SEPARATE ACCOUNT KGC OF ALLMERICA FIN LIFE INS & ANNUITY CO, 497, 1998-05-07

SEPARATE ACCOUNT KGC OF ALLMERICA FIN LIFE INS & ANNUITY CO
497, 1998-05-07

Previous: SEPARATE ACCOUNT KGC OF FIRST ALLMERICA FIN LIFE INS CO, 497, 1998-05-07

Next: APEX MINERALS CORP, NT 10-Q, 1998-05-07

<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY

KEMPER GATEWAY CUSTOM
A VARIABLE ANNUITY

THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT
POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING A
KEMPER GATEWAY CUSTOM VARIABLE ANNUITY CONTRACT. THE
PROFILE CONTRACT IS MORE FULLY DESCRIBED LATER IN THIS PROSPECTUS.
MAY 1, 1998 PLEASE READ THE PROSPECTUS CAREFULLY.

1. KEMPER GATEWAY CUSTOM VARIABLE ANNUITY CONTRACT

The Kemper GATEWAY Custom variable annuity contract is a contract between you,
the contract owner, and Allmerica Financial Life Insurance and Annuity Company.
It is designed to help you accumulate assets for your retirement or other
important financial goals on a tax-deferred basis. The Kemper GATEWAY Custom
contract combines the concept of professional money management with the
attributes of an annuity contract.

Kemper GATEWAY Custom offers a customized investment portfolio with experienced
professional portfolio managers. You may allocate your payments among the 20
Kemper investment portfolios of the Investors Fund Series, the four investment
portfolios of the Scudder Variable Life Investment Fund, the Guarantee Period
Accounts and the Fixed Account (the Guarantee Period Accounts and/or the Fixed
Account may not be available in certain jurisdictions). This range of investment
choices enables you to allocate your money to meet your particular investment
needs.

Like all annuities, the contract has an ACCUMULATION PHASE and an ANNUITY PAYOUT
PHASE. During the ACCUMULATION PHASE you can make payments into the contract on
any frequency. Investment and interest gains accumulate tax deferred. You may
also withdraw money from your contract during the ACCUMULATION PHASE. However,
as with other tax-deferred investments, you pay taxes on earnings and any
untaxed payments to the contract when you withdraw them. A federal tax penalty
may apply if you withdraw prior to age 59 1/2.

During the ANNUITY PAYOUT PHASE you will receive regular payments from your
contract, provided you annuitize. Annuitization involves beginning a series of
payments from the capital that has built up in your contract. The amount of your
payments during the annuity payout phase will, in part, be determined by your
contract's growth during the accumulation phase.

P-1
<PAGE>
2. ANNUITY BENEFIT PAYMENTS

If you choose to annuitize your contract, you may select one of six annuity
options: (1) monthly payments guaranteed for your lifetime; (2) monthly payments
guaranteed for your lifetime, but for not less than 10 years; (3) monthly
payments for your lifetime with the guarantee that if payments to you are less
than the accumulated value a refund of the remaining value will be paid; (4)
monthly payments guaranteed for your lifetime and your survivor's lifetime; (5)
monthly payments guaranteed for your lifetime and your survivor's lifetime with
the payment to the survivor being reduced to 2/3; and (6) monthly payments
guaranteed for a specified period of 1 to 30 years.

You also need to decide if you want your annuity payments on a variable basis
(i.e., subject to fluctuation based on investment performance), on a fixed basis
(with benefit payments guaranteed at a fixed amount), or on a combination
variable and fixed basis. Once payments begin, the annuity option cannot be
changed.

3. PURCHASING THIS CONTRACT

You can buy a contract through your financial representative, who can also help
you complete the proper forms. There is no fixed schedule for making additional
payments into this contract. There are no limits to the frequency of additional
payments, but there are certain limitations as to amount. Generally, the initial
payment must be at least $2,000 and additional payments must be at least $100.
However, minimums may be reduced for certain employer-sponsored plans.

P-2
<PAGE>
4. INVESTMENT OPTIONS

You have full investment control over the contract. You may allocate money to
the following portfolios:

<TABLE>
<S> <C>
KEMPER IFS PORTFOLIOS:
- --------------------------------------
Kemper-Dreman Financial Services Kemper Value+Growth
Kemper Small Cap Growth Kemper Horizon 20+
Kemper Small Cap Value Kemper Total Return
Kemper-Dreman High Return Equity Kemper Horizon 10+
Kemper International Kemper High Yield
Kemper International Growth and Kemper Horizon 5
Income
Kemper Global Blue Chip Kemper Global Income
Kemper Growth Kemper Investment Grade Bond
Kemper Contrarian Value Kemper Government Securities
Kemper Blue Chip Kemper Money Market

SCUDDER VLIF PORTFOLIOS:
- --------------------------------------
Scudder International Scudder Capital Growth
Scudder Global Discovery Scudder Growth and Income
</TABLE>

You may also allocate money to the Guarantee Period Accounts and the Fixed
Account. The Guarantee Period Accounts let you choose from among nine different
Guarantee Periods (ranging in maturity from 2 to 10 years) during which
principal and interest rates are guaranteed. The Fixed Account guarantees
principal and a minimum rate of interest (never less than 3% compounded
annually).

5. EXPENSES

Each year and upon surrender, a $35 contract fee is deducted from your contract.
The contract fee is waived if the value of the contract is $50,000 or more or if
the contract is issued to and maintained by the Trustees of a 401(k) plan. We
also deduct insurance charges which amount to 1.10% annually of the daily value
of your contract value allocated to the variable investment options. The
insurance charges include a mortality and expense risk charge of 0.95% and an
administrative expense charge of 0.15%. There are also investment management
fees and other portfolio operating expenses that vary by portfolio.

If you decide to surrender your contract, make withdrawals or receive payments
under certain annuity options, we may impose a surrender charge between 2% and
7% of the payment withdrawn, based on when your payments were made. In states
where premium taxes are imposed, a premium tax charge will be deducted either
when withdrawals are made or annuity payments commence.

P-3
<PAGE>
There is currently no charge for processing investment option transfers. We
reserve the right to assess a charge, not to exceed $25, for transfers in excess
of 12 per contract year.

The following chart is designed to help you understand the charges in your
contract. Column C labeled "Total Annual Charges" shows the total of the $35
contract fee (which is represented as 0.04%) and the 1.10% insurance charges
(Column A) plus the investment charges for each portfolio (Column B.) Columns D
and E show you two examples of the charges, in dollar amounts, you would pay
under a contract. The examples assume that you invest $1,000 in a portfolio
earning 5% annually and that you withdraw your money: at the end of year 1
(Column D), and at the end of year 10 (Column E). In Column D, the Total Annual
Charges are assessed as well as the surrender charges. In Column E, the example
shows the aggregate of all the annual charges assessed for 10 years, but there
is no surrender charge. The premium tax is assumed to be 0% in both examples.

<TABLE>
<CAPTION>
A B C D E
TOTAL ANNUAL
EXPENSES AT
TOTAL TOTAL END OF
ANNUAL ANNUAL TOTAL ------------
INSURANCE PORTFOLIO ANNUAL 1 10
PORTFOLIO CHARGES CHARGES CHARGES YEAR YEARS
- -------------------------------------------------- --------- -------- ------- ---- -----
<S> <C> <C> <C> <C> <C>
Kemper-Dreman Financial Services* 1.14% 0.99% 2.13% $83 $243
Kemper Small Cap Growth 1.14% 0.71% 1.85% $80 $214
Kemper Small Cap Value 1.14% 0.84% 1.98% $81 $227
Kemper-Dreman High Return Equity* 1.14% 0.87% 2.01% $81 $227
Kemper International 1.14% 0.91% 2.05% $82 $234
Kemper International Growth and Income* 1.14% 1.12% 2.26% $84 $256
Kemper Global Blue Chip* 1.14% 1.56% 2.70% $88 $300
Kemper Growth 1.14% 0.65% 1.79% $79 $207
Kemper Contrarian Value 1.14% 0.80% 1.94% $81 $223
Kemper Blue Chip 1.14% 0.95% 2.09% $82 $239
Kemper Value+Growth 1.14% 0.84% 1.98% $81 $227
Kemper Horizon 20+ 1.14% 0.93% 2.07% $82 $237
Kemper Total Return 1.14% 0.60% 1.74% $79 $202
Kemper Horizon 10+ 1.14% 0.83% 1.97% $81 $226
Kemper High Yield 1.14% 0.65% 1.79% $79 $207
Kemper Horizon 5 1.14% 0.97% 2.11% $82 $241
Kemper Global Income 1.14% 1.05% 2.19% $83 $249
Kemper Investment Grade Bond 1.14% 0.80% 1.94% $81 $223
Kemper Government Securities 1.14% 0.64% 1.78% $79 $206
Kemper Money Market 1.14% 0.55% 1.69% $78 $197
Scudder International 1.14% 1.00% 2.14% $83 $244
Scudder Global Discovery 1.14% 1.50% 2.64% $87 $294
Scudder Capital Growth 1.14% 0.51% 1.65% $78 $192
Scudder Growth and Income 1.14% 0.58% 1.72% $79 $200
</TABLE>

* For newly formed Portfolios, the charges have been estimated. For more
detailed information, see the Fee Table in the Prospectus.

P-4
<PAGE>
6. TAXES

You will not pay taxes until you withdraw money from your contract. During the
accumulation phase, earnings are withdrawn first and are taxed as ordinary
income. If you make a withdrawal prior to age 59 1/2, you may be subject to a
10% federal tax penalty on the earnings. Payments during the annuity payout
phase are considered partly a return of your investment and partly earnings. You
will be subject to income taxes on the earnings portion of each payment.
However, if your contract is funded with pre-tax or tax deductible dollars (such
as a pension or profit sharing plan contribution), then the entire payment will
be taxable.

7. WITHDRAWALS

You can make withdrawals from your contract any time during the accumulation
phase. The minimum withdrawal amount is $100. Any payment invested in the
contract for more than six years can be withdrawn without a surrender charge.

For amounts invested six years or less, you will not be assessed a surrender
charge on the greatest of: (1) 15% or less of the contract value in any calendar
year; or (2), if you are also the Annuitant, an amount calculated under the Life
Expectancy Distribution option. (Similarly, no surrender charge will apply if an
amount is withdrawn based on the Annuitant's life expectancy and the Owner is a
trust or other non-natural person.)

You may also purchase riders that enhance your liquidity in times of need (see
"Optional Benefit Riders" below).

Any withdrawal from a Guarantee Period Account ("GPA") prior to the end of the
Guarantee Period will be subject to a market value adjustment which may increase
or decrease the value in that account. This adjustment will never impact your
original investment, nor will earnings in the GPA amount to less than an
effective annual rate of 3%.

8. PERFORMANCE

The value of your contract will vary depending on the investment performance of
the portfolios you choose. From time to time, we may advertise "Total Return"
and "Average Annual Total Return" based upon the periods that the portfolios
have been in existence. These returns are based upon historical data and are not
intended to indicate future performance.

The contract was first offered in 1997. Therefore, performance for a complete
year is not available and is not shown here.

P-5
<PAGE>
9. DEATH BENEFIT

If the annuitant dies during the accumulation phase, we will pay the beneficiary
a death benefit. The death benefit is equal to the GREATER of: (a) the
accumulated value increased for any positive market value adjustment; or (b)
gross payments, decreased proportionately to reflect any prior withdrawals.

You may also purchase a rider that will enhance the death benefit (see "Optional
Benefit Riders" below).

10. OTHER INFORMATION

FREE-LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), you will receive a refund in
accordance with the terms of the contract's "Right to Examine Contract"
provision.

OPTIONAL BENEFIT RIDERS: Where permitted by state law, three optional riders
are available for separate monthly charges.

ENHANCED DEATH BENEFIT RIDER:

Under this rider, the death benefit is equal to the GREATEST of:

(a) the accumulated value increased for any positive market value adjustment;

(b) gross payments compounding daily at an annual rate of 5%, decreased
proportionately to reflect any prior withdrawals; or

(c) the death benefit that would have been payable on the most recent contract
anniversary date, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.

This enhanced guaranteed death benefit works in the following way assuming no
withdrawals are made. On the first anniversary, the death benefit will be equal
to the greater of (a) the Accumulated Value (increased by any positive Market
Value Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary date while the Contract
remains in force and prior to the Annuity Date. As noted above, the values of
(b) and (c) will be decreased proportionately if withdrawals are taken.

P-6
<PAGE>
LIVING BENEFITS RIDER:

Under this rider, you may receive your money without a surrender charge if,
after issue, you are:

1. confined to a medical care facility for the later of one year after the
issue date or 90 days; or

2. diagnosed as having a fatal illness.

DISABILITY RIDER:

Under this rider, you may receive your money without a surrender charge if you
become physically disabled after issue and before attaining age 65.

DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the Kemper Money Market Portfolio, the Kemper Government
Securities Portfolio or the Fixed Account to one or more of the variable
investment options.

AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.

11. INQUIRIES

If you need more information you may contact us at 1-800-782-8380 or send
correspondence to:

Kemper Gateway Annuities
Allmerica Financial
P.O. Box 8632
Boston, Massachusetts 02266-8632

P-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS

This Prospectus describes interests under flexible payment deferred variable and
fixed annuity contracts, known as Kemper Gateway Custom Variable Annuity
Contracts, issued either on a group basis or as individual contracts by
Allmerica Financial Life Insurance and Annuity Company (the "Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about a
contract's tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS".)

Additional information is contained in a Statement of Additional Information
("SAI") dated May 1, 1998, filed with the Securities and Exchange Commission
(the "SEC") and incorporated herein by reference. The Table of Contents of the
SAI is on page 5 of this Prospectus. The SAI is available upon request and
without charge through Allmerica Investments, Inc., telephone 800-782-8380.

