KILICO VARIABLE ANNUITY SEPARATE ACCOUNT, 485BPOS, 1999-04-28

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
485BPOS, 1999-04-28

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999

COMMISSION FILE NOS. 2-72671
811-3199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ ]

Pre-Effective Amendment No. _ [ ]

Post-Effective Amendment No. 28 [X]
and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 49 [X]
</TABLE>

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)

KEMPER INVESTORS LIFE INSURANCE
COMPANY
(NAME OF INSURANCE COMPANY)

<TABLE>
<S> <C>
1 Kemper Drive, Long Grove, Illinois 60049
(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code: (847) 550-5500
</TABLE>

Debra P. Rezabek, Esq.
1 Kemper Drive
Long Grove, Illinois 60049
(Name and Address of Agent for Service)

COPIES TO:

FRANK J. JULIAN, ESQ.

KEMPER INVESTORS LIFE INSURANCE COMPANY
1 KEMPER DRIVE
LONG GROVE, ILLINOIS 60049
JOAN E. BOROS, ESQ.
JORDEN BURT BOROS
CICCHETTI BERENSON & JOHNSON
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400E
WASHINGTON, D.C. 20007

Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485

[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485

[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities being Registered:

Units of interest in Separate Account under the Contracts

No filing fee is due because an indefinite number of shares is deemed to
have been registered in reliance on Section 24(f) of the Investment Company Act
of 1940.

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<PAGE> 2

PROSPECTUS FOR

KEMPER INVESTORS LIFE INSURANCE COMPANY

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PERIODIC PAYMENT

VARIABLE ANNUITY CONTRACTS

- --------------------------------------------------------------------------------

KEMPER ADVANTAGE III
ISSUED BY

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

KEMPER INVESTORS LIFE INSURANCE COMPANY

This prospectus describes the Periodic Payment Deferred Variable Annuity
Contracts of Kemper Investors Life Insurance Company. These Contracts are
designed to provide benefits under retirement plans qualifying for federal tax
advantages. Depending on particular state requirements, the Contracts may be
issued on a group or individual basis.

You may allocate purchase payments to the General Account or to one or more of
the variable options. The Contract currently offers thirty-four investment
options, each being a Subaccount of the KILICO Variable Annuity Separate
Account. Currently, you may choose among the following Portfolios:

KEMPER VARIABLE SERIES (FORMERLY INVESTORS FUND SERIES)

<TABLE>
<S> <C>
- - Kemper Money Market - Kemper Investment Grade Bond
- - Kemper Total Return - Kemper Contrarian Value (formerly
- - Kemper High Yield Kemper Value)
- - Kemper Growth - Kemper Small Cap Value
- - Kemper Government Securities - Kemper Value + Growth
- - Kemper International - Kemper Horizon 20+
- - Kemper Small Cap Growth - Kemper Horizon 10+
- Kemper Horizon 5
</TABLE>

JANUS ASPEN SERIES

<TABLE>
<S> <C>
- - Janus Aspen Growth - Janus Aspen Worldwide Growth
- - Janus Aspen Aggressive Growth - Janus Aspen Balanced
</TABLE>

LEXINGTON NATURAL RESOURCES TRUST
LEXINGTON EMERGING MARKETS FUND

FIDELITY VARIABLE INSURANCE PRODUCTS FUND ("VIP")
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")

<TABLE>
<S> <C>
- - Fidelity VIP Equity-Income - Fidelity VIP II Asset Manager
- - Fidelity VIP Growth - Fidelity VIP II Index 500
- Fidelity VIP II Contrafund
</TABLE>

SCUDDER VARIABLE LIFE INVESTMENT FUND ("VLIF") (CLASS A SHARES)

<TABLE>
<S> <C>
- - Scudder VLIF Bond - Scudder VLIF International
- - Scudder VLIF Capital Growth
</TABLE>

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.

J.P. MORGAN SERIES TRUST II

- J.P. Morgan Small Company

THE ALGER AMERICAN FUND

<TABLE>
<S> <C>
- - Alger American Growth - Alger American Small Capitalization
</TABLE>

AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. ("VP")

<TABLE>
<S> <C>
- - American Century VP Income & Growth - American Century VP Value
</TABLE>

THE CONTRACTS ARE NOT INSURED BY THE FDIC. THEY ARE OBLIGATIONS OF THE ISSUING
INSURANCE COMPANY AND NOT A DEPOSIT OF, OR GUARANTEED BY, ANY BANK OR SAVINGS
INSTITUTION AND ARE SUBJECT TO RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE CONTRACTS THAT YOU
SHOULD KNOW BEFORE INVESTING. YOU SHOULD READ IT BEFORE INVESTING AND KEEP IT
FOR REFERENCE. WE HAVE FILED A STATEMENT OF ADDITIONAL INFORMATION ("SAI") WITH
THE SECURITIES AND EXCHANGE COMMISSION. THE CURRENT SAI HAS THE SAME DATE AS
THIS PROSPECTUS AND IS INCORPORATED BY REFERENCE. YOU MAY OBTAIN A FREE COPY BY
WRITING US OR CALLING (888) 477-9700. A TABLE OF CONTENTS FOR THE SAI APPEARS ON
PAGE 39. YOU MAY ALSO FIND THIS PROSPECTUS AND OTHER REQUIRED INFORMATION ABOUT
THE SEPARATE ACCOUNT AT THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus May 1, 1999.

<PAGE> 3

TABLE OF CONTENTS
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- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................. 1
SUMMARY..................................................... 2
SUMMARY OF EXPENSES......................................... 4
CONDENSED FINANCIAL INFORMATION............................. 7
KILICO, THE SEPARATE ACCOUNT AND THE FUNDS.................. 15
FIXED ACCOUNT OPTION........................................ 19
THE CONTRACTS............................................... 20
CONTRACT CHARGES AND EXPENSES............................... 24
THE ANNUITY PERIOD.......................................... 27
FEDERAL TAX MATTERS......................................... 30
DISTRIBUTION OF CONTRACTS................................... 36
VOTING RIGHTS............................................... 36
REPORTS TO CONTRACT OWNERS AND INQUIRIES.................... 36
DOLLAR COST AVERAGING....................................... 37
SYSTEMATIC WITHDRAWAL PLAN.................................. 37
PROVISIONS OF PRIOR CONTRACTS............................... 37
YEAR 2000 COMPLIANCE........................................ 38
LEGAL PROCEEDINGS........................................... 39
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION...... 39
APPENDIX.................................................... 40
</TABLE>

<PAGE> 4

DEFINITIONS

The following terms as used in this Prospectus have the indicated meanings:

ACCUMULATION PERIOD--The period between the Date of Issue of a Contract and
the Annuity Date.

ACCUMULATION UNIT--A unit of measurement used to determine the value of
each Subaccount during the Accumulation Period.

ANNUITANT--The person designated to receive or who is receiving annuity
payments.

ANNUITY DATE--The date on which annuity payments are to commence.

ANNUITY OPTION--One of several forms in which annuity payments can be made.

ANNUITY PERIOD--The period starting on the Annuity Date.

ANNUITY UNIT--A unit of measurement used to determine the amount of
Variable Annuity payments.

BENEFICIARY--The person designated to receive any benefits under a Contract
upon the payment of a death benefit.

COMPANY ("WE", "US", "OUR", "KILICO")--Kemper Investors Life Insurance
Company. Our home office is at 1 Kemper Drive, Long Grove, Illinois 60049.

CONTRACT--A Variable Annuity Contract offered by this Prospectus. If a
Contract is issued on a group basis, the certificate issued to an
individual is deemed the Contract.

CONTRACT VALUE--The sum of the values of the Owner's interest in the
Subaccount(s) of the Separate Account and the General Account.

CONTRACT YEAR--Period between anniversaries of the Date of Issue of a
Contract, or with respect to a Contract issued on a group basis, the period
between anniversaries of the date of issue of a certificate.

CONTRACT QUARTER--Periods between quarterly anniversaries of the Date of
Issue of the Contract, or with respect to a Contract issued on a group
basis, the period between quarterly anniversaries of the date of issue of a
certificate.

CONTRIBUTION YEAR--Each Contract Year in which a Purchase Payment is made
and each later year measured from the end of the Contract Year when the
Purchase Payment was made. For example, if an Owner makes an initial
payment of $15,000 and then makes a later payment of $10,000 during the
fourth Contract Year, the fifth Contract Year will be the fifth
Contribution Year for the purpose of Accumulation Units attributable to the
initial payment and the second Contribution Year with respect to
Accumulation Units attributable to the later $10,000 payment.

DATE OF ISSUE--The date on which the first Contract Year commences.

DEBT--The principal of any outstanding loan from the General Account
Contract Value, plus any accrued interest. Requests for loans must be made
in writing to Us.

FIXED ANNUITY--An annuity under which the amount of each annuity payment
does not vary with the investment experience of a Subaccount and is
guaranteed by Us.

FUND OR FUNDS--Kemper Variable Series (formerly Investors Fund Series),
Janus Aspen Series, Lexington Natural Resources Trust, Lexington Emerging
Markets Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II, Scudder Variable Life Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc., J.P. Morgan Series Trust
II, The Alger American Fund and American Century Variable Portfolios, Inc.,
including any Portfolios thereunder.

GENERAL ACCOUNT--Our assets other than those allocated to any Separate
Account. We guarantee a minimum rate of interest on Purchase Payments
allocated to the General Account under the Fixed Account Option.

GENERAL ACCOUNT CONTRACT VALUE--The value of the Owner's interest in the
General Account.

NON-QUALIFIED CONTRACT--A Contract issued in connection with a retirement
plan which does not receive favorable tax treatment under Section 401, 403,
408, 408A or 457 of the Internal Revenue Code.

OWNER--The person designated in the Contract as having the privileges of
ownership.

PORTFOLIO--A series of a Fund with its own objective and policies, which
represents shares of beneficial interest in a separate portfolio of
securities and other assets. Portfolio is sometimes referred to herein as a
Fund.

1
<PAGE> 5

PURCHASE PAYMENTS--Amounts paid to Us by or on behalf of a Contract Owner.

QUALIFIED CONTRACT--A Contract issued in connection with a retirement plan
which receives favorable tax treatment under Section 401, 403, 408, 408A or
457 of the Internal Revenue Code.

SEPARATE ACCOUNT--A unit investment trust registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 known as
the KILICO Variable Annuity Separate Account.

SEPARATE ACCOUNT CONTRACT VALUE--The sum of the Owner's interest in the
Subaccount(s).

SUBACCOUNTS--The thirty-four subdivisions of the Separate Account, the
assets of which consist solely of shares of the corresponding Portfolios.

SUBACCOUNT VALUE--The value of the Owner's interest in each Subaccount.

UNITHOLDER--The person holding the voting rights with respect to an
Accumulation or Annuity Unit.

VALUATION DATE--Each day when the New York Stock Exchange is open for
trading, as well as each day otherwise required. (See "Accumulation Unit
Value.")

VALUATION PERIOD--The interval of time between two consecutive Valuation
Dates.

VARIABLE ANNUITY--An annuity with payments varying in amount in accordance
with the investment experience of the Subaccount(s) in which the Owner has
an interest.

WITHDRAWAL CHARGE--The "contingent deferred sales charge" assessed against
certain withdrawals of Accumulation Units in their first six Contribution
Years or against certain annuitization of Accumulation Units in their first
six Contribution Years.

WITHDRAWAL VALUE--Contract Value less Debt, and any premium tax payable if
the Contract is being annuitized, minus any Withdrawal Charge applicable to
that Contract.

SUMMARY

The summary does not contain all information that may be important. Read the
entire prospectus and Statement of Additional Information before deciding to
invest.

The Contracts provide for tax-deferred investments and annuity benefits. Both
Qualified Contracts and Non-Qualified Contracts are described in this
Prospectus.

The minimum initial Purchase Payment for a Non-Qualified Contract is $2,500 and
the minimum subsequent payment is $500. The minimum Purchase Payment for a
Qualified Contract is $50. However, if annualized contribution amounts from a
payroll or salary deduction are equal to or greater than $600, a periodic
payment for a Qualified Contract under $50 will be accepted. For a Non-Qualified
Contract a minimum of $100 in Contract Value must be allocated to an investment
option before another investment option can be selected. For a Qualified
Contract, as long as contribution amounts to a new investment option from a
payroll or salary reduction plan are equal to or greater than $50 per month,
another such investment option may be selected. The maximum Purchase Payment for
a Qualified Contract is the maximum permitted under the qualified plan's terms.
The Owner may make Purchase Payments to Non-Qualified Contracts and Contracts
issued as Individual Retirement Annuities ("IRAs") by authorizing Us to draw on
an account of the Owner via check or electronic debit ("Pre-Authorized Checking
[PAC] Agreement"). (See "The Contracts," page 20.)

We provide for variable accumulations and benefits by crediting Purchase
Payments to one or more Subaccounts of the Separate Account selected by the
Owner. Each Subaccount invests in a corresponding Portfolio of one of the Funds.
(See "The Funds" page 15.) The Contract Values allocated to the Separate Account
will vary with the investment performance of the Portfolios and Funds selected
by the Owner.

We also provide for fixed accumulations and benefits in the Fixed Account Option
of the General Account. Any portion of the purchase payment allocated to the
Fixed Accumulation Option is credited with interest daily at a rate periodically
declared by Us at Our discretion, but not less than 3%. (See "Fixed Account
Option," page 19.)

The investment risk under the Contracts is borne by the Owner, except to the
extent that Contract Values are allocated to the Fixed Account Option and are
guaranteed to earn at least 3% interest.

Transfers between Subaccounts are permitted before and after annuitization, if
allowed by the qualified plan and subject to limitations. Restrictions apply to
transfers out of the Fixed Account Option. (See "Transfer During Accumulation
Period" and "Transfer During Annuity Period," pages 22 and 29, respectively.)

2
<PAGE> 6

No sales charge is deducted from any Purchase Payment. An Owner may withdraw up
to 10% of the Contract Value less Debt in any Contract Year without assessment
of any charge. If the Owner withdraws an amount in excess of 10% of the Contract
Value less Debt in any Contract Year, the amount withdrawn in excess of 10% is
subject to a contingent deferred sales charge ("Withdrawal Charge"). The
Withdrawal Charge starts at 6% in the first Contribution Year and reduces by 1%
each Contribution Year so that there is no charge in the seventh and later
Contribution Years. (See "Withdrawal Charge," page 25.) The Withdrawal Charge
also applies at the annuitization of Accumulation Units in their sixth
Contribution Year or earlier, except as set forth under "Withdrawal Charge."
However, the aggregate Withdrawal Charges assessed against a Contract will never
exceed 7.25% of the aggregate Purchase Payments made under the Contract.
Withdrawals will have tax consequences, which may include the amount of the
withdrawal being subject to income tax and in some circumstances an additional
10% penalty tax. Withdrawals are permitted from Contracts issued in connection
with Section 403(b) Qualified Plans only under limited circumstances. (See
"Federal Tax Matters", page 30.)

We charge for mortality and expense risk and administrative expenses, for
records maintenance, and for any applicable premium taxes. (See "Asset-Based
Charges Against the Separate Account," page 25.) The Funds will incur certain
management fees and other expenses. (See "Summary of Expenses", "Investment
Management Fees and Other Expenses" and the Funds' Prospectuses for such
information.)

The Contracts may be purchased in connection with retirement plans qualifying
either under Section 401 or 403(b) of the Internal Revenue Code (the "Code") or
as individual retirement annuities including Roth IRAs. The Contracts are also
available in connection with state and municipal deferred compensation plans and
non-qualified deferred compensation plans. (See "Taxation of Annuities in
General," page 30 and "Qualified Plans," page 33.)

The Owner has the right within the "free look" period (generally ten days,
subject to state variation) after receiving the Contract to cancel the Contract
by delivering or mailing it to Us. Upon receipt by Us, the Contract will be
cancelled and amounts refunded. The amount of the refund depends on the state
where issued; however, generally the refund is at least the Contract Value. (See
"The Contracts," page 20.) In addition, a special "free look" period applies in
some circumstances to Contracts issued as individual retirement annuities or as
Roth IRAs.

3
<PAGE> 7

SUMMARY OF EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of purchase
payments)................................................. None
Contingent Deferred Sales Load (as a percentage of amount
surrendered)(1)
Year of
Withdrawal
After Purchase
First year.... 6%
Second year... 5%
Third year.... 4%
Fourth year... 3%
Fifth year.... 2%
Sixth year.... 1%
Seventh year
and
following..... 0%
Surrender Fees.............................................. None
Exchange Fee................................................ None
ANNUAL CONTRACT FEE (Records Maintenance Charge)(2)......... $36
</TABLE>

<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily account value)
<S> <C>
Mortality and Expense Risk... 1.00%
Administration............... .30%
Account Fees and Expenses.... 0%
Total Separate Account Annual
Expenses................... 1.30%
</TABLE>

FUND ANNUAL EXPENSES

(as percentage of each Portfolio's average net assets,
in some cases after expense waiver or reimbursement, for
the period ended December 31, 1998. Future Portfolio
expenses may be greater or less than those shown.)

KEMPER KEMPER KEMPER KEMPER
MONEY TOTAL KEMPER KEMPER GOVERNMENT KEMPER SMALL CAP
MARKET RETURN HIGH YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
------ ------ ---------- ------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management
Fees......... .50% .55% .60% .60% .55% .75% .65%
Other
Expenses..... .04 .05 .05 .05 .11 .18 .05
--- --- --- --- --- --- ---
Total
Portfolio
Annual
Expenses..... .54% .60% .65% .65% .66% .93% .70%
=== === === === === === ===

<CAPTION>
KEMPER KEMPER
INVESTMENT KEMPER SMALL KEMPER KEMPER KEMPER KEMPER
GRADE CONTRARIAN CAP VALUE+ HORIZON HORIZON HORIZON
BOND(8) VALUE(8) VALUE(8) GROWTH(8) 20+(8) 10+(8) 5(8)
---------- ---------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management
Fees......... .60% .75% .75% .75% .60% .60% .60%
Other
Expenses..... .07 .03 .05 .03 .07 .04 .06
--- --- --- --- --- --- ---
Total
Portfolio
Annual
Expenses..... .67% .78% .80% .78% .67% .64% .66%
=== === === === === === ===
</TABLE>

<TABLE>
<CAPTION>
JANUS JANUS
JANUS ASPEN ASPEN JANUS LEXINGTON
ASPEN AGGRESSIVE WORLDWIDE ASPEN NATURAL
GROWTH(3) GROWTH(3) GROWTH(3) BALANCED(3) RESOURCES
--------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Management
Fees......... .65% .72% .65% .72% 1.00%
Other
Expenses..... .03 .03 .07 .02 .29
--- --- --- --- ----
Total
Portfolio
Annual
Expenses..... .68% .75% .72% .74 1.29%
=== === === === ====

<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
LEXINGTON VIP FIDELITY VIP II VIP II VIP II
EMERGING EQUITY- VIP ASSET INDEX CONTRA-
MARKETS INCOME(4) GROWTH(4) MANAGER(4) 500(5) FUND(4)
--------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Management
Fees......... .85% .49% .59% .54% .24% .59%
Other
Expenses..... 1.23 .08 .07 .09 .04 .07
---- --- --- --- --- ---
Total
Portfolio
Annual
Expenses..... 2.08% .57% .66% .63% .28% .66%
==== === === === === ===
</TABLE>

SCUDDER DREYFUS
SCUDDER VLIF SCUDDER SOCIALLY J.P. MORGAN
VLIF CAPITAL VLIF RESPONSIBLE SMALL
BOND GROWTH INTERNATIONAL GROWTH COMPANY(6)
------- ------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Management
Fees......... .47% .47% .87% .75% .60%
Other
expenses..... .09 .04 .18 .05 .55
--- --- ---- --- ----
Total
Portfolio
Annual
Expenses..... .56% .51% 1.05% .80% 1.15%
=== === ==== === ====

<CAPTION>
AMERICAN
ALGER CENTURY
ALGER AMERICAN VP AMERICAN
AMERICAN SMALL INCOME & CENTURY VP
GROWTH CAPITALIZATION GROWTH VALUE(7)
-------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Management
Fees......... .75% .85% .70% 1.00%
Other
expenses..... .04 .04 .00 .00
---- --- --- ----
Total
Portfolio
Annual
Expenses..... .79% .89% .70% 1.00%
==== === === ====
</TABLE>

(1) An Owner may withdraw up to 10% of the Contract Value less Debt in any
Contract Year without assessment of any charge. Under certain circumstances the
contingent deferred sales charge may be reduced or waived, including when
certain annuity options are selected.

(2) The Records Maintenance Charge will be waived for Contracts in the
situations detailed in the Prospectus.

(3) The expense figures shown are net of certain fee waivers or reductions from
Janus Capital Corporation. Without such waivers, the Management Fee, Other
Expenses and Total Portfolio Annual Expenses for the Portfolios for the fiscal
year ended December 31, 1998 would have been .72%, .03% and .75%, respectively,
for the Janus Aspen Growth and Janus Aspen Aggressive Growth Portfolios; .67%,
.07% and .74% for the Janus Aspen Worldwide Growth Portfolio; and .72%, .02% and
.74% for the Janus Aspen Balanced Portfolio. See the prospectus and Statement of
Additional Information of Janus Aspen Series for a description of these waivers.

(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of certain
funds, have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances were used to reduce custodian
expenses. Without these reductions, the Other Expenses and the Total Portfolio
Annual Expenses for the Portfolios for the fiscal year ended December 31, 1998
would have been .09% and .58%, respectively, for the Fidelity VIP Equity-Income
Portfolio, .09% and .68%, respectively, for the Fidelity VIP Growth Portfolio,
10% and .64%, respectively, for the Fidelity VIP II Asset Manager Portfolio and
.11% and .70%, respectively, for the Fidelity VIP II Contrafund Portfolio.

(5) FMR agreed to reimburse a portion of the Fidelity VIP II Index 500
Portfolio's expenses during this period. Without this reimbursement, the
Management Fee, Other Expenses and Total Portfolio Annual Expenses for the
Portfolio for the fiscal year ended December 31, 1998 would have been 24%, 11%
and .35%, respectively, on an annualized basis.

4
<PAGE> 8

(6) Reflects an agreement by Morgan Guaranty Trust Company of New York to
reimburse the Portfolio to the extent expenses exceed 1.15%. Absent fee waiver
and expense reimbursement, total operating expenses would have been 3.43%

(7) In November 1998, the Portfolio's shareholders approved a new management
agreement with lower fees. Under the new agreement, the adviser will receive a
unified management fee of 1.00% of the first $500 million of the average net
assets of the Portfolio, 0.95% of the next $500 million and 0.90% thereafter.

(8) Pursuant to their respective agreements with Kemper Variable Series, the
investment manager and the accounting agent have agreed, for the one year period
commencing on the date of this Prospectus, to limit their respective fees and to
reimburse other operating expenses, in a manner communicated to the Board of the
Fund, to the extent necessary to limit total operating expenses of the following
described Portfolios to the amounts set forth after the Portfolio names: Kemper
Value + Growth Portfolio (.84%), Kemper Contrarian Value Portfolio (.80%),
Kemper Small Cap Value Portfolio (.84%), Kemper Horizon 5 Portfolio (.97%),
Kemper Horizon 10+ Portfolio (.83%), Kemper Horizon 20+ Portfolio (.93%), and
Kemper Investment Grade Bond Portfolio (.80%). The amounts set forth in the
table above reflect actual expenses for the past fiscal year, which were lower
than these expense limits.

5
<PAGE> 9

EXAMPLE

<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>

If you surrender your Contract at the end of the
periods shown, you would pay the following
expenses on a $1,000 investment, assuming 5%
annual return on assets:
Kemper Money Market 82 105 129 228
Kemper Total Return 82 107 132 234
Kemper High Yield 83 108 134 240
Kemper Growth 83 108 134 240
Kemper Government Securities 83 109 135 241
Kemper International 85 117 149 269
Kemper Small Cap Growth 83 110 137 245
Kemper Investment Grade Bond 83 109 135 242
Kemper Contrarian Value 84 112 141 253
Kemper Small Cap Value 84 113 142 256
Kemper Value+Growth 84 112 141 253
Kemper Horizon 20+ 83 109 135 242
Kemper Horizon 10+ 83 108 134 239
Kemper Horizon 5 83 109 135 241
Janus Aspen Growth 83 109 136 243
Janus Aspen Aggressive Growth 84 111 139 250
Janus Aspen Worldwide Growth 83 111 138 247
Janus Aspen Balanced 84 111 139 249
Lexington Natural Resources 89 127 167 305
Lexington Emerging Markets 97 150 205 381
Fidelity VIP Equity--Income 82 106 130 231
Fidelity VIP Growth 83 109 135 241
Fidelity VIP II Asset Manager 83 108 133 238
Fidelity VIP II Index 500 79 97 115 200
Fidelity VIP II Contrafund 83 109 135 241
Scudder VLIF Bond 82 106 130 230
Scudder VLIF Capital Growth 81 104 127 225
Scudder VLIF International 87 120 155 281
Dreyfus Socially Responsible Growth 84 113 142 256
J.P. Morgan Small Company 88 123 160 291
Alger American Growth 84 113 142 254
Alger American Small Capitalization 85 116 147 265
American Century VP Income & Growth 83 110 137 245
American Century VP Value 86 119 152 276

If you do not surrender your Contract, you would
pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
Kemper Money Market 20 61 106 228
Kemper Total Return 21 63 109 234
Kemper High Yield 21 65 111 240
Kemper Growth 21 65 111 240
Kemper Government Securities 21 65 112 241
Kemper International 24 74 126 269
Kemper Small Cap Growth 22 66 114 245
Kemper Investment Grade Bond 21 66 112 242
Kemper Contrarian Value 22 69 118 253
Kemper Small Cap Value 23 70 119 256
Kemper Value+Growth 22 69 118 253
Kemper Horizon 20+ 21 66 112 242
Kemper Horizon 10+ 21 65 111 239
Kemper Horizon 5 21 65 112 241
Janus Aspen Growth 21 66 113 243
Janus Aspen Aggressive Growth 22 68 117 250
Janus Aspen Worldwide Growth 22 67 115 247
Janus Aspen Balanced 22 68 116 249
Lexington Natural Resources 28 85 144 305
Lexington Emerging Markets 36 109 184 381
Fidelity VIP Equity--Income 20 62 107 231
Fidelity VIP Growth 21 65 112 241
Fidelity VIP II Asset Manager 21 64 110 238
Fidelity VIP II Index 500 17 53 92 200
Fidelity VIP II Contrafund 21 65 112 241
Scudder VLIF Bond 20 62 107 230
Scudder VLIF Capital Growth 20 61 104 225
Scudder VLIF International 25 77 132 281
Dreyfus Socially Responsible Growth 23 70 119 256
J.P. Morgan Small Company 26 80 137 291
Alger American Growth 22 69 119 254
Alger American Small Capitalization 23 72 124 265
American Century VP Income & Growth 22 66 114 245
American Century VP Value 25 76 129 276
</TABLE>

The purpose of the preceding table which includes the "SUMMARY OF EXPENSES" on
the prior page, is to assist Owners in understanding the various costs and
expenses that an Owner in a Subaccount will bear directly or indirectly. The
table reflects expenses of both the Separate Account and the Fund. THE EXAMPLE
SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
DOES NOT INCLUDE THE DEDUCTION OF STATE PREMIUM TAXES, WHICH MAY BE ASSESSED
BEFORE OR UPON ANNUITIZATION. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. "Management Fees" and "Other Expenses" in the "SUMMARY OF EXPENSES" for
the Janus Aspen Portfolios, Lexington Portfolios and Fidelity Portfolios have
been provided by Janus Capital Corporation, Lexington Management Corporation and
Fidelity Management & Research Corporation, respectively, and have not been
independently verified. The Example assumes a 5% annual rate of return pursuant
to requirements of the Securities and Exchange Commission. This hypothetical
rate of return is not intended to be representative of past or future
performance of any Subaccount. The Records Maintenance Charge is a single
charge, it is not a separate charge for each Subaccount. In addition, the effect
of the Records Maintenance Charge has been reflected in the Example by applying
the percentage derived by dividing the total amounts of annual Records
Maintenance Charge collected by the total net assets of all the Subaccounts in
the Separate Account. See "Contract Charges and Expenses" for more information
regarding the various costs and expenses.

6
<PAGE> 10

CONDENSED FINANCIAL INFORMATION

The following condensed financial information is derived from the financial
statements of the Separate Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information.

Selected data for the last ten years for accumulation units outstanding as of
the year ended December 31st for each period:

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... $ 2.394 2.297 2.208 2.111 2.051 2.014
Kemper Total Return Subaccount.................... 6.501 5.473 4.735 3.796 4.236 3.816
Kemper High Yield Subaccount...................... 6.341 5.738 5.082 4.372 4.517 3.802
Kemper Growth Subaccount.......................... 6.371 5.303 4.404 3.345 3.520 3.102
Kemper Government Securities Subaccount*.......... 1.725 1.599 1.575 1.337 1.388 1.317
Kemper International Subaccount**................. 1.723 1.590 1.379 1.234 1.293 .983
Kemper Small Cap Growth Subaccount***............. 2.240 1.686 1.330 1.033
Kemper Investment Grade Bond Subaccount+.......... 1.111 1.029 --
Kemper Contrarian Value Subaccount+............... 1.505 1.166 --
Kemper Small Cap Value Subaccount+................ 1.220 1.012 --
Kemper Value+Growth Subaccount+................... 1.414 1.138 --
Kemper Horizon 20+ Subaccount+.................... 1.367 1.146 --
Kemper Horizon 10+ Subaccount+.................... 1.279 1.106 --
Kemper Horizon 5 Subaccount+...................... 1.215 1.089 --
Janus Aspen Growth Subaccount****................. 19.471 16.021 13.662 --
Janus Aspen Aggressive Growth Subaccount****...... 20.423 18.309 17.132 --
Janus Aspen Worldwide Growth Subaccount****....... 23.663 19.565 15.315 --
Janus Aspen Balanced Subaccount****............... 18.205 15.059 13.092 --
Lexington Natural Resources Subaccount****........ 15.089 14.211 11.315 --
Lexington Emerging Markets Subaccount****......... 8.799 10.048 9.445 --
Fidelity VIP Equity--Income Subaccount+........... 26.497 20.891 --
Fidelity VIP Growth Subaccount+................... 37.821 30.933 --
Fidelity VIP II Asset Manager Subaccount+......... 20.090 16.818 --
Fidelity VIP II Index 500 Subaccount+............. 116.327 88.539 --
Fidelity VIP II Contrafund Subaccount+............ 20.220 16.450 --
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 1.966 1.875 1.751 1.621 $ 2.285
Kemper Total Return Subaccount.................... 3.790 2.776 2.669 2.174 6.205
Kemper High Yield Subaccount...................... 3.261 2.169 2.591 2.651 6.052
Kemper Growth Subaccount.......................... 3.025 1.916 1.923 1.515 6.112
Kemper Government Securities Subaccount*.......... 1.256 1.101 1.013 1.684
Kemper International Subaccount**................. 1.000 1.693
Kemper Small Cap Growth Subaccount***............. 2.216
Kemper Investment Grade Bond Subaccount+.......... 1.105
Kemper Contrarian Value Subaccount+............... 1.498
Kemper Small Cap Value Subaccount+................ 1.214
Kemper Value+Growth Subaccount+................... 1.407
Kemper Horizon 20+ Subaccount+.................... 1.360
Kemper Horizon 10+ Subaccount+.................... 1.273
Kemper Horizon 5 Subaccount+...................... 1.209
Janus Aspen Growth Subaccount****................. 19.338
Janus Aspen Aggressive Growth Subaccount****...... 20.284
Janus Aspen Worldwide Growth Subaccount****....... 23.502
Janus Aspen Balanced Subaccount****............... 18.081
Lexington Natural Resources Subaccount****........ 14.971
Lexington Emerging Markets Subaccount****......... 8.739
Fidelity VIP Equity--Income Subaccount+........... 26.366
Fidelity VIP Growth Subaccount+................... 37.631
Fidelity VIP II Asset Manager Subaccount+......... 19.991
Fidelity VIP II Index 500 Subaccount+............. 115.754
Fidelity VIP II Contrafund Subaccount+............ 20.120
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 2.199 2.120 2.033 1.981 1.950
Kemper Total Return Subaccount.................... 5.239 4.546 3.656 4.092 3.696
Kemper High Yield Subaccount...................... 5.493 4.879 4.210 4.363 3.683
Kemper Growth Subaccount.......................... 5.102 4.250 3.238 3.417 3.020
Kemper Government Securities Subaccount*.......... 1.566 1.547 1.317 1.371 1.305
Kemper International Subaccount**................. 1.567 1.363 1.223 1.285 .980
Kemper Small Cap Growth Subaccount***............. 1.673 1.323 1.031
Kemper Investment Grade Bond Subaccount+.......... 1.027 --
Kemper Contrarian Value Subaccount+............... 1.164 --
Kemper Small Cap Value Subaccount+................ 1.010 --
Kemper Value+Growth Subaccount+................... 1.136 --
Kemper Horizon 20+ Subaccount+.................... 1.144 --
Kemper Horizon 10+ Subaccount+.................... 1.104 --
Kemper Horizon 5 Subaccount+...................... 1.086 --
Janus Aspen Growth Subaccount****................. 15.960 13.650 --
Janus Aspen Aggressive Growth Subaccount****...... 18.238 17.117 --
Janus Aspen Worldwide Growth Subaccount****....... 19.490 15.302 --
Janus Aspen Balanced Subaccount****............... 15.001 13.081 --
Lexington Natural Resources Subaccount****........ 14.154 11.305 --
Lexington Emerging Markets Subaccount****......... 10.009 9.436 --
Fidelity VIP Equity--Income Subaccount+........... 20.849 --
Fidelity VIP Growth Subaccount+................... 30.872 --
Fidelity VIP II Asset Manager Subaccount+......... 16.784 --
Fidelity VIP II Index 500 Subaccount+............. 88.364 --
Fidelity VIP II Contrafund Subaccount+............ 16.418 --
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 1.910 1.827 1.712 1.589
Kemper Total Return Subaccount.................... 3.682 2.705 2.609 2.131
Kemper High Yield Subaccount...................... 3.168 2.114 2.533 2.599
Kemper Growth Subaccount.......................... 2.954 1.876 1.889 1.492
Kemper Government Securities Subaccount*.......... 1.248 1.097 1.012
Kemper International Subaccount**................. 1.000
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Subaccount****........
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
</TABLE>

(CONTINUED ON NEXT PAGE)
7
<PAGE> 11
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++........... $ --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company Subaccount++............ --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... $ 2.493 2.394 2.297 2.208 2.111 2.051
Kemper Total Return Subaccount.................... 7.411 6.501 5.473 4.735 3.796 4.236
Kemper High Yield Subaccount...................... 6.369 6.341 5.738 5.082 4.372 4.517
Kemper Growth Subaccount.......................... 7.261 6.371 5.303 4.404 3.345 3.520
Kemper Government Securities Subaccount*.......... 1.828 1.725 1.599 1.575 1.337 1.388
Kemper International Subaccount**................. 1.877 1.723 1.590 1.379 1.234 1.293
Kemper Small Cap Growth Subaccount***............. 2.625 2.240 1.686 1.330 1.033
Kemper Investment Grade Bond Subaccount+.......... 1.187 1.111 1.029
Kemper Contrarian Value Subaccount+............... 1.777 1.505 1.166
Kemper Small Cap Value Subaccount+................ 1.072 1.220 1.012
Kemper Value+Growth Subaccount+................... 1.683 1.414 1.138
Kemper Horizon 20+ Subaccount+.................... 1.530 1.367 1.146
Kemper Horizon 10+ Subaccount+.................... 1.410 1.279 1.106
Kemper Horizon 5 Subaccount+...................... 1.320 1.215 1.089
Janus Aspen Growth Subaccount****................. 26.152 19.471 16.021 13.662
Janus Aspen Aggressive Growth Subaccount****...... 27.149 20.423 18.309 17.132
Janus Aspen Worldwide Growth Subaccount****....... 30.205 23.663 19.565 15.315
Janus Aspen Balanced Subaccount****............... 24.205 18.205 15.059 13.092
Lexington Natural Resources Subaccount****........ 12.008 15.089 14.211 11.315
Lexington Emerging Markets Subaccount****......... 6.255 8.799 10.048 9.445
Fidelity VIP Equity--Income Subaccount+........... 29.285 26.497 20.891

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++........... $ --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company Subaccount++............ --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 2.014 1.966 1.875 1.751 $ 2.372
Kemper Total Return Subaccount.................... 3.816 3.790 2.776 2.669 7.052
Kemper High Yield Subaccount...................... 3.802 3.261 2.169 2.591 6.061
Kemper Growth Subaccount.......................... 3.102 3.025 1.916 1.923 6.945
Kemper Government Securities Subaccount*.......... 1.317 1.256 1.101 1.013 1.779
Kemper International Subaccount**................. .983 1.839
Kemper Small Cap Growth Subaccount***............. 2.589
Kemper Investment Grade Bond Subaccount+.......... 1.178
Kemper Contrarian Value Subaccount+............... 1.763
Kemper Small Cap Value Subaccount+................ 1.063
Kemper Value+Growth Subaccount+................... 1.669
Kemper Horizon 20+ Subaccount+.................... 1.518
Kemper Horizon 10+ Subaccount+.................... 1.399
Kemper Horizon 5 Subaccount+...................... 1.310
Janus Aspen Growth Subaccount****................. 25.897
Janus Aspen Aggressive Growth Subaccount****...... 26.884
Janus Aspen Worldwide Growth Subaccount****....... 29.911
Janus Aspen Balanced Subaccount****............... 23.969
Lexington Natural Resources Subaccount****........ 11.879
Lexington Emerging Markets Subaccount****......... 6.194
Fidelity VIP Equity--Income Subaccount+........... 29.054

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company Subaccount++............
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 2.285 2.199 2.120 2.033 1.981
Kemper Total Return Subaccount.................... 6.205 5.239 4.546 3.656 4.092
Kemper High Yield Subaccount...................... 6.052 5.493 4.879 4.210 4.363
Kemper Growth Subaccount.......................... 6.112 5.102 4.250 3.238 3.417
Kemper Government Securities Subaccount*.......... 1.684 1.566 1.547 1.317 1.371
Kemper International Subaccount**................. 1.693 1.567 1.363 1.223 1.285
Kemper Small Cap Growth Subaccount***............. 2.216 1.673 1.323 1.031
Kemper Investment Grade Bond Subaccount+.......... 1.105 1.027
Kemper Contrarian Value Subaccount+............... 1.498 1.164
Kemper Small Cap Value Subaccount+................ 1.214 1.010
Kemper Value+Growth Subaccount+................... 1.407 1.136
Kemper Horizon 20+ Subaccount+.................... 1.360 1.144
Kemper Horizon 10+ Subaccount+.................... 1.273 1.104
Kemper Horizon 5 Subaccount+...................... 1.209 1.086
Janus Aspen Growth Subaccount****................. 19.338 15.960 13.650
Janus Aspen Aggressive Growth Subaccount****...... 20.284 18.238 17.117
Janus Aspen Worldwide Growth Subaccount****....... 23.502 19.490 15.302
Janus Aspen Balanced Subaccount****............... 18.081 15.001 13.081
Lexington Natural Resources Subaccount****........ 14.971 14.154 11.305
Lexington Emerging Markets Subaccount****......... 8.739 10.009 9.436
Fidelity VIP Equity--Income Subaccount+........... 26.366 20.849

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company Subaccount++............
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 1.950 1.910 1.827 1.712
Kemper Total Return Subaccount.................... 3.696 3.682 2.705 2.609
Kemper High Yield Subaccount...................... 3.683 3.168 2.114 2.533
Kemper Growth Subaccount.......................... 3.020 2.954 1.876 1.889
Kemper Government Securities Subaccount*.......... 1.305 1.248 1.097 1.012
Kemper International Subaccount**................. .980
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Subaccount****........
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
</TABLE>

