaccount and July 17, 2000--Scudder Global Discovery Subaccount to December 31, 2000. See accompanying notes to financial statements. 85 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
PIMCO Variable Insurance Trust Scudder Variable Series I -------------------- ------------------------------------------------------------------- Scudder PIMCO 21st Scudder Scudder Scudder PIMCO Low Century Capital Global Growth Foreign Duration Growth Scudder Growth Discovery and Scudder Bond Bond Subaccount Bond Subaccount Subaccount Income International Subaccount Subaccount (c) Subaccount (c) (c) Subaccount Subaccount ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- Operations Net investment income (loss)........ $ 1 $-- $ (1) $-- $ -- $ (1) $ 3 $ 13 Net realized gain (loss) on sale of investments........................ -- -- (3) -- (2) -- (1) (2) Change in unrealized appreciation (depreciation) of investments...... -- -- (23) 1 (14) (1) (10) (57) --- --- ---- --- ---- ---- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations....... 1 -- (27) 1 (16) (2) (8) (46) --- --- ---- --- ---- ---- ---- ---- Policy owners' equity transactions Proceeds from sales................. 13 7 78 9 77 83 160 124 Net transfer (to) from affiliate and subaccounts........................ 6 3 122 4 207 131 157 203 Payments for redemptions............ (5) (3) (1) (4) -- -- (69) (45) --- --- ---- --- ---- ---- ---- ---- Net increase (decrease) from policy owners' equity transactions.................... 14 7 199 9 284 214 248 282 --- --- ---- --- ---- ---- ---- ---- Total increase (decrease) in policy owners' equity........... 15 7 172 10 268 212 240 236 --- --- ---- --- ---- ---- ---- ---- Policy owners' equity Beginning of period................. 2 -- -- 1 -- -- 69 93 --- --- ---- --- ---- ---- ---- ---- End of period....................... $17 $ 7 $172 $11 $268 $212 $309 $329 === === ==== === ==== ==== ==== ====
- -------- (c)For the period (commencement of operations): May 10, 2000--Templeton International Securities Subaccount, Janus Aspen Aggressive Growth Subaccount, Janus Aspen Growth Subaccount and Janus Aspen International Growth Subaccount; April 15, 2000--Janus Aspen Balanced Subaccount; May 25, 2000--Janus Aspen Worldwide Growth Subaccount; August 28, 2000--Scudder 21st Century Growth Subaccount; July 25, 2000--Scudder Capital Growth Subaccount and July 17, 2000--Scudder Global Discovery Subaccount to December 31, 2000. See accompanying notes to financial statements. 86 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Scudder Variable Series I Scudder Variable Series II ---------- --------------------------------------------------------------------------- Scudder Scudder Scudder Scudder Aggressive Scudder Contrarian Global Scudder Money Growth Blue Chip Value Blue Chip Government Scudder Scudder Market Subaccount Subaccount Subaccount Subaccount Securities Growth High Yield Subaccount (d) (d) (d) (d) Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss)........ $ (5) $ (1) $ -- $-- $-- $ 253 $ 314 $ 106 Net realized gain (loss) on sale of investments........................ -- -- (1) -- -- (5) 194 (64) Change in unrealized appreciation (depreciation) of investments...... -- (19) (14) 1 -- 168 (1,387) (114) ----- ---- ---- --- --- ------ ------- ----- Net increase (decrease) in policy owners' equity resulting from operations....... (5) (20) (15) 1 -- 416 (879) (72) ----- ---- ---- --- --- ------ ------- ----- Policy owners' equity transactions Proceeds from sales................. 894 84 49 -- 30 31 440 105 Net transfer (to) from affiliate and subaccounts........................ (356) 97 208 6 69 511 310 (36) Payments for redemptions............ (551) (1) (1) -- -- (207) (980) (319) ----- ---- ---- --- --- ------ ------- ----- Net increase (decrease) from policy owners' equity transactions.................... (13) 180 256 6 99 335 (230) (250) ----- ---- ---- --- --- ------ ------- ----- Total increase (decrease) in policy owners' equity........... (18) 160 241 7 99 751 (1,109) (322) ----- ---- ---- --- --- ------ ------- ----- Policy owners' equity Beginning of period................. 36 -- -- -- -- 4,304 4,124 972 ----- ---- ---- --- --- ------ ------- ----- End of period....................... $ 18 $160 $241 $ 7 $99 $5,055 $ 3,015 $ 650 ===== ==== ==== === === ====== ======= =====
- -------- (d)For the period (commencement of operations): July 17, 2000--Scudder Aggressive Growth Subaccount; May 22, 2000--Scudder Blue Chip Subaccount; September 15, 2000--Scudder Contrarian Value Subaccount; July 31, 2000--Scudder Global Blue Chip Subaccount; May 22, 2000--Scudder Investment Grade Bond Subaccount and July 1, 2000--Scudder New Europe Subaccount to December 31, 2000. See accompanying notes to financial statements. 87 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Scudder Variable Series II ----------------------------------------------------------------------------------------- Scudder Investment Scudder Scudder Scudder Scudder Grade Scudder New Scudder Horizon Horizon Scudder International Bond Money Europe Small Cap 10+ 20+ Horizon 5 Research Subaccount Market Subaccount Growth Subaccount Subaccount Subaccount Subaccount (d) Subaccount (d) Subaccount ---------- ---------- ---------- ------------- ---------- ---------- ---------- ---------- Operations Net investment income (loss)........ $-- $-- $-- $ 48 $-- $ 29 $-- $ 232 Net realized gain (loss) on sale of investments........................ -- -- -- 3 -- -- -- 46 Change in unrealized appreciation (depreciation) of investments...... -- -- -- (141) 1 -- -- (673) --- --- --- ----- --- ------- --- ------ Net increase (decrease) in policy owners' equity resulting from operations....... -- -- -- (90) 1 29 -- (395) --- --- --- ----- --- ------- --- ------ Policy owners' equity transactions Proceeds from sales................. -- -- -- 152 -- 6,957 -- 1,005 Net transfer (to) from affiliate and subaccounts........................ -- -- -- 7 11 (4,285) 31 320 Payments for redemptions............ -- -- -- (76) -- (2,946) (1) (520) --- --- --- ----- --- ------- --- ------ Net increase (decrease) from policy owners' equity transactions.................... -- -- -- 83 11 (274) 30 805 --- --- --- ----- --- ------- --- ------ Total increase (decrease) in policy owners' equity........... -- -- -- (7) 12 (245) 30 410 --- --- --- ----- --- ------- --- ------ Policy owners' equity Beginning of period................. -- -- -- 378 -- 1,931 -- 2,171 --- --- --- ----- --- ------- --- ------ End of period....................... $-- $-- $-- $ 371 $12 $ 1,686 $30 $2,581 === === === ===== === ======= === ======
- -------- (d)For the period (commencement of operations): July 17, 2000--Scudder Aggressive Growth Subaccount; May 22, 2000--Scudder Blue Chip Subaccount; September 15, 2000--Scudder Contrarian Value Subaccount; July 31, 2000--Scudder Global Blue Chip Subaccount; May 22, 2000--Scudder Investment Grade Bond Subaccount and July 1, 2000--Scudder New Europe Subaccount to December 31, 2000. See accompanying notes to financial statements. 88 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Scudder Variable Series II -------------------------------------------------------------------------------------- SVS SVS Scudder Dreman Dreman SVS Focus Scudder Scudder Technology Scudder Financial High SVS Value + Small Cap Strategic Growth Total Services Return Dynamic Growth Value Income Subaccount Return Subaccount Equity Growth Subaccount Subaccount Subaccount (e) Subaccount (e) Subaccount Subaccount (e) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operations Net investment income (loss).......... $-- $-- $ (2) $ 236 $-- $ 2 $-- $-- Net realized gain (loss) on sale of investments.......................... -- -- 1 (82) -- -- -- -- Change in unrealized appreciation (depreciation) of investments........ -- -- (92) (338) 3 34 -- (1) --- --- ---- ------ --- ---- --- --- Net increase (decrease) in policy owners' equity resulting from operations........................ -- -- (93) (184) 3 36 -- (1) --- --- ---- ------ --- ---- --- --- Policy owners' equity transactions Proceeds from sales................... -- -- 89 87 -- 102 -- -- Net transfer (to) from affiliate and subaccounts.......................... -- -- 275 168 33 134 -- 47 Payments for redemptions.............. -- -- (1) (499) -- (44) -- -- --- --- ---- ------ --- ---- --- --- Net increase (decrease) from policy owners' equity transactions...................... -- -- 363 (244) 33 192 -- 47 --- --- ---- ------ --- ---- --- --- Total increase (decrease) in policy owners' equity............. -- -- 270 (428) 36 228 -- 46 --- --- ---- ------ --- ---- --- --- Policy owners' equity Beginning of period................... -- -- -- 3,465 -- 15 -- -- --- --- ---- ------ --- ---- --- --- End of period......................... $-- $-- $270 $3,037 $36 $243 $-- $26 === === ==== ====== === ==== === ===
- -------- (e)For the period (commencement of operations): May 22, 2000--Scudder Technology Growth Subaccount; August 29, 2000--SVS Dreman Financial Services Subaccount; July 31, 2000--SVS Focus Value + Growth Subaccount; July 18, 2000--SVS Focused Large Cap Growth Subaccount; July 1, 2000--SVS Growth and Income Subaccount; July 1, 2000--SVS Growth Opportunities Subaccount and May 22, 2000--SVS Index 500 Subaccount to December 31, 2000. See accompanying notes to financial statements. 89 KILICO VARIABLE SEPARATE ACCOUNT STATEMENT OF CHANGES IN POLICY OWNERS' EQUITY (continued) For the year ended December 31, 2000 (in thousands)
Scudder Variable Series II --------------------------------------------- SVS SVS Focused Growth Large Cap and SVS Growth SVS Index Growth Income Opportunities 500 Subaccount Subaccount Subaccount Subaccount (e) (e) (e) (e) ---------- ---------- ------------- ---------- Operations Net investment income (loss)................................................... $ -- $ -- $ (2) $ -- Net realized gain (loss) on sale of investments................................ -- (5) (4) -- Change in unrealized appreciation (depreciation) of investments................ (32) (15) (62) (9) ---- ---- ---- ---- Net increase (decrease) in policy owners' equity resulting from operations.. (32) (20) (68) (9) ---- ---- ---- ---- Policy owners' equity transactions Proceeds from sales............................................................ -- 17 17 49 Net transfer (to) from affiliate and subaccounts............................... 160 227 407 170 Payments for redemptions....................................................... (1) (1) (1) -- ---- ---- ---- ---- Net increase (decrease) from policy owners' equity transactions............. 159 243 423 219 ---- ---- ---- ---- Total increase (decrease) in policy owners' equity.......................... 127 223 355 210 ---- ---- ---- ---- Policy owners' equity Beginning of period............................................................ -- -- -- -- ---- ---- ---- ---- End of period.................................................................. $127 $223 $355 $210 ==== ==== ==== ====
- -------- (e)For the period (commencement of operations): May 22, 2000--Scudder Technology Growth Subaccount; August 29, 2000--SVS Dreman Financial Services Subaccount; July 31, 2000--SVS Focus Value + Growth Subaccount; July 18, 2000--SVS Focused Large Cap Growth Subaccount; July 1, 2000--SVS Growth and Income Subaccount; July 1, 2000--SVS Growth Opportunities Subaccount and May 22, 2000--SVS Index 500 Subaccount to December 31, 2000. See accompanying notes to financial statements. 90 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS (1) General Information and Significant Accounting Policies Organization KILICO Variable Separate Account (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended, established by Kemper Investors Life Insurance Company ("KILICO"). KILICO 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. The Separate Account is used to fund policies ("Policy") for the Kemper Select variable life policies ("Kemper Select"), the Power V flexible premium variable universal life policies ("Power V"), the Farmers Variable Universal Life I flexible premium variable universal life policies ("Farmers Variable Universal Life I"), the Scudder Destinations Life modified single premium variable universal life policies ("Scudder Destinations Life") and Zurich Kemper Lifeinvestor flexible premium universal life policies ("Zurich Kemper Lifeinvestor"). The Separate Account is divided into eighty-seven subaccount options available to policy owners depending upon their respective Policy. The Kemper Select policies have five subaccounts which are available to policy owners, and each subaccount invests exclusively in the shares of a corresponding portfolio of the Scudder Variable Series II, an open-end diversified management investment company. The Power V policies have twenty-three subaccounts which are available to policy owners and each subaccount invests exclusively in the shares of a corresponding portfolio of the American Skandia Trust, the Fidelity Variable Insurance Products Fund (Initial Class Shares), the Fidelity Variable Insurance Products Fund II (Initial Class Shares), the Fidelity Variable Insurance Products Fund III (Initial Class Shares), the Scudder Variable Series I (Class B Shares) and the Scudder Variable Series II, all of which are open-end diversified management investment companies. The Farmers Variable Universal Life I policies have twelve subaccounts which are available to policy owners and each subaccount invests exclusively in the shares of a corresponding portfolio of the Franklin Templeton Variable Insurance Products Trust (Class 2 Shares), the Janus Aspen Series, the PIMCO Variable Insurance Trust, the Scudder Variable Series I (Class A Shares) and the Scudder Variable Series II, all of which are open-end diversified management investment companies. The Scudder Destinations Life policies have forty subaccounts which are available to policy owners and each subaccount invests exclusively in the shares of a corresponding portfolio of 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 (Class A Shares) and the Scudder Variable Series II, all of which are open-end diversified management investment companies. The Zurich Kemper Lifeinvestor policies have forty-one subaccounts which are available to policy owners and each subaccount invests exclusively in the shares of a corresponding portfolio of The Alger American Fund, the American Century Variable Portfolios, Inc., the Deutsche Asset Management VIT Funds, the Dreyfus Life & Annuity Index Fund d/b/a Dreyfus Stock Index Fund, The Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the Franklin Templeton Variable Insurance Products Trust, the Fidelity Variable Insurance Products Fund (Initial Class Shares), the INVESCO Variable Investment Funds, Inc., the Janus Aspen Series, the Scudder Variable Series I (Class A Shares) and the Scudder Variable Series II, all of which are open-end diversified management investment companies. The Scudder Horizon 5, Scudder Horizon 10+ and the Scudder Horizon 20+ funds were closed by the investment manager of the Scudder Variable Series II effective May 1, 2001. All monies not reallocated by policy owners by this date were transferred to Scudder Total Return subaccount. The Skandia American Century International Growth II subaccount was closed by American Skandia Trust effective September 24, 2001. All monies not reallocated by policy owners by this date were transferred to Skandia American Century International Growth I subaccount. 91 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS Security valuation The investments are stated at current market value, which is based on the closing net asset value at December 31, 2001. Security transactions and investment income Security transactions are generally accounted for on the trade date (date the order to buy or sell is executed). Dividend income, 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. Traditionally, the Statement of Operations should consist only of transactions that directly impact the unit value calculation; in other words, transactions that impact policyholders equally. The unit value, which is the value of a share of the subaccount, is generally only impacted by investment income and mortality and expense risk. 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 increase liabilities under the policy and are, therefore, not taxed. Thus the Separate Account may realize net investment income and capital gains and losses without federal income tax consequences. Net transfers (to) from affiliate or subaccounts Net transfers (to) from affiliate or subaccounts include transfers of all or part of the policy owners interest to or from another eligible subaccount or to the general account of KILICO. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities as well as the disclosure of contingent amounts at the date of the financial statements. Actual results could differ from these estimates. (2) Financial Highlights The following table represents certain highlights as follows:
At December 31, 2001 For the year ended December 31, 2001 ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio(b) Total Return(c) Units ----------------- Assets Income ---------------- ----------------- (000s) Lowest Highest (000s) Ratio(a) Lowest Highest Lowest Highest ------ -------- -------- ------ ---------- ------ ------- -------- -------- The Alger American Fund: Alger American Balanced Subaccount.................... 50 $ 10.350 $ 14.681 $ 504 2.83% 0.60% 0.60% (2.81)% (2.52)% Alger American Growth Subaccount.................... 8 47.841 47.841 389 12.56% 0.60% 0.60% (12.34)% (12.34)% Alger American Income and Growth Subaccount............. 20 14.704 14.704 297 7.21% 0.60% 0.60% (14.84)% (14.84)% Alger American Leveraged AllCap Subaccount.................... 23 8.190 8.190 192 3.07% 0.90% 0.90% (16.68)% (16.68)% Alger American MidCap Growth Subaccount.................... 12 32.524 32.524 378 36.20% 0.60% 0.60% (7.09)% (7.09)%
92 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
At December 31, 2001 For the year ended December 31, 2001 ------------------------------- ------------------------------------------------ Unit Fair Value Net Investment Expense Ratio(b) Total Return(c) Units ----------------- Assets Income ---------------- -------------------- (000s) Lowest Highest (000s) Ratio(a) Lowest Highest Lowest Highest ------ -------- -------- ------ ---------- ------ ------- -------- -------- American Century Variable Portfolios, Inc.: American Century VP Income & Growth Subaccount.............. 2 $ 6.434 $ 6.434 $ 14 N/A 0.60% 0.60% (7.82)%(d) (7.82)%(d) American Century VP International Subaccount....... 0 6.564 6.564 1 N/A 0.60% 0.60% (18.57)%(d) (18.57)%(d) American Century VP Ultra Subaccount..................... 0 9.492 9.492 3 N/A 0.60% 0.60% (68.01)%(d) (68.01)%(d) American Century VP Value Subaccount..................... 6 7.410 7.410 45 N/A 0.60% 0.60% 8.02 %(d) 8.02 %(d) American Skandia Trust: AST Alliance Growth & Income Subaccount.............. 50 27.837 27.837 1,391 11.80% 0.90% 0.90% (1.37)% (1.37)% AST American Century International Growth I Subaccount..................... 34 12.140 12.140 440 N/A 0.90% 0.90% (17.09)% (17.09)% AST INVESCO Equity Income Subaccount..................... 40 19.960 19.960 802 3.10% 0.90% 0.90% (9.41)% (9.41)% AST JanCap Growth Subaccount.... 181 28.373 28.373 5,143 N/A 0.90% 0.90% (32.29)% (32.29)% AST Neuberger Mid-Cap Growth Subaccount..................... 82 19.957 19.957 1,635 14.97% 0.90% 0.90% (26.46)% (26.46)% AST PBHG Small Cap Growth Subaccount..................... 29 20.757 20.757 598 17.18% 0.90% 0.90% (7.31)% (7.31)% AST PIMCO Limited Maturity Bond Subaccount................ 5 14.179 14.179 65 5.31% 0.90% 0.90% 7.01 % 7.01 % AST PIMCO Total Return Bond Subaccount..................... 16 15.314 15.314 242 4.04% 0.90% 0.90% 7.89 % 7.89 % AST T. Rowe Price Asset Allocation Subaccount.......... 29 18.539 18.539 545 6.29% 0.90% 0.90% (5.65)% (5.65)% Credit Suisse Trust: Credit Suisse Trust Emerging Markets Subaccount............. 3 8.482 8.482 22 N/A 0.90% 0.90% (10.45)% (10.45)% Credit Suisse Trust Global Post- Venture Capital Subaccount..... 3 8.859 8.859 25 N/A 0.90% 0.90% (29.27)% (29.27)% Deutsche Asset Management VIT Funds: Deutsche VIT EAFE Equity Index Subaccount..................... 0 8.356 8.356 2 N/A 0.60% 0.60% (18.87)%(d) (18.87)%(d) Deutsche VIT Small Cap Index Subaccount..................... 0 11.291 11.291 3 N/A 0.60% 0.60% 0.18 %(d) 0.18 %(d) Dreyfus Life & Annuity Index Fund: Dreyfus Stock Index Fund Subaccount..................... 3 30.110 30.110 87 2.22% 0.60% 0.60% (13.22)% (13.22)% The Dreyfus Socially Responsible Growth Fund, Inc.: Dreyfus Socially Responsible Growth Fund Subaccount......... 18 7.644 26.610 150 N/A 0.60% 0.90% (23.27)% (23.04)% Dreyfus Investment Portfolios: Dreyfus I.P. Mid Cap Stock Subaccount..................... 27 11.319 11.319 305 N/A 0.90% 0.90% (4.12)% (4.12)% Dreyfus Variable Investment Fund: Dreyfus VIF Appreciation Subaccount..................... 1 35.519 35.519 28 N/A 0.60% 0.60% (9.85)% (9.85)% Dreyfus VIF Small Cap Subaccount..................... 2 69.777 69.777 161 11.76% 0.60% 0.60% (6.68)% (6.68)%
93 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
At December 31, 2001 For the year ended December 31, 2001 ------------------------------- ------------------------------------------------ Unit Fair Value Net Investment Expense Ratio(b) Total Return(c) Units ----------------- Assets Income ---------------- -------------------- (000s) Lowest Highest (000s) Ratio(a) Lowest Highest Lowest Highest ------ -------- -------- ------ ---------- ------ ------- -------- -------- Fidelity Variable Insurance Products Fund: Fidelity VIP Equity Income Subaccount....................... 13 $ 23.983 $ 26.981 $ 324 4.41% 0.60% 0.90% (5.81)% (5.53)% Fidelity VIP Growth Subaccount.... 5 35.542 35.542 195 2.82% 0.60% 0.60% (18.14)% (18.14)% Fidelity VIP High Income Subaccount....................... 8 7.139 8.266 58 5.41% 0.60% 0.90% (12.52)% (12.26)% Fidelity VIP Overseas Subaccount.. 2 15.582 15.582 24 6.25% 0.60% 0.60% (21.64)% (21.64)% Fidelity Variable Insurance Products Fund II: Fidelity VIP II Contrafund Subaccount....................... 67 24.106 24.106 1,616 3.24% 0.90% 0.90% (13.03)% (13.03)% Fidelity VIP II Index 500 Subaccount....................... 11 131.456 131.456 1,389 1.05% 0.90% 0.90% (12.89)% (12.89)% Fidelity Variable Insurance Products Fund III: Fidelity VIP III Growth Opportunities Subaccount......... 33 16.402 16.402 537 0.19% 0.90% 0.90% (15.19)% (15.19)% Franklin Templeton Variable Insurance Products Trust:........ Templeton Asset Strategy Subaccount....................... 0 21.133 21.133 8 12.50% 0.60% 0.60% (10.49)% (10.49)% Templeton Developing Markets Securities Subaccount............ 4 4.774 4.834 19 N/A 0.60% 0.90% (8.91)% (8.63)% Templeton Global Income Securities Subaccount............ 1 11.621 11.621 6 N/A 0.60% 0.60% 1.63 % 1.63 % Templeton International Securities Subaccount....................... 1 18.223 18.223 11 13.33% 0.60% 0.60% (16.50)% (16.50)% INVESCO Variable Investment Funds, Inc.: INVESCO VIF Dynamics Fund Subaccount....................... 1 12.490 12.490 10 N/A 0.60% 0.60% (18.90)%(d) (18.90)%(d) INVESCO VIF Financial Services Subaccount....................... 2 12.422 12.422 25 N/A 0.60% 0.60% (3.33)%(d) (3.33)%(d) INVESCO VIF Technology Subaccount....................... 2 15.308 15.308 35 N/A 0.60% 0.60% (29.03)%(d) (29.03)%(d) INVESCO VIF Telecommunications Subaccount....................... 1 5.548 5.548 8 N/A 0.60% 0.60% (43.57)%(d) (43.57)%(d) INVESCO VIF Utilities Subaccount....................... -- 7.998 7.998 -- N/A 0.90% 0.90% (24.57)%(d) (24.57)%(d) Janus Aspen Series: Janus Aspen Aggressive Growth Subaccount....................... 16 24.365 24.365 397 N/A 0.60% 0.60% (39.81)% (39.81)% Janus Aspen Balanced Subaccount... 9 25.720 25.720 238 3.94% 0.60% 0.60% (5.24)% (5.24)% Janus Aspen Capital Appreciation Subaccount....................... 23 20.809 20.809 486 1.24% 0.90% 0.90% (22.38)% (22.38)% Janus Aspen Flexible Income Subaccount....................... 2 12.926 12.926 24 8.33% 0.60% 0.60% 7.09 % 7.09 % Janus Aspen Growth Subaccount..... 18 21.398 21.398 393 0.40% 0.60% 0.60% (25.19)% (25.19)% Janus Aspen International Growth Subaccount....................... 7 24.672 24.672 172 1.00% 0.60% 0.60% (23.70)% (23.70)% Janus Aspen Worldwide Growth Subaccount....................... 12 30.882 30.882 365 0.45% 0.60% 0.60% (22.90)% (22.90)% PIMCO Variable Insurance Trust: PIMCO Foreign Bond Subaccount..... 2 11.292 11.292 24 4.88% 0.90% 0.90% 7.00 % 7.00 % PIMCO Low Duration Bond Subaccount....................... 2 11.530 11.530 14 9.52% 0.90% 0.90% 6.75 % 6.75 %
94 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
At December 31, 2001 For the year ended December 31, 2001 ------------------------------- ------------------------------------------------ Unit Fair Value Net Investment Expense Ratio(b) Total Return(c) Units ----------------- Assets Income ---------------- -------------------- (000s) Lowest Highest (000s) Ratio(a) Lowest Highest Lowest Highest ------ -------- -------- ------ ---------- ------ ------- -------- -------- Scudder Variable Series I: Scudder 21st Century Growth Subaccount..................... 25 $ 6.262 $ 6.262 $ 155 N/A 0.90% 0.90% (23.77)% (23.77)% Scudder Bond Subaccount......... 2 7.646 7.646 19 N/A 0.90% 0.90% 4.80 % 4.80 % Scudder Capital Growth Subaccount..................... 27 9.050 20.928 266 13.11% 0.60% 0.90% (20.08)% (19.84)% Scudder Global Discovery Subaccount..................... 44 10.153 10.153 446 1.82% 0.90% 0.90% (25.27)% (25.27)% Scudder Growth and Income Subaccount..................... 51 9.313 10.027 500 2.82% 0.60% 0.90% (12.35)% (11.83)% Scudder Health Sciences Subaccount..................... 1 10.586 10.586 10 N/A 0.90% 0.90% 5.86 %(d) 5.86 %(d) Scudder International Subaccount 35 6.934 11.876 333 12.04% 0.60% 0.90% (31.58)% (31.27)% Scudder Money Market Subaccount..................... 22 1.119 1.119 38 3.17% 0.90% 0.90% 2.96 % 2.96 % Scudder Variable Series II: Scudder Aggressive Growth Subaccount..................... 43 9.530 9.530 412 1.05% 0.90% 0.90% (22.46)% (22.46)% Scudder Blue Chip Subaccount.... 59 9.129 9.129 538 0.26% 0.90% 0.90% (16.56)% (16.56)% Scudder Contrarian Value Subaccount..................... 11 11.303 11.303 126 N/A 0.90% 0.90% 0.95 % 0.95 % Scudder Global Blue Chip Subaccount..................... 20 9.733 9.733 199 2.01% 0.90% 0.90% (16.23)% (16.23)% Scudder Government Securities Subaccount..................... 2,130 1.363 11.753 5,351 3.65% 0.60% 0.90% 6.52 % 6.84 % Scudder Growth Subaccount....... 681 3.210 8.044 2,518 8.38% 0.90% 0.90% (23.04)% (23.04)% Scudder High Yield Subaccount... 327 1.146 9.395 691 14.17% 0.90% 0.90% 1.71 % 1.71 % Scudder International Research Subaccount..................... 203 1.574 7.823 364 14.42% 0.90% 0.90% (25.11)% (25.11)% Scudder Investment Grade Bond Subaccount..................... 86 1.265 11.423 432 4.05% 0.60% 0.90% 4.77 % 5.08 % Scudder Money Market Subaccount..................... 1,070 1.081 10.921 2,809 4.90% 0.60% 0.90% 2.84 % 3.15 % Scudder New Europe Subaccount... 9 7.310 7.310 69 2.02% 0.90% 0.90% (30.48)% (30.48)% Scudder Small Cap Growth Subaccount..................... 1,113 1.645 8.658 2,511 12.80% 0.60% 0.90% (29.44)% (29.23)% Scudder Small Cap Value Subaccount..................... 9 13.306 13.306 114 N/A 0.90% 0.90% 16.62 % 16.62 % Scudder Strategic Income Subaccount..................... 0 10.536 10.536 2 N/A 0.90% 0.90% 4.29 % 4.29 % Scudder Technology Growth Subaccount..................... 57 8.003 8.003 458 N/A 0.90% 0.90% (33.00)% (33.00)% Scudder Total Return Subaccount. 1,032 2.606 10.097 3,472 6.06% 0.60% 0.90% (6.93)% (6.65)% SVS Dreman Financial Services Subaccount..................... 24 12.381 12.381 298 1.20% 0.90% 0.90% (5.71)% (5.71)% SVS Dreman High Return Equity Subaccount..................... 264 1.183 13.117 1,196 1.11% 0.90% 0.90% 0.78 % 0.78 % SVS Dynamic Growth Subaccount... 0 8.747 8.747 1 N/A 0.90% 0.90% (12.53)%(d) (12.53)%(d) SVS Focus Value + Growth Subaccount..................... 50 1.543 9.556 168 3.74% 0.60% 0.90% (15.12)% (14.87)% SVS Focused Large Cap Growth Subaccount..................... 51 9.467 9.467 482 N/A 0.90% 0.90% (17.69)% (17.69)% SVS Growth and Income Subaccount..................... 71 8.947 8.947 634 0.47% 0.90% 0.90% (3.07)% (3.07)% SVS Growth Opportunities Subaccount..................... 45 7.811 7.811 349 N/A 0.90% 0.90% (24.37)% (24.37)% SVS Index 500 Subaccount........ 89 8.442 8.442 748 0.21% 0.90% 0.90% (12.84)% (12.84)% SVS Mid Cap Growth Subaccount... 0 8.777 8.777 4 N/A 0.90% 0.90% (12.23)%(d) (12.23)%(d) SVS Strategic Equity Subaccount. 0 7.554 7.554 3 N/A 0.90% 0.90% (24.46)%(d) (24.46)%(d) SVS Venture Value Subaccount.... 17 9.443 9.443 164 N/A 0.90% 0.90% (5.57)%(d) (5.57)%(d)
- -------- (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. 95 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS (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 policyowner units are excluded. (c)Total return is calculated using the beginning and ending unit value, which reflects the changes in the underlying fund values and reductions related to the expense ratio, for the period indicated. (d)Total Return is calculated for the period of May 1, 2001 to December 31, 2001. (3) Summary of Investments Investments, at cost, at December 31, 2001, are as follows (in thousands, differences are due to rounding):
Shares Owned Cost ------ ------ The Alger American Fund: Alger American Balanced Fund........................ 38 $ 512 Alger American Growth Fund.......................... 11 434 Alger American Income and Growth Fund............... 28 314 Alger American Leveraged AllCap Fund................ 6 223 Alger American MidCap Growth Fund................... 21 427 American Century Variable Portfolios, Inc.: American Century VP Income & Growth Fund............ 2 13 American Century VP International Fund.............. 0 1 American Century VP Ultra Fund...................... 0 3 American Century VP Value Fund...................... 6 42 American Skandia Trust: AST Alliance Growth & Income Fund................... 74 1,493 AST American Century International Growth I Fund.... 36 410 AST INVESCO Equity Income Fund...................... 51 877 AST JanCap Growth Fund.............................. 215 7,860 AST Neuberger Mid-Cap Growth Fund................... 120 2,167 AST PBHG Small Cap Growth Fund...................... 38 925 AST PIMCO Limited Maturity Bond Fund................ 6 63 AST PIMCO Total Return Bond......................... 20 232 AST T. Rowe Price Asset Allocation Fund............. 36 615 Credit Suisse Trust: Credit Suisse Trust Emerging Markets Fund........... 3 24 Credit Suisse Trust Global Post-Venture Capital Fund 3 33 Deutsche Asset Management VIT Funds:................ Deutsche VIT EAFE Equity Index Fund................. 0 2 Deutsche VIT Small Cap Index Fund................... 0 3 Dreyfus Life & Annuity Index Fund: Dreyfus Stock Index Fund............................ 3 86 The Dreyfus Socially Responsible Growth Fund, Inc: The Dreyfus Socially Responsible Growth Fund........ 6 179 Dreyfus Investment Portfolios: Dreyfus I.P. Mid Cap Stock Fund..................... 22 298 Dreyfus Variable Investment Fund: Dreyfus VIF Appreciation Fund....................... 1 28 Dreyfus VIF Small Cap Fund.......................... 5 165
96 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
Shares Owned Cost ------ ------ Fidelity Variable Insurance Products Fund: Fidelity VIP Equity Income Fund...................... 14 $ 334 Fidelity VIP Growth Fund............................. 6 209 Fidelity VIP High Income Fund........................ 9 65 Fidelity VIP Overseas Fund........................... 2 27 Fidelity Variable Insurance Products Fund II: Fidelity VIP II Contrafund Fund...................... 80 1,945 Fidelity VIP II Index 500 Fund....................... 11 1,602 Fidelity Variable Insurance Products Fund III: Fidelity VIP III Growth Opportunities Fund........... 35 710 Franklin Templeton Variable Insurance Products Trust: Templeton Asset Strategy Fund........................ 0 8 Templeton Developing Markets Securities Fund......... 4 20 Templeton Global Income Securities Fund.............. 1 6 Templeton International Securities Fund.............. 1 13 INVESCO Variable Investment Funds, Inc.: INVESCO VIF Dynamics Fund............................ 1 9 INVESCO VIF Financial Services Fund.................. 2 24 INVESCO VIF Technology Fund.......................... 2 33 INVESCO VIF Telecommunications Fund.................. 1 8 Janus Aspen Series: Janus Aspen Aggressive Growth Fund................... 18 473 Janus Aspen Balanced Fund............................ 11 243 Janus Aspen Capital Appreciation Fund................ 23 606 Janus Aspen Flexible Income Fund..................... 2 25 Janus Aspen Growth Fund.............................. 20 456 Janus Aspen International Growth Fund................ 7 188 Janus Aspen Worldwide Growth Fund.................... 13 402 PIMCO Variable Insurance Trust: PIMCO Foreign Bond Fund.............................. 2 24 PIMCO Low Duration Bond Fund......................... 1 14 Scudder Variable Series I: Scudder 21st Century Growth Fund..................... 25 205 Scudder Bond Fund.................................... 3 18 Scudder Capital Growth Fund.......................... 16 355 Scudder Global Discovery Fund........................ 51 506 Scudder Growth and Income Fund....................... 57 557 Scudder Health Sciences Fund......................... 1 10 Scudder International Fund........................... 41 528 Scudder Money Market Fund............................ 38 38 Scudder Variable Series II: Scudder Aggressive Growth Fund....................... 40 479 Scudder Blue Chip Fund............................... 45 595 Scudder Contrarian Value Fund........................ 9 124 Scudder Global Blue Chip Fund........................ 21 214 Scudder Government Securities Fund................... 434 5,158 Scudder Growth Fund.................................. 120 2,975 Scudder High Yield Fund.............................. 85 817 Scudder International Research Fund.................. 39 537 Scudder Investment Grade Bond Fund................... 38 431
97 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
Shares Owned Cost ------ ------- Scudder Money Market Fund......... 2,809 $ 2,809 Scudder New Europe Fund........... 10 87 Scudder Small Cap Growth Fund..... 196 3,548 Scudder Small Cap Value Fund...... 9 107 Scudder Strategic Income Fund..... 0 2 Scudder Technology Growth Fund.... 49 571 Scudder Total Return Fund......... 154 3,591 SVS Dreman Financial Services Fund 28 294 SVS Dreman High Return Equity Fund 111 1,185 SVS Dynamic Growth Fund........... 0 1 SVS Focus Value + Growth Fund..... 13 185 SVS Focused Large Cap Growth Fund. 51 553 SVS Growth and Income Fund........ 70 683 SVS Growth Opportunities Fund..... 44 470 SVS Index 500 Fund................ 87 771 SVS Mid Cap Growth Fund........... 0 4 SVS Strategic Equity Fund......... 0 3 SVS Venture Value Fund............ 17 156 ------- Total Investments at Cost...... $53,440 =======
(4) Transactions with Affiliates KILICO provides a death benefit payment upon the death of the policy owner under the terms of the death benefit option selected by the policy owner as further described in the Policy. KILICO assesses a monthly charge to the subaccounts for the cost of providing this insurance protection to the policy owner. These cost of insurance charges vary with the issue age, sex and rate class of the policy owner, and are charged to their respective subaccounts in proportion to their total Separate Account value. Cost of insurance charges totaled approximately $101,000, $3,234,000, $402,000, $630,000 and $45,000 for the Kemper Select, Power V, Farmers Variable Universal Life I, Zurich Kemper Lifeinvestor and Scudder Destinations Life policies, respectively, for the year ended December 31, 2001, and are reflected in the Statement of Operations. Included within these cost of insurance charges are various administrative charges as described in the prospectuses. KILICO assumes other mortality and expense risk that the cost of insurance charges may not cover due to certain No-Lapse Guarantees. Also, administration and maintenance expense may exceed Administration Charges set by the Policies. Therefore, KILICO assesses a daily charge to the subaccounts for mortality and expense risk at an annual rate of 0.90% of assets except for Zurich Kemper Lifeinvestor, which assesses a daily charge at a current annual rate of 0.60% for the first ten policy years, 0.40% for policy years eleven through twenty and 0.20% for policy years twenty-one and thereafter. Proceeds payable on the surrender of a Policy are reduced by the amount of any applicable contingent deferred sales charge. A state and local premium tax charge of 2.5% is deducted from each premium payment under the Power V, Farmers Variable Universal Life I and Zurich Kemper Lifeinvestor policies prior to allocation of the net premium. This charge is to reimburse KILICO for the payment of state premium taxes. KILICO expects to pay an average state premium tax rate of approximately 2.5% but the actual premium tax attributable to a Policy may be more or less. Under Section 848 of the Internal Revenue Code (the "Code"), the receipt of premium income by a life insurance company requires the deferral of a portion of the acquisition cost over a maximum of a 120 month period. The effect of Section 848 for KILICO is an acceleration of income recognition over a deferral of the associated deductions for tax purposes; this is referred to as deferred acquisition cost or, the "DAC tax". As compensation for this accelerated liability, a DAC tax charge of 1.00% of each premium dollar is deducted from the premium by KILICO under the Power V, Farmers Variable Universal Life I and Zurich Kemper Lifeinvestor policies before investment of a policy owners funds into the Separate Account. Under the Scudder Destinations Life policies, for the first ten policy years, a tax charge 98 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS equal to an annual rate of 0.40% of the average monthly cash value is assessed against the Policy. The tax charge covers a portion of KILICO's state premium tax expense and a certain federal income tax liability incurred as a result of the receipt of premium. Policy loans are also provided for under the terms of the Policy. The minimum amount of the loan under Kemper Select, Power V, Farmers Variable Universal Life I and Zurich Kemper Lifeinvestor policies is $500 and is limited to 90% of the surrender value, less applicable surrender charges. The minimum amount of the loan under the Scudder Destinations Life policies is $1,000 and is limited to 90% of the surrender value, less applicable surrender charges. Interest is assessed against a policy loan under the terms of the Policy. Policy loans are carried in KILICO's general account. Zurich Scudder Investments, Inc., an affiliated company, is the investment manager of the Scudder Variable Series I and the Scudder Variable Series II series of funds. On December 4, 2001, Deutsche Bank and ZFS announced that they have signed a definitive agreement under which Deutsche Bank will acquire 100% of ZSI, with the exception of ZSI's UK operations, Threadneedle Investments. The transaction is expected to be completed, subject to regulatory approval and satisfaction of other conditions, in the first half of 2002. Investors Brokerage Services, Inc. and PMG Securities, Inc., wholly-owned subsidiaries of KILICO, are the principal underwriters for the Separate Account. (5) Policy Owners' Equity Policy owners' equity is affected by the investment results of each subaccount and contract charges. Policy owners' equity at December 31, 2001, is as follows (in thousands, except unit value; differences due to rounding):
Number Unit Policy Owners' of Units Value Equity -------- ------- -------------- Farmers Variable Universal Life I Policies Franklin Templeton Variable Insurance Products Trust: Templeton Developing Market Securities Subaccount..................... 1 $ 4.774 $ 6 Janus Aspen Series: Janus Aspen Capital Appreciation Subaccount........................... 23 20.809 485 PIMCO Variable Insurance Trust: PIMCO Foreign Bond Subaccount......................................... 2 11.292 24 PIMCO Low Duration Bond Subaccount.................................... 2 11.530 14 Scudder Variable Series I: Scudder Bond Subaccount............................................... 2 7.646 19 Scudder Growth and Income Subaccount.................................. 23 10.018 232 Scudder International Subaccount...................................... 4 11.876 48 Scudder Money Market Subaccount....................................... 22 1.119 24 Scudder Variable Series II: Scudder Government Securities Subaccount.............................. 28 1.414 39 Scudder High Yield Subaccount......................................... 12 1.146 14 Scudder Small Cap Growth Subaccount................................... 25 1.645 41 SVS Dreman High Return Equity Subaccount.............................. 190 1.183 225 ------ Total Farmers Variable Universal Life I Policy Owners' Equity..... $1,171 ====== Scudder Destinations Life Policies The Alger American Fund: Alger American Balanced Subaccount.................................... 38 10.350 390 Alger American Leveraged AllCap Subaccount............................ 23 8.190 192
99 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
Number Unit Policy Owners' of Units Value Equity -------- ------- -------------- Credit Suisse Trust: Credit Suisse Trust Emerging Markets Subaccount............... 3 $ 8.482 $ 22 Credit Suisse Trust Global Post-Venture Capital Subaccount.... 3 8.859 25 The Dreyfus Socially Responsible Growth Fund, Inc.: Dreyfus Socially Responsible Growth Fund Subaccount........... 17 7.644 128 Dreyfus Investment Portfolios: Dreyfus I.P. Mid Cap Stock Subaccount......................... 27 11.319 305 INVESCO Variable Investment Funds, Inc.: INVESCO VIF Utilities Subaccount.............................. 0 7.998 0 Scudder Variable Series I: Scudder 21st Century Growth Subaccount........................ 25 6.262 155 Scudder Capital Growth Subaccount............................. 26 9.050 235 Scudder Global Discovery Subaccount........................... 44 10.153 445 Scudder Growth and Income Subaccount.......................... 15 9.313 141 Scudder Health Sciences Subaccount............................ 1 10.586 10 Scudder International Subaccount.............................. 15 6.934 106 Scudder Variable Series II: Scudder Aggressive Growth Subaccount.......................... 43 9.530 412 Scudder Blue Chip Subaccount.................................. 59 9.129 537 Scudder Contrarian Value Subaccount........................... 11 11.303 126 Scudder Global Blue Chip Subaccount........................... 20 9.733 199 Scudder Government Securities Subaccount...................... 23 11.753 265 Scudder Growth Subaccount..................................... 36 8.044 289 Scudder High Yield Subaccount................................. 14 9.395 134 Scudder International Research Subaccount..................... 7 7.823 56 Scudder Investment Grade Bond Subaccount...................... 32 11.423 363 Scudder Money Market Subaccount............................... 142 10.921 1,550 Scudder New Europe Subaccount................................. 9 7.310 69 Scudder Small Cap Growth Subaccount........................... 25 8.658 220 Scudder Small Cap Value Subaccount............................ 9 13.306 114 Scudder Strategic Income Subaccount........................... 0 10.536 2 Scudder Technology Growth Subaccount.......................... 57 8.003 458 Scudder Total Return Subaccount............................... 59 10.097 596 SVS Dreman Financial Services Subaccount...................... 24 12.381 298 SVS Dreman High Return Equity Subaccount...................... 74 13.117 971 SVS Dynamic Growth Subaccount................................. 0 8.747 1 SVS Focus Value + Growth Subaccount........................... 11 9.556 109 SVS Focused Large Cap Growth Subaccount....................... 51 9.467 481 SVS Growth and Income Subaccount.............................. 71 8.947 633 SVS Growth Opportunities Subaccount........................... 45 7.811 349 SVS Index 500 Subaccount...................................... 89 8.442 748 SVS Mid Cap Growth Subaccount................................. 0 8.777 4 SVS Strategic Equity Subaccount............................... 0 7.554 3 SVS Venture Value Subaccount.................................. 17 9.443 164 ------- Total Scudder Destinations Life Policy Owners' Equity..... $11,305 ======= Kemper Select Policies Scudder Variable Series II Scudder Money Market Subaccount............................... 146 1.914 280 Scudder Total Return Subaccount............................... 898 2.902 2,606 Scudder High Yield Subaccount................................. 150 2.292 343 Scudder Growth Subaccount..................................... 401 3.210 1,288 Scudder Government Securities Subaccount...................... 1,942 2.496 4,847 ------- Total Kemper Select Policy Owners' Equity................. $ 9,364 =======
100 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
Number Policy Owners' of Units Unit Value Equity -------- ---------- -------------- Power V Policies American Skandia Trust: AST Alliance Growth & Income Subaccount............. 50 $ 27.837 $ 1,392 AST American Century International I Subaccount..... 34 12.140 412 AST INVESCO Equity Income Subaccount................ 40 19.960 802 AST JanCap Growth Subaccount........................ 181 28.373 5,146 AST Neuberger Mid-Cap Growth Subaccount............. 82 19.957 1,636 AST PBHG Small Cap Growth Subaccount................ 29 20.757 599 AST PIMCO Limited Maturity Bond Subaccount.......... 5 14.179 64 AST PIMCO Total Return Bond Subaccount.............. 16 15.314 242 AST T. Rowe Price Asset Allocation Subaccount....... 29 18.539 545 Fidelity Variable Insurance Products Fund: Fidelity VIP Equity Income Subaccount............... 8 26.981 205 Fidelity VIP High Income Subaccount................. 2 8.266 16 Fidelity Variable Insurance Products Fund II: Fidelity VIP II Contrafund Subaccount............... 67 24.106 1,617 Fidelity VIP II Index 500 Subaccount................ 11 131.456 1,388 Fidelity Variable Insurance Products Fund III: Fidelity VIP III Growth Opportunities Subaccount.... 33 16.402 536 Scudder Variable Series I: Scudder Growth and Income Subaccount................ 8 10.027 84 Scudder International Subaccount.................... 15 11.708 171 Scudder Variable Series II: Scudder Growth Subaccount........................... 243 3.872 942 Scudder Government Securities Subaccount............ 54 1.612 87 Scudder High Yield Subaccount....................... 151 1.325 200 Scudder International Research Subaccount........... 196 1.574 308 Scudder Money Market Subaccount..................... 357 1.234 441 Scudder Small Cap Growth Subaccount................. 943 2.174 2,050 Scudder Total Return Subaccount..................... 58 3.895 224 ------- Total Power V Policy Owners' Equity............. $19,107 ======= Zurich Kemper Lifeinvestor Policies The Alger American Fund: Alger American Balanced Subaccount.................. 12 14.681 114 Alger American Growth Subaccount.................... 8 47.841 389 Alger American Income and Growth Subaccount......... 20 14.704 297 Alger American MidCap Growth Subaccount............. 12 32.524 378 American Century Variable Portfolios, Inc: American Century VP Income & Growth Subaccount...... 2 6.434 14 American Century VP International Subaccount........ 0 6.564 1 American Century VP Ultra Subaccount................ 0 9.492 3 American Century VP Value Subaccount................ 6 7.410 45 Deutsche Asset Management VIT Funds: Deutsche VIT EAFE Equity Index Subaccount........... 0 8.356 2 Deutsche VIT Small Cap Index Subaccount............. 0 11.291 3 Dreyfus Life & Annuity Index Fund: Dreyfus Stock Index Fund Subaccount................. 3 30.110 87 The Dreyfus Socially Responsible Growth Fund, Inc.: Dreyfus Socially Responsible Growth Fund Subaccount. 1 26.610 22 Dreyfus Variable Investment Fund: Dreyfus VIF Appreciation Subaccount................. 1 35.519 29 Dreyfus VIF Small Cap Subaccount.................... 2 69.777 161
