-----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, AprYSD5Ne8O4DfTNVMqiCao/vxIqmvMZvsT19bT0rvOjqpbmuw8dJCYZRVfaF67e Hjc6B/Z4myHObR8uUwOABw== 0000950137-99-004691.txt : 19991230 0000950137-99-004691.hdr.sgml : 19991230 ACCESSION NUMBER: 0000950137-99-004691 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILICO VARIABLE SEPARATE ACCOUNT/IL CENTRAL INDEX KEY: 0000810369 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363050975 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-88845 FILM NUMBER: 99782939 BUSINESS ADDRESS: STREET 1: 1 KEMPER DRIVE CITY: LONG GROVE STATE: IL ZIP: 60049-0001 BUSINESS PHONE: 8479693507 MAIL ADDRESS: STREET 1: C/O KEMPER LIFE INSURANCE COMPANIES STREET 2: 1 KEMPER DRIVE CITY: LONG GROVE STATE: IL ZIP: 60049-0001 S-6/A 1 AMENDMENT #1 TO FORM S-6 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999 REGISTRATION STATEMENT NO. 333-88845 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ------------------ A. Exact name of trust: KILICO VARIABLE SEPARATE ACCOUNT B. Name of depositor: KEMPER INVESTORS LIFE INSURANCE COMPANY C. Complete address of depositor's principal executive offices: 1 Kemper Drive Long Grove, Illinois 60049 D. Name and complete address of agent for service: DEBRA P. REZABEK, ESQ. Kemper Investors Life Insurance Company 1 Kemper Drive Long Grove, Illinois 60049 COPIES TO: FRANK J. JULIAN, ESQ. JOAN E. BOROS, ESQ. Kemper Investors Life Insurance Company Jorden Burt Boros Cicchetti Berenson & Johnson 1 Kemper Drive 1025 Thomas Jefferson Street, N.W. Long Grove, Illinois 60049 Suite 400E Washington, D.C. 20007
E. Title of securities being registered: The variable portion of Flexible Premium Variable Life Insurance Policies. F. Approximate date of proposed public offering: As soon as practicable after the effective date of this registration. ------------------ The registrant hereby amends this registration statement on such dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such dates as the Commission, acting pursuant to Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 RECONCILIATION AND TIE BETWEEN ITEMS IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. OF FORM N-8B-2 CAPTION IN PROSPECTUS - ----------- --------------------- 1. Cover Page 2. Cover Page 3. Not Applicable 4. Distribution of Policies 5. KILICO and the Separate Account; State Regulation of KILICO 6. KILICO and the Separate Account 7. Not Applicable 8. Experts 9. Legal Proceedings; Legal Considerations 10. KILICO and the Separate Account; The Funds; The Policy; Policy Benefits and Rights; General Provisions; Voting Interests, Dollar Cost Averaging; Systematic Withdrawal Plan; Federal Tax Matters 11. Cover Page; Summary; KILICO and the Separate Account; The Funds 12. Not Applicable 13. Charges and Deductions 14. The Policy 15. The Policy; Policy Benefits and Rights 16. Summary; The Policy 17. The Policy; Policy Benefits and Rights 18. The Funds 19. General Provisions 20. The Funds; General Provisions 21. Policy Benefits and Rights 22. Not Applicable 23. Not Applicable 24. General Provisions 25. KILICO and the Separate Account 26. Not Applicable 27. KILICO and the Separate Account 28. KILICO's Directors and Officers 29. KILICO and the Separate Account 30. Not Applicable 31. Not Applicable 32. Not Applicable 33. Not Applicable 34. Not Applicable 35. KILICO and the Separate Account; Distribution of Policies 36. Not Applicable 37. Not Applicable 38. Distribution of Policies 39. KILICO and the Separate Account; Distribution of Policies 40. Not Applicable 41. KILICO and the Separate Account; Distribution of Policies 42. Not Applicable 43. Not Applicable 44. KILICO and the Separate Account; Charges and Deductions 45. Not Applicable 46. The Policy; Policy Benefits and Rights; Charges and Deductions
i 3
ITEM NO. OF FORM N-8B-2 CAPTION IN PROSPECTUS - ----------- --------------------- 47. Summary; KILICO and the Separate Account; The Policy 48. Not Applicable 49. Not Applicable 50. Not Applicable 51. Cover Page; Summary; KILICO and the Separate Account; The Policy; Policy Benefits and Rights; Charges and Deductions; General Provisions; Distribution of Policies 52. Summary; KILICO and the Separate Account; The Funds; General Provisions 53. Federal Tax Matters 54. Not Applicable 55. Not Applicable 56. Not Applicable 57. Not Applicable 58. Not Applicable 59. Financial Statements
ii 4 PROSPECTUS -- DATE: - -------------------------------------------------------------------------------- FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY - -------------------------------------------------------------------------------- ISSUED BY KEMPER INVESTORS LIFE INSURANCE COMPANY THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (800) 321-9313 This Prospectus describes a variable life insurance policy of Kemper Investors Life Insurance Company. The Policy provides life insurance and accumulates variable Cash Value. Policy benefits depend upon the investment experience of the KILICO Variable Separate Account. Generally, Policy premiums are flexible. The Policy is "life insurance" for federal tax purposes. If the Policy is a modified endowment contract, different tax rules apply to distributions. See "Federal Tax Matters", page 24 for a discussion of laws that affect the tax treatment of the Policy. A Policy owner has the following choices for allocating premium: - the Fixed Account, which accrues interest at our guaranteed rate, and - the Subaccounts of the Separate Account, which invest in portfolios of underlying mutual funds. The following portfolios of underlying mutual funds are currently available under the Policy: - THE ALGER AMERICAN FUND - Alger American Balanced - Alger American Growth - Alger American Income & Growth - Alger American MidCap Growth - THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. - DREYFUS LIFE & ANNUITY INDEX FUND D/B/A DREYFUS STOCK INDEX FUND - DREYFUS VARIABLE INVESTMENT FUND - Dreyfus Capital Appreciation - Dreyfus Small Cap - TEMPLETON VARIABLE PRODUCTS SERIES FUND (CLASS 2 SHARES) - Templeton Asset Allocation - Templeton Bond - Templeton Developing Markets - Templeton International - FIDELITY VARIABLE INSURANCE PRODUCTS FUND - Fidelity VIP Equity-Income - Fidelity VIP Growth - Fidelity VIP High Income - Fidelity VIP Overseas - - JANUS ASPEN SERIES - Janus Aspen Aggressive Growth - Janus Aspen Balanced - Janus Aspen Flexible Income - Janus Aspen Growth - Janus Aspen International Growth - Janus Aspen Worldwide Growth - - SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A SHARES) - Scudder VLIF Capital Growth - Scudder VLIF Growth and Income - Scudder VLIF International - - KEMPER VARIABLE SERIES (FORMERLY INVESTORS FUND SERIES) - Kemper Government Securities - Kemper Investment Grade Bond - Kemper Money Market - Kemper Small Cap Growth - Kemper Total Return - Kemper Value+Growth You may obtain more information about these portfolios in the accompanying prospectuses. Not all portfolios described in the prospectuses may be available under the Policy. The Policy owner chooses from two death benefit options. The Death Benefit is at least the amount shown in the Policy Specifications, unless there are loans. Cash Value is not guaranteed. If the Surrender Value does not cover all Policy charges, the Policy will lapse. The Policy Specifications show the guarantee premium and the guarantee period. The Policy will not lapse during the guarantee period if the guarantee premium is paid. The Policy owner may cancel the Policy and receive a refund during the Free-Look Period. If you already own a flexible premium variable life insurance policy, it may not be advantageous to buy additional insurance or to replace your policy with the Policy described in this Prospectus. THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR THE AVAILABLE UNDERLYING PORTFOLIOS. YOU SHOULD READ AND RETAIN ALL PROSPECTUSES FOR FUTURE REFERENCE. 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 WEB SITE AT HTTP://WWW.SEC.GOV. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 5 TABLE OF CONTENTS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Page ---- DEFINITIONS................................................. 1 SUMMARY..................................................... 2 FEES AND EXPENSES........................................... 4 KILICO AND THE SEPARATE ACCOUNT............................. 7 THE FUNDS................................................... 8 FIXED ACCOUNT OPTION........................................ 11 THE POLICY.................................................. 11 POLICY BENEFITS AND RIGHTS.................................. 14 CHARGES AND DEDUCTIONS...................................... 18 GENERAL PROVISIONS.......................................... 21 DOLLAR COST AVERAGING....................................... 23 SYSTEMATIC WITHDRAWAL PLAN.................................. 23 DISTRIBUTION OF POLICIES.................................... 23 FEDERAL TAX MATTERS......................................... 24 LEGAL CONSIDERATIONS........................................ 26 SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 26 VOTING INTERESTS............................................ 27 STATE REGULATION OF KILICO.................................. 27 KILICO'S DIRECTORS AND OFFICERS............................. 28 LEGAL MATTERS............................................... 30 LEGAL PROCEEDINGS........................................... 30 YEAR 2000 MATTERS........................................... 30 EXPERTS..................................................... 31 REGISTRATION STATEMENT...................................... 31 FINANCIAL STATEMENTS........................................ 32 CHANGE OF ACCOUNTANTS....................................... 32 APPENDIX A TABLE OF DEATH BENEFIT FACTORS................... 33 APPENDIX B SURRENDER TARGET PREMIUMS........................ 34
6 DEFINITIONS ACCUMULATION UNIT--An accounting unit of measure used to calculate the value of each Subaccount. AGE--The Insured's age on his or her nearest birthday. BENEFICIARY--The person to whom the proceeds due on the Insured's death are paid. CASH VALUE--The sum of the value of Policy assets in the Separate Account, Fixed Account and Loan Account. COMPANY ("WE", "US", "OUR", "KILICO")--Kemper Investors Life Insurance Company. Our home office is located at 1 Kemper Drive, Long Grove, Illinois 60049. DATE OF RECEIPT--The date on which a request, form or payment is received at our home office, provided: (1) that date is a Valuation Date and (2) we receive the request, form or payment before the close of the New York Stock Exchange (usually 3:00 p.m. Central time). Otherwise, the next Valuation Date. DEBT--The sum of (1) the principal of any outstanding loan, plus (2) any loan interest due or accrued to KILICO. FIXED ACCOUNT--The amount of assets held in the General Account attributable to the fixed portion of the Policy. FREE-LOOK PERIOD--The time when a Policy owner may cancel the Policy and receive a refund. This time depends on the state where the Policy is issued; however, it will be at least 10 days from the date the owner receives the Policy. FUNDS--The underlying mutual funds in which the Subaccounts of the Separate Account invest. GENERAL ACCOUNT--The assets of KILICO other than those allocated to the Separate Account or any other separate account. GUIDELINE SINGLE PREMIUM--The maximum initial amount of premium that can be paid while retaining qualification as a life insurance policy under the Internal Revenue Code. INSURED--The person whose life is covered by the Policy and who is named in the Policy Specifications. ISSUE DATE--The date shown in the Policy Specifications. Incontestability and suicide periods are measured from the Issue Date. LOAN ACCOUNT--The amount of assets transferred from the Separate Account and the Fixed Account and held in the General Account as collateral for Debt. MATURITY DATE--The Policy Date anniversary nearest the Insured's 100th birthday. MONTHLY PROCESSING DATE--The same day in each month as the Policy Date. MORTALITY AND EXPENSE RISK CHARGE--A charge deducted in the calculation of the Accumulation Unit Value for the assumption of mortality risks and expense guarantees. NET SURRENDER VALUE--The Net Surrender Value of this Policy is the Surrender Value on the date of surrender minus any Debt. PLANNED PREMIUM--The scheduled premium specified by the Policy owner in the application. POLICY DATE--The Policy Date is used to determine Policy Years and Monthly Processing Dates. The Policy Date is the date that insurance coverage takes effect subject to the conditions set forth in the application, including the payment of the initial premium. POLICY YEAR--Each year commencing with the Policy Date and each Policy Date anniversary thereafter. PORTFOLIO(S)--The underlying portfolios in which the Subaccounts invest. Each Portfolio is an open-end investment company registered with the SEC or a separate investment series of a registered open-end investment company. SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s) of the Separate Account. SPECIFIED AMOUNT--The amount chosen by the Policy owner and used to calculate the death benefit. The Specified Amount is shown in the Policy Specifications. SUBACCOUNT--A subdivision of the Separate Account. SURRENDER VALUE--Cash Value minus any applicable surrender charge. TRADE DATE--The date 30 days following the date the Policy owner completes all requirements for coverage and we record coverage under the Policy as in force. VALUATION DATE--Each business day on which valuation of the assets of the Separate Account is required by applicable law, which currently is each day that the New York Stock Exchange is open for trading. VALUATION PERIOD--The period that starts at the close of a Valuation Date and ends at the close of the next succeeding Valuation Date. 1 7 SUMMARY This section summarizes this Prospectus. Please read the entire Prospectus. You should refer to the heading "Definitions" for the meaning of certain terms. If states require variations, they appear in supplements attached to this Prospectus or in endorsements to the Policy. Unless otherwise indicated, this Prospectus describes an in force Policy with no loans. The Policy owner pays a premium for life insurance coverage on the Insured. Generally, an owner may choose the amount and frequency of premium payments. The Policy provides for a Surrender Value which is payable if the Policy is terminated during an Insured's lifetime. The death benefit and Cash Value of the Policy may increase or decrease to reflect investment experience. Cash Value is not guaranteed. If the Surrender Value is insufficient to pay Policy charges, the Policy will lapse unless an additional premium payment or loan repayment is made. The Policy will remain in force during the guarantee period if the premiums paid, minus withdrawals and Debt, are at least equal to the guarantee premiums. (See "The Policy--Premiums and Allocation of Premiums and Separate Account Value," page 12, "Charges and Deductions," page 18, and "Policy Benefits and Rights," page 14.) A Policy may be issued as or become a modified endowment contract as a result of a material change or reduction in benefits as defined by the Internal Revenue Code. The Policy may also become a modified endowment contract if excess premiums are paid. For a Policy treated as a modified endowment contract, certain distributions will be included in the Policy owner's gross federal income (See "Federal Tax Matters," page 24.) The purpose of the Policy is to provide insurance protection for the beneficiary. The Policy is not comparable to a systematic investment plan of a mutual fund. POLICY BENEFITS CASH VALUE. Cash Value reflects the amount and frequency of premium payments, the investment experience of the selected Subaccounts, any values in the Fixed Account and Loan Account, and Policy charges. The Policy owner bears the entire investment risk on amounts allocated to the Separate Account. We do not guarantee Separate Account Value. (See "Policy Benefits and Rights--Cash Value," page 16.) The Policy owner may surrender a Policy at any time and receive the Net Surrender Value. The Net Surrender Value is the Surrender Value minus any outstanding Debt. The Surrender Value is the Cash Value minus any applicable surrender charge. Partial withdrawals are available subject to restrictions. (See "Policy Benefits and Rights--Surrender Privilege," page 18.) POLICY LOANS. After the first Policy Year, the Policy owner may borrow up to 90% of Cash Value minus surrender charges and any other indebtedness. Interest is charged at an effective annual rate of 4.50%. (See "Federal Tax Matters," page 24.) PREFERRED LOANS. After the first Policy Year, the Policy owner may borrow an amount up to the earnings in the Policy subject to any previous indebtedness. Interest on preferred loans is charged at an effective annual rate of 3%. The minimum amount of any loan is $500. When a loan is made, a portion of Cash Value equal to the loan amount is transferred from the Separate Account and the Fixed Account (pro rata, unless the Policy owner requests otherwise) to the Loan Account. We credit 3% annual interest to Cash Value held in the Loan Account. (See "Policy Benefits and Rights--Policy Loans," page 17.) If the Policy is a modified endowment contract, a loan is treated as a taxable distribution. (See "Federal Tax Matters," page 24.) DEATH BENEFITS. An in force Policy pays a death benefit payment upon the death of the Insured. The Policy has two death benefit options. The Policy owner elects a death benefit option on the application. Under Option A, the death benefit is the Specified Amount stated in the Policy Specifications. Under Option B, the death benefit is the Specified Amount stated in the Policy Specifications plus the Cash Value. The death benefit is never less than the multiple of Cash Value specified in Appendix B. The death benefit payable is reduced by any Debt. (See "Policy Benefits and Rights--Death Benefits," page 14.) 2 8 PREMIUMS The amount and frequency of premium payments are flexible. The Policy owner specifies a Planned Premium on the application. However, the owner is not required to make the Planned Premiums, and, subject to certain restrictions, may make premium payments in any amount and at any frequency. The amount, frequency, and period of time over which an owner pays premiums affects whether the Policy will be classified as a modified endowment contract. The minimum monthly premium payment is $50. Other minimums apply for other payment modes. Payment of the Planned Premium does not guarantee that a Policy remains in force. Instead, Surrender Value must be sufficient to cover all Policy charges for the Policy to remain in force. A Policy will remain in force during the guarantee period if premiums paid, less withdrawals and Debt, equal or exceed the sum of the guarantee premiums. (See "The Policy -- Premiums," page 12.) THE SEPARATE ACCOUNT ALLOCATION OF PREMIUMS. The portion of the premium available for allocation equals the premium paid less applicable charges. A Policy owner indicates in the application the percentages of premium to be allocated among the Subaccounts of the Separate Account and the Fixed Account. The Policy currently offers thirty-one Subaccounts, each of which invests in shares of a designated portfolio of one of the Funds. The initial premium, minus applicable charges, is allocated to the Kemper Money Market Subaccount on the day after receipt. On the Trade Date, the Separate Account Value in the Kemper Money Market Subaccount is allocated among the Subaccounts and the Fixed Account in accordance with the Policy owner's instructions in the application. (See "The Policy -- Policy Issue," page 11.) TRANSFERS. The Policy owner may transfer Separate Account Value among the Subaccounts and into the Fixed Account once every fifteen days. One annual transfer is permitted from the Fixed Account to the Subaccounts. (See "The Policy -- Allocation of Premiums and Separate Account Value," page 12.) THE FUNDS The following portfolios of The Alger American Fund are currently available for investment by the Separate Account: - ALGER AMERICAN BALANCED - ALGER AMERICAN GROWTH - ALGER AMERICAN INCOME & GROWTH - ALGER AMERICAN MIDCAP GROWTH The Dreyfus Socially Responsible Growth Fund, Inc. is currently available for investment by the Separate Account. Dreyfus Life & Annuity Index Fund, d/b/a Dreyfus Stock Index Fund (hereinafter "Dreyfus Stock Index Fund") is currently available for investment by the Separate Account. The following portfolios of the Dreyfus Variable Investment Fund are currently available for investment by the Separate Account: - DREYFUS CAPITAL APPRECIATION - DREYFUS SMALL CAP Class 2 Shares of the following portfolios of the Templeton Variable Products Series Fund are currently available for investment by the Separate Account: - TEMPLETON ASSET ALLOCATION - TEMPLETON BOND - TEMPLETON DEVELOPING MARKETS - TEMPLETON INTERNATIONAL The following portfolios of the Fidelity Variable Insurance Products Fund are currently available for investment by the Separate Account: - FIDELITY VIP EQUITY-INCOME 3 9 - FIDELITY VIP GROWTH - FIDELITY VIP HIGH INCOME - FIDELITY VIP OVERSEAS The following portfolios of the Janus Aspen Series are currently available for investment by the Separate Account: - JANUS ASPEN AGGRESSIVE GROWTH - JANUS ASPEN BALANCED - JANUS ASPEN FLEXIBLE INCOME - JANUS ASPEN GROWTH - JANUS ASPEN INTERNATIONAL GROWTH - JANUS ASPEN WORLDWIDE GROWTH Class A Shares of the following portfolios of the Scudder Variable Life Investment Fund are currently available for investment by the Separate Account: - SCUDDER VLIF CAPITAL GROWTH - SCUDDER VLIF GROWTH AND INCOME - SCUDDER VLIF INTERNATIONAL The following portfolios of the Kemper Variable Series (formerly Investors Fund Series) are currently available for investment by the Separate Account: - KEMPER GOVERNMENT SECURITIES - KEMPER INVESTMENT GRADE BOND - KEMPER MONEY MARKET - KEMPER SMALL CAP GROWTH - KEMPER TOTAL RETURN - KEMPER VALUE+GROWTH For a more detailed description of the Funds, see "The Funds," page 8, the Funds' prospectuses accompanying this Prospectus, and Statements of Additional Information available from us upon request. 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. Expenses of the Portfolios are not fixed or specified under the terms of the Policy, and actual expenses may vary. (See "Charges and Deductions", beginning on page 18.) 4 10 POLICY CHARGES AND DEDUCTIONS CHARGES DEDUCTED FROM THE SEPARATE ACCOUNT: Mortality and Expense Risk Charge: CURRENT: .60% of average daily assets for first ten Policy Years; .40% for Policy Years eleven through twenty; and .20% for Policy Year twenty-one and thereafter. GUARANTEED: .60% for all Policy Years Federal Income Tax Charge: Currently none.(1) CHARGES DEDUCTED FROM THE CASH VALUE (DEDUCTED MONTHLY): Cost of Insurance Charge(2): CURRENT: Ranges from $0.05668 per month per $1,000 of net amount at risk to $36.32850 per month per $1,000 of net amount at risk(3) GUARANTEED: Ranges from $0.05668 per month per $1,000 of net amount at risk to $83.33333 per month per $1,000 of net amount at risk(3) Administrative Expense Charge: $10 monthly in Policy Year one; $6 monthly in Policy Years two and thereafter, with a $7.50 maximum monthly charge guaranteed. Tax Charge: 2.5% from each premium payment for state and local taxes;(4) 1% from each premium payment for corporate income tax liability.(4) Sales Load: 2.5% from each premium payment.(4) Systematic Withdrawal Charge: $50 for the initial set-up plus $25 each time a change is made to the plan. TRANSACTION CHARGES: Transfer Fee: $25 per transfer in excess of twelve transfers in a single Policy Year(5) Maximum Partial Withdrawal Charge: $25 per partial withdrawal after the first partial withdrawal in a single Policy Year(6) Maximum Surrender Charge(7): 100% of the target premium as shown in Appendix B
- --------------- (1) 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 18.) (2) The current cost of insurance charge will never exceed the guaranteed cost of insurance charge shown in the Policy Specifications. The net amount at risk equals the death benefit divided by 1.0024663, minus Cash Value. (See "Charges and Deductions -- Cost of Insurance Charge," page 18.) (3) Current and guaranteed cost of insurance charges are based on the issue age (or attained age following an increase in Specified Amount), sex, Insured's rate class, and Policy Year. (4) Before net premiums are allocated. (5) Except there will be no transfer charge for transfers related to Automatic Asset Reallocation and Dollar Cost Averaging. (6) Except there will be no partial withdrawal charge for withdrawals taken under the Systematic Withdrawal Plan. (7) We deduct a surrender charge if the Policy is surrendered or the Cash Value is applied under a Settlement Option prior to the eleventh Policy Year (or the eleventh Policy Year following an increase in Specified Amount). 5 11 PORTFOLIO EXPENSES (As a percentage of average net assets for the period ended December 31, 1998) (total expense figures shown are after fee waivers or reductions and expense reimbursements)
12B-1 TOTAL FUND OTHER TOTAL FUND ANNUAL PORTFOLIO MANAGEMENT FEES FEES EXPENSES EXPENSES - --------- --------------- ------ ---------------- ----------------- Alger American Balanced.................. 0.75% 0.17% 0.92% Alger American Growth.................... 0.75% 0.04% 0.79% Alger American Income & Growth........... 0.625% 0.075% 0.70% Alger American MidCap Growth............. 0.80% 0.04% 0.84% The Dreyfus Socially Responsible Growth Fund, Inc.............................. 0.75% 0.05% 0.80% Dreyfus Stock Index Fund................. 0.25% 0.01% 0.26% Dreyfus Capital Appreciation............. 0.75% 0.06% 0.81% Dreyfus Small Cap........................ 0.75% 0.02% 0.77% Templeton Asset Allocation(1)............ 0.60% 0.25% 0.18% 1.03% Templeton Bond(1)........................ 0.50% 0.15% 0.23% 0.88% Templeton Developing Markets(1).......... 1.25% 0.25% 0.41% 1.91% Templeton International(1)............... 0.69% 0.25% 0.17% 1.11% Fidelity VIP Equity-Income............... 0.49% 0.09% 0.58% Fidelity VIP Growth...................... 0.59% 0.09% 0.68% Fidelity VIP High Income................. 0.58% 0.12% 0.70% Fidelity VIP Overseas.................... 0.74% 0.17% 0.91% Janus Aspen Aggressive Growth............ 0.72% 0.03% 0.75% Janus Aspen Balanced..................... 0.72% 0.02% 0.74% Janus Aspen Flexible Income.............. 0.65% 0.08% 0.73% Janus Aspen Growth(2).................... 0.72% 0.03% 0.68% Janus Aspen International Growth(2)...... 0.75% 0.20% 0.86% Janus Aspen Worldwide Growth(2).......... 0.67% 0.07% 0.72% Scudder VLIF Capital Growth.............. 0.47% 0.04% 0.51% Scudder VLIF Growth and Income........... 0.47% 0.09% 0.56% Scudder VLIF International............... 0.87% 0.18% 1.05% Kemper Government Securities............. 0.55% 0.11% 0.66% Kemper Investment Grade Bond(3).......... 0.60% 0.07% 0.67% Kemper Money Market...................... 0.50% 0.04% 0.54% Kemper Small Cap Growth.................. 0.65% 0.05% 0.70% Kemper Total Return...................... 0.55% 0.05% 0.60% Kemper Value+Growth(3)................... 0.75% 0.03% 0.78%
- --------------- (1) The Portfolio's Class 2 distribution plan or "Rule 12b-1 Plan" is described in the Portfolio's prospectus. (2) The expense figures shown are net of certain fee waivers or reductions from Janus Capital Corporation. Without such waivers and reductions, Management Fees, Other Expenses, and Total Portfolio Annual Expenses for the Portfolios for the fiscal year ending December 31, 1998 would have been: 0.72%, 0.03%, and 0.75%, respectively, for the Growth Portfolio; .75%, .20%, and .95%, respectively, for the International Growth Portfolio; and .67%, .07%, and .74%, respectively, for the Worldwide Growth Portfolio. See the prospectus and Statement of Additional Information of Janus Aspen Series for a description of these waivers and reductions. (3) Pursuant to their respective agreements with Kemper Variable Series, the investment manager and the accounting agent have agreed, for the one year period commencing on approximately May 1, 1999, to limit their respective fees and to reimburse other operating expenses to the extent necessary to limit total operating expenses of the following described Portfolios to the amounts set forth after the Portfolio names: Kemper Value+Growth Portfolio (.84%) and Kemper Investment Grade Bond Portfolio (.80%). The amounts set forth in the table above reflect actual expenses for the past fiscal year, which were lower than these expense limits. 6 12 TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW Under existing tax law, any increase in Cash Value is generally not taxable until a distribution occurs through a withdrawal or surrender. Generally, distributions are not included in income until the amount of the distributions exceeds the premiums paid for the Policy. If the Policy is a modified endowment contract, a loan is also treated as a distribution. Generally, distributions from a modified endowment contract (including loans) are included in income to the extent the Cash Value exceeds premiums paid. A change of owners, an assignment, a loan or a surrender of the Policy may have tax consequences. Death Benefits payable under the Policy are generally excludable from the gross income of the Beneficiary. As a result, the Beneficiary would not be subject to income tax on the Death Benefit. (See "Federal Tax Matters," page 24.) FREE-LOOK PERIOD The Policy owner may examine a Policy and return it for a refund during the Free-Look Period. The length of the Free-Look Period depends on the state where the Policy is issued; however, it will be at least 10 days from the date the owner receives the Policy. (See "Policy Benefits and Rights--Free-Look Period and Exchange Rights," page 18.) ILLUSTRATIONS OF CASH VALUE, SURRENDER VALUE, DEATH BENEFIT Tables in Exhibit 9 to the registration statement illustrate Cash Value, Surrender Value and Death Benefits. These illustrations are based on Policy charges and hypothetical assumed rates of return for the Separate Account. The Separate Account's investment experience will differ, and the actual Policy values will be higher or lower than those illustrated. Upon request, we will provide a free, personalized illustration reflecting the proposed Insured's age, underwriting classification, and sex (where applicable). Otherwise, a personalized illustration uses the same methodology as those appearing in Exhibit 9 to the registration statement. KILICO AND THE SEPARATE ACCOUNT KEMPER INVESTORS LIFE INSURANCE COMPANY Kemper Investors Life Insurance Company ("KILICO"), 1 Kemper Drive, Long Grove, Illinois 60049, was organized in 1947 and is a stock life insurance company organized under the laws of the State of Illinois. KILICO is a wholly-owned subsidiary of Kemper Corporation, a nonoperating holding company. KILICO and Kemper Corporation are wholly-owned subsidiaries of Zurich Insurance Company ("Zurich"). Zurich is a wholly-owned subsidiary of Zurich Financial Services ("ZFS"). ZFS was formed in the September, 1998 merger of the Zurich Group with the financial services business of B.A.T. Industries. ZFS is owned by Zurich Allied A.G. and Allied Zurich p.l.c. fifty-seven percent and forty-three percent, respectively. KILICO offers life insurance and annuity products and is admitted to do business in the District of Columbia and all states except New York. SEPARATE ACCOUNT KILICO Variable Separate Account (the "Separate Account") was established as a separate investment account on January 22, 1987. The Separate Account receives and invests net premiums under the Policy. In addition, the Separate Account receives and invests net premiums for other variable life insurance policies offered by KILICO. The Separate Account is administered and accounted for as part of our general business. The income, capital gains or capital losses of the Separate Account are credited to or charged against Separate Account assets, without regard to the income, capital gains or capital losses of any other separate account or any other business we conduct. The Policy benefits are our obligations. 7 13 The Separate Account is registered with the Securities and Exchange Commission ("Commission") as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). However, the Commission does not supervise the management, investment practices or policies of the Separate Account or KILICO. The Policy currently offers thirty-one Subaccounts. Additional Subaccounts may be added in the future. Not all Subaccounts may be available in all jurisdictions or under all Policies. THE FUNDS The Separate Account invests in shares of The Alger American Fund, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Stock Index Fund, Dreyfus Variable Investment Fund, Templeton Variable Products Series Fund, Fidelity Variable Insurance Products Fund, Janus Aspen Series, Scudder Variable Life Investment Fund and Kemper Variable Series (formerly Investors Fund Series). The Commission does not supervise their management, investment practices or policies. The Funds provide investment vehicles for variable life insurance and variable annuity contracts. Shares of the Funds currently are sold only to insurance company separate accounts and certain qualified retirement plans. In addition to the Separate Account, shares of the Funds may be sold to variable life insurance and variable annuity separate accounts of insurance companies not affiliated with KILICO. It is conceivable that in the future it may be disadvantageous for variable life insurance separate accounts of companies unaffiliated with KILICO, or for variable life insurance separate accounts, variable annuity separate accounts and qualified retirement plans to invest simultaneously in the Funds. Currently we do not foresee disadvantages to variable life insurance owners, variable annuity owners or qualified retirement plans. The Funds have an obligation to monitor events for material conflicts between owners and determine what action, if any, should be taken. In addition, if we believe that a Fund's response to any of those events or conflicts insufficiently protects owners, we will take appropriate action on our own. A Fund may consist of separate portfolios. The assets of each portfolio are held separate from the assets of the other portfolios, and each portfolio has its own distinct investment objective and policies. Each portfolio operates as a separate investment fund, and the income, gains or losses of one portfolio generally have no effect on the investment performance of any other portfolio. THE ALGER AMERICAN FUND The Alger American Fund portfolios in which the Separate Account invests are summarized below: ALGER AMERICAN BALANCED: This Portfolio seeks current income and long-term capital appreciation. ALGER AMERICAN GROWTH: This Portfolio seeks long-term capital appreciation. ALGER AMERICAN INCOME & GROWTH: This Portfolio primarily seeks to provide a high level of dividend income; its secondary goal is to provide capital appreciation. ALGER AMERICAN MIDCAP GROWTH: This Portfolio seeks long-term capital appreciation. Fred Alger Management, Inc. is the investment adviser to each Portfolio of The Alger American Fund specified above. THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. This Fund seeks to provide capital growth, with current income as a secondary goal. To pursue these goals, the Fund invests primarily in the common stock of companies that, in the opinion of the Fund's management, meet traditional investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America. The Dreyfus Corporation serves as the investment adviser, and NCM Capital Management Group, Inc. is the sub-adviser, for this Fund. DREYFUS STOCK INDEX FUND This Fund seeks to match the total return of the Standard & Poor's Composite Stock Price Index. The Dreyfus Corporation serves as the investment adviser for this Fund. 8 14 DREYFUS VARIABLE INVESTMENT FUND The Dreyfus Variable Investment Fund portfolios in which the Separate Account invests are summarized below: DREYFUS CAPITAL APPRECIATION: This Portfolio seeks long-term capital growth consistent with the preservation of capital; current income is a secondary goal. DREYFUS SMALL CAP: This Portfolio seeks to maximize capital appreciation. The Dreyfus Corporation serves as the investment adviser to each Portfolio of the Dreyfus Variable Investment Fund specified above. Fayez Sarofim & Co. serves as the sub-adviser for the Dreyfus Capital Appreciation Portfolio. TEMPLETON VARIABLE PRODUCTS SERIES FUND The Templeton Variable Products Series Fund portfolios in which the Separate Account invests are summarized below: TEMPLETON ASSET ALLOCATION (CLASS 2 SHARES): This Portfolio seeks high total return. TEMPLETON BOND (CLASS 2 SHARES): This Portfolio seeks high current income. Capital appreciation is a secondary consideration. TEMPLETON DEVELOPING MARKETS (CLASS 2 SHARES): This Portfolio seeks long-term capital appreciation. TEMPLETON INTERNATIONAL (CLASS 2 SHARES): This Portfolio seeks long-term capital growth. Templeton Investment Counsel, Inc. is the investment adviser for the Templeton Asset Allocation Fund, the Templeton Bond Fund and the Templeton International Fund. Templeton Asset Management Ltd. is the investment manager for the Templeton Developing Markets Fund. In October of 1999, The Templeton Variable Product Series Fund (TVP) and Franklin Templeton Variable Insurance Products Trust (VIP) Boards of Trustees approved a proposal to eliminate the duplication of funds of the TVP Trust and the VIP Trust, by merging the funds of the TVP Trust into the corresponding funds of the VIP Trust (Reorganization). The corresponding funds of the two trusts generally have the same investment goals and very similar investment policies and strategies. Both Boards believe that the Reorganization would benefit insurance company shareholders and their contract owners. If approved by TVP shareholders, the Reorganization is expected to be completed around May 1, 2000, and the reorganized VIP Trust will include the following subaccounts: Templeton Asset Allocation, Templeton Bond renamed Templeton Global Income Securities, Templeton Developing Markets, and Templeton International. Based on pro forma expenses for each of the combined funds, the total operating expenses are expected to decrease, except with respect to the TVP Templeton Asset Allocation Fund, where total operating expenses are expected to slightly increase (0.01%). In addition, with respect to the TVP Templeton Bond Fund class 2, while 12b-1 fees are expected to increase from 0.15% to 0.25%, based on pro forma expenses for a combined fund, the total operating expenses are expected to decrease slightly. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fidelity Variable Insurance Products Fund portfolios in which the Separate Account invests are summarized below: FIDELITY VIP EQUITY-INCOME: This Portfolio seeks reasonable income. FIDELITY VIP GROWTH: This Portfolio seeks capital appreciation. FIDELITY VIP HIGH INCOME: This Portfolio seeks a high level of current income while also considering growth of capital. FIDELITY VIP OVERSEAS: This Portfolio seeks long-term growth of capital. Fidelity Management & Research Company (FMR) is the investment adviser for the available Portfolios of the Fidelity Variable Insurance Products Fund. Fidelity Management & Research (U.K.) Inc. (FMR U.K.), in London, England, and Fidelity Management & Research Far East Inc. (FMR Far East), in Tokyo, Japan, each serve as sub-advisers to the Fidelity VIP High Income Portfolio and the Fidelity VIP Overseas Portfolio. Fidelity International Investment Advisors (U.K.) Limited (FIIA (U.K.) L), in London, England, also serves as sub-adviser to the Fidelity VIP Overseas Portfolio. 9 15 JANUS ASPEN SERIES The Janus Aspen Series portfolios in which the Separate Account invests are summarized below: JANUS ASPEN AGGRESSIVE GROWTH: This Portfolio seeks long-term growth of capital. JANUS ASPEN BALANCED: This Portfolio seeks long-term capital growth, consistent with preservation of capital and balanced by current income. JANUS ASPEN FLEXIBLE INCOME: This Portfolio seeks to obtain maximum total return consistent with preservation of capital. JANUS ASPEN GROWTH: This Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. JANUS ASPEN INTERNATIONAL GROWTH: This Portfolio seeks long-term growth of capital. JANUS ASPEN WORLDWIDE GROWTH: This Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. Janus Capital serves as the investment adviser for the six available Portfolios of the Janus Aspen Series. SCUDDER VARIABLE LIFE INVESTMENT FUND The Scudder Variable Life Investment Fund portfolios in which the Separate Account invests are summarized below: SCUDDER VLIF CAPITAL GROWTH (A SHARES): This Portfolio seeks to maximize long-term capital growth from a portfolio consisting primarily of equity securities. SCUDDER VLIF GROWTH AND INCOME (A SHARES): This Portfolio seeks long-term growth of capital, current income and growth of income from a portfolio consisting primarily of common stocks and securities convertible into common stocks. SCUDDER VLIF INTERNATIONAL (A SHARES): This Portfolio seeks long-term growth of capital principally from a diversified portfolio of foreign equity securities. Scudder Kemper Investments, Inc., our affiliate, is the investment adviser of each portfolio of the Scudder Variable Life Investment Fund specified above. KEMPER VARIABLE SERIES (FORMERLY INVESTORS FUND SERIES) The Kemper Variable Series portfolios in which the Separate Account invests are summarized below: KEMPER GOVERNMENT SECURITIES: This Portfolio seeks high current return consistent with preservation of capital. KEMPER INVESTMENT GRADE BOND: This Portfolio seeks high current income. KEMPER MONEY MARKET: This Portfolio seeks maximum current income to the extent consistent with stability of principal from a portfolio of high quality money market instruments. The Portfolio seeks to maintain a net asset value of $1.00 per share but there can be no assurance that the Portfolio will be able to do so. KEMPER SMALL CAP GROWTH: This Portfolio seeks maximum appreciation of investors' capital. KEMPER TOTAL RETURN: This Portfolio seeks a high total return, a combination of income and capital appreciation, consistent with reasonable risk. KEMPER VALUE + GROWTH: This Portfolio seeks growth of capital. A secondary objective of the Portfolio is the reduction of risk over a full market cycle compared to a portfolio of only growth stocks or only value stocks. Scudder Kemper Investments, Inc. is the investment manager to each Portfolio of the Kemper Variable Series specified above. The Portfolios may not achieve their stated objectives. More detailed information, including a description of risks involved in investing in the Portfolios, is found in the Funds' prospectuses and Statements of Additional Information. The Funds' prospectuses accompany this Prospectus. The Funds' Statements of Additional Information are available from us upon request. 10 16 CHANGE OF INVESTMENTS We reserve the right to make additions to, deletions from, or substitutions for the shares held by the Separate Account or that the Separate Account may purchase. We reserve the right to eliminate the shares of any of the portfolios and to substitute shares of another portfolio or of another investment company, if the shares of a portfolio are no longer available for investment, or if in our judgment further investment in any portfolio becomes inappropriate in view of the purposes of the Policy or the Separate Account. We may also eliminate or combine one or more Subaccounts, transfer assets, or substitute one Subaccount for another Subaccount, if, in our discretion, marketing, tax or investment conditions warrant. We will not substitute any shares attributable to a Policy owner's interest in a Subaccount without notice to the owner and the Commission's prior approval, if required. Nothing contained in this Prospectus shall prevent the Separate Account from purchasing other securities for other series or classes of policies, or from permitting a conversion between series or classes of policies on the basis of requests made by Policy owners. We also reserve the right to establish additional Subaccounts of the Separate Account, each of which would invest in a new portfolio of the Funds, or in shares of another investment company. New Subaccounts may be established when, in our sole discretion, marketing needs or investment conditions warrant. New Subaccounts may be made available to existing owners as we determine. If we deem it to be in the best interests of persons having voting interests under the Policy, the Separate Account may be: - operated as a management company under the 1940 Act; - deregistered under that Act in the event such registration is no longer required; or - combined with our other separate accounts. To the extent permitted by law, we may also transfer assets of the Separate Account to another separate account, or to the General Account. FIXED ACCOUNT OPTION AMOUNTS ALLOCATED OR TRANSFERRED TO THE FIXED ACCOUNT ARE PART OF OUR GENERAL ACCOUNT, SUPPORTING INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED ACCOUNT ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT"), AND THE FIXED ACCOUNT IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY FIXED ACCOUNT INTERESTS GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS. WE HAVE BEEN ADVISED THAT THE STAFF OF THE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. STATEMENTS REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO THE GENERAL PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES. Under the Fixed Account Option, we pay a fixed interest rate for stated periods. This Prospectus describes only the aspects of the Policy involving the Separate Account, unless we refer to fixed accumulation and settlement options. A minimum balance of $500 must remain in the Fixed Account under the Fixed Account Option. We guarantee the interest rate credited to the Fixed Account will be at least 3% annually. At our discretion, we may credit interest in excess of 3%. We reserve the right to change the rate of excess interest credited. We also reserve the right to declare different rates of excess interest depending on when amounts are allocated or transferred to the Fixed Account. As a result, amounts at any designated time may be credited with a different rate of excess interest than the rate previously credited to such amounts and to amounts allocated or transferred at any other designated time. THE POLICY POLICY ISSUE Before we issue a Policy, we must receive a completed application and a full initial premium at our home office. We ordinarily issue a Policy only for Insureds Age 1 through 80 who supply satisfactory evidence of insurability. Acceptance of an application is subject to our underwriting requirements. If we decline an application, we will refund the Cash Value in the Kemper Money Market Subaccount plus the total amount of monthly deductions and deductions against premiums. 11 17 After underwriting is complete and the Policy is delivered to its owner, insurance coverage begins as of the Policy Date. (See "Premiums," below.) PREMIUMS We must receive premiums at our home office. (See "Distribution of Policies.") Checks must be made payable to KILICO. PLANNED PREMIUMS. A Policy owner specifies a Planned Premium payment on the application that provides for the payment of level premiums over a specified period of time. However, the owner is not required to pay Planned Premiums. The minimum monthly premium is $50. Other minimums are: annual $600; semi-annual $300; quarterly $150. The amount, frequency and period of time over which a Policy owner pays premiums may affect whether the Policy will be classified as a modified endowment contract. Accordingly, variations from Planned Premiums may cause the Policy to become a modified endowment contract, and therefore subject to different tax treatment from conventional life insurance contracts for certain pre-death distributions (See "Federal Tax Matters".) Payment of the Planned Premium does not guarantee that a Policy remains in force. Instead, the continuation of the Policy depends upon the Policy's Net Surrender Value. Even if Planned Premiums are paid, the Policy will lapse any time the Net Surrender Value is insufficient to pay the current monthly deductions and a grace period expires without sufficient payment. (See "Policy Lapse and Reinstatement.") A guarantee period and a monthly guarantee premium are specified in the Policy Specifications. The guarantee period ends on the tenth Policy anniversary. During the guarantee period, the Policy remains in force and no grace period will begin, provided that the total premiums received, minus any withdrawals and any Debt, equals or exceeds the monthly guarantee premium times the number of months since the Policy Date, including the current month. The full initial premium is the only premium required to be paid under a Policy. However, additional premiums may be necessary to keep the Policy in force. (See "The Policy--Policy Lapse and Reinstatement.") We may reject or limit any premium payment below the current minimum premium amount, or that would increase the death benefit by more than the amount of the premium. We may return all or a portion of a premium payment if it would disqualify the Policy as life insurance under the Internal Revenue Code. Certain charges are deducted from each premium payment. (See "Charges and Deductions.") The remainder of the premium, known as the net premium, is allocated as described below under "Allocation of Premiums and Separate Account Value." POLICY DATE. The Policy Date is used to determine Policy Years and Monthly Processing Dates. The Policy Date is the date that insurance coverage takes effect subject to conditions set forth in the application, including the payment of initial premium. If this date is the 29th, 30th, or 31st of a month, the Policy Date will be the first day of the following month. ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE ALLOCATION OF PREMIUMS. The initial net premium is allocated to the Kemper Money Market Subaccount. The Separate Account Value remains in the Kemper Money Market Subaccount until the Trade Date. On the Trade Date, the Separate Account Value in the Kemper Money Market Subaccount is allocated to the Subaccounts and the Fixed Account as specified in the application. Additional premiums received will be allocated as specified in the application or in later written instructions received from the Policy owner. The minimum amount of any premium that may be allocated to a Subaccount is $50. Cash Value may be allocated to a total of nineteen Subaccounts at any given time. The Separate Account Value will vary with the investment experience of the chosen Subaccounts. The Policy owner bears the entire investment risk. TRANSFERS. After the Trade Date, Separate Account Value may be transferred among the Subaccounts and into the Fixed Account. These transfers are limited to one transfer every fifteen days. All transfers made during a business day are treated as one transfer. Fixed Account value may be transferred to one or more Subaccounts. One transfer of Fixed Account value may be made once each Policy Year in the thirty day period following the end of a Policy Year. 12 18 Transfer requests must be in writing in a form acceptable to us, or by telephone authorization under forms we authorize. (See "General Provisions--Written Notices and Requests.") The minimum partial transfer amount is $500. No partial transfer may be made if the value of the Policy owner's remaining interest in a Subaccount or the Fixed Account, from which amounts are to be transferred, would be less than $500 after the transfer. We may waive these minimums for reallocations under established third party asset allocation programs. Transfers are based on the Accumulation Unit values next determined following our receipt of valid, complete transfer instructions. We may suspend, modify or terminate the transfer provision. We will charge $25 for each transfer in excess of twelve transfers per policy year, excluding Automatic Asset Reallocation and Dollar Cost Averaging transfers. We disclaim all liability if we follow in good faith instructions given in accordance with our procedures, including requests for personal identifying information, that are designed to limit unauthorized use of the privilege. Therefore, a Policy owner bears the risk of loss in the event of a fraudulent telephone transfer. If a Policy owner authorizes a third party to transact transfers on the Policy owner's behalf, we will reallocate the Cash Value pursuant to the authorized asset allocation program. However, we do not offer or participate in any asset allocation program and we take no responsibility for any third party asset allocation program. We may suspend or cancel acceptance of a third party's instructions at any time and may restrict the investment options available for transfer under third party authorizations. AUTOMATIC ASSET REALLOCATION. A Policy owner may elect to have transfers made automatically among the Subaccounts on an annual or a quarterly basis so that Cash Value is reallocated to match the percentage allocations in the Policy owner's predefined premium allocation elections. Transfers under this program are not subject to the $500 minimum transfer limitations, limited by the fifteen day transfer restriction nor subject to the $25 transfer charge. An election to participate in the automatic asset reallocation program must be in writing on our form and returned to our home office. There is currently no charge to participate in the program. POLICY LAPSE AND REINSTATEMENT LAPSE. The Policy will lapse when the Net Surrender Value is insufficient to cover the current monthly deductions and a grace period expires without a sufficient payment. (See "Charges and Deductions.") The grace period is 61 days. The grace period begins when we send notice that the Net Surrender Value is insufficient to cover the monthly deductions. If we do not receive a premium payment or loan repayment during the grace period sufficient to keep the Policy in force for three months, the Policy will lapse and terminate without value. If payment is received within the grace period, the premium or loan repayment will be allocated to the Subaccounts and the Fixed Account in accordance with current allocation instructions. Amounts over and above the amounts necessary to prevent lapse may be paid as additional premiums, to the extent permissible. (See "The Policy--Premiums.") We will not accept any payment causing the total premium payment to exceed the maximum payment permitted for life insurance under the guideline premium limits. However, the Policy owner may voluntarily repay a portion of Debt to avoid lapse. The owner may also combine premium payments with Debt repayments. (See "Federal Tax Matters.") The death benefit payable during the grace period will be the Death Benefit in effect immediately prior to the grace period, less any Debt and any unpaid monthly deductions. REINSTATEMENT. If a Policy lapses because of insufficient Net Surrender Value to cover the monthly deductions, and it has not been surrendered for its Net Surrender Value, it may be reinstated at any time within three years after the date of lapse. Tax consequences may affect the decision to reinstate. Reinstatement is subject to: - receipt of evidence of insurability satisfactory to us; - payment of a minimum premium sufficient to cover monthly deductions for the grace period and to keep the Policy in force three months; and - payment or reinstatement of any Debt which existed at the date of termination of coverage. The effective date of reinstatement of a Policy is the Monthly Processing Date that coincides with or next follows the date we approve the application for reinstatement. Suicide and incontestability provisions apply from the effective date of reinstatement. 13 19 POLICY BENEFITS AND RIGHTS DEATH BENEFITS While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse," above), the death benefit is based on the death benefit option, the Specified Amount and the table of death benefit percentages applicable at the time of death. The death benefit proceeds equal the death benefit minus any Debt and minus any monthly deductions due during the grace period. A Policy owner selects in the application one of two death benefit options: Option A or Option B. Subject to certain restrictions, the owner can change the death benefit option selected. So long as the Policy remains in force, the death benefit under either option will never be less than the Specified Amount. The Policy owner chooses the Specified Amount on the application. The Specified Amount is stated in the Policy Specifications. The minimum Specified Amount is $100,000. OPTION A. Under Option A, the death benefit equals the Specified Amount or, if greater, the Cash Value (determined as of the end of the Valuation Period during which the Insured dies) multiplied by a death benefit percentage. The death benefit percentages vary according to the Insured's age. The death benefit percentage is 250% for an Insured at Age 40 or under, and it declines for older Insureds. In setting the death benefit percentages, we seek to ensure that the Policy will qualify for favorable federal income tax treatment. A table showing the death benefit percentages is in the Appendix A to this Prospectus and in the Policy. OPTION B. Under Option B, the death benefit equals the Specified Amount plus the Cash Value (determined as of the end of the Valuation Period during which the Insured dies) or, if greater, the Cash Value multiplied by a death benefit percentage. The specified percentage is the same as that used in connection with Option A. The death benefit under Option B always varies as Cash Value varies. EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the determination of death benefits under Options A and B. The examples show three Policies--Policies I, II, and III--with the same Specified Amount, but different Cash Values and assume that the Insured is Age 35 at the time of death and that there is no outstanding Debt.