Contract values may accumulate on a variable basis in the separate account known
as Separate Account KGC (the "Variable Account"). The assets of the Variable
Account are divided into Sub-Accounts, each investing exclusively in shares of
one of the following Kemper Portfolios of Investors Fund Series ("Kemper IFS")
or Portfolios of Scudder Variable Life Investment Fund ("Scudder VLIF"):

<TABLE>
<CAPTION>
KEMPER IFS PORTFOLIOS:
- ----------------------------------------
<S> <C>
KEMPER-DREMAN FINANCIAL SERVICES KEMPER VALUE+GROWTH
KEMPER SMALL CAP GROWTH KEMPER HORIZON 20+
KEMPER SMALL CAP VALUE KEMPER TOTAL RETURN
KEMPER-DREMAN HIGH RETURN EQUITY KEMPER HORIZON 10+
KEMPER INTERNATIONAL KEMPER HIGH YIELD
KEMPER INTERNATIONAL GROWTH AND INCOME KEMPER HORIZON 5
KEMPER GLOBAL BLUE CHIP KEMPER GLOBAL INCOME
KEMPER GROWTH KEMPER INVESTMENT GRADE BOND
KEMPER CONTRARIAN VALUE KEMPER GOVERNMENT SECURITIES
KEMPER BLUE CHIP KEMPER MONEY MARKET

SCUDDER VLIF PORTFOLIOS:
- ----------------------------------------
SCUDDER INTERNATIONAL SCUDDER CAPITAL GROWTH
SCUDDER GLOBAL DISCOVERY SCUDDER GROWTH AND INCOME
</TABLE>

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF
INVESTORS FUND SERIES AND SCUDDER VARIABLE LIFE INVESTMENT FUND. INVESTORS
SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

DATED MAY 1, 1998
<PAGE>
In most jurisdictions, values also may be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and, during the
accumulation period, to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period if
held for the entire Guarantee Period. If removed prior to the end of the
Guarantee Period the value may be increased or decreased by a Market Value
Adjustment. Amounts allocated to the Guarantee Period Accounts in the
accumulation phase are held in the Company's Separate Account GPA.

Participation in a group contract will be accounted for by the issuance of a
certificate describing the individual's interest under the group contract.
Participation in an individual contract will be evidenced by the issuance of an
individual contract. Certificates and individual contracts are referred to
collectively herein as the "Contract(s)." The following is a summary of
information about these Contracts. More detailed information can be found under
the referenced captions in this Prospectus.

THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.

THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.

2
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS 5

SPECIAL TERMS 6

SUMMARY 8

ANNUAL AND TRANSACTION EXPENSES 15

CONDENSED FINANCIAL INFORMATION 21

PERFORMANCE INFORMATION 24

DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
INVESTORS FUND SERIES AND SCUDDER
VARIABLE LIFE INVESTMENT FUND 31

INVESTMENT OBJECTIVES AND POLICIES 32

INVESTMENT MANAGEMENT SERVICES 35

DESCRIPTION OF THE CONTRACT 36
A. Payments 36
B. Right to Revoke Individual Retirement Annuity 37
C. Right to Revoke All Other Contracts 38
D. Transfer Privilege 38
Automatic Transfers and Automatic Account Rebalancing
Options 39
E. Surrender 40
F. Withdrawals 41
Systematic Withdrawals 42
Life Expectancy Distributions 42
G. Death Benefit 43
Death of the Annuitant Prior to the Annuity Date 43
Death of an Owner Who is Not Also the Annuitant Prior to
the Annuity Date 44
Payment of the Death Benefit Prior to the Annuity Date 44
Death of the Annuitant On or After the Annuity Date 45
H. The Spouse of the Owner as Beneficiary 45
I. Assignment 45
J. Electing the Form of Annuity and Annuity Date 46
K. Description of Variable Annuity Payout Options 47
L. Annuity Benefit Payments 48
The Annuity Unit 48
Determination of the First and Subsequent Annuity
Benefit Payments 49
</TABLE>

3
<PAGE>
<TABLE>
<S> <C> <C>
M. NORRIS Decision 50
N. Computation of Values 50
The Accumulation Unit 50
Net Investment Factor 51

CHARGES AND DEDUCTIONS 52
A. Variable Account Deductions 52
Mortality and Expense Risk Charge 52
Administrative Expense Charge 52
Other Charges 53
B. Contract Fee 53
C. Optional Benefit Riders 54
D. Premium Taxes 54
E. Contingent Deferred Sales Charge 55
Charges for Surrender and Withdrawal 55
Reduction or Elimination of Surrender Charge 56
Withdrawal Without Surrender Charge 57
Living Benefits Rider 58
Disability Rider 58
Surrenders 59
Charge at the Time Annuity Benefit Payments Begin 59
F. Transfer Charge 60

GUARANTEE PERIOD ACCOUNTS 60

FEDERAL TAX CONSIDERATIONS 63
A. Qualified and Non-Qualified Contracts 64
B. Taxation of the Contracts in General 64
Withdrawals Prior to Annuitization 64
Annuity Payouts After Annuitization 65
Penalty on Distribution 65
Assignments or Transfers 66
Non-Natural Owners 66
Deferred Compensation Plans of State and Local
Government and Tax-Exempt Organizations 66
C. Tax Withholding 66
D. Provisions Applicable to Qualified Employer Plans 67
Corporate and Self-Employed Pension and Profit Sharing
Plans 67
Individual Retirement Annuities 67
Tax-Sheltered Annuities 68
Texas Optional Retirement Program 68
</TABLE>

4
<PAGE>
<TABLE>
<S> <C> <C>
REPORTS 68

LOANS (QUALIFIED CONTRACTS ONLY) 69

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS 69

CHANGES TO COMPLY WITH LAW AND AMENDMENTS 71

VOTING RIGHTS 71

DISTRIBUTION 71

SERVICES 72

LEGAL MATTERS 72

FURTHER INFORMATION 72

APPENDIX A -- MORE INFORMATION ABOUT THE FIXED
ACCOUNT A-1

APPENDIX B -- SURRENDER CHARGES AND THE MARKET
VALUE ADJUSTMENT B-1

APPENDIX C -- THE DEATH BENEFIT C-1
</TABLE>

STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
GENERAL INFORMATION AND HISTORY 2

TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY
3

SERVICES 3

UNDERWRITERS 3

ANNUITY BENEFIT PAYMENTS 4

EXCHANGE OFFER 6

PERFORMANCE INFORMATION 7

TAX-DEFERRED ACCUMULATION 10

FINANCIAL STATEMENTS F-1
</TABLE>

5
<PAGE>
SPECIAL TERMS

ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the Sub-
Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts credited to the Contract on any date before the
Annuity Date.

ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.

ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.

ANNUITY DATE: the date on which annuity benefit payments begin as specified
pursuant to the Contract.

ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.

FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.

FIXED ANNUITY PAYOUT: an Annuity in the payout phase providing for annuity
benefit payments which remain fixed in amount throughout the annuity benefit
payment period selected.

GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.

GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.

GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.

GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.

MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.

OWNER: the person, persons or entity entitled to exercise the rights and
privileges under this Contract. Joint Owners are permitted if one of the two is
the Annuitant.

6
<PAGE>
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding Kemper
portfolio of Investors Fund Series (Kemper IFS) or a corresponding portfolio of
Scudder Variable Life Investment Fund (Scudder VLIF).

SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.

UNDERLYING PORTFOLIOS (OR PORTFOLIOS): currently, the twenty Portfolios of
Kemper IFS and the four Portfolios of Scudder VLIF in which the Sub-Accounts
invest.

VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, as well as each day otherwise required.

VARIABLE ACCOUNT: Separate Account KGC, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company, and are not chargeable with liabilities arising
out of any other business which the Company may conduct.

VARIABLE ANNUITY PAYOUT: an Annuity in the payout phase providing for payments
varying in amount in accordance with the investment experience of certain of the
Portfolios.

7
<PAGE>
SUMMARY

WHAT IS THE KEMPER GATEWAY CUSTOM VARIABLE ANNUITY?

The Kemper Gateway Custom variable annuity contract is an insurance contract
designed to help you accumulate assets for your retirement or other important
financial goals on a tax-deferred basis. The Contract combines the concept of
professional money management with the attributes of an annuity contract.
Features available through the Contract include:

- - A customized investment portfolio;

- - 20 Kemper IFS Portfolios and 4 Scudder VLIF Portfolios;

- - 1 Fixed Account;

- - 9 Guarantee Period Accounts;

- - Experienced professional portfolio managers;

- - Tax deferral on earnings;

- - Guarantees that can protect your beneficiaries during the accumulation phase;

- - Income that can be guaranteed for life.

The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, your initial
payment and any additional payments you choose to make may be allocated to the
combination of portfolio of securities ("Portfolios") under your Contract, to
the Guarantee Period Accounts, and to the Fixed Account. You select the
investment options most appropriate for your investment needs. As those needs
change, you may also change your allocation without incurring any tax
consequences. Your Contract's Accumulated Value is based on the investment
performance of the Portfolios and any accumulations in the Guarantee Period and
Fixed Accounts. No income taxes are paid on any earnings under the Contract
unless and until Accumulated Values are withdrawn. In addition, during the
accumulation phase, your beneficiaries receive certain protections and
guarantees in the event of the Annuitant's death. See discussion below, "WHAT
HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?"

8
<PAGE>
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?

During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Portfolios, fixed annuity benefit payments with payment amounts guaranteed by
the Company, or a combination of fixed and variable annuity benefit payments.
Among the payout options available during the annuity payout phase are:

- - periodic payments for your lifetime (assuming you are the Annuitant);

- - periodic payments for your life and the life of another person selected by
you;

- - periodic payments for your lifetime with guaranteed payments continuing to
your beneficiary for ten years in the event that you die before the end of ten
years;

- - periodic payments over a specified number of years (1 to 30); under this
option you may reserve the right to convert remaining payments to a lump-sum
payout by electing a "commutable" option.

WHO ARE THE KEY PERSONS UNDER THE CONTRACT?

The Contract is between you, (the "Owner") and us, Allmerica Financial Life
Insurance and Annuity Company (the "Company"). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two also must be the
Annuitant), an Annuitant and one or more beneficiaries. As Owner, you make
payments, choose investment allocations and select the Annuitant and
beneficiary. The Annuitant is the individual to receive annuity benefit payments
under the Contract. The beneficiary is the person who receives any payment on
the death of the Owner or Annuitant.

HOW MUCH CAN I INVEST AND HOW OFTEN?

The number and frequency of your payments are flexible, subject to the minimum
and maximum payments stated in "A. Payments."

WHAT ARE MY INVESTMENT CHOICES?

The Contract permits net payments to be allocated among the Sub-Accounts
investing in the Portfolios, the Guarantee Period Accounts, and the Fixed
Account.

9
<PAGE>
VARIABLE ACCOUNT. You have a choice of Sub-Accounts investing in the following
Portfolios:

SCUDDER VLIF PORTFOLIOS:
- --------------------------------------
Scudder International Scudder Capital Growth
Scudder Global Discovery Scudder Growth and Income
</TABLE>

For a more detailed description of the Portfolios, see "INVESTMENT OBJECTIVES
AND POLICIES."

GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available nine Guarantee Periods ranging from two to
ten years in duration. Once declared, the Guaranteed Interest Rate will not
change during the duration of the Guarantee Period. If amounts allocated to a
Guarantee Period Account are transferred, surrendered or applied to any annuity
option at any time other than the day following the last day of the applicable
Guarantee Period, a Market Value Adjustment will apply that may increase or
decrease the Account's value; however, this adjustment will never be applied
against your principal. In addition, earnings in the GPA after application of
the Market Value Adjustment will not be less than an effective annual rate of
3%. For more information about the Guarantee Period Accounts and the Market
Value Adjustment, see "GUARANTEE PERIOD ACCOUNTS."

FIXED ACCOUNT. The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable

10
<PAGE>
Account and any other separate account. Allocations to the Fixed Account are
guaranteed as to principal and a minimum rate of interest. Additional excess
interest may be declared periodically at the Company's discretion. Furthermore,
the initial rate in effect on the date an amount is allocated to the Fixed
Account will be guaranteed for one year from that date. For more information
about the Fixed Account see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT."

THE GUARANTEE PERIOD ACCOUNTS AND/OR SOME OF THE SUB-ACCOUNTS MAY NOT BE
AVAILABLE IN ALL STATES.

WHO ARE THE PORTFOLIO MANAGERS?

Scudder Kemper Investments, Inc. ("SKI") is the investment manager of each
Portfolio of Kemper IFS and each Portfolio of Scudder VLIF. Zurich Investment
Management Limited ("ZIML"), an affiliate of SKI, is the sub-adviser for the
Kemper International Portfolio and the Kemper Global Income Portfolio. Dreman
Value Management, L.L.C. is the sub-advisor for the Kemper-Dreman Financial
Services Portfolio and Kemper-Dreman High Return Equity Portfolio. Zurich
Investment Management, Inc. ("ZIM"), an affiliate of SKI, is the investment
manager of the Guarantee Period Accounts pursuant to an investment advisory
agreement between the Company and ZIM.

CAN I MAKE TRANSFERS AMONG THE ACCOUNTS?

Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Portfolios, the Guarantee Period Accounts, and the Fixed
Account. You will incur no current taxes on transfers while your money remains
in the Contract. You also may elect Automatic Account Rebalancing to ensure
assets remain allocated according to a desired mix or choose automatic dollar
cost averaging to gradually move money into one or more Portfolios. See "D.
Transfer Privilege."

WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PAYOUT PHASE BEGINS?

You may surrender your Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge, 15% of
the Contract's Accumulated Value or, if you are both an Owner and the Annuitant,
an amount based on your life expectancy. (Similarly, no surrender charge will
apply if an amount is withdrawn based on the Annuitant's life expectancy if the
Owner is a trust or other non-natural person.) A 10% tax penalty may apply on
all amounts deemed to be income if you are under age 59 1/2. Additional amounts
may be withdrawn at anytime but may be subject to the surrender charge for
payments that have not been invested in the Contract

11
<PAGE>
for more than six years. (A Market Value Adjustment, which may increase or
decrease the value of the account, may apply to any withdrawal made from a
Guarantee Period Account prior to the expiration of the Guarantee Period.)

WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?

If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), a standard Annuitant death benefit will
be paid. The standard Annuitant death benefit is equal to the GREATER of:

- - The Accumulated Value increased by any positive Market Value Adjustment; or

- - Gross payments, decreased proportionately to reflect withdrawals (for each
withdrawal, the proportionate reduction is calculated as the death benefit
under this option immediately prior to the withdrawal, multiplied by the
withdrawal amount, and divided by the Accumulated Value immediately prior to
the withdrawal).

If the Owner elects the Enhanced Death Benefit Rider, the Annuitant death
benefit will be the GREATEST of:

- - The Accumulated Value increased by any positive Market Value Adjustment;

- - Gross payments, compounded daily at an annual rate of 5% starting on the date
each payment was applied, decreased proportionately to reflect withdrawals; or

- - The death benefit that would have been payable on the most recent Contract
anniversary date, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.

12
<PAGE>
A separate charge is made for the Enhanced Death Benefit Rider. See "G. Death
Benefit" under "DESCRIPTION OF THE CONTRACT."