(CONTINUED ON NEXT PAGE)
8
<PAGE> 12
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP Growth Subaccount+................... $ 52.235 37.821 30.933
Fidelity VIP II Asset Manager Subaccount+......... 22.885 20.090 16.818
Fidelity VIP II Index 500 Subaccount+............. 147.801 116.327 88.539
Fidelity VIP II Contrafund Subaccount+............ 26.021 20.220 16.450
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 309 633 770 591 733 844
Kemper Total Return Subaccount.................... 772 864 990 1,067 1,299 1,511
Kemper High Yield Subaccount...................... 260 323 422 506 532 657
Kemper Growth Subaccount.......................... 178 227 260 286 238 222
Kemper Government Securities Subaccount*.......... 146 149 165 273 237 257
Kemper International Subaccount**................. 212 376 429 612 625 284
Kemper Small Cap Growth Subaccount***............. 166 195 132 81 14
Kemper Investment Grade Bond Subaccount+.......... 19 13 --
Kemper Contrarian Value Subaccount+............... 94 59 8
Kemper Small Cap Value Subaccount+................ 4 3 --
Kemper Value+Growth Subaccount+................... 60 24 12
Kemper Horizon 20+ Subaccount+.................... 21 -- --
Kemper Horizon 10+ Subaccount+.................... 13 10 10
Kemper Horizon 5 Subaccount+...................... -- -- --
Janus Aspen Growth Subaccount****................. 7 11 9 --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Fidelity VIP Growth Subaccount+................... $ 51.818
Fidelity VIP II Asset Manager Subaccount+......... 22.705
Fidelity VIP II Index 500 Subaccount+............. 146.637
Fidelity VIP II Contrafund Subaccount+............ 25.816
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 1,081 1,720 2,388 2,417 14,508
Kemper Total Return Subaccount.................... 1,859 1,924 2,355 2,888 72,971
Kemper High Yield Subaccount...................... 670 723 885 1,587 20,199
Kemper Growth Subaccount.......................... 303 255 251 578 50,548
Kemper Government Securities Subaccount*.......... 267 288 170 168 16,997
Kemper International Subaccount**................. 91 45,058
Kemper Small Cap Growth Subaccount***............. 38,394
Kemper Investment Grade Bond Subaccount+.......... 2,529
Kemper Contrarian Value Subaccount+............... 23,159
Kemper Small Cap Value Subaccount+................ 12,832
Kemper Value+Growth Subaccount+................... 7,994
Kemper Horizon 20+ Subaccount+.................... 1,764
Kemper Horizon 10+ Subaccount+.................... 3,391
Kemper Horizon 5 Subaccount+...................... 1,248
Janus Aspen Growth Subaccount****................. 1,931

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Fidelity VIP Growth Subaccount+................... 37.631 30.872
Fidelity VIP II Asset Manager Subaccount+......... 19.991 16.784
Fidelity VIP II Index 500 Subaccount+............. 115.754 88.364
Fidelity VIP II Contrafund Subaccount+............ 20.120 16.418
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 11,579 10,827 10,881 15,997 14,891
Kemper Total Return Subaccount.................... 82,149 89,982 100,774 110,428 108,395
Kemper High Yield Subaccount...................... 22,729 24,077 25,327 26,546 26,749
Kemper Growth Subaccount.......................... 54,987 58,672 60,187 58,845 50,289
Kemper Government Securities Subaccount*.......... 15,434 18,485 21,771 24,332 31,898
Kemper International Subaccount**................. 55,729 62,425 63,495 61,490 38,844
Kemper Small Cap Growth Subaccount***............. 33,789 25,931 17,371 8,304
Kemper Investment Grade Bond Subaccount+.......... 694 326
Kemper Contrarian Value Subaccount+............... 18,995 4,864
Kemper Small Cap Value Subaccount+................ 10,593 3,784
Kemper Value+Growth Subaccount+................... 4,889 986
Kemper Horizon 20+ Subaccount+.................... 1,170 406
Kemper Horizon 10+ Subaccount+.................... 1,616 634
Kemper Horizon 5 Subaccount+...................... 917 243
Janus Aspen Growth Subaccount****................. 1,357 976 168

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 12,605 14,973 21,581 14,185
Kemper Total Return Subaccount.................... 100,100 81,776 70,620 68,024
Kemper High Yield Subaccount...................... 22,202 19,861 22,623 28,032
Kemper Growth Subaccount.......................... 42,078 28,271 22,451 19,163
Kemper Government Securities Subaccount*.......... 28,368 23,035 12,918 7,794
Kemper International Subaccount**................. 10,372
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
</TABLE>

(CONTINUED ON NEXT PAGE)
9
<PAGE> 13
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Aggressive Growth Subaccount****...... 0 -- 1 --
Janus Aspen Worldwide Growth Subaccount****....... 8 9 3 --
Janus Aspen Balanced Subaccount****............... 6 4 3 --
Lexington Natural Resources Subaccount****........ 0 7 7 --
Lexington Emerging Markets Subaccount****......... 1 6 1 --
Fidelity VIP Equity--Income Subaccount+........... 2 2 1
Fidelity VIP Growth Subaccount+................... 3 -- --
Fidelity VIP II Asset Manager Subaccount+......... 0 1 --
Fidelity VIP II Index 500 Subaccount+............. 1 -- --
Fidelity VIP II Contrafund Subaccount+............ 1 -- --
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --

NON-TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... $ 2.394 2.297 2.208 2.111 2.051 2.014
Kemper Total Return Subaccount.................... 6.019 5.068 4.384 3.515 3.922 3.533
Kemper High Yield Subaccount...................... 6.071 5.494 4.865 4.186 4.325 3.640
Kemper Growth Subaccount.......................... 6.350 5.285 4.389 3.334 3.508 3.091
Kemper Government Securities Subaccount*.......... 1.725 1.599 1.575 1.337 1.388 1.317
Kemper International Subaccount**................. 1.723 1.590 1.379 1.234 1.293 .983
Kemper Small Cap Growth Subaccount***............. 2.240 1.686 1.330 1.033
Kemper Investment Grade Bond Subaccount+.......... 1.111 1.029 --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Janus Aspen Aggressive Growth Subaccount****...... 985
Janus Aspen Worldwide Growth Subaccount****....... 4,883
Janus Aspen Balanced Subaccount****............... 1,855
Lexington Natural Resources Subaccount****........ 302
Lexington Emerging Markets Subaccount****......... 587
Fidelity VIP Equity--Income Subaccount+........... 1,245
Fidelity VIP Growth Subaccount+................... 576
Fidelity VIP II Asset Manager Subaccount+......... 210
Fidelity VIP II Index 500 Subaccount+............. 638
Fidelity VIP II Contrafund Subaccount+............ 1,701
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
NON-TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 1.966 1.875 1.751 1.621 $ 2.285
Kemper Total Return Subaccount.................... 3.509 2.570 2.471 2.013 5.781
Kemper High Yield Subaccount...................... 3.122 2.077 2.481 2.538 5.896
Kemper Growth Subaccount.......................... 3.014 1.909 1.917 1.509 6.103
Kemper Government Securities Subaccount*.......... 1.256 1.101 1.013 1.684
Kemper International Subaccount**................. 1.000 1.693
Kemper Small Cap Growth Subaccount***............. 2.216
Kemper Investment Grade Bond Subaccount+.......... 1.105

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Janus Aspen Aggressive Growth Subaccount****...... 893 937 121
Janus Aspen Worldwide Growth Subaccount****....... 3,418 1,413 95
Janus Aspen Balanced Subaccount****............... 661 360 132
Lexington Natural Resources Subaccount****........ 347 243 58
Lexington Emerging Markets Subaccount****......... 598 443 80
Fidelity VIP Equity--Income Subaccount+........... 777 263
Fidelity VIP Growth Subaccount+................... 275 116
Fidelity VIP II Asset Manager Subaccount+......... 134 55
Fidelity VIP II Index 500 Subaccount+............. 295 53
Fidelity VIP II Contrafund Subaccount+............ 1,109 488
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NON-TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 2.199 2.120 2.033 1.981 1.950
Kemper Total Return Subaccount.................... 4.882 4.236 3.406 3.812 3.444
Kemper High Yield Subaccount...................... 5.351 4.753 4.101 4.250 3.588
Kemper Growth Subaccount.......................... 5.095 4.244 3.233 3.412 3.015
Kemper Government Securities Subaccount*.......... 1.566 1.547 1.317 1.371 1.305
Kemper International Subaccount**................. 1.567 1.363 1.223 1.285 .980
Kemper Small Cap Growth Subaccount***............. 1.673 1.323 1.031
Kemper Investment Grade Bond Subaccount+.......... 1.027 --

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Subaccount****........
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NON-TAX QUALIFIED
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD
Kemper Money Market Subaccount.................... 1.910 1.827 1.712 1.589
Kemper Total Return Subaccount.................... 3.431 2.520 2.431 1.986
Kemper High Yield Subaccount...................... 3.086 2.059 2.467 2.532
Kemper Growth Subaccount.......................... 2.949 1.873 1.887 1.490
Kemper Government Securities Subaccount*.......... 1.248 1.097 1.012
Kemper International Subaccount**................. 1.000
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
</TABLE>

(CONTINUED ON NEXT PAGE)
10
<PAGE> 14
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Kemper Contrarian Value Subaccount+............... $ 1.505 1.166 --
Kemper Small Cap Value Subaccount+................ 1.220 1.012 --
Kemper Value+Growth Subaccount+................... 1.414 1.138 --
Kemper Horizon 20+ Subaccount+.................... 1.367 1.146 --
Kemper Horizon 10+ Subaccount+.................... 1.279 1.106 --
Kemper Horizon 5 Subaccount+...................... 1.215 1.089 --
Janus Aspen Growth Subaccount****................. 19.471 16.021 13.662 --
Janus Aspen Aggressive Growth Subaccount****...... 20.423 18.309 17.132 --
Janus Aspen Worldwide Growth Subaccount****....... 23.633 19.565 15.315 --
Janus Aspen Balanced Subaccount****............... 18.205 15.059 13.092 --
Lexington Natural Resources Trust****
Subaccount....................................... 15.089 14.211 11.315 --
Lexington Emerging Markets Subaccount****......... 8.799 10.048 9.445 --
Fidelity VIP Equity--Income Subaccount+........... 26.497 20.891 --
Fidelity VIP Growth Subaccount+................... 37.821 30.933 --
Fidelity VIP II Asset Manager Subaccount+......... 20.090 16.818 --
Fidelity VIP II Index 500 Subaccount+............. 116.327 88.539 --
Fidelity VIP II Contrafund Subaccount+............ 20.220 16.450 --
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... $ 2.493 2.394 2.297 2.208 2.111 2.051
Kemper Total Return Subaccount.................... 6.862 6.019 5.068 4.384 3.515 3.922
Kemper High Yield Subaccount...................... 6.098 6.071 5.494 4.865 4.186 4.325

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Kemper Contrarian Value Subaccount+............... $ 1.498
Kemper Small Cap Value Subaccount+................ 1.214
Kemper Value+Growth Subaccount+................... 1.407
Kemper Horizon 20+ Subaccount+.................... 1.360
Kemper Horizon 10+ Subaccount+.................... 1.273
Kemper Horizon 5 Subaccount+...................... 1.209
Janus Aspen Growth Subaccount****................. 19.338
Janus Aspen Aggressive Growth Subaccount****...... 20.284
Janus Aspen Worldwide Growth Subaccount****....... 23.502
Janus Aspen Balanced Subaccount****............... 18.081
Lexington Natural Resources Trust****
Subaccount....................................... 14.971
Lexington Emerging Markets Subaccount****......... 8.739
Fidelity VIP Equity--Income Subaccount+........... 26.366
Fidelity VIP Growth Subaccount+................... 37.631
Fidelity VIP II Asset Manager Subaccount+......... 19.991
Fidelity VIP II Index 500 Subaccount+............. 115.754
Fidelity VIP II Contrafund Subaccount+............ 20.120
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 2.014 1.966 1.875 1.751 $ 2.372
Kemper Total Return Subaccount.................... 3.533 3.509 2.570 2.471 6.571
Kemper High Yield Subaccount...................... 3.640 3.122 2.077 2.481 5.904

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Kemper Contrarian Value Subaccount+............... 1.164 --
Kemper Small Cap Value Subaccount+................ 1.010 --
Kemper Value+Growth Subaccount+................... 1.136 --
Kemper Horizon 20+ Subaccount+.................... 1.144 --
Kemper Horizon 10+ Subaccount+.................... 1.104 --
Kemper Horizon 5 Subaccount+...................... 1.086 --
Janus Aspen Growth Subaccount****................. 15.960 13.650 --
Janus Aspen Aggressive Growth Subaccount****...... 18.238 17.117 --
Janus Aspen Worldwide Growth Subaccount****....... 19.490 15.302 --
Janus Aspen Balanced Subaccount****............... 15.001 13.081 --
Lexington Natural Resources Trust****
Subaccount....................................... 14.154 11.305 --
Lexington Emerging Markets Subaccount****......... 10.009 9.436 --
Fidelity VIP Equity--Income Subaccount+........... 20.849 --
Fidelity VIP Growth Subaccount+................... 30.872 --
Fidelity VIP II Asset Manager Subaccount+......... 16.784 --
Fidelity VIP II Index 500 Subaccount+............. 88.364 --
Fidelity VIP II Contrafund Subaccount+............ 16.418 --
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 2.285 2.199 2.120 2.033 1.981
Kemper Total Return Subaccount.................... 5.781 4.882 4.236 3.406 3.812
Kemper High Yield Subaccount...................... 5.896 5.351 4.753 4.101 4.250

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Trust****
Subaccount.......................................
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
ACCUMULATION UNIT VALUE AT END OF PERIOD
Kemper Money Market Subaccount.................... 1.950 1.910 1.827 1.712
Kemper Total Return Subaccount.................... 3.444 3.431 2.520 2.431
Kemper High Yield Subaccount...................... 3.588 3.086 2.059 2.467
</TABLE>

(CONTINUED ON NEXT PAGE)
11
<PAGE> 15
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Kemper Growth Subaccount.......................... $ 7.236 6.350 5.285 4.389 3.334 3.508
Kemper Government Securities Subaccount*.......... 1.828 1.725 1.599 1.575 1.337 1.388
Kemper International Subaccount**................. 1.877 1.723 1.590 1.379 1.234 1.293
Kemper Small Cap Growth Subaccount***............. 2.625 2.240 1.686 1.330 1.033
Kemper Investment Grade Bond Subaccount+.......... 1.187 1.111 1.029
Kemper Contrarian Value Subaccount+............... 1.777 1.505 1.166
Kemper Small Cap Value Subaccount+................ 1.072 1.220 1.012
Kemper Value+Growth Subaccount+................... 1.683 1.414 1.138
Kemper Horizon 20+ Subaccount+.................... 1.530 1.367 1.146
Kemper Horizon 10+ Subaccount+.................... 1.410 1.279 1.106
Kemper Horizon 5 Subaccount+...................... 1.320 1.215 1.089
Janus Aspen Growth Subaccount****................. 26.152 19.471 16.021 13.662
Janus Aspen Aggressive Growth Subaccount****...... 27.149 20.423 18.309 17.132
Janus Aspen Worldwide Growth Subaccount****....... 30.205 23.663 19.565 15.315
Janus Aspen Balanced Subaccount****............... 24.205 18.205 15.059 13.092
Lexington Natural Resources Trust
Subaccount****................................... 12.008 15.089 14.211 11.315
Lexington Emerging Markets Subaccount****......... 6.255 8.799 10.048 9.445
Fidelity VIP Equity--Income Subaccount+........... 29.285 26.497 20.891
Fidelity VIP Growth Subaccount+................... 52.235 37.821 30.933
Fidelity VIP II Asset Manager Subaccount+......... 22.885 20.090 16.818
Fidelity VIP II Index 500 Subaccount+............. 147.801 116.327 88.539
Fidelity VIP II Contrafund Subaccount+............ 26.021 20.220 16.450
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Kemper Growth Subaccount.......................... 3.091 3.014 1.909 1.917 $ 6.935
Kemper Government Securities Subaccount*.......... 1.317 1.256 1.101 1.013 1.779
Kemper International Subaccount**................. .983 1.839
Kemper Small Cap Growth Subaccount***............. 2.589
Kemper Investment Grade Bond Subaccount+.......... 1.178
Kemper Contrarian Value Subaccount+............... 1.763
Kemper Small Cap Value Subaccount+................ 1.063
Kemper Value+Growth Subaccount+................... 1.669
Kemper Horizon 20+ Subaccount+.................... 1.518
Kemper Horizon 10+ Subaccount+.................... 1.399
Kemper Horizon 5 Subaccount+...................... 1.310
Janus Aspen Growth Subaccount****................. 25.897
Janus Aspen Aggressive Growth Subaccount****...... 26.884
Janus Aspen Worldwide Growth Subaccount****....... 29.911
Janus Aspen Balanced Subaccount****............... 23.969
Lexington Natural Resources Trust
Subaccount****................................... 11.879
Lexington Emerging Markets Subaccount****......... 6.194
Fidelity VIP Equity--Income Subaccount+........... 29.054
Fidelity VIP Growth Subaccount+................... 51.818
Fidelity VIP II Asset Manager Subaccount+......... 22.705
Fidelity VIP II Index 500 Subaccount+............. 146.637
Fidelity VIP II Contrafund Subaccount+............ 25.816
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Kemper Growth Subaccount.......................... 6.103 5.095 4.244 3.233 3.412
Kemper Government Securities Subaccount*.......... 1.684 1.566 1.547 1.317 1.371
Kemper International Subaccount**................. 1.693 1.567 1.363 1.223 1.285
Kemper Small Cap Growth Subaccount***............. 2.216 1.673 1.323 1.031
Kemper Investment Grade Bond Subaccount+.......... 1.105 1.027
Kemper Contrarian Value Subaccount+............... 1.498 1.164
Kemper Small Cap Value Subaccount+................ 1.214 1.010
Kemper Value+Growth Subaccount+................... 1.407 1.136
Kemper Horizon 20+ Subaccount+.................... 1.360 1.144
Kemper Horizon 10+ Subaccount+.................... 1.273 1.104
Kemper Horizon 5 Subaccount+...................... 1.209 1.086
Janus Aspen Growth Subaccount****................. 19.338 15.960 13.650
Janus Aspen Aggressive Growth Subaccount****...... 20.284 18.238 17.117
Janus Aspen Worldwide Growth Subaccount****....... 23.502 19.490 15.302
Janus Aspen Balanced Subaccount****............... 18.081 15.001 13.081
Lexington Natural Resources Trust
Subaccount****................................... 14.971 14.154 11.305
Lexington Emerging Markets Subaccount****......... 8.739 10.009 9.436
Fidelity VIP Equity--Income Subaccount+........... 26.366 20.849
Fidelity VIP Growth Subaccount+................... 37.631 30.872
Fidelity VIP II Asset Manager Subaccount+......... 19.991 16.784
Fidelity VIP II Index 500 Subaccount+............. 115.754 88.364
Fidelity VIP II Contrafund Subaccount+............ 20.120 16.418
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
Kemper Growth Subaccount.......................... 3.015 2.949 1.873 1.887
Kemper Government Securities Subaccount*.......... 1.305 1.248 1.097 1.012
Kemper International Subaccount**................. .980
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Trust
Subaccount****...................................
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
</TABLE>

(CONTINUED ON NEXT PAGE)
12
<PAGE> 16
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
American Century VP Income & Growth
Subaccount++..................................... $ --
American Century VP Value Subaccount++............ --
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 3,812 4,338 4,762 5,512 6,914 7,153
Kemper Total Return Subaccount.................... 3,348 4,277 4,838 5,554 6,613 8,042
Kemper High Yield Subaccount...................... 1,480 2,096 2,440 2,821 3,621 4,517
Kemper Growth Subaccount.......................... 1,063 1,162 1,396 1,276 1,370 1,671
Kemper Government Securities Subaccount*.......... 1,073 908 1,187 1,330 1,465 2,101
Kemper International Subaccount**................. 744 1,006 1,190 1,257 2,450 1,712
Kemper Small Cap Growth Subaccount***............. 494 657 711 874 227
Kemper Investment Grade Bond Subaccount+.......... 750 303 68
Kemper Contrarian Value Subaccount+............... 80 95 238
Kemper Small Cap Value Subaccount+................ 94 58 7
Kemper Value+Growth Subaccount+................... 173 119 33
Kemper Horizon 20+ Subaccount+.................... -- -- --
Kemper Horizon 10+ Subaccount+.................... 9 9 20
Kemper Horizon 5 Subaccount+...................... 35 42 45
Janus Aspen Growth Subaccount****................. 16 7 22 2
Janus Aspen Aggressive Growth Subaccount****...... 2 6 2 --
Janus Aspen Worldwide Growth Subaccount****....... 24 17 33 --
Janus Aspen Balanced Subaccount****............... 24 13 10 4
Lexington Natural Resources Trust
Subaccount****................................... 4 2 -- --
Lexington Emerging Markets Subaccount****......... 2 2 2 2
Fidelity VIP Equity--Income Subaccount+........... 8 5 1
Fidelity VIP Growth Subaccount+................... 2 -- --
Fidelity VIP II Asset Manager Subaccount+......... 6 6 --
Fidelity VIP II Index 500 Subaccount+............. 11 13 1
Fidelity VIP II Contrafund Subaccount+............ 5 3 2
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
American Century VP Income & Growth
Subaccount++..................................... $ --
American Century VP Value Subaccount++............ --
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 8,495 11,926 15,563 19,006 11,095
Kemper Total Return Subaccount.................... 8,853 9,586 10,291 12,244 11,360
Kemper High Yield Subaccount...................... 4,876 5,240 6,652 11,895 6,036
Kemper Growth Subaccount.......................... 2,032 1,773 1,955 1,931 9,612
Kemper Government Securities Subaccount*.......... 2,317 2,728 2,442 1,494 10,270
Kemper International Subaccount**................. 1,041 7,278
Kemper Small Cap Growth Subaccount***............. 4,843
Kemper Investment Grade Bond Subaccount+.......... 1,033
Kemper Contrarian Value Subaccount+............... 3,847
Kemper Small Cap Value Subaccount+................ 1,756
Kemper Value+Growth Subaccount+................... 2,094
Kemper Horizon 20+ Subaccount+.................... 195
Kemper Horizon 10+ Subaccount+.................... 419
Kemper Horizon 5 Subaccount+...................... 357
Janus Aspen Growth Subaccount****................. 243
Janus Aspen Aggressive Growth Subaccount****...... 105
Janus Aspen Worldwide Growth Subaccount****....... 630
Janus Aspen Balanced Subaccount****............... 334
Lexington Natural Resources Trust
Subaccount****................................... 40
Lexington Emerging Markets Subaccount****......... 108
Fidelity VIP Equity--Income Subaccount+........... 223
Fidelity VIP Growth Subaccount+................... 73
Fidelity VIP II Asset Manager Subaccount+......... 40
Fidelity VIP II Index 500 Subaccount+............. 99
Fidelity VIP II Contrafund Subaccount+............ 211
Scudder VLIF Bond Subaccount++.................... --
Scudder VLIF Capital Growth Subaccount++.......... --

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 4,637 3,948 4,839 7,343 6,204
Kemper Total Return Subaccount.................... 13,699 17,433 20,342 24,773 26,640
Kemper High Yield Subaccount...................... 8,934 10,028 12,047 12,416 14,735
Kemper Growth Subaccount.......................... 11,574 14,340 16,369 19,776 17,851
Kemper Government Securities Subaccount*.......... 11,033 13,804 17,939 23,487 28,787
Kemper International Subaccount**................. 9,543 12,177 12,074 14,546 15,713
Kemper Small Cap Growth Subaccount***............. 4,509 4,091 3,022 1,242
Kemper Investment Grade Bond Subaccount+.......... 338 50
Kemper Contrarian Value Subaccount+............... 9,619 1,625
Kemper Small Cap Value Subaccount+................ 1,519 840
Kemper Value+Growth Subaccount+................... 824 454
Kemper Horizon 20+ Subaccount+.................... 83 7
Kemper Horizon 10+ Subaccount+.................... 261 229
Kemper Horizon 5 Subaccount+...................... 192 84
Janus Aspen Growth Subaccount****................. 157 99 14
Janus Aspen Aggressive Growth Subaccount****...... 85 115 11
Janus Aspen Worldwide Growth Subaccount****....... 445 186 7
Janus Aspen Balanced Subaccount****............... 105 42 3
Lexington Natural Resources Trust
Subaccount****................................... 48 100 8
Lexington Emerging Markets Subaccount****......... 130 80 3
Fidelity VIP Equity--Income Subaccount+........... 120 36
Fidelity VIP Growth Subaccount+................... 39 16
Fidelity VIP II Asset Manager Subaccount+......... 56 5
Fidelity VIP II Index 500 Subaccount+............. 46 10
Fidelity VIP II Contrafund Subaccount+............ 125 47
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........

<CAPTION>
PERIODIC PAYMENT CONTRACTS
----------------------------------
1992** 1991 1990 1989*
------ ---- ---- -----
<S> <C> <C> <C> <C>
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF
PERIOD (000'S OMITTED)
Kemper Money Market Subaccount.................... 9,820 10,507 11,618 9,243
Kemper Total Return Subaccount.................... 26,043 19,953 18,485 18,671
Kemper High Yield Subaccount...................... 14,424 12,799 11,858 18,281
Kemper Growth Subaccount.......................... 15,849 9,577 7,812 5,542
Kemper Government Securities Subaccount*.......... 28,286 18,252 10,338 2,109
Kemper International Subaccount**................. 3,646
Kemper Small Cap Growth Subaccount***.............
Kemper Investment Grade Bond Subaccount+..........
Kemper Contrarian Value Subaccount+...............
Kemper Small Cap Value Subaccount+................
Kemper Value+Growth Subaccount+...................
Kemper Horizon 20+ Subaccount+....................
Kemper Horizon 10+ Subaccount+....................
Kemper Horizon 5 Subaccount+......................
Janus Aspen Growth Subaccount****.................
Janus Aspen Aggressive Growth Subaccount****......
Janus Aspen Worldwide Growth Subaccount****.......
Janus Aspen Balanced Subaccount****...............
Lexington Natural Resources Trust
Subaccount****...................................
Lexington Emerging Markets Subaccount****.........
Fidelity VIP Equity--Income Subaccount+...........
Fidelity VIP Growth Subaccount+...................
Fidelity VIP II Asset Manager Subaccount+.........
Fidelity VIP II Index 500 Subaccount+.............
Fidelity VIP II Contrafund Subaccount+............
Scudder VLIF Bond Subaccount++....................
Scudder VLIF Capital Growth Subaccount++..........
</TABLE>

(CONTINUED ON NEXT PAGE)
13
<PAGE> 17
CONDENSED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
FLEXIBLE PAYMENT CONTRACTS
---------------------------------------------------------
1998 1997 1996+ 1995**** 1994*** 1993
---- ---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --

<CAPTION>
FLEXIBLE PAYMENT CONTRACTS PERIODIC PAYMENT CONTRACTS
--------------------------------- --------
1992** 1991 1990 1989* 1998
------ ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++........... --
Dreyfus Socially Responsible Growth
Subaccount++..................................... --
J.P. Morgan Small Company
Subaccount++..................................... --
Alger American Growth Subaccount++................ --
Alger American Small Capitalization
Subaccount++..................................... --
American Century VP Income & Growth
Subaccount++..................................... --
American Century VP Value Subaccount++............ --

<CAPTION>
PERIODIC PAYMENT CONTRACTS
-----------------------------------------------
1997 1996+ 1995**** 1994*** 1993
---- ----- -------- ------- ----
<S> <C> <C> <C> <C> <C>
Scudder VLIF International Subaccount++...........
Dreyfus Socially Responsible Growth
Subaccount++.....................................
J.P. Morgan Small Company
Subaccount++.....................................
Alger American Growth Subaccount++................
Alger American Small Capitalization
Subaccount++.....................................
American Century VP Income & Growth
Subaccount++.....................................
American Century VP Value Subaccount++............

* The Kemper Government Securities Subaccount commenced business on November
6, 1989.
** The Kemper International Subaccount commenced business on January 6, 1992.
*** The Kemper Small Cap Growth Subaccount commenced business on May 2, 1994.

**** The Janus Aspen Growth, Aggressive Growth, Worldwide Growth, and Balanced
Subaccounts and the Lexington Natural Resources Trust and Emerging Markets
Subaccounts were available under the Contracts on September 15, 1995.

+ The Kemper Investment Grade Bond, Kemper Contrarian Value, Kemper Small
Cap Value, Kemper Value+Growth, Kemper Horizon 20+, Kemper Horizon 10+,
Kemper Horizon 5, Fidelity VIP Equity-Income, Fidelity VIP Growth,
Fidelity VIP II Asset Manager, Fidelity VIP II Index 500 and Fidelity VIP
II Contrafund Subaccounts were available under the Contracts on May 1,
1996.

++ The Scudder VLIF Bond, Scudder VLIF Capital Growth, Scudder VLIF
International, Dreyfus Socially Responsible Growth, J.P. Morgan Small
Company, Alger American Growth, Alger American Small Capitalization,
American Century VP Income & Growth and American Century VP Value
Subaccounts were available under the Contracts on May 1, 1999.

The financial statements and reports of independent accountants for the KILICO
Variable Annuity Separate Account are also contained in the Statement of
Additional Information.

14
<PAGE> 18

KILICO, THE SEPARATE ACCOUNT AND THE FUNDS

KEMPER INVESTORS LIFE INSURANCE COMPANY

We were organized under the laws of the State of Illinois in 1947 as a stock
life insurance company. Our offices are located at 1 Kemper Drive, Long Grove,
Illinois 60049. We offer annuity and life insurance products and are admitted to
do business in the District of Columbia and all states except New York. We are a
wholly-owned subsidiary of Kemper Corporation, a nonoperating holding company.
Kemper Corporation is a majority owned (76.4 percent) subsidiary of Zurich
Holding Company of America ("ZHCA"), which is a wholly-owned subsidiary of
Zurich Insurance Company ("Zurich"). Zurich is a wholly-owned subsidiary of
Zurich Financial Services ("ZFS"). ZFS was formed in the September, 1998 merger
of the Zurich Group with the financial services business of B.A.T. Industries.
ZFS is owned by Zurich Allied A.G. and Allied Zurich p.l.c., fifty-seven percent
and forty-three percent, respectively.

THE SEPARATE ACCOUNT

We established the KILICO Variable Annuity Separate Account on May 29, 1981
under Illinois law as the KILICO Money Market Separate Account. KILICO Money
Market Separate Account was initially registered with the Securities and
Exchange Commission ("SEC") as an open-end, diversified management investment
company. On November 2, 1989, contract owners approved a Reorganization under
which the Separate Account was restructured as a unit investment trust. The SEC
does not supervise the management, investment practices or policies of the
Separate Account or KILICO.

Benefits provided under the Contracts are Our obligations. Although the assets
in the Separate Account are Our property, they are held separately from Our
other assets and are not chargeable with liabilities arising out of any other
business We may conduct. Income, capital gains and capital losses, whether or
not realized, from the assets allocated to the Separate Account are credited to
or charged against the Separate Account without regard to the income, capital
gains and capital losses arising out of any other business We may conduct.

Thirty-four Subaccounts of the Separate Account are currently available. Each
Subaccount invests exclusively in shares of one of the corresponding Portfolios.
We may add or delete Subaccounts in the future. Not all Subaccounts may be
available in all jurisdictions, under all Contracts or in all retirement plans.

The Separate Account purchases and redeems shares from the Funds at net asset
value. We redeem shares of the Funds as necessary to provide benefits, to deduct
Contract charges and to transfer assets from one Subaccount to another as
requested by Owners. All dividends and capital gains distributions received by
the Separate Account from a Portfolio are reinvested in that Portfolio at net
asset value and retained as assets of the corresponding Subaccount.

The Separate Account's financial statements appear in the Statement of
Additional Information.

THE FUNDS

The Separate Account invests in shares of the following open-end management
investment companies:

- Kemper Variable Series (formerly Investors Fund Series)

- Janus Aspen Series

- Lexington Natural Resources Trust

- Lexington Emerging Markets Fund

- Fidelity Variable Insurance Products Fund

- Fidelity Variable Insurance Products Fund II

- Scudder Variable Life Investment Fund

- The Dreyfus Socially Responsible Growth Fund, Inc.

- J.P. Morgan Series Trust II

- The Alger American Fund

- American Century Variable Portfolios, Inc.

15
<PAGE> 19

SEC registration does not involve SEC supervision of their management,
investment practices or policies. The Funds provide investment vehicles for
variable life insurance and variable annuity contracts and, in the case of the
Janus Aspen Series, certain qualified retirement plans. Shares of the Funds are
sold only to insurance company separate accounts and qualified retirement plans.
In addition to selling shares to Our separate accounts, shares of the Funds may
be sold to separate accounts of other insurance companies. It is conceivable
that in the future it may be disadvantageous for variable life insurance
separate accounts and variable annuity separate accounts of other companies, or
for variable life insurance separate accounts, variable annuity separate
accounts and qualified retirement plans to invest simultaneously in the Funds.
Currently, neither We nor the Funds foresee any such disadvantages to variable
life insurance owners, variable annuity owners or qualified retirement plans.
The Funds must monitor events to identify material conflicts between such owners
and determine what action, if any, should be taken. In addition, if We believe a
Fund's response to any of those events or conflicts insufficiently protects
Owners, We will take appropriate action.

A Fund may consist of separate Portfolios. The assets of each Portfolio are held
separate from the assets of the other Portfolios, and each Portfolio has its own
distinct investment objective and policies. Each Portfolio operates as a
separate investment fund, and the investment performance of one Portfolio has no
effect on the investment performance of any other Portfolio.

The thirty-four Portfolios are summarized below:

KEMPER VARIABLE SERIES (FORMERLY INVESTORS FUND SERIES)

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. The Portfolio seeks to maintain a net asset value of $1.00
per share but there is no assurance that the Portfolio will be able to do so.

KEMPER TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, consistent with reasonable risk.

KEMPER HIGH YIELD PORTFOLIO seeks to provide a high level of current income.

KEMPER GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.

KEMPER GOVERNMENT SECURITIES PORTFOLIO seeks high current income consistent with
preservation of capital.

KEMPER INTERNATIONAL PORTFOLIO seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.

KEMPER SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors'
capital.

KEMPER INVESTMENT GRADE BOND PORTFOLIO seeks high current income.

KEMPER CONTRARIAN VALUE PORTFOLIO seeks to achieve a high rate of total return.

KEMPER SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation.

KEMPER VALUE+GROWTH PORTFOLIO seeks growth of capital. A secondary objective of
the Portfolio is the reduction of risk over a full market cycle compared to a
portfolio of only growth stocks or only value stocks.

KEMPER HORIZON 20+ PORTFOLIO, designed for investors with approximately a 20+
year investment horizon, seeks growth of capital, with income as a secondary
objective.

KEMPER HORIZON 10+ PORTFOLIO, designed for investors with approximately a 10+
year investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.

KEMPER HORIZON 5 PORTFOLIO, designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.

JANUS ASPEN SERIES

JANUS ASPEN GROWTH PORTFOLIO seeks long-term growth of capital in a manner
consistent with the preservation of capital.

JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital.

16
<PAGE> 20

JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the preservation of capital.

JANUS ASPEN BALANCED PORTFOLIO seeks long-term capital growth, consistent with
preservation of capital and balanced by current income.

LEXINGTON NATURAL RESOURCES TRUST

This Fund seeks long-term growth of capital through investment primarily in
common stocks of companies that own or develop natural resources and other basic
commodities, or supply goods and services to such companies. Current income will
not be a factor. Total return will consist primarily of capital appreciation.

LEXINGTON EMERGING MARKETS FUND

This Fund seeks long-term growth of capital primarily through investment in
equity securities and equivalents of companies domiciled in, or doing business
in, emerging countries and emerging markets as described in the fund's
prospectus.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND

FIDELITY VIP EQUITY-INCOME PORTFOLIO seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.

FIDELITY VIP GROWTH PORTFOLIO seeks capital appreciation.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND II

FIDELITY VIP II ASSET MANAGER PORTFOLIO seeks high total return with reduced
risk over the long term by allocating its assets among stocks, bonds and
short-term instruments.

FIDELITY VIP II INDEX 500 PORTFOLIO seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the S&P 500.

FIDELITY VIP II CONTRAFUND PORTFOLIO seeks long-term capital appreciation.

SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A SHARES)

SCUDDER VLIF BOND PORTFOLIO seeks high income from a high quality portfolio of
bonds.

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

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

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.

This Fund's primary goal is to provide capital growth through investment in
common stocks of companies which not only meet traditional investment standards,
but also conduct their business in a manner that contributes to the enhancement
of the quality of life in America.

J.P. MORGAN SERIES TRUST II

J.P. MORGAN SMALL COMPANY PORTFOLIO seeks to provide a high total return from a
portfolio of small company stocks.

THE ALGER AMERICAN FUND

ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation.

ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation.

17
<PAGE> 21

AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.

AMERICAN CENTURY VP INCOME & GROWTH PORTFOLIO seeks dividend growth, current
income and capital appreciation.

AMERICAN CENTURY VP VALUE PORTFOLIO seeks long-term capital growth.

------------------

The Portfolios may not achieve their stated objectives. More detailed
information, including a description of risks involved in investing in the
Portfolios is found in the Funds' prospectuses accompanying this Prospectus and
Statements of Additional Information available from Us upon request.

Scudder Kemper Investments, Inc. ("SKI"), Our affiliate, serves as investment
manager for each of the Kemper Variable Series (formerly Investors Fund Series)
and the available Scudder Variable Life Investment Fund Portfolios. Scudder
Investments (U.K.) Limited ("Scudder U.K."), an affiliate of SKI, serves as
sub-adviser for the Kemper International Portfolio. Janus Capital Corporation is
the investment adviser for the five available Portfolios of the Janus Aspen
Series. Lexington Management Corporation is the investment adviser for the
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund.
Fidelity Management & Research Company ("FMR") is the investment adviser for the
available Portfolios of the Fidelity Variable Insurance Products Fund and
Fidelity Variable Insurance Products Fund II. The Dreyfus Corporation serves as
the investment adviser, and NCM Capital Management Group, Inc. is the
sub-adviser, for The Dreyfus Socially Responsible Growth Fund, Inc. J.P. Morgan
Investment Management, Inc. is the investment adviser for the J.P. Morgan Small
Company Portfolio. Fred Alger Management, Inc. serves as the investment adviser
for the available portfolios of The Alger American Fund. American Century
Investment Management, Inc. is the investment adviser for the two available
portfolios of the American Century Variable Portfolios, Inc. The investment
advisers are paid fees for their services by the Funds they manage. We may
receive compensation from the investment advisers of the Funds for services
related to the Funds. Such compensation will be consistent with the services
rendered or the cost savings resulting from the arrangement.

CHANGE OF INVESTMENTS

We reserve the right to make additions to, deletions from, or substitutions for
the shares held by the Separate Account or that the Separate Account may
purchase. We reserve the right to eliminate the shares of any of the Portfolios
and to substitute shares of another Portfolio or of another investment company,
if the shares of a Portfolio are no longer available for investment, or if in
Our judgment further investment in any Portfolio becomes inappropriate in view
of the purposes of the Separate Account. We will not substitute any shares
attributable to an Owner's interest in a Subaccount without prior notice and the
SEC's prior approval, if required. The Separate Account may purchase other
securities for other series or classes of policies, or may permit a conversion
between series or classes of policies on the basis of requests made by Owners.

We may establish additional subaccounts of the Separate Account, each of which
would invest in a new portfolio of the Funds, or in shares of another investment
company. New subaccounts may be established when, in Our discretion, marketing
needs or investment conditions warrant. New subaccounts may be made available to
existing Owners as We determine. We may also eliminate or combine one or more
subaccounts, transfer assets, or substitute one subaccount for another
subaccount, if, in Our discretion, marketing, tax, or investment conditions
warrant. We will notify all Owners of any such changes.

If we deem it to be in the best interests of persons having voting rights under
the Contract, the Separate Account may be: (a) operated as a management company
under the Investment Company Act of 1940 ("1940 Act"); (b) deregistered under
that Act in the event such registration is no longer required; or (c) combined
with Our other separate accounts. To the extent permitted by law, We may
transfer the assets of the Separate Account to another separate account or to
the General Account.

PERFORMANCE INFORMATION

The Separate Account may advertise several types of performance information for
the Subaccounts. All Subaccounts may advertise standardized "average annual
total return" and nonstandardized "total return." The Kemper High Yield
Subaccount, Kemper Government Securities Subaccount and Kemper Investment Grade
Bond Subaccount might also advertise 'yield'. The Kemper Money Market Subaccount
may advertise "yield" and "effective yield." Each of these figures is based upon
historical earnings and is not necessarily representative of a Subaccount's
future performance.

18
<PAGE> 22

Standardized average annual total return and nonstandardized total return
calculations measure the Subaccount's net income plus the effect of any realized
or unrealized appreciation or depreciation of the Subaccount's underlying
investments for the period. Standardized average annual total return and
nonstandardized total return will be quoted for periods of at least one year,
three years, five years and ten years and a period covering the time the
underlying Portfolio has been held in the Subaccount (life of Subaccount) for
standardized average annual total return or a period covering the time the
underlying Portfolio has been in existence (life of Portfolio) for
nonstandardized total return. This information will be current for a period
ending with the most recent calendar quarter for standardized average annual
total return and the most recent calendar month for nonstandardized total
return. Standardized average annual total return figures are annualized, and,
therefore, represent the average annual percentage change in the value of a
Subaccount's investment over the applicable period. Nonstandardized total return
may include annualized and nonannualized (cumulative) figures. Nonannualized
figures represent the actual percentage change over the applicable period.

Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (seven-day period for the Kemper Money
Market Subaccount) expressed as a percentage of the value of the Subaccount's
Accumulation Units. Yield is an annualized figure, so the Subaccount generates
the same level of net income over a one year period which is compounded on a
semi-annual basis. The effective yield for the Kemper Money Market Subaccount is
calculated similarly but includes the effect of assumed compounding calculated
under rules prescribed by the SEC. The Kemper Money Market Subaccount's
effective yield will be slightly higher than its yield due to this compounding
effect.

The Subaccounts' units are sold at Accumulation Unit value. The Subaccounts'
performance figures and Accumulation Unit values will fluctuate. Units of the
Subaccounts are redeemable by an investor at Accumulation Unit value, which may
be more or less than original cost. The performance figures include the
deduction of all expenses and fees, including a prorated portion of the Records
Maintenance Charge. Redemptions within the first six years after purchase may be
subject to a Withdrawal Charge that ranges from 6% the first year to 0% after
six years. Yield, effective yield and nonstandardized total return figures do
not include the effect of any Withdrawal Charge that may be imposed upon the
redemption of units, and thus may be higher than if such charges were deducted.
Standardized average annual total return figures include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period in
question.

The Subaccounts may be compared to relevant indices and performance data from
independent sources. From time to time, the Separate Account may quote
information from publications such as MORNINGSTAR, INC., THE WALL STREET
JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE, USA
TODAY, INSTITUTIONAL INVESTOR, NATIONAL UNDERWRITER, SELLING LIFE INSURANCE,
BROKER WORLD, REGISTERED REPRESENTATIVE, INVESTMENT ADVISER and VARDS.

Additional information concerning a Subaccount's performance and these indices
and independent sources is provided in the Statement of Additional Information.

FIXED ACCOUNT OPTION

Amounts allocated or transferred to the Fixed Account are part of Our General
Account, supporting insurance and annuity obligations. Interests in the Fixed
Account are not registered under the Securities Act of 1933 ("1933 Act"), and
the Fixed Account is not registered as an investment company under the
Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the Fixed
Account nor any interests therein generally are subject to the provisions of the
1933 or 1940 Acts. We have been advised that the staff of the SEC has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account, however, may be subject to the general
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.

Under the Fixed Account Option, We pay a fixed interest rate for stated periods.
This Prospectus describes only the aspects of the Contract involving the
Separate Account, unless We refer to fixed accumulation and annuity elements.

We guarantee that payments allocated to the Fixed Account earn a minimum fixed
interest rate of 3%. At our discretion, We may credit interest in excess of 3%.
We reserve the right to change the rate of excess interest credited. We also
reserve the right to declare different rates of excess interest depending on
when amounts are allocated or transferred to the Fixed Account. As a result,
amounts at any designated time may be credited with a different rate of excess
interest than the rate previously credited to such amounts and to amounts
allocated or transferred at any other designated time.

19
<PAGE> 23

THE CONTRACTS

A. GENERAL INFORMATION.

This Prospectus offers both Qualified Contracts and Non-Qualified Contracts. The
minimum Purchase Payment for a Qualified Contract is $50. However, if annualized
contribution amounts from a payroll or salary deduction plan are $600, a
periodic payment under $50 will be accepted. The maximum annual amount of
Purchase Payments may be limited by the retirement plan funded by the Contract.
For a Non-Qualified Contract the minimum initial Purchase Payment is $2,500 and
the minimum subsequent payment is $500. An initial allocation of less than $100
may be made to the General Account or to a Subaccount, or to the General Account
and one Subaccount. For a Non-Qualified Contract, no subsequent allocations of
Purchase Payments may be made to any additional Subaccount until allocations
total at least $100 to each Subaccount in which the Contract has an interest.
For a Qualified Contract, if annualized contribution amounts to a new Subaccount
from a payroll or salary reduction plan are at least $25 per month, allocations
to another such Subaccount may be made.

Effective January 1, 1998, a Contract Owner may make Purchase Payments to
Non-Qualified Contracts and Contracts issued as Individual Retirement Annuities
("IRAs") by authorizing Us to draw on an account of the Owner via check or
electronic debit ("Pre-Authorized Checking [PAC] Agreement"). For Purchase
Payments made pursuant to a PAC Agreement, the following minimum Purchase
Payment provisions apply:

- The minimum initial Purchase Payment to an IRA made pursuant to a PAC
Agreement is $100. The minimum initial Purchase Payment to a
Non-Qualified Plan Contract made pursuant to a PAC Agreement is $1,000
unless the Contract Owner also owns an existing Contract, in which case
the minimum is $100.

- The minimum subsequent Purchase Payment made pursuant to a PAC Agreement
is $100.

We may amend the Contract in accordance with changes in the law, including tax
laws, regulations or rulings, and for other purposes. Certain contracts are no
longer offered, although Purchase Payments are still permitted under these
previously issued contracts.

An Owner may examine a Contract and return it for a return during the "free
look" period. The length of the free look period depends upon the state in which
the Contract is issued. However, it will be at least 10 days from the date the
Owner receives the Contract. The amount of the refund depends on the state in
which the Contract is issued. Generally, it will be an amount at least equal to
the Separate Account Contract Value plus amounts allocated to the General
Account on the date We receive the returned Contract, without any deduction for
Withdrawal Charges or Records Maintenance Charges. Some states require the
return of the Purchase Payment.

During the Accumulation Period, the Owner may assign a Non-Qualified Contract or
change a Beneficiary at any time by signing Our form. No assignment or
Beneficiary change is binding on Us until We receive it. We assume no
responsibility for the validity of the assignment or Beneficiary change. An
assignment may subject the Owner to immediate tax liability and may subject the
Owner to a 10% tax penalty. (See "Federal Tax Matters.")

Amounts payable during the Annuity Period may not be assigned or encumbered. In
addition, to the extent permitted by law, annuity payments are not subject to
levy, attachment or other judicial process for the payment of the payee's debts
or obligations.

The Owner designates the Beneficiary. If the Annuitant or Owner dies, and no
designated Beneficiary or contingent beneficiary is alive at that time, We will
pay the Annuitant's or Owner's estate.

Under a Qualified Contract, the provisions of the applicable plan may prohibit a
change of Beneficiary. Generally, an interest in a Qualified Contract may not be
assigned.

B. THE ACCUMULATION PERIOD.

1. APPLICATION OF PURCHASE PAYMENTS.

The Owner selects allocation of Purchase Payments to the Subaccount(s) or the
Fixed Account. The amount of each Purchase Payment allocated to a Subaccount is
based on the value of an Accumulation Unit, as computed after We receive the
Purchase Payment. Generally, We determine the value of an Accumulation Unit by
3:00 p.m. Central time on each day that the New York Stock Exchange is open for
trading. Purchase Payments

20
<PAGE> 24

allocated to the Fixed Account begin earning interest one day after We receive
them. However, with respect to initial Purchase Payments, the amount is credited
only after We determine to issue the Contract. After the initial purchase, We
determine the number of Accumulation Units credited by dividing the Purchase
Payment allocated to a Subaccount by the Subaccounts Accumulation Unit value, as
computed after We receive the Purchase Payment. A Contract Owner is limited to
allocating Contract Value to a maximum of 18 allocation options over the life of
a Contract, plus the General Account.

The number of Accumulation Units will not change due to investment experience.
Accumulation Units value varies to reflect the investment experience of the
Subaccount and the assessment of charges against the Subaccount other than the
Records Maintenance Charge. The number of Accumulation Units is reduced when the
Records Maintenance Charge is assessed.

If We are not provided with information sufficient to establish a Contract or to
properly credit the initial Purchase Payment, We will promptly request the
necessary information. If the requested information is not furnished within five
business days after We receive the initial Purchase Payment, or if We determine
that We cannot otherwise issue the Contract within the five day period, We will
return the initial Purchase Payment to the Owner, unless the Owner consents to
Our retaining the initial purchase payment until the application is completed.

We may issue a Contract without a signed application if:

- a dealer provides us with application information, electronically or in
writing

- we receive the initial Purchase Payment and

- the Owner confirms in writing, after the Contract is delivered, that all
information in the Contract is correct.

2. ACCUMULATION UNIT VALUE.

Each Subaccount has an Accumulation Unit value. When Purchase Payments or other
amounts are allocated to a Subaccount, the number of units purchased is based on
the Subaccount's Accumulation Unit value at the end of the current Valuation
Period. When amounts are transferred out of or deducted from a Subaccount, units
are redeemed in a similar manner.

The Accumulation Unit value for each subsequent Valuation Period is the
investment experience factor for that Valuation Period times the Accumulation
Unit value for the preceding Valuation Period. Each Valuation Period has a
single Accumulation Unit value which applies to each day in the Valuation
Period.

Each Subaccount has its own investment experience factor. The investment
experience of the Separate Account is calculated by applying the investment
experience factor to the Accumulation Unit value in each Subaccount during a
Valuation Period.

The investment experience factor of a Subaccount for any Valuation Period is
determined by the following formula:

(1 / 2) - 3, where:

(1) is the net result of:

- the net asset value per share of the investment held in the Subaccount
determined at the end of the current Valuation Period; plus

- the per share amount of any dividend or capital gain distributions made
by the investments held in the Subaccount, if the "ex-dividend" date
occurs during the current Valuation Period; plus or minus

- a charge or credit for any taxes reserved for the current Valuation
Period which We determine have resulted from the investment operations
of the Subaccount;

(2) is the net asset value per share of the investment held in the Subaccount
determined at the end of the preceding Valuation Period;

(3) is the factor representing the mortality and expense risk and
administration charges.

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<PAGE> 25

3. CONTRACT VALUE.

On any Valuation Date, the Contract Value equals the total of:

- the number of Accumulation Units credited to each Subaccount, times

- the value of a corresponding Accumulation Unit for each Subaccount, plus

- the Owner's interest in the General Account.

4. TRANSFER DURING ACCUMULATION PERIOD.

During the Accumulation Period, an Owner may transfer the Contract Value among
the Subaccounts and the General Account subject to the following provisions:

- The General Account Contract Value, minus Debt, may be transferred two
times during the Contract Year to one or more Subaccounts in the thirty
days following an anniversary of a Contract Year or the thirty days
following the date of the confirmation statement provided for the period
through the anniversary date, if later; and

- A Contract Owner is limited to allocating Contract Value to a maximum of
18 allocation options over the life of a Contract, plus the General
Account.

If an Owner authorizes a third party to transact transfers on the Owner's
behalf, we will reallocate the Contract Value pursuant to the authorized asset
allocation program. However, we do not offer or participate in any asset
allocation program and we take no responsibility for any third party asset
allocation program. We may suspend or cancel acceptance of a third party's
instructions at any time and may restrict the investment options available for
transfer under third party authorizations.

We will make transfers pursuant to proper written or telephone instructions
which specify in detail the requested changes. Before telephone transfer
instructions will be honored, the Owner must complete a telephone transfer
authorization. The minimum partial transfer amount is $100. No partial transfer
may be made if the value of the Owner's remaining Contract interest in a
Subaccount or the General Account, from which amounts are to be transferred,
would be less than $100 after transfer. Transfers involving a Subaccount will be
based upon the Accumulation Unit values determined following Our receipt of
complete transfer instructions. The transfer privilege may be suspended,
modified or terminated at any time (subject to state requirements). We disclaim
all liability for following instructions which are given in accordance with Our
procedures, including requests for personal identifying information, that are
designed to limit unauthorized use of the privilege. Therefore, an Owner bears
the risk of loss in the event of a fraudulent telephone transfer.

5. WITHDRAWAL DURING ACCUMULATION PERIOD.

An Owner may redeem some or all of the Contract Value minus Debt, charges and
previous withdrawals. Withdrawals may be subject to income tax and a 10% penalty
tax. (See "Federal Tax Matters.") A withdrawal of all Contract Value is called a
surrender.

An Owner may withdraw up to 10% of the Contract Value minus Debt in any Contract
Year without charge. If the Owner withdraws more than 10% of the Contract Value
in any Contract Year, the amount withdrawn in excess of 10% is subject to a
Withdrawal Charge. (See "Withdrawal Charge")

For Contracts in more than one investment option, an Owner requesting a partial
withdrawal must specify what portion of the Owner's Contract interest is to be
redeemed. If an Owner does not specify, We will redeem Accumulation Units from
all investment options in which the Owner has an interest on a pro-rata basis.
The Accumulation Units attributable to the earliest Contribution Years are
redeemed first.

The Owner may request a partial withdrawal subject to the following:

- The amount requested must be at least $500 in each investment option or
the General Account from which withdrawal is requested.

- The Owner must leave at least $500 in each investment option from which
the withdrawal is requested unless the total value is transferred.

Election to withdraw shall be made in writing to Us at Our home office: Kemper
Investors Life Insurance Company, Customer Service, 1 Kemper Drive, Long Grove,
IL 60049 and should be accompanied by the

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<PAGE> 26

Contract if surrender is requested. Withdrawal requests are processed only on
days when the New York Stock Exchange is open for trading. The Withdrawal Value
attributable to the Subaccounts is determined on the basis of the Accumulation
Unit values calculated after We receive the request. The Withdrawal Value
attributable to the Subaccounts will be paid within seven days after the date We
receive a written request at Our home office provided, however, that We may
suspend withdrawals or delay payment more than seven days

- during any period when the New York Stock Exchange is closed,

- when trading is restricted or the SEC determines an emergency exists, or

- as the SEC by order may permit.

Withdrawals are permitted from Contracts issued in connection with Section
403(b) Qualified Plans only under limited circumstances. (See "Federal Tax
Matters.")

A participant in the Texas Optional Retirement Program ("ORP") must obtain a
certificate of termination from the participant's employer before a Contract can
be redeemed. The Attorney General of Texas has ruled that participants in the
ORP may redeem their interest in a Contract issued pursuant to the ORP only upon
termination of employment in Texas public institutions of higher education, or
upon retirement, death or total disability. In those states adopting identical
requirements for optional retirement programs, We will follow similar
procedures.

6. DEATH BENEFIT.

If the Annuitant dies during the Accumulation Period, prior to attaining age 75,
the Contract Value less Debt as computed at the end of the Valuation Period next
following Our receipt of proof of death and the return of the Contract, or the
total amount of Purchase Payments less Debt, whichever is greater, will be paid
to the designated Beneficiary. If a Contract has been subject to any partial
withdrawal, the death benefit will be the greater of

- the Contract Value less Debt or

- the total amount of Purchase Payments, minus both Debt and the aggregate
dollar amount of all previous partial withdrawals. If death occurs at age
75 or later, the death benefit is the Contract Value minus Debt. The
Owner or Beneficiary, as appropriate, may elect to have all or a part of
the death proceeds paid to the Beneficiary under one of the Annuity
Options described under "Annuity Options" below.

For Non-Qualified Contracts issued after January 19, 1985, if the Owner is not
the Annuitant and the Owner dies before the Annuitant, the death benefit will be
paid to the designated Beneficiary. The available Annuity Options are limited by
the Code, as described under "Annuity Options." The death benefit is determined
as stated above, except that the age of the Owner at death is used in
determining the amount payable. If the Beneficiary is the surviving spouse of
the Owner, the surviving spouse may elect to be treated as the successor Owner
of the Contract and is not required to begin death benefit distribution. The
issue age of the deceased Owner applies in computing the death benefit, payable
at the death of a spouse who has elected to be treated as the successor Owner.

For Contracts issued after March 1, 1997 as Individual Retirement Annuities,
Simplified Employee Pensions or Non-Qualified Contracts, the death benefit will
be determined as follows. If death occurs prior to the deceased's attainment of
age 90, the death benefit will be the greater of:

- the total amount of Purchase Payments minus Debt minus the aggregate
amount of all previous partial withdrawals,

- the Contract Value minus Debt, or

- the greatest Anniversary Value immediately preceding the date of death,
minus Debt. The greatest Anniversary Value is equal to the highest
Anniversary Value determined from the following. An Anniversary Value is
calculated for each contract anniversary before the deceased's 81st
birthday. The Anniversary Value for a particular Contract Anniversary is
the Contract Value on that anniversary, plus the dollar amount of any
Purchase Payments made since that anniversary minus any withdrawals since
that anniversary. If death occurs on or after the deceased's 90th
birthday, the death benefit will be the Contract Value minus Debt and
minus previous withdrawals.

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<PAGE> 27

7. LOANS.

The Owner of a Contract issued as a tax sheltered annuity under Section 403(b)
of the Code or with a qualified plan under Code Section 401 may request a loan
(if permitted by the ERISA Qualified Plan) any time during the accumulation
period. Loans are made from the General Account and are limited to the General
Account Contract Value minus any withdrawal charge that would apply to the
Contract Value and minus interest on the loan for the remainder of the Contract
Year. In general, under the Code loans may not exceed 50% of the Contract Value.
If the Contract Value is at least $20,000 or the Contract is part of an ERISA
qualified plan, the maximum loan amount is the lesser of:

- 50% of the Contract Value, or

- $50,000 reduced by the highest loan balance over the prior 12 months.

If the Contract Value is less than $20,000 and is not part of an ERISA qualified
plan, the maximum loan amount is the lesser of:

- $10,000, or

- 80% of the Contract Value.

The minimum loan is $1,000.

For non-ERISA loans, the loan interest rate is 5.5% per year. For loans issued
under ERISA plans, the loan interest rate will vary based on current rates.
Interest that is not paid when due is added to the loan and will bear interest
at the same rate as the loan. While the loan is outstanding, the portion of the
General Account Contract Value that equals the debt will earn interest at a rate
2.5% less than the loan rate.

Loans must be repaid in substantially equal quarterly payments within 5 years.
Loans used to purchase the principal residence of the Owner must be repaid
within 30 years.

If a loan payment is not made when due, interest will continue to accrue. On
403(b) Contracts, to the extent permitted by law, the amount of the defaulted
payment plus accrued interest will be deducted from the Contract and paid to Us.
Any loan payment which is not made when due, plus interest, will be treated as a
distribution as permitted by law, may be taxable to the borrower, and may be
subject to early withdrawal tax penalty.

If there is an outstanding loan balance when the Contract is surrendered or
annuitized, or when a death benefit is paid, the amount payable will be reduced
by the amount of the loan outstanding plus accrued interest. Any loans made
under a Contract will be subject to Code requirements, Our administrative
procedures as reflected under Our loan agreements, and, if applicable, ERISA.

CONTRACT CHARGES AND EXPENSES

We deduct the following charges and expenses:

- mortality and expense risk charge

- administrative expenses

- Records Maintenance Charge

- Withdrawal Charge

- Premium Tax

Subject to certain expense limitations, investment management fees and other
Fund expenses are indirectly borne by the Owner.

We assess each Subaccount a daily asset charge for administration and mortality
and expense risks at a rate of 1.30% per annum. Flexible Payment Contracts (no
longer offered) have a daily asset charge of 1.0%. We may decrease these charges
without notice, but will not exceed these amounts.

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<PAGE> 28

A. ASSET-BASED CHARGES AGAINST THE SEPARATE ACCOUNT.

1. MORTALITY RISK.

Variable Annuity payments reflect the investment experience of each Subaccount
but are not affected by changes in actual mortality experience or by actual
expenses incurred by KILICO.

Our mortality risk arises from two obligations. The first obligation We assume
is to pay a guaranteed death benefit that may be greater than the Contract Value
minus Debt. The second obligation We assume is to continue making annuity
payments to each Annuitant for the entire life of the Annuitant under Annuity
Options involving life contingencies. This assures each Annuitant that neither
the Annuitant's own longevity nor an improvement in life expectancy generally
will have an adverse effect on the annuity payments received under a Contract
and relieves the Annuitant from the risk of outliving the amounts accumulated
for retirement.

2. EXPENSE RISK.

We also assume the risk that all administrative expenses including Contract
maintenance costs, administrative costs, data processing costs and costs of
other services may exceed the Records Maintenance Charge or the amount recovered
from the administrative cost portion of the daily asset charge.

3. ADMINISTRATIVE COSTS.

The daily asset charge for administrative costs reimburses Us for the expenses
incurred for administering the Contracts, which include, among other things,
responding to Owner inquiries, processing changes in Purchase Payment
allocations and providing reports to Owners.

B. RECORDS MAINTENANCE CHARGE

KILICO will assess an annual Records Maintenance Charge (assessed ratably each
quarter) during the Accumulation Period against each Contract which has
participated in one or more of the Subaccounts during the calendar year whether
or not any Purchase Payments have been made during the year. The Records
Maintenance Charge is:

- $30 annually for Contracts with Contract Value under $25,000.

- $15 annually for Contracts with Contract Value between $25,000 and
$50,000.

- No Records Maintenance Charge for Contracts with Contract Value over
$50,000.

The Record Maintenance Charge is not assessed during the Annuity Period.

The Records Maintenance Charge is to reimburse Us for expenses incurred in
establishing and maintaining the records relating to a Contract's participation
in the Separate Account. The Records Maintenance Charge will be assessed at the
end of each calendar quarter and will constitute a reduction in the net assets
of each Subaccount.

At any time the Records Maintenance Charge is assessed, the applicable charge
will be assessed ratably against each Subaccount in which the Contract is
participating and a number of Accumulation Units sufficient to equal the proper
portion of the charge will be redeemed from such Subaccount, or from the General
Account Contract Value if necessary to meet the assessment.

For Contracts issued on or after March 1, 1997 as Individual Retirement
Annuities, Simplified Employee Pensions or Non-Qualified Plan Contracts, the
Records Maintenance Charge will be eliminated for Contracts with a Contract
Value equaling or exceeding $50,000 on the date of assessment.

C. WITHDRAWAL CHARGE.

We do not deduct a sales charge from any Purchase Payment. However, a Withdrawal
Charge covers Contract sales expenses, including commissions and other promotion
and acquisition expenses.

Each Contract Year, an Owner may withdraw, without Withdrawal Charge, 10% of the
Contract Value.

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<PAGE> 29

If the Owner withdraws a larger amount, the excess Purchase Payments and
interest attributed to the Purchase Payments withdrawn are subject to a
Withdrawal Charge. The Withdrawal Charge applies in the first seven Contribution
Years following each Purchase Payment as follows:

<TABLE>
<CAPTION>
CONTRIBUTION WITHDRAWAL
YEAR CHARGE
------------ ----------
<S> <C>
First...................................... 6%
Second..................................... 5%
Third...................................... 4%
Fourth..................................... 3%
Fifth...................................... 2%
Sixth...................................... 1%
Seventh and following...................... 0%
</TABLE>

Purchase Payments are deemed surrendered in the order in which they were
received.

When a withdrawal is requested, the Owner receives a check in the amount
requested. If a Withdrawal Charge applies, Contract Value is reduced by the
Withdrawal Charge and the dollar amount sent to the Owner.

Because Contribution Years are based on the date each Purchase Payment is made,
Owners may be subject to a Withdrawal Charge even though the Contract may have
been issued many years earlier. (For additional details, see "Withdrawal During
Accumulation Period.") The aggregate Withdrawal Charges assessed will never
exceed 7.25% of the aggregate Purchase Payments.

The Withdrawal Charge compensates Us for Contract distribution expense.
Currently, We anticipate Withdrawal Charges will not fully cover distribution
expenses. Unrecovered distribution expenses may be recovered from Our general
assets. Those assets may include proceeds from the mortality and expense risk
charge.

The Withdrawal Charge also applies at annuitization to amounts attributable to
Purchase Payments in their sixth Contribution Year or earlier. No Withdrawal
Charge applies upon annuitization if the Owner selects Annuity Options 2, 3 or 4
or if payments under Annuity Option 1 are scheduled to continue for at least
five years. See "The Annuity Period -- Annuity Options" for a discussion of the
Annuity Options available.

We may reduce or eliminate the Withdrawal Charge if We anticipate that We will
incur lower sales expenses or perform fewer services because of economies due to
the size of a group, the average contribution per participant, or the use of
mass enrollment procedures. No Withdrawal Charge applies to Contracts sold to
officers, directors and employees of KILICO and Kemper Variable Series (formerly
Investors Fund Series) ("KVS"), KVS investment advisers and principal
underwriter or certain affiliated companies, or to any trust, pension, profit-
sharing or other benefit plan for such persons.

D. INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES

Each Portfolio's net asset value reflects the deductions of investment
management fees and certain general operating expenses. Subject to limitations,
Owners directly bear these fees and expenses. Investment management fees appear
on page 4. Further detail is provided in the attached prospectuses for the
Portfolios and the Funds' Statements of Additional Information.

E. STATE PREMIUM TAXES

Certain state and local governments impose a premium tax ranging from 0% to 3.5%
of Purchase Payments. If We pay state premium taxes, We may charge the amount
paid against Contract Value upon annuitization if not previously assessed. See
"Appendix -- State Premium Tax Chart" in the Statement of Additional
Information.

F. REDUCTION OR ELIMINATION OF CERTAIN CHARGES

Contracts may be available for purchase in certain group or sponsored
arrangements that qualify for reductions or eliminations of certain charges, the
time periods in which such charges apply, or both. Group arrangements include
those in which a trustee, an employer or an association purchases Contracts
covering a group of individuals. Sponsored arrangements include those in which
an employer or association allows Us to offer Contracts to its employees or
members on an individual basis.

In certain circumstances, the risk of adverse mortality and expense experience
for Contracts purchased in certain group or sponsored arrangements may be
reduced. Then, the daily asset charge for mortality and

26
<PAGE> 30

expense costs may likewise be reduced. The daily asset charge for administrative
costs and the Records Maintenance Charge may also be reduced or eliminated if We
anticipate lower administrative expenses. In certain other circumstances, sales
expenses purchased in certain group or sponsored arrangements may be reduced or
eliminated and the applicable Withdrawal Charges may be reduced or eliminated.

In determining whether a group or sponsored arrangement qualifies for reduced or
eliminated charges, We will consider:

- the size and type of group to which sales are to be made and
administrative services provided, and the persistency expected from the
group;

- the total amount of Purchase Payments to be received and the method in
which they will be remitted;

- any prior or existing relationship with Us;

- the level of commission paid to selling broker-dealers;

- the purpose for which the Contract is being purchased, and whether that
purchase makes it likely that sales costs and administrative expenses
will be reduced; and

- the frequency of projected surrenders or distributions.

We make any reductions or eliminations according to objective guidelines in
effect when an application for a Contract is approved. We may change these
guidelines from time to time. Any variation in the charges will reflect
differences in costs or services and will be offered uniformly to all members of
the group or sponsored arrangement. In no event will a charge reduction or
elimination be permitted if it is unfairly discriminatory to any person or
prohibited by law.

THE ANNUITY PERIOD

Contracts may be annuitized under one of several Annuity Options. Annuity
payments will begin on the Annuity Date under the Annuity Option selected by the
Owner.

1. ANNUITY PAYMENTS.

Annuity payments are based on:

- the annuity table specified in the Contract,

- the selected Annuity Option, and

- the investment performance of the selected Subaccount.

Under variable annuitization, the Annuitant receives the value of a fixed number
of Annuity Units each month. An Annuity Unit's value reflects the investment
performance of the Subaccount(s) selected. The amount of each annuity payment
varies accordingly. Annuity payments may be subject to a Withdrawal Charge. (For
additional details, see "Withdrawal Charge.")

2. ANNUITY OPTIONS.

The Contract Owner may elect one of the Annuity Options. The Owner may decide at
any time (subject to the provisions of any applicable retirement plan) to begin
annuity payments. The Owner may change an Annuity Option before the Annuity
Date. For a Non-Qualified Contract, if no other Annuity Option is elected,
monthly annuity payments will be made in accordance with Option 3 below with a
ten (10) year period certain. For a Qualified Contract, if no other Annuity
Option is elected, monthly annuity payments will be made in the form of a
qualified joint and survivor annuity with a monthly income at two-thirds of the
full amount payable during the lifetime of the surviving payee. Generally,
annuity payments are made in monthly installments. However, We may make a lump
sum payment if the net proceeds available to apply under an Annuity Option are
less than $2,000. In addition, if the first monthly payment is less than $25, We
may change the frequency of payments to quarterly, semiannual or annual
intervals so that the initial payment is at least $25.

The amount of periodic annuity payments may depend upon:

- the Annuity Option selected;

27
<PAGE> 31

- the age and sex of the payee; and

- the investment experience of the selected Subaccount(s).

For example:

- if Option 1, income for a specified period, is selected, shorter periods
result in fewer payments with higher values.

- if Option 2, life income, is selected, it is likely that each payment
will be smaller than would result if income for a short period were
specified.

- if Option 3, life income with installments guaranteed, is selected, each
payment will probably be smaller than would result if the life income
option were selected.

- if Option 4, the joint and survivor annuity, is selected, each payment is
smaller than those measured by an individual life income option.

The age of the payee also influences the amount of periodic annuity payments
because an older payee is expected to have a shorter life span, resulting in
larger payments. The sex of the payee influences the amount of periodic
payments. Finally, if the Owner participates in a Subaccount with higher
investment performance, it is likely the Owner will receive a higher periodic
payment.

If the Owner dies before the Annuity Date, available Annuity Options are
limited. The Annuity Options available are:

- Option 2 or

- Option 1 or 3 for a period no longer than the life expectancy of the
Beneficiary (but not less than 5 years from the Owner's death).

If the Beneficiary is not an individual, the entire interest must be distributed
within 5 years of the Owner's death. The Death Benefit distribution must begin
no later than one year from the Owner's death, unless a later date is prescribed
by federal regulation.

OPTION 1--INCOME FOR SPECIFIED PERIOD.

Option 1 provides an annuity payable monthly for a selected number of years
ranging from five to thirty. Upon the payee's death, if the Beneficiary is an
individual, We automatically continue payments to the Beneficiary for the
remainder of the period specified. If the Beneficiary is not an individual
(e.g., an estate or trust), we pay the discounted value of the remaining
payments in the specified period. Although there is no life contingency risk
associated with Option 1, We continue to deduct the daily asset charges for
mortality and expense risks and administrative costs.

Payees may elect to cancel all or part of the remaining payments due under
Option 1. We will then pay the discounted value of the remaining payments.

OPTION 2--LIFE INCOME.

Option 2 provides for an annuity over the lifetime of the payee. If Option 2 is
elected, annuity payments terminate automatically and immediately on the payee's
death without regard to the number or total amount of payments made. Thus, it is
possible for an individual to receive only one payment if death occurred prior
to the date the second payment was due.

OPTION 3--LIFE INCOME WITH INSTALLMENTS GUARANTEED.

Option 3 provides an annuity payable monthly during the payee's lifetime.
However, Option 3 also provides for the automatic continuation of payments for
the remainder of the specified period if the Beneficiary is an individual and
payments have been made for less than the specified period. The period specified
may be five, ten, fifteen or twenty years. If the Beneficiary is not an
individual, We pay the discounted value of the remaining payments in the
specified period.

OPTION 4--JOINT AND SURVIVOR ANNUITY.

Option 4 provides an annuity payable monthly while both payees are living. Upon
either payee's death, the monthly income payable continues over the life of the
surviving payee at a percentage specified when Option 4

28
<PAGE> 32

is elected. Annuity payments terminate automatically and immediately upon the
surviving payee's death without regard to the number or total amount of payments
received.

3. ALLOCATION OF ANNUITY.

The Owner may elect to have payments made on a fixed or variable basis, or a
combination of both. An Owner may exercise the transfer privilege during the
Accumulation Period for the purposes of such allocation. Any General Account
Contract Value will be annuitized on a fixed basis. Any Separate Account
Contract Value will be annuitized on a variable basis. Transfers during the
Annuity Period are permitted subject to certain limitations.

4. TRANSFER DURING ANNUITY PERIOD.

During the Annuity Period, the payee may, by written request, transfer
Subaccount Value from one Subaccount to another Subaccount or to the Fixed
Account, subject to the following limitations:

- Transfers to a Subaccount are prohibited during the first year of the
Annuity Period; subsequent transfers are limited to one per year.

- All interest in a Subaccount must be transferred.

- If We receive notice of transfer to a Subaccount more than seven (7) days
before an annuity payment date, the transfer is effective during the
Valuation Period after the date we receive the notice.

- If We receive notice of transfer to a Subaccount less than seven (7) days
before an annuity payment date, the transfer is effective during the
Valuation Period after the annuity payment date.

- Transfers to the Fixed Account are available only on an anniversary of
the first Annuity Date. We must receive notice at least thirty (30) days
prior to the anniversary.

A Subaccount's Annuity Unit value is determined at the end of the Valuation
Period preceding the effective date of the transfer. We may suspend, change or
terminate the transfer privilege at any time.

5. ANNUITY UNIT VALUE.

Annuity Unit value is determined independently for each Subaccount.

Annuity Unit value for any Valuation Period is:

- Annuity Unit value for the preceding Valuation Period times

- the net investment factor for the current Valuation Period times

- an interest factor which offsets the 2.5% per annum rate of investment
earnings assumed by the Contract's annuity tables.

The net investment factor for a Subaccount for any Valuation Period is:

- the Subaccount's Accumulation Unit value at the end of the current
Valuation Period, plus or minus the per share charge or credit for taxes
reserved; divided by

- the Subaccount's Accumulation value at the end of the preceding Valuation
Period, plus or minus the per share charge or credit for taxes reserved.

6. FIRST PERIODIC PAYMENT UNDER VARIABLE ANNUITY.

When annuity payments begin, the value of the Owner's Contract interest is:

- Accumulation Unit values at the end of the Valuation Period falling on
the 20th or 7th day of the month before the first annuity payment is due
times

- the number of Accumulation Units credited at the end of the Valuation
Period minus

- premium taxes and Withdrawal Charges

The first annuity payment is determined by multiplying the benefit per $1,000 of
value shown in the applicable annuity table by the number of thousands of
dollars of Contract Value.

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<PAGE> 33

A 2.5% per annum rate of investment earning is assumed by the Contract's annuity
tables. If the actual net investment earnings rate exceeds 2.5% per annum,
payments increase accordingly. Conversely, if the actual rate is less than 2.5%
per annum, annuity payments decrease.

7. SUBSEQUENT PERIODIC PAYMENTS UNDER VARIABLE ANNUITY.

Subsequent annuity payments are determined by multiplying the number of Annuity
Units by the Annuity Unit value at the Valuation Period before each annuity
payment is due. The first annuity payment is divided by the Annuity Unit value
as of the Annuity Date to establish the number of Annuity Units representing
each annuity payment. This number does not change.

8. FIXED ANNUITY PAYMENTS.

Each Fixed Annuity payment is determined from tables We prepare. These tables
show the monthly payment for each $1,000 of Contract Value allocated to a Fixed
Annuity. Payment is based on the Contract Value at the date before the annuity
payment is due. Fixed Annuity payments do not change regardless of investment,
mortality or expense experience.

9. DEATH PROCEEDS.

If the payee dies after the Annuity Date while the Contract is in force, the
death proceeds, if any, depend upon the form of annuity payment in effect at the
time of death. (See "Annuity Options.")

FEDERAL TAX MATTERS

A. INTRODUCTION

This discussion is not exhaustive and is not intended as tax advice. A qualified
tax adviser should always be consulted with regard to the application of the law
to individual circumstances. This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Department regulations, and
interpretations existing on the date of this Prospectus. These authorities,
however, are subject to change by Congress, the Treasury Department, and
judicial decisions.

This discussion does not address state or local tax consequences associated with
buying a Contract. In addition, WE MAKE NO GUARANTEE REGARDING ANY TAX
TREATMENT--FEDERAL, STATE, OR LOCAL--OF ANY CONTRACT OR OF ANY TRANSACTION
INVOLVING A CONTRACT.

B. OUR TAX STATUS

We are taxed as a life insurance company and the operations of the Separate
Account are treated as a part of Our total operations. The Separate Account is
not separately taxed as a "regulated investment company". Investment income and
capital gains of the Separate Account are not taxed to the extent they are
applied under a Contract. We do not anticipate that We will incur federal income
tax liability attributable to the income and gains of the Separate Account, and
therefore We do not intend to provide for these taxes. If We are taxed on
investment income or capital gains of the Separate Account, then We may impose a
charge against the Separate Account to provide for these taxes.

C. TAXATION OF ANNUITIES IN GENERAL

1. TAX DEFERRAL DURING ACCUMULATION PERIOD

Under the Code, except as described below, increases in the Contract Value of a
Non-Qualified Contract are generally not taxable to the Owner or Annuitant until
received as annuity payments or otherwise distributed. However, certain
requirements must be satisfied for this general rule to apply, including:

- the Contract must be owned by an individual

- Separate Account investments must be "adequately diversified"

- We, rather than the Owner, must be considered the owner of Separate
Account assets for federal tax purposes, and

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- annuity payments must appropriately amortize Purchase Payments and
Contract earnings.

NON-NATURAL OWNER. As a general rule, deferred annuity contracts held by
"non-natural persons", such as corporations, trusts or similar entities, are not
annuity contracts for federal income tax purposes. The investment income on
these contracts is taxed as ordinary income received or accrued by the
non-natural owner. There are exceptions to this general rule for non-natural
owners. Contracts are generally treated as held by a natural person if the
nominal owner is a trust or other entity holding the contract as an agent for a
natural person. However, this special exception does not apply to an employer
who is the nominal owner of a contract under a non-qualified deferred
compensation plan for its employees.

Additional exceptions to this rule include:

- contracts acquired by a decedent's estate

- certain Qualified Plan Contracts

- Contracts purchased by employers at termination of certain qualified
plans

- Contracts used with structured settlement agreements

- Contracts purchased with a single premium when the annuity starting date
is no later than a year from Contract purchase and substantially equal
periodic payments are made at least annually.

DIVERSIFICATION REQUIREMENTS. For a contract to be treated as an annuity for
federal income tax purposes, separate account investments must be "adequately
diversified". The Treasury Secretary issued regulations prescribing standards
for adequately diversifying separate account investments. If the Separate
Account failed to comply with these diversification standards, the Contract
would not be treated as an annuity contract for federal income tax purposes and
the Owner would generally be taxed on the difference between Contract Value and
Purchase Payments.

Although We do not control Fund investments, We expect the Funds will comply
with these regulations so that the Separate Account will be considered
"adequately diversified."

OWNERSHIP TREATMENT. In certain circumstances, a variable annuity contract owner
may be considered the owner of the assets of the separate account supporting the
contract. Then, income and gains from separate account assets are includible in
the owner's gross income. The IRS, in published rulings, stated that a variable
contract owner will be considered the owner of separate account assets if the
owner possesses the ability to exercise investment control over the assets. As
of the date of this Prospectus, no investor control guidance is available.

We may modify the Contract as necessary to attempt to prevent the Owner from
being considered the owner of the Separate Account assets.

DELAYED ANNUITY DATES. If the Annuity Date occurs (or is scheduled to occur)
when the Annuitant has reached an advanced age, E.G., past age 85, the Contract
might not be treated as an annuity for federal income tax purposes. In that
event, the income and gains under the Contract could be currently includible in
the Owner's income.

The following discussion assumes that the Contract is treated as an annuity
contract for tax purposes and that We are treated as the owner of Separate
Account assets.

2. TAXATION OF PARTIAL AND FULL WITHDRAWALS

Partial withdrawals from a Non-Qualified Contract are includible in income if
the withdrawal includes investment gain. Full withdrawals are also includible in
income if they exceed the "investment in the contract." Investment in the
contract equals the total of Purchase Payments minus amounts previously received
from the Contract.

Any assignment or pledge (or agreement to assign or pledge) of Contract Value,
is treated as a withdrawal. Investment in the contract is increased by the
amount includible in income with respect to such assignment or pledge. If an
individual transfers a Contract interest without adequate consideration to
someone other than the Owner's spouse (or to a former spouse incident to
divorce), the Owner is taxed on the difference between Contract Value and the
"investment in the contract." In this case, the transferee's investment in the
contract is increased to reflect the increase in the transferor's income.

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The Contract's death benefit may exceed Purchase Payments or Contract Value. As
described in this Prospectus, We impose certain charges with respect to the
death benefit. It is possible that those charges (or some portion) could be
treated as a partial withdrawal.

There may be special income tax issues present in situations where the Owner and
the Annuitant are not the same person and are not married to one another. A tax
adviser should be consulted in those situations.

3. TAXATION OF ANNUITY PAYMENTS

Normally, the portion of each annuity payment taxable as income equals the
payment minus the exclusion amount. The exclusion amount for variable annuity
payments is the "investment in the contract" allocated to the variable annuity
option and adjusted for any period certain or refund feature, divided by the
number of payments expected to be made. The exclusion amount for fixed annuity
payments is the payment times the ratio of the investment in the contract
allocated to the fixed annuity option and adjusted for any period certain or
refund feature, to expected value of all annuity payments.

Once the total amount of the investment in the contract is excluded using these
ratios, annuity payments will be fully taxable. If annuity payments stop because
the Annuitant dies before the total amount of the investment in the contract is
recovered, the unrecovered amount generally is allowed as a deduction to the
Annuitant in the last taxable year.

4. TAXATION OF DEATH BENEFITS

Amounts may be distributed upon the Owner's or Annuitant's death. Before the
Annuity Date, death benefits are includible in income and:

- if distributed in a lump sum are taxed like a full withdrawal, or

- if distributed under an annuity option are taxed like annuity payments.