101 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
Number Unit Policy Owners' of Units Value Equity -------- ------- -------------- Fidelity Variable Insurance Products Fund: Fidelity VIP Equity Income Subaccount.......................... 5 $23.983 $ 119 Fidelity VIP Growth Subaccount................................. 5 35.542 195 Fidelity VIP High Income Subaccount............................ 6 7.139 41 Fidelity VIP Overseas Subaccount............................... 2 15.582 24 Franklin Templeton Variable Insurance Products Trust: Templeton Asset Strategy Subaccount............................ 0 21.133 8 Templeton Developing Markets Securities Subaccount............. 3 4.834 13 Templeton Global Income Securities Subaccount.................. 1 11.621 6 Templeton International Securities Subaccount.................. 1 18.223 12 INVESCO Variable Investment Funds, Inc.: INVESCO VIF Dynamics Fund Subaccount........................... 1 12.490 10 INVESCO VIF Financial Services Subaccount...................... 2 12.422 25 INVESCO VIF Technology Subaccount.............................. 2 15.308 34 INVESCO VIF Telecommunications Subaccount...................... 1 5.548 8 Janus Aspen Series: Janus Aspen Aggressive Growth Subaccount....................... 16 24.365 399 Janus Aspen Balanced Subaccount................................ 9 25.720 238 Janus Aspen Flexible Income Subaccount......................... 2 12.926 24 Janus Aspen Growth Subaccount.................................. 18 21.398 395 Janus Aspen International Growth Subaccount.................... 7 24.672 172 Janus Aspen Worldwide Growth Subaccount........................ 12 30.882 365 Scudder Variable Series I: Scudder Capital Growth Subaccount.............................. 2 20.928 32 Scudder Growth and Income Subaccount........................... 4 9.411 42 Scudder International Subaccount............................... 1 10.888 8 Scudder Variable Series II: Scudder Government Securities Subaccount....................... 84 1.363 114 Scudder Investment Grade Bond Subaccount....................... 55 1.265 69 Scudder Money Market Subaccount................................ 425 1.081 460 Scudder Small Cap Growth Subaccount............................ 120 1.668 201 Scudder Total Return Subaccount................................ 17 2.606 45 SVS Focus Value + Growth Subaccount............................ 39 1.543 60 ------- Total Zurich Kemper Lifeinvestor Policy Owners' Equity..... $ 4,664 ------- Total KILICO Variable Separate Account..................... $45,611 =======
102 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Kemper Investors Life Insurance Company: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Kemper Investors Life Insurance Company and its subsidiaries (the ''Company'') at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with 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. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois March 22, 2002 103 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, December 31, 2001 2000 ------------ ------------ Assets Fixed maturity securities available for sale, at fair value (amortized cost: December 31, 2001, $3,057,139; December 31, 2000, $3,189,719)............. $ 3,094,560 $ 3,157,169 Equity securities, at fair value (cost: December 31, 2001 and December 31, 2000, $65,473)............................................... 67,731 63,879 Short-term investments...................................................... 159,105 15,900 Joint venture mortgage loans................................................ 104,303 67,473 Third-party mortgage loans.................................................. 63,897 63,476 Other real estate-related investments....................................... 8,240 9,468 Policy loans................................................................ 239,787 256,226 Other invested assets....................................................... 20,799 21,792 ----------- ----------- Total investments........................................................ 3,758,422 3,655,383 Cash........................................................................ 57,374 34,101 Accrued investment income................................................... 140,762 134,585 Reinsurance recoverable..................................................... 240,536 310,183 Deferred insurance acquisition costs........................................ 381,506 240,801 Value of business acquired.................................................. 75,806 95,621 Goodwill.................................................................... 178,418 191,163 Other intangible assets..................................................... 6,261 4,531 Deferred income taxes....................................................... 95,688 120,781 Federal income tax receivable............................................... 13,866 8,803 Receivable on sales of securities........................................... 2,100 8,286 Other assets and receivables................................................ 30,336 22,766 Assets held in separate accounts............................................ 13,108,753 11,179,639 ----------- ----------- Total assets............................................................. $18,089,828 $16,006,643 =========== =========== Liabilities Future policy benefits...................................................... $ 3,634,161 $ 3,588,140 Other policyholder benefits and funds payable............................... 436,449 399,585 Other accounts payable and liabilities...................................... 92,472 109,152 Liabilities related to separate accounts.................................... 13,108,753 11,179,639 ----------- ----------- Total liabilities........................................................ 17,271,835 15,276,516 ----------- ----------- Commitments and contingent liabilities...................................... Stockholder's equity Capital stock--$10 par value, authorized 300,000 shares; outstanding 250,000 shares................................................ 2,500 2,500 Additional paid-in capital.................................................. 804,347 804,347 Accumulated other comprehensive income (loss)............................... 16,551 (32,718) Retained deficit............................................................ (5,405) (44,002) ----------- ----------- Total stockholder's equity............................................... 817,993 730,127 ----------- ----------- Total liabilities and stockholder's equity............................... $18,089,828 $16,006,643 =========== ===========
See accompanying notes to consolidated financial statements. 104 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
Year Ended December 31, ------------------------------ 2001 2000 1999 --------- --------- -------- Revenue Net investment income.......................... $ 269,419 $ 257,470 $264,640 Realized investment gains (losses)............. 20,660 (8,277) (9,549) Premium income................................. 486 8,394 21,990 Separate account fees and charges.............. 70,993 68,293 74,715 Other income................................... 36,739 35,030 11,623 --------- --------- -------- Total revenue............................... 398,297 360,910 363,419 --------- --------- -------- Benefits and Expenses Interest credited to policyholders............. 159,127 152,289 162,243 Claims incurred and other policyholder benefits 21,933 13,718 18,185 Taxes, licenses and fees....................... 10,714 17,861 30,234 Commissions.................................... 179,585 114,162 67,555 Operating expenses............................. 66,026 61,671 45,989 Deferral of insurance acquisition costs........ (166,202) (104,608) (69,814) Amortization of insurance acquisition costs.... 18,052 23,231 5,524 Amortization of value of business acquired..... 15,606 19,926 12,955 Amortization of goodwill....................... 12,744 12,744 12,744 Amortization of other intangible assets........ 961 368 -- --------- --------- -------- Total benefits and expenses................. 318,546 311,362 285,615 --------- --------- -------- Income before income tax expense............... 79,751 49,548 77,804 Income tax expense............................. 28,154 1,247 32,864 --------- --------- -------- Net income.................................. $ 51,597 $ 48,301 $ 44,940 ========= ========= ========
See accompanying notes to consolidated financial statements. 105 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
Year Ended December 31, ----------------------------- 2001 2000 1999 -------- -------- --------- Net income......................................................... $ 51,597 $ 48,301 $ 44,940 -------- -------- --------- Other comprehensive income (loss), before tax: Unrealized holding gains (losses) on investments arising during period: Unrealized holding gains (losses) on investments................... 54,155 61,487 (180,267) Adjustment to value of business acquired........................... (5,914) (3,400) 12,811 Adjustment to deferred insurance acquisition costs................. (1,050) (230) 5,726 -------- -------- --------- Total unrealized holding gains (losses) on investments arising during period................................................. 47,191 57,857 (161,730) -------- -------- --------- Less reclassification adjustments for items included in net income: Adjustment for (gains) losses included in realized investment gains (losses)......................................................... (9,203) (24,583) 16,651 Adjustment for amortization of premium on fixed maturity securities included in net investment income..................... (5,732) (4,538) (10,533) Adjustment for (gains) losses included in amortization of value of business acquired................................................ (1,705) 214 (454) Adjustment for losses included in amortization of insurance acquisition costs................................................ 6,395 13 1,892 -------- -------- --------- Total reclassification adjustments for items included in net income........................................................ (10,245) (28,894) 7,556 -------- -------- --------- Other comprehensive income (loss), before related income tax expense (benefit)................................................ 57,436 86,751 (169,286) Related income tax expense (benefit)............................... 8,167 (1,350) (15,492) -------- -------- --------- Other comprehensive income (loss), net of tax................... 49,269 88,101 (153,794) -------- -------- --------- Comprehensive income (loss)..................................... $100,866 $136,402 $(108,854) ======== ======== =========
See accompanying notes to consolidated financial statements. 106 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
Year Ended December 31, ------------------------------ 2001 2000 1999 -------- --------- --------- Capital stock, beginning and end of period................. $ 2,500 $ 2,500 $ 2,500 -------- --------- --------- Additional paid-in capital, beginning and end of period.... 804,347 804,347 804,347 -------- --------- --------- Accumulated other comprehensive income (loss), beginning of period................................................... (32,718) (120,819) 32,975 Other comprehensive income (loss), net of tax.............. 49,269 88,101 (153,794) -------- --------- --------- End of period........................................... 16,551 (32,718) (120,819) -------- --------- --------- Retained earnings (deficit), beginning of period........... (44,002) (56,023) 14,037 Net income................................................. 51,597 48,301 44,940 Dividends to parent........................................ (13,000) (36,280) (115,000) -------- --------- --------- End of period........................................... (5,405) (44,002) (56,023) -------- --------- --------- Total stockholder's equity.......................... $817,993 $ 730,127 $ 630,005 ======== ========= =========
See accompanying notes to consolidated financial statements. 107 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ----------------------------------- 2001 2000 1999 ----------- --------- ----------- Cash flows from operating activities Net income...................................................... $ 51,597 $ 48,301 $ 44,940 Reconciliation of net income to net cash from operating activities: Realized investment (gains) losses........................... (20,660) 8,277 9,549 Net change in trading account securities..................... -- -- (51,239) Interest credited and other charges.......................... 169,084 142,344 158,557 Deferred insurance acquisition costs, net.................... (148,150) (81,377) (64,290) Amortization of value of business acquired................... 15,606 19,926 12,955 Amortization of goodwill..................................... 12,744 12,744 12,744 Amortization of discount and premium on investments.......... 5,731 4,538 11,157 Amortization of other intangible assets...................... 961 368 -- Deferred income taxes........................................ 16,927 (25,930) (42,952) Net change in current federal income taxes................... (5,063) (18,593) (10,594) Benefits and premium taxes due related to separate account business-owned life insurance...................... (6,392) (61,476) 149,477 Other, net................................................... 5,120 42,377 (11,901) ----------- --------- ----------- Net cash flow from operating activities.................. 97,505 91,499 218,403 ----------- --------- ----------- Cash flows from investing activities Cash from investments sold or matured: Fixed maturity securities held to maturity................... 281,664 170,465 335,735 Fixed maturity securities sold prior to maturity............. 1,331,168 589,933 1,269,290 Equity securities............................................ -- 1,271 11,379 Mortgage loans, policy loans and other invested assets....... 60,495 73,177 75,389 Cost of investments purchased or loans originated: Fixed maturity securities.................................... (1,481,699) (569,652) (1,455,496) Equity securities............................................ -- (1,264) (8,703) Mortgage loans, policy loans and other invested assets....... (41,395) (47,109) (43,665) Investment in subsidiaries................................... (2,690) (4,899) -- Short-term investments, net..................................... (143,205) 26,491 15,943 Net change in receivable and payable for securities transactions 6,186 (4,786) -- Net change in other assets...................................... 2,248 (5,141) (2,725) ----------- --------- ----------- Net cash from investing activities....................... 12,772 228,486 197,147 ----------- --------- ----------- Cash flows from financing activities Policyholder account balances: Deposits..................................................... 680,106 608,363 383,874 Withdrawals.................................................. (733,521) (881,888) (694,848) Dividends to parent............................................. (13,000) (36,280) (115,000) Cash overdrafts................................................. (20,589) 11,906 8,953 ----------- --------- ----------- Net cash from financing activities....................... (87,004) (297,899) (417,021) ----------- --------- ----------- Net increase (decrease) in cash.......................... 23,273 22,086 (1,471) Cash, beginning of period....................................... 34,101 12,015 13,486 ----------- --------- ----------- Cash, end of period............................................. $ 57,374 $ 34,101 $ 12,015 =========== ========= ===========
See accompanying notes to consolidated financial statements. 108 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Basis of presentation Kemper Investors Life Insurance Company and its subsidiaries ("the Company") issue fixed and variable annuity products, variable life, term life and interest-sensitive life insurance products marketed primarily through a network of financial institutions, securities brokerage firms, insurance agents and financial planners. The Company is licensed in the District of Columbia and all states except New York. Zurich Kemper Life Insurance Company of New York ("ZKLICONY"), a newly formed, wholly-owned subsidiary, received its license from the state of New York early in 2001 and began writing business in May of 2001. The Company is a wholly-owned subsidiary of Kemper Corporation ("Kemper"), a non-operating holding company. Kemper is a 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. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the 2000 and 1999 consolidated financial statements in order for them to conform to the 2001 presentation. The accompanying consolidated financial statements of the Company as of and for the years ended December 31, 2001, 2000 and 1999, have been prepared in conformity with accounting principles generally accepted in the United States of America. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets or liabilities at the date of the financial statements. As a result, actual results reported as revenue and expenses could differ from the estimates reported in the accompanying financial statements. As further discussed in the accompanying notes to the 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 securities, the valuation allowance for deferred income taxes and the calculation of fair value disclosures for certain financial instruments. Goodwill and other intangibles The Company reviews goodwill and other intangibles ("intangible assets") to determine if events or changes in circumstances may have affected the recoverability of the outstanding intangible assets as of each reporting period. In the event that the Company determines that the intangible assets are not recoverable, it would amortize such amounts as additional amortization expense in the accompanying financial statements. As of December 31, 2001, the Company believes that no such adjustment is necessary. During 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 141 ("SFAS 141"), Business Combinations and Statement of Financial Accounting Standard 142 ("SFAS 142"), Goodwill and Other Intangible Assets in July 2001. SFAS 141 requires that the purchase method of accounting must be used for all business combinations initiated after June 30, 2001. SFAS 142 primarily addresses the accounting that must be applied to goodwill and other intangible assets subsequent to their acquisition. The Company intends to adopt SFAS 141 and SFAS 142 in the first quarter of 2002, however they are not expected to have a material impact on the Company's 2002 financial results. The difference between ZFS's cost of acquiring the Company and the net fair value of the assets and liabilities as of January 4, 1996 was recorded as goodwill. Goodwill is amortized on a straight-line basis over a twenty-year period. Other intangible assets of $7.6 million, recorded in 2001 and 2000 in connection with the purchase of PMG, are being amortized on a straight-line basis over a ten-year period. Value of business acquired The value of business acquired reflects the estimated fair value of the Company's life insurance business in force and represents the portion of the cost to acquire the Company that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition, January 4, 1996. Such value is the present value of the actuarially determined projected cash flows for the acquired policies. 109 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The value of the business acquired is amortized over the estimated contract life of the business acquired in relation to the present value of estimated gross profits using current assumptions based on an interest rate equal to the liability or contract rate on the value of business acquired. The estimated amortization and accretion of interest for the value of business acquired for each of the years through December 31, 2006 are as follows:
Projected Beginning Accretion Ending Year Ended December 31, Balance Amortization Of Interest Balance ----------------------- --------- ------------ ----------- -------- (in thousands) 1999 (actual)..... $126,066 $(20,891) $7,936 $113,111 2000 (actual)..... 113,111 (26,805) 6,879 93,185 2001 (actual)..... 93,185 (21,394) 5,788 77,579 2002.............. 77,579 (17,308) 4,548 64,819 2003.............. 64,819 (15,003) 3,812 53,628 2004.............. 53,628 (13,464) 3,142 43,306 2005.............. 43,306 (11,686) 2,527 34,147 2006.............. 34,147 (10,191) 1,971 25,927
The projected ending balance of the value of business acquired will be further adjusted to reflect the impact of unrealized gains or losses on fixed maturity securities held as available for sale in the investment portfolio. Such adjustments are not recorded in the Company's net income but rather are recorded as a credit or charge to accumulated other comprehensive income, net of income tax. This adjustment decreased the value of business acquired by $1.8 million as of December 31, 2001 and increased the value of business acquired by $2.4 million and $6.0 million as of December 31, 2000 and 1999, respectively. Accumulated other comprehensive income decreased by approximately $1.2 million as of December 31, 2001 due to this adjustment and increased accumulated other comprehensive income by approximately $1.6 million and $3.9 million as of December 31, 2000 and 1999, respectively. Life insurance revenue and expenses Revenue for annuities, variable life insurance and interest-sensitive life insurance products consists of investment income, and policy charges such as mortality, expense and surrender charges and expense loads for premium taxes on certain contracts. Expenses consist of benefits and interest credited to contracts, policy maintenance costs and amortization of deferred insurance acquisition costs. Premiums for term life policies are reported as earned when due. Profits for such policies are recognized over the duration of the insurance policies by matching benefits and expenses to premium income. 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. Deferred insurance acquisition costs The costs of acquiring new business, principally commission expense and certain policy issuance and underwriting expenses, have been deferred to the extent they are recoverable from estimated future gross profits on the related contracts and policies. The deferred insurance acquisition costs for annuities, separate account business and interest-sensitive life insurance products are being amortized over the estimated contract life in relation to the present value of estimated gross profits. Deferred insurance acquisition costs related to such interest-sensitive products also reflect the estimated impact of unrealized gains or losses on fixed 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 deferred insurance acquisition costs for term-life insurance products are being amortized over the premium paying period of the policies. 110 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 guaranteed death benefits in excess of account values. The guaranteed retirement income benefit ("GRIB") is an optional benefit to the DESTINATIONS/SM/ variable annuity, for an additional asset-based fee. It 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 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 percent interest per year to the annuitization date. GRIB reserves have been established for policies that have withdrawn a substantial portion of their contract values, exposing a proportionately large GRIB benefit in relation to the account value. These policies were deemed to have elected annuitization and a reserve has been established to cover the present value of future benefits. No additional liabilities for future policy benefits related to guaranteed living benefits have been established. Had such a benefit been established, total liabilities would have been increased by $7.8 million. Current interest rates credited during the contract accumulation period range from 3.0 percent to 10.0 percent. Future minimum guaranteed interest rates vary from 3.0 percent to 4.0 percent. For contracts that have annuitized, interest rates used in determining the present value of future payments range principally from 2.5 percent to 12.0 percent. Liabilities for future term life policy benefits have been computed principally by a net level premium method. Anticipated rates of mortality are based on the 1975-1980 Select and Ultimate Table modified by Company experience, including withdrawals. Assumed investment yields are by policy duration and range from 7.3 percent to 6.0 percent over 20 years. Guaranty fund assessments The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during the years 2001 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 111 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS interest income on fixed maturity securites deemed to be impaired on an other-than-temporary basis, or on mortgage loans and other real estate loans where the likelihood of collection of interest is doubtful. Mortgage loans are carried at their unpaid balance, net of unamortized discount and any applicable reserves or write-downs. Other real estate-related investments, net of any applicable reserves and write-downs, include 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. Realized gains or losses on sales of investments, determined on the basis of identifiable cost on the disposition of the respective investment, recognition of other-than-temporary declines in value and changes in real estate-related reserves and write-downs are included in revenue. Net unrealized gains or losses on revaluation of investments are credited or charged to accumulated other comprehensive income (loss). Such unrealized gains are recorded net of deferred income tax expense, while unrealized losses are not tax benefited. Derivative instruments The Company is party to an interest rate swap agreement with Zurich Capital Markets, Inc. ("ZCM"), an affiliated counterparty. The Company uses interest rate swaps to hedge against interest rate exposures arising from mismatches between assets and liabilities. Under interest rate swaps, the Company agrees with other parties 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. In 2001, the Company paid $0.9 million as settlement for the difference between the fixed-rate and floating-rate interest. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect its counterparty to fail to meet its obligations given its high credit ratings. The credit exposure of interest rate swaps is represented by the fair value (market value) of contracts. At December 31, 2001, 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 $5.0 million. The negative market value was included as a component of other accounts payable and liabilities in the accompanying consolidated balance sheets. 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 account 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. Income tax The Company files a separate Federal income tax return. Deferred taxes are provided on the temporary differences between the tax and financial statement basis of assets and liabilities. (2) Cash Flow Information The Company defines cash as cash in banks and money market accounts. The Company paid federal income taxes of $19.8 million, $43.9 million and $83.8 million directly to the United States Treasury Department during 2001, 2000 and 1999, respectively. 112 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Invested Assets and Related Income The Company is carrying its fixed maturity investment portfolio at estimated fair value as fixed maturity securities are considered available for sale. The carrying value of fixed maturity securities compared with amortized cost, adjusted for other-than-temporary declines in value and estimated unrealized gains and losses, were as follows:
Estimated Unrealized Carrying Amortized ------------------- Value Cost Gains Losses ---------- ---------- ------- -------- (in thousands) December 31, 2001 U.S. treasury securities and obligations of U.S. government agencies and authorities................................. $ 21,354 $ 21,286 $ 254 $ (186) Obligations of states and political subdivisions, special revenue and nonguaranteed................................ 13,488 13,292 196 -- Debt securities issued by foreign governments.............. 4,537 4,508 29 -- Corporate securities....................................... 1,945,006 1,926,160 45,602 (26,756) Mortgage and asset-backed securities....................... 1,110,175 1,091,893 24,795 (6,513) ---------- ---------- ------- -------- Total fixed maturity securities......................... $3,094,560 $3,057,139 $70,876 $(33,455) ========== ========== ======= ======== December 31, 2000 U.S. treasury securities and obligations of U.S. government agencies and authorities................................. $ 11,822 $ 11,777 $ 69 $ (24) Obligations of states and political subdivisions, special revenue and nonguaranteed................................ 24,021 24,207 -- (186) Debt securities issued by foreign governments.............. 21,812 21,893 90 (171) Corporate securities....................................... 2,060,679 2,093,916 12,634 (45,871) Mortgage and asset-backed securities....................... 1,038,835 1,037,926 7,495 (6,586) ---------- ---------- ------- -------- Total fixed maturity securities......................... $3,157,169 $3,189,719 $20,288 $(52,838) ========== ========== ======= ========
The carrying value and amortized cost of fixed maturity investments, by contractual maturity at December 31, 2001, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because mortgage-backed and asset-backed securities provide for periodic payments throughout their life.
Carrying Amortized Value Cost ---------- ---------- (in thousands) One year or less................................................................. $ 38,884 $ 38,175 Over one year through five years................................................. 836,094 814,386 Over five years through ten years................................................ 880,118 874,543 Over ten years................................................................... 229,289 238,142 Securities not due at a single maturity date, primarily mortgage and asset-backed securities(1).................................................................. 1,110,175 1,091,893 ---------- ---------- Total fixed maturity securities............................................... $3,094,560 $3,057,139 ========== ==========
- -------- (1)Weighted average maturity of 4.5 years. Proceeds from sales of investments in fixed maturity securities prior to maturity were $1,331.2 million, $589.9 million and $1,269.3 million during 2001, 2000 and 1999, respectively. Gross gains of $32.9 million, $8.6 million and $7.9 million and gross losses, including write-downs of fixed maturity securities for other-than-temporary declines in value, of $28.6 million, $20.8 million and $17.7 million were realized on sales and maturities in 2001, 2000 and 1999, respectively. Pre-tax write-downs due to other-than-temporary declines in value amounted to $15.5 million, $11.4 million and $0.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. 113 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2001 the Company held a $92.5 million mortgage loan investment in Delta Wetlands which exceeded 10 percent of the Company's stockholder's equity at December 31, 2001. Excluding agencies of the U.S. government, no other individual investment exceeded 10 percent of the Company's stockholder's equity at December 31, 2001. At December 31, 2001, securities carried at approximately $6.6 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 the 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. These impairment losses are included as part of the write-downs for other-than-temporary declines in value discussed above. Upon default or indication of potential default by an issuer of fixed maturity securities other than securitized financial assets, the issue(s) of such issuer would be placed on nonaccrual status and, since declines in fair value would no longer be considered by the Company to be temporary, would be analyzed for possible write-down. Any such issue would be written down to its net realizable value during the fiscal quarter in which the impairment was determined to have become other than temporary. Thereafter, each issue on nonaccrual status is regularly reviewed, and additional write-downs may be taken in light of later developments. The Company's computation of net realizable value involves judgments and estimates, so such value should be used with care. Such value determination considers such factors as the existence and value of any collateral security; the capital structure of the issuer; the level of actual and expected market interest rates; where the issue ranks in comparison with other debt of the issuer; the economic and competitive environment of the issuer and its business; the Company's view on the likelihood of success of any proposed issuer restructuring plan; and the timing, type and amount of any restructured securities that the Company anticipates it will receive. The Company's $176.4 million real estate portfolio at December 31, 2001 consists of joint venture and third-party mortgage loans and other real estate-related investments. At December 31, 2001 and 2000, total impaired real estate-related loans were as follows:
December 31, December 31, 2001 2000 ------------ ------------ (in millions) Impaired loans without reserves--gross $ 7.3 $ 62.6 Impaired loans with reserves--gross... 11.3 23.7 ----- ------ Total gross impaired loans......... 18.6 86.3 Reserves related to impaired loans.... (2.7) (18.5) Write-downs related to impaired loans. (3.5) (3.5) ----- ------ Net impaired loans................. $12.4 $ 64.3 ===== ======
The Company had an average balance of $65.3 million and $90.2 million in impaired loans for 2001 and 2000, respectively. Cash payments received on impaired loans are generally applied to reduce the outstanding loan balance. At December 31, 2001 and 2000, loans on nonaccrual status, before reserves and write-downs, amounted to $13.0 million and $86.3 million, respectively. The Company's nonaccrual loans are generally included in impaired loans. Net Investment Income During 2001, a change in circumstances surrounding a water development project located in California's Sacramento River Valley led to a decision to reclassify the related mortgage loans to accrual status and release the general reserve allowance originally set up for these loans. These changes included the State of California's State Water Resources Control Board ("SWRCB") approval of the project's water right permit as well as the completion of a third-party appraisal of the project, subsequent to the SWRCB's approval of the permit. 114 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Taken together, these facts support, in management's best judgment, not only the level of existing debt on the project but also the accrual of interest as specified in the terms of the loans. As a result, interest income was recorded in the fourth quarter of 2001 in the amount of $24.9 million, representing interest earned in 2001 as well as recaptured interest from 2000 and 1999, the years in which these loans were on non-accrual status. The release of the general reserve allowance generated a realized gain of $16.4 million in 2001. The sources of net investment income were as follows:
2001 2000 1999 -------- -------- -------- (in thousands) Interest on fixed maturity securities............ $214,505 $223,964 $231,176 Dividends on equity securities................... 4,598 4,573 4,618 Income from short-term investments............... 2,332 3,433 3,568 Income from mortgage loans....................... 30,771 6,091 6,296 Income from policy loans......................... 19,394 20,088 20,131 Income from other real estate-related investments 27 99 155 Income from other loans and investments.......... 646 2,455 2,033 -------- -------- -------- Total investment income....................... 272,273 260,703 267,977 Investment expense............................... 2,854 3,233 3,337 -------- -------- -------- Net investment income......................... $269,419 $257,470 $264,640 ======== ======== ========
Net Realized Investment Gains (Losses) Net realized investment gains (losses) for the years ended December 31, 2001, 2000 and 1999, were as follows:
2001 2000 1999 ------- -------- ------- (in thousands) Real estate-related....................................................... $16,081 $ 1,711 $ 4,201 Fixed maturity securities................................................. 4,284 (12,185) (9,755) Trading account securities--gross gains................................... -- -- 491 Trading account securities--gross losses.................................. -- -- (7,794) Equity securities......................................................... 262 245 1,039 Other..................................................................... 33 1,952 2,269 ------- -------- ------- Realized investment gains (losses) before income tax expense (benefit). 20,660 (8,277) (9,549) Income tax expense (benefit).............................................. 7,231 (2,897) (3,342) ------- -------- ------- Net realized investment gains (losses)................................. $13,429 $ (5,380) $(6,207) ======= ======== =======
Unrealized gains (losses) are computed below as follows: fixed maturity securities--the difference between fair value and amortized cost, adjusted for other-than-temporary declines in value; equity and other securities--the difference between fair value and cost. The change in net unrealized investment gains (losses) by class of investment for the years ended December 31, 2001, 2000 and 1999 were as follows:
December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ (in thousands) Fixed maturity securities..................................... $69,970 $89,421 $(182,456) Equity and other securities................................... (879) 1,187 (3,929) Adjustment to deferred insurance acquisition costs............ (7,446) (243) 3,834 Adjustment to value of business acquired...................... (4,209) (3,614) 13,265 ------- ------- --------- Unrealized gain (loss) before income tax expense (benefit). 57,436 86,751 (169,286) Income tax expense (benefit).................................. 8,167 (1,350) (15,492) ------- ------- --------- Net unrealized gain (loss) on investments.................. $49,269 $88,101 $(153,794) ======= ======= =========
115 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) Unconsolidated Investees At December 31, 2001 and 2000 the Company, along with other Kemper subsidiaries, directly held partnership interests in a number of real estate joint ventures. The Company's direct and indirect real estate joint venture investments are accounted for utilizing the equity method, with the Company recording its share of the operating results of the respective partnerships. The Company, as an equity owner, has the ability to fund, and historically has elected to fund, operating requirements of certain of the joint ventures. Consolidation accounting methods are not utilized as the Company, in most instances, does not own more than 50 percent in the aggregate, and in any event, major decisions of the partnership must be made jointly by all partners. As of December 31, 2001 and 2000, the Company's net equity investment in unconsolidated investees amounted to $0.9 million and $1.0 million, respectively. The Company's share of net income related to such unconsolidated investees amounted to $27 thousand, $99 thousand and $155 thousand in 2001, 2000 and 1999, respectively. (5) Concentration of Credit Risk The Company generally strives to maintain a diversified invested asset portfolio; however, certain concentrations of credit risk exist in mortgage and asset-backed securities and real estate. Approximately 22.0 percent of the investment-grade fixed maturity securities at December 31, 2001 were mortgage-backed securities, up from 18.9 percent at December 31, 2000. These investments consist primarily of marketable mortgage pass-through securities issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and other investment-grade securities collateralized by mortgage pass-through securities issued by these entities. The Company has not made any investments in interest-only or other similarly volatile tranches of mortgage-backed securities. The Company's mortgage-backed investments are generally of AAA credit quality, and the markets for these investments have been and are expected to remain liquid. Approximately 15.3 percent and 15.1 percent of the investment-grade fixed maturity securities at December 31, 2001 and 2000, respectively, consisted of corporate asset-backed securities. The majority of investments in asset-backed securities were backed by commercial mortgage-backed securities (36.5%), home equity loans (22.9%), collateralized loan and bond obligations (12.1%), manufactured housing loans (11.7%), and other commercial assets (5.5%). 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, 2001 was as follows: California (52.9%), Washington (9.8%), Colorado (8.1%) and Illinois (6.7%). The property type distribution of a majority of the real estate portfolio as of December 31, 2001 was as follows: land (51.9%), hotels (32.4%) and office (7.8%). To maximize the value of certain land and other projects, additional development has been proceeding or has been planned. Such development of existing projects would continue to require funding, either from the Company or third parties. In the present real estate markets, third-party financing can require credit enhancing arrangements (e.g., standby financing arrangements and loan commitments) from the Company. The values of development projects are dependent on a number of factors, including Kemper's and the Company's plans with respect thereto, obtaining necessary construction and zoning permits and market demand for the permitted use of the property. There can be no assurance that such permits will be obtained as planned or at all, nor that such expenditures will occur as scheduled, nor that Kemper's or the Company's plans with respect to such projects may not change substantially. More than half of the Company's real estate mortgage loans are on properties or projects where the Company, Kemper, or their affiliates have taken ownership positions in joint ventures with a small number of partners. 116 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2001 loans to a master limited partnership (the ''MLP'') between subsidiaries of Kemper and subsidiaries of Lumbermens Mutual Casualty Company, a former affiliate, constituted approximately $92.5 million, or 52.4 percent, of the Company's real estate portfolio. Kemper's interest in the MLP is 75.0 percent at December 31, 2001. Loans to the MLP were placed on non-accrual status at the beginning of 1999 due to management's desire not to increase book value of the MLP over net realizable value, as interest on these loans has historically been added to principal. During 2001, a change in circumstances surrounding the water development project related to these loans led to the reclassification of these loans to accrual status. As a result, interest income was recorded in the fourth quarter of 2001 and the general reserve allowance related to these loans was released. At December 31, 2001, MLP-related commitments accounted for approximately $0.2 million of the Company's off-balance-sheet legal commitments. At December 31, 2001, 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 $63.9 million, or 6.2 percent, of the Company's real estate portfolio. The Nesbitt ventures consist of nine hotel properties, one office building and one retail property. At December 31, 2001, the Company did not have any Nesbitt-related off-balance-sheet legal funding commitments outstanding. In the fourth quarter of 2001, a valuation reserve of $600 thousand was recorded for one of these properties as its estimated fair value decreased below the debt supported by the property. At December 31, 2001, a loan to a joint venture amounted to $11.8 million. This affiliated mortgage loan was on an office property located in Illinois. At December 31, 2001, the Company did not have any off-balance-sheet legal funding commitments outstanding related to this investment. The remaining real estate-related investment amounted to $7.4 million at December 31, 2001 and consisted of various unzoned residential and commercial lots located in Hawaii. Due to certain negative zoning restriction developments in January 1997 and a continuing economic slump in Hawaii, these real estate-related investments were placed on nonaccrual status. All zoned properties were sold by March of 2001. We are currently pursuing an out of court settlement against the city of Honolulu for the downzoning of certain unzoned properties. If a settlement is not reached, trial will begin this year. We are holding the unzoned properties for future zoning and sales. However, due to the state of Hawaii's economy, which has lagged behind the economic expansion of most of the rest of the United States, it is anticipated that it could be several additional years until the Company completely disposes of all investments in Hawaii. At December 31, 2001, off-balance-sheet legal commitments related to Hawaiian properties totaled $4.0 million. At December 31, 2001, the Company no longer had any outstanding loans or investments in projects with the Prime Group, Inc. or its affiliates, as all such investments have been sold. However, the Company continues to have Prime Group-related commitments, which accounted for $25.7 million of the Company's off-balance-sheet legal commitments at December 31, 2001. (6) Income Taxes Income tax expense (benefit) was as follows for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999 ------- -------- -------- (in thousands) Current....... $11,228 $ 28,274 $ 75,816 Deferred...... 16,926 (27,027) (42,952) ------- -------- -------- Total...... $28,154 $ 1,247 $ 32,864 ======= ======== ========
117 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, the deferred income tax (benefit) expense related to items included in other comprehensive income was as follows for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999 ------- ------- -------- (in thousands) Unrealized gains and losses on investments $12,246 $ -- $(21,477) Value of business acquired................ (1,473) (1,265) 4,643 Deferred insurance acquisition costs...... (2,606) (85) 1,342 ------- ------- -------- Total.................................. $ 8,167 $(1,350) $(15,492) ======= ======= ========
The actual income tax expense for 2001, 2000 and 1999 differed from the ''expected'' tax expense for those years as displayed below. ''Expected'' tax expense was computed by applying the U.S. federal corporate tax rate of 35 percent in 2001, 2000, and 1999 to income before income tax expense.