POLICY I POLICY II POLICY III -------- --------- ---------- Specified Amount.......................... $100,000 $100,000 $100,000 Cash Value on Date of Death............... $ 25,000 $ 50,000 $ 75,000 Death Benefit Percentage.................. 250% 250% 250% Death Benefit Under Option A.............. $100,000 $125,000 $187,500 Death Benefit Under Option B.............. $125,000 $150,000 $187,500
Under Option A, the death benefit for Policy I equals $100,000 since the death benefit is the greater of the Specified Amount ($100,000) or the Cash Value at the date of death times the death benefit percentage ($25,000 X 250% = $62,500). For both Policies II and III under Option A, the Cash Value times the death benefit percentage ($50,000 X 250% = $125,000 for Policy II; $75,000 X 250% = $187,500 for Policy III) is greater than the Specified Amount ($100,000), so the death benefit equals the higher value. Under Option B, the death benefit for Policy I equals $125,000 since the death benefit is the greater of Specified Amount plus Cash Value ($100,000 + $25,000 = $125,000) or the Cash Value times the death benefit percentage ($25,000 X 250% = $62,500). Similarly, in Policy II, Specified Amount plus Cash Value ($100,000 + $50,000 = $150,000) is greater than Cash Value times the death benefit percentage ($50,000 X 250% = $125,000). In Policy III, the Cash Value times the death benefit percentage ($75,000 X 250% = $187,500) is greater than the Specified Amount plus Cash Value ($100,000 + $75,000 = $175,000), so the death benefit equals the higher value. All calculations of death benefit are made as of the end of the Valuation Period during which the Insured dies. Death benefit proceeds may be paid to a Beneficiary in a lump sum or under the Policy's settlements options. Death Benefits ordinarily are paid within seven days after we receive all required documentation. Payments may be postponed in certain circumstances. (See "General Provisions--Postponement of Payments") CHANGES IN DEATH BENEFIT OPTION After the first Policy Year, a Policy owner may change the death benefit option from Option A to Option B, or from Option B to Option A. Changes in the death benefit option may be made, in writing once per Policy Year. The effective date of the change is the next Monthly Processing Date after we accept the change. 14 20 A change in the death benefit from Option A to Option B reduces the Specified Amount by the amount of the Policy's Cash Value. Therefore, the death benefit payable under Option B at the time of the change equals the amount payable under Option A immediately prior to the change. The change in option affects the determination of the death benefit since the Cash Value will then be added to the new Specified Amount, and the death benefit then varies with the Cash Value. We may require evidence of insurability before we accept a change in the death benefit from Option A to Option B. A change in the death benefit from Option B to Option A increases the Specified Amount by the amount of the Policy's Cash Value. Therefore, the death benefit payable under Option A at the time of the change equals the amount payable under Option B immediately prior to the change. However, the change in option affects the determination of the death benefit since the Cash Value is not added to the Specified Amount in determining the death benefit. The death benefit then equals the new Specified Amount (or, if higher, the Cash Value times the applicable specified percentage). A change in death benefit option may affect the future monthly cost of insurance charge, which varies with the net amount at risk. Generally, net amount at risk is the amount by which the death benefit exceeds the Cash Value. (See "Charges and Deductions--Cost of Insurance Charge.") If the death benefit does not equal the Cash Value times a death benefit percentage under either Options A or B, changing from Option B to Option A will generally decrease the future net amount at risk. This would decrease the future cost of insurance charges. Changing from Option A to Option B generally results in a net amount at risk that remains level. Such a change, however, results in an increase in the cost of insurance charges over time, since the cost of insurance rates increase with the Insured's Age. CHANGES IN SPECIFIED AMOUNT After the first Policy Year, a Policy owner may increase or decrease the Specified Amount, subject to our approval. A change in Specified Amount may only be made once per Policy Year. The minimum change in Specified Amount is $25,000. Increases are not allowed after the Insured attains age 80. Increasing the Specified Amount could increase the death benefit. Decreasing the Specified Amount could decrease the death benefit. The amount of change in the death benefit will depend, among other things, upon the selected death benefit option and the degree to which the death benefit exceeds the Specified Amount prior to the change. Changing the Specified Amount could affect the subsequent level of death benefit and Policy values. An increase in Specified Amount may increase the net amount at risk, thereby increasing a Policy owner's cost of insurance charge and the guarantee premium amount. However, an increase in Specified Amount does not extend the guarantee period. Conversely, a decrease in Specified Amount may decrease the net amount at risk, thereby decreasing an owner's cost of insurance charge. A decrease in Specified Amount will not decrease the guarantee premium. Decreases in the death benefit may have tax consequences. (See "Federal Tax Matters.") INCREASES. We require additional evidence of insurability for an increase in Specified Amount. DECREASES. Any decrease in Specified Amount is first applied to the most recent increases successively, then to the original Specified Amount. A decrease is not permitted if the Specified Amount would fall below the lesser of the initial Specified Amount or $100,000. If after a decrease in the Specified Amount, total premiums paid exceed the tax law's premium limitations, we will refund the amount exceeding the premium limitations. Some or all of the amount refunded may be subject to tax. (See "Federal Tax Matters.") We reserve the right to deny a requested decrease in Specified Amount. The reasons for denial may include: - our determination that the decrease would cause the Policy to fail the tax guideline premium limitations, or - our determination that the decrease would cause the Policy to terminate because the distributions from Cash Value required under the tax code to effect the decrease exceed Net Surrender Value. Requests for change in Specified Amount must be made in writing. The requested change becomes effective on the Monthly Processing Date on or next following our acceptance of the request. If the Policy owner is not the Insured, we require the Insured's consent. BENEFITS AT MATURITY If the Insured is alive on the Policy Date anniversary nearest the Insured's 100th birthday, we pay the Policy owner the Surrender Value of the Policy. On the Maturity Date, the Policy terminates and we have no further obligations under the Policy except as provided in the Extended Maturity Option Rider. 15 21 CASH VALUE Cash Value reflects - the investment experience of the selected Subaccounts - the frequency and amount of premiums paid - transfers between Subaccounts - withdrawals - any Fixed Account or Loan Account values - Policy charges A Policy owner may make partial withdrawals of Cash Value or surrender the Policy and receive the Policy's Net Surrender Value. (See "Surrender Privilege.") The Cash Value is not guaranteed. CALCULATION OF CASH VALUE. Cash Value is the total of - Separate Account Value - Fixed Account value - Loan Account value Cash Value is determined on each Valuation Date. It is first calculated on the Policy Date. On that date, the Cash Value equals the initial net premium, minus the monthly deductions for the first Policy Month. (See "Charges and Deductions.") On any Valuation Date, Separate Account Value in any Subaccount equals: (1) Separate Account Value in the Subaccount at the end of the preceding Valuation Period times the Investment Experience Factor (defined below) for 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 (from a Subaccount, the Fixed Account or the Loan Account for Policy loan repayment (see "Policy Benefits and Rights--Policy Loans,")); minus (4) The pro rata portion of the monthly cost of insurance charge, administrative charge, and any other charges assessed to the Subaccount (See "Charges and Deductions--Cost of Insurance Charge"); minus (5) Any amounts transferred from the Subaccount during the current Valuation Period; minus (6) Any amounts withdrawn from the Subaccount during the current Valuation Period; minus (7) Any amounts loaned from the Subaccount during the current Valuation Period. There will also be Cash Value in the Loan Account if there is a Policy loan outstanding. The Loan Account is credited with amounts transferred from Subaccounts for Policy loans. The Loan Account balance accrues daily interest at an effective annual rate of 3.00%. (See "Policy Benefits and Rights--Policy Loans.") The Cash Value in the Fixed Account is credited with interest at our declared annual rate. The annual rate will never be less than 3%. ACCUMULATION UNIT VALUE. Each Subaccount has its own Accumulation Unit Value. When net premiums or other amounts are allocated to a Subaccount, units are purchased based on the Subaccount's Accumulation Unit Value at the end of the Valuation Period during which the allocation is made. When amounts are transferred out of, or deducted from, a Subaccount, units are redeemed in a similar manner. For each Subaccount, Accumulation Unit Value was initially set at the same unit value as the net asset value of a share of the underlying Fund. The Accumulation Unit Value for each subsequent Valuation Period is the Investment Experience Factor for that Valuation Period times the Accumulation Unit Value for the preceding Valuation Period. Each Valuation Period has a single Accumulation Unit Value which applies for each day in the period. The number of Accumulation Units will not change due to investment experience. The Investment Experience Factor may be greater or less than one; therefore, the Accumulation Unit Value may increase or decrease. 16 22 INVESTMENT EXPERIENCE FACTOR. The investment experience of the Separate Account is calculated by applying the Investment Experience Factor to the Separate Account Value in each Subaccount during a Valuation Period. Each Subaccount has its own Investment Experience Factor. The Investment Experience Factor of a Subaccount for any Valuation Period is determined by dividing (1) by (2) and subtracting (3) from the result, where: (1) is the net result of: a. The net asset value per share of the investment held in the Subaccount determined at the end of the current Valuation Period; plus b. the per share amount of any dividend or capital gain distributions made by the 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 have resulted from the investment operations of the Subaccount; (2) is the net asset value per share of the investment held in the Subaccount determined at the end of the preceding Valuation Period; (3) is the factor representing the Mortality and Expense Risk Charge. (See "Charges and Deductions--Mortality and Expense Risk Charge.") POLICY LOANS After the first Policy Year, the Policy owner may borrow all or part of the Policy's maximum loan amount. The maximum loan amount is 90% of Surrender Value. The amount of any new loan may not exceed the maximum loan amount less Debt on the date a loan is granted. Loan interest is charged at an effective annual rate of 4.5%. PREFERRED LOANS. After the first Policy Year, the Policy owner may borrow an amount up to the earnings in the Policy subject to any previous indebtedness. Interest on a preferred loan is charged at an effective annual rate of 3%. The minimum amount of any loan is $500. The loan ordinarily is paid within seven days after we receive a written loan request, although payments may be postponed under certain circumstances. (See "Postponement of Payments," and "Federal Tax Matters.") On the date a loan is made, the loan amount is transferred from the Separate Account and Fixed Account to the Loan Account. Unless the Policy owner directs otherwise, the loan amount is deducted from the Subaccounts and the Fixed Account in proportion to the values that each bears to the total of Separate Account Value and Fixed Account value at the end of the Valuation Period during which the request is received. Interest not paid when due is added to the loan amount. Unpaid interest is due upon the earlier of the next Policy Date anniversary or when coverage ceases. The same interest rates apply to unpaid interest. When interest is added to the loan amount, we transfer an equal amount from the Separate Account and the Fixed Account to the Loan Account. Cash Value in the Loan Account earns 3.00% annual interest. Such interest is allocated to the Loan Account. LOAN REPAYMENT. All or any portion of a loan may be repaid at any time. A Policy owner must specify that the purpose of a payment is loan repayment; otherwise a payment is treated as premium. At the time of repayment, the Loan Account is reduced by the repayment amount, adjusted for the difference between interest charged and interest earned. The net repayment amount is allocated to the Subaccounts and the Fixed Account, according to the Policy owner's current allocation instructions, at the end of the Valuation Period during which the repayment is received. These transfers are not limited by the 15 day transfer restriction. EFFECTS OF POLICY LOAN. Policy loans decrease the Net Surrender Value and, therefore, the amount available to pay Policy charges. If the Net Surrender Value on the day preceding a Monthly Processing Date is less than the next monthly deductions we will notify the Policy owner. (See "General Provisions--Written Notices and Requests.") The Policy will lapse and terminate without value, unless we receive a sufficient payment within 61 days of the date notice is sent. (See "The Policy--Policy Lapse and Reinstatement.") EFFECT ON INVESTMENT EXPERIENCE. A Policy Loan affects Cash Value. The collateral for the outstanding loan (the amount held in the Loan Account) does not participate in the experience of the Subaccounts or earn current interest in the Fixed Account. If the interest credited to the Loan Account is more than the amount that would have been earned in the Subaccounts or the Fixed Account, the Cash Value will, and the Death Benefit may, be 17 23 higher as a result of the loan. Conversely, if the amount credited to the Loan Account is less than would have been earned in the Subaccounts or the Fixed Account, the Cash Value, as well as the Death Benefit, may be less. TAX TREATMENT. If the Policy is a modified endowment contract, a loan is treated as a distribution and is includible in income to the extent that Cash Value exceeds premiums paid. Therefore, a loan may result in federal income tax and a 10% tax penalty may also apply. (See "Federal Tax Matters.") SURRENDER PRIVILEGE If the Insured is alive, the Policy owner may surrender the Policy for its Surrender Value. To surrender the Policy, the owner must return the Policy to us, along with a written request. The Net Surrender Value equals Surrender Value, minus any Debt. The Surrender Value equals the Cash Value minus any applicable surrender charge. (See "Surrender Charge," page 19.) PARTIAL WITHDRAWALS. After the first Policy Year, a Policy owner may withdraw a portion of Surrender Value. The minimum amount of each withdrawal is $500. The maximum withdrawal is limited to 10% of Net Surrender Value during the surrender charge period. We will charge $25 for each partial withdrawal taken in excess of one per Policy Year, except those withdrawals under the Systematic Withdrawal Plan. This charge reimburses us for the administrative expense related to the withdrawal. This charge is deducted after the partial withdrawal amount is determined. (See "Charges and Deductions.") A withdrawal decreases Cash Value by the amount of the withdrawal and, if Death Benefit Option A is in effect, reduces Specified Amount by the amount of the withdrawal. FREE-LOOK PERIOD AND EXCHANGE RIGHTS During the Free-Look Period, the Policy owner may examine the Policy and return it for a refund. The time period depends on where the Policy is issued; however, it will be at least 10 days from the date the Policy is received by the owner, or, 45 days after the owner completes the application for insurance, whichever is later. The amount of the refund is the sum of Cash Value in the Kemper Money Market Subaccount plus the total amount of monthly deductions and deductions from Premium. This amount will be at least equal to premiums paid. An owner seeking a refund should return the Policy to us or to the agent who sold the Policy. At any time during the first two years after the Issue Date, the Policy owner may exchange the Policy for a non-variable permanent fixed benefit life insurance policy then currently offered by KILICO or an affiliate. Evidence of insurability is not required. The amount of the new policy may be, at the election of the owner, either the initial Death Benefit or the same net amount at risk as the Policy on the exchange date. All Debt must be repaid and the Policy must be surrendered before the exchange is made. The new policy will have the same Policy Date and issue age as the exchanged Policy. CHARGES AND DEDUCTIONS DEDUCTIONS FROM PREMIUMS We deduct a sales load of 2.5% from each premium before the net premium is allocated. Additionally, we deduct a state and local premium tax charge of 2.5% from each premium payment before net premium is allocated. This charge reimburses us for paying state premium taxes. We expect to pay an average state premium tax rate of approximately 2.5%, but the actual premium tax attributable to a Policy may be more or less. In addition, a charge for federal taxes, equal to 1% of each premium payment, is deducted to compensate us for higher corporate income taxes under the Internal Revenue Code. We expect to recover total premium tax expenses over the life of the Policies from aggregate tax charges and the unamortized state premium tax charge portion of the surrender charge. However, the amount of premium taxes differ from state to state and some states have no premium tax. Accordingly, the amount of these charges paid under your Policy may be more or less than the premium taxes we actually pay with respect to your Policy. COST OF INSURANCE CHARGE We deduct a cost of insurance charge monthly from the Subaccounts and the Fixed Account. This charge covers our anticipated mortality costs. The cost of insurance charge is deducted monthly in advance and is allocated pro rata among the Subaccounts and the Fixed Account. We deduct the cost of insurance by cancelling units under the Subaccounts and withdrawing amounts from the Fixed Account on the Policy Date and on each Monthly Processing Date thereafter. If the Monthly Processing 18 24 Date falls on a day other than a Valuation Date, the charge is determined on the next Valuation Date. The cost of insurance charge is determined by multiplying the monthly cost of insurance rate (see below) by the "net amount at risk" for each Policy month. The net amount at risk equals the Death Benefit minus the Cash Value on the Monthly Processing Date. COST OF INSURANCE RATE. The monthly cost of insurance rates are based on the issue age, sex, rate class of the Insured and Policy Year. We determine the monthly cost of insurance rates based on our expectations as to future mortality experience. Any change in the schedule of rates applies to all individuals of the same class as the Insured. The cost of insurance rate may never exceed those shown in the table of guaranteed maximum cost of insurance rates in the Policy. The guaranteed maximum cost of insurance rates are based on the 1980 Commissioner's Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age Nearest Birthday, published by the National Association of Insurance Commissioners. RATE CLASS. The rate class of an Insured will affect the cost of insurance rate. We currently place Insureds in preferred rate classes and rate classes involving a higher mortality risk. The cost of insurance rates for rate classes involving a higher mortality risk are multiples of the preferred rates. (See "Charges and Deductions--Cost of Insurance Rate," above.) MORTALITY AND EXPENSE RISK CHARGE We deduct a daily charge, at a current annual rate of .60% for the first ten Policy Years, .40% for Policy Years eleven through twenty, and .20% for Policy Years twenty-one and thereafter, from the Subaccounts for mortality and expense risks we assume. We guarantee an annual rate of .60% for all Policy Years. The mortality and expense risk we assume is that our estimates of longevity and of the expenses incurred over the life of the Policy will not be correct. MONTHLY ADMINISTRATIVE CHARGE We deduct a monthly administrative expense charge to reimburse us for certain expenses related to maintenance of the Policies, accounting and record keeping and periodic reporting to Policy owners. This charge is designed only to reimburse us for actual administrative expenses. For the first Policy Year, this charge is $10 per month. In Policy Years two and thereafter it is anticipated that the charge will be $6 per month, however, should these expenses exceed those currently assumed, the charge may be increased up to $7.50 per month. OTHER CHARGES SURRENDER CHARGE. We deduct a surrender charge from the Cash Value if the Policy is surrendered or Cash Value is applied under a settlement option during the first ten Policy Years. A surrender charge is also assessed during the first ten Policy Years following an increase in Specified Amount. 1. The amount of the surrender charge for the initial Specified Amount will be the product of a. times b. times c. where: a. is the initial Specified Amount (in 1,000s); b. is the surrender target premium rate as shown in Appendix B; and c. is the surrender charge percentage for the applicable Policy Year as shown below. During the ten Policy Years following an increase in Specified Amount, an additional surrender charge applies. The additional charge is calculated as described below based on the amount of increase, years commencing on the date of the increase and surrender target premium associated with the increase. 2. The amount of the surrender charge for each increase in the Specified Amount will be the product of a. times b. times c. where; a. is the amount of increase in Specified Amount for the base plan (in 1,000s); b. is the surrender target premium rate as shown in Appendix B; and c. is the surrender charge percentage for the applicable Policy Year as shown below. The surrender charge is the sum of the amounts in 1. and 2. above. The surrender charge will not be reduced by any decrease in Specified Amount. 19 25 The applicable surrender target premium rate depends on the Insured's age at issue, sex, tobacco status, and underwriting rate class. See Appendix B. SURRENDER CHARGE PERCENTAGES:
Policy Year Percentages - ----------- ----------- 1-5 100% 6 80% 7 60% 8 45% 9 30% 10 15% 11+ 0%
PARTIAL WITHDRAWAL CHARGE. We will charge $25 for each partial withdrawal in a Policy Year after the first one. This charge reimburses us for the administrative expenses related to the withdrawal. However, the partial withdrawal charge does not apply to those under the Systematic Withdrawal Plan. TRANSFER CHARGE. We will charge up to $25 for each transfer in excess of twelve transfers per Policy Year, excluding Automatic Asset Reallocation and Dollar Cost Averaging transfers. The transfer charge reimburses us for the administrative expenses related to the transfer. TAXES. Currently, no charges are made against the Separate Account for federal, state or other taxes attributable to the Separate Account. We may, however, in the future impose charges for income taxes or other taxes attributable to the Separate Account or the Policy. (See "Federal Tax Matters.") CHARGES AGAINST THE FUNDS. Under investment advisory agreements with each Fund, the investment manager and/or adviser provides investment advisory and/or management services for the portfolios. The Funds are responsible for advisory fees and various other expenses, including 12b-1 distribution fees. Investment advisory fees and expenses differ with respect to each of the portfolios of the Funds. (See "The Funds.") For additional information about the fees and expenses of the Funds, see "The Funds", page 8, and the Fund prospectuses accompanying this Prospectus, and Statements of Additional Information available from us upon request. The Fund(s) may pay 12b-1 service fees to us or our affiliates for support or distribution services relating to Fund shares. We may receive compensation from the investment advisers for administrative services related to the Funds. This compensation will be consistent with the services rendered or the cost savings resulting from the arrangement. For more information concerning investment advisory fees and other charges against the portfolios, see the Funds' prospectuses accompanying this Prospectus and Statements of Additional Information available from us upon request. SYSTEMATIC WITHDRAWAL PLAN. An initial charge of $50 is imposed to enter into a Systematic Withdrawal Plan. In addition, a $25 charge is imposed each time a change is made to the plan. These charges reimburse us for administrative expenses of this plan. (See "Systematic Withdrawal Plan.") 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 existing policyowners, sales to employees or clients of members of the ZFS 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. 20 26 GENERAL PROVISIONS SETTLEMENT OPTIONS The Policy owner, or Beneficiary at the death of the Insured if no election by the owner is in effect, may elect to have the Death Benefit or Surrender Value paid in a lump sum or have the amount applied to one of the Settlement Options. Payments under these options will not be affected by the investment experience of the Separate Account after proceeds are applied under a Settlement Option. The payee elects monthly, quarterly, semi-annual or annual payments. The option selected must result in a payment that at least equals our required minimum in effect when the option is chosen. If at any time the payments are less than the minimum, we may increase the period between payments to quarterly, semi-annual or annual or make the payment in one lump sum. Benefit payments are based on Net Surrender Value calculated on the day preceding the date the first benefit payment is due. The payment will be based on the Settlement Option elected in accordance with the appropriate settlement option table. OPTION 1--FIXED INSTALLMENT ANNUITY. We pay income for the period and payment mode elected. The period elected must at least 5 years, but not more than 30 years. OPTION 2--LIFE ANNUITY. We pay monthly income to the payee during the payee's lifetime. If this Option is elected, annuity payments terminate automatically and immediately on the death of the payee without regard to the number or total amount of payments made. Thus, it is possible for an individual to receive only one payment if death occurred prior to the date the second payment was due. OPTION 3--LIFE ANNUITY WITH INSTALLMENTS GUARANTEED. We pay monthly income for the guaranteed period elected and thereafter for the remaining lifetime of the payee. The available guaranteed periods are 5, 10, 15 or 20 years. OPTION 4--JOINT AND SURVIVOR ANNUITY. We pay the full monthly income while both payees are living. Upon the death of either payee, the income continues during the lifetime of the surviving payee. The surviving payee's income is based on the percentage designated (50%, 66 2/3%, 75% or 100%) at election time. Payments terminate automatically and immediately upon the death of the surviving payee without regard to the number or total amount of payments received. We must consent to any other payment methods. The guaranteed monthly payments are based on an interest rate of 2.50% per year and, where mortality is involved, the "1983 Table a" individual mortality table developed by the Society of Actuaries, with a 5 year setback. POSTPONEMENT OF PAYMENTS GENERAL. Payment of any amount due upon: (a) Policy termination at the Maturity Date, (b) surrender of the Policy, (c) payment of any Policy loan, or (d) death of the Insured, may be postponed whenever: (1) The New York Stock Exchange is closed other than customary weekend and holiday closings, or trading on the New York Stock Exchange is restricted as determined by the Commission; (2) The Commission by order permits postponement for the protection of owners; or (3) An emergency exists, as determined by the Commission, as a result of which disposal of securities is not reasonably practicable or it is not reasonably practicable to determine the value of the net assets of the Separate Account. Transfers may also be postponed under these circumstances. PAYMENT NOT HONORED BY BANK. The portion of any payment due under the Policy which is derived from any amount paid to us by check or draft may be postponed until such time as we determine that such instrument has been honored by the bank upon which it was drawn. THE CONTRACT The Policy, any endorsements, and the application constitute the entire contract between us and the Policy owner. All statements made by the Insured or contained in the application will, in the absence of fraud or misrepresentation, be deemed representations and not warranties. 21 27 Only the President, the Secretary, or an Assistant Secretary of KILICO is authorized to change or waive the terms of a Policy. Any change or waiver must be in writing and signed by one of those persons. MISSTATEMENT OF AGE OR SEX If the age or sex of the Insured is misstated, the Death Benefit will be adjusted to reflect the correct sex and age. INCONTESTABILITY We may contest the validity of a Policy if any material misrepresentations are made in the application. However, a Policy will be incontestable after it has been in force during the lifetime of the Insured for two years from the Issue Date. A new two year contestability period will apply to increases in insurance and to reinstatements, beginning with the effective date of the increase or reinstatement. SUICIDE Suicide by the Insured, while sane or insane, within two years from the Issue Date (or within two years following an increase in Specified Amount) is a risk not assumed under the Policy. Our liability for such suicide is limited to the premiums paid less any withdrawals and Debt. When the laws of the state in which a Policy is delivered require less than a two year period, the period or amount paid will be as stated in such laws. ASSIGNMENT No Policy assignment is binding on us until we receive it. We assume no responsibility for the validity of the assignment. Any claim under an assignment is subject to proof of the extent of the assignee's interest. If the Policy is assigned, the rights of the Policy owner and Beneficiary are subject to the rights of the assignee of record. NONPARTICIPATING The Policy does not pay dividends. It does not participate in any of KILICO's surplus or earnings. OWNER AND BENEFICIARY The Policy owner may designate a new owner while the Insured is alive. The Policy owner designates primary and secondary Beneficiaries in the application. We rely upon the latest filed change of beneficiary. If the Insured dies, and no designated Beneficiary is alive at that time, we will pay the Insured's estate. The interest of any Beneficiary may be subject to that of an assignee. In order to change the Policy owner or a designated Beneficiary, the owner must sign our form. The change is effective when the owner signs the form, but we are not liable for payments made or actions taken before we receive the signed form. RECORDS AND REPORTS We keep the Separate Account records. We send Policy owners, at their last known address of record, an annual report showing: - Death Benefit - partial withdrawals - Accumulation Unit Value - transfers - Cash Value - Policy loans and repayments - Surrender Value - Policy charges - additional premium payments
Confirmations and acknowledgments of various transactions are also sent to Policy owners. We also send annual and semi-annual Fund reports. WRITTEN NOTICES AND REQUESTS Send written notices or requests to our home office: Kemper Investors Life Insurance Company, Customer Service, 1 Kemper Drive, Long Grove, Illinois 60049. Please include the Policy number and the Insured's full name. We send notices to a Policy owner's address shown in the application unless an address change is filed with us. 22 28 OPTIONAL INSURANCE BENEFITS The following optional insurance benefits are available by rider at the time of application: - waiver of premium due to Insured's total disability - term insurance on the Insured's dependent children - acceleration of a portion of the death benefit due to Insured's terminal illness - other insured rider - extended maturity rider The cost of these benefits is added to the monthly deduction. These benefits and restrictions are described in the Rider. We provide samples of these provisions upon written request. DOLLAR COST AVERAGING Under our Dollar Cost Averaging program, Cash Value in the Fixed Account, the Kemper Money Market Subaccount or the Kemper Government Securities Subaccount ("DCA Subaccount") is automatically transferred monthly to other Subaccounts and the Fixed Account. A Policy owner may enroll any time by completing our Dollar Cost Averaging form. Transfers are made on the tenth day of the month, or the next business day if the tenth falls on a weekend. We must receive the enrollment form at least five business days before the transfer date. Transfers commence on the first transfer date following the Trade Date. The minimum transfer amount is $100 per Subaccount or Fixed Account. In order to enroll, Cash Value in the DCA Subaccount must be at least $10,000. Dollar Cost Averaging automatically ends if Cash Value in the DCA Subaccount is less than the amount designated to be transferred. Cash Value remaining in the DCA Subaccount will be transferred. Dollar Cost Averaging ends if: - the number of designated monthly transfers has been completed - Cash Value attributable to the DCA Subaccount is insufficient to complete the next transfer - we receive the Policy owner's written termination at least five business days before the next transfer date - the Policy is surrendered. There is currently no charge to participate in the Dollar Cost Averaging program. We will give 30 days notice if we amend the Dollar Cost Averaging program. We may terminate the program at any time. A Policy owner may change Dollar Cost Averaging instructions by completing our enrollment form. We must receive the enrollment form at least 5 business days (10 business days for Fixed Account transfers), before the next transfer date. To participate in Dollar Cost Averaging, a Policy owner may have Cash Value in the Fixed Account and no more than eight non-DCA Subaccounts. SYSTEMATIC WITHDRAWAL PLAN We offer a Systematic Withdrawal Plan ("SWP") allowing Policy owners to preauthorize periodic withdrawals after the first Policy Year. Policy owners instruct us to withdraw selected amounts from the Fixed Account, or up to 2 Subaccounts, on a monthly, quarterly, semi-annual or annual basis. The Policy owner's periodic payment must be at least $500. These periodic payments are partial withdrawals and are subject to surrender charges. (See "Policy Benefits and Rights--Surrender Privileges," page 14.) The $25 withdrawal charge does not apply. However, we charge $50 to establish an SWP and a $25 charge each time a change is made. These charges reimburse us for SWP administrative expenses. Periodic payments may be subject to income taxes, withholding and tax penalties. (See "Federal Tax Matters.") An SWP application and additional information may be obtained from the Policy owner's representative or us. We will give 30 days notice if we amend the SWP. The SWP may be terminated at any time by the Policy owner or us. DISTRIBUTION OF POLICIES Investors Brokerage Services, Inc. ("IBS") serves as distributor of the Policies. IBS is located at 1 Kemper Drive, Long Grove, Illinois 60049. IBS is our wholly-owned subsidiary. It is registered as a broker-dealer under the 23 29 Securities Exchange Act of 1934 (the "1934 Act"), and is a member of the National Association of Securities Dealers, Inc. ("NASD"). The Policy is sold by licensed insurance representatives who represent us and who are registered representatives of broker-dealers that are registered under the Securities Exchange Act of 1934 and are members of the NASD. The maximum sales commission payable to registered representatives is approximately 70% of premiums up to the commission target premium and 2.5% of excess premium in the first year and 2.5% of total premium in renewal years two through five. Beginning in the second Policy Year, a service fee on assets which have been maintained and serviced may also be paid. In addition, certain overrides and production and managerial bonuses may be paid. These additional amounts may constitute a substantial portion of total commissions and fees paid. Firms to which service fees and commissions may be paid include affiliated broker-dealers. In addition to the commissions described above, we may pay additional promotional incentives, in the form of cash or other compensation, to licensed broker-dealers that sell the Policy. These incentives may be offered to certain broker-dealers that sell or are expected to sell certain minimums during specified periods. 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. FEDERAL TAX MATTERS INTRODUCTION This discussion of the federal income tax treatment of the Policy is not exhaustive, does not purport to cover all situations, and is not intended as tax advice. The federal income tax treatment of the Policy is unclear in certain circumstances, and a qualified tax adviser should always be consulted with regard to the application of law to individual circumstances. This discussion is based on the Internal Revenue Code of 1986, as amended ("Code"), Treasury Department regulations, and interpretations existing on the date of this Prospectus. These authorities, however, are subject to change by Congress, the Treasury Department, and judicial decisions. This discussion does not address state or local tax consequences associated with owning the Policy. IN ADDITION, WE MAKE NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF ANY TRANSACTION INVOLVING A POLICY. OUR TAX STATUS We are taxed as a life insurance company and the operations of the Separate Account are treated as part of our total operations. The operations of the Separate Account do not materially affect our federal income tax liability because we are allowed a deduction to the extent that net investment income of the Separate Account is applied to increase Cash Value. We may incur state and local taxes attributable to the Separate Account. At present, these taxes are not significant. Accordingly, we do not charge or credit the Separate Account for federal, state or local taxes. However, our federal income taxes are increased because of the federal tax law's treatment of deferred acquisition costs. Accordingly, we charge 1% of each premium payment to compensate us for our higher corporate income tax liability. If there is a material change in law, charges or credits may be made to the Separate Account for taxes or reserves for taxes. These charges or credits are determined independently of the taxes we actually pay. TAXATION OF LIFE INSURANCE POLICIES TAX STATUS OF THE POLICY. The Code establishes a definition of life insurance which, in part, places limitations on the amount of premiums that may be paid and the Cash Value that can accumulate relative to the Death Benefit. We believe the Policy meets this definition. We reserve the right to refund premiums, increase the Death Benefit (which may result in higher Policy charges), or take any other action we deem necessary to ensure the Policy's compliance with the tax definition of life insurance. The Death Benefit is generally excludable from the Beneficiary's gross income. Interest and other income credited are not taxable unless certain withdrawals are made (or are deemed to be made) from the Policy prior to the Insured's death, as discussed below. This tax treatment will only apply, however, if (1) the investments of the Separate Account are "adequately diversified", and (2) we, rather than the Policy owner, are considered the owner of the assets of the Separate Account. 24 30 DIVERSIFICATION REQUIREMENTS. The Code prescribes the manner in which the Separate Account must be "adequately diversified." If the Separate Account fails to comply with these diversification standards, the Policy will not be treated as a life insurance contract, and the Policy owner is taxable on the income on the contract (as defined in the tax law). We expect that the Separate Account, through the Funds, will comply with the prescribed diversification requirements. OWNERSHIP TREATMENT. In certain circumstances, variable life insurance contract owners may be considered the owners of the assets of the Separate Account. Income and gains from the Separate Account would then be includible in the Policy owners' gross income. The IRS has stated that a variable contract owner will be considered the owner of the assets of a separate account if the owner possesses the ability to exercise investment control. As of the date of this Prospectus, no investor control guidance is available. We reserve the right to modify the Policy as necessary to attempt to prevent Policy owners from being considered the owners of the assets of the Separate Account. However, there is no assurance that such efforts would be successful. The following discussion assumes that the Policy will be treated as a life insurance contract for tax purposes. TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the Death Benefit is excludable from gross income under the Code. Certain transfers of the Policy, however, may result in a portion of the Death Benefit being taxable. If the Death Benefit is paid under a Settlement Option, generally payments will be prorated between the non-taxable Death Benefit and taxable interest. TAX DEFERRAL DURING ACCUMULATION PERIOD. Any increase in Cash Value is generally not taxable to the Policy owner unless amounts are received (or are deemed to be received) from the Policy before the Insured's death. If the Policy is surrendered, the excess of Cash Value over the "investment in the contract" is includible in the owner's ordinary income. The "investment in the contract" generally is premium payments minus non-taxable distributions. Distributions may be taxable to the owner if the Policy is considered a "modified endowment contract" ("MEC"). POLICIES WHICH ARE NOT MECS TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC, the amount of any withdrawal generally will be treated first as a non-taxable recovery of premiums and then as taxable income. Thus, a withdrawal from a non-MEC Policy generally is not taxable income unless the total withdrawals exceed the investment in the contract. DISTRIBUTIONS REQUIRED IN THE FIRST 15 POLICY YEARS. The Code limits the amount of premium that may be paid and Cash Value that can accumulate relative to the Death Benefit. Where cash distributions are required in connection with a reduction in benefits during the first 15 years after the Policy is issued (or if withdrawals are made in anticipation of a reduction in benefits during this period), some or all of such amounts may be taxable. A reduction in benefits may result from a decrease in Specified Amount, a change from an Option B Death Benefit to an Option A Death Benefit, if withdrawals are made, and in certain other instances. TAX TREATMENT OF LOANS. If a Policy is not a MEC, a loan generally is treated as indebtedness of the Policy owner. As a result, the loan is not taxable income to the owner if the Policy remains in force. However, when the interest rate credited to the Loan Account is the same as the interest rate charged for the loan, some or all of the loan proceeds may be includible in income. If a Policy lapses when a loan is outstanding, the amount of the loan outstanding will be treated as a surrender in determining whether any amounts are includible in the Policy owner's income. Interest on an individual's Policy loans and interest on any loans of a Policy owner that is a business entity are subject to possible disallowance under complex rules. Consult a tax adviser on these issues. POLICIES WHICH ARE MECS CHARACTERIZATION OF A POLICY AS A MEC. A Policy is a MEC if (1) the Policy is received in exchange for a life insurance contract that was a MEC, or (2) the Policy is issued after June 21, 1988 and premiums are paid more rapidly than permitted under the "7-Pay Test." A Policy fails this test (and thus is a MEC) if the accumulated amount paid during the 1st 7 Policy Years exceeds the cumulative sum of the net level premiums which would have been paid to that time if the Policy provided for paid-up future benefits after the payment of 7 level annual premiums. Under the Code, a material change of the Policy generally results in a reapplication of the 7-Pay Test. In addition, any reduction in benefits during the 7-Pay period will affect the application of this test. 25 31 We monitor the Policies and attempt to notify Policy owners on a timely basis if a Policy is in jeopardy of becoming a MEC. The owner may then request that we take available steps to avoid treating the Policy as a MEC. TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER MECS. If the Policy is a MEC, withdrawals are treated first as withdrawals of income and then as a recovery of premiums. Thus, withdrawals are includible in income if Cash Value exceeds the investment in the contract. A Policy loan is treated as a withdrawal for tax purposes. If the Policy owner assigns or pledges Cash Value under a MEC (or agrees to assign or pledge any portion), such portion is a withdrawal for tax purposes. The investment in the contract is increased by the amount includible in income with respect to any assignment, pledge, or loan, though it is not affected by any other aspect of the assignment, pledge, or loan (including its release or repayment). Before assigning, pledging, or requesting a loan under a MEC, a Policy owner should consult a qualified tax adviser. PENALTY TAX. Generally, proceeds of a surrender or a withdrawal (or the amount of any deemed withdrawal) from a MEC are subject to a penalty tax of 10% of the portion of the proceeds that is includible in income, unless the surrender or withdrawal is made (1) after the owner attains age 59 1/2, (2) because the owner has become disabled (as defined in the Code), or (3) as substantially equal periodic payments over the life or life expectancy of the owner (or the joint lives or life expectancies of the owner and his or her beneficiary). AGGREGATION OF POLICIES. All life insurance contracts which are treated as MECs and which are purchased by the same person from us or our affiliates within the same calendar year are aggregated and treated as one contract in determining the tax on withdrawals (including deemed withdrawals). The effects of aggregation are not clear; however, it could affect the taxable amount of a withdrawal (or a deemed withdrawal) and could subject the withdrawal to the 10% penalty tax. OTHER CONSIDERATIONS. Changing the Policy owner, exchanging the Policy, changing from one Death Benefit option to another, and other Policy changes may have tax consequences depending on the circumstances of the change. Federal estate and state and local estate taxes, or inheritance taxes and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each Policy owner or Beneficiary. FEDERAL INCOME TAX WITHHOLDING We withhold and send to the federal government a part of the taxable portion of withdrawals unless the Policy owner notifies us in writing at the time of withdrawal that he or she elects no withholding. The Policy owner is always responsible for the payment of any taxes and early distribution penalties that may be due on the amounts received. The Policy owner may also be required to pay penalties under the estimated tax rules, if the owner's withholding and estimated tax payments are insufficient to satisfy the owner's total tax liability. LEGAL CONSIDERATIONS On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. The Policy contains cost of insurance rates that distinguish between men and women. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of federal, state and local laws, including Title VII of the Civil Rights Act, the Equal Pay Act, and NORRIS and subsequent cases on any employment-related insurance or fringe benefit program before purchasing the Policy. SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS We hold the assets of the Separate Account. We keep these assets segregated and apart from our general funds. We maintain records of all purchases and redemptions of the shares of each portfolio of the Funds by each of the Subaccounts. 26 32 VOTING INTERESTS We vote a Fund's shares held in the Separate Account at regular and special shareholder meetings of the Fund in accordance with instructions received from persons having voting interests in the corresponding Subaccounts of the Separate Account. Owners of all Policies participating in each Subaccount are entitled to give us instructions with respect to that Subaccount. An owner's proportionate interest in that Subaccount is measured by units. We determine the number of shares for which a Policy owner may give voting instructions as of the record date for the meeting. Owners will receive proxy material, reports, and other materials relating to the appropriate portfolio of the Funds. We vote all Fund shares held in the Separate Account proportionately based on Policy owners' instructions. If changes in law permit, we may vote a Fund's shares in our own right. We may, when required by state insurance regulatory authorities, disregard voting instructions if the instructions require that the shares be voted so as to cause a change in the subclassification or investment objective of the Fund or of one or more of its portfolios or to approve or disapprove an investment advisory contract for a portfolio of the Fund. In addition, we may disregard voting instructions in favor of changes initiated by a Policy owner in the investment policy or the investment adviser of a portfolio of a Fund if we reasonably disapprove of such changes. A proposed change would be disapproved only if the change is contrary to state law or prohibited by state regulatory authorities, or if we determine that the change would have an adverse effect on our General Account in that the proposed investment policy for a portfolio may result in overly speculative or unsound investments. In the event we disregard voting instructions, we will include a summary of that action and the reasons for it in the next annual report to Policy owners. STATE REGULATION OF KILICO KILICO, a stock life insurance company organized under the laws of Illinois, is subject to regulation by the Illinois Department of Insurance. We file an annual statement with the Director of Insurance on or before March 1st of each year covering our operations and reporting on our financial condition as of December 31st of the preceding year. Periodically, the Director of Insurance examines the liabilities and reserves of KILICO and the Separate Account and certifies to their adequacy. In addition, we are subject to the insurance laws and regulations of the other states where we operate. Generally, the insurance departments of other states apply the laws of Illinois in determining our permissible investments. 27 33 KILICO'S DIRECTORS AND OFFICERS Our directors and principal officers are listed below together with their current positions and their other business experience during the past five years. The address of each officer and director is 1 Kemper Drive, Long Grove, Illinois 60049.