After the Annuity Date, where a guaranteed period exists and the Annuitant dies
before the end of that period, payments made to the Beneficiary for the
remainder of that period are includible in income and:

- if received in a lump sum are includible in income if they exceed the
unrecovered investment, or

- if distributed in accordance with the selected annuity option are fully
excludable from income until the remaining investment in the contract is
deemed to be recovered.

Thereafter, all annuity payments are fully includible in income.

5. PENALTY TAX ON PREMATURE DISTRIBUTIONS

A 10% penalty tax applies to a taxable payment from a Non-Qualified Contract
unless:

- received on or after the Owner reaches age 59 1/2,

- attributable to the Owner's disability,

- made to a Beneficiary after the Owner's death or, for non-natural Owners,
after the primary Annuitant's death,

- made as a series of substantially equal periodic payments (at least
annually) for the life (or life expectancy) of the Annuitant or for the
joint lives (or joint life expectancies) of the Annuitant and designated
Beneficiary,

- made under a Contract purchased with a single premium when the annuity
starting date is no later than a year from Contract purchase and
substantially equal periodic payments are made at least annually, or

- made with annuities used with structured settlement agreements.

6. AGGREGATION OF CONTRACTS

The taxable amount of an annuity payment or withdrawal from a Non-Qualified
Contract is determined by combining some or all of the Non-Qualified Contracts
owned by an individual. For example, if a person purchases a Contract and also
purchases an immediate annuity at approximately the same time, the IRS may

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treat the two contracts as one contract. In addition, if a person purchases two
or more deferred annuity contracts from the same company (or its affiliates)
during any calendar year, these contracts are treated as one contract. The
effects of this aggregation are not clear. However, it could affect the taxable
amount of an annuity payment or withdrawal and the amount which might be subject
to the 10% penalty tax.

7. LOSS OF INTEREST DEDUCTION WHERE CONTRACTS ARE HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS

For Contracts issued after June 8, 1997 to a non-natural owner, otherwise
deductible interest may no longer be deductible by the owner. However, this
interest deduction disallowance does not affect Contracts generating taxable
income. Entities considering purchasing the Contract, or entities that will be
beneficiaries under a Contract, should consult a tax adviser.

D. QUALIFIED PLANS

The Contracts are also designed for use in connection with retirement plans
which receive favorable treatment under sections 401, 403, 408, 408A or 457 of
the Code ("Qualified Plans"). Such contracts are referred to as "Qualified
Contracts." Numerous special tax rules apply to the participants in Qualified
Plans and to Qualified Contracts. We make no attempt in this Prospectus to
provide more than general information about use of the Contract with the various
types of Qualified Plans.

The tax rules applicable to Qualified Plans vary according to the type of plan
and the terms and conditions of the plan. For example, for both withdrawals and
annuity payments under certain Qualified Contracts, there may be no "investment
in the contract" and the total amount received may be taxable. Also, loans from
Qualified Contracts, where allowed, are subject to a variety of limitations,
including restrictions as to the amount that may be borrowed, the duration of
the loan, the number of allowable loans and the manner in which the loan must be
repaid. (Owners should always consult their tax advisers and retirement plan
fiduciaries prior to exercising their loan privileges.) Both the amount of the
contribution that may be made, and the tax deduction or exclusion that the Owner
may claim for such contribution, are limited under Qualified Plans. If this
Contract is used with a Qualified Plan, the Owner and Annuitant must be the same
individual. If a joint Annuitant is named, all distributions made while the
Annuitant is alive must be made to the Annuitant. Also, if a joint Annuitant is
named who is not the Annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in their ages. Furthermore, the
length of any guarantee period may be limited in some circumstances to satisfy
certain minimum distribution requirements under the Code.

Under a Qualified Contract, rules specify the form of distribution and start
dates. An excise tax is imposed for failure to comply with the minimum
distribution requirements. This excise tax generally equals 50% of the amount by
which a minimum required distribution exceeds the actual distribution from the
Qualified Plan. In the case of "Individual Retirement Annuities" ("IRAs"),
distributions of minimum amounts (as specified in the tax law) must generally
commence by April 1 of the calendar year following the calendar year in which
the owner attains age 70 1/2. In the case of certain other Qualified Plans,
distributions of such minimum amounts must generally commence by the later of
this date or April 1 of the calendar year following the calendar year in which
the employee retires.

A 10% penalty tax may apply to the taxable amount of payments from Qualified
Contracts. For Individual Retirement Annuities, the penalty tax does not apply
to a payment:

- received after the Owner reaches age 55 and has separated from service,

- received after the Owner reaches age 59 1/2,

- received after the Owner's death or because of the Owner's disability, or

- made as a series of substantially equal periodic payments (at least
annually) for the life (or life expectancy) of the Owner or for the joint
lives (or joint life expectancies) of the Owner and designated
beneficiary.

In addition, the penalty tax does not apply to certain distributions used for
qualified first time home purchases or for higher education expenses. Special
conditions must be met to qualify for these exceptions. Owners wishing to take a
distribution for these purposes should consult their tax adviser. Other
exceptions may apply.

Qualified Contracts are amended to conform to plan requirements. However,
Owners, Annuitants, and Beneficiaries are cautioned that the rights of any
person to any benefits under Qualified Plans may be subject to the

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terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract. In addition, we are not bound by terms and
conditions of Qualified Plans if they are inconsistent with the Contract.

1. QUALIFIED PLAN TYPES

We issue Contracts for the following types of Qualified Plans.

INDIVIDUAL RETIREMENT ANNUITIES. The Code permits eligible individuals to
contribute to an individual retirement annuity known as an "IRA." IRAs limit the
amounts contributed, the persons eligible and the time when distributions start.
Also, subject to direct rollover and mandatory withholding requirements,
distributions from other types of Qualified Plans may be "rolled over" on a
tax-deferred basis into an IRA. The Contract may not fund an "Education IRA."

IRAs generally may not provide life insurance coverage, but they may provide a
death benefit that equals the greater of the premiums paid and the contract
value. The Contract's death benefit may exceed Purchase Payments or Contract
Value. It is possible that the death benefit could be viewed as violating the
prohibition on investment in life insurance contracts and failing IRA
requirements.

SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). The Code allows employers to establish
simplified employee pension plans, using the employees' IRAs. Under these plans
the employer may make limited deductible contributions on behalf of the
employees to IRAs. Employers and employees intending to use the Contract in
connection with these plans should seek tax competent advice.

SIMPLE IRAS. The Code permits certain small employers to establish "SIMPLE
retirement accounts," including SIMPLE IRAs, for their employees. Under SIMPLE
IRAs, certain deductible contributions are made by both employees and employers.
SIMPLE IRAs are subject to various requirements, including limits on the amounts
that may be contributed, the persons who may be eligible, and the time when
distributions may commence. As discussed above (see Individual Retirement
Annuities), there is some uncertainty regarding the proper characterization of
the Contract's death benefit for purposes of the tax rules governing IRAs (which
would include SIMPLE IRAs). Employers and employees intending to use the
Contract in connection with such plans should seek competent advice.

ROTH IRAS. The Code permits contributions to an IRA known as a "Roth IRA." Roth
IRAs differ from other IRAs in that:

- Roth IRA contributions are never deductible,

- "qualified distributions" from a Roth IRA are excludable from income,

- different eligibility and mandatory distribution requirements apply,

- a rollover to a Roth IRA must be a "qualified rollover contribution,"
under the Code.

A rollover from an IRA to a Roth IRA is includible in gross income but the 10
percent penalty tax does not apply.

An IRA may be converted into a Roth IRA without taking a distribution. An
individual may convert by notifying the IRA issuer or trustee. The conversion of
an IRA to a Roth IRA is a special type of qualified rollover distribution.
Hence, the IRA participant must be eligible for a qualified rollover
distribution to convert an IRA to a Roth IRA. A conversion typically results in
the inclusion of some or all of the IRA value in gross income. Persons with
adjusted gross incomes in excess of $100,000 or who are married and file a
separate return are not eligible to make a qualified rollover contribution or a
transfer in a taxable year from a non-Roth IRA to a Roth IRA.

Any "qualified distribution" from a Roth IRA is excludible from gross income. A
"qualified distribution" is:

- a payment or distribution

-- made after the Owner attains age 59 1/2,

-- made after the Owner's death,

-- attributable to the Owner being disabled, or

-- made to a qualified first-time homebuyer.

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- a payment or distribution made in a taxable year that is five years or
more after

-- the first taxable year for which a contribution was made to the
Owner's Roth IRA, or

-- the first taxable year for which rollover was made to the Owner's Roth
IRA. A non-qualified distribution from a Roth IRA is generally taxed
like a distribution from an IRA. Distributions from a Roth IRA need
not commence at age 70 1/2.

TAX-SHELTERED ANNUITIES. Code Section 403(b) permits public school employees and
employees of certain types of charitable, educational and scientific
organizations to have their employers purchase annuity contracts for them and,
subject to certain limitations, to exclude the amount of purchase payments from
taxable gross income. These annuity contracts are commonly referred to as
"tax-sheltered annuities". Purchasers of the Contracts for such purposes should
seek competent advice as to eligibility, limitations on permissible amounts of
purchase payments and other tax consequences associated with the Contracts. In
particular, purchasers should consider that the Contract provides a death
benefit that in certain circumstances may exceed the greater of the Purchase
Payments and the Contract Value. It is possible that such death benefit could be
characterized as an incidental death benefit. If the death benefit were so
characterized, this could result in currently taxable income to purchasers. In
addition, there are limitations on the amount of incidental benefits that may be
provided under a tax-sheltered annuity. Even if the death benefit under the
Contract were characterized as an incidental death benefit, it is unlikely to
violate those limits unless the Contract Owner also purchases a life insurance
contract as part of his or her tax-sheltered annuity plan.

Tax-sheltered annuity contracts must contain restrictions on withdrawals of

- contributions made pursuant to a salary reduction agreement in years
beginning after December 31, 1988,

- earnings on those contributions, and

- earnings after December 31, 1988 on amounts attributable to salary
reduction contributions held as of December 31, 1998. These amounts can
be paid only if the employee has reached age 59 1/2, separated from
service, died, or becomes disabled, or in the case of hardship. Amounts
permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon cannot be distributed on account
of hardship. Amounts subject to the withdrawal restrictions applicable to
section 403(b)(7) custodial accounts may be subject to more stringent
restrictions.

DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. The Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, a Contract purchased by a state or local
government or a tax-exempt organization will not be treated as an annuity
contract for federal income tax purposes. Those who intend to use the Contracts
in connection with such plans should seek competent advice.

2. DIRECT ROLLOVERS

If the Contract is used with a retirement plan that is qualified under sections
401(a), 403(a), or 403(b) of the Code, any "eligible rollover distribution" from
the Contract will be subject to "direct rollover" and mandatory withholding
requirements. An eligible rollover distribution generally is any taxable
distribution from such a qualified retirement plan, excluding certain amounts
such as

- minimum distributions required under section 401(a)(9) of the Code, and

- certain distributions for life, life expectancy, or for 10 years or more
which are part of a "series of substantially equal periodic payments."

Under these requirements, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the Contract,
discussed below, the Owner cannot elect out of withholding with respect to an
eligible rollover distribution. However, this 20% withholding will not apply if,
instead of receiving the eligible rollover distribution, the distributee elects
to have it directly transferred to certain Qualified Plans. Prior to receiving
an eligible rollover distribution, a notice will be provided explaining
generally the direct rollover and mandatory withholding requirements and how to
avoid the 20% withholding by electing a direct rollover.

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E. FEDERAL INCOME TAX WITHHOLDING

We withhold and send to the U.S. Government a part of the taxable portion of
each distribution unless the payee notifies Us before distribution of an
available election not to have any amounts withheld. In certain circumstances,
We may be required to withhold tax. The withholding rates for the taxable
portion of periodic annuity payments are the same as the withholding rates for
wage payments. In addition, the withholding rate for the taxable portion of
non-periodic payments (including withdrawals prior to the maturity date and
conversions of, or rollovers from, non-Roth IRAs to Roth IRAs) is 10%. The
withholding rate for eligible rollover distributions is 20%.

DISTRIBUTION OF CONTRACTS

The Contracts are sold by licensed insurance agents in those states where the
Contract may be lawfully sold. The agents are also registered representatives of
registered broker-dealers who are members of the National Association of
Securities Dealers, Inc. Sales commissions may vary, but are not expected to
exceed 6.25% of Purchase Payments. In addition to commissions, We may pay
additional promotional incentives, in the form of cash or other compensation, to
selling broker-dealers. These incentives may be offered to certain licensed
broker-dealers that sell or are expected to sell certain minimum amounts during
specified time periods. The Contracts are distributed through the principal
underwriter for the Separate Account:

Investors Brokerage Services, Inc. ("IBS")

1 Kemper Drive

Long Grove, Illinois, 60049

IBS is our wholly-owned subsidiary. IBS enters into selling group agreements
with affiliated and unaffiliated broker-dealers. All of the investment options
are not available to all Owners. The investment options are available only under
Contracts that are sold or serviced by broker-dealers having a selling group
agreement with IBS authorizing the sale of Contracts with the investment options
specified in this Prospectus. Other distributors may sell and service contracts
with different investment options.

VOTING RIGHTS

Proxy materials in connection with any Fund shareholder meeting are delivered to
each Owner with Subaccount interests invested in the Fund as of the record date.
Proxy materials include a voting instruction form. We vote all Fund shares
proportionately in accordance with instructions received from Owners. We will
also vote any Fund shares attributed to amounts we have accumulated in the
Subaccounts in the same proportion that Owners vote. A Fund is not required to
hold annual shareholders' meetings. Funds hold special meetings as required or
deemed desirable for such purposes as electing trustees, changing fundamental
policies or approving an investment advisory agreement.

Owners have voting rights in a Portfolio based upon the Owner's proportionate
interest in the corresponding Subaccount as measured by units. Owners have
voting rights before surrender, the Annuity Date or the death of the Annuitant.
Thereafter, the payee entitled to receive Variable Annuity payments has voting
rights. During the Annuity Period, Annuitants' voting rights decrease as Annuity
Units decrease.

REPORTS TO CONTRACT OWNERS AND INQUIRIES

Each calendar quarter We send Owners a statement showing amounts credited to
each Subaccount and to the Fixed Account Option. It also shows the interest
rate(s) that We are crediting upon amounts held in the Fixed Account Option. In
addition, Owners transferring amounts among the investment options or making
additional payments receive written confirmation of these transactions. We will
also send a current statement upon Owner request. Owners are also sent annual
and semi-annual reports for the Portfolios that correspond to the Subaccounts in
which the Owner invests and a list of the securities held by that Portfolio.

An Owner may direct inquiries to the selling agent or may call (888) 477-9700 or
write to Kemper Investors Life Insurance Company, Customer Service, 1 Kemper
Drive, Long Grove, Illinois 60049.

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DOLLAR COST AVERAGING

Under Our Dollar Cost Averaging program, a predesignated portion of the Kemper
Money Market or Kemper Government Securities Subaccount Value is automatically
transferred monthly for a specified duration to other Subaccounts and the
General Account. The Dollar Cost Averaging program is available only during the
Accumulation Period. An Owner may also elect transfers from the General Account
on a quarterly basis for a minimum duration of one year. An Owner may enroll any
time by completing Our Dollar Cost Averaging form. Transfers are made on the
second Tuesday of the month. We must receive the enrollment form at least five
business days before the transfer date.

The minimum transfer amount is $500 per Subaccount or General Account. The total
Contract Value in the Kemper Money Market or Kemper Government Securities
Subaccount at the time Dollar Cost Averaging is elected must be at least equal
to the amount designated to be transferred on each transfer date times the
duration selected.

Dollar Cost Averaging ends if:

- the number of designated monthly transfers has been completed

- Contract Value in the transferring account is insufficient to complete
the next transfer; the remaining amount is transferred

- We receive the Owner's written termination at least five business days
before the next transfer date

- the Contract is surrendered or annuitized.

If the General Account balance is at least $10,000, an Owner may elect automatic
calendar quarter transfers of interest accrued in the General Account to one or
more of the Subaccounts. An Owner may enroll in this program any time by
completing Our Dollar Cost Averaging form. Transfers are made within five
business days of the end of the calendar quarter. We must receive the enrollment
form at least ten days before the end of the calendar quarter.

Dollar Cost Averaging is not available during the Annuity Period.

SYSTEMATIC WITHDRAWAL PLAN

We offer a Systematic Withdrawal Plan ("SWP") allowing Owners to preauthorize
periodic withdrawals during the Accumulation Period. Owners instruct Us to
withdraw selected amounts from the General Account or from any of the
Subaccounts on a monthly, quarterly, semi-annual or annual basis. The SWP is
available to Owners who request a minimum $100 periodic payment. If the amounts
distributed under the SWP exceed the free withdrawal amount, the Withdrawal
Charge is applied on any amounts exceeding the free withdrawal amount.
WITHDRAWALS TAKEN UNDER THE SWP MAY BE SUBJECT TO THE 10% TAX PENALTY ON EARLY
WITHDRAWALS AND TO INCOME TAXES AND WITHHOLDING. Owners interested in SWP may
obtain an application and information concerning this program and its
restrictions from Us or their agent. We give thirty days' notice if We amend the
SWP. The SWP may be terminated at any time by the Owner or Us.

PROVISIONS OF PRIOR CONTRACTS

Certain provisions of the Contract became effective upon the later of June 1,
1993 or the date of state approval. If the provisions are not yet approved in
your state, you will receive an earlier version of the Contract and the
following provisions will apply:

FIXED ACCUMULATION OPTIONS. Fixed accumulations and benefits under the prior
contracts are provided in two Fixed Accumulation Options of the General Account.
Any portion of the purchase payment allocated to a Fixed Accumulation Option is
credited with interest daily at a rate declared by Us in Our sole discretion,
but not less than 4%.

TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, an Owner
may transfer the General Account II Contract value minus Debt twice during the
Contract Year to one or more Subaccounts or to General Account I in the thirty
day period following the anniversary of a Contract year or the thirty day period
following the date of the confirmation statement provided for the period through
the anniversary date, if later.

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WITHDRAWALS DURING ACCUMULATION PERIOD. The Owner may request a partial
withdrawal subject to the following conditions:

- The amount requested must be at least $500 or the Owner's entire interest
in the Subaccount, General Account I or General Account II from which
withdrawal is requested.

- The Owner's Contract interest in the Subaccount, General Account I or
General Account II from which the withdrawal is requested must be at
least $500 after the withdrawal is completed.

LOANS. For non-ERISA loans, the loan interest rate is 6%. While the loan is
outstanding, the portion of the General Account Contract Value that equals the
debt will earn interest at a rate 2% less than loan rate.

RECORDS MAINTENANCE CHARGE. We will assess an annual Records Maintenance Charge
of $25 during the Accumulation period against each contract which has
participated in one or more of the Subaccounts during the calendar year whether
or not any purchase payments have been made during the year. The imposition of
the Records Maintenance Charge will be made on December 31st of each year.

ANNUITY UNIT VALUE AND FIRST PERIODIC PAYMENT. For purposes of determining the
value of an Annuity Unit and the amount of the first annuity payment, the
assumed interest rate is 4%, which is also reflected in the annuity tables
contained in the Contracts.

YEAR 2000 COMPLIANCE

Many existing computer programs were originally designed without considering the
impact of the year 2000 and currently use only two digits to identify the year
in the date field. This issue affects nearly all companies and organizations and
could cause computer applications and systems to fail or create erroneous
results for any transaction with a date of January 1, 2000, or later.

Many companies must undertake major projects to address the year 2000 issue.
Each company's costs and uncertainties will depend on a number of factors,
including its software and hardware, and the nature of the industry. Companies
must also coordinate with other entities with which they electronically
interact, including suppliers, customers, creditors and other financial services
institutions.

If a company does not successfully address its year 2000 issues, it could face
material adverse consequences in the form of lawsuits against the company, lost
business, erroneous results and substantial operating problems after January 1,
2000.

We have taken substantial steps over the last several years to ensure that Our
systems will be compliant for the year 2000. Such steps have included the
replacement of older systems with new systems which are already compliant. In
1996, We replaced Our investment accounting system, and, in 1997, We replaced
Our general ledger and accounts payable system. We have also ensured that new
systems developed to support new product introductions in 1997, 1998 and beyond
are already year 2000 compliant. Data processing expenses related solely to
bringing Our systems in compliance with the year 2000 amounted to $1.3 million
in 1998. We anticipate that it will cost an additional $662 thousand to bring
all remaining systems into compliance.

Our policy administration systems have been completely renovated to be year 2000
compliant and are currently running in a test environment. Approximately 75
percent of Our ancillary systems confirmed to be year 2000 compliant were in
production at December 31, 1998. We anticipate that all such systems will be in
production at April 30, 1999 or sooner. Testing procedures have confirmed the
performance, functionality, and integration of converted or replaced platforms,
applications, databases, utilities, and interfaces in an operational
environment. Our testing and verification for year 2000 compliance has
encompassed the following:

- mainframe computing systems

- mainframe hardware and systems software

- PC/LAN computing systems

- PC/LAN hardware and systems software

- end-user computing systems

- interfaces to and from third parties, and

- other miscellaneous electronic non-information systems.

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We have also taken steps requiring all other entities with which We
electronically interact, including suppliers and other financial services
institutions, to attest to Us in writing that their systems are year 2000
compliant.

If We do not successfully address Our year 2000 issues, We could face material
adverse consequences from lawsuits, lost business, erroneous results and
substantial operating problems after January 1, 2000. Although We fully expect
to be year 2000 compliant by the close of 1999, We are currently developing
contingency plans to handle the most reasonably likely worst case scenarios.
These contingency plans are scheduled for completion in the third quarter of
1999.

LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Separate Account,
KILICO, IBS or SKI is a party.

TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION

The Statement of Additional Information, Table of Contents is: Services to the
Separate Account; Performance Information of Subaccounts; State Regulation;
Experts; Change of Accountants and Financial Statements. The Statement of
Additional Information should be read in conjunction with this Prospectus.

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<PAGE> 43

APPENDIX

KEMPER INVESTORS LIFE INSURANCE COMPANY DEFERRED FIXED AND
VARIABLE ANNUITY IRA, ROTH IRA AND SIMPLE IRA DISCLOSURE STATEMENT

This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Individual Retirement Annuities (IRAs), Roth
Individual Retirement Annuities (Roth IRAs) and Simple Individual Retirement
Annuities (SIMPLE IRAs). Internal Revenue Service regulations require that this
be given to each person desiring to establish an IRA, Roth IRA or a SIMPLE IRA.
Further information can be obtained from Kemper Investors Life Insurance Company
and from any district office of the Internal Revenue Service.

A. REVOCATION

Within 7 days of the date you signed your enrollment application, you may revoke
the Contract and receive back 100% of your money. To do so, write Kemper
Investors Life Insurance Company, 1 Kemper Drive, Long Grove, Illinois 60049, or
call (888) 477-9700.

B. STATUTORY REQUIREMENTS

This Contract is intended to meet the requirements of Section 408(b) of the
Internal Revenue Code (Code), Section 408A of the Code for use as a Roth IRA, or
of Section 408(p) of the Code for use as a SIMPLE IRA, whichever is applicable.
The Contract has not been approved as to form for use as an IRA, Roth IRA or a
SIMPLE IRA by the Internal Revenue Service. Such approval by the Internal
Revenue Service is a determination only as to form of the Contract, and does not
represent a determination on the merits of the Contract.

1. The amount in your IRA, Roth IRA, and SIMPLE IRA, whichever is applicable,
must be fully vested at all times and the entire interest of the owner must be
nonforfeitable.

2. The Contract must be nontransferable by the owner.

3. The Contract must have flexible premiums.

4. For IRAs and SIMPLE IRAs, you must start receiving distributions on or before
April 1 of the year following the year in which you reach age 70 1/2 (the
required beginning date)(see "Required Distributions"). However, section
401(a)(9)(A) of the Code (relating to minimum distributions required to commence
at age 70 1/2), and the incidental death benefit requirements of section 401(a)
of the Code, do not apply to Roth IRAs.

If you die before your entire interest in your Contract is distributed, unless
otherwise permitted under applicable law, any remaining interest in the Contract
must be distributed to your beneficiary by December 31 of the calendar year
containing the fifth anniversary of your death; except that: (1) if the interest
is payable to an individual who is your designated beneficiary (within the
meaning of section 401(a)(9) of the Code), the designated beneficiary may elect
to receive the entire interest over his or her life, or over a period certain
not extending beyond his or her life expectancy, commencing on or before
December 31 of the calendar year immediately following the calendar year in
which you die; and (2) if the designated beneficiary is your spouse, the
Contract will be treated as his or her own IRA, or, where applicable, Roth IRA.

5. Except in the case of a rollover contribution or a direct transfer (see
"Rollovers and Direct Transfers"), or a contribution made in accordance with the
terms of a Simplified Employee Pension (SEP), (1) all contributions to an IRA,
including a Roth IRA, must be cash contributions which do not exceed $2,000 for
any taxable year, and (2) all contributions to a SIMPLE IRA must be cash
contributions, including matching or nonelective employer contributions (see
"SIMPLE IRAs"), which do not exceed $6,000 for any year (as adjusted for
inflation).

6. The Contract must be for the exclusive benefit of you and your beneficiaries.

C. ROLLOVERS AND DIRECT TRANSFERS FOR IRAS AND SIMPLE IRAS

1. A rollover is a tax-free transfer from one retirement program to another that
you cannot deduct on your tax return. There are two kinds of tax-free rollover
payments under an IRA. In one, you transfer amounts from one IRA to another.
With the other, you transfer amounts from a qualified employee benefit plan or
tax-sheltered annuity to an IRA. Tax-free rollovers can be made from a SIMPLE
IRA to another SIMPLE IRA or to a SIMPLE Individual Retirement Account under
section 408(p) of the Code. An individual can make a tax-free rollover to an IRA
from a SIMPLE IRA after a two-year period has expired since the individual first
participated in a SIMPLE plan.

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<PAGE> 44

2. You must complete the transfer by the 60th day after the day you receive the
distribution from your IRA or other qualified employee benefit plan or SIMPLE
IRA.

3. A rollover distribution may be made to you only once a year. The one-year
period begins on the date you receive the rollover distribution, not on the date
you roll it over (reinvest it).

4. A direct transfer to an IRA of funds in an IRA from one trustee or insurance
company to another is not a rollover. It is a transfer that is not affected by
the one-year waiting period.

5. All or a part of the premium for this Contract used as an IRA may be paid
from a rollover from an IRA, qualified pension or profit-sharing plan or
tax-sheltered annuity, or from a direct transfer from another IRA. All or part
of the premium for this Contract used as a SIMPLE IRA may be paid from a
rollover from a SIMPLE IRA or SIMPLE Individual Retirement Account or, to the
extent permitted by law, from a direct transfer from a SIMPLE IRA or SIMPLE
Individual Retirement Account.

6. Beginning January 1, 1993, a distribution that is eligible for rollover
treatment from a qualified employee benefit plan or tax-sheltered annuity will
be subject to twenty percent (20%) withholding by the Internal Revenue Service
even if you roll the distribution over within the 60-day rollover period. One
way to avoid this withholding is to make the distribution as a direct transfer
to the IRA trustee or insurance company.

D. CONTRIBUTION LIMITS AND ALLOWANCE OF DEDUCTION FOR IRAS

1. In general, the amount you can contribute each year to an IRA is the lesser
of $2,000 or your taxable compensation for the year. If you have more than one
IRA, the limit applies to the total contributions made to your own IRAs for the
year. Generally, if you work the amount that you earn is compensation. Wages,
salaries, tips, professional fees, bonuses and other amounts you receive for
providing personal services are compensation. If you own and operate your own
business as a sole proprietor, your net earnings reduced by your deductible
contributions on your behalf to self-employed retirement plans is compensation.
If you are an active partner in a partnership and provide services to the
partnership, your share of partnership income reduced by deductible
contributions made on your behalf to qualified retirement plans is compensation.
All taxable alimony and separate maintenance payments received under a decree of
divorce or separate maintenance is compensation.

2. Beginning in 1997, in the case of a married couple filing a joint return, up
to $2,000 can be contributed to each spouse's IRA, even if one spouse has little
or no compensation. This means that the total combined contributions that can be
made to both IRAs can be as much as $4,000 for the year. Previously, if one
spouse had no compensation or elected to be treated as having no compensation,
the total combined contributions to both IRAs could no be more than $2,250.

3. Also beginning in 1997, in the case of a married couple with unequal
compensation who file a joint return, the limit on the deductible contributions
to the IRA of the spouse with less compensation is the smaller of:

a. $2,000, or

b. The total compensation of both spouses, reduced by any deduction allowed
for contributions to IRAs of the spouse with more compensation.

The deduction for contributions to both spouses' IRAs may be further limited if
either spouse is covered by an employer retirement plan.

4. Beginning in 1998, even if your spouse is covered by an employer retirement
plan, you may be able to deduct your contributions to an IRA if you are not
covered by an employer plan. The deduction is limited to $2,000 and it must be
reduced if your adjusted gross income on a joint return is more than $150,000
but less than $160,000. Your deduction is eliminated if your income on a joint
return is $160,000 or more.

5. Contributions to your IRA can be made at any time. If you make the
contribution between January 1 and April 15, however, you may elect to treat the
contribution as made either in that year or in the preceding year. You may file
a tax return claiming a deduction for your IRA contribution before the
contribution is actually made. You must, however, make the contribution by the
due date of your return not including extensions.

6. You cannot make a contribution other than a rollover contribution to your IRA
for the year in which you reach age 70 1/2 or thereafter.

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<PAGE> 45

E. SEP-IRA'S

1. The maximum deductible contribution for a Simplified Employee Pension (SEP)
IRA is the lesser of $30,000 or 15% of compensation.

2. A SEP must be established and maintained by an employer (corporation,
partnership, sole proprietor). Information about the Kemper SEP is available
upon request.

F. SIMPLE IRAS

1. A SIMPLE IRA must be established with your employer using a qualified salary
reduction agreement.

2. You may elect to have your employer contribute to your SIMPLE IRA, under a
qualified salary reduction agreement, an amount (expressed as a percentage of
your compensation) not to exceed $6,000 (as adjusted for inflation) for the
year. In addition to these employee elective contributions, your employer is
required to make each year either (1) a matching contribution equal to up to 3
percent, and not less than 1 percent, of your SIMPLE IRA contribution for the
year, or (2) a nonelective contribution equal to 2 percent of your compensation
for the year (up to $150,000 of compensation, as adjusted for inflation). No
other contributions may be made to a SIMPLE IRA.

3. Employee elective contributions and employer contributions (i.e., matching
contributions and nonelective contributions) to your SIMPLE IRA are excluded
from your gross income.

4. To the extent an individual with a SIMPLE IRA is no longer participating in a
SIMPLE plan (e.g., the individual has terminated employment), and two years has
passed since the individual first participated in the plan, the individual may
treat the SIMPLE IRA as an IRA.

G. TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS FOR IRAS AND SIMPLE IRAS

1. Earnings of your IRA annuity contract are not taxed until they are
distributed to you.

2. In general, taxable distributions are included in your gross income in the
year you receive them.

3. Distributions under your IRA are non-taxable to the extent they represent a
return of non-deductible contributions (if any). The non-taxable percentage of a
distribution is determined by dividing your total undistributed, non-deductible
IRA contributions by the value of all your IRAs (including SEPs and rollovers).

4. You cannot choose the special five-year or ten-year averaging that may apply
to lump sum distributions from qualified employer plans.

H. REQUIRED DISTRIBUTIONS FOR IRAS AND SIMPLE IRAS

You must start receiving minimum distributions required under the Contract and
Section 401(a)(9) of the Code from your IRA and SIMPLE IRA starting with the
year you reach age 70 1/2 (your 70 1/2 year). Ordinarily, the required minimum
distribution for a particular year must be received by December 31 of that year.
However, you may delay the required minimum distribution for the year you reach
age 70 1/2 until April 1 of the following year (i.e., the required beginning
date).

Annuity payments which begin by April 1 of the year following your 70 1/2 year
satisfy the minimum distribution requirement if they provide for non-increasing
payments over the life or the lives of you and your spouse, provided that, if
installments are guaranteed, the guaranty period does not exceed the lesser of
20 years or the applicable life expectancy.

The applicable life expectancy is your remaining life expectancy or the
remaining joint life and last survivor expectancy of you and your designated
beneficiary. Life expectancies are determined using the expected return multiple
tables shown in IRS Publication 590 "Individual Retirement Arrangements." To
obtain a free copy of IRS Publication 590 and other IRS forms, phone the IRS
toll free at 1-800-729-3676 or write the IRS Forms Distribution Center for your
area as shown in your income tax return instructions.

If you have more than one IRA, you must determine the required minimum
distribution separately for each IRA; however, you can take the actual
distributions of these amounts from any one or more of your IRAs.

If the actual distribution from your Contract is less than the minimum amount
that should be distributed in accordance with the minimum distribution
requirements mentioned above, the difference generally is an excess

42
<PAGE> 46

accumulation. There is a 50% excise tax on any excess accumulations. If the
excess accumulation is due to reasonable error, and you have taken (or are
taking) steps to remedy the insufficient distribution, you can request that this
50% excise tax be excused by filing with your tax return an IRS Form 5329,
together with a letter of explanation and the excise tax payment.

I. ROTH IRAs

1. If your contract is a special type of individual retirement plan known as a
Roth IRA, it will be administered in accordance with the requirements of section
408A of the Code. Roth IRAs are treated the same as other IRAs, except as
described here.

2. The IRS is not presently accepting submissions for opinion letters approving
annuities as Roth IRAs, but will issue in the future procedures for requesting
such opinion letters. We will apply for approval as soon as possible after the
IRS issues its procedures on this matter. Such approval will be a determination
only as to the form of the annuity, and will not represent a determination of
the merits of the annuity.

3. If your Contract is a Roth IRA, we will send you a Roth IRA endorsement to be
attached to, and to amend, your contract after we obtain approval of the
endorsement from the IRS and your state insurance department. The Company
reserves the right to amend the contract as necessary or advisable from time to
time to comply with future changes in the Internal Revenue Code, regulations or
other requirements imposed by the IRS to obtain or maintain its approval of the
annuity as a Roth IRA.

4. Earnings in your Roth IRA are not taxed until they are distributed to you,
and will not be taxed if they are paid as a "qualified distribution," as
described to you in section L, below.

J. ELIGIBILITY AND CONTRIBUTIONS FOR ROTH IRAs

1. Generally, you are eligible to establish or make a contribution to your Roth
IRA on or after January 1, 1998, only if you meet certain income limits. No
deduction is allowed for contributions to your Roth IRA. Contributions to your
Roth IRA may be made even after you attain age 70 1/2.

2. The aggregate amount of contributions for any taxable year to all IRAs,
including all Roth IRAs, maintained for your benefit (the "contribution limit")
generally is the lesser of $2,000 and 100% of your compensation for the taxable
year. However, if you file a joint return and receive less compensation for the
taxable year than your spouse, the contribution limit for the taxable year is
the lesser of $2,000 and the sum of (1) your compensation for the taxable year,
and (2) your spouse's compensation for the taxable year reduced by any
deductible contributions to an IRA of your spouse, and by any contributions to a
Roth IRA for your spouse, for the taxable year.

The contribution limit for any taxable year is reduced (but not below zero) by
the amount which bears the same ratio to such amount as:

(a) the excess of (i) your adjusted gross income for the taxable year, over
(ii) the "applicable dollar amount," bears to

(b) $15,000 (or $10,000 if you are married).

For this purpose, "adjusted gross income" is determined under the Code and (1)
excludes any amount included in gross income as a result of any rollover from,
transfer from, or conversion of an IRA to a Roth IRA, and (2) is reduced by any
deductible IRA contribution. In addition, the "applicable dollar amount" is
equal to $150,000 for a married individual filing a joint return, $0 for a
married individual filing a separate return, and $95,000 for any other
individual.

A "qualified rollover contribution" (discussed in section K, below), and a
non-taxable transfer from another Roth IRA, are not taken into account for
purposes of determining the contribution limit.

K. ROLLOVERS, TRANSFERS AND CONVERSIONS TO ROTH IRAs

1. Rollovers And Transfers--A rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover to a Roth IRA from another Roth IRA or from an IRA, but only if such
rollover contribution also meets the rollover requirements for IRAs under
section 408(d)(3). In addition, a transfer may be made to a Roth IRA directly
from another Roth IRA or from an IRA.

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<PAGE> 47

You may not make a qualified rollover contribution or transfer in a taxable year
from an IRA to a Roth IRA if (a) your adjusted gross income for the taxable year
exceeds $100,000 or (b) you are married and file a separate return.

The rollover requirements of section 408(d)(3) are complex and should be
carefully considered before you make a rollover. One of the requirements is that
the amount received be paid into another IRA (or Roth IRA) within 60 days after
receipt of the distribution. In addition, a rollover contribution from a Roth
IRA may be made by you only once a year. The one-year period begins on the date
you receive the Roth IRA distribution, not on the date you roll it over
(reinvest it) into another Roth IRA. If you withdraw assets from a Roth IRA, you
may roll over part of the withdrawal tax free into another Roth IRA and keep the
rest of it. A portion of the amount you keep may be included in your gross
income.

2. Taxation of Rollovers And Transfers to Roth IRAs--A qualified rollover
contribution or transfer from a Roth IRA maintained for your benefit to another
Roth IRA maintained for your benefit which meets the rollover requirements for
IRAs under section 408(d)(3) is tax-free.

In the case of a qualified rollover contribution or a transfer from an IRA
maintained for your benefit to a Roth IRA maintained for your benefit, any
portion of the amount rolled over or transferred which would be includible in
your gross income were it not part of a qualified rollover contribution or a
nontaxable transfer will be includible in your gross income. However, section
72(t) of the Code (relating to the 10 percent penalty tax on premature
distributions) will not apply. If such a rollover or transfer occurred before
January 1, 1999, any portion of the amount rolled over or transferred which is
required to be included in gross income will be so included ratably over the
4-taxable year period beginning with the taxable year in which the rollover or
transfer is made.

3. Transfers of Excess IRA Contributions to Roth IRAs--If, before the due date
of your federal income tax return for any taxable year (not including
extensions), you transfer, from an IRA, contributions for such taxable year (and
earnings thereon) to a Roth IRA, such amounts will not be includible in gross
income to the extent that no deduction was allowed with respect to such amount.

4. Taxation of Conversions of IRAs to Roth IRAs--All or part of amounts in an
IRA maintained for your benefit may be converted into a Roth IRA maintained for
your benefit. The conversion of an IRA to a Roth IRA is treated as special type
of qualified rollover contribution. Hence, you must be eligible to make a
qualified rollover contribution in order to convert an IRA to a Roth IRA. A
conversion typically will result in the inclusion of some or all of your IRA's
value in gross income, as described above.

A conversion of an IRA to a Roth IRA can be made without taking an actual
distribution from your IRA. For example, an individual may make a conversion by
notifying the IRA issuer or trustee, whichever is applicable.

UNDER SOME CIRCUMSTANCES, IT MIGHT NOT BE ADVISABLE TO ROLLOVER, TRANSFER, OR
CONVERT ALL OR PART OF AN IRA TO A ROTH IRA. WHETHER YOU SHOULD DO SO WILL
DEPEND ON YOUR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED
TO, SUCH FACTORS AS WHETHER YOU QUALIFY TO MAKE SUCH A ROLLOVER, TRANSFER, OR
CONVERSION, YOUR FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS,
YEARS TO RETIREMENT, CURRENT AND FUTURE TAX RATES, YOUR ABILITY AND DESIRE TO
PAY CURRENT INCOME TAXES WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR
CONVERTED, AND WHETHER SUCH TAXES MIGHT NEED TO BE PAID WITH WITHDRAWALS FROM
YOUR ROTH IRA (SEE DISCUSSION BELOW OF "NONQUALIFIED DISTRIBUTIONS"). YOU SHOULD
CONSULT A QUALIFIED TAX ADVISER BEFORE ROLLING OVER, TRANSFERRING, OR CONVERTING
ALL OR PART OF AN IRA TO A ROTH IRA.

5. Separate Roth IRAs--Due to the complexity of, and proposed changes to, the
tax law, it may be advantageous to maintain amounts rolled over, transferred, or
converted from an IRA in separate Roth IRAs from those containing regular Roth
IRA contributions. For the same reason, you should consider maintaining a
separate Roth IRA for each amount rolled over, transferred, or converted from an
IRA. These considerations should be balanced against the additional costs you
may incur from maintaining multiple Roth IRAs. You should consult your tax
adviser if you intend to contribute rollover, transfer, or conversion amounts to
your Policy, or if you intend to roll over or transfer amounts from your Policy
to another Roth IRA maintained for your benefit.