2001 2000 1999 ------- -------- ------- (in thousands) Computed expected tax expense.......................... $27,913 $ 17,342 $27,232 Difference between ''expected'' and actual tax expense: State taxes......................................... (2,302) 737 1,608 Amortization of goodwill and other intangibles...... 4,797 4,589 4,460 Dividend received deduction......................... -- (1,191) -- Foreign tax credit.................................. (15) (214) (306) Change in valuation allowance....................... -- (15,201) -- Recapture of affiliated reinsurance................. -- (4,599) -- Prior year tax settlements.......................... (2,577) -- -- Other, net.......................................... 338 (216) (130) ------- -------- ------- Total actual tax expense........................ $28,154 $ 1,247 $32,864 ======= ======== =======
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 $4.6 million tax benefit in 2000 is due to the deferred tax effect related to the deemed dividend distribution. (See the note captioned ''Summary of Significant Accounting Policies--Reinsurance.") This deferred tax benefit was recognized in the tax provision under current accounting guidance relating to the recognition of deferred taxes. 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 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 decrease in the valuation allowance in 2001 is related to the change in the amount of unrealized losses on investments. 118 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, December 31, 2001 2000 1999 ------------ ------------ ------------ (in thousands) Deferred federal tax assets: Deferred insurance acquisition costs (''DAC Tax'')........ $135,307 $131,591 $121,723 Unrealized losses on investments.......................... -- 12,045 43,758 Life policy reserves...................................... 90,870 67,260 43,931 Unearned revenue.......................................... 55,574 58,200 59,349 Real estate-related....................................... -- 6,515 7,103 Other investment-related.................................. 12,646 5,330 928 Other..................................................... 3,349 4,329 3,133 -------- -------- -------- Total deferred federal tax assets..................... 297,746 285,270 279,925 Valuation allowance....................................... -- (12,045) (58,959) -------- -------- -------- Total deferred federal tax assets after valuation allowance........................................... 297,746 273,225 220,966 -------- -------- -------- Deferred federal tax liabilities: Value of business acquired................................ 24,608 33,467 55,884 Deferred insurance acquisition costs...................... 135,317 84,280 41,706 Depreciation and amortization............................. 21,165 21,799 19,957 Other investment-related.................................. 7,239 7,973 7,670 Unrealized gains on investments........................... 12,246 -- -- Other..................................................... 1,483 4,925 2,247 -------- -------- -------- Total deferred federal tax liabilities................ 202,058 152,444 127,464 -------- -------- -------- Net deferred federal tax assets.............................. $ 95,688 $120,781 $ 93,502 ======== ======== ========
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 tax returns through the year 1996 have been examined by the Internal Revenue Service (''IRS''). Changes proposed are not material to the Company's financial position. The tax returns for the years 1997 through 1999 are currently under examination by the IRS. (7) Related-Party Transactions The Company paid cash dividends of $13.0 million, $20.0 million and $115.0 million to Kemper during 2001, 2000 and 1999, respectively. The Company reported a deemed dividend distribution of $16.3 million during 2000 related to the recapture of a reinsurance agreement with Federal Kemper Life Assurance Company ("FKLA"), an affiliated company. The Company has loans to joint ventures, consisting primarily of mortgage loans on real estate, in which the Company and/or one of its affiliates has an ownership interest. At December 31, 2001 and 2000, joint venture mortgage loans totaled $104.3 million and $67.5 million, respectively, and during 2001, 2000 and 1999, the Company earned interest income on these joint venture loans of $25.4 million, $0.8 million and $0.6 million, respectively. 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"), will permit FKLA to indirectly fund certain of its employee benefit obligations. 119 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All of the Company's personnel are employees of FKLA. Expenses are allocated to the Company for the utilization of FKLA employees and facilities. Expenses allocated to the Company from FKLA during 2001, 2000 and 1999 amounted to $27.4 million, $23.3 million and $18.3 million, respectively. The Company also paid to Kemper real estate subsidiaries fees of $0.5 million, $0.6 million and $1.0 million in 2001, 2000 and 1999, respectively, related to the management of the Company's real estate portfolio. The Company also has allocated expenses related to investment management services provided by Zurich Scudder Investments, Inc. (''ZSI''), (formerly Scudder Kemper Investments, Inc.), an affiliated company. The Company paid to ZSI investment management fees of $1.7 million, $1.6 million and $1.8 million during 2001, 2000 and 1999, respectively. On December 4, 2001, Deutsche Bank and ZFS announced that they had signed a definitive agreement under which Deutsche Bank will acquire 100 percent of ZSI, with the exception of ZSI's UK operations, Threadneedle Investments. The transaction is expected to be completed, subject to regulatory approval and satisfaction of other conditions, in the first half of 2002. FKLA has a formal management and services agreement with Fidelity Life Association, A Mutual Legal Reserve Company ("FLA"), which charges FLA based upon certain predetermined charges and factors. The Company shares directors, management, operations and employees with FLA. FLA is a mutual company, owned by its policyholders, and is not a member of the Zurich Holding Company System. In 2000, the Company purchased PMG Securities Corporation, PMG Asset Management, Inc., PMG Marketing, Inc., and PMG Life Agency, Inc. (collectively ''PMG''). The total cost was $8.2 million, resulting in the recording of intangible assets in the amount of $7.6 million. The Company owns 100 percent of the stock of PMG. Also in 2000, the Company transferred $63.3 million in fixed maturity securities and cash to fund the operations of its newly formed subsidiary, Zurich Kemper Life Insurance Company of New York (''ZKLICONY''). ZKLICONY received its insurance license from the state of New York in January 2001 and began writing business in May of 2001. At December 31, 2000, the Company held a $100.0 million investment in ZSLM Trust, issued by an affiliate. On October 30, 2001, the Company sold these bonds to various Farmers insurance companies, all of which are affiliated companies. The Company held a $11.8 million real estate-related investment in an affiliated mortgage loan at December 31, 2001. As previously discussed, the Company is party to an interest rate swap agreement with ZCM, an affiliated counterparty. (See the note captioned ''Summary of Significant Accounting Policies--Derivative instruments'' above.) (8) Reinsurance As of December 31, 2001 and 2000, the reinsurance recoverable related to fixed-rate annuity liabilities ceded to FLA amounted to $230.1 million and $262.1 million, respectively. The Company cedes 90 percent of all new direct life insurance premiums to outside reinsurers. Life reserves ceded to outside reinsurers on the Company's direct business amounted to approximately $2.1 million and $2.0 million as of December 31, 2001 and 2000, respectively. The Company is party to a funds withheld 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 percent of the net amount at risk (death benefit payable to the insured less the 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 retains a portion of such funds under the terms of the reinsurance agreement in a funds withheld account ("FWA") which is included as a component of benefits and funds payable in the accompanying consolidated balance sheets. Effective December 31, 2001, the Company entered into a quota share reinsurance agreement with ZICBB. Under the terms of this agreement, the Company cedes 100 percent of the net amount at risk of the 120 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS guaranteed minimum death benefit and guaranteed retirement income benefit portions of a small number of specific variable annuity contracts. As consideration for this reinsurance coverage, the Company cedes 100 percent 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 are held in the Company's separate account during the accumulation period of the contracts. The reserve credits under this treaty are 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 the fourth quarter of 2000, the yearly renewable term reinsurance agreement between the Company and FKLA was terminated. Premiums and reserves were both reduced by $7.7 million. A difference in the basis of the reserves between GAAP and statutory accounting resulted in a deemed dividend distribution to Kemper of $16.3 million. Also in the fourth quarter of 2000, the Company 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. As previously discussed, the Company entered into an interest rate swap in 2000 to exchange the floating-rate interest payments for fixed interest payments. The following table contains amounts related to the BOLI funds withheld reinsurance agreement with ZICBB (in millions): Business Owned Life Insurance (BOLI) (in millions)
Year Ended December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- Face amount in force........... $ 85,564 $ 85,358 $ 82,021 ======== ======== ======== Net amount at risk ceded....... $(76,283) $(78,169) $(75,979) ======== ======== ======== Cost of insurance charges ceded $ 168.1 $ 173.8 $ 166.4 ======== ======== ======== Funds withheld account......... $ 236.1 $ 228.8 $ 263.4 ======== ======== ========
The Company's FWA supports reserve credits on reinsurance ceded on the BOLI product. In 1998, to properly match revenue and expenses, the Company placed assets supporting the FWA in a segmented portion of its General Account. This portfolio was classified as ''trading'' under Statement of Financial Accounting Standards No. 115 (''SFAS 115'') at December 31, 1998 and through November 30, 1999. SFAS 115 mandates that assets held in a trading account be valued at fair value, with changes in fair value flowing through the income statement as realized capital gains and losses. The Company recorded realized capital losses of $7.3 million related to the changes in fair value of this portfolio during 1999. Due to a change in the reinsurance strategy related to the BOLI product, effective December 1, 1999, the Company no longer marked-to-market a portion of the FWA liability and therefore no longer designated the related portion of assets as ''trading''. As a result, changes in fair value to the FWA and the assets supporting the FWA no longer flow through the Company's operating results. (9) Postretirement Benefits Other Than Pensions FKLA sponsors a health and welfare benefit plan that provides insurance benefits covering substantially all eligible, active and retired employees of FKLA and their covered dependents and beneficiaries. The Company is allocated a portion of the costs of providing such benefits. The Company is self insured with 121 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS respect to medical benefits, and the plan is not funded except with respect to certain disability-related medical claims. The medical plan provides for medical insurance benefits at retirement, with eligibility based upon age and the participant's number of years of participation attained at retirement. The plan is contributory for pre-Medicare retirees, and will be contributory for all retiree coverage for most current employees, with contributions generally adjusted annually. Postretirement life insurance benefits are noncontributory and are limited to $5,000 per participant retiring in 2001 and subsequent years, and $10,000 per participant retiring in years prior to 2001. The allocated accumulated postretirement benefit obligation accrued by the Company amounted to $1.3 million at both December 31, 2001 and 2000. The discount rate used in determining the allocated postretirement benefit obligation was 7.0 percent and 7.5 percent for 2001 and 2000, respectively. The assumed health care trend rate used was based on projected experience for 2001, 7.5 percent for 2002, gradually declining to 6.4 percent by the year 2006 and gradually declining thereafter. A one percentage point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 2001 and 2000 by $142 thousand and $78 thousand, respectively. (10) Commitments and Contingent Liabilities The Company is involved in various legal actions for which it establishes liabilities where appropriate. In the opinion of the Company's management, based upon the advice of legal counsel, the resolution of such litigation is not expected to have a material adverse effect on the consolidated financial statements. Although neither the Company nor its joint venture projects have been identified as a ''potentially responsible party'' under federal environmental guidelines, inherent in the ownership of, or lending to, real estate projects is the possibility that environmental pollution conditions may exist on or near or relate to properties owned or previously owned or on properties securing loans. Where the Company has presently identified remediation costs, they have been taken into account in determining the cash flows and resulting valuations of the related real estate assets. Based on the Company's receipt and review of environmental reports on most of the projects in which it is involved, the Company believes its environmental exposure would be immaterial to its consolidated results of operations. However, the Company may be required in the future to take actions to remedy environmental exposures, and there can be no assurance that material environmental exposures will not develop or be identified in the future. The amount of future environmental costs is impossible to estimate due to, among other factors, the unknown magnitude of possible exposures, the unknown timing and extent of corrective actions that may be required, the determination of the Company's liability in proportion to others and the extent such costs may be covered by insurance or various environmental indemnification agreements. (11) Financial Instruments--Off-Balance-Sheet Risk At December 31, 2001, the Company had future legal loan commitments and stand-by financing agreements totaling $29.9 million 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 are included in the Company's analysis of real estate-related reserves and write-downs. The fair values of loan commitments and standby financing agreements are estimated in conjunction with and using the same methodology as the fair value estimates of mortgage loans and other real estate-related investments. (12) Fair Value of Financial Instruments Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. A significant portion of the Company's financial instruments are carried at fair value. Fair value estimates for 122 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, ZSI. Cash and short-term investments: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. Policy loans: The carrying value of policy loans approximates the fair value as the Company adjusts the rates to remain competitive. Mortgage loans and other real estate-related investments: Fair values were estimated based upon the investments observable market price, net of estimated costs to sell. The estimates of fair value should be used with care given the inherent difficulty in estimating the fair value of real estate due to the lack of a liquid quotable market. Mortgage loans and other real estate-related investments are stated at their aggregate unpaid balances, less a valuation allowance of $2.8 million and $18.6 million in 2001 and 2000, 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, 2001 and 2000. Other investments: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. 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. The carrying values and estimated fair values of the Company's financial instruments at December 31, 2001 and 2000 were as follows:
December 31, 2001 December 31, 2000 --------------------- --------------------- Carrying Carrying Value Fair Value Value Fair Value ---------- ---------- ---------- ---------- (in thousands) Financial instruments recorded as assets: Fixed maturity securities........................... $3,094,560 $3,094,560 $3,157,169 $3,157,169 Cash and short-term investments..................... 216,479 216,479 50,001 50,001 Mortgage loans and other real estate-related assets. 176,440 176,440 140,417 140,417 Policy loans........................................ 239,787 239,787 256,226 256,226 Equity securities................................... 67,731 67,731 63,879 63,879 Other invested assets............................... 20,799 20,799 21,792 20,109 Financial instruments recorded as liabilities: Life policy benefits, excluding term life reserves.. 3,376,604 3,324,417 3,273,573 3,206,501 Funds withheld account.............................. 236,134 236,134 228,822 228,822
123 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Stockholder's Equity--Retained Earnings The maximum amount of dividends which can be paid by insurance companies domiciled in the State of Illinois to shareholders without prior approval of regulatory authorities is restricted. In 2002, the Company cannot pay dividends. The Company paid cash dividends of $13.0 million, $20.0 million and $115.0 million to Kemper during 2001, 2000 and 1999, respectively. The Company reported a deemed dividend distribution of $16.3 million during 2000 related to the recapture of the reinsurance agreement with FKLA. The Company's net income (loss) and capital and surplus as determined in accordance with statutory accounting principles were as follows:
2001 2000 1999 -------- -------- -------- (in thousands) Net income (loss)............ $(71,854) $ 19,975 $ 59,116 ======== ======== ======== Statutory capital and surplus $332,598 $397,423 $394,966 ======== ======== ========
The Company's statutory net loss reflects the market downturn and its impact on reserves for guaranteed death and living benefits consistent with statutory methodology. As of January 1, 2001, the Company adopted the Codification of Statutory Accounting Principles (''Codification'') guidance. The NAIC Accounting Practices and Procedures Manual -- version effective January 1, 2001 -- is the National Association of Insurance Commissioners' primary guidance on statutory accounting. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas. The Illinois Insurance Department adopted the Codification guidance, effective January 1, 2001. The Company's statutory surplus was positively impacted by $16.7 million upon adoption as a result of the net effect of recording a deferred tax asset, of non-admitting non-operating system software, of non-admitting net affiliated receivables and other changes caused by the Codification. (14) 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) 2001 Operating Summary Revenue.................................. $91,072 $ 98,360 $85,013 $123,852 $398,297 ======= ======== ======= ======== ======== Net operating income (loss), excluding realized 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 ======= ======== ======= ======== ======== 2000 Operating Summary Revenue.................................. $87,648 $103,446 $94,249 $ 75,567 $360,910 ======= ======== ======= ======== ======== Net operating income, excluding realized gains (losses)......................... $12,031 $ 9,953 $ 8,710 $ 22,987 $ 53,681 Net realized investment gains (losses)... (1,378) (105) 948 (4,845) (5,380) ------- -------- ------- -------- -------- Net income........................... $10,653 $ 9,848 $ 9,658 $ 18,142 $ 48,301 ======= ======== ======= ======== ======== 1999 Operating Summary Revenue.................................. $95,646 $ 86,164 $78,301 $103,308 $363,419 ======= ======== ======= ======== ======== Net operating income, excluding realized gains (losses)......................... $11,222 $ 14,385 $11,568 $ 13,972 $ 51,147 Net realized investment gains (losses)... (627) (1,286) (5,098) 804 (6,207) ------- -------- ------- -------- -------- Net income........................... $10,595 $ 13,099 $ 6,470 $ 14,776 $ 44,940 ======= ======== ======= ======== ========
124 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) Operating Segments and Related Information The Company, FKLA, Zurich Life Insurance Company of America, (''ZLICA''), and FLA, operate under the trade name Zurich Life ("ZL"), formerly known as Zurich Kemper Life. For purposes of this operating segment disclosure, ZL will also include the operations of Zurich Direct, Inc., an affiliated direct marketing life insurance agency and excludes FLA, as it is owned by its policyholders. ZL is segregated by Strategic Business Unit (''SBU''). The SBU concept employed by ZFS has each SBU concentrate on a specific customer market. The SBU is the focal point of ZL, because it is at the SBU level that ZL can clearly identify customer segments and then work to understand and satisfy the needs of each customer. The contributions of ZL's SBUs to consolidated revenues, operating results and certain balance sheet data pertaining thereto, are shown in the following tables on the basis of accounting principles generally accepted in the United States of America. ZL is segregated into the Life Brokerage, Financial Institutions (''Financial''), Retirement Solutions Group (''RSG'') and Direct SBUs. The SBUs are not managed at the legal entity level, but rather at the Zurich Life level. Zurich Life's SBUs cross legal entity lines, as certain similar products are sold by more than one legal entity. The vast majority of the Company's business is derived from the Financial and RSG SBUs. Each SBU's revenue is derived from geographically dispersed areas as ZL is licensed in the District of Columbia and all states. During 2001, 2000 and 1999, ZL did not derive net revenue from one customer that exceeded 10 percent of the total revenue of ZL. The principal products and markets of ZL's SBUs are as follows: Life Brokerage: The Life Brokerage SBU develops low cost term, universal life insurance and variable universal life, as well as fixed annuities, to market through independent agencies and national marketing organizations. Financial: The Financial SBU focuses on a wide range of products that provide for the accumulation, distribution and transfer of wealth and primarily includes variable and fixed annuities, variable universal life and business-owned life insurance. These products are distributed to consumers through financial intermediaries such as banks, brokerage firms and independent financial planners. RSG: The RSG SBU has a sharp focus on its target customer. This SBU markets variable annuities to K-12 schoolteachers, administrators, and healthcare workers, along with college professors and certain employees of selected non-profit organizations. This target market is eligible for what the IRS designates as retirement-oriented savings or investment plans that qualify for special tax treatment. Direct: The Direct SBU is a direct marketer of basic, low-cost term life insurance through various marketing media. 125 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized financial information for ZL's SBU's is as follows: As of and for the period ending December 31, 2001:
Income Statement ----------------------------------------------------------------- Life Brokerage Financial RSG Direct Total ---------- ----------- ---------- ------------- ----------- (in thousands) Revenue Net investment income............... $ 100,201 $ 226,974 $ 96,113 $ 129 $ 423,417 Realized investment gains........... 6,393 15,148 5,878 8 27,427 Premium income...................... 84,993 3,090 38 20,166 108,287 Fees and other income............... 69,794 42,854 62,826 40,200 215,674 ---------- ----------- ---------- ---------- ----------- Total revenue................... 261,381 288,066 164,855 60,503 774,805 ========== =========== ========== ========== =========== Benefits and Expenses Policyholder benefits............... 121,224 166,390 60,636 7,082 355,332 Intangible asset amortization....... 44,924 11,668 18,547 -- 75,139 Net deferral of insurance acquisition costs................. (37,375) (130,547) (17,098) (36,213) (221,233) Commissions and taxes, licenses and fees.......................... (787) 145,935 48,251 3,979 197,378 Operating expenses.................. 56,900 34,940 29,594 83,048 204,482 ---------- ----------- ---------- ---------- ----------- Total benefits and expenses..... 184,886 228,386 139,930 57,896 611,098 ---------- ----------- ---------- ---------- ----------- Income before income tax expense....... 76,495 59,680 24,925 2,607 163,707 Income tax expense..................... 26,468 20,355 10,145 496 57,464 ---------- ----------- ---------- ---------- ----------- Net income...................... $ 50,027 $ 39,325 $ 14,780 $ 2,111 $ 106,243 ========== =========== ========== ========== =========== Balance Sheet Future policy benefits.............. $1,916,097 $ 2,887,014 $1,468,261 $ 135,034 $ 6,406,406 ========== =========== ========== ========== =========== Liabilities related to separate accounts.......................... $ 25,549 $10,955,660 $2,127,544 $ -- $13,108,753 ========== =========== ========== ========== =========== Liabilities Related to Net Income Future Policy Separate Revenue (Loss) Benefits Accounts ----------- ---------- ------------- ----------- Total revenue, net income, future policy benefits and liabilities related to separate accounts, respectively, from above........................... $ 774,805 $ 106,243 $6,406,406 $13,108,753 ----------- ---------- ---------- ----------- Less: Revenue, net income and selected liabilities of FKLA......................................... 277,589 46,645 2,397,798 -- Revenue, net income and selected liabilities of ZLICA........................................ 57,752 17,492 374,447 -- Revenue, net loss and selected liabilities of Zurich Direct................................ 41,167 (9,491) -- -- ----------- ---------- ---------- ----------- Totals per the Company's consolidated financial statements................. $ 398,297 $ 51,597 $3,634,161 $13,108,753 =========== ========== ========== ===========
126 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the period ending December 31, 2000:
Income Statement ------------------------------------------------------------------ Life Brokerage Financial RSG Direct Total ---------- ---------- ---------- ------------- ----------- (in thousands) Revenue Net investment income................ $ 124,518 $ 198,322 $ 93,299 $ 2,458 $ 418,597 Realized investment losses........... (4,480) (4,130) (3,356) (88) (12,054) Premium income....................... 96,744 464 -- 12,946 110,154 Fees and other income................ 61,976 38,869 60,210 43,916 204,971 ---------- ---------- ---------- ---------- ----------- Total revenue.................... 278,758 233,525 150,153 59,232 721,668 ---------- ---------- ---------- ---------- ----------- Benefits and Expenses Policyholder benefits................ 118,556 131,552 63,318 1,650 315,076 Intangible asset amortization........ 55,186 12,782 20,860 -- 88,828 Net deferral of insurance acquisition costs.................. (35,392) (67,048) (11,416) (43,259) (157,115) Commissions and taxes, licenses and fees........................... 8,260 84,232 44,431 11,264 148,187 Operating expenses................... 48,166 32,182 29,463 94,635 204,446 ---------- ---------- ---------- ---------- ----------- Total benefits and expenses...... 194,776 193,700 146,656 64,290 599,422 ---------- ---------- ---------- ---------- ----------- Income (loss) before income tax expense (benefit)...................... 83,982 39,825 3,497 (5,058) 122,246 Income tax expense (benefit)............. 32,873 7,982 (3,914) (1,762) 35,179 ---------- ---------- ---------- ---------- ----------- Net income (loss)................ $ 51,109 $ 31,843 $ 7,411 $ (3,296) $ 87,067 ========== ========== ========== ========== =========== Balance Sheet Future policy benefits............... $1,954,307 $2,956,326 $1,365,963 $ 75,065 $ 6,351,661 ========== ========== ========== ========== =========== Liabilities related to separate accounts........................... $ 23,410 $8,646,454 $2,509,775 $ -- $11,179,639 ========== ========== ========== ========== =========== Liabilities Related to Net Income Future Policy Separate Revenue (Loss) Benefits Accounts ---------- ---------- ------------- ----------- Total revenue, net income, future policy benefits and liabilities related to separate accounts, respectively, from above............................................. $ 721,668 $ 87,067 $6,351,661 $11,179,639 ---------- ---------- ---------- ----------- Less: Revenue, net income and selected liabilities of FKLA............................................. 268,198 43,922 2,427,185 -- Revenue, net income and selected liabilities of ZLICA............................................ 48,650 7,212 336,336 -- Revenue, net loss and selected liabilities of Zurich Direct.................................... 43,910 (12,368) -- -- ---------- ---------- ---------- ----------- Totals per the Company's consolidated financial statements..................... $ 360,910 $ 48,301 $3,588,140 $11,179,639 ========== ========== ========== ===========
127 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the period ending December 31, 1999:
Income Statement -------------------------------------------------------------- Life Brokerage Financial RSG Direct Total ---------- ---------- ---------- ------------- ----------- (in thousands) Revenue Net investment income................... $ 137,106 $ 175,590 $ 101,202 $ 1,297 $ 415,195 Realized investment gains (losses)...... 976 (6,980) (98) -- (6,102) Premium income.......................... 145,533 410 -- 8,038 153,981 Fees and other income................... 70,477 48,873 35,742 44,528 199,620 ---------- ---------- ---------- ---------- ---------- Total revenue....................... 354,092 217,893 136,846 53,863 762,694 ========== ========== ========== ========== ========== Benefits and Expenses Policyholder benefits................... 200,161 112,869 68,801 3,529 385,360 Intangible asset amortization........... 54,957 12,053 13,989 -- 80,999 Net deferral of insurance acquisition costs................................. (37,433) (43,664) (20,624) (41,412) (143,133) Commissions and taxes, licenses and fees.................................. 21,881 66,702 26,700 17,411 132,694 Operating expenses...................... 56,179 25,101 23,611 71,194 176,085 ---------- ---------- ---------- ---------- ---------- Total benefits and expenses......... 295,745 173,061 112,477 50,722 632,005 ---------- ---------- ---------- ---------- ---------- Income before income tax expense............ 58,347 44,832 24,369 3,141 130,689 Income tax expense.......................... 25,707 19,235 10,966 1,114 57,022 ---------- ---------- ---------- ---------- ---------- Net income.......................... $ 32,640 $ 25,597 $ 13,403 $ 2,027 $ 73,667 ========== ========== ========== ========== ========== Balance Sheet Future policy benefits.................. $2,099,940 $2,620,132 $1,577,944 $ 34,957 $6,332,973 ========== ========== ========== ========== ========== Liabilities related to separate accounts.............................. $ 20,552 $6,916,807 $2,840,709 $ -- $9,778,068 ========== ========== ========== ========== ========== Liabilities Related to Net Income Future Policy Separate Revenue (Loss) Benefits Accounts ---------- ---------- ------------- ----------- Total revenue, net income, future policy benefits and liabilities related to separate accounts, respectively, from above............................................. $ 762,694 $ 73,667 $6,332,973 $9,778,068 ---------- ---------- ---------- ---------- Less: Revenue, net income and selected liabilities of FKLA............................................. 305,334 24,801 2,299,783 -- Revenue, net income and selected liabilities of ZLICA............................................ 49,460 8,528 314,357 -- Revenue, net loss and selected liabilities of Zurich Direct........................................... 44,481 (4,602) -- -- ---------- ---------- ---------- ---------- Totals per the Company's consolidated financial statements..................... $ 363,419 $ 44,940 $3,718,833 $9,778,068 ========== ========== ========== ==========