Regardless of whether the Enhanced Death Benefit Rider is in effect, if an Owner
who is not also the Annuitant dies during the Accumulation Phase, the death
benefit will equal the Accumulated Value of the Contract increased by any
positive Market Value Adjustment.

(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")

WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?

At each Contract anniversary and upon surrender, if the Accumulated Value is
less than $50,000, the Company will deduct a $35 Contract fee from the Contract.
There will be no Contract fee if the Accumulated Value is $50,000 or more. The
Contract fee is waived for a Contract issued to and maintained by a trustee of a
401(k) plan.

Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a contingent
deferred sales charge. If applicable, this charge will be between 2% and 7% of
payments withdrawn, based on when the payments were made.

Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described under "C. Premium Taxes."

Currently, the Company makes no charge for processing transfers. The first 12
transfers in a Contract year are guaranteed to be free of a transfer charge. For
each subsequent transfer in a Contract year, the Company reserves the right to
assess a charge which is guaranteed never to exceed $25.

The Company will deduct, on a daily basis, an annual mortality and expense risk
charge and administrative expense charge equal to 0.95% and 0.15%, respectively,
of the average daily net assets invested in each Portfolio. The Portfolios will
incur certain management fees and expenses described more fully in "Other
Charges" under "A. Variable Account Deductions" and in the Kemper IFS and
Scudder VLIF prospectuses which accompany this Prospectus.

Three optional riders (Enhanced Death Benefit Rider, Living Benefits Rider, and
Disability Rider) are available for an additional charge of 0.25%, 0.05% and
0.05%, respectively, which is deducted in arrears on a monthly basis. For more
information, see "Living Benefits Rider" and Disability Rider" under

13
<PAGE>
"CHARGES AND DEDUCTIONS," and "G. Death Benefit" under "DESCRIPTION OF THE
CONTRACT." For more information, see "CHARGES AND DEDUCTIONS."

CAN I EXAMINE THE CONTRACT?

Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of your Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the Sub-
Accounts (plus any fees or charges that may have been deducted). However, if
state law requires or if your Contract was issued as an Individual Retirement
Annuity (IRA), you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your entire payment or (2)
the amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Revoke Individual Retirement Annuity" and
"C. Right to Revoke All Other Contracts."

CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?

There are several changes you can make after receiving your Contract:

- - You may assign your ownership to someone else, except under certain qualified
plans.

- - You may change the beneficiary, unless you have designated a beneficiary
irrevocably.

- - You may change your allocation of payments.

- - You may make transfers of Contract value among your current investments
without any tax consequences.

- - You may cancel the Contract within ten days of delivery (or longer if required
by law).

14
<PAGE>
ANNUAL AND TRANSACTION EXPENSES

The following tables show charges under the Contract, expenses of the Sub-
Accounts, and expenses of the Underlying Portfolios. In addition to the charges
and expenses described below, premium taxes are applicable in some states and
are deducted as described under "C. Premium Taxes."

CONTRACT CHARGES:

<TABLE>
<CAPTION>
YEARS FROM
DATE OF
PAYMENT CHARGE
------------ ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE:
This charge may be assessed upon 0-1 7.0%
surrender, withdrawal or annuitization 2 6.0%
under any commutable period certain option 3 5.0%
or a noncommutable period certain option 4 4.0%
of less than ten years. The charge is a 5 3.0%
percentage of payments applied to the 6 2.0%
amount surrendered (in excess of any Thereafter 0%
amount that is free of surrender charge)
within the indicated time period.

TRANSFER CHARGE:
The Company currently makes no charge for None
processing transfers and guarantees that
the first 12 transfers in a Contract year
will not be subject to a transfer charge.
For each subsequent transfer, the Company
reserves the right to assess a charge,
guaranteed never to exceed $25, to
reimburse the Company for the costs of
processing the transfer.

CONTRACT FEE:
The fee is deducted annually and upon $35
surrender prior to the Annuity Date when
Accumulated Value is less than $50,000.
The fee is waived for Contracts issued to
and maintained by the trustee of a 401(k)
plan.

SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average
daily net assets)
Mortality and Expense Risk Charge: 0.95%
Administrative Expense Charge: 0.15%
---------
Total Asset Charge 1.10%
</TABLE>

15
<PAGE>
PORTFOLIO EXPENSES: The following table shows the expenses of the Underlying
Portfolios as a percentage of average net assets for the year ended December 31,
1997. For more information concerning fees and expenses, see the prospectuses
for the Underlying Portfolios.

<TABLE>
<CAPTION>
MANAGEMENT FEE
(AFTER APPLICABLE OTHER TOTAL
PORTFOLIO WAIVERS) EXPENSES EXPENSES
- ----------------------------------- ----------------------- -------------- --------------
<S> <C> <C> <C>
Kemper-Dreman Financial
Services*......................... 0.75% 0.24% 0.99%
Kemper Small Cap Growth............ 0.65% 0.06% 0.71%
Kemper Small Cap Value............. 0.75% 0.09% 0.84%
Kemper-Dreman High Return
Equity*........................... 0.75% 0.12% 0.87%
Kemper International............... 0.75% 0.16% 0.91%
Kemper International Growth and
Income*........................... 0.70%(1) 0.42% 1.12% (1)
Kemper Global Blue Chip*........... 0.85%(1) 0.71% 1.56% (1)
Kemper Growth...................... 0.60% 0.05% 0.65%
Kemper Contrarian Value............ 0.75% 0.05% 0.80%
Kemper Blue Chip**................. 0.65% 0.30% 0.95%
Kemper Value+Growth................ 0.75% 0.09% 0.84%
Kemper Horizon 20+................. 0.60% 0.33% 0.93%
Kemper Total Return................ 0.55% 0.05% 0.60%
Kemper Horizon 10+................. 0.60% 0.23% 0.83%
Kemper High Yield.................. 0.60% 0.05% 0.65%
Kemper Horizon 5................... 0.60% 0.37% 0.97%
Kemper Global Income**............. 0.75% 0.30% 1.05%
Kemper Investment Grade Bond....... 0.60% 0.20% 0.80%
Kemper Government Securities....... 0.55% 0.09% 0.64%
Kemper Money Market................ 0.50% 0.05% 0.55%
Scudder International.............. 0.83% 0.17% 1.00%
Scudder Global Discovery........... 0.67%(2) 0.83% 1.50% (2)
Scudder Capital Growth............. 0.47% 0.04% 0.51%
Scudder Growth and Income.......... 0.48% 0.10% 0.58%
</TABLE>

* These Portfolios commenced operations on 5/1/98, therefore "other expenses"
are estimated and annualized and should not be considered representative of
future expenses. Actual expenses may be greater or less than shown.

** These Portfolios commenced operations on 5/1/97, therefore "other expenses"
are estimated and annualized and should not be considered representative of
future expenses. Actual expenses may be greater or less than shown.

16
<PAGE>
(1) Until further notice, the Adviser has agreed to voluntarily waive its
management fee for the Kemper International Growth and Income Portfolio by
0.30% of the average daily net assets and for the Kemper Global Blue Chip
Portfolio by 0.15% of the average daily net assets. Without such a waiver,
the management fee and total expenses would be as follows: Kemper
International Growth and Income -1.00% and 1.42% and Kemper Global Blue Chip
-1.00% and 1.71%. The declaration of a voluntary waiver does not bind the
Manager to declare future waivers with respect to these funds. These
limitations may be terminated at any time.

(2) The Adviser has agreed to waive all or a portion of its management fee to
limit the expense of the Scudder Global Discovery Portfolio to 1.50% of
average daily net assets. Without such a waiver, the management fee would
have been 0.98% and total operating expenses would been 1.79%.

EXAMPLES. The following examples demonstrate the cumulative expenses which
would be paid by the Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets, as required by rules of the SEC. Because the
expenses of the Underlying Portfolios differ, separate examples are used to
illustrate the expenses incurred by an Owner on an investment in the various
Sub-Accounts.

THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.

17
<PAGE>
(1) If, at the end of the applicable time period, you surrender the Contract or
annuitize* under a commutable variable period certain option or a non-commutable
period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:

<TABLE>
<CAPTION>
1 3 5 10
UNDERLYING PORTFOLIO YEAR YEARS YEARS YEARS
- -------------------------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Kemper-Dreman Financial Services.................. $83 $112 $142 $243
Kemper Small Cap Growth........................... $80 $104 $128 $214
Kemper Small Cap Value............................ $81 $108 $135 $227
Kemper-Dreman High Return Equity.................. $81 $109 $135 $227
Kemper International.............................. $82 $110 $138 $234
Kemper International Growth and Income............ $84 $116 $149 $256
Kemper Global Blue Chip........................... $88 $128 $170 $300
Kemper Growth..................................... $79 $102 $125 $207
Kemper Contrarian Value........................... $81 $107 $133 $223
Kemper Blue Chip.................................. $82 $111 $140 $239
Kemper Value+Growth............................... $81 $108 $135 $227
Kemper Horizon 20+................................ $82 $110 $139 $237
Kemper Total Return............................... $79 $101 $123 $202
Kemper Horizon 10+................................ $81 $107 $134 $226
Kemper High Yield................................. $79 $102 $125 $207
Kemper Horizon 5.................................. $82 $111 $141 $241
Kemper Global Income.............................. $83 $114 $145 $249
Kemper Investment Grade Bond...................... $81 $107 $133 $223
Kemper Government Securities...................... $79 $102 $125 $206
Kemper Money Market............................... $78 $ 99 $120 $197
Scudder International............................. $83 $112 $143 $244
Scudder Global Discovery.......................... $87 $127 $167 $294
Scudder Capital Growth............................ $78 $ 98 $118 $192
Scudder Growth and Income......................... $79 $100 $122 $200
</TABLE>

18
<PAGE>
(2) If, at the end of the applicable time period, you annuitize* under a life
option or a non-commutable period certain option of ten years or longer, or if
you do not surrender or annuitize the Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:

<TABLE>
<CAPTION>
1 3 5 10
UNDERLYING PORTFOLIO YEAR YEARS YEARS YEARS
- -------------------------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Kemper-Dreman Financial Services.................. $21 $66 $113 $243
Kemper Small Cap Growth........................... $19 $57 $ 99 $214
Kemper Small Cap Value............................ $20 $61 $105 $227
Kemper-Dreman High Return Equity.................. $20 $62 $107 $230
Kemper International.............................. $21 $63 $109 $234
Kemper International Growth and Income............ $23 $70 $119 $256
Kemper Global Blue Chip........................... $27 $83 $141 $300
Kemper Growth..................................... $18 $55 $ 95 $207
Kemper Contrarian Value........................... $19 $60 $103 $223
Kemper Blue Chip.................................. $21 $65 $111 $239
Kemper Value+Growth............................... $20 $61 $105 $227
Kemper Horizon 20+................................ $21 $64 $110 $237
Kemper Total Return............................... $17 $54 $ 93 $202
Kemper Horizon 10+................................ $20 $61 $105 $226
Kemper High Yield................................. $18 $55 $ 95 $207
Kemper Horizon 5.................................. $21 $65 $112 $241
Kemper Global Income.............................. $22 $68 $116 $249
Kemper Investment Grade Bond...................... $19 $60 $103 $223
Kemper Government Securities...................... $18 $55 $ 95 $206
Kemper Money Market............................... $17 $52 $ 90 $197
Scudder International............................. $21 $66 $113 $244
Scudder Global Discovery.......................... $26 $81 $138 $294
Scudder Capital Growth............................ $17 $51 $ 88 $192
Scudder Growth and Income......................... $17 $53 $ 92 $200
</TABLE>

As required in rules promulgated under the Investment Company Act of 1940 Act
(the "1940 Act"), the Contract fee is reflected in the examples by a method to
show the "average" impact on an investment in the Variable Account. The total
Contract fees collected are divided by the total average net assets attributable
to the Contract. The resulting percentage is 0.04%, and the amount of the
Contract fee is assumed to be $0.40 in the examples. The Contract fee is
deducted only when the accumulated value is less than $50,000. Lower costs apply
to Contracts owned and maintained under a 401(k) plan.

* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization under an option including
a life contingency or under a non-commutable period certain option of ten years
or longer.

19
<PAGE>
OPTIONAL BENEFIT RIDERS. Subject to state availability, the Company offers
three optional benefit riders that may be elected by the Owner. A separate
monthly charge is made for each rider selected. The applicable charge is
assessed by multiplying the Accumulated Value on the last day of each month and
on the date a rider is terminated by 1/12th of the following annual percentage
rates:

<TABLE>
<S> <C>
Enhanced Death Benefit Rider......... 0.25%
Disability Rider..................... 0.05%
Living Benefits Rider................ 0.05%
</TABLE>

For a description of these riders, see "Living Benefits Rider" and "Disability
Rider" under "CHARGES AND DEDUCTIONS," and "Enhanced Death Benefit Rider" under
"G. Death Benefit."

20
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT KGC

<TABLE>
<CAPTION>
SUB-ACCOUNT 1997
- --------------------------------------------------------------------------- ---------
<S> <C>
KEMPER SMALL CAP GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.339
Number of Units Outstanding at End of Period (in thousands)................ 2,090
KEMPER SMALL CAP VALUE PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.214
Number of Units Outstanding at End of Period (in thousands)................ 5,115
KEMPER INTERNATIONAL PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.096
Number of Units Outstanding at End of Period (in thousands)................ 4,609
KEMPER GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.184
Number of Units Outstanding at End of Period (in thousands)................ 3,144
KEMPER CONTRARIAN VALUE PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.264
Number of Units Outstanding at End of Period (in thousands)................ 9,815
KEMPER BLUE CHIP PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.107
Number of Units Outstanding at End of Period (in thousands)................ 1,560
KEMPER VALUE+GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.217
Number of Units Outstanding at End of Period (in thousands)................ 2,845
</TABLE>

21
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT KGC

<TABLE>
<CAPTION>
SUB-ACCOUNT 1997
- --------------------------------------------------------------------------- ---------
<S> <C>
KEMPER HORIZON 20+ PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.173
Number of Units Outstanding at End of Period (in thousands)................ 846
KEMPER TOTAL RETURN PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.171
Number of Units Outstanding at End of Period (in thousands)................ 3,260
KEMPER HORIZON 10+ PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.115
Number of Units Outstanding at End of Period (in thousands)................ 1,431
KEMPER HIGH YIELD PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.104
Number of Units Outstanding at End of Period (in thousands)................ 9,516
KEMPER HORIZON 5 PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.111
Number of Units Outstanding at End of Period (in thousands)................ 439
KEMPER GLOBAL INCOME PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.021
Number of Units Outstanding at End of Period (in thousands)................ 457
KEMPER INVESTMENT GRADE BOND PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.068
Number of Units Outstanding at End of Period (in thousands)................ 1,032
</TABLE>

22
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT KGC

<TABLE>
<CAPTION>
SUB-ACCOUNT 1997
- --------------------------------------------------------------------------- ---------
<S> <C>
KEMPER GOVERNMENT SECURITIES PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.074
Number of Units Outstanding at End of Period (in thousands)................ 659
KEMPER MONEY MARKET PORTFOLIO
Unit Value:
Beginning of Period.................................................... 0
End of Period.......................................................... 1.042
Number of Units Outstanding at End of Period (in thousands)................ 2,329
</TABLE>

No information is shown above for Sub-Accounts that commenced operations after
December 31, 1997.