L. INCOME TAX CONSEQUENCES OF ROTH IRAS

1. Qualified Distributions--Any "qualified distribution" from a Roth IRA is
excludible from gross income. A "qualified distribution" is a payment or
distribution which satisfies two requirements. First, the payment or
distribution must be (a) made after you attain 59 1/2, (b) made after your
death, (c) attributable to your being
44
<PAGE> 48

disabled, or (d) a "qualified special purpose distribution" (I.E., a qualified
first-time homebuyer distribution under the Code). Second, the payment or
distribution must be made in a taxable year that is at least five years after
(1) the first taxable year for which a contribution was made to any Roth IRA
established for you, or (2) in the case of a rollover from, or a conversion of,
an IRA to a Roth IRA, the taxable year in which the rollover or conversion was
made if the payment or distribution is allocable (as determined in the manner
set forth in guidance issued by the IRS) to the rollover contribution or
conversion (or to income allocable thereto).

2. Nonqualified Distributions--A distribution from a Roth IRA which is not a
qualified distribution is taxed under section 72 (relating to annuities), except
that such distribution is treated as made first from contributions to the Roth
IRA to the extent that such distribution, when added to all previous
distributions from the Roth IRA, does not exceed the aggregate amount of
contributions to the Roth IRA. For purposes of determining the amount taxed, (a)
all Roth IRAs established for you will be treated as one contract, (b) all
distributions during any taxable year from Roth IRAs established for you will be
treated as one distribution, and (c) the value of the contract, income on the
contract, and investment in the contract, if applicable, will be computed as of
the close of the calendar year in which the taxable year begins.

An additional tax of 10% is imposed on nonqualified distributions (including
amounts deemed distributed as the result of a prohibited loan or use of your
Roth IRA as security for a loan) made before the benefited individual has
attained age 59 1/2, unless one of the exceptions discussed in Section N
applies.

M. TAX ON EXCESS CONTRIBUTIONS

1. You must pay a 6% excise tax each year on excess contributions that remain in
your Contract. Generally, an excess contribution is the amount contributed to
your Contract that is more than you can contribute. The excess is taxed for the
year of the excess contribution and for each year after that until you correct
it.

2. You will not have to pay the 6% excise tax if you withdraw the excess amount
by the date your tax return is due including extensions for the year of the
contribution. You do not have to include in your gross income an excess
contribution that you withdraw from your Contract before your tax return is due
if the income earned on the excess was also withdrawn and no deduction was
allowed for the excess contribution. You must include in your gross income the
income earned on the excess contribution.

N. TAX ON PREMATURE DISTRIBUTIONS

There is an additional tax on premature distributions from your IRA, Roth IRA,
or SIMPLE IRA, equal to 10% of the amount of the premature distribution that you
must include in your gross income. For premature distributions from a SIMPLE IRA
made within the first 2 years you participate in a SIMPLE plan, the additional
tax is equal to 25% of the amount of the premature distribution that must be
included in gross income. Premature distributions are generally amounts you
withdraw before you are age 59 1/2. However, the tax on premature distributions
does not apply:

1. To amounts that are rolled over tax free;

2. To a distribution which is made on or after your death, or on account of you
being disabled within the meaning of section 72(m)(7) of the Code;

3. To a distribution which is part of a series of substantially equal periodic
payments (made at least annually) over your life or your life expectancy or the
joint life or joint life expectancy of you and your beneficiary; or

4. To a distribution which is used for qualified first-time homebuyer expenses,
qualified higher education expenses, certain medical expenses, or by an
unemployed individual to pay health insurance premiums.

O. EXCISE TAX REPORTING

Use Form 5329, Additional Taxes Attributable to Qualified Retirement Plans
(Including IRAs), Annuities, and Modified Endowment Contracts, to report the
excise taxes on excess contributions, premature distributions, and excess
accumulations. If you do not owe any IRA, SIMPLE IRA or Roth IRA excise taxes,
you do not need Form 5329. Further information can be obtained from any district
office of the Internal Revenue Service.

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<PAGE> 49

P. BORROWING

If you borrow money against your Contract or use it as security for a loan, the
Contract will lose its classification as an IRA, Roth IRA, or SIMPLE IRA,
whichever is applicable, and you must include in gross income the fair market
value of the Contract as of the first day of your tax year. In addition, you may
be subject to the tax on premature distributions described above. (Note: This
Contract does not allow borrowings against it, nor may it be assigned or pledged
as collateral for a loan.)

Q. REPORTING

We will provide you with any reports required by the Internal Revenue Service.

R. ESTATE TAX

Generally, the value of your IRA, including your Roth IRA, is included in your
gross estate for federal estate tax purposes.

S. FINANCIAL DISCLOSURE

1. If contributions to the Contract are made by other than rollover
contributions and direct transfers, the following information based on the
charts shown on the next pages, which assumes you were to make a level
contribution to the fixed account at the beginning of each year of $1,000 must
be completed prior to your signing the enrollment application.

<TABLE>
<CAPTION>
END OF LUMP SUM TERMINATION AT LUMP SUM TERMINATION
YEAR VALUE OF CONTRACT * AGE VALUE OF CONTRACT *
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 60
- ------------------------------------------------------------------------------------------------------
2 65
- ------------------------------------------------------------------------------------------------------
3 70
- ------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------
</TABLE>

* Includes applicable withdrawal charges as described in Item O below.

2. If contributions to the Contract are made by rollover contributions and/or
direct transfers, the following information, based on the charts shown on the
next page, and all of which assumes you make one contribution to the fixed
account of $1,000 at the beginning of this year, must be completed prior to your
signing the enrollment application.

* Includes applicable withdrawal charges as described in Item O below.

T. FINANCIAL DISCLOSURE FOR THE SEPARATE ACCOUNT (VARIABLE ACCOUNT)

1. If on the enrollment application you indicated an allocation to a Subaccount,
this Contract will be assessed a daily charge of an amount which will equal an
aggregate of 1.30% per annum for Periodic Payment Contracts.

46
<PAGE> 50

2. An annual records maintenance charge of $36.00 will be assessed ratably each
quarter against the Separate Account value, if you have participated in a
Subaccount during the year. If insufficient values are in the Subaccounts when
the charge is assessed, the charge will be assessed against General Account
value.

3. Withdrawal (early annuitization) charges will be assessed based on the years
elapsed since the purchase payments (in a given contract year) were received by
KILICO; under 1 year, 6%; over 1 to 2 years, 5%; over 2 to 3 years, 4%; over 3
to 4 years, 3%; over 4 to 5 years, 2%; over 5 to 6 years, 1%; 6th year and
thereafter, 0%.

4. The method used to compute and allocate the annual earnings is contained in
the Prospectus under the heading "Accumulation Unit Value."

5. The growth in value of your contract is neither guaranteed nor projected but
is based on the investment experience of the Separate Account.

47
<PAGE> 51

GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY
COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR.
(TERMINATION VALUES ARE BASED ON $1,000 ANNUAL CONTRIBUTIONS AT THE BEGINNING OF
EACH YEAR.)

<TABLE>
<CAPTION>
END OF TERMINATION END OF TERMINATION END OF TERMINATION END OF TERMINATION
YEAR VALUES* YEAR VALUES* YEAR VALUES* YEAR VALUES*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,000 14 $17,371 27 $41,703 40 $ 77,436
- -----------------------------------------------------------------------------------------
2 2,000 15 18,929 28 43,991 41 80,796
- -----------------------------------------------------------------------------------------
3 3,038 16 20,534 29 46,348 42 84,256
- -----------------------------------------------------------------------------------------
4 4,130 17 22,187 30 48,775 43 87,821
- -----------------------------------------------------------------------------------------
5 5,264 18 23,889 31 51,275 44 91,492
- -----------------------------------------------------------------------------------------
6 6,442 19 25,643 32 53,850 45 95,274
- -----------------------------------------------------------------------------------------
7 7,665 20 27,449 33 56,503 46 99,169
- -----------------------------------------------------------------------------------------
8 8,932 21 29,309 34 59,235 47 103,181
- -----------------------------------------------------------------------------------------
9 10,236 22 31,225 35 62,048 48 107,313
- -----------------------------------------------------------------------------------------
10 11,580 23 33,199 36 64,947 49 111,569
- -----------------------------------------------------------------------------------------
11 12,965 24 35,232 37 67,932 50 115,953
- -----------------------------------------------------------------------------------------
12 14,390 25 37,326 38 71,007
- -----------------------------------------------------------------------------------------
13 15,859 26 39,482 39 74,174
- -----------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
END OF TERMINATION END OF TERMINATION END OF TERMINATION END OF TERMINATION
YEAR VALUES* YEAR VALUES* YEAR VALUES* YEAR VALUES*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $1,000 14 $1,513 27 $2,221 40 $3,262
- -----------------------------------------------------------------------------------------
2 1,013 15 1,558 28 2,288 41 3,360
- -----------------------------------------------------------------------------------------
3 1,053 16 1,605 29 2,357 42 3,461
- -----------------------------------------------------------------------------------------
4 1,095 17 1,653 30 2,427 43 3,565
- -----------------------------------------------------------------------------------------
5 1,138 18 1,702 31 2,500 44 3,671
- -----------------------------------------------------------------------------------------
6 1,183 19 1,754 32 2,575 45 3,782
- -----------------------------------------------------------------------------------------
7 1,230 20 1,806 33 2,652 46 3,895
- -----------------------------------------------------------------------------------------
8 1,267 21 1,860 34 2,732 47 4,012
- -----------------------------------------------------------------------------------------
9 1,305 22 1,916 35 2,814 48 4,132
- -----------------------------------------------------------------------------------------
10 1,344 23 1,974 36 2,898 49 4,256
- -----------------------------------------------------------------------------------------
11 1,384 24 2,033 37 2,985 50 4,384
- -----------------------------------------------------------------------------------------
12 1,426 25 2,094 38 3,075
- -----------------------------------------------------------------------------------------
13 1,469 26 2,157 39 3,167
- -----------------------------------------------------------------------------------------
</TABLE>

* Includes applicable withdrawal charges.

48
<PAGE> 52

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1999

- --------------------------------------------------------------------------------

PERIODIC PAYMENT

VARIABLE ANNUITY CONTRACTS

- --------------------------------------------------------------------------------

KEMPER ADVANTAGE III

ISSUED BY

KEMPER INVESTORS LIFE INSURANCE COMPANY

IN CONNECTION WITH

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (888) 477-9700

This Statement of Additional Information is not a prospectus. This Statement of
Additional Information should be read in conjunction with the Prospectus of the
Separate Account dated May 1, 1999. The Prospectus may be obtained from Kemper
Investors Life Insurance Company by writing or calling the address or telephone
number listed above.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services to the Separate Account............................ B-1
Performance Information of Subaccounts...................... B-1
State Regulation............................................ B-23
Experts..................................................... B-23
Change of Accountants....................................... B-23
Financial Statements........................................ B-23
</TABLE>

ADV-02B
<PAGE> 53

SERVICES TO THE SEPARATE ACCOUNT

Kemper Investors Life Insurance Company ("KILICO") maintains the books and
records of the KILICO Variable Annuity Separate Account (the "Separate
Account"). KILICO holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general funds of KILICO. KILICO
maintains records of all purchases and redemptions of shares of each Fund by
each of the Subaccounts. All expenses incurred in the operations of the Separate
Account, except the charge for mortality and expense risk and administrative
expenses, and records maintenance charge (as described in the Prospectus) are
borne by KILICO.

The independent auditors for the Separate Account are PricewaterhouseCoopers
LLP, Chicago, Illinois, for the years ended December 31, 1997 and 1998.
PricewaterhouseCoopers LLP performed the annual audit of the financial
statements of the Separate Account and KILICO for the years ended December 31,
1997 and 1998.

The Contracts are sold by licensed insurance agents, where the Contracts may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. The Contracts are distributed
through the principal underwriter for the Separate Account, Investors Brokerage
Services, Inc. ("IBS"), a wholly owned subsidiary of KILICO, which enters into
selling group agreements with affiliated and unaffiliated broker-dealers.
Subject to the provisions of the Contracts, units of the Subaccounts under the
Contract are offered on a continuous basis.

KILICO pays commissions to the seller which may vary but are not anticipated to
exceed in the aggregate an amount equal to six percent (6%) of Purchase
Payments. During 1998, 1997 and 1996 KILICO incurred gross commissions payable
of approximately $14,785,000, $14,741,000 and $9,049,000, respectively, to
licensed insurance agents.

PERFORMANCE INFORMATION OF SUBACCOUNTS

As described in the prospectus, a Subaccount's historical performance may be
shown in the form of standardized "average annual total return" and
nonstandardized "total return" calculations in the case of all Subaccounts;
"yield" information may be provided in the case of the Kemper High Yield
Subaccount, Kemper Investment Grade Bond Subaccount, the Kemper Government
Securities Subaccount and the Scudder VLIF Bond Subaccount; and "yield" and
"effective yield" information may be provided in the case of the Kemper Money
Market Subaccount. These various measures of performance are described below.

A Subaccount's standardized average annual total return quotation is computed in
accordance with a standard method prescribed by rules of the Securities and
Exchange Commission. The standardized average annual total return for a
Subaccount for a specific period is found by first taking a hypothetical $1,000
investment in each of the Subaccount's units on the first day of the period at
the maximum offering price, which is the Accumulation Unit value per unit
("initial investment") and computing the ending redeemable value ("redeemable
value") of that investment at the end of the period. The redeemable value
reflects the effect of the applicable Withdrawal Charge that may be imposed at
the end of the period as well as all other recurring charges and fees applicable
under the Contract to all Contract Owner accounts. Premium taxes are not
included in the term charges. The redeemable value is then divided by the
initial investment and this quotient is taken to the Nth root (N represents the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual total return figures are
annualized and, therefore, represent the average annual percentage change in the
value of a Subaccount over the applicable period.

No standard formula has been prescribed for calculating nonstandardized total
return performance. Nonstandardized total return performance for a specific
period is calculated by first taking an investment (assumed to be $10,000 below)
in each Subaccount's units on the first day of the period at the maximum
offering price, which is the Accumulation Unit Value per unit ("initial
investment") and computing the ending value ("ending value") of that investment
at the end of the period. The ending value does not include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period, and
thus may be higher than if such charge were deducted. Premium taxes are not
included in the term charges. The nonstandardized total return percentage is
then determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. An assumed investment of $10,000 was chosen because that
approximates the size of a typical account. The account size used affects the
performance figure because the Records Maintenance Charge is a fixed per account
charge. Both annualized

B-1
<PAGE> 54

and nonannualized (cumulative) nonstandardized total return figures may be
provided. Annualized nonstandardized total return figures represent the average
annual percentage change in the value of a Subaccount over the applicable period
while nonannualized (cumulative) figures represent the actual percentage change
over the applicable period.

Standardized average annual total return quotations will be current to the last
day of the calendar quarter and nonstandardized total return quotations will be
current to the last day of the calendar month preceding the date on which an
advertisement is submitted for publication. Standardized average annual total
return will cover periods of one, three, five and ten years, if applicable, and
a period covering the time the underlying Portfolio has been held in a
Subaccount (life of Subaccount). Nonstandardized total return will cover periods
of one, three, five and ten years, if applicable, and a period covering the time
the underlying Portfolio held in a Subaccount has been in existence (life of
Portfolio). For those underlying Portfolios which have not been held as
Subaccounts within the Separate Account for one of the quoted periods, the
nonstandardized total return quotations will show the investment performance
such underlying Portfolios would have achieved (reduced by the applicable
charges) had they been held as Subaccounts within the Separate Account for the
period quoted.

Performance information will be shown for periods from April 6, 1982 (inception)
for the Kemper Money Market Subaccount, Kemper Total Return Subaccount and
Kemper High Yield Subaccount, and for periods from December 9, 1983 (inception)
for the Kemper Growth Subaccount. This performance information is stated to
reflect that the Separate Account was reorganized on November 3, 1989 as a unit
investment trust with Subaccounts investing in corresponding Portfolios of the
Fund. In addition, on that date the Kemper Government Securities Subaccount was
added to the Separate Account to invest in the Fund's Government Securities
Portfolio. For the Kemper Government Securities Subaccount, performance figures
will reflect investment experience as if the Kemper Government Securities
Subaccount had been available under the Contracts since September 3, 1987, the
inception date of the Kemper Government Securities Portfolio.

The yield for the Kemper High Yield Subaccount, the Kemper Investment Grade Bond
Subaccount, the Kemper Government Securities Subaccount, and the Scudder VLIF
Bond Subaccount is computed in accordance with a standard method prescribed by
rules of the Securities and Exchange Commission. The yields for the Kemper High
Yield Subaccount, the Kemper Government Securities Subaccount and the Kemper
Investment Grade Bond Subaccount, based upon the one month period ended March
31, 1999 were 8.33%, 4.07%, and 3.40%, respectively. The yield quotation is
computed by dividing the net investment income per unit earned during the
specified one month or 30-day period by the accumulation unit values on the last
day of the period, according to the following formula that assumes a semi-annual
reinvestment of income:

<TABLE>
<S> <C> <C>
a - b
-------
YIELD = 2[( +1)(6) - 1
cd
</TABLE>

a = net dividends and interest earned during the period by the Fund attributable
to the Subaccount

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of Accumulation Units outstanding during the period

d = the Accumulation Unit value per unit on the last day of the period

The yield of each Subaccount reflects the deduction of all recurring fees and
charges applicable to each Subaccount, but does not reflect the deduction of
withdrawal charges or premium taxes.

The Kemper Money Market Subaccount's yield is computed in accordance with a
standard method prescribed by rules of the Securities and Exchange Commission.
Under that method, the current yield quotation is based on a seven-day period
and computed as follows: the net change in the Accumulation Unit Value during
the period is divided by the Accumulation Unit Value at the beginning of the
period ("base period return") and the result is divided by 7 and multiplied by
365 and the current yield figure carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of the Account's portfolio are not included in the calculation. The
Kemper Money Market Subaccount's yield for the seven-day period ended March 31,
1999 was 3.04% and average portfolio maturity was 14 days.

The Kemper Money Market Subaccount's effective yield is determined by taking the
base period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period return
+1) (365) / (7) - 1. The Kemper Money Market Subaccount's effective yield for
the seven day period ended March 31, 1999 was 3.09%.

B-2
<PAGE> 55

In computing yield, the Separate Account follows certain standard accounting
practices specified by Securities and Exchange Commission rules. These practices
are not necessarily consistent with the accounting practices that the Separate
Account uses in the preparation of its annual and semi-annual financial
statements.

A Subaccount's performance quotations are based upon historical earnings and are
not necessarily representative of future performance. The Subaccount's units are
sold at Accumulation Unit value. Performance figures and Accumulation Unit value
will fluctuate. Factors affecting a Subaccount's performance include general
market conditions, operating expenses and investment management. Units of a
Subaccount are redeemable at Accumulation Unit value, which may be more or less
than original cost. The performance figures include the deduction of all
expenses and fees, including a prorated portion of the Records Maintenance
Charge. Redemptions within the first six years after purchase may be subject to
a Withdrawal Charge that ranges from 6% the first year to 0% after six years.
Yield, effective yield and nonstandardized total return do not reflect the
effect of the Withdrawal Charge or premium taxes that may be imposed upon the
redemption of units. Standardized average annual total return reflects the
effect of the applicable Withdrawal Charge (but not premium tax) that may be
imposed at the end of the period in question.

The Subaccounts may also provide comparative information on an annualized or
nonannualized (cumulative) basis with regard to various indexes, including the
Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index, the
Consumer Price Index, the CDA Certificate of Deposit Index, the Salomon Brothers
High Grade Corporate Bond Index, the Lehman Brothers Government/Corporate Bond
Index, the Merrill Lynch Government/Corporate Master Index, the Lehman Brothers
Long Government/Corporate Bond Index, the Lehman Brothers Government/Corporate
1-3 Year Bond Index, the Standard & Poor's Midcap 400 Index, the NASDAQ
Composite Index, the Russell 2000 Index and the Morgan Stanley Capital
International Europe, Australia, Far East Index. In addition, the Subaccounts
may provide performance analysis rankings of Lipper Analytical Services, Inc.,
the VARDS Report, MORNINGSTAR, INC., Ibbotson Associates or Micropal. Please
note the differences and similarities between the investments which a Subaccount
may purchase and the investments measured by the indexes which are described
below. In particular, it should be noted that certificates of deposit may offer
fixed or variable yields and principal is guaranteed and may be insured. The
units of the Subaccounts are not insured. Also, the value of the Subaccounts
will fluctuate. From time to time, the Separate Account may quote information
from publications such as MORNINGSTAR, INC., THE WALL STREET JOURNAL, MONEY
MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE, USA TODAY,
INSTITUTIONAL INVESTOR, NATIONAL UNDERWRITER, SELLING LIFE INSURANCE, BROKER
WORLD, REGISTERED REPRESENTATIVE, INVESTMENT ADVISER and VARDS.

The following tables include standardized average annual total return and
nonstandardized total return quotations for various periods as of December 31,
1998, and compares these quotations to various indexes.

B-3
<PAGE> 56

PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
NONSTANDARDIZED ANNUAL
TOTAL RETURN(1) TOTAL
----------------------- RETURN(2)
YEAR TO DATE CUMULATIVE ------------
(%) ENDING (%) ANNUALIZED ANNUALIZED
RETURN(3) VALUE(4) RETURN (%) RETURN (%) RETURN
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER CONTRARIAN VALUE SUBACCOUNT.................... 17.73%
Life of Subaccount (from 05/01/96).................. 21.12%
Life of Portfolio (from 05/01/96)................... $17,595 75.95% 23.58% N/A
One Year............................................ 11,758 17.58 17.58 9.96
KEMPER VALUE+GROWTH SUBACCOUNT........................ 18.63
Life of Subaccount (from 05/01/96).................. 18.48
Life of Portfolio (from 05/01/96)................... 16,656 66.56 21.07 N/A
One Year............................................ 11,848 18.48 18.48 10.74
KEMPER HORIZON 20+ SUBACCOUNT......................... 11.59
Life of Subaccount (from 05/01/96).................. 13.71
Life of Portfolio (from 05/01/96)................... 15,123 51.23 16.77 N/A
One Year............................................ 11,139 11.39 11.39 3.72
JANUS ASPEN GROWTH SUBACCOUNT......................... 33.92
Life of Subaccount (from 09/15/95).................. 20.40
Life of Portfolio (from 10/09/93)................... 25,403 154.03 19.24 N/A
Five Years.......................................... 24,640 146.40 19.76 N/A
Three Years......................................... 18,912 89.13 23.67 20.99
One Year............................................ 13,374 33.74 33.74 25.01
FIDELITY VIP EQUITY-INCOME SUBACCOUNT................. 19.49
Life of Subaccount (from 05/01/96).................. 13.38
Life of Portfolio (from 10/09/86)................... 44,059 340.59 12.88 N/A
Ten Years........................................... 37,326 273.26 14.07 N/A
Five Years.......................................... 22,085 120.85 17.17 N/A
Three Years......................................... 15,674 56.74 16.16 N/A
One Year............................................ 11,005 10.05 10.05 2.84
FIDELITY VIP GROWTH SUBACCOUNT........................ 37.70
Life of Subaccount (from 05/01/96).................. 20.11
Life of Portfolio (from 10/09/86)................... 60,153 501.53 15.79 N/A
Ten Years........................................... 51,555 415.55 17.97 N/A
Five Years.......................................... 24,979 149.79 20.09 N/A
Three Years......................................... 18,951 89.51 23.75 N/A
One Year............................................ 13,753 37.53 37.53 28.73
FIDELITY VIP II INDEX 500 SUBACCOUNT.................. 26.68
Life of Subaccount (from 05/01/96).................. 23.92
Life of Portfolio (from 08/27/92)................... 31,038 210.38 19.53 N/A
Five Years.......................................... 27,086 170.86 22.04 N/A
Three Years......................................... 20,063 100.63 26.12 N/A
One Year............................................ 12,649 26.49 26.49 18.06
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-4
<PAGE> 57
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------------------------------
DOW JONES DOW JONES STANDARD & STANDARD & CONSUMER CONSUMER
INDUSTRIAL(5) INDUSTRIAL(5) POOR'S 500(6) POOR'S 500(6) PRICE INDEX(7) PRICE INDEX(7)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
------------- ------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER CONTRARIAN VALUE
SUBACCOUNT
Life of Portfolio (from
05/01/96)................. 70.51 22.98 92.24 28.83 4.93 1.88
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
KEMPER VALUE+GROWTH SUBACCOUNT
Life of Portfolio (from
05/01/96)................. 70.51 22.98 92.24 28.83 4.93 1.88
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
KEMPER HORIZON 20+ SUBACCOUNT
Life of Portfolio (from
05/01/96)................. 70.51 22.98 92.24 28.83 4.93 1.88
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
JANUS ASPEN GROWTH SUBACCOUNT
Life of Portfolio (from
09/13/93)................. 190.32 22.51 200.72 23.33 12.96 2.35
Three Years................. 89.86 23.83 110.85 28.23 6.78 2.21
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
FIDELITY VIP EQUITY-INCOME
SUBACCOUNT
Life of Portfolio (from
10/09/86)................. N/A N/A 610.07 17.48 48.56 3.32
Ten Years................... 457.87 18.76 479.63 19.21 36.02 3.12
Five Years.................. 173.10 22.25 193.91 24.06 12.41 2.37
Three Years................. 89.86 23.83 110.85 28.23 6.78 2.21
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
FIDELITY VIP GROWTH SUBACCOUNT
Life of Portfolio (from
10/09/86)................. N/A N/A 610.07 17.48 48.56 3.32
Ten Years................... 457.87 18.76 479.63 19.21 36.02 3.12
Five Years.................. 173.10 22.25 193.91 24.06 12.41 2.37
Three Years................. 89.86 23.83 110.85 28.23 6.78 2.21
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
FIDELITY VIP II INDEX 500
SUBACCOUNT
Life of Portfolio (from
08/27/92)................. 226.47 20.57 243.82 21.54 16.32 2.42
Five Years.................. 173.10 22.25 193.91 24.06 12.41 2.37
Three Years................. 89.86 23.83 110.85 28.23 6.78 2.21
One Year.................... 18.13 18.13 28.58 28.58 1.61 1.61
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-5
<PAGE> 58
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
ANNUAL
NONSTANDARDIZED TOTAL
TOTAL RETURN(1) RETURN(2)
-------------------------------- --------------
YEAR TO DATE (%) ENDING CUMULATIVE (%) ANNUALIZED (%) ANNUALIZED (%)
RETURN(3) VALUE(4) RETURN RETURN RETURN
---------------- -------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)..... 3.82%
Life of Subaccount (from 04/06/82)... 4.45%
Life of Portfolio (from 04/06/82).... $23,418 134.18% 5.22% N/A
Ten Years............................ 14,713 47.13 3.94 2.47
Five Years........................... 11,834 18.34 3.42 0.73
Three Years.......................... 11,105 11.05 3.56 -0.03
One Year............................. 10,351 3.52 3.52 -4.62
KEMPER HIGH YIELD SUBACCOUNT(19)....... 0.15
Life of Subaccount (from 04/06/82)... 11.01
Life of Portfolio (from 04/06/82).... 60,289 502.89 11.34 N/A
Ten Years............................ 23,083 130.83 8.72 7.66
Five Years........................... 13,778 37.78 6.62 4.57
Three Years.......................... 12,361 23.61 7.32 4.41
One Year............................. 9,994 -0.06 -0.06 -7.22
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT........................... 5.66
Life of Subaccount (from 11/03/89)... 5.36
Life of Portfolio (from 09/03/87).... 20,092 100.92 6.35 N/A
Ten Years............................ 19,683 96.83 7.00 6.16
Five Years........................... 12,867 28.67 5.17 3.17
Three Years.......................... 11,445 14.45 4.60 1.69
One Year............................. 10,545 5.45 5.45 -2.01
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT........................... 6.55
Life of Subaccount (from 05/01/96)... 3.84
Life of Portfolio (from 05/01/96).... 11,746 17.46 6.21 N/A
One Year............................. 10,642 6.42 6.42 -0.40
SCUDDER VLIF BOND SUBACCOUNT...........
Life of Subaccount (from 05/01/99)... 5.21 N/A N/A N/A N/A
Life of Portfolio (from 07/16/85).... 24,878 148.78 7.00 N/A
Ten Years............................ 20,180 101.80 7.27 N/A
Five Years........................... 12,611 26.11 4.75 N/A
Three Years.......................... 11,500 15.00 4.77 N/A
One Year............................. 10,521 5.21 5.21 N/A
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-6
<PAGE> 59
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------------------------------------------------
MERRILL LYNCH MERRILL LYNCH LEHMAN BROS.
CDA CERT CDA CERT HIGH YIELD HIGH YIELD GOVT/CORP
CONSUMER CONSUMER OF DEPOSIT OF DEPOSIT MASTER MASTER BOND
PRICE INDEX(7) PRICE INDEX(7) INDEX(8) INDEX(8) INDEX(9) INDEX(9) INDEX(10)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE %
RETURN RETURN RETURN RETURN RETURN RETURN RETURN
-------------- -------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET
SUBACCOUNT(20)
Life of Portfolio
(from
04/06/82)........ 72.70 3.33 178.48 6.34 N/A N/A N/A
Ten Years.......... 36.02 3.12 65.18 5.15 186.00 11.08 N/A
Five Years......... 12.41 2.37 26.32 4.78 53.95 9.01 N/A
Three Years........ 6.78 2.21 15.78 5.01 29.90 9.11 N/A
One Year........... 1.61 1.61 5.12 5.12 3.66 3.66 N/A
KEMPER HIGH YIELD
SUBACCOUNT(19)
Life of Portfolio
(from
04/06/82)........ 72.70 3.33 N/A N/A N/A N/A 476.73
Ten Years.......... 36.02 3.12 N/A N/A 186.00 11.08 144.10
Five Years......... 12.41 2.37 N/A N/A 53.95 9.01 42.26
Three Years........ 6.78 2.21 N/A N/A 29.90 9.11 23.64
One Year........... 1.61 1.61 N/A N/A 3.66 3.66 9.47
KEMPER GOVERNMENT
SECURITIES
SUBACCOUNT
Life of Portfolio
(from
09/03/87)........ 42.56 3.20 N/A N/A 228.15 11.14 177.93
Ten Years.......... 36.02 3.12 N/A N/A 186.00 11.08 144.10
Five Years......... 12.41 2.37 N/A N/A 53.95 9.01 42.26
Three Years........ 6.78 2.21 N/A N/A 29.90 9.11 23.64
One Year........... 1.61 1.61 N/A N/A 3.66 3.66 9.47
KEMPER INVESTMENT
GRADE BOND
SUBACCOUNT
Life of Portfolio
(from
05/01/96)........ 4.93 1.88 N/A N/A 27.06 9.73 27.69
One Year........... 1.61 1.61 N/A N/A 3.66 3.66 9.47
SCUDDER VLIF BOND
SUBACCOUNT
Life of Portfolio
(from 07/16/85).. 52.34 3.18 N/A N/A 330.78 11.50 241.86
Ten Years.......... 36.02 3.12 N/A N/A 186.00 11.08 144.10
Five Years......... 12.41 2.37 N/A N/A 53.95 9.01 42.26
Three Years........ 6.78 2.21 N/A N/A 29.90 9.11 23.64
One Year........... 1.61 1.61 N/A N/A 3.66 3.66 9.47

<CAPTION>
COMPARED TO
------------
LEHMAN BROS.
GOVT/CORP
BOND
INDEX(10)
ANNUALIZED %
RETURN
------------
<S> <C>
KEMPER MONEY MARKET
SUBACCOUNT(20)
Life of Portfolio
(from
04/06/82)........ N/A
Ten Years.......... N/A
Five Years......... N/A
Three Years........ N/A
One Year........... N/A
KEMPER HIGH YIELD
SUBACCOUNT(19)
Life of Portfolio
(from
04/06/82)........ 11.08
Ten Years.......... 9.33
Five Years......... 7.30
Three Years........ 7.33
One Year........... 9.47
KEMPER GOVERNMENT
SECURITIES
SUBACCOUNT
Life of Portfolio
(from
09/03/87)........ 9.51
Ten Years.......... 9.33
Five Years......... 7.30
Three Years........ 7.33
One Year........... 9.47
KEMPER INVESTMENT
GRADE BOND
SUBACCOUNT
Life of Portfolio
(from
05/01/96)........ 9.94
One Year........... 9.47
SCUDDER VLIF BOND
SUBACCOUNT
Life of Portfolio
(from 07/16/85).. 9.59
Ten Years.......... 9.33
Five Years......... 7.30
Three Years........ 7.33
One Year........... 9.47
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-7
<PAGE> 60
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
--------------------------------------------------------------------------------------
LEHMAN BROS
MERRILL LYNCH MERRILL LYNCH LEHMAN BROS LEHMAN BROS GOVT/CORP
GOVT/CORP GOVT/CORP LONG GOVT/CORP LONG GOVT/CORP 1-3 YEAR
MASTER INDEX(11) MASTER INDEX(11) BOND INDEX(12) BOND INDEX(12) BOND INDEX(13)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE %
RETURN RETURN RETURN RETURN RETURN
---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)
Life of Portfolio (from
04/06/82)....................... N/A N/A N/A N/A N/A
Ten Years......................... N/A N/A N/A N/A N/A
Five Years........................ N/A N/A N/A N/A N/A
Three Years....................... N/A N/A N/A N/A N/A
One Year.......................... N/A N/A N/A N/A N/A
KEMPER HIGH YIELD SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)....................... 477.38 11.09 N/A N/A N/A
Ten Years......................... 144.55 9.35 N/A N/A N/A
Five Years........................ 42.50 7.34 N/A N/A N/A
Three Years....................... 23.81 7.38 N/A N/A N/A
One Year.......................... 9.53 9.53 N/A N/A N/A
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
Life of Portfolio (from
09/03/87)....................... 178.88 9.54 256.65 11.97 N/A
Ten Years......................... 144.55 9.35 198.02 11.54 N/A
Five Years........................ 42.50 7.34 56.38 9.35 N/A
Three Years....................... 23.81 7.38 29.47 8.99 N/A
One Year.......................... 9.53 9.53 13.41 13.41 N/A
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
Life of Portfolio (from
05/01/96)....................... 27.68 9.93 N/A N/A N/A
One Year.......................... 9.53 9.53 N/A N/A N/A
SCUDDER VLIF BOND SUBACCOUNT
Life of Portfolio (from
07/16/85)....................... 243.57 9.63 N/A N/A N/A
Ten Years......................... 144.55 9.35 N/A N/A N/A
Five Years........................ 42.50 7.34 N/A N/A N/A
Three Years....................... 23.81 7.38 N/A N/A N/A
One Year.......................... 9.53 9.53 N/A N/A N/A

<CAPTION>
COMPARED TO
--------------
LEHMAN BROS
GOVT/CORP
1-3 YEAR
BOND INDEX(13)
ANNUALIZED %
RETURN
--------------
<S> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)
Life of Portfolio (from
04/06/82)....................... N/A
Ten Years......................... N/A
Five Years........................ N/A
Three Years....................... N/A
One Year.......................... N/A
KEMPER HIGH YIELD SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)....................... N/A
Ten Years......................... N/A
Five Years........................ N/A
Three Years....................... N/A
One Year.......................... N/A
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
Life of Portfolio (from
09/03/87)....................... N/A
Ten Years......................... N/A
Five Years........................ N/A
Three Years....................... N/A
One Year.......................... N/A
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
Life of Portfolio (from
05/01/96)....................... N/A
One Year.......................... N/A
SCUDDER VLIF BOND SUBACCOUNT
Life of Portfolio (from
07/16/85)....................... N/A
Ten Years......................... N/A
Five Years........................ N/A
Three Years....................... N/A
One Year.......................... N/A
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-8
<PAGE> 61
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
NONSTANDARDIZED ANNUAL
TOTAL RETURN(1) TOTAL
------------------------ RETURN(2)
CUMULATIVE ANNUALIZED ------------
YEAR TO DATE(%) (%) (%) ANNUALIZED
RETURN(3) ENDING VALUE(4) RETURN RETURN (%) RETURN
--------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER GROWTH SUBACCOUNT................ 13.63%
Life of Subaccount (from 12/09/83).... 13.34%
Life of Portfolio (from 12/09/83)..... $69,098 590.98% 13.69% N/A
Ten Years............................. 46,247 362.47 16.55 15.88
Five Years............................ 20,167 101.67 15.06 12.99
Three Years........................... 16,263 62.63 17.60 14.51
One Year.............................. 11,339 13.39 13.39 5.23
FIDELITY VIP II CONTRAFUND SUBACCOUNT... 28.31
Life of Subaccount (from 05/01/96).... 20.69
Life of Portfolio (from 01/03/95)..... 25,898 158.98 26.90 N/A
Three Years........................... 18,768 87.68 23.35 N/A
One Year.............................. 12,816 28.16 28.16 19.96
LEXINGTON NATURAL RESOURCES
SUBACCOUNT............................ -20.65
Life of Subaccount (from 09/15/95).... 0.03
Life of Portfolio (10/14/91).......... 12,832 28.32 3.51 N/A
Five Years............................ 11,280 12.80 2.44 N/A
Three Years........................... 10,481 4.81 1.58 -0.42
One Year.............................. 7,925 -20.75 -20.75 -25.83
DREYFUS SOCIALLY RESPONSIBLE GROWTH
SUBACCOUNT............................ 27.74
Life of Subaccount (from 05/01/99).... N/A N/A N/A N/A
Life of Portfolio (from 10/07/93)..... 27,629 176.29 21.42 N/A
Five Years............................ 25,158 151.58 20.26 N/A
Three Years........................... 19,389 93.89 24.70 N/A
One Year.............................. 12,774 27.74 27.74 N/A
SCUDDER VLIF CAPITAL GROWTH
SUBACCOUNT............................ 21.65
Life of Subaccount (from 05/01/99).... N/A N/A N/A N/A
Life of Portfolio (from 07/16/85)..... 64,717 547.17 14.87 14.87
Ten Years............................. 41,858 318.58 15.39 15.39
Five Years............................ 21,893 118.93 16.97 16.54
Three Years........................... 19,331 93.31 24.57 23.06
One Year.............................. 12,165 21.65 21.65 15.08
ALGER AMERICAN GROWTH SUBACCOUNT........ 46.17
Life of Subaccount (from 05/01/99).... N/A N/A N/A N/A
Life of Portfolio (from 05/24/89)..... 57,495 474.95 19.96 N/A
Five Years............................ 27,371 173.71 22.31 N/A
Three Years........................... 20,303 103.03 26.62 N/A
One Year.............................. 14,617 46.17 46.17 N/A
AMERICAN CENTURY VP INCOME & GROWTH
SUBACCOUNT............................ 25.24
Life of Subaccount (from 05/01/99).... N/A N/A N/A N/A
Life of Portfolio (from 10/30/97)..... 13,471 34.71 29.01 N/A
One Year.............................. 12,524 25.24 25.24 N/A
AMERICAN CENTURY VP VALUE SUBACCOUNT.... 3.47
Life of Subaccount (from 05/01/99).... N/A N/A N/A N/A
Life of Portfolio (from 05/01/96)..... 14,336 43.46 14.45 N/A
One Year.............................. 10,347 3.47 3.47 N/A
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-9
<PAGE> 62
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
--------------------------------------------------------------------------------------------
STANDARD & STANDARD &
STANDARD & CONSUMER POOR'S POOR'S
STANDARD & POOR'S 500 CONSUMER PRICE INDEX MIDCAP MIDCAP
POOR'S 500 (5) (6) PRICE INDEX (7) (7) INDEX (14) INDEX (14)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
-------------- ------------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER GROWTH
SUBACCOUNT
Life of Portfolio
(from 12/09/83)..... 1,081.74 17.90 62.03 3.27 N/A N/A
Ten Years............. 479.63 19.21 36.02 3.12 483.64 19.29
Five Years............ 193.91 24.06 12.41 2.37 137.08 18.84
Three Years........... 110.85 28.23 6.78 2.21 87.78 23.37
One Year.............. 28.58 28.58 1.61 1.61 19.11 19.11
FIDELITY VIP II
CONTRAFUND SUBACCOUNT
Life of Portfolio
(from 01/03/95)..... 182.75 30.36 9.05 2.24 98.39 25.74
One Year.............. 28.58 28.58 1.61 1.61 19.11 19.11
LEXINGTON NATURAL
RESOURCES SUBACCOUNT
Life of Portfolio
(from 10/14/91)..... 272.37 20.13 19.29 2.49 155.79 16.31
Three Years........... 110.85 28.23 6.78 2.21 87.78 23.37
One Year.............. 28.58 28.58 1.61 1.61 19.11 19.11
DREYFUS SOCIALLY
RESPONSIBLE GROWTH
SUBACCOUNT............
Life of Portfolio
(from 10/07/93)..... 194.63 23.24 12.49 2.30 N/A N/A
Five Years............ 193.91 24.06 12.41 2.37 N/A N/A
Three Years........... 110.85 28.23 6.78 2.21 N/A N/A
One Year.............. 28.58 28.58 1.61 1.61 N/A N/A
SCUDDER VLIF CAPITAL
GROWTH SUBACCOUNT.....
Life of Portfolio
(from 07/16/85)..... 850.25 18.27 52.34 3.18 N/A N/A
Ten Years............. 479.63 19.21 36.02 3.12 N/A N/A
Five Years............ 193.91 24.06 12.41 2.37 N/A N/A
Three Years........... 110.85 28.23 6.78 2.21 N/A N/A
One Year.............. 28.58 28.58 1.61 1.61 N/A N/A
ALGER AMERICAN GROWTH
SUBACCOUNT............
Life of Portfolio
(from 05/24/89)..... 394.53 18.14 32.64 2.99 N/A N/A
Five Years............ 193.91 24.06 12.41 2.37 N/A N/A
Three Years........... 110.85 28.23 6.78 2.21 N/A N/A
One Year.............. 28.58 28.58 1.61 1.61 N/A N/A