128 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) Subsequent Event In the first quarter of 2002, the Company amended its BOLI reinsurance agreement with ZICBB. Under the amended agreement, the balance in the FWA will be transferred to a trust account which will act as security for the reinsurance agreement. (17) Effects of New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 141 ("SFAS 141"), Business Combinations. SFAS 141 supercedes Accounting Principles Board Opinion No. 16 ("APB 16"). SFAS 141 requires that the purchase method of accounting must be used for all business combinations initiated after June 30, 2001. It also requires that unrecognized negative goodwill must be written off immediately as an extraordinary gain and provides more specific guidance on how to determine the accounting acquirer, recognizing intangible assets apart from goodwill, as well as additional financial statement disclosures. The Company intends to adopt SFAS 141 in the first quarter of 2002. However, the implementation of SFAS 141 is not expected to have a material impact on the Company's 2002 financial results. Also in July 2001, the FASB issued Statement of Financial Accounting Standard 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 requires that goodwill and indefinite-lived intangible assets will no longer be amortized, but will be tested for impairment at the reporting unit level. Goodwill and indefinite-lived intangible assets will be tested for impairment at least annually and the amortization period for finite-lived intangible assets will no longer be limited to forty years. SFAS 142 also requires additional financial statement disclosure about goodwill and intangible assets. The Company intends to adopt SFAS 142 in the first quarter of 2002. The Company is currently evaluating the impact of implementing SFAS 142, however it is not expected to have a material impact on the Company's 2002 financial results. In June 2001, the FASB issued Statement of Financial Accounting Standard 143 ("SFAS 143"), Accounting for Asset Retirement Obligations. SFAS 143 amends FASB Statement of Financial Accounting Standard 19 and is effective for financial statements issued for fiscal years beginning after June 15, 2002, although earlier application is encouraged. SFAS 143 clarifies and revises existing guidance on financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company intends to adopt SFAS 143 in 2002. The Company is currently evaluating the impact of implementing SFAS 143, however, it is not expected to have a material impact on the Company's 2002 financial results. In October 2001, the FASB issued Statement of Financial Accounting Standard 144 ("SFAS 144"), Accounting for Impairment or Disposal of Long-lived Assets. This Standard will generally be effective on a prospective basis, beginning January 1, 2002. SFAS 144 clarifies and revises existing guidance on accounting for impairment of plant, property, and equipment, amortized intangibles, and other long-lived assets not specifically addressed in other accounting literature. Significant changes include (1) establishing criteria beyond those previously specified in existing literature for determining when a long-lived is held for sale, and (2) requiring that the depreciable life of a long-lived asset to be abandoned is revised. These provisions could be expected to have the general effect of reducing or delaying recognition of future impairment losses on assets to be disposed, offset by higher depreciation during the remaining holding period. However, the Company does not expect the adoption of this Standard to have a significant impact on the Company's 2002 financial results. SFAS 144 also broadens the presentation of discontinued operations to include a component of an entity (rather than only a segment of a business). 129 SUPPLEMENT DATED MAY 1, 2002 TO PROSPECTUS DATED MAY 1, 2002 FOR - -------------------------------------------------------------------------------- MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (SINGLE LIFE AND SURVIVORSHIP) - -------------------------------------------------------------------------------- SCUDDER DESTINATIONS/SM/ LIFE Issued By KEMPER INVESTORS LIFE INSURANCE COMPANY THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT The Supplement describes variations to the Scudder Destinations/SM/ Life Prospectus that apply if you purchase your Policy in the State of New Jersey. These changes are further described below with reference to those parts of the Prospectus modified by this Supplement. Please read this Supplement carefully and keep it with your Prospectus for future reference. The definition of "EFFECTIVE DATE," appearing on page 1 of the Prospectus, is revised to read as follows: "EFFECTIVE DATE--The Effective date of insurance coverage under the Policy, as stated in the Policy specifications. It is used to determine Policy Anniversaries, Policy Years and the Deduction Day. If the Effective Date otherwise would be the 29th, 30th or 31st of a month, the Effective Date will be the 28th day of that month. Unless some other date is requested, and except as noted above, the Effective Date applied will be the date of application or the date your initial Premium is received, if later. We will deduct the first monthly deduction on the Effective Date." The definition of "TRADE DATE," appearing on page 2 of the Prospectus, is revised to read as follows: "TRADE DATE--On the Trade Date, we allocate your Scudder Money Market Subaccount Value to the Subaccounts and/or the DCA Fixed Account according to your instructions. The Trade Date will be the Valuation Date which is on or immediately after the fifteenth day after the Issue Date." The second sentence of the paragraph under the section entitled "Payment of Premium," appearing on page 3 of the Prospectus is revised to read as follows: "If you choose to pay 90% of the Guideline Single Premium at issue, your current cost of insurance charge will be higher and your Policy will not include our Return of Premium Guarantee." The third paragraph under the section entitled "Policy Effective Date," appearing on page 3 of the Prospectus is revised to read as follows: "If we approve your application, and you paid all or a portion of your initial Premium prior to the Issue Date, we will credit interest to your initial Premium at our then current declared rate for the period from the Effective Date to the Issue Date. On the Issue Date, we will allocate your initial Premium (plus any interest) to the Scudder Money Market Subaccount. On the Trade Date, we will allocate your Scudder Money Market Subaccount value to the Subaccounts you have selected or to the DCA Fixed Account (if you have selected it for Dollar Cost Averaging). The Trade Date will be the Valuation Date which is on or immediately after the fifteenth day after the Issue Date. We will begin to deduct the Policy charges as of the Effective Date. The paragraph under the section entitled "No Lapse Guarantee," appearing on page 4 of the Prospectus is revised to read as follows: "Return of Premium Guarantee Under our Return of Premium Guarantee, we guarantee that your Policy will not lapse so long as Policy Debt is less than or equal to Surrender Value. If the Cash Value of your Policy minus Policy Debt on the day immediately preceding a Deduction Day is less than the Monthly Deduction and any Records Maintenance Charge then due, we will apply the Policy's remaining Cash Value toward payment of the Monthly Deduction and any Records Maintenance Charge owing, and we will give you a 61-day Grace Period to pay additional Premium or loan repayment. If Policy Debt is less than or equal to Surrender Value, and you paid 100% of the Guideline Single Premium at issue, and you did not pay sufficient additional Premium or loan repayment before the Return of Premium Guarantee Period Expiration Date, your Policy will stay in force but the Death Benefit will be reduced to equal your total Premium payments less any prior partial withdrawals of Premium. If Policy Debt exceeds Surrender Value, and/or you paid 90% of the Guideline Single Premium at issue, and you did not pay sufficient additional Premium or loan repayment before the Return of Premium Guarantee Period Expiration Date, your Policy will terminate at the end of the Grace Period." The paragraph under the section entitled "Duration of Coverage," appearing on page 5 of the Prospectus is revised to read as follows: "If the Return of Premium Guarantee does not apply to your Policy and if your Cash Value minus Policy Debt is insufficient to cover a Monthly Deduction and any Annual Records Maintenance Charge when due, we will apply the Policy's remaining Cash Value toward payment of the Monthly Deduction and any Records Maintenance Charge owing, and we will give you a 61-day Grace Period to pay additional Premium or loan repayment. If you do not pay sufficient additional Premium or loan repayment, your Policy will terminate at the end of the Grace Period." The second paragraph under the section "Allocation of Premiums," appearing on page 5 of the Prospectus is revised to read as follows: "On the Issue Date, we will allocate your initial Premium (plus any interest) to the Scudder Money Market Subaccount. Subsequently, on the Trade Date, we will allocate your Scudder Money Market Subaccount Value to the Subaccounts and/or the DCA Fixed Account (if you have selected it for Automatic Dollar Cost Averaging) in accordance with your instructions." The second paragraph under the section "Allocation of Premiums," appearing on page 5 of the Prospectus revised to read as follows: "On the Issue Date, we will allocate your initial Premium (plus any interest) to the Scudder Money Market Subaccount. Subsequently, on the Trade Date, we will allocate your Scudder Money Market Subaccount Value to the Subaccounts and/or the DCA Fixed Account (if you have selected it for Automatic Dollar Cost Averaging) in accordance with your instructions. The Trade Date will occur on the Valuation Date on or next following fifteen (15) days after the Issue Date." The second and third paragraphs under the section entitled "Death Benefit," appearing on page 21 of the Prospectus are revised to read as follows: "The Death Benefit proceeds payable to the Beneficiary equal the Death Benefit, less any Policy Debt and less any due and unpaid charges. We will determine the amount of the Death Benefit proceeds following Our receipt of due proof of death of the Insured (or second Insured under a Survivorship Policy) and the return of the Policy based on Policy benefits and values in effect on the Insured's (or second Insured's under a Survivorship Policy) date of death. We must receive due proof of death within 90 days after the death of an Insured, or as soon thereafter as reasonably possible. Under a Survivorship Policy, the Owner must provide proof of death upon the first death of an Insured. We usually will pay the Death Benefit proceeds within seven days after we have received all required documentation. Payment may be postponed in certain circumstances. See "Postponement of Payments" below. 2 If the Grace Period has not expired without payment of any required additional Premium or loan repayment, the Death Benefit generally is the greater of: (1) the Specified Amount; or (2) the Cash Value at the date of death multiplied by a factor from the table of death benefit factors. The death benefit factors in the table reflect the "corridor percentages" for the guideline Premium test under the Tax Code. If the Grace Period expires before the Return of Premium Guarantee Period Expiration Date, if any, (1) without payment of any additional Premium or loan repayment required to keep the specified amount of coverage in force, (2) with Policy Debt less than or equal to Surrender Value, and (3) with payment of 100% of the Guideline Single Premium at issue, the Death Benefit will be your total Premium paid, less any withdrawals of Premium." The section entitled "No-Lapse Guarantee and Grace Period," appearing on page 27 of the Prospectus is revised to read as follows: "Return of Premium Guarantee and Grace Period Under our Return of Premium Guarantee, we guarantee that your Policy will remain in force so long as Policy Debt is less than or equal to Surrender Value. If the Cash Value of your Policy minus Policy Debt is less than the Monthly Deduction and any Records Maintenance Charge then due, we will apply the Policy's remaining Cash Value toward payment of the Monthly Deduction and any Records Maintenance Charge owing, and your Policy will enter a 61-day Grace Period. If the insured dies during the Grace Period, the Death Benefit will be the amount determined as described in "Death Benefit", less any due and unpaid Monthly Deduction or other charge. During the Grace Period, you may pay additional Premium or loan repayment without evidence of insurability to keep your Policy in force. Your payment must equal at least three Monthly Deductions and any Records Maintenance Charge then owing. The Grace Period will begin on the day we mail notice of the required payment to your last known address. If 1) Policy Debt is less than or equal to Surrender Value, 2) the Grace Period ends before the Return of Premium Guarantee Period Expiration Date, if any, as stated in the Policy specifications, 3) you paid 100% of the Guideline Single Premium at issue, and 4) your payment of additional Premium or loan repayment is not sent or delivered within the Grace Period, your Policy will remain in force but the amount paid upon death of an Insured after the Grace Period will be limited to the return of your total Premiums paid less any partial withdrawals of Premium. While the death benefit coverage provided is limited to a return of Premium benefit: (1) no additional Monthly Deductions or annual charges will be applied to this Policy; and, (2) no additional payment of Premium or repayment of Policy Debt will be permitted except upon reinstatement of the Specified Amount of coverage. You may restore the Specified Amount by complying with the reinstatement provisions. If 1) Policy Debt exceeds Surrender Value, or 2) you paid 90% of the Guideline Single Premium at issue, or 3) the Grace Period ends on or after the Return of Premium Guarantee Period Expiration Date, if any, and 4) your payment of additional Premium or loan repayment is not sent or delivered within the Grace Period, coverage under this Policy will terminate at the end of the Grace Period. You may reinstate your coverage by complying with the reinstatement provisions." The section entitled "Termination," appearing on page 28 of the Prospectus is revised to read as follows: "The Policy will terminate and life insurance coverage will end when one of the following events first occurs: (a)you surrender your Policy; (b)the Insured dies or, for Survivorship Policies, the Surviving Insured dies; (c)for Survivorship Policies, the first death is by suicide within two years of the Effective Date or within two years of the Policy's latest reinstatement date, if any; 3 (d)the Policy matures; (e)the Grace Period ends without payment of any required Premium or loan repayment and Policy Debt exceeds Surrender Value or you paid 90% of the Guideline Single Premium at issue; or (f)the Grace Period ends without payment of any required Premium or loan repayment on or after the Return of Premium Guarantee Period Expiration Date, if any, as stated in the Policy specifications." The section entitled "Reinstatement," appearing on page 28 of the Prospectus is revised to read as follows: If your coverage has been reduced, but not terminated, under the Grace Period provision for nonpayment of additional Premium or loan repayment required to keep the Specified Amount of coverage in force ("See Return of Premium Guarantee and Grace Period" above), and the Policy has not been surrendered for its Net Surrender Value, you may reinstate the Specified Amount any time prior to the Maturity Date. You may also reinstate the Specified Amount within three years of Policy termination, if termination resulted from nonpayment of required additional Premium or loan repayment before the end of the Grace Period, and if the Policy has not been surrendered for its Net Surrender Value. Reinstatement of the Specified Amount is subject to the following conditions: (1)Provide evidence of insurability satisfactory to us (evidence of insurability is required for each of the Lives Insured under Survivorship Policies); (2)Pay the unpaid Monthly Deductions and any unpaid Records Maintenance Charge due during the last expired Grace Period; (3)Pay at least sufficient additional Premium to keep your Policy in force for three months; and (4)Pay or reinstate any Policy Debt that existed on the date coverage was reduced or the Policy terminated. The effective date of reinstatement of a Policy will be the Deduction Day that coincides with or next following the date on which we approve your application for reinstatement. You may not reinstate a Policy that has been surrendered. Under Survivorship Policies, if one of the Lives Insured dies during the lapse, upon payment of the reinstatement Premium the Policy will be reissued as a single life permanent Policy. The suicide and incontestability provisions will apply from the effective date of reinstatement. Initial Premium withdrawn after reinstatement will be subject to the withdrawal charges described in Schedule 1 of the Policy Specifications as if the Policy had remained continuously effective. The second sentence of the second paragraph under the section entitled "Postponement of Payments," appearing on Page 29 of the Prospectus: "We may also defer payment of any Death Benefit in excess of the Specified Amount for up to two months from the date requested if those benefits are based upon Policy values that do not depend on the investment performance of the Separate Account." The first two paragraphs under the section entitled "Cost of Insurance Charge." appearing on Page 30 of the Prospectus are revised to read as follows: "Cost of Insurance Charge. The cost of insurance charge is intended to pay for the cost of providing life insurance coverage for the Insured(s). The current cost of insurance charge differs based on 1) the coverage year, 2) the Insured's rate class and 3) whether the initial Premium was 90% or 100% of the Guideline Single Premium at issue. We guarantee that this charge will not exceed the maximum cost of insurance charge determined on the basis of the rates shown in the table of guaranteed maximum cost of insurance rates in the Policy multiplied by the appropriate rate class percent. After the tenth Policy Year the current asset-based cost of insurance rate may decrease. If your initial Premium is more than $2,500,000, your cost of insurance charge may be lower. 4 The current monthly cost of insurance charge is 1. times 2., where: 1. is the applicable current asset-based cost of insurance rate; and 2. is the Cash Value on the Deduction Day." The first two paragraphs under the section entitled "Limit on Right to Contest," appearing on page 33 of the Prospectus are revised to read as follows: "In the absence of fraud, we may not contest the insurance coverage under the Policy after the Policy has been in force for two years after the Effective Date while the Insured (Surviving Insured under a Survivorship Policy) is alive, unless the Effective Date precedes the date of application. If the Effective Date precedes the date of application, the two year contestablity period will start on the Issue Date." "If the Policy is reinstated, a new two year contestability period will apply from the effective date of reinstatement and will apply only to statements made in the application for the reinstatement." The section entitled "Suicide," appearing on page 33 of the Prospectus is revised to read as follows: "If the Insured under a Single Life Policy dies by suicide, while sane or insane, within two years from the Effective Date, the Death Benefit proceeds will be limited to the Premiums paid less any partial withdrawals and Policy Debt. If, however, the Effective Date precedes the date of application, the two-year suicide period will start on the Issue Date. If the Insured dies by suicide, while sane or insane, within two years of any reinstatement, our total liability with respect to such reinstatement will be limited to the necessary Premium paid for reinstatement less any partial withdrawals and Policy Debt since such reinstatement. If the first death under a Survivorship Policy is by suicide within two years of the Effective Date, while sane or insane, we will reissue the Policy. If, however, the Effective Date precedes the date of application, the two year suicide period will start on the Issue Date. The new Policy on the surviving Insured will be a single life Policy providing coverage substantially similar to that provided under the Policy which is available at the time of reissue. The suicide provision for the new Policy will be effective as of the original Policy's Effective Date. If the original Policy's Effective Date precedes the date of application, the new Policy will be effective as of the original Policy's Issue Date. We will also reissue the Policy if the first death occurs by suicide within two years after the date of reinstatement, under the terms described above. The suicide provision for the new Policy will be effective from the original Policy's latest reinstatement date." "If the second death is by suicide within two years from the Effective Date, while sane or insane, we will pay only the Premiums paid less any partial withdrawals and Policy Debt. If, however, the Effective date precedes the date of application, the two year suicide period will start on the Issue Date. If the second death occurs within two years after the original Policy's latest reinstatement date, our liability will be limited to Premiums paid for reinstatement less any partial withdrawal and Policy Debt." "We must receive written proof of the first death by suicide within 90 days of such death. We will apply all premium received on this Policy to the new Policy when this Policy is reissued. We will notify You of any additional Premium required within 30 days of receiving notice of the first death. You must pay any additional Premium required within 60 days of the date You receive Our request for additional Premium. If the additional Premium required is not sent or delivered during the time allowed for payment, all coverage will end and your Premium less Policy Debt will be refunded. In the event the Surviving Insured dies within the 60 day period allowed for payment of Premium without Your payment of such additional Premium, we will pay a death benefit based on the full face amount of this Policy reduced by any additional Premium and any other required amount due and payable." 5 The section entitled "Misstatement as to Age and Sex," appearing on page 33 of the Prospectus is revised to read as follows: "If the age and/or sex of the Insured(s) is incorrectly stated in the application, the Death Benefit will be adjusted based on what the initial Premium would have purchased using the correct age and/or sex. The Cash Value under the Policy will not be adjusted." * * * * * * A current Scudder Destinations/SM/ Life Prospectus dated May 1, 2002 must accompany this Supplement. For use in New Jersey only 6 PART II--OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, as amended, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. REPRESENTATION AS TO FEES AND CHARGES KILICO hereby represents that the fees and charges deducted under the Modified Single Premium Variable Universal Life Insurance Policies hereby registered by this Registration Statement in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by KILICO. REPRESENTATION PURSUANT TO RULE 6e-3(T) This filing is made pursuant to Rule 6e-3(T) under the Investment Company Act of 1940, as amended (the "1940 Act"). UNDERTAKING AS TO INDEMNIFICATION Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this Registration Statement, KILICO and the Separate Account will agree to indemnify Investors Brokerage Services, Inc. ("IBS") against any claims, liabilities and expenses which IBS may incur under the Securities Act of 1933, common law or otherwise, arising out of or based upon any alleged untrue statements of material fact contained in any registration statement or prospectus of the Separate Account, or any omission to state a material fact therein, the omission of which makes any statement contained therein misleading. IBS will agree to indemnify KILICO and the Separate Account against any and all claims, demands, liabilities and expenses which KILICO or the Separate Account may incur, arising out of or based upon any act or deed of IBS or of any registered representatives of an NASD member investment dealer which has an agreement with IBS and is acting in accordance with KILICO's instructions. Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following Papers and Documents: The Facing sheet. Reconciliation and tie between items in N-8B-2 and Prospectus. Prospectus consisting of 129 pages. The undertaking to file reports. Undertaking as to indemnification pursuant to Rule 484(b)(1) under the Securities Act of 1933. Representation Regarding Fees and Charges Pursuant to Section 26 of the Investment Company Act of 1940. The signatures. Written consents of the following persons: A. Frank J. Julian, Esq.(included in Opinion filed as Exhibit 3(a)). B. PricewaterhouseCoopers LLP, independent accountants (filed as Exhibit 6). C. Phillip N. Beyer, FSA (included in Opinion filed as Exhibit 3(b)). The following exhibits: /1/1-A(1) KILICO Resolution establishing the Separate Account /2/1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage Services, Inc. (IBS) /3/1-A(3)(b) Specimen Selling Group Agreement of IBS /9/1-A(3)(c) Schedules of commissions /3/1-A(3)(d) General Agent Agreement /9/1-A(5)(a) Form of Individual Policy 1-A(5)(a)(1) Form of Individual Policy (New Jersey) /9/1-A(5)(b) Form of Survivorship Policy 1-A(5)(b)(1) Form of Survivorship Policy (New Jersey) /9/1-A(5)(c) Accelerated Death Benefit Rider /9/1-A(5)(d) Extended Maturity Rider /9/1-A(5)(e) Nursing Care Waiver of Withdrawal Charge Rider /1/1-A(6)(a) KILICO Articles of Incorporation /3/1-A(6)(b) By-Laws of KILICO /4/1-A(8)(a) Participation Agreement between KILICO and Scudder Variable Life Investment Fund (now known as Scudder Variable Series I) /4/1-A(8)(b) Participating Contract and Policy Agreement between KILICO and Scudder Kemper Investments, Inc. /4/1-A(8)(c) Indemnification Agreement between KILICO and Scudder Kemper Investments, Inc. /7/1-A(8)(f) Participation Agreement By and Among KILICO and Warburg, Pincus Trust and Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Credit Suisse Asset Management Securities, Inc.(f/k/a Counsellors Securities Inc.) /8/1-A(8)(g) Service Agreement between Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Federal Kemper Life Assurance Company and KILICO /11/1-A(8)(h) Restatement of Participation Agreement among Counsellors Securities, Inc., Warburg Pincus Asset Management, Inc. and/or the Warburg Pincus Funds and KILICO /7/1-A(8)(i) Fund Participation Agreement among KILICO, Kemper Investors Fund (now known as Scudder Variable Series II), Zurich Kemper Investments, Inc. and Kemper Distributors, Inc. /10/1-A(8)(j) Fund Participation Agreement between KILICO and The Dreyfus Socially Responsible Growth Fund, Inc. /12/1-A(8)(k) Administrative Services Agreement by and between The Dreyfus Corporation and KILICO (redacted) /12/1-A(8)(l) November 1, 1999 Amendment to Fund Participation Agreement between KILICO and The Dreyfus Socially Responsible Growth Fund, Inc. /12/1-A(8)(m) November 1, 1999 Amendment to Administrative Services Agreement by and between The Dreyfus Corporation and KILICO (redacted) /12/1-A(8)(n) Fund Participation Agreement by and among The Alger American Fund, KILICO and Fred Alger & Company, Incorporated /12/1-A(8)(o) Service Agreement between Fred Alger Management, Inc. and KILICO (redacted) /13/1-A(8)(p) Form of Fund Participation Agreement by and among Kemper Investors Life Insurance Company, INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc. and INVESCO Distributors, Inc. /13/1-A(8)(q) Form of Administrative Services Agreement by and between INVESCO Funds Group, Inc., INVESCO Variable Investment Funds, Inc. and Kemper Investors Life Insurance Company (redacted) /9/1-A(10) Application for Policy /2/2 Specimen Notice of Withdrawal Right /9/3(a) Opinion and consent of legal officer of KILICO as to legality of policies being registered 3(b) Opinion and consent of actuarial officer of KILICO regarding illustrations and actuarial matters 6 Consents of PricewaterhouseCoopers LLP, independent accountants 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b) (12)(iii) 9 Illustrations - ---------- /1/ Incorporated by reference to the Registration Statement of the Registrant on Form S-6 filed on or about December 26, 1995 (File No. 33-65399). /2/ Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement of the Registrant on Form S-6 filed on or about June 5, 1996 (File No. 33-65399). /3/ Incorporated by reference to Amendment No.2 to the Registration Statement of KILICO on Form S-1 filed on or about April 23, 1997 (File No. 333-02491). /4/ Incorporated by reference to Amendment No.5 to the Registration Statement of KILICO on Form S-1 filed on or about April 20, 1999 (File No. 333-22389). /5/ [omitted] /6/ [omitted] /7/ Incorporated by reference to Amendment No.3 to the Registration Statement of KILICO on Form S-1 filed on or about April 8, 1998 (File No. 333-22389). /8/ Incorporated by reference to Post-Effective Amendment No. 4 to the Registration Statement of FKLA Variable Separate Account on Form S-6 filed on or about April 30, 1997 (File No. 33-79808). /9/ Incorporated by reference to Pre-Effective Amendment No.1 to the Registration Statement of the Registrant on Form S-6 filed on or about September 20, 1999 (File No. 333-79615). /10/ Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement on Form N-4 filed on or about April 28, 1999 (File No. 2-72671). /11/ Incorporated by reference to Post-Effective Amendment No.6 to the Registration Statement on Form N-4 filed on or about September 14, 1999 (File No. 333-22375). /12/ Incorporated by reference to Amendment No. 6 to the Registration Statement of KILICO on Form S-1 filed on or about April 17, 2000 (File No. 333-22389). /13/ Incorporated by reference to Amendment No. 7 to the Registration Statement of KILICO on Form S-1 filed on or about April 27, 2001 (File No. 333-22389). SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, KILICO Variable Separate Account, certifies that it meets the requirements of effectiveness of this Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Schaumburg and State of Illinois on the 29th day of April, 2002. KILICO VARIABLE SEPARATE ACCOUNT (Registrant) By: Kemper Investors Life Insurance Company (Depositor) By: /s/ GALE K. CARUSO --------------------------------------------------- Gale K. Caruso, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following directors and principal officers of Kemper Investors Life Insurance Company in the capacities indicated on the 29th day of April, 2002.
Signature Title /s/ GALE K. CARUSO President, Chief Executive Officer and Director - ----------------------------------- Gale K. Caruso (Principal Executive Officer) /s/ MARTIN D. FEINSTEIN Chairman of the Board - ----------------------------------- Martin D. Feinstein /s/ FREDERICK L. BLACKMON Executive Vice President, Chief Financial Officer and Director - ----------------------------------- Frederick L. Blackmon (Principal Financial Officer and Principal Accounting Officer) /s/ DEBRA P. REZABEK Director - ----------------------------------- Debra P. Rezabek /s/ GEORGE VLAISAVLJEVICH Director - ----------------------------------- George Vlaisavljevich
EXHIBIT LIST
Sequential Exhibit Page Number Title Number* - ------- ----- ---------- 1-A(5)(a)(1) Form of Individual Policy (New Jersey) 1-A(5)(b)(1) Form of Survivorship Policy (New Jersey) 3(b) Opinion and consent of actuarial officer of KILICO regarding illustrations and actuarial matters 6 Consent of PricewaterhouseCoopers LLP, independent accountants 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii) 9 Illustrations
EX-99.1.A.5.A.1 3 dex991a5a1.txt FORM OF INDIVIDUAL POLICY Exhibit 1-A(5)(a)(1) [LOGO OF ZURICH LIFE] Kemper Investors Life Insurance Company A Stock Life Insurance Company 1600 McConnor Parkway Schaumburg, Illinois 60196-6801 INSURED: JOHN DOE ISSUE AGE: 35 EFFECTIVE DATE: JAN 01 2001 POLICY NO: 0000000 INITIAL PREMIUM: $13,156 INITIAL SPECIFIED AMOUNT: $100,000 RIGHT TO CANCEL - At any time within 10 days of receiving this policy, you may return it to us or to the agent through whom it was purchased. Immediately upon our receipt, this policy will be voided as if it had never been in force. Within ten days we will pay an amount equal to premiums paid for this policy less any Debt. On the Maturity Date, if the insured is living and this policy is in force, we will pay the Net Surrender Value to you. If the insured dies prior to the Maturity Date and this policy is in force, we will pay to the beneficiary the death benefit in force at the time of the insured's death. Payment made to you or to the beneficiary will be made subject to the terms of this policy. This policy is issued in consideration of the attached application and payment of the single premium. The provisions on this cover and the pages that follow are part of this policy. Signed for Kemper Investors Life Insurance Company at its home office in Schaumburg, Illinois. /s/ Debra P. Rezabek /s/ Gale K. Caruso -------------------- ------------------ Secretary President INDIVIDUAL MODIFIED PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY NON-PARTICIPATING TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND TERMINATION PROVISIONS. This is a legal contract between the owner and Kemper Investors Life Insurance Company. READ THIS POLICY CAREFULLY. Policy Form No. L-8387NJ
TABLE OF CONTENTS Page No. SETTLEMENT/ANNUITY OPTION TABLE Follows Page 16 APPLICATION Follows Policy Specifications POLICY SPECIFICATIONS Follows Table of Contents ENDORSEMENTS, if any Follows Settlement Option Table DEFINITIONS 1-2 GENERAL PROVISIONS 3-4 The Policy 3 Modification of Policy 3 Contestability 3 Misstatement of Age and/or Sex 3 Suicide 3 Effective Date of Coverage 3 Termination 3 Assignment 3 Due Proof of Death 3 Reserves, Cash Values and Benefits 4 Tax Treatment 4 Non-Participating 4 Reports 4 OWNERSHIP PROVISIONS 4-5 Owners of Policy 4 Change of Ownership 4 Beneficiary Designation and Change of Beneficiary 4-5 Death of Beneficiary 5 DEATH BENEFIT PROVISIONS 5 Payment of Death Benefits 5 Amount Payable Upon Death 5 Deferment of Death Benefits 5 PREMIUM PROVISIONS 5-7 Initial Premium 5 Additional Premium 6 Place of Payment 6 Premium Allocation 6 Grace Period 6 Reinstatement 6-7 GENERAL ACCOUNT PROVISIONS 7 General Account 7 Fixed Account 7 DCA Fixed Account Value 7 DCA Fixed Account 7 VARIABLE ACCOUNT PROVISIONS 7-9 Separate Account 7 Liabilities of Separate Account 7 Separate Account Value 7 Subaccounts 7 Subaccount Value 7-8 Fund 8 Rights Reserved By The Company 8 Accumulation Unit Value 8 Investment Experience Factor 9 NON FORFEITURE PROVISIONS 9-10 Cash Value 9 Monthly Deduction 9 Cost of Insurance 9 Cost of Insurance Rate 10 Riders 10 Mortality and Expense Charge 10 Insufficient Net Surrender Value Status 10
L-8387NJ
TRANSFER, WITHDRAWAL AND LOAN PROVISIONS 10-12 Transfers 10 Withdrawals 11 Effect of a Withdrawal 11 Withdrawal Charges 11 Policy Loans 11 Policy Loan Interest 11-12 Policy Loan Repayment 12 Effect of Policy Loans 12 Transfer, Withdrawal and Loan Provisions 12 Deferment of Withdrawal Transfer or Loan 12 SETTLEMENT OPTIONS 12-14 Election of Settlement Options 13 Fixed Installment Annuity 13 Life Annuity 13 Life Annuity with Installments Guaranteed 13 Joint and Survivor Annuity 14 OTHER OPTIONS 14 Variable Payment Options 14 Annuity Unit Value 14-15 Fixed Payout Option 15 Transfers During Payout Period 15-16 Supplementary Agreement 16 Date of First Payment 16 Evidence of Age, Sex and Survival 16 Misstatement of Age or Sex 16 Basis of Annuity Option's 16 Creditors 16
8387NJ Page A POLICY SPECIFICATIONS INSURED JOHN DOE ISSUE AGE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER 0000000 INITIAL SPECIFIED AMOUNT $100,000 DATE OF ISSUE JAN 01 2001 COVERAGE INFORMATION RATE INITIAL CLASS SPECIFIED MONTHLY BENEFIT DESCRIPTION PERCENT AMOUNT MATURITY DATE RATE MODIFIED PREMIUM VARIABLE LIFE* 100 $100,000 [JAN 01 2066] SEE PAGE D * IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO NET SURRENDER VALUE TO BE PAID ON THAT DATE. RETURN OF PREMIUM GUARANTEE PERIOD EXPIRATION DATE N/A (Applies to 100% Guideline Single Premium Payment) PREMIUM INFORMATION INITIAL PREMIUM [ $13,156 ] PERCENT OF GUIDELINE SINGLE PREMIUM PAID [ 90% ] INSURED RATE CLASS STANDARD NON-TOBACCO 8387NJ Page A POLICY SPECIFICATIONS INSURED JOHN DOE ISSUE AGE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] DEDUCTION DAY DAY 01 OF EACH MONTH DEDUCTION PERIOD [65 YEARS, 00 MONTHS] MINIMUM SPECIFIED AMOUNT AFTER WITHDRAWAL $10,000 MINIMUM WITHDRAWAL AMOUNT $100.00 MINIMUM NET SURRENDER VALUE AFTER WITHDRAWAL $5,000 MINIMUM LOAN AMOUNT $1,000.00 POLICY LOAN INTEREST CHARGED 5.50% GUARANTEED POLICY LOAN INTEREST CREDITED 3.50% IRC SECTION 7702 TEST GUIDELINE PREMIUM
TABLE OF DEATH BENEFIT FACTORS
ATTAINED ATTAINED ATTAINED ATTAINED AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT 0-40 250 50 185 60 130 70 115 41 243 51 178 61 128 71 113 42 236 52 171 62 126 72 111 43 229 53 164 63 124 73 109 44 222 54 157 64 122 74 107 45 215 55 150 65 120 75-90 105 46 209 56 146 66 119 91 104 47 203 57 142 67 118 92 103 48 197 58 138 68 117 93 102 49 191 59 134 69 116 94 101 95+ 100
*ATTAINED AGE IS THE AGE OF LAST BIRTHDAY AS OF THE BEGINNING OF THE POLICY YEAR. 8387 Page B POLICY SPECIFICATIONS INSURED JOHN DOE ISSUE AGE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION KEMPER AGGRESSIVE GROWTH PORTFOLIO 100% KEMPER TECHNOLOGY GROWTH PORTFOLIO KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO KEMPER SMALL CAP GROWTH PORTFOLIO KEMPER SMALL CAP VALUE PORTFOLIO KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO KEMPER INTERNATIONAL PORTFOLIO KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO KEMPER GLOBAL BLUE CHIP PORTFOLIO KEMPER GROWTH PORTFOLIO KEMPER CONTRARIAN VALUE PORTFOLIO KEMPER BLUE CHIP PORTFOLIO KEMPER VALUE+GROWTH PORTFOLIO KEMPER HORIZON 20+ PORTFOLIO KEMPER TOTAL RETURN PORTFOLIO KEMPER HORIZON 10+ PORTFOLIO KEMPER HIGH YIELD PORTFOLIO KEMPER HORIZON 5 PORTFOLIO KEMPER GLOBAL INCOME PORTFOLIO KEMPER INVESTMENT GRADE BOND PORTFOLIO KEMPER GOVERNMENT SECURITIES PORTFOLIO KEMPER MONEY MARKET PORTFOLIO SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO SCUDDER VLIF GROWTH AND INCOME PORTFOLIO SCUDDER VLIF INTERNATIONAL PORTFOLIO SCUDDER VLIF CAPITAL GROWTH PORTFOLIO JANUS GROWTH PORTFOLIO JANUS GROWTH AND INCOME PORTFOLIO WARBURG EMERGING MARKETS PORTFOLIO WARBURG POST-VENTURE CAPITAL PORTFOLIO
ASSET BASED CHARGES ARE ASSESSED FOR THE ABOVE DIVISIONS. FOR A COMPLETE DISCUSSION OF ASSET BASED CHARGES, PLEASE REFER TO SCHEDULE 1.