23
<PAGE>
PERFORMANCE INFORMATION

The Contract was first offered to the public in 1997. The Company, however, may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
and the periods that the Underlying Portfolios have been in existence.
Performance results for all periods shown below are calculated with all charges
assumed to be those applicable to the Sub-Accounts, the Underlying Portfolios,
and, in Tables 1A and 2A, assuming that the Contract is surrendered at the end
of the applicable period and, alternatively, in Tables 1B and 2B, assuming that
it is not surrendered at the end of the applicable period. Both the total return
and yield figures are based on historical earnings and are not intended to
indicate future performance.

The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.

The average annual total return represents the average annual percentage change
in the value of an investment in a Sub-Account over a given period of time.
Average annual total return represents averaged figures as opposed to the actual
performance of a Sub-Account, which will vary from year to year.

The yield of the Sub-Account investing in the Kemper Money Market Portfolio
refers to the income generated by an investment in the Sub-Account over a seven-
day period (which period will be specified in the advertisement). This income is
then "annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The effective yield calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is assumed to
be reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.

The yield of a Sub-Account investing in a Portfolio other than the Kemper Money
Market Portfolio refers to the annualized income generated by an investment in
the Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period and
is shown as a percentage of the investment.

Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect

24
<PAGE>
the deduction of the annual Sub-Account asset charge of 1.10%, the Underlying
Portfolio charges, the $35 annual Contract fee and the contingent deferred sales
charge which would be assessed if the investment were completely withdrawn at
the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.

The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Portfolios' lifetime, which may predate the
Sub-Account's inception date. These performance calculations are based on the
assumption that the Sub-Account corresponding to the applicable Underlying
Portfolio was actually in existence throughout the stated period and that the
contractual charges and expenses during that period were equal to those
currently assessed under the Contract.

For more detailed information about these performance calculations, including
actual formulas, see the SAI.

PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING PORTFOLIO IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.

Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-

25
<PAGE>
Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.

At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Portfolios.

26
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)

<TABLE>
<CAPTION>
SINCE
INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO SUB-ACCOUNT*
- ------------------------------------------------------------------- -----------------
<S> <C>
Kemper-Dreman Financial Services................................... N/A
Kemper Small Cap Growth............................................ 26.86%
Kemper Small Cap Value............................................. 14.34%
Kemper-Dreman High Return Equity................................... N/A
Kemper International............................................... 3.08 %
Kemper International Growth and Income............................. N/A
Kemper Global Blue Chip............................................ N/A
Kemper Growth...................................................... 11.40 %
Kemper Contrarian Value............................................ 19.32 %
Kemper Blue Chip................................................... 4.10 %
Kemper Value+Growth................................................ 14.67 %
Kemper Horizon 20+................................................. 10.30 %
Kemper Total Return................................................ 10.11 %
Kemper Horizon 10+................................................. 4.84 %
Kemper High Yield.................................................. 3.77 %
Kemper Horizon 5................................................... 4.46 %
Kemper Global Income............................................... -4.00 %
Kemper Investment Grade Bond....................................... 0.42 %
Kemper Government Securities....................................... 0.94 %
Kemper Money Market................................................ -2.04 %
Scudder International.............................................. N/A
Scudder Global Discovery........................................... N/A
Scudder Capital Growth............................................. N/A
Scudder Growth and Income.......................................... N/A
</TABLE>

27
<PAGE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)

<TABLE>
<CAPTION>
SINCE
INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO SUB-ACCOUNT*
- ------------------------------------------------------------------- ------------------
<S> <C>
Kemper-Dreman Financial Services................................... N/A
Kemper Small Cap Growth............................................ 33.86%
Kemper Small Cap Value............................................. 21.34%
Kemper-Dreman High Return Equity................................... N/A
Kemper International............................................... 9.60 %
Kemper International Growth and Income............................. N/A
Kemper Global Blue Chip............................................ N/A
Kemper Growth...................................................... 18.40 %
Kemper Contrarian Value............................................ 26.32 %
Kemper Blue Chip................................................... 10.69 %
Kemper Value+Growth................................................ 21.67 %
Kemper Horizon 20+................................................. 17.28 %
Kemper Total Return................................................ 17.08 %
Kemper Horizon 10+................................................. 11.47 %
Kemper High Yield.................................................. 10.34 %
Kemper Horizon 5................................................... 11.07 %
Kemper Global Income............................................... 2.08 %
Kemper Investment Grade Bond....................................... 6.78 %
Kemper Government Securities....................................... 7.33 %
Kemper Money Market................................................ 4.16 %
Scudder International.............................................. N/A
Scudder Global Discovery........................................... N/A
Scudder Capital Growth............................................. N/A
Scudder Growth and Income.......................................... N/A
</TABLE>

28
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF INVESTMENT)

<TABLE>
<CAPTION>
10 YEARS
YEAR (OR SINCE
ENDED INCEPTION IF
UNDERLYING PORTFOLIO 12/31/97 5 YEARS LESS)*
- ---------------------------------------- ------------ ----------- -----------------
<S> <C> <C> <C>
Kemper-Dreman Financial Services........ N/A N/A N/A
Kemper Small Cap Growth................. 25.68 % N/A 23.79 %
Kemper Small Cap Value.................. 13.35 % N/A 9.09 %
Kemper-Dreman High Return Equity........ N/A N/A N/A
Kemper International.................... 1.77 % 11.33 % 9.14 %
Kemper International Growth and
Income................................. N/A N/A N/A
Kemper Global Blue Chip................. N/A N/A N/A
Kemper Growth........................... 12.96 % 14.97 % 15.18 %
Kemper Contrarian Value................. 21.90 % N/A 24.46 %
Kemper Blue Chip........................ N/A N/A 4.10 %
Kemper Value+Growth..................... 17.05 % N/A 19.72 %
Kemper Horizon 20+...................... 12.11 % N/A 17.20 %
Kemper Total Return..................... 11.60 % 10.68 % 12.57 %
Kemper Horizon 10+...................... 8.57 % N/A 12.41 %
Kemper High Yield....................... 3.77 % 10.20 % 10.44 %
Kemper Horizon 5........................ 4.79 % N/A 8.82 %
Kemper Global Income.................... N/A N/A -4.00 %
Kemper Investment Grade Bond............ 1.38 % N/A 3.04 %
Kemper Government Securities............ 1.31 % 4.90 % 6.75 %
Kemper Money Market..................... -2.14 % 2.82 % 4.44 %
Scudder International................... 1.42 % 12.05 % 10.54 %
Scudder Global Discovery................ 4.51 % N/A 6.12 %
Scudder Capital Growth.................. 27.24 % 16.38 % 15.47 %
Scudder Growth and Income............... 22.01 % N/A 22.01 %
</TABLE>

29
<PAGE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING NO WITHDRAWAL OF INVESTMENT)

<TABLE>
<CAPTION>
YEAR 10 YEARS
ENDED (OR SINCE
UNDERLYING PORTFOLIO 12/31/97 5 YEARS INCEPTION IF LESS)*
- ------------------------------------ ------------ ----------- ----------------------
<S> <C> <C> <C>
Kemper-Dreman Financial Services.... N/A N/A N/A
Kemper Small Cap Growth............. 32.68 % N/A 24.40 %
Kemper Small Cap Value.............. 20.35 % N/A 12.45 %
Kemper-Dreman High Return Equity.... N/A N/A N/A
Kemper International................ 8.21 % 11.71 % 9.35 %
Kemper International Growth and
Income............................. N/A N/A N/A
Kemper Global Blue Chip............. N/A N/A N/A
Kemper Growth....................... 19.96 % 15.31 % 15.18 %
Kemper Contrarian Value............. 28.90 % N/A 27.55 %
Kemper Blue Chip.................... N/A N/A 10.69 %
Kemper Value+Growth................. 24.05 % N/A 22.88 %
Kemper Horizon 20+.................. 19.11 % N/A 20.41 %
Kemper Total Return................. 18.60 % 11.08 % 12.57 %
Kemper Horizon 10+.................. 15.44 % N/A 15.71 %
Kemper High Yield................... 10.34 % 10.61 % 10.44 %
Kemper Horizon 5.................... 11.42 % N/A 12.19 %
Kemper Global Income................ N/A N/A 2.08 %
Kemper Investment Grade Bond........ 7.80 % N/A 6.32 %
Kemper Government Securities........ 7.72 % 5.39 % 6.75 %
Kemper Money Market................. 4.05 % 3.35 % 4.44 %
Scudder International............... 7.84 % 12.43 % 10.54 %
Scudder Global Discovery............ 11.12 % N/A 9.51 %
Scudder Capital Growth.............. 34.24 % 16.71 % 15.47 %
Scudder Growth and Income........... 29.01 % N/A 22.65 %
</TABLE>

* The inception dates for the Underlying Portfolios are: 4/6/82 for Kemper Money
Market, Kemper Total Return and Kemper High Yield; 12/9/83 for Kemper Growth;
9/3/87 for Kemper Government Securities; 1/6/92 for Kemper International; 5/2/94
for Kemper Small Cap Growth and Scudder Growth and Income; 5/1/96 for Kemper
Investment Grade Bond, Kemper Contrarian Value, Kemper Small Cap Value, Kemper
Value+Growth, Kemper Horizon 20+, Kemper Horizon 10+, Kemper Horizon 5 and
Scudder Global Discovery; 5/1/97 for Kemper Global Income and Kemper Blue Chip;
5/1/87 for Scudder International; and 7/16/85 for Scudder Capital Growth.

30
<PAGE>
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
INVESTORS FUND SERIES AND SCUDDER VARIABLE
LIFE INVESTMENT FUND

THE COMPANY. The Company is a life insurance company organized under the laws
of Delaware in July 1974. Its principal office ("Principal Office") is located
at 440 Lincoln Street, Worcester, MA 01653, Telephone 1-800-782-8380. The
Company is subject to the laws of the State of Delaware governing insurance
companies and to regulation by the Commissioner of Insurance of Delaware. In
addition, the Company is subject to the insurance laws and regulations of other
states and jurisdictions in which it is licensed to operate. As of December 31,
1997, the Company had over $9.4 billion in assets and over $26.6 billion of life
insurance in force.

Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.

The Company is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.

THE VARIABLE ACCOUNT. Separate Account KGC ("Variable Account") is a separate
investment account of the Company with 24 Sub-Accounts. The assets used to fund
the variable portions of the Contract are set aside in Sub-Accounts kept
separate from the general assets of the Company. Each Sub-Account invests in a
corresponding investment series ("Portfolio") of Investors Fund Series and
Scudder Variable Life Investment Fund. Each Sub-Account is administered and
accounted for as part of the general business of the Company. The income,
capital gains, or capital losses of each Sub-Account, however, are allocated to
each Sub-

31
<PAGE>
Account, without regard to any other income, capital gains or capital losses of
the Company. Under Delaware law, the assets of the Variable Account may not be
charged with any liabilities arising out of any other business of the Company.

The Variable Account was authorized by vote of the Board of Directors of the
Company on June 13, 1996. The Variable Account meets the definition of "separate
account" under federal securities laws, and is registered with the SEC as a unit
investment trust under the 1940 Act. This registration does not involve the
supervision of management or investment practices or policies of the Variable
Account by the SEC.

The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts.

INVESTORS FUND SERIES. Investors Fund Series ("Kemper IFS"), is a series-type
mutual fund registered with the SEC as an open-end, management investment
company. Registration of Kemper IFS does not involve supervision of its
management, investment practices or policies by the SEC. Kemper IFS is designed
to provide an investment vehicle for certain variable annuity contracts and
variable life insurance policies. Shares of the Portfolios of Kemper IFS are
sold only to insurance company separate accounts. Scudder Kemper Investments,
Inc. serves as the investment adviser of Kemper IFS.

SCUDDER VARIABLE LIFE INVESTMENT FUND. Scudder Variable Life Investment Fund
("Scudder VLIF") is an open-end, diversified management investment company
established as a Massachusetts business trust on March 15, 1985, and registered
with the SEC under the 1940 Act. Scudder Kemper Investments, Inc. serves as the
investment adviser of Scudder VLIF.

INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of each of the Underlying Portfolios is set
forth below. More detailed information regarding the investment objectives,
restrictions and risks, expenses paid by the Underlying Portfolios and other
relevant information regarding Kemper IFS and Scudder VLIF may be found in their
respective prospectuses, which accompany this Prospectus. Please read them
carefully before investing. The Statements of Additional Information of the
Underlying Portfolios are available upon request.

KEMPER IFS PORTFOLIOS:

KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO -- seeks long-term capital
appreciation by investing primarily in common stocks and other equity securities
of companies in the financial services industry believed by the Portfolio's
investment manager to be undervalued.

32
<PAGE>
KEMPER SMALL CAP GROWTH PORTFOLIO -- seeks maximum appreciation of investors'
capital from a portfolio primarily of growth stocks of smaller companies.

KEMPER SMALL CAP VALUE PORTFOLIO -- seeks long-term capital appreciation from a
portfolio primarily of value stocks of smaller companies.

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 AND INCOME PORTFOLIO -- seeks 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 from a portfolio primarily of value stocks of larger companies. This
Portfolio was formerly known as the Kemper Value Portfolio.

KEMPER BLUE CHIP PORTFOLIO -- seeks growth of capital and of income by investing
primarily in common stocks of well capitalized, established companies having
potential for growth of capital, earnings and dividends.

KEMPER VALUE+GROWTH PORTFOLIO -- seeks growth of capital through professional
management of a portfolio of growth and 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, by investing in a combination of debt
securities and common stocks.

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.

33
<PAGE>
KEMPER HIGH YIELD PORTFOLIO -- seeks to provide a high level of current income
by investing in fixed-income securities.

KEMPER HORIZON 5 PORTFOLIO -- designed for investors with approximately a
five-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 by investing
primarily in a diversified portfolio of investment grade debt securities

KEMPER GOVERNMENT SECURITIES PORTFOLIO -- seeks high current return consistent
with preservation of capital from a portfolio composed primarily of U.S.
Government securities.