<CAPTION>
COMPARED TO
---------------------------

NASDAQ NASDAQ
COMPOS (15) COMPOS (15)
CUMULATIVE % ANNUALIZED %
RETURN RETURN
------------ ------------
<S> <C> <C>
KEMPER GROWTH
SUBACCOUNT
Life of Portfolio
(from 12/09/83)..... 687.04 14.74
Ten Years............. 474.94 19.11
Five Years............ 182.27 23.06
Three Years........... 108.40 27.73
One Year.............. 39.63 39.63
FIDELITY VIP II
CONTRAFUND SUBACCOUNT
Life of Portfolio
(from 01/03/95)..... 190.35 31.25
One Year.............. 39.63 39.63
LEXINGTON NATURAL
RESOURCES SUBACCOUNT
Life of Portfolio
(from 10/14/91)..... 303.83 21.49
Three Years........... 108.40 27.73
One Year.............. 39.63 39.63
DREYFUS SOCIALLY
RESPONSIBLE GROWTH
SUBACCOUNT............
Life of Portfolio
(from 10/07/93)..... 181.38 22.15
Five Years............ 182.27 23.06
Three Years........... 108.40 27.73
One Year.............. 39.63 39.63
SCUDDER VLIF CAPITAL
GROWTH SUBACCOUNT.....
Life of Portfolio
(from 07/16/85)..... 627.77 15.94
Ten Years............. 474.94 19.11
Five Years............ 182.27 23.06
Three Years........... 108.40 27.73
One Year.............. 39.63 39.63
ALGER AMERICAN GROWTH
SUBACCOUNT............
Life of Portfolio
(from 05/24/89)..... 391.45 18.06
Five Years............ 182.27 23.06
Three Years........... 108.40 27.73
One Year.............. 39.63 39.63
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-10
<PAGE> 63
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<CAPTION>
COMPARED TO
---------------------------

NASDAQ NASDAQ
COMPOS (15) COMPOS (15)
CUMULATIVE % ANNUALIZED %
RETURN RETURN
------------ ------------
<S> <C> <C>
AMERICAN CENTURY VP
INCOME & GROWTH
SUBACCOUNT............
Life of Portfolio
(from 10/30/97)..... 37.59 31.36
One Year.............. N/A N/A
AMERICAN CENTURY VP
VALUE SUBACCOUNT......
Life of Portfolio
(from 05/01/96)..... 76.34 24.59
One Year.............. N/A N/A
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-11
<PAGE> 64
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
ANNUAL
NONSTANDARDIZED TOTAL
TOTAL RETURN(1) RETURN(2)
----------------------- ------------
YEAR TO DATE CUMULATIVE ANNUALIZED ANNUALIZED
(%) ENDING (%) (%) (%)
RETURN(3) VALUE(4) RETURN RETURN RETURN
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER SMALL CAP GROWTH SUBACCOUNT....................... 16.85%
Life of Subaccount (from 05/01/94)..................... 21.12%
Life of Portfolio (from 05/01/94)...................... $25,795 157.95% 22.50% N/A
Three Years............................................ 19,512 95.12 24.88 22.35
One Year............................................... 11,669 16.69 16.69 9.05
KEMPER SMALL CAP VALUE SUBACCOUNT........................ -12.39
Life of Subaccount (from 05/01/96)..................... 0.01
Life of Portfolio (from 05/01/96)...................... 10,606 6.06 2.23 N/A
One Year............................................... 8,750 -12.50 -12.50 -18.18
JANUS ASPEN AGGRESSIVE GROWTH SUBACCOUNT................. 32.54
Life of Subaccount (from 09/15/95)..................... 14.30
Life of Portfolio (from 09/13/93)...................... 26,603 166.03 20.28 N/A
Five Years............................................. 22,612 126.12 17.73 N/A
Three Year............................................. 15,652 56.52 16.11 13.49
One Year............................................... 13,237 32.37 32.37 23.76
J.P. MORGAN SMALL COMPANY SUBACCOUNT..................... -6.72
Life of Subaccount (from 05/01/99)..................... N/A N/A N/A N/A
Life of Portfolio (from 12/31/94)...................... 17,788 77.88 15.48 N/A
Three Years............................................ 15,231 52.31 15.06 N/A
One Year............................................... 9,328 -6.72 -6.72 N/A
ALGER AMERICAN SMALL CAPITALIZATION SUBACCOUNT........... 14.05
Life of Subaccount (from 05/01/99)..................... N/A N/A N/A N/A
Life of Portfolio (from 09/21/88)...................... 51,714 417.14 17.32 N/A
Ten Years.............................................. 53,700 437.00 18.30 N/A
Five Years............................................. 17,338 73.38 11.63 N/A
Three Years............................................ 12,897 28.97 8.85 N/A
One Year............................................... 11,405 14.05 14.05 N/A
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-12
<PAGE> 65
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------------------------
CONSUMER PRICE CONSUMER PRICE RUSSELL 2000 RUSSELL 2000 NASDAQ NASDAQ
INDEX(7) INDEX(7) INDEX(16) INDEX(16) COMPOS(15) COMPOS(15)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
-------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER SMALL CAP GROWTH SUBACCOUNT
Life of Portfolio (from
05/01/94)....................... 11.12 2.33 80.95 13.79 198.25 26.88
Three Years....................... 6.78 2.21 38.92 11.58 108.40 27.73
One Year.......................... 1.61 1.61 -2.55 -2.55 39.63 39.63
KEMPER SMALL CAP VALUE SUBACCOUNT
Life of Portfolio (from
05/01/96)....................... 4.93 1.88 20.71 7.57 76.34 24.59
One Year.......................... 1.61 1.61 -2.55 -2.55 39.63 39.63
JANUS ASPEN AGGRESSIVE GROWTH
SUBACCOUNT
Life of Portfolio (from
09/13/93)....................... 12.96 2.35 79.72 11.81 187.46 22.28
Three Years....................... 6.78 2.21 38.92 11.58 108.40 27.73
One Year.......................... 1.61 1.61 -2.55 -2.55 39.63 39.63
J.P. MORGAN SMALL COMPANY
SUBACCOUNT........................
Life of Portfolio (from
12/31/94)....................... N/A N/A N/A N/A N/A N/A
Three Years....................... 6.78 2.21 38.92 11.58 108.40 27.73
One Year.......................... 1.61 1.61 -2.55 -2.55 39.63 39.63
ALGER AMERICAN SMALL CAPITALIZATION
SUBACCOUNT........................
Life of Portfolio (from
09/21/88)....................... N/A N/A N/A N/A N/A N/A
Ten Years......................... 36.02 3.12 237.16 12.92 474.94 19.11
Five Years........................ 12.41 2.37 75.19 11.87 182.27 23.06
Three Years....................... 6.78 2.21 38.92 11.58 108.40 27.73
One Year.......................... 1.61 1.61 -2.55 -2.55 39.63 39.63
</TABLE>

The performance data quoted for the Subaccounts is based on past performance and
is not representative of future

results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth

more or less than their original cost. Information regarding the indexes used
for comparison were obtained

from outside sources, have not been independently verified and do not reflect
the deduction of

any Contract charges or fees. See page B-18 for additional information.

B-13
<PAGE> 66
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
NONSTANDARDIZED ANNUAL
TOTAL RETURN(1) TOTAL
---------------------------- RETURN(2)
YEAR TO DATE CUMULATIVE ANNUALIZED ------------
(%) ENDING (%) (%) ANNUALIZED
RETURN(3) VALUE(4) RETURN RETURN (%) RETURN
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18).................. 8.61%
Life of Subaccount (from 01/06/92)................. 7.92%
Life of Portfolio (from 01/06/92).................. 18,253 82.53% 8.99% N/A
Five Years......................................... 14,213 42.13 7.28 5.59
Three Years........................................ 13,445 34.45 10.37 7.82
One Year........................................... 10,844 8.44 8.44 1.19
JANUS ASPEN WORLDWIDE GROWTH SUBACCOUNT(18).......... 27.27
Life of Subaccount (from 09/15/95)................. 21.96
Life of Portfolio (from 09/13/93).................. 29,134 191.34 22.36 N/A
Five Years......................................... 24,545 145.45 19.67 N/A
Three Years........................................ 19,493 94.93 24.92 22.37
One Year........................................... 12,710 27.10 27.10 18.83
LEXINGTON EMERGING MARKETS(18)
SUBACCOUNT......................................... -29.12
Life of Subaccount (from 09/15/95)................. -14.98
Life of Portfolio (from 03/30/94).................. 6,047 -39.53 -10.03 N/A
Three Years........................................ 6,540 -34.60 -13.17 -15.19
One Year........................................... 7,079 -29.22 -29.22 -33.82
SCUDDER VLIF INTERNATIONAL SUBACCOUNT(18)............ 16.97
Life of Subaccount (from 05/01/99)................. N/A N/A N/A N/A
Life of Portfolio (from 05/01/87).................. 27,777 177.77 9.14 9.14
Ten Years.......................................... 27,208 172.08 10.53 10.53
Five Years......................................... 15,319 53.19 8.91 8.51
Three Years........................................ 14,268 42.68 12.58 11.21
One Year........................................... 11,697 16.97 16.97 10.65
</TABLE>

<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------
STANDARD & STANDARD & CONSUMER PRICE CONSUMER PRICE
POOR'S 500(6) POOR'S 500(6) INDEX(7) INDEX(7)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18)
Life of Portfolio (from 01/06/92).................... 254.80 20.08 18.90 2.53
Five Years........................................... 193.91 24.06 12.41 2.37
Three Years.......................................... 110.85 28.23 6.78 2.21
One Year............................................. 28.58 28.58 1.61 1.61
JANUS ASPEN WORLDWIDE GROWTH SUBACCOUNT(18)
Life of Portfolio (from 09/13/93).................... 200.72 23.33 12.96 2.35
Three Years.......................................... 110.85 28.23 6.78 2.21
One Year............................................. 28.58 28.58 1.61 1.61
LEXINGTON EMERGING MARKETS SUBACCOUNT(18)
Life of Portfolio (from 03/30/94).................... 205.50 26.50
Three Years.......................................... 110.85 28.23 6.78 2.21
One Year............................................. 28.58 28.58 1.61 1.61
SCUDDER VLIF INTERNATIONAL SUBACCOUNT(18)
Life of Portfolio (from 05/01/87).................... 486.38 16.49 45.19 3.27
Ten Years............................................ 479.63 19.21 36.02 3.12
Five Years........................................... 193.91 24.06 12.41 2.37
Three Years.......................................... 110.85 28.23 6.78 2.21
One Year............................................. 28.58 28.58 1.61 1.61
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-14
<PAGE> 67
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1998)
(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------
MORGAN STANLEY MORGAN STANLEY
MORGAN STANLEY MORGAN STANLEY INTER'L WORLD INTER'L WORLD
EAFE INDEX (17) EAFE INDEX (17) INDEX (21) INDEX (21)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18)
Life of Portfolio (from 01/06/92).......... 84.67 9.27 145.16 13.84
Five Years................................. 55.23 9.19 107.19 15.68
Three Years................................ 29.52 9.00 63.34 17.77
One Year................................... 20.00 20.00 24.34 24.34
JANUS ASPEN WORLDWIDE GROWTH SUBACCOUNT(18)
Life of Portfolio (from 09/13/93).......... 110.54 15.24
Three Years................................ 56.58 8.92 63.34 17.77
One Year................................... 20.00 20.00 24.34 24.34
LEXINGTON EMERGING MARKETS SUBACCOUNT(18)
Life of Portfolio (from 03/30/94).......... 49.99 8.91 105.93 16.43
Three Years................................ 29.52 9.00 63.34 17.77
One Year................................... 20.00 20.00 24.34 24.34
SCUDDER VLIF INTERNATIONAL SUBACCOUNT (18)
Life of Portfolio (from 05/01/87).......... 101.10 6.21 203.78 10.06
Ten Years.................................. 71.48 5.54 175.33 10.66
Five Years................................. 55.23 9.19 107.19 15.68
Three Years................................ 29.52 9.00 63.34 17.77
One Year................................... 20.00 20.00 24.34 24.34
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-15
<PAGE> 68
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE
ANNUAL
NONSTANDARDIZED TOTAL
TOTAL RETURN(1) RETURN(2)
---------------------------------- --------------
YEAR TO DATE ENDING CUMULATIVE (%) ANNUALIZED (%) ANNUALIZED (%)
(%) RETURN(3) VALUE(4) RETURN RETURN RETURN
------------- -------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN SUBACCOUNT(19)......... 13.66%
Life of Subaccount (from 04/06/82)....... 11.67%
Life of Portfolio (from 04/06/82)........ $69,811 598.11% 12.32% N/A
Ten Years................................ 33,227 232.27 12.76 11.59
Five Years............................... 17,047 70.47 11.26 8.55
Three Years.............................. 15,417 54.17 15.52 11.93
One Year................................. 11,336 13.36 13.36 4.64
KEMPER HORIZON 10+ SUBACCOUNT.............. 9.90
Life of Subaccount (from 05/01/96)....... 10.44
Life of Portfolio (from 05/01/96)........ 13,941 39.41 13.26 N/A
One Year................................. 10,973 9.73 9.73 2.31
KEMPER HORIZON 5 SUBACCOUNT................ 8.34
Life of Subaccount (from 05/01/96)....... 7.24
Life of Portfolio (from 05/01/96)........ 13,037 30.36 10.45 N/A
One Year................................. 10,816 8.16 8.16 0.24
JANUS ASPEN BALANCED SUBACCOUNT............ 32.56
Life of Subaccount (from 09/15/95)....... 19.99
Life of Portfolio (from 09/13/93)........ 23,910 139.10 17.88 N/A
Five Years............................... 22,388 123.88 17.49 N/A
Three Years.............................. 18,267 82.67 22.24 19.61
One Year................................. 13,238 32.38 32.38 23.69
FIDELITY VIP II ASSET MANAGER SUBACCOUNT... 13.57
Life of Subaccount (from 05/01/96)....... 12.87
Life of Portfolio (from 09/06/89)........ 28,409 184.09 11.85 N/A
Five Years............................... 16,305 63.05 10.27 N/A
Three Years.............................. 15,252 52.52 15.11 N/A
One Year................................. 11,341 13.41 13.41 5.84
</TABLE>

<TABLE>
<CAPTION>
COMPARED TO
----------------------------------------------------------------------------------------------
CONSUMER CONSUMER LEHMAN BROS LEHMAN BROS
STANDARD & STANDARD & PRICE PRICE GOVT/CORP 1-3 GOVT/CORP 1-3
POOR'S 500(6) POOR'S 500(6) INDEX(7) INDEX(7) YEAR BOND(13) YEAR BOND(13)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN
SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)................... N/A N/A 72.70 3.33 317.30 8.95
Ten Years..................... 1717.02 19.00 36.02 3.12 104.54 7.42
Five Years.................... 193.91 24.06 12.41 2.37 33.84 6.00
Three Years................... 110.85 28.23 6.78 2.21 19.95 6.25
One Year...................... 28.58 28.58 1.61 1.61 6.96 6.96
KEMPER HORIZON 10+ SUBACCOUNT
Life of Portfolio (from
05/01/96)................... 92.24 28.83 4.93 1.88 19.08 7.00
One Year...................... 28.58 28.58 1.61 1.61 6.96 6.96
KEMPER HORIZON 5 SUBACCOUNT
Life of Portfolio (from
05/01/96)................... 92.24 28.83 4.93 1.88 19.08 7.00
One Year...................... 28.58 28.58 1.61 1.61 6.96 6.96
JANUS ASPEN BALANCED SUBACCOUNT
Life of Portfolio (from
09/13/93)................... 200.72 23.33 12.96 2.35 34.73 5.84
Three Year.................... 110.85 28.23 6.78 2.21 19.95 6.25
One Year...................... 28.58 28.58 1.61 1.61 6.96 6.96
FIDELITY VIP II ASSET MANAGER
SUBACCOUNT
Life of Portfolio (from
09/06/89)................... 349.24 17.64 31.12 2.97 89.61 7.16
One Year...................... 28.58 28.58 1.61 1.61 6.96 6.96
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-16
<PAGE> 69
PERFORMANCE FIGURES

(AS OF DECEMBER 31, 1998)

(CONTINUED)

<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------
MERRILL LYNCH MERRILL LYNCH LEHMAN BROS LEHMAN BROS
GOVT/CORP GOVT/CORP GOVT/CORP GOVT/CORP
MASTER INDEX (11) MASTER INDEX (11) BOND INDEX (10) BOND INDEX (10)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN SUBACCOUNT(19)
Life of Portfolio (from 04/06/82)....... 477.38 11.09 476.73 11.08
Ten Years............................... 144.55 9.35 144.10 9.33
Five Years.............................. 42.50 7.34 42.26 7.30
Three Years............................. 23.81 7.38 23.64 7.33
One Year................................ 9.53 9.53 9.47 9.47
KEMPER HORIZON 10+ SUBACCOUNT
Life of Portfolio (from 05/01/96)....... 27.68 9.93 27.69 9.94
One Year................................ 9.53 9.53 9.47 9.47
KEMPER HORIZON 5 SUBACCOUNT
Life of Portfolio (from 05/01/96)....... 27.68 9.93 27.69 9.94
One Year................................ 9.53 9.53 9.47 9.47
JANUS ASPEN BALANCED SUBACCOUNT
Life of Portfolio (from 09/13/93)....... 42.08 6.92 41.85 6.89
Three Year.............................. 23.81 7.38 23.64 7.33
One Year................................ 9.53 9.53 9.47 9.47
FIDELITY VIP II ASSET MANAGER SUBACCOUNT
Life of Portfolio (from 09/06/89)....... 121.81 8.99 121.39 8.97
One Year................................ 9.53 9.53 9.47 9.47
</TABLE>

any Contract charges or fees. See page B-18 for additional information.

B-17
<PAGE> 70

PERFORMANCE FIGURES--NOTES

* N/A Not Applicable

(1) The Nonstandardized total Return figures quoted are based on a hypothetical
$10,000 initial investment and assumes the deduction of all recurring
charges and fees applicable under the Contract except for the Withdrawal
Charge and any charge for applicable premium taxes which may be imposed in
certain states.

(2) The Standardized Average Annual Total Return figures quoted are based on a
hypothetical $1,000 initial investment and assumes the deduction of all
recurring charges and fees applicable under the Contract including the
applicable Withdrawal Charge that may be imposed at the end of the quoted
period. Premium taxes are not reflected.

(3) The Year to Date percentage return figures quoted are based on the change
in unit values.

(4) The Ending Values quoted are based on a $10,000 initial investment and
assumes the deduction of all recurring charges and fees applicable under
the Contract except for the Withdrawal Charge and any charge for applicable
premium taxes which may be imposed in certain states.

(5) The Dow Jones Industrial Average is an unmanaged unweighted average of
thirty blue chip industrial corporations listed on the New York Stock
Exchange. Assumes reinvestment of dividends.

(6) The Standard & Poor's 500 Stock Index is an unmanaged weighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends.

(7) The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of change, over time, in the prices of goods and
services in major expenditure groups.

(8) The CDA Certificate of Deposit Index is provided by CDA Investment
Technologies, Inc., Silver Spring, Maryland, and is based upon a
statistical sampling of the yield of 30-day certificates of deposit of
major commercial banks. Yield is based upon a monthly compounding of
interest.

(9) The Merrill Lynch High Yield Master Index consists of fixed-rate,
coupon-bearing bonds with an outstanding par, which is greater than or
equal to $50 million, a maturity range greater than or equal to one year
and must be less than BBB/Baa3 rated but not in default.

(10) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic
debt of the U.S. Government or any agency thereof, quasi-Federal
corporation, or corporate debt guaranteed by the U.S. Government and all
publicly issued, fixed-rate, non-convertible, domestic debt of the three
major corporate classifications: industrial, utility, and financial. Only
notes and bonds with a minimum outstanding principal amount of $1,000,000
and a minimum of one year are included. Bonds included must have a rating
of at least Baa by Moody's Investors Service, BBB by Standard & Poor's
Corporation or in the case of bank bonds not rated by either Moody's or
Standard & Poor's, BBB by Fitch Investors Service.

(11) The Merrill Lynch Government/Corporate Master Index is based upon the total
returns with all dividends reinvested of 4,000 corporate and 300 government
bonds issued with an intermediate average maturity and an average quality
rating of Aa (Moody's Investors Service, Inc.) /AA (Standard & Poor's
Corporation).

(12) The Lehman Brothers Long Government/Corporate Bond Index is composed of all
bonds covered by the Lehman Brothers Government/Corporate Bond Index with
maturities of 10 years or greater. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are balanced monthly by market capitalization.

(13) The Lehman Brothers Government/Corporate 1-3 Year Bond Index is composed of
all bonds covered by the Lehman Brothers Government/Corporate Bond Index
with maturities between one and three years.

(14) The Standard & Poor's Midcap 400 Index is a capitalization-weighted index
that measures the performance of the mid-range sector of the U.S. stock
market where the median market capitalization is approximately $700
million. The index was developed with a base level of 100 as of December
31, 1990.

(15) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ stocks. The index was developed with a base level of 100 as
of February 5, 1971.

(16) The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization. The index was developed with a base value of
135.00 as of December 31, 1986.

(17) The Morgan Stanley EAFE is the Morgan Stanley Capital International Europe,
Australia, Far East index. This index is an unmanaged index that is
considered to be generally representative of major non-United States stock
markets.

(18) There are special risks associated with investing in non-U.S. companies,
including fluctuating foreign currency exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect
portfolio securities.

(19) The high yield potential offered by these Subaccounts reflect the
substantial risks associated with investments in high-yield bonds.

(20) An investment in the Kemper Money Market Subaccount is neither insured nor
guaranteed by the U.S. government. There can be no assurance that the
Kemper Money Market Portfolio will be able to maintain a stable net asset
value of $1.00 per share.

(21) The Morgan Stanley International World Index is an arithmetic, market
value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore/Malaysia, South Africa Gold, Spain, Switzerland,
United Kingdom, and the United States. The index is calculated on a total
return basis, which includes reinvestment of gross dividends before
deduction of withholding taxes. The index covers about 60% of the issues
listed on the exchanges of the countries included.

B-18
<PAGE> 71

The following tables illustrate an assumed $10,000 investment in shares of
certain Subaccounts. The ending value does not include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period, and
thus may be higher than if such charge were deducted. Each table covers the
period from commencement of operations of the Subaccount to December 31, 1998.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
KEMPER TOTAL RETURN SUBACCOUNT
NON-
YEAR QUALIFIED QUALIFIED
ENDED TOTAL TOTAL
12/31 VALUE VALUE
- ----- --------- ---------
<C> <S> <C> <C>
1982 .................... $12,336 $11,769
1983 .................... 14,313 13,211
1984 .................... 13,427 12,508
1985 .................... 17,019 15,853
1986 .................... 19,328 18,003
1987 .................... 19,188 17,872
1988 .................... 21,207 19,752
1989 .................... 25,945 24,164
1990 .................... 26,889 25,043
1991 .................... 36,583 34,069
1992 .................... 36,703 34,179
1993 .................... 40,598 37,805
1994 .................... 36,253 33,758
1995 .................... 45,056 41,953
1996 .................... 51,903 48,327
1997 .................... 61,440 57,204
1998 .................... 69,811 64,996
</TABLE>

<TABLE>
<CAPTION>
KEMPER HIGH YIELD SUBACCOUNT
NON-
YEAR QUALIFIED QUALIFIED
ENDED TOTAL TOTAL
12/31 VALUE VALUE
- ----- --------- ---------
<C> <S> <C> <C>
1982 .................... $12,363 $11,920
1983 .................... 14,000 13,427
1984 .................... 15,557 15,155
1985 .................... 18,686 18,203
1986 .................... 21,710 21,149
1987 .................... 22,693 22,105
1988 .................... 25,944 25,273
1989 .................... 25,278 24,624
1990 .................... 21,092 20,546
1991 .................... 31,597 30,778
1992 .................... 36,712 35,760
1993 .................... 43,466 42,338
1994 .................... 41,931 40,843
1995 .................... 48,576 47,315
1996 .................... 54,699 53,249
1997 .................... 60,215 58,651
1998 .................... 60,289 58,723
</TABLE>

<TABLE>
<CAPTION>
KEMPER INTERNATIONAL SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1992 ................................ $ 9,803
1993 ................................ 12,836
1994 ................................ 12,187
1995 ................................ 13,559
1996 ................................ 15,576
1997 ................................ 16,818
1998 ................................ 18,253
</TABLE>

<TABLE>
<CAPTION>
KEMPER SMALL CAP GROWTH SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1994 ................................ $10,296
1995 ................................ 13,208
1996 ................................ 16,680
1997 ................................ 22,085
1998 ................................ 25,795
</TABLE>

<TABLE>
<CAPTION>
KEMPER GROWTH SUBACCOUNT
NON-
YEAR QUALIFIED QUALIFIED
ENDED TOTAL TOTAL
12/31 VALUE VALUE
- ----- --------- ---------
<C> <S> <C> <C>
1983 .................... $10,290 $10,271
1984 .................... 11,254 11,237
1985 .................... 13,898 13,877
1986 .................... 14,986 14,965
1987 .................... 15,043 15,022
1988 .................... 14,908 14,887
1989 .................... 18,871 18,844
1990 .................... 18,736 18,709
1991 .................... 29,479 29,437
1992 .................... 30,123 30,080
1993 .................... 34,063 34,011
1994 .................... 32,261 32,215
1995 .................... 42,330 42,269
1996 .................... 50,798 50,725
1997 .................... 60,828 60,741
1998 .................... 69,098 68,998
</TABLE>

<TABLE>
<CAPTION>
KEMPER MONEY MARKET SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1982 ................................ $10,747
1983 ................................ 11,575
1984 ................................ 12,630
1985 ................................ 13,479
1986 ................................ 14,185
1987 ................................ 14,922
1988 ................................ 15,827
1989 ................................ 17,045
1990 ................................ 18,195
1991 ................................ 19,003
1992 ................................ 19,385
1993 ................................ 19,661
1994 ................................ 20,157
1995 ................................ 21,001
1996 ................................ 21,755
1997 ................................ 22,581
1998 ................................ 23,418
</TABLE>

B-19
<PAGE> 72

<TABLE>
<CAPTION>
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1987 ................................ $10,030
1988 ................................ 10,232
1989 ................................ 11,437
1990 ................................ 12,396
1991 ................................ 14,084
1992 ................................ 14,708
1993 ................................ 15,559
1994 ................................ 14,925
1995 ................................ 17,511
1996 ................................ 17,711
1997 ................................ 19,032
1998 ................................ 20,092
</TABLE>

<TABLE>
<CAPTION>
KEMPER CONTRARIAN VALUE SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,628
1997 ................................ 14,954
1998 ................................ 17,595
</TABLE>

<TABLE>
<CAPTION>
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,260
1997 ................................ 11,033
1998 ................................ 11,746
</TABLE>

<TABLE>
<CAPTION>
KEMPER HORIZON 20+ SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,422
1997 ................................ 13,566
1998 ................................ 15,123
</TABLE>

<TABLE>
<CAPTION>
KEMPER HORIZON 5 SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,850
1997 ................................ 12,049
1998 ................................ 13,037
</TABLE>

<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,091
1997 ................................ 12,117
1998 ................................ 10,606
</TABLE>

<TABLE>
<CAPTION>
KEMPER VALUE + GROWTH SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,354
1997 ................................ 14,051
1998 ................................ 16,656
</TABLE>

<TABLE>
<CAPTION>
KEMPER HORIZON 10+ SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,028
1997 ................................ 12,689
1998 ................................ 13,941
</TABLE>

<TABLE>
<CAPTION>
JANUS ASPEN GROWTH SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $10,327
1996 ................................ 12,062
1997 ................................ 14,602
1998 ................................ 19,541
</TABLE>

<TABLE>
<CAPTION>
JANUS ASPEN WORLDWIDE GROWTH
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $10,425
1996 ................................ 13,266
1997 ................................ 15,984
1998 ................................ 20,330
</TABLE>

<TABLE>
<CAPTION>
LEXINGTON EMERGING MARKETS
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $ 9,547
1996 ................................ 10,111
1997 ................................ 8,820
1998 ................................ 6,244
</TABLE>

B-20
<PAGE> 73

<TABLE>
<CAPTION>
JANUS ASPEN AGGRESSIVE GROWTH
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $10,552
1996 ................................ 11,231
1997 ................................ 12,477
1998 ................................ 16,524
</TABLE>

<TABLE>
<CAPTION>
JANUS ASPEN BALANCED SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $10,547
1996 ................................ 12,082
1997 ................................ 14,549
1998 ................................ 19,273
</TABLE>

<TABLE>
<CAPTION>
LEXINGTON NATURAL RESOURCES
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1995 ................................ $10,032
1996 ................................ 12,556
1997 ................................ 13,272
1998 ................................ 10,523
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP EQUITY-INCOME SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,687
1997 ................................ 13,502
1998 ................................ 14,867
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP II ASSET MANAGER SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,916
1997 ................................ 12,987
1998 ................................ 14,736
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP II CONTRAFUND SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,145
1997 ................................ 13,646
1998 ................................ 17,498
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP GROWTH SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $10,347
1997 ................................ 12,599
1998 ................................ 17,336
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP II INDEX 500 SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1996 ................................ $11,366
1997 ................................ $14,874
1998 ................................ 18,828
</TABLE>

<TABLE>
<CAPTION>
SCUDDER VLIF BOND SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998 ................................ --
</TABLE>

<TABLE>
<CAPTION>
SCUDDER VLIF CAPITAL GROWTH
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998 ................................ --
</TABLE>

<TABLE>
<CAPTION>
SCUDDER VLIF INTERNATIONAL
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998 ................................ --
</TABLE>

<TABLE>
<CAPTION>
DREYFUS SOCIALLY RESPONSIBLE GROWTH
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998 ................................ --
</TABLE>

B-21
<PAGE> 74

<TABLE>
<CAPTION>
J.P. MORGAN SMALL COMPANY SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998. ................................ --
</TABLE>

<TABLE>
<CAPTION>
ALGER AMERICAN GROWTH SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998. ................................ --
</TABLE>

<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998. ................................ --
</TABLE>

<TABLE>
<CAPTION>
AMERICAN CENTURY VP INCOME & GROWTH
SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998. ................................ --
</TABLE>

<TABLE>
<CAPTION>
AMERICAN CENTURY VP VALUE SUBACCOUNT
QUALIFIED
AND NON-
YEAR QUALIFIED
ENDED TOTAL
12/31 VALUE
- ----- ---------
<C> <S> <C>
1998. ................................ --
</TABLE>

TAX-DEFERRED ACCUMULATION

<TABLE>
<CAPTION>
TAX-DEFERRED NON-QUALIFIED
RETIREMENT ANNUITY ANNUITY CONVENTIONAL
BEFORE-TAX CONTRIBUTIONS AFTER-TAX CONTRIBUTIONS SAVINGS PLAN
AND TAX-DEFERRED EARNINGS. AND TAX-DEFERRED EARNINGS. AFTER-TAX
-------------------------------- -------------------------------- CONTRIBUTIONS
TAXABLE LUMP TAXABLE LUMP AND TAXABLE
NO WITHDRAWALS SUM WITHDRAWAL NO WITHDRAWALS SUM WITHDRAWAL EARNINGS.
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
10 Years............... $ 36,256 $ 25,017 $ 25,017 $ 22,395 $ 21,974
20 Years............... 114,532 79,027 79,027 64,795 59,581
30 Years............... 283,522 195,630 195,630 150,385 123,940
</TABLE>

This chart compares the accumulation of monthly contributions into a
Tax-Deferred Retirement Annuity (such as a SIMPLE IRA or a Section 403(b)
annuity) through a payroll reduction program, a Non-Qualified Annuity and a
Conventional Savings Plan. Before-tax contributions to the Tax-Deferred
Retirement Annuity are $200 per month and the entire amount of a taxable lump
sum withdrawal will be subject to income tax. After-tax contributions to the
Non-Qualified Annuity and the Conventional Savings Plan are $138 per month. Only
the gain in the Non-Qualified Annuity will be subject to income tax in a taxable
lump sum withdrawal. The chart assumes a 31% federal marginal tax rate,
representative of the target market, and an 8% annual return. Tax rates are
subject to change as is the tax-deferred treatment of the Contracts.
Tax-deferred retirement accumulations, as well as the income on Non-Qualified
Annuities, are taxed as ordinary income upon withdrawal. A 10% tax penalty may
apply to early withdrawals. See "Federal Income Taxes" in the prospectus. The
chart does not reflect the following charges and expenses under Kemper Advantage
III: 1.00% mortality and expense risk; .30% administration charges; 6% maximum
deferred withdrawal charge; and $36 annual records maintenance charge. The
tax-deferred accumulation would be reduced if these charges were reflected. No
implication is intended by the use of these assumptions that the return shown is
guaranteed in any way or that the return shown represents an average or expected
rate of return over the period of the Contracts. [IMPORTANT--THIS IS NOT AN
ILLUSTRATION OF YIELD OR RETURN]

Unlike savings plans, contributions to tax-deferred retirement annuities and
Non-Qualified Annuities provide tax-deferred treatment on earnings. In addition,
contributions to tax-deferred retirement annuities are not subject to current
tax in the year of contribution. When monies are received from a tax-deferred
retirement annuity or Non-Qualified Annuity (and you have many different options
on how you receive your funds), they are subject to income tax. At the time of
receipt, if the person receiving the monies is retired, not working or has
additional tax exemptions, these monies may be taxed at a lesser rate.

B-22
<PAGE> 75

STATE REGULATION

KILICO is subject to the laws of Illinois governing insurance companies and to
regulation by the Illinois Department of Insurance. An annual statement in a
prescribed form is filed with the Illinois Department of Insurance each year.
KILICO's books and accounts are subject to review by the Department of Insurance
at all times, and a full examination of its operations is conducted
periodically. Such regulation does not, however, involve any supervision of
management or investment practices or policies. In addition, KILICO is subject
to regulation under the insurance laws of other jurisdictions in which it may
operate.

EXPERTS

The consolidated balance sheets of KILICO as of December 31, 1998 and 1997 and
the related consolidated statements of operations, comprehensive income,
stockholder's equity, and cash flows for the years ended December 31, 1998 and
1997 have been included herein and in the registration statement in reliance
upon the report of PricewaterhouseCoopers LLP, independent public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The consolidated statements of operations,
comprehensive income, stockholder's equity, and cash flows of KILICO and
subsidiaries for the period from January 4, 1996 to December 31, 1996 and the
financial statement schedules as of December 31, 1996 have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

The statements of assets and liabilities and contract owners' equity of the
Separate Account as of December 31, 1998, and the related statement of
operations and the statements of changes in contract owners' equity for the year
then ended and for each period presented have been included herein in reliance
upon the report of PricewaterhouseCoopers LLP, independent public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

CHANGE OF ACCOUNTANTS

On September 12, 1997, KILICO appointed the accounting firm of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), formerly Coopers &
Lybrand, L.L.P., as independent accountants for the year ended December 31, 1997
to replace KPMG LLP effective with such appointment. Our Board of Directors
approved the selection of PricewaterhouseCoopers as the new independent
accountants. Management had not consulted with PricewaterhouseCoopers on any
accounting, auditing or reporting matter, prior to that time.

During the fiscal year ended December 31, 1996, there were no disagreements with
KPMG LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events.
KPMG LLP's report on the financial statements for 1996 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.

There were no disagreements with PricewaterhouseCoopers on accounting or
financial disclosures for the years ended December 31, 1998 or 1997.

FINANCIAL STATEMENTS

This Statement of Additional Information contains financial statements for the
Separate Account which reflect assets attributable to the Contracts and also
reflect assets attributable to other variable annuity contracts offered by
KILICO through the Separate Account.

B-23
<PAGE> 76

REPORT OF INDEPENDENT ACCOUNTANTS

THE BOARD OF DIRECTORS OF

KEMPER INVESTORS LIFE INSURANCE COMPANY AND

CONTRACT OWNERS OF KILICO VARIABLE ANNUITY SEPARATE ACCOUNT:

In our opinion, the accompanying statement of assets and liabilities and
contract owners' equity and the related statement of operations and changes in
owner's equity present fairly, in all material respects, the financial position
of the subaccounts of KILICO Variable Annuity Separate Account, which includes
the Money Market Subaccount, Money Market Subaccount #2, Total Return
Subaccount, High Yield Subaccount, Growth Subaccount, Government Securities
Subaccount, International Subaccount, Small Cap Growth Subaccount, Investment
Grade Bond Subaccount, Contrarian Value Subaccount, Small Cap Value Subaccount,
Value+Growth Subaccount, Horizon 20+ Subaccount, Horizon 10+ Subaccount, and
Horizon 5 Subaccount (investment options within the Investors Fund Series),
Short-term Bond Subaccount, Growth Subaccount, Aggressive Growth Subaccount,
Worldwide Growth Subaccount, and Balanced Subaccount (investment options within
the Janus Aspen Series), Natural Resources Subaccount and Emerging Markets
Subaccount (investment options within the Lexington Funds), Equity-Income
Subaccount, Growth Subaccount, Asset Manager Subaccount, Index 500 Subaccount
and Contrafund Subaccount (investment options within the Fidelity VIP Funds),
thereof, at December 31, 1998 and the changes in their equity for the year then
ended and for the period presented, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Kemper Investors Life Insurance Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included direct confirmation of investments owned at December 31,
1998 by correspondence with transfer agents, provides a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers LLP

Chicago, Illinois

February 19, 1999

B-24
<PAGE> 77

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES AND CONTRACT OWNERS' EQUITY

DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
----------------------------------------------------------------------------------------------
MONEY MONEY TOTAL HIGH GOVERNMENT
MARKET MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
values....................... $106,985 4,700 737,296 262,814 538,414 78,453 145,348
Dividends and other
receivables.................. 223 9 2 1 12 -- 4
-------- ----- ------- ------- ------- ------ -------
Total assets............ 107,208 4,709 737,298 262,815 538,426 78,453 145,352
-------- ----- ------- ------- ------- ------ -------
LIABILITIES AND CONTRACT OWNERS'
EQUITY
Liabilities:
Mortality and expense risk
and administrative
charges.................... 103 -- 780 285 559 84 151
Units of Account Redeemed.... -- -- 6 -- -- 18 --
Other........................ 3 -- 133 168 122 6 20
-------- ----- ------- ------- ------- ------ -------
Total liabilities....... 106 -- 919 453 681 108 171
-------- ----- ------- ------- ------- ------ -------
Contract owners' equity........ $107,102 4,709 736,379 262,362 537,745 78,345 145,181
======== ===== ======= ======= ======= ====== =======
ANALYSIS OF CONTRACT OWNERS'
EQUITY
Excess of proceeds from units
sold over payments for units
redeemed..................... $ 34,061 3,269 102,938 49,875 131,199 41,028 78,316
Accumulated net investment
income....................... 73,041 1,440 415,826 199,073 282,440 34,537 13,462
Accumulated net realized gain
on sales of investments...... -- -- 108,949 10,808 69,603 957 29,972
Unrealized appreciation
(depreciation) of
investments.................. -- -- 108,666 2,606 54,503 1,823 23,431
-------- ----- ------- ------- ------- ------ -------
Contract owners' equity........ $107,102 4,709 736,379 262,362 537,745 78,345 145,181
======== ===== ======= ======= ======= ====== =======
</TABLE>

See accompanying notes to financial statements.