GENERAL ACCOUNT INTEREST RATE INITIAL PREMIUM ALLOCATION DCA FIXED ACCOUNT - 6 MONTH N/A 0% DCA FIXED ACCOUNT - 12 MONTH N/A 0%
8387NJ Page C POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000 ATTAINED NON- ATTAINED NON- AGE TOBACCO TOBACCO AGE TOBACCO TOBACCO ------------------------------------------------------------------------------------------------------------ 0 0.219480 0.219480 50 0.428690 0.837880 1 0.085880 0.085880 51 0.468090 0.916270 2 0.082540 0.082540 52 0.513380 1.004870 3 0.080880 0.080880 53 0.565410 1.105400 4 0.077540 0.077540 54 0.623350 1.215380 5 0.073370 0.073370 55 0.688070 1.333150 6 0.069200 0.069200 56 0.758730 1.457890 7 0.065030 0.065030 57 0.833670 1.589640 8 0.062530 0.062530 58 0.917110 1.728430 9 0.061690 0.061690 59 1.010780 1.877720 10 0.062530 0.062530 60 1.115550 2.044410 11 0.067530 0.067530 61 1.232310 2.232910 12 0.076700 0.076700 62 1.367070 2.445950 13 0.089220 0.089220 63 1.519910 2.684600 14 0.103400 0.103400 64 1.690090 2.946500 15 0.113420 0.146810 65 1.876860 3.224930 16 0.123430 0.163510 66 2.079500 3.517450 17 0.130940 0.175200 67 2.297270 3.821590 18 0.135950 0.184390 68 2.534600 4.141890 19 0.139290 0.190240 69 2.798580 4.490890 20 0.140130 0.193580 70 3.098170 4.877870 21 0.138460 0.193580 71 3.441600 5.314990 22 0.135950 0.190240 72 3.839990 5.812080 23 0.132610 0.186890 73 4.293280 6.366660 24 0.129280 0.181880 74 4.794460 6.979050 25 0.125100 0.176030 75 5.333740 7.638620 26 0.122600 0.172690 76 5.907380 8.318710 27 0.120930 0.171020 77 6.511600 9.007620 28 0.120090 0.171020 78 7.150730 9.710250 29 0.120090 0.173530 79 7.845900 10.451730 30 0.120930 0.177710 80 8.620930 11.258160 31 0.123430 0.183550 81 9.498890 12.154910 32 0.126770 0.191070 82 10.501350 13.160810 33 0.131780 0.201100 83 11.628210 14.262960 34 0.137620 0.212790 84 12.862100 15.427670 35 0.144300 0.227000 85 14.178860 16.617240 36 0.151820 0.243720 86 15.565070 17.803170 37 0.161840 0.264620 87 17.002260 19.039280 38 0.172690 0.288040 88 18.486430 20.348230 39 0.184390 0.314810 89 20.041320 21.671680 40 0.198590 0.345780 90 21.693700 23.030110 41 0.213630 0.379270 91 23.488560 24.468300 42 0.229510 0.416120 92 25.504290 26.169550 43 0.247060 0.456350 93 27.961930 28.406850 44 0.266290 0.500790 94 31.383850 31.563380 45 0.288040 0.547780 95 36.798270 36.798270 46 0.311460 0.596470 96 46.588990 46.588990 47 0.336570 0.649400 97 67.043870 67.043870 48 0.364190 0.706570 98 83.333330 83.333330 49 0.394340 0.768830 99 83.333330 83.333330
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT. THIS PERCENT IS SHOWN ON PAGE 1 OF THE POLICY SPECIFICATIONS. THE RATES ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE SECTION. L-8387NJ Page D SCHEDULE 1 CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- Schedule of Asset Based Charges - -------------------------------------------------------------------------------- Applied daily to Separate Account Value Mortality and Expense Charge .90% annually (0.002465753% daily) Applied monthly Cash Value Administration Charge .35% annually for Policy Years 1-10 (0.02916667% monthly) .25% annually for Policy Years 11 and later (0.02083333% monthly) Tax Charge .40% annually for Policy Years 1-10 (0.03333333 monthly) - -------------------------------------------------------------------------------- The Annual Record Maintenance Charge of $30 is deducted from your Cash Value on each policy anniversary and upon policy termination. However, if your Cash Value is greater than or equal to $50,000 on a policy anniversary or the date of termination, we will not assess the Records Maintenance charge on that policy anniversary or termination date. - -------------------------------------------------------------------------------- Schedule of Withdrawal Charges - -------------------------------------------------------------------------------- Policy Year Surrender Premium Tax Total Withdrawal Charge Charge Charge - -------------------------------------------------------------------------------- 1 7.75% 2.25% 10.00% 2 7.75% 2.00% 9.75% 3 7.50% 1.75% 9.25% 4 6.50% 1.50% 8.00% 5 5.75% 1.25% 7.00% 6 5.00% 1.00% 6.00% 7 4.25% .75% 5.00% 8 3.50% .50% 4.00% 9 2.75% .25% 3.00% over 9 0% 0% 0% - -------------------------------------------------------------------------------- THE WITHDRAWAL CHARGE PERCENTAGES ARE APPLIED AGAINST CASH VALUE NOT EXCEEDING THE INITIAL PREMIUM AMOUNT, AS WITHDRAWN. A FREE PARTIAL WITHDRAWAL OF THE GREATER OF 10% OF CASH VALUE OR CASH VALUE LESS PREMIUM PAID IS AVAILABLE EACH YEAR. PREMIUM PAID FOR THIS PURPOSE IS THE INITIAL PREMIUM AMOUNT MINUS WITHDRAWALS PREVIOUSLY ASSESSED A WITHDRAWAL CHARGE. L-8387NJ Page 1 DEFINITIONS ACCUMULATION UNIT - An accounting unit of measure used to calculate the value of each Subaccount. ACCUMULATION UNIT VALUE - The value of a Subaccount determined for a Valuation Period according to the formula stated in this policy. ADMINISTRATION CHARGE - A charge deducted from the Cash Value for a portion of Our administrative costs. CASH VALUE - The sum of the Separate Account Value plus the Fixed Account Value plus the Loan Account Value. DEBT - The principal of any outstanding loan plus any loan interest due or accrued. DEDUCTION DAY - The Deduction Day is stated in the policy specifications. It is the same day in each month as the Effective Date. It is the day from which policy months are determined. EFFECTIVE DATE - The Effective Date is shown on the front of Your policy. It is the date coverage becomes effective. If the Effective Date would have been the 29th, 30th or 31st of the month, the Effective Date will be the 28th day of that month. Unless some other date is requested, and except as noted above, the Effective Date applied will be the date of application or the date your initial premium is received, if later. We will deduct the first monthly deduction on the Effective Date. FIXED ACCOUNT - The portion of the Cash Value allocated to our General Account, including amounts allocated to the DCA Fixed Account, to be transferred to the Subaccounts under the automatic Dollar Cost Averaging program. FIXED ACCOUNT VALUE - The value of the Fixed Account. FUND - An investment company or separate series thereof, in which the Subaccounts of the Separate Account invest. GENERAL ACCOUNT - Our assets other than those allocated to the Separate Account or any other Separate Account. GUIDELINE SINGLE PREMIUM - The Guideline Single Premium as defined in Section 7702 of the Internal Revenue Code. ISSUE AGE - The attained age as of the insured's last birthday on the Effective Date. ISSUE DATE - The issue date stated in the policy specifications. It is the date all requirements for coverage and Premium have been received, and the policy is approved. LOAN ACCOUNT - The account established for amounts transferred from the Subaccounts and held in our General Account as security for outstanding Policy Debt. LOAN ACCOUNT VALUE - The value of the Loan Account. L-8387NJ Page 1 L-8387NJ Page 2 MATURITY DATE - The Maturity Date is stated in the policy specifications. It is the policy anniversary nearest the insured's 100th birthday. MORTALITY AND EXPENSE CHARGE - A charge deducted in the calculation of the accumulation unit value. It is for Our assumption of mortality risks and expense guarantees. NET SURRENDER VALUE - The Surrender Value minus any Debt. OWNER - See "You, Your, Yours" below. POLICY YEAR - Each twelve-month period beginning on the Effective Date and each policy anniversary. PREFERRED LOAN - The portion of any loan as to which the Loan Account is credited a higher rate of interest. The maximum amount available as a Preferred Loan is the Separate Account Value minus Premium paid plus any prior withdrawal of premium. PREMIUM - The dollar amount We receive in U.S. currency to buy the benefits this policy provides. RECORDS MAINTENANCE CHARGE - A charge assessed against Your policy as specified in the policy specifications. RECEIVED - Received by Kemper Investors Life Insurance Company at its home office in Schaumburg, Illinois. SEPARATE ACCOUNT - A unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940 known as the KILICO Variable Separate Account. SEPARATE ACCOUNT VALUE - The sum of the Subaccount Values of this policy on the Valuation Date. SUBACCOUNTS - The Separate Account has several Subaccounts. The available Subaccounts are stated in the policy specifications. SUBACCOUNT VALUE - The value of each Subaccount calculated separately according to the formula stated in this policy. SURRENDER VALUE - The Surrender Value of this policy is the Cash Value minus any applicable withdrawal charge. TAX CHARGE - A charge deducted from the Cash Value to pay applicable state and local Premium taxes and federal taxes imposed under Section 848 of the Internal Revenue Code of 1986, as amended (the "Code"). TRADE DATE - The Trade Date is the Valuation Date coinciding with or next following the fifteenth day after the Issue Date. We will allocate this policy's Kemper Money Market Subaccount Value to the Subaccounts and/or DCA Fixed Account according to your instructions on the Trade Date. VALUATION DATE - Each business day that applicable law requires that We value the assets of the Separate Account. Currently this is each day that the New York Stock Exchange is open for trading. VALUATION PERIOD - The period that starts at the close of a Valuation Date and ends at the close of the next succeeding Valuation Date. WE, OUR, US - Kemper Investors Life Insurance Company, Schaumburg, Illinois. YOU, YOUR, YOURS - The party(s) named as owner in the application unless later changed as provided in this policy. The owner, prior to the distribution of any death benefit, has the exclusive right to exercise every option and right conferred by this policy. GENERAL PROVISIONS THE POLICY The policy, the attached application and any supplemental application(s), rider(s) and endorsement(s) constitute the entire contract between the parties. All statements made in the application and supplemental application(s) are deemed representations and not warranties. No misstatement will void this policy or be used as a defense of a claim unless it is contained in the application or any supplemental application. MODIFICATION OF POLICY Only Our president, secretary and assistant secretaries have the power to approve a change or waive any provisions of this policy. Any such modifications must be in writing. No agent or person other than the officers named has the authority to change or waive the provisions of this policy. CONTESTABILITY We cannot contest this policy after it has been in force during the lifetime of the insured for two years from the Effective Date, unless the Effective Date precedes the date of application for this policy. If the Effective Date precedes the date of application, the two year contestability period will start on the Issue Date. If the policy is reinstated, a new two year contestability period will apply from the date of the reinstatement and will apply only to statements made in the application for the reinstatement. MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the Insured was misstated, the death benefit will be adjusted based on what the initial Premium would have purchased using the correct age and/or sex. The cash value will not be adjusted. SUICIDE If the Insured dies by suicide, while sane or insane, within two years from the Effective Date, subject to the following Issue Date exception, the death benefit proceeds will be limited to the Premiums paid less any withdrawals and Debt. If the Effective Date precedes the date of application, the two year suicide period will start on the Issue Date. If the Insured dies by suicide, while sane or insane, within two years of any reinstatement, Our total liability will be limited to Premiums paid less any withdrawals and Debt. TERMINATION All coverage under this policy terminates when any one of the following occurs: 1. You request termination of coverage; 2. The insured dies; 3. This policy matures; 4. The grace period ends and Debt exceeds Surrender Value or you paid 90% of the Guideline Single Premium; or 5. The grace period ends without payment of any required premium or loan repayment on or after the Return of Premium Guarantee Period Expiration Date, if any, stated in the policy specifications. ASSIGNMENT No assignment of this policy is binding unless We receive written notice of the assignment. We assume no responsibility for the validity or sufficiency of any assignment. Once notice of the assignment is recorded, the rights of the owner and beneficiary are subject to the assignment. Any claim is subject to proof of interest of the assignee. DUE PROOF OF DEATH We must receive written proof of death within sixty days of the death of the insured, or as soon thereafter as is reasonably possible, when a death benefit is payable. The proof may be a certified death certificate or any other proof satisfactory to Us. L-8387NJ Page 3 L-8387NJ Page 4 RESERVES, CASH VALUES AND DEATH BENEFITS All reserves are equal to or greater than those required by statute. Any available Cash Value and death benefit are not less than the minimum benefits required by the statutes of the state in which this policy is delivered. BASIS OF COMPUTATIONS A detailed statement of the method of computations of cash values under this policy has been filed with the insurance department of the state in which this policy is delivered. The 1980 Commissioner's Standard Ordinary Smoker or Nonsmoker Mortality Tables, Age Last Birthday, is the basis for minimum Cash Values, death benefits, and guaranteed maximum cost of insurance rates under this policy. EXPENSE AND MORTALITY RESULTS The dollar amount of variable benefits are guaranteed not to be adversely affected by expense and/or mortality results. TAX TREATMENT This policy is intended to qualify as a life insurance policy under the Internal Revenue Code ("Code"). We may return Premiums which would disqualify the policy from tax treatment as a life insurance policy. Premiums will not be returned if they are necessary to continue coverage. This policy may be endorsed to reflect any change in the Code and its regulations and rulings. You will receive a copy of any such endorsement. Currently, no charges are made against the Separate Account for federal, state or other taxes that may be attributed to the Separate Account. We may in the future, however, impose charges for federal income taxes attributed to the Separate Account. Charges for other taxes, if any, attributed to this policy may also be made. NON-PARTICIPATING This policy does not pay dividends. It will not share in Our surplus or earnings. REPORTS At least once each Policy Year We will send You a statement showing Premiums received, interest credited, investment experience, and charges made since the last report. The report will also show the current death benefit and Cash Value, as well as any other information required by statute. OWNERSHIP PROVISIONS OWNERS OF POLICY The insured is the original policy owner unless otherwise provided in the application. You have the right to cancel or amend this policy if We agree. You may exercise every option and right conferred by this policy including the right of assignment. The joint owners must agree to any change if more than one owner is named. CHANGE OF OWNERSHIP You may change the owner by written request at any time during the lifetime of the Insured. You must furnish information sufficient to clearly identify the new owner to Us. The change is subject to any existing assignment of this policy. When We record the effective date of the change, it will be the date the notice was signed except for action taken by Us prior to receiving the request. Any change is subject to the payment of any proceeds. We may require You to return this policy to Us for endorsement of a change. BENEFICIARY the DESIGNATION AND CHANGE OF BENEFICIARY The application for this policy shows the original beneficiary. You may change the beneficiary if You send Us a written change form. Changes are subject to the following: 1. The change must be filed while the insured is alive; 2. This policy must be in force at the time You file a change; 3. Such change must not be prohibited by the terms of an existing assignment, beneficiary designation or other restriction; 4. Such change will take effect when We receive it; 5. After We receive the change, it will take effect on the date the change form was signed. However, action taken by Us before the change form was received will remain in effect; and 6. The request for change must provide information sufficient to identify the new beneficiary. We may require You to return this policy for endorsement of a change. DEATH OF BENEFICIARY The interest of a beneficiary who dies before the insured will pass to the other beneficiaries, if any, share and share alike, unless otherwise provided in the beneficiary designation. If no beneficiary survives, or if no beneficiary is named, the distribution will be made to the insured's estate. If a beneficiary dies within ten days of the date of the insured's death, the death benefit will be paid as if the insured had survived the beneficiary. DEATH BENEFIT PROVISIONS PAYMENT OF DEATH BENEFITS We will pay a death benefit to the beneficiary when We receive due proof of death, if the insured dies while this policy is inforce. The return of this policy is required before a payment is made. We will pay the death benefit in a lump sum. Instead of a lump sum payment the beneficiary may elect to have the death benefit distributed under a settlement option. The beneficiary must make this choice within sixty days of the time We receive due proof of death. AMOUNT PAYABLE UPON DEATH We compute the death benefit following Our receipt of due proof of death and the return of this policy based on policy benefits and values in effect on the insured's date of death. As long as the Grace Period has not expired without payment of any required premium or loan repayment, the death benefit is the greater of: 1. the specified amount on the date of the insured's death, and 2. the Cash Value on the date of the insured's death multiplied by the applicable death benefit factor at the time of death. The death benefit proceeds equal a. minus b. minus c., where: a. is the death benefit b. is any monthly deductions due during the grace period c. is any Debt. The initial specified amount and the table of death benefit factors are shown in the policy specifications. The specified amount is the initial specified amount, unless reduced by a withdrawal. If the Grace Period expires before the Return of Premium Guarantee Period Expiration Date, if any, (1) without your sending payment of the premium or loan repayment required to keep the specified amount of coverage in force, (2) with Debt less than or equal to Surrender Value and (3) with your payment of 100% of the Guideline Single Premium as your Initial Premium, the death benefit will be your total Premium paid, less any withdrawals of premium. DEFERMENT OF DEATH BENEFITS The payment of death benefits in excess of the specified amount may be deferred: (a) for up to 2 months from the date requested if these benefits are based upon policy values which do not depend on the investment performance of the Separate Account or (b) otherwise, for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closings) or when the Securities and Exchange Commission has determined that a state of emergency exists which may make such payment impractical. PREMIUM PROVISIONS INITIAL PREMIUM The owner may choose a minimum initial Premium of 90% or 100% of the Guideline Single Premium (based on the initial specified amount). L-8387NJ Page 5 L-8387NJ Page 6 ADDITIONAL PREMIUM Payment of additional Premium, other than Grace Period or Reinstatement Premium, of at least $1,000 will be permitted if the Premium payment would not cause the policy to fail to meet the definition of life insurance under Section 7702 of the Internal Revenue Code ("Code"). We will require satisfactory evidence of insurability before accepting any additional Premium that increases the death benefit. Premium which does not meet the tax qualification guidelines for life insurance under the Code will not be applied to the policy, except as necessary to continue coverage. If there is current Debt on the policy, additional monies will be considered repayment of Debt first, unless You state otherwise. PLACE OF PAYMENT All Premiums under this policy must be paid to Us at Our home office or such other location as We may select. We will notify You and any other interested parties in writing of such other locations. Premiums received by an agent will be allocated only after We receive them. PREMIUM ALLOCATION We will allocate your initial Premium, plus any interest earnings, to the Kemper Money Market Subaccount on the Valuation Date coinciding with or next following the Issue Date. We will allocate this policy's Kemper Money Market Subaccount Value to the Subaccounts according to the Premium allocation shown in the policy specifications on the Trade Date. You may temporarily allocate a portion of Your initial Premium to any single Subaccount or to our DCA Fixed Account to be transferred to the Subaccounts under our automatic dollar cost averaging program. Only initial Premium may be allocated to the Fixed Account, and only for the purpose of subsequent transfers to the Subaccounts under our automatic dollar cost averaging program. GRACE PERIOD If Cash Value reduced by Debt on the day immediately preceding a Deduction Day is less than the monthly deduction for that month and any Annual Records Maintenance Charge then due, we will apply the policy's remaining cash value to payment of the monthly deduction and any Annual Records Maintenance Charge owing. A grace period of 61 days will be allowed for the payment, without evidence of insurability, of Premium or loan repayment equal to at least three monthly deductions and any Annual Records Maintenance Charge owing. This grace period will begin on the day (on or next following the Deduction Day) We mail notice of the required payment to your last known address. If current Debt is less than or equal to Surrender Value, the grace period ends before the Return of Premium Guarantee Period Expiration Date, if any, stated in the policy specifications, you paid 100% of the Guideline Single Premium as your Initial Premium, and your payment of Premium or loan repayment is not sent or delivered within the grace period, coverage under this policy will remain inforce, but the amount paid upon death of the insured after the grace period will be limited to the return of Your total Premiums paid less any prior partial withdrawals of premium. While the death benefit coverage provided is limited to a return of premium benefit: (1) no additional monthly deductions or annual charges will be applied to this policy; and, (2) no additional payment of Premium or repayment of Debt will be permited except upon reinstatement of the specified amount of coverage. The specified amount of coverage can be restored according to the REINSTATEMENT provision below. If Debt exceeds Surrender Value or you paid 90% of the Guideline Single Premium as your Initial Premium, or the grace period ends on or after the Return of Premium Guarantee Period Expiration Date, if any, and your payment of Premium or loan repayment is not sent or delivered within the grace period, coverage under this policy will terminate at the end of the grace period. If death of the Insured occurs within the grace period, any amount payable will be reduced by any unpaid monthly deductions. REINSTATEMENT If coverage has been reduced, but not terminated, under the Grace Period provision, because a payment required to keep the Specified Amount of coverage in-force has not been paid and the policy has not been surrendered for its Surrender Value, it may be reinstated to the Specified Amount any time prior to the Maturity Date. The policy may also be reinstated within 3 years of policy termination, if termination resulted from your failure to pay a required premium or loan repayment before the end of the grace period if the policy has not been surrendered for its Net Surrender Value. Either type of reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to Us; 2. payment of enough Premium to pay the unpaid monthly deductions and any unpaid Annual Record Maintenance charge due during the last expired grace period; 3. payment of a minimum Premium sufficient to keep this policy in force for three months; and 4. payment or reinstatement of any Debt against this policy which existed on the date coverage was reduced or the policy terminated because of insufficient Cash Value status. The effective date of reinstatement of a policy will be the Deduction Day that coincides with or next follows the date the application for reinstatement is approved by Us. The SUICIDE and CONTESTABILITY provisions will apply from the effective date of reinstatement. Initial premium withdrawn after reinstatement will be subject to the withdrawal charges described in Schedule 1 of the Policy Specifications as if the policy had remained continuously effective. GENERAL ACCOUNT PROVISIONS GENERAL ACCOUNT The guaranteed benefits under this policy are provided through our General Account. After the Trade Date, the only Cash Value remaining in the General Account will be the policy's Loan Account Value and any amount then allocated to the policy's 6 and 12 month Dollar Cost Averaging (DCA) Fixed Accounts. FIXED ACCOUNT The Fixed Account, including the 6 and 12 month DCA Fixed Accounts, is credited with interest rates which will not be less than the guaranteed minimum interest rate. The guaranteed minimum interest rate is 3.00% compounded daily at the daily equivalent of a 3.00% annual effective rate. We may credit a rate higher than the guaranteed minimum interest rate. This would occur if the assets of our General Account are expected to earn interest in excess of the amount assumed in determining our guaranteed interest rate, or if future expenses are expected to be lower than originally anticipated. Before the Issue Date, Your initial premium was held in our Fixed Account and credited with interest from date of receipt at no less than the guaranteed minimum interest rate. On the Issue Date We reduced the policy's Fixed Account Value (initial premium plus credited interest) by the policy's first Monthly Deduction and placed the balance in the Kemper Money Market Subaccount. On the Trade Date we will allocate this policy's Kemper Money Market Subaccount Value according to the Premium Allocation shown in the Policy Specifications, including the DCA Fixed Account if elected. DCA FIXED ACCOUNT VALUE On any Valuation Date prior to the first policy anniversary date, the DCA Fixed Account Value will be equal to: 1. the Cash Value allocated to the DCA Fixed Accounts; plus 2. any interest credited to the DCA Fixed Accounts; minus 3. any pro-rata monthly deductions charged to the DCA Fixed Accounts; minus 4. any amounts transferred from the DCA Fixed Accounts; minus 5. any amounts withdrawn from the DCA Fixed Accounts; minus 6. any amounts loaned from the DCA Fixed Accounts. The DCA Fixed Account Value will be zero on and after the Valuation Date coinciding with or next following the end of the DCA term selected. DCA FIXED ACCOUNT Only initial premium may be allocated to the DCA Fixed Accounts. Cash Value may not be transferred to the DCA Fixed Accounts or from one DCA Fixed Account to another. All Fixed Account Value in the DCA Fixed Accounts must be transferred to the Subaccounts, withdrawn or loaned before the applicable 6 or 12 month DCA term expires. All DCA Fixed Account Value remaining in a 6 or 12 month DCA term at the close of the day on which such term expires for will be transferred to the Subaccounts based on the separate account allocation then effective, unless otherwise directed. VARIABLE ACCOUNT PROVISIONS SEPARATE ACCOUNT The variable benefits under this policy are provided through the KILICO Variable Separate Account. This is called the Separate Account. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. It is a separate investment account maintained by Us into which a portion of Our assets has been allocated for this policy and may be allocated for certain other policies. LIABILITIES OF SEPARATE ACCOUNT The assets equal to the reserves and other liabilities of the Separate Account will not be charged with liabilities arising out of any other business We may conduct. If the assets of the Separate Account exceed the liabilities under the policies supported by the Separate Account, then the excess may be used to cover the liabilities of Our General Account. We will value the assets of the Separate Account on each Valuation Date. SEPARATE ACCOUNT VALUE On any Valuation Day, the Separate Account Value is the sum of its Subaccount Values. SUBACCOUNTS The Separate Account consists of several Subaccounts as shown in the policy specifications. We may, from time to time, combine or remove Subaccounts in the Separate Account and establish additional Subaccounts of the Separate Account. L-8387NJ Page 7 L-8387NJ Page 8 In such event, We may permit You to select other Subaccounts under this policy. However, the right to select any other Subaccount is limited by the terms and conditions We may impose on such transactions. SUBACCOUNT VALUE On any Valuation Date, the Subaccount Value in a Subaccount equals: 1. the Subaccount Value on the previous Valuation Date multiplied by the investment experience factor for the end of the current Valuation Period; plus 2. any net Premiums received and allocated to the Subaccount during the current Valuation Period; plus 3. any amounts transferred to the Subaccount during the current Valuation Period; minus 4. the pro-rata portion of any monthly deduction charged to the Subaccount when the Valuation Period includes a Deduction Day; minus 5. any amounts transferred or withdrawn from the Subaccount during the current Valuation Period; minus 6. any amounts loaned from the Subaccount during the current Valuation Period. FUND Each Subaccount of the Separate Account will buy shares of an investment company registered under the Investment Company Act of 1940 as an open-end diversified management investment company or shares of a separate series thereof. Each such investment company or series represents a separate investment portfolio which corresponds to one of the Subaccounts of the Separate Account. If We establish additional Subaccounts, each new Subaccount will invest in shares of an additional series or investment company. We may also substitute other investment companies. RIGHTS RESERVED BY THE COMPANY We reserve the right, subject to compliance with the current law or as it may be changed in the future: 1. To operate the Separate Account in any form permitted under the Investment Company Act of 1940 or in any other form permitted by law; 2. To take any action necessary to comply with or obtain and continue any exemptions from the Investment Company Act of 1940 or to comply with any other applicable law; 3. To transfer any assets in any Subaccount to another Subaccount or to one or more Separate Accounts, or the General Account, or to add, combine or remove Subaccounts in the Separate Account. 4. To delete the shares of any of the portfolios of the Fund or any other open-end investment company and to substitute, for the Fund shares held in any Subaccount, the shares of another portfolio of the Fund or the shares of another investment company or any other investment permitted by law; and 5. To change the way We assess charges, but not to increase the aggregate amount above that currently charged to the Separate Account and the Fund in connection with the policies. When required by law, We will obtain Your approval of such changes and the approval of any regulatory authority. You may opt out and refuse such change unless refusal and noncompliance would cause the policy to null and void. ACCUMULATION UNIT VALUE Each Subaccount has an accumulation unit value. When Premiums or other amounts are allocated to a Subaccount, a number of units are purchased based on the accumulation unit value of the Subaccount at the end of the Valuation Period during which the allocation is made. When amounts are transferred out of or deducted from a Subaccount, units are redeemed in a similar manner. The accumulation unit value for each subsequent Valuation Period is the investment experience factor for that period multiplied by the accumulation unit value for the immediately preceding Period. Each Valuation Period has a single accumulation unit value that is applied to each day in the period. The number of accumulation units will not change as a result of investment experience. INVESTMENT EXPERIENCE FACTOR Each Subaccount has its own investment experience factor. The investment experience of a Subaccount is calculated by applying the investment experience factor to the value in each Subaccount during the Valuation Period. The investment experience factor of a Subaccount for a Valuation Period is determined by dividing 1. by 2. and subtracting 3. from the result, where: 1. is the net result of: a. the net asset value per share of the investment held in the Subaccount determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain distributions made by the investments held in the Subaccount, if the "ex-dividend" date occurs during the current Valuation Period; plus or minus c. a charge or credit for any taxes reserved for the current Valuation Period which We determine resulted from the investment operations of the Subaccount; 2. is the net asset value per share of the investment held in the Subaccount, determined at the end of the last Valuation Period; 3. is the factor representing the Mortality and Expense Charge, stated in the policy specifications, for the number of days in the Valuation Period. NONFORFEITURE PROVISIONS CASH VALUE The Cash Value of this policy is equal to the sum of the Separate Account Value, plus the Loan Account Value, plus the Fixed Account Value. MONTHLY DEDUCTION On each Deduction Day, a monthly deduction will be made equal to the sum of the following: 1. the monthly cost of insurance charge for this policy; plus 2. the monthly charge for any riders; plus 3. the monthly Administration Charge; plus 4. the monthly Tax Charge. The monthly deduction will be deducted from the Subaccounts and Fixed Account in proportion to the value that each Subaccount and Fixed Account bears to the Separate Account Value plus the Fixed Account Value. COST OF INSURANCE We calculate the cost of insurance on each Deduction Day. Current cost of insurance charges are calculated by multiplying 1. times 2., where: 1. is the applicable current asset-based cost of insurance rate; 2. is the Cash Value on the Deduction Day. The current asset-based cost of insurance rate is based on the coverage year, the insured's rate class, the initial premium amount, and whether that premium was90% or 100% of the Guideline Single Premium. After the tenth policy year the current asset-based cost of insurance rate may decrease. This is due to an anticipated lower net amount at risk to Us for the death benefit coverage provided. We guarantee that this charge will not exceed the maximum cost of insurance charge. The maximum cost of insurance charge equals a. times the result of b. minus c. where: a. is the maximum cost of insurance rate per $1,000 for the initial specified amount; b. is the death benefit; and c. is the cash value. L-8387NJ Page 9 L-8387NJ Page 10 COST OF INSURANCE RATE The cost of insurance rate is based on the insured's sex, issue age, coverage year, and rate class. The cost of insurance is also based on whether 90% or 100% of the Guideline Single Premium has been paid at issue. Any change in the cost of insurance rate will be on a uniform basis for all insiders of the same: 1. sex; 2. attained age at start of coverage; 3. coverage year; and 4. rate class. However, the cost of insurance rates will not exceed those shown in the Table of Guaranteed Maximum Monthly Cost of Insurance Rates per $1,000 multiplied by any rate class percent over 100. We may change the current rates if anticipated future investment earnings, expenses, persistency, mortality or tax experience differs from those assumed in the rate applied on the Date of Issue. These rates are found in the policy specifications. These rates are based on the Commissioners 1980 Standard Ordinary Smoker and Nonsmoker Mortality Tables, Age Last Birthday, except for issue ages under 15. Our cost of insurance rates for issue ages below 15 are based on the Commissioners 1980 Standard Ordinary Aggregate Mortality Table. When such insured obtains an attained age of 15, our rates will be based on the Commissioners 1980 Standard Ordinary Nonsmoker Mortality Table. RIDERS The monthly charges for any riders are shown in the policy specifications. MORTALITY AND EXPENSE RISK CHARGE, ADMINISTRATION CHARGE, TAX CHARGE, AND ANNUAL RECORDS MAINTENANCE CHARGE The Mortality and Risk Charge, Administration Charge, Tax Charge, and Annual Records Maintenance Charge are shown in the policy specifications. TRANSFER, WITHDRAWAL AND LOAN PROVISIONS TRANSFERS You may direct the transfer of all or part of one Subaccount's value to another Subaccount. Transfers will be subject to the following conditions: 1. The minimum amount which may be transferred is $100 or, if smaller, the remaining value in a Subaccount; 2. No partial transfer will be made if the remaining value of any Subaccount will be less than $500 unless the transfer will eliminate Your interest in such Subaccount; 3. We reserve the right to charge $25 for each transfer in excess of 12 in a Policy Year. Any transfer request must clearly specify: 1. the amount which is to be transferred; and 2. the names of the Subaccounts which are affected. We will only honor a telephone transfer request if a properly executed telephone transfer authorization is on file with Us. Such request for a transfer must comply with the conditions of the authorization. WITHDRAWALS You may withdraw that part of the Cash Value that remains after We subtract any withdrawal charge. We must receive a written request that indicates the amount of the withdrawal from each Subaccount or Fixed Account. You must return the policy to Us if You elect a total withdrawal, which will result in the cash surrender of the policy. See SURRENDER provision below. Partial withdrawals are subject to the following conditions: 1. Each withdrawal must be at least the minimum withdrawal amount stated in the policy specifications or the value that remains in the Subaccount or Fixed Account if smaller; 2. A minimum of $500 must remain in the Subaccount or Fixed Account after You make a withdrawal unless the Subaccount or Fixed Account is eliminated by such withdrawal; 3. A minimum amount of net surrender value as stated in the policy specifications must remain in the Policy after You make a withdrawal. 4. The maximum You may withdraw from any Subaccount or Fixed Account is the value of the Subaccount or Fixed Account less the amount of any withdrawal charge. 5. Any withdrawal amount You request will be increased by the withdrawal charge. SURRENDER This policy may be surrendered for its Net Surrender Value upon written request by You and the return of the policy to Us at our home office. The request must be made during the lifetime of the insured and while this policy is in force. The return of the policy is required before the Net Surrender Value is paid. Payment of the Net Surrender Value will discharge Us from Our obligations under this policy. We will pay the Net Surrender Value of this policy to You on the Maturity Date if the insured is living and this policy is in force. EFFECT OF A WITHDRAWAL The Cash Value will be reduced by the amount of the withdrawal. The specified amount will be reduced proportional to the reduction in Cash Value due to the partial withdrawal. We will not permit a withdrawal if it will decrease the specified amount to less than the Minimum Specified Amount stated in the Policy Specifications. WITHDRAWAL CHARGES Withdrawal charges are shown in the policy specifications. Any amount withdrawn which is not subject to a withdrawal charge will be considered a "free partial withdrawal," as referenced in the policy specifications. POLICY LOANS Policy loans may be made any time. We will lend up to a maximum loan amount of 90% of the policy's Cash Value less any applicable withdrawal charges. The amount of any new loan may not exceed the maximum loan amount less Debt on the date the loan is granted. The Preferred Loan portion of a loan will be determined on the date the loan is made, and will not be subsequently redetermined. The minimum amount of a loan is $1,000. On the date the loan is made, an amount equal to the loan will be transferred from the Subaccounts to the Loan Account held in the General Account until the loan is repaid. Unless directed otherwise, the loaned amount will be deducted from the Subaccount in proportion to the values that each Subaccount bears to the Separate Account Value. Should the Debt equal or exceed the Surrender Value, this policy will be subject to the GRACE PERIOD provisions. Cash values derived from Premium received by Us in the form of a check or draft will not be available for loans until 30 days after deposit of such check or draft. POLICY LOAN INTEREST The loan interest rate is stated in the policy specifications and will be compounded daily. Interest not paid will be charged on a daily basis and will be added to the Debt on this policy and bear interest at the same rate. L-8387NJ Page 11 L-8387NJ Page 12 During the existence of a loan, the Loan Account Value will earn interest at the guaranteed rate stated in the policy specifications. We may credit a higher rate on the portion of the Loan Account Value attributable to a Preferred Loan. Interest will be earned on a daily basis and will be added to the Loan Account. POLICY LOAN REPAYMENT A Debt may be repaid in full or in part at any time while this policy is in force. As Debt is paid, the Loan Account Value equal to the amount of repayment which exceeds the difference between interest due and interest earned will be allocated to the Subaccounts according to the then current Premium allocation instructions. Loan repayments will be considered repayment of Preferred Loans last. EFFECTS OF POLICY The Debt on this policy, along with the withdrawal charge will reduce the amount LOANS of Cash Value payable upon surrender. The Debt on this policy will also reduce the amount of Cash Value available for withdrawal. The death benefit payable to the beneficiary upon the death of the Insured will also be reduced by the amount of Debt. TRANSFER, WITHDRAWAL AND LOAN PROCEDURES We will redeem the necessary number of accumulation units to achieve the dollar amount requested plus any applicable charges when the withdrawal, transfer or loan is made from a Subaccount. We will reduce the number of accumulation units credited in each Subaccount by the number of accumulation units redeemed. The reduction in the number of accumulation units is determined based on the accumulation unit value at the end of the Valuation Period when We receive the request, provided the request contains all required information. We will pay the amount within seven calendar days after the date We receive the request, except as provided below. DEFERMENT OF WITH- DRAWAL TRANSFER OR LOAN If the withdrawal, transfer or loan is to be made from a Subaccount, We may suspend the right of withdrawal or transfer or delay payment more than seven calendar days: 1. during any period when the New York Stock Exchange is closed other than customary weekend and holiday closings; 2. when trading in the markets normally utilized is restricted, or an emergency exists as determined by the Securities and Exchange Commission, so that disposal of investments or determination of the accumulation unit value is not practical; or 3. for such other periods as the Securities and Exchange Commission by order may permit for protection of owners. If the withdrawal, transfer or loan is to be made from the fixed account, we may defer such withdrawal, transfer or loan for a period not to exceed six months after the written request is received by us. We will not defer a loan or withdrawal requested to pay premium to us. SETTLEMENT OPTIONS The Owner, or beneficiary at the death of the insured, if no election by the Owner is in effect, may elect to have all of the Net Surrender Value or Death Benefit of this policy paid in a lump sum or have the amount applied to one of the settlement options noted below. The beneficiary may elect to have the death benefit distributed as stated in Option 1 for a period not to exceed the beneficiary's life expectancy; or Options 2, or 3 based upon the life expectancy of the beneficiary as prescribed by federal regulations. The beneficiary must make this choice within sixty days of the time we receive due proof of death. An option can not be changed after the first of such payments is made. Payments must be made to a natural person, referred to below as "payee." If the beneficiary is not a natural person, the beneficiary must elect that the entire death benefit be distributed within five years of your death. Distribution of the death benefit must start within one year after your death. It may start later if prescribed by federal regulations. If the total death benefit proceeds are applied under one of the settlement options, this contract must be surrendered to us. Payments for all options are derived from the applicable tables. Current annuity rates will be used if they produce greater payments than those shown in the policy. The age in the tables is the age of the payee on the last birthday before the first payment is due. The option selected must result in a periodic payment equivalent to at least $20 per month when annuity payments begin. If the annuity option selected or otherwise applied should result in a periodic payment less than the minimum required on the date payments are scheduled to begin, we reserve the right to make a lump sum payment in satisfaction of our obligation to the payee under the policy. ELECTION OF SETTLEMENT OPTION Election of a settlement option may be made by written notice to Us. This election may be made: 1. by You during the lifetime of the insured; 2. by the beneficiary if no election made by You is in effect at the time of the death of the insured; or 3. by the beneficiary if You reserve the right to the beneficiary to change an election upon the death of the insured. Such change must be made prior to the first settlement option payment. An election in effect during the lifetime of the insured will be revoked by a subsequent change of beneficiary or an assignment of this policy unless provided otherwise. OPTION 1 FIXED INSTALLMENT ANNUITY We will make monthly payments for a fixed number of installments. Payments must be made for at least 5 years, but not more than 30 years. Upon the payee's death, if the beneficiary is a natural person, we will automatically continue payments for the remainder of the certain period to the beneficiary. If the beneficiary is either an estate or trust we will pay the discounted value of the remaining payments in the specified period based on the discount rate stated in the supplemental contract. OPTION 2 LIFE ANNUITY We will make monthly payments while the payee is alive. OPTION 3 LIFE ANNUITY WITH INSTALLMENTS GUARANTEED We will make monthly payments for a guaranteed period and thereafter while the payee is alive. The guaranteed period must be selected at the time the annuity option is chosen. The guaranteed periods available are 5, 10, 15 and 20 years. If, at the death of the payee, payments have been made for less than five, ten, fifteen or twenty years as elected, and the beneficiary is a natural person, we will automatically continue payments for the remainder of the elected period to the beneficiary. If the beneficiary is either an estate or trust, we will pay the discounted value of the remaining payments in the specified period based on the discount rate stated in the supplemental contract. L-8387 Page 13 L-8387 Page 14 OPTION 4 JOINT AND SURVIVOR ANNUITY We will pay the full monthly income while both payees are alive. Upon the death of either payee, we will continue to pay the surviving payee a percentage of the original monthly payment. The percentage payable to the surviving payee must be selected at the time the annuity option is chosen. The percentages available are 50%, 66 2/3%, 75% and 100%. OTHER OPTIONS We may make other settlement options available. Payments are also available on a quarterly, semi-annual or annual basis. VARIABLE PAYOUT OPTIONS If a variable payout option is selected, the monthly annuity payment will reflect the investment performance of the Subaccounts in accordance with the allocation of the lump sum distribution allocated to those Subaccounts. Allocations will not be changed thereafter, except as provided in the TRANSFERS DURING THE PAYOUT PERIOD provision. The first monthly annuity payment is based on the guaranteed annuity option shown in the Annuity Option Table. You may elect any option available. The dollar amount of the subsequent payments may increase or decrease depending on the investment experience of each Subaccount. The number of annuity units per payment will remain fixed for each Subaccount. The number of annuity units for each Subaccount is calculated by dividing a. by b. where: a. is the portion of the initial monthly payment that can be attributed to that Subaccount; and b. is the annuity unit value for that Subaccount at the end of the Valuation Period. The Valuation Period includes the date on which the payment is made. Monthly payments, after the first payment, are calculated by summing up, for each Subaccount, the product of a. times b. where: a. is the number of annuity units per payment in each Subaccount; and b. is the annuity unit value for that Subaccount at the end of the Valuation Period. The Valuation Period includes the date on which the payment is made. After the first payment, we guarantee that the dollar amount of each annuity payment will not be affected adversely by actual expenses or changes in mortality experience from the expense and mortality assumptions on which we based the first payment. ANNUITY UNIT VALUE The value of an annuity unit for each Subaccount at the end of any subsequent Valuation Period is determined by multiplying the result of a. times b. by c. a. is the annuity unit value for the immediately preceding Valuation Period; and b. is the net investment factor for the Valuation Period for which the annuity unit value is being calculated; and c. is the interest factor of .99993235 per calendar day of such subsequent Valuation Period to offset the effect of the assumed rate of 2.50% per year used in the Annuity Option Table. The net investment factor for each Subaccount for any Valuation Period is determined by dividing a. by b. where: a. is the value of an annuity unit of the applicable Subaccount as of the end of the current Valuation Period plus or minus the per share credit or charge for taxes reserved; and b. is the value of an annuity unit of the applicable Subaccount as of the end of the immediately preceding Valuation Period, plus or minus the per share credit or charge for taxes reserved. FIXED PAYOUT OPTION If a fixed payout option is chosen, your payment will be fixed in an amount throughout the payout period. We determine the amount of your fixed payment by multiplying the amount applied to the option by a rate determined by Us which is not less than the rate specified in the Settlement Option Tables below. The amount of the payment will not change throughout the payout period. TRANSFERS DURING THE PAYOUT PERIOD During the payout period, the payee may choose to change the Subaccounts or the relative weighting of the Subaccounts on which variable payments are based, or the relative proportions of fixed and variable payments. A transfer may be made subject to the following: 1. The payee must send us a written notice in a form satisfactory to us; 2. One transfer is permitted each twelve month period from the date of the first annuity payment. We must receive notice of any such transfer at least thirty days prior to the effective date of the transfer; 3. A payee may not base variable payments on more than three Subaccounts after any transfer; 4. At least $1,000 of annuity unit value or annuity reserve value must be transferred from a Subaccount or from the General Account; and 5. At least $1,000 of annuity unit value or annuity reserve value must remain in the account from which the transfer was made. When a transfer is made between Subaccounts, the number of annuity units per payment attributable to a Subaccount to which a transfer is made is equal to a. multiplied by b. divided by c., where: a. is the number of annuity units per payment in the Subaccount from which transfer is being made; b. is the annuity unit value for the Subaccount from which the transfer is being made; and c. is the annuity unit value for the Subaccount to which transfer is being made. When a transfer is made from the General Account to a Subaccount, the number of annuity units per payment attributable to a Subaccount to which transfer is made is equal to a. divided by b., where: a. is the General Account annuity amount per payment being transferred; and b. is the annuity unit value for the Subaccount to which the transfer is being made. L-8387 Page 15 L-8387NJ Page 16 The amount of money allocated to the General Account in case of a transfer from a Subaccount equals the annuity reserve for the payee's interest in such Subaccount. The annuity reserve is the product of a. multiplied by b. multiplied by c. where: a. is the number of annuity units representing the payee's interest in such Subaccount per annuity payment; b. is the annuity unit value for such Subaccount; and c. is the present value of $1.00 per payment period using the attained age(s) of the payee(s) and any remaining guaranteed payments that may be due at the time of the transfer. Money allocated to the General Account upon such transfer will be applied under the same annuity payout option as originally elected. Guaranteed period payments will be adjusted to reflect the number of guaranteed payments already made. If all guaranteed payments have already been made, no further payments will be guaranteed. All amounts and annuity unit values are determined as of the end of the Valuation Period preceding the effective date of the transfer. SUPPLEMENTARY AGREEMENT A supplementary agreement will be issued to reflect payments that will be made under a settlement option. If payment is made as a death benefit distribution, the effective date will be the date of death. Otherwise, the effective date will be the date chosen by the Owner. DATE OF FIRST PAYMENT Interest will start to accrue on the effective date of the Supplementary Agreement. If the normal effective date is the 29th, 30th, or 31st of the month, the effective date will be the 28th day of the that month. EVIDENCE OF AGE, SEX AND SURVIVAL We may require satisfactory evidence of the age, sex and the continued survival of any person on whose life the income is based. MISSTATEMENT OF AGE OR SEX If the age or sex of the payee has been misstated, the amount payable under the annuity option selected will be such as the lump sum applied would have purchased at the correct age or sex. Interest not to exceed 6% compounded each year will be charged to any overpayment or credited to any underpayment against future payments We may make under the supplementary agreement for the option selected. BASIS OF ANNUITY OPTIONS The guaranteed payments are based on an interest rate of 2.50% per year and, where mortality is involved, the "1983 Table a" individual annuity mortality table developed by the Society of Actuaries, projected using Projection Scale G. We may also make available variable annuity payment options based on assumed investment rates other than 2.50%. CREDITORS The proceeds of this policy and any payment under an annuity option will be exempt from the claim of creditors and from legal process to the extent permitted by law. L-8387NJ Page 16 INDIVIDUAL MODIFIED PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY NON-PARTICIPATING TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND TERMINATION PROVISIONS. This is a legal contract between the owner and Kemper Investors Life Insurance Company. READ YOUR POLICY CAREFULLY. Kemper Investors Life Insurance Company 1600 McConnor Parkway, Schaumburg, Illinois 60196-6801 EX-99.1.A.5.B.1 4 dex991a5b1.txt FORM OF SURVIVORSHIP POLICY Exhibit 1-A(5)(b)(1) [LOGO OF ZURICH LIFE] Kemper Investors Life Insurance Company A Stock Life Insurance Company 1600 McConnor Parkway Schaumburg, Illinois 60196-6801 LIVES INSURED: JOHN DOE ISSUE AGE: 40 JANE DOE 35 EFFECTIVE DATE: JAN 01 2001 POLICY NO: 0000000 INITIAL PREMIUM: $ 10,000.00 INITIAL SPECIFIED AMOUNT: $ 106,702 RIGHT TO CANCEL - At any time within 10 days of receiving this policy, you may return it to us or to the agent through whom it was purchased. Immediately upon our receipt, this policy will be voided as if it had never been in force. Within ten days we will pay an amount equal to premiums paid for this policy less any Debt. On the Maturity Date, if either of the Lives Insured is living and this policy is in force, we will pay the Net Surrender Value to you. If both Lives Insured die prior to the Maturity Date and this policy is in force, we will pay to the beneficiary the death benefit in force at the time of the Surviving Insured's death. Payment made to you or to the beneficiary will be made subject to the terms of this policy. This policy is issued in consideration of the attached application and payment of the single premium. The provisions on this cover and the pages that follow are part of this policy. Signed for Kemper Investors Life Insurance Company at its home office in Schaumburg, Illinois. /s/ Debra P. Rezabek /s/Gale K. Caruso ------------------- ----------------- Debra P. Rezabek Gale K. Caruso Secretary President SURVIVORSHIP, MODIFIED PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY PAYABLE ON THE SECOND DEATH NON-PARTICIPATING TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND TERMINATION PROVISIONS. This is a legal contract between the owner and Kemper Investors Life Insurance Company. READ THIS POLICY CAREFULLY. Policy Form No. L-8388NJ TABLE OF CONTENTS Page No. SETTLEMENT/ANNUITY OPTION TABLE Follows Page 16 APPLICATION Follows Policy Specifications POLICY SPECIFICATIONS Follows Table of Contents ENDORSEMENTS, if any Follows Settlement Option Table DEFINITIONS 1-2 GENERAL PROVISIONS 3-4 The Policy 3 Modification of Policy 3 Contestability 3 Misstatement of Age and/or Sex 3 Suicide 3 Effective Date of Coverage 3 Termination 3 Assignment 3 Due Proof of Death 3 Reserves, Cash Values and Benefits 4 Tax Treatment 4 Non-Participating 4 Reports 4 OWNERSHIP PROVISIONS 4-5 Owners of Policy 4 Change of Ownership 4 Beneficiary Designation and Change of Beneficiary 4-5 Death of Beneficiary 5 DEATH BENEFIT PROVISIONS 5 Payment of Death Benefits 5 Amount Payable Upon Death 5 Deferment of Death Benefits 5 PREMIUM PROVISIONS 5-7 Initial Premium 5 Additional Premium 6 Place of Payment 6 Premium Allocation 6 Grace Period 6 Reinstatement 6-7 GENERAL ACCOUNT PROVISIONS 7 General Account 7 Fixed Account 7 DCA Fixed Account Value 7 DCA Fixed Account 7 VARIABLE ACCOUNT PROVISIONS 7-9 Separate Account 7 Liabilities of Separate Account 7 Separate Account Value 7 Subaccounts 7 Subaccount Value 7-8 Fund 8 Rights Reserved By The Company 8 Accumulation Unit Value 8 Investment Experience Factor 9 NON FORFEITURE PROVISIONS 9-10 Cash Value 9 Monthly Deduction 9 Cost of Insurance 9 Cost of Insurance Rate 10 Riders 10 Mortality and Expense Charge 10 Insufficient Net Surrender Value Status 10 8388NJ TRANSFER, WITHDRAWAL AND LOAN PROVISIONS 10-12 Transfers 10 Withdrawals 11 Effect of a Withdrawal 11 Withdrawal Charges 11 Policy Loans 11 Policy Loan Interest 11-12 Policy Loan Repayment 12 Effect of Policy Loans 12 Transfer, Withdrawal and Loan Provisions 12 Deferment of Withdrawal Transfer or Loan 12 SETTLEMENT OPTIONS 12-14 Election of Settlement Options 13 Fixed Installment Annuity 13 Life Annuity 13 Life Annuity with Installments Guaranteed 13 Joint and Survivor Annuity 14 OTHER OPTIONS 14 Variable Payment Options 14 Annuity Unit Value 14-15 Fixed Payout Option 15 Transfers During Payout Period 15-16 Supplementary Agreement 16 Date of First Payment 16 Evidence of Age, Sex and Survival 16 Misstatement of Age or Sex 16 Basis of Annuity Option's 16 Creditors 16 8388NJ Page A POLICY SPECIFICATIONS LIVES INSURED JOHN DOE ISSUE AGE 40 JANE DOE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER 0000000 INITIAL SPECIFIED AMOUNT $100,000 DATE OF ISSUE JAN 01 2001 COVERAGE INFORMATION RATE INITIAL CLASS SPECIFIED MONTHLY BENEFIT DESCRIPTION PERCENT AMOUNT MATURITY DATE RATE MODIFIED PREMIUM VARIABLE LIFE* 100 $100,000 [JAN 01 2066] SEE PAGE D * IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO NET SURRENDER VALUE TO BE PAID ON THAT DATE. RETURN OF PREMIUM GUARANTEE PERIOD EXPIRATION DATE [JAN 01 2056] (Applies to 100% Guideline Single Premium Payment) PREMIUM INFORMATION INITIAL PREMIUM [$10,409.30] PERCENT OF GUIDELINE SINGLE PREMIUM PAID [100%] INSURED RATE CLASS STANDARD TOBACCO/NON-TOBACCO 8388NJ Page A POLICY SPECIFICATIONS LIVES INSURED JOHN DOE ISSUE AGE 40 JANE DOE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] DEDUCTION DAY DAY 01 OF EACH MONTH DEDUCTION PERIOD [65 YEARS, 00 MONTHS] MINIMUM SPECIFIED AMOUNT AFTER WITHDRAWAL $10,000 MINIMUM WITHDRAWAL AMOUNT $100.00 MINIMUM NET SURRENDER VALUE AFTER WITHDRAWAL $5,000 MINIMUM LOAN AMOUNT $1,000.00 POLICY LOAN INTEREST CHARGED 5.50% GUARANTEED POLICY LOAN INTEREST CREDITED 3.50% IRC SECTION 7702 TEST GUIDELINE PREMIUM TABLE OF DEATH BENEFIT FACTORS
ATTAINED ATTAINED ATTAINED ATTAINED AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT 0-40 250 50 185 60 130 70 115 41 243 51 178 61 128 71 113 42 236 52 171 62 126 72 111 43 229 53 164 63 124 73 109 44 222 54 157 64 122 74 107 45 215 55 150 65 120 75-90 105 46 209 56 146 66 119 91 104 47 203 57 142 67 118 92 103 48 197 58 138 68 117 93 102 49 191 59 134 69 116 94 101 95+ 100 *ATTAINED AGE IS THE AGE ON LAST BIRTHDAY AS OF THE BEGINNING OF THE POLICY YEAR.
