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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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 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. Securities being offered:
Variable Portion of Modified Single Premium Variable Universal Life
Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this registration.
The registrant is registering an indefinite amount of securities, by reason
of Section 24(f) of the Investment Company Act of 1940.
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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.
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CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in
Prospectus of information required by Items of Form N-8B-2.
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust........................................ Cover, Definitions
(b) Title of each class of securities issued............. Cover, Purchase of Policy
and Allocation of Premiums
2. Name & address of each depositor..................... Cover, Kemper Life Insurance
Company
3. Name & address of custodian.......................... Separate Account
4. Name & address of principal underwriter.............. Distribution of Policies
5. State in which organized............................. Separate Account
6. Date of organization................................. Separate Account
9. Material litigation.................................. Legal Proceedings
GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING SECURITIES AND RIGHTS OF HOLDERS
10. (a),(b) Type of Securities................................... Cover, Purchase of Policy
and Allocation of Premiums
(c) Rights of security holders re: withdrawal or
redemption........................................... Cover, Amount Payable on
Surrender of the Policy,
Policy Loans, Cancellation
(Free Look Period)
(d) Rights of security holders re: conversion, transfer
or partial withdrawal................................ Cover, Cancellation (Free
Look Period), Amount Payable
on Surrender of the Policy,
Partial Withdrawals,
Allocation of Premiums,
Transfer of Cash Value
(e) Rights of security holders re: lapses, default, &
reinstatement........................................ No Lapse Guarantee and Grace
Period; Termination;
Reinstatement
(f) Provisions re: voting rights......................... Voting Rights
(g) Notice to security holders........................... Reports to Owners
(h) Consent of security holders.......................... Additions, Deletions, and
Substitutions of Securities,
Allocation of Premiums
(i) Other principal features............................. Charges and Deductions,
Policy Benefits and Rights,
Cash Value
INFORMATION CONCERNING SECURITIES UNDERLYING TRUST'S SECURITIES
11. Unit of specified securities in which security
holders have an interest............................. Cover, Separate Account
Investments: the Portfolios
12. (a)-(d) Name of company, name & address of its custodian..... Cover, Separate Account
Investments: the Portfolios
INFORMATION CONCERNING LOADS, FEES, CHARGES & EXPENSES
13. (a) With respect to each load, fee, charge & expense..... Charges and Deductions
(b) Deductions for sales charges......................... Withdrawal Charge
(c) Sales load as percentage of amount invested.......... Withdrawal Charge
(d)-(g) Other loads, fees & expenses......................... Charges and Deductions
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ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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INFORMATION CONCERNING OPERATION OF TRUST
14. Procedure for applications for & issuance of trust's
securities........................................... Application for a Policy,
Allocation of Premiums,
Distribution of Policies
15. Procedure for receipt of payments from purchases of
trust's securities................................... Application for a Policy,
Allocation of Premiums,
Premiums, Transfer of Cash
Value
16. Acquisition and disposition of underlying
securities........................................... Cover, Separate Account
Investments: the Portfolios
17. (a) Procedure for withdrawal............................. Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation (Free Look
Period)
(b) Redemption or repurchase............................. Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation (Free Look
Period)
(c) Cancellation or resale............................... Not Applicable
18. (a) Income of the Trust.................................. Portfolios, Allocation of
Premiums
19. Procedures for keeping records & furnishing
information to security holders...................... Portfolios, Reports to
Owners
21. (a)&(b) Loans to security holders............................ Policy Loans
23. Bonding arrangements for depositor................... Safekeeping of the Separate
Account's Assets
24. Other material provisions............................ General Policy Provisions
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION & OPERATIONS OF DEPOSITOR
25. Form, state & date of organization of depositor...... KILICO
27. General character of business of depositor........... KILICO
28. (a) Officials and affiliates of the depositor............ KILICO, Officers and
Directors of KILICO
(b) Business experience of officers and directors of the
depositor............................................ Officers and Directors of
KILICO
COMPANIES OWNING SECURITIES OF DEPOSITOR
29. Each company owning 5% of voting securities of
depositor............................................ KILICO
CONTROLLING PERSONS
30. Control of depositor................................. KILICO
DISTRIBUTION & REDEMPTIONS OF SECURITIES
35. Distribution......................................... KILICO, Distribution of
Policies
38. (a) General description of method of distribution of
securities........................................... Distribution of Policies
(b) Selling agreement between trust or depositor &
underwriter.......................................... Distribution of Policies
(c) Substance of current agreements...................... Distribution of Policies
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ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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PRINCIPAL UNDERWRITER
39. (a)&(b) Principal Underwriter................................ Distribution of Policies
41. Character of Underwriter's business.................. Distribution of Policies
OFFERING PRICE OR ACQUISITION VALUE OF SECURITIES OF TRUST
44. Information concerning offering price or acquisition
valuation of securities of trust. (All underlying
securities are shares in registered investment
companies.).......................................... Separate Account
Investments: the Portfolios,
Cash Value
REDEMPTION VALUATION OF SECURITIES OF TRUST
46. Information concerning redemption valuation of
securities of trust. (All underlying securities are
shares in registered investment companies.).......... Separate Account
Investments: the Portfolios,
Cash Value
PURCHASE & SALE OF INTERESTS IN UNDERLYING SECURITIES
47. Maintenance of Position.............................. Cover, Separate Account,
Separate Account
Investments: the Portfolios,
Allocation of Premiums
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
48. Custodian of trust................................... Separate Account
50. Lien on trust assets................................. Separate Account
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
51. (a) Name & address of insurer............................ Cover, KILICO
(b) Types of Contracts................................... Cover, Purchase of Policy
and Allocation of Premiums,
Federal Tax Considerations
(c) Risks insured & excluded............................. Death Benefit, Optional
Insurance Benefits,
Misstatement as to Age and
Sex, Suicide
(d) Coverage............................................. Cover, Purchase of Policy
and Allocation of Premiums
(e) Beneficiaries........................................ Death Benefit, Beneficiary
(f) Terms of cancellations & reinstatement............... Cancellation (Free Look
Period); No Lapse Guarantee
and Grace Period;
Termination; Reinstatement
(g) Method of determining amount of premium paid by
holder............................................... Purchase of Policy and
Allocation of Premiums
POLICY OF REGISTRANT
52. (a)&(c) Selection of Portfolio securities.................... Additions, Deletions, and
Substitutions of Securities
REGULATED INVESTMENT COMPANY
53. (a) Taxable status of Trust.............................. Taxation of KILICO and the
Separate Accounts
FINANCIAL AND STATISTICAL INFORMATION
59. Financial Statements................................. Financial Statements
* Items not listed are not applicable to this Registration Statement.
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PROSPECTUS
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MODIFIED SINGLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
(SINGLE LIFE AND SURVIVORSHIP)
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ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT
1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (800) 621-5001
This prospectus describes Modified Single Premium Variable Universal Life
Insurance Policies (the "Policies") offered by Kemper Investors Life Insurance
Company ("we" or "KILICO") for prospective insured persons ages 0-90. This
prospectus describes Policies which provide insurance coverage on the life of
one Insured ("Single Life Policies") and Policies which provide insurance on the
lives of two Insureds ("Survivorship Policies"). You may pay a significant
initial Premium and, subject to certain restrictions, additional Premiums.
Under the Single Life Policies, when the Insured dies, we will pay a Death
Benefit to a Beneficiary specified by You. Under the Survivorship Policies, the
Death Benefit is payable upon the second death, as long as the Policy is in
force. While the Policy is in force, the Death Benefit is at least the amount
shown in the Policy specifications, unless you have loans or the Net Surrender
Value is insufficient to pay the monthly expense charges. The Policy does not
have a guaranteed minimum Cash Value.
If you choose a Policy with our No Lapse Guarantee, while this guarantee is
in effect your Policy will never lapse, regardless of changes in Net Surrender
Value. Instead, if the Net Surrender Value becomes insufficient to pay the
monthly charges, the Death Benefit payable will at least equal your total
Premiums paid (less any prior withdrawals of Premium). This guarantee is in
effect while you have no outstanding Policy Debt. If you choose a Policy without
this guarantee or if this guarantee is not in effect under your Policy, your
coverage under the Policy may end if the Net Surrender Value of your Policy
becomes insufficient to cover the monthly expense charges.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY , 1999.
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You may allocate and reallocate your Policy's Cash Value among the
Subaccounts of the KILICO Variable Separate Account (the "Separate Account").
Each Subaccount invests exclusively in shares of one of the following
Portfolios:
Kemper Aggressive Growth Portfolio
Kemper Technology Growth Portfolio
Kemper-Dreman Financial Services Portfolio
Kemper Small Cap Growth Portfolio
Kemper Small Cap Value Portfolio
Kemper-Dreman High Return Equity Portfolio
Kemper International Portfolio
Kemper International Growth & Income Portfolio
Kemper Global Blue Chip Portfolio
Kemper Growth Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio
Kemper Value+Growth Portfolio
Kemper Horizon 20+ Portfolio
Kemper Total Return Portfolio
Kemper Horizon 10+ Portfolio
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio
Kemper Global Income Portfolio
Kemper Investment Grade Bond Portfolio
Kemper Government Securities Portfolio
Kemper Money Market Portfolio
Scudder VLIF Global Discovery Portfolio
Scudder VLIF Growth and Income Portfolio
Scudder VLIF International Portfolio
Scudder VLIF Capital Growth Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Growth and Income Portfolio
Warburg Emerging Markets Portfolio
Warburg Post-Venture Capital Portfolio
You may obtain more information about these Portfolios by reading the
attached Prospectuses for the Portfolios. Not all of the Subaccounts may be
available under your Policy.
You generally may cancel the Policy and receive a refund by returning it to
us within ten days after you receive it. In some states, however, this free look
period may be longer.
The Policies are modified endowment contracts for Federal income tax
purposes, except in certain cases as described in "Federal Tax Considerations"
beginning on page 33. Accordingly, the death benefit under your Policy generally
is not subject to federal income tax, and federal income tax on any growth in
your Policy's Cash Value generally is deferred until you withdraw it by taking a
loan, partial withdrawal, or other distribution from your Policy during the life
of the Insured. In addition, any taxable withdrawal taken before age 59 1/2 will
also be subject to an additional ten percent federal penalty tax, with certain
exceptions.
In certain states the Policies may be offered as group policies with
individual ownership represented by Certificates. The discussion of Policies in
this Prospectus applies equally to Certificates under group policies, unless the
context specifies otherwise.
THE POLICIES AND THE INVESTMENTS IN THE SEPARATE ACCOUNT ARE NOT
DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK.
THE POLICIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED. THE POLICIES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE POLICY, IT MAY NOT BE
ADVANTAGEOUS FOR YOU TO BUY ADDITIONAL COVERAGE OR REPLACE YOUR
EXISTING POLICY WITH THE POLICY DESCRIBED IN THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THOSE
PROSPECTUSES ARE MISSING OR OUTDATED, PLEASE CONTACT US AND WE WILL
SEND YOU THE PROSPECTUS YOU NEED.
YOU CAN FIND THIS PROSPECTUS AND OTHER INFORMATION ABOUT THE SEPARATE
ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") AT THE SEC'S WEBSITE AT http://www.sec.gov.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
The Policies may not be available in all states.
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TABLE OF CONTENTS
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DEFINITIONS.................................................
SUMMARY.....................................................
FEES AND EXPENSES...........................................
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS...............
Application for a Policy..................................
Simplified Underwriting................................
Standard Underwriting..................................
Premiums..................................................
Allocation of Premiums....................................
Cash Value................................................
Accumulation Unit Value...................................
Transfer of Cash Value....................................
Transfers Authorized by Telephone.........................
Automatic Dollar Cost Averaging...........................
Automatic Asset Rebalancing...............................
INVESTMENT OPTIONS..........................................
Separate Account Investments: the Portfolios..............
Voting Rights.............................................
Additions, Deletions, and Substitutions of Securities.....
The DCA Fixed Account.....................................
POLICY BENEFITS AND RIGHTS..................................
Death Benefit.............................................
Accelerated Death Benefit Rider...........................
Policy Loans..............................................
Amount Payable on Surrender of the Policy.................
Partial Withdrawals.......................................
Systematic Withdrawals....................................
Settlement Option Payments................................
No Lapse Guarantee and Grace Period.......................
Termination...............................................
Maturity Benefit and Extended Maturity....................
Reinstatement.............................................
Cancellation (Free Look Period)...........................
Postponement of Payments..................................
CHARGES AND DEDUCTIONS......................................
Separate Account Charges..................................
Mortality and Expense Risk Charge......................
Reserve for Taxes......................................
Monthly Deduction.........................................
Cost of Insurance Charge...............................
Tax Charge.............................................
Administration Charge..................................
Records Maintenance Charge.............................
Portfolio Expenses........................................
Withdrawal Charge.........................................
Free Withdrawal Amount and Waiver of Withdrawal Charge....
Transfer Fee..............................................
Reduction of Charges......................................
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GENERAL POLICY PROVISIONS...................................
Reports to Owners.........................................
Limit on Right to Contest.................................
Suicide...................................................
Misstatement as to Age and Sex............................
Beneficiary...............................................
Assignment................................................
Creditors' Claims.........................................
Dividends.................................................
Notice and Elections......................................
Modification..............................................
Survivorship Policies.....................................
FEDERAL TAX CONSIDERATIONS..................................
Taxation of KILICO and the Separate Account...............
Tax Status of the Policy..................................
Diversification Requirements...........................
Owner Control..........................................
Tax Treatment of Life Insurance Death Benefit Proceeds....
Accelerated Death Benefit..............................
Tax Deferral During Accumulation Period...................
Policies Which Are MECs...................................
Characterization of a Policy as a MEC..................
Tax Treatment of Withdrawals, Loans, Assignments and
Pledges Under MECs....................................
Penalty Tax............................................
Aggregation of Policies................................
Policies Which are not MECs...............................
Tax Treatment of Withdrawals Generally.................
Tax Treatment of Loans.................................
Survivorship Policies.....................................
Treatment of Maturity Benefits and Extension of Maturity
Date...................................................
Actions to Ensure Compliance with the Tax Law.............
Federal Income Tax Withholding............................
Tax Advice................................................
DESCRIPTION OF KILICO AND THE SEPARATE ACCOUNT..............
KILICO....................................................
Officers and Directors of KILICO..........................
Separate Account..........................................
Safekeeping of the Separate Account's Assets..............
State Regulation of KILICO................................
Year 2000 MATTERS...........................................
DISTRIBUTION OF POLICIES....................................
LEGAL PROCEEDINGS...........................................
LEGAL MATTERS...............................................
REGISTRATION STATEMENT......................................
EXPERTS.....................................................
FINANCIAL STATEMENTS........................................
CHANGE OF ACCOUNTANTS.......................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. WE DO NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS BASED IN THIS PROSPECTUS.
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DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION UNIT--An accounting unit of measurement which we use to
calculate the value of a Subaccount.
ACCUMULATION UNIT VALUE--The value of an Accumulation Unit determined for a
Valuation Period according to the formula stated in your Policy.
ANNUITY UNIT--An accounting unit of measurement which we use to calculate
the amount of variable payments under a settlement option.
ANNUITY UNIT VALUE--The value of an Annuity Unit determined for a Valuation
Period according to the formula stated in your Policy.
BENEFICIARY(IES)--The person(s) named by you to receive the Death Benefit
under the Policy.
CASH VALUE--The sum of the Separate Account Value plus the Fixed Account
Value plus the Loan Account Value.
DCA FIXED ACCOUNT--The portion of the Cash Value allocated to our general
account for purposes of participating in our Dollar Cost Averaging program.
DEATH BENEFIT--The amount payable to the Beneficiary under the Policy upon
the death of the Insured(s), before payment of any unpaid Policy Debt or Policy
charges.
DEDUCTION DAY--The same day in each month as the Effective Date. The day of
the month on which the Monthly Deduction is taken from your Cash Value.
EFFECTIVE DATE--The effective date of insurance coverage under the Policy,
as stated in the Policy specifications. It is used to determine Policy
Anniversaries, Policy Years and the Deduction Day. If the Effective Date
otherwise would be the 29th, 30th or 31st of a month, the Effective Date will be
the 28th day of that month.
FIXED ACCOUNT--The portion of the Cash Value allocated to our general
account.
FIXED ACCOUNT VALUE--The value of the Fixed Account, including the DCA
Fixed Account and any initial Premium (plus interest) paid prior to the Issue
Date.
GUIDELINE SINGLE PREMIUM--The "Guideline Single Premium" as defined in
Section 7702 of the Code.
INSURED--A person whose life is insured under the Policy. Under a
Survivorship Policy, there initially are two Insureds.
INVESTMENT EXPERIENCE FACTOR--The factor we use to determine the change in
value of an Accumulation Unit in any Valuation Period. We determine the
Investment Experience Factor separately for each Subaccount.
ISSUE AGE--An Insured's age on his or her most recent birthday before the
Effective Date.
ISSUE DATE--The issue date stated in the Policy specifications. It is the
date all requirements for coverage and Premium have been received, and the
Policy is approved.
LOAN ACCOUNT--An account established for amounts transferred from the
Subaccounts as security for outstanding Policy Debt.
LOAN ACCOUNT VALUE--The value of the Loan Account.
MATURITY DATE--For Single Life Policies, the Policy Anniversary nearest the
Insured's 100th birthday. For Survivorship Policies, the Policy Anniversary
nearest the younger Insured's 100th birthday.
MONTHLY DEDUCTION--The amount deducted from the Cash Value on each
Deduction Day for the cost of insurance charge, the Administration Charge, the
Tax Charge, the Records Maintenance Charge (when due), and the cost of any
benefit rider.
NET SURRENDER VALUE--The Surrender Value minus all outstanding Policy Debt.
NO LAPSE GUARANTEE--Our guarantee that, if you have no outstanding Policy
Debt, your Policy will never lapse regardless of changes in the Net Surrender
Value. If the Net Surrender Value becomes insufficient to
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cover the monthly charges, however, Your Death Benefit may be reduced to equal
your total Premiums (less any prior withdrawals of Premium). The No Lapse
Guarantee is not available under all Policies.