NAME AND AGE POSITION WITH KILICO YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE -------------------- ----------------------------------------------------- Gale K. Caruso (42) President and Chief Executive Officer of Federal Kemper Life President and Chief Executive Officer Assurance Company (FKLA), Fidelity Life Association (FLA), since June 1999. Director since July Zurich Life Insurance Company of America (ZLICA) and Zurich 1999. Direct, Incorporated (ZD) since June 1999. Director of FKLA, FLA and ZLICA since July 1999. Chairman, President and Chief Executive Officer of Scudder Canada Investor Services, Ltd. from 1995 to June 1999. Managing Director of Scudder Kemper Investments, Inc. from July 1986 to June 1999. John B. Scott (55) Chairman of the Board of FKLA, FLA, ZLICA and ZD since June Chairman of the Board since June 1999. Chief Executive Officer, President and Director of 1999. Director since 1992. FKLA and FLA from 1988 to June 1999. Chief Executive Officer, President and Director of ZLICA and ZD from March 1996 to June 1999. Chairman of the Board and Director of Investors Brokerage Services, Inc. (IBS) and Investors Brokerage Services Insurance Agency, Inc. (IBSIA) since 1993. Chairman of the Board of FKLA and FLA from April 1988 to January 1996. Chairman of the Board of KILICO from February 1992 to January 1996. Executive Vice President and Director of Kemper Corporation (Kemper) since January 1994 and March 1996, respectively. Executive Vice President of Kemper Financial Companies, Inc. from January 1994 to January 1996 and Director from 1992 to January 1996. Eliane C. Frye (52) Executive Vice President of FKLA and FLA since 1995. Executive Vice President since 1995. Executive Vice President of ZLICA and ZD since March 1996. Director since May 1998. Director of FLA since December 1997. Director of FKLA and ZLICA since May 1998. Director of ZD from March 1996 to March 1997. Director of IBS and IBSIA since 1995. Senior Vice President of KILICO, FKLA and FLA from 1993 to 1995. Vice President of FKLA and FLA from 1988 to 1993. Frederick L. Blackmon (47) Senior Vice President and Chief Financial Officer of FKLA Senior Vice President and Chief since December 1995. Senior Vice President and Chief Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice 1995. President and Chief Financial Officer of ZLICA since March 1996. Senior Vice President and Chief Financial Officer of ZD since March 1996. Director of FLA since May 1998. Director of ZD from March 1996 to March 1997. Treasurer and Chief Financial Officer of Kemper since January 1996. Chief Financial Officer of Alexander Hamilton Life Insurance Company from April 1989 to November 1995. Russell M. Bostick (42) Senior Vice President and Chief Information Officer of FKLA, Senior Vice President and Chief FLA, ZLICA and ZD since March 1999. Vice President and Chief Information Officer since March 1999. Information Officer of FKLA, FLA, KILICO, ZLICA and ZD from April 1998 to March 1999. Chief Technology Officer of Corporate Software and Technology from June 1997 to April 1998. Vice President of CNA Insurance Companies from January 1995 to June 1997. Assistant Vice President of CNA Insurance Companies from February 1994 to January 1995. James C. Harkensee (41) Senior Vice President of FKLA and FLA since January 1996. Senior Vice President since January Senior Vice President of ZLICA since 1995. Senior Vice 1996. President of ZD since 1995. Director of ZD from April 1993 to March 1997 and since March 1998. Vice President of ZLICA from 1992 to 1995. Chief Actuary of ZLICA from 1991 to 1994. Assistant Vice President of ZLICA from 1990 to 1992. Vice President of ZD from 1994 to 1995.
28 34
NAME AND AGE POSITION WITH KILICO YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE -------------------- ----------------------------------------------------- James E. Hohmann (43) Senior Vice President of FKLA since December 1995. Chief Senior Vice President since December Actuary of FKLA and KILICO from December 1995 to January 1995. Director since May 1998. 1999. Senior Vice President of FLA since January 1996. Chief Actuary of FLA from January 1996 to January 1999. Senior Vice President of ZLICA and ZD since March 1996. Chief Actuary of ZLICA and ZD from March 1996 to January 1999. Director of FLA since June 1997. Director of FKLA and ZLICA since May 1998. Director of ZD from March 1996 to March 1997. Managing Principal (Partner) of Tillinghast-Towers Perrin from January 1991 to December 1995. Consultant/Principal (Partner) of Tillinghast-Towers Perrin from November 1986 to January 1991. Edward K. Loughridge (44) Senior Vice President and Corporate Development Officer of Senior Vice President and Corporate FKLA and FLA since January 1996. Senior Vice President and Development Officer since January Corporate Development Officer for ZLICA and ZD since March 1996. 1996. Senior Vice President of Human Resources of Zurich-American Insurance Group from February 1992 to March 1996. Debra P. Rezabek (43) Senior Vice President of FKLA and FLA since March 1996. Senior Vice President since 1996. Corporate Secretary of FKLA and FLA since January 1996. General Counsel since 1992. Corporate Director of FLA since May 1998. Vice President of KILICO, Secretary since January 1996. FKLA and FLA since 1995. General Counsel and Director of Government Affairs of FKLA and FLA since 1992 and of KILICO since 1993. Senior Vice President, General Counsel and Corporate Secretary of ZLICA since March 1996. Senior Vice President, General Counsel and Corporate Secretary of ZD since March 1996. Director of ZD from March 1996 to March 1997. Secretary of IBS and IBSIA since 1993. Director of IBS and IBSIA from 1993 to 1996. Assistant General Counsel of FKLA and FLA from 1988 to 1992. General Counsel and Assistant Secretary of KILICO, FKLA and FLA from 1992 to 1996. Assistant Secretary of Kemper since January 1996. Edward L. Robbins (59) Senior Vice President and Chief Actuary of FKLA, FLA, ZLICA Senior Vice President and Chief and ZD since March 1999. Senior Actuary of FKLA, FLA, Actuary since March 1999. KILICO, ZLICA and ZD from July 1998 to February 1999. Principal of KPMG Peat Marwick LLP from May 1984 to July 1998. Kenneth M. Sapp (54) Senior Vice President of FKLA, FLA and ZLICA since January Senior Vice President since January 1998. Director of IBS since May 1998. Director of IBSIA 1998. since September 1998. Vice President--Aetna Life Brokerage of Aetna Life & Annuity Company from February 1992 to January 1998. George Vlaisavljevich (56) Senior Vice President of FKLA, FLA and ZLICA since October Senior Vice President since October 1996. Senior Vice President of ZD since March 1997. Director 1996. of IBS and IBSIA since October 1996. Executive Vice President of The Copeland Companies from April 1983 to September 1996.
29 35
NAME AND AGE POSITION WITH KILICO YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE -------------------- ----------------------------------------------------- William H. Bolinder (56) Chairman of the Board of FKLA, FLA and KILICO from January Director since January 1996. 1996 to June 1999. Director of FKLA and FLA since January 1996. Chairman of the Board of ZLICA and ZD from March 1995 to June 1999. Director of ZLICA and ZD since March 1995. Chairman of the Board and Director of Kemper since January 1996. Director of SKI since January 1996. Vice Chairman of SKI from January 1996 to 1998. Member of the Group Executive Board of Zurich Financial Services Group since 1998. Member of the Corporate Executive Board of Zurich Insurance Group from October 1994 to 1998. Chairman of Zurich American Insurance Company since 1998. Chairman of the Board of American Guarantee and Liability Insurance Company, Zurich American Insurance Company of Illinois, American Zurich Insurance Company and Steadfast Insurance Company since 1995. Chief Executive Officer of American Guarantee and Liability Insurance Company, Zurich American Insurance Company of Illinois and American Zurich Insurance Company from 1986 to June 1995. President of Zurich Holding Company of America since 1986. Manager of Zurich Insurance Company, U.S. Branch from 1986 to 1998. Underwriter for Zurich American Lloyds since 1986. David A. Bowers (53) Director of FKLA and ZLICA since May 1997. Director of FLA Director since May 1997. since June 1997. Executive Vice President, Corporate Secretary and General Counsel of Zurich U.S. since August 1985. Vice President, General Counsel and Secretary of Kemper since January 1996. Gunther Gose (54) Director of FKLA, FLA and ZLICA since November 1998. Chief Director since November 1998. Financial Officer and Member of the Group Executive Board of Zurich Financial Services since October 1998. Member of the Corporate Executive Board of Zurich Insurance Group from April 1990 to October 1998.
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 Insurance Law, have been passed upon by Frank J. Julian, our Associate General Counsel. Jorden Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C., has advised us on certain legal matters concerning federal securities laws applicable to the issue and sale of Policies. LEGAL PROCEEDINGS There are no legal proceedings to which the Separate Account is a party or to which the assets of the Separate Account are subject. We are not a party in any litigation that is of material importance in relation to our total assets or that relates to the Separate Account. YEAR 2000 MATTERS (YEAR 2000 READINESS DISCLOSURE) Many existing computer programs were originally designed without considering the impact of the year 2000 and currently use only two digits to identify the year in the date field. This issue affects nearly all companies and organizations and could cause computer applications and systems to fail or create erroneous results for any transaction with a date of January 1, 2000, or later. Many companies must undertake major projects to address the year 2000 issue. Each company's costs and uncertainties will depend on a number of factors, including its software and hardware, and the nature of the industry. Companies must also coordinate with other entities with which they electronically interact, including suppliers, customers, creditors and other financial services institutions. If a company does not successfully address its year 2000 issues, it could face material adverse consequences in the form of lawsuits against the company, lost business, erroneous results and substantial operating problems after January 1, 2000. 30 36 We have taken substantial steps over the last several years to ensure that our critical systems will be compliant for the year 2000. Such steps have included the replacement of older systems with new systems which are already compliant. We have also determined that new systems developed to support new product introductions in 1997, 1998 and beyond are already year 2000 compliant. Data processing expenses related solely to bringing our systems in compliance with the year 2000 amounted to $550 thousand for the first nine months of 1999. We anticipate that it will cost an additional $108 thousand to bring all remaining systems into compliance. Our policy administration systems have been completely renovated to be year 2000 compliant, and have been tested and have been placed back into production as of June 30, 1999. All of our ancillary systems confirmed to be year 2000 compliant were in production at September 30, 1999. Testing procedures have confirmed the performance, functionality, and integration of converted or replaced platforms, applications, databases, utilities, and interfaces in an operational environment. Our testing and verification for year 2000 compliance has encompassed the following: - mainframe computing systems; - mainframe hardware and systems software; - PC/LAN computing systems; - PC/LAN hardware and systems software; - end-user computing systems; - interfaces to and from third parties; and - other miscellaneous electronic non-information systems. We have also taken steps to determine whether all other entities with which we electronically interact, including suppliers and other financial services institutions, are year 2000 compliant. If we do not successfully address our year 2000 issues, we could face material adverse consequences from lawsuits, lost business, erroneous results and substantial operating problems after January 1, 2000. Although we fully expect to be year 2000 compliant by the close of 1999, we have developed contingency plans to handle the most reasonably likely worst case scenarios. The contingency plans were completed in the third quarter of 1999 and testing of those plans will continue throughout the fourth quarter of 1999. EXPERTS The consolidated balance sheets of KILICO as of December 31, 1998 and 1997 and the related consolidated statements of operations, comprehensive income, stockholder's equity, and cash flows for the years ended December 31, 1998 and 1997 have been included herein and in the registration statement in reliance upon the report of PricewaterhouseCoopers LLP, independent public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated statements of operations, comprehensive income, stockholder's equity, and cash flows of KILICO and subsidiaries for the period from January 4, 1996 to December 31, 1996 have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The statements of assets and liabilities and policy owners' equity of the KILICO Variable Separate Account as of December 31, 1998 and the related statements of operations for the year then ended and the statements of changes in policy owners' equity for the year then ended and for each of the periods presented has been included herein in reliance upon the report of PricewaterhouseCoopers LLP, independent public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. Actuarial matters included in this prospectus have been examined by Christopher J. Nickele, FSA as stated in the opinion filed as an exhibit to the Registration Statement. REGISTRATION STATEMENT A Registration Statement has been filed with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, as amended, with respect to the Policies. For further information concerning the Separate Account, KILICO and the Policy, reference is made to the Registration Statement as amended with exhibits. Copies of the Registration Statement are available from the Commission upon payment of a fee or at the SEC's website at http://www.sec.gov. 31 37 FINANCIAL STATEMENTS The included financial statements of the Subaccounts of the Separate Account do not reflect any assets attributable to the Policy, because we did not sell the Policy during the period covered by those financial statements. Instead, those financial statements solely reflect assets and operations attributable to sales of other variable life insurance contracts issued by the Separate Account. The financial statements do not cover certain Subaccounts of the Separate Account, because those Subaccounts were not created until after the end of the periods covered. The included financial statements should be considered only as bearing upon our ability to meet our contractual obligations under the Policy. The investment experience of the Separate Account does not affect our financial statements. CHANGE OF ACCOUNTANTS On September 12, 1997, KILICO appointed the accounting firm of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), formerly Coopers & Lybrand, LLP, as independent public accountants for the year ended December 31, 1997 to replace KPMG LLP effective with such appointment. Our Board of Directors approved the selection of PricewaterhouseCoopers as the new independent accountants. Management had not consulted with PricewaterhouseCoopers on any accounting, auditing or reporting matter, prior to that time. During the fiscal year ended December 31, 1996, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure or any reportable events. KPMG LLP's report on the financial statements for 1996 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. There were no disagreements with PricewaterhouseCoopers on accounting or financial disclosures for the years ended December 31, 1998 or 1997. 32 38 APPENDIX A 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 & thereafter 100
* ATTAINED AGE AS OF THE BEGINNING OF THE POLICY YEAR 33 39 APPENDIX B POLICY FORM L-8521 KEMPER INVESTORS LIFE INSURANCE COMPANY SURRENDER TARGET PREMIUMS
PREFERRED NONTOBACCO STANDARD NONTOBACCO PREFERRED TOBACCO STANDARD TOBACCO ISSUE -------------------- -------------------- ------------------ ---------------- AGE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE - ----- -------- --------- -------- --------- ------- -------- ------ ------- 1 NA NA 7.60 6.30 NA NA NA NA 2 NA NA 7.60 6.30 NA NA NA NA 3 NA NA 7.60 6.30 NA NA NA NA 4 NA NA 7.60 6.30 NA NA NA NA 5 NA NA 7.60 6.30 NA NA NA NA 6 NA NA 7.60 6.30 NA NA NA NA 7 NA NA 7.60 6.30 NA NA NA NA 8 NA NA 7.60 6.30 NA NA NA NA 9 NA NA 7.60 6.30 NA NA NA NA 10 NA NA 7.60 6.30 NA NA NA NA 11 NA NA 7.60 6.30 NA NA NA NA 12 NA NA 7.60 6.30 NA NA NA NA 13 NA NA 7.60 6.30 NA NA NA NA 14 NA NA 7.60 6.30 NA NA NA NA 15 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 16 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 17 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 18 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 19 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 20 7.60 6.30 7.60 6.30 10.19 8.23 10.19 8.23 21 7.81 6.48 7.81 6.48 10.52 8.52 10.52 8.52 22 8.03 6.67 8.03 6.67 10.84 8.81 10.84 8.81 23 8.24 6.85 8.24 6.85 11.17 9.10 11.17 9.10 24 8.46 7.04 8.46 7.04 11.49 9.39 11.49 9.39 25 8.67 7.22 8.67 7.22 11.82 9.68 11.82 9.68 26 8.98 7.47 8.98 7.47 12.28 10.06 12.28 10.06 27 9.29 7.72 9.29 7.72 12.74 10.44 12.74 10.44 28 9.60 7.97 9.60 7.97 13.21 10.83 13.21 10.83 29 9.91 8.22 9.91 8.22 13.67 11.21 13.67 11.21 30 10.22 8.47 10.22 8.47 14.13 11.59 14.13 11.59 31 10.65 8.78 10.65 8.78 14.76 12.08 14.76 12.08 32 11.08 9.10 11.08 9.10 15.39 12.57 15.39 12.57 33 11.50 9.41 11.50 9.41 16.01 13.05 16.01 13.05 34 11.93 9.73 11.93 9.73 16.64 13.54 16.64 13.54 35 12.36 10.04 12.36 10.04 17.27 14.03 17.27 14.03 36 12.94 10.59 12.94 10.59 18.14 14.66 18.14 14.66 37 13.52 11.13 13.52 11.13 19.01 15.29 19.01 15.29 38 14.11 11.68 14.11 11.68 19.87 15.93 19.87 15.93 39 14.69 12.22 14.69 12.22 20.74 16.56 20.74 16.56 40 15.27 12.77 15.27 12.77 21.61 17.19 21.61 17.19 41 16.28 13.59 16.28 13.59 22.76 18.01 22.76 18.01 42 17.29 14.40 17.29 14.40 23.91 18.83 23.91 18.83 43 18.31 15.22 18.31 15.22 25.05 19.66 25.05 19.66 44 19.32 16.03 19.32 16.03 26.20 20.48 26.20 20.48 45 20.33 16.85 20.33 16.85 27.35 21.30 27.35 21.30 46 21.53 17.57 21.53 17.57 28.94 22.43 28.94 22.43 47 22.73 18.28 22.73 18.28 30.54 23.56 30.54 23.56 48 23.92 19.00 23.92 19.00 32.13 24.70 32.13 24.70 49 25.12 19.71 25.12 19.71 33.73 25.83 33.73 25.83 50 26.32 20.43 26.32 20.43 35.32 26.96 35.32 26.96 51 27.88 21.24 27.88 21.24 37.33 28.38 37.33 28.38 52 29.44 22.06 29.44 22.06 39.34 29.80 39.34 29.80 53 31.00 22.87 31.00 22.87 41.36 31.23 41.36 31.23 54 32.56 23.69 32.56 23.69 43.37 32.65 43.37 32.65 55 34.12 24.50 34.12 24.50 45.38 34.07 45.38 34.07 56 34.67 25.41 34.67 25.41 46.50 34.71 46.50 34.71 57 35.21 26.32 35.21 26.32 47.62 35.34 47.62 35.34
34 40
PREFERRED NONTOBACCO STANDARD NONTOBACCO PREFERRED TOBACCO STANDARD TOBACCO ISSUE -------------------- -------------------- ------------------ ---------------- AGE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE - ----- -------- --------- -------- --------- ------- -------- ------ ------- 58 35.76 27.24 35.76 27.24 48.73 35.98 48.73 35.98 59 36.30 28.15 36.30 28.15 49.85 36.61 49.85 36.61 60 36.85 29.06 36.85 29.06 50.97 37.25 50.97 37.25 61 38.65 30.50 38.65 30.50 50.76 38.80 50.76 38.80 62 40.45 31.93 40.45 31.93 50.56 40.35 50.56 40.35 63 42.25 33.37 42.25 33.37 50.35 41.90 50.35 41.90 64 44.05 34.80 44.05 34.80 50.15 43.45 50.15 43.45 65 45.85 36.24 45.85 36.24 49.94 45.00 49.94 45.00 66 46.34 38.72 46.34 38.72 49.72 45.75 49.72 45.75 67 46.84 41.19 46.84 41.19 49.49 46.50 49.49 46.50 68 47.33 43.67 47.33 43.67 49.27 47.24 49.27 47.24 69 47.83 46.14 47.83 46.14 49.04 47.99 49.04 47.99 70 48.32 48.62 48.32 48.62 48.82 48.74 48.82 48.74 71 47.87 47.86 47.87 47.86 48.65 48.11 48.65 48.11 72 47.41 47.11 47.41 47.11 48.49 47.48 48.49 47.48 73 46.96 46.35 46.96 46.35 48.32 46.85 48.32 46.85 74 46.50 45.60 46.50 45.60 48.16 46.22 48.16 46.22 75 47.26 46.78 47.26 46.78 48.55 47.28 48.55 47.28 76 47.02 46.39 47.02 46.39 48.44 46.94 48.44 46.94 77 46.78 46.00 46.78 46.00 48.33 46.60 48.33 46.60 78 46.53 45.62 46.53 45.62 48.21 46.27 48.21 46.27 79 46.29 45.23 46.29 45.23 48.10 45.93 48.10 45.93 80 46.05 44.84 46.05 44.84 47.99 45.59 47.99 45.59
35 41 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Kemper Investors Life Insurance Company and Contract Owners of KILICO Variable Separate Account: In our opinion, the accompanying statement of assets and liabilities and contract owners' equity and the related statement of operations and changes in owner's equity present fairly, in all material respects, the financial position of the subaccounts of KILICO Variable Separate Account, which includes the Money Market Subaccount, Total Return Subaccount, Government Securities Subaccount, Small Cap Growth Subaccount (investment options within the Investors Fund Series), Equity Income Subaccount, High Income Subaccount (investment options within the Fidelity VIP Funds), International Subaccount, Growth & Income Subaccount (investment options within the Scudder Variable Life Investment Fund), thereof, at December 31, 1998, and the changes in their equity for the year then ended and for each of the periods presented, except for the Equity Income Subaccount, High Income Subaccount, International Subaccount, Growth & Income Subaccount as to which the period is June 15, 1998 (commencement of operations) to December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Kemper Investors Life Insurance Company's management, our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included direct confirmation of investments owned at December 31, 1998 by correspondence with transfer agents, provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois February 19, 1999 36 42 (This page intentionally left blank) 37 43 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY DECEMBER 31, 1998 (IN THOUSANDS)
INVESTORS FUND SERIES --------------------------------------------------- MONEY GOVERNMENT SMALL CAP MARKET TOTAL RETURN SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ------------ ---------- ---------- ASSETS Investments in underlying portfolio funds, at current value................................................. $981 3,681 4,396 1,082 Dividends and other receivables.......................... 3 -- -- -- ---- ----- ----- ----- Total assets..................................... 984 3,681 4,396 1,082 LIABILITIES AND POLICY OWNERS' EQUITY Liabilities: Mortality and expense risk charges.................... 1 2 3 -- Other................................................. 17 -- -- -- ---- ----- ----- ----- Total liabilities................................ 18 2 3 -- ---- ----- ----- ----- Policy owners' equity.................................... $966 3,679 4,393 1,082 ==== ===== ===== ===== ANALYSIS OF POLICY OWNERS' EQUITY Excess of proceeds from units sold over payments for units redeemed........................................ $348 948 1,878 920 Accumulated net investment income........................ 618 1,698 1,867 57 Accumulated net realized gain on sales of investments.... -- 816 578 12 Unrealized appreciation of investments................... -- 217 70 93 ---- ----- ----- ----- Policy owners' equity.................................... $966 3,679 4,393 1,082 ==== ===== ===== =====
See accompanying notes to financial statements. 38 44 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY (CONTINUED) DECEMBER 31, 1998 (IN THOUSANDS)
SCUDDER VARIABLE LIFE FIDELITY VIP FUNDS INVESTMENT FUNDS ----------------------- -------------------------- EQUITY HIGH GROWTH & INCOME INCOME INTERNATIONAL INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ------------- ---------- ASSETS Investments in underlying portfolio funds, at current value............................................. 19 2 8 6 Dividends and other receivables...................... -- -- -- -- -- -- -- -- Total assets................................. 19 2 8 6 -- -- -- -- LIABILITIES AND POLICY OWNERS' EQUITY Liabilities: Mortality and expense risk charges................ -- -- -- -- Other............................................. -- -- -- -- -- -- -- -- Total liabilities............................ -- -- -- -- -- -- -- -- Policy owners' equity................................ 19 2 8 6 == == == == ANALYSIS OF POLICY OWNERS' EQUITY Excess of proceeds from units sold over payments for units redeemed.................................... 19 2 8 6 Accumulated net investment income.................... -- -- -- -- Accumulated net realized gain on sales of investments....................................... -- -- -- -- Unrealized appreciation of investments............... -- -- -- -- -- -- -- -- Policy owners' equity................................ 19 2 8 6 == == == ==
See accompanying notes to financial statements. 39 45 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
INVESTORS FUND SERIES FIDELITY VIP FUNDS ------------------------------------------------- ----------------------------- MONEY TOTAL GOVERNMENT SMALL CAP EQUITY HIGH MARKET RETURN SECURITIES GROWTH INCOME INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(A) SUBACCOUNT(A) ---------- ---------- ---------- ---------- ------------- ------------- Dividends and capital gains distributions.............. $72 505 273 59 -- -- Mortality and expense risk charges.................. 6 16 41 4 -- -- --- ---- ---- --- -- -- Net investment income.... 66 489 232 55 -- -- --- ---- ---- --- -- -- Net realized and unrealized gain (loss) on investments: Net realized gain (loss) on sales of investments............ -- (67) 284 12 -- -- Change in unrealized appreciation (depreciation) of investments............ -- (1) (253) 75 -- -- --- ---- ---- --- -- -- Net realized and unrealized gain (loss) on investments.............. -- (68) 31 87 -- -- --- ---- ---- --- -- -- Net increase in policy owners' equity resulting from operations.......... $66 421 263 142 -- -- === ==== ==== === == == SCUDDER VARIABLE LIFE INVESTMENT FUNDS ----------------------------- GROWTH & INTERNATIONAL INCOME SUBACCOUNT(A) SUBACCOUNT(A) ------------- ------------- Dividends and capital gains distributions.............. -- -- Mortality and expense risk charges.................. -- -- -- -- Net investment income.... -- -- -- -- Net realized and unrealized gain (loss) on investments: Net realized gain (loss) on sales of investments............ -- -- Change in unrealized appreciation (depreciation) of investments............ -- -- -- -- Net realized and unrealized gain (loss) on investments.............. -- -- -- -- Net increase in policy owners' equity resulting from operations.......... -- -- == ==
See accompanying notes to financial statements. 40 46 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
INVESTORS FUND SERIES ------------------------------------------------- MONEY TOTAL GOVERNMENT SMALL CAP MARKET RETURN SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ---------- ---------- Operations: Net investment income................................. $ 66 489 232 55 Net realized gain (loss) on sales of investments...... -- (67) 284 12 Change in unrealized appreciation (depreciation) of investments........................................ -- (1) (253) 75 ------ ------ ----- ----- Net increase in policy owners' equity resulting from operations.................................. 66 421 263 142 ------ ------ ----- ----- Account unit transactions: Proceeds from units sold.............................. 5,791 63 32 590 Net transfers (to) from affiliate and subaccounts..... (2,163) 638 (399) 318 Payments for units redeemed........................... (3,694) (479) (200) (192) ------ ------ ----- ----- Net increase (decrease) in policy owners' equity from account unit transactions................... (66) 222 (567) 716 ------ ------ ----- ----- Total increase (decrease) in policy owners' equity...... -- 643 (304) 858 Policy owners' equity: Beginning of period................................... 966 3,036 4,697 224 ------ ------ ----- ----- End of period......................................... $ 966 3,679 4,393 1,082 ====== ====== ===== =====
See accompanying notes to financial statements. 41 47 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
SCUDDER VARIABLE LIFE FIDELITY VIP FUNDS INVESTMENT FUNDS ----------------------------- ----------------------------- EQUITY HIGH GROWTH & INCOME INCOME INTERNATIONAL INCOME SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) ------------- ------------- ------------- ------------- Operations: Net investment income........................ -- -- -- -- Net realized gain on sales of investments.... -- -- -- -- Change in unrealized appreciation of investments............................... -- -- -- -- -- -- -- -- Net increase in policy owners' equity resulting from operations........ -- -- -- -- -- -- -- -- Account unit transactions: Proceeds from units sold..................... 11 -- 2 4 Net transfers from affiliate and subaccounts............................... 10 2 7 4 Payments for units redeemed.................. (2) -- (1) (2) -- -- -- -- Net increase in policy owners' equity from account unit transactions............... 19 2 8 6 -- -- -- -- Total increase in policy owners' equity........ 19 2 8 6 Policy owners' equity: Beginning of period.......................... -- -- -- -- -- -- -- -- End of period................................ 19 2 8 6 == == == ==
(a) For the period June 15, 1998 (commencement of operations) to December 31, 1998 See accompanying notes to financial statements. 42 48 KILICO VARIABLE SEPARATE ACCOUNT STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INVESTORS FUND SERIES ------------------------------------------------- MONEY TOTAL GOVERNMENT SMALL CAP MARKET RETURN SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ---------- ---------- Operations: Net investment income................................. $ 34 390 283 2 Net realized gain (loss) on sales of investments...... -- 426 19 -- Change in unrealized appreciation (depreciation) of investments........................................ -- (281) 17 18 ------- ----- ----- ---- Net increase (decrease) in policy owners' equity resulting from operations........................ 34 535 319 20 ------- ----- ----- ---- Account unit transactions: Proceeds from units sold.............................. 2,965 27 32 137 Net transfers (to) from affiliate and subaccounts..... (1,059) (400) 492 93 Payments for units redeemed........................... (2,011) (217) (131) (28) ------- ----- ----- ---- Net increase (decrease) in policy owners' equity from account unit transactions................... (105) (590) 393 202 ------- ----- ----- ---- Total increase (decrease) in policy owners' equity...... (71) (55) 712 222 Policy owners' equity: Beginning of period................................... 1,037 3,091 3,985 2 ------- ----- ----- ---- End of period......................................... $ 966 3,036 4,697 224 ======= ===== ===== ====
See accompanying notes to financial statements. 43 49 KILICO VARIABLE SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS (1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Kemper Investors Life Insurance Company Variable Separate Account (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended, established by Kemper Investors Life Insurance Company ("KILICO"). KILICO is a wholly-owned subsidiary of Zurich Financial Services ("ZFS"). ZFS was formed with the September 7, 1998 merger of the Zurich Group with the financial services business of B.A.T. Industries. ZFS is owned by Zurich Allied AG and Allied Zurich p.l.c., fifty-seven percent and forty-three percent, respectively. Zurich Allied AG, representing the financial interest of the former Zurich Group, is listed on the Swiss Market Index (SMI) replacing Zurich. Allied Zurich p.l.c., representing the financial interest of the financial services business of B.A.T. Industries, is included in the FTSE-100 Share Index in London. The Separate Account is used to fund policies ("Policy") for Select variable universal life policies and Power V flexible premium variable universal life policies. The Separate Account is divided into twenty-three subaccounts. The Select policies have five subaccounts which are available to Policy Owners and each subaccount invests exclusively in the shares of a corresponding portfolio of the Investors Fund Series, an open-end diversified management investment company. The Power V policies have twenty-three subaccounts which are available to Policy Owners and each subaccount invests exclusively in the shares of a corresponding portfolio of the Investors Fund Series, the American Skandia Trust, the Fidelity VIP Funds and the Scudder Variable Life Investment Funds, all of which are open-end diversified management investment companies. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities as well as the disclosure of contingent amounts at the date of the financial statements. As a result, actual results reported as income and expenses could differ from the estimates reported in the accompanying financial statements. SECURITY VALUATION The investments are stated at current value which is based on the closing bid price, net asset value, at December 31, 1998. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for on the trade date (date when KILICO accepts risks of providing insurance coverage to the insured). Dividends and capital gains distributions are recorded as income on the ex-dividend date. Realized gains and losses from security transactions are reported on a first in, first out (FIFO) cost basis. ACCOUNT UNIT TRANSACTIONS Proceeds from a Policy are automatically allocated to the Money Market subaccount on the trade date for a 15 day period. At the end of this period, the Separate Account value (cash value) may be allocated to other subaccounts as designated by the owner of the Policy. ACCUMULATION UNIT VALUATION On each day the New York Stock Exchange (the "Exchange") is open for trading, the accumulation unit value is determined as of the earlier of 3:00 p.m. (Central time) or the close of the Exchange by dividing the total value of each subaccount's investments and other assets, less liabilities, by the number of accumulation units outstanding in the respective subaccount. 44 50 FEDERAL INCOME TAXES The operations of the Separate Account are included in the federal income tax return of KILICO. Under existing federal income tax law, investment income and realized capital gains and losses of the Separate Account increase liabilities under the policy and are, therefore, not taxed. Thus the Separate Account may realize net investment income and capital gains and losses without federal income tax consequences. (2) SUMMARY OF INVESTMENTS Investments as of December 31, 1998 do not include any amounts attributable to (name of policy) policies because sales had not commenced. Investments, at cost, at December 31, 1998, are as follows (in thousands):
SHARES OWNED COST ------ ------ INVESTORS FUND SERIES: Money Market Subaccount................................... 981 $ 981 Total Return Subaccount................................... 1,347 3,464 Government Securities Subaccount.......................... 3,639 4,326 Small Cap Growth Subaccount............................... 549 989 FIDELITY VIP FUNDS: Equity Income Subaccount.................................. 1 19 High Income Subaccount.................................... 2 2 SCUDDER VARIABLE LIFE INVESTMENT FUNDS: International Subaccount.................................. 1 8 Growth & Income Subaccount................................ 1 6 ------ TOTAL INVESTMENTS AT COST............................ $9,795 ======
A description of the underlying investments are summarized below. INVESTORS FUND SERIES MONEY MARKET SUBACCOUNT: This subaccount seeks maximum current income to the extent consistent with stability of principal from a portfolio of high quality money market instruments. The Portfolio seeks to maintain a net asset value of $1.00 per share but there can be no assurance that the Portfolio will be able to do so. TOTAL RETURN SUBACCOUNT: This subaccount seeks a high total return, a combination of income and capital appreciation, consistent with reasonable risk. GOVERNMENT SECURITIES SUBACCOUNT: This subaccount seeks high current return consistent with preservation of capital. SMALL CAP GROWTH SUBACCOUNT: This subaccount seeks maximum appreciation of investors' capital. FIDELITY VIP FUNDS EQUITY-INCOME SUBACCOUNT: This subaccount seeks reasonable income. HIGH INCOME SUBACCOUNT: This subaccount seeks a high level of current income while also considering growth of capital. SCUDDER VARIABLE LIFE INVESTMENT FUNDS INTERNATIONAL SUBACCOUNT: This subaccount seeks long-term growth of capital principally from a diversified portfolio of foreign equity securities. GROWTH & INCOME SUBACCOUNT: This subaccount seeks long-term growth of capital, current income and growth of income from a portfolio consisting primarily of common stocks and securities convertible into common stocks. 45 51 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (3) TRANSACTIONS WITH AFFILIATES KILICO provides a death benefit payment upon the death of the Policy Owner under the terms of the death benefit option selected by the Policy Owner as further described in the Policy. KILICO assesses a monthly charge to the subaccounts for the cost of providing this insurance protection to the Policy Owner. These cost of insurance charges vary with the issue age, sex and rate class of the Policy Owner, and are allocated among the subaccounts in the proportion of each subaccount to the Separate Account value. Cost of insurance charges totaled $111,539 and $1,454,886 for the Select and Power V variable universal life products, respectively, for the year ended December 31, 1998. Additionally, KILICO assesses a daily charge to the subaccounts for mortality and expense risk assumed by KILICO at an annual rate of .90% of assets. Proceeds payable on the surrender of a Policy are reduced by the amount of any applicable contingent deferred sales charge. A state and local premium tax charge of 2.5% is deducted from each premium payment under the Power V policy prior to allocation of the net premium. This charge is to reimburse KILICO for the payment of state premium taxes. KILICO expects to pay an average state premium tax rate of approximately 2.5% but the actual premium tax attributable to a Policy may be more or less. Under Section 848 of the Internal Revenue Code (the "Code"), the receipt of premium income by a life insurance company requires the deferral of a portion of the acquisition cost over a maximum of a 120 month period. The effect of Section 848 for KILICO is an acceleration of income recognition over a deferral of the associated deductions for tax purposes; this is referred to as deferred acquisition cost or, the "DAC tax". As compensation for this accelerated liability, a DAC tax charge of 1.00% of each premium dollar is deducted from the premium by KILICO before investment of a policy owner's funds into the Separate Account. Policy loans are also provided for under the terms of the Policy. The minimum amount of the loan is $500 and is limited to 90% of the Policy's investment value, less applicable surrender charges. Interest is assessed against a policy loan under the terms of the Policy. Policy loans are carried in KILICO's general account. Scudder Kemper Investments, Inc., an affiliated company, is the investment manager of the Investors Fund Series portfolios and the Scudder Variable Life Investment Funds. American Skandia Investment Services, Incorporated is the investment manager for the American Skandia Trust and Fidelity Investments is the investment manager for the Fidelity VIP Funds. Neither of these entities are affiliated with KILICO. Investors Brokerage Services, Inc., a wholly-owned subsidiary of KILICO, is the principal underwriter for the Separate Account. (4) NET TRANSFERS (TO) FROM AFFILIATE OR SUBACCOUNTS Net transfers (to) from affiliate or subaccounts include transfers of all or part of the Policy Owner's interest to or from another eligible subaccount or to the general account of KILICO. 46 52 (5) POLICY OWNERS' EQUITY Policy Owners' Equity as of December 31, 1998 does not include any amounts attributable to the Policy because sales had not commenced prior to December 31, 1998. Policy owners' equity for the policies listed below, at December 31, 1998, is as follows (in thousands, except unit value; differences are due to rounding):
NUMBER POLICY OF UNIT OWNERS' UNITS VALUE EQUITY ------ ----- ------- POWER V POLICIES INVESTORS FUND SERIES: Money Market Subaccount..................................... 578 $ 1.098 $ 636 Total Return Subaccount..................................... 27 3.811 103 Government Securities Subaccount............................ 15 1.380 21 Small Cap Growth Subaccount................................. 414 2.610 1,082 FIDELITY VIP FUNDS: Equity Income Subaccount.................................... 1 25.296 19 High Income Subaccount...................................... 0 11.474 2 SCUDDER VARIABLE LIFE INVESTMENT FUNDS: International Subaccount.................................... 1 14.439 8 Growth & Income Subaccount.................................. 1 11.275 6 ------ TOTAL POWER V POLICY OWNERS' EQUITY.................... $1,877 ======
SELECT POLICIES INVESTORS FUND SERIES: Money Market Subaccount..................................... 193 $ 1.704 $ 330 Total Return Subaccount..................................... 1,260 2.839 3,576 Government Securities Subaccount............................ 2,047 2.136 4,372 ------ TOTAL SELECT POLICY OWNERS' EQUITY..................... $8,278 ======
47 53 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
SEPTEMBER 30 DECEMBER 31 1999 1998 ------------ ----------- (UNAUDITED) ASSETS Investments: Fixed maturities, available for sale, at fair value (amortized cost: September 30, 1999, $3,341,115; December 31, 1998, $3,421,535)......................... $ 3,260,445 $ 3,482,820 Trading account securities at fair value (amortized cost: September 30, 1999, $143,953; December 31, 1998, $99,095)............................................... 139,490 101,781 Short-term investments.................................... 32,902 58,334 Joint venture mortgage loans.............................. 67,338 65,806 Third-party mortgage loans................................ 63,979 76,520 Other real estate-related investments..................... 24,705 22,049 Policy loans.............................................. 263,903 271,540 Equity securities......................................... 62,032 66,854 Other invested assets..................................... 24,858 23,645 ----------- ----------- Total investments................................. 3,939,652 4,169,349 Cash........................................................ 18,975 13,486 Accrued investment income................................... 126,053 124,213 Goodwill.................................................... 207,093 216,651 Value of business acquired.................................. 123,676 118,850 Deferred insurance acquisition costs........................ 144,495 91,543 Federal income tax recoverable.............................. 33,968 -- Deferred income taxes....................................... 64,824 35,059 Reinsurance recoverable..................................... 319,071 344,837 Receivable on sales of securities........................... -- 3,500 Other assets and receivables................................ 19,135 23,029 Assets held in separate accounts............................ 8,174,741 7,099,204 ----------- ----------- Total assets...................................... $13,171,683 $12,239,721 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Future policy benefits...................................... $ 3,789,748 $ 3,906,391 Benefits and funds payable.................................. 413,947 318,369 Other accounts payable and liabilities...................... 61,139 61,898 Liabilities related to separate accounts.................... 8,174,741 7,099,204 ----------- ----------- Total liabilities................................. 12,439,575 11,385,862 ----------- ----------- Commitments and contingent liabilities Stockholder's equity: Capital stock -- $10 par value, authorized 300,000 shares; outstanding 250,000 shares................................ 2,500 2,500 Additional paid-in capital.................................. 804,347 804,347 Accumulated other comprehensive income (loss)............... (73,940) 32,975 Retained earnings (deficit)................................. (799) 14,037 ----------- ----------- Total stockholder's equity........................ 732,108 853,859 ----------- ----------- Total liabilities and stockholder's equity........ $13,171,683 $12,239,721 =========== ===========
See accompanying notes to consolidated financial statements (unaudited). 48 54 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- REVENUE Net investment income.................................... $196,943 $205,910 $ 65,742 $ 66,892 Realized investment gains (losses)....................... (10,787) 26,478 (7,843) 8,951 Premium income........................................... 15,896 16,422 4,990 5,278 Separate account fees and charges........................ 49,374 50,206 12,668 15,826 Other income............................................. 8,713 7,765 2,744 1,805 -------- -------- -------- -------- Total revenue.................................. 260,111 306,781 78,301 98,752 -------- -------- -------- -------- BENEFITS AND EXPENSES Interest credited to policyholders....................... 122,047 134,147 40,763 43,978 Claims and other policyholder benefits................... 12,079 35,973 3,031 10,273 Taxes, licenses and fees................................. 16,018 10,956 2,185 1,198 Commissions.............................................. 47,511 29,131 18,090 11,082 Operating expenses....................................... 33,891 32,781 11,230 10,528 Deferral of insurance acquisition costs.................. (52,595) (34,760) (19,495) (13,160) Amortization of insurance acquisition costs.............. 7,699 5,135 4,091 3,491 Amortization of value of business acquired............... 12,189 17,907 3,920 6,359 Amortization of goodwill................................. 9,558 9,558 3,186 3,188 -------- -------- -------- -------- Total benefits and expenses.................... 208,397 240,828 67,001 76,937 -------- -------- -------- -------- Income before income tax expense......................... 51,714 65,953 11,300 21,815 Income tax expense (benefit) Current................................................ 38,613 40,942 (1,609) 8,263 Deferred............................................... (17,063) (13,093) 6,439 565 -------- -------- -------- -------- Total income tax expense....................... 21,550 27,849 4,830 8,828 -------- -------- -------- -------- Net income..................................... $ 30,164 $ 38,104 $ 6,470 $ 12,987 ======== ======== ======== ========
See accompanying notes to consolidated financial statements (unaudited). 49 55 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- NET INCOME........................................... $ 30,164 $ 38,104 $ 6,470 $12,987 OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX: Unrealized holding gains (losses) on investments arising during period: Unrealized holding gains (losses) on investments................................... (140,670) 64,374 (26,576) 53,852 Adjustment to value of business acquired........ 16,683 (14,165) 3,730 (8,678) Adjustment to deferred insurance acquisition costs......................................... 8,915 (4,656) 2,207 (2,801) --------- -------- -------- ------- Total unrealized holding gains (losses) on investments arising during period........ (115,072) 45,553 (20,639) 42,373 --------- -------- -------- ------- Less reclassification adjustments for items included in net income: Adjustment for (gains) losses included in realized investment gains (losses)............ 13,039 1,800 5,072 (621) Adjustment for amortization of premium on fixed maturities included in net investment income........................................ (9,022) (12,882) (2,197) (4,031) Adjustment for (gains) losses included in amortization of value of business acquired.... (331) (4,379) 267 (1,046) Adjustment for (gains) losses included in amortization of insurance acquisition costs... 859 (900) 567 (40) --------- -------- -------- ------- Total reclassification adjustments for items included in net income............. 4,545 (16,361) 3,709 (5,738) --------- -------- -------- ------- Other comprehensive income (loss), before related income tax expense (benefit)....................... (119,617) 61,914 (24,348) 48,111 Related income tax expense (benefit)................. (12,702) 21,670 1,786 16,839 --------- -------- -------- ------- Other comprehensive income (loss), net of tax........ (106,915) 40,244 (26,134) 31,272 --------- -------- -------- ------- Comprehensive income (loss)................ $ (76,751) $ 78,348 $(19,664) $44,259 ========= ======== ======== =======