8388 Page B POLICY SPECIFICATIONS LIVES INSURED JOHN DOE ISSUE AGE 40 JANE DOE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION KEMPER AGGRESSIVE GROWTH PORTFOLIO 100% KEMPER TECHNOLOGY GROWTH PORTFOLIO KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO KEMPER SMALL CAP GROWTH PORTFOLIO KEMPER SMALL CAP VALUE PORTFOLIO KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO KEMPER INTERNATIONAL PORTFOLIO KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO KEMPER GLOBAL BLUE CHIP PORTFOLIO KEMPER GROWTH PORTFOLIO KEMPER CONTRARIAN VALUE PORTFOLIO KEMPER BLUE CHIP PORTFOLIO KEMPER VALUE+GROWTH PORTFOLIO KEMPER HORIZON 20+ PORTFOLIO KEMPER TOTAL RETURN PORTFOLIO KEMPER HORIZON 10+ PORTFOLIO KEMPER HIGH YIELD PORTFOLIO KEMPER HORIZON 5 PORTFOLIO KEMPER GLOBAL INCOME PORTFOLIO KEMPER INVESTMENT GRADE BOND PORTFOLIO KEMPER GOVERNMENT SECURITIES PORTFOLIO KEMPER MONEY MARKET PORTFOLIO SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO SCUDDER VLIF GROWTH AND INCOME PORTFOLIO SCUDDER VLIF INTERNATIONAL PORTFOLIO SCUDDER VLIF CAPITAL GROWTH PORTFOLIO JANUS GROWTH PORTFOLIO JANUS GROWTH AND INCOME PORTFOLIO WARBURG EMERGING MARKETS PORTFOLIO WARBURG POST-VENTURE CAPITAL PORTFOLIO ASSET BASED CHARGES ARE ASSESSED FOR THE ABOVE DIVISIONS. FOR A COMPLETE DISCUSSION OF ASSET BASED CHARGES, PLEASE REFER TO SCHEDULE 1. GENERAL ACCOUNT INTEREST RATE INITIAL PREMIUM ALLOCATION DCA FIXED ACCOUNT - 6 MONTH N/A 0% DCA FIXED ACCOUNT - 12 MONTH N/A 0% 8388NJ Page C POLICY SPECIFICATIONS LIVES INSURED JOHN DOE ISSUE AGE 40 JANE DOE 35 EFFECTIVE DATE JAN 01 2001 POLICY NUMBER [000000] TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000 ATTAINED NON- ATTAINED NON- AGE TOBACCO TOBACCO AGE TOBACCO TOBACCO - ----------------------------------------------------------------- 0 0.219480 0.219480 50 0.428690 0.837880 1 0.085880 0.085880 51 0.468090 0.916270 2 0.082540 0.082540 52 0.513380 1.004870 3 0.080880 0.080880 53 0.565410 1.105400 4 0.077540 0.077540 54 0.623350 1.215380 5 0.073370 0.073370 55 0.688070 1.333150 6 0.069200 0.069200 56 0.758730 1.457890 7 0.065030 0.065030 57 0.833670 1.589640 8 0.062530 0.062530 58 0.917110 1.728430 9 0.061690 0.061690 59 1.010780 1.877720 10 0.062530 0.062530 60 1.115550 2.044410 11 0.067530 0.067530 61 1.232310 2.232910 12 0.076700 0.076700 62 1.367070 2.445950 13 0.089220 0.089220 63 1.519910 2.684600 14 0.103400 0.103400 64 1.690090 2.946500 15 0.113420 0.146810 65 1.876860 3.224930 16 0.123430 0.163510 66 2.079500 3.517450 17 0.130940 0.175200 67 2.297270 3.821590 18 0.135950 0.184390 68 2.534600 4.141890 19 0.139290 0.190240 69 2.798580 4.490890 20 0.140130 0.193580 70 3.098170 4.877870 21 0.138460 0.193580 71 3.441600 5.314990 22 0.135950 0.190240 72 3.839990 5.812080 23 0.132610 0.186890 73 4.293280 6.366660 24 0.129280 0.181880 74 4.794460 6.979050 25 0.125100 0.176030 75 5.333740 7.638620 26 0.122600 0.172690 76 5.907380 8.318710 27 0.120930 0.171020 77 6.511600 9.007620 28 0.120090 0.171020 78 7.150730 9.710250 29 0.120090 0.173530 79 7.845900 10.451730 30 0.120930 0.177710 80 8.620930 11.258160 31 0.123430 0.183550 81 9.498890 12.154910 32 0.126770 0.191070 82 10.501350 13.160810 33 0.131780 0.201100 83 11.628210 14.262960 34 0.137620 0.212790 84 12.862100 15.427670 35 0.144300 0.227000 85 14.178860 16.617240 36 0.151820 0.243720 86 15.565070 17.803170 37 0.161840 0.264620 87 17.002260 19.039280 38 0.172690 0.288040 88 18.486430 20.348230 39 0.184390 0.314810 89 20.041320 21.671680 40 0.198590 0.345780 90 21.693700 23.030110 41 0.213630 0.379270 91 23.488560 24.468300 42 0.229510 0.416120 92 25.504290 26.169550 43 0.247060 0.456350 93 27.961930 28.406850 44 0.266290 0.500790 94 31.383850 31.563380 45 0.288040 0.547780 95 36.798270 36.798270 46 0.311460 0.596470 96 46.588990 46.588990 47 0.336570 0.649400 97 67.043870 67.043870 48 0.364190 0.706570 98 83.333330 83.333330 49 0.394340 0.768830 99 83.333330 83.333330 *THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT. THIS PERCENT IS SHOWN ON PAGE 1 OF THE POLICY SPECIFICATIONS. THE RATES ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE SECTION. L-8388NJ Page D SCHEDULE 1 CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- Schedule of Asset Based Charges - -------------------------------------------------------------------------------- Applied daily to Separate Account Value Mortality and Expense Charge .90% annually (0.002465753% daily) Applied monthly to Cash Value Administration Charge .35% annually for Policy Years 1-10 (0.02916667% monthly) .25% annually for Policy Years 11 and later (0.02083333% monthly) Tax Charge .40% annually for Policy Years 1-10 (0.03333333% monthly) - -------------------------------------------------------------------------------- The Annual Record Maintenance Charge of $30 is deducted from your Cash Value on each policy anniversary and upon policy termination. However, if your Cash Value is greater than or equal to $50,000 on a policy anniversary or the date of termination, we will not assess the Records Maintenance charge on that policy anniversary or termination date. -------------------------------------------------------------- Schedule of Withdrawal Charges -------------------------------------------------------------- Policy Year Surrender Premium Tax Total Withdrawal Charge Charge Charge -------------------------------------------------------------- 1 7.75% 2.25% 10.00% 2 7.75% 2.00% 9.75% 3 7.50% 1.75% 9.25% 4 6.50% 1.50% 8.00% 5 5.75% 1.25% 7.00% 6 5.00% 1.00% 6.00% 7 4.25% .75% 5.00% 8 3.50% .50% 4.00% 9 2.75% .25% 3.00% over 9 0% 0% 0% -------------------------------------------------------------- THE WITHDRAWAL CHARGE PERCENTAGES ARE APPLIED AGAINST CASH VALUE NOT EXCEEDING THE INITIAL PREMIUM AMOUNT, AS WITHDRAWN. A FREE PARTIAL WITHDRAWAL OF THE GREATER OF 10% OF CASH VALUE OR CASH VALUE LESS PREMIUM PAID IS AVAILABLE EACH YEAR. PREMIUM PAID FOR THIS PURPOSE IS THE INITIAL PREMIUM AMOUNT MINUS WITHDRAWALS PREVIOUSLY ASSESSED A WITHDRAWAL CHARGE. L-8388NJ Page 1 DEFINITIONS ACCUMULATION UNIT - An accounting unit of measure used to calculate the value of each Subaccount. ACCUMULATION UNIT VALUE - The value of a Subaccount determined for a Valuation Period according to the formula stated in this policy. ADMINISTRATION CHARGE - A charge deducted from the Cash Value for a portion of Our administrative costs. CASH VALUE - The sum of the Separate Account Value plus the Fixed Account Value plus the Loan Account Value. DEBT - The principal of any outstanding loan plus any loan interest due or accrued. DEDUCTION DAY - The Deduction Day is stated in the policy specifications. It is the same day in each month as the Effective Date. It is the day from which policy months are determined. EFFECTIVE DATE - The Effective Date is shown on the front of Your policy. It is the date coverage becomes effective. If the Effective Date would have been the 29th, 30th or 31st of the month, the Effective Date will be the 28th day of that month. Unless some other date is requested, and except as noted above, the Effective Date applied will be the date of application or the date your initial premium is received, if later. We will deduct the first monthly deduction on the Effective Date. FIXED ACCOUNT - The portion of the Cash Value allocated to our General Account, including amounts allocated to the DCA Fixed Account, to be transferred to the Subaccounts under the automatic Dollar Cost Averaging program. FIXED ACCOUNT VALUE - The value of the Fixed Account. FUND - An investment company or separate series thereof, in which the Subaccounts of the Separate Account invest. GENERAL ACCOUNT - Our assets other than those allocated to the Separate Account or any other Separate Account. GUIDELINE SINGLE PREMIUM - The Guideline Single Premium as defined in Section 7702 of the Internal Revenue Code. ISSUE AGE - The attained age as of the Life Insured's last birthday on the Effective Date. ISSUE DATE - The issue date stated in the policy specifications. It is the date all requirements for coverage and Premium have been received, and the policy is approved. LIVES INSURED - The persons whose lives are insured under the policy as set forth in the policy specifications. LOAN ACCOUNT - The account established for amounts transferred from the Subaccounts and held in our General Account as security for outstanding Policy Debt. LOAN ACCOUNT VALUE - The value of the Loan Account. L-8388NJ Page 1 MATURITY DATE - The Maturity Date is stated in the policy specifications. It is the policy anniversary nearest the younger Insured's 100th birthday. MORTALITY AND EXPENSE CHARGE - A charge deducted in the calculation of the accumulation unit value. It is for Our assumption of mortality risks and expense guarantees. NET SURRENDER VALUE - The Surrender Value minus any Debt. OWNER - See "You, Your, Yours" below. POLICY YEAR - Each twelve-month period beginning on the Effective Date and each policy anniversary. PREFERRED LOAN - The portion of any loan as to which the Loan Account is credited a higher rate of interest. The maximum amount available as a Preferred Loan is the Separate Account Value minus Premium paid plus any prior withdrawal of premium. PREMIUM - The dollar amount We receive in U.S. currency to buy the benefits this policy provides. RECORDS MAINTENANCE CHARGE - A charge assessed against Your policy as specified in the policy specifications. RECEIVED - Received by Kemper Investors Life Insurance Company at its home office in Schaumburg, Illinois. SEPARATE ACCOUNT - A unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940 known as the KILICO Variable Separate Account. SEPARATE ACCOUNT VALUE - The sum of the Subaccount Values of this policy on the Valuation Date. SUBACCOUNTS - The Separate Account has several Subaccounts. The available Subaccounts are stated in the policy specifications. SUBACCOUNT VALUE - The value of each Subaccount calculated separately according to the formula stated in this policy. SURRENDER VALUE - The Surrender Value of this policy is the Cash Value minus any applicable withdrawal charge. SURVIVING INSURED - The second Life Insured to die. TAX CHARGE - A charge deducted from the Cash Value to pay applicable state and local Premium taxes and federal taxes imposed under Section 848 of the Internal Revenue Code of 1986, as amended (the "Code"). TRADE DATE - The Trade Date is the Valuation Date coinciding with or next following the fifteenth day after the Issue Date. We will allocate this policy's Kemper Money Market Subaccount Value to the Subaccounts and/or DCA Fixed Account according to your instructions on the Trade Date. VALUATION DATE - Each business day that applicable law requires that We value the assets of the Separate Account. Currently this is each day that the New York Stock Exchange is open for trading. VALUATION PERIOD - The period that starts at the close of a Valuation Date and ends at the close of the next succeeding Valuation Date. WE, OUR, US - Kemper Investors Life Insurance Company, Schaumburg, Illinois. YOU, YOUR, YOURS - The party(s) named as owner in the application unless later changed as provided in this policy. The owner, prior to the distribution of any death benefit, has the exclusive right to exercise every option and right conferred by this policy. GENERAL PROVISIONS THE POLICY The policy, the attached application and any supplemental application(s), rider(s) and endorsement(s) constitute the entire contract between the parties. All statements made in the application and supplemental application(s) are deemed representations and not warranties. No misstatement will void this policy or be used as a defense of a claim unless it is contained in the application or any supplemental application. MODIFICATION OF POLICY Only Our president, secretary and assistant secretaries have the power to approve a change or waive any provisions of this policy. Any such modifications must be in writing. No agent or person other than the officers named has the authority to change or waive the provisions of this policy. CONTESTABILITY We cannot contest this policy after it has been in force during the lifetime of the Surviving Insured for two years from the Effective Date, unless the Effective Date precedes the date of application for this policy. If the Effective Date precedes the date of application, the two year contestability period will start on the Issue Date. If the policy is reinstated, a new two year contestability period will apply from the date of the reinstatement and will apply only to statements made in the application for the reinstatement. MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the Lives Insured was misstated, the death benefit will be adjusted based on what the initial Premium would have purchased using the correct age and/or sex. The cash value will not be adjusted. SUICIDE If the first death is by suicide within two years of the Effective Date, subject to the following Issue Date exception,whether that insured is sane or insane, We will reissue this policy. If the Effective Date precedes the date of application, the two year suicide period will start on the Issue Date. The new policy on the Surviving Insured will be a single life policy providing coverage substantially similar to that provided under this policy which is available at the time of re-issue. The suicide provision for the new policy will be effective as of this policy's Effective Date, unless the Issue Date exception applies. If the Issue Date exception noted above applies, the new policy will be effective as of this policy's Issue Date. We will also reissue this policy if the first death occurs by suicide within two years after the date of reinstatement, under the terms noted above, except the suicide provision for the new policy will be effective from this policy's latest reinstatement date. If the second death is by suicide, within two years of the Effective Date (subject to the Issue Date exception), whether the Surviving Insured is sane or insane, We will pay only the Premiums paid less any withdrawals and Debt. If the Effective Date precedes the date of application, the two year period will start on the Issue Date. If the second death occurs by suicide within two years after this policy's latest reinstatement date, Our liability will be limited to Premiums paid less any withdrawals and Debt. We must receive written proof of the first death by suicide within 90 days of death. We will apply all premium received on this policy to the new policy when this policy is reissued. We will notify You of any additional premium required within 30 days of receiving notice of the first death. You must pay any additional premium required within 60 days of the date You receive Our request for additional premium. If the additional premium required is not sent or delivered during the time allowed for payment, all coverage will end and your premium less debt will be refunded. In the event the Surviving Insured dies within the 60 day period allowed for payment of premium without Your payment of such additional premium, we will pay a death benefit based on the full face amount of this policy reduced by any additional premium and any other required amount due and payable. TERMINATION All coverage under this policy terminates when any one of the following occurs: 1. You request termination of coverage; 2. The Surviving Insured dies; 3. The first death is by suicide within two years of the Effective Date or within two years of this policy's latest reinstate date, if any. 4. This policy matures; 5. The grace period ends and Debt exceeds Surrender Value or you paid 90% of the Guideline Single Premium; or 6. The grace period ends without payment of any required premium or loan repayment on or after the Return of Premium Guarantee Period Expiration Date, if any, stated in the policy specifications. L-8388NJ Page 3 ASSIGNMENT No assignment of this policy is binding unless We receive written notice of the assignment. We assume no responsibility for the validity or sufficiency of any assignment. Once notice of the assignment is recorded, the rights of the owner and beneficiary are subject to the assignment. Any claim is subject to proof of interest of the assignee. DUE PROOF OF DEATH The death benefit is payable when the Surviving Insured dies. We must receive written proof of death within ninety days of the death of each of the Lives Insured, or as soon thereafter as is reasonably possible. This policy's Owner must provide proof of death upon the first death. The proof may be a certified death certificate or any other proof satisfactory to Us. RESERVES, CASH VALUES AND DEATH BENEFITS All reserves are equal to or greater than those required by statute. Any available Cash Value and death benefit are not less than the minimum benefits required by the statutes of the state in which this policy is delivered. BASIS OF COMPUTATIONS A detailed statement of the method of computations of cash values under this policy has been filed with the insurance department of the state in which this policy is delivered. The 1980 Commissioner's Standard Ordinary Smoker or Nonsmoker Mortality Tables, Age Last Birthday, is the basis for minimum Cash Values, death benefits, and guaranteed maximum cost of insurance rates under this policy. EXPENSE AND MORTALITY RESULTS The dollar amount of variable benefits are guaranteed not to be adversely affected by expense and/or mortality results. TAX TREATMENT This policy is intended to qualify as a life insurance policy under the Internal Revenue Code ("Code"). We may return Premiums which would disqualify the policy from tax treatment as a life insurance policy. Premiums will not be returned if they are necessary to continue coverage. This policy may be endorsed to reflect any change in the Code and its regulations and rulings. You will receive a copy of any such endorsement. Currently, no charges are made against the Separate Account for federal, state or other taxes that may be attributed to the Separate Account. We may in the future, however, impose charges for federal income taxes attributed to the Separate Account. Charges for other taxes, if any, attributed to this policy may also be made. NON-PARTICIPATING This policy does not pay dividends. It will not share in Our surplus or earnings. REPORTS At least once each Policy Year We will send You a statement showing Premiums received, interest credited, investment experience, and charges made since the last report. The report will also show the current death benefit and Cash Value, as well as any other information required by statute. OWNERSHIP PROVISIONS OWNERS OF POLICY The original owner is named in the application. The owner has the right to amend this policy if We agree. The Owner may exercise every option and right conferred by this policy including the right of assignment. Joint owners must agree to any change if more than one owner is named. CHANGE OF OWNERSHIP You may change the owner by written request at any time during the lifetime of the Surviving Insured. You must furnish information sufficient to clearly identify the new owner to Us. The change is subject to any existing assignment of this policy. When We record the effective date of the change, it will be the date the notice was signed except for action taken by Us prior to receiving the request. Any change is subject to the payment of any proceeds. We may require You to return this policy to Us for endorsement of a change. BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY The application for this policy shows the original beneficiary. You may change the beneficiary if You send Us a written change form. Changes are subject to the following: 1. The change must be filed while the Surviving Insured is alive; 2. This policy must be in force at the time You file a change; L-8388NJ Page 4 3. Such change must not be prohibited by the terms of an existing assignment, beneficiary designation or other restriction; 4. Such change will take effect when We receive it; 5. After We receive the change, it will take effect on the date the change form was signed. However, action taken by Us before the change form was received will remain in effect; and 6. The request for change must provide information sufficient to identify the new beneficiary. We may require You to return this policy for endorsement of a change. DEATH OF BENEFICIARY The interest of a beneficiary who dies before the Surviving Insured will pass to the other beneficiaries, if any, share and share alike, unless otherwise provided in the beneficiary designation. If no beneficiary survives, or if no beneficiary is named, the distribution will be made to the Surviving Insured's estate. If a beneficiary dies within ten days of the date of the Surviving Insured's death, the death benefit will be paid as if the Surviving Insured had survived the beneficiary. DEATH BENEFIT PROVISIONS PAYMENT OF DEATH BENEFITS We will pay a death benefit to the beneficiary when We receive due proof of death, if the Surviving Insured dies while this policy is inforce. The return of this policy is required before a payment is made. We will pay the death benefit in a lump sum. Instead of a lump sum payment the beneficiary may elect to have the death benefit distributed under a settlement option. The beneficiary must make this choice within sixty days of the time We receive due proof of death. AMOUNT PAYABLE UPON DEATH We compute the death benefit following Our receipt of due proof of death of the Surviving Insured and the return of this policy based on policy benefits and values in effect on the insured's date of death. As long as the Grace Period has not expired without payment of any required premium or loan repayment, the death benefit is the greater of: 1. the specified amount on the date of the Surviving Insured's death, and 2. the Cash Value on the date of the Surviving Insured's death multiplied by the applicable death benefit factor at the time of death. The death benefit proceeds equal a. minus b. minus c., where: a. is the death benefit b. is any monthly deductions due during the grace period c. is any Debt. The initial specified amount and the table of death benefit factors are shown in the policy specifications. The specified amount is the initial specified amount, unless reduced by a withdrawal. If the Grace period expires before the Return of Premium Guarantee Period Expiration Date, if any, (1) without your sending payment of the premium or loan repayment required to keep the specified amount of coverage in force, (2) with Debt less than or equal to Surrender Value and (3) with your payment of 100% of the Guideline Single Premium as your Initial Premium, the death benefit will be your total Premium paid, less any withdrawals of premium. L-8388NJ Page 5 DEFERMENT OF DEATH BENEFITS The payment of death benefits in excess of the specified amount may be deferred: (a) for up to 2 months from the date requested if these benefits are based upon policy values which do not depend on the investment performance of the Separate Account or (b) otherwise, for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closings) or when the Securities and Exchange Commission has determined that a state of emergency exists which may make such payment impractical. PREMIUM PROVISIONS INITIAL PREMIUM The owner may choose a minimum initial Premium of 90% or 100% of the Guideline Single Premium (based on the initial specified amount). ADDITIONAL PREMIUM Payment of additional Premium, other than Grace Period or Reinstatement Premium, of at least $1,000 will be permitted if the Premium payment would not cause the policy to fail to meet the definition of life insurance under Section 7702 of the Internal Revenue Code ("Code"). We will require satisfactory evidence of insurability before accepting any additional Premium that increases the death benefit. Premium which does not meet the tax qualification guidelines for life insurance under the Code will not be applied to the policy, except as necessary to continue coverage. If there is current Debt on the policy, additional monies will be considered repayment of Debt first, unless You state otherwise. PLACE OF PAYMENT All Premiums under this policy must be paid to Us at Our home office or such other location as We may select. We will notify You and any other interested parties in writing of such other locations. Premiums received by an agent will be allocated only after We receive them. PREMIUM ALLOCATION We will allocate your initial Premium, plus any interest earnings, to the Kemper Money Market Subaccount on the Valuation Date coinciding with or next following the Issue Date. We will allocate this policy's Kemper Money Market Subaccount Value to the Subaccounts according to the Premium allocation shown in the policy specifications on the Trade Date. You may temporarily allocate a portion of Your initial Premium to any single Subaccount or to our DCA Fixed Account to be transferred to the Subaccounts under our automatic dollar cost averaging program. Only initial Premium may be allocated to the Fixed Account, and only for the purpose of subsequent transfers to the Subaccounts under our automatic dollar cost averaging program. GRACE PERIOD If the Cash Value reduced by Debt on the day immediately preceding a Deduction Day is less than the monthly deduction for that month and any Annual Records Maintenance Charge then due, we will apply the policy's remaining cash value to payment of the monthly deduction and any Annual Record's Maintenance Charge owing. A grace period of 61 days will be allowed for the payment, without evidence of insurability, of Premium or loan repayment equal to at least three monthly deductions and any Annual Records Maintenance Charge owing. This grace period will begin on the day (on or next following the Deduction Day) We mail notice of the required payment to Your last known address. If current Debt is less than or equal to Surrender Value, the grace period ends before the Return of Premium Guarantee Period Expiration Date, if any, stated in the policy specifications, you paid 100% of the Guideline Single Premium as your Initial Premium, and your payment of Premium or loan repayment is not sent or delivered within the grace period, coverage under this policy will remain inforce, but the amount paid upon death of the Surviving Insured after the grace period will be limited to the return of Your total Premiums paid less any prior partial withdrawals of premium. While the death benefit coverage provided is limited to a return of premium benefit: (1) no additional monthly deductions or annual charges will be applied to this policy; and, (2) no additional payment of Premium or repayment of Debt will be permitted except upon reinstatement of the specified amount of coverage. The specified amount of coverage can be restored according to the REINSTATEMENT provision below. If Debt exceeds Surrender Value or you paid 90% of the Guideline Single Premium as your Initial Premium, or the grace period ends on or after the Return of Premium Guarantee Period Expiration Date, if any, and your payment of Premium or loan repayment is not sent or delivered within the grace period, coverage under this policy will terminate at the end of the grace period. L-8388NJ Page 6 If death of the Surviving Insured occurs within the grace period, any amount payable will be reduced by any unpaid monthly deductions. REINSTATEMENT If coverage has been reduced, but not terminated, under the Grace Period provision, because a payment required to keep the Specified Amount of coverage in-force has not been paid, and the policy has not been surrendered for its Surrender Value, it may be reinstated to the Specified Amount any time prior to the Maturity Date. The policy may also be reinstated within 3 years of policy termination, if termination resulted from your failure to pay a required premium or load repayment before the end of the grace period if the policy has not been surrendered for its Net Surrender Value. If one of the Lives Insured dies after the policy was terminated because a required payment was not paid during the grace period, the policy will be re-issued as a single life permanent policy. Either type of reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to Us for each of the Lives Insured who are alive on the date we accept Your application for reinstatement; 2. payment of enough Premium to pay the unpaid monthly deductions and any unpaid Annual Record Maintenance Charge due during the last expired grace period; 3. payment of a minimum Premium sufficient to keep this policy in force for three months; and 4. payment or reinstatement of any Debt against this policy which existed on the date coverage was reduced or the policy terminated because of insufficient Cash Value status. The effective date of reinstatement of a policy will be the Deduction Day that coincides with or next follows the date the application for reinstatement is approved by Us. The SUICIDE and CONTESTABILITY provisions will apply from the effective date of reinstatement. Initial premium withdrawn after reinstatement will be subject to the withdrawal charges described in Schedule 1 of the Policy Specifications as if the policy had remained continuously effective. GENERAL ACCOUNT PROVISIONS GENERAL ACCOUNT The guaranteed benefits under this policy are provided through our General Account. After the Trade Date, the only Cash Value remaining in the General Account will be the policy's Loan Account Value and any amount then allocated to the policy's 6 and 12 month Dollar Cost Averaging (DCA) Fixed Accounts. FIXED ACCOUNT The Fixed Account, including the 6 and 12 month DCA Fixed Accounts, is credited with interest rates which will not be less than the guaranteed minimum interest rate. The guaranteed minimum interest rate is 3.00% compounded daily at the daily equivalent of a 3.00% annual effective rate. We may credit a rate higher than the guaranteed minimum interest rate. This would occur if the assets of our General Account are expected to earn interest in excess of the amount assumed in determining our guaranteed interest rate, or if future expenses are expected to be lower than originally anticipated. Before the Issue Date, Your initial premium was held in our Fixed Account and credited with interest from date of receipt at no less than the guaranteed minimum interest rate. On the Issue Date We reduced the policy's Fixed Account Value (initial premium plus credited interest) by the policy's first Monthly Deduction and placed the balance in the Kemper Money Market Subaccount. On the Trade Date we will allocate this policy's Kemper Money Market Subaccount Value according to the Premium Allocation shown in the Policy Specifications, including the DCA Fixed Account if elected. DCA FIXED ACCOUNT VALUE On any Valuation Date prior to the first policy anniversary date, the DCA Fixed Account Value will be equal to: 1. the Cash Value allocated to the DCA Fixed Accounts; plus 2. any interest credited to the DCA Fixed Accounts; minus 3. any pro-rata monthly deductions charged to the DCA Fixed Accounts; minus 4. any amounts transferred from the DCA Fixed Accounts; minus 5. any amounts withdrawn from the DCA Fixed Accounts; minus 6. any amounts loaned from the DCA Fixed Accounts. The DCA Fixed Account Value will be zero on and after the Valuation Date coinciding with or next following the end of the DCA term selected. DCA FIXED ACCOUNT Only initial premium may be allocated to the DCA Fixed Accounts. Cash Value may not be transferred to the DCA Fixed Accounts or from one DCA Fixed Account to another. All Fixed Account Value in the DCA Fixed Accounts must be transferred to the Subaccounts, withdrawn or loaned before the applicable 6 or 12 month DCA term expires. All DCA Fixed Account Value remaining in a 6 or 12 month DCA term at the close of the day on which such term expires for will be transferred to the Subaccounts based on the separate account allocation then effective, unless otherwise directed. VARIABLE ACCOUNT PROVISIONS SEPARATE ACCOUNT The variable benefits under this policy are provided through the KILICO Variable Separate Account. This is called the Separate Account. The Separate Account L-8388NJ Page 7 is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. It is a separate investment account maintained by Us into which a portion of Our assets has been allocated for this policy and may be allocated for certain other policies. LIABILITIES OF SEPARATE ACCOUNT The assets equal to the reserves and other liabilities of the Separate Account will not be charged with liabilities arising out of any other business We may conduct. If the assets of the Separate Account exceed the liabilities under the policies supported by the Separate Account, then the excess may be used to cover the liabilities of Our General Account. We will value the assets of the Separate Account on each Valuation Date. SEPARATE ACCOUNT VALUE On any Valuation Date, the Separate Account Value is the sum of its Subaccount Values. SUBACCOUNTS The Separate Account consists of several Subaccounts as shown in the policy specifications. We may, from time to time, combine or remove Subaccounts in the Separate Account and establish additional Subaccounts of the Separate Account. In such event, We may permit You to select other Subaccounts under this policy. However, the right to select any other Subaccount is limited by the terms and conditions We may impose such transactions. SUBACCOUNT VALUE On any Valuation Date, the Subaccount value in a Subaccount equals: 1. the Subaccount value on the previous Valuation Date multiplied by the investment experience factor for the end of the current Valuation Period; plus 2. any net Premiums received and allocated to the Subaccount during the current Valuation Period; plus 3. any amounts transferred to the Subaccount during the current Valuation Period; minus 4. the pro-rata portion of any monthly deduction charged to the Subaccount when the Valuation Period includes a Deduction Day; minus 5. any amounts transferred or withdrawn from the Subaccount during the current Valuation Period; minus 6. any amounts loaned from the Subaccount during the current Valuation Period. FUND Each Subaccount of the Separate Account will buy shares of an investment company registered under the Investment Company Act of 1940 as an open-end diversified management investment company or shares of a separate series thereof. Each such investment company or series represents a separate investment portfolio which corresponds to one of the Subaccounts of the Separate Account. If We establish additional Subaccounts, each new Subaccount will invest in shares of an additional series or investment company. We may also substitute other investment companies. RIGHTS RESERVED BY THE COMPANY We reserve the right, subject to compliance with the current law or as it may be changed in the future: 1. To operate the Separate Account in any form permitted under the Investment Company Act of 1940 or in any other form permitted by law; 2. To take any action necessary to comply with or obtain and continue any exemptions from the Investment Company Act of 1940 or to comply with any other applicable law; 3. To transfer any assets in any Subaccount to another Subaccount or to one or more Separate Accounts, or the General Account, or to add, combine or remove Subaccounts in the Separate Account. 4. To delete the shares of any of the portfolios of the Fund or any other open-end investment company and to substitute, for the Fund shares held in any Subaccount, the shares of another portfolio of the Fund or the shares of another investment company or any other investment permitted by law; and 5. To change the way We assess charges, but not to increase the aggregate amount above that currently charged to the Separate Account and the Fund in connection with the policies. L-8388NJ Page 8 When required by law, We will obtain Your approval of such changes and the approval of any regulatory authority. You may opt out and refuse such change unless refusal and noncompliance would cause the policy to be null and void. ACCUMULATION UNIT VALUE Each Subaccount has an accumulation unit value. When Premiums or other amounts are allocated to a Subaccount, a number of units are purchased based on the accumulation unit value of the Subaccount at the end of the Valuation Period during which the allocation is made. When amounts are transferred out of or deducted from a Subaccount, units are redeemed in a similar manner. The accumulation unit value for each subsequent Valuation Period is the investment experience factor for that period multiplied by the accumulation unit value for the immediately preceding Period. Each Valuation Period has a single accumulation unit value that is applied to each day in the period. The number of accumulation units will not change as a result of investment experience. INVESTMENT EXPERIENCE FACTOR Each Subaccount has its own investment experience factor. The investment experience of a Subaccount is calculated by applying the investment experience factor to the value in each Subaccount during the Valuation Period. The investment experience factor of a Subaccount for a Valuation Period is determined by dividing 1. by 2. and subtracting 3. from the result, where: 1. is the net result of: a. the net asset value per share of the investment held in the Subaccount determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain distributions made by the investments held in the Subaccount, if the "ex-dividend" date occurs during the current Valuation Period; plus or minus c. a charge or credit for any taxes reserved for the current Valuation Period which We determine resulted from the investment operations of the Subaccount; 2. is the net asset value per share of the investment held in the Subaccount, determined at the end of the last Valuation Period; 3. is the factor representing the Mortality and Expense Charge, stated in the policy specifications, for the number of days in the Valuation Period. NONFORFEITURE PROVISIONS CASH VALUE The Cash Value of this policy is equal to the sum of the Separate Account Value, plus the Loan Account Value, plus the Fixed Account Value. MONTHLY DEDUCTION On each Deduction Day, a monthly deduction will be made equal to the sum of the following: 1. the monthly cost of insurance charge for this policy; plus 2. the monthly charge for any riders; plus 3. the monthly Administration Charge; plus 4. the monthly Tax Charge. The monthly deduction will be deducted from the Subaccounts and Fixed Account in proportion to the value that each Subaccount and Fixed Account bears to the Separate Account Value plus the Fixed Account Value. COST OF INSURANCE We calculate the cost of insurance on each Deduction Day. Current cost of insurance charges are calculated by multiplying 1. times 2., where: 1. is the applicable current asset-based cost of insurance rate; 2. is the Cash Value on the Deduction Day. L-8388NJ Page 9 The current asset-based cost of insurance rate is based on the coverage year, the insured's rate class, the initial premium amount, and whether that premium was90% or 100% of the Guideline Single Premium. After the tenth policy year the current asset-based cost of insurance rate may decrease. This is due to an anticipated lower net amount at risk to Us for the death benefit coverage provided. We guarantee that this charge will not exceed the maximum cost of insurance charge. The maximum cost of insurance charge equals a. times the result of b. minus c. where: a. is the maximum cost of insurance rate per $1,000 for the initial specified amount; b. is the death benefit; and c. is the cash value. COST OF INSURANCE RATE The cost of insurance rate is based on the insured's sex, issue age, coverage year, and rate class. The cost of insurance is also based on whether 90% or 100% of the Guideline Single Premium has been paid at issue. Any change in the cost of insurance rate will be on a uniform basis for all Insureds of the same: 1. sex; 2. attained age at start of coverage; 3. coverage year; and 4. rate class. However, the cost of insurance rates will not exceed those shown in the Table of Guaranteed Maximum Monthly Cost of Insurance Rates per $1,000 multiplied by any rate class percent over 100. We may change current rates if anticipated future investment earnings, expenses, persistency, mortality or tax experience differs from those assumed in the rates applied on the Date of Issue. These rates are found in the policy specifications. These rates are based on the Commissioners 1980 Standard Ordinary Smoker and Nonsmoker Mortality Tables, Age Last Birthday, except for issue ages under 15. Our cost of insurance rates for issue ages below 15 are based on the Commissioners 1980 Standard Ordinary Aggregate Mortality Table. When such Insured obtains an attained age of 15, our rates will be based on the Commissioners 1980 Standard Ordinary Nonsmoker Mortality Table. RIDERS The monthly charges for any riders are shown in the policy specifications. MORTALITY AND EXPENSE RISK CHARGE, ADMINISTRATION CHARGE, TAX CHARGE, AND ANNUAL RECORDS MAINTENANCE CHARGE The Mortality and Risk Charge, Administration Charge, Tax Charge, and Annual Records Maintenance Charge are shown in the policy specifications. TRANSFER, WITHDRAWAL AND LOAN PROVISIONS TRANSFERS You may direct the transfer of all or part of one Subaccount's value to another Subaccount. Transfers will be subject to the following conditions: 1. The minimum amount which may be transferred is $100 or, if smaller, the remaining value in a Subaccount; 2. No partial transfer will be made if the remaining value of any Subaccount will be less than $500 unless the transfer will eliminate Your interest in such account; L-8388NJ Page 10 3. We reserve the right to charge $25 for each transfer in excess of 12 in a Policy Year. Any transfer request must clearly specify: 1. the amount which is to be transferred; and 2. the names of the Subaccounts which are affected. We will only honor a telephone transfer request if a properly executed telephone transfer authorization is on file with Us. Such request for a transfer must comply with the conditions of the authorization. WITHDRAWALS You may withdraw that part of the Cash Value that remains after We subtract any withdrawal charge. We must receive a written request that indicates the amount of the withdrawal from each Subaccount or Fixed Account. You must return the policy to Us if You elect a total withdrawal, which will result in the cash surrender of the policy. See SURRENDER provision below. Partial withdrawals are subject to the following conditions: 1. Each withdrawal must be at least the minimum withdrawal amount stated in the policy specifications or the value that remains in the Subaccount or Fixed Account if smaller; 2. A minimum of $500 must remain in the Subaccount or Fixed Account after You make a withdrawal unless the Subaccount or Fixed Account is eliminated by such withdrawal; 3. A minimum amount of net surrender value as stated in the policy specifications must remain in the Policy after You make a withdrawal. 