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 that mature in 12 months or less.

SCUDDER VLIF PORTFOLIOS:

SCUDDER INTERNATIONAL PORTFOLIO -- seeks long term growth of capital principally
from a diversified portfolio of foreign equity securities.

SCUDDER GLOBAL DISCOVERY PORTFOLIO -- seeks above average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world.

SCUDDER CAPITAL GROWTH PORTFOLIO -- seeks to maximize long-term capital growth
from a portfolio consisting primarily of equity securities.

SCUDDER 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.

Certain Underlying Portfolios have investment objectives and/or policies similar
to those of other Underlying Portfolios. To choose the Sub-Accounts which best
meet individual needs and objectives, carefully read the Underlying Portfolio
prospectuses. In some states, insurance regulations may restrict the
availability of particular Sub-Accounts.

34
<PAGE>
INVESTMENT MANAGEMENT SERVICES

Responsibility for overall management of Kemper IFS rests with the Board of
Trustees and officers of Kemper IFS. Responsibility for overall management of
Scudder VLIF rests with its Board of Trustees and officers. SKI is the
investment manager of all the Portfolios available under this Contract. Zurich
Investment Management Limited ("ZIML"), an affiliate of SKI, is a sub-adviser
for the Kemper International Portfolio and the Kemper Global Income Portfolio.
Dreman Value Management, L.L.C. serves as the sub-advisor for the Kemper-Dreman
Financial Services Portfolio and Kemper-Dreman High Return Equity Portfolio.

For its services, SKI receives a management fee, payable monthly at 1/12 of the
following annual rates based on the average daily net assets of each Portfolio:
Money Market (.50%), Total Return (.55%), High Yield (.60%), Growth (.60%),
Government Securities (.55%), International (.75%), Small Cap Growth (.65%),
Investment Grade Bond (.60%), Contrarian Value (.75%), Small Cap Value (.75%),
Value+Growth (.75%), Horizon 20+ (.60%), Horizon 10+ (.60%), Horizon 5 (.60%),
Blue Chip (.65%), Global Income (.75%) and International Growth and Income
(1.00%).

The High Return Equity, Financial Services and Global Blue Chip Portfolios each
pay Scudder Kemper Investments, Inc. an investment management fee, payable
monthly, at 1/12 of the annual rates shown below.

<TABLE>
<S> <C>
High Return Equity
Portfolio and
Financial Services
Portfolio............. .75% for the first $250 million, .72% for the
next $750 million, .70% for the next $1.5
billion, .68% for the next $2.5 billion, .65%
for the next $2.5 billion, .64% for the next
$2.5 billion, .63% for the next $2.5 billion
and .62% over $12.5 billion.
Global Blue Chip
Portfolio............. 1.00% for the first $250 million, .95% for
the next $750 million and .90% over $1
billion.
</TABLE>

SKI pays ZIML for its services as sub-adviser for the Kemper International
Portfolio and the Kemper Global Income Portfolio a sub-advisory fee, payable
monthly, at 1/12 of the annual rate of 0.35% of average daily net assets of the
Kemper International Portfolio and 0.30% of average daily net assets of the
Kemper Global Income Portfolio. SKI also pays Dreman Value Management, L.L.C. a
fee for its services to the Kemper-Dreman Financial Services Portfolio and
Kemper-Dreman High Return Equity Portfolio. A sub-advisory fee, payable monthly
at the annual rate of .24% of the first $250 million of each Portfolio's average
daily net assets, .23% of average daily net assets between $250 million and $1
billion, .224% of average daily net assets between $1 billion and $2.5

35
<PAGE>
billion, .218% of average daily net assets between $2.5 billion and $5 billion,
.208% of average daily net assets between $5 billion and $7.5 billion, .205% of
average daily net assets between $7.5 billion and $10 billion, .202% of average
daily net assets between $10 billion and $12.5 billion and .198% of each
Portfolio's average daily net assets over $12 billion.

For its investment management services to the Scudder VLIF Portfolios, SKI
receives compensation monthly at the following annual rates for each Portfolio:
Scudder International Portfolio (0.875% for the first $500,000,000 and 0.775%
for amounts in excess of $500,000,000); Scudder Global Discovery Portfolio
(0.975%); Scudder Capital Growth Portfolio (0.475%) and Scudder Growth and
Income Portfolio (0.475%).

For more information, see the Kemper IFS and Scudder VLIF prospectuses and SAIs.

DESCRIPTION OF THE CONTRACT

A. PAYMENTS

The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements may also include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application for certain classes of
annuity contracts.

Payments are to be made payable to the Company. A net payment is equal to the
payment received less the amount of any applicable tax. The initial net payment
will be credited to the Contract and allocated among the requested accounts as
of the date that all issue requirements are properly met. If all issue
requirements are not complied with within five business days of the Company's
receipt of the initial payment, the payment will be returned unless the Owner
specifically consents to the holding of the initial payment until completion of
any outstanding issue requirements. Subsequent payments will be credited as of
the Valuation Date received at the Principal Office.

Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least
$2,000. Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $167. In all cases, each subsequent payment must be at least
$100. Where the contribution on behalf of an employee under an employer-
sponsored retirement plan is less than $600 but more than $300 annually, the
Company may issue a Contract on the employee if the plan's average annual

36
<PAGE>
contribution per eligible plan participant is at least $600. The minimum
allocation to a Guarantee Period Account is $1,000. If less than $1,000 is
allocated to a Guarantee Period Account, the Company reserves the right to apply
that amount to the Kemper Money Market Portfolio.

Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. As
of the date of this Prospectus, payments may be allocated to a maximum of
seventeen variable Sub-Accounts during the life of the Contract in addition to
the Kemper Money Market Portfolio. There are no restrictions on the number of
times the Fixed Account and the Guarantee Period Accounts may be used over the
life of the Contract.

The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If telephone requests are elected by the Owner, a
properly completed authorization must be on file before telephone requests will
be honored. The Company will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of an Owner identify themselves by name and identify the Annuitant by
name, date of birth and social security number. All transfer instructions by
telephone are tape recorded.

B. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY

An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased or to the
Company's Principal Office at 440 Lincoln Street, Worcester, MA 01653. Mailing
or delivery must occur on or before ten days after receipt of the Contract for
revocation to be effective.

Within seven days the Company will provide a refund equal to the gross
payment(s) received. In some states, however, the refund may equal the greater
of (a) gross payments or (b) any amounts allocated to the Fixed Account and the
Guarantee Period Accounts plus the Accumulated Value of amounts allocated to the
Variable Account plus any amounts deducted under the Contract or by the
Underlying Portfolios for taxes, charges or fees. At the time the Contract is

37
<PAGE>
issued, the "Right to Examine Contract" provision on the cover page of the
Contract will specifically indicate whether the refund will be equal to gross
payments or equal to the greater of (a) or (b) as set forth above.

The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.

C. RIGHT TO REVOKE ALL OTHER CONTRACTS

In Georgia, Idaho, Indiana, Michigan, Missouri, Nebraska, North Carolina,
Oklahoma, Oregon, South Carolina, Texas, Utah, Washington and West Virginia, an
Owner may revoke the Contract at any time within ten days (20 days in Idaho)
after receipt of the Contract and receive a refund as described under "Right to
Revoke Individual Retirement Annuity," above.

In all other states, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the payment paid, including fees, and any
amount allocated to the Variable Account, and (2) the Accumulated Value of
amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.

D. TRANSFER PRIVILEGE

At any time prior to the Annuity Date, an Owner may have amounts transferred
among accounts subject to the seventeen variable Sub-Account restriction
discussed in "A. Payments." Transfer values will be effected at the Accumulation
Value next computed after receipt of the transfer order. The Company will make
transfers pursuant to written or telephone requests. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. In Oregon and Massachusetts, payments and
transfers to the Fixed Account are subject to certain restrictions. See APPENDIX
A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."

Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Sub-Account which invests in the Kemper Money
Market Portfolio.

The Owner may authorize an independent third party to transact allocations and
transfers in accordance with an asset allocation strategy or other investment
strategy. The Company may provide administrative or other support services to
these independent third parties, however, the Company does not engage any

38
<PAGE>
third parties to offer allocation or other investment services under this
Contract, does not endorse or review any allocation or transfer recommendations
and is not responsible for the investment results of such allocations or
transfers transacted on the Owner's behalf. In addition, the Company reserves
the right to discontinue services or limit the number of Portfolios that it may
provide such services for. The Company does not charge the Owner for providing
additional support services.

AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Sub-Account investing in the Kemper Money
Market Portfolio or the Kemper Government Securities Portfolio, or from the
Fixed Account (the source account) to one or more of the Sub-Accounts. Automatic
transfers may not be made into the Fixed Account, the Guarantee Period Accounts
or, if applicable, the Portfolio being used as the source account. If an
automatic transfer would reduce the balance in the source account to less than
$100, the entire balance will be transferred proportionately to the chosen
Portfolios. Automatic transfers will continue until the amount in the source
account on a transfer date is zero or the Owner's request to terminate the
option is received by the Company. If additional amounts are allocated to the
source account after its balance has fallen to zero, this option will not
restart automatically, and the Owner must provide a new request to the Company.

To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments which are deposited into the Fixed Account and which utilize
the Fixed Account as the source account for the payment from which to process
automatic transfers. For more information see APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT."

The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
specified percentage allocations. As frequently as requested, the Company will
review the percentage allocations in the Portfolios and, if necessary, transfer
amounts to ensure conformity with the designated percentage allocation mix. If
the amount necessary to re-establish the mix on any scheduled date is less than
$100, no transfer will be made. Automatic Account Rebalancing will continue
until the Owner's request to terminate or change the option is received by the
Company. As such, subsequent payments allocated in a manner different from the
percentage allocation mix in effect on the date the payment is received will be
reallocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the mix or terminate the option is
received by the Company.

39
<PAGE>
The Company reserves the right to limit the number of Portfolios that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. The first automatic transfer and all
subsequent transfers of that request in the same Contract year count as one
transfer towards the 12 transfers which are guaranteed to be free of a transfer
charge in each Contract year. Currently, Dollar Cost Averaging and Automatic
Account Rebalancing may not be in effect simultaneously. Either option may be
elected when the Contract is purchased or at a later date.

E. SURRENDER

At any time prior to the Annuity Date, an Owner may surrender the Contract and
receive its Accumulated Value, less applicable surrender charges and adjusted
for any Market Value Adjustment ("Surrender Value"). The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The amount payable to the Owner upon surrender
will be based on the Contract's Accumulated Value as of the Valuation Date on
which the request and the Contract are received at the Principal Office.

Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last six full Contract years. See "CHARGES AND DEDUCTIONS." The Contract fee
will be deducted upon surrender of the Contract.

After the Annuity Date, only a Contract under which future annuity benefit
payments are limited to a specified period (as specified in the Period Certain
Annuity Option) may be surrendered. The Surrender Amount is the commuted value
of any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.

Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of Portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.

The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.

40
<PAGE>
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "FEDERAL TAX CONSIDERATIONS," "Tax-Sheltered Annuities" and
"Texas Optional Retirement Program."

For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."

F. WITHDRAWALS

At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must file a signed, written request for withdrawals, satisfactory to
the Company, at the Principal Office. The written request must indicate the
dollar amount the Owner wishes to receive and the accounts from which such
amount is to be withdrawn. The Contract value following the withdrawal will
reflect an amount withdrawn equal to the amount requested by the Owner plus any
applicable contingent deferred sales charge, as described under "CHARGES AND
DEDUCTIONS." In addition, amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period will be subject to a Market
Value Adjustment, as described under "GUARANTEE PERIOD ACCOUNTS."

Where allocations have been made to more than one account, a percentage of the
withdrawal may be allocated to each such account. A withdrawal from a Sub-
Account will result in cancellation of a number of units equivalent in value to
the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.

Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "E. Surrender."

After the Annuity Date, only a Contract under which future variable annuity
benefit payments are limited to a specified period may be withdrawn. A
withdrawal after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount withdrawn.

For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see "FEDERAL TAX
CONSIDERATIONS," "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."

For important tax consequences which may result from withdrawals, see "FEDERAL
TAX CONSIDERATIONS."

41
<PAGE>
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the date
indicated on the application. If elected after the issue date, the Owner may
elect, by written request, a specific dollar amount and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed Account, or
the Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.

If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals by written request to the Principal Office only.

LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option by returning
a properly signed LED request form to the Principal Office. The LED option
permits the Owner to make systematic withdrawals from the Contract over his or
her lifetime. The amount withdrawn from the Contract changes each year, because
life expectancy changes each year that a person lives. For example, actuarial
tables indicate that a person age 70 has a life expectancy of 16 years, but a
person who attains age 86 has a life expectancy of another 6.5 years.

Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.

If an Owner elects the LED option, in each calendar year a fraction of the
Accumulated Value is withdrawn based on the Owner's then life expectancy. The
numerator of the fraction is 1 (one) and the denominator of the fraction is the
remaining life expectancy of the Owner, as determined annually by the Company.
The resulting fraction, expressed as a percentage, is applied to the Accumulated
Value at the beginning of the year to determine the amount to be distributed
during the year. The Owner may elect monthly, bi-monthly, quarterly, semi-
annual, or annual distributions, and may terminate the LED option at any time.

42
<PAGE>
The Owner also may elect to receive distributions under a LED option which is
determined on the joint life expectancy of the Owner and a beneficiary. The
Company also may offer other systematic withdrawal options.

If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the Contract. The payments then would be taxed on an "income
first" basis and be subject to a 10% federal tax penalty. For more information,
see "FEDERAL TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General."

G. DEATH BENEFIT

If the Annuitant dies (or an Owner predeceases the Annuitant) prior to the
Annuity Date while the Contract is in force, the Company will pay the
beneficiary a death benefit, except where the Contract continues as provided in
"H. The Spouse of the Owner as Beneficiary."

DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE.

STANDARD DEATH BENEFIT. Upon the death of the Annuitant (including an Owner who
is also the Annuitant), the standard death benefit is equal to the GREATER of:

(a) the Accumulated Value under the Contract increased by any positive Market
Value Adjustment, or

(b) gross payments decreased proportionately to reflect withdrawals. For each
withdrawal, the proportionate reduction is calculated as the death benefit
under this option immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value immediately prior
to the withdrawal.