See accompanying notes to consolidated financial statements (unaudited). 50 56 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30 -------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 30,164 $ 38,104 Reconcilement of net income to net cash provided (used): Realized investment (gains) losses..................... 10,787 (26,478) Net change in trading account securities............... (44,739) -- Interest credited and other charges.................... 119,646 131,438 Deferred insurance acquisition costs................... (44,896) (29,625) Amortization of value of business acquired............. 12,189 17,907 Amortization of goodwill............................... 9,558 9,558 Amortization of discount and premium on investments.... 9,510 12,883 Deferred income taxes.................................. (17,064) (13,094) Net change in current Federal income taxes............. (54,254) (89,674) Benefits and premium taxes due related to separate account bank-owned life insurance..................... 96,355 59,207 Other, net............................................. 9,078 (9,054) ----------- --------- Net cash flow provided by operating activities......... 136,334 101,172 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Cash from investments sold or matured: Fixed maturities held to maturity...................... 281,197 373,576 Fixed maturities sold prior to maturity................ 1,014,262 688,702 Equity securities...................................... 11,377 571 Mortgage loans, policy loans and other invested assets................................................ 59,554 106,515 Cost of investments purchased or loans originated: Fixed maturities....................................... (1,233,431) (998,849) Equity securities...................................... (8,703) (74,171) Mortgage loans, policy loans and other invested assets................................................ (37,154) (39,987) Short-term investments, net............................... 25,432 210,600 Net change in receivable and payable for securities transactions........................................... 9,718 6,790 ----------- --------- Net cash provided by investing activities.............. 122,252 273,747 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits............................................... 270,261 123,413 Withdrawals............................................ (480,783) (507,283) Dividends to parent....................................... (45,000) -- Other..................................................... 2,425 15,846 ----------- --------- Net cash used in financing activities.................. (253,097) (368,024) ----------- --------- Net increase in cash........................................ 5,489 6,895 Cash at the beginning of period............................. 13,486 23,868 ----------- --------- Cash at the end of the period............................... $ 18,975 $ 30,763 =========== =========
See accompanying notes to consolidated financial statements (unaudited). 51 57 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Kemper Investors Life Insurance Company ("KILICO") is incorporated under the insurance laws of the State of Illinois. KILICO is licensed in the District of Columbia and all states, except New York. KILICO is a wholly-owned subsidiary of Kemper Corporation ("Kemper"), a nonoperating holding company. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. 2. In the opinion of management, all necessary adjustments consisting of normal recurring accruals have been made for a fair presentation of the results of KILICO for the periods included in these financial statements. These financial statements should be read in conjunction with the financial statements and related notes in the 1998 Annual Report on Form 10-K. 3. KILICO, along with its affiliates Federal Kemper Life Assurance Company, Zurich Life Insurance Company of America, Fidelity Life Association (a Mutual Legal Reserve Company) and Zurich Direct, Inc. operate under the trade name Zurich Kemper Life ("ZKL"). ZKL is segregated by Strategic Business Unit ("SBU"). The SBU concept has each SBU concentrate on a specific customer market. The SBU is the focal point of ZKL because it is at the SBU level that ZKL can clearly identify customer segments and then work to understand and satisfy the needs of each customer. The contributions of ZKL's SBUs to consolidated revenues, operating results and certain balance sheet data pertaining thereto, are shown in the following tables on the basis of generally accepted accounting principles. ZKL is segregated into the Agency, Financial Institutions, Retirement Solutions and Direct SBUs. The SBUs are not managed at the legal entity level, but rather at the ZKL level. ZKL's SBUs cross legal entity lines, as certain similar products are sold by more than one legal entity. 52 58 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Summarized financial information for ZKL's SBUs are as follows: As of and for the period ending September 30, 1999: (in thousands)
FINANCIAL RETIREMENT AGENCY INSTITUTIONS SOLUTIONS DIRECT TOTAL ------ ------------ ---------- ------ ----- Total revenues......................... $ 264,940 $ 153,319 $ 100,180 $34,566 $ 553,005 ========== ========== ========== ======= =========== Net income (loss)...................... $ 26,751 $ 20,161 $ 7,743 $ (644) $ 54,011 ========== ========== ========== ======= =========== Total assets................. $3,099,557 $9,376,982 $4,282,726 $85,176 $16,844,441 ========== ========== ========== ======= ===========
NET REVENUE INCOME (LOSS) ASSETS ------- ------------- ------ Total revenue, net income (loss) and assets, respectively, from above:................................................. $553,005 $54,011 $16,844,441 Less: Revenue, net income & assets of FKLA...................... 227,015 22,258 3,222,738 Revenue, net income & assets of ZLICA..................... 37,545 7,951 445,891 Revenue, net (loss) & assets of Zurich Direct............. 28,334 (6,362) 4,129 -------- ------- ----------- Totals per KILICO's consolidated financial statements...................................... $260,111 $30,164 $13,171,683 ======== ======= ===========
As of and for the period ending September 30, 1998: (in thousands)
FINANCIAL RETIREMENT AGENCY INSTITUTIONS SOLUTIONS DIRECT TOTAL ------ ------------ ---------- ------ ----- Total revenues......................... $ 298,801 $ 185,177 $ 108,628 $21,733 $ 614,339 ========== ========== ========== ======= =========== Net income............................. $ 20,837 $ 23,000 $ 15,760 $ 1,387 $ 60,984 ========== ========== ========== ======= =========== Total assets................. $3,303,280 $7,099,900 $3,938,266 $23,816 $14,365,262 ========== ========== ========== ======= ===========
NET REVENUE INCOME (LOSS) ASSETS ------- ------------- ------ Total revenue, net income (loss) and assets, respectively, from above:................................................. $614,339 $60,984 $14,365,262 Less: Revenue, net income & assets of FKLA...................... 247,935 21,780 3,031,760 Revenue, net (loss) & assets of ZLICA..................... 41,863 (194) 400,492 Revenue, net income & assets of Zurich Direct............. 17,760 1,294 4,095 -------- ------- ----------- Totals per KILICO's consolidated financial statements...................................... $306,781 $38,104 $10,928,915 ======== ======= ===========
53 59 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholder of Kemper Investors Life Insurance Company: In our opinion, the accompanying consolidated balance sheets as of December 31, 1998 and 1997 and the related consolidated statements of operations, comprehensive income, stockholder's equity and cash flows present fairly, in all material respects, the financial position of Kemper Investors Life Insurance Company and subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The financial statements of the Company for the period from January 4, 1996 to December 31, 1996 were audited by other independent accountants whose report, dated March 21, 1997, expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Chicago, Illinois March 12, 1999 54 60 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholder Kemper Investors Life Insurance Company: We have audited the accompanying consolidated statements of operations, comprehensive income, stockholder's equity, and cash flows of Kemper Investors Life Insurance Company and subsidiaries for the period from January 4, 1996 to December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the results of operations and the cash flows of Kemper Investors Life Insurance Company and subsidiaries for the period from January 4, 1996 to December 31, 1996, in conformity with generally accepted accounting principles. KPMG LLP Chicago, Illinois March 21, 1997 55 61 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- ASSETS Fixed maturities, available for sale, at fair value (amortized cost: December 31, 1998, $3,421,535; December 31, 1997, $3,644,075)..................................... $ 3,482,820 $ 3,668,643 Trading account securities at fair value (amortized cost: December 31, 1998, $99,095)............................... 101,781 -- Short-term investments...................................... 58,334 236,057 Joint venture mortgage loans................................ 65,806 72,663 Third-party mortgage loans.................................. 76,520 102,974 Other real estate-related investments....................... 22,049 44,409 Policy loans................................................ 271,540 282,439 Equity securities........................................... 66,854 24,839 Other invested assets....................................... 23,645 20,820 ----------- ----------- Total investments................................. 4,169,349 4,452,844 Cash........................................................ 13,486 23,868 Accrued investment income................................... 124,213 117,789 Goodwill.................................................... 216,651 229,393 Value of business acquired.................................. 118,850 138,482 Deferred insurance acquisition costs........................ 91,543 59,459 Deferred income taxes....................................... 35,059 39,993 Reinsurance recoverable..................................... 344,837 382,609 Receivable on sales of securities........................... 3,500 20,076 Other assets and receivables................................ 23,029 3,187 Assets held in separate accounts............................ 7,099,204 5,121,950 ----------- ----------- Total assets...................................... $12,239,721 $10,589,650 =========== =========== LIABILITIES Future policy benefits...................................... $ 3,906,391 $ 4,239,480 Benefits and funds payable.................................. 318,369 150,524 Other accounts payable and liabilities...................... 61,898 212,133 Liabilities related to separate accounts.................... 7,099,204 5,121,950 ----------- ----------- Total liabilities................................. 11,385,862 9,724,087 ----------- ----------- Commitments and contingent liabilities STOCKHOLDER'S EQUITY Capital stock--$10 par value, authorized 300,000 shares; outstanding 250,000 shares..... 2,500 2,500 Additional paid-in capital.................................. 804,347 806,538 Accumulated other comprehensive income...................... 32,975 12,637 Retained earnings........................................... 14,037 43,888 ----------- ----------- Total stockholder's equity........................ 853,859 865,563 ----------- ----------- Total liabilities and stockholder's equity........ $12,239,721 $10,589,650 =========== ===========
See accompanying notes to consolidated financial statements. 56 62 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
YEAR ENDED DECEMBER 31 -------------------------------------- 1998 1997 1996 ---- ---- ---- REVENUE Net investment income....................................... $273,512 $296,195 $299,688 Realized investment gains................................... 51,868 10,546 13,602 Premium income.............................................. 22,346 22,239 7,822 Separate account fees and charges........................... 61,982 85,413 25,309 Other income................................................ 10,031 11,087 9,786 -------- -------- -------- Total revenue..................................... 419,739 425,480 356,207 -------- -------- -------- BENEFITS AND EXPENSES Interest credited to policyholders.......................... 176,906 199,782 223,094 Claims incurred and other policyholder benefits............. 28,029 28,372 14,255 Taxes, licenses and fees.................................... 30,292 52,608 2,173 Commissions................................................. 39,046 32,602 25,962 Operating expenses.......................................... 44,575 36,837 24,678 Deferral of insurance acquisition costs..................... (46,565) (38,177) (27,820) Amortization of insurance acquisition costs................. 12,082 3,204 2,316 Amortization of value of business acquired.................. 17,677 24,948 21,530 Amortization of goodwill.................................... 12,744 15,295 10,195 -------- -------- -------- Total benefits and expenses....................... 314,786 355,471 296,383 -------- -------- -------- Income before income tax expense............................ 104,953 70,009 59,824 Income tax expense.......................................... 39,804 31,292 25,403 -------- -------- -------- Net income........................................ $ 65,149 $ 38,717 $ 34,421 ======== ======== ========
See accompanying notes to consolidated financial statements. 57 63 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
YEAR ENDED DECEMBER 31 -------------------------------- 1998 1997 1996 ---- ---- ---- NET INCOME.................................................. $ 65,149 $ 38,717 $ 34,421 -------- -------- -------- OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX: Unrealized holding gains (losses) on investments arising during period: Unrealized holdings gains (losses) on investments...... 25,372 60,802 (84,036) Adjustment to value of business acquired............... (9,332) (28,562) 16,735 Adjustment to deferred insurance acquisition costs..... (2,862) (2,680) 1,307 -------- -------- -------- Total unrealized holding gains (losses) on investments arising during period............... 13,178 29,560 (65,994) -------- -------- -------- Less reclassification adjustments for items included in net income: Adjustment for (gains) losses included in realized investment gains..................................... 6,794 (9,016) 3,963 Adjustment for amortization of premium on fixed maturities included in net investment income......... (17,064) (17,866) (26,036) Adjustment for (gains) losses included in amortization of value of business acquired........................ (7,378) (2,353) (4,212) Adjustment for (gains) losses included in amortization of insurance acquisition costs....................... (463) (355) -- -------- -------- -------- Total reclassification adjustments for items included in net income.......................... (18,111) (29,590) (26,285) -------- -------- -------- Other comprehensive income (loss), before related income tax expense (benefit)......................................... 31,289 59,150 (39,709) Related income tax expense (benefit)........................ 10,952 (985) 7,789 -------- -------- -------- Other comprehensive income (loss), net of tax..... 20,337 60,135 (47,498) -------- -------- -------- Comprehensive income (loss)....................... $ 85,486 $ 98,852 $(13,077) ======== ======== ========
See accompanying notes to consolidated financial statements. 58 64 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
DECEMBER 31 ---------------------------------- 1998 1997 1996 ---- ---- ---- CAPITAL STOCK, beginning and end of period.................. $ 2,500 $ 2,500 $ 2,500 -------- -------- -------- ADDITIONAL PAID-IN CAPITAL, beginning of period............. 806,538 761,538 743,104 Capital contributions from parent........................... 4,261 45,000 18,434 Adjustment to prior period capital contribution from parent.................................................... (6,452) -- -- -------- -------- -------- End of period..................................... 804,347 806,538 761,538 -------- -------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), beginning of period.................................................... 12,637 (47,498) -- Other comprehensive income (loss), net of tax............... 20,338 60,135 (47,498) -------- -------- -------- End of period..................................... 32,975 12,637 (47,498) -------- -------- -------- RETAINED EARNINGS, beginning of period...................... 43,888 34,421 -- Net income.................................................. 65,149 38,717 34,421 Dividends to parent......................................... (95,000) (29,250) -- -------- -------- -------- End of period..................................... 14,037 43,888 34,421 -------- -------- -------- Total stockholder's equity........................ $853,859 $865,563 $750,961 ======== ======== ========
See accompanying notes to consolidated financial statements. 59 65 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31 ----------------------------------------- 1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income.......................................... $ 65,149 $ 38,717 $ 34,421 Reconcilement of net income to net cash provided: Realized investment gains........................ (51,868) (10,546) (13,602) Net change in trading account securities......... (6,727) -- -- Interest credited and other charges.............. 173,958 198,206 230,298 Deferred insurance acquisition costs............. (34,483) (34,973) (25,504) Amortization of value of business acquired....... 17,677 24,948 21,530 Amortization of goodwill......................... 12,744 15,295 10,195 Amortization of discount and premium on investments.................................... 17,353 17,866 25,743 Deferred income taxes............................ (12,469) (99,370) (897) Net change in current federal income taxes....... (73,162) 97,386 108,806 Benefits and premium taxes due related to separate account bank-owned life insurance..... 123,884 180,546 -- Other, net....................................... (41,477) 17,168 (22,283) ----------- --------- ----------- Net cash provided from operating activities................................ 190,579 445,243 368,707 ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash from investments sold or matured: Fixed maturities held to maturity................ 491,699 229,208 264,383 Fixed maturities sold prior to maturity.......... 882,596 633,872 891,995 Equity securities................................ 107,598 -- -- Mortgage loans, policy loans and other invested assets......................................... 180,316 131,866 168,727 Cost of investments purchased or loans originated: Fixed maturities................................. (1,319,119) (606,028) (1,369,091) Equity securities................................ (83,303) -- -- Mortgage loans, policy loans and other invested assets......................................... (66,331) (76,350) (119,044) Short-term investments, net......................... 177,723 (164,361) 300,819 Net change in receivable and payable for securities transactions..................................... (677) 29,746 (31,667) Net change in other assets.......................... -- 244 115 ----------- --------- ----------- Net cash provided by investing activities... 370,502 178,197 106,237 ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits......................................... 180,124 145,687 141,159 Withdrawals...................................... (649,400) (745,510) (700,084) Capital contributions from parent................... 4,261 45,000 18,434 Dividends to parent................................. (95,000) (29,250) -- Other............................................... (11,448) (18,275) 42,512 ----------- --------- ----------- Net cash used in financing activities....... (571,463) (602,348) (497,979) ----------- --------- ----------- Net increase (decrease) in cash........ (10,382) 21,092 (23,035) CASH, beginning of period............................. 23,868 2,776 25,811 ----------- --------- ----------- CASH, end of period................................... $ 13,486 $ 23,868 $ 2,776 =========== ========= ===========
See accompanying notes to consolidated financial statements. 60 66 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Kemper Investors Life Insurance Company and subsidiaries (the "Company") issues fixed and variable annuity products, variable life, term life and interest-sensitive life insurance products marketed primarily through a network of financial institutions, securities brokerage firms, insurance agents and financial planners. The Company is licensed in the District of Columbia and all states except New York. The Company is a wholly-owned subsidiary of Kemper Corporation ("Kemper"). Effective January 4, 1996, Zurich Insurance Company ("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners Offshore (Bermuda), L.P. (together with IP, "Insurance Partners") owned 80 percent and 20 percent, respectively, of Kemper and therefore the Company. On February 27, 1998, Zurich acquired Insurance Partner's remaining 20 percent interest for cash. As a result of this transaction, Kemper and the Company became wholly-owned subsidiaries of Zurich. Effective September 7, 1998, the businesses of Zurich merged with the financial services business of B.A.T. Industries forming Zurich Financial Services ("ZFS"). ZFS is owned by Zurich Allied AG and Allied Zurich p.l.c., fifty-seven percent and forty-three percent, respectively. Zurich Allied AG, representing the financial interest of the former Zurich Group, is listed on the Swiss Market Index, replacing Zurich. Allied Zurich p.l.c., representing the financial interest of B.A.T. Industries, is included in the FTSE-100 Share Index in London. The financial statements include the accounts of the Company on a consolidated basis. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the 1997 and 1996 consolidated financial statements in order for them to conform to the 1998 presentation. BASIS OF ACCOUNTING The acquisition of the Company on January 4, 1996, was accounted for using the purchase method of accounting. The consolidated financial statements of the Company prior to January 4, 1996, were prepared on a historical cost basis in accordance with generally accepted accounting principles. The accompanying consolidated financial statements of the Company as of and for the years ended December 31, 1996, 1997 and 1998, have been prepared in conformity with generally accepted accounting principles. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets or liabilities at the date of the financial statements. As a result, actual results reported as revenue and expenses could differ from the estimates reported in the accompanying financial statements. As further discussed in the accompanying notes to the consolidated financial statements, significant estimates and assumptions affect deferred insurance acquisition costs, the value of business acquired, provisions for real estate-related losses and reserves, other-than-temporary declines in values for fixed maturities, the valuation allowance for deferred income taxes and the calculation of fair value disclosures for certain financial instruments. GOODWILL The Company reviews goodwill to determine if events or changes in circumstances may have affected the recoverability of the outstanding goodwill as of each reporting period. In the event that the Company determines that goodwill is not recoverable, it would amortize such amounts as additional goodwill expense in the accompanying financial statements. As of December 31, 1998, the Company believes that no such adjustment is necessary. The Company began to amortize goodwill during 1996 on a straight-line basis over twenty-five years. In December of 1997, the Company changed its amortization period to twenty years in order to conform to Zurich's accounting practices and policies. As a result of the change in amortization periods, the Company recorded an increase in goodwill amortization expense of $5.1 million during 1997. 61 67 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUE OF BUSINESS ACQUIRED The value of business acquired reflects the estimated fair value of the Company's life insurance business in force and represents the portion of the cost to acquire the Company that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. Such value is the present value of the actuarially determined projected cash flows for the acquired policies. The value of the business acquired is amortized over the estimated contract life of the business acquired in relation to the present value of estimated gross profits using current assumptions based on an interest rate equal to the liability or contract rate on the value of business acquired. The estimated amortization and accretion of interest for the value of business acquired for each of the years through December 31, 2003 are as follows:
PROJECTED (IN THOUSANDS) BEGINNING ACCRETION OF ENDING YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE - ---------------------------------------------------- --------- ------------ ------------ --------- 1996 (actual)....................................... $190,222 $(31,427) $9,897 $168,692 1997 (actual)....................................... 168,692 (34,906) 9,958 143,744 1998 (actual)....................................... 143,744 (26,807) 9,129 126,066 1999................................................ 126,066 (24,926) 7,741 108,881 2000................................................ 108,881 (22,649) 6,619 92,851 2001................................................ 92,851 (20,736) 5,577 77,692 2002................................................ 77,692 (17,096) 4,695 65,291 2003................................................ 65,291 (15,504) 3,948 53,735
The projected ending balance of the value of business acquired will be further adjusted to reflect the impact of unrealized gains or losses on fixed maturities held as available for sale in the investment portfolio. Such adjustments are not recorded in the Company's net income but rather are recorded as a credit or charge to accumulated other comprehensive income, net of income tax. As of December 31, 1998 and 1997, this adjustment decreased the value of business acquired by $7.2 million and $5.3 million, respectively, and accumulated other comprehensive income by approximately $4.7 million and $3.4 million, respectively. LIFE INSURANCE REVENUE AND EXPENSES Revenue for annuities, variable life insurance and interest-sensitive life insurance products consists of investment income, and policy charges such as mortality, expense and surrender charges and expense loads for premium taxes on certain contracts. Expenses consist of benefits and interest credited to contracts, policy maintenance costs and amortization of deferred insurance acquisition costs. Premiums for term life policies are reported as earned when due. Profits for such policies are recognized over the duration of the insurance policies by matching benefits and expenses to premium income. DEFERRED INSURANCE ACQUISITION COSTS The costs of acquiring new business, principally commission expense and certain policy issuance and underwriting expenses, have been deferred to the extent they are recoverable from estimated future gross profits on the related contracts and policies. The deferred insurance acquisition costs for annuities, separate account business and interest-sensitive life insurance products are being amortized over the estimated contract life in relation to the present value of estimated gross profits. Deferred insurance acquisition costs related to such interest-sensitive products also reflect the estimated impact of unrealized gains or losses on fixed maturities held as available for sale in the investment portfolio, through a credit or charge to accumulated other comprehensive income, net of income tax. The deferred insurance acquisition costs for term-life insurance products are being amortized over the premium paying period of the policies. 62 68 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FUTURE POLICY BENEFITS Liabilities for future policy benefits related to annuities and interest-sensitive life contracts reflect net premiums received plus interest credited during the contract accumulation period and the present value of future payments for contracts that have annuitized. Current interest rates credited during the contract accumulation period range from 3.0 percent to 7.5 percent. Future minimum guaranteed interest rates vary from 3.0 percent to 4.0 percent. For contracts that have annuitized, interest rates used in determining the present value of future payments range principally from 2.5 percent to 12.0 percent. Liabilities for future term life policy benefits have been computed principally by a net level premium method. Anticipated rates of mortality are based on the 1975-1980 Select and Ultimate Table modified by Company experience, including withdrawals. Estimated future investment yields are a level 6.8 percent. GUARANTY FUND ASSESSMENTS The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during the years 1998 and prior. The Company's financial statements include provisions for all known assessments that are expected to be levied against the Company as well as an estimate of amounts (net of estimated future premium tax recoveries) that the Company believes it will be assessed in the future for which the life insurance industry has estimated the cost to cover losses to policyholders. INVESTED ASSETS AND RELATED INCOME Investments in fixed maturities and equity securities are carried at fair value. Short-term investments are carried at cost, which approximates fair value. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed and asset-backed securities, over the estimated life of the security. Such amortization is included in net investment income. Amortization of the discount or premium from mortgage-backed and asset-backed securities is recognized using a level effective yield method which considers the estimated timing and amount of prepayments of the underlying loans and is adjusted to reflect differences which arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. To the extent that the estimated lives of such securities change as a result of changes in prepayment rates, the adjustment is also included in net investment income. The Company does not accrue interest income on fixed maturities deemed to be impaired on an other-than-temporary basis, or on mortgage loans and other real estate loans where the likelihood of collection of interest is doubtful. Mortgage loans are carried at their unpaid balance, net of unamortized discount and any applicable reserves or write-downs. Other real estate-related investments, net of any applicable reserves and write-downs, include: (1) notes receivable from real estate ventures; (2) investments in real estate ventures, adjusted for the equity in the operating income or loss of such ventures, and (3) real estate owned at December 31, 1997, carried at fair value. Real estate reserves are established when declines in collateral values, estimated in light of current economic conditions, indicate a likelihood of loss. Investments in policy loans and other invested assets, consisting primarily of venture capital investments and a leveraged lease, are carried primarily at cost. Realized gains or losses on sales of investments, determined on the basis of identifiable cost on the disposition of the respective investment, recognition of other-than-temporary declines in value and changes in real estate-related reserves and write-downs are included in revenue. Net unrealized gains or losses on revaluation of investments are credited or charged to accumulated other comprehensive income. Such unrealized gains are recorded net of deferred income tax expense, while unrealized losses are not tax benefitted. SEPARATE ACCOUNT BUSINESS The assets and liabilities of the separate accounts represent segregated funds administered and invested by the Company for purposes of funding variable annuity and variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contract holders. The Company receives administrative fees from the 63 69 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) separate account and retains varying amounts of withdrawal charges to cover expenses in the event of early withdrawals by contract holders. The assets and liabilities of the separate accounts are carried at fair value. INCOME TAX For the period January 1 through January 4, 1996, the Company's federal income tax return was consolidated with Kemper and Kemper's other wholly-owned life insurance subsidiary, Federal Kemper Life Assurance Company ("FKLA"). The Boards of Directors of Kemper, KILICO and FKLA, adopted a written plan that provided that federal income taxes would be paid to or recovered from Kemper on the basis of each company's taxable income or loss as shown on its respective federal income tax return. In the event of a federal income tax credit which is greater than the amount recoverable from the other life insurance company or from the Internal Revenue Service, the funds available would be apportioned among the life companies entitled to a recovery on the basis of the relationship of each company's tax credit to the total of all of the life insurance companies in a deficit position. For the period January 5 through December 31, 1996, and subsequent years, the Company has filed a separate federal income tax return. Deferred taxes are provided on the temporary differences between the tax and financial statement basis of assets and liabilities. (2) CASH FLOW INFORMATION The Company defines cash as cash in banks and money market accounts. The Company paid federal income taxes of $126.0 million, $29.0 million and $28.1 million directly to the United States Treasury Department during 1998, 1997 and 1996 respectively. (3) INVESTED ASSETS AND RELATED INCOME The Company is carrying its fixed maturity investment portfolio at estimated fair value as fixed maturities are considered available for sale. The carrying value of fixed maturities compared with amortized cost, adjusted for other-than-temporary declines in value, were as follows:
ESTIMATED UNREALIZED CARRYING AMORTIZED -------------------- VALUE COST GAINS LOSSES (in thousands) -------- --------- ----- ------ DECEMBER 31, 1998 U.S. treasury securities and obligations of U.S. government agencies and authorities................. $ 7,951 $ 7,879 $ 81 $ (9) Obligations of states and political subdivisions, special revenue and nonguaranteed................... 27,039 26,768 362 (91) Debt securities issued by foreign governments......... 69,357 67,239 2,266 (148) Corporate securities.................................. 1,908,850 1,866,372 46,664 (4,186) Mortgage and asset-backed securities.................. 1,469,623 1,453,277 19,063 (2,717) ---------- ---------- ------- -------- Total fixed maturities......................... $3,482,820 $3,421,535 $68,436 $ (7,151) ========== ========== ======= ======== DECEMBER 31, 1997 U.S. treasury securities and obligations of U.S. government agencies and authorities................. $ 6,258 $ 6,298 $ 4 $ (44) Obligations of states and political subdivisions, special revenue and nonguaranteed................... 29,330 29,308 160 (138) Debt securities issued by foreign governments......... 92,563 92,722 188 (347) Corporate securities.................................. 1,861,655 1,846,588 24,733 (9,666) Mortgage and asset-backed securities.................. 1,678,837 1,669,159 10,035 (357) ---------- ---------- ------- -------- Total fixed maturities......................... $3,668,643 $3,644,075 $35,120 $(10,552) ========== ========== ======= ========
64 70 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) INVESTED ASSETS AND RELATED INCOME (CONTINUED) The carrying value and amortized cost of fixed maturity investments, by contractual maturity at December 31, 1998, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because mortgage-backed and asset-backed securities provide for periodic payments throughout their life.
CARRYING AMORTIZED VALUE COST (in thousands) -------- --------- One year or less............................................ $ 44,816 $ 44,745 Over one year through five years............................ 814,646 802,147 Over five years through ten years........................... 891,767 866,613 Over ten years.............................................. 261,968 254,753 Securities not due at a single maturity date, primarily mortgage and asset-backed securities(1)................... 1,469,623 1,453,277 ---------- ---------- Total fixed maturities............................... $3,482,820 $3,421,535 ========== ==========
- --------------- (1) Weighted average maturity of 4.0 years. Proceeds from sales of investments in fixed maturities prior to maturity were $882.6 million, $633.9 million and $892.0 million during 1998, 1997 and 1996, respectively. Gross gains of $10.1 million, $3.1 million and $9.9 million and gross losses of $8.0 million, $13.7 million and $16.2 million were realized on sales and write-downs of fixed maturities in 1998, 1997 and 1996, respectively. At December 31, 1998, the Company had 12 separate asset-backed securities included in fixed maturity investments from trusts formed to collateralize assets underwritten by Green Tree Financial Corporation, which in aggregate amounted to $97.7 million. No other individual investments exceeded ten percent of stockholder's equity at December 31, 1998. At December 31, 1998, securities carried at approximately $6.4 million were on deposit with governmental agencies as required by law. Upon default or indication of potential default by an issuer of fixed maturity securities, the issue(s) of such issuer would be placed on nonaccrual status and, since declines in fair value would no longer be considered by the Company to be temporary, would be analyzed for possible write-down. Any such issue would be written down to its net realizable value during the fiscal quarter in which the impairment was determined to have become other than temporary. Thereafter, each issue on nonaccrual status is regularly reviewed, and additional write-downs may be taken in light of later developments. The Company's computation of net realizable value involves judgments and estimates, so such value should be used with care. Such value determination considers such factors as the existence and value of any collateral security; the capital structure of the issuer; the level of actual and expected market interest rates; where the issue ranks in comparison with other debt of the issuer; the economic and competitive environment of the issuer and its business; the Company's view on the likelihood of success of any proposed issuer restructuring plan; and the timing, type and amount of any restructured securities that the Company anticipates it will receive. The Company's $164.4 million real estate portfolio at December 31, 1998 consists of joint venture and third-party mortgage loans and other real estate-related investments. At December 31, 1998 and 1997, total impaired real estate-related loans were as follows:
DECEMBER 31 DECEMBER 31 1998 1997 (in millions) ----------- ----------- Impaired loans without reserves--gross...................... $83.9 $39.3 Impaired loans with reserves--gross......................... 21.5 2.2 ----- ----- Total gross impaired loans........................... 105.4 41.5 Reserves related to impaired loans.......................... (18.5) (2.1) ----- ----- Net impaired loans................................... $86.9 $39.4 ===== =====
65 71 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) INVESTED ASSETS AND RELATED INCOME (CONTINUED) Impaired loans without reserves include loans in which the deficit in equity investments in real estate-related investments is considered in determining reserves and write-downs. The Company had an average balance of $54.6 million and $45.2 million in impaired loans for 1998 and 1997, respectively. Cash payments received on impaired loans are generally applied to reduce the outstanding loan balance. At December 31, 1998 and 1997, loans on nonaccrual status, before reserves and write-downs, amounted to $37.4 million and $47.4 million, respectively. The Company's nonaccrual loans are generally included in impaired loans. The sources of net investment income were as follows:
1998 1997 1996 (in thousands) -------- -------- -------- Interest and dividends on fixed maturities.................. $232,707 $250,170 $250,683 Dividends on equity securities.............................. 2,143 2,123 646 Income from short-term investments.......................... 5,391 4,128 9,130 Income from mortgage loans.................................. 14,964 16,283 20,257 Income from policy loans.................................... 21,096 20,549 20,700 Income from other real estate-related investments........... 352 6,631 4,917 Income from other loans and investments..................... 2,223 2,045 2,480 -------- -------- -------- Total investment income.............................. 278,876 301,929 308,813 Investment expense.......................................... (5,364) (5,734) (9,125) -------- -------- -------- Net investment income................................ $273,512 $296,195 $299,688 ======== ======== ========
Net realized investment gains (losses) for the years ended December 31, 1998, 1997 and 1996, were as follows:
REALIZED GAINS (LOSSES) ------------------------------------- 1998 1997 1996 (in thousands) -------- -------- ------- Real estate-related......................................... $ 41,362 $ 19,758 $17,462 Fixed maturities............................................ 2,158 (10,656) (6,344) Trading account securities--gross gains on transfer......... 3,254 -- -- Trading account securities--gross losses on transfer........ (417) -- -- Trading account securities--holding losses.................. (151) -- -- Equity securities........................................... 5,496 914 -- Other....................................................... 166 530 2,484 -------- -------- ------- Realized investment gains before income tax expense....... 51,868 10,546 13,602 Income tax expense.......................................... (18,154) (3,691) (4,761) -------- -------- ------- Net realized investment gains............................. $ 33,714 $ 6,855 $ 8,841 ======== ======== =======
66 72 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) INVESTED ASSETS AND RELATED INCOME (CONTINUED) Unrealized gains (losses) are computed below as follows: fixed maturities--the difference between fair value and amortized cost, adjusted for other-than-temporary declines in value; equity and other securities--the difference between fair value and cost. The change in net unrealized investment gains (losses) by class of investment for the years ended December 31, 1998, 1997 and 1996 were as follows:
CHANGE IN UNREALIZED GAINS (LOSSES) ----------------------------------------- DECEMBER 31 DECEMBER 31 DECEMBER 31 1998 1997 1996 (in thousands) ------------ ------------ ----------- Fixed maturities............................................ $ 36,717 $ 87,787 $(63,219) Equity and other securities................................. (1,074) (103) 1,256 Adjustment to deferred insurance acquisition costs.......... (2,399) (2,325) 1,307 Adjustment to value of business acquired.................... (1,954) (26,209) 20,947 -------- -------- -------- Unrealized gain (loss) before income tax expense (benefit).............................................. 31,290 59,150 (39,709) Income tax expense (benefit)................................ 10,952 (985) 7,789 -------- -------- -------- Net unrealized gain (loss) on investments............ $ 20,338 $ 60,135 $(47,498) ======== ======== ========
(4) UNCONSOLIDATED INVESTEES At December 31, 1998 and 1997 the Company, along with other Kemper subsidiaries, directly held partnership interests in a number of real estate joint ventures. The Company's direct and indirect real estate joint venture investments are accounted for utilizing the equity method, with the Company recording its share of the operating results of the respective partnerships. The Company, as an equity owner, has the ability to fund, and historically has elected to fund, operating requirements of certain of the joint ventures. Consolidation accounting methods are not utilized as the Company, in most instances, does not own more than 50 percent in the aggregate, and in any event, major decisions of the partnership must be made jointly by all partners. As of December 31, 1998 and 1997, the Company's net equity investment in unconsolidated investees amounted to $1.2 million and $19.3 million, respectively. The Company's share of net income related to such unconsolidated investees amounted to $241 thousand, $835 thousand and $223 thousand in 1998, 1997 and 1996, respectively. (5) CONCENTRATION OF CREDIT RISK The Company generally strives to maintain a diversified invested asset portfolio; however, certain concentrations of credit risk exist in mortgage and asset-backed securities and real estate. Approximately 28.0 percent of the Company's investment-grade fixed maturities at December 31, 1998 were mortgage-backed securities, down from 35.1 percent at December 31, 1997, due to sales and paydowns during 1998. These investments consist primarily of marketable mortgage pass-through securities issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and other investment-grade securities collateralized by mortgage pass-through securities issued by these entities. The Company has not made any investments in interest-only or other similarly volatile tranches of mortgage-backed securities. The Company's mortgage-backed investments are generally AAA credit quality. Approximately 15.4 percent and 10.8 percent of the Company's investment-grade fixed maturities at December 31, 1998 and 1997, respectively, consisted of corporate asset-backed securities. The majority of the Company's investments in asset-backed securities were backed by home equity loans (21.9%), auto loans (8.2%), manufactured housing loans (14.8%), equipment loans (5.2%), and commercial mortgage backed securities (22.1%). The Company's real estate portfolio is distributed by geographic location and property type. The geographic distribution of a majority of the real estate portfolio as of December 31, 1998 was as follows: California (31.5%), Hawaii (16.2%), Washington (9.9%) and Colorado (9.4%). The property type distribution of a majority of the real estate portfolio as of December 31, 1998 was as follows: hotels (39.9%), land (30.9%) and residential (15.5%). 67 73 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) CONCENTRATION OF CREDIT RISK (CONTINUED) Undeveloped land represented approximately 30.9 percent of the Company's real estate portfolio at December 31, 1998. To maximize the value of certain land and other projects, additional development has been proceeding or has been planned. Such development of existing projects would continue to require funding, either from the Company or third parties. In the present real estate markets, third-party financing can require credit enhancing arrangements (e.g., standby financing arrangements and loan commitments) from the Company. The values of development projects are dependent on a number of factors, including Kemper's and the Company's plans with respect thereto, obtaining necessary construction and zoning permits and market demand for the permitted use of the property. There can be no assurance that such permits will be obtained as planned or at all, nor that such expenditures will occur as scheduled, nor that Kemper's and the Company's plans with respect to such projects may not change substantially. Approximately half of the Company's real estate mortgage loans are on properties or projects where the Company, Kemper, or their affiliates have taken ownership positions in joint ventures with a small number of partners. At December 31, 1998, loans to and investments in joint ventures in which Patrick M. Nesbitt or his affiliates ("Nesbitt"), a third-party real estate developer, have ownership interests constituted approximately $64.5 million, or 39.3 percent, of the Company's real estate portfolio. The Nesbitt ventures consist of nine hotel properties and two office buildings. At December 31, 1998, the Company did not have any Nesbitt-related off-balance-sheet legal funding commitments outstanding. At December 31, 1998, loans to a master limited partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of Lumbermens Mutual Casualty Company ("Lumbermens"), a former affiliate, constituted approximately $51.6 million, or 31.4 percent, of the Company's real estate portfolio. Kemper's interest is 75 percent at December 31, 1998. At December 31, 1998, MLP-related commitments accounted for approximately $6.1 million of the Company's off-balance-sheet legal commitments. The remaining significant real estate-related investments amounted to $27.3 million at December 31, 1998 and consisted of various zoned and unzoned residential and commercial lots located in Hawaii. Due to certain negative zoning restriction developments in January 1997 and a continuing economic slump in Hawaii, the Company has placed these real estate-related investments on nonaccrual status as of December 31, 1996. The Company is currently pursuing the zoning of all remaining unzoned properties, as well as pursuing steps to sell all remaining zoned properties. However, due to the state of Hawaii's economy, which has lagged behind the economic expansion of most of the rest of the United States, the Company anticipates that it could be several additional years until the Company completely disposes of all of its investments in Hawaii. At December 31, 1998, the Company no longer had any outstanding loans or investments in projects with the Prime Group, Inc. or its affiliates, as all such investments have been sold. However, the Company continues to have Prime Group-related commitments, which accounted for $25.7 million of the Company's off-balance-sheet legal commitments at December 31, 1998. (6) INCOME TAXES Income tax expense (benefit) was as follows for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 (in thousands) -------- -------- -------- Current................................................... $ 52,274 $130,662 $ 26,300 Deferred.................................................. (12,470) (99,370) (897) -------- -------- -------- Total........................................... $ 39,804 $ 31,292 $ 25,403 ======== ======== ========
68 74 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) INCOME TAXES (CONTINUED) Additionally, the deferred income tax expense (benefit) related to items included in other comprehensive income was as follows for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 (in thousands) ------- ------- ------ Unrealized gains and losses on investments.................. $12,475 $ 9,002 $ -- Value of business acquired.................................. (684) (9,173) 7,331 Deferred insurance acquisition costs........................ (840) (814) 457 ------- ------- ------ Total............................................. $10,952 $ (985) $7,789 ======= ======= ======
The actual income tax expense for 1998, 1997 and 1996 differed from the "expected" tax expense for those years as displayed below. "Expected" tax expense was computed by applying the U.S. federal corporate tax rate of 35 percent in 1998, 1997, and 1996 to income before income tax expense.