4. The maximum You may withdraw from any Subaccount or Fixed Account is the value of the Subaccount or Fixed Account less the amount of any withdrawal charge. 5. Any withdrawal amount You request will be increased by the withdrawal charge. SURRENDER This policy may be surrendered for its Net Surrender Value upon written request by You and the return of the policy to Us at our home office. The request must be made during the lifetime of one of the Lives Insured and while this policy is in force. The return of the policy is required before the Net Surrender Value is paid. Payment of the Net Surrender Value will discharge Us from Our obligations under this policy. We will pay the Net Surrender Value of this policy to You on the Maturity Date if at least one of the Lives Insured is living and this policy is in force. EFFECT OF A WITHDRAWAL The Cash Value will be reduced by the amount of the withdrawal. The specified amount will be reduced proportional to the reduction in Cash Value due to the partial withdrawal. We will not permit a withdrawal if it will decrease the specified amount to less than the Minimum Specified Amount stated in the Policy Specifications. WITHDRAWAL CHARGES Withdrawal charges are shown in the policy specifications. Any amount withdrawn which is not subject to a withdrawal charge will be considered a "free partial withdrawal," as referenced in the policy specifications. L-8388NJ Page 11 L-8388NJ Page 12 POLICY LOANS Policy loans may be made any time. We will lend up to a maximum loan amount of 90% of the policy's Cash Value less any applicable withdrawal charges. The amount of any new loan may not exceed the maximum loan amount less Debt on the date the loan is granted. The Preferred Loan portion of a loan will be determined on the date the loan is made, and will not be subsequently redetermined. The minimum amount of a loan is $1,000. On the date the loan is made, an amount equal to the loan will be transferred from the Subaccounts to the Loan Account held in the General Account until the loan is repaid. Unless directed otherwise, the loaned amount will be deducted from the Subaccount in proportion to the values that each Subaccount bears to the Separate Account Value. Should the Debt equal or exceed the Surrender Value, this policy will be subject to the GRACE PERIOD provisions. Cash values derived from Premium received by Us in the form of a check or draft will not be available for loans until 30 days after deposit of such check or draft. POLICY LOAN INTEREST The loan interest rate is stated in the policy specifications and will be compounded daily. Interest not paid will be charged on a daily basis and will be added to the Debt on this policy and bear interest at the same rate. During the existence of a loan, the Loan Account Value will earn interest at the guaranteed rate stated in the policy specifications. We may credit a higher rate on the portion of the Loan Account Value attributable to a Preferred Loan. Interest will be earned on a daily basis and will be added to the Loan Account. POLICY LOAN REPAYMENT A Debt may be repaid in full or in part at any time while this policy is in force. As Debt is paid, the Loan Account Value equal to the amount of repayment which exceeds the difference between interest due and interest earned will be allocated to the Subaccounts according to the then current Premium allocation instructions. Loan repayments will be considered repayment of Preferred Loans last. EFFECTS OF POLICY The Debt on this policy, along with the withdrawal charge will reduce the amount LOANS of Cash Value payable upon surrender. The Debt on this policy will also reduce the amount of Cash Value available for withdrawal. The death benefit payable to the beneficiary upon the death of the Surviving Insured will also be reduced by the amount of Debt. TRANSFER, WITHDRAWAL AND LOAN PROCEDURES We will redeem the necessary number of accumulation units to achieve the dollar amount requested plus any applicable charges when the withdrawal, transfer or loan is made from a Subaccount. We will reduce the number of accumulation units credited in each Subaccount by the number of accumulation units redeemed. The reduction in the number of accumulation units is determined based on the accumulation unit value at the end of the Valuation Period when We receive the request, provided the request contains all required information. We will pay the amount within seven calendar days after the date We receive the request, except as provided below. DEFERMENT OF WITHDRAWAL TRANSFER OR LOAN If the withdrawal, transfer or loan is to be made from a Subaccount, We may suspend the right of withdrawal or transfer or delay payment more than seven calendar days. 1. during any period when the New York Stock Exchange is closed other than customary weekend and holiday closings; 2. when trading in the markets normally utilized is restricted, or an emergency exists as determined by the Securities and Exchange Commission, so that disposal of investments or determination of the accumulation unit value is not practical; or 3. for such other periods as the Securities and Exchange Commission by order may permit for protection of owners. If the withdrawal, transfer or loan is to be made from the fixed account, we may defer such withdrawal, transfer or loan for a period not to exceed six months after the written request is received by us. We will not defer a loan or withdrawal requested to pay premium to Us. SETTLEMENT OPTIONS The Owner, or beneficiary at the death of the Surviving Insured, if no election by the Owner is in effect, may elect to have all of the Net Surrender Value or Death Benefit of this policy paid in a lump sum or have the amount applied to one of the settlement options noted below. The beneficiary may elect to have the death benefit distributed as stated in Option 1 for a period not to exceed the beneficiary's life expectancy; or Options 2, or 3 based upon the life expectancy of the beneficiary as prescribed by federal regulations. The beneficiary must make this choice within sixty days of the time we receive due proof of death. An option can not be changed after the first of such payments is made. Payments must be made to a natural person, referred to below as "payee." If the beneficiary is not a natural person, the beneficiary must elect that the entire death benefit be distributed within five years of your death. Distribution of the death benefit must start within one year after your death. It may start later if prescribed by federal regulations. If the total death benefit proceeds are applied under one of the settlement options, this contract must be surrendered to us. Payments for all options are derived from the applicable tables. Current annuity rates will be used if they produce greater payments than those shown in the policy. The age in the tables is the age payee on the last birthday before the first payment is due. The option selected must result in a periodic payment equivalent to at least $20 per month when annuity payments begin. If the annuity option selected or otherwise applied should result in a periodic payment less than the minimum required on the date payments are scheduled to begin, we reserve the right to make a lump sum payment in satisfaction of our obligation to the payee under the policy. ELECTION OF SETTLEMENT OPTION Election of a settlement option may be made by written notice to Us. This election may be made: 1. by You during the lifetime of the insured; 2. by the beneficiary if no election made by You is in effect at the time of the death of the insured; or 3. by the beneficiary if You reserve the right to the beneficiary to change an election upon the death of the insured. Such change must be made prior to the first settlement option payment. An election in effect during the lifetime of the insured will be revoked by a subsequent change of beneficiary or an assignment of this policy unless provided otherwise. OPTION 1 FIXED INSTALLMENT ANNUITY We will make monthly payments for a fixed number of installments. Payments must be made for at least 5 years, but not more than 30 years. Upon the payee's death, if the beneficiary is a natural person, we will automatically continue payments for the remainder of the certain period to the beneficiary. If the beneficiary is either an estate or trust we will pay the discounted value of the remaining payments in the specified period based on the discount rate stated in the supplemental contract. OPTION 2 LIFE ANNUITY We will make monthly payments while the payee is alive. OPTION 3 L-8388NJ Page 13 L-8388NJ Page 14 LIFE ANNUITY WITH INSTALLMENTS GUARANTEED We will make monthly payments for a guaranteed period and thereafter while the payee is alive. The guaranteed period must be selected at the time the annuity option is chosen. The guaranteed periods available are 5, 10, 15 and 20 years. If, at the death of the payee, payments have been made for less than five, ten, fifteen or twenty years as elected, and the beneficiary is a natural person, we will automatically continue payments for the remainder of the elected period to the beneficiary. If the beneficiary is either an estate or trust, we will pay the discounted value of the remaining payments in the specified period based on the discount rate stated in the supplemental contract. OPTION 4 JOINT AND SURVIVOR ANNUITY We will pay the full monthly income while both payees are alive. Upon the death of either payee, we will continue to pay the surviving payee a percentage of the original monthly payment. The percentage payable to the surviving payee must be selected at the time the annuity option is chosen. The percentages available are 50%, 66 2/3%, 75% and 100%. OTHER OPTIONS We may make other settlement options available. Payments are also available on a quarterly, semi-annual or annual basis. VARIABLE PAYOUT If a variable payout option is selected, the monthly annuity payment will reflect OPTIONS the investment performance of the Subaccounts in accordance with the allocation of the lump sum distribution allocated to those Subaccounts. Allocations will not be changed thereafter, except as provided in the TRANSFERS DURING THE PAYOUT PERIOD provision. The first monthly annuity payment is based on the guaranteed annuity option shown in the Annuity Option Table. You may elect any option available. The dollar amount of the subsequent payments may increase or decrease depending on the investment experience of each Subaccount. The number of annuity units per payment will remain fixed for each Subaccount. The number of annuity units for each Subaccount is calculated by dividing a. by b. where: a. is the portion of the initial monthly payment that can be attributed to that Subaccount; and b. is the annuity unit value for that Subaccount at the end of the Valuation Period. The Valuation Period includes the date on which the payment is made. Monthly payments, after the first payment, are calculated by summing up, for each Subaccount, the product of a. times b. where: a. is the number of annuity units per payment in each Subaccount; and b. is the annuity unit value for that Subaccount at the end of the Valuation Period. The Valuation Period includes the date on which the payment is made. After the first payment, we guarantee that the dollar amount of each annuity payment will not be affected adversely by actual expenses or changes in mortality experience from the expense and mortality assumptions on which we based the first payment. ANNUITY UNIT VALUE The value of an annuity unit for each Subaccount at the end of any subsequent Valuation Period is determined by multiplying the result of a. times b. by c. a. is the annuity unit value for the immediately preceding Valuation Period; and b. is the net investment factor for the Valuation Period for which the annuity unit value is being calculated; and c. is the interest factor of .99993235 per calendar day of such subsequent Valuation Period to offset the effect of the assumed rate of 2.50% per year used in the Annuity Option Table. The net investment factor for each Subaccount for any Valuation Period is determined by dividing a. by b. where: a. is the value of an annuity unit of the applicable Subaccount as of the end of the current Valuation Period plus or minus the per share credit or charge for taxes reserved; and b. is the value of an annuity unit of the applicable Subaccount as of the end of the immediately preceding Valuation Period, plus or minus the per share credit or charge for taxes reserved. FIXED PAYOUT OPTION If a fixed payout option is chosen, your payment will be fixed in an amount throughout the payout period. We determine the amount of your fixed payment by multiplying the amount applied to the option by a rate determined by Us which is not less than the rate specified in the Settlement Option Tables below. The amount of the payment will not change throughout the payout period. TRANSFERS DURING THE PAYOUT PERIOD During the payout period, the payee may choose to change the Subaccounts or the relative weighting of the Subaccounts on which variable payments are based,or the relative proportions of fixed and variable payments. A transfer may be made subject to the following: 1. The payee must send us a written notice in a form satisfactory to us; 2. One transfer is permitted each twelve month period from the date of the first annuity payment. We must receive notice of any such transfer at least thirty days prior to the effective date of the transfer; 3. A payee may not base variable payments on more than three Subaccounts after any transfer; 4. At least $1,000 of annuity unit value or annuity reserve value must be transferred from a Subaccount or from the General Account; and 5. At least $1,000 of annuity unit value or annuity reserve value must remain in the account from which the transfer was made. When a transfer is made between Subaccounts, the number of annuity units per payment attributable to a Subaccount to which a transfer is made is equal to a. multiplied by b. divided by c., where: a. is the number of annuity units per payment in the Subaccount from which transfer is being made; b. is the annuity unit value for the Subaccount from which the transfer is being made; and c. is the annuity unit value for the Subaccount to which transfer is being made. When a transfer is made from the General Account to a Subaccount, the number of annuity units per payment attributable to a Subaccount to which transfer is made is equal to a. divided by b., where: a. is the General Account annuity amount per payment being transferred; and b. is the annuity unit value for the Subaccount to which the transfer is being made. L-8388NJ Page 15 L-8388NJ Page 16 The amount of money allocated to the General Account in case of a transfer from a Subaccount equals the annuity reserve for the payee's interest in such Subaccount. The annuity reserve is the product of a. multiplied by b. multiplied by c. where: a. is the number of annuity units representing the payee's interest in such Subaccount per annuity payment; b. is the annuity unit value for such Subaccount; and c. is the present value of $1.00 per payment period using the attained age(s) of the payee(s) and any remaining guaranteed payments that may be due at the time of the transfer. Money allocated to the General Account upon such transfer will be applied under the same annuity payout option as originally elected. Guaranteed period payments will be adjusted to reflect the number of guaranteed payments already made. If all guaranteed payments have already been made, no further payments will be guaranteed. All amounts and annuity unit values are determined as of the end of the Valuation Period preceding the effective date of the transfer. SUPPLEMENTARY AGREEMENT A supplementary agreement will be issued to reflect payments that will be made under a settlement option. If payment is made as a death benefit distribution, the effective date will be the date of death. Otherwise, the effective date will be the date chosen by the Owner. DATE OF FIRST PAYMENT Interest will start to accrue on the effective date of the Supplementary Agreement. If the normal effective date is the 29th, 30th, or 31st of the month, the effective date will be the 28th day of the that month. EVIDENCE OF AGE, SEX AND SURVIVAL We may require satisfactory evidence of the age, sex and the continued survival of any person on whose life the income is based. MISSTATEMENT OF AGE OR SEX If the age or sex of the payee has been misstated, the amount payable under the annuity option selected will be such as the lump sum applied would have purchased at the correct age or sex. Interest not to exceed 6% compounded each year will be charged to any overpayment or credited to any underpayment against future payments We may make under the supplementary agreement for the option selected. BASIS OF ANNUITY OPTIONS The guaranteed payments are based on an interest rate of 2.50% per year and, where mortality is involved, the "1983 Table a" individual annuity mortality tabledeveloped by the Society of Actuaries, projected using Projection Scale G. We may also make available variable annuity payment options based on assumed investment rates other than 2.50%. CREDITORS The proceeds of this policy and any payment under an annuity option will be exempt from the claim of creditors and from legal process to the extent permitted by law. EX-99.3.B 5 dex993b.txt OPINION AND CONSENT OF ACTUARIAL OFFICER EXHIBIT 3(b) OPINION AND CONSENT OF ACTUARIAL OFFICER This opinion is supplied with the filing of Post-Effective Amendment No. 4 to the Registration Statement on Form S-6, File No. 333-79615, by the KILICO Variable Separate Account (the "Separate Account") and Kemper Investors Life Insurance Company ("KILICO") covering an indefinite number of interests in the Separate Account under KILICO's Single Life and Survivorship Modified Single Premium Variable Universal Life Insurance Policies (the "Policies"). Premiums received under the Policies may be allocated by KILICO to the Separate Account as described in the Prospectus included in the Registration Statement. I am familiar with the provisions of the Policies and the description in the Prospectus and it is my opinion that the illustrations of death benefits, surrender values, cash values, and accumulated premiums included in Exhibit 9 to the Registration Statement, based on the assumptions in the illustrations, are consistent with the provisions of the Policies. The rate structure of the Policies have not been designed to make the relationship between planned premiums and benefits, as shown in the illustrations, appear more favorable in the case of individual Policies, to prospective non-tobacco males age 40, or, in the case of survivorship Policies, to prospective non-tobacco males and females ages 45 and 40, respectively, than to non-tobacco males and females at other ages. The non-tobacco risk class generally has a more favorable rate structure than tobacco risk classes. Female rate classes generally have a more favorable rate structure than male rate classes. The current and guaranteed monthly mortality rates used in the illustrations have not been designed so to make the relationship between current and guaranteed rates more favorable for the ages and sexes illustrated than for a non-tobacco male or female at other ages. The non-tobacco risk classes generally have lower monthly mortality rates than the tobacco risk classes. The female risk classes generally have lower monthly mortality rates than the male risk classes. I consent to the use of this opinion as an Exhibit to Post-Effective Amendment No.4 to the Registration Statement and to the reference to me under the heading "Experts" in the Prospectus. /s/ Phillip N. Beyer ------------------------------------ Phillip N. Beyer, FSA, MAAA EX-99.6 6 dex996.txt CONSENT OF PRICEWATERHOUSECOOPERS, LLP EXHIBIT 6 CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Kemper Investors Life Insurance Company and Policy Owners of Kemper Investors Life Insurance Company's KILICO Variable Separate Account: We hereby consent to the inclusion in this Post-Effective Amendment No. 5 (File No. 333-79615) to the registration statement on Form S-6 (the "Registration Statement") of our report dated March 22, 2002, relating to the consolidated financial statements of Kemper Investors Life Insurance Company, and of our report dated February 22, 2002, relating to the financial statements of Kemper Investors Life Insurance Company's KILICO Variable Separate Account, which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts." PricewaterhouseCoopers LLP Chicago, Illinois April 29, 2002 EX-99.8 7 dex998.txt PROCEDURES MEMORANDUM Exhibit 8 PROCEDURES MEMORANDUM (Dated April 23, 2002) Pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 KILICO Variable Separate Account of Kemper Investors Life Insurance Company I. Introduction Set forth below is the information called for under Rule 6e-3(T)(b)(12) (iii) under the Investment Company Act of 1940 ("1940 Act"). That rule provides an exemption for separate accounts, their investment advisers, principal underwriters and sponsoring insurance company from Sections 22(d), 22(e), and 27(c)(1) of the 1940 Act, and Rule 22c-1 promulgated thereunder, for ISSUANCE, TRANSFER and REDEMPTION procedures under flexible premium variable life insurance policies to the extent necessary to comply with Rule 6e-3(T), state insurance or administrative law, or established administrative procedures of the life insurance company. In order to qualify for the exemption, procedures must be reasonable, fair and not discriminatory and they must be disclosed in the registration statement filed by the separate account. The KILICO Variable Separate Account (the "Separate Account") is registered under the 1940 Act. Within the Separate Account are Subaccounts, which are, as of the date of this filing, the Scudder Aggressive Growth, Scudder Technology Growth, Scudder Small Cap Growth, Scudder International, Scudder New Europe, Scudder Total Return, Scudder High Yield, Scudder Strategic Income, Scudder Investment Grade Bond, Scudder 21st Century Growth, Scudder Global Discovery, Scudder Growth and Income, Scudder International Select Equity, Scudder Capital Growth, Scudder Government Securities, Scudder Money Market, Scudder Global Blue Chip, Scudder Growth, Scudder Health Sciences, Scudder Contrarian Value, Scudder Blue Chip, SVS Dreman Financial Services, SVS Dreman Small Cap Value, SVS Dreman High Return Equity, SVS Focus Value+Growth, SVS Index 500, SVS Davis Venture Value, SVS Invesco Dynamic Growth, SVS MFS Strategic Value, SVS Oak Strategic Equity, SVS Turner Mid Cap Growth, SVS Eagle Focused Large Cap Growth, SVS Janus Growth Opportunities, SVS Janus Growth and Income, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus I.P. MidCap Stock, Alger American Leveraged AllCap Portfolio, Alger American Balanced Portfolio, INVESCO VIF-Utilities Fund, Creditd Suissse Trust-Emerging Markets, Credit Suisse Trust-Global Post-Venture Capital (the "Subaccounts"). Procedures apply equally to each Subaccount and for purposes of this description are defined in terms of the Separate Account, except where a discussion of both the Separate Account and its Subaccounts is necessary. Each Subaccount invests in shares of a corresponding portfolio of the Scudder Variable Series I, the Scudder Variable Series II, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Investment Portfolios (Initial Share Class), The Alger American Fund, the Credit Suisse Trust and the INVESCO Variable Investment Fund, Inc. (the "Funds"), mutual funds registered under the 1940 Act. The investment experience of the Subaccounts of the Account depends on the market performance of the corresponding Fund portfolios. Kemper Investors Life Insurance Company ("KILICO") sells two forms of a modified single premium variable universal life insurance policy offered through the Separate Account: a single life modified single premium variable universal life insurance policy covering the life of one insured ("Single Life Policy") and a survivorship life modified single premium variable universal life insurance policy covering the lives of two insureds ("Survivorship Policy"). Where the provisions of the policies are the same, they will be referred to jointly as "Policy" or "Policies". Where the provisions differ, the provisions will be distinguished by reference to "Individual Policy" or "Survivorship Policy". KILICO believes its procedures meet the requirements of Rule 6e-3(T)(b) (12)(iii) and states the following: 1 A. Because of the insurance nature of KILICO's Policies and due to the requirements of state insurance and administrative laws, the procedures necessarily differ in significant respects from procedures for mutual funds and contractual plans for which the 1940 Act was designed. B. Many of the procedures used by KILICO have been adopted from established procedures for modified single premium universal life insurance policies sold by KILICO and its affiliated insurance companies. C. In structuring its procedures to comply with Rule 6e-3(T), state insurance laws and its established administrative procedures, KILICO has attempted to comply with the intent of the 1940 Act, to the extent deemed feasible. D. In general, state insurance laws require that KILICO's procedures be reasonable, fair and not discriminatory. E. Because of the nature of the insurance product, it is often difficult to determine precisely when KILICO's procedures deviate from those required under Section 22(d), 22(e) or 27(c)(1) of the 1940 Act or Rule 22c-1 thereunder. Accordingly, set out below is a summary of the principal policy provisions and procedures which may be deemed to constitute, either directly or indirectly, such a deviation. The summary, while comprehensive, does not attempt to address each and every procedure of variation which might occur and does include certain procedural steps which might be deemed as deviations from the above-cited sections rules. II. Issuance This section outlines those provisions and administrative procedures which might be deemed to constitute, either directly or indirectly, a "purchase" transaction. Because of the insurance nature of the Policy, the procedures involved necessarily differ in certain significant respects from the purchase procedures for mutual funds and contractual plans. The chief differences revolve around the structure of the cost of insurance and the insurance underwriting (i.e., evaluation of risk) process. There are also certain Policy provisions, such as reinstatement, which do not result in the issuance of a Policy but which require certain payments by the Policyowner and involve a transfer of assets supporting the Policy reserve into the Separate Account. A. Insurance Charges and Underwriting Standards Cost of insurance charges for KILICO's policies will not be the same for all policyholders. The chief reason is that the principle of pooling and distribution of mortality risks is based on the assumption that each Policyowner pays a cost of insurance charge commensurate with the insured person's mortality risk. This mortality risk is actuarially determined based upon factors such as age, smoking status, sex, health, and occupation. Each insured is charged a monthly deduction based on applying a cost of insurance rate commensurate with his/her mortality risk to the Account Value, on a current basis. The policies will be offered and sold pursuant to the cost of insurance schedules and underwriting standards and in accordance with state insurance laws. Such laws prohibit discrimination among insureds, but recognize that premiums must be based on factors such as age, sex, health and occupation. A table showing the maximum cost of insurance rates, as a function of the Net Amount at Risk, will be delivered as part of the policy. B. Application and Initial Premium Processing 1. Death Benefit The Death Benefit for the policies is based on the specified amount selected and the table of death benefit percentages applicable at the time of death. A policy will be issued if the following conditions are met: 2 a. A premium payment of at least $10,000 is paid. b. A completed application is submitted. c. Required underwriting information, satisfactory to KILICO, is provided. 2. Policy Issue Before KILICO will issue a policy, it must receive a completed application and a full initial premium at its Home Office. A policy ordinarily will be issued only for Insureds Age 0 through 90 who supply satisfactory evidence of insurability to KILICO. Acceptance of an application is subject to underwriting by KILICO. KILICO reserves the right to decline an application for any reason. After underwriting is complete and the policy is delivered to the owner, insurance coverage under the policy will be deemed to have begun as of the day following the date of receipt of a completed application and the full initial premium. This date is the Effective Date. 3. Premiums Premiums are to be paid to KILICO at its Home Office. Checks ordinarily must be made payable to KILICO. Initial Premium - The minimum initial premium that KILICO will accept under a policy is $10,000.00. KILICO reserves the right to increase or decrease this amount for a class of policies issued after some future date. On the day following the date of receipt, the net initial premium will be allocated to our General Account where it will accumulate interest at our normal rate. This premium will remain in the General Account until the Issue Date, when it will be transferred to our Money Market Subaccount. The Trade Date is generally the date 20 days after the issue date, or longer depending on the Free-Look provision of the state of issue. For some states, the Trade Date could be the same day as the Issue Date. On the Trade Date, the Investment Value in the General Account, or the policy's Separate Account Value in the Money Market Subaccount if applicable, will be allocated to the Subaccounts and the DCA Fixed Account in accordance with elections by the Owner in the application for the policy. The Effective Date is the date used to determine Policy Years and Monthly Deduction Dates. The Effective Date generally will be the date following receipt of the application, except that if such date is the 29th, 30th, or 31st of a month, the Effective Date will be the 28th of that month. Acceptance is subject to KILICO's underwriting rules, and KILICO reserves the right to reject an application for any reason. The Effective Date is the date when KILICO accepts the risk of providing insurance coverage to the Insured. Monthly deductions begin as of the Effective Date. The cost of insurance for the full amount of coverage applied for is applied as of the Effective Date. This is consistent with established administrative procedures of KILICO and is permitted and consistent with common insurance company administrative practice and insurance laws. The initial Specified Amount is derived from the Initial Premium. The minimum initial Specified Amount is determined by applying a death benefit factor, which varies by age, sex and tobacco status, to the initial premium amount, taken to be the Guideline Single Premium. The death benefit factor is the reciprocal (i.e.,1/x) of the Guideline Single Premium. The actual initial Specified Amount will be slightly higher than this factor, based on a separate set of factors that vary from 1.00 to 1.28. 3 We will accept 90% or 100% of the Guideline Single Premium (GSP) for a certain Specified Amount. Those paying 90% of the GSP do not qualify for the No Lapse Guarantee, and are charged a higher current Cost of Insurance rate. Additional Premiums - The Policy Owner is not required to pay any additional premiums after the initial premium. Subject to the premium guidelines established under Federal tax law, additional premiums may be contributed while this policy is in force, including when necessary to prevent lapse. Upon request, KILICO will tell the Owner whether an additional premium payment can be made and the maximum amount. These premium payments will not increase the maximum possible Withdrawal Charge. Except to prevent lapse, such an additional premium payment must be at least $1,000.00. Evidence of insurability may be required if an additional premium payment would result in an increase in the Death Benefit. 4 4. Allocation of Premiums and Separate Account Value Allocation of Premiums - The Owner directs allocation of premiums to Subaccounts of the Separate Account and the DCA Fixed Account. The Owner must indicate the initial allocation in the policy application. On the Trade Date, the Investment Value in the General Account or the policy's Separate Account Value in the Money Market Subaccount if applicable, will be allocated to the Subaccounts of the Separate Account and the DCA Fixed Account in accordance with the Owner's allocation instructions in the application. Additional premiums received will continue to be allocated in accordance with the Owner's instructions in the application unless contrary written instructions are received. Once a change in allocation is made, all future premiums will be allocated in accordance with the new allocation, unless contrary written instructions are received. C. Delivery Period - Policies Issued - Other Than as Applied For 1. KILICO will take steps to protect itself against anti-selection by the prospective Owner resulting from a deterioration in the health of the proposed Insured including requiring policies to be delivered promptly. Generally, the period will not exceed 60 days from the date the policy is issued. 2. Failure to Complete Delivery - KILICO will review the file to verify that delivery requirements were not satisfied. a. If KILICO determines that delivery was satisfied, the policy will be placed in force as of the Effective Date. b. If delivery was not satisfied, the policy will be terminated as of the Effective Date and any premium refunded to the Owner, subject to the refund rules mentioned herein. Notification will be sent to the Owner advising him or her that delivery was never completed and that no insurance has been in effect. D. Delivery Requirements 1. An agent/agency must submit all outstanding delivery requirements to the KILICO Home Office prior to the end of the delivery period. 2. The KILICO Home Office cannot accept partial requirements; however, if an agency does inadvertently submit only part of the requirements necessary to complete delivery, KILICO will record any documents as received, and return the policy to the agency with a memo advising them of the remaining requirements. 3. Any money submitted with incomplete delivery requirements will be returned to proposed owner with correspondence specifying the remaining requirements. 4. If a policy is reported as delivered after the delivery period has expired, the policy will be placed in force, subject to underwriting approval. 5. If a policy is returned to the agency due to incomplete requirements, a delivery extension may be obtained on the agency's behalf. E. Policy Lapse/reduction in Coverage 5 Lapse will occur when the Surrender Value of a policy is insufficient to cover the monthly deductions, there is debt outstanding, and a grace period expires without a sufficient payment being made. If there is no debt outstanding, the No Lapse Guarantee will enable coverage on the policy to continue. If the Surrender Value of a policy is insufficient to cover the monthly deductions, a grace period expires without a sufficient payment being made, and there is no debt outstanding, the policy will not lapse but the Death Benefit will be reduced to the sum of premiums paid less prior withdrawals of premium. The duration of coverage depends upon the Surrender Value being sufficient to cover the monthly deductions. A grace period of 61 days will be given to the Owner. It begins when notice is sent that the Surrender Value of the policy is insufficient to cover the monthly deductions. Failure to make a premium payment or loan repayment during the grace period sufficient to keep the policy in force for three months will cause the policy to: 1. lapse and terminate without value if there is debt outstanding, or 2. be reduced in coverage amount to premiums paid less prior withdrawals of premium if there is no debt outstanding. If payment is received within the grace period, the premium or loan repayment will be allocated to the Subaccounts and the DCA Fixed Account in accordance with the most current allocation instructions, unless otherwise requested. Amounts over and above the amounts necessary to prevent lapse may be paid as additional premiums, however, to the extent otherwise permitted. KILICO will not accept any payment that would cause the total premium payment to exceed the maximum payment permitted by the Code. However, the Owner may voluntarily repay a portion of Debt to avoid lapse. If premium payments have not exceeded the maximum payment permitted by the Code, the Owner may choose to make a larger payment than the minimum required payment to avoid the recurrence of the potential lapse of coverage. The Owner may also combine premium payments with Debt repayments. The death benefit payable during the grace period will be the Death Benefit in effect immediately prior to the grace period, less any Debt and any unpaid monthly deductions. F. Reinstatement If coverage has been reduced or a policy lapses because of insufficient Surrender Value to cover the monthly deductions, and it has not been surrendered for its Surrender Value, it may be reinstated at any time within three years after the date of coverage reduction or lapse. Reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to KILICO; 2. payment of a minimum premium sufficient to cover monthly deductions for the grace period and to keep the policy in force three months; and 3. payment or reinstatement of any Debt against the policy which existed at the date of termination of coverage. 6 The effective date of reinstatement of a Policy will be the Monthly Deduction Date that coincides with or next follows the date the application for reinstatement is approved by KILICO. Suicide and incontestability provisions will apply from the effective date of reinstatement. 7 G. Contestability 1. This policy is contestable for two years during the lifetime of the Insured, measured from the Effective Date, for material misrepresentations made in the initial application for the policy. Policy changes and reinstatements may be contested for two years after the effective date of change or reinstatement. No statement will be used to contest a policy unless it is contained in an application. The two year limitation does not apply in the event of fraud. III. Transfer Procedures A. Separate Account Value may be transferred among the Subaccounts of the Separate Account. The DCA Fixed Account can only be used for Dollar Cost Averaging, and only the initial premium may be allocated to the DCA Fixed Account. All transfers made during a business day will be treated as one request. DCA Fixed Account Value may be transferred to one or more Subaccounts, and the entire allocation to the DCA Fixed Account must be transferred to the Subaccounts within twelve months of issue. 1. Transfer requests must be in writing in a form acceptable to KILICO, or by telephone authorization under forms authorized by KILICO. 2. The minimum partial transfer amount is $500. No partial transfer may be made if the value of the Owner's remaining interest in a Subaccount or the DCA Fixed Account, from which amounts are to be transferred, would be less than $500 after such transfer. 3. Transfers will be based on the Accumulation Unit Values next determined following receipt of valid complete transfer instructions by KILICO. 