OWNER ("YOU, YOUR, YOURS")--The person(s) having the privileges of
ownership defined in the Policy. The Owner(s) may or may not be the same
person(s) as the Insured(s). If your Policy is issued pursuant to a retirement
plan, your ownership privileges may be modified by the plan.
POLICY ANNIVERSARY--The same day and month as the Effective Date for each
subsequent year the Policy remains in force.
POLICY DEBT--The sum of all unpaid Policy Loans and accrued loan interest.
POLICY YEAR--Each twelve-month period beginning on the Effective Date and
each Policy Anniversary.
PORTFOLIO(S)--The underlying portfolios in which the Subaccounts invest.
Each Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PREMIUM--An amount paid to us as payment for the Policy by you or on your
behalf.
SEC--The United States Securities and Exchange Commission.
SEPARATE ACCOUNT--KILICO Variable Separate Account, a unit investment trust
registered with the SEC under the Investment Company Act of 1940.
SEPARATE ACCOUNT VALUE--The sum of the Subaccount Values of the Policy on
the Valuation Date.
SPECIFIED AMOUNT--The amount of insurance under your Policy. As of the
Effective Date, the Specified Amount is the amount shown on your Policy's
specifications page. Thereafter, the Specified Amount is reduced to reflect
partial withdrawals.
SUBACCOUNT--A division of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SUBACCOUNT VALUE--The value of the assets held in a Subaccount.
SURRENDER VALUE--The Cash Value less any applicable Withdrawal Charge.
TAX CODE--The Internal Revenue Code of 1986, as amended.
TRADE DATE--On the Trade Date, we allocate your initial Premium plus any
interest to the Subaccounts according to your instructions. In some states, the
Trade Date is the same as the Issue Date. If your state requires us to return
your Premium if you cancel Your Policy during the free look period, the Trade
Date will be after the end of the free look period, as explained at page [14]
below.
VALUATION DATE--Each business day that applicable law requires us to value
the assets of the Separate Account. Currently this is each day that the New York
Stock Exchange is open for trading.
VALUATION PERIOD--The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.
WE, OUR, US, KILICO--Kemper Investors Life Insurance Company.
WITHDRAWAL CHARGE--The surrender charge plus the unamortized state premium
tax charge.
YOU, YOUR, YOURS--The party(s) named as Owner in the application, unless
later changed as provided in the Policy.
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SUMMARY
This section summarizes some of the more important features of your Policy.
The Policy is described more fully in the remainder of this Prospectus. Please
read this Prospectus carefully. Unless otherwise indicated, the description of
the Policy contained in this Prospectus assumes that the Policy is in force,
that there is no Policy Debt, and that current federal tax laws apply.
This Policy is a modified single premium variable universal life insurance
policy. The Policy has a Death Benefit, a Cash Value, and other features similar
to life insurance policies providing fixed benefits. The Policy permits the
Owner to pay a single significant initial Premium and, subject to restrictions,
additional Premiums. It is a "variable" Policy because the Cash Value and, in
some circumstances, the Death Benefit vary according to the investment
performance of the Subaccounts to which you have allocated your Premium. The
Cash Value is not guaranteed. This Policy provides you with the opportunity to
take advantage of any increase in your Cash Value, but you also bear the risk of
any decrease.
We will issue Policies on the lives of prospective Insureds age 0-90 who
meet our underwriting standards. You may purchase a Policy to provide insurance
coverage on the life of one Insured ("Single Life Policy") or a Policy to
provide insurance coverage on the lives of two Insureds ("Survivorship Policy").
PAYMENT OF PREMIUM
Your initial Premium must equal at least $10,000. You may choose a minimum
initial Premium of 90% or 100% of the Guideline Single Premium, based on the
initial Specified Amount. If you choose to pay 90% of the Guideline Single
Premium, your current cost of insurance charge will be higher and your Policy
will not include our No Lapse Guarantee. You may pay additional Premiums,
subject to the restrictions described in this Prospectus. We may refuse to
accept any Premium that would cause an increase in the Death Benefit, other than
a reinstatement Premium. We will accept any Premium at such time as it would not
cause your Policy to lose its status as a life insurance contract under the Tax
Code.
POLICY EFFECTIVE DATE
In general, your Policy will be effective and your life insurance coverage
under the Policy will begin as of the date we receive your initial Premium,
after satisfaction of the applicable underwriting requirements. While your
application is in underwriting, if You have paid your initial Premium, we may
provide you with temporary life insurance coverage in accordance with the terms
of our conditional receipt. This temporary coverage will not exceed $500,000
plus the amount of Your initial Premium. We may decline for any lawful reason to
accept your initial Premium until the Issue Date.
You may be eligible to purchase a Policy through simplified underwriting
without a medical examination if you meet our simplified underwriting criteria.
Simplified underwriting will only be available for Individual Policies and
Survivorship Policies involving spouses. Other survivorship cases will be
considered on a fully underwritten basis. You are not eligible for simplified
underwriting if the Insured is under 35 years old or over 80 years old at the
time of application.
If we approve your application, and you paid all or a portion of your
initial Premium prior to the Issue Date, we will credit interest to your Initial
Premium at our then current declared rate for the period from the Effective Date
to the Issue Date. On the Trade Date, we will allocate your initial Premium to
the Subaccounts you have selected or to the DCA Fixed Account (if you have
selected it for Dollar Cost Averaging). In some states, the Trade Date will be
the same as the Issue Date. If your state requires us to return your Premium if
you cancel your Policy during the free look period, however, on the Issue Date
we will initially allocate your initial Premium (plus any interest) to the
Kemper Money Market Subaccount, and the Trade Date will depend on the length of
the free look period in your state. If the free look period is ten days, the
Trade Date will occur twenty days after the Issue Date. If the free look period
is longer, the Trade Date will occur a corresponding number of days later. We
will begin to deduct the Policy charges as of the Effective Date.
If we reject your application, we will not issue you a Policy. We will
return any Premium you have paid, adding interest as and at the rate required in
your state. We will not subtract any Policy charges from the amount we refund to
You.
POLICY BENEFITS
CASH VALUE. The Cash Value of your Policy on any Valuation Date is equal to
the sum of the Separate Account Value, the Fixed Account Value (if any), and the
Loan Account Value (if applicable). Your Cash Value
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will depend on the investment performance of the Subaccounts to which you have
allocated your Premiums, the amount of interest we credit to the DCA Fixed
Account and the Loan Account (if you have any Cash Value in those Accounts), as
well as the Premiums paid, partial withdrawals, and charges assessed. We do not
guarantee a minimum Cash Value.
SURRENDER OR PARTIAL WITHDRAWALS. While your Policy is in force, you may
surrender it for the Net Surrender Value. We also will deduct the Records
Maintenance Charge from your surrender proceeds, if your Cash Value on the last
Policy Anniversary was less than $50,000. Upon surrender, life insurance
coverage under your Policy will end. You may also withdraw part of your Cash
Value through a partial withdrawal, subject to the restrictions described in
"Partial Withdrawals" on page [23] below. If you take a partial withdrawal, we
will reduce the Specified Amount as described in this Prospectus on page [22].
WITHDRAWAL CHARGE. If you surrender your Policy, the Withdrawal Charge will
equal a percentage of your initial Premium net of all previous withdrawal
amounts on which you paid a Withdrawal Charge. You pay a proportionate amount of
Withdrawal Charge on partial withdrawals in excess of the free withdrawal amount
described below.
The Withdrawal Charge has two parts: (1) a surrender charge, which is
intended to cover our distribution expenses; and (2) an unamortized state
premium tax charge, which is intended to cover state premium tax expenses that
are not recovered through the Tax Charge. The rate used to determine the
Withdrawal Charge depends on the year the surrender or partial withdrawal is
made. The maximum Withdrawal Charge is 10% of the initial Premium. It declines
to zero percent after the ninth Policy Year, at the rates shown in the table on
page [30].
FREE WITHDRAWALS. In each Policy Year, we will waive the Withdrawal Charge
for partial withdrawals equal to the greater of:
1. Ten percent of the Cash Value; or
2. Earnings not previously withdrawn.
We will also waive the Withdrawal Charge for qualified medical stays and
disability. For more detail see "Amount Payable on Surrender of the Policy" and
"Partial Withdrawals" on page [23].
POLICY LOANS. You may borrow money from us using your Policy as security
for the loan. Each Policy Loan must equal at least $1,000. Your total Policy
Loans may not exceed 90% of the Surrender Value of your Policy. In most
instances Policy Loans are treated as distributions for Federal tax purposes.
Therefore, you may incur tax liabilities if you borrow a Policy Loan. For more
detail, see "Policy Loans", on pages [22-23], and "Policies Which Are MECs", on
page [35].
DEATH BENEFITS. Under a Single Life Policy, while the Policy is in force,
we will pay a Death Benefit to the Beneficiary upon the death of the Insured.
Under a Survivorship Policy, we will pay the Death Benefit to the Beneficiary
upon the death of the second Insured. While your Policy is in force, the Death
Benefit will equal the greater of Your Policy's then current Specified Amount
and the Cash Value multiplied by a specified percentage, except as provided
under "No Lapse Guarantee" below. Before we pay the Death Benefit, we will
subtract an amount sufficient to repay any outstanding Policy Debt and to pay
any due and unpaid charges.
NO LAPSE GUARANTEE
Under our No Lapse Guarantee, if you do not have any outstanding Policy
Debt, your Policy will never lapse, regardless of changes in the Net Surrender
Value. Your Policy will remain in force until payment of the Death Benefit or
the Maturity Date, unless you voluntarily surrender your Policy at an earlier
date. If your Net Surrender Value is insufficient to cover a Monthly Deduction
when due, we will give you a 61-day Grace Period to pay additional Premium. If
you do not pay sufficient additional Premium, at the end of the Grace Period
your Policy will stay in force but the Death Benefit will be reduced to equal
your total Premium payments (less any prior partial withdrawals of Premium). The
No Lapse Guarantee applies to your Policy unless: (a) you paid 90% of the
Guideline Single Premium at issue for your Policy or (b) your Policy has
outstanding Policy Debt.
DURATION OF COVERAGE
If the No Lapse Guarantee does not apply to your Policy and your Net
Surrender Value is insufficient to cover a Monthly Deduction when due, we will
give you a 61-day Grace Period to pay additional Premium. If you do not pay
sufficient additional Premium, your Policy will terminate at the end of the
Grace Period.
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ALLOCATION OF PREMIUMS
When you apply for the Policy, you specify in your application how to
allocate your initial Premium among the Subaccounts and/or the DCA Fixed
Account. Total allocations must equal 100%. You may allocate all or a portion of
your initial Premium to the DCA Fixed Account solely for the purpose of
subsequent transfers to the Subaccounts under our Automatic Dollar Cost
Averaging Program, as described on pages [20-21].
We allocate any subsequent Premiums to the Subaccounts in the proportions
you specified in your application, until you give us new instructions. While
there is no limit to the number of Subaccounts open at any time, the minimum
initial investment in a Subaccount is $500. In the future, we may change these
limits. As a general rule, any subsequent Premium will be allocated to the
Subaccounts as of the date your Premium is received in our Home Office. You may
not allocate subsequent Premiums or make transfers to the DCA Fixed Account.
TRANSFERS
You may transfer Cash Value among the Subaccounts while the Policy is in
force, by writing to us or calling us at (800) 621-5001. We currently do not
charge a transfer fee. We reserve the right to charge a fee of $25 per transfer
on each transfer after the first twelve transfers in each Policy Year, excluding
transfers under our Automatic Dollar Cost Averaging or Automatic Asset
Rebalancing Programs.
The minimum amount that may be transferred is $100 or the remaining value
in the Subaccount, if the value that would remain in the Subaccount after the
transfer would be less than $500. For more detail, see "Transfer of Cash Value"
and "Transfers Authorized by Telephone", on page [15].
You may also use our Automatic Dollar Cost Averaging program or our
Automatic Asset Rebalancing program. You may not use both programs at the same
time. Under the Automatic Dollar Cost Averaging program, amounts are
automatically transferred to the Subaccounts of your choice on a monthly,
quarterly, semiannual, or annual basis. For more detail, see "Automatic Dollar
Cost Averaging", on pages [16-17].
Under the Automatic Asset Rebalancing program, you periodically can
readjust the percentage of your Cash Value allocated to each Subaccount to
maintain a pre-set level. Investment results will shift the balance of your Cash
Value allocations. If you elect Automatic Asset Rebalancing, we periodically
transfer your Cash Value back to the specified percentages annually,
semiannually, quarterly, or at your request. For more detail, see "Automatic
Asset Rebalancing", on pages [15-16].
THE SEPARATE ACCOUNT
You can allocate and reallocate your Cash Value among the Subaccounts, each
of which in turn invests in a single Portfolio. Under the Policy, the Separate
Account currently invests in the following Portfolios:
KEMPER VARIABLE SERIES:
Kemper Aggressive Growth Portfolio
Kemper Technology Growth Portfolio
Kemper-Dreman Financial Services Portfolio
Kemper Small Cap Growth Portfolio
Kemper Small Cap Value Portfolio
Kemper-Dreman High Return Equity Portfolio
Kemper International Portfolio
Kemper International Growth & Income Portfolio
Kemper Global Blue Chip Portfolio
Kemper Growth Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio
Kemper Value+Growth Portfolio
Kemper Horizon 20+ Portfolio
Kemper Total Return Portfolio
Kemper Horizon 10+ Portfolio
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio
Kemper Global Income Portfolio
Kemper Investment Grade Bond Portfolio
Kemper Government Securities Portfolio
Kemper Money Market Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
(CLASS A SHARES):
Scudder VLIF Global Discovery Portfolio
Scudder VLIF Growth and Income Portfolio
Scudder VLIF International Portfolio
Scudder VLIF Capital Growth Portfolio
JANUS ASPEN SERIES:
Janus Aspen Growth Portfolio
Janus Aspen Growth and Income Portfolio
WARBURG PINCUS TRUST:
Warburg Emerging Markets Portfolio
Warburg Post-Venture Capital Portfolio
Each Portfolio holds its assets separate from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
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CHARGES
CHARGES ASSESSED ON THE SUBACCOUNTS. On each Valuation Date, we deduct a
Mortality and Expense Risk Charge from the Separate Account. The Mortality and
Expense Charge equals an annual rate of .90% of average daily net assets, and is
intended to compensate us for expenses incurred and certain mortality and
expense risks assumed under the Policies. See "Mortality and Expense Risk
Charge" on page [45] below.
MONTHLY DEDUCTION. We also deduct a Monthly Deduction from your Cash Value.
The Monthly Deduction consists of the cost of insurance charge, the
Administration Charge, the Tax Charge, and the cost of any benefit rider. We
also deduct the Records Maintenance Charge on each Policy Anniversary, if your
Policy's Cash Value was less than $50,000 on the previous Policy Anniversary.
The cost of insurance charge covers our anticipated mortality costs. If your
Initial Premium exceeds $500,000, your cost of insurance charges may be lower.
The Administration Charge is intended to compensate us for some of our
administrative costs under the Policy. The Tax Charge covers state premium tax
expenses under the Policies and certain federal tax liabilities resulting from
our receipt of Premiums under the Policies, as required by law. The Records
Maintenance Charge reimburses us for certain administrative costs associated
with the Policies. See "Monthly Deduction", on pages [28-29] below.
WITHDRAWAL CHARGE. We impose a Withdrawal Charge to cover a portion of our
premium tax expenses and a portion of the sales expenses we incur in
distributing the Policies. These sales expenses include agents' commissions,
advertising, and the printing of Prospectuses. See "Withdrawal Charge" on page
[7] above and in "Withdrawal Charge" on page [30] below.
TRANSFER FEE. We currently do not charge a transfer fee. Under the Policy,
however, we reserve the right to charge a fee of $25 per transfer on each
transfer in excess of twelve transfers in a single Policy Year, excluding
Portfolio Rebalancing and Automatic Dollar Cost Averaging transfers. See
"Transfer Fee" on page [31] below.
The charges assessed under the Policy are summarized in the table entitled
"Policy Charges and Deductions" on pages [10-11] below, and described in more
detail in "Charges and Deductions", beginning on page [28].
In addition to our charges under the Policy, each Portfolio deducts amounts
from its assets to pay its investment advisory fee and other expenses. The
Prospectuses for the Portfolios describe their respective charges and expenses
in more detail. We may receive compensation from the investment advisers or
administrators of the Portfolios. Such compensation will be consistent with the
services we provide or the cost savings resulting from the arrangement and
therefore may differ between Portfolios. We also may receive fees from the
Portfolios to assist us in distributing the Policies.
TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW
Your Policy is structured to meet the definition of a life insurance
contract under the Tax Code. We may need to limit the amount of Premiums you pay
under the Policy to ensure that your Policy continues to meet that definition.
In most circumstances, your Policy will be considered a "modified endowment
contract", which is a form of life insurance contract under the Tax Code.
Special rules govern the tax treatment of modified endowment contracts. Under
current tax law, death benefit payments under modified endowment contracts, like
death benefit payments under other life insurance contracts, generally are
excluded from the gross income of the beneficiary. Withdrawals and Policy Loans,
however, are treated differently. Amounts withdrawn and Policy Loans are treated
first as income, to the extent of any gain, and then as a return of Premium. The
income portion of the distribution is includable in your taxable income. Also,
an additional ten percent federal penalty tax is generally imposed on the
taxable portion of amounts received before age 59 1/2. For more information on
the tax treatment of the Policy, see "Federal Tax Considerations", beginning on
page [33], and consult your tax adviser.
FREE-LOOK PERIOD
In most states, you may cancel your Policy by returning it to us no later
than ten days after you receive it. In other states, however, this free look
period may be longer, as provided by state law. If you return your Policy, the
Policy terminates and, in some states, we will pay you an amount equal to your
Premium (less any Policy Debt). In some other states, however, we will return
your Cash Value. Since state laws differ as to the consequences of returning a
Policy, You should refer to your Policy for specific information about your
circumstances.