1998 1997 1996 (in thousands) ------- ------- ------- Computed expected tax expense............................... $36,734 $24,503 $20,938 Difference between "expected" and actual tax expense: State taxes............................................... (434) 1,801 913 Amortization of goodwill.................................. 4,460 5,353 3,568 Dividend received deduction............................... (540) -- -- Foreign tax credit........................................ (250) (278) -- Other, net................................................ (166) (87) (16) ------- ------- ------- Total actual tax expense.......................... $39,804 $31,292 $25,403 ======= ======= =======
Deferred tax assets and liabilities are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company only records deferred tax assets if future realization of the tax benefit is more likely than not, with a valuation allowance recorded for the portion that is not likely to be realized. The valuation allowance is subject to future adjustments based upon, among other items, the Company's estimates of future operating earnings and capital gains. The Company has established a valuation allowance to reduce the deferred federal tax asset related to real estate and other investments to the amount that, based upon available evidence, is, in management's judgment, more likely than not, to be realized. Any reversals of the valuation allowance are contingent upon the recognition of future capital gains in the Company's federal income tax return or a change in circumstances which causes the recognition of the benefits to become more likely than not. The change in the valuation allowance is related solely to the change in the net deferred federal tax asset or liability from unrealized gains or losses on investments. 69 75 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the Company's net deferred federal tax assets or liabilities were as follows:
DECEMBER 31 DECEMBER 31 DECEMBER 31 1998 1997 1996 (in thousands) ----------- ------------ ------------ Deferred federal tax assets: Deferred insurance acquisition costs..................... $ 86,332 $ 75,522 $ 4,520 Unrealized losses on investments......................... -- -- 16,624 Life policy reserves..................................... 27,240 43,337 46,452 Unearned revenue......................................... 42,598 37,243 -- Real estate-related...................................... 13,944 13,400 20,642 Other investment-related................................. 5,770 3,298 5,409 Other.................................................... 4,923 4,371 3,639 -------- -------- -------- Total deferred federal tax assets..................... 180,807 177,171 97,286 Valuation allowance...................................... (15,201) (15,201) (31,825) -------- -------- -------- Total deferred federal tax assets after valuation allowance........................................... 165,606 161,970 65,461 -------- -------- -------- Deferred federal tax liabilities: Value of business acquired............................... 41,598 48,469 66,373 Deferred insurance acquisition costs..................... 32,040 20,811 9,384 Depreciation and amortization............................ 19,111 20,201 15,473 Other investment-related................................. 14,337 18,774 28,855 Unrealized gains on investments.......................... 21,477 9,002 -- Other.................................................... 1,984 4,720 5,738 -------- -------- -------- Total deferred federal tax liabilities................ 130,547 121,977 125,823 -------- -------- -------- Net deferred federal tax assets (liabilities).............. $ 35,059 $ 39,993 $(60,362) ======== ======== ========
The net deferred tax assets relate primarily to unearned revenue and the tax on deferred insurance acquisition costs ("DAC Tax") associated with $1.5 billion and $2.7 billion of new and renewal sales in 1998 and 1997, respectively from a non-registered individual and group variable bank-owned life insurance contract ("BOLI"). Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income over the ten year amortization period of the unearned revenue and DAC Tax to realize such deferred tax assets. The tax returns through the year 1993 have been examined by the Internal Revenue Service ("IRS"). Changes proposed are not material to the Company's financial position. The tax returns for the years 1994 through 1996 are currently under examination by the IRS. (7) RELATED-PARTY TRANSACTIONS The Company received capital contributions from Kemper of $4.3 million, $45.0 million and $18.4 million during 1998, 1997 and 1996, respectively. The Company paid cash dividends of $95.0 million and $29.3 million to Kemper during 1998 and 1997, respectively. The Company did not pay any cash dividends to Kemper during 1996. The Company has loans to joint ventures, consisting primarily of mortgage loans on real estate, in which the Company and/or one of its affiliates has an ownership interest. At December 31, 1998 and 1997, joint venture mortgage loans totaled $65.8 million and $72.7 million, respectively, and during 1998, 1997 and 1996, the Company earned interest income on these joint venture loans of $6.8 million, $7.5 million and $9.5 million, respectively. All of the Company's personnel are employees of Federal Kemper Life Assurance Company ("FKLA"), an affiliated company. The Company is allocated expenses for the utilization of FKLA employees and facilities, the investment management services of Scudder Kemper Investments, Inc. ("SKI") an affiliated company, and the information systems of Kemper Service Company ("KSvC"), an SKI subsidiary, based on the Company's share of administrative, legal, marketing, investment management, information systems and operation and support services. During 1998, 1997 and 1996, expenses allocated to the Company from SKI and KSvC amounted to $43 thousand, 70 76 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) RELATED-PARTY TRANSACTIONS (CONTINUED) $114 thousand and $1.7 million, respectively. The Company also paid to SKI investment management fees of $3.1 million, $3.5 million and $3.6 million during 1998, 1997 and 1996, respectively. In addition, expenses allocated to the Company from FKLA during 1998, 1997 and 1996 amounted to $35.5 million, $30.0 million and $10.5 million, respectively. The Company also paid to Kemper real estate subsidiaries $1.5 million, $2.2 million and $1.8 million in 1998, 1997 and 1996, respectively, related to the management of the Company's real estate portfolio. (8) REINSURANCE In the ordinary course of business, the Company enters into reinsurance agreements to diversify risk and limit its overall financial exposure to certain blocks of fixed-rate annuities and to individual death claims. The Company generally cedes 100 percent of the related annuity liabilities under the terms of the reinsurance agreements. Although these reinsurance agreements contractually obligate the reinsurers to reimburse the Company, they do not discharge the Company from its primary liabilities and obligations to policyholders. As such, these amounts paid or deemed to have been paid are recorded on the Company's consolidated balance sheet as reinsurance recoverables and ceded future policy benefits. As of December 31, 1998 and 1997, the reinsurance recoverable related to fixed-rate annuity liabilities ceded to an affiliate amounted to $344.8 million and $382.6 million, respectively. In December 1996, the Company assumed on a yearly renewable term basis approximately $14.4 billion (face amount) of term life insurance from FKLA. As a result of this transaction, the Company recorded premiums and reserves of approximately $7.3 million. The difference between the cash transferred, which represents the statutory reserves of the business assumed, and the reserves recorded under generally accepted accounting principles ("GAAP"), of approximately $18.4 million, was deemed to be a capital contribution from Kemper and was recorded as additional paid-in-capital during 1996. As of the date of this transaction, no deferred tax impact was recorded on the difference between the statutory and GAAP reserves. This deferred tax impact of $6.5 million was recorded in 1998 as a reduction to the original capital contribution. Premiums assumed during 1998 under the terms of the treaty amounted to $21.6 million and the face amount which remained outstanding at December 31, 1998 amounted to $11.7 billion. Effective January 1, 1997, the Company ceded 90 percent of all new term life insurance premiums to outside reinsurers. Term life reserves ceded to outside reinsurers on the Company's direct business amounted to approximately $293 thousand and $139 thousand as of December 31, 1998 and 1997, respectively. During December 1997, the Company entered into a funds withheld reinsurance agreement with a Zurich affiliated company, ZC Life Reinsurance Limited ("ZC Life"), formerly EPICENTRE Reinsurance (Bermuda) Limited. Under the terms of this agreement, the Company ceded, on a yearly renewable term basis, ninety percent of the net amount at risk (death benefit payable to the insured less the insured's separate account cash surrender value) related to the new BOLI product developed in 1997, which is held in the Company's separate accounts. During 1997, the Company issued $59.3 billion (face amount) of new BOLI business and ceded $51.1 billion (face amount) to ZC Life under the terms of the treaty. During 1997, the Company also ceded $24.3 million of separate account fees (cost of insurance charges) to ZC Life. The Company has also withheld approximately $23.4 million of such funds due to ZC Life under the terms of the reinsurance agreement as a component of benefits and funds payable in the accompanying consolidated balance sheet as of December 31, 1997. During 1998, the Company modified the reinsurance agreement to increase the reinsurance from ninety percent to one hundred percent. During 1998, the Company issued $6.9 billion (face amount) of new BOLI business and ceded $11.1 billion (face amount) to ZC Life under the terms of the modified treaty. During 1998, the Company also ceded $175.5 million of separate account fees (cost of insurance charges) to ZC Life. The Company has also withheld approximately $170.9 million of such funds due to ZC Life under the terms of the reinsurance agreement as a component of benefits and funds payable in the accompanying consolidated balance sheet as of December 31, 1998. KILICO has a large and growing funds withheld account ("FWA") supporting reserve credits on reinsurance ceded on the BOLI product. Amendments to the reinsurance contracts during 1998 changed the methodology used to determine increases to the FWA. A substantial portion of the FWA is now marked-to-market based upon the Total Return of the Governmental Bond Division of the KILICO Variable Series I Separate Account. 71 77 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) REINSURANCE (CONTINUED) During 1998, the Company recorded a $2.5 million increase to the FWA related to this mark-to-market. To properly match revenue and expenses, the Company has placed assets supporting the FWA in a segmented portion of its General Account. This portfolio is classified as "trading" under Statement of Financial Accounting Standards No. 115 ("FAS 115"). FAS 115 mandates that assets held in a trading account be valued at fair value, with changes in fair value flowing through the income statement as realized capital gains and losses. During 1998, the Company recorded a realized capital gain of $2.8 million upon transfer of these assets from "available for sale" to the trading portfolio as required by FAS 115. In addition, the Company recorded realized capital losses of $151 thousand related to the changes in fair value of this portfolio during 1998. The fair value of this portfolio was $101.8 million at December 31, 1998, and the amortized cost was $99.1 million. The Company periodically purchases assets into this segmented portfolio to support changes in the FWA. (9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS FKLA sponsors a welfare plan that provides medical and life insurance benefits to its retired and active employees and the Company is allocated a portion of the costs of providing such benefits. The Company is self insured with respect to medical benefits, and the plan is not funded except with respect to certain disability-related medical claims. The medical plan provides for medical insurance benefits at retirement, with eligibility based upon age and the participant's number of years of participation attained at retirement. The plan is contributory for pre-Medicare retirees, and will be contributory for all retiree coverage for most current employees, with contributions generally adjusted annually. Postretirement life insurance benefits are noncontributory and are limited to $10,000 per participant. The allocated accumulated postretirement benefit obligation accrued by the Company amounted to $2.0 million and $1.9 million at December 31, 1998 and 1997, respectively. The discount rate used in determining the allocated postretirement benefit obligation was 7.0 percent and 7.25 percent for 1998 and 1997, respectively. The assumed health care trend rate used was based on projected experience for 1998, 8.0 percent for 1999, gradually declining to 6.4 percent by the year 2003 and gradually declining thereafter. A one percentage point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 1998 and 1997 by $312 thousand and $242 thousand, respectively. (10) COMMITMENTS AND CONTINGENT LIABILITIES The Company is involved in various legal actions for which it establishes liabilities where appropriate. In the opinion of the Company's management, based upon the advice of legal counsel, the resolution of such litigation is not expected to have a material adverse effect on the consolidated financial statements. Although neither the Company nor its joint venture projects have been identified as a "potentially responsible party" under Federal environmental guidelines, inherent in the ownership of, or lending to, real estate projects is the possibility that environmental pollution conditions may exist on or near or relate to properties owned or previously owned on properties securing loans. Where the Company has presently identified remediation costs, they have been taken into account in determining the cash flows and resulting valuations of the related real estate assets. Based on the Company's receipt and review of environmental reports on most of the projects in which it is involved, the Company believes its environmental exposure would be immaterial to its consolidated results of operations. However, the Company may be required in the future to take actions to remedy environmental exposures, and there can be no assurance that material environmental exposures will not develop or be identified in the future. The amount of future environmental costs is impossible to estimate due to, among other factors, the unknown magnitude of possible exposures, the unknown timing and extent of corrective actions that may be required, the determination of the Company's liability in proportion to others and the extent such costs may be covered by insurance or various environmental indemnification agreements. (11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK At December 31, 1998, the Company had future legal loan commitments and stand-by financing agreements totaling $64.4 million to support the financing needs of various real estate investments. To the extent these 72 78 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) FINANCIAL INSTRUMENTS--OFF BALANCE-SHEET (CONTINUED) arrangements are called upon, amounts loaned would be collateralized by assets of the joint ventures, including first mortgage liens on the real estate. The Company's criteria in making these arrangements are the same as for its mortgage loans and other real estate investments. These commitments are included in the Company's analysis of real estate-related reserves and write-downs. The fair values of loan commitments and standby financing agreements are estimated in conjunction with and using the same methodology as the fair value estimates of mortgage loans and other real estate-related investments. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. A significant portion of the Company's financial instruments are carried at fair value. Fair value estimates for financial instruments not carried at fair value are generally determined using discounted cash flow models and assumptions that are based on judgments regarding current and future economic conditions and the risk characteristics of the investments. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could significantly affect the estimates and such estimates should be used with care. Fair value estimates are determined for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and certain liabilities that are not considered financial instruments. Accordingly, the aggregate fair value estimates presented do not represent the underlying value of the Company. For example, the Company's subsidiaries are not considered financial instruments, and their value has not been incorporated into the fair value estimates. In addition, tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: FIXED MATURITIES AND EQUITY SECURITIES: Fair values were determined by using market quotations, or independent pricing services that use prices provided by market makers or estimates of fair values obtained from yield data relating to instruments or securities with similar characteristics, or fair value as determined in good faith by the Company's portfolio manager, SKI. CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. MORTGAGE LOANS AND OTHER REAL ESTATE-RELATED INVESTMENTS: Fair values were estimated based upon the investments observable market price, net of estimated costs to sell. The estimates of fair value should be used with care given the inherent difficulty in estimating the fair value of real estate due to the lack of a liquid quotable market. OTHER LOANS AND INVESTMENTS: The carrying amounts reported in the consolidated balance sheets for these instruments approximate fair values. The fair values of policy loans were estimated by discounting the expected future cash flows using an interest rate charged on policy loans for similar policies currently being issued. LIFE POLICY BENEFITS: Fair values of the life policy benefits regarding investment contracts (primarily deferred annuities) and universal life contracts were estimated by discounting gross benefit payments, net of contractual premiums, using the average crediting rate currently being offered in the marketplace for similar contracts with maturities consistent with those remaining for the contracts being valued. The Company had projected its future average crediting rate in 1998 and 1997 to be 4.75 percent and 5.25 percent, respectively, while the assumed average market crediting rate was 5.0 percent and 6.0 percent in 1998 and 1997, respectively. 73 79 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying values and estimated fair values of the Company's financial instruments at December 31, 1998 and 1997 were as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE (in thousands) ---------- ---------- ---------- ---------- Financial instruments recorded as assets: Fixed maturities.............................. $3,482,820 $3,482,820 $3,668,643 $3,668,643 Trading account securities.................... 101,781 101,781 -- -- Cash and short-term investments............... 71,820 71,820 259,925 259,925 Mortgage loans and other real estate-related assets..................................... 164,375 164,375 220,046 220,046 Policy loans.................................. 271,540 271,540 282,439 282,439 Equity securities............................. 66,854 66,854 24,839 24,839 Other invested assets......................... 23,645 27,620 20,820 24,404 Financial instruments recorded as liabilities: Life policy benefits, excluding term life reserves................................... 3,551,050 3,657,510 3,846,023 4,050,852 Funds withheld account........................ 170,920 170,920 23,420 23,420
(13) STOCKHOLDER'S EQUITY--RETAINED EARNINGS The maximum amount of dividends which can be paid by insurance companies domiciled in the State of Illinois to shareholders without prior approval of regulatory authorities is restricted. The maximum amount of dividends which can be paid by the Company without prior approval in 1999 is $64.9 million. The Company paid cash dividends of $95.0 million and $29.3 million to Kemper during 1998 and 1997, respectively. The Company paid no cash dividends in 1996. The Company's net income and capital and surplus as determined in accordance with statutory accounting principles were as follows:
1998 1997 1996 (in thousands) -------- -------- -------- Net income.................................................. $ 64,871 $ 58,372 $ 37,287 ======== ======== ======== Statutory capital and surplus............................... $455,213 $476,924 $411,837 ======== ======== ========
74 80 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) UNAUDITED INTERIM FINANCIAL INFORMATION The following table sets forth the Company's unaudited quarterly financial information: (in thousands)
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------- -------- ------- ------------ ----------- 1998 OPERATING SUMMARY Net investment income.............................. $70,551 $68,467 $ 66,892 $ 67,602 Realized investment gains.......................... 1,854 15,673 8,951 25,390 Premium income..................................... 5,203 5,941 5,278 5,924 Separate account fees and other income............. 20,418 19,922 17,631 14,042 ------- ------- -------- -------- Total revenue.............................. 98,026 110,003 98,752 112,958 ------- ------- -------- -------- Interest credited and benefits to policyholders.... 57,930 57,939 54,251 34,815 Commissions, taxes, licenses and fees.............. 13,885 13,922 12,282 29,251 Operating expenses................................. 10,094 12,157 10,528 11,794 Net deferral of insurance acquisition costs........ (7,973) (11,983) (9,669) (4,858) Amortization of value of business acquired......... 4,427 7,121 6,359 (230) Amortization of goodwill........................... 3,186 3,186 3,186 3,186 ------- ------- -------- -------- Total benefits and expenses................ 81,549 82,342 76,937 73,958 ------- ------- -------- -------- Income before income tax expense................... 16,477 27,661 21,815 39,000 Income tax expense................................. 7,247 11,774 8,828 11,955 ------- ------- -------- -------- Net income................................. $ 9,230 $15,887 $ 12,987 $ 27,045 ======= ======= ======== ======== 1997 OPERATING SUMMARY Net investment income.............................. $74,249 $74,050 $ 72,950 $ 74,946 Realized investment gains (losses)................. 889 8,161 (3,032) 4,528 Premium income..................................... 5,008 4,121 3,938 9,172 Separate account fees and other income............. 8,909 12,961 12,215 62,415(1) ------- ------- -------- -------- Total revenue.............................. 89,055 99,293 86,071 151,061 ------- ------- -------- -------- Interest credited and benefits to policyholders.... 57,859 56,643 57,965 55,687 Commissions, taxes, licenses and fees.............. 8,023 9,475 8,389 59,323(1) Operating expenses................................. 7,175 8,780 10,014 10,868 Net deferral of insurance acquisition costs........ (7,216) (6,877) (7,471) (13,409) Amortization of value of business acquired......... 4,821 6,991 6,743 6,393 Amortization of goodwill........................... 2,547 2,552 2,549 7,647(2) ------- ------- -------- -------- Total benefits and expenses................ 73,209 77,564 78,189 126,509 ------- ------- -------- -------- Income before income tax expense................... 15,846 21,729 7,882 24,552 Income tax expense................................. 5,678 8,723 3,778 13,113 ------- ------- -------- -------- Net income................................. $10,168 $13,006 $ 4,104 $ 11,439 ======= ======= ======== ========
- --------------- Notes: (1) Reflects premium tax expense loads received and premium taxes incurred of $49.1 million related to new BOLI sales of $2.6 billion in the fourth quarter of 1997. (2) Reflects the effect of the change in amortization of goodwill from 25 to 20 years. (15) OPERATING SEGMENTS AND RELATED INFORMATION In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for how to report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company adopted SFAS No. 131 as of December 31, 1998 and the impact of implementation did not affect the Company's consolidated financial position, results of operations or cash flows. In the initial year of adoption, SFAS No. 131 requires comparative information for earlier years to be restated, unless impracticable to do so. 75 81 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) OPERATING SEGMENTS AND RELATED INFORMATION (CONTINUED) In connection with the acquisition by Zurich, the Company, FKLA, ZLICA, and Fidelity Life Association ("FLA"), a Mutual Legal Reserve Company, owned by its policyholders, began to operate under the trade name Zurich Kemper Life. For purposes of this operating segment disclosure, Zurich Kemper Life will also include the operations of Zurich Direct, Inc., an affiliated direct marketing life insurance agency and excludes FLA, as it is owned by its policyholders. Zurich Kemper Life is segregated by Strategic Business Unit ("SBU"). The SBU concept employed by ZFS has each SBU concentrate on a specific customer market. The SBU is the focal point of Zurich Kemper Life, because it is at the SBU level that Zurich Kemper Life can clearly identify customer segments and then work to understand and satisfy the needs of each customer. The contributions of Zurich Kemper Life's SBU's to consolidated revenues, operating results and certain balance sheet data pertaining thereto, are shown in the following tables on the basis of generally accepted accounting principles. Zurich Kemper Life's SBU's were formed in 1996, subsequent to the acquisition by Zurich, however, financial information was not produced by SBU until 1997. Therefore, Zurich Kemper Life has not provided segment information for 1996, as it would be impracticable to do so. Zurich Kemper Life is segregated into the Agency, Financial, Group Retirement and Direct SBU's. The SBU's are not managed at the legal entity level, but rather at the Zurich Kemper Life level. Zurich Kemper Life's SBU's cross legal entity lines, as certain similar products are sold by more than one legal entity. The vast majority of the Company's business is derived from the Financial and Group Retirement SBU's. Each SBU's revenue is derived from geographically dispersed areas as Zurich Kemper Life is licensed in the District of Columbia and all states except New York. During 1998 and 1997, Zurich Kemper Life did not derive net revenue from one customer that exceeded 10 percent of the total revenue of Zurich Kemper Life. The principal products and markets of Zurich Kemper Life's SBU's are as follows: AGENCY: The Agency SBU develops low cost term and universal life insurance, as well as fixed annuities, to market through independent agencies and national marketing organizations. FINANCIAL: The Financial SBU focuses on a wide range of products that provide for the accumulation, distribution and transfer of wealth and primarily includes variable and fixed annuities, variable universal life and bank-owned life insurance. These products are distributed to consumers through financial intermediaries such as banks, brokerage firms and independent financial planners. GROUP RETIREMENT: The Group Retirement SBU has a sharp focus on its target customer. This SBU markets variable annuities to K-12 schoolteachers, administrators, and healthcare workers, along with college professors and certain employees of selected non-profit organizations. This target market is eligible for what the IRS designates as retirement-oriented savings or investment plans that qualify for special tax treatment. DIRECT: The Direct SBU is a direct marketer of basic, low-cost term life insurance through various marketing media. 76 82 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized financial information for ZKL's SBU's are as follows: As of and for the period ending December 31, 1998: (in thousands)
GROUP AGENCY FINANCIAL RETIREMENT DIRECT TOTAL INCOME STATEMENT ---------- ---------- ---------- -------- ----------- REVENUE Premium income........................ $ 160,067 $ 56 $ -- $ 5,583 $ 165,706 Net investment income................. 141,171 180,721 100,695 271 422,858 Realized investment gains............. 20,335 33,691 15,659 30 69,715 Fees and other income................. 80,831 40,421 31,074 23,581 175,907 ---------- ---------- ---------- -------- ----------- Total revenue.................... 402,404 254,889 147,428 29,465 834,186 ---------- ---------- ---------- -------- ----------- BENEFITS AND EXPENSES Policyholder benefits................. 243,793 117,742 73,844 2,110 437,489 Intangible asset amortization......... 58,390 15,669 15,703 -- 89,762 Net deferral of insurance acquisition costs.............................. (55,569) (9,444) (22,964) (22,765) (110,742) Commissions and taxes, licenses and fees............................... 29,539 43,919 22,227 11,707 107,392 Operating expenses.................... 61,659 24,924 20,279 35,593 142,455 ---------- ---------- ---------- -------- ----------- Total benefits and expenses...... 337,812 192,810 109,089 26,645 666,356 ---------- ---------- ---------- -------- ----------- Income before income tax expense........ 64,592 62,079 38,339 2,820 167,830 Income tax expense...................... 26,774 24,340 14,794 1,001 66,909 ---------- ---------- ---------- -------- ----------- Net income....................... $ 37,818 $ 37,739 $ 23,545 $ 1,819 $ 100,921 ========== ========== ========== ======== =========== BALANCE SHEET Total assets.......................... $3,194,530 $8,232,927 $4,172,828 $ 46,254 $15,646,539 ========== ========== ========== ======== ===========
NET REVENUE INCOME ASSETS ----------- -------- ----------- Total revenue, net income and assets, respectively, from above:...................................................... $ 834,186 $100,921 $15,646,539 ----------- -------- ----------- Less: Revenue, net income and assets of FKLA.................... 336,841 35,953 2,986,381 Revenue, net loss and assets of ZLICA..................... 54,058 (1,066) 416,115 Revenue, net income and assets Zurich Direct.............. 23,548 885 4,322 ----------- -------- ----------- Totals per the Company's consolidated financial statements............................................. $ 419,739 $ 65,149 $12,239,721 =========== ======== ===========
77 83 KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the period ending December 31, 1997: (in thousands)
GROUP AGENCY FINANCIAL RETIREMENT DIRECT TOTAL INCOME STATEMENT ---------- ---------- ---------- -------- ----------- REVENUE Premium income.................... $ 167,439 $ -- $ -- $ 4,249 $ 171,688 Net investment income............. 155,885 212,767 91,664 455 460,771 Realized investment gains......... 2,503 7,744 2,692 50 12,989 Fees and other income............. 78,668 73,823 23,663 8,007 184,161 ---------- ---------- ---------- -------- ----------- Total revenue................ 404,495 294,334 118,019 12,761 829,609 ---------- ---------- ---------- -------- ----------- BENEFITS AND EXPENSES Policyholder benefits............. 247,878 153,327 60,061 2,234 463,500 Intangible asset amortization..... 58,534 25,593 15,589 -- 99,716 Net deferral of insurance acquisition costs.............. (50,328) (18,222) (13,033) (5,242) (86,825) Commissions and taxes, licenses and fees....................... 39,477 66,552 16,668 3,518 126,215 Operating expenses................ 55,859 20,282 14,320 19,472 109,933 ---------- ---------- ---------- -------- ----------- Total benefits and expenses.................. 361,420 247,532 93,605 19,982 712,539 ---------- ---------- ---------- -------- ----------- Income (loss) before income tax expense (benefit)................. 53,075 46,802 24,414 (7,221) 117,070 Income tax expense (benefit)........ 25,554 21,144 10,545 (2,528) 54,715 ---------- ---------- ---------- -------- ----------- Net income (loss)............ $ 27,521 $ 25,658 $ 13,869 $ (4,693) $ 62,355 ========== ========== ========== ======== =========== BALANCE SHEET Total assets...................... $2,877,854 $7,416,791 $3,759,173 $ 41,669 $14,095,487 ========== ========== ========== ======== ===========
NET REVENUE INCOME ASSETS ----------- -------- ----------- Total revenue, net income and assets, respectively, from above:...................................................... $ 829,609 $ 62,355 $14,095,487 Less: Revenue, net income and assets of FKLA.................... 338,854 24,740 3,105,396 Revenue, net income and assets of ZLICA................... 57,233 2,193 398,786 Revenue, net loss and assets of Zurich Direct............. 8,042 (3,295) 1,655 ----------- -------- ----------- Totals per the Company's consolidated financial statements........................................ $ 425,480 $ 38,717 $10,589,650 =========== ======== ===========
78 84 PART II -- OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities and 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 Flexible Premium Variable 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. 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 have agreed to indemnify Investors Brokerage Services, Inc. ("IBS") against any claims, liabilities and expenses which IBS may incur under the Securities Act of 1933, as amended (the "Securities Act"), common law or otherwise, arising out of or based upon any alleged untrue statements of material fact contained in any registration statement or prospectus of the Separate Account, or any omission to state a material fact therein, the omission of which makes any statement contained therein misleading. IBS 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 representative 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 may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-1 85 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. The prospectus consisting of 35 pages. The undertaking to file reports. Representation as to Fees and Charges Pursuant to Section 26 of the Investment Company Act of 1940. Representation Pursuant to Rule 6e-3(T). Undertaking as to Indemnification. 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(a)). C. KPMG LLP, independent auditors (Filed as Exhibit 6(b)). D. Christopher J. Nickele, FSA (Included in Opinion filed as Exhibit 3(b)). The following exhibits: (1) 1-A(1) KILICO Resolution establishing the Separate Account (1) 1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage Services, Inc. (IBS) (3) 1-A(3)(b) Specimen Selling Group Agreement of IBS 1-A(3)(c) Schedules of commissions (3) 1-A(3)(d) General Agent Agreement 1-A(5)(a) Form of Policy 1-A(5)(b) Accelerated Death Benefit Rider 1-A(5)(c) Extended Maturity Option Rider 1-A(5)(d) Dependent Children's Rider 1-A(5)(e) Waiver of Selected Premium Rider 1-A(5)(f) Other Insured Rider (1) 1-A(6)(a) KILICO Articles of Incorporation (3) 1-A(6)(b) By-Laws of KILICO (5) 1-A(8)(a)(i) Participation Agreement between Kemper Investors Life Insurance Company and Scudder Variable Life Investment Fund (5) 1-A(8)(a)(ii) Participating Contract and Policy Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. (5) 1-A(8)(a)(iii) Indemnification Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. (4) 1-A(8)(b)(i) Fund Participation Agreement among Kemper Investors Life Insurance Company, Fidelity Variable Insurance Products Fund and Fidelity Distributors Corporation 1-A(8)(b)(ii) Third Amendment to Fund Participation Agreement among Kemper Investors Life Insurance Company, Fidelity Variable Insurance Products Fund and Fidelity Distributors Corporation (5) 1-A(8)(c) Participation Agreement Among Templeton Variable Products Series Fund, Franklin Templeton Distributors, Inc. and Kemper Investors Life Insurance Company.
II-2 86 (9) 1-A(8)(d) Fund Participation Agreement by and among The Alger American Fund, Kemper Investors Life Insurance Company and Fred Alger & Company, Incorporated (9) 1-A(8)(e)(i) Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. (9) 1-A(8)(e)(ii) Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life Insurance Company 1-A(8)(e)(iii) Amendment to Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. (6) 1-A(8)(f)(i) Fund Participation Agreement among Kemper Investors Life Insurance Company, Janus Aspen Series and Janus Capital Corporation (7) 1-A(8)(f)(ii) Service Agreement between Kemper Investors Life Insurance Company and Janus Capital Corporation (8) 1-A(8)(g) Fund Participation Agreement among Kemper Investors Life Insurance Company, Kemper Variable Series (formerly known as Kemper Investors Fund), Zurich Kemper Investments, Inc. and Kemper Distributors, Inc. 1-A(10) Application for Policy (2) 2 Specimen Notice of Withdrawal Right 3(a) Opinion and consent of legal officer of KILICO as to legality of policies being registered 3(b) Opinion and consent of actuarial officer of KILICO regarding prospectus illustrations and actuarial matters 6(a) Consents of PricewaterhouseCoopers LLP, independent accountants 6(b) Consent of KPMG LLP, independent auditors 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii) 9 Illustrations
- ------------------------- (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 on Form S-1 (File No. 333-02491) filed on or about April 23, 1997. (4) Incorporated by reference to Post-Effective Amendment No. 24 to the Registration Statement on Form N-4 filed on or about April 26, 1996 (File No. 2-72671). (5) Incorporated by reference to Amendment No. 5 to the Registration Statement on Form S-1 for KILICO (file No. 333-22389) filed on or about April 20, 1999. (6) Incorporated herein by reference to Post-Effective Amendment No. 23 to the Registration Statement on Form N-4 filed on or about September 14, 1995 (File No. 2-72671). (7) Incorporated herein by reference to Post-Effective Amendment No. 25 to the Registration Statement on Form N-4 filed on or about April 28, 1997 (File No. 2-72671). (8) Incorporated herein 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). (9) Incorporated herein by reference to Post-Effective Amendment No. 28 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 28, 1999. II-3 87 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, KILICO Variable Separate Account, has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Long Grove and State of Illinois on the 29th day of December, 1999. KILICO VARIABLE SEPARATE ACCOUNT (Registrant) By: Kemper Investors Life Insurance Company (Depositor) By: /s/ GALE K. CARUSO ------------------------------------ Gale K. Caruso, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following directors and principal officers of Kemper Investors Life Insurance Company in the capacities indicated on the 29th day of December, 1999.
SIGNATURE TITLE --------- ----- /s/ GALE K. CARUSO President, Chief Executive Officer and Director - ----------------------------------------------- (Principal Executive Officer) Gale K. Caruso /s/ JOHN B. SCOTT Chairman of the Board and Director - ----------------------------------------------- John B. Scott /s/ FREDERICK L. BLACKMON Senior Vice President and Chief Financial - ----------------------------------------------- Officer (Principal Financial Officer and Frederick L. Blackmon Principal Accounting Officer) /s/ W. H. BOLINDER Director - ----------------------------------------------- William H. Bolinder /s/ DAVID A. BOWERS Director - ----------------------------------------------- David A. Bowers /s/ ELIANE C. FRYE Director - ----------------------------------------------- Eliane C. Frye /s/ GUNTHER GOSE Director - ----------------------------------------------- Gunther Gose /s/ JAMES E. HOHMANN Director - ----------------------------------------------- James E. Hohmann
II-4 88 EXHIBIT INDEX 1-A(3)(c) Schedules of Commissions 1-A(5)(a) Form of Policy 1-A(5)(b) Accelerated Death Benefit Rider 1-A(5)(c) Extended Maturity Option Rider 1-A(5)(d) Dependent Children's Rider 1-A(5)(e) Waiver of Selected Premium Rider 1-A(5)(f) Other Insured Rider 1-A(8)(b)(ii) Third Amendment to Fund Participation Agreement among Kemper Investors Life Insurance Company, Fidelity Variable Insurance Products Fund and Fidelity Distributors Corporation 1-A(8)(e)(iii) Amendment to Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. 1-A(10) Application for Policy 3(a) Opinion and consent of legal officer of KILICO as to legality of policies being registered 3(b) Opinion and consent of actuarial officer of KILICO regarding prospectus illustrations and actuarial matters 6(a) Consents of PricewaterhouseCoopers LLP, independent accountants 6(b) Consent of KPMG LLP, independent auditors 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii) 9 Illustrations
EX-99.1A(3)(C) 2 SCHEDULES OF COMMISSIONS 1 EXHIBIT 1-A(3)(c)
SCHEDULE 1 SCHEDULE 2 GDC Wholesaler GDC Wholesaler --- ---------- --- ---------- First Year (Target) 110.00% 90.0% 20.0% First Year (Target) 110.00% 90.00% 20.00% First Year (Excess of Target) 3.00% 2.0% 1.0% First Year (Excess of Target) 2.00% 1.50% 0.50% Renewals, Years 2-5 3.00% 2.0% 1.0% Renewals, Years 2-5 2.00% 1.50% 0.50% Trails Year 6+ 0.30% 0.20% 0.10% Trails Years 2+ 0.30% 0.20% 0.10%
SCHEDULE 3 GDC Wholesaler --- ---------- First Year (Target) 95.00% 75.00% 20.00% First Year (Excess of Target) 2.00% 1.50% 0.50% Renewals, Years 2-5 (2%) 2.00% 1.50% 0.50% Trails Years 2-10 (60%) 0.60% 0.50% 0.10% Trails Years 11-20 (35%) 0.35% 0.25% 0.10% Trails Year 20+ (25%) 0.25% 0.15% 0.10%
EX-99.1A(5)(A) 3 FORM OF POLICY 1 EXHIBIT 1-A(5)(a) KEMPER INVESTORS LIFE INSURANCE COMPANY A Stock Life Insurance Company 1 Kemper Drive Long Grove, Illinois 60049-0001 [ZURICH KEMPER LOGO] ZURICH KEMPER Insured Issue Age Policy Date Policy Number Initial Specified Amount RIGHT TO CANCEL This policy may be returned to us within days of the time you receive it, or 45 days after you complete the application for insurance, whichever is later. It may be mailed or delivered to us or to the agent who sold it. Upon our receipt, this policy will be deemed void from the beginning. The Cash Value of the policy plus any monthly deductions and any deductions made against premiums will be refunded within seven days of our receipt of a notice of cancellation and the return of this policy. This amount will be at least equal to the premiums paid. 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(s) and payment of the Initial Premium. The terms on this and the following pages are part of the policy. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ GALE K. CARUSO Secretary President FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY NON-PARTICIPATING- NO ANNUAL DIVIDENDS 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 policy is a legal contract between you and us. READ YOUR POLICY CAREFULLY. 2 INDEX
PAGE NO. Death Benefit Provisions 8 Definitions 5 General Account Provisions 11 General Provisions 6-8 Non-Forfeiture Provisions 13 Policy Loan Provisions 15 Settlement Option Table 19 Settlement Provisions 17-18 Surrender Value Provisions 16 Transfer Provisions 14 Variable Account Provisions 11-13 Withdrawal Provisions 15
Additional Benefits, if any, listed in the Policy Specifications are described in the additional benefit agreements that follow the Settlement Option Table. 3 POLICY SPECIFICATIONS INSURED JOHN DOE 35 ISSUE AGE POLICY DATE FEBRUARY 1, 2000 KI8508521 POLICY NUMBER INITIAL SPECIFIED $250,000 FEBRUARY 1, 2000 ISSUE DATE AMOUNT DEATH BENEFIT A OPTION COVERAGE INFORMATION RATE CLASS COVERAGE MATURITY OR MONTHLY BENEFIT DESCRIPTION PERCENT AMOUNT EXPIRY DATE RATE FLEXIBLE PREMIUM VARIABLE LIFE* 100 250,000 FEBRUARY 1, 2065 PAGE D *IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF PREMIUMS PAID AFTER THE INITIAL PREMIUM ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO NET CASH SURRENDER VALUE TO BE PAID ON THAT DATE. COVERAGE AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT INCLUSIVE OF THE CASH VALUE. PREMIUM INFORMATION INITIAL PREMIUM $2,207.50 MONTHLY GUARANTEE PREMIUM $137.92 GUARANTEE PERIOD 10 YEARS PLANNED PERIODIC PREMIUM $2,207.50 ANNUAL INSURED RATE CLASS PREFERRED NONTOBACCO L-8521 PAGE A 4 POLICY SPECIFICATIONS INSURED JOHN DOE 35 ISSUE AGE POLICY DATE FEBRUARY 1, 2000 KI8508521 POLICY NUMBER DEDUCTION DAY DAY 01 OF EACH MONTH DEDUCTION PERIOD 65 YEARS, 00 MONTHS MINIMUM SPECIFIED AMOUNT $100,000 MINIMUM CHANGE IN SPECIFIED AMOUNT $25,000 MINIMUM WITHDRAWAL AMOUNT $500.00 PARTIAL WITHDRAWAL CHARGE $25.00 MONTHLY ADMINISTRATIVE CHARGE, YEAR 1 $10.00 PREMIUM CHARGES 6.00% INITIAL SURRENDER CHARGE $3,090.00 SURRENDER CHARGE PERCENTAGE
POLICY POLICY POLICY YEAR PERCENT YEAR PERCENT YEAR PERCENT 1 100 6 80 11 0 2 100 7 60 12 0 3 100 8 45 13 0 4 100 9 30 14 0 5 100 10 15 15 0
SEE YOUR POLICY FOR FURTHER INFORMATION ON THE SURRENDER CHARGE.
TABLE OF CASH VALUE CORRIDORS 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 NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY YEAR. L-8521 PAGE B 5 POLICY SPECIFICATIONS INSURED JOHN DOE 35 ISSUE AGE POLICY DATE FEBRUARY 1, 2000 KI8508521 POLICY NUMBER SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION Alger American Balanced 10% Alger American Growth 10% Alger American Income & Growth 10% Alger American MidCap Growth 10% The Dreyfus Socially Responsible Growth Fund, Inc. 10% Dreyfus Stock Index Fund 10% Dreyfus Capital Appreciation 10% Dreyfus Small Cap 0% Templeton Asset Allocation 0% Templeton Bond 0% Templeton Developing Markets 0% Templeton International 0% Fidelity VIP Equity-Income 0% Fidelity VIP Growth 0% Fidelity VIP High Income 0% Fidelity VIP Overseas 0% Janus Aspen Aggressive Growth 0% Janus Aspen Balanced 0% Janus Aspen Flexible Income 0% Janus Aspen Growth 0% Janus Aspen International Growth 0% Janus Aspen Worldwide Growth 0% Scudder VLIF Capital Growth 0% Scudder VLIF Growth and Income 0% Scudder VLIF International 0% Kemper Government Securities 0% Kemper Investment Grade Bond 0% Kemper Money Market 0% Kemper Small Cap Growth 0% Kemper Total Return 0% Kemper Value + Growth 0% GENERAL ACCOUNT FIXED ACCOUNT 30% A MORTALITY AND EXPENSE RISK CHARGE IS ASSESSED DAILY ON THE SEPARATE ACCOUNT VALUE OF THIS POLICY. THIS CHARGE IS GUARANTEED NOT TO EXCEED 0.60% ANNUALLY. THE CURRENT CHARGE, ASSESSED ON A DAILY BASIS, IS 0.60% ANNUALLY. L-8521 PAGE C 6 POLICY SPECIFICATIONS INSURED JOHN DOE 35 ISSUE AGE POLICY DATE FEBRUARY 1, 2000 KI8508521 POLICY NUMBER TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000
ATTAINED ATTAINED ATTAINED AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO 1 0.08921 34 0.13428 0.20694 67 2.18573 3.67024 2 0.08254 35 0.14096 0.21947 68 2.41240 3.98025 3 0.08171 36 0.14764 0.23452 69 2.66044 4.31178 4 0.07920 37 0.15682 0.25375 70 2.94130 4.67926 5 0.07503 38 0.16684 0.27549 71 3.31274 5.08855 6 0.07170 39 0.17854 0.30058 72 3.63092 5.55641 7 0.06669 40 0.19107 0.32903 73 4.05839 6.08661 8 0.06335 41 0.20610 0.36251 74 4.54125 6.66861 9 0.06169 42 0.22115 0.39685 75 5.06274 7.31729 10 0.06085 43 0.23870 0.43623 76 5.61644 7.99178 11 0.06419 44 0.25625 0.47731 77 6.21386 8.68057 12 0.07086 45 0.27716 0.52428 78 6.83323 9.37272 13 0.08254 46 0.29974 0.57128 79 7.49615 10.08912 14 0.09589 47 0.32401 0.62251 80 8.22966 10.86205 15 0.10757 0.13762 48 0.34996 0.67629 81 9.05444 11.71251 16 0.11925 0.15599 49 0.37926 0.73685 82 9.99708 12.66751 17 0.12844 0.17102 50 0.41025 0.79576 83 11.07331 13.73779 18 0.13344 0.18021 51 0.44713 0.87495 84 12.26711 14.88655 19 0.13845 0.18856 52 0.48968 0.95760 85 13.55590 16.07810 20 0.14012 0.19274 53 0.53770 1.05216 86 14.91786 17.27456 21 0.13929 0.19441 54 0.59311 1.15867 87 16.34412 18.45788 22 0.13678 0.19190 55 0.65444 1.27212 88 17.80841 19.76998 23 0.13428 0.18856 56 0.72254 1.39506 89 19.33266 21.08691 24 0.13094 0.18438 57 0.79492 1.52245 90 20.94167 22.42852 25 0.12677 0.17854 58 0.87327 1.65857 91 22.66794 23.82284 26 0.12343 0.17352 59 0.96181 1.80005 92 24.57677 25.33221 27 0.12176 0.17185 60 1.06060 1.95717 93 26.76406 27.31458 28 0.12009 0.17018 61 1.17052 2.13431 94 29.63735 29.94248 29 0.12009 0.17185 62 1.29584 2.33419 95 33.93111 33.93111 30 0.12009 0.17519 63 1.43920 2.56130 96 41.27938 41.27938 31 0.12259 0.18104 64 1.60154 2.81241 97 56.03985 56.03985 32 0.12510 0.18689 65 1.78128 3.08515 98 83.33333 83.33333 33 0.12927 0.19608 66 1.97512 3.37018 99 83.33333 83.33333