4. The transfer provision may be suspended, modified or terminated at any time by KILICO. 5. Written acknowledgment of transfers between Subaccounts will be provided at two points in time: a. A confirmation notice will be sent to the Owner within seven days of receipt of the request. b. The annual statement will also reflect transfers. B. Policy Loans 1. At any time the Owner may by written request to KILICO borrow all or part of the maximum loan amount of the policy. The maximum loan amount is 90% of the policy's Cash Value minus applicable Withdrawal Charges. The amount of any new loan may not exceed the maximum loan amount less Debt on the date a loan is granted. The minimum amount of a loan is $1,000. Any amount due an Owner under a Policy Loan ordinarily will be paid within 7 days after KILICO receives a loan request at its Home Office, although payments may be postponed under certain circumstances. 2. On the date a loan is made, an amount equal to the loan amount will be transferred from the Separate Account and DCA Fixed Account to the Loan Account in the General Account. Unless the Owner directs otherwise, the loaned amount will be deducted from the Subaccounts and DCA Fixed Account in proportion to the 8 values that each bears to the total Separate Account Value plus the DCA Fixed Account Value at the end of the Valuation Period during which the request is received. 3. If Surrender Value on the day immediately preceding a Monthly Deduction Date is less than the monthly deduction for the next month, KILICO will notify the Owner and any assignee of record. 4. A policy loan will have an effect on the Cash Value of a policy. The collateral for the loan (in the Loan Account) does not participate in the experience of the Subaccounts or the current interest rate of the DCA Fixed Account while the loan is outstanding. If the amount credited to the Loan Account is more than the amount that would have been earned in the Subaccounts of the DCA Fixed Accounts, the Cash Value will, and the Death Benefit may, be higher as a result of the loan. Conversely, if the amount credited to the Loan Account is less than would have been earned in the Subaccounts or the DCA Fixed Accounts, the Cash Value, as well as the Death Benefit, may be less. C. Loan Interest 1. The loan interest will be assessed at an effective annual rate of 5.50% in all Policy Years. Interest not paid will be added to the loan amount due and bear interest at the same rate. 2. Cash Value in the Loan Account will earn 3.50% annual interest on a guaranteed basis. Cash Value representing loans of earnings ("preferred loans") may earn a higher annual rate of interest. Such earnings will be allocated to the Loan Account. D. Loan Repayment 1. While the policy is in force, policy loans may be repaid at any time, in whole or in part. At the time of repayment, Cash Value in the loan account equal to the amount of the repayment which exceeds the difference between interest due and interest earned will be allocated to the Subaccounts and the DCA Fixed Account, according to the Owner's current allocation instructions, unless otherwise requested by the Owner. Transfers from the Loan Account to the Separate Account or the DCA Fixed Account as a result of the repayment of Debt will be allocated at the end of the Valuation Period during which the repayment is received. 2. KILICO will provide written confirmation of loan repayments, including the effective date of the payment, and the effect on specific Subaccounts and the General Account, within seven days of the receipt of payment. E. Policy Anniversary and Monthly Deduction Date 1. The Cost of Insurance (COI) is calculated on the Account Value using current rates, and the net amount at risk using guaranteed rates. No substandard ratings are applied. Increases in specified amount can be rated separately from the original rating. 2. The calculated monthly deductions are distributed among the Subaccounts and the DCA Fixed Account in proportion that each Subaccount or DCA Fixed Account bears to the total Separate Account Value plus DCA Fixed Account Value. IV. Redemption Procedures 9 The following outlines are administrative procedures attendant to transactions which involve redemption of a policy's values. A. Free Look Period 1. The Owner may, until the end of the period of time specified in the policy, examine the policy and return it for a refund. The applicable period of time will depend on the state in which the policy is issued; however, it will be at least 10 days from the date the policy is received by the Owner. The amount of the refund will be at least the minimum required by the state in which the policy is issued. An Owner seeking a refund should return the policy to KILICO at its Home Office or to the agent who sold the policy. 2. The Policyowner will receive a refund equal to the Cash Value of the policy plus any monthly deductions and any deductions made against premiums. 3. Refunds will be made within seven working days of receipt of the request, providing the original payment has had sufficient time from the date of our deposit to clear the payor's bank account. Normally, this is 30 days for payments made by personal check, money order or cashier's check. Any refund or portion thereof is subject to being held in KILICO's office until this time requirement is met. If only a portion of the refund is needed to meet the time requirements, the undisputed portion will be released within the seven day time frame. The disputed portion will be held until the time requirement is met and then refunded by separate check. Any refund that needs to be held to meet the time requirement from KILICO date of deposit can be expedited if the payor submits proof that the item has been honored by the bank. B. Surrender Privilege and Charges 1. While the Insured is living and the policy is in force, the Owner may surrender the policy for its Surrender Value. To surrender the policy, the Owner must make written request to KILICO at its Home Office and return the policy to KILICO. The Surrender Value is equal to the Cash Value less any applicable Withdrawal Charge and any Debt. At any time, a Policy Owner may make withdrawals of amounts less than the Surrender Value. The minimum amount of each withdrawal is $100 and the maximum amount is the amount so that a Net Surrender Value of $5,000 remains after the withdrawal. A withdrawal will decrease the Cash Value by the amount of the withdrawal, and will decrease the Face Amount in the same proportion as the withdrawal to the total Account Value. 2. 0.02083% of Account Value is deducted from the Account Value each Monthly Deduction Day to reimburse KILICO for the payment of state premium taxes. In addition, a charge for federal taxes equal to 0.0125% of Account Value will be deducted each month to compensate KILICO for a higher corporate income tax liability resulting from changes made to the Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1990. 3. A contingent deferred sales charge ("Withdrawal Charge") will be used to cover expenses relating to the distribution of the policy including commissions paid to sales personnel, and other promotion and acquisition expenses. If this policy is surrendered or if the Cash Value is applied under a Settlement Option, the amount payable may reflect a deduction for applicable Withdrawal Charges. 4. The applicable Withdrawal Charge will be determined based upon the date of receipt of the written request for surrender. 10 5. The Withdrawal Charge consists of an unrecovered premium tax component (premium tax charge) and a sales component (surrender sales charge). The Withdrawal Charge is a percentage of the Initial Premium, and is applicable in years 1-9 only. The tax charge will be 2.25% of Initial Premium in the first year, and will decline by 0.25% each year in Policy Years 2-9 until reaching zero at the beginning of Policy Year 10. The surrender sales charge will be 7.75% in each of Policy Years 1 and 2, will decline 0.25% in Policy Year 3, will decline 1.00% in Policy Year 4, and will decline 0.75% in each of Policy Years 5-9, and will be zero in Policy Years 10 and on. 6. A Records Maintenance Charge of $30 per year will be used to cover certain administrative costs associated with the policies. If the Account Value on the prior policy anniversary is greater than or equal to $50,000 we will not charge the Records Maintenance Charge. 7. KILICO will make the payment of Surrender Value out of its General Account and at the same time, transfer assets from the Separate Account to the General Account in an amount equal to the policy reserves in the Separate Account. C. Death Claims 1. KILICO will ordinarily pay a death benefit to the beneficiary within seven calendar days after receipt, at its Home Office, of the policy, due proof of death of the insured and all other requirements necessary* to make payment. KILICO will send the check to the beneficiary with seven days after KILICO receives all required documents. 2. KILICO will make payment of the death benefit out of its General Account, and will transfer assets from the Separate Account to the General Account in an amount equal to the reserve in the Separate Account. The excess, if any, of the death benefit over the amount transferred will be paid out of the General Account reserve maintained for that purpose. *State insurance laws impose various requirements, such as receipt of a tax waiver, before payment of the death benefit may be made. In addition, payment of the death benefit is subject to the provisions of the policies regarding suicide and incontestability. D. Premium Refunds KILICO will not normally refund premium payments unless one of the following situations occurs: 1. The proposed Insured is determined to be uninsurable by KILICO's standards. 2. The premium paid is in permanent suspense because underwriting requirements were never completed. 3. The delivery period has expired and delivery has not been completed. 4. The Owner exercises the Free Look Privilege. 5. The premium payment would disqualify the policy as life insurance coverage; (see Guideline Premium Test) however, in this instance, the payment will first be applied as a repayment of any outstanding loans. 11 6. In the event an application is declined by KILICO, the initial premium will be refunded, together with the earnings credited based on the investment experience of the Money Market Subaccount. E. Guideline Premium Test - Tax Qualification The Guideline Premium Test is a two part test applied to determine if a policy qualifies as life insurance as defined in the IRS Code, Section 7702. 1. Part I - Guideline Premium Limitation. The sum of the actual premiums paid into the contract cannot exceed the greater of: a. the guideline single premium, or b. the sum of the guideline level premiums at that time. 2. The guideline single premium is the premium needed at issue for the future benefits under contract, computed on the basis of: a. the guaranteed mortality charges specified in the contract. b. other guaranteed charges specified in the contract, and c. a gross interest rate which is the greater of an annual effective rate of six percent or the rate or rates guaranteed at issue. 3. For this plan the guideline single premium is based on: a. the guaranteed maximum mortality rates, for all durations. b. mortality and expense risk charge, as an adjustment to the interest rate, and c. six percent interest. 4. Guideline level premiums are the annual premium version of the guideline single premium based on the above assumptions and a premium payment period extending to age 95. The gross interest rate used will be four percent. At the point where a policy is recognized as being out of compliance, the Death Benefit must be decreased or premiums refunded as necessary for qualification as life insurance. 5. Part II - Cash Value Corridor Requirement. The Cash Value test regulates the ratio of the policy Cash Value to the death benefit regardless of the effect of the guideline premium limit. The death benefit payable under the contract must always be greater than or equal to the policy Cash Value times the death benefit factor. Death benefit factors vary only by attained age and range from 1.00 to 2.50 for the KILICO Modified Single Premium VUL. A check for compliance will be made at the time premiums are applied and at least annually thereafter. If a violation is detected, the agent will be notified and monies refunded. F. Misstatement of Age or Sex If the age or sex of the Insured is misstated, the Death Benefit will be adjusted based on what the Initial Premium would have purchased using the correct age and/or sex. 12 G. Postponement of Payments Payment of any amount due upon: (a) policy termination at the maturity date, (b) surrender of the policy, (c) payment of any policy loan, or (d) death of the Insured, may be postponed whenever: 1. The New York Stock Exchange is closed other than customary weekend and holiday closing, or trading on the New York Stock Exchange is restricted as determined by the SEC; 2. The SEC by order permits postponement for the protection of Owners; or 3. An emergency exists, as determined by the SEC, as a result of which disposal of securities of the Fund is not reasonably practicable or it is not reasonably practicable to determine the value of the net assets of the Separate Account. Transfers may also be postponed under these circumstances. 13 H. Payment not Honored by Bank The portion of any payment due under the policy which is derived from any amount paid to KILICO by check or draft may be postponed until such time as KILICO determines that such instrument has been honored by the bank upon which it was drawn. I. Suicide Suicide by the Insured, while sane or insane, within two years from the Effective Date of the policy is a risk not assumed under the policy. KILICO's liability for such suicide is limited to the premiums paid less any withdrawals and debt. When the laws of the state in which a policy is delivered require less than a two year period, the period will be as stated in such laws. V. Records and Reports KILICO will maintain all records relating to the Separate Account. KILICO will send Owners, at their last known address of record, an annual report stating the Death Benefit, the Accumulation Unit Value, the Cash Value and Surrender Value under the policy, and indicating any additional premium payments, transfers, policy loans and repayments and charges made during the Policy Year. Owners will also be sent annual and semi-annual reports for the Funds to the extent required by the 1940 Act. 14 EX-99.9 8 dex999.txt ILLUSTRATIONS EXHIBIT 9 ILLUSTRATIONS OF CASH VALUES, SURRENDER VALUES, AND DEATH BENEFITS The tables in this Illustration have been prepared to help show how values under Individual and Survivorship Policies change with investment experience. The tables illustrate how Cash Values, Surrender Values (reflecting the deduction of Withdrawal Charges, if any) and Death Benefits under a Policy issued on an Insured or Insureds of a given age would vary over time, if the hypothetical gross investment rates of return were a uniform, after tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment rate of return averages 0%, 6%, or 12%, but fluctuates over or under those averages throughout the years, the Cash Values, Surrender Values and Death Benefits may be different. The amounts shown for the Cash Value, Surrender Value and Death Benefit as of each Policy Anniversary reflect the fact that the net investment return on the assets held in the Subaccounts is lower than the gross return. This is because of a daily charge to the Subaccounts for assuming mortality and expense risks, which is equivalent to an effective annual charge of 0.90%. In addition, the net investment returns also reflect the deduction of the Portfolio investment advisory fees and other Portfolio expenses at an annual effective rate of 0.92%, which is the arithmetic average of the actual and estimated fees and expenses for all of the Portfolios, including any expense reimbursements or fee waivers. Without expense reimbursements and fee waivers, the annual effective rate would have been 1.01%. KILICO anticipates that the expense reimbursement and fee waiver arrangements will continue past the current year. If there should be an increase or decrease in the expense reimbursements and fee waivers of a Portfolio that has such arrangements, that change will be reflected in the net asset value of the corresponding Portfolio. The tables also reflect applicable charges and deductions including (a) a monthly Administration Charge of 0.35% annually for the first ten Policy Years and 0.25% annually thereafter, (b) a monthly Tax Charge of 0.40% annually for the first ten Policy Years and 0.0% thereafter, (c) an annual Records Maintenance Charge of $30.00 per year, and (d) monthly charges for insurance protection. However, no Records Maintenance Charge is deducted in any year in which the Policy Value exceeds $50,000 on the prior Policy Anniversary. The current cost of insurance charge for Individual Policies, Standard Class (NT) is the lower of (a) 0.55% annually of Cash Value for the first ten Policy Years and 0.25% thereafter or (b) the guaranteed cost of insurance charge. The current cost of insurance charge for Survivorship Policies, Standard class (NT) is the lower of (a) 0.45% annually of Cash Value for the first ten Policy Years and 0.20% thereafter or (b) the guaranteed cost of insurance charge. We may change the current asset based cost of insurance charge. For each hypothetical gross investment rate of return, tables are provided reflecting current and guaranteed cost of insurance charges. Hypothetical gross average investment rates of return of 0%, 6% and 12% correspond to the approximate net annual investment rate of return of -0.92%, 5.08% and 11.08%, respectively. Cost of insurance rates vary by age, sex, and rating class and, therefore, are not reflected in the approximate net annual investment rate of return above. The values shown are for Policies issued to standard non-tobacco Insureds. Values for Policies issued on a basis involving a higher mortality risk would result in lower Cash Values, Surrender Values and Death Benefits than those illustrated. Females generally have a more favorable rate structure than males. The tables also reflect the fact that no charges for Federal, state or other income taxes are currently made against the Separate Account. If such a charge is made in the future, it will take a higher gross rate of return than illustrated to produce the net after-tax returns shown in the tables. Upon request, KILICO will furnish an illustration based on the proposed Insured's age, sex and premium payment requested. INDIVIDUAL MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER [$10,000] INITIAL PREMIUM ISSUE AGE [40] $54,658 INITIAL SPECIFIED AMOUNT VALUES -- CURRENT COST OF INSURANCE
0% Hypothetical 6% Hypothetical Gross Investment Return Gross Investment Return ---------------------------------------- ---------------------------------------- Premium Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit ------- Age ---------- ---------- --------- ---------- ---------- --------- ---------- 1 41 10,500 9,692 8,790 54,658 10,280 9,324 54,658 2 42 11,025 9,365 8,513 54,658 10,536 9,582 54,658 3 43 11,576 9,048 8,264 54,658 10,800 9,871 54,658 4 44 12,155 8,740 8,081 54,658 11,071 10,244 54,658 5 45 12,763 8,442 7,880 54,658 11,350 10,618 54,658 6 46 13,401 8,153 7,683 54,658 11,636 11,005 54,658 7 47 14,071 7,873 7,489 54,658 11,931 11,399 54,658 8 48 14,775 7,602 7,298 54,658 12,234 11,803 54,658 9 49 15,513 7,339 7,111 54,658 12,545 12,214 54,658 10 50 16,289 7,084 7,054 54,658 12,865 12,835 54,658 11 51 17,103 6,892 6,862 54,658 13,300 13,270 54,658 12 52 17,959 6,704 6,674 54,658 13,751 13,721 54,658 13 53 18,856 6,520 6,490 54,658 14,218 14,188 54,658 14 54 19,799 6,341 6,311 54,658 14,702 14,672 54,658 15 55 20,789 6,166 6,136 54,658 15,203 15,173 54,658 16 56 21,829 5,995 5,965 54,658 15,723 15,693 54,658 17 57 22,920 5,828 5,798 54,658 16,261 16,231 54,658 18 58 24,066 5,665 5,635 54,658 16,819 16,789 54,658 19 59 25,270 5,505 5,475 54,658 17,397 17,367 54,658 20 60 26,533 5,349 5,319 54,658 17,997 17,967 54,658 25 65 33,864 4,622 4,592 54,658 21,334 21,304 54,658 30 70 43,219 3,975 3,945 54,658 25,321 25,291 54,658 35 75 55,160 3,399 3,369 54,658 30,085 30,055 54,658 40 80 70,400 2,886 2,856 54,658 35,777 35,747 54,658 45 85 89,850 2,429 2,399 54,658 42,576 42,546 54,658
12% Hypothetical Gross Investment Return --------------------------------------- Cash Surrender Death Value Value Benefit ---------- --------- ----------- 10,867 9,859 54,658 11,777 10,769 54,658 12,765 11,807 54,658 13,839 13,007 54,658 15,007 14,274 54,658 16,275 15,643 54,658 17,654 17,122 54,658 19,152 18,720 54,658 20,780 20,449 54,658 22,549 22,519 54,658 24,668 24,638 54,658 26,989 26,959 54,658 29,532 29,502 54,658 32,318 32,288 54,658 35,369 35,339 54,658 38,712 38,682 56,519 42,374 42,344 60,171 46,385 46,355 64,011 50,779 50,779 68,044 55,625 55,625 72,313 87,743 87,743 105,292 138,405 138,405 159,166 218,320 218,320 229,236 344,376 344,376 361,595 543,217 543,217 570,378 ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. INDIVIDUAL MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER [$10,000] INITIAL PREMIUM ISSUE AGE [40] $54,658 INITIAL SPECIFIED AMOUNT VALUES -- GUARANTEED COST OF INSURANCE
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- ----------------------- Premium Policy Paid Plus Cash Surrender Death Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit Value Value Benefit ---- Age -------------- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 41 10,500 9,640 8,773 54,658 10,228 9,308 54,658 10,816 9,843 54,658 2 42 11,025 9,252 8,440 54,628 10,425 9,511 54,628 11,669 10,691 54,658 3 43 11,576 8,863 8,125 54,598 10,621 9,737 54,598 12,595 11,667 54,658 4 44 12,155 8,474 7,864 54,568 10,815 10,036 54,568 13,600 12,797 54,658 5 45 12,763 8,083 7,574 54,538 11,005 10,312 54,538 14,692 13,990 54,658 6 46 13,401 7,689 7,274 54,508 11,191 10,589 54,508 15,878 15,276 54,658 7 47 14,071 7,290 6,962 54,478 11,371 10,869 54,478 17,167 16,665 54,658 8 48 14,775 6,886 6,638 54,448 11,544 11,143 54,448 18,569 18,168 54,658 9 49 15,513 6,475 6,300 54,418 11,710 11,409 54,418 20,095 19,794 54,658 10 50 16,289 6,055 6,055 54,388 11,866 11,866 54,388 21,757 21,757 54,658 11 51 17,103 5,653 5,653 54,358 12,071 12,071 54,358 23,686 23,686 54,658 12 52 17,959 5,234 5,234 54,328 12,265 12,265 54,328 25,801 25,801 54,658 13 53 18,856 4,795 4,795 54,298 12,443 12,443 54,298 28,121 28,121 54,658 14 54 19,799 4,330 4,330 54,268 12,603 12,603 54,268 30,667 30,667 54,658 15 55 20,789 3,838 3,838 54,238 12,740 12,740 54,238 33,466 33,466 54,658 16 56 21,829 3,313 3,313 54,208 12,851 12,851 54,208 36,546 36,546 54,658 17 57 22,920 2,750 2,750 54,178 12,930 12,930 54,178 39,931 39,931 56,702 18 58 24,066 2,148 2,148 54,148 12,974 12,974 54,148 43,635 43,635 60,216 19 59 25,270 1,500 1,500 54,118 12,978 12,978 54,118 47,686 47,686 63,899 20 60 26,533 $798 $798 54,088 12,934 12,934 54,088 52,120 52,120 67,755 25 65 33,864 0 0 10,000 11,636 11,636 53,938 81,496 81,496 97,795 30 70 43,219 0 0 10,000 7,052 7,052 53,788 126,985 126,985 146,032 35 75 55,160 0 0 10,000 0 0 10,000 197,879 197,879 207,773 40 80 70,400 0 0 10,000 0 0 10,000 309,908 309,908 325,404 45 85 89,850 0 0 10,000 0 0 10,000 479,466 479,466 503,439
ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER ISSUE AGE [45] FEMALE STANDARD NON-SMOKER ISSUE AGE [40] [$10,000] INITIAL PREMIUM $88,962 INITIAL SPECIFIED AMOUNT VALUES -- CURRENT COST OF INSURANCE
0% Hypothetical 6% Hypothetical Gross Investment Return Gross Investment Return ----------------------------------- ---------------------------------- Premium Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Age Interest at 5% Value Value Benefit Value Value Benefit - ------- --- -------------- ---------- --------- ---------- ---------- --------- --------- 1 41 10,500 9,738 8,832 88,962 10,328 9,369 88,962 2 42 11,025 9,453 8,594 88,962 10,637 9,673 88,962 3 43 11,576 9,176 8,382 88,962 10,956 10,014 88,962 4 44 12,155 8,905 8,234 88,962 11,285 10,453 88,962 5 45 12,763 8,642 8,067 88,962 11,626 10,893 88,962 6 46 13,401 8,381 7,899 88,962 11,975 11,343 88,962 7 47 14,071 8,124 7,729 88,962 12,332 11,800 88,962 8 48 14,775 7,869 7,556 88,962 12,697 12,266 88,962 9 49 15,513 7,616 7,312 88,962 13,070 12,638 88,962 10 50 16,289 7,362 7,332 88,962 13,449 13,419 88,962 11 51 17,103 7,167 7,137 88,962 13,912 13,882 88,962 12 52 17,959 6,977 6,947 88,962 14,392 14,362 88,962 13 53 18,856 6,790 6,760 88,962 14,889 14,859 88,962 14 54 19,799 6,608 6,578 88,962 15,405 15,375 88,962 15 55 20,789 6,430 6,400 88,962 15,940 15,910 88,962 16 56 21,829 6,256 6,226 88,962 16,495 16,465 88,962 17 57 22,920 6,086 6,056 88,962 17,070 17,040 88,962 18 58 24,066 5,920 5,890 88,962 17,666 17,636 88,962 19 59 25,270 5,757 5,727 88,962 18,284 18,254 88,962 20 60 26,533 5,599 5,569 88,962 18,925 18,895 88,962 25 65 33,864 4,856 4,826 88,962 22,499 22,469 88,962 30 70 43,219 4,194 4,164 88,962 26,780 26,750 88,962 35 75 55,160 3,603 3,573 88,962 31,908 31,878 88,962 40 80 70,400 3,075 3,045 88,962 38,050 38,020 88,962 45 85 89,850 2,604 2,574 88,962 45,406 45,376 88,962
12% Hypothetical Gross Investment Return ----------------------- Policy Cash Surrender Death Year Value Value Benefit ---- ----- ----- ------- 1 10,919 9,906 88,962 2 11,890 10,882 88,962 3 12,951 11,994 88,962 4 14,111 13,279 88,962 5 15,379 14,647 88,962 6 16,761 16,129 88,962 7 18,268 17,736 88,962 8 19,911 19,480 88,962 9 21,702 21,271 88,962 10 23,654 23,624 88,962 11 25,911 25,881 88,962 12 28,384 28,354 88,962 13 31,092 31,062 88,962 14 34,059 34,029 88,962 15 37,308 37,278 88,962 16 40,869 40,839 88,962 17 44,771 44,741 88,962 18 49,050 49,020 88,962 19 53,742 53,742 88,962 20 58,926 58,926 88,962 25 93,506 93,506 112,207 30 147,987 147,987 170,186 35 234,019 234,019 245,720 40 370,113 370,113 388,619 45 585,276 585,276 614,540
ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISIONS. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. SURVIVORSHIP MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER ISSUE AGE [45] FEMALE STANDARD NON-SMOKER ISSUE AGE [40] [$10,000] INITIAL PREMIUM $88,962 INITIAL SPECIFIED AMOUNT VALUES -- GUARANTEED COST OF INSURANCE
0% Hypothetical 6% Hypothetical Gross Investment Return Gross Investment Return --------------------------------------------- ------------------------------------------ Premium Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit ---------- Age ---------- ---------- --------- ---------- ---------- --------- ---------- 1 41 10,500 9,738 8,862 88,962 10,329 9,399 88,962 2 42 11,025 9,454 8,624 88,932 10,637 9,704 88,932 3 43 11,576 9,176 8,412 88,902 10,956 10,044 88,902 4 44 12,155 8,906 8,265 88,872 11,286 10,484 88,872 5 45 12,763 8,642 8,098 88,842 11,627 10,925 88,842 6 46 13,401 8,383 7,930 88,812 11,976 11,374 88,812 7 47 14,071 8,126 7,760 88,782 12,334 11,832 88,782 8 48 14,775 7,871 7,587 88,752 12,699 12,298 88,752 9 49 15,513 7,617 7,412 88,722 13,072 12,771 88,722 10 50 16,289 7,364 7,364 88,692 13,451 13,451 88,692 11 51 17,103 7,142 7,142 88,662 13,902 13,902 88,662 12 52 17,959 6,917 6,917 88,632 14,362 14,362 88,632 13 53 18,856 6,684 6,684 88,602 14,829 14,829 88,602 14 54 19,799 6,443 6,443 88,572 15,302 15,302 88,572 15 55 20,789 6,191 6,191 88,542 15,780 15,780 88,542 16 56 21,829 5,925 5,925 88,512 16,259 16,259 88,512 17 57 22,920 5,642 5,642 88,482 16,738 16,738 88,482 18 58 24,066 5,339 5,339 88,452 17,213 17,213 88,452 19 59 25,270 5,012 5,012 88,422 17,680 17,680 88,422 20 60 26,533 4,655 4,655 88,392 18,136 18,136 88,392 25 65 33,864 2,141 2,141 88,242 19,975 19,975 88,242 30 70 43,219 0 0 10,000 19,873 19,873 88,092 35 75 55,160 0 0 10,000 14,493 14,493 87,942 40 80 70,400 0 0 10,000 0 0 10,000 45 85 89,850 0 0 10,000 0 0 10,000
12% Hypothetical Gross Investment Return --------------------------------------- Cash Surrender Death Value Value Benefit ---------- --------- ----------- 10,919 9,936 88,962 11,890 10,913 88,962 12,952 12,024 88,962 14,112 13,310 88,962 15,380 14,678 88,962 16,763 16,161 88,962 18,270 17,769 88,962 19,914 19,513 88,962 21,706 21,405 88,962 23,659 23,659 88,962 25,910 25,910 88,962 28,375 28,375 88,962 31,075 31,075 88,962 34,032 34,032 88,962 37,270 37,270 88,962 40,817 40,817 88,962 44,703 44,703 88,962 48,963 48,963 88,962 53,634 53,634 88,962 58,792 58,792 88,962 93,178 93,178 111,814 147,220 147,220 169,303 231,945 231,945 243,543 365,354 365,354 383,622 568,726 568,726 597,163 ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. INDIVIDUAL MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER [$3,000,000] INITIAL PREMIUM ISSUE AGE [40] $16,397,376 INITIAL SPECIFIED AMOUNT VALUES -- CURRENT COST OF INSURANCE
0% Hypothetical 6% Hypothetical Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit 1 3,150,000 2,916,415 2,653,938 16,397,376 3,093,161 2,814,777 16,397,376 2 3,307,500 2,835,159 2,586,374 16,397,376 3,189,216 2,909,362 16,397,376 3 3,472,875 2,756,167 2,526,716 16,397,376 3,288,253 3,014,506 16,397,376 4 3,646,519 2,679,376 2,486,461 16,397,376 3,390,365 3,150,365 16,397,376 5 3,828,845 2,604,724 2,440,627 16,397,376 3,495,649 3,285,649 16,397,376 6 4,020,287 2,532,153 2,395,416 16,397,376 3,604,202 3,424,202 16,397,376 7 4,221,301 2,461,603 2,350,831 16,397,376 3,716,126 3,566,126 16,397,376 8 4,432,366 2,393,019 2,306,870 16,397,376 3,831,525 3,711,525 16,397,376 9 4,653,985 2,326,346 2,263,534 16,397,376 3,950,509 3,860,509 16,397,376 10 4,886,684 2,261,530 2,261,530 16,397,376 4,073,187 4,073,187 16,397,376 11 5,131,018 2,212,866 2,212,866 16,397,376 4,227,078 4,227,078 16,397,376 12 5,387,569 2,165,248 2,165,248 16,397,376 4,386,783 4,386,783 16,397,376 13 5,656,947 2,118,656 2,118,656 16,397,376 4,552,522 4,552,522 16,397,376 14 5,939,795 2,073,066 2,073,066 16,397,376 4,724,523 4,724,523 16,397,376 15 6,236,785 2,028,457 2,028,457 16,397,376 4,903,022 4,903,022 16,397,376 16 6,548,624 1,984,808 1,984,808 16,397,376 5,088,265 5,088,265 16,397,376 17 6,876,055 1,942,098 1,942,098 16,397,376 5,280,507 5,280,507 16,397,376 18 7,219,858 1,900,308 1,900,308 16,397,376 5,480,012 5,480,012 16,397,376 19 7,580,851 1,859,416 1,859,416 16,397,376 5,687,055 5,687,055 16,397,376 20 7,959,893 1,819,405 1,819,405 16,397,376 5,901,920 5,901,920 16,397,376 25 10,159,065 1,631,898 1,631,898 16,397,376 7,104,326 7,104,326 16,397,376 30 12,965,827 1,463,715 1,463,715 16,397,376 8,551,699 8,551,699 16,397,376 35 16,548,046 1,312,865 1,312,865 16,397,376 10,293,946 10,293,946 16,397,376 40 21,119,966 1,177,561 1,177,561 16,397,376 12,391,144 12,391,144 16,397,376 45 26,955,023 1,056,202 1,056,202 16,397,376 14,915,607 14,915,607 16,397,376
12% Hypothetical Policy Cash Surrender Death Year Value Value Benefit 1 3,269,914 2,975,622 16,397,376 2 3,564,113 3,271,613 16,397,376 3 3,884,781 3,607,281 16,397,376 4 4,234,300 3,994,300 16,397,376 5 4,615,266 4,405,266 16,397,376 6 5,030,508 4,850,508 16,397,376 7 5,483,110 5,333,110 16,397,376 8 5,976,433 5,856,433 16,397,376 9 6,514,141 6,424,141 16,397,376 10 7,100,227 7,100,227 16,397,376 11 7,789,542 7,789,542 16,397,376 12 8,545,778 8,545,778 16,397,376 13 9,375,433 9,375,433 16,397,376 14 10,285,633 10,285,633 16,397,376 15 11,284,198 11,284,198 16,926,297 16 12,379,708 12,379,708 18,074,374 17 13,581,574 13,581,574 19,285,835 18 14,900,121 14,900,121 20,562,167 19 16,346,677 16,346,677 21,904,548 20 17,933,670 17,933,670 23,313,771 25 28,501,496 28,501,496 34,201,795 30 45,296,655 45,296,655 52,091,154 35 71,988,746 71,988,746 75,588,184 40 114,409,763 114,409,763 120,130,251 45 181,828,335 181,828,335 190,919,752
ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. INDIVIDUAL MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER [$3,000,000] INITIAL PREMIUM ISSUE AGE [40] $16,397,376 INITIAL SPECIFIED AMOUNT VALUES -- GUARANTEED COST OF INSURANCE
0% Hypothetical 6% Hypothetical Gross Investment Return Gross Investment Return Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit 1 3,150,000 2,892,098 2,631,809 16,397,376 3,068,459 2,792,297 16,397,376 2 3,307,500 2,784,272 2,539,952 16,397,376 3,136,941 2,861,675 16,397,376 3 3,472,875 2,676,346 2,453,540 16,397,376 3,205,338 2,938,493 16,397,376 4 3,646,519 2,568,007 2,383,111 16,397,376 3,273,402 3,037,717 16,397,376 5 3,828,845 2,458,946 2,304,032 16,397,376 3,340,883 3,130,883 16,397,376 6 4,020,287 2,348,708 2,221,878 16,397,376 3,407,388 3,227,388 16,397,376 7 4,221,30 2,236,985 2,136,320 16,397,376 3,472,652 3,322,652 16,397,376 8 4,432,366 2,123,461 2,047,016 16,397,376 3,536,398 3,416,398 16,397,376 9 4,653,985 2,007,681 1,953,474 16,397,376 3,598,214 3,508,214 16,397,376 10 4,886,684 1,889,184 1,889,184 16,397,376 3,657,672 3,657,672 16,397,376 11 5,131,018 1,776,300 1,776,300 16,397,376 3,732,921 3,732,921 16,397,376 12 5,387,569 1,658,287 1,658,287 16,397,376 3,805,382 3,805,382 16,397,376 13 5,656,947 1,534,072 1,534,072 16,397,376 3,874,091 3,874,091 16,397,376 14 5,939,795 1,402,414 1,402,414 16,397,376 3,937,920 3,937,920 16,397,376 15 6,236,785 1,262,195 1,262,195 16,397,376 3,995,823 3,995,823 16,397,376 16 6,548,624 1,112,106 1,112,106 16,397,376 4,046,574 4,046,574 16,397,376 17 6,876,055 950,952 950,952 16,397,376 4,089,015 4,089,015 16,397,376 18 7,219,858 777,796 777,796 16,397,376 4,122,171 4,122,171 16,397,376 19 7,580,851 590,868 590,868 16,397,376 4,144,361 4,144,361 16,397,376 20 7,959,893 387,988 387,988 16,397,376 4,153,538 4,153,538 16,397,376 25 10,159,065 0 0 3,000,000 3,903,501 3,903,501 16,397,376 30 12,965,827 0 0 3,000,000 2,744,564 2,744,564 16,397,376 35 16,548,046 0 0 3,000,000 0 0 3,000,000 40 21,119,966 0 0 3,000,000 0 0 3,000,000 45 26,955,023 0 0 3,000,000 0 0 3,000,000
12% Hypothetical Gross Investment Return Cash Surrender Death Value Value Benefit 3,244,847 2,952,811 16,397,376 3,510,558 3,218,058 16,397,376 3,799,090 3,521,590 16,397,376 4,112,480 3,872,480 16,397,376 4,452,994 4,242,994 16,397,376 4,823,032 4,643,002 16,397,376 5,225,405 5,075,405 16,397,376 5,663,246 5,543,246 16,397,376 6,139,943 6,049,943 16,397,376 6,659,295 6,659,295 16,397,376 7,261,827 7,261,827 16,397,376 7,922,516 7,922,516 16,397,376 8,647,483 8,647,483 16,397,376 9,443,672 9,443,672 16,397,376 10,319,163 10,319,163 16,397,376 11,282,592 11,282,592 16,472,585 12,338,531 12,338,531 17,520,714 13,493,113 13,493,113 18,620,496 14,756,026 14,756,026 19,773,075 16,138,080 16,138,080 20,979,504 25,233,973 25,233,973 30,280,768 39,319,003 39,319,003 45,216,854 61,270,463 61,270,463 64,333,986 95,958,863 95,958,863 100,756,806 148,460,082 148,460,082 155,883,086 ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. SURVIVORSHIP MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER ISSUE AGE [45] FEMALE STANDARD NON-SMOKER ISSUE AGE [40] [$3,000,000] INITIAL PREMIUM $26,688,450 INITIAL SPECIFIED AMOUNT VALUES -- CURRENT COST OF INSURANCE
0% Hypothetical 6% Hypothetical Gross Investment Return Gross Investment Return Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit 1 3,150,000 2,921,381 2,658,456 26,688,450 3,098,502 2,819,637 26,688,450 2 3,307,500 2,844,753 2,595,126 26,688,450 3,200,327 2,919,498 26,688,450 3 3,472,875 2,770,066 2,539,458 26,688,450 3,305,588 3,030,398 26,688,450 4 3,646,519 2,697,270 2,503,067 26,688,450 3,414,400 3,174,400 26,688,450 5 3,828,845 2,626,250 2,460,797 26,688,450 3,526,816 3,316,816 26,688,450 6 4,020,287 2,556,145 2,418,113 26,688,450 3,642,148 3,462,148 26,688,450 7 4,221,301 2,486,742 2,374,838 26,688,450 3,760,326 3,610,326 26,688,450 8 4,432,366 2,418,667 2,331,595 26,688,450 3,881,237 3,761,237 26,688,450 9 4,653,985 2,352,456 2,267,768 26,688,450 4,004,727 3,884,727 26,688,450 10 4,886,684 2,288,058 2,288,058 26,688,450 4,131,155 4,131,155 26,688,450 11 5,131,018 2,238,823 2,238,823 26,688,450 4,287,236 4,287,236 26,688,450 12 5,387,569 2,190,647 2,190,647 26,688,450 4,449,214 4,449,214 26,688,450 13 5,656,947 2,143,508 2,143,508 26,688,450 4,617,312 4,617,312 26,688,450 14 5,939,795 2,097,383 2,097,383 26,688,450 4,791,760 4,791,760 26,688,450 15 6,236,785 2,052,251 2,052,251 26,688,450 4,972,800 4,972,800 26,688,450 16 6,548,624 2,008,090 2,008,090 26,688,450 5,160,679 5,160,679 26,688,450 17 6,876,055 1,964,879 1,964,879 26,688,450 5,355,657 5,355,657 26,688,450 18 7,219,858 1,922,598 1,922,598 26,688,450 5,558,002 5,558,002 26,688,450 19 7,580,851 1,881,227 1,881,227 26,688,450 5,767,991 5,767,991 26,688,450 20 7,959,893 1,840,746 1,840,746 26,688,450 5,985,914 5,985,914 26,688,450 25 10,159,065 1,651,039 1,651,039 26,688,450 7,205,430 7,205,430 26,688,450 30 12,965,827 1,480,883 1,480,883 26,688,450 8,673,400 8,673,400 26,688,450 35 16,548,046 1,328,264 1,328,264 26,688,450 10,440,441 10,440,441 26,688,450 40 21,119,966 1,191,373 1,191,373 26,688,450 12,567,483 12,567,483 26,688,450 45 26,955,023 1,068,590 1,068,590 26,688,450 15,127,869 15,127,869 26,688,450
12% Hypothetical Gross Investment Return ----------------------- Policy Cash Surrender Death Year Value Value Benefit ---- ----- ----- ------- 1 3,275,631 2,980,825 26,688,450 2 3,576,844 3,284,344 26,688,450 3 3,906,013 3,628,513 26,688,450 4 4,265,733 4,025,733 26,688,450 5 4,658,771 4,448,771 26,688,450 6 5,087,435 4,907,435 26,688,450 7 5,554,894 5,404,894 26,688,450 8 6,064,592 5,944,592 26,688,450 9 6,620,270 6,500,270 26,688,450 10 7,226,003 7,226,003 26,688,450 11 7,927,529 7,927,529 26,688,450 12 8,697,161 8,697,161 26,688,450 13 9,541,512 9,541,512 26,688,450 14 10,467,835 10,467,835 26,688,450 15 11,484,089 11,484,089 26,688,450 16 12,599,005 12,599,005 26,688,450 17 13,822,160 13,822,160 26,688,450 18 15,164,064 15,164,064 26,688,450 19 16,636,244 16,636,244 26,688,450 20 18,251,349 18,251,349 26,688,450 25 29,006,371 29,006,371 34,807,645 30 46,099,033 46,099,033 53,013,888 35 73,263,933 73,263,933 76,927,130 40 116,436,367 116,436,367 122,258,186 45 185,049,137 185,049,137 194,301,594
ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. SURVIVORSHIP MODIFED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY MALE STANDARD NON-SMOKER ISSUE AGE [45] FEMALE STANDARD NON-SMOKER ISSUE AGE [40] [$3,000,000] INITIAL PREMIUM $26,688,450 INITIAL SPECIFIED AMOUNT VALUES -- GUARANTEED COST OF INSURANCE
0% Hypothetical 6% Hypothetical Policy Paid Plus Cash Surrender Death Cash Surrender Death Year Interest at 5% Value Value Benefit Value Value Benefit 1 3,150,000 2,921,381 2,658,456 26,688,450 3,098,502 2,819,637 26,688,450 2 3,307,500 2,844,753 2,595,126 26,688,450 3,200,327 2,919,498 26,688,450 3 3,472,875 2,770,066 2,539,458 26,688,450 3,305,588 3,030,398 26,688,450 4 3,646,519 2,697,270 2,503,067 26,688,450 3,414,400 3,174,400 26,688,450 5 3,828,845 2,626,251 2,460,797 26,688,450 3,526,816 3,316,816 26,688,450 6 4,020,287 2,556,145 2,418,113 26,688,450 3,642,149 3,462,149 26,688,450 7 4,221,301 2,486,742 2,374,839 26,688,450 3,760,326 3,610,326 26,688,450 8 4,432,366 2,417,794 2,330,753 26,688,450 3,881,238 3,761,238 26,688,450 9 4,653,985 2,349,012 2,285,588 26,688,450 4,004,727 3,914,727 26,688,450 10 4,886,684 2,280,058 2,280,058 26,688,450 4,130,589 4,130,589 26,688,450 11 5,131,018 2,221,651 2,221,651 26,688,450 4,279,937 4,279,937 26,688,450 12 5,387,569 2,161,647 2,161,647 26,688,450 4,432,551 4,432,551 26,688,450 13 5,656,947 2,099,526 2,099,526 26,688,450 4,588,091 4,588,091 26,688,450 14 5,939,795 2,034,653 2,034,653 26,688,450 4,746,107 4,746,107 26,688,450 15 6,236,785 1,966,334 1,966,334 26,688,450 4,906,085 4,906,085 26,688,450 16 6,548,624 1,893,728 1,893,728 26,688,450 5,067,368 5,067,368 26,688,450 17 6,876,055 1,815,949 1,815,949 26,688,450 5,229,246 5,229,246 26,688,450 18 7,219,858 1,731,940 1,731,940 26,688,450 5,390,844 5,390,844 26,688,450 19 7,580,851 1,640,493 1,640,493 26,688,450 5,551,138 5,551,138 26,688,450 20 7,959,893 1,540,072 1,540,072 26,688,450 5,708,801 5,708,801 26,688,450 25 10,159,065 819,223 819,223 26,688,450 6,383,330 6,383,330 26,688,450 30 12,965,827 0 0 3,000,000 6,522,299 6,522,299 26,688,450 35 16,548,046 0 0 3,000,000 5,174,920 5,174,920 26,688,450 40 21,119,966 0 0 3,000,000 0 0 3,000,000 45 26,955,023 0 0 3,000,000 0 0 3,000,000
12% Hypothetical Cash Surrender Death Value Value Benefit 3,275,631 2,980,825 26,688,450 3,576,844 3,284,344 26,688,450 3,906,013 3,628,513 26,688,450 4,265,733 4,025,733 26,688,450 4,658,771 4,448,771 26,688,450 5,087,435 4,907,435 26,688,450 5,554,895 5,404,895 26,688,450 6,064,592 5,944,592 26,688,450 6,620,270 6,530,270 26,688,450 7,226,004 7,226,004 26,688,450 7,925,806 7,925,806 26,688,450 8,692,467 8,692,467 26,688,450 9,532,368 9,532,368 26,688,450 10,452,520 10,452,520 26,688,450 11,460,703 11,460,703 26,688,450 12,565,516 12,565,516 26,688,450 13,776,571 13,776,571 26,688,450 15,104,580 15,104,580 26,688,450 16,561,547 16,561,547 26,688,450 18,160,928 18,160,928 26,688,450 28,824,663 28,824,663 34,589,596 45,597,512 45,597,512 52,437,139 71,926,043 71,926,043 75,522,346 113,433,031 113,433,031 119,104,683 176,788,689 176,788,689 185,628,123 ASSUMPTIONS: (1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH THE GRACE PERIOD PROVISION. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. -----END PRIVACY-ENHANCED MESSAGE-----