ILLUSTRATION OF HOW POLICY VALUES CHANGE WITH EXPERIENCE
At your request we will furnish you with a free, personalized illustration
of Cash Value, Surrender Value and Death Benefit. The illustration will be
personalized to reflect the proposed Insureds' age, sex, underwriting
classification, proposed initial Premium, and any available riders requested.
The illustrated Cash Value, Surrender
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Value and Death Benefit will be based on certain hypothetical assumed rates of
return for the Separate Account. Your actual investment experience probably will
differ, and as a result the actual values under the Policy at any time may be
higher or lower than those illustrated. The personalized illustrations will
follow the methodology and format of the hypothetical illustrations that we
filed with the SEC in the registration statement.
FEES AND EXPENSES
The following tables are designed to help you understand the fees and
expenses that you bear, directly or indirectly, as a Policy Owner. The first
table describes the Policy Charges and deductions you directly bear under the
Policy. The second table describes the fees and expenses of the Portfolios that
you bear indirectly when you purchase a Policy. (See "Charges and Deductions",
beginning on page [28]).
POLICY CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM THE SEPARATE ACCOUNT:
Mortality and Expense Risk
Charge: 0.90% of average daily net assets(1)
Federal Income Tax Charge:Currently none.(2)
CHARGES DEDUCTED FROM CASH VALUE:(3)
Monthly Cost of Insurance Charge:(3)
CURRENT: The lower of: (i) the product of the
applicable current asset-based cost of insurance
charge times the Cash Value on the Deduction Day;(4)
and (ii) the product of the applicable guaranteed cost
of insurance rate times the net amount at risk.
If your initial Premium is no more than $500,000 and
you pay 100% of the Guideline Single Premium, the
current asset-based rate for Single Life Policies for
the Standard (NS)(5) rate class is 0.55% annually of
Cash Value for the first ten Policy Years and 0.25%
thereafter and the rate for Survivorship Policies for
the Standard (NS) rate class is 0.45% for the first
ten Policy Years and 0.20% thereafter.
If your initial Premium is more than $500,000 and you
pay 100% of the Guideline Single Premium, the current
asset-based rate for Single Life Policies for the
Standard (NS) rate class is 0.25% for the first ten
Policy Years and 0.10% thereafter and the rate for
Survivorship Policies for the Standard (NS) rate class
is 0.20% for the first ten Policy Years and 0.10%
thereafter.
GUARANTEED: Ranges from $.06 per $1,000 of net amount
at risk to $83.33 per $1,000 of net amount at risk.(6)
Administration Charge(7) 0.35% annually of average monthly Cash Value for
Policy Years 1-10
0.25% annually of average monthly Cash Value for
Policy Years 11 and later
Tax Charge(7) 0.40% annually of the average monthly Cash Value for
Policy Years 1-10
0.00% for Policy Years 11 and later
Records Maintenance
Charge(8) $30.00 per year, deducted annually, if your Cash Value
is less than $50,000 on the most recent Policy
Anniversary.
TRANSACTION CHARGES:
Transfer Fee:(9) Currently none.
MAXIMUM WITHDRAWAL
CHARGE:(10) 10% of the initial Premium
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(1) Deducted each Valuation Period at a rate equivalent to the effective annual
rate shown, multiplied by the Separate Account Value on the relevant
Valuation Date, times the number of days in the relevant Valuation
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Period. No mortality and expense risk charge is deducted from the Kemper
Money Market II Subaccount, which is only available for Automatic Dollar
Cost Averaging that will deplete the owner's Subaccount Value by the end of
the first Policy Year.
(2) We currently do not assess a charge for federal income taxes that may be
attributed to the operations of the Separate Account. We reserve the right
to do so in the future. See "Charges and Deductions", beginning on page
[28].
(3) Assessed monthly, allocated pro rata among all active Subaccounts and the
DCA Fixed Account.
(4) The asset-based cost of insurance rate differs depending on Policy type and
history of tobacco use of the Insured(s). The current-asset based cost of
insurance rates also reflect whether you pay 90% or 100% of the Guideline
Single Premium at issue (based on the initial Specified Amount). The
asset-based rates that we set will reflect our expectations as to mortality
experience under the Policies and other relevant factors, such that the
aggregate actual cost of insurance charges paid under the Policies will
compensate us for our aggregate mortality risks under the Policies. In our
discretion, We may change the asset-based rate used in the current cost of
insurance formula. Even if we change the asset-based rate, however, you
will never be charged more than the amount determined using the guaranteed
cost of insurance tables in your Policy. For further explanation, see
"Charges and Deductions--Monthly Deduction--Cost of Insurance Charge", on
pages [28-29].
(5) The Standard (NS) rate class is our best rate class for Insureds who have
not used tobacco of any kind within the past 36 months.
(6) The guaranteed cost of insurance charges are based on attained age, sex,
and history of tobacco use of the Insured. The net amount at risk is the
difference between the Death Benefit and the Cash Value. See "Charges and
Deductions--Monthly Deduction--Cost of Insurance Charge", on pages [28-29].
(7) Deducted monthly in an amount equal to 1/12 the annual rate shown,
multiplied by the total Cash Value, including the Loan Account Value, on
the relevant Deduction Day. The Administration Charge covers certain of our
administrative expenses in connection with the Policies. The Tax Charge
covers a portion of our state premium tax expense and certain federal
income tax liability associated with the receipt of Premium.
(8) The Records Maintenance Charge is deducted annually on each Policy
Anniversary. If you surrender your Policy during a Policy Year, we will
deduct the Records Maintenance Charge from your surrender proceeds.
(9) We currently do not charge a transfer fee. Under the Policy, we reserve the
right in the future to charge a transfer fee of $25 on each transfer after
the first twelve transfers each Policy Year, excluding transfers under our
Automatic Dollar Cost Averaging and Automatic Asset Rebalancing Programs.
(10) This charge only applies upon withdrawals of the initial Premium. It does
not apply to withdrawals of any additional Premiums paid under a Policy.
The Withdrawal Charge declines to zero percent after the ninth Policy
Anniversary. It is imposed to cover a portion of our premium tax expenses
and the sales expenses incurred by us in distributing the Policies. In any
Policy Year, we will not charge any Withdrawal Charge on that portion of
your withdrawals equal to the greater of (a) ten percent of the Cash Value,
less any prior free partial withdrawal since the most recent Policy
Anniversary, or (b) earnings not previously withdrawn. See Charges and
Deductions--Withdrawal Charge, page [30].
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PORTFOLIO EXPENSES(1)
(As a percentage of average net assets for the period ended December 31, 1998)
(after fee waivers and expense reimbursements, as indicated in the notes)
TOTAL FUND OTHER TOTAL FUND ANNUAL
PORTFOLIO MANAGEMENT FEES EXPENSES EXPENSES
- --------- --------------- ---------------- -----------------
Kemper Aggressive Growth Portfolio(4)............. 0.67% 0.28% 0.95%
Kemper Technology Growth Portfolio(2)............. 0.66% 0.29% 0.95%
Kemper-Dreman Financial Services
Portfolio(2)(5)................................. 0.02% 0.97% 0.99%
Kemper Small Cap Growth Portfolio................. 0.65% 0.05% 0.70%
Kemper Small Cap Value Portfolio(1)............... 0.75% 0.05% 0.80%
Kemper-Dreman High Return Equity
Portfolio(2)(5)................................. 0.42% 0.45% 0.87%
Kemper International Portfolio.................... 0.75% 0.18% 0.93%
Kemper International & Growth Income
Portfolio(2)(5)................................. 0.00% 1.12% 1.12%
Kemper Global Blue Chip Portfolio(2)(5)........... 0.00% 1.56% 1.56%
Kemper Growth Portfolio........................... 0.60% 0.05% 0.65%
Kemper Contrarian Value Portfolio(1).............. 0.75% 0.03% 0.78%
Kemper Blue Chip Portfolio(1)(6).................. 0.65% 0.11% 0.76%
Kemper Value+Growth Portfolio(1).................. 0.75% 0.03% 0.78%
Kemper Horizon 20 Portfolio(1).................... 0.60% 0.07% 0.67%
Kemper Total Return Portfolio..................... 0.55% 0.05% 0.60%
Kemper Horizon 10+ Portfolio(1)................... 0.60% 0.04% 0.64%
Kemper High Yield Portfolio....................... 0.60% 0.05% 0.65%
Kemper Horizon 5 Portfolio(1)..................... 0.60% 0.06% 0.66%
Kemper Global Income Portfolio(2)(6).............. 0.72% 0.33% 1.05%
Kemper Investment Grade Bond Portfolio(6)......... 0.60% 0.07% 0.67%
Kemper Government Securities Portfolio............ 0.55% 0.11% 0.66%
Kemper Money Market Portfolio(3).................. 0.50% 0.04% 0.54%
Scudder VLIF Global Discovery Portfolio(7). % 0.91 % 0.81 % 1.72
Scudder VLIF Growth and Income Portfolio.......... 0.47% 0.09% 0.56%
Scudder VLIF International Portfolio.............. 0.87% 0.18% 1.05%
Scudder VLIF Capital Growth Portfolio............. 0.47% 0.04% 0.51%
Janus Aspen Growth Portfolio(8)................... 0.65% 0.03% 0.68%
Janus Aspen Growth and Income Portfolio(8)........ 0.00% 1.25% 1.25%
Warburg Emerging Markets Portfolio(9)............. 0.20% 1.20% 1.40%
Warburg Post-Venture Capital Portfolio(9)......... 1.08% 0.24% 1.32%
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(1) 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 the date of this Prospectus, to limit their respective
fees and to reimburse other operating expenses, in a manner communicated to
the Board of the Fund, 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%), Kemper
Contrarian Value Portfolio (.80%), Kemper Small Cap Value Portfolio (.84%),
Kemper Horizon 5 Portfolio (.97%), Kemper Horizon 10+ Portfolio (.83%),
Kemper Horizon 20+ Portfolio (.93%), Kemper Investment Grade Bond Portfolio
(.80%), and Kemper Blue Chip Portfolio (.95%). The amounts set forth in the
table above reflect actual expenses for the past fiscal year, which were
lower than these expense limits.
(2) 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 the date of this Prospectus, to limit their respective
fees and to reimburse other operating expenses, in a manner communicated to
the Board of the Fund, to the extent necessary to limit total operating
expenses of the Kemper Aggressive Growth, Kemper Technology Growth,
Kemper-Dreman Financial Services, Kemper-Dreman High Return Equity, Kemper
International Growth and Income, Kemper Global Blue Chip and Kemper Global
Income Portfolios of Kemper Variable Series to the levels set forth in the
table above. Without taking into effect these expense caps, for the
Aggressive Growth, Technology Growth, Financial Services, High Return
Equity, International Growth and Income, Global Blue Chip and Global Income
Portfolios of Kemper Variable Series: management fees are estimated to be
.75%, .75%, .75%, .75%, 1.00%, 1.00% and .75%. Other Expenses are estimated
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to be .28%, .29%, .97%, .45%, 18.54%, 11.32%, and .33%, respectively, and
total operating expenses are estimated to be 1.03%, 1.04%, 1.72%, 1.20%,
19.54%, 12.32%, and 1.08%, respectively. In addition, for Kemper
International Growth and Income and Kemper Global Blue Chip, the investment
manager has agreed to limit its management fee to .70% and .85%,
respectively, of such portfolios for one year from the date of this
Prospectus.
(3) This Portfolio is the underlying investment for the Kemper Money Market
Subaccount and the Kemper Money Market II Subaccount. The Kemper Money
Market II Subaccount is only available to allocate all or a portion of your
initial Premium for Automatic Dollar Cost Averaging that will deplete your
Subaccount Value by the end of the first Policy Year.
(4) Portfolio commenced operations after 5/1/99. "Other Expenses" have been
estimated.
(5) Portfolios commenced operations on or after 5/1/98. "Other Expenses" have
been estimated.
(6) Portfolios commenced operations 5/1/97. "Other Expenses" have been
estimated.
(7) Until April 10, 1998, the Adviser waived a portion of its management fee to
limit the expenses of this Portfolio to 1.50% of the average daily net
assets.
(8) The expense figures shown are net of certain fee waivers or reductions from
Janus Capital Corporation. Without such waivers, 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; and 0.75%, 2.31%, and 3.06%,
respectively, for the Growth and Income Portfolio. See the prospectus and
Statement of Additional Information of Janus Aspen Series for a description
of these waivers.
(9) The expense figures shown are net of certain fee waivers or reductions from
Warburg Pincus Asset Management, Inc. and its affiliates based on actual
expenses for fiscal year ended December 31, 1998. Without such waivers,
Management Fees, Other Expenses, and Total Portfolio Annual Expenses for the
Portfolios for the fiscal year ended December 31, 1998 would have been:
1.25%, 6.96%, and 8.21%, respectively, for the Emerging Markets Portfolio;
and 1.25%, 0.45%, and 1.70%, respectively, for the Post-Venture Capital
Portfolio. Fee waivers and expense reimbursements may be discontinued at any
time.
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS
APPLICATION FOR A POLICY
You may apply to purchase a Policy by submitting a written application to
us through one of our authorized agents. We will issue Policies to insure people
who are 90 years of age or younger. When you apply for a Policy, we will require
you to submit evidence of insurability satisfactory to us. If we do not issue a
Policy to you, we will return your Premium to you.
In general, we will deliver your Policy only when (1) we have received your
initial Premium and (2) we have determined that your application meets our
underwriting requirements. If you are paying Premium from more than one source,
we will not issue your Policy until all Premium has been received. The Effective
Date will be the effective date of insurance coverage under your Policy. We use
the Effective Date to determine Policy Anniversaries, Policy Years, and
Deduction Days. The Effective Date usually will be the date when we have
received your initial Premium, after satisfaction of the applicable underwriting
requirements.
We will not accept your initial Premium with your application if it exceeds
our then-current limit. In other cases, you may choose to pay the initial
Premium with your application. If you did not submit your initial Premium with
your application, we will require you to pay your entire Premium before we place
your insurance in force.
Acceptance of your application is subject to our underwriting rules. We
reserve the right to reject your application for any lawful reason. We reserve
the right to change the terms or conditions of your Policy to comply with
differences in applicable state law. Variations from the information appearing
in this Prospectus due to individual state requirements are described in
supplements which are attached to this Prospectus or in endorsements to the
Policy, as appropriate.
SIMPLIFIED UNDERWRITING. Under our current underwriting rules, which we may
change when and as we decide, proposed Insureds are eligible for simplified
underwriting without a medical examination, if the application responses and
requested initial Premium meet our simplified underwriting standards. Simplified
underwriting is not available if the initial Premium exceeds the limits set in
our simplified underwriting standards.
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For Survivorship Policies, both Insureds must meet our simplified underwriting
requirements. Simplified underwriting limits may vary by state.
STANDARD UNDERWRITING. If you are not eligible for simplified underwriting,
we will process your application in accordance with our customary underwriting
requirements. While your application is in underwriting, if you have paid your
initial Premium we may provide you with temporary life insurance coverage in
accordance with the terms of our conditional receipt. Any temporary coverage may
not exceed $500,000 plus the amount of your initial Premium. If you did not pay
your Premium with your application, we will require you to pay your entire
Premium before we place your insurance in force. If you pay Premium through more
than one source, e.g., through the rollover of another policy, we will not place
your Policy in force until all Premium has been received.
If we approve your application, you will earn interest and/or investment
return on your Premium from the Effective Date. We will also begin to deduct the
Policy charges as of the Effective Date.
If we reject your application, we will not issue you a Policy. We will
return any Premium you have made, adding interest as and at the rate required in
your state. We will not subtract any Policy charges from the amount we refund to
You.
PREMIUMS
You must pay an initial Premium to purchase a Policy. You may choose a
minimum initial Premium of 90% or 100% of the Guideline Single Premium for your
Policy's initial Specified Amount. Your choice will affect your current cost of
insurance charge. In addition, if you choose to pay 90%, your Policy will not
include our No Lapse Guarantee. Under either option, the minimum initial Premium
is $10,000. We may waive or change this minimum.
You may pay additional Premiums at any time and in any amount necessary to
avoid termination of your Policy. In addition, we will accept any additional
Premium at such time as it would not disqualify your Policy as a life insurance
contract under the Tax Code. If you wish to repay Policy Debt (if any), you must
send written instructions with your payment; otherwise, we will treat any
payment received from you as additional Premium.
ALLOCATION OF PREMIUMS
If you pay all or a portion of your initial Premium prior to the Issue
Date, we will initially allocate your payment to our Fixed Account. If we
approve your application, we will credit interest to that amount at an effective
rate of not less from 3% annually for the period from the Effective Date to the
Issue Date.
On the Issue Date, if your state requires us to return your Premium if you
cancel your Policy during the free look period, we will initially allocate your
initial Premium (and any interest) to the Kemper Money Market Subaccount.
Subsequently, on the Trade Date, we will allocate your Cash Value to the
Subaccounts and/or the DCA Fixed Account (if you have selected it for Dollar
Cost Averaging) in accordance with your instructions. The Trade Date will depend
on the length of the free look period. If the free look period is ten days, the
Trade Date will occur twenty days after the Issue Date. If the free look period
is longer, the Trade Date will occur a corresponding number of days later.
In other states, on the Issue Date we will allocate your initial Premium
according to your instructions, because the Trade Date will be the same as the
Issue Date.
You must specify your allocation percentages in your Policy application.
The total allocation must equal 100%. We will allocate your subsequent Premiums
in those proportions, until you give us new allocation instructions. You may
change your allocation instructions orally or in writing. Your initial
allocation to a Subaccount must equal at least $500. You may not allocate your
Cash Value to more than 30 Subaccounts at one time. You may not allocate
Premiums to the DCA Fixed Account after the initial Premium.
We generally will allocate your additional Premiums to the Subaccounts as
of the date your Premium is received in our Home Office. We may refuse to accept
any Premium that would cause an increase in the Death Benefit, other than a
reinstatement Premium. We will make all valuations in connection with the
Policy, other than the initial Premium and other Premium payments requiring an
underwriting, on the date a Premium is received or your request for other action
is received at our Home Office, if that date is a Valuation Date, or on the next
succeeding Valuation Date.