B-25
<PAGE> 78

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-------------------------------------------------------------------------------------------------------
SMALL CAP INVESTMENT CONTRARIAN SMALL CAP VALUE +
GROWTH GRADE BOND VALUE VALUE GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
144,050 11,490 95,958 33,386 47,062 9,223 15,456 6,805
13 142 2 17 -- -- -- 19
------- ------ ------ ------ ------ ----- ------ -----
144,063 11,632 95,960 33,403 47,062 9,223 15,456 6,824
------- ------ ------ ------ ------ ----- ------ -----
144 11 100 33 47 9 15 7
-- -- -- -- -- -- -- --
38 -- 10 4 10 1 2 --
------- ------ ------ ------ ------ ----- ------ -----
182 11 110 37 57 10 17 7
------- ------ ------ ------ ------ ----- ------ -----
143,881 11,621 95,850 33,366 47,005 9,213 15,439 6,817
======= ====== ====== ====== ====== ===== ====== =====
83,272 10,820 68,393 33,364 37,086 7,238 12,897 5,867
25,692 61 1,365 223 180 57 74 56
15,321 384 9,023 2,054 2,345 574 552 334
19,596 356 17,069 (2,275) 7,394 1,344 1,916 560
------- ------ ------ ------ ------ ----- ------ -----
143,881 11,621 95,850 33,366 47,005 9,213 15,439 6,817
======= ====== ====== ====== ====== ===== ====== =====
</TABLE>

B-26
<PAGE> 79

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES AND CONTRACT OWNERS' EQUITY (CONTINUED)

DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUS ASPEN SERIES
--------------------------------------------------------------
SHORT-TERM AGGRESSIVE WORLDWIDE
BOND GROWTH GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying portfolio funds, at
current values................................. $ -- 59,947 29,399 166,051 53,222
Dividends and other receivables.................. -- 4 3 18 4
----- ------ ------ ------- ------
Total assets.............................. -- 59,951 29,402 166,069 53,226
----- ------ ------ ------- ------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Mortality and expense risk and administrative
charges...................................... -- 58 30 172 52
Units of Account Redeemed...................... -- -- -- -- --
Other.......................................... -- 19 10 35 --
----- ------ ------ ------- ------
Total liabilities......................... -- 77 40 207 52
----- ------ ------ ------- ------
Contract owners' equity.......................... $ -- 59,874 29,362 165,862 53,174
===== ====== ====== ======= ======
ANALYSIS OF CONTRACT OWNERS' EQUITY
Excess (deficiency) of proceeds from units sold
over payments for units redeemed............... $(101) 40,911 19,832 124,838 41,502
Accumulated net investment income (loss)......... 270 2,641 (682) 3,497 1,177
Accumulated net realized gain (loss) on sales of
investments.................................... (169) 2,691 1,289 3,893 873
Unrealized appreciation (depreciation) of
investments.................................... -- 13,631 8,923 33,634 9,622
----- ------ ------ ------- ------
Contract owners' equity.......................... $ -- 59,874 29,362 165,862 53,174
===== ====== ====== ======= ======
</TABLE>

See accompanying notes to financial statements.

B-27
<PAGE> 80

<TABLE>
<CAPTION>
LEXINGTON FUNDS FIDELITY VIP FUNDS
----------------------------- ------------------------------------------------
NATURAL EMERGING EQUITY- ASSET
RESOURCES MARKETS INCOME GROWTH MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
4,119 4,327 42,984 33,982 5,815
-- -- 4 4 --
------ ------ ------ ------ ------
4,119 4,327 42,988 33,986 5,815
------ ------ ------ ------ ------
4 5 45 34 6
-- -- -- -- --
-- -- 9 18 1
------ ------ ------ ------ ------
4 5 54 52 7
------ ------ ------ ------ ------
4,115 4,322 42,934 33,934 5,808
====== ====== ====== ====== ======
4,328 7,269 36,468 25,730 4,710
458 217 1,701 1,436 612
626 (1,081) 404 309 139
(1,297) (2,083) 4,361 6,459 347
------ ------ ------ ------ ------
4,115 4,322 42,934 33,934 5,808
====== ====== ====== ====== ======

<CAPTION>
FIDELITY VIP FUNDS
-----------------------------

INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT
---------- ----------
<S> <C> <C>
110,049 49,573
26 12
------- ------
110,075 49,585
------- ------
114 52
-- --
37 13
------- ------
151 65
------- ------
109,924 49,520
======= ======
87,302 35,271
636 1,101
6,309 3,482
15,677 9,666
------- ------
109,924 49,520
======= ======
</TABLE>

B-28
<PAGE> 81

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
----------------------------------------------------------------------------------------------
MONEY MONEY TOTAL GOVERNMENT
MARKET MARKET RETURN HIGH YIELD GROWTH SECURITIES INTERNATIONAL
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions.................. $4,272 264 124,719 21,044 87,153 4,579 7,607
Expenses:
Mortality and expense risk and
administrative charges....... 1,104 -- 10,155 3,895 7,438 1,010 2,132
------ --- ------- ------- ------- ----- ------
Net investment income............ 3,168 264 114,564 17,149 79,715 3,569 5,475
------ --- ------- ------- ------- ----- ------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on
sales of investments......... -- -- 20,649 4,283 8,570 (67) 11,865
Change in unrealized
appreciation (depreciation)
of investments............... -- -- (41,076) (17,978) (20,871) 553 (3,914)
------ --- ------- ------- ------- ----- ------
Net realized and unrealized gain
(loss) on investments.......... -- -- (20,427) (13,695) (12,301) 486 7,951
------ --- ------- ------- ------- ----- ------
Net increase (decrease) in
contract owners' equity
resulting from operations...... $3,168 264 94,137 3,454 67,414 4,055 13,426
====== === ======= ======= ======= ===== ======
</TABLE>

See accompanying notes to financial statements.

B-29
<PAGE> 82

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-------------------------------------------------------------------------------------------------------
SMALL CAP INVESTMENT CONTRARIAN SMALL CAP HORIZON HORIZON
GROWTH GRADE BOND VALUE VALUE VALUE+GROWTH 20+ 10+ HORIZON 5
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20,052 198 2,907 885 884 253 308 184
1,671 100 1,147 442 480 110 151 81
------ --- ------ ------ ----- --- ----- ---
18,381 98 1,760 443 404 143 157 103
------ --- ------ ------ ----- --- ----- ---
4,201 311 6,261 911 1,727 397 414 236
)
(2,782 78 6,236 (6,089) 3,626 309 604 115
------ --- ------ ------ ----- --- ----- ---
1,419 389 12,497 (5,178) 5,353 706 1,018 351
------ --- ------ ------ ----- --- ----- ---
19,800 487 14,257 (4,735) 5,757 849 1,175 454
====== === ====== ====== ===== === ===== ===
</TABLE>

B-30
<PAGE> 83

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUS ASPEN SERIES
--------------------------------------------------------------
SHORT-TERM AGGRESSIVE
BOND GROWTH GROWTH WORLDWIDE BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions........................ $ 76 2,569 -- 5,045 1,336
Expenses:
Mortality and expense risk and
administrative charges............. (6) 596 338 1,826 452
----- ------ ----- ------ -----
Net investment income (loss)........... 82 1,973 (338) 3,219 884
----- ------ ----- ------ -----
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on sales of
investments........................ (172) 1,775 1,084 1,984 615
Change in unrealized appreciation
(depreciation) of investments...... 123 9,281 6,612 23,208 7,717
----- ------ ----- ------ -----
Net realized and unrealized gain (loss)
on investments....................... (49) 11,056 7,696 25,192 8,332
----- ------ ----- ------ -----
Net increase (decrease) in contract
owners' equity resulting from
operations........................... $ 33 13,029 7,358 28,411 9,216
===== ====== ===== ====== =====
</TABLE>

See accompanying notes to financial statements.

B-31
<PAGE> 84

<TABLE>
<CAPTION>
LEXINGTON FUNDS FIDELITY VIP FUNDS
----------------------------- --------------------------------------------------------------------------------------
NATURAL EMERGING EQUITY- ASSET
RESOURCES MARKETS INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
403 442 1,689 1,694 565 1,766 1,565
80 67 506 285 67 1,035 534
------ ------ ----- ----- --- ------ -----
323 375 1,183 1,409 498 731 1,031
------ ------ ----- ----- --- ------ -----
(326) (1,236) 344 255 76 5,669 2,232
(1,259) (875) 1,560 5,035 114 11,176 6,651
------ ------ ----- ----- --- ------ -----
(1,585) (2,111) 1,904 5,290 190 16,845 8,883
------ ------ ----- ----- --- ------ -----
(1,262) (1,736) 3,087 6,699 688 17,576 9,914
====== ====== ===== ===== === ====== =====
</TABLE>

B-32
<PAGE> 85

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
----------------------------------------------------------------------------------------------
MONEY MONEY TOTAL HIGH GOVERNMENT
MARKET MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income.......... $ 3,168 264 114,564 17,149 79,715 3,569 5,475
Net realized gain (loss) on
sales of investments......... -- -- 20,649 4,283 8,570 (67) 11,865
Change in unrealized
appreciation (depreciation)
of investments............... -- -- (41,076) (17,978) (20,871) 553 (3,914)
-------- ------ -------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity
resulting from
operations................. 3,168 264 94,137 3,454 67,414 4,055 13,426
-------- ------ -------- ------- ------- ------- -------
Account unit transactions:
Proceeds from units sold....... 22,035 6,045 35,608 27,800 29,595 10,692 8,825
Net transfers (to) from
affiliate and subaccounts.... 29,478 (7,639) (47,643) (40,100) (26,086) 5,342 (20,766)
Payments for units redeemed.... (21,333) (355) (88,507) (34,613) (60,278) (14,565) (16,900)
-------- ------ -------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity
from account unit
transactions............... 30,180 (1,949) (100,542) (46,913) (56,769) 1,469 (28,841)
-------- ------ -------- ------- ------- ------- -------
Total increase (decrease) in
contract owners' equity........ 33,348 (1,685) (6,405) (43,459) 10,645 5,524 (15,415)
Beginning of period.............. 73,754 6,394 742,784 305,821 527,100 72,821 160,596
-------- ------ -------- ------- ------- ------- -------
End of period.................... $107,102 4,709 736,379 262,362 537,745 78,345 145,181
======== ====== ======== ======= ======= ======= =======
</TABLE>

See accompanying notes to financial statements.

B-33
<PAGE> 86

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
- ---------------------------------------------------------------------------------------------------------
SMALL CAP INVESTMENT CONTRARIAN SMALL CAP
GROWTH GRADE BOND VALUE VALUE VALUE+GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
18,381 98 1,760 443 404 143 157 103
4,201 311 6,261 911 1,727 397 414 236
(2,782) 78 6,236 (6,089) 3,626 309 604 115
------- ------ ------ ------ ------ ----- ------ -----
19,800 487 14,257 (4,735) 5,757 849 1,175 454
------- ------ ------ ------ ------ ----- ------ -----
17,275 2,850 15,517 6,528 7,814 2,155 2,644 1,628
2,566 3,781 (5,407) 1,040 8,749 116 3,301 221
(8,623) (955) (6,599) (2,717) (3,236) (375) (841) (384)
------- ------ ------ ------ ------ ----- ------ -----
11,218 5,676 3,511 4,851 13,327 1,896 5,104 1,465
------- ------ ------ ------ ------ ----- ------ -----
31,018 6,163 17,768 116 19,084 2,745 6,279 1,919
112,863 5,458 78,082 33,250 27,921 6,468 9,160 4,898
------- ------ ------ ------ ------ ----- ------ -----
143,881 11,621 95,850 33,366 47,005 9,213 15,439 6,817
======= ====== ====== ====== ====== ===== ====== =====
</TABLE>

B-34
<PAGE> 87

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUS ASPEN SERIES
--------------------------------------------------------------
SHORT-TERM AGGRESSIVE WORLDWIDE
BOND GROWTH GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss)............................. $ 82 1,973 (338) 3,219 884
Net realized gain (loss) on sales of investments......... (172) 1,775 1,084 1,984 615
Change in unrealized appreciation (depreciation) of
investments............................................ 123 9,281 6,612 23,208 7,717
------- ------ ------ ------- ------
Net increase (decrease) in contract owners' equity
resulting from operations............................ 33 13,029 7,358 28,411 9,216
------- ------ ------ ------- ------
Account unit transactions:
Proceeds from units sold................................. 181 9,559 3,981 26,915 8,429
Net transfers (to) from affiliate and subaccounts........ (960) 10,386 (176) 25,114 22,838
Payments for units redeemed.............................. (305) (2,747) (1,761) (5,974) (1,464)
------- ------ ------ ------- ------
Net increase (decrease) in contract owners' equity from
account unit transactions............................ (1,084) 17,198 2,044 46,055 29,803
------- ------ ------ ------- ------
Total increase (decrease) in contract owners' equity....... (1,051) 30,227 9,402 74,466 39,019
Beginning of period...................................... 1,051 29,647 19,960 91,396 14,155
------- ------ ------ ------- ------
End of period............................................ $ -- 59,874 29,362 165,862 53,174
======= ====== ====== ======= ======
</TABLE>

See accompanying notes to financial statements.

B-35
<PAGE> 88

<TABLE>
<CAPTION>
LEXINGTON FUNDS FIDELITY VIP FUNDS
- ---------------------------- ------------------------------------------------------------------
NATURAL EMERGING EQUITY- ASSET
RESOURCES MARKETS INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
323 375 1,183 1,409 498 731 1,031
(326) (1,236) 344 255 76 5,669 2,232
(1,259) (875) 1,560 5,035 114 11,176 6,651
------ ------ ------ ------ ----- ------- ------
(1,262) (1,736) 3,087 6,699 688 17,576 9,914
------ ------ ------ ------ ----- ------- ------
903 741 9,818 4,184 1,495 20,110 9,117
(1,060) (690) 7,688 11,823 295 36,674 6,996
(527) (424) (1,505) (583) (603) (5,493) (1,390)
------ ------ ------ ------ ----- ------- ------
(684) (373) 16,001 15,424 1,187 51,291 14,723
------ ------ ------ ------ ----- ------- ------
(1,946) (2,109) 19,088 22,123 1,875 68,867 24,637
6,061 6,431 23,846 11,811 3,933 41,057 24,883
------ ------ ------ ------ ----- ------- ------
4,115 4,322 42,934 33,934 5,808 109,924 49,520
====== ====== ====== ====== ===== ======= ======
</TABLE>

B-36
<PAGE> 89

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-----------------------------------------------------------------
MONEY MONEY TOTAL HIGH
MARKET MARKET RETURN YIELD GROWTH
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss)....... $ 2,939 373 97,860 20,076 105,197
Net realized gain (loss) on sales
of investments................... -- -- 21,466 5,634 13,791
Change in unrealized appreciation
(depreciation) of investments.... -- -- 1,837 2,376 (29,191)
-------- ------- ------- ------- -------
Net increase in contract owners'
equity resulting from
operations..................... 2,939 373 121,163 28,086 89,797
-------- ------- ------- ------- -------
Account unit transactions:
Proceeds from units sold........... 21,938 7,884 36,774 26,456 32,804
Net transfers (to) from affiliate
and subaccounts.................. 7,054 (10,145) (30,823) (473) (35,916)
Payments for units redeemed........ (17,525) (213) (75,741) (34,745) (43,779)
-------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity from
account unit transactions...... 11,467 (2,474) (69,790) (8,762) (46,891)
-------- ------- ------- ------- -------
Total increase (decrease) in contract
owners' equity..................... 14,406 (2,101) 51,373 19,324 42,906
Beginning of period.................. 59,348 8,495 691,411 286,497 484,194
-------- ------- ------- ------- -------
End of period........................ $ 73,754 6,394 742,784 305,821 527,100
======== ======= ======= ======= =======

<CAPTION>
INVESTORS FUND SERIES
--------------------------
GOVERNMENT
SECURITIES INTERNATIONAL
SUBACCOUNT SUBACCOUNT
---------- -------------
<S> <C> <C>
Operations:
Net investment income (loss)....... 5,218 6,840
Net realized gain (loss) on sales
of investments................... (133) 9,738
Change in unrealized appreciation
(depreciation) of investments.... 284 (2,788)
------- -------
Net increase in contract owners'
equity resulting from
operations..................... 5,369 13,790
------- -------
Account unit transactions:
Proceeds from units sold........... 6,125 14,396
Net transfers (to) from affiliate
and subaccounts.................. (6,847) (14,865)
Payments for units redeemed........ (11,513) (15,633)
------- -------
Net increase (decrease) in
contract owners' equity from
account unit transactions...... (12,235) (16,102)
------- -------
Total increase (decrease) in contract
owners' equity..................... (6,866) (2,312)
Beginning of period.................. 79,687 162,908
------- -------
End of period........................ 72,821 160,596
======= =======
</TABLE>

See accompanying notes to financial statements.

B-37
<PAGE> 90

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
- ---------------------------------------------------------------------------------------------------------
INVESTMENT
SMALL CAP GRADE CONTRARIAN SMALL CAP
GROWTH BOND VALUE VALUE VALUE+GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
7,284 (26) (318) (176) (161) (58) (53) (33)
8,226 71 2,750 1,194 619 161 129 97
8,507 248 9,122 3,077 3,038 777 945 320
------- ----- ------ ------ ------ ----- ----- -----
24,017 293 11,554 4,095 3,496 880 1,021 384
------- ----- ------ ------ ------ ----- ----- -----
14,943 1,403 16,729 8,235 8,265 1,223 1,730 1,182
11,461 2,113 31,875 9,674 7,531 1,114 1,220 1,152
(6,408) (224) (2,935) (1,625) (1,266) (179) (395) (200)
------- ----- ------ ------ ------ ----- ----- -----
19,996 3,292 45,669 16,284 14,530 2,158 2,555 2,134
------- ----- ------ ------ ------ ----- ----- -----
44,013 3,585 57,223 20,379 18,026 3,038 3,576 2,518
68,850 1,873 20,859 12,871 9,895 3,430 5,584 2,380
------- ----- ------ ------ ------ ----- ----- -----
112,863 5,458 78,082 33,250 27,921 6,468 9,160 4,898
======= ===== ====== ====== ====== ===== ===== =====
</TABLE>

B-38
<PAGE> 91

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUS ASPEN SERIES
-----------------------------------------------------------------
SHORT-TERM AGGRESSIVE WORLDWIDE
BOND GROWTH GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss)............................. $ 162 429 (299) 171 215
Net realized gain (loss) on sales of investments......... 7 842 (203) 1,845 169
Change in unrealized appreciation (depreciation) of
investments............................................ (122) 3,150 2,471 7,685 1,431
------ ------ ------ ------ ------
Net increase (decrease) in contract owners' equity
resulting from operations............................ 47 4,421 1,969 9,701 1,815
------ ------ ------ ------ ------
Account unit transactions:
Proceeds from units sold................................. 171 5,841 4,838 22,435 3,378
Net transfers (to) from affiliate and subaccounts........ 199 2,785 (5,126) 29,266 3,103
Payments for units redeemed.............................. (110) (1,058) (953) (1,854) (370)
------ ------ ------ ------ ------
Net increase (decrease) in contract owners' equity from
account unit transactions............................ 260 7,568 (1,241) 49,847 6,111
------ ------ ------ ------ ------
Total increase in contract owners' equity.................. 307 11,989 728 59,548 7,926
Beginning of period...................................... 744 17,658 19,232 31,848 6,229
------ ------ ------ ------ ------
End of period............................................ $1,051 29,647 19,960 91,396 14,155
====== ====== ====== ====== ======
</TABLE>

See accompanying notes to financial statements.

B-39
<PAGE> 92

<TABLE>
<CAPTION>
LEXINGTON FUNDS FIDELITY VIP FUNDS
----------------------- --------------------------------------------------------------
NATURAL EMERGING EQUITY- ASSET
RESOURCES MARKETS INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
157 (103) 551 48 121 (53) 113
892 84 47 55 51 616 1,235
(630) (1,081) 2,403 1,302 170 4,109 2,307
----- ------ ------ ------ ----- ------ ------
419 (1,100) 3,001 1,405 342 4,672 3,655
----- ------ ------ ------ ----- ------ ------
1,518 1,388 5,558 3,160 598 10,482 6,527
(317) 1,173 9,699 3,345 2,439 21,366 6,530
(509) (298) (676) (175) (449) (1,182) (638)
----- ------ ------ ------ ----- ------ ------
692 2,263 14,581 6,330 2,588 30,666 12,419
----- ------ ------ ------ ----- ------ ------
1,111 1,163 17,582 7,735 2,930 35,338 16,074
4,950 5,268 6,264 4,076 1,003 5,719 8,809
----- ------ ------ ------ ----- ------ ------
6,061 6,431 23,846 11,811 3,933 41,057 24,883
===== ====== ====== ====== ===== ====== ======
</TABLE>

B-40
<PAGE> 93

KILICO VARIABLE ANNUITY SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS

(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Kemper Investors Life Insurance Company Variable Annuity Separate Account (the
"Separate Account") is a unit investment trust registered under the Investment
Company Act of 1940, as amended, established by Kemper Investors Life Insurance
Company ("KILICO"). KILICO is a wholly-owned subsidiary of Zurich Financial
Services ("ZFS"). ZFS was formed with the September 7, 1998 merger of the Zurich
Group with the financial services business of B.A.T. Industries. ZFS is owned by
Zurich Allied AG and Allied Zurich p.l.c., fifty-seven percent and forty-three
percent, respectively. Zurich Allied AG, representing the financial interest of
the former Zurich Group, is listed on the Swiss Market Index (SMI) replacing
Zurich. Allied Zurich p.l.c., representing the financial interest of the
financial services business of B.A.T. Industries, is included in the FTSE-100
Share Index in London.

The Separate Account is used to fund contracts or certificates (collectively
referred to as "contracts") for ADVANTAGE III periodic and flexible payment
variable annuity contracts, PASSPORT individual and group variable and market
value adjusted deferred annuity contracts and DESTINATIONS individual and group
variable, fixed and market value adjusted deferred annuity contracts. The
Separate Account is divided into a total of thirty-nine subaccounts with various
subaccount options available to Contract Owners depending upon their respective
Contracts. A total of only twenty-six subaccount options are presented in the
accompanying financial statements, (the Money Market Subaccounts represent one
subaccount), as available subaccount options to Contract Owners. The Janus
Short-Term Bond Subaccount was closed to purchases by Janus Capital Corporation
effective May 1, 1998 and liquidated September 28, 1998. PASSPORT Contract
Owners have two additional subaccounts which invest exclusively in the shares of
subaccounts in the Investors Fund Series which are not reflected in the
accompanying financial statements. DESTINATIONS Contract Owners have thirteen
additional subaccounts which invest in the shares of subaccounts in the
Investors Fund Series, Scudder Variable Life Investment Funds, Janus Aspen
Series and Warburg Pincus Trust Funds which are also not reflected in the
accompanying financial statements. Each subaccount invests exclusively in the
shares of a corresponding portfolio of one of the underlying investment funds;
the Investors Fund Series, the Janus Aspen Series, the Lexington Funds and the
Fidelity VIP Funds, all of which are open-end diversified management investment
companies.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
could affect the reported amounts of assets and liabilities as well as the
disclosure of contingent amounts at the date of the financial statements. As a
result, actual results reported as income and expenses could differ from the
estimates reported in the accompanying financial statements.

SECURITY VALUATION

The investments are stated at current value which is based on the closing bid
price, net asset value, at December 31, 1998.

SECURITY TRANSACTIONS AND INVESTMENT INCOME

Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Dividends and capital gains distributions are recorded as
income on the ex-dividend date. Realized gains and losses from security
transactions are reported on a first in, first out (FIFO) cost basis.

ACCUMULATION UNIT VALUATION

On each day the New York Stock Exchange (the "Exchange") is open for trading,
the accumulation unit value is determined as of the earlier of 3:00 p.m.
(Central time) or the close of the Exchange by dividing the total value of each
subaccount's investments and other assets, less liabilities, by the number of
accumulation units outstanding in the respective subaccount.

B-41
<PAGE> 94

FEDERAL INCOME TAXES

The operations of the Separate Account are included in the federal income tax
return of KILICO. Under existing federal income tax law, investment income and
realized capital gains and losses of the Separate Account increase liabilities
under the contract and are, therefore, not taxed. Thus the Separate Account may
realize net investment income and capital gains and losses without federal
income tax consequences.

(2) SUMMARY OF INVESTMENTS

Investments, at cost, at December 31, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
SHARES
OWNED COST
------- ----------
<S> <C> <C>
INVESTMENTS
INVESTORS FUND SERIES:
Money Market Subaccount (Money Market and Money Market #2
Subaccounts).............................................. 111,685 $ 111,685
Total Return Subaccount..................................... 269,617 628,630
High Yield Subaccount....................................... 214,127 260,208
Growth Subaccount........................................... 182,099 483,911
Government Securities Subaccount............................ 64,938 76,630
International Subaccount.................................... 85,499 121,917
Small Cap Growth Subaccount................................. 73,037 124,454
Investment Grade Bond Subaccount............................ 9,866 11,134
Contrarian Value Subaccount................................. 54,611 78,889
Small Cap Value Subaccount.................................. 31,336 35,661
Value+Growth Subaccount..................................... 28,166 39,668
Horizon 20+ Subaccount...................................... 6,121 7,879
Horizon 10+ Subaccount...................................... 11,087 13,540
Horizon 5 Subaccount........................................ 5,228 6,245

JANUS ASPEN SERIES FUNDS:
Short-Term Bond Subaccount.................................. -- --
Growth Subaccount........................................... 2,547 46,316
Aggressive Growth Subaccount................................ 1,066 20,476
Worldwide Growth Subaccount................................. 5,708 132,417
Balanced Subaccount......................................... 2,365 43,600
LEXINGTON FUNDS:
Natural Resources Subaccount................................ 373 5,416
Emerging Markets Subaccount................................. 766 6,410
FIDELITY VIP FUNDS:
Equity-Income Subaccount.................................... 1,691 38,623
Growth Subaccount........................................... 757 27,523
Asset Manager Subaccount.................................... 320 5,468
Index 500 Subaccount........................................ 779 94,372
Contrafund Subaccount....................................... 2,028 39,907
----------
TOTAL INVESTMENTS AT COST........................... $2,460,979
==========
</TABLE>

A description of the underlying investments of the subaccounts are summarized
below.

INVESTORS FUND SERIES

MONEY MARKET SUBACCOUNT: This subaccount seeks maximum current income to the
extent consistent with stability of principal from a portfolio of high quality
money market instruments. The Portfolio seeks to maintain a net asset value of
$1.00 per share but there is no assurance that the Portfolio will be able to do
so. The Money Market Subaccount represents the ADVANTAGE III Money Market
Subaccount and the PASSPORT and DESTINATIONS Money Market Subaccount #1. Money
Market Subaccount #2 represents funds allocated by the owner of a contract to
the dollar cost averaging program. Under the dollar cost averaging ("DCA")
program, an owner may predesignate a portion of the subaccount value to be
automatically transferred on a monthly basis to one or more of the other
subaccounts. This option is only available to PASSPORT individual and group
variable and market value adjusted deferred annuity contracts and DESTINATIONS
individual and group variable, fixed and market value adjusted deferred annuity
contracts.

B-42
<PAGE> 95

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) SUMMARY OF INVESTMENTS (CONTINUED)

TOTAL RETURN SUBACCOUNT: This subaccount seeks a high total return, a
combination of income and capital appreciation, consistent with reasonable risk.

HIGH YIELD SUBACCOUNT: This subaccount seeks to provide a high level of current
income.

GROWTH SUBACCOUNT: This subaccount seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.

GOVERNMENT SECURITIES SUBACCOUNT: This subaccount seeks high current income
consistent with preservation of capital.

INTERNATIONAL SUBACCOUNT: This subaccount seeks total return, a combination of
capital growth and income, principally through an internationally diversified
portfolio of equity securities.

SMALL CAP GROWTH SUBACCOUNT: This subaccount seek maximum appreciation of
investors' capital.

INVESTMENT GRADE BOND SUBACCOUNT: This subaccount seeks high current income.

CONTRARIAN VALUE SUBACCOUNT: This subaccount seeks to achieve a high rate of
total return.

SMALL CAP VALUE SUBACCOUNT: This subaccount seeks long-term capital
appreciation.

VALUE+GROWTH SUBACCOUNT: This subaccount seeks growth of capital. A secondary
objective of the Portfolio is the reduction of risk over a full market cycle
compared to a portfolio of only growth stocks or only value stocks.

HORIZON 20+ SUBACCOUNT: This subaccount, designed for investors with
approximately a 20+ year investment horizon, seeks growth of capital, with
income as a secondary objective.

HORIZON 10+ SUBACCOUNT: This subaccount, designed for investors with
approximately a 10+ year investment horizon, seeks a balance between growth of
capital and income, consistent with moderate risk.

HORIZON 5 SUBACCOUNT: This subaccount, designed for investors with approximately
a 5 year investment horizon, seeks income consistent with a preservation of
capital, with growth of capital as a secondary objective.

JANUS ASPEN SERIES

SHORT-TERM BOND SUBACCOUNT: This subaccount seeks a high level of current income
as is consistent with preservation of capital. This Portfolio pursues its
objective by investing primarily in short- and intermediate-term fixed-income
securities. This fund was closed by Janus Capital Corporation effective May 1,
1998 and liquidated September 28, 1998.

GROWTH SUBACCOUNT: This subaccount seeks long-term growth of capital in a manner
consistent with the preservation of capital. It is a diversified Portfolio that
pursues its objective by investing in common stocks of companies of any size.
This Portfolio generally invests in larger, more established issuers.

AGGRESSIVE GROWTH SUBACCOUNT: This subaccount seeks long-term growth of capital.
It is a nondiversified Portfolio that pursues its investment objective by
normally investing at least 50% of its equity assets in securities issued by
medium-sized companies as described in the fund's prospectus.

WORLDWIDE GROWTH SUBACCOUNT: This subaccount seeks long-term growth of capital
in a manner consistent with the preservation of capital. It is a diversified
Portfolio that pursues its objective primarily through investments in common
stocks of foreign and domestic issuers.

BALANCED SUBACCOUNT: This subaccount seeks long-term of capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified Portfolio that, under normal circumstances, pursues its objective by
investing 40-60% of its assets in securities selected primarily for their growth
potential and 40-60% of its assets in securities selected primarily for their
income potential.

B-43
<PAGE> 96

LEXINGTON FUNDS

NATURAL RESOURCES SUBACCOUNT: This subaccount seeks long-term growth of capital
through investment primarily in common stocks of companies that own or develop
natural resources and other basic commodities, or supply goods and services to
such companies. Current income will not be a factor. Total return will consist
of capital appreciation.

EMERGING MARKETS SUBACCOUNT: This subaccount seeks long-term growth of capital
primarily through investment in equity securities and equivalents of companies
domiciled in, or doing business in, emerging countries and emerging markets.

FIDELITY VIP FUNDS

EQUITY-INCOME SUBACCOUNT: This subaccount seeks reasonable income. The fund will
also consider the potential for capital appreciation. The fund seeks a yield
which exceeds the composite yield on the securities comprising the S&P 500.

GROWTH SUBACCOUNT: This subaccount seeks capital appreciation.

ASSET MANAGER SUBACCOUNT: This subaccount seeks high total return with reduced
risk over the long term by allocating its assets among stocks, bonds and
short-term instruments.

INDEX 500 SUBACCOUNT: This subaccount seeks investment results that correspond
to the total return of common stocks publicly traded in the United States, as
represented by the S&P 500.

CONTRAFUND SUBACCOUNT: This subaccount seeks long-term capital appreciation.

(3) TRANSACTIONS WITH AFFILIATES

KILICO assumes mortality risks associated with the annuity contracts and incurs
all expenses involved in administering the contracts. In return, KILICO assesses
that portion of each subaccount representing assets under the ADVANTAGE III
flexible payment contracts with a daily charge for mortality and expense risk
and administrative costs which amounts to an aggregate of one percent (1.00%)
per annum. KILICO also assesses that portion of each subaccount representing
assets under the ADVANTAGE III periodic payment contracts with a daily asset
charge for mortality and expense risk and administrative costs which amounts to
an aggregate of one and three-tenths percent (1.30%) per annum. KILICO assesses
that portion of each subaccount representing assets under PASSPORT individual
and group variable and market value adjusted deferred annuity contracts with a
daily asset charge for mortality and expense risk and administrative costs which
amounts to an aggregate of one and one-quarter percent (1.25%) per annum. KILICO
assesses that portion of each subaccount representing assets under DESTINATIONS
individual and group variable, fixed and market value adjusted deferred annuity
contracts with a daily asset charge for mortality and expense risk and
administrative costs which amounts to an aggregate of one and four-tenths
percent (1.40%) per annum. The PASSPORT and DESTINATIONS DCA Money Market
Subaccount #2, available for participation in the dollar cost averaging program,
has no daily asset charge deduction. For the year ended December 31, 1998, asset
charges totaled $25,943,505, $7,117,285 and $81,806 for ADVANTAGE III, PASSPORT
and DESTINATIONS contracts, respectively.

KILICO also assesses against each ADVANTAGE III contract participating in one or
more of the subaccounts at any time during the year a records maintenance
charge. For contracts purchased prior to June 1, 1993, the charge is $25 and is
assessed on December 31st of each calendar year. For contracts purchased June 1,
1993 and subsequent, the charge is $36 and is assessed ratably every quarter of
each calendar year, except in those states which have yet to approve these
contract changes. The charge is assessed whether or not any purchase payments
have been made during the year. KILICO also assesses against each PASSPORT and
DESTINATIONS contract participating in one or more of the subaccounts a records
maintenance charge of $30 at the end of each contract year. The records
maintenance charge for ADVANTAGE III, PASSPORT and DESTINATIONS contracts are
waived for all individual contracts whose investment value exceeds $50,000 on
the date of assessment. For the year ended December 31, 1998, records
maintenance charges totaled $2,044,611, $151,021 and $60 for ADVANTAGE III,
PASSPORT and DESTINATIONS contracts, respectively.

For contracts issued prior to May 1, 1994, KILICO has undertaken to reimburse
each of the ADVANTAGE III Money Market, Total Return, High Yield, and Growth
Subaccounts whose direct and indirect operating expenses exceed eighty
hundredths of one percent (.80%) of average daily net assets. In determining

B-44
<PAGE> 97

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) TRANSACTIONS WITH AFFILIATES (CONTINUED)

reimbursement of direct and indirect operating expenses, for each subaccount,
charges for mortality and expense risks and administrative expenses, and records
maintenance charges are excluded and, for each subaccount, charges for taxes,
extraordinary expenses, and brokerage and transaction costs are excluded. During
the year ended December 31, 1998, no such payment was made.

KILICO assesses an optional annual charge for the Guaranteed Retirement Income
Benefit ("GRIB"), related to the DESTINATIONS contracts. The annual charge of
.25% of Contract Value, if taken, will be deducted pro rata from each invested
subaccount on each Contract Quarter anniversary. For the year ended December 31,
1998, GRIB charges totaled $9,477.

Proceeds payable on the redemption of units are reduced by the amount of any
applicable contingent deferred sales charge due to KILICO.

Scudder Kemper Investments, Inc., an affiliated company, is the investment
manager of the Investors Fund Series portfolios.

Janus Capital Corporation is the investment manager of the Janus Aspen Series
Fund Portfolios, Lexington Management Corporation is the investment manager for
the Lexington Fund Portfolios and Fidelity Investments is the investment manager
for the Fidelity VIP Funds. None of these entities are affiliated with KILICO.

Investors Brokerage Services, Inc., a wholly-owned subsidiary of KILICO, is the
principal underwriter for the Separate Account.

(4) NET TRANSFERS (TO) FROM AFFILIATE AND SUBACCOUNTS

Net transfers (to) from affiliate or subaccounts include transfers of all or
part of the Contract Owner's interest to or from another eligible subaccount or
to the general account of KILICO.

(5) CONTRACT OWNERS' EQUITY

The Contract Owners' equity is affected by the investment results of, and
contract charges to, each subaccount. The accompanying financial statements
include only Contract Owners' payments pertaining to the variable portions of
their contracts and exclude any payments for the market value adjusted or fixed
portions, the latter being included in the general account of KILICO. Contract
Owners may elect to annuitize the contract under one of several annuity options,
as specified in the prospectus.