ENHANCED DEATH BENEFIT RIDER. At the time of application for the Contract, the
Owner may elect an optional Enhanced Death Benefit Rider. Under the Enhanced
Death Benefit Rider, if the Annuitant dies before the Annuity Date, the death
benefit will be the GREATEST of:

(a) the Accumulated Value increased by any positive Market Value Adjustment,

(b) gross payments compounded daily at an annual rate of 5%, starting on the
date each payment is applied, decreased proportionately to reflect
withdrawals (for each withdrawal, the proportionate reduction is
calculated as the death benefit under this option immediately prior to the
withdrawal multiplied by the withdrawal amount and divided by the
Accumulated Value immediately prior to the withdrawal), or

43
<PAGE>
(c) the death benefit that would have been payable on the most recent Contract
anniversary date, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.

A separate charge is made for an optional Enhanced Death Benefit Rider. On the
last day of each month and on the date the Rider is terminated, a charge equal
to 1/12th of an annual rate of 0.25% is made against the Accumulated Value of
the Contract at that time. The charge is made through a pro-rata reduction
(based on relative values) of Accumulation Units in the Sub-Accounts, of dollar
amounts in the Fixed Account, and of dollar amounts in the Guarantee Period
Accounts.

DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY
DATE. Under either death benefit, if an Owner who is not also the Annuitant
dies before the Annuity Date, the death benefit will be the Accumulated Value
increased by any positive Market Value Adjustment. The death benefit never will
be reduced by a negative Market Value Adjustment.

PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:

(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or

(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.

44
<PAGE>
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Kemper Money Market Portfolio. The excess, if any, of the enhanced death
benefit over the Accumulated Value also will be added to the Kemper Money Market
Portfolio. The beneficiary may, by written request, effect transfers and
withdrawals during the deferral period and prior to annuitization under (2), but
may not make additional payments. The death benefit will reflect any earnings or
losses experienced during the deferral period. If there are multiple
beneficiaries, the consent of all is required.

With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.

DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.

H. THE SPOUSE OF THE OWNER AS BENEFICIARY

The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract in lieu of receiving the amount payable upon death of the
Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Kemper Money Market Portfolio; and (2) the excess, if any, of
the death benefit over the Contract's Accumulated Value also will be added to
the Kemper Money Market Portfolio. This value never will be subject to a
surrender charge when withdrawn. Additional payments may be made; however, a
surrender charge will apply to these amounts if they have not been invested in
the Contract for more than six years. All other rights and benefits provided in
the Contract will continue, except that any subsequent spouse of such new Owner
will not be entitled to continue the Contract upon such new Owner's death.

I. ASSIGNMENT

The Contract, other than those sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract is
in effect on the Annuity Date, the Company reserves the right to pay

45
<PAGE>
to the assignee, in one sum, that portion of the Surrender Value of the Contract
to which the assignee appears to be entitled. The Company will pay the balance,
if any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.

J. ELECTING THE FORM OF ANNUITY AND ANNUITY DATE

The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month: (1) before the
Annuitant's 85th birthday, if the Annuitant's age on the issue date of the
Contract is 75 or under, or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a request to the Principal Office at least one month before the
Annuity Date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday, and must be within the life expectancy of
the Annuitant. The Company shall determine such life expectancy at the time a
change in Annuity Date is requested. The Code and the terms of qualified plans
impose limitations on the age at which annuity benefit payments may commence and
the type of annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for
further information.

Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity payout option under which annuity benefit payments are to be
made, and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity benefit
payments are determined according to the annuity tables in the Contract, by the
annuity option selected, and by the investment performance of the Accounts
selected.

To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account, and the annuity benefit payments will be fixed
in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."

Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Accounts is made monthly, quarterly, semi-
annually or annually. Since the value of an Annuity Unit in a Sub-Account will
reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.

The annuity payout option selected must produce an initial payment of at least
$50 (a lower amount may be required in some states). The Company reserves the
right to increase this minimum amount. If the annuity payout option selected

46
<PAGE>
does not produce an initial payment which meets this minimum, a single payment
will be made. Once the Company begins making annuity benefit payments, the
Annuitant cannot make withdrawals or surrender the annuity benefit, except where
the Annuitant has elected a commutable period certain option. Beneficiaries
entitled to receive remaining payments under either a commutable or non-
commutable "period certain" may elect instead to receive a lump sum settlement.
See "K. Description of Variable Annuity Payout Options."

If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten years guaranteed will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.

K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS

The Company provides the variable annuity payout options described below.
Currently, variable annuity payout options may be funded through the Sub-
Accounts investing in the Kemper Investment Grade Bond, Kemper Value+Growth,
Kemper Horizon 10+ and Kemper Horizon 5 Portfolios. The Company also provides
these same options funded through the Fixed Account (fixed-amount annuity
option). Regardless of how payments were allocated during the accumulation
period, any of the variable annuity options or the fixed-amount options may be
selected, or any of the variable annuity options may be selected in combination
with any of the fixed-amount annuity options. Other annuity options may be
offered by the Company. IRS regulations may not permit certain of the available
annuity options when used in connection with certain qualified Contracts.

VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.

VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE ANNUITANT
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
Payments will continue, however, during the lifetime of the Annuitant, no matter
how long he or she lives.

UNIT FUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically during
the lifetime of the payee with the guarantee that if (1) exceeds (2) then
periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).

47
<PAGE>
Where: (1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first payment, and

(2) is the number of payments paid prior to the death of the payee.

JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
during the lifetime of the survivor. The amount of each payment to the survivor
is based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant in the Contract or the beneficiary. There is no
minimum number of payments under this option.

JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. The amount of each periodic
payment to the survivor, however, is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant or the beneficiary in
the Contract. There is no minimum number of payments under this option.

PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30. This option may be
commutable, that is, the payee reserves the right to receive a lump sum in place
of installments, or it becomes non-commutable. The payee must reserve this right
at the time benefits begin.

It should be noted that the period certain option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under the period
certain option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting a period certain option.

L. ANNUITY BENEFIT PAYMENTS

THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on

48
<PAGE>
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account for the current Valuation Period, and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.

DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity benefit payment is based upon the Accumulated Value as of a
date not more than four weeks preceding the date that the first annuity benefit
payment is due. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are based on unit values as of the 15th day of the preceding month.

The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life contingency options and non-commutable period certain options of
ten or more years, the annuity value is the Accumulated Value less any premium
taxes and adjusted for any Market Value Adjustment. For commutable period
certain options or any period certain option less than ten years, the value is
Surrender Value less any premium tax. For a death benefit annuity, the annuity
value will be the amount of the death benefit. The annuity rates in the Contract
are based on a modification of the 1983(a) Individual Mortality Table on rates.

The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3.5% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.

The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten years or more
is determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than ten years, the Surrender Value less premium taxes, if any,
is used rather than the Accumulated Value. The dollar amount of the first
variable annuity benefit payment then is divided by the value of an

49
<PAGE>
Annuity Unit of the selected Sub-Accounts to determine the number of Annuity
Units represented by the first payment. This number of Annuity Units remains
fixed under all annuity options except the joint and two-thirds survivor annuity
option. For each subsequent payment, the dollar amount of the variable annuity
benefit payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity Unit on the applicable Valuation Date.

After the first benefit payment, the dollar amount of each periodic variable
annuity benefit payment will vary with subsequent variations in the value of the
Annuity Unit of the selected Sub-Accounts. The dollar amount of each fixed
amount annuity benefit payment is fixed and will not change, except under the
joint and two-thirds survivor annuity option.

From time to time, the Company may offer Owners both fixed and variable annuity
rates more favorable than those contained in the Contract. Any such rates will
be applied uniformly to all Owners of the same class.

For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.

M. NORRIS DECISION

In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on the greater of (1) the
Company's unisex non-guaranteed current annuity option rates, or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.

N. COMPUTATION OF VALUES

THE ACCUMULATION UNIT. Each net payment is allocated to the accounts selected
by the Owner. Allocations to the Sub-Accounts are credited to the Contract in
the form of Accumulation Units. Accumulation Units are credited separately for
each Sub-Account. The number of Accumulation Units of each Sub-Account credited
to the Contract is equal to the portion of the net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received in good order at the Company's
Principal Office. The number of Accumulation Units resulting from each payment
will remain fixed unless changed by a subsequent

50
<PAGE>
split of Accumulation Unit value, a transfer, a withdrawal, or surrender. The
dollar value of an Accumulation Unit of each Sub-Account varies from Valuation
Date to Valuation Date based on the investment experience of that Sub-Account,
and will reflect the investment performance, expenses and charges of its
Portfolios. The value of an Accumulation Unit was set at $1.00 on the first
Valuation Date for each Sub-Account.

Allocations to Guarantee Period Accounts and the Fixed Account are not converted
into Accumulation Units, but are credited interest at a rate periodically set by
the Company. See "GUARANTEE PERIOD ACCOUNTS" and APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNTS."

The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.

NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:

(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;

(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;

(3) is a charge for mortality and expense risks equal to 0.95% on an annual
basis of the daily value of the Sub-Account's assets; and

(4) is an administrative charge equal to 0.15% on an annual basis of the daily
value of the Sub-Account's assets.

The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor. For an illustration of Accumulation Unit calculation using a
hypothetical example see the SAI.

51
<PAGE>
CHARGES AND DEDUCTIONS

Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Portfolios are described in the prospectuses and SAIs of Kemper IFS and Scudder
VLIF.

A. VARIABLE ACCOUNT DEDUCTIONS

MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 0.95% of the value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
period and the annuity payout period. The mortality risk arises from the
Company's guarantee that it will make annuity benefit payments in accordance
with annuity rate provisions established at the time the Contract is issued for
the life of the Annuitant (or in accordance with the annuity option selected),
no matter how long the Annuitant (or other payee) lives and no matter how long
all Annuitants as a class live. Therefore, the mortality charge is deducted
during the annuity payout phase on all Contracts, including those that do not
involve a life contingency, even though the Company does not bear direct
mortality risk with respect to variable annuity settlement options that do not
involve life contingencies. The expense risk arises from the Company's guarantee
that the charges it makes will not exceed the limits described in the Contract
and in this Prospectus.

If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.

Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be 0.55% for mortality risk and
0.40% for expense risk.

ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation phase

52
<PAGE>
and the annuity payout phase. The daily administrative expense charge is
assessed to help defray administrative expenses actually incurred in the
administration of the Sub-Account, without profits. There is no direct
relationship, however, between the amount of administrative expenses imposed on
a given Contract and the amount of expenses actually attributable to that
Contract.

Deductions for the Contract fee (described under "B. Contract Fee") and for the
administrative expense charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contract include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.

OTHER CHARGES. Because the Sub-Accounts hold shares of the Portfolios, the
value of the net assets of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Portfolios. The prospectuses and SAIs of
the Underlying Portfolios contain additional information concerning expenses of
the Portfolios.

B. CONTRACT FEE

A $35 Contract fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract when the Accumulated Value is less than
$50,000. The Contract fee is waived for Contracts issued to and maintained by
the trustee of a 401(k) plan. Where Contract value has been allocated to more
than one account, a percentage of the total Contract fee will be deducted from
the value in each account. The portion of the charge deducted from each account
will be equal to the percentage which the value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract fee from a
Sub-Account will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.

Where permitted by law, the Contract fee also may be waived for Contracts where,
on the issue date, either the Owner or the Annuitant is within the following
classes of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Portfolios; investment
managers or Sub-Advisers; and the spouses of and immediate family members
residing in the same household with such eligible persons. "Immediate family
members" means children, siblings, parents and grandparents.

53
<PAGE>
C. OPTIONAL BENEFIT RIDERS

Subject to state availability, the Company offers three optional benefit riders
that may be elected by the Owner. A separate monthly charge is made for each
rider selected. On the last day of each month and on the date the rider is
terminated, a charge equal to 1/12th of an annual rate (see table below) is made
against the Accumulated Value of the Contract at that time. The charge is made
through a pro-rata reduction (based on relative values in Accumulation Units of
the Sub-Accounts, of dollar amounts in the Fixed Account, and of dollar amounts
in the Guarantee Period Accounts).

The applicable charge is assessed on the Accumulated Value on the last day of
each month and on the date a rider is terminated, multiplied by 1/12th of the
following annual percentage rates:

<TABLE>
<S> <C>
Enhanced Death Benefit Rider......................... 0.25%
Living Benefits Rider................................ 0.05%
Disability Rider..................................... 0.05%
</TABLE>

For a description of these riders, see "Living Benefits Rider" and "Disability
Rider" under "E. Contingent Deferred Sales Charge," below, and "G. Death
Benefit" under "DESCRIPTION OF THE CONTRACT," above.

D. PREMIUM TAXES

Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. The Company makes a
charge for state and municipal premium taxes, when applicable, and deducts the
amount paid as a premium tax charge. The current practice of the Company is to
deduct the premium tax charge in one of two ways:

(1) if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit payments
begin (the Company reserves the right instead to deduct the premium tax
charge for these Contracts at the time the payments are received); or

(2) the premium tax charge is deducted when annuity benefit payments begin.

In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law. If no amount for premium tax was deducted
at the time the payment was received, but subsequently tax is determined to be
due prior to the Annuity Date, the Company reserves the right to deduct the
premium tax from the Contract value at the time such determination is made.

54
<PAGE>
E. CONTINGENT DEFERRED SALES CHARGE

No charge for sales expense is deducted from payments at the time the payments
are made. A contingent deferred sales charge is deducted from the Accumulated
Value of the Contract, however, in the case of surrender and/or withdrawals or
at the time annuity benefit payments begin, within certain time limits described
below.

For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments - payments
received by the Company during the six years preceding the date of the
surrender; (2) Old Payments - accumulated payments not defined as New Payments;
and (3) Earnings - the amount of Contract Value in excess of all payments that
have not been surrendered previously. See "Withdrawal Without Surrender Charge"
below. For purposes of determining the amount of any contingent deferred sales
charge, surrenders will be deemed to be taken first from amounts available as a
Withdrawal Without Surrender Charge, if any; then from Old Payments, and then
from New Payments. Amounts available as a Withdrawal Without Surrender Charge,
followed by Old Payments, may be withdrawn from the Contract at any time without
the imposition of a contingent deferred sales charge. If a withdrawal is
attributable all or in part to New Payments, a contingent deferred sales charge
may apply.

An Owner may withdraw 15% of the Accumulated Value in any calendar year, without
assessment of a Withdrawal Charge. If the Owner withdraws an amount in excess of
the Withdrawal Without Surrender Charge amount in any calendar year, the excess
is subject to a Withdrawal Charge.