CASH VALUE
Your Cash Value on any Valuation Date is the sum of the value of your
interest in the Subaccounts you have chosen, your Fixed Account Value (if any),
plus your Loan Account Value (if any). Your Cash Value may
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increase or decrease daily to reflect the performance of the Subaccounts you
have chosen, the addition of interest credited to the Loan Account, the addition
of Premiums, and the subtraction of partial withdrawals and charges assessed.
There is no minimum guaranteed Cash Value.
On the Effective Date, your Cash Value will equal the initial Premium less
the Monthly Deduction for the first Policy Month.
The Separate Account Value equals the sum of the Subaccount Values, each of
which equals:
a. The total value of your Accumulation Units in the Subaccount; plus
b. Any Premium received and allocated to the Subaccount during the
current Valuation Period; plus
c. Any amount transferred to the Subaccount during the current
Valuation Period; minus
d. The pro-rata portion of any Monthly Deduction charged to the
Subaccount when the Valuation Period includes a Deduction Day;
minus
e. Any amount transferred from the Subaccount during the current
Valuation Period; minus
f. Any amount withdrawn from the Subaccount during the current
Valuation Period; minus
g. Any amount loaned from the Subaccount during the current Valuation
Period.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Subaccount will vary to reflect the
investment experience of the corresponding Portfolio and the deduction of
certain expenses. We will determine the Accumulation Unit Value for each
Subaccount on each Valuation Date. A Subaccount's Accumulation Unit Value for a
particular Valuation Date will equal the Subaccount's Accumulation Unit Value on
the preceding Valuation Date multiplied by the Investment Experience Factor for
that Subaccount for the Valuation Period then ended.
The Investment Experience Factor for each Subaccount is (1) divided by (2)
minus (3), where:
(1) is the sum of (a) the net asset value per share of the corresponding
Portfolio at the end of the current Valuation Period plus (b) the per
share amount of any dividend or capital gains distribution by that
Portfolio, if the "ex-dividend" date occurs in that Valuation Period;
plus or minus (c) a credit or charge for any taxes reserved for the
current Valuation Period which we determine to have resulted from the
investment operations of the Subaccount;
(2) is the net asset value per share of the corresponding Portfolio at the
end of the last prior Valuation Period; and
(3) is the factor representing the Mortality and Expense Risk Charge.
You should refer to the Prospectuses for the Portfolios which accompany
this Prospectus for a description of how the assets of each Portfolio are
valued, since that determination directly affects the investment experience of
the corresponding Subaccount and, therefore, your Cash Value.
TRANSFER OF CASH VALUE
While the Policy is in force before the Maturity Date, you may transfer
Cash Value among the Subaccounts in writing or by telephone. We currently do not
charge a transfer fee. However, under the Policy we reserve the right to charge
a fee of $25 for each transfer in excess of twelve per Policy Year, excluding
transfers under our Automatic Dollar Cost Averaging and Automatic Asset
Rebalancing Programs. You may not transfer Cash Value to the DCA Fixed Account.
The minimum amount that may be transferred from a single Subaccount is
$100, or the remaining value in the Subaccount, if the value that would remain
in the Subaccount after the transfer would be less than $500. We reserve the
right to waive or change these minimums.
As a general rule, we only make transfers on days when we and the New York
Stock Exchange are open for business. If we receive your request on one of those
days, we will make the transfer that day. Otherwise, we will make the transfer
on the first subsequent day on which we and the NYSE are open. Transfers
pursuant to a Automatic Dollar Cost Averaging or Automatic Asset Rebalancing
program will be made at the intervals you have selected in accordance with the
procedures and requirements we establish. We may suspend, modify, or terminate
the transfer provisions.
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TRANSFERS AUTHORIZED BY TELEPHONE
You may make transfers by telephone, if you so advise us in writing on our
authorized forms. The cut off time for telephone transfer requests is 4:00 p.m.
Eastern time. Timely requests will be processed on that day at that day's price.
If we receive your request after 4:00 p.m. Eastern time, we will process your
request at the next day's price.
We use procedures that we believe provide reasonable assurance that
telephone authorized transfers are genuine. For example, we tape telephone
conversations with persons purporting to authorize transfers and request
identifying information. Accordingly, we disclaim any liability for losses
resulting from allegedly unauthorized telephone transfers. We may suspend,
modify or terminate the telephone transfer privilege at any time without notice.
AUTOMATIC DOLLAR COST AVERAGING
Under our Automatic Dollar Cost Averaging program, while the Policy is in
force you may authorize us to transfer a fixed dollar amount monthly, quarterly,
semiannually, or annually to the Subaccounts of your choice in accordance with
the procedures and requirements that we establish. The transfers will continue
until you instruct us to stop, or until your chosen source of transfer payments
is exhausted. The minimum Automatic Dollar Cost Averaging transfer is $100 per
transfer. Upon early termination of your Automatic Dollar Cost Averaging
program, we will allocate the remaining amount from your source account to the
Subaccounts in accordance with your instructions in our files. If you do not
give us new instructions, we will follow the allocation instructions in our
files.
You may make Dollar Cost Averaging transfers from any Subaccount. At issue,
you may choose to allocate some or all of your initial Premium to the Kemper
Money Market II Subaccount or to the DCA Fixed Account, for purposes of
participating in the Dollar Cost Averaging Program. Amounts allocated to the
Kemper Money Market II Subaccount or the DCA Fixed Account must be transferred
to other Subaccounts by the first Policy Anniversary.
The Kemper Money Market II Subaccount invests in the Kemper Money Market
Portfolio. However, the Mortality and Expense Risk Charge is not charged to this
Subaccount.
We offer two DCA Fixed Account options in connection with the Automatic
Dollar Cost Averaging Program: a six-month option and a twelve-month option.
Amounts designated for one of these options will be transferred to the
Subaccounts within six months or twelve months of the Effective Date, as
appropriate. Until they are transferred, they will accrue interest at the rate
we declare. We may declare different rates for the six-month and the
twelve-month options. In our discretion, we may change the DCA Fixed Account
options that we offer under the Policy. For more information, see "The DCA Fixed
Account" on pages [20-21].
Your request to participate in this program will be effective when we
receive your completed application at our Home Office at the address given on
the first page of this Prospectus. Call or write us for a copy of the
application and additional information concerning the program. You may not use
Automatic Dollar Cost Averaging and Automatic Asset Rebalancing at the same
time. We may change, terminate, limit or suspend Automatic Dollar Cost Averaging
at any time.
The theory of automatic dollar cost averaging is that by spreading your
investment over time, you may be able to reduce the effect of transitory market
conditions on your investment. In addition, because a given dollar amount will
purchase more units when the unit prices are relatively low rather than when the
prices are higher, in a fluctuating market, the average cost per unit may be
less than the average of the unit prices on the purchase dates. However,
participation in this program does not assure you of a greater profit from your
purchases under the program; nor will it prevent or necessarily reduce losses in
a declining market. Moreover, other investment programs, such as our Automatic
Asset Rebalancing Program, may not work in concert with Automatic Dollar Cost
Averaging. Therefore, you should monitor your use of these programs, as well as
other transfers or withdrawals, while Automatic Dollar Cost Averaging is being
used.
AUTOMATIC ASSET REBALANCING
Automatic Asset Rebalancing allows you to readjust the percentage of your
Cash Value allocated to each Subaccount to maintain a pre-set level. Over time,
the variations in each Subaccount's investment results will shift the balance of
your Cash Value allocations. Under the Automatic Asset Rebalancing feature, we
periodically will transfer your Cash Value, including new Premiums (unless you
specify otherwise), back to the percentages you specify in accordance with
procedures and requirements that we establish. you may select the Subaccounts to
include in an Automatic Asset Rebalancing program.
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You may request Automatic Asset Rebalancing when you apply for your Policy
or by submitting a completed written request to us at our Home Office at the
address given on the first page of this Prospectus. You may not use Automatic
Asset Rebalancing and Automatic Dollar Cost Averaging at the same time. We may
change, terminate, limit or suspend Automatic Dollar Cost Averaging at any time.
Please call or write us for a copy of the request form and additional
information concerning Asset Automatic Rebalancing.
Automatic Asset Rebalancing is consistent with maintaining your allocation
of investments among market segments, although it is accomplished by reducing
your Cash Value allocated to the better performing segments. Other investment
programs may not work in concert with Automatic Asset Rebalancing. Therefore,
you should monitor your use of these programs, as well as other transfers or
withdrawals, while Automatic Asset Rebalancing is being used. We may change,
terminate, limit, or suspend Automatic Asset Rebalancing at any time.
INVESTMENT OPTIONS
SEPARATE ACCOUNT INVESTMENTS: THE PORTFOLIOS.
Each of the Subaccounts invests in the shares of one of the Portfolios.
Each Portfolio is a separate investment series of an open-end management
investment company registered under the Investment Company Act of 1940. We
briefly describe the Portfolios below. You should read the current Prospectuses
for the Portfolios for more detailed and complete information concerning the
Portfolios, their investment objectives and strategies, and the investment risks
associated with the Portfolios. If you do not have a Prospectus for a Portfolio,
contact us and we will send you a copy.
Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio have no effect on the investment performance
of any other Portfolio.
The Portfolios which currently are the permissible investments of the
Separate Account under this Policy are separate series of:
- Kemper Variable Series;
- Scudder Variable Life Investment Fund (Class A Shares);
- Janus Aspen Series; and
- Warburg Pincus Trust.
The investment objectives of the Portfolios are briefly described below.
PORTFOLIOS OF KEMPER VARIABLE SERIES
KEMPER AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation through the
use of aggressive investment techniques.
KEMPER TECHNOLOGY GROWTH PORTFOLIO seeks growth of capital.
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO seeks long-term capital
appreciation.
KEMPER SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors=
capital.
KEMPER SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation.
KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO seeks to achieve a high rate of
total return.
KEMPER INTERNATIONAL PORTFOLIO seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.
KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO seeks a long-term growth of
capital and current income, primarily from foreign equity securities.
KEMPER GLOBAL BLUE CHIP PORTFOLIO seeks long-term growth of capital through
a diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.
KEMPER GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
KEMPER CONTRARIAN VALUE PORTFOLIO seeks to achieve a high rate of total
return.
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KEMPER BLUE CHIP PORTFOLIO seeks growth of capital and of income.
KEMPER VALUE+GROWTH 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.
KEMPER HORIZON 20+ PORTFOLIO, designed for investors with approximately a
20+ year investment horizon, seeks growth of capital, with income as a secondary
objective.
KEMPER TOTAL RETURN PORTFOLIO seeks a high total return, a combination of
income and capital appreciation.
KEMPER HORIZON 10+ PORTFOLIO, designed for investors with approximately a
10+ year investment horizon, seeks a balance between growth of capital and
income, consistent with moderate risk.
KEMPER HIGH YIELD PORTFOLIO seeks to provide a high level of current
income.
KEMPER HORIZON 5 PORTFOLIO, designed for investors with approximately a
5-year investment horizon, seeks income consistent with preservation of capital,
with growth of capital as a secondary objective.
KEMPER GLOBAL INCOME PORTFOLIO seeks to provide high current income
consistent with prudent total return asset management.
KEMPER INVESTMENT GRADE BOND PORTFOLIO seeks high current income.
KEMPER GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent
with preservation of capital.
KEMPER MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments. This Portfolio seeks to maintain a net asset value of $1.00
per share, but there is no assurance that the Portfolio will be able to do so.
PORTFOLIOS OF SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A SHARES)
SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO seeks above-average capital
appreciation over the long term by investing primarily in the equity securities
of small companies located throughout the world.
SCUDDER VLIF GROWTH AND INCOME 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 PORTFOLIO seeks long-term growth of capital
principally from a diversified portfolio of foreign equity securities.
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO seeks to maximize long-term capital
growth from a portfolio consisting primarily of equity securities.
PORTFOLIOS OF JANUS ASPEN SERIES
JANUS ASPEN GROWTH PORTFOLIO seeks long-term growth of capital in a manner
consistent with the preservation of capital.
JANUS ASPEN GROWTH AND INCOME PORTFOLIO seeks long-term capital growth and
current income.
PORTFOLIOS OF WARBURG PINCUS TRUST
WARBURG EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by
investing in equity securities of emerging markets.
WARBURG POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their
post-venture-capital stage of development and pursues an aggressive investment
strategy.
Not all Subaccounts may be available under your Policy. You should contact
your representative for further information on the availability of the
Subaccounts.
Scudder Kemper Investments, Inc. ("Scudder Kemper") is the investment
manager for the twenty-two available Portfolios of Kemper Variable Series and
the four available Portfolios of Scudder Variable Life Investment Fund.
Scudder Investments (U.K.) Limited ("Scudder U.K."), an affiliate of
Scudder Kemper, is the subadviser for the Kemper International Portfolio and the
Kemper Global Income Portfolio. Under the terms of the Sub-
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Advisory Agreement with Scudder Kemper, Scudder U.K. renders investment advisory
and management services for that portion of this Portfolio's assets that Scudder
Kemper from time to time allocates to Scudder U.K. for management, including
services related to foreign securities, foreign currency transactions, and
related investments.
Dreman Value Management L.L.C. ("DVM") serves as sub-adviser for the
Kemper-Dreman High Return Equity and Kemper-Dreman Financial Services
Portfolios. Under the terms of the SubAdvisory Agreement between Scudder Kemper
and DVM for each Portfolio, DVM manages the investment and reinvestment of each
Portfolio's assets in accordance with its investment objectives, policies and
limitations and subject to the supervision of Scudder Kemper and the Board of
Trustees.
Janus Capital Corporation is the investment adviser for the two available
Portfolios of the Janus Aspen Series.
Warburg Pincus Asset Management, Inc. is the investment adviser for the two
available Portfolios of the Warburg Pincus Trust.
We do not promise that the Portfolios will meet their investment
objectives. Amounts you have allocated to Subaccounts may grow in value, decline
in value, or grow less than you expect, depending on the investment performance
of the Portfolios in which those Subaccounts invest. You bear the investment
risk that those Portfolios possibly will not meet their investment objectives.
YOU SHOULD CAREFULLY REVIEW THE PORTFOLIOS' PROSPECTUSES BEFORE ALLOCATING
AMOUNTS TO THE SUBACCOUNTS.
Each Portfolio is subject to certain investment restrictions and policies
which may not be changed without the approval of a majority of the shareholders
of the Portfolio. See the accompanying Prospectuses of the Portfolios for
further information.
We automatically reinvest all dividends and capital gains distributions
from the Portfolios in shares of the distributing Portfolio at their net asset
value. The income and realized and unrealized gains or losses on the assets of
each Subaccount are separate and are credited to or charged against the
particular Subaccount without regard to income, gains or losses from any other
Subaccount or from any other part of our business. We will use the Premiums you
allocate to a Subaccount to purchase shares in the corresponding Portfolio and
will redeem shares in the Portfolios to meet Policy obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
Some of the Portfolios have been established by investment advisers which
manage publicly traded mutual funds having similar names and investment
objectives. While some of the Portfolios may be similar to, and may in fact be
modeled after publicly traded mutual funds, you should understand that the
Portfolios are not otherwise directly related to any publicly traded mutual
fund. Consequently, the investment performance of publicly traded mutual funds
and any similarly named Portfolio may differ substantially.
Certain of the Portfolios sell their shares to separate accounts underlying
both variable life insurance and variable annuity policies. It is conceivable
that in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity owners, each
Portfolio's Board of Directors intends to monitor events in order to identify
any material conflicts between variable life and variable annuity owners and to
determine what action, if any, should be taken in response thereto. If a Board
of Directors were to conclude that separate investment funds should be
established for variable life and variable annuity separate accounts, Owners
will not bear the attendant expenses.
VOTING RIGHTS
As a general matter, you do not have a direct right to vote the shares of
the Portfolios held by the Subaccounts to which you have allocated your Cash
Value. Under current interpretations, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed and will provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Policy, the assignee may be entitled to give voting
instructions. Retirement plans may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your
instructions in voting the Portfolio shares attributable to your Policy. If you
do not send us written instructions, we will vote the shares attributable to
your Policy in the same proportions as we vote the shares for which we have
received instructions from other Owners.
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We will vote shares that we hold in the same proportions as we vote the shares
for which we have received instructions from other Owners.
We may, when required by state insurance regulatory authorities, disregard
Owner voting instructions if the instructions require that the shares be voted
so as to cause a change in the subclassification or investment objective of one
or more of the Portfolios or to approve or disapprove an investment advisory
contract for one or more of the Portfolios.
In addition, we may disregard voting instructions given by Owners in the
investment objectives or the investment adviser of the Portfolios if we
reasonably disapprove of the proposed change. We would disapprove a proposed
change only if the proposed change is contrary to state law or prohibited by
state regulatory authorities or we reasonably conclude that the proposed change
would not be consistent with the investment objectives of the Portfolio or would
result in the purchase of securities for the Portfolio which vary from the
general quality and nature of investments and investment techniques utilized by
the Portfolio. If we disregard voting instructions, we will include a summary of
that action and our reasons for that action in the next semi-annual financial
report to You.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES
If the shares of any of the Portfolios are no longer available for
investment by the Separate Account or if, in our judgment, further investment in
the shares of a Portfolio is no longer appropriate in view of the purposes of
the Policy, we may add or substitute shares of another Portfolio or mutual fund
for Portfolio shares already purchased or to be purchased in the future by
Premiums under the Policy. Any substitution will comply with the requirements of
the 1940 Act.
We also reserve the right to make the following changes in the operation of
the Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or
obtain and continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any
Subaccount to our General Account;
(d) to add, combine, or remove Subaccounts in the Separate Account;
(e) to assess a charge for taxes attributable to the operation of the
Separate Account or for other taxes, as described in "Charges and
Deductions--Separate Account Charges" on page [28] below; and
(f) to change the way in which we assess other charges, as long as the
total other charges do not exceed the maximum guaranteed charges under the
Policies.