* 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 3 OF THE POLICY SPECIFICATIONS. THE RATES ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE SECTION OF YOUR POLICY. L-8521 PAGE D 7 DEFINITION SECTION ACCUMULATION UNIT: An accounting unit of measure used to calculate the value of each subaccount. CASH VALUE: The Cash Value of this policy is the sum of the subaccount values of the Separate Account plus the fixed account value and loan account value. DEBT: The principal of any outstanding loan under this policy plus any loan interest due or accrued. 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. ISSUE AGE: The Insured's age as of his or her nearest birthday on the Policy Date. MATURITY DATE: The Maturity Date is stated in the Policy Specifications. It is the policy anniversary nearest the insured's 100th birthday. MONTHLY PROCESSING DATE: The Monthly Processing Date is stated in the Policy Specifications. It is the same day in each month as the Policy Date. It is the day from which policy months are determined. MORTALITY AND EXPENSE RISK CHARGE: A charge deducted in the calculation of the accumulation unit value for the assumption of mortality risks and expense guarantees. NET SURRENDER VALUE: The Net Surrender Value of this policy is the Surrender Value on the date of surrender minus any debt. POLICY DATE, POLICY YEAR: The Policy Date is stated in the Policy Specifications. It is used to determine Policy Years and Monthly Processing Dates. Subsequent Policy Years will start on anniversaries of the Policy Date. PREMIUM: A dollar amount received by us in U.S. Currency as consideration for the benefits to be provided under this policy. PREMIUM CHARGES: The percentage of premium charges that are deducted from the premium before the premium is allocated to the subaccounts or the fixed account. 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: On any Valuation Date the separate account value of this policy is the sum of its subaccount values. SUBACCOUNTS: The Separate Account has several subaccounts. The subaccounts available under this policy are stated in the Policy Specifications. SUBACCOUNT VALUE: Each subaccount will be valued separately as determined by the formula stated in this policy. SURRENDER VALUE: The Surrender Value of this policy is the Cash Value on the date of surrender minus any applicable surrender charge. TRADE DATE: The Trade Date is 30 days following the date all requirements for coverage have been completed by you and coverage under the policy is recorded by us as inforce. It is the date that the money market subaccount value will be allocated to the subaccounts and the fixed account according to your allocation. VALUATION DATE: Each business day on which valuation of the assets of the Separate Account is required by applicable law, which currently is each day that the New York Stock Exchange is open for trading. VALUATION PERIOD: The period that starts at the close of a Valuation Date and ends at the close of the next succeeding valuation date. WE, OUR, OURS, US: Kemper Investors Life Insurance Company YOU, YOUR, YOURS: The party(ies) named as owner in the application unless later changed as provided in this policy. Page 5 8 Page 6 GENERAL PROVISIONS THE CONTRACT This policy, the attached application and any supplemental application(s) form the entire contract. All statements made in the application and any supplemental application(s) are representations and not warranties unless fraud is involved. In addition to other reasons permitted by law, the validity of this policy can be contested if any material misrepresentations of fact are made in the application, a supplementary application or a request. No statement will void this policy or be used to deny a claim unless it is contained in an attached application or supplemental application. MODIFICATION OF POLICY Only our president, secretary or assistant secretaries have power to approve a change in or waive the provisions of this policy. No agent or person other than such officers can change or waive the terms of this policy. OWNERSHIP OF POLICY Unless otherwise provided in the application, the insured is the original policy owner. You have the exclusive right to cancel or amend this policy by agreement with us and exercise every option and right conferred by this policy, including the right of assignment. We reserve the right to require the return of this policy for endorsement for any change. CHANGE OF OWNERSHIP Ownership may be changed during the lifetime of the insured by written notice from you in a form satisfactory to us. After we receive written notice at our home office, the change will take effect as of the date the notice was signed. The change, however, will not apply to any payment made or action taken by us before the notice was received and recorded. EFFECTIVE DATE OF COVERAGE The effective date of coverage under this policy is the Policy Date. The Issue Date is the same date as the Policy Date unless a different Issue Date is stated in the Policy Specifications. Incontestability and suicide periods are measured from the Issue Date. TERMINATION All coverage under this policy terminates when any one of the following events occurs: 1. you request that coverage terminate; 2. the insured dies; 3. this policy matures; or 4. the grace period ends. CONTESTABILITY This policy will be incontestable after it has been in force during the lifetime of the insured for two years from the Issue Date. A new two year contestability period will apply to each increase in insurance beginning with the effective date of each increase and will apply only to statements made in the application for the increase. If the policy is reinstated, a new two year contestability period will apply from the effective 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 cost of insurance charged for the most recent Monthly Processing Date, prior to the insured's death, would have purchased using the correct age and/or sex. SUICIDE If the insured dies by suicide, while sane or insane, within two years from the Issue Date, the death benefit proceeds will be limited to the premiums paid less any withdrawals and Debt. If the insured dies by suicide, while sane or insane, within two years of any increase in insurance, or any reinstatement, our total liability with respect to such increase or reinstatement will be the cost of insurance. 9 GENERAL PROVISIONS (CONTINUED) DUE PROOF OF DEATH Upon the death of the insured, written proof of death in the form of a certified copy of the death certificate, a written physician's statement or any other proof satisfactory to us is required within sixty days of such death or as soon thereafter as is reasonably possible. BENEFICIARY DESIGNATION The original beneficiary is named in the AND CHANGE OF BENEFICIARY application for this policy. If a beneficiary is not named, the original beneficiary is the estate of the insured. You may change the beneficiary by filing a written change with us subject to the following: 1. The change must be filed during the insured's lifetime; 2. This policy must be in force at the time a change is filed; 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 and record it at our home office; 5. After we receive and record the request,the change will take effect as of the date the request for change was signed; however, action taken by us before such request was received and recorded will remain valid, and 6. The request for change must provide information to identify the new beneficiary. 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 the insured, the proceeds of this policy will be paid to the insured's estate. If a beneficiary dies within ten days of the insured's death, proceeds of this policy will be paid as if the insured had survived that beneficiary. ASSIGNMENT No assignment of this policy is binding on us until it is received by us at our home office. We assume no responsibility for the validity of any assignment. Any claim under an assignment is subject to proof of the extent of the interest of the assignee. Your rights and the rights of the beneficiary are subject to the rights of the assignee of record. NON-PARTICIPATING This policy will not pay dividends. It will not participate in any of our surplus earnings. REPORTS At least once each Policy Year we will send you a report. The report will show the premiums paid, 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. RESERVES, CASH VALUE All reserves are greater than or equal to those AND DEATH BENEFIT required by statute. Any Cash Value and death benefit available under this policy are at least equal to 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 computation of Cash Value 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 and Nonsmoker Mortality Tables, age nearest birthday, is the basis for minimum Surrender Values, death benefits and guaranteed maximum cost of insurance rates under this policy. Page 7 10 Page 8 GENERAL PROVISIONS (CONTINUED) TAX TREATMENT This policy is intended to qualify as a life insurance policy under the Internal Revenue Code ("Code"). We may return premiums which would disqualify the policy from tax treatment as a life insurance policy. This policy may be endorsed to reflect any change in the Code and its regulations or 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. EXCHANGE OF PLAN At any time during the first two years after the Issue Date, you may exchange this policy for a permanent fixed benefit life insurance policy on the life of the Insured offered by the Company or any of its affiliates. The Face Amount of the new policy may be either the death benefit as of this policy's Policy Date or this policy's net amount at risk on the date of exchange. The new policy will have the same policy date, issue age and rate classification as this policy. If this policy has benefit riders in force on the date of exchange, each such rider may be included in the new policy if it is available with the new policy at the Insured's then age. Any debt under this policy must be repaid prior to exchange. This policy must be surrendered. Surrender charges will not be imposed. Evidence of insurability will not be required. Your request for an exchange must be in writing. An equitable adjustment in the new policy's premium and cash value will be made to reflect variances, if any, in the premiums and values under this policy and the new policy. DEATH BENEFIT PROVISIONS DEATH BENEFIT The death benefit is based on the Specified Amount, the Death Benefit Option and the Table of Death Benefit Factors applicable at the time of death. The Initial Specified Amount, the Death Benefit Option and the Table of Death Benefit Factors are shown in the Policy Specifications. The Specified Amount is the Initial Specified Amount shown on the Policy Specifications, unless changed in accordance with the Changes provision or reduced by a cash withdrawal. SPECIFIED AMOUNT The Death Benefit Option is shown on the Policy Specifications, unless changed in accordance with the Changes provision. DEATH BENEFIT OPTION If Option A is in effect, the death benefit is the greater of: 1. the Specified Amount; or 2. the Table of Death Benefit Factors times the Cash value of this policy on the date of the insured's death. If Option B is in effect, the death benefit is the greater of: 1. the Specified Amount plus the Cash Value of this policy on the date of the insured's death; or 2. the Table of Death Benefit Factors times the Cash Value of this policy on the date of the insured's death. 11 DEATH BENEFIT PROVISIONS (CONTINUED) CHANGES You may change the Death Benefit Option after the first Policy Year. We may require evidence of insurability before we accept a change from Option A to Option B. The Specified Amount will be changed as follows: 1. If the change is from Option A to Option B, the Specified Amount after such change will be: a. the Specified Amount prior to such change; minus b. the Cash Value on the date of the change. 2. If the change is from Option B to Option A, the Specified Amount after such change will be: a. the Specified Amount prior to such change; plus b. the Cash Value on the date of the change. You may increase the Specified Amount after the first Policy Year and prior to the insured's attained age 80. You may also decrease the Specified Amount after the first Policy Year. The change is subject to the following: 1. Any such decrease will reduce the insurance in the following order: a. the most recent increase first; b. any other increases in the reverse order in which they occurred; and c. finally, against the Initial Specified Amount. 2. Any request for an increase must be applied for on a supplemental application. The request for a change must be in writing. No more than one change will be allowed in any Policy Year. The minimum change in Specified Amount is shown in the Policy Specifications. The change will be effective on the first Monthly Processing Date on or after the day we receive the request. No changes will be allowed if the resulting Specified Amount would be less than the lesser of the Initial Specified Amount or the Minimum Specified Amount or if this policy would be disqualified as life insurance under the Code. The Initial Specified Amount and the Minimum Specified Amount are shown on the Policy Specifications. PAYMENT OF THE Death Benefits will be paid following receipt by DEATH BENEFIT us at our home office of due proof that the insured died while this policy was in force. The death benefit will be determined based upon the date of death. The return of this policy is required before a payment is made. The death benefit proceeds will be equal to: 1. the death benefit; minus 2. any monthly deductions due during the grace period; minus 3. any Debt. PREMIUM PROVISIONS INITIAL PREMIUM The Initial Premium is shown in the Policy Specifications. It is payable to us or to an authorized agent on or before delivery of this policy. ADDITIONAL PREMIUMS The amount and frequency of Planned Periodic Premium are shown on the Policy Specifications. The amount and frequency can be changed upon request, subject to our approval. While this policy is in force, additional premiums may be paid at any time prior to the Maturity Date. We reserve the right to limit or refund any premium if: Page 9 12 Page 10 PREMIUM PROVISIONS (CONTINUED) 1. the amount of the premium is below our current minimum premium amount requirement; 2. the premium would increase the death benefit by more than the amount of premium; or 3. the premium would disqualify the policy as life insurance under the Code. NET PREMIUMS The net premium equals the premium paid less the premium charges shown in the Policy Specifications. PREMIUM ALLOCATION The Initial Premiums will be allocated to the money market subaccount. On the first Valuation Date on or following the Trade Date, the money market subaccount value will be allocated to the subaccounts and the fixed account in accordance with the initial premium allocation as shown in the Policy Specifications. Any net premiums received after the Trade Date will be allocated to the subaccounts and the fixed account on the first Valuation Date on or following the date the premium is received in our home office in accordance with the Initial Premium allocation as shown in the Policy Specifications. The premium allocation shown in the Policy Specifications may be changed by you. The request for an allocation change must be in writing. GRACE PERIOD If the Net Surrender Value on the day immediately preceding a Monthly Processing Date is less than the monthly deduction for the next month, a grace period of 61 days will be allowed for the payment, without evidence of insurability, of premium payment or loan repayment equal to at least three monthly deductions. This grace period will begin on the day we mail notice of the required payment to your last known address. If payment is not received within the grace period, all coverage under this policy will terminate at the end of the grace period in accordance with the nonforfeiture provisions. If death of the insured occurs within the grace period, any amount payable will be reduced by any unpaid monthly deductions. During the Guarantee Period, the policy will remain in force and no grace period will begin provided the total premiums received, less any withdrawals and any Debt, equals or exceeds the Monthly Guarantee Premium times the number of months since the Policy Date, including the current month. The Guarantee Period and Monthly Guarantee Premium are shown in the Policy Specifications. REINSTATEMENT If this policy lapses because of insufficient Cash Value to cover the monthly deduction, and has not been surrendered for its Net Surrender Value, it may be reinstated at any time within three years after the date of lapse. The reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to us; 2. payment of enough premium to pay the unpaid monthly deductions due during the last expired grace period; 3. payment of a minimum premium sufficient to keep this policy in force for three months; and 4. payment of any Debt against the policy which existed at the date of termination of coverage. The effective date of reinstatement of a policy will be the Monthly Processing Date that coincides with or next follows the date the application for reinstatement is approved by us. The suicide and incontestability provisions will apply from the effective date of reinstatement. 13 GENERAL ACCOUNT PROVISIONS GENERAL ACCOUNT The guaranteed benefits under this policy are provided through our General Account. The fixed account is the only account available to you in our General Account. FIXED ACCOUNT The fixed account is credited with interest rate(s) which will not be less than the guaranteed minimum interest rate. The guaranteed minimum interest rate is 3.00% per year compounded daily at the daily equivalent of a 3.00% annual effective rate. We may declare from time to time a current rate which is higher than the guaranteed minimum interest rate. Each current interest rate will be guaranteed until the next policy anniversary. On each policy anniversary, we will also declare current interest rate(s) which will apply to net premiums previously received, and the interest thereon. These interest rate(s) will be guaranteed until the next policy anniversary. FIXED ACCOUNT VALUE On any Valuation Date, the fixed account value is equal to: 1. the sum of all net premiums allocated to the fixed account; plus 2. any amounts transferred to the fixed account; plus 3. the total interest credited to the fixed account; minus 4. any pro-rata monthly deductions charged to the fixed account; minus 5. any amounts transferred from the fixed account; minus 6. any amounts withdrawn from the fixed account; minus 7. any amounts loaned from the fixed account. VARIABLE ACCOUNT PROVISIONS SEPARATE ACCOUNT The variable benefits under this policy are provided through the KILICO Variable Separate Account which is referred to in this policy as 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 have been allocated for this policy and may be allocated for certain other policies. LIABILITIES OF The assets equal to the reserves and other SEPARATE ACCOUNT liabilities of the Separate Account will not be charged with liabilities arising out of any other business we may conduct. If the assets of the Separate Account exceed the liabilities under the policies supported by the Separate Account, then the excess may be used to cover the liabilities of our General Account. The assets of the Separate Account will be valued on each Valuation Date. 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 Monthly Processing Date; minus 5. any amounts transferred from the subaccount during the current Valuation Period; minus 6. any amounts withdrawn from the subaccount during the current Valuation Period; minus 7. any amounts loaned from the subaccount during the Valuation Period. Page 11 14 Page 12 VARIABLE ACCOUNT PROVISIONS (CONTINUED) FUND Each subaccount of the Separate Account will buy shares of an investment company or of a separate series of an investment company offered as an investment alternative under the policy. The Funds are registered under the Investment Company Act of 1940 as open-end management investment companies. Each series of a Fund 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 a new series of a Fund or in shares of an investment company. We may also add and/or substitute other investment companies. CHANGE OF INVESTMENT ADVISER Unless otherwise required by law or OR INVESTMENT OBJECTIVES regulation, the investment adviser or any investment objective may not be changed without our consent. Any investment objective will not be materially changed unless a statement of the change is filed with and approved by the Insurance Commissioner of the State of Illinois. If required, approval of or change of any investment objective will be filed with the insurance department of the state where this policy is delivered. RIGHTS RESERVED BY US We reserve the right, subject to compliance with the law as currently applicable or subsequently changed: 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 our 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 Funds or other open-end investment company and to substitute, for the Funds shares held in any subaccount, the shares of another portfolio of the Funds or the shares of another investment company or any other investment permitted by law; and 5. to change the way we assess charges, but without increasing the aggregate amount beyond that currently charged to the Separate Account and the Funds in connection with the policies. When required by law, we will obtain your approval of such changes and the approval of any regulatory authority. ACCUMULATION UNIT VALUE Each subaccount has an accumulation unit value. For each subaccount the accumulation unit value was initially set at the same unit value as the net asset value of a share of the underlying portfolio. When premiums or other amounts are allocated to a subaccount, a number of units are purchased based on the subaccount's accumulation unit value 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. The accumulation unit value for a Valuation Period applies to each day in such 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 the Separate Account is calculated by applying the investment experience factor to the Cash Value in each subaccount during a 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: 15 VARIABLE ACCOUNT PROVISIONS (CONTINUED) 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 to have resulted from the investment operations of the subaccount; 2. is the net asset value per share of the investment held in the subaccount, determined at the end of the last prior Valuation period; and 3. is the factor representing the Mortality and Expense Risk Charge. NONFORFEITURE PROVISIONS CASH VALUE The Cash Value of this policy is equal to the sum of the subaccount values plus the fixed account value plus the loan account value. MONTHLY DEDUCTION On each Monthly Processing Date, 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 supplemental benefits and riders; plus 3. the monthly administration charge. The monthly deduction will be deducted from the subaccounts and the fixed account in proportion to the value that each account bears to the separate account value plus the fixed account value. COST OF INSURANCE The cost of insurance is determined on each deduction day. 1. The cost of insurance for the Initial Specified Amount equals a. times the result of b. minus c., where: a. is the monthly Cost of Insurance rate per 1,000 for the Initial Specified monthly Amount; b. is the death benefit less any increases in Specified Amount divided by 1.0024663; and c. is the Cash Value applicable to the Initial Specified Amount. 2. The cost of insurance for each increase in the Specified Amount equals a. times the result of b. minus c., where: a. is the monthly Cost of Insurance rate per 1,000 for each increase monthly in the Specified Amount; b. is the amount of the increase in the Specified Amount divided by 1.0024663; and c. is the Cash Value applicable to the increased Specified Amount. COST OF INSURANCE RATE The monthly cost of insurance rate is based on the insured's sex, Issue Age, and Rate Class. The cost of insurance rate will also vary by Policy Year. The monthly cost of insurance rate will be determined by us based on our expectations as to future mortality experience. Any change in the cost of insurance rates will apply to all individuals of the same sex, Issue Age, Rate Class and Policy Year. At no time will such rate ever be greater than those shown in the Table of Guaranteed Maximum Monthly Cost of Insurance Rates, shown in the Policy Specifications, multiplied by a Rate Class percent. These rates are based on the 1980 Commissioner's Standard Ordinary Smoker or Nonsmoker Mortality Tables, age nearest birthday. SUPPLEMENTAL BENEFITS The monthly charges for any supplemental AND RIDERS benefits and riders are shown on the Policy Specifications. ADMINISTRATION CHARGE The monthly administration charge is shown on the Policy Specifications. The monthly administration charge for subsequent policy years may vary, but will not be greater than $7.50. Page 13 16 Page 14 NONFORFEITURE PROVISIONS (continued) INSUFFICIENT CASH VALUE This policy will terminate as provided in the grace period provision if the Net Surrender Value on the date immediately preceding a Monthly Processing Date is: 1. insufficient to cover the monthly deduction for the month following such Monthly processing Date; and. 2. no premium payment or loan payment sufficient to cover at least three monthly deductions is received before the end of the grace period. Any deduction for the cost of insurance or other benefits and riders after termination, of insurance will not be considered a reinstatement of this policy or a waiver by us of the termination. TRANSFER PROVISIONS TRANSFERS You may transfer all or part of the value of each subaccount at any time to another subaccount subject to the following conditions: 1. transfers are not permitted until after the Trade Date. Thereafter, one transfer will be permitted in each fifteen day period. All transfers which occur during one business day will be considered a transfer; 2. the minimum amount which may be transferred is $500.00 or, if smaller, the remaining value of this policy's interest in a subaccount; and 3. no partial transfer will be made if your remaining subaccount value will be less than $500.00 after such transfer unless this policy's interest in such subaccount is eliminated by means of such transfer. You may also transfer all or part of the fixed account value to any subaccount subject to the following conditions: 1. transfers are not permitted until after the Trade Date. Thereafter, one transfer will be permitted in each Policy Year during the thirty days that follow a policy anniversary; 2. the minimum amount which may be transferred is $500.00 or, if smaller, the remaining fixed account value; and 3. no partial transfer will be made if your remaining fixed account value will be less than $500.00 after such transfer unless this policy's fixed account value is eliminated by means of such transfer. We reserve the right at any time and without prior notice to any party to terminate, suspend or modify the transfer provision described above. We also reserve the right to charge up to $25 for each transfer. Any transfer direction must clearly specify the amount which is to be transferred and the names of the accounts which are to be affected. A telephone transfer direction will be honored by us only if a properly executed telephone transfer authorization is on file with us, and if such transfer direction complies with the authorization's conditions and our administrative procedures. 17 WITHDRAWAL PROVISIONS WITHDRAWAL Cash withdrawals may be made any time after the first Policy Year. The minimum withdrawal amount is shown on the Policy Specifications. The maximum withdrawal is limited to 10% of the Net Surrender Value during the surrender charge period. There is a charge for each withdrawal. The withdrawal charge is also shown on the Policy Specifications. You must Specify the accounts from which the withdrawal is to be made. EFFECT OF A WITHDRAWAL The Cash Value will be reduced by the amount of the withdrawal. If Death Benefit Option A is in effect, the Specified Amount will also be reduced by the amount of the withdrawal. POLICY LOAN PROVISIONS POLICY LOANS Policy Loans may be made any time after the first policy year. We will lend up to a maximum loan amount of 90% of Surrender Value. The amount of any new loan may not exceed the maximum loan amount less Debt on the date the loan is granted. Preferred Loans may be made anytime after the 1st policy year. We will lend an amount up to the earnings in the policy each year less any Debt. The minimum amount of any loan is $500. On the date the loan is made, an amount equal to the loan will be transferred from the subaccounts and the fixed account 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 subaccounts and the fixed account in proportion to the values that each account bears to the separate account value plus the fixed account value. Should the Debt equal or exceed the Surrender Value, this policy will terminate 61 days after notice has been mailed to you at your last known address. 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 will be 4.50% for all loans except preferred loans. Preferred loan interest rate will be 3%. Interest will be compounded daily at the daily equivalent of the above annual interest rates. 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 3.00% per year. 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 and the fixed account according to the then current premium allocation instructions. EFFECT OF POLICY LOANS The Debt on this policy, along with the surrender charge, will reduce the amount of Cash Value payable upon surrender. The Debt on this policy will also reduce the amount of Cash Value available for withdrawal. The death benefit payable to the beneficiary upon the death of the insured will also be reduced by the amount of Debt. Page 15 18 Page 16 SURRENDER VALUE PROVISIONS SURRENDER This policy may be surrendered for its Net Surrender Value upon written request by you and 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. A surrender may subject the amount surrendered to a surrender charge. 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. SURRENDER CHARGE The surrender charge period for this policy is the first 10 Policy Years after the Policy Date and 10 Policy Years after the effective date of any increase in the Specified Amount. During this period a surrender charge will be assessed if this policy is surrendered or if the Net Surrender Value is applied for under a settlement option. 1. The amount of the surrender charge for the Initial Specified Amount will be the product of a. times b., where: a. is the surrender charge percentage for the applicable Policy Year, as shown in the Policy Specifications; and b. is the Initial Surrender Charge as shown in the Policy Specifications. 2. The amount of the surrender charge for each increase in the Specified Amount will be the product of a. times b. where: a. is the surrender charge percentage for the applicable Policy Year, as shown in the Policy Specifications; and b. is the Surrender Charge for the increase in the Specified Amount as shown in the endorsement reflecting the increase. The surrender charge is the sum of the amounts determined in 1. and 2. above. The surrender charge will not be reduced by any decrease in the Specified Amount. TRANSFER, WITHDRAWAL, LOAN AND SURRENDER PROVISIONS A transfer, withdrawal, loan or surrender will be effective at the end of the Valuation Period following a telephone transfer direction or receipt by us at our home office of a written request which contains all required information. Accumulation units will be redeemed to the extent necessary to achieve the dollar amount of the transfer, withdrawal, loan or surrender. The accumulation units credited in each subaccount will be reduced by the number of accumulation units redeemed. The reduction in the number of accumulation units will be determined on the basis of the accumulation unit value at the end of the Valuation Period during which the request containing all required information is received by us. An amount withdrawn, loaned or surrendered from the subaccounts will be paid within seven calendar days after the date proper written election is received by us unless: 1. the New York Stock Exchange is closed (other than customary weekend and holiday closings); 2. 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 valuation unit is not reasonable practicable; or 3. such other periods as defined by the Securities and Exchange Commission for the protection of owners. 19 Page 17 TRANSFER, WITHDRAWAL, LOAN AND SURRENDER PROVISIONS (CONTINUED) If the withdrawal, loan or surrender is to be made from the fixed account, we may defer the payment for a period permitted by law, but not more than six months after the written request is received by us. During the period of deferral, interest at the then current interest rate will continue to be credited to the fixed account value. SETTLEMENT PROVISIONS SETTLEMENT OPTIONS Instead of our paying all of the death benefit or Net surrender Value of this policy due in one sum, amounts may be applied under one of the following settlement options. Payments under these options will not be affected by the investment experience of any Separate Account after proceeds are applied under a settlement option. Payments must be made to a natural person in his own right, referred to below as "payee". Payment will be made as elected on a monthly, quarterly, semi-annual or annual basis. The option selected must result in a payment that is at least equal to our minimum payment, according to our rules in effect 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-annual or annual or to make the payment in one lump sum so that the payment is at least equal to our minimum payment. ELECTION OF SETTLEMENT OPTION Election of a settlement option may be made by written notice to us. The 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 for 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. GENERAL CONDITIONS The Net Surrender Value will be used to determine the monthly benefit payment. The monthly benefit payment will be based upon the settlement option elected in accordance with the appropriate Settlement Option Table. OPTION 1 - FIXED INSTALLMENT ANNUITY We will pay a monthly income for the period elected but not less than 5 years nor more than 30 years. OPTION 2 - LIFE ANNUITY We will pay a monthly income to the payee during the payee's lifetime. OPTION 3 - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED We will pay a monthly income for the Guaranteed Period elected and thereafter for the remaining lifetime of the payee. The period elected may be 5, 10, 15 or 20 years. OPTION 4 - JOINT AND SURVIVOR ANNUITY We will pay the full monthly income while both payees are living. Upon the death of either payee, the income will continue during the lifetime of the surviving payee. The surviving payee's income will be the percentage of such full amount chosen at the time of election of this option. The percentages available are 50%, 66 2/3%, 75% and 100%. OTHER SETTLEMENT OPTIONS May be available with our consent. 20 Page 18 SETTLEMENT PROVISIONS (CONTINUED) SUPPLEMENTARY CONTRACT A supplementary contract will be issued to reflect payments to be made under a settlement option. If settlement is a result of the death of the insured, its effective date will be the date of death. Otherwise its effective date will be the date chosen by you. DATE OF FIRST PAYMENT Interest under the settlement options will begin to accrue on the effective date of the supplementary contract. If the normal effective date is the 29th, 30th or 31st of the month, the effective date will be the 28th day of that month. EVIDENCE OF AGE, SEX We may require satisfactory evidence of the AND SURVIVAL age and sex of any person on whose life the income is to be based and the continued survival of any person on whose life the income is based. BASIS OF SETTLEMENT OPTIONS The guaranteed monthly payments are based on an interest rate of 2.50% per year and, where mortality is involved the "1983 Table A" individual mortality table developed by the society of Actuaries, with a 5 year setback. DISBURSEMENT OF FUNDS At the death of the payee any unpaid UPON DEATH OF PAYEE instalments will be paid in one lump sum to UNDER OPTIONS 1 OR 3 the estate of the payee, unless otherwise provided in the supplementary agreement. The lump sum will be equal to the commuted value of the remaining instalments, based upon a minimum interest rate of not less than 2.50%. PROTECTION OF BENEFITS Unless otherwise provided in the supplementary contract the payee may not: 1. commute; 2. anticipate; 3. assign; 4. alienate; or 5. otherwise encumber, any payment to be received. CREDITORS The proceeds of the policy and any payment under an option will be exempt from the claim of creditors and from legal process to the extent permitted by law. 21 SETTLEMENT OPTION TABLE AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED OPTION ONE - FIXED INSTALMENT ANNUITY
Number Number Number Number of years Monthly of years Monthly of years Monthly of years Monthly selected Payment selected Payment selected Payment selected Payment - ---------------------------------------------------------------------------------------------------------------- 5 17.69 12 8.01 19 5.48 26 4.33 6 14.92 13 7.48 20 5.27 27 4.22 7 12.94 14 7.03 21 5.08 28 4.11 8 11.46 15 6.64 22 4.90 29 4.02 9 10.31 16 6.29 23 4.74 30 3.92 10 9.39 17 5.99 24 4.59 11 8.64 18 5.72 25 4.46 - ---------------------------------------------------------------------------------------------------------------
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALMENTS GUARANTEED:
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS GUARANTEED Male Female Payee Payee NONE 60 120 180 240 NONE 60 120 180 240 55 3.98 3.97 3.94 3.88 3.81 55 3.62 3.61 3.60 3.58 3.54 56 4.05 4.04 4.01 3.95 3.86 56 3.68 3.67 3.66 3.64 3.59 57 4.14 4.12 4.09 4.02 3.92 57 3.75 3.74 3.73 3.70 3.65 58 4.22 4.21 4.17 4.09 3.99 58 3.82 3.81 3.79 3.76 3.71 59 4.31 4.30 4.25 4.17 4.05 59 3.89 3.88 3.86 3.83 3.77 60 4.41 4.39 4.34 4.25 4.11 60 3.97 3.96 3.94 3.90 3.83 61 4.51 4.50 4.44 4.33 4.18 61 4.05 4.04 4.02 3.97 3.89 62 4.62 4.60 4.54 4.42 4.25 62 4.14 4.13 4.10 4.05 3.96 63 4.74 4.72 4.64 4.51 4.31 63 4.23 4.22 4.19 4.13 4.03 64 4.86 4.84 4.75 4.60 4.38 64 4.33 4.32 4.28 4.21 4.10 65 4.99 4.96 4.87 4.69 4.45 65 4.44 4.42 4.38 4.30 4.17 66 5.14 5.10 4.99 4.79 4.51 66 4.55 4.53 4.48 4.39 4.24 67 5.29 5.25 5.12 4.89 4.58 67 4.67 4.65 4.59 4.48 4.31 68 5.45 5.40 5.25 4.99 4.64 68 4.79 4.77 4.70 4.58 4.39 69 5.62 5.57 5.39 5.09 4.71 69 4.93 4.90 4.82 4.68 4.46 70 5.81 5.74 5.54 5.20 4.77 70 5.07 5.04 4.95 4.78 4.53 71 6.00 5.93 5.69 5.30 4.83 71 5.23 5.19 5.09 4.89 4.61 72 6.21 6.12 5.85 5.41 4.88 72 5.39 5.35 5.23 5.00 4.68 73 6.44 6.33 6.01 5.51 4.93 73 5.57 5.52 5.38 5.11 4.74 74 6.68 6.55 6.17 5.61 4.98 74 5.76 5.71 5.53 5.23 4.81 75 6.94 6.79 6.35 5.71 5.02 75 5.96 5.90 5.70 5.34 4.87 76 7.21 7.03 6.52 5.80 5.06 76 6.19 6.11 5.87 5.46 4.93 77 7.50 7.29 6.70 5.90 5.09 77 6.43 6.34 6.05 5.57 4.98 78 7.82 7.57 6.88 5.98 5.12 78 6.69 6.58 6.24 5.68 5.03 79 8.16 7.86 7.06 6.06 5.15 79 6.97 6.84 6.43 5.79 5.07 80 8.52 8.16 7.24 6.14 5.17 80 7.28 7.12 6.63 5.90 5.11 81 8.90 8.48 7.42 6.21 5.19 81 7.61 7.41 6.83 5.99 5.14 82 9.32 8.81 7.59 6.27 5.21 82 7.97 7.73 7.03 6.09 5.17 83 9.77 9.16 7.76 6.33 5.22 83 8.36 8.06 7.24 6.17 5.19 84 10.24 9.52 7.93 6.38 5.24 84 8.78 8.42 7.44 6.24 5.21 85 10.75 9.90 8.09 6.43 5.24 85 9.24 8.79 7.64 6.31 5.22
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
Age of Age of Female Payee Male Payee 55 60 65 70 75 80 85 55 3.32 3.47 3.60 3.71 3.80 3.87 3.91 60 3.41 3.60 3.79 3.96 4.11 4.22 4.30 65 3.47 3.71 3.96 4.22 4.45 4.64 4.78 70 3.52 3.80 4.11 4.46 4.80 5.12 5.38 75 3.56 3.86 4.23 4.66 5.14 5.63 6.07 80 3.58 3.90 4.31 4.81 5.42 6.11 6.80 85 3.60 3.93 4.36 4.92 5.63 6.51 7.51
Page 19 22 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MATURES AT THE INSURED'S ATTAINED AGE 100 NON-PARTICIPATING - NO ANNUAL DIVIDENDS This policy is a legal contract between you and us. READ YOUR POLICY CAREFULLY. KEMPER INVESTORS LIFE INSURANCE COMPANY A Stock Life Insurance Company 1 Kemper Drive, Long Grove, Illinois 60049-0001 EX-99.1A(5)(B) 4 ACCELERATED DEATH BENEFIT RIDER 1 EXHIBIT 1-A(5)(b) [SAMPLE] KEMPER INVESTORS LIFE INSURANCE COMPANY 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049-0001 ACCELERATED DEATH BENEFIT RIDER IMPORTANT BENEFITS AS SPECIFIED UNDER THE POLICY WILL BE REDUCED IF YOU RECEIVE AN ACCELERATED DEATH BENEFIT PAYMENT. THE BENEFIT PAYMENT UNDER THIS RIDER MAY BE TAXABLE OR MAY AFFECT ELIGIBILITY FOR BENEFITS UNDER STATE OR FEDERAL LAW. YOU SHOULD CONTACT YOUR PERSONAL TAX ADVISOR FOR SPECIFIC ADVICE. NEITHER THE COMPANY NOR ITS AGENTS CAN PROVIDE TAX ADVICE. EFFECTIVE DATE This Rider is part of the Policy as of the Issue Date of the Policy. DEFINITIONS ACCELERATED DEATH BENEFIT - This is the amount of death benefit that you elect to accelerate when the insured is determined to be Terminally Ill. We will pay you the Accelerated Death Benefit less certain specified adjustments. TERMINALLY ILL - This is when the insured has a life expectancy of 12 months or less due to an illness or physical condition. We will require proof, satisfactory to us, that the insured is Terminally Ill. This proof will include, but is not limited to, certification by a Physician. PHYSICIAN - This must be a Physician licensed and practicing, within, the scope of his/her license, within the United States. The Physician must not be: you; the insured; or related to either party by blood or marriage. ACCELERATED DEATH BENEFIT You may elect to have a portion of the death benefit accelerated when the insured is found to be Terminally Ill, subject to the terms and conditions of this Rider. The maximum Accelerated Death Benefit you may elect under this Policy is the lesser of: 1. 25% of the death benefit; or 2. $250,000. The total Accelerated Death Benefit available under all policies issued by us or our affiliates on the life of the insured will not exceed $250,000. The minimum death benefit you may elect to accelerate is $10,000. You may not request more than one Accelerated Death Benefit under this Rider. ADJUSTMENTS We will pay you the Accelerated Death Benefit less the following adjustments in one lump sum: 1. There is an administration fee of $150.00 for processing an Accelerated Death Benefit. 2. If there is any outstanding policy loan, the Accelerated Death Benefit will be used to repay the policy loan and any accrued interest thereon. LIEN We will treat the Accelerated Death Benefit as a lien against your Policy. As a lien, we will charge you interest on the Accelerated Death Benefit. The maximum annual interest rate we may charge you is the greater of: 1. The interest rate charged on policy loans, as stated in the Policy; or 2. the current 90 day U.S. Treasury Bill rate in effect on the date that the Accelerated Death Benefit is paid. The maximum interest rate we will charge on the portion of the lien which is equal to the Surrender Value of this Policy at the time the Accelerated Death Benefit is requested will be no greater than the rate we charge on policy loans. Page 1 2 Page 2 EFFECTS ON POLICY The Accelerated Death Benefit will first be used to repay any outstanding policy loans and any unpaid accrued interest thereon. The Accelerated Death Benefit plus any accrued interest thereon will be treated as a lien against your Policy. Your access to the Net Surrender Value of your Policy through policy loans, full surrenders, or partial surrenders, if any, will be limited to the excess of the Net Surrender value over the lien. The death benefit payable under this Policy will also be reduced by the amount of the lien. Any benefits payable under other Riders attached to the Policy will not be affected by any benefit payable under this Rider. Premiums, without reduction, will still be payable on this Policy, including any Rider premiums. CONDITIONS Payment of an Accelerated Death Benefit is subject to the conditions that follow: 1. This Rider is subject to the terms of the Contestability provision under this Policy. 2. The insured must not be Terminally Ill due to any attempt of suicide while the suicide provision under this policy is in effect. 3. You may reinstate this Rider subject to the same terms which apply to the Policy. 4. You must send us a written request to elect the Accelerated Death Benefit. The written request must be in a form satisfactory to us. 5. Any irrevocable beneficiaries or assignees must send us a written consent to the Accelerated Death Benefit. The written consent must be in a form satisfactory to us. 6. You must provide us with proof satisfactory to us that the insured is Terminally Ill. This proof must include a certification by a Physician, who is not: you; the insured; or, related to either party by blood or marriage. We reserve the right to obtain a second medical opinion at our expense. If there is a conflict of opinion, we reserve the right to make the final determination. 7. This Rider provides for the accelerated payment of the death benefit and is not intended to allow third parties to cause you to involuntarily invade your Policy proceeds ultimately payable to your beneficiary. Therefore, any election forced by creditors or government agencies will be honored only to the extent required by law. RELATIONSHIP TO THE POLICY This Rider is part of the Policy to which it is attached. The terms and conditions of the Policy apply to this Rider. Where the terms and conditions of the Policy and this Rider are in conflict, the terms and conditions of this Rider will prevail. TERMINATION This Rider will terminate on the earliest of: 1. the date we pay you an Accelerated Death Benefit; 2. the date you ask us to do so in writing and send us the Policy; or 3. the date this Policy lapses because a premium due is not paid within the required grace period. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ GALE K. CARUSO Secretary President EX-99.1A(5)(C) 5 EXTENDED MATURITY OPTION RIDER 1 EXHIBIT 1-A(5)(c) [SAMPLE] KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO] A Stock Life Insurance Company 1 Kemper Drive Long Grove, Illinois 60049-0001 EXTENDED MATURITY OPTION RIDER This Rider is a part of the policy to which it is attached. It is subject to all of the policy's provisions which are not inconsistent with this Rider. If inconsistencies occur, the provisions of this Rider will apply. BENEFIT On the Maturity Date while this policy is in force, you may extend the Maturity Date for one year. You may continue to extend the Maturity Date for one year intervals. While this policy is continued under this provision, we will extend the deduction period for one year and waiver any cost of insurance charges against the policy. All attached benefit riders, other than this Rider, will terminate. No additional policy loans or partial withdrawals will be allowed. Upon the death of the insured while this Policy is in force, the Death Benefit will be payable. The Death Benefit under this option is the Cash Value. If the Maturity Date is not extended the policy will mature. EFFECTIVE DATE This Rider becomes effective for the Policy Date as shown on the Policy Specifications Page. TERMINATION This Rider will terminate on the day coverage under this policy terminates. REINSTATEMENT This Rider may be reinstated if: 1. The policy itself is being reinstated; and 2. The Rider terminated due to the termination of the policy according to the terms of the policy's Grace Period provision. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ JB SCOTT Secretary President EX-99.1A(5)(D) 6 DEPENDENT CHILDREN'S RIDER 1 EXHIBIT 1-A(5)(d) DEPENDENT CHILDREN'S RIDER EFFECTIVE DATE: --------------------------------------------- DEPENDENT CHILD A Dependent Child is a child, stepchild or legally adopted child of the insured who is: 1. more than 90 days old and less than 25 years old; and 2. either named in the application for this rider, or born to or adopted by the insured after the date of the application for this rider. BENEFITS We will pay the insured, unless you provide otherwise, the Coverage Amount for this rider each time we receive due proof that a Dependent Child has died while this rider was in force. We will cover each Dependent Child under this rider until the earliest of: 1. that child's 25th birthday; or 2. the date this rider terminates. The Coverage Amount for this rider is shown in the Policy Specifications. CONVERSION Coverage on a Dependent Child may be converted as of the conversion date for that child to a new policy without due proof of that child's insurability, if: 1. we receive your request to do so and the full initial premium for the new policy no later than 30 days after the conversion date for that child; 2. this policy and rider are in force on the conversion date for that child; 3. the amount of coverage requested under the new policy does not exceed five times the amount of coverage provided under this rider for that child; and 4. the amount of coverage requested under the new policy is at least the minimum issue amount for that policy. The conversion date for each Dependent Child is the earlier of: 1. the Expiry Date of this rider; or 2. that child's 25th birthday. The new policy may be any flexible premium adjustable life or level premium whole life policy issued by the Company on the date of conversion. The Policy Date of the new policy will be the date of conversion. The initial premium for the new policy will be based on our then current rates under the plan chosen, using the Dependent Child's: 1. sex; and 2. attained age on the date of conversion. PAID-UP INSURANCE We will change each Dependent Child's coverage in force to paid-up term insurance at the death of the insured if: 1. the insured dies before the Expiry Date of this rider; and 2. this policy and rider are then in force. The paid-up insurance will be paid up to the earlier of: 1. the covered child's 25th birthday; or 2. the Expiry Date of this rider. The paid-up insurance will have a cash surrender value equal to the net single premium of any remaining term insurance at the time of surrender. The net single premium is based on the Commissioners 1980 Standard Ordinary Mortality Tables at 4% per year. This assumes that death during any policy year occurs at the end of that year. 2 Page 2 PAID-UP INSURANCE (CONTINUED) Paid-up insurance on any Dependent Child cannot be contested after insurance has been in force, during the life of that child, for two years. The two years includes the period that such Dependent Child's coverage was in force under this rider prior to the date the paid-up insurance becomes effective. The Dependent Child will be the owner of the paid-up insurance if he or she is of the age of majority at the death of the insured. The legal guardian of the Dependent Child will be the owner of the paid-up insurance if the Dependent Child is not of the age of majority at the death of the insured. When the Dependent Child attains age of majority, he or she will become the owner. COST The cost is equal to the monthly rate for this rider shown in the Policy Specifications. The cost for this rider will be included in the monthly deduction. If this rider terminates, the monthly deduction due on this policy will no longer include the cost of this rider. CONTESTABILITY This rider cannot be contested after it has been in force, during the life of the insured, for a period of two years from the later of: 1. the Date of Issue of the policy; or 2. the Effective Date of this rider. MISSTATEMENT OF AGE If the age of any Dependent Child was misstated, the benefits under this rider will then be based on the correct age. RELATIONSHIP TO POLICY This rider is part of the policy to which it is attached. The terms and conditions of the policy apply to this rider. With respect to coverage provided by this rider, where the terms and conditions of the policy and the rider are in conflict, the rider terms prevail. EFFECTIVE DATE The Effective Date of this rider is the Policy Date of the policy unless otherwise provided. This rider will not become effective unless the policy is in effect or becomes effective. EXPIRY DATE The Expiry Date for this rider is shown in the Policy Specifications. TERMINATION OF THIS RIDER This rider will terminate on the earliest of: 1. the Expiry Date; 2. the day you surrender this policy; 3. the day a conversion of this rider's coverage takes effect; 4. the first deduction day after we receive your request that we terminate this rider; or 5. the end of a grace period, when a Required Premium due remains unpaid. Paid-up insurance, if any, will terminate upon surrender or as provided under the Paid-Up Insurance provision. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ JB SCOTT Secretary President EX-99.1A(5)(E) 7 WAIVER OF SELECTED PREMIUM RIDER 1 EXHIBIT 1-A(5)(e) WAIVER OF SELECTED PREMIUM RIDER EFFECTIVE DATE: ----------------------------------------------------------------- BENEFIT After we approve a claim for Total Disability benefits, and while the insured remains totally disabled and the policy remains effective, we will credit this policy with monthly payments in an amount equal to 1/12 the SELECTED PREMIUM. The SELECTED PREMIUM is shown in the Specifications. It is possible that coverage under the policy and this rider will expire prior to the maturity or expiry date if the selected premium is insufficient to continue coverage to such date. No benefit will be provided for a disability that begins after the policy anniversary nearest the insured's 60th birthday or for disability continuing beyond this policy's original Maturity Date. TOTAL DISABILITY Total Disability means the insured: 1. is continuously unable to engage in all of the substantial and material duties of: his own occupation during the first year of disability; and any business, occupation, or employment for which he is reasonably fitted by education, training or experience thereafter; or 2. has permanently lost the sight of both eyes; or 3. has permanently lost the use of both hands or both feet; or 4. has permanently lost the use of one hand and one foot. Total Disability of the insured requires: 1. that any condition described in 2., 3., or 4. above and the disability which results, occur after the Effective Date of this rider; 2. that an accidental bodily injury occurring, or a disease first manifesting itself after the effective date of this rider cause the disability; 3. that disability continues for 6 consecutive months; and 4. that this rider and this policy are in force when disability begins. EXCLUSIONS AND RISKS NOT COVERED This rider will provide no benefit if the insured's Total Disability results from: 1. an intentionally self-inflicted injury; 2. an act of war, declared or undeclared; 3. any military, naval or air service for any country at war, declared or undeclared; or 4. a physical condition present and known on or before the date of issue of this policy. NOTICE OF CLAIM We must receive written notice of claim: 1. during the insured's life; and 2. within one year after the start of insured's Total Disability: unless it can be shown that such notice was given as soon as reasonably possible. PROOF OF DISABILITY We must receive due proof of the insured's Total Disability before we will credit Selected Premium benefits under this policy. Due proof of disability will include statements from the insured's attending physician and employer that the insured was and/or is Totally Disabled. Due proof must be furnished to us as soon as reasonably possible. We may also require that a medical examiner of our choice examine the insured. Such examinations will be done at our expense. Page 1 2 Page 2 After we approve a claim, we may ask for due proof that the insured's Total Disability continues before we continue the benefits provided by this rider. This will be done at reasonable intervals. After two years "reasonable intervals" will mean yearly, or less often at our option. The benefits provided by this rider will cease on the next deduction day if you fail to furnish us with due proof, within 30 days after we request such proof, that the insured is still totally disabled. COST The monthly cost for this rider is shown in the Policy Specifications. The monthly cost for this rider is based on the insured's: 1. sex; 2. attained age on the Effective Date of this rider; 3. rate class; and 4. Selected Premium. The cost for this rider is included in the monthly deduction. If this rider terminates, the monthly deduction due on this policy will no longer include the cost for this rider. Any payments which are due under this policy before we approve a claim must be paid before the grace period expires. After a claim is approved, that part of any payment coming due under this policy which exceeds the Selected Premium benefit credited to this policy, if any, must be paid before the grace period expires. If the claim is approved, we will credit Selected Premium benefits from the deduction date next following the date Total Disability began. We will credit no more than 12 monthly disability benefit payments for any disability period prior to the date we first received notice of claim. NOTICE OF RECOVERY You are required to notify us as soon as possible after the insured's Total Disability ends. EFFECTIVE DATE The Effective Date of this rider is the Policy Date of the policy unless otherwise provided. This rider will not become effective unless the policy is in effect or becomes effective. RELATIONSHIP TO POLICY This rider is part of the policy to which it is attached. The terms and conditions of the policy apply to this rider. With respect to coverage provided by this rider: where the terms and conditions of the policy and the rider are in conflict, the rider terms prevail. EXPIRY DATE The Expiry Date for this rider is shown in the Policy Specifications. TERMINATION OF THIS RIDER This rider will terminate on the earliest of: 1. the Expiry Date; 2. the day you surrender this policy; 3. the first deduction day after we receive your request to terminate this rider; or 4. the end of a grace period. Provided this policy remains in force, an eligible claim for disability commencing before the policy anniversary nearest the insured's 60th birthday will not end because this rider terminates. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ GALE K. CARUSO Secretary President EX-99.1A(5)(F) 8 OTHER INSURED RIDER 1 EXHIBIT 1-A(5)(f) OTHER INSURED RIDER EFFECTIVE DATE: --------------------------------------------------------------- BENEFIT Unless you provide otherwise, we will pay the owner the Coverage Amount for this rider when we receive due proof that the other insured died while this rider was in force. The other insured is named in the Policy Specifications. The initial Coverage Amount for this rider is shown in the Policy Specifications. COVERAGE CHANGES After the first policy year, you can request a change in the Coverage Amount. You must send a request to us to make such a change. We will allow no more than one such change in any policy year. The minimum change in Coverage Amount for this rider is $25,000. You must apply for increases on a supplemental application. You must also submit due proof to us that the other insured is insurable. Any increase will become effective on the deduction day on or next following the date we approve the request. Any decrease will become effective on the deduction day on or next following the date we approve the request. First, the decrease will be applied against the most recent increase in Coverage Amount. Then it will be applied to other increases in Coverage Amount in the reverse order in which they occurred. Finally, it will be applied against the initial Coverage Amount. The Coverage Amount can never be less than $25,000. CONVERSION PRIVILEGE The Coverage Amount on the other insured may be converted to a new policy without evidence of the other insured's insurability. We will convert the other insured's coverage if 1. through 4. of this provision are satisfied. 1. By the earlier of a. or b.: a. you request us to convert the Coverage Amount before the other insured's 65th birthday; or b. (i) you request us to convert it within the 60 days after the death of the insured, or (ii) the other insured requests us to convert it within 60 days after your death if you are the insured. 2. We receive the request before this rider terminates. 3. The amount of coverage requested under the new policy is a least the minimum issue amount for that policy. 4. The amount of coverage requested under the new policy does not exceed the Coverage Amount for this rider on the date the conversion is requested. The new policy may be any flexible premium adjustable life or level premium whole life policy issued by us on the date of conversion. The date of conversion will be the first deduction day after our receipt of the request. The policy date of the new policy will be the date of conversion. The rate for the new policy will be based on the other insured's: 1. sex; 2. then attained age; and 3. rate class for the most recently issued coverage. The new policy will not become effective unless its initial premium is paid before or upon its delivery. MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the other insured was misstated to us, the Coverage Amount for this rider, shown in the Policy Specifications, will be adjusted. The adjusted amount will be the amount that the cost charged for this rider, on the most recent deduction day prior to the other insured's death, would have purchased using the other insured's correct age and sex. CONTESTABILITY We will not contest the validity of this rider with respect to its initial Coverage Amount after this rider has been in force, during the other insured's life, for two years from the later of: 1. the Issue Date of the policy; or 2. the effective date of this rider. With respect to any increase in the Coverage Amount for this rider, we will not contest the validity of the increase after it has been in effect, during the other insured's life, for two years. SUICIDE We will limit the amount we pay under this rider if the other insured commits suicide, while sane or insane: 1. within two years from the Issue Date of this rider; and 2. at any other time, but within two years after an increase in the Coverage Amount for this rider becomes effective. If 1. applies, the limited amount will equal all costs charged for this rider. If 2. applies, the limited amount we will pay with respect to each such increase will equal all costs charged to provide each such increase in coverage. 2 COST The cost for this rider is determined on each deduction day and is the sum of: 1. the cost of insurance; plus 2. the cost of any flat extra amounts. The cost for this rider will be included in the monthly deduction. If this rider terminates, the monthly deduction due on this policy will no longer include the cost for this rider. COST OF INSURANCE We calculate the cost of insurance on each deduction day. The cost of insurance for the initial Coverage Amount equals a. times b., where: a. is the cost of insurance rate for the initial Coverage Amount; and b. is the initial Coverage Amount less any decreases in it. The cost of insurance for each increase in the Coverage Amount equals a. times b., where: a. is the cost of insurance rate for each increase in the Coverage Amount; and b. is the amount of each increase in the Coverage Amount less any decreases in it. COST OF INSURANCE RATE The cost of insurance rate for this rider is determined separately for the other insured's initial Coverage Amount and each Coverage Amount increase. The cost of insurance rates for the other insured's Coverage Amount is based on the other insured's: 1. sex; 2. attained age on the effective date of this rider; 3. coverage year; and 4. rate class. The cost of insurance rates for each Coverage Amount increase is based on the other insured's: 1. sex; 2. attained age on date of increase; 3. coverage year; and 4. rate class. The cost of insurance rate will be determined under the direction of our Board of Directors in advance of each coverage year and is guaranteed for that year. Any change in the cost of insurance rate will be on a uniform basis for all other 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 the rate class percent. These rates are found in the Policy Specifications. These rates are based on the 1980 Commissioner's Standard Ordinary Smoker and Nonsmoker Mortality Tables, Age Nearest Birthday. For purposes of this rider, coverage year is a one year period of time starting: a. on the date the Initial Coverage Amount of insurance becomes effective; or b. on the date any increase in the Coverage Amount of insurance becomes effective. RELATIONSHIP TO POLICY This rider is part of the policy to which it is attached. The terms and conditions of the policy apply to this rider. If there is a conflict between the terms and conditions of this rider and the policy, with respect to coverage provided by this rider, the terms of this rider prevail. EFFECTIVE DATE The effective date of this rider is the Policy Date of the policy unless otherwise provided. This rider will not become effective unless the policy is in effect or becomes effective. EXPIRY DATE The Expiry Date for this rider is shown in the Policy Specifications. TERMINATION OF RIDER This rider will terminate on the earliest of: 1. the Expiry Date; 2. the 60th day after the insured's death; 3. the day you surrender this policy; 4. the day a conversion of this rider's coverage takes effect; 5. the first deduction day after we receive your request that we terminate this rider; or 6. the end of a grace period, when a premium due remains unpaid. Signed for the Kemper Investors Life Insurance Company at its home office in Long Grove, Illinois. /s/ DEBRA P. REZABEK /s/ JB SCOTT Secretary President EX-99.1A(8)(B)(II) 9 THIRD AMENDMENT TO FUND PARTICIPATION AGREEMENT 1 EXHIBIT 1-A(S)(6)(ii) THIRD AMENDMENT TO PARTICIPATION AGREEMENT Among VARIABLE INSURANCE PRODUCTS FUND, FIDELITY DISTRIBUTORS CORPORATION and KEMPER INVESTORS LIFE INSURANCE COMPANY THIS THIRD AMENDMENT, made and entered into as of the 30th day of November, 1999, is made a part of the PARTICIPATION AGREEMENT made and entered into as of the 1st day of May, 1996 as previously amended by Amendment made and entered into as of the 1st day of May, 1998 and by Amendment made and entered into as of the 1st day of August, 1998 (hereinafter the "Agreement"), by and among KEMPER INVESTORS LIFE INSURANCE COMPANY (hereinafter the "Company"), an Illinois corporation, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation. WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (hereinafter the "1940 Act") and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets, any one or more of which may be made available under the Agreement (each such series hereinafter referred to as a "Portfolio"); and WHEREAS, the Company has registered certain variable life contracts under the 1933 Act; and WHEREAS, the Company has organized a segregated asset account, established by resolution of the Board of Directors of the Company, to set aside and invest 1 2 assets attributable to the aforesaid variable life contracts, and has registered such Account as a unit investment trust under the 1940 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of the Account to fund certain of the aforesaid variable life contracts and the Underwriter is authorized to sell such shares to unit investment trusts such as the Account at net asset value; and WHEREAS, the Company, the Fund and the Underwriter thereby desire to amend the Agreement to effect such changes; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter hereby agree as follows: 1. Schedule A (As amended August 1, 1998) Separate Accounts and Associated Contracts to the Agreement is hereby deleted in its entirety and replaced with the attached new Schedule A (As amended November 30, 1999) Separate Accounts and Associated Contracts. 2. Schedule C (As amended August 1, 1998) to the Agreement is hereby deleted in its entirety and replaced with the attached new Schedule C (As amended November 30, 1999). 3. Except as amended by this Third Amendment, all other provisions, conditions and terms of the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, each of the parties hereto has caused this Third Amendment to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date first specified above. KEMPER INVESTORS LIFE INSURANCE COMPANY By: /s/ James E. Hohmann ---------------------------------------------------- James E. Hohmann, Senior Vice President [Signatures Continued on Next Page] 2 3 VARIABLE INSURANCE PRODUCTS FUND By: /s/ Robert C. Pozen ----------------------------------------------------- Robert C. Pozen, Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: /s/ Kevin J. Kelly ----------------------------------------------------- Kevin J. Kelly, Vice President 3 4 Schedule A (As amended November 30, 1999) Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts Funded Date Established by Board of Directors by Separate Account - -------------------------------------- ------------------- KILICO Variable Annuity Separate Kemper Advantage III (Policy Form Series Account (May 29, 1981) L-1000) KILICO Variable Separate Account Kemper Power V (Policy Form Series (January 22, 1987) S-6003) Zurich Kemper LifeInvestors (Policy Form Series L-8521) KILICO Variable Separate Account - 2 First Foundation VUL (Policy Form Series (January 17, 1997) L-8161, L-8161CV, L-8162, L-8162CV)