CHARGES FOR SURRENDER AND WITHDRAWAL. If the Contract is surrendered or if New
Payments are withdrawn while the Contract is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. This surrender charge
never will be applied to earnings. The amount of the charge will depend upon the
number of years that the New Payments, if any, to which the withdrawal is
attributed have remained credited under the Contract. Amounts withdrawn are
deducted first from Old Payments. Then, for the purpose of calculating surrender
charges for New Payments, all amounts withdrawn are assumed to be deducted first
from the earliest New Payment and then from the next earliest New Payment and so
on, until all New Payments have been exhausted pursuant to the FIFO method of
accounting. (See "FEDERAL TAX CONSIDERATIONS" for a discussion of how
withdrawals are treated for income tax purposes.)

55
<PAGE>
The Contingent Deferred Sales Charges are as follows:

<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF NEW
PAYMENT PAYMENTS WITHDRAWN
- -------------- ------------------------------
<S> <C>
Less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
Thereafter 0%
</TABLE>

The amount withdrawn equals the amount requested by the Owner plus the charge,
if any. The charge is applied as a percentage of the New Payments withdrawn, but
in no event will the total contingent deferred sales charge exceed a maximum
limit of 7% of total gross New Payments. Such total charge equals the aggregate
of all applicable contingent deferred sales charges for surrender, withdrawals
and annuitization.

REDUCTION OR ELIMINATION OF SURRENDER CHARGE. From time to time, where
permitted by state law, the Company may allow a reduction in or elimination of
the contingent deferred sales charges, the period during which the charges
apply, or both, and/or credit additional amounts on Contracts, when Contracts
are sold to individuals or groups of individuals in a manner that reduces sales
expenses. The Company will consider factors such as the following: (1) the size
and type of group or class, and the persistency expected from that group or
class; (2) the total amount of payments to be received and the manner in which
payments are remitted; (3) the purpose for which the Contracts are being
purchased and whether that purpose makes it likely that costs and expenses will
be reduced; (4) other transactions where sales expenses are likely to be
reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer this Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the contingent deferred sales charge, and/or credit
additional amounts on the Contract where either the Owner or the Annuitant on
the issue date is within the following class of individuals ("eligible
persons"): employees and registered representatives of any broker-dealer which
has entered into a Sales Agreement with the Company to sell the Contract;
employees of the Company, its affiliates or subsidiaries; officers, directors,
trustees and employees of any of the Portfolios, investment managers or
sub-advisers; and the spouses of and immediate family members residing in the
same household with such eligible persons. "Immediate family members" means
children, siblings, parents and grandparents. Finally, if permitted by state
law, contingent deferred sales charges may be

56
<PAGE>
waived under Section 403(b) Contracts where the amount withdrawn is being
contributed to a life insurance policy issued by the Company as part of the
individual's Section 403(b) plan.

Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among purchasers of the
Contract. The Company will not make any changes to this charge where prohibited
by law.

Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of existing
contracts issued by the Company for this Contract. See "EXCHANGE OFFER" in the
SAI.

WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, including the
calendar year in which the Contract is issued, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Withdrawal Without
Surrender Charge") equal to the greater of (1) or (2) where:

(1) is: 15% of the Accumulated Value as of the Valuation Date the Company
receives the withdrawal request, or the following day, reduced by the
total amount of any prior withdrawals made in the same calendar year
to which no contingent deferred sales charge was applied; and

(2) is: the amount calculated under the Company's life expectancy distribution
("LED") option (see "Life Expectancy Distributions," above) whether or
not the withdrawal was part of such distribution (applies only if
Annuitant is also an Owner).

For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, would have a Withdrawal Without Surrender Charge amount of $2,250,
which is equal to the greater of:

(1) 15% of Accumulated Value ($2,250); or

(2) LED distribution of 10.2% of Accumulated Value ($1,530).

The Withdrawal Without Surrender Charge will be deducted first from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a LIFO basis. If more than one withdrawal is made during
the year, on each subsequent withdrawal the Company will waive the contingent
deferred sales load, if any, until the entire Withdrawal Without Surrender
Charge has been withdrawn. Amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period may be subject to a Market
Value Adjustment.

57
<PAGE>
LIVING BENEFITS RIDER. For a separate monthly charge, an optional Living
Benefits Rider may be elected at the time of application for the Contract. Under
this rider, the surrender charge will be waived if the Owner (or the Annuitant
if the Owner is not a person):

(1) is admitted to a "medical care facility" after the issue date of the
Contract and remains confined there until the later of one year after the
issue date, or 90 consecutive days;

(2) is first diagnosed by a licensed "physician" as having a "fatal illness"
after the issue date of the Contract; or

(3) commencing one year after issue of the Contract, is confined to a hospice
or receives home health care services, with certification from a licensed
physician that the confinement to the hospice or receipt of home health
care services is expected to continue until death.

For purposes of the above provision, "medical care facility" means any state-
licensed facility (or, in a state that does not require licensing, a facility
that is operating pursuant to state law) providing medically necessary
in-patient care which is prescribed in writing by a licensed "physician" and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment, and is
acting within the scope of that license.

Where contingent deferred sales charges have been waived under this rider, no
additional payments under the Contract will be accepted.

On the last day of each month and on the date the rider is terminated, a charge
equal to 1/12th of an annual rate of 0.05% is made against the Accumulated Value
of the Contract at that time. The charge is made through a pro-rata reduction in
Accumulation Units of the Sub-Accounts, of dollar amounts in the Fixed Account,
and of dollar amounts in the Guarantee Period Accounts, based on relative
values.

DISABILITY RIDER. For a separate monthly charge, an optional Disability Rider
may be elected at the time of application for the Contract. Under this rider,
the surrender charge will be waived if the Owner (or the Annuitant if the Owner
is not a person) is physically disabled after the issue date of the Contract and
before attaining age 65. The Company may require proof of continuing disability,
including written confirmation of receipt and approval of any claim for Social
Security disability benefits, and reserves the right to obtain, at its expense,
an examination by a licensed physician of its choice.

58
<PAGE>
Where contingent deferred sales charges have been waived under this rider, no
additional payments under the Contract will be accepted.

SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable contingent deferred sales charge on New Payments, the Contract fee
and any applicable tax withholding and adjusted for any applicable Market Value
Adjustment. Subject to the same rules applicable to withdrawals, the Company
will not assess a contingent deferred sales charge on an amount equal to the
highest Withdrawal Without Surrender Charge Amount, described above.

Where an Owner who is a trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Contract to
other contracts issued by the Company and owned by the trustee, with no
deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Sub-Accounts as of the
Valuation Date on which a written, signed request is received at the Principal
Office.

For further information on surrender and withdrawals, including minimum limits
on amount withdrawn and amount remaining under the Contract in the case of
withdrawals, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under "DESCRIPTION OF THE CONTRACT," and see "FEDERAL TAX
CONSIDERATIONS."

CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date. (See discussion of period certain variable annuity under "K.
Description of Variable Annuity Payout Options.")

No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any non-
commutable period certain option for ten years or more. A Market Value
Adjustment, however, may apply. See "GUARANTEE PERIOD ACCOUNTS."

59
<PAGE>
If an owner of a fixed annuity contract issued by the Company wishes to elect a
variable annuity payout option, the Company may permit such owner to exchange,
at the time of annuitization, the fixed contract for a Contract offered in this
Prospectus. The proceeds of the fixed contract, minus any contingent deferred
sales charge applicable under the fixed contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.

F. TRANSFER CHARGE

The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year. For more
information, see "D. Transfer Privilege" under "DESCRIPTION OF THE CONTRACT."

GUARANTEE PERIOD ACCOUNTS

Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Fixed Account are not
registered as an investment company under the provisions of the Securities Act
of 1933 (the "1933 Act") or the 1940 Act. Accordingly, the staff of the SEC has
not reviewed the disclosures in this Prospectus relating to the Guarantee Period
Accounts or the Fixed Account. Nevertheless, disclosures regarding the Guarantee
Period Accounts and the Fixed Account of the Contract or any benefits offered
under these accounts may be subject to the provisions of the 1933 Act relating
to the accuracy and completeness of statements made in the Prospectus.

INVESTMENT OPTIONS. In most jurisdictions, there currently are nine Guarantee
Periods available under the Contract with durations of two, three, four, five,
six, seven, eight, nine and ten years. Each Guarantee Period Account established
for the Owner is accounted for separately in a non-unitized segregated account.
Each Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions; however, once an interest rate is
in effect for a Guarantee Period Account, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.

To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period. Owners may
allocate net

60
<PAGE>
payments or make transfers from any of the Sub-Accounts, the Fixed Account or an
existing Guarantee Period Account to establish a new Guarantee Period Account at
any time prior to the Annuity Date. (In Oregon and Massachusetts, payments and
transfers to the Fixed Account are subject to certain restrictions. See APPENDIX
A.) Transfers from a Guarantee Period Account on any date other than on the day
following the expiration of that Guarantee Period will be subject to a Market
Value Adjustment. The Company establishes a separate investment account each
time the Owner allocates or transfers amounts to a Guarantee Period Account
except that amounts allocated to the same Guarantee Period on the same day will
be treated as one Guarantee Period Account. The minimum that may be allocated to
establish a Guarantee Period Account is $1,000. If less than $1,000 is
allocated, the Company reserves the right to apply that amount to the Kemper
Money Market Portfolio. The Owner may allocate amounts to any of the Guarantee
Periods available.

At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) the Guarantee Period would extend beyond the Annuity
Date or is no longer available. In such cases, the Guarantee Period Account
value will be transferred to the Kemper Money Market Portfolio. Where amounts
have been renewed automatically in a new Guarantee Period, it is the Company's
current practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value Adjustment.

MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit, although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit." A Market
Value Adjustment will apply to all other transfers, withdrawals or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be

61
<PAGE>
determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any surrender charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:

[(1+i)/(1+j)](n/365)-1

where: i is the Guaranteed Interest Rate expressed as a decimal (for example:
3% = 0.03) being credited to the current Guarantee Period;

j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining
in the current Guarantee Period, rounded to the next higher number of
whole years. If that rate is not available, the Company will use a
suitable rate or index allowed by the Department of Insurance; and

n is the number of days remaining from the effective Valuation Date to
the end of the current Guarantee Period.

Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value also is affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B.

PROGRAM TO PROTECT PRINCIPAL AND PROVIDE GROWTH POTENTIAL. Under this feature,
the Owner elects a Guarantee Period and one or more Sub-Accounts. The Company
then will compute the proportion of the initial payment that must be allocated
to the Guarantee Period selected, assuming no transfers or withdrawals, in order
to ensure that on the last day of the Guarantee Period it will equal the amount
of the entire initial payment. The required amount then will be allocated to the
pre-selected Guarantee Period Account and the remaining balance to the other
investment options selected by the Owner in accordance with the procedures
described in "A. Payments."

WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set

62
<PAGE>
forth under "E. Surrender" and "F. Withdrawals." In addition, the following
provisions also apply to withdrawals from a Guarantee Period Account: (1) a
Market Value Adjustment will apply to all withdrawals, including Withdrawals
without Surrender Charge, unless made at the end of the Guarantee Period; and
(2) the Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.

In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a contingent deferred sales
charge applies to the withdrawal, it will be calculated as set forth under "D.
Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.

FEDERAL TAX CONSIDERATIONS

The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS.

IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.

The Company intends to make a charge for any effect which the income, assets or
existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.

The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.

63
<PAGE>
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity contract are adequately diversified if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on the Contract, for any taxable year
of the Owner, would be treated as ordinary income received or accrued by the
Owner. It is anticipated that the Portfolios will comply with the
diversification requirements.

A. QUALIFIED AND NON-QUALIFIED CONTRACTS

From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary according to whether they are made from a qualified contract or a
non-qualified contract. For more information on the tax provisions applicable to
qualified Contracts, see "D. Provisions Applicable to Qualified Employer Plans."

B. TAXATION OF THE CONTRACTS IN GENERAL

The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
contract under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.

WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. Under the
current provisions of the Code, amounts received under an annuity contract prior
to annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
contract" is the total of all payments to the Contract which were not excluded
from the Owner's gross income less any amounts previously withdrawn which were
not included in income. Section 72(e)(11)(A)(ii) requires that all non-

64
<PAGE>
qualified deferred annuity contracts issued by the same insurance company to the
same owner during a single calendar year be treated as one contract in
determining taxable distributions.

ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the Annuitant dies
before the total investment in the Contract is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.

PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the owner (or, if the owner is not an
individual, the death of the primary annuitant, as defined in the Code) or, in
the case of the owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the owner elects to have
distributions made over the owner's life expectancy, or over the joint life
expectancy of the owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the owner's age 59 1/2 or five years, will subject
the owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
contract made to an employee who has terminated employment after reaching age
55.

In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED option), and the option could be changed or terminated
at any time, the distributions failed to qualify as part of a "series of
substantially equal payments" within the meaning of Section 72 of the Code. The
distributions, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an Owner who receives distributions
under

65
<PAGE>
the LED option prior to age 59 1/2. Subsequent Private Letter Rulings, however,
have treated LED-type withdrawal programs as effectively avoiding the 10%
penalty tax. The position of the IRS on this issue is unclear.

ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.

NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.

DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer and are subject to the claims of the employer's general creditors.

C. TAX WITHHOLDING

The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other

66
<PAGE>
qualified contracts. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.

The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.

D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS

The tax rules applicable to qualified employer plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.

A qualified Contract may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to the Owner of a
non-qualified Contract. Individuals purchasing a qualified Contract should
carefully review any such changes or limitations which may include restrictions
to ownership, transferability, assignability, contributions and distributions.

CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contract to their specific needs and as to applicable Code limitations
and tax consequences.

The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.

INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: this term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
tax-deferred

67
<PAGE>
basis, to an IRA. Purchasers of an IRA Contract will be provided with
supplementary information as may be required by the IRS or other appropriate
agency, and will have the right to revoke the Contract as described in this
Prospectus. See "B. Right to Revoke Individual Retirement Annuity." Eligible
employers that meet specified criteria may establish simplified employee pension
plans (SEP-IRAs) or SIMPLE IRA plans for their employees using IRAs. Employer
contributions that may be made to such plans are larger than the amounts that
may be contributed to regular IRAs, and may be deductible to the employer.

TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to annuity contracts purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA Contracts
should seek competent advice as to eligibility, limitations on permissible
payments and other tax consequences associated with the Contracts.

Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA Contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.

TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA Contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.

REPORTS

An Owner is sent a report semi-annually which states certain financial
information about the Portfolios. The Company also will furnish an annual report
to the Owner containing a statement of his or her account, including unit values
and other information as required by applicable law, rules and regulations.