If we deem it to be in the best interests of persons having voting interest
under the Policies, the Separate Account may be (a) operated as a management
company under the 1940 Act, (b) deregistered under the 1940 Act if such
registration is no longer required; or (c) combined with our other separate
accounts. To the extent permitted by law, we may also transfer assets of the
Separate Account to another separate account, or to our General Account.
If we take any of these actions, we will comply with the then applicable
legal requirements.
THE FIXED ACCOUNT
THE PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND THE FIXED ACCOUNT IS NOT REGISTERED AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY,
NEITHER THE FIXED ACCOUNT NOR ANY INTEREST IN THE FIXED ACCOUNT IS SUBJECT TO
THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT, AND THE
DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION. THE STATEMENTS ABOUT THE FIXED ACCOUNT IN
THIS PROSPECTUS MAY BE SUBJECT TO GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL
SECURITIES LAWS REGARDING ACCURACY AND COMPLETENESS.
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You may allocate part or all of your initial Premium to the DCA Fixed
Account, to be transferred subsequently to the Subaccounts under our Dollar Cost
Averaging Program. In addition, we allocate your initial Premium to our Fixed
Account for the period prior to the Issue Date, if you pay all or a portion of
your initial Premium prior to the Issue Date. No other Fixed Account option
currently is available under this Contract. We reserve the right to discontinue
offering or to offer additional Fixed Account options under the Contract, in
accordance with applicable law.
The interest rate credited to amounts allocated to the Fixed Account,
including the DCA Fixed Account will be shown in your Contract. We may change
the rate credited to new Contracts at any time in our discretion. We set
interest rates in accordance with then current market conditions and other
factors.
Amounts allocated to the Fixed Account become part of the general account
of KILICO. KILICO invests the assets of the general account in accordance with
applicable laws governing the investments of insurance company general accounts.
We may delay payment of partial or full withdrawals from the Fixed Account
for up to six months from the date we receive your written withdrawal request.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
While your Policy is in force, we will pay the Death Benefit proceeds upon
the death of the Insured or, if your Policy is a Survivorship Policy, upon the
death of the second Insured to die. We will pay the Death Benefit proceeds to
the named Beneficiary(ies) or, if none survives, to contingent Beneficiary(ies).
We will pay the Death Benefit proceeds in a lump sum or apply them under the
Policy's settlement options, which are described in "Settlement Option Payments"
on pages [24-26].
The Death Benefit proceeds payable to the Beneficiary equal the Death
Benefit, less any Policy Debt and less any due and unpaid charges. We will
determine the amount of the Death Benefit proceeds as of the end of the
Valuation Period following the date of death of the Insured (or second Insured).
We must receive due proof of death within 60 days after the death of an Insured,
or as soon thereafter as reasonably possible. We usually will pay the Death
Benefit proceeds within seven days after we have received all required
documentation. Payment may be postponed in certain circumstances. See
"Postponement of Payments", at page [27].
The Death Benefit generally is the greater of: (1) the Specified Amount; or
(2) the Cash Value at the date of death multiplied by a factor from the table of
death benefit factors. The death benefit factors in the table reflect the
"corridor percentages" for the guideline premium test under the Tax Code.
We set the death benefit factors so as to ensure that Policies will qualify
for favorable tax treatment. The death benefit factors vary according to the age
of the Insured. Under this formula, an increase in Cash Value due to favorable
investment experience may increase the Death Benefit above the Specified Amount,
and a decrease in Cash Value due to unfavorable investment experience may reduce
the Death Benefit (but not below the Specified Amount). However, as explained in
"No Lapse Guarantee and Grace Period" and "Termination" at page [26] below, if
your Policy's Net Surrender Value is insufficient to cover a Monthly Deduction
when due, the Death Benefit may be reduced to equal your total Premium payments
(less any prior withdrawals of Premium) or, if you have any outstanding Policy
Debt, your Policy may lapse.
EXAMPLES:
EXAMPLE A EXAMPLE B
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Specified Amount............................................ $100,000 $100,000
Insured's Age............................................... 60 60
Cash Value on Date of Death................................. $ 80,000 $ 50,000
Applicable Death Benefit Factors............................ 130% 130%
Death Benefit............................................... $104,000 $100,000
In Example A, the Death Benefit equals $104,000, i.e., the greater of
$100,000 (the Specified Amount) and $104,000 (the Cash Value at the Date of
Death of $80,000, multiplied by the corridor percentage of 130%). This amount,
less any Policy Debt and unpaid charges, constitutes the Death Benefit proceeds
that we would pay to the Beneficiary.
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In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000
(the Specified Amount) or $65,000 (the Cash Value of $50,000 multiplied by the
corridor percentage of 130%).
As explained in more detail in "Federal Tax Considerations" beginning on
page [33], we have structured the Policy to satisfy the definition of life
insurance contract under Section 7702 of the Tax Code. As a result, the Death
Benefit ordinarily will be excluded from the gross income of the Beneficiary,
and any growth in the Cash Value of the Policy will not be taxable until
distributed. However, because the Policy generally will be treated as a modified
endowment contract for tax purposes, withdrawals and Policy Debt will be treated
as coming first from any gain under your Policy, and then as a return of
Premium. The income portion of the distribution is includable in your taxable
income. In addition, a ten percent federal penalty tax may apply to the taxable
portion of the distributions received before age 59 1/2. For advice about the
tax consequences of purchasing a Policy or your specific circumstances, please
consult your tax adviser.
ACCELERATED DEATH BENEFIT RIDER
You may request payment of a portion of the Death Benefit as an Accelerated
Death Benefit if the Insured becomes terminally ill. You generally may request
an Accelerated Death Benefit of up to 50% of existing Death Benefit. In approved
states, the Accelerated Death Benefit Rider will be issued with all Policies at
no extra Premium.
If you request an Accelerated Death Benefit, the balance of the Death
Benefit (net of the amount previously requested) is payable upon the Insured's
death. You may request an Accelerated Death Benefit only once. Under
Survivorship Policies, the Accelerated Death Benefit may not be requested until
after the death of one of the Insureds.
In general, the tax treatment of accelerated death benefits [is the same as
the tax treatment of the Death Benefit,] as described in "Federal Tax
Considerations" beginning on page [33]. Please consult your tax adviser for more
information.
POLICY LOANS
While the Policy is in force, you may borrow money from us using the Policy
as the only security for your loan. Loans have priority over the claims of any
assignee or any other person. You may borrow up to 90% of the Surrender Value of
your Policy as of the end of the Valuation Period in which we receive your loan
request. Any outstanding Policy Debt will count against that limit. Thus, for
example, if the Surrender Value of your Policy was $100,000 and you already had
$50,000 in Policy Debt outstanding, you could borrow an additional $40,000
($100,000 X 90% - $50,000). The minimum loan amount is $1,000. In addition, if
you have named an irrevocable Beneficiary, you must also obtain his or her
written consent before we make a Policy Loan to You.
YOU MAY REALIZE TAXABLE INCOME WHEN YOU TAKE A POLICY LOAN. In most
instances, a Policy is treated as a "modified endowment contract" for federal
tax purposes. As a result, Policy Loans are treated as withdrawals for tax
purposes, and the amount of the loan equal to any increase in your Cash Value
may be treated as taxable income to You. In addition, you may also incur an
additional ten percent federal penalty tax. You should also be aware that
interest on Policy Loans is generally not deductible. On the other hand,
although a Policy Loan is treated as a withdrawal for tax purposes, it is
treated differently for Policy purposes. For example, under the Policy, a Policy
Loan, unlike a partial withdrawal, does not reduce the Specified Amount.
Accordingly, before you take a Policy Loan, you should consult your tax adviser
and carefully consider the potential impact of a Policy Loan on your rights and
benefits under the Policy.
While the Policy remains in force, you may repay a Policy Loan in whole or
in part without any penalty at any time while the Insured is living.
The loan interest rate on all Policy Loans will be 5.50% per year
compounded daily. Interest not paid will be charged on a daily basis and will be
added to the Policy Debt on this Policy and bear interest at the same rate.
When we make a Policy Loan to You, an amount equal to the Loan will be
transferred from the Subaccounts to the Loan Account until the Loan is repaid.
Unless you instruct us otherwise, the amount of the Loan will be deducted pro
rata from the Subaccounts based on their relative Subaccount Values under your
Policy. As explained in "No Lapse Guarantee and Grace Period" at page [26]
below, if the Policy Debt outstanding under your Policy should ever equal or
exceed the Net Surrender Value, your Policy will enter the grace period and may
terminate if you do not pay sufficient additional Premium. We reserve the right
not permit you to borrow Cash Value derived from Premium paid in the form of a
check or draft for up to 30 days after we deposit that check or draft.
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We will credit interest at an annual rate of 5.50% to your Loan Value
attributable to "Preferred Loans". We will classify as "Preferred Loans" the
portion of your total Loan Value equal to the difference between your Policy's
Cash Value minus total Premiums paid (net of all prior withdrawals of Premium).
Your remaining Loan Value will be credited interest at an annual rate of 3.50%.
If you purchase your Policy in exchange for a policy with another insurance
company, we will accept up to 50% of the Cash Value as a rollover loan. We will
treat as a Preferred Loan the portion of the rollover loan equal to the cash
value of your old policy, minus the total premiums paid under your old policy,
plus any withdrawal of premiums under your old policy prior to the exchange.
A Policy Loan, whether or not repaid, will have a permanent effect on the
Cash Value because the investment results of each Subaccount will apply only to
the amounts remaining in those Subaccounts. The longer a loan is outstanding,
the greater the effect is likely to be. The effect could be favorable or
unfavorable. If the Subaccounts earn more than the annual interest rate for
amounts held in the Loan Account, your Cash Value will not increase as rapidly
as it would if you had not taken a Policy Loan. If the Subaccounts earn less
than that rate, then your Cash Value will be greater than it would have been if
you had not taken a Policy Loan. Also, if you do not repay a Policy Loan, your
Policy Debt will be subtracted from the Death Benefit and Surrender Value
otherwise payable.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY
While your Policy is in force, you may fully surrender your Policy. Upon
surrender, we will pay you the Net Surrender Value determined as of the day we
receive your written request at our Home Office. Your Policy will terminate on
the day we receive your written request. We may require that you give us your
Policy document before we pay you the surrender proceeds. Before we pay a full
surrender, you must provide us with tax withholding information.
The Net Surrender Value equals the Cash Value less any applicable
Withdrawal Charge, less any outstanding Policy Debt. We also will deduct the $30
Records Maintenance Charge, if it would otherwise be due at the end of the
current Policy Year. We will determine the Net Surrender Value as of the end of
the Valuation Period during which we received your request for surrender. We
generally will pay you the surrender proceeds of the Policy within seven days of
our receiving your complete written request or on the effective surrender date
you have requested, whichever is later. The determination of the Withdrawal
Charge is described on page [30].
You may receive the surrender proceeds in a lump sum or under any of the
settlement options described in "Settlement Option Payments" on pages [24-26].
The tax consequences of surrendering the Policy are discussed in "Federal Tax
Considerations," beginning on page [33].
PARTIAL WITHDRAWALS
You may receive a portion of the Surrender Value of your Policy by making a
partial withdrawal from your Policy. Your request may be by telephone or in
writing. If you request a partial withdrawal by telephone, however, the amount
withdrawn may not exceed our limit, which currently is $10,000; larger requests
must be in writing. All partial withdrawals requested by telephone will be sent
only to the address of record of the Contract owner. Your request, whether
written or telephonic, will be effective on the date we receive it at our Home
Office, provided we receive it before 4:00 p.m. Eastern time. If we are not
provided with tax withholding information, we will withhold taxes from the
amount withdrawn. We reserve the right to change the terms of telephonic
withdrawals, including our limit, at any time.
When you request a partial withdrawal, we will pay you the amount requested
and subtract the amount requested plus any applicable Withdrawal Charge from
your Cash Value. We may waive the Withdrawal Charge on some or all of your
partial withdrawal. The determination of the Withdrawal Charge is described on
page [30].
You may specify how much of your partial withdrawal you wish taken from
each Subaccount. The amount requested from a specific Subaccount may not exceed
the value of that option less any applicable Withdrawal Charge. If you do not
specify the option from which you wish to take your partial withdrawal, we will
take it pro rata from the Subaccounts.
You may take an unlimited number of partial withdrawals each Policy Year.
The minimum withdrawal amount is $100 or the amount that remains in the
Subaccount if less. The minimum balance in the Subaccount after the withdrawal
is $500 unless the total Subaccount Value is withdrawn. If a partial withdrawal
would reduce your Policy's Net Surrender Value below $5,000, we will treat your
request as a request to surrender your Policy.
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When you take a partial withdrawal, your Specified Amount will decrease in
proportion to the resulting reduction in Cash Value. We will notify you of the
new Specified Amount. We will not permit a partial withdrawal that would reduce
the Specified Amount below the minimum specified in your Policy.
Partial withdrawals generally will be subject to income tax and may be
subject to a ten percent federal penalty tax. The tax consequences of partial
withdrawals are discussed in "Federal Tax Considerations" beginning on page
[33].
SYSTEMATIC WITHDRAWALS
You may enroll in our systematic withdrawal program by sending a completed
enrollment form to our Home Office at the address shown on the first page of
this Prospectus. You may choose between payout schedules of monthly, quarterly,
semiannually or annually. You may specify the amount of the withdrawal, the day
of the month for each scheduled payment, and the Subaccount(s) from which the
withdrawal will be taken. You may start, stop, increase, or decrease payment at
any time. The minimum withdrawal amount is $100.
We will treat systematic withdrawals in the same way as other partial
withdrawals in applying the Withdrawal Charge. In our discretion we may stop
paying systematic withdrawals if your Cash Value falls below our current
minimum. We reserve the right to modify or suspend the systematic withdrawal
program. In our discretion, any change may apply to existing systematic plans.
Write us at the address shown on the first page of this Prospectus or call us at
(800) 621-5001 for more information about our Systematic Withdrawal Program.
SETTLEMENT OPTION PAYMENTS
GENERAL. We will pay the Surrender Value or Death Benefit proceeds under
the Policy in a lump sum or under one of the settlement options that we then
offer. The option selected must result in a payment that is at least equal to
our minimum payment, according to our rules, at the time the settlement option
is chosen. If at any time the payments are less than the minimum payment, we
have the right to increase the period between payments to quarterly,
semi-annually, or annually so that the payment is at least equal to the minimum
payment, or to make payment in one lump sum.
The amount of the payments under a settlement option are based on:
- the settlement option table specified in the Contract;
- the selected settlement option; and
- the investment performance of the selected Subaccount(s) (if
variable payments are chosen).
Under each settlement option, you and/or the payee may choose fixed
payments or variable payments or a combination of the two. If fixed payments are
chosen, the payee receives a fixed amount each month determined in accordance
with the settlement option you have chosen. If variable payments are chosen, the
payee receives the value of a fixed number of Annuity Units each month. An
Annuity Unit's value reflects the investment performance of the Subaccount(s)
selected by the payee. The amount of each payment varies accordingly. If you do
not provide instructions, we will initially apply your Separate Account Value to
variable payments and any Fixed Account Value to fixed payments. The payee may
change the Subaccounts or the relative weighting of the Subaccounts on which
variable payments are based, or increase the portion of each payment that is a
fixed payment, subject to certain limitations, as described below under
"Settlement Option Payments--Transfers". BEFORE CHOOSING VARIABLE PAYMENTS, YOU
SHOULD CONSIDER WHETHER THE ALLOCATION OF PROCEEDS AMONG THE SUB-ACCOUNTS FOR
YOUR PERIODIC PAYMENTS IS THE ALTERNATIVE BEST SUITED TO YOUR NEEDS.
You may request a settlement option by writing to us at our Home Office at
the address given on the first page of this Prospectus before the death of the
Insured. If you change the Beneficiary, the existing choice of settlement option
will become invalid and you may either notify us that you wish to continue the
pre-existing choice of settlement option or select a new one. We will issue a
supplementary contract reflecting the terms of the settlement option chosen. If
payment is made as a Death Benefit distribution, the effective date of the
supplementary agreement will be the date of death. Otherwise, you may choose the
effective date.
SETTLEMENT OPTIONS. The following settlement options are available under
the Policy:
OPTION 1--FIXED INSTALLMENT ANNUITY. We will make monthly payments for
a fixed number of installments. Payments must be made for at least 5 years,
but not more than 30 years.
OPTION 2--LIFE ANNUITY. We will make monthly payments while the payee
is alive. It is possible for the payee to receive only one payment if the
payee dies before the second payment is due.
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OPTION 3--LIFE ANNUITY WITH INSTALLMENTS GUARANTEED. We will make
monthly payments for a guaranteed period and thereafter while the payee is
alive. The guaranteed period must be selected at the time the annuity
option is chosen. The guaranteed periods available are 5, 10, 15, and 20
years.
OPTION 4--JOINT AND SURVIVOR ANNUITY. We will pay the full monthly
income while both payees are alive. Upon the death of either payee, we will
continue to pay the surviving payee a percentage of the original monthly
payment. The percentage payable to the surviving payee must be selected at
the time the annuity option is chosen. The percentages available are 50%,
66 2/3%, 75%, and 100%. It is possible for the payees to receive only one
payment if they both die before the second payment is due.
OTHER OPTIONS. We may make other settlement annuity options available.
Payments are also available on a quarterly, semi-annual or annual basis.
When the payee dies under Options 1 and 3, we will pay the commuted value
of any unpaid installments in a lump sum to the estate of the payee, unless the
supplementary agreement provides otherwise. We will determine the commuted
amount based upon an interest rate of not less than 2.5%. You may not withdraw
Cash Value once we begin making payments to you under any settlement option
involving payments to the payee for life or any combination of payments for life
and a minimum guaranteed payment period, such as options 2, 3, and 4.
AMOUNT OF PAYMENT. The amount applied to a settlement option will equal the
Cash Value on the first day preceding the date when the first annuity payment is
due, less any applicable Withdrawal Charge and Records Maintenance Charge. The
remainder will be used to determine the fixed or variable payment in accordance
with the appropriate Settlement Option Table.