4 5 SCHEDULE C (As amended November 30, 1999) Other investment companies currently available under variable annuities or variable life insurance issued by the Company: Kemper Advantage III Kemper Variable Series (formerly Investors Fund Series) Kemper Money Market Portfolio Kemper Total Return Portfolio Kemper High Yield Portfolio Kemper Growth Portfolio Kemper Government Securities Portfolio Kemper International Portfolio Kemper Small Cap Growth Portfolio Kemper Investment Grade Bond Portfolio Kemper Small Cap Value Portfolio Kemper Contrarian Value Portfolio (formerly Kemper Value Portfolio) Kemper Horizon 5 Portfolio Kemper Horizon 10+ Portfolio Kemper Horizon 20+ Portfolio Kemper Value+Growth Portfolio Janus Aspen Series Aggressive Growth Portfolio Growth Portfolio Worldwide Growth Portfolio Balanced Portfolio Lexington Natural Resources Trust Lexington Emerging Markets Fund Fidelity Insurance Products Fund II Asset Manager Portfolio Index 500 Portfolio Contrafund Portfolio Scudder Variable Life Investment Fund Scudder VLIF Bond Portfolio Scudder VLIF Capital Growth Portfolio Scudder VLIF International Portfolio 5 6 SCHEDULE C (As amended November 30, 1999) (Continued) Kemper Advantage III (Cont'd) The Dreyfus Socially Responsible Growth Fund, Inc. J.P. Morgan Series Trust II J.P. Morgan Small Company Portfolio The Alger American Fund Alger American Growth Portfolio Alger American Small Capitalization Portfolio American Century Variable Portfolios, Inc. American Century VP Income & Growth Portfolio American Century VP Value Portfolio Kemper Power V Kemper Variable Series (formerly Investors Fund Series) Kemper Money Market Portfolio Kemper Total Return Portfolio Kemper High Yield Portfolio Kemper Growth Portfolio Kemper Government Securities Portfolio Kemper International Portfolio Kemper Small Cap Growth Portfolio American Skandia Trust AST Lord Abbett Growth and Income Portfolio AST JanCap Growth Portfolio AST T. Rowe Price International Equity Portfolio AST T. Rowe Price Asset Allocation Portfolio AST Janus Small-Cap Growth (formerly Founders Capital Appreciation) Portfolio AST INVESCO Equity Income Portfolio AST PIMCO Total Return Bond Portfolio AST PIMCO Limited Maturity Bond Portfolio AST Neuberger Berman Mid-Cap Growth Portfolio 6 7 SCHEDULE C (As amended November 30, 1999) (Continued) Kemper Power V (Cont'd) Fidelity Variable Insurance Products Fund II Contrafund Portfolio Index 500 Portfolio Fidelity Variable Insurance Products Fund III Growth Opportunities Portfolio Scudder Variable Life Investment Fund International (B-Shares) Portfolio Growth and Income (B-Shares) Portfolio First Foundation VUL Evergreen Variable Annuity Trust Evergreen VA Fund Evergreen VA Growth and Income Fund Evergreen VA Foundation Fund Evergreen VA Global Leaders Fund Evergreen VA Strategic Income Fund Evergreen VA Omega Fund (formerly Evergreen VA Aggressive Growth Fund) Evergreen VA Small Cap Value Fund (formerly Evergreen VA Small Cap Equity Income Fund) Evergreen VA International Growth Fund Evergreen VA Masters Fund Goldman Sachs Variable Insurance Trust Goldman Sachs International Equity Fund Goldman Sachs Global Income Fund Morgan Stanley Dean Witter Universal Funds, Inc. Morgan Stanley High Yield Portfolio Morgan Stanley U.S. Real Estate Portfolio Fidelity Variable Insurance Products Fund II Contrafund Portfolio Index 500 Portfolio 7 8 SCHEDULE C (As amended November 30, 1999) (Continued) Zurich Kemper LifeInvestor The Alger American Fund Alger American Balanced Portfolio Alger American Growth Portfolio Alger American Income & Growth Portfolio Alger American MidCap Growth Portfolio The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Stock Index Fund Dreyfus Variable Investment Fund Dreyfus Capital Appreciation Portfolio Dreyfus Small Cap Portfolio Templeton Variable Products Series Fund Templeton Asset Allocation Fund Templeton Bond Fund Templeton Developing Markets Fund Templeton International Fund Janus Aspen Series Aggressive Growth Portfolio Balanced Portfolio Flexible Income Portfolio Growth Portfolio International Growth Portfolio Worldwide Growth Portfolio Scudder Variable Life Investment Fund Scudder VLIF Capital Growth Portfolio Scudder VLIF Growth and Income Portfolio Scudder VLIF International Portfolio Kemper Variable Series (formerly Investors Fund Series) Kemper Government Securities Portfolio Kemper Investment Grade Bond Portfolio Kemper Money Market Portfolio 8 9 SCHEDULE C (As amended November 30, 1999) (Continued) Zurich Kemper LifeInvestor (Cont'd) Kemper Small Cap Growth Portfolio Kemper Total Return Portfolio Kemper Value+Growth Portfolio 9 EX-99.1A(8)(E)(III) 10 AMENDMENT TO FUND PARTICIPATION AGREEMENT 1 EXHIBIT 1-A(8)(e)(iii) FORM OF NOVEMBER 1, 1999 AMENDMENT TO FUND PARTICIPATION AGREEMENT BETWEEN KEMPER INVESTORS LIFE INSURANCE COMPANY AND THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. This Amendment to the April 29, 1999 Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. (the "Agreement") is made for the purposes of adding Dreyfus Investment Portfolios, Dreyfus Variable Investment Fund and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund) as new parties to the Agreement, modifying Article I, paragraph 1.12 and Article XII, paragraph 12.1 of the Agreement and modifying Exhibit A thereto by adding three Participating Funds and/or Portfolios thereof. The first paragraph of the Agreement is hereby revised to read in its entirety as follows: "This Agreement is entered into as of the 29th day of April, 1999, by and among KEMPER INVESTORS LIFE INSURANCE COMPANY, a life insurance company organized under the laws of the State of Illinois ("Insurance Company"); THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS INVESTMENT PORTFOLIOS; DREYFUS VARIABLE INVESTMENT FUND; and DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND) (each a "Fund")." Article I, paragraph 1.12 of the Agreement is hereby revised to read in its entirety as follows: "Separate Account" shall mean KILICO Variable Annuity Separate Account and KILICO Variable Separate Account, separate accounts established by Insurance Company in accordance with the laws of the State of Illinois." Article XII, paragraph 12.1 of the Agreement is hereby revised to read in its entirety as follows: "Each notice required by this Agreement shall be given by certified mail, return receipt requested, to the appropriate parties at the following addresses: Insurance Company: Kemper Investors Life Insurance Company 1 Kemper Drive Long Grove, IL 60049 Attn: General Counsel 2 Participating Funds: The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Investment Portfolios Dreyfus Variable Investment Fund Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund) c/o Premier Mutual Fund Services, Inc. 200 Park Avenue New York, New York 10166 Attn: Vice President and Assistant Secretary with copies to: The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Investment Portfolios Dreyfus Variable Investment Fund Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund) c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 Attn: Mark N. Jacobs, Esq. Adam Scaramella, Esq. and Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Attn: Lewis G. Cole, Esq. Stuart H. Colemen, Esq. Notice shall be deemed to be given on the date of receipt by the addressee as evidenced by return receipt." Exhibit A of the Agreement is hereby deleted and replaced with the attached Exhibit A. Except as hereby amended, all provisions, conditions and terms of the Agreement shall continue in full force and effect. Further, all parties to this Amendment, including the three new parties hereby added, hereby agree to be bound by all provisions, conditions and terms of the Agreement, as hereby amended, as if they were parties to the original Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of the 1st day of November, 1999. 3 KEMPER INVESTORS LIFE INSURANCE COMPANY By: ------------------------- Name: James E. Hohmann Title: Senior Vice President Attest: ---------------- THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. By: ------------------------- Name: Title: Attest: ----------------- DREYFUS INVESTMENT PORTFOLIOS By: ------------------------- Name: Title: Attest: ----------------- DREYFUS VARIABLE INVESTMENT FUND By: ------------------------- Name: Title: Attest: ----------------- DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND) By: ------------------------- Name: Title: Attest: ----------------- 4 EXHIBIT A LIST OF PARTICIPATING FUNDS (AND/OR PORTFOLIOS THEREOF) The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Investment Portfolios MidCap Stock Portfolio Dreyfus Variable Investment Fund Capital Appreciation Portfolio Small Cap Portfolio Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund) EX-99.1A(10) 11 APPLICATION FOR POLICY 1 EXHIBIT 1-A(10) [ ] Federal Kemper Life Assurance Company [ ] Fidelity Life Association, A Mutual Legal Reserve Company [ ] Kemper Investors Life Insurance Company [ZURICH KEMPER LOGO] [ ] Zurich Life Insurance Company of America Policy Number Long Grove, Illinois 60049-0001 ================================================================================================================================== =============================================================== ================================================================= APPLICATION FOR INDIVIDUAL LIFE INSURANCE Amount remitted with this application, in exchange for the =============================================================== Company receipt: $ =============================================================== Do not submit money if death benefit exceeds $500,000. Proposed Primary Insured ___ Proposed Other Insured ___ ================================================================= - --------------------------------------------------------------- Owner, if other than proposed Owner's address Name Last First MI [ ] Male insured (N/A for OIR) [ ] Female - --------------------------------------------------------------- Street ----------------------------------------------------------------- Relationship to Proposed Insured Social Security or Tax ID# - --------------------------------------------------------------- City State Zip ----------------------------------------------------------------- Primary beneficiary Relationship to Proposed Insured - --------------------------------------------------------------- Social Security number Occupation ----------------------------------------------------------------- - --------------------------------------------------------------- Birthplace Birthdate Age at nearest birthday ================================================================= - --------------------------------------------------------------- ================================================================= Home phone Business phone Is this policy to replace any existing insurance or annuity(ies)? ( ) ( ) [ ] Yes [ ] No - --------------------------------------------------------------- If yes, indicate Company name(s): Where can you be reached for additional information? ================================================================= __ a.m. ================================================================= __ Home __ Work Best days: Best times: __ p.m. Has the owner been provided a written illustration which =============================================================== conforms to this application? [ ] Yes [ ] No =============================================================== Initial death benefit (Specified amount, if UL)$ If "no", owner acknowledges that owner will receive an - --------------------------------------------------------------- illustration conforming to the policy as issued no later than Rate class applied for: at the time of the policy delivery for policies that are - --------------------------------------------------------------- illustrated. Plan of insurance: ================================================================= - --------------------------------------------------------------- ================================================================= If UL/VUL*: (If neither is selected, Option A will be Is Proposed Insured a U.S. Citizen? [ ] Yes [ ] No (If No:) assigned.) ----------------------------------------------------------------- [ ] Option A: Specified amount includes cash value Country of citizenship Permanent Visa? How long in U.S.? [ ] Option B: Specified amount plus the cash value [ ] Yes [ ] No *If VUL, complete with VUL Supplement. ================================================================= - --------------------------------------------------------------- ================================================================= Riders: __WP/WMD __OIR __ Other: Has the Proposed Insured used tobacco in any form in the past: (complete separate application for each OIR) 36 months? [ ] Yes [ ] No 60 months? [ ] Yes [ ] No =============================================================== ----------------------------------------------------------------- =============================================================== Has the proposed insured ever been told he had or been treated Planned periodic premium (UL/VUL only): $ for: diabetes, cancer, heart disease, alcoholism, drug abuse, or - --------------------------------------------------------------- high blood pressure or does proposed insured have any other Mode of premium payment: health problems, habits, or hobbies that may affect insurability? __ Annual __ SA __ Qtrly __ PAC __ Quick Check (If yes, preferred rates are unlikely.) [ ] Yes [ ] No =============================================================== ================================================================= ================================================================================================================================== Special Requests: ================================================================================================================================== ================================================================================================================================== AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION: I (we) have read all the questions and answers in the application. All responses are true and complete to the best of my (our) knowledge and belief. No coverage will be in effect until: a full application has been signed by the proposed insured; and a policy has been issued; and the full first premium has been received by the company checked above; and any amendments are signed. Any coverage will be subject to the terms and conditions of the policy. I (we) have received the notification about the Federal Fair Credit Reporting Act and the Medical Information Bureau. I (we) hereby authorize: any licensed physician or medical practitioner; any hospital, clinic or other medical or medically related facility any insurance company; the Medical Information Bureau; and any other organization, institution or person that has any records or knowledge of me or my health, to give to the Zurich Kemper Life companies, or their reinsurers or the Medical Information Bureau, any such information. This authorization is valid for two and one-half years from the date this form is signed. An exact copy of this authorization as the original. Signed at: (city and state) ---------------------------------- ------------------------------------------------------------ Signature of Proposed Insured (if age 18 or over) Date signed: (month/day/year) --------------------------------- ------------------------------------------------------------ Signature of Owner/Applicant, if other than Proposed Insured ================================================================================================================================== ================================================================================================================================== Agent: To the best of your knowledge will this policy replace or change any existing life insurance or annuity policy(ies)? (If "Yes," complete any required replacement forms.) [ ] Yes [ ] No Has the Owner been provided an illustration which conforms to this application? [ ] Yes [ ] No If "no," agent hereby certifies that no illustration was used in connection with the solicitation of the policy applied for. - -------------------------------------------------------------- ------------------------------------------------------------ Print General Agent's name/number Print Agent's name/Social security number or Agent Code ------------------------------------------------------------ Agent's Signature Telephone number ==================================================================================================================================
TL-AR 7/97 2 FEDERAL KEMPER LIFE ASSURANCE COMPANY FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company KEMPER INVESTORS LIFE INSURANCE COMPANY Long Grove, IL 60049 Policy number ------------------------- ==================================================================================================================================== LIFE APPLICATION-PART A: GENERAL INFORMATION - ---------------------------------------------------------------- 8. This application is to: (select one) 1. PROPOSED INSURED [ ] Male [ ] Female - ---------------------------------------------------------------- [ ] Federal Kemper Life Assurance Company First name Middle initial Last name [ ] Fidelity Life Association [ ] Kemper Investors Life Insurance Company - ---------------------------------------------------------------- =============================================================== Former name if changed in last five years 9. NAME OF INSURANCE PLAN (if applicable, INITIAL DEATH BENEFIT indicate type: 1/5/10/15-year, etc.) (Specified amount, if UL) - ---------------------------------------------------------------- Birthdate Age at nearest birthday Birthplace --------------------------------------------------------------- (use to calculate premium) (state or country) If Universal Life: [ ] Option A: Specified amount includes cash value - ---------------------------------------------------------------- [ ] Option B: Specified amount plus the cash value Social Security number Driver's license state/number (If neither is selected, Option A will be assigned.) --------------------------------------------------------------- - ---------------------------------------------------------------- Riders: [ ] WP/WMD [ ] FDR* Units ================================================================ ------- 2. Street Address [ ] WSP $ [ ] DCR* Units ------- - ---------------------------------------------------------------- [ ] [ ] City State Zip ----------------- ----------------- *COMPLETE PART D: MULTIPLE INSURED SUPPLEMENT. - ---------------------------------------------------------------- =============================================================== Home phone 10. If this application is to Fidelity Life Association, select the ( ) desired dividend option, if applicable: ================================================================ [ ] Pay in cash [ ] Reduce premiums [ ] Accumulate at interest 3. What is your occupation? [ ] Buy additional paid-up insurance [ ] Other ----------------- - ---------------------------------------------------------------- =============================================================== Describe duties 11.a. Have you smoked cigarettes in the past 36 months? [ ]Yes [ ]No - ---------------------------------------------------------------- b. Have you used tobacco in any other form in the Employer past 36 months? [ ]Yes [ ]No Type Quantity - ---------------------------------------------------------------- ----------------- ----------------------------- Employer's street address =============================================================== 12. Have you ever been told you had, or been treated for: - ---------------------------------------------------------------- diabetes, cancer, heart disease, alcoholism, drug abuse, City State Zip or high blood pressure? [ ]Yes [ ]No (If Yes, preferred rates will not likely be available.) - ---------------------------------------------------------------- =============================================================== Business phone 13. Rate class applied for: ( ) [ ] Preferred non-tobacco [ ] Preferred tobacco - ---------------------------------------------------------------- [ ] Standard non-tobacco [ ] Standard tobacco If more information is needed, you can be reached at: [ ] Other [ ] Home [ ] Work Best time of day: =============================================================== ----------- 14.a. Bill frequency: b. Bill form: ================================================================ [ ] Annual [ ] Direct 4. Current annual earned income: [ ] Semi-annual [ ] PAC (monthly only) $ [ ] Quarterly [ ] List (monthly only) ================================================================ [ ] Monthly (PAC or list only) [ ] Other 5. OWNER/APPLICANT [ ]Proposed Insured[ ]Other(complete below) --------------- - ---------------------------------------------------------------- (For PAC, complete authorization form.) Name c. Planned periodic premium: (UL plans only) $ ----------------- - ---------------------------------------------------------------- =============================================================== Street 15. Amount remitted with this application, in exchange for the conditional receipt: $ - ---------------------------------------------------------------- ---------------------------------- City State Zip DO NOT SUBMIT MONEY IF DEATH BENEFIT EXCEEDS $500,000. =============================================================== - ---------------------------------------------------------------- 16. SPECIAL REQUESTS Relationship to Proposed Insured Social Security or Tax ID# --------------------------------------------------------------- --------------------------------------------------------------- ================================================================ --------------------------------------------------------------- 6. PREMIUM PAYOR (select one) [ ] Proposed Insured --------------------------------------------------------------- [ ] OWNER [ ] Other (give name & address --------------------------------------------------------------- in #16) --------------------------------------------------------------- ================================================================ --------------------------------------------------------------- 7. BENEFICIARY DESIGNATION (Use Part E if additional space --------------------------------------------------------------- is needed.) --------------------------------------------------------------- PRIMARY BENEFICIARY(S) & ADDRESS % OF RELATIONSHIP TO --------------------------------------------------------------- (If trust, give name/date of trust) PROCEEDS PROPOSED INSURED --------------------------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------------------------- CONTINGENT BENEFICIARY(S) & ADDRESS --------------------------------------------------------------- - ---------------------------------------------------------------- --------------------------------------------------------------- ================================================================ [KEMPER LOGO]
3 FEDERAL KEMPER LIFE ASSURANCE COMPANY PART A (Continued) FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company KEMPER INVESTORS LIFE INSURANCE COMPANY Long Grove, IL 60049 ==================================================================================================================================== INDIVIDUAL LIFE INSURANCE IN FORCE (If none, state none.) 22. Have you traveled or lived outside the U.S. or Canada within (Do not list group) DATE ---PURPOSE--- the past two years, or do you intend to in the next 24 months? COMPANY AMOUNT ISSUED PERSONAL BUSINESS [ ] Yes [ ] No - ------- ------ ------ ----------------- (If Yes, list country, reason, frequency and length of stay in a. #28.) - -------------------------------------------------------------- =================================================================== b. 23. In the past three years, have you had three or more moving - -------------------------------------------------------------- violations, or had your driver's license suspended or c. revoked? [ ] Yes [ ] No - -------------------------------------------------------------- =================================================================== d. 24. Have you ever been convicted of reckless driving, or driving - -------------------------------------------------------------- under the influence of alcohol or drugs? e. (If Yes, give type, date & current status.) [ ] Yes [ ] No - -------------------------------------------------------------- =================================================================== f. 25. Have you been convicted of, or are you awaiting trial for a - -------------------------------------------------------------- felony? (If Yes, give type, date & current ============================================================== status.) [ ] Yes [ ] No 18. Is this policy to replace any existing insurance or =================================================================== annuities? (If Yes, complete required replacement forms.) 26. In the past five years have you, or do you intend to: [ ] Yes [ ] No a. Scuba dive [ ] Yes [ ] No e. Mountain climb [ ] Yes [ ] No If Yes, indicate which policy(s) _____________________________ b. Sky dive [ ] Yes [ ] No f. Race motorcycles [ ] Yes [ ] No ============================================================== c. Parachute [ ] Yes [ ] No g. Race automobiles [ ] Yes [ ] No 19. Are there life insurance applications pending with any d. Hang glide [ ] Yes [ ] No h. Race power boats [ ] Yes [ ] No other companies? (If Yes, complete the following.) (If Yes, explain frequency, purpose, date of last activity & [ ] Yes [ ] No future plans.) =================================================================== TO BE PLACED 27. In the past five years, have you flown as a pilot or crew IN ADDITION TO ---PURPOSE--- member in any flying activity, or do you intend to? COMPANY AMOUNT OUR POLICY? PERS. BUS. [ ] Yes [ ] No - ------- ------ -------------- ------------- (If Yes, complete PART G: AVIATION SUPPLEMENT.) =================================================================== - -------------------------------------------------------------- 28. Details of Yes answers for #20, 22-26 (Use Part E if additional space is needed.) - -------------------------------------------------------------- --------------------------------------------- - -------------------------------------------------------------- --------------------------------------------------------------- ============================================================== --------------------------------------------------------------- 20. Have you ever been refused life insurance or been asked to pay extra premium for life insurance? (If Yes, provide --------------------------------------------------------------- full details) [ ] Yes [ ] No ============================================================== --------------------------------------------------------------- 21. Are you a U.S. citizen? (If No, complete below.) [ ] Yes [ ] No --------------------------------------------------------------- - -------------------------------------------------------------- Country of citizenship Type of Visa Expiration Date --------------------------------------------------------------- ==================================================================================================================================== PART B: AGREEMENT - ------------------------------------------------------------------------------------------------------------------------------------ I (we) have read all the questions and answers in the application, 3. The first premium will not be deemed paid unless any check, including all required parts. All responses are true and complete draft, or other instrument of payment (given as premium) is to the best of my (our) knowledge and belief. I (we) promise to paid in accordance with its terms; and tell the Company of any change in the health or habits of the Proposed Insured that occurs after completing this application, 4. (Except as provided in the Receipt, if given) the insurance but before the Policy is delivered to me (us) and the first applied for never takes effect unless, during the lifetime premium is paid. of the Proposed Insured; (a) the Policy has been issued, delivered to, and accepted by me (us); (b) the required I (we) agree: first premium has been paid; (c) any amendments issued with the Policy have been completed and signed; all while the 1. This application, including all of its parts, will be the health and habits of the Proposed Insured remain as stated basis for and form part of the Policy; in this application. 2. An Agent has no authority to alter the Company's rules or Amendments to plan, amounts, classification or benefits will be requirements, this Agreement, the Receipt, or the Policy; made only with my (our) consent. - ------------------------------------------------------------------------------------------------------------------------------------ I (we) have received the notification about the Federal Fair Credit Reporting Act and the Medical Information Bureau. I hereby authorize: any licensed physician or medical practitioner; any hospital, clinic or other medical or medically related facility; any insurance company; the Medical Information Bureau; and any other organization, institution or person, that has any records or knowledge of me or my health, to give to Federal Kemper Life Assurance Company, Fidelity Life Association, A Mutual Legal Reserve Company or Kemper Investors Life Insurance Company, or their reinsurers, or the Medical Information Bureau, any such information. This authorization is valid or two and one-half years from the date this form is signed. An exact copy of this authorization is as valid as the original. Signed at ---------------------------------------------------- ------------------------------------------------------------------ City and State Signature of Proposed Insured (if age 15 or over) on ----------------------------------------------------------- ------------------------------------------------------------------ Month/day/year Signature of Owner/Applicant, if other than Proposed Insured ---------------------------------------------------- ---------------------------------------------- ------------------- Signature of Agent/Witness Print Agent name Agent number
4 FEDERAL KEMPER LIFE ASSURANCE COMPANY FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company KEMPER INVESTORS LIFE INSURANCE COMPANY Long Grove, IL 60049 Policy number___________________________ - ------------------------------------------------------------------------------------------------------------------------------------ PART C: MEDICAL QUESTIONNAIRE - ----------------------------------------------------------------- ============================================================== PROPOSED INSURED 3. FAMILY RECORD ---Living--- ---Deceased--- - ----------------------------------------------------------------- Age State of health Age Cause of death First name Middle initial Last name --- --------------- --- -------------- Father - ----------------------------------------------------------------- -------------------------------------------------------------- Amount of insurance Birthdate Social Security number Mother -------------------------------------------------------------- - ----------------------------------------------------------------- Brothers Purpose of this examination: [ ] New insurance (list [ ] Change of existing Policy [ ] Reinstatement of lapsed policy individually) - ----------------------------------------------------------------- -------------------------------------------------------------- Have you ever had or been treated for: Sisters a. High blood pressure, chest pain, rheumatic (list fever, a heart condition, heart murmur, Individually) irregular heart rhythm, heart attack, stroke, -------------------------------------------------------------- or other disease of the heart or blood vessels? [ ] Yes [ ] No (Use #7 for additional brothers or sisters.) -------------------------------------------------------------- b. Diabetes, a thyroid disorder, or other disease 4. Has any family member listed in #3 had cancer, of the glands? [ ] Yes [ ] No diabetes, high blood pressure, heart disease or kidney disease? [ ] Yes [ ] No c. Cancer, tumor, lymph gland disorder, cyst, or (If Yes, identify family member, disorder and age at onset.) any blood disorder? [ ] Yes [ ] No -------------------------------------------------------------- 5. Answer both parts a and b. d. Albumin, blood or sugar in the urine, kidney a. Have you smoked cigarettes in the past 36 trouble, or any other disease of the urinary months? [ ] Yes [ ] No or genital tract (including prostate)? [ ] Yes [ ] No b. Have you used tobacco in any other form in the past 36 months? [ ] Yes [ ] No e. Epilepsy, convulsion, fainting spell, stroke, Type Quantity paralysis, or any other disease of the brain ---------------------- ------------------------ or nervous system? [ ] Yes [ ] No -------------------------------------------------------------- 6. Have you ever: f. Asthma, chronic bronchitis, emphysema, a. Used narcotics, hallucinogens, barbiturates, pneumonia, sarcoidosis, tuberculosis, shortness heroin, cocaine, amphetamines, or any other of breath, or other lung or respiratory system habit-forming drugs except as prescribed by ailment? [ ] Yes [ ] No a physician? [ ] Yes [ ] No g. Ulcer, colitis, hepatitis, pancreatitis or b. Been advised by a physician, psychiatrist, other disorder of the esophagus, stomach, or psychologist to quit or reduce your intestines, liver, gallbladder or pancreas? [ ] Yes [ ] No alcohol use? [ ] Yes [ ] No h. Severe injuries or any disease or deformity of c. Been advised to seek, or received treatment the muscles, connective tissue, bones, joints, or counseling for alcohol or other drug or skin? [ ] Yes [ ] No use? [ ] Yes [ ] No i. Any impairment of sight or hearing or disease d. Been advised to attend or been a member of of the eyes, ears, nose or throat? [ ] Yes [ ] No any self-help group, such as Alcoholics Anonymous or Narcotics Anonymous? [ ] Yes [ ] No e. Been convicted of drug possession or distribution? [ ] Yes [ ] No ====================================================================================================================================
DETAILS OF ITEMS 2 THROUGH 6. Give complete details of all Yes answers. (Use #13 or Part E, if needed, for further details.)
QUESTION DATE OF DETAILS, DIAGNOSIS, NAMES AND ADDRESSES OF DOCTORS, NUMBER OCCURRENCE TREATMENT, MEDICATION, RESULTS DURATION HOSPITALS, AND MEDICAL FACILITIES CONSULTED - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
5 FEDERAL KEMPER LIFE ASSURANCE COMPANY PART C (Continued) FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company KEMPER INVESTORS LIFE INSURANCE COMPANY Long Grove, IL 60049 ================================================================================================================================== Have you: 9. What is your height? ______________ Weight? ______________ a. Consulted a physician, psychiatrist, psychologist, or other Have you lost any weight in the past year? [ ] Yes [ ] No medical practitioner in the last five years? [ ] Yes [ ] No If Yes, amount? _______ Reason? ______________________________ ----------------------------------------------------------------- b. Had any blood studies (other than an HIV or AIDS test), 10. Are you currently taking or have been advised to take any electrocardiograms, stress electrocardiograms, or other medication? [ ] Yes [ ] No medical tests or studies in the last five (If Yes, list name of medication, reason & doctor's name and years? [ ] Yes [ ] No address.) ----------------------------------------------------------------- c. Tested positive for the Human Immunodeficiency 11. To the best of your knowledge, do you have: Virus (HIV) or antibody? [ ] Yes [ ] No a. Any mental illness or psychiatric disorder? [ ] Yes [ ] No b. Any physical disorder or disease? [ ] Yes [ ] No d. Been under observation or received treatment ----------------------------------------------------------------- in any hospital or other institution or 12. Who is your personal physician? (If none, state none.) medical facility in the last ten years? [ ] Yes [ ] No ----------------------------------------------------------------- Name e. Been advised, in the last two years, to have ----------------------------------------------------------------- any diagnostic test, surgery, or hospitalization Street which has not been completed? [ ] Yes [ ] No ----------------------------------------------------------------- City State Zip f. Ever received any sickness or disability pension, ----------------------------------------------------------------- benefits, or compensation? [ ] Yes [ ] No Date last seen? Phone ( ) ----------------------------------------------------------------- g. Ever attempted suicide? [ ] Yes [ ] No Why? ----------------------------------------------------------------- What tests were made? ----------------------------------------------------------------- Were the results normal? (If No, give details below.) [ ] Yes [ ] No ================================================================================================================================== DETAILS OF ITEMS 8 THROUGH 12. Give complete details of all Yes answers. (Use #7 or Part E, if needed, for further details.) Question Date of Details, diagnosis, Names and addresses of doctors, hospitals, and number occurrence treatment, medication, results Duration medical facilities consulted - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================== All statements and answers to the foregoing questions are, to the best of my knowledge and belief: (a) complete; and (b) true. I agree (a) that they shall form a part of my application; (b) that they shall be subject to the terms of the agreement found in the application; and (c) that they shall become a part of any policy based on my application. I hereby authorize: any licensed physician or medical practitioner; any hospital, clinic or other medical or medically related facility; any insurance company; the Medical Information Bureau; and any other organization, institution or person, that has any records or knowledge of me or my health, to give to Federal Kemper Life Assurance Company, Fidelity Life Association, A Mutual Legal Reserve Company or Kemper Investors Life Insurance Company, or their reinsurers, or the Medical Information Bureau, any such information. This authorization is valid for two and one-half years from the date this form is signed. An exact copy of this authorization is as valid as the original. Dated at ----------------------------------------------------------- ------------------------------------------------------------ City and State Signature of Proposed Insured on ----------------------------------------------------------------- ------------------------------------------------------------ Month/day/year Witness [ ] Agent [ ] Examiner
6 FEDERAL KEMPER LIFE ASSURANCE COMPANY FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company KEMPER INVESTORS LIFE INSURANCE COMPANY Long Grove, IL 60049 Policy number ----------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PART D: MULTIPLE INSURED SUPPLEMENT (use for Riders: Dependent Children's, Family Dependents', etc.) SPOUSE OR OTHER ADULT PROPOSED FOR INSURANCE [ ] Male [ ] Female Birthdate Age Birthplace Height Weight - ----------------------------------------------------------------------------------------------------------------------------------- 1. Name (first, middle, last) Social Security number - ----------------------------------------------------------------------------------------------------------------------------------- DEPENDENTS PROPOSED FOR INSURANCE Relationship - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 2. Has the person named in #1 above used tobacco in any 8. Is any person named above currently taking, or been advised to take, form in the past 36 months? [ ] Yes [ ] No any medication? [ ] Yes [ ] No Type Quantity (If Yes, list name of medication, reason & doctor's name and address.) ----------------- ------------------- - --------------------------------------------------------- ---------------------------------------------------------------------- 3. Has any person named above lost any weight in the 9. Has any person named above ever had or been treated for: past year? [ ] Yes [ ] No a. High blood pressure? [ ] Yes [ ] No d. Stroke? [ ] Yes [ ] No If Yes, amount? Reason? b. A heart condition? [ ] Yes [ ] No e. Diabetes? [ ] Yes [ ] No ----------- -------------------- c. Chest pain? [ ] Yes [ ] No f. Cancer? [ ] Yes [ ] No - --------------------------------------------------------- ---------------------------------------------------------------------- 4. Has any person named above ever used narcotics, 10. Who is the family physician? (If none, state none.) hallucinogens, barbiturates, heroin, cocaine, amphetamines, or any other habit-forming drugs ---------------------------------------------------------------------- except as prescribed by a physician? [ ] Yes [ ] No Name - --------------------------------------------------------- 5. To the best of your knowledge, does any person named ---------------------------------------------------------------------- above have any mental or physical impairment or Street disease? [ ] Yes [ ] No - --------------------------------------------------------- ---------------------------------------------------------------------- 6. Has any person named above: City State Zip Consulted a physician, psychiatrist, psychologist, or other medical practitioner in the last five -------------------------------------------------------------------- years? [ ] Yes [ ] No Date last seen? Phone ( ) ---------------------------------------------------------------------- Had any blood studies (other than an HIV or Which proposed insured? AIDS test), electrocardiograms, stress electrocardiograms, or other medical test or ---------------------------------------------------------------------- studies within the last five years? [ ] Yes [ ] No Why? Been under observation or received treatment in a ---------------------------------------------------------------------- hospital or other institution or medical facility in What test were made? the last five years? [ ] Yes [ ] No ---------------------------------------------------------------------- Tested positive for the Human Immunodeficiency Were the results normal? (If No, give details below.) [ ] Yes [ ] No Virus (HIV) or antibody? [ ] Yes [ ] No - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 7. DETAILS OF ITEMS 5 THROUGH 10. (If more space is needed, Use Part E) Question Name of Date of Details, diagnosis, Names and addresses of doctors, number family member occurrence treatment, medication, results Duration hospitals, and medical facilities consulted - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== All statements and answers to the foregoing questions are, to the best of my knowledge and belief: (a) complete; and (b) true. I agree (a) that they shall form a part of my application; (b) that they shall be subject to the terms of the agreement found in the application; and (c) that they shall become a part of any policy based on my application. I hereby authorize: any licensed physician or medical practitioner; any hospital, clinic, or other medical or medically related facility; any insurance company; the Medical Information Bureau; and any other organization, institution or person, that has any records or knowledge of me or my health, to give Federal Kemper Life Assurance Company, Fidelity Life Association, A Mutual Legal Reserve Company or Kemper Investors Life Insurance Company, or their reinsurers, or the Medical Information Bureau, any such information. This authorization is valid for two and one-half years from the date this form is signed. An exact copy of this authorization is as valid as the original. Dated at ------------------------------------- ---------------------------------------------------------------------------------- City and state Signature of person named in Part D 1., if any, otherwise signature of Proposed On Insured who signed Part B ---------------------------------------- Month/day/year
7 FEDERAL KEMPER LIFE ASSURANCE COMPANY FIDELITY LIFE ASSOCIATION, A MUTUAL LEGAL RESERVE COMPANY KEMPER INVESTORS LIFE INSURANCE COMPANY [KEMPER LIFE INSURANCE COMPANIES LOGO] - ------------------------------------------------------------------------------- PART E: ADDITIONAL DETAILS (use for any explanation where space is insufficient) - -------------------------------------------------------------------------------- Part Question no. Details - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ All statements and answers to the foregoing questions are, to the best of my knowledge and belief, complete and true. I agree (a) that they shall form a part of my application: (b) that they shall be subject to the terms of the agreement found in Part B; and (c) that they shall become a part of any policy based on this application. Date at ------------------------------ ----------------------------------- City and state Signature of Proposed Insured (if age 15 or over) On ------------------------------ ----------------------------------- Month/day/year Signature of Owner/Applicant, if other than Proposed Insured ----------------------------------- Witness 8 KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO] 1 Kemper Drive, Long Grove, Illinois 60049-0001 VARIABLE UNIVERSAL LIFE SUPPLEMENT - -------------------------------------------------------------------------------- Name of Proposed Insured ___________________ Plan ______________________________ Planned Premium __________________ Mode Payable ________________________________ - -------------------------------------------------------------------------------- PREMIUM ALLOCATION
% of Premium % of Premium % of Premium (Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only) ____% Janus Aspen Series Aggressive Growth ____% Alger American Income and Growth ____% Fixed Account ____% Alger American Mid Cap Growth ____% The Dreyfus Socially Responsible ____% Dreyfus Variable Small Cap Growth Fund, Inc. ____% Kemper Variable Series Small Cap Growth ____% Fidelity VIP Growth ____% Janus Aspen Series Worldwide Growth ____% Janus Aspen Series Growth ____% Fidelity VIP Overseas ____% Kemper Variable Series Value + Growth ____% Janus Aspen Series International Growth ____% Fidelity VIP Equity-Income ____% Templeton Variable Products Series ____% Janus Aspen Series Balanced Developing Markets ____% Alger American Balanced ____% Templeton Variable Products Series ____% Kemper Variable Series Total Return International ____% Templeton Variable Products Series Asset Allocation ____% Scudder Variable Life International ____% Fidelity VIP High Income ____% Scudder Variable Life Growth and Income ____% Templeton Variable Products Series Bond ____% Dreyfus Variable Capital Appreciation ____% Janus Aspen Series Flexible Income ____% Dreyfus Stock Index Fund ____% Kemper Variable Series Investment Grade Bond ____% Scudder Variable Life Capital Growth ____% Kemper Variable Series Government Securities ____% Alger American Growth ____% Kemper Money Market
Total of subaccounts plus fixed account must equal 100% - -------------------------------------------------------------------------------- DOLLAR COST AVERAGING (DCA) I elect to Dollar Cost Average in the amount of $________ ($100.00 minimum) per month from the ____________________ (only the Fixed Account, Money Market or Government Securities subaccount may be chosen) to the following subaccounts and the fixed account. The account from which Dollar Cost Averaging amounts are taken must have an initial starting balance of at least $10,000. Transfers are made on the 10th day of the month. Transfers commence on the first transfer date following the policy's Trade Date.