68
<PAGE>
LOANS (QUALIFIED CONTRACTS ONLY)

Loans are available to owners of TSA Contracts (i.e., contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.

Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro-rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated to the Kemper Money Market Portfolio
instead.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

The Company reserves the right, subject to applicable law to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Portfolio no longer are available for investment or if in the Company's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account or the affected Sub-Account, the Company may
redeem the shares of that Portfolio and substitute shares of another registered
open-end management company. The Company will not substitute any shares
attributable to a Contract interest in a Sub-Account without notice to the Owner
and prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by an Owner.

The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
portfolio or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new sub-accounts or eliminate
one

69
<PAGE>
or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new sub-accounts may be made available to existing
Owners on a basis to be determined by the Company.

Shares of the Portfolios also are issued to separate accounts of other insurance
companies which issue variable life contracts ("mixed funding"). Shares of the
Portfolios also are issued to other unaffiliated insurance companies ("shared
funding"). It is conceivable that in the future such mixed funding or shared
funding may be disadvantageous for variable life owners or variable annuity
owners. Although the Company, Kemper IFS and Scudder VLIF do not currently
foresee any such disadvantages to either variable life insurance owners or
variable annuity owners, the Company and the trustees of Kemper IFS and Scudder
VLIF intend to monitor events in order to identify any material conflicts
between such Owners and to determine what action, if any, should be taken in
response thereto. If the trustees were to conclude that separate portfolios
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.

If any of these substitutions or changes is made, the Company may, by
appropriate endorsement, change the Contract to reflect the substitution or
change, and will notify Owners of all such changes. If the Company deems it to
be in the best interest of Owners, and subject to any approvals that may be
required under applicable law, the Variable Account or any Sub-Accounts may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration no longer is required, or may be combined with
other sub-accounts or other separate accounts of the Company.

The Company reserves the right, subject to compliance with applicable law and to
the provisions of the Participation Agreements, to (1) transfer assets from the
Variable Account or Sub-Account to another of the Company's variable accounts or
sub-accounts having assets of the same class, (2) to operate the Variable
Account or any Sub-Account as a management investment company under the 1940 Act
or in any other form permitted by law, (3) to deregister the Variable Account
under the 1940 Act in accordance with the requirements of the 1940 Act, (4) to
substitute the shares of any other registered investment company for the
Portfolio shares held by a Sub-Account, in the event that Portfolio shares are
unavailable for investment, or if the Company determines that further investment
in such Portfolio shares is inappropriate in view of the purpose of the Sub-
Account, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Variable Account or of the Sub-
Accounts. In no event will the changes described be made without notice to
Owners in accordance with the 1940 Act.

70
<PAGE>
CHANGES TO COMPLY WITH LAW AND AMENDMENTS

The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.

VOTING RIGHTS

The Company will vote Portfolio shares held by each Sub-Account in accordance
with instructions received from Owners and, after the Annuity Date, from the
Annuitants. Each person having a voting interest in a Sub-Account will be
provided with proxy materials of the Portfolio, together with a form with which
to give voting instructions to the Company. Shares for which no timely
instructions are received will be voted in proportion to the instructions which
are received. The Company also will vote shares in a Sub-Account that it owns
and which are not attributable to the Contract in the same proportion. If the
1940 Act or any rules thereunder should be amended, or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.

The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Portfolio. During the
accumulation phase, the number of Portfolio shares attributable to each Owner
will be determined by dividing the dollar value of the Accumulation Units of the
Sub-Account credited to the Contract by the net asset value of one Portfolio
share. During the annuity payout phase, the number of Portfolio shares
attributable to each Annuitant will be determined by dividing the reserve held
in each Sub-Account for the Annuitant's variable annuity by the net asset value
of one Portfolio share. Ordinarily, the Annuitant's voting interest in the
Portfolio will decrease as the reserve for the variable annuity is depleted.

DISTRIBUTION

The Contract offered by this Prospectus may be purchased from certain
independent broker-dealers, including representatives of Allmerica Investments,
Inc. (the Principal Underwriter) which are registered under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. ("NASD").

The Company pays commissions, not to exceed 6.0% of payments, to broker-dealers
which sell the Contract. Alternative commission schedules are available

71
<PAGE>
with lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent permitted by NASD
rules, promotional incentives or payments also may be provided to such broker-
dealers based on sales volumes, the assumption of wholesaling functions, or
other sales-related criteria. Additional payments may be made for other services
not directly related to the sale of the Contract, including the recruitment and
training of personnel, production of promotional literature, and similar
services.

The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on a Contract will be retained by the Company.

Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, Telephone
1-800-782-8380.

SERVICES

The Company receives fees from the investment advisers or other service
providers of certain Underlying Portfolios in return for providing certain
services to Owners. Currently, the Company receives service fees with respect to
the Scudder International Portfolio, Scudder Global Discovery Portfolio, Scudder
Capital Growth Portfolio and Scudder Growth and Income Portfolio. The Company
receives service fees at an annual rate of 0.15% per annum of the aggregate net
asset value of shares held by the Variable Account. The Company may in the
future render services for which it will receive compensation from the
investment advisers or other service providers of other Underlying Portfolios.

LEGAL MATTERS

There are no legal proceedings pending to which the Variable Account is a party.

FURTHER INFORMATION

A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, DC, upon payment of the SEC's prescribed fees.

72
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT

Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the Contract and the Fixed Account may be subject to the provisions
of the 1933 Act concerning the accuracy and completeness of statements made in
this Prospectus. The disclosures in this APPENDIX A have not been reviewed by
the SEC.

The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to separate
accounts. Allocations to the Fixed Account become part of the assets of the
Company, and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the Contract, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.

If the Contract is surrendered, or if an Excess Amount is withdrawn while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract for at least six full
Contract years.

In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:

If the Contract is issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday. On
and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If the Contract is issued on or after the
Annuitant's 60th birthday, up through and including the Annuitant's 81st
birthday, Fixed Account allocations will be permitted during the first
Contract year. On and after the first Contract anniversary, no additional
allocations to the Fixed Account will be permitted. If a Contract is issued
after the Annuitant's 81st birthday, no payments to the Fixed Account will be
permitted at any time.

In Oregon no additional allocations will be accepted into the Fixed Account on
or after the third Contract anniversary. Further, no payments to the Fixed
Account will be permitted if the Contract is issued after the Annuitant's 81(st)
birthday.

A-1
<PAGE>
If an allocation designated as a Fixed Account allocation is received at the
Principal Office during a period when the Fixed Account is not available due to
the limitations outlined above, the monies will be allocated to the Kemper Money
Market Portfolio.

To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments ("eligible payments") which are deposited into the Fixed
Account under an Automatic Transfer Option (dollar cost averaging election) that
uses the Fixed Account as the source account from which automatic transfers are
then processed. The following are not considered eligible payments: amounts
transferred into the Fixed Account from the Variable Account and/or the
Guarantee Period Accounts; amounts already in the Fixed Account at the time an
eligible payment is deposited and amounts transferred to the Contract from
another annuity contract issued by the Company.

An eligible payment must be automatically transferred out of the Fixed Account
over a continuous six month period. The enhanced rate will apply during the six
month period to any portion of the eligible payment remaining in the Fixed
Account. Amounts automatically transferred out of the Fixed Account will no
longer earn the enhanced rate of interest and, as of the date of transfer, will
be subject to the variable investment performance of the sub-account(s)
transferred into. If the automatic transfer option is terminated prior to the
end of the six month period, the enhanced rate will no longer apply. The Company
reserves the right to extend the period of time that the enhanced rate will
apply.

A-2
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT

PART 1: SURRENDER CHARGES

FULL SURRENDER

Assume a Payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals and that the Withdrawal Without
Surrender Charge amount is equal to 15% of the current Accumulated Value. The
table below presents examples of the surrender charge resulting from a full
surrender of the Owner's Contract, based on hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED WITHDRAWAL CHARGE SURRENDER
YEAR VALUE AMOUNT PERCENTAGE CHARGE
- --------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $ 8,100.00 7% $ 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 9,447.84 5% 2,500.00
4 68,024.45 10,203.67 4% 2,000.00
5 73,466.40 11,019.96 3% 1,500.00
6 79,343.72 11,901.56 2% 1,000.00
7 85,691.21 12,853.68 0% 0.00
</TABLE>

WITHDRAWAL

Assume a Payment of $50,000 is made on the issue date and no additional payments
are made. Assume that the Withdrawal Without Surrender Charge amount is equal to
15% of the current Accumulated Value and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals from the Owner's Contract, based on hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED WITHDRAWAL CHARGE SURRENDER
YEAR VALUE WITHDRAWAL AMOUNT PERCENTAGE CHARGE
- --------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 54,000.00 $ 0.00 $ 8,100.00 7% $ 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 9,447.84 5% 0.00
4 68,024.45 30,000.00 10,203.67 4% 791.85
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 0% 0.00
</TABLE>

B-1
<PAGE>
PART 2: MARKET VALUE ADJUSTMENT

The market value factor is: [(1+i)/(1+j)](n/365)-1

The following examples assume:

1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.

2. The date of surrender is seven years (2,555 days) from the expiration
date.

3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.

4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.

5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.

NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)

Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10

The market value factor = [(1+i)/(1+j)](356/n)-1
= [(1+.08)/(1+.10)](2555/365)-1
= (.98182)(7)-1
= -.12054

The market value adjustment= the market value factor multiplied by the
withdrawal
= -.12054 X $62,985.60
= -$7,592.11

POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)

Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07

The market value factor = [(1+i)/(1+j)](n/365)-1
= [(1+.08)/(1+.07)](2555/365)-1
= (1.0093)(7)-1
= .06694

The market value adjustment = the market value factor multiplied by the
withdrawal
= .06694 X $62,985.60
= $4,216.26

B-2
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)

Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11

The market value factor = [(1+i)/(1-j)](n/365)-1
= [(1+.08)/(1+.11)](2555/365)-1
= (.97297)(7)-1
= -.17454

The market value adjustment = Minimum of the market value factor multiplied by
the withdrawal or the negative of the excess interest earned over 3%
= Minimum of (-.17454 X $62,985.60 or -$8,349.25)
= Minimum of (-$10,993.51 or -$8,349.25)
= -$8,349.25

POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)

Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06

The market value factor = [(1+i)/(1+j)](n/35)-1
= [(1+.08)/(1+.06)](2555/365)-1
= (1.01887)(7)-1
= .13981

The market value adjustment = Minimum of the market value factor multiplied by
the withdrawal or the excess interest earned over
3%

The market value factor = Minimum of (.13981 X $62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25

B-3
<PAGE>
APPENDIX C
THE DEATH BENEFIT

PART 1: DEATH OF THE ANNUITANT -- WITHOUT ENHANCED DEATH BENEFIT RIDER

DEATH BENEFIT ASSUMING NO WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death benefit based on the hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH HYPOTHETICAL
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) DEATH BENEFIT
- --------- ------------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 50,000.00 $ 53,000.00
2 53,530.00 500.00 54,030.00 50,000.00 54,030.00
3 58,883.00 0.00 58,883.00 50,000.00 58,883.00
4 52,994.70 500.00 53,494.70 50,000.00 53,494.70
5 58,294.17 0.00 58,294.17 50,000.00 58,294.17
6 64,123.59 500.00 64,623.59 50,000.00 64,623.59
7 70,535.95 0.00 70,535.95 50,000.00 70,535.95
8 77,589.54 500.00 78,089.54 50,000.00 78,089.54
9 85,348.49 0.00 85,348.49 50,000.00 85,348.49
10 93,883.34 0.00 93,883.34 50,000.00 93,883.34
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments reduced proportionately to reflect
withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a) or
(b).

C-1
<PAGE>
DEATH BENEFIT ASSUMING WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below. The table
below presents examples of the death benefit based on the hypothetical
Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWAL ADJUSTMENT BENEFIT (A) BENEFIT (B) DEATH BENEFIT
- --------- ------------- ----------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00 $ 50,000.00 $ 53,000.00
2 53,530.00 0.00 500.00 54,030.00 50,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,603.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 3,603.18 3,994.70
5 3,844.17 0.00 0.00 3,844.17 3,603.18 3,844.17
6 4,228.59 0.00 500.00 4,728.59 3,603.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 3,603.18 4,651.45
8 5,116.59 0.00 500.00 5,616.59 3,603.18 5,616.59
9 5,628.25 0.00 0.00 5,628.25 3,603.18 5,628.25
10 691.07 5,000.00 0.00 691.07 437.54 691.07
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments reduced proportionately to reflect
withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a) or
(b).

PART 2: DEATH OF THE ANNUITANT -- WITH ENHANCED DEATH BENEFIT RIDER

DEATH BENEFIT ASSUMING NO WITHDRAWALS

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- --------- ------------- ------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $ 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>

C-2
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments accumulated daily at 5%, reduced
proportionately to reflect withdrawals.

Death Benefit (c) is the Death Benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).

DEATH BENEFIT ASSUMING WITHDRAWALS

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH
YEAR VALUE WITHDRAWAL ADJUSTMENT BENEFIT (A)
- --------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00
2 53,530.00 0.00 500.00 54,030.00
3 3,883.00 50,000.00 0.00 3,883.00
4 3,494.70 0.00 500.00 3,994.70
5 3,844.17 0.00 0.00 3,844.17
6 4,228.59 0.00 500.00 4,728.59
7 4,651.45 0.00 0.00 4,651.45
8 5,116.59 0.00 500.00 5,616.59
9 5,628.25 0.00 0.00 5,628.25
10 691.07 5,000.00 0.00 691.07
</TABLE>

<TABLE>
<CAPTION>
DEATH DEATH HYPOTHETICAL
YEAR BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
1 $52,500.00 $ 50,000.00 $ 53,000.00
2 55,125.00 53,000.00 55,125.00
3 4,171.13 3,972.50 4,171.13
4 4,379.68 4,171.13 4,379.68
5 4,598.67 4,379.68 4,598.67
6 4,828.60 4,598.67 4,828.60
7 5,070.03 4,828.60 5,070.03
8 5,323.53 5,070.03 5,616.59
9 5,589.71 5,616.59 5,628.25
10 712.70 683.44 712.70
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments accumulated daily at 5%, reduced
proportionately to reflect withdrawals.

C-3
<PAGE>
Death Benefit (c) is the Death Benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).

PART 3: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT (WITH OR WITHOUT ENHANCED
DEATH BENEFIT)

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE ADJUSTMENT DEATH BENEFIT
- --------- ------------- ------------- --------------
<S> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>

The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.

C-4