The amount of each fixed payment is determined by multiplying the amount
applied to the settlement option by the appropriate settlement option rate. We
will use a rate at least as high as the rate shown in the appropriate Settlement
Option Table. These tables show the monthly payment for each $1,000 of Cash
Value allocated to fixed payments. The amount of each subsequent fixed payment
does not change regardless of investment, mortality or expense experience.
The amount of the first variable payment also is determined from the
Settlement Option Tables, based on the Cash Value allocated to variable
payments. Subsequent variable payments are determined by multiplying the number
of Annuity Units in each Subaccount chosen by the payee times the Annuity Unit
Value of each such Subaccount at the Valuation Period before each variable
payment is due. The first variable payment is divided by the Annuity Unit Value
as of the Annuity Date to establish the number of Annuity Units representing
each variable payment. We determine the number of Annuity Units separately for
each Subaccount on which variable payments are based. This number does not
change, unless the payee makes a transfer as described in "Settlement Option
Payments--Transfers" below.
The guaranteed monthly payments shown in the Settlement Option Tables are
based on an interest rate of 2.50% per year and, where mortality is involved,
the "1983 Table a", an individual mortality table developed by the Society of
Actuaries projected using Projection Scale G. Interest under a settlement option
begins to accrue on the effective date of the supplementary agreement. If the
effective date determined as described above would be the 29th, 30th or 31st day
of a month, the 28th day of that month will be deemed the Effective Date.
TRANSFERS. While variable payments are being made under a settlement
option, the payee may request, in writing, to change the Subaccounts or the
relative weighting of the Subaccounts on which variable payments are based, or
the relative proportions of variable and fixed payments. These changes may be
effected by transferring Annuity Unit Value from one Subaccount to another or to
fixed payments, or by making transfers from fixed payments to the Subaccounts.
This type of transfer is subject to the following limitations:
- The payee may make only one transfer during each twelve month period
beginning on the date of the first settlement payment and each anniversary
of that date.
- We must receive the payee's written request at least 30 days before
the effective date of the transfer.
- Each transfer must consist of at least $1,000 of Annuity Unit Value
or annuity reserve value. After the transfer, at least $1,000 of Annuity
Unit Value or annuity reserve value must remain in the account from which
the transfer was made, unless the entire amount is transferred.
- After the transfer, the payee's variable payments may not be based
on more than three Subaccounts.
We will execute transfers using values as of the end of the Valuation
Period preceding the effective date of the transfer. Transfers among the
Subaccounts will be effected at the Annuity Unit Value of the relevant
Subaccounts. Transfers from fixed to variable payments and from variable to
fixed payments will be based in part
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on the present value of the remaining payments under the chosen option, and will
reflect the differences in the interest rates used to calculate fixed and
variable payments. The method for calculating these transfers is described in
more detail in the Policy. We may suspend, change or terminate the transfer
privilege at any time.
ANNUITY UNIT VALUE. Annuity Unit Value is determined independently for each
Subaccount. Annuity Unit Value for any Valuation Period is:
- Annuity Unit Value for the immediately preceding Valuation Period;
times
- the net investment factor for the current Valuation Period; times
- an interest factor of .99993235 per calendar day of the current
Valuation Period in order to offset the effect of the assumed rate of 2.5%
per year used in the Policy's settlement option tables.
The net investment factor for a Subaccount for any Valuation Period is:
(1) the sum of (a) the net asset value per share of the corresponding
Portfolio at the end of the current Valuation Period plus (b) the per share
amount of any dividend or capital gains distribution by that Portfolio, if
the "ex-dividend" date occurs in that Valuation Period; plus or minus (c) a
credit or charge for any taxes reserved for the current Valuation Period
which we determine to have resulted from the investment operations of the
Subaccount; divided by
(2) is the net asset value per share of the corresponding Portfolio at
the end of the last prior Valuation Period.
A 2.5% per annum rate of investment earnings is assumed by the Policy's
Settlement Option tables. Under the formula for determining Annuity Unit Value,
if the actual net investment earnings rate on the selected Subaccounts exceeds
2.5% per annum, variable payments increase accordingly. Conversely, if the
actual earnings rate is less than 2.5% per annum, variable payments decrease.
ANNUITY RESERVE VALUE. Annuity reserve value is used in calculating
transfers from variable payments to fixed payments. Annuity reserve value
equals:
(1) the number of annuity units transferred from a Subaccount; times
(2) the Annuity Unit Value for that Subaccount; times
(3) the present value of $1.00 per payment period using the attained
age of the payee(s) and any remaining unpaid guaranteed payments at the
time of the transfer.
NO LAPSE GUARANTEE AND GRACE PERIOD
Under our No Lapse Guarantee, we guarantee that your Policy will remain in
force regardless of changes in the Net Surrender Value, provided you have no
outstanding Policy Debt. If the Net Surrender Value of your Policy is less than
the Monthly Deduction for the next month, your Policy will enter the Grace
Period. The Grace Period lasts 61 days. If the Insured dies during the Grace
Period, the Death Benefit will be the amount determined as described in "Death
Benefit" on pages [21-22], less any due and unpaid Monthly Deduction or other
charge.
During the Grace Period, you may pay additional Premium or loan repayment
without evidence of insurability to keep your Policy in force. Your payment must
equal at least three Monthly Deductions. No payment is required, however. This
Grace Period will begin on the day we mail notice of the Grace Period to your
last known address.
If the No Lapse Guarantee is in effect under your Policy and you do not pay
sufficient additional Premium or loan repayment, your Policy will remain in
force, but the amount paid upon death of the Insured after the Grace Period will
be limited to the return of Premium paid (less any prior withdrawals of
Premium). You may restore the Specified Amount, however, by complying with the
reinstatement provisions. The No Lapse Guarantee applies to your Contract
unless: (a) you paid 90% of the Guideline Single Premium for your Policy or (b)
your Policy has outstanding Policy Debt.
If the No Lapse Guarantee does not apply to your Policy and the Net
Surrender Value of your Policy is less than the Monthly Deduction for the next
month, your Policy also will enter the Grace Period, as described above.
However, if you do not make the required payment, your coverage will terminate
at the end of the Grace Period. You may reinstate your coverage by complying
with the reinstatement provisions.
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TERMINATION
The Policy will terminate and life insurance coverage will end when one of
the following events first occurs:
(a) you surrender your Policy;
(b) the Insured dies or, for Survivorship Policies, the Surviving
Insured dies;
(c) the Policy matures; or
(d) the Grace Period ends and there is Policy Debt outstanding.
MATURITY BENEFIT AND EXTENDED MATURITY
In certain states, if the Insured is still living and your Policy is in
force on the Maturity Date, we will pay you a Maturity Benefit. The Maturity
Benefit will equal the Net Surrender Value on the Maturity Date. The Maturity
Date is the Policy Anniversary after the Insured's 100th birthday.
In states where approved, the Extended Maturity Rider will be issued with
all Policies at no extra Premium. This rider maintains life insurance benefits
beyond the Maturity Date. The Death Benefit after the Maturity Date is the
greater of the Specified Amount or the Cash Value. After the Maturity Date, we
will not charge the cost of insurance charge or the mortality and expense risk
charge. We will, however, continue to charge other charges under your Policy.
This rider is effective only if the Net Surrender Value at age 100 equals
at least 30% of the initial Specified Amount. Otherwise, notwithstanding this
Rider, the Policy will terminate on the Maturity Date. All other riders still
active end at age 100. The tax treatment of the Maturity Benefit and the
Maturity Extension rider is discussed in "Treatment of Maturity Benefits and
Extension of Maturity Date" on page 36.
REINSTATEMENT
If your coverage has been reduced pursuant to our No Lapse Guarantee or has
lapsed due to insufficient Cash Value (see "No Lapse Guarantee and Grace Period"
on page 26 above, you may reinstate coverage by complying with the conditions
described below. After reinstatement, your Policy will be in force and the
minimum Death Benefit will equal the Specified Amount in effect before your
coverage was reduced or lapsed. To reinstate your Policy, you must apply to us
within three years of the end of the most recent Grace Period and meet the
following conditions:
(1) Provide evidence of insurability satisfactory to us;
(2) Pay the unpaid Monthly Deductions due during the expired Grace
Period;
(3) Pay at least sufficient additional Premium to keep your Policy in
force for three months; and
(4) Pay or reinstate any Policy Debt that existed at the date of
lapse.
The effective date of reinstatement of a Policy will be the Deduction Day
that coincides with or next follows the date on which we approve your
application for reinstatement. You may not reinstate a Policy that has been
surrendered. Under Survivorship Policies, if one of the Lives Insured dies
during the lapse, upon payment of the reinstatement Premium the Policy will be
reissued as a single life permanent policy.
The suicide and incontestability provisions will apply from the effective
date of reinstatement.
CANCELLATION (FREE-LOOK PERIOD)
In many states, you may cancel your Policy by returning it to us within ten
days after you receive it. In some states, however, this free look period may be
longer, as provided by state law. If you return your Policy, the Policy
terminates and we will pay you your Cash Value or, in some states, an amount
equal to your Premium, (less any Policy Debt). We will pay the refund within
seven days of receiving your request. No Withdrawal Charge is imposed upon
return of a Policy within the free look period. This free look right may vary in
certain states in order to comply with the requirements of state insurance laws
and regulations. Accordingly, you should refer to your Policy for specific
information about your circumstances.
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POSTPONEMENT OF PAYMENTS
We may defer for up to fifteen days the payment of any amount attributable
to a Premium paid by check to allow the check a reasonable time to clear. We
ordinarily will pay any amount attributable to Separate Account Value within
seven days, except:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other
than customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Separate Account's
investments or determination of the value of its net assets is not
reasonable practicable; or
(3) at any other time permitted by the SEC for your protection.
CHARGES AND DEDUCTIONS
We assess charges and deductions under the Policies against the Subaccounts
and the Cash Value. Additional deductions and expenses are paid out of the
Portfolios' assets, as described in the Prospectuses of the Portfolios.
SEPARATE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. On each Valuation Date, we will deduct a
charge from each Subaccount at an annual rate of 0.90% of average daily net
assets for mortality and expense risks we assume.
The mortality risk assumed in relation to the Policy includes the risk that
the cost of insurance charges specified in the Policy will be insufficient to
meet claims and the risks under the No Lapse Guarantee. We also assume a risk
that, on the Deduction Day preceding the death of an Insured, the Death Benefit
will exceed the amount on which the cost of insurance charges were based. The
expense risk assumed is that expenses incurred in issuing and administering the
Policies will exceed the Administration Charges set in the Policy.
RESERVE FOR TAXES. We currently are not maintaining a provision for taxes
attributable to the operations of the Separate Account (as opposed to the
federal tax related to the receipt of Premiums under the Policies). In the
future, however, we may make such a charge. Charges for other taxes, if any,
attributable to the Separate Account or to this class of Policies may also be
made.
MONTHLY DEDUCTION
On the Effective Date and on each monthly Deduction Day we will take a
Monthly Deduction from your Cash Value. The Monthly Deduction equals the sum of
the following:
(1) The monthly cost of insurance charge for the Policy; plus
(2) The monthly charge for any riders; plus
(3) The Administration Charge; plus
(4) The Tax Charge.
On each Policy Anniversary, we also will deduct the Records Maintenance
Charge, if your Policy's Cash Value was less than $50,000 on the previous Policy
Anniversary.
COST OF INSURANCE CHARGE. The cost of insurance charge is intended to pay
for the cost of providing life insurance coverage for the Insured(s). The
current cost of insurance charge differs based on whether you paid 90% or 100%
of the Guideline Single Premium at issue. We guarantee that this charge will not
exceed the maximum cost of insurance charge determined on the basis of the rates
shown in the mortality table guaranteed in the Policy. If your initial Premium
exceeds $500,000, your cost of insurance charge may be lower.
The current monthly cost of insurance charge is the lesser of:
(a) the applicable current asset-based cost of insurance rate times
the Cash Value on the Deduction Day; or
(b) the applicable guaranteed cost of insurance rate multiplied by the
net amount at risk on the Deduction Day.
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If your initial Premium is no greater than $500,000 and you paid 100% of
the Guideline Single Premium, our current asset-based cost of insurance rate for
the Single Life Policies for the Standard Rating Class (NS) is 0.55% annually of
Cash Value for Policy Years 1-10, and 0.25% annually of Cash Value thereafter.
Our current asset-based cost of insurance rate for Second to Die Policies, when
both Insureds are in the Standard Rating Class (NS), is 0.45% annually of Cash
Value for Policy Years 1-10, and 0.20% annually of Cash Value thereafter.
If your initial Premium is greater than $500,000 and you paid 100% of the
Guideline Single Premium, our current asset-based cost of insurance rate for the
Single Life Policies for the Standard Rating Class (NS) is 0.25% annually of
Cash Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter.
Our current asset-based cost of insurance rate for Second to Die Policies, when
both Insureds are in the Standard Rating Class (NS), is 0.20% annually of Cash
Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter.
If you paid 90% of the Guideline Single Premium, your current cost of
insurance rates will be higher. In addition, rates for other classes may differ
based on the type of Policy and the history of tobacco use of the Insured(s).
Your guaranteed cost of insurance rates are set forth in the mortality tables in
your Policy. The net amount at risk is (a)-(b), where:
(a) is the Death Benefit on the first day of the Policy Month; and
(b) the Cash Value on that day before the deduction of the Monthly
Deduction for the Cost of Insurance.
Because your Cash Value and the net amount for which we are at risk under
your Policy may vary monthly, your cost of insurance charge is likely to differ
each month. In general, under these formulas, when your current monthly cost of
insurance charge is determined using the asset-based rate, an increase in your
Cash Value increases your current monthly cost of insurance charge, up to the
guaranteed maximum cost of insurance charge determined as described above. Since
that maximum charge is based on the net amount at risk, it declines as your Cash
Value increases, unless an increase in Cash Value also would increase the Death
Benefit under your Policy. Thus, if the asset-based charge would be higher than
the guaranteed maximum charge, further increases in your Cash Value may reduce
your current cost of insurance charge.
The cost of insurance charge covers our anticipated mortality costs for
standard and substandard risks. We determine the current cost of insurance rates
based on our expectations as to our future mortality experience and other
factors. We guarantee, however, that we will never charge you a cost of
insurance charge higher than the amount determined using the maximum guaranteed
cost of insurance rates shown in the Policy. We base our cost of insurance rates
on the sex, issue age, Policy Year, rating class, and history of tobacco use of
the Insured. However, we issue unisex policies in Montana. Our cost of insurance
rates are based on the 1980 Commissioners Standard Ordinary ("1980 CSO")
Mortality Table based on the Insured's sex, age last birthday, and history of
tobacco use. Our cost of insurance rates for unisex Policies will never exceed a
maximum based on the 1980 CSO Table B assuming a blend of 80% male and 20%
female lives.
TAX CHARGE. For the first ten Policy Years, on each Deduction Day, we
charge a Tax Charge equal to an annual rate of 0.40% of the average monthly Cash
Value. The Tax Charge covers a portion of our state premium tax expenses and
certain Federal income tax liability incurred as a result of the receipt of
Premium.
We expect to recover total premium tax expenses over the life of the
Policies from the aggregate Tax Charges and the unamortized state premium tax
charge portion of the Withdrawal Charge. However, the amount of premium taxes
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 that we actually pay with respect to your Policy.
ADMINISTRATION CHARGE. On each Deduction Day we will deduct the
Administration Charge from Cash Value. This charge will equal an annual rate of
0.35% of average monthly Cash Value for the first ten Policy Years and 0.25%
thereafter. This charge is intended to compensate us for certain administrative
expenses related to the maintenance of the Policies, accounting and
recordkeeping, and provide a reporting to Policy owners.
RECORDS MAINTENANCE CHARGE. We charge a Records Maintenance Charge of
$30.00 per year on each Policy Anniversary. If you surrender your Policy during
a Policy Year, we will deduct the full Records Maintenance Charge from your
surrender proceeds. The Records Maintenance Charge is intended to compensate us
for administrative expenses such as salaries, postage, telephone, office
equipment and periodic reports. We currently waive the Records Maintenance
Charge on a Policy, if the Cash Value is at least $50,000 on the previous Policy
Anniversary.
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PORTFOLIO EXPENSES
You indirectly bear the charges and expenses of the Portfolios whose shares
are held by the Subaccounts to which you allocate your Cash Value. The Separate
Account purchases shares of the Portfolios at net asset value. Each Portfolio's
net asset value reflects investment advisory fees and administrative expenses
already deducted from the Portfolio's assets. For a summary of current estimates
of these charges and expenses, see pages [12-13] above. For more information
concerning the investment advisory fees and other charges against the
Portfolios, see the Prospectuses for the Portfolios, which are available upon
request.
We may receive compensation from the investment advisers or administrators
of the Portfolios. Such compensation will be consistent with the services we
provide or the cost savings resulting from the arrangement and therefore may
differ between Portfolios.
WITHDRAWAL CHARGE
If you surrender your Policy during the first nine Policy Years, we may
subtract a Withdrawal Charge from the proceeds. The Withdrawal Charge will be
calculated at the rate shown below. If you surrender your Policy, the Withdrawal
Charge will equal a percentage of your initial Premium net of all previous
withdrawal amounts on which you paid a Withdrawal Charge. The Withdrawal Charge
consists of two components: a surrender charge and an unamortized state premium
tax charge.
The rate used to determine the Withdrawal Charge depends on the year the
withdrawal is made. The Withdrawal Charge declines to zero percent after the
ninth Policy Year. The Withdrawal Charge is assessed at the following rates:
COMPLETE UNAMORTIZED
POLICY YEARS PREMIUM TAX TOTAL WITHDRAWAL
ELAPSED SINCE ISSUE SURRENDER CHARGE CHARGE CHARGE
------------------- ---------------- ----------- ----------------
1 7.75% 2.25% 10.00%
2 7.75% 2.00% 9.75%
3 7.50% 1.75% 9.25%
4 6.50% 1.50% 8.00%
5 5.75% 1.25% 7.00%
6 5.00% 1.00% 6.00%
7 4.25% .75% 5.00%
8 3.50% .50% 4.00%
9 2.75% .25% 3.00%
9+ 0% 0.00% 0.00%
We may also charge a Withdrawal Charge on partial withdrawals. The
Withdrawal Charge will apply to any partial withdrawal in a given Policy Year in
excess of the free withdrawal amount described below.