% of Premium % of Premium % of Premium (Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only) ____% Janus Aspen Series Aggressive Growth ____% Alger American Income and Growth ____% Fixed Account ____% Alger American Mid Cap Growth ____% The Dreyfus Socially Responsible ____% Dreyfus Variable Small Cap Growth Fund, Inc. ____% Kemper Variable Series Small Cap Growth ____% Fidelity VIP Growth ____% Janus Aspen Series Worldwide Growth ____% Janus Aspen Series Growth ____% Fidelity VIP Overseas ____% Kemper Variable Series Value + Growth ____% Janus Aspen Series International Growth ____% Fidelity VIP Equity-Income ____% Templeton Variable Products Series ____% Janus Aspen Series Balanced Developing Markets ____% Alger American Balanced ____% Templeton Variable Products Series ____% Kemper Variable Series Total Return International ____% Templeton Variable Products Series Asset Allocation ____% Scudder Variable Life International ____% Fidelity VIP High Income ____% Scudder Variable Life Growth and Income ____% Templeton Variable Products Series Bond ____% Dreyfus Variable Capital Appreciation ____% Janus Aspen Series Flexible Income ____% Dreyfus Stock Index Fund ____% Kemper Variable Series Investment Grade Bond ____% Scudder Variable Life Capital Growth ____% Kemper Variable Series Government Securities ____% Alger American Growth ____% Kemper Money Market
Total of subaccounts plus fixed account must equal 100% Transfers will continue until you instruct otherwise, or until there is not enough money in the source account to make the transfer, whichever is earlier. - -------------------------------------------------------------------------------- AUTOMATIC ASSET REALLOCATION (AAR) [ ] Check here to have the assets in the subaccounts and the fixed account redistributed to match the premium allocation elections then in effect. Reallocate: [ ] Annually [ ] Quarterly (from Policy Date) - -------------------------------------------------------------------------------- VULKI 9 TELEPHONE AUTHORIZATION [ ] Check here to authorize telephone transfers among the subaccounts and the fixed account subject to the conditions of the Telephone Transfer Agreement. - -------------------------------------------------------------------------------- TELEPHONE TRANSFER AGREEMENT By requesting the telephone transfer authorization, the Owner agrees and understands that: 1. Neither the Company nor its agents or representatives who act on its behalf shall be subject to any claim, loss, liability, cost or expense, if it acts in good faith in following telephone instructions pursuant to this authorization. 2. Transfers will be made subject to the conditions of the policy, administrative regulations of the Company and the prospectus. 3. Transfers from a subaccount shall be based on the accumulation unit value next determined following receipt of a valid complete telephone transfer instruction. 4. This authorization shall continue in force until the earlier of: a. written revocation is received by the Company; or b. the Company discontinues this privilege. I understand that, as a condition of allowing telephone instructions to be made, the Company, at its sole option and without prior disclosure to me, any person or my representative, may record all or part of any telephone conversation, containing such instructions. All terms are binding upon my agents, heirs and assignees. - -------------------------------------------------------------------------------- I UNDERSTAND THAT THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS, POLICY VALUES, AND CASH SURRENDER VALUES ARE AVAILABLE UPON REQUEST. RECEIPT IS ACKNOWLEDGED OF THE CURRENT PROSPECTUS FOR THE POLICY AND FOR THE UNDERLYING FUNDS FOR THE PREMIUM ALLOCATION OPTIONS SELECTED ABOVE. ALL STATEMENTS AND ANSWERS TO THE FOREGOING QUESTIONS ARE, TO THE BEST OF MY KNOWLEDGE AND BELIEF: (a) COMPLETE; AND (b) TRUE. I AGREE (a) THAT THEY SHALL FORM A PART OF MY APPLICATION; (b) THAT THEY SHALL BE SUBJECT TO THE TERMS OF THE AGREEMENT FOUND IN THE APPLICATION; AND (c) THAT THEY SHALL BECOME A PART OF ANY POLICY BASED ON MY APPLICATION. ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION OR CONCEALS FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME AND SUBJECTS SUCH PERSON TO CRIMINAL AND CIVIL PENALTIES. Dated at ------------------------------ ----------------------------------- City and State Signature of Proposed Insured on ---------------------------------- ----------------------------------- Month Day Year Signature of Applicant and Owner (If other than Proposed Insured) - -------------------------------------------------------------------------------- FOR AGENT USE ONLY: 1. I witnessed the signature(s) of the Proposed Insured and Applicant (if any). [ ] Yes [ ] No 2. [ ] I have evaluated my client's income and net worth in relation to the coverage and premium allocation requested to determine suitability and have reasonable grounds for my recommendation. - -------------------------------------------------------------------------------- Agent Name Agent Signature Social Security Number/Agent Code VULKI EX-99.3(A) 12 OPINION & CONSENT OF LEGAL OFFICER OF KILICO 1 EXHIBIT 3(a) December 29, 1999 Kemper Investors Life Insurance Company 1 Kemper Drive Long Grove, Illinois 60049 Dear Sirs: This opinion is furnished in connection with the filing of an S-6 Registration Statement ("Registration Statement") by Kemper Investors Life Insurance Company ("KILICO") for the KILICO Variable Separate Account ("Variable Separate Account"). The Registration Statement covers an indefinite number of units of interest in the Variable Separate Account. Premiums to be received under flexible premium variable universal life policies ("Policies") offered by KILICO may be allocated by KILICO to the Variable Separate Account in accordance with the owners' direction with reserves established by KILICO to support such Policies. The Policies are designed to provide life insurance protection and are to be offered in a manner described in the Prospectus which is included in the Registration Statement. The Policies will be sold only in jurisdictions authorizing such sales. I have examined all applicable corporate records of KILICO and such other documentation and laws as I consider appropriate as a basis of this opinion. On the basis of such examination, it is my opinion that: 1. KILICO is a corporation duly organized and validly existing under the laws of the State of Illinois. 2. The Variable Separate Account is an account established and maintained by KILICO pursuant to the laws of the State of Illinois, under which income, gains and losses, whether or not realized, from assets allocated to the Variable Separate Account are, in accordance with the Policies, credited to or charged against the Variable Separate Account without regard to other income, gains or losses of KILICO. 3. Assets allocated to the Variable Separate Account will be owned by KILICO. The policies provide that the portion of the assets of the Variable Separate Account equal to the reserves and other Policy liabilities with respect to the Variable 2 Kemper Investors Life Insurance Company December 29, 1999 Page Two Separate Account will not be chargeable with liabilities arising out of any other business KILICO may conduct. 4. When issued and sold as described above, the Policies will be duly authorized and will constitute validly issued and binding obligations of KILICO in accordance with their terms. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the references to my name under the heading "Legal Matters" in the Prospectus. Sincerely, /s/ Frank J. Julian Frank J. Julian Vice President and Associate General Counsel EX-99.3(B) 13 OPINION & CONSENT OF ACTUARIAL OFFICER OF KILICO 1 EXHIBIT 3(b) ACTUARIAL OPINION This opinion is supplied with the filing of Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6, File No. 333-88845, by the KILICO Variable Separate Account (the "Separate Account") and Kemper Investors Life Insurance Company ("KILICO") covering an indefinite number of units of interest in the Separate Account. Premiums received under KILICO's Variable Life 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 Policy provisions and the description in the Prospectus and it is my opinion that the illustrations of death benefits, accumulated values, cash values, and accumulated premiums included in Exhibit 9 of the Prospectus, based on the assumptions in the illustrations, are consistent with the Policy provisions. The Policy rate structure has not been designed to make the relationship between planned premiums and benefits, as shown in the illustrations, appear more favorable for prospective nontobacco males ages 35 and 55 than for nontobacco males at other ages. The nontobacco risk class generally has a more favorable rate structure than the tobacco risk classes. Female risk classes generally have a more favorable rate structure than male risk classes. The current and guaranteed monthly mortality rates used in the illustrations have not been designed so to make the relationship between current and guaranteed rates more favorable for the ages and sexes illustrated than for a nonsmoker male at other ages. The nontobacco risk classes generally have lower monthly mortality rates than the tobacco risk classes. The female risk classes generally have lower monthly mortality rates than the male risk classes. I consent to the use of this opinion as an Exhibit to Pre-Effective Amendment No. 1 to the Registration Statement and to the reference to me under the heading "Experts" in the Prospectus. /s/ Christopher J. Nickele -------------------------------------------- Christopher J. Nickele, FSA MAAA Vice President, Actuarial - Agency EX-99.6(A) 14 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 6(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors of Kemper Investors Life Insurance Company and Contract Owners of KILICO Flexible Premium Variable Universal Life Insurance Policies - KILICO Variable Separate Account. We consent to the inclusion in this registration statement on Form S-6 (File No. 333-88845) of our report dated February 19, 1999, on our audit of the financial statements of KILICO Variable Separate Account and to the reference to our firm under the caption "Experts." PricewaterhouseCoopers LLP Chicago, Illinois December 29, 1999 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors of Kemper Investors Life Insurance Company and Contract Owners of KILICO Flexible Premium Variable Universal Life Insurance Policies - KILICO Variable Separate Account We consent to the inclusion in this registration statement on Form S-6 (File No. 333-88845) of our report dated March 12, 1999, on our audit of the consolidated financial statements of Kemper Investors Life Insurance Company and to the reference to our firm under the caption "Experts." PricewaterhouseCoopers LLP Chicago, Illinois December 29, 1999 EX-99.6(B) 15 CONSENT OF KPMG LLP 1 EXHIBIT 6(b) CONSENT OF INDEPENDENT AUDITORS The Board of Directors Kemper Investors Life Insurance Company We consent to the use of our report included herein on the consolidated financial statements of Kemper Investors Life Insurance Company and to the reference to our firm under the heading "Experts" in the prospectus. KPMG LLP Chicago, Illinois December 29, 1999 EX-99.8 16 PROCEDURES MEMORANDUM 1 EXHIBIT 8 PROCEDURES MEMORANDUM (Dated December 29, 1999) Pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 KILICO Variable Separate Account of Kemper Investors Life Insurance Company I. INTRODUCTION Set forth below is the information called for under Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 ("1940 Act"). That rule provides an exemption for separate accounts, their investment advisers, principal underwriters and sponsoring insurance company from Sections 22(d), 22(e), and 27(c)(1) of the 1940 Act, and Rule 22c-1 promulgated thereunder, for issuance, transfer and redemption procedures under flexible premium variable life insurance policies to the extent necessary to comply with Rule 6e-3(T), state insurance or administrative law, or established administrative procedures of the life insurance company. In order to qualify for the exemption, procedures must be reasonable, fair and not discriminatory and they must be disclosed in the registration statement filed by the separate account. The KILICO Variable Separate Account (the "Separate Account") is registered under the 1940 Act. Within the Separate Account are Subaccounts, which are, as of the date of this filing, Alger American Balanced, Alger American Growth, Alger American Income & Growth, Alger American MidCap Growth, Dreyfus Capital Appreciation, Dreyfus Small Cap, Templeton Asset Allocation, Templeton Bond, Templeton Developing Markets, Templeton International, Fidelity VIP Equity Income, Fidelity VIP Growth, Fidelity VIP High Income, Fidelity VIP Overseas, Janus Aspen Aggressive Growth, Janus Aspen Balanced, Janus Aspen Flexible Income, Janus Aspen Growth, Janus Aspen International Growth, Janus Aspen Worldwide Growth, Scudder VLIF Capital Growth, Scudder VLIF Growth and Income, Scudder VLIF International, Kemper Government Securities, Kemper Investment Grade Bond, Kemper Money Market, Kemper Small Cap Growth, Kemper Total Return and Kemper Values + Growth (the "Subaccounts"). Procedures apply equally to each Subaccount and for purposes of this description are defined in terms of the Separate Account, except where a discussion of both the Separate Account and its Subaccounts is necessary. Each Subaccount invests in shares of a corresponding portfolio of the Kemper Variable Series, the Scudder Variable Life Investment Fund (Class A Shares), the Janus Aspen Series or the Warburg Pincus Trust (the "Funds"), mutual funds registered under the 1940 Act. The investment experience of the Subaccounts of the Account depends on the market performance of the corresponding Fund portfolios. 1 2 insured ("Single Life Policy") and a survivorship life modified single premium variable universal life insurance policy covering the lives of two insureds ("Survivorship Policy"). Where the provisions of the policies are the same, they will be referred to jointly as "Policy" or "Policies". Where the provisions differ, the provisions will be distinguished by reference to "Individual Policy" or "Survivorship Policy". KILICO believes its procedures meet the requirements of Rule 6e-3(T)(b)(12)(iii) and states the following: A. Because of the insurance nature of KILICO's Policies and due to the requirements of state insurance and administrative laws, the procedures necessarily differ in significant respects from procedures for mutual funds and contractual plans for which the 1940 Act was designed. B. Many of the procedures used by KILICO have been adopted from established procedures for modified single premium universal life insurance policies sold by KILICO and its affiliated insurance companies. C. In structuring its procedures to comply with Rule 6e-3(T), state insurance laws and its established administrative procedures, KILICO has attempted to comply with the intent of the 1940 Act, to the extent deemed feasible. D. In general, state insurance laws require that KILICO's procedures be reasonable, fair and not discriminatory. E. Because of the nature of the insurance product, it is often difficult to determine precisely when KILICO's procedures deviate from those required under Section 22(d), 22(e) or 27(c)(1) of the 1940 Act or Rule 22c-1 thereunder. Accordingly, set out below is a summary of the principal policy provisions and procedures which may be deemed to constitute, either directly or indirectly, such a deviation. The summary, while comprehensive, does not attempt to address each and every procedure of variation which might occur and does include certain procedural steps which might be deemed as deviations from the above-cited sections rules. II. ISSUANCE This section outlines those provisions and administrative procedures which might be deemed to constitute, either directly or indirectly, a "purchase" transaction. Because of the insurance nature of the Policy, the procedures involved necessarily differ in certain significant respects from the purchase procedures for mutual funds and contractual plans. The chief differences revolve around the structure of the cost of insurance and the insurance underwriting (i.e., evaluation of risk) process. There are also certain Policy provisions, such as reinstatement, which do not result in the issuance of a Policy but which require certain payments by the Policyowner and involve a transfer of assets supporting the Policy reserve into the Separate Account. 2 3 A. Insurance Charges and Underwriting Standards Cost of insurance charges for the Policies will not be the same for all policyholders. The chief reason is that the principle of pooling and distribution of mortality risks is based on the assumption that each Policyowner pays a cost of insurance charge commensurate with the insured person's mortality risk. This mortality risk is actuarially determined based upon factors such as age, tobacco use status, sex, health, and occupation. Each insured is charged a monthly deduction based on applying a cost of insurance rate commensurate with his/her mortality risk to the Account Value, on a current basis, subject to a limit equal to the applicable maximum cost of insurance rate times the Net Amount at Risk. The Policies will be offered and sold pursuant to the cost of insurance schedules and underwriting standards and in accordance with state insurance laws. Such laws prohibit discrimination among insureds, but recognize that premiums must be based on factors such as age, sex, health and occupation. A table showing the maximum cost of insurance rates, as a function of the Net Amount at Risk, will be delivered as part of the policy. B. Application and Initial Premium Processing 1. DEATH BENEFIT The Death Benefit for the Policies is based on the specified amount selected and the death benefit option selected at the time of death. A Policy will be issued if the following conditions are met: a. A premium payment of at least $600 annually 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 1 through 80 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 Policy Date. 3 4 3. PREMIUMS Premiums are to be paid to KILICO at its Home Office. Checks ordinarily must be made payable to KILICO. Initial Premium - The minimum initial premium that KILICO will accept under a Policy is $600 annually. KILICO reserves the right to increase or decrease this amount for a class of Policies issued after some future date. 4 5 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 Fixed Account. The Owner must indicate the initial allocation in the policy application. On the Trade Date, Separate Account Value in the Money Market Subaccount will be allocated to the Subaccounts of the Separate Account and the 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 Policy Date. b. If delivery was not satisfied, the Policy will be terminated as of the Policy Date and any premium refunded to the Owner, subject to the refund rules mentioned herein. Notification will be sent to the Owner 5 6 advising him or her that delivery was never completed and that no insurance has been in effect. D. Delivery Requirements 1. An agent/agency must submit all outstanding delivery requirements to the KILICO Home Office prior to the end of the delivery period. 2. The KILICO Home Office cannot accept partial requirements; however, if an agency does inadvertently submit only part of the requirements necessary to complete delivery, KILICO will record any documents as received, and return the Policy to the agency with a memo advising them of the remaining requirements. 3. Any money submitted with incomplete delivery requirements will be returned to proposed owner with correspondence specifying the remaining requirements. 4. If a Policy is reported as delivered after the delivery period has expired, the Policy will be placed in force, subject to underwriting approval. 5. If a Policy is returned to the agency due to incomplete requirements, a delivery extension may be obtained on the agency's behalf. E. Policy Lapse Lapse will occur when the Surrender Value of a Policy is insufficient to cover the monthly deductions and a grace period expires without a sufficient payment being made. 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 lapse and terminate without value. 6 7 If payment is received within the grace period, the premium or loan repayment will be allocated to the Subaccounts and the Fixed Account in accordance with the most current allocation instructions, unless otherwise requested. Amounts over and above the amounts necessary to prevent lapse may be paid as additional premiums, however, to the extent otherwise permitted. 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 a Policy lapses because of insufficient Surrender Value to cover the monthly deductions, and it has not been surrendered for its Surrender Value, it may be reinstated at any time within three years after the date of lapse. Reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to KILICO; 2. payment of a minimum premium sufficient to cover monthly deductions for the grace period and to keep the policy in force three months; and 3. payment or reinstatement of any Debt against the policy which existed at the date of termination of coverage. The effective date of reinstatement of a Policy will be the monthly Deduction Day that coincides with or next follows the date the application for reinstatement is approved by KILICO. Suicide and incontestability provisions will apply from the effective date of reinstatement. G. Contestability 1. This policy is contestable for two years during the lifetime of the Insured, measured from the Issue Date, for material misrepresentations made in the initial application for the policy. Policy changes and reinstatements may be 7 8 contested for two years after the issue date of change or reinstatement. No statement will be used to contest a Policy unless it is contained in an application. The two year limitation does not apply in the event of fraud. III. TRANSFER PROCEDURES A. Separate Account Value may be transferred among the Subaccounts of the Separate Account and the Fixed Account. All transfers made during a business day will be treated as one request. Fixed Account Value may be transferred to one or more Subaccounts. One transfer of part of the Fixed Account value may be made once each policy year in the thirty day period following the end of the Policy Year. 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 the subaccount or the fixed account, from which amounts are to be transferred, would be less than $500 after such transfer. 3. Transfers will be based on the Accumulation Unit Values next determined following receipt of valid complete transfer instructions by KILICO. 4. The transfer provision may be suspended, modified or terminated at any time by KILICO. 5. Written acknowledgment of transfers between Subaccounts will be provided at two points in time: a. A confirmation notice will be sent to the Owner within seven days of receipt of the request. b. The annual statement will also reflect transfers. 6. KILICO will charge $25 for each transfer in excess of 12 in a Policy Year. B. Policy Loans 1. At any time after the first Policy Year, 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 Surrender Charges. Also, after the first Policy Year, the Owner may borrow an amount up to the earnings in the Policy subject to any previous indebtedness ("preferred loan"). The amount of any new loan may not exceed the maximum loan amount less Debt on the date a loan is granted. The minimum amount of a 8 9 loan is $500. 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 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 Fixed Account in proportion to the values that each bears to the total Separate Account Value plus the 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 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 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 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 4.50% in all Policy Years. Interest on a preferred loan is charged an effective annual rate of 3%. 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% 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 fixed accounts according to the Owner's 9 10 current allocation instructions, unless otherwise requested by the Owner. Transfers from the Loan Account to the Separate Account as a result of the repayment of Debt will be allocated at the end of the Valuation Period during which the repayment is received. 2. KILICO will provide written confirmation of loan repayments, including the effective date of the payment, and the effect on specific Subaccounts, within seven days of the receipt of payment. E. Policy Anniversary and Monthly Deduction Date 1. The Cost of Insurance (COI) is calculated on the Account Value using current rates, and the net amount at risk using guaranteed rates. No substandard ratings are applied. Increases in specified amount can be rated separately from the original rating. 2. The calculated monthly deductions are distributed among the Subaccounts and the DCA Fixed Account in proportion that each Subaccount or DCA Fixed Account bears to the total Separate Account Value plus DCA Fixed Account Value. IV. REDEMPTION PROCEDURES The following outlines are administrative procedures attendant to transactions which involve redemption of a Policy's values. A. Free Look Period 1. The Owner may, until the end of the period of time specified in the Policy, examine the Policy and return it for a refund. The applicable period of time will depend on the state in which the Policy is issued; however, it will be at least 10 days from the date the Policy is received by the Owner. The amount of the refund will be at least equal to the premiums paid. 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. The amount of the refund will be at least equal to premiums paid. 3. Refunds will be made within seven working days of receipt of the request, providing the original payment has had sufficient time from the date of our deposit to clear the payor's bank account. Normally, this is 30 days for payments made by personal check, money order or cashier's check. Any refund or portion thereof is 10 11 subject to being held in KILICO's office until this time requirement is met. If only a portion of the refund is needed to meet the time requirements, the undisputed portion will be released within the seven day time frame. The disputed portion will be held until the time requirement is met and then refunded by separate check. Any refund that needs to be held to meet the time requirement from KILICO date of deposit can be expedited if the payor submits proof that the item has been honored by the bank. B. Surrender Privilege and Charges 1. While the Insured is living and the Policy is in force, the Owner may surrender the Policy for its Surrender Value. To surrender the Policy, the Owner must make written request to KILICO at its Home Office and return the Policy to KILICO. The Surrender Value is equal to the Cash Value less any applicable Surrender Charge and any Debt. After the first Policy Year, a Policy Owner may make withdrawals of amounts less than the Surrender Value. The minimum amount of each withdrawal is $500 and the maximum amount is 10% of the Net Surrender Value during the surrender charge period. A $25 withdrawal charge will be imposed for processing each withdrawal after the first one each policy year. A withdrawal will decrease the Cash Value by the amount of the withdrawal. 2. A 2.5% charge is deducted from each premium to reimburse KILICO for the payment of state premium taxes. In addition, a charge for federal taxes equal to 1% of each premium payment will be deducted 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 ("Surrender 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 Surrender Charges. 4. The applicable Withdrawal Charge will be determined based upon the date of receipt of the written request for surrender. 5. The amount of the surrender charge for the initial Specified Amount will be the product of a. times b. times c. where: a. is the initial Specified Amount (in 1,000s); b. is the surrender target premium rate as shown in Appendix B; and c. is the surrender charge percentage for the applicable Policy Year as shown below During the ten Policy Years following an increase in Specified Amount, an additional surrender charge applies. The additional charge is calculated as described below based on the amount of increase, years commencing on the date of the increase and surrender target premium associated with the increase. 6. The amount of the surrender charge for each increase in the Specified Amount will be the product of a. times b. times c. where: a. is the amount of increase in Specified Amount for the base plan (in 1,000s); b. is the surrender target premium rate as shown in Appendix B; and c. is the surrender charge percentage for the applicable Policy Year as shown below. The surrender charge is the sum of the amounts in 5. and 6. above. The surrender charge will not be reduced by any decrease in Specified Amount. The applicable surrender target premium rate depends on the Insured's age at issue, sex, tobacco status, and underwriting rate class. See Appendix B. SURRENDER CHARGE PERCENTAGES:
POLICY YEAR PERCENTAGES ----------- ----------- 1-5 100% 6 80% 7 60% 8 45% 9 30% 10 15% 11+ 0%
11 12 C. Death Claims 1. KILICO will ordinarily pay a death benefit to the beneficiary within seven calendar days after receipt, at its Home Office, of the policy, due proof of death of the insured and all other requirements necessary* to make payment. KILICO will send the check to the beneficiary with seven days after KILICO receives all required documents. 2. KILICO will make payment of the death benefit out of its General Account, and will transfer assets from the Separate Account to the General Account in an amount equal to the reserve in the Separate Account for the Policy, unless the death benefit is to be paid under a settlement option involving variable payments. In that case, the policy reserve attributable to the death benefit will remain in the Separate Account or such other separate account as KILICO may designate for that purpose in accordance with the Policy, and the benefit payments shall be paid as described in the prospectus in accordance with the settlement and payment options chosen by the beneficiary. Any benefit payment in excess of the policy reserve maintained in the Separate Account for the Policy shall be paid out of the General Account reserve maintained for that purpose. *State insurance laws impose various requirements, such as receipt of a tax waiver, before payment of the death benefit may be made. In addition, payment of the death benefit is subject to the provisions of the policies regarding suicide and incontestability. D. Maturity Benefit and Extended Maturity 1. In certain states, if the Insured is still living and the Policy is in force on the Maturity Date, KILICO will pay the Policy owner a Maturity Benefit. The Maturity Benefit will equal the net Surrender Value on the Maturity Date. The Maturity Date is the Policy Anniversary after the Insured's 100th birthday. 2. KILICO will pay the Maturity Benefit in the same manner as it pays surrender benefits, as described above. 3. In states where approved, an Extended Maturity Rider will be issued with all Policies at no extra premium. Under this Rider, the Death Benefit after the Maturity Date is the greater of the Specified Amount or the Cash Value. In addition, after the Maturity Date, KILICO will not charge the cost of insurance charge or mortality and expense risk charge. The Rider is effective only if the Net Surrender Value at age 100 equals at least 30% of the initial Specified Amount. E. Premium Refunds KILICO will not normally refund premium payments unless one of the following situations occurs: 1. The proposed Insured is determined to be uninsurable by KILICO's standards. 2. The premium paid is in permanent suspense because underwriting requirements were never completed. 3. The delivery period has expired and delivery has not been completed. 4. The Owner exercises the Free Look Privilege. 12 13 5. The premium payment would disqualify the policy as life insurance coverage (see Guideline Premium Test); however, in this instance, the payment will first be applied as a repayment of any outstanding loans. 6. In the event an application is declined by KILICO, the initial premium will be refunded. F. Guideline Premium Test - Tax Qualification The Guideline Premium Test is a two part test applied to determine if a policy qualifies as life insurance as defined in the IRS Code, Section 7702. 1. Part I - Guideline Premium Limitation. The sum of the actual premiums paid into the contract cannot exceed the greater of: a. the guideline single premium, or b. the sum of the guideline level premiums at that time. 2. The guideline single premium is the premium needed at issue for the future benefits under contract, computed on the basis of: a. the guaranteed mortality charges specified in the contract. b. other guaranteed charges specified in the contract, and c. a gross interest rate which is the greater of an annual effective rate of six percent or the rate or rates guaranteed at issue. 3. For this plan the guideline single premium is based on: a. the guaranteed maximum mortality rates, for all durations. b. mortality and expense risk charge, as an adjustment to the interest rate, and c. six percent interest. 4. Guideline level premiums are the annual premium version of the guideline single premium based on the above assumptions and a premium payment period extending to age 95. The gross interest rate used will be four percent. At the point where a policy is recognized as being out of compliance, the Death Benefit must be decreased or premiums refunded as necessary for qualification as life insurance. 13 14 5. Part II - Cash Value Corridor Requirement. The Cash Value test regulates the ratio of the policy Cash Value to the death benefit regardless of the effect of the guideline premium limit. The death benefit payable under the Policy must always be greater than or equal to the Cash Value times the death benefit factor. Death benefit factors vary only by attained age and range from 1.00 to 2.50 for the KILICO Modified Single Premium VUL. A check for compliance will be made at the time premiums are applied and at least annually thereafter. If a violation is detected, the agent will be notified and monies refunded. G. Misstatement of Age or Sex If the age or sex of the Insured is misstated, the Death Benefit will be adjusted based on what the Initial Premium would have purchased using the correct age and/or sex. H. Postponement of Payments Payment of any amount due upon: (a) policy termination at the maturity date, (b) surrender of the policy, (c) payment of any policy loan, or (d) death of the Insured, may be postponed whenever: 1. The New York Stock Exchange is closed other than customary weekend and holiday closing, or trading on the New York Stock Exchange is restricted as determined by the SEC; 2. The SEC by order permits postponement for the protection of Owners; or 3. An emergency exists, as determined by the SEC, as a result of which disposal of securities of the Fund is not reasonably practicable or it is not reasonably practicable to determine the value of the net assets of the Separate Account. Transfers may also be postponed under these circumstances. I. Payment Not Honored by Bank The portion of any payment due under the policy which is derived from any amount paid to KILICO by check or draft may be postponed until such time as KILICO determines that such instrument has been honored by the bank upon which it was drawn. J. Suicide Suicide by the Insured, while sane or insane, within two years from the Issue Date of the policy is a risk not assumed under the policy. KILICO's liability issue for such suicide under a is limited to the premiums paid less any withdrawals and debt. If the Insured dies by suicide, while sane or insane, within two years of any reinstatement, our total liability with respect to such reinstatement will be limited to the Premiums paid less any partial withdrawals and Policy Debt. 14 15 V. RECORDS AND REPORTS KILICO will maintain all records relating to the Separate Account. KILICO will send Owners, at their last known address of record, an annual report stating the Death Benefit, the Accumulation Unit Value, the Cash Value and Surrender Value under the policy, and indicating any additional premium payments, transfers, policy loans and repayments and charges made during the Policy Year. Owners will also be sent annual and semi-annual reports for the Funds to the extent required by the 1940 Act. 15 EX-99.9 17 ILLUSTRATIONS 1 EXHIBIT 9 ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS The tables in this Prospectus have been prepared to help show how values under a Policy change with investment experience. The tables illustrate how Cash Values, Surrender Values (reflecting the deduction of Surrender Charges, if any) and Death Benefits under a Policy issued on an Insured of a given age would vary over time if the hypothetical gross investment rates of return were a uniform, after tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment rate of return averages 0%, 6%, or 12%, but fluctuates over or under those averages throughout the years, the Cash Values, Surrender Values and Death Benefits may be different. The amounts shown for the Cash Value, Surrender Value and Death Benefit as of each Policy Anniversary reflect the fact that the net investment return on the assets held in the Subaccounts is lower than the gross return. This is because of a daily charge to the Subaccounts for assuming mortality and expense risks, which is equivalent to an effective annual charge of .60% in Policy Years one through ten; .40% in Policy Years eleven through twenty; and .20% in Policy Years twenty-one and thereafter. This charge is guaranteed not to exceed an effective annual rate of 0.60%. In addition, the net investment returns also reflect the deduction of the Fund investment advisory fees and other Fund expenses, (.78%, the average of the fees and expenses). The tables also reflect applicable charges and deductions including a 6.0% deduction against premiums, a monthly administrative charge of $10 in the first Policy Year and $6 thereafter (although not to exceed $7.50) and monthly charges for providing insurance protection. For each hypothetical gross investment rate of return, tables are provided reflecting current and guaranteed cost of insurance charges. A hypothetical gross average investment rate of return of 0% corresponds to an approximate net rate of return of -1.38% in Policy Years one through ten; -1.18% in Policy Years eleven through twenty; and -0.98% in Policy Years twenty-one and thereafter. A hypothetical gross average investment rate of return of 6% corresponds to an approximate net rate of return of 4.62%, 4.82% and 5.02% respectively. Likewise, a hypothetical gross average investment rate of return of 12% corresponds to an approximate net rate of return of 10.62%, 10.82% and 11.02%. Cost of insurance rates vary by issue age, sex, rating class and Policy Year and, therefore, are not reflected in the approximate net annual investment rate of return above. Values are shown for Policies which are issued to a male standard nonsmoker and a male preferred nonsmoker. Values for Policies issued on a basis involving a higher mortality risk would result in lower Cash Values, Surrender Values and Death Benefits than those illustrated. Females generally have a more favorable rate structure than males. The tables also reflect the fact that no charges for federal, state or other income taxes are currently made against the Separate Account. If such a charge is made in the future, it will take a higher gross rate of return than illustrated to produce the net after-tax returns shown in the tables. Upon request, we will furnish an illustration based on the proposed Insured's age, sex and premium payment requested. 79 2 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE STANDARD NON-TOBACCO $1,000.00 ANNUAL PREMIUM ISSUE AGE 35 $100,000 INITIAL DEATH BENEFIT: VALUES--CURRENT COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ----------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------- --------- ------- --------- --------- --------- 1..... 1,050 642 0 100,000 689 0 100,000 736 0 100,000 2..... 2,153 1,316 80 100,000 1,452 216 100,000 1,595 359 100,000 3..... 3,310 1,971 735 100,000 2,241 1,005 100,000 2,534 1,298 100,000 4..... 4,526 2,606 1,370 100,000 3,056 1,820 100,000 3,564 2,328 100,000 5..... 5,802 3,229 1,993 100,000 3,905 2,669 100,000 4,699 3,463 100,000 6..... 7,142 3,845 2,857 100,000 4,795 3,806 100,000 5,958 4,969 100,000 7..... 8,549 4,453 3,711 100,000 5,727 4,986 100,000 7,352 6,611 100,000 8..... 10,027 5,052 4,495 100,000 6,703 6,147 100,000 8,896 8,340 100,000 9..... 11,578 5,642 5,271 100,000 7,724 7,354 100,000 10,606 10,236 100,000 10.... 13,207 6,225 6,039 100,000 8,794 8,609 100,000 12,501 12,316 100,000 11.... 14,917 6,816 6,816 100,000 9,937 9,937 100,000 14,630 14,630 100,000 12.... 16,713 7,386 7,386 100,000 11,121 11,121 100,000 16,978 16,978 100,000 13.... 18,599 7,933 7,933 100,000 12,349 12,349 100,000 19,571 19,571 100,000 14.... 20,579 8,459 8,459 100,000 13,622 13,622 100,000 22,436 22,436 100,000 15.... 22,657 8,962 8,962 100,000 14,944 14,944 100,000 25,604 25,604 100,000 16.... 24,840 9,445 9,445 100,000 16,318 16,318 100,000 29,111 29,111 100,000 17.... 27,132 9,895 9,895 100,000 17,736 17,736 100,000 32,986 32,986 100,000 18.... 29,539 10,311 10,311 100,000 19,198 19,198 100,000 37,270 37,270 100,000 19.... 32,066 10,689 10,689 100,000 20,705 20,705 100,000 42,012 42,012 100,000 20.... 34,719 11,029 11,029 100,000 22,258 22,258 100,000 47,264 47,264 100,000 Age 65.. 69,761 11,541 11,541 100,000 41,164 41,164 100,000 146,388 146,388 178,593 Age 70.. 94,836 8,175 8,175 100,000 52,901 52,901 100,000 249,404 249,404 289,309 Age 75.. 126,840 14 14 100,000 66,889 66,889 100,000 421,022 421,022 450,494 Age 80.. 167,685 0 0 0 85,073 85,073 100,000 709,227 709,227 744,688 Age 85.. 219,815 0 0 0 111,310 111,310 116,875 1,184,146 1,184,146 1,243,353
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 80 3 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE STANDARD NON-TOBACCO $1,000.00 ANNUAL PREMIUM ISSUE AGE 35 $100,000 INITIAL DEATH BENEFIT: VALUES--GUARANTEED COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ---------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------ --------- ------- --------- --------- --------- 1 1,050 642 0 100,000 689 0 100,000 736 0 100,000 2 2,153 1,298 62 100,000 1,434 198 100,000 1,575 339 100,000 3 3,310 1,935 699 100,000 2,203 967 100,000 2,494 1,258 100,000 4 4,526 2.553 1,317 100,000 2,998 1,762 100,000 3,500 2,264 100,000 5 5,802 3,151 1,915 100,000 3,817 2,518 100,000 4,601 3,365 100,000 6 7,142 3,727 2,738 100,000 4,661 3,672 100,000 5,806 4,817 100,000 7 8,548 4,279 3,538 100,000 5,529 4,787 100,000 7,125 6,383 100,000 8 10,027 4,809 4,252 100,000 6,422 5,866 100,000 8,570 8,014 100,000 9 11,578 5,312 4,941 100,000 7,338 6,968 100,000 10,153 9,782 100,000 10 13,207 5,790 5,605 100,000 8,280 8,095 100,000 11,889 11,703 100,000 11 14,917 6,240 6,240 100,000 9,246 9,246 100,000 13,792 13,792 100,000 12 16,713 6,661 6,661 100,000 10,234 10,234 100,000 15,880 15,880 100,000 13 18,599 7,050 7,050 100,000 11,245 11,245 100,000 18,173 18,173 100,000 14 20,579 7,407 7,407 100,000 12,279 12,279 100,000 20,693 20,693 100,000 15 22,657 7,728 7,728 100,000 13,334 13,334 100,000 23,463 23,463 100,000 16 24,840 8,013 8,013 100,000 14,410 14,410 100,000 26,513 26,513 100,000 17 27,132 8,254 8,254 100,000 15,503 15,503 100,000 29,869 29,869 100,000 18 29,539 8,448 8,448 100,000 16,609 16,609 100,000 33,566 33,566 100,000 19 32,066 8,588 8,588 100,000 17,725 17,725 100,000 37,640 37,640 100,000 20 34,719 8,667 8,667 100,000 18,844 18,844 100,000 42,133 42,133 100,000 Age 65.. 69,761 4,384 4,384 100,000 29,056 29,056 100,000 124,205 124,205 151,530 Age 70.. 94,836 0 0 0 31,175 31,175 100,000 206,776 206,776 239,860 Age 75.. 126,840 0 0 0 26,801 26,801 100,000 340,525 340,525 364,361 Age 80.. 167,685 0 0 0 4,425 4,425 100,000 559,884 559,884 587,878 Age 85.. 219,815 0 0 0 0 0 0 906,785 906,785 952,124
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 81 4 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE STANDARD NON-TOBACCO $3,000.00 ANNUAL PREMIUM ISSUE AGE 55 $100,000 INITIAL DEATH BENEFIT: VALUES--CURRENT COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ----------------------------- ------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------- --------- ------- --------- --------- ------- 1 3,150 2,179 0 100,000 2,329 0 100,000 2,479 0 100.000 2 6,458 4,339 927 100,000 4,778 1,366 100,000 5,236 1,824 100,000 3 9,930 6,431 3,019 100,000 7,304 3,892 100,000 8,250 4,838 100,000 4 13,577 8,451 5,039 100,000 9,905 6,493 100,000 11,547 8,135 100,000 5 17,406 10,396 6,984 100,000 12,584 9,172 100,000 15,157 11,745 100,000 6 21,426 12,263 9,533 100,000 15,341 12,611 100,000 19,114 16,385 100,000 7 25,647 14,046 11,999 100,000 18,177 16,129 100,000 23,457 21,410 100,000 8 30,080 15,743 14,207 100,000 21,095 19,559 100,000 28,233 26,697 100,000 9 34,734 17,352 16,328 100,000 24,100 23,077 100,000 33,496 32,473 100,000 10 39,620 18,868 18,357 100,000 27,198 26,686 100,000 39,311 38,799 100,000 11 44,751 20,332 20,332 100,000 30,452 30,452 100,000 45,834 45,834 100,000 12 50,139 21,695 21,695 100,000 33,817 33,817 100,000 53,088 53,088 100,000 13 55,796 22,949 22,949 100,000 37,300 37,300 100,000 61,180 61,180 100,000 14 61,736 24,087 24,087 100,000 40,910 40,910 100,000 70,235 70,235 100,000 15 67,972 25,101 25,101 100,000 44,659 44,659 100,000 80,403 80,403 100,000 16 74,521 25,980 25,980 100,000 48,562 48,562 100,000 91,836 91,836 105,611 17 81,397 26,716 26,716 100,000 52,636 52,636 100,000 104,510 104,510 118,096 18 88,617 27,300 27,300 100,000 56,907 56,907 100,000 118,540 118,540 131,579 19 96,198 27,720 27,720 100,000 61,401 61,401 100,000 134,085 134,085 146,153 20 104,158 27,958 27,958 100,000 66,149 66,149 100,000 151,329 151,329 161,922 Age 65 39,620 18,868 18,357 100,000 27,198 26,686 100,000 39,311 38,799 100,000 Age 70 67,972 25,101 25,101 100,000 44,659 44,659 100,000 80,403 80,403 100,000 Age 75 104,158 27,958 27,958 100,000 66,149 66,149 100,000 151,329 151,329 161,922 Age 80 150,340 25,811 25,811 100,000 96,400 96,400 101,220 271,673 271,673 285,256 Age 85 209,282 13,652 13,652 100,000 137,104 137,104 143,959 470,144 470,144 493,652
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 82 5 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE STANDARD NON-TOBACCO $3,000.00 ANNUAL PREMIUM ISSUE AGE 55 $100,000 INITIAL DEATH BENEFIT: VALUES--GUARANTEED COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ---------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------ --------- ------- --------- --------- --------- 1 3,150 1,903 0 100,000 2,044 0 100,000 2,186 0 100,000 2 6,458 3,747 335 100,000 4,151 739 100,000 4,573 1,161 100,000 3 9,930 5,500 2,088 100,000 6,291 2,879 100,000 7,151 3,739 100,000 4 13,577 7,159 3,747 100,000 8,463 5,051 100,000 9,940 6,528 100,000 5 17,406 8,717 5,305 100,000 10,662 7,250 100,000 12,960 9,548 100,000 6 21,426 10,167 7,437 100,000 12,884 10,154 100,000 16,235 13,505 100,000 7 25,647 11,499 9,452 100,000 15,123 13,076 100,000 19,790 17,743 100,000 8 30,080 12,702 11,166 100,000 17,372 15,837 100,000 23,656 22,121 100,000 9 34,734 13,761 12,737 100,000 19,620 18,596 100,000 27,867 26,843 100,000 10 39,620 14,659 14,147 100,000 21,857 21,345 100,000 32,464 31,952 100,000 11 44,751 15,383 15,383 100,000 24,074 24,074 100,000 37,502 37,502 100,000 12 50,139 15,919 15,919 100,000 26,267 26,267 100,000 43,051 43,051 100,000 13 55,796 16,253 16,253 100,000 28,431 28,431 100,000 49,195 49,195 100,000 14 61,736 16,366 16,366 100,000 30,561 30,561 100,000 56,037 56,037 100,000 15 67,972 16,237 16,237 100,000 32,649 32,649 100,000 63,705 63,705 100,000 16 74,521 15,826 15,826 100,000 34,677 34,677 100,000 72,351 72,351 100,000 17 81,397 15,034 15,034 100,000 36,584 36,584 100,000 82,155 82,155 100,000 18 88,617 13,898 13,898 100,000 38,418 38,418 100,000 93,370 93,370 103,641 19 96,198 12,286 12,286 100,000 40,105 40,105 100,000 105,859 105,859 115,386 20 104,158 10,107 10,107 100,000 41,610 41,610 100,000 119,685 119,685 128,063 Age 65 39,620 14,659 14,147 100,000 21,857 21,345 100,000 32,464 31,952 100,000 Age 70 67,972 16,237 16,237 100,000 32,649 32,649 100,000 63,705 63,705 100,000 Age 75 104,158 10,107 10,107 100,000 41,610 41,610 100,000 119,685 119,685 128,063 Age 80 150,340 0 0 0 45,237 45,237 100,000 213,225 213,225 223,886 Age 85 209,282 0 0 0 34,132 34,132 100,000 361,489 361,489 379,563
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 83 6 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE PREFERRED NON-TABACCO $1,500.00 ANNUAL PREMIUM ISSUE AGE 35 $150,000 INITIAL DEATH BENEFIT: VALUES--CURRENT COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ----------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------- --------- ------- --------- --------- --------- 1..... 1,575 1,022 0 150,000 1,095 0 150,000 1,168 0 150,000 2..... 3,229 2,068 214 150,000 2,280 426 150,000 2,500 646 150,000 3..... 4,965 3,085 1,231 150,000 3,505 1,651 150,000 3,960 2,106 150,000 4..... 6,788 4,086 2,232 150,000 4,784 2,930 150,000 5,573 3,719 150,000 5..... 8,703 5,081 3,227 150,000 6,132 4,278 150,000 7,367 5,513 150,000 6..... 10,713 6,069 4,586 150,000 7,549 6,066 150,000 9,360 7,877 150,000 7..... 12,824 7,050 5,938 150,000 9,040 7,927 150,000 11,574 10,462 150,000 8..... 15,040 8,024 7,189 150,000 10,607 9,773 150,000 14,033 13,199 150,000 9..... 17,367 8,993 8,437 150,000 12,256 11,700 150,000 16,764 16,208 150,000 10.... 19,810 9,959 9,681 150,000 13,994 13,716 150,000 19,800 19,522 150,000 11.... 22,376 10,950 10,950 150,000 15,860 15,860 150,000 23,220 23,220 150,000 12.... 25,069 11,914 11,914 150,000 17,801 17,801 150,000 26,999 26,999 150,000 13.... 27,898 12,849 12,849 150,000 19,821 19,821 150,000 31,177 31,177 150,000 14.... 30,868 13,757 13,757 150,000 21,924 21,924 150,000 35,798 35,798 150,000 15.... 33,986 14,636 14,636 150,000 24,115 24,115 150,000 40,913 40,913 150,000 16.... 37,261 15,490 15,490 150,000 26,399 26,399 150,000 46,578 46,578 150,000 17.... 40,699 16,304 16,304 150,000 28,769 28,769 150,000 52,845 52,845 150,000 18.... 44,309 17,076 17,076 150,000 31,228 31,228 150,000 59,782 59,782 150,000 19.... 48,099 17,804 17,804 150,000 33,779 33,779 150,000 67,465 67,465 150,000 20.... 52,079 18,487 18,487 150,000 36,425 36,425 150,000 75,980 75,980 150,000 Age 65.. 104,641 22,207 22,207 150,000 70,164 70,164 150,000 236,334 236,334 288,327 Age 70.. 142,254 20,202 20,202 150,000 92,878 92,878 150,000 403,663 403,663 468,249 Age 75.. 190,260 13,402 13,402 150,000 121,916 121,916 150,000 683,312 683,312 731,143 Age 80.. 251,528 0 0 0 161,400 161,400 169,470 1,153,449 1,153,449 1,211,122 Age 85.. 329,723 0 0 0 211,607 211,607 222,187 1,932,881 1,932,881 2,029,525
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 84 7 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE PREFERRED NON-TOBACCO $1,500.00 ANNUAL PREMIUM ISSUE AGE 35 $150,000 INITIAL DEATH BENEFIT: VALUES--GUARANTEED COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ---------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------ --------- ------- --------- --------- --------- 1..... 1,575 1,022 0 150,000 1,095 0 150,000 1,168 0 150,000 2..... 3,229 2,050 196 150,000 2,261 407 150,000 2,481 627 150,000 3..... 4,965 3,050 1,196 150,000 3,467 1,613 150,000 3,920 2,066 150,000 4..... 6,788 4,020 2,166 150,000 4,713 2,859 150,000 5,495 3,641 150,000 5..... 8,703 4,959 3,105 150,000 5,998 4,144 150,000 7,221 5,367 150,000 6..... 10,713 5,865 4,382 150,000 7,324 5,841 150,000 9,111 7,628 150,000 7..... 12,824 6,735 5,623 150,000 8,688 7,576 150,000 11,181 10,068 150,000 8..... 15,040 7,570 6,736 150,000 10,093 9,258 150,000 13,449 12,615 150,000 9..... 17,367 8,366 7,810 150,000 11,536 10,980 150,000 15,936 15,380 150,000 10.... 19,810 9,124 8,846 150,000 13,022 12,744 150,000 18,665 18,387 150,000 11.... 22,376 9,839 9,839 150,000 14,546 14,546 150,000 21,659 21,659 150,000 12.... 25,069 10,510 10,510 150,000 16,108 16,108 150,000 24,946 24,946 150,000 13.... 27,898 11,133 11,133 150,000 17,709 17,709 150,000 28,558 28,558 150,000 14.... 30,868 11,707 11,707 150,000 19,349 19,349 150,000 32,529 32,529 150,000 15.... 33,986 12,229 12,229 150,000 21,025 21,025 150,000 36,898 36,898 150,000 16.... 37,261 12,694 12,694 150,000 22,738 22,738 150,000 41,710 41,710 150,000 17.... 40,699 13,096 13,096 150,000 24,482 24,482 150,000 47,010 47,010 150,000 18.... 44,309 13,426 13,426 150,000 26,252 26,252 150,000 52,851 52,851 150,000 19.... 48,099 13,675 13,675 150,000 28,042 28,042 150,000 59,293 59,293 150,000 20.... 52,079 13,833 13,833 150,000 29,845 29,845 150,000 66,405 66,405 150,000 Age 65.. 104,641 7,850 7,850 150,000 47,016 47,016 150,000 196,153 196,153 239,307 Age 70.. 142,254 0 0 0 51,945 51,945 150,000 326,390 326,390 378,613 Age 75.. 190,260 0 0 0 48,592 48,592 150,000 537,348 537,348 574,962 Age 80.. 251,528 0 0 0 22,227 22,227 150,000 883,337 883,337 927,504 Age 85.. 329,723 0 0 0 0 0 0 1,430,493 1,430,493 1,502,018
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 85 8 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE PREFERRED NON-TOBACCO $4,500.00 ANNUAL PREMIUM ISSUE AGE 55 $150,000 INITIAL DEATH BENEFIT: VALUES--CURRENT COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ----------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------- --------- ------- --------- --------- --------- 1..... 4,725 3,395 0 150,000 3,624 0 150,000 3,854 0 150,000 2..... 9,686 6,755 1,637 150,000 7,429 2,311 150,000 8,132 3,014 150,000 3..... 14,896 10,031 4,913 150,000 11,375 6,257 150,000 12,833 7,715 150,000 4..... 20,365 13,222 8,104 150,000 15,467 10,349 150,000 18,000 12,882 150,000 5..... 26,109 16,326 11,208 150,000 19,710 14,592 150,000 23,687 18,569 150,000 6..... 32,139 19,340 15,246 150,000 24,111 20,017 150,000 29,952 25,858 150,000 7..... 38,471 22,263 19,192 150,000 28,678 25,607 150,000 36,862 33,791 150,000 8..... 45,120 25,094 22,791 150,000 33,419 31,116 150,000 44,494 42,191 150,000 9..... 52,101 27,835 26,299 150,000 38,349 36,814 150,000 52,939 51,404 150,000 10.... 59,431 30,485 29,717 150,000 43,481 42,713 150,000 62,300 61,532 150,000 11.... 67,127 33,113 33,113 150,000 48,922 48,922 150,000 72,824 72,824 150,000 12.... 75,208 35,625 35,625 150,000 54,585 54,585 150,000 84,528 84,528 150,000 13.... 83,694 38,014 38,014 150,000 60,483 60,483 150,000 97,573 97,573 150,000 14.... 92,604 40,272 40,272 150,000 66,635 66,635 150,000 112,145 112,145 150,000 15.... 101,959 42,393 42,393 150,000 73,063 73,063 150,000 128,467 128,467 150,000 16.... 111,782 44,370 44,370 150,000 79,791 79,791 150,000 146,638 146,638 168,633 17.... 122,096 46,195 46,195 150,000 86,852 86,852 150,000 166,747 166,747 188,424 18.... 132,926 47,863 47,863 150,000 94,285 94,285 150,000 189,015 189,015 209,806 19.... 144,297 49,366 49,366 150,000 102,134 102,134 150,000 213,689 213,689 232,921 20.... 156,237 50,689 50,689 150,000 110,449 110,449 150,000 241,052 241,052 257,925 Age 65.. 59,431 30,485 29,717 150,000 43,481 42,713 150,000 62,300 61,532 150,000 Age 70.. 101,959 42,393 42,393 150,000 73,063 73,063 150,000 128,467 128,467 150,000 Age 75.. 156,237 50,689 50,689 150,000 110,449 110,449 150,000 241,052 241,052 257,925 Age 80.. 225,511 54,521 54,521 150,000 162,481 162,481 170,605 432,289 432,289 453,903 Age 85.. 313,924 50,306 50,306 150,000 229,224 229,224 240,685 749,519 749,519 786,995
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 86 9 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE PREFERRED NON-TOBACCO $4,500.00 ANNUAL PREMIUM ISSUE AGE 55 $150,000 INITIAL DEATH BENEFIT: VALUES--GUARANTEED COST OF INSURANCE
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PAID PLUS ---------------------------- ---------------------------- --------------------------------- POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ --------- ------ --------- ------- ------ --------- ------- --------- --------- --------- 1..... 4,725 2,914 0 150,000 3,128 0 150,000 3,343 0 150,000 2..... 9,686 5,725 607 150,000 6,338 1,220 150,000 6,978 1,860 150,000 3..... 14,896 8,399 3,281 150,000 9,600 4,482 150,000 10,907 5,789 150,000 4..... 20,365 10,932 5,814 150,000 12,914 7,796 150,000 15,160 10,042 150,000 5..... 26,109 13,314 8,196 150,000 16,272 11,154 150,000 19,768 14,650 150,000 6..... 32,139 15,532 11,438 150,000 19,667 15,573 150,000 24,766 20,672 150,000 7..... 38,471 17,575 14,505 150,000 23,094 20,023 150,000 30,198 27,127 150,000 8..... 45,120 19,426 17,122 150,000 26,539 24,236 150,000 36,108 33,805 150,000 9..... 52,101 21,060 19,525 150,000 29,989 28,453 150,000 42,550 41,015 150,000 10.... 59,431 22,455 21,687 150,000 33,427 32,660 150,000 49,590 48,822 150,000 11.... 67,127 23,589 23,589 150,000 36,844 36,844 150,000 57,311 57,311 150,000 12.... 75,208 24,444 24,444 150,000 40,233 40,233 150,000 65,823 65,823 150,000 13.... 83,694 24,996 24,996 150,000 43,587 43,587 150,000 75,255 75,255 150,000 14.... 92,604 25,221 25,221 150,000 46,902 46,902 150,000 85,770 85,770 150,000 15.... 101,959 25,084 25,084 150,000 50,165 50,165 150,000 97,563 97,563 150,000 16.... 111,782 24,529 24,529 150,000 53,354 53,354 150,000 110,873 110,873 150,000 17.... 122,096 23,407 23,407 150,000 56,380 56,380 150,000 125,982 125,982 150,000 18.... 132,926 21,775 21,775 150,000 59,317 59,317 150,000 143,211 143,211 158,965 19.... 144,297 19,436 19,436 150,000 62,061 62,061 150,000 162,313 162,313 176,921 20.... 156,237 16,254 16,254 150,000 64,563 64,563 150,000 183,459 183,459 196,301 Age 65.. 59,431 22,455 21,687 150,000 33,427 32,660 150,000 49,590 48,822 150,000 Age 70.. 101,959 25,084 25,084 150,000 50,165 50,165 150,000 97,563 97,563 150,000 Age 75.. 156,237 16,254 16,254 150,000 64,563 64,563 150,000 183,459 183,459 196,301 Age 80.. 225,511 0 0 0 72,081 72,081 150,000 326,527 326,527 342,853 Age 85.. 313,924 0 0 0 61,248 61,248 150,000 553,288 553,288 580,952
ASSUMPTIONS: (1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN MADE. (2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS. (4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS. (5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY 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. 87 -----END PRIVACY-ENHANCED MESSAGE-----