Additional Premiums do not increase the amount of Withdrawal Charge you may
be required to pay. Only your initial Premium is used in our formula for
calculating Withdrawal Charges.
The Withdrawal Charge is imposed to cover a portion of our actual premium
tax expenses and sales expenses, which include agents' sales commissions and
other sales and distribution expenses. The Unamortized Premium Tax Charge,
together with a portion of the monthly Tax Charge, is intended to recover our
state premium tax expenses. We also expect to recover total sales expenses of
the Policies over the life of the Policies. However, to the extent distribution
costs are not recovered by the Withdrawal Charge, we may make up any shortfall
from the assets of our General Account, which includes funds derived from the
Mortality and Expense Risk Charge and other fees and charges under the Policies.
FREE WITHDRAWAL AMOUNT AND WAIVER OF WITHDRAWAL CHARGE
The free withdrawal amount in a Policy Year equals the greater of:
(a) 100% of Policy earnings not previously withdrawn; or
(b) 10% of the Cash Value, less any prior free withdrawals since the
beginning of that Policy Year.
NURSING CARE WAIVER OF WITHDRAWAL CHARGE. We will waive the Withdrawal
Charge if the Insured is confined to a skilled health care facility for at least
30 consecutive days. We also will waive the Withdrawal
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Charge after you have been released from the facility, if your request is made
within 30 days of release. This waiver is described in more detail in the
Policy.
DISABILITY WAIVER. We will waive the Withdrawal Charge if the Insured
becomes disabled after the Policy is issued and before attaining age 65
according to the following Social Security Administration definition:
Inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.
This waiver is described in more detail in the Policy.
TRANSFER FEE
The Policy permits us to charge a transfer fee of $25 per transfer,
excluding transfers under our Automatic Dollar Cost Averaging and Automatic
Asset Rebalancing Programs, on each transfer after the first twelve transfers in
each Policy Year. We currently do not charge a transfer fee on any transfer. We
reserve the right to begin to charge the transfer fee in the future.
REDUCTION OF CHARGES
We may reduce certain charges and credit additional amounts in special
circumstances that result in lower sales, administrative, or mortality expenses.
For example, special circumstances may exist in connection with group or
sponsored arrangements, sales to our Policy owners, sales to employees or
clients of members of the Kemper group of companies, or employees and registered
representatives (and their families) of broker-dealers (or their affiliated
financial institutions) that have entered into selling group agreements with
Investors Brokerage Services, Inc., the distributor of the Policies. The amounts
of any reductions will reflect the reduced sales effort and administrative costs
resulting from, or the different mortality experience expected as a result of,
the special circumstances. Reductions will not unfairly discriminate against any
person, including the affected Policy owners and owners of all other policies
funded by the Separate Account.
GENERAL POLICY PROVISIONS
REPORTS TO OWNERS
We will maintain all records relating to the Separate Account and the
Subaccounts. At least annually we will send you a report which will include
information such as Premiums received, interest credited, investment experience,
and charges made since the last report. The report will also show the current
Death Benefit and Cash Value, as well as any other information required by
statute. If you ask us, we will send you an additional report at any time. We
may charge you up to $25 for this additional report. We will tell you the
current charge before we send you the report.
In addition, we will send you the financial statements of the Portfolios
and other reports as specified in the Investment Company Act of 1940, as
amended. We also will mail you confirmation notices or other appropriate notices
of Policy transactions quarterly or more frequently within the time periods
specified by law. Please give us prompt written notice of any address change.
Please read your statements and confirmations carefully and verify their
accuracy and contact us promptly with any question.
LIMIT ON RIGHT TO CONTEST
In the absence of fraud, we may not contest the insurance coverage under
the Policy after the Policy has been in force for two years after the Effective
Date while the Insured is alive. The two year incontestability period may vary
in certain states to comply with the requirements of state insurance laws and
regulations.
If the Policy is reinstated, a new two year contestability period will
apply from the effective date of the reinstatement and will apply only to
statements made in the application for the reinstatement.
In issuing a Policy, we rely on your application. Your statements in that
application, in the absence of fraud, are considered representations and not
warranties. In the absence of fraud, we will not use any statement made in
connection with the Policy application to void the Policy or to deny a claim,
unless that statement is a part of the application or an amendment thereto.
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SUICIDE
If the Insured under a Single Life Policy dies by suicide, while sane or
insane, within two years from the Effective Date, the Death Benefit proceeds
will be limited to the Premiums paid less any partial withdrawals and Policy
Debt.
If 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 the cost of insurance.
If the first death under a Survivorship Policy is by suicide, within two
years of the Effective Date or date of reinstatement, whether the Insured was
sane or insane, we will reissue the Policy. The new Policy on the survivor will
be a single life permanent Policy which is available at the time of reissue. The
suicide provision for the new Policy will be effective as of the original
Effective Date.
If the second death is by suicide, within two years from the Effective
Date, whether the Insured is sane or insane, we will pay only the Premiums paid
less any partial withdrawals and Policy Debt. If the second death occurs within
two years after the date of reinstatement, our total liability with respect to
such reinstatement will be the cost of insurance since the date of
reinstatement.
MISSTATEMENT AS TO AGE AND SEX
If the age or sex of the Insured is incorrectly stated in the application,
the Death Benefit and all Policy values will be adjusted based on what the
initial Premium would have purchased using the correct age and/or sex.
BENEFICIARY
You name the original Beneficiary(ies) and Contingent Beneficiary(ies) in
the application for the Policy. You may change the Beneficiary or Contingent
Beneficiary at any time while the Insured is alive, except irrevocable
Beneficiaries and irrevocable Contingent Beneficiaries may not be changed
without their consent.
You must request a change of Beneficiary in writing. We will provide a form
to be signed and filed with us. Your request for a change in Beneficiary or
Contingent Beneficiary will take effect as of the date you signed the form after
we acknowledge receipt in writing. Until we acknowledge receipt of your change
instructions, we are entitled to rely on your most recent instructions in our
files. Accordingly, we are not liable for making a payment to the person shown
in our files as the Beneficiary or treating that person in any other respect as
the Beneficiary, even if instructions that we subsequently receive from you seek
to change your Beneficiaries effective as of a date before we made the payment
or took the action in question.
If you name more than one Beneficiary, we will divide the Death Benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the Death Benefit in
equal shares to the Beneficiaries. If one of the Beneficiaries dies before You,
we will divide the Death Benefit among the surviving Beneficiaries. If no
Beneficiary is living, the Contingent Beneficiary will be the Beneficiary. The
interest of any revocable Beneficiary is subject to the interest of any
assignee. If no Beneficiary or Contingent Beneficiary is living, the Beneficiary
is the Owner or the Owner's estate.
ASSIGNMENT
While the Insured is alive, you may assign your Policy as collateral
security. You must notify us in writing if you assign the Policy. Until we
receive notice from You, we are not liable for any action we may take or
payments we may make that may be contrary to the terms of your assignment. We
are not responsible for the validity of an assignment. Your rights and the
rights of the Beneficiary may be affected by an assignment. An assignment may
result in income tax and a ten percent federal penalty tax. You should consult
your tax adviser before assigning your Policy.
CREDITOR'S CLAIMS
To the extent permitted by law, no benefits payable under this Policy will
be subject to the claims of your or the Beneficiary's creditors.
DIVIDENDS
We will not pay any dividend under the Policy.
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NOTICE AND ELECTIONS
To be effective, all notices and elections under the Policy must be in
writing, signed by You, and received by us at our Home Office. Certain
exceptions may apply. Unless otherwise provided in the Policy, all notices,
requests and elections will be effective when received at our Home Office
complete with all necessary information.
MODIFICATION
We reserve the right to modify the Policy without your express consent, in
the circumstances described in this Prospectus or as necessary to conform to
applicable law or regulation or any ruling issued by a governmental agency. The
provisions of the Policy will be construed so as to comply with the requirements
of Section 7702 of the Tax Code.
SURVIVORSHIP POLICIES
We offer Policies on a single life and "last survivor" basis. The
Survivorship Policy operates almost identically to the Single Life Policy. The
primary difference is that the Survivorship Policy has two Insureds and the
Death Benefit is paid only upon the death of the last surviving Insured. Other
significant differences are:
(1) the cost of insurance charge differs because we base it on the
anticipated mortality of two Insureds and we do not pay the Death Benefit
until both Insureds have died;
(2) for a Survivorship Policy to qualify for simplified underwriting,
both Insureds must meet our standards;
(3) under a Survivorship Policy, provisions regarding
incontestability, suicide, and misstatements of age or sex apply to each
Insured; and
(4) the Accelerated Death Benefit is only available upon the Terminal
Illness of the surviving Insured, as this term is defined in the Policy.
FEDERAL TAX CONSIDERATIONS
NOTE: The following discussion is based upon our understanding of current
federal income tax law applicable to life insurance policies in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the Policies. You bear the complete
risk that the Policies may not be treated as "life insurance policies" under
federal income tax laws.
In addition, this discussion does not include a detailed description of the
federal income tax consequences of the purchase of these Policies or any
discussion of special tax rules that may apply to certain purchase situations.
We also have not tried to consider any other possibly applicable state or other
tax laws, for example, the estate tax consequences of the Policies. You should
seek tax advice concerning the effect on your personal tax liability of the
transactions permitted under the Policy, as well as any other questions you may
have concerning the tax status of the Policy or the possibility of changes in
the tax law.
TAXATION OF KILICO AND THE SEPARATE ACCOUNT
KILICO is taxed as a life insurance company under Subchapter L of the Tax
Code. The operations of the Separate Account are taxed as part of the operations
of KILICO. Investment income and realized capital gains are not taxed to the
extent that they are applied under the Policies.
Accordingly, we do not anticipate that KILICO will incur any federal income
tax liability attributable to the operation of the Separate Account (as opposed
to the federal tax related to the receipt of Premiums under the Policies).
Therefore, we are not making any charge or provision for federal income taxes.
However, if the tax treatment of the Separate Account is changed, we may charge
the Separate Account for its share of the resulting federal income tax.
In several states we may incur state and local taxes on the operations of
the Separate Account. We currently are not making any charge or provision for
them against the Separate Account. We do, however, use part of the Policy
charges to offset these taxes. If these taxes should be increased, we may make a
charge or provision for them against the Subaccounts. If we do so, the
investment results of the Subaccounts will be reduced.
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TAX STATUS OF THE POLICY
The Policy is structured to satisfy the definition of a life insurance
policy under the Tax Code. As a result, the Death Benefit ordinarily will be
fully excluded from the gross income of the Beneficiary. The Death Benefit will
be included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. The Death Benefit will also be included in your
estate, if the Beneficiary is not your estate but you retained incidents of
ownership in the Policy. Examples of incidents of ownership include the right to
change Beneficiaries, to assign the Policy or revoke an assignment, and to
pledge the Policy or obtain a Policy Loan. If you own and are the Insured under
a Policy and if you transfer all incidents of ownership in the Policy more than
three years before your death, the Death Benefit will not be included in your
gross estate. State and local estate and inheritance tax consequences may also
apply.
In addition, certain transfers of the Policy or Death Benefit, either
during life or at death, to individuals (or trusts for the benefit of
individuals) two or more generations below that of the transferor may be subject
to the federal generation-skipping transfer tax.
In addition, you may use the Policy in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
adviser regarding the tax treatment of the proposed arrangement.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Tax Code requires that
the underlying assets of variable life insurance policies be diversified. The
Tax Code provides that a variable life insurance policy will not be treated as a
life insurance policy for federal income tax purposes for any period and any
subsequent period for which the investments are not adequately diversified. If
the Policy were disqualified for this reason, you would lose the tax deferral
advantages of the Policy and would be subject to current federal income taxes on
all earnings allocable to the Policy.
The United States Treasury Department (the "Treasury Department") also has
issued regulations that establish diversification requirements for the
investment accounts underlying variable policies such as the Policies. These
regulations amplify the diversification requirements set forth in the Tax Code
and provide an alternative diversification test to the provision described
above.
These diversification standards are applied to each Subaccount by looking
to the investments of the Portfolio underlying the Subaccount. One of our
criteria in selecting the Portfolios is that their investment managers intend to
manage them in compliance with these diversification requirements.
OWNER CONTROL. In certain circumstances, variable life insurance owners
will be considered the Owners, for tax purposes, of separate account assets
underlying their Policies. In those circumstances, the Owners could be subject
to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a
variable insurance Owner will be considered the owner of separate account
assets, if the Owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. When the
diversification regulations were issued, the Treasury Department announced that
in the future, it would provide guidance on the extent to which variable Owners
could direct their investments among Subaccounts without being treated as Owners
of the underlying assets of the Separate Account. As of the date of this
Prospectus, no such guidance has been issued. We cannot predict when or whether
the Treasury Department will issue that guidance or what position the Treasury
Department will take. In addition, although regulations are generally issued
with prospective effect, it is possible that regulations may be issued with
retroactive effect.
The ownership rights under the Policy are similar in many respects to those
described in IRS rulings in which the owners were not deemed to own the separate
account assets. In some respects, however, they differ. For example, under the
Policy you have many more investment options to choose from than were available
under the policies involved in the published rulings, and you may be able to
transfer Cash Value among the investment options more frequently than in the
published rulings. Because of these differences, it is possible that you could
be treated as the owner, for tax purposes, of the Portfolio shares underlying
your Policy and therefore subject to taxation on the income and gains on those
shares. Moreover, it is possible that the Treasury Department's position, when
announced, may adversely affect the tax treatment of existing Policies. We
therefore reserve the right to modify the Policy as necessary to attempt to
prevent you from being considered the owner for tax purposes of the underlying
assets. The remainder of this discussion assumes that the Policy will be treated
as a life insurance policy for federal tax purposes.
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TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS
In general, the amount of the Death Benefit payable under a Policy is
excludable from gross income under the Tax Code. Certain transfers of the
Policy, however, may result in a portion of the Death Benefit being taxable.
If the Death Benefit is not received in a lump sum and is, instead, applied
under one of the settlement options, payments generally will be prorated between
amounts attributable to the Death Benefit, which will be excludable from the
Beneficiary's income, and amounts attributable to interest (occurring after the
insured's death), which will be includable in the beneficiary's income.
ACCELERATED DEATH BENEFIT. In general, the tax treatment of an Accelerated
Death Benefit is the same as the treatment of Death Benefits, as described
above.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Tax Code, except as described below, any
increase in your Cash Value is generally not taxable to you unless you receive
or are deemed to receive amounts from the Policy before the Insured dies. If you
surrender your Policy, the Cash Value (less any Annual Records Maintenance
Charge paid upon surrender) will be includable in your income to the extent the
amount received exceeds the "investment in the policy." The "investment in the
policy" generally is the total Premiums and other consideration paid for the
Policy, less the aggregate amount received under the Policy previously to the
extent such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the Policy
constitute income depends, in part, upon whether the Policy is considered a
"modified endowment contract" ("MEC") for federal income tax purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, this Policy will
constitute a MEC unless (1) it was received in exchange for another life
insurance policy which was not a MEC, (2) no Premiums or other consideration
(other than the exchanged policy) are paid into the Policy during the first 7
Policy Years, and (3) there is no withdrawal or reduction in the Death Benefit
during the first 7 Policy Years. In addition, even if the Policy initially is
not a MEC, it may, in certain circumstances, become a MEC if there is a later
increase in benefits or any other "material change" of the Policy within the
meaning of the tax law.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER
MECS. Because your Policy is a MEC, withdrawals from your Policy will be treated
first as withdrawals of income and then as a recovery of Premiums. Thus, you may
realize taxable income upon a withdrawal if the Cash Value exceeds the
investment in the Policy. You may also realize taxable income when you take a
Policy Loan, because any loan (including unpaid loan interest) under the Policy
will be treated as a withdrawal for tax purposes. In addition, if you assign or
pledge any portion of the value of your Policy (or agree to assign or pledge any
portion), the assigned or pledged portion of your Cash Value will be treated as
a withdrawal for tax purposes. Before assigning, pledging, or requesting a loan
under a Policy which is a MEC, you should consult a qualified tax adviser.
PENALTY TAX. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a federal penalty tax equal to ten
percent of the portion of the withdrawal that is includable in income, unless
the withdrawals are made: (1) after you reach age 59 1/2, (2) because you have
become disabled (as defined in the tax law), or (3) as substantially equal
periodic payments over your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary, as defined in the tax law). Certain
other exceptions to the ten percent federal penalty tax may apply.
Payments under our systematic withdrawal program possibly may not qualify
for the exception from federal penalty tax for "substantially equal periodic
payments" which is described above. Accordingly, this Policy may be
inappropriate for Owners who expect to take substantially equal periodic
payments prior to age 59 1/2. You should consult a qualified tax adviser before
entering into a systematic withdrawal plan.
AGGREGATION OF POLICIES. All life insurance policies which are MECs and
which are purchased by the same person from us or any of our affiliates within
the same calendar year will be aggregated and treated as one policy for purposes
of determining the amount of a withdrawal (including a deemed withdrawal) that
is includable in taxable income.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If your Policy is not a MEC, the
amount of any withdrawal from the Policy will be treated first as a non-taxable
recovery of premiums and then as income from the Policy. Thus,
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only the portion of a withdrawal that exceeds the investment in the Policy
immediately before the withdrawal will be includable in taxable income.
TAX TREATMENT OF LOANS. If your Policy is not a MEC, a loan received under
the Policy generally will be treated as indebtedness for tax purposes, rather
than a withdrawal of Cash Value. As a result, you will not realize taxable
income on any part of the loan as long as the Policy remains in force. If you
surrender your Policy, however, any outstanding loan balance will be treated as
an amount received by you as part of the Surrender Value. Accordingly, you may
be subject to taxation on the loan amount at that time. Moreover, if any portion
of your Policy Loan is a preferred loan, a portion of your Policy Loan may be
includable in your taxable income. Generally, you may not deduct interest paid
on loans under the Policy, even if you use the loan proceeds in your trade or
business.
SURVIVORSHIP POLICIES
Although we believe that the Policy, when issued as a Survivorship Policy,
meets the definition of life insurance policy under the Tax Code, the Tax Code
does not directly address how it applies to Survivorship Policies. In the
absence of final regulations or other guidance under the Tax Code regarding this
form of Policy, there is necessarily some uncertainty whether a Survivorship
Policy will meet the Tax Code's definition of a life insurance policy. If you
are considering purchasing a Survivorship Policy, you should consult a qualified
tax adviser.
If the Owner is the last surviving Insured, the Death Benefit proceeds will
generally be includable in the Owner's estate on his or her death for purposes
of the federal estate tax. If the Owner dies and was not the last surviving
Insured, the fair market value of the Policy may be included in the Owner's
estate. In general, the Death Benefit proceeds are not included in the last
surviving Insured's estate if he or she neither retained incidents of ownership
at death nor had given up ownership within three years before death.
TREATMENT OF MATURITY BENEFITS AND EXTENSION OF MATURITY DATE
If your Policy does not have an Extended Maturity Rider, at the Maturity
Date, we pay the Net Surrender Value to You. Generally, the excess of the Cash
Value (less any applicable Records Maintenance Charge) over your investment in
the Policy will be includable in your taxable income at that time. If your
Policy has an Extended Maturity Rider, we believe the Policy will continue to
qualify as life insurance under the Tax Code. However, there is some uncertainty
regarding this treatment. It is possible, therefore, that you would be viewed as
constructively receiving the Surrender Value in the year in which the Insured
attains age 100 and would realize taxable income at that time, even if the
Policy proceeds were not distributed at that time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW
We believe that the maximum amount of Premiums we intend to permit for the
Policies will comply with the Tax Code definition of a life insurance policy. We
will monitor the amount of your Premiums, and, if your total Premiums during a
Policy Year exceed those permitted by the Tax Code, [we will refund the excess
Premiums within 60 days of the end of the Policy Year and will pay interest and
other earnings (which will be includable in taxable income) as required by law
on the amount refunded.] We reserve the right to increase the Death Benefit
(which may result in larger charges under a Policy) or to take any other action
deemed necessary to ensure the compliance of the Policy with the federal tax
definition of a life insurance contract.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the federal government a part of the taxable
portion of withdrawals made under a Policy, unless the Owner notifies us in
writing at or before the time of the withdrawal that he or she chooses not to
have withholding. As Owner, you will be responsible for the payment of any taxes
and early distribution penalties that may be due on the amounts received under
the Policy, whether or not you choose withholding. You may also be required to
pay penalties under the estimated tax rules, if your withholding and estimated
tax payments are insufficient to satisfy your total tax liability.
TAX ADVICE
This summary is not a complete discussion of the tax treatment of the
Policy. You should seek tax advice from an attorney who specializes in tax
issues.
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DESCRIPTION OF KILICO
AND THE SEPARATE ACCOUNT
KILICO
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. Kemper Corporation is a majority-owned (76.4%)
subsidiary of Zurich Holding Company of America ("ZHCA"), which is a
wholly-owned subsidiary 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.
KILICO also acts as a sponsor for [identify other separate accounts]. The
officers and employees of KILICO are covered by a fidelity bond in the amount of
$[ ].
OFFICERS AND DIRECTORS OF KILICO
Our directors and officers are listed below, together with information as
to their dates of election and principal business occupations during the past
five or more years (if other than their present occupation). Where no dates are
given, the person has held that position for at least the past five years.
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
John B. Scott (54) Chief Executive Officer, President and Director of Federal
Chief Executive Officer since Kemper Life Assurance Company (FKLA) and Fidelity Life
February 1992. President since Association (FLA) since 1988. Chief Executive Officer,
November 1993. Director since 1992. President and Director of Zurich Life Insurance Company of
America (ZLICA) and Zurich Direct, Inc. (ZD) since March
1996. Chairman of the Board and Director of Investors
Brokerage Services, Inc. (IBS) and Investors Brokerage
Services Insurance Agency, Inc. (IBSIA) since 1993. Chairman
of the Board of FKLA and FLA from April 1988 to January
1996. Chairman of the Board of KILICO from February 1992 to
January 1996. Executive Vice President and Director of
Kemper Corporation (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 (51) 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.
James C. Harkensee (40) 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.
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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.
Kenneth M. Sapp (53) 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.
Loren J. Alter (60) Director of FKLA, FLA and Scudder Kemper Investments, Inc.
Director since January 1996. (SKI) since January 1996. Director of ZLICA since May 1979.
Executive Vice President and Chief Financial Officer of
Zurich U.S. since 1979. President, Chief Executive Officer
and Director of Kemper since January 1996.
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NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
William H. Bolinder (55) Chairman of the Board and Director of FKLA and FLA since
Chairman of the Board and Director January 1996. Chairman of the Board of ZLICA and ZD since
since January 1996. March 1995. Chairman of the Board 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 (52) 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.
The business address of each of the foregoing officers and directors is 1
Kemper Drive, Long Grove, Illinois 60049.
SEPARATE ACCOUNT
KILICO Variable Separate Account was established on January 22, 1987, as a
separate investment account under the laws of Illinois. The Separate Account
receives and invests Premiums under the Policy. The Separate Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940. The SEC does not supervise the management, investment practices or
policies of the Separate Account or KILICO.
Benefits provided under the Policies are our obligations. Although the
assets in the Separate Account are our property, they are held separately from
our other assets and are not chargeable with liabilities arising out of any
other business we may conduct. Income, capital gains and capital losses, whether
or not realized, from the assets allocated to the Separate Account are credited
to or charged against the Separate Account without regard to the income, capital
gains and capital losses arising out of any other business we may conduct.
Thirty-one Subaccounts of the Separate Account are currently available.
Each Subaccount invests exclusively in shares of one of the corresponding
Portfolios. We may add or delete Subaccounts in the future.
The Separate Account purchases and redeems shares from the Portfolios at
net asset value. We redeem shares of the Portfolios as necessary to provide
benefits, to deduct Policy charges and to transfer assets from one Subaccount to
another as requested by Policy owners. All dividends and capital gains
distributions received by the Separate Account from a Portfolio are reinvested
in that Portfolio at net asset value and retained as assets of the corresponding
Subaccount.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
We hold the assets of the Separate Account. We keep those assets physically
segregated and held separate and apart from our General Account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
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STATE REGULATION OF KILICO
We are subject to the laws of Illinois and regulated by the Illinois
Division of Insurance. Every year we file an annual statement with the Division
of Insurance covering our operations for the previous year and our financial
condition as of the end of the year. We are inspected periodically by the
Division of Insurance to verify our Policy liabilities and reserves. We also are
examined periodically by the National Association of Insurance Commissioners.
Our books and records are subject to review by the Division of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
YEAR 2000 MATTERS
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.
We have taken substantial steps over the last several years to ensure that
our systems will be compliant for the year 2000. Such steps have included the
replacement of older systems with new systems which are already compliant. In
1996, we replaced our investment accounting system, and, in 1997, we replaced
our general ledger and accounts payable system. We have also ensured 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 $1.3 million
in 1998. We anticipate that it will cost an additional $662,000 to bring all
remaining systems into compliance.
Our policy administration systems have been completely renovated to be year
2000 compliant and are currently running in a test environment. Approximately 75
percent of our ancillary systems confirmed to be year 2000 compliant were in
production at December 31, 1998. We anticipate that all such systems will be in
production at April 30, 1999 or sooner. 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 requiring all other entities with which we
electronically interact, including suppliers and other financial services
institutions, to attest to us in writing that their systems 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 are currently
developing contingency plans to handle the most reasonably likely worst case
scenarios. These contingency plans are scheduled for completion in the third
quarter of 1999.
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DISTRIBUTION OF POLICIES
Investors Brokerage Services, Inc. ("IBS") serves as distributor of the
Policies. IBS is located at 1 Kemper Drive, Long Grove, Illinois 60010. IBS is
our wholly-owned subsidiary. It is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "1934 Act"), and is a member of the
National Association of Securities Dealers, Inc.
The Policies described in this Prospectus are sold by registered
representatives of broker-dealers or bank employees who are licensed insurance
agents appointed by the Company, either individually or through an incorporated
insurance agency. IBS enters into selling agreements with the unaffiliated
broker-dealers and banks whose personnel participate in the offer and sale of
the Policies. In some states, the Policies may be sold by representatives or
employees of banks which may be acting as broker-dealers without separate
registration under the 1934 Act, pursuant to legal and regulatory exceptions.
The maximum sales compensation payable by the Company is not more than the
equivalent of 7.5% percent of each Premium. Trail Commissions of up to 1.0% of
Cash Value may also be paid where a lower commission rate applies to Premiums.
In addition, we may pay or permit other promotional incentives, in cash, or
credit or other compensation. We also may pay asset-based expense allowances and
service fees.
The distribution agreement with IBS provides for indemnification of IBS by
KILICO and the Separate Account for liability arising out of allegedly untrue
statements in, or omissions of material fact from, the prospectus or the
Registration Statement. IBS agrees to indemnify KILICO and the Separate Account
against claims arising from the conduct of IBS or unaffiliated broker-dealers
that sell Policies.
The name and position of each officer and director of IBS as of May 1,
1999, are as follows:
John B. Scott............................................... Chairman and Director
Otis R. Heldman, Jr......................................... President and Director
Michael A. Kelly............................................ Vice President
David S. Jorgensen.......................................... Vice President and Treasurer
Debra P. Rezabek............................................ Secretary
Frank J. Julian............................................. Assistant Secretary
Kenneth M. Sapp............................................. Director
Eliane C. Frye.............................................. Director
George Vlaisavljevich....................................... Director
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account.
KILICO is engaged in routine law suits which, in our management's judgment, are
not of material importance to its total assets or material with respect to the
Separate Account.
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and our right to issue the Policy under Illinois law,
have been passed upon by Frank Julian, Esq., our Associate General Counsel. The
law firm of Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas
Jefferson St., Suite 400, East Lobby, Washington, D.C. 20007-5201, serve as
special counsel to KILICO with regard to the federal securities laws.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, Washington, D.C.,
under the Securities Act of 1933 as amended, with respect to the Policies
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the registration statement and the exhibits filed as part of the
registration statement. You should refer to the registration statement and the
exhibits for further information concerning the Separate Account, KILICO, and
the Policies. The descriptions in this Prospectus of the Policies and other
legal instruments are summaries. You should refer to those instruments as filed
for their precise terms.
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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 and the
financial statement schedules as of 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
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 period presented has
been included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent certified 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 Steven
D. Powell, FSA, as stated in the opinion filed as an exhibit to the Registration
Statement.
FINANCIAL STATEMENTS
[TO BE FILED BY PRE-EFFECTIVE AMENDMENT]
The included financial statements 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. The included financial
statements for KILICO only bear on our ability to meet our obligations under the
Policy. They do not relate to the investment performance of the assets held in
the Separate Account.
CHANGE OF ACCOUNTANTS
On September 12, 1997, KILICO appointed PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), formerly Coopers & Lybrand, L.L.P., as independent
accountants for the year ended December 31, 1997 to replace KPMG LLP effective
with such appointment. Our Board of Directors approved their selection 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.
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PART II--OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, as amended, the undersigned Registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION AS TO FEES AND CHARGES
KILICO hereby represents that the fees and charges deducted under the
Modified Single Premium Variable Universal Life Insurance Policies hereby
registered by this Registration Statement in the aggregate are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by KILICO.
REPRESENTATION PURSUANT TO RULE 6E-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940, as amended (the "1940 Act").
UNDERTAKING AS TO INDEMNIFICATION
Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, KILICO and the Separate Account will agree to indemnify
Investors Brokerage Services, Inc. ("IBS") against any claims, liabilities and
expenses which IBS may incur under the Securities Act of 1933, common law or
otherwise, arising out of or based upon any alleged untrue statements of
material fact contained in any registration statement or prospectus of the
Separate Account, or any omission to state a material fact therein, the omission
of which makes any statement contained therein misleading. IBS will agree to
indemnify KILICO and the Separate Account against any and all claims, demands,
liabilities and expenses which KILICO or the Separate Account may incur, arising
out of or based upon any act or deed of IBS or of any registered representatives
of an NASD member investment dealer which has an agreement with IBS and is
acting in accordance with KILICO's instructions.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing sheet.
Reconciliation and tie between items in N-8B-2 and Prospectus.
Prospectus consisting of pages.
The undertaking to file reports.
Undertaking as to indemnification pursuant to Rule 484(b)(1) under
the Securities Act of 1933.
Representation Regarding Fees and Charges Pursuant to Section 26
of the Investment Company Act of 1940.
The signatures.
Written consents of the following persons:
A. Frank J. Julian, Esq. (included in Opinion filed as Exhibit
3(a)).
B. PricewaterhouseCoopers LLP, independent accountants (to be filed
as Exhibit 6(a)).
C. KPMG LLP, Independent Auditors (to be filed as Exhibit 6(b)).
D. Steven D. Powell, FSA (included in Opinion to be filed as Exhibit
3(b)(I)).
The following exhibits:
(1) 1-A(1) KILICO Resolution establishing the Separate Account
(2) 1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage
Services, Inc. (IBS)
(3) 1-A(3)(b) Specimen Selling Group Agreement of IBS
1-A(3)(c) Schedules of commissions (to be filed by pre-effective amendment)
(3) 1-A(3)(d) General Agent Agreement
1-A(5)(a) Form of Individual Policy
1-A(5)(b) Form of Survivorship Policy
1-A(5)(c) Accelerated Death Benefit Rider (to be filed by pre-effective amend-
ment)
1-A(5)(c) Extended Maturity Rider (to be filed by pre-effective amendment)
1-A(5)(d) Nursing Care Waiver of Withdrawal Charge Rider (to be filed by
pre-effective amendment)
1-A(5)(e) Disability Waiver Rider (to be filed by pre-effective amendment)
(1) 1-A(6)(a) KILICO Articles of Incorporation
(3) 1-A(6)(b) By-Laws of KILICO
(4) 1-A(8)(a) Participation Agreement between KILICO and Scudder Variable Life
Investment Fund
(4) 1-A(8)(b) Participating Contract and Policy Agreement between KILICO and Scudder
Kemper Investments, Inc.
(4) 1-A(8)(c) Indemnification Agreement between KILICO and Scudder Kemper
Investments, Inc.
(5) 1-A(8)(d) Fund Participation Agreement among KILICO, Janus Aspen Series and
Janus Capital Corporation
(6) 1-A(8)(e) Service Agreement between KILICO and Janus Capital Corporation
(7) 1-A(8)(f) Participation Agreement By and Among KILICO and Warburg, Pincus Trust
and Warburg Pincus Asset Management Inc. (f/k/a Warburg, Pincus
Counsellors, Inc.) and Counsellors Securities, Inc.
(8) 1-A(8)(g) Service Agreement between Warburg Pincus Asset Management Inc. (f/k/a
Warburg, Pincus Counsellors, Inc.) and Federal Kemper Life Assurance
Company and KILICO
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(7) 1-A(8)(h) Fund Participation Agreement among KILICO, Investors Fund Series
(formerly known as Kemper Investors Fund), Zurich Kemper Investments,
Inc. and Kemper Distributors, Inc.
1-A(10) Application for Policy (to be filed by pre-effective amendment)
(2) 2 Specimen Notice of Withdrawal Right
3(a) Opinion and consent of legal officer of KILICO as to legality of
policies being registered (to be filed by pre-effective amendment)
3(b) Opinion and consent of actuarial officer of KILICO regarding
illustrations and actuarial matters (to be filed by pre-effective
amendment)
6(a) Consents of PricewaterhouseCoopers LLP, independent accountants (to be
filed by pre-effective amendment)
6(b) Consent of KPMG LLP, independent auditors (to be filed by pre-
effective amendment)
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii) (to be
filed by pre-effective amendment)
9 Illustrations
- -------------------------
(1) Incorporated by reference to the Registration Statement of the Registrant on
Form S-6 filed on or about December 26, 1995 (File No. 33-65399).
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form S-6 filed on or about June
5, 1996 (File No. 33-65399).
(3) Incorporated by reference to Amendment No. 2 to the Registration Statement
of KILICO on Form S-1 (File No. 333-02491) filed on or about April 23, 1997.
(4) Incorporated by reference to Amendment No. 5 to the Registration Statement
of KILICO on Form S-1 filed on or about April 20, 1999 (File No. 333-22389).
(5) Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement of KILICO Variable Annuity Separate Account on Form
N-4 filed on or about September 14, 1995 (File No. 2-72671).
(6) Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement of KILICO Variable Annuity Separate Account on Form
N-4 filed on or about April 28, 1997 (File No. 2-72671).
(7) Incorporated by reference to Amendment No. 3 to the Registration Statement
of KILICO on Form S-1 filed on or about April 8, 1998 (File No. 333-22389).
(8) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of FKLA Variable Separate Account on Form S-6 filed
on or about April 30, 1997 (File No. 33-79808).
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account, has duly caused this 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 27th day of May, 1999.
KILICO VARIABLE SEPARATE ACCOUNT
(Registrant)
By: Kemper Investors Life Insurance
Company
(Depositor)
By: /s/ JOHN B. SCOTT
------------------------------------
John B. Scott, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
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 27th day of May, 1999:
SIGNATURE TITLE
--------- -----
/s/ JOHN B. SCOTT Chief Executive Officer, President and Director
- -------------------------------------------------------- (Principal Executive Officer)
John B. Scott
/s/ W. H. BOLINDER Chairman of the Board and Director
- --------------------------------------------------------
William H. Bolinder
/s/ FREDERICK L. BLACKMON Senior Vice President and Chief Financial
- -------------------------------------------------------- Officer (Principal Financial Officer and
Frederick L. Blackmon Principal Accounting Officer)
/s/ LOREN J. ALTER Director
- --------------------------------------------------------
Loren J. Alter
/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
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EXHIBIT LIST
1.A(5)(A) Form of Individual Policy
1.A(5)(B) Form of Survivorship Policy
9 Illustrations
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