B-45
<PAGE> 98

Contract Owners' equity at December 31, 1998, is as follows (in thousands,
except unit value; differences are due to rounding):

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------ --------
<S> <C> <C> <C>
ADVANTAGE III CONTRACTS
INVESTORS FUND SERIES
MONEY MARKET SUBACCOUNT
Flexible Payment, Qualified............................. 309 $2.493 $ 770
Flexible Payment, Nonqualified.......................... 3,812 2.493 9,502
Periodic Payment, Qualified............................. 14,508 2.372 34,415
Periodic Payment, Nonqualified.......................... 11,095 2.372 26,316
--------
71,003
--------
TOTAL RETURN SUBACCOUNT
Flexible Payment, Qualified............................. 772 7.411 5,719
Flexible Payment, Nonqualified.......................... 3,348 6.862 22,973
Periodic Payment, Qualified............................. 72,971 7.052 514,620
Periodic Payment, Nonqualified.......................... 11,360 6.571 74,644
--------
617,956
--------
HIGH YIELD SUBACCOUNT
Flexible Payment, Qualified............................. 260 6.369 1,655
Flexible Payment, Nonqualified.......................... 1,480 6.098 9,025
Periodic Payment, Qualified............................. 20,199 6.061 122,423
Periodic Payment, Nonqualified.......................... 6,036 5.904 35,637
--------
168,740
--------
GROWTH SUBACCOUNT
Flexible Payment, Qualified............................. 178 7.261 1,292
Flexible Payment, Nonqualified.......................... 1,063 7.236 7,692
Periodic Payment, Qualified............................. 50,548 6.945 351,046
Periodic Payment, Nonqualified.......................... 9,612 6.935 66,657
--------
426,687
--------
GOVERNMENT SECURITIES SUBACCOUNT
Flexible Payment, Qualified............................. 146 1.828 266
Flexible Payment, Nonqualified.......................... 1,073 1.828 1,962
Periodic Payment, Qualified............................. 16,997 1.779 30,243
Periodic Payment, Nonqualified.......................... 10,270 1.779 18,273
--------
50,744
--------
INTERNATIONAL SUBACCOUNT
Flexible Payment, Qualified............................. 212 1.877 398
Flexible Payment, Nonqualified.......................... 744 1.877 1,397
Periodic Payment, Qualified............................. 45,058 1.839 82,855
Periodic Payment, Nonqualified.......................... 7,278 1.839 13,383
--------
98,033
--------
SMALL CAP GROWTH SUBACCOUNT
Flexible Payment, Qualified............................. 166 2.625 437
Flexible Payment, Nonqualified.......................... 494 2.625 1,297
Periodic Payment, Qualified............................. 38,394 2.589 99,412
Periodic Payment, Nonqualified.......................... 4,843 2.589 12,540
--------
113,686
--------
</TABLE>

B-46
<PAGE> 99

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) CONTRACT OWNERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------ --------
<S> <C> <C> <C>
INVESTORS FUND SERIES (CONTINUED)
INVESTMENT GRADE BOND SUBACCOUNT
Flexible Payment, Qualified............................... 19 $1.187 $ 23
Flexible Payment, Nonqualified............................ 750 1.187 890
Periodic Payment, Qualified............................... 2,529 1.178 2,978
Periodic Payment, Nonqualified............................ 1,033 1.178 1,216
-------
5,107
-------
CONTRARIAN VALUE SUBACCOUNT
Flexible Payment, Qualified............................... 94 1.777 168
Flexible Payment, Nonqualified............................ 80 1.777 142
Periodic Payment, Qualified............................... 23,159 1.763 40,832
Periodic Payment, Nonqualified............................ 3,847 1.763 6,782
-------
47,924
-------
SMALL CAP VALUE SUBACCOUNT
Flexible Payment, Qualified............................... 4 1.072 4
Flexible Payment, Nonqualified............................ 94 1.072 101
Periodic Payment, Qualified............................... 12,832 1.063 13,643
Periodic Payment, Nonqualified............................ 1,756 1.063 1,867
-------
15,615
-------
VALUE+GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 60 1.683 101
Flexible Payment, Nonqualified............................ 173 1.683 291
Periodic Payment, Qualified............................... 7,994 1.669 13,345
Periodic Payment, Nonqualified............................ 2,094 1.669 3,496
-------
17,233
-------
HORIZON 20+ SUBACCOUNT
Flexible Payment, Qualified............................... 21 1.530 32
Flexible Payment, Nonqualified............................ -- 1.530 --
Periodic Payment, Qualified............................... 1,764 1.518 2,679
Periodic Payment, Nonqualified............................ 195 1.518 295
-------
3,006
-------
HORIZON 10+ SUBACCOUNT
Flexible Payment, Qualified............................... 13 1.410 18
Flexible Payment, Nonqualified............................ 9 1.410 12
Periodic Payment, Qualified............................... 3,391 1.399 4,744
Periodic Payment, Nonqualified............................ 419 1.399 586
-------
5,360
-------
HORIZON 5 SUBACCOUNT
Flexible Payment, Qualified............................... -- 1.320 --
Flexible Payment, Nonqualified............................ 35 1.320 46
Periodic Payment, Qualified............................... 1,248 1.310 1,635
Periodic Payment, Nonqualified............................ 357 1.310 468
-------
2,149
-------
</TABLE>

B-47
<PAGE> 100

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------- --------
<S> <C> <C> <C>
JANUS ASPEN SERIES FUNDS
SHORT-TERM BOND SUBACCOUNT
Flexible Payment, Qualified............................... -- $ 0.000 $ --
Flexible Payment, Nonqualified............................ -- 0.000 --
Periodic Payment, Qualified............................... -- 0.000 --
Periodic Payment, Nonqualified............................ -- 0.000 --
-------
--
-------
GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 7 26.152 180
Flexible Payment, Nonqualified............................ 16 26.152 407
Periodic Payment, Qualified............................... 1,931 25.897 50,001
Periodic Payment, Nonqualified............................ 243 25.897 6,281
-------
56,869
-------
AGGRESSIVE GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 0 27.149 5
Flexible Payment, Nonqualified............................ 2 27.149 62
Periodic Payment, Qualified............................... 985 26.884 26,485
Periodic Payment, Nonqualified............................ 105 26.884 2,810
-------
29,362
-------
WORLDWIDE GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 8 30.205 231
Flexible Payment, Nonqualified............................ 24 30.205 731
Periodic Payment, Qualified............................... 4,883 29.911 146,059
Periodic Payment, Nonqualified............................ 630 29.911 18,841
-------
165,862
-------
BALANCED SUBACCOUNT
Flexible Payment, Qualified............................... 6 24.205 143
Flexible Payment, Nonqualified............................ 24 24.205 576
Periodic Payment, Qualified............................... 1,855 23.969 44,457
Periodic Payment, Nonqualified............................ 334 23.969 7.998
-------
53,174
-------
LEXINGTON FUNDS
NATURAL RESOURCES SUBACCOUNT
Flexible Payment, Qualified............................... 0 12.008 6
Flexible Payment, Nonqualified............................ 4 12.008 46
Periodic Payment, Qualified............................... 302 11.879 3,589
Periodic Payment, Nonqualified............................ 40 11.879 474
-------
4,115
-------
EMERGING MARKETS SUBACCOUNT
Flexible Payment, Qualified............................... 1 6.255 7
Flexible Payment, Nonqualified............................ 2 6.255 13
Periodic Payment, Qualified............................... 587 6.194 3,636
Periodic Payment, Nonqualified............................ 108 6.194 666
-------
4,322
-------
</TABLE>

B-48
<PAGE> 101

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) CONTRACT OWNERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------- ----------
<S> <C> <C> <C>
FIDELITY VIP FUNDS
EQUITY-INCOME SUBACCOUNT
Flexible Payment, Qualified............................ 2 $29.285 $ 64
Flexible Payment, Nonqualified......................... 8 29.285 232
Periodic Payment, Qualified............................ 1,245 29.054 36,161
Periodic Payment, Nonqualified......................... 223 29.054 6,477
----------
42,934
----------
GROWTH SUBACCOUNT
Flexible Payment, Qualified............................ 3 52.235 142
Flexible Payment, Nonqualified......................... 2 52.235 119
Periodic Payment, Qualified............................ 576 51.818 29,871
Periodic Payment, Nonqualified......................... 73 51.818 3,802
----------
33,934
----------
ASSET MANAGER SUBACCOUNT
Flexible Payment, Qualified............................ 0 22.885 7
Flexible Payment, Nonqualified......................... 6 22.885 137
Periodic Payment, Qualified............................ 210 22.705 4,762
Periodic Payment, Nonqualified......................... 40 22.705 902
----------
5,808
----------
INDEX 500 SUBACCOUNT
Flexible Payment, Qualified............................ 1 147.801 215
Flexible Payment, Nonqualified......................... 11 147.801 1,567
Periodic Payment, Qualified............................ 638 146.637 93,563
Periodic Payment, Nonqualified......................... 99 146.637 14,579
----------
109,924
----------
CONTRAFUND SUBACCOUNT
Flexible Payment, Qualified............................ 1 26.021 27
Flexible Payment, Nonqualified......................... 5 26.021 133
Periodic Payment, Qualified............................ 1,701 25.816 43,925
Periodic Payment, Nonqualified......................... 211 25.816 5,435
----------
49,520
----------
TOTAL ADVANTAGE III CONTRACT OWNERS' EQUITY......... $2,199,066
==========
</TABLE>

B-49
<PAGE> 102

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------- --------
<S> <C> <C> <C>
PASSPORT CONTRACTS
INVESTORS FUND SERIES
MONEY MARKET #1 SUBACCOUNT
Qualified............................................... 6,657 $ 1.245 $ 8,289
Nonqualified............................................ 21,661 1.245 26,976
--------
35,265
--------
MONEY MARKET #2 SUBACCOUNT
Qualified............................................... 1,442 1.358 1,958
Nonqualified............................................ 1,870 1.358 2,540
--------
4,498
--------
TOTAL RETURN SUBACCOUNT
Qualified............................................... 14,282 1.917 27,374
Nonqualified............................................ 46,822 1.917 89,744
--------
117,118
--------
HIGH YIELD SUBACCOUNT
Qualified............................................... 10,995 1.887 20,743
Nonqualified............................................ 36,787 1.887 69,400
--------
90,143
--------
GROWTH SUBACCOUNT
Qualified............................................... 12,369 2.349 29,057
Nonqualified............................................ 34,697 2.349 81,506
--------
110,563
--------
GOVERNMENT SECURITIES SUBACCOUNT
Qualified............................................... 4,337 1.437 6,231
Nonqualified............................................ 14,321 1.437 20,573
--------
26,804
--------
INTERNATIONAL SUBACCOUNT
Qualified............................................... 5,866 1.845 10,825
Nonqualified............................................ 19,399 1.845 35,794
--------
46,619
--------
SMALL CAP GROWTH SUBACCOUNT
Qualified............................................... 2,884 2.595 7,486
Nonqualified............................................ 8,298 2.595 21,536
--------
29,022
--------
</TABLE>

B-50
<PAGE> 103

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) CONTRACT OWNERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ------ --------
<S> <C> <C> <C>
INVESTORS FUND SERIES (CONTINUED)
INVESTMENT GRADE BOND SUBACCOUNT
Qualified................................................ 1,230 $1.179 $ 1,450
Nonqualified............................................. 3,715 1.179 4,381
--------
5,831
--------
CONTRARIAN VALUE SUBACCOUNT
Qualified................................................ 6,817 1.765 12,036
Nonqualified............................................. 19,663 1.765 34,715
--------
46,751
--------
SMALL CAP VALUE SUBACCOUNT
Qualified................................................ 4,178 1.065 4,448
Nonqualified............................................. 11,505 1.065 12,248
--------
16,696
--------
VALUE+GROWTH SUBACCOUNT
Qualified................................................ 4,694 1.672 7,846
Nonqualified............................................. 12,758 1.672 21,328
--------
29,174
--------
HORIZON 20+ SUBACCOUNT
Qualified................................................ 1,141 1.520 1,734
Nonqualified............................................. 2,631 1.520 4,000
--------
5,734
--------
HORIZON 10+ SUBACCOUNT
Qualified................................................ 1,544 1.401 2,162
Nonqualified............................................. 5,198 1.401 7,280
--------
9,442
--------
HORIZON 5 SUBACCOUNT
Qualified................................................ 394 1.311 517
Nonqualified............................................. 2,992 1.311 3,924
--------
4,441
--------
TOTAL PASSPORT CONTRACT OWNERS' EQUITY................ $578,101
========
</TABLE>

B-51
<PAGE> 104

<TABLE>
<CAPTION>
NUMBER UNIT CONTRACT OWNERS'
OF UNITS VALUE EQUITY
-------- ------- ----------------
<S> <C> <C> <C>
DESTINATIONS CONTRACTS
INVESTORS FUND SERIES
MONEY MARKET #1 SUBACCOUNT
Qualified........................................... 20 $10.213 $ 200
Nonqualified........................................ 62 10.213 634
-------
834
-------
MONEY MARKET #2 SUBACCOUNT
Qualified........................................... 19 10.297 191
Nonqualified........................................ 2 10.297 20
-------
211
-------
TOTAL RETURN SUBACCOUNT
Qualified........................................... 38 10.542 406
Nonqualified........................................ 85 10.542 899
-------
1,305
-------
HIGH YIELD SUBACCOUNT
Qualified........................................... 121 9.646 1,166
Nonqualified........................................ 240 9.646 2,313
-------
3,479
-------
GROWTH SUBACCOUNT
Qualified........................................... 24 10.007 239
Nonqualified........................................ 26 10.007 256
-------
495
-------
GOVERNMENT SECURITIES SUBACCOUNT
Qualified........................................... 28 10.332 293
Nonqualified........................................ 49 10.332 504
-------
797
-------
INTERNATIONAL SUBACCOUNT
Qualified........................................... 20 9.429 186
Nonqualified........................................ 36 9.429 343
-------
529
-------
SMALL CAP GROWTH SUBACCOUNT
Qualified........................................... 34 11.070 378
Nonqualified........................................ 72 11.070 795
-------
1,173
-------
INVESTMENT GRADE BOND SUBACCOUNT
Qualified........................................... 23 10.417 240
Nonqualified........................................ 43 10.417 443
-------
683
-------
CONTRARIAN VALUE SUBACCOUNT
Qualified........................................... 31 10.712 334
Nonqualified........................................ 79 10.712 841
-------
1,175
-------
SMALL CAP VALUE SUBACCOUNT
Qualified........................................... 50 8.431 419
Nonqualified........................................ 75 8.431 636
-------
1,055
-------
</TABLE>

B-52
<PAGE> 105

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) CONTRACT OWNERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
NUMBER UNIT CONTRACT OWNERS'
OF UNITS VALUE EQUITY
-------- ------- ----------------
<S> <C> <C> <C>
INVESTORS FUND SERIES (CONTINUED)
VALUE+GROWTH SUBACCOUNT
Qualified........................................... 18 10.697 190
Nonqualified........................................ 38 10.697 408
-------
598
-------
HORIZON 20+ SUBACCOUNT
Qualified........................................... 28 10.228 289
Nonqualified........................................ 18 10.228 184
-------
473
-------
HORIZON 10+ SUBACCOUNT
Qualified........................................... 27 10.290 275
Nonqualified........................................ 35 10.290 362
-------
637
-------
HORIZON 5 SUBACCOUNT
Qualified........................................... 6 10.354 59
Nonqualified........................................ 16 10.354 168
-------
227
-------
JANUS ASPEN SERIES
GROWTH SUBACCOUNT
Qualified........................................... 112 11.943 1,332
Nonqualified........................................ 140 11.943 1,673
-------
3,005
-------
TOTAL DESTINATIONS CONTRACT OWNERS' EQUITY..... $16,676
-------
-------
</TABLE>

B-53
<PAGE> 106

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Stockholder of

Kemper Investors Life Insurance Company:

In our opinion, the accompanying consolidated balance sheets as of December 31,
1998 and 1997 and the related consolidated statements of operations,
comprehensive income, stockholder's equity and cash flows present fairly, in all
material respects, the financial position of Kemper Investors Life Insurance
Company and subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The financial
statements of the Company for the period from January 4, 1996 to December 31,
1996 were audited by other independent accountants whose report, dated March 21,
1997, expressed an unqualified opinion on those statements.

PricewaterhouseCoopers LLP

Chicago, Illinois

March 12, 1999

B-54
<PAGE> 107

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Stockholder

Kemper Investors Life Insurance Company:

We have audited the accompanying consolidated statements of operations,
comprehensive income, stockholder's equity, and cash flows of Kemper Investors
Life Insurance Company and subsidiaries for the period from January 4, 1996 to
December 31, 1996. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedules as of
December 31, 1996 as listed in the accompanying index. These financial statement
schedules are incorporated by reference to a previously filed Form 10-K. These
consolidated financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the results of operations and the cash flows
of Kemper Investors Life Insurance Company and subsidiaries for the period from
January 4, 1996 to December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the aforementioned supplementary
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

KPMG LLP

Chicago, Illinois

March 21, 1997

B-55
<PAGE> 108

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value
(amortized cost: December 31, 1998,.......................
$3,421,535; December 31, 1997, $3,644,075)................ $3,482,820 $ 3,668,643
Trading account securities at fair value (amortized cost:
December 31, 1998, $99,095)............................... 101,781 --
Short-term investments...................................... 58,334 236,057
Joint venture mortgage loans................................ 65,806 72,663
Third-party mortgage loans.................................. 76,520 102,974
Other real estate-related investments....................... 22,049 44,409
Policy loans................................................ 271,540 282,439
Equity securities........................................... 66,854 24,839
Other invested assets....................................... 23,645 20,820
----------- -----------
Total investments................................. 4,169,349 4,452,844
Cash........................................................ 13,486 23,868
Accrued investment income................................... 124,213 117,789
Goodwill.................................................... 216,651 229,393
Value of business acquired.................................. 118,850 138,482
Deferred insurance acquisition costs........................ 91,543 59,459
Deferred income taxes....................................... 35,059 39,993
Reinsurance recoverable..................................... 344,837 382,609
Receivable on sales of securities........................... 3,500 20,076
Other assets and receivables................................ 23,029 3,187
Assets held in separate accounts............................ 7,099,204 5,121,950
----------- -----------
Total assets...................................... $12,239,721 $10,589,650
=========== ===========
LIABILITIES
Future policy benefits...................................... $3,906,391 $ 4,239,480
Benefits and funds payable.................................. 318,369 150,524
Other accounts payable and liabilities...................... 61,898 212,133
Liabilities related to separate accounts.................... 7,099,204 5,121,950
----------- -----------
Total liabilities................................. 11,385,862 9,724,087
----------- -----------
Commitments and contingent liabilities
STOCKHOLDER'S EQUITY
Capital stock--$10 par value,
authorized 300,000 shares; outstanding 250,000 shares..... 2,500 2,500
Additional paid-in capital.................................. 804,347 806,538
Accumulated other comprehensive income...................... 32,975 12,637
Retained earnings........................................... 14,037 43,888
----------- -----------
Total stockholder's equity........................ 853,859 865,563
----------- -----------
Total liabilities and stockholder's equity........ $12,239,721 $10,589,650
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

B-56
<PAGE> 109

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
-------- -------- --------------
<S> <C> <C> <C>
REVENUE
Net investment income..................................... $273,512 $296,195 $299,688
Realized investment gains................................. 51,868 10,546 13,602
Premium income............................................ 22,346 22,239 7,822
Separate account fees and charges......................... 61,982 85,413 25,309
Other income.............................................. 10,031 11,087 9,786
-------- -------- --------
Total revenue................................... 419,739 425,480 356,207
-------- -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholders........................ 176,906 199,782 223,094
Claims incurred and other policyholder benefits........... 28,029 28,372 14,255
Taxes, licenses and fees.................................. 30,292 52,608 2,173
Commissions............................................... 39,046 32,602 25,962
Operating expenses........................................ 44,575 36,837 24,678
Deferral of insurance acquisition costs................... (46,565) (38,177) (27,820)
Amortization of insurance acquisition costs............... 12,082 3,204 2,316
Amortization of value of business acquired................ 17,677 24,948 21,530
Amortization of goodwill.................................. 12,744 15,295 10,195
-------- -------- --------
Total benefits and expenses..................... 314,786 355,471 296,383
-------- -------- --------
Income before income tax expense.......................... 104,953 70,009 59,824
Income tax expense........................................ 39,804 31,292 25,403
-------- -------- --------
Net income...................................... $ 65,149 $ 38,717 $ 34,421
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

B-57
<PAGE> 110

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET INCOME................................................. $ 65,149 $ 38,717 $ 34,421
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized holding gains (losses) on investments arising
during period:
Unrealized holdings gains (losses) on investments..... 25,372 60,802 (84,036)
Adjustment to value of business acquired.............. (9,332) (28,562) 16,735
Adjustment to deferred insurance acquisition costs.... (2,862) (2,680) 1,307
-------- -------- --------
Total unrealized holding gains (losses) on
investments arising during period.............. 13,178 29,560 (65,994)
-------- -------- --------
Less reclassification adjustments for items included in
net income:
Adjustment for (gains) losses included in realized
investment gains.................................... 6,794 (9,016) 3,963
Adjustment for amortization of premium on fixed
maturities included in net investment income........ (17,064) (17,866) (26,036)
Adjustment for (gains) losses included in amortization
of value of business acquired....................... (7,378) (2,353) (4,212)
Adjustment for (gains) losses included in amortization
of insurance acquisition costs...................... (463) (355) --
-------- -------- --------
Total reclassification adjustments for items
included in net income......................... (18,111) (29,590) (26,285)
-------- -------- --------
Other comprehensive income (loss), before related income
tax expense (benefit) 31,289 59,150 (39,709)
Related income tax expense (benefit)....................... 10,952 (985) 7,789
-------- -------- --------
Other comprehensive income (loss), net of tax.... 20,337 60,135 (47,498)
-------- -------- --------
Comprehensive income (loss)...................... $ 85,486 $ 98,852 $(13,077)
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

B-58
<PAGE> 111

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(in thousands)

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CAPITAL STOCK, beginning and end of period................. $ 2,500 $ 2,500 $ 2,500
-------- -------- --------

ADDITIONAL PAID-IN CAPITAL, beginning of period............ 806,538 761,538 743,104
Capital contributions from parent.......................... 4,261 45,000 18,434
Adjustment to prior period capital contribution from
parent................................................... (6,452) -- --
-------- -------- --------
End of period.................................... 804,347 806,538 761,538
-------- -------- --------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), beginning of
period................................................... 12,637 (47,498) --
Other comprehensive income (loss), net of tax.............. 20,338 60,135 (47,498)
-------- -------- --------
End of period.................................... 32,975 12,637 (47,498)
-------- -------- --------

RETAINED EARNINGS, beginning of period..................... 43,888 34,421 --
Net income................................................. 65,149 38,717 34,421
Dividends to parent........................................ (95,000) (29,250) --
-------- -------- --------
End of period.................................... 14,037 43,888 34,421
-------- -------- --------

Total stockholder's equity....................... $853,859 $865,563 $750,961
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

B-59
<PAGE> 112

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1998 1997 1996
----------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 65,149 $ 38,717 $ 34,421
Reconcilement of net income to net cash provided:
Realized investment gains....................... (51,868) (10,546) (13,602)
Net change in trading account securities........ (6,727) -- --
Interest credited and other charges............. 173,958 198,206 230,298
Deferred insurance acquisition costs............ (34,483) (34,973) (25,504)
Amortization of value of business acquired...... 17,677 24,948 21,530
Amortization of goodwill........................ 12,744 15,295 10,195
Amortization of discount and premium on
investments................................... 17,353 17,866 25,743
Deferred income taxes........................... (12,469) (99,370) (897)
Net change in current federal income taxes...... (73,162) 97,386 108,806
Benefits and premium taxes due related to
separate account bank-owned life insurance.... 123,884 180,546 --
Other, net...................................... (41,477) 17,168 (22,283)
----------- --------- -----------
Net cash provided from operating
activities............................... 190,579 445,243 368,707
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity............... 491,699 229,208 264,383
Fixed maturities sold prior to maturity......... 882,596 633,872 891,995
Equity securities............................... 107,598 -- --
Mortgage loans, policy loans and other invested
assets........................................ 180,316 131,866 168,727
Cost of investments purchased or loans originated:
Fixed maturities................................ (1,319,119) (606,028) (1,369,091)
Equity securities............................... (83,303) -- --
Mortgage loans, policy loans and other invested
assets........................................ (66,331) (76,350) (119,044)
Short-term investments, net........................ 177,723 (164,361) 300,819
Net change in receivable and payable for securities
transactions.................................... (677) 29,746 (31,667)
Net change in other assets......................... -- 244 115
----------- --------- -----------
Net cash provided by investing
activities............................... 370,502 178,197 106,237
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits........................................ 180,124 145,687 141,159
Withdrawals..................................... (649,400) (745,510) (700,084)
Capital contributions from parent.................. 4,261 45,000 18,434
Dividends to parent................................ (95,000) (29,250) --
Other.............................................. (11,448) (18,275) 42,512
----------- --------- -----------
Net cash used in financing activities...... (571,463) (602,348) (497,979)
----------- --------- -----------
Net increase (decrease) in cash....... (10,382) 21,092 (23,035)
CASH, beginning of period............................ 23,868 2,776 25,811
----------- --------- -----------
CASH, end of period.................................. $ 13,486 $ 23,868 $ 2,776
=========== ========= ===========
</TABLE>

See accompanying notes to consolidated financial statements.

B-60
<PAGE> 113

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Kemper Investors Life Insurance Company and subsidiaries (the "Company") issues
fixed and variable annuity products, variable life, term life and
interest-sensitive life insurance products marketed primarily through a network
of financial institutions, securities brokerage firms, insurance agents and
financial planners. The Company is licensed in the District of Columbia and all
states except New York. The Company is a wholly-owned subsidiary of Kemper
Corporation ("Kemper"). Effective January 4, 1996, Zurich Insurance Company
("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners Offshore
(Bermuda), L.P. (together with IP, "Insurance Partners") owned 80 percent and 20
percent, respectively, of Kemper and therefore the Company. On February 27,
1998, Zurich acquired Insurance Partner's remaining 20 percent interest for
cash. As a result of this transaction, Kemper and the Company became
wholly-owned subsidiaries of Zurich.

Effective September 7, 1998, the businesses of Zurich merged with the financial
services business of B.A.T. Industries forming Zurich Financial Services
("ZFS"). ZFS is owned by Zurich Allied AG and Allied Zurich p.l.c., fifty-seven
percent and forty-three percent, respectively. Zurich Allied AG, representing
the financial interest of the former Zurich Group, is listed on the Swiss Market
Index, replacing Zurich. Allied Zurich p.l.c., representing the financial
interest of B.A.T. Industries, is included in the FTSE-100 Share Index in
London.

The financial statements include the accounts of the Company on a consolidated
basis. All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to the 1997 and 1996
consolidated financial statements in order for them to conform to the 1998
presentation.

BASIS OF ACCOUNTING

The acquisition of the Company on January 4, 1996, was accounted for using the
purchase method of accounting. The consolidated financial statements of the
Company prior to January 4, 1996, were prepared on a historical cost basis in
accordance with generally accepted accounting principles. The accompanying
consolidated financial statements of the Company as of and for the years ended
December 31, 1996, 1997 and 1998, have been prepared in conformity with
generally accepted accounting principles.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
could affect the reported amounts of assets and liabilities as well as the
disclosure of contingent assets or liabilities at the date of the financial
statements. As a result, actual results reported as revenue and expenses could
differ from the estimates reported in the accompanying financial statements. As
further discussed in the accompanying notes to the consolidated financial
statements, significant estimates and assumptions affect deferred insurance
acquisition costs, the value of business acquired, provisions for real
estate-related losses and reserves, other-than-temporary declines in values for
fixed maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.

GOODWILL

The Company reviews goodwill to determine if events or changes in circumstances
may have affected the recoverability of the outstanding goodwill as of each
reporting period. In the event that the Company determines that goodwill is not
recoverable, it would amortize such amounts as additional goodwill expense in
the accompanying financial statements. As of December 31, 1998, the Company
believes that no such adjustment is necessary.

The Company began to amortize goodwill during 1996 on a straight-line basis over
twenty-five years. In December of 1997, the Company changed its amortization
period to twenty years in order to conform to Zurich's accounting practices and
policies. As a result of the change in amortization periods, the Company
recorded an increase in goodwill amortization expense of $5.1 million during
1997.

B-61
<PAGE> 114

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

VALUE OF BUSINESS ACQUIRED

The value of business acquired reflects the estimated fair value of the
Company's life insurance business in force and represents the portion of the
cost to acquire the Company that is allocated to the value of the right to
receive future cash flows from insurance contracts existing at the date of
acquisition. Such value is the present value of the actuarially determined
projected cash flows for the acquired policies.

The value of the business acquired is amortized over the estimated contract life
of the business acquired in relation to the present value of estimated gross
profits using current assumptions based on an interest rate equal to the
liability or contract rate on the value of business acquired. The estimated
amortization and accretion of interest for the value of business acquired for
each of the years through December 31, 2003 are as follows:

<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ---------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996 (actual)................................. $190,222 $(31,427) $9,897 $168,692
1997 (actual)................................. 168,692 (34,906) 9,958 143,744
1998 (actual)................................. 143,744 (26,807) 9,129 126,066
1999.......................................... 126,066 (24,926) 7,741 108,881
2000.......................................... 108,881 (22,649) 6,619 92,851
2001.......................................... 92,851 (20,736) 5,577 77,692
2002.......................................... 77,692 (17,096) 4,695 65,291
2003.......................................... 65,291 (15,504) 3,948 53,735
</TABLE>

The projected ending balance of the value of business acquired will be further
adjusted to reflect the impact of unrealized gains or losses on fixed maturities
held as available for sale in the investment portfolio. Such adjustments are not
recorded in the Company's net income but rather are recorded as a credit or
charge to accumulated other comprehensive income, net of income tax. As of
December 31, 1998 and 1997, this adjustment decreased the value of business
acquired by $7.2 million and $5.3 million, respectively, and accumulated other
comprehensive income by approximately $4.7 million and $3.4 million,
respectively.

LIFE INSURANCE REVENUE AND EXPENSES

Revenue for annuities, variable life insurance and interest-sensitive life
insurance products consists of investment income, and policy charges such as
mortality, expense and surrender charges and expense loads for premium taxes on
certain contracts. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs.

Premiums for term life policies are reported as earned when due. Profits for
such policies are recognized over the duration of the insurance policies by
matching benefits and expenses to premium income.

DEFERRED INSURANCE ACQUISITION COSTS

The costs of acquiring new business, principally commission expense and certain
policy issuance and underwriting expenses, have been deferred to the extent they
are recoverable from estimated future gross profits on the related contracts and
policies. The deferred insurance acquisition costs for annuities, separate
account business and interest-sensitive life insurance products are being
amortized over the estimated contract life in relation to the present value of
estimated gross profits. Deferred insurance acquisition costs related to such
interest-sensitive products also reflect the estimated impact of unrealized
gains or losses on fixed maturities held as available for sale in the investment
portfolio, through a credit or charge to accumulated other comprehensive income,
net of income tax. The deferred insurance acquisition costs for term-life
insurance products are being amortized over the premium paying period of the
policies.

B-62
<PAGE> 115

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FUTURE POLICY BENEFITS

Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 3.0 percent to 7.5 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.0 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 2.5 percent to 12.0
percent.

Liabilities for future term life policy benefits have been computed principally
by a net level premium method. Anticipated rates of mortality are based on the
1975-1980 Select and Ultimate Table modified by Company experience, including
withdrawals. Estimated future investment yields are a level 6.8 percent.

GUARANTY FUND ASSESSMENTS

The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1998 and prior. The Company's financial statements include provisions for all
known assessments that are expected to be levied against the Company as well as
an estimate of amounts (net of estimated future premium tax recoveries) that the
Company believes it will be assessed in the future for which the life insurance
industry has estimated the cost to cover losses to policyholders.

INVESTED ASSETS AND RELATED INCOME

Investments in fixed maturities and equity securities are carried at fair value.
Short-term investments are carried at cost, which approximates fair value.

The amortized cost of fixed maturities is adjusted for amortization of premiums
and accretion of discounts to maturity, or in the case of mortgage-backed and
asset-backed securities, over the estimated life of the security. Such
amortization is included in net investment income. Amortization of the discount
or premium from mortgage-backed and asset-backed securities is recognized using
a level effective yield method which considers the estimated timing and amount
of prepayments of the underlying loans and is adjusted to reflect differences
which arise between the prepayments originally anticipated and the actual
prepayments received and currently anticipated. To the extent that the estimated
lives of such securities change as a result of changes in prepayment rates, the
adjustment is also included in net investment income. The Company does not
accrue interest income on fixed maturities deemed to be impaired on an
other-than-temporary basis, or on mortgage loans and other real estate loans
where the likelihood of collection of interest is doubtful.

Mortgage loans are carried at their unpaid balance, net of unamortized discount
and any applicable reserves or write-downs. Other real estate-related
investments, net of any applicable reserves and write-downs, include: (1) notes
receivable from real estate ventures; (2) investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures, and
(3) real estate owned at December 31, 1997, carried at fair value. Real estate
reserves are established when declines in collateral values, estimated in light
of current economic conditions, indicate a likelihood of loss.

Investments in policy loans and other invested assets, consisting primarily of
venture capital investments and a leveraged lease, are carried primarily at
cost.

Realized gains or losses on sales of investments, determined on the basis of
identifiable cost on the disposition of the respective investment, recognition
of other-than-temporary declines in value and changes in real estate-related
reserves and write-downs are included in revenue. Net unrealized gains or losses
on revaluation of investments are credited or charged to accumulated other
comprehensive income. Such unrealized gains are recorded net of deferred income
tax expense, while unrealized losses are not tax benefitted.

SEPARATE ACCOUNT BUSINESS

The assets and liabilities of the separate accounts represent segregated funds
administered and invested by the Company for purposes of funding variable
annuity and variable life insurance contracts for the exclusive benefit

B-63
<PAGE> 116

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of variable annuity and variable life insurance contract holders. The Company
receives administrative fees from the separate account and retains varying
amounts of withdrawal charges to cover expenses in the event of early
withdrawals by contract holders. The assets and liabilities of the separate
accounts are carried at fair value.

INCOME TAX

For the period January 1 through January 4, 1996, the Company's federal income
tax return was consolidated with Kemper and Kemper's other wholly-owned life
insurance subsidiary, Federal Kemper Life Assurance Company ("FKLA"). The Boards
of Directors of Kemper, KILICO and FKLA, adopted a written plan that provided
that federal income taxes would be paid to or recovered from Kemper on the basis
of each company's taxable income or loss as shown on its respective federal
income tax return. In the event of a federal income tax credit which is greater
than the amount recoverable from the other life insurance company or from the
Internal Revenue Service, the funds available would be apportioned among the
life companies entitled to a recovery on the basis of the relationship of each
company's tax credit to the total of all of the life insurance companies in a
deficit position. For the period January 5 through December 31, 1996, and
subsequent years, the Company has filed a separate federal income tax return.

Deferred taxes are provided on the temporary differences between the tax and
financial statement basis of assets and liabilities.

(2) CASH FLOW INFORMATION

The Company defines cash as cash in banks and money market accounts. The Company
paid federal income taxes of $126.0 million, $29.0 million and $28.1 million
directly to the United States Treasury Department during 1998, 1997 and 1996
respectively.

(3) INVESTED ASSETS AND RELATED INCOME

The Company is carrying its fixed maturity investment portfolio at estimated
fair value as fixed maturities are considered available for sale. The carrying
value of fixed maturities compared with amortized cost, adjusted for
other-than-temporary declines in value, were as follows:

<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
CARRYING AMORTIZED --------------------
VALUE COST GAINS LOSSES
(in thousands) -------- --------- ----- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. treasury securities and obligations of U.S.
government agencies and authorities............... $ 7,951 $ 7,879 $ 81 $ (9)
Obligations of states and political subdivisions,
special revenue and nonguaranteed................. 27,039 26,768 362 (91)
Debt securities issued by foreign governments....... 69,357 67,239 2,266 (148)
Corporate securities................................ 1,908,850 1,866,372 46,664 (4,186)
Mortgage and asset-backed securities................ 1,469,623 1,453,277 19,063 (2,717)
---------- ---------- ------- --------
Total fixed maturities....................... $3,482,820 $3,421,535 $68,436 $ (7,151)
========== ========== ======= ========
DECEMBER 31, 1997
U.S. treasury securities and obligations of U.S.
government agencies and authorities............... $ 6,258 $ 6,298 $ 4 $ (44)
Obligations of states and political subdivisions,
special revenue and nonguaranteed................. 29,330 29,308 160 (138)
Debt securities issued by foreign governments....... 92,563 92,722 188 (347)
Corporate securities................................ 1,861,655 1,846,588 24,733 (9,666)
Mortgage and asset-backed securities................ 1,678,837 1,669,159 10,035 (357)
---------- ---------- ------- --------
Total fixed maturities....................... $3,668,643 $3,644,075 $35,120 $(10,552)
========== ========== ======= ========
</TABLE>

The carrying value and amortized cost of fixed maturity investments, by
contractual maturity at December 31, 1998, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have

B-64
<PAGE> 117

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

the right to call or prepay obligations with or without call or prepayment
penalties and because mortgage-backed and asset-backed securities provide for
periodic payments throughout their life.

<TABLE>
<CAPTION>
CARRYING AMORTIZED
VALUE COST
(in thousands) -------- ---------
<S> <C> <C>
One year or less............................................ $ 44,816 $ 44,745
Over one year through five years............................ 814,646 802,147
Over five years through ten years........................... 891,767 866,613
Over ten years.............................................. 261,968 254,753
Securities not due at a single maturity date, primarily
mortgage and asset-backed securities(1)................... 1,469,623 1,453,277
---------- ----------
Total fixed maturities............................... $3,482,820 $3,421,535
========== ==========
</TABLE>

- ---------------

(1) Weighted average maturity of 4.0 years.

Proceeds from sales of investments in fixed maturities prior to maturity were
$882.6 million, $633.9 million and $892.0 million during 1998, 1997 and 1996,
respectively. Gross gains of $10.1 million, $3.1 million and $9.9 million and
gross losses of $8.0 million, $13.7 million and $16.2 million were realized on
sales and write-downs of fixed maturities in 1998, 1997 and 1996, respectively.

At December 31, 1998, the Company had 12 separate asset-backed securities
included in fixed maturity investments from trusts formed to collateralize
assets underwritten by Green Tree Financial Corporation, which in aggregate
amounted to $97.7 million. No other individual investments exceeded ten percent
of stockholder's equity at December 31, 1998.

At December 31, 1998, securities carried at approximately $6.4 million were on
deposit with governmental agencies as required by law.

Upon default or indication of potential default by an issuer of fixed maturity
securities, the issue(s) of such issuer would be placed on nonaccrual status
and, since declines in fair value would no longer be considered by the Company
to be temporary, would be analyzed for possible write-down. Any such issue would
be written down to its net realizable value during the fiscal quarter in which
the impairment was determined to have become other than temporary. Thereafter,
each issue on nonaccrual status is regularly reviewed, and additional
write-downs may be taken in light of later developments.

The Company's computation of net realizable value involves judgments and
estimates, so such value should be used with care. Such value determination
considers such factors as the existence and value of any collateral security;
the capital structure of the issuer; the level of actual and expected market
interest rates; where the issue ranks in comparison with other debt of the
issuer; the economic and competitive environment of the issuer and its business;
the Company's view on the likelihood of success of any proposed issuer
restructuring plan; and the timing, type and amount of any restructured
securities that the Company anticipates it will receive.

The Company's $164.4 million real estate portfolio at December 31, 1998 consists
of joint venture and third-party mortgage loans and other real estate-related
investments. At December 31, 1998 and 1997, total impaired real estate-related
loans were as follows:

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
(in millions) ----------- -----------
<S> <C> <C>
Impaired loans without reserves--gross...................... $83.9 $39.3
Impaired loans with reserves--gross......................... 21.5 2.2
----- -----
Total gross impaired loans........................... 105.4 41.5
Reserves related to impaired loans.......................... (18.5) (2.1)
----- -----
Net impaired loans................................... $86.9 $39.4
===== =====
</TABLE>

B-65
<PAGE> 118

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired loans without reserves include loans in which the deficit in equity
investments in real estate-related investments is considered in determining
reserves and write-downs. The Company had an average balance of $54.6 million
and $45.2 million in impaired loans for 1998 and 1997, respectively. Cash
payments received on impaired loans are generally applied to reduce the
outstanding loan balance.

At December 31, 1998 and 1997, loans on nonaccrual status, before reserves and
write-downs, amounted to $37.4 million and $47.4 million, respectively. The
Company's nonaccrual loans are generally included in impaired loans.

The sources of net investment income were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities................. $232,707 $250,170 $250,683
Dividends on equity securities............................. 2,143 2,123 646
Income from short-term investments......................... 5,391 4,128 9,130
Income from mortgage loans................................. 14,964 16,283 20,257
Income from policy loans................................... 21,096 20,549 20,700
Income from other real estate-related investments.......... 352 6,631 4,917
Income from other loans and investments.................... 2,223 2,045 2,480
-------- -------- --------
Total investment income............................. 278,876 301,929 308,813
Investment expense......................................... (5,364) (5,734) (9,125)
-------- -------- --------
Net investment income............................... $273,512 $296,195 $299,688
======== ======== ========
</TABLE>

Net realized investment gains (losses) for the years ended December 31, 1998,
1997 and 1996, were as follows:

<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
-------------------------------------
1998 1997 1996
(in thousands) -------- -------- -------
<S> <C> <C> <C>
Real estate-related......................................... $ 41,362 $ 19,758 $17,462
Fixed maturities............................................ 2,158 (10,656) (6,344)
Trading account securities--gross gains on transfer......... 3,254 -- --
Trading account securities--gross losses on transfer........ (417) -- --
Trading account securities--holding losses.................. (151) -- --
Equity securities........................................... 5,496 914 --
Other....................................................... 166 530 2,484
-------- -------- -------
Realized investment gains before income tax expense....... 51,868 10,546 13,602
Income tax expense.......................................... (18,154) (3,691) (4,761)
-------- -------- -------
Net realized investment gains............................. $ 33,714 $ 6,855 $ 8,841
======== ======== =======
</TABLE>

B-66
<PAGE> 119

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

Unrealized gains (losses) are computed below as follows: fixed maturities--the
difference between fair value and amortized cost, adjusted for
other-than-temporary declines in value; equity and other securities--the
difference between fair value and cost. The change in net unrealized investment
gains (losses) by class of investment for the years ended December 31, 1998,
1997 and 1996 were as follows:

<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
-----------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
(in thousands) ------------ ------------ -----------
<S> <C> <C> <C>
Fixed maturities....................................... $ 36,717 $ 87,787 $(63,219)
Equity and other securities............................ (1,074) (103) 1,256
Adjustment to deferred insurance acquisition costs..... (2,399) (2,325) 1,307
Adjustment to value of business acquired............... (1,954) (26,209) 20,947
-------- -------- --------
Unrealized gain (loss) before income tax expense
(benefit)......................................... 31,290 59,150 (39,709)
Income tax expense (benefit)........................... 10,952 (985) 7,789
-------- -------- --------
Net unrealized gain (loss) on investments....... $ 20,338 $ 60,135 $(47,498)
======== ======== ========
</TABLE>

(4) UNCONSOLIDATED INVESTEES

At December 31, 1998 and 1997 the Company, along with other Kemper subsidiaries,
directly held partnership interests in a number of real estate joint ventures.
The Company's direct and indirect real estate joint venture investments are
accounted for utilizing the equity method, with the Company recording its share
of the operating results of the respective partnerships. The Company, as an
equity owner, has the ability to fund, and historically has elected to fund,
operating requirements of certain of the joint ventures. Consolidation
accounting methods are not utilized as the Company, in most instances, does not
own more than 50 percent in the aggregate, and in any event, major decisions of
the partnership must be made jointly by all partners.

As of December 31, 1998 and 1997, the Company's net equity investment in
unconsolidated investees amounted to $1.2 million and $19.3 million,
respectively. The Company's share of net income related to such unconsolidated
investees amounted to $241 thousand, $835 thousand and $223 thousand in 1998,
1997 and 1996, respectively.

(5) CONCENTRATION OF CREDIT RISK

The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of credit risk exist in mortgage and
asset-backed securities and real estate.

Approximately 28.0 percent of the Company's investment-grade fixed maturities at
December 31, 1998 were mortgage-backed securities, down from 35.1 percent at
December 31, 1997, due to sales and paydowns during 1998. These investments
consist primarily of marketable mortgage pass-through securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally AAA credit
quality.

Approximately 15.4 percent and 10.8 percent of the Company's investment-grade
fixed maturities at December 31, 1998 and 1997, respectively, consisted of
corporate asset-backed securities. The majority of the Company's investments in
asset-backed securities were backed by home equity loans (21.9%), auto loans
(8.2%), manufactured housing loans (14.8%), equipment loans (5.2%), and
commercial mortgage backed securities (22.1%).

The Company's real estate portfolio is distributed by geographic location and
property type. The geographic distribution of a majority of the real estate
portfolio as of December 31, 1998 was as follows: California

B-67
<PAGE> 120

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(31.5%), Hawaii (16.2%), Washington (9.9%) and Colorado (9.4%). The property
type distribution of a majority of the real estate portfolio as of December 31,
1998 was as follows: hotels (39.9%), land (30.9%) and residential (15.5%).

Undeveloped land represented approximately 30.9 percent of the Company's real
estate portfolio at December 31, 1998. To maximize the value of certain land and
other projects, additional development has been proceeding or has been planned.
Such development of existing projects would continue to require funding, either
from the Company or third parties. In the present real estate markets,
third-party financing can require credit enhancing arrangements (e.g., standby
financing arrangements and loan commitments) from the Company. The values of
development projects are dependent on a number of factors, including Kemper's
and the Company's plans with respect thereto, obtaining necessary construction
and zoning permits and market demand for the permitted use of the property.
There can be no assurance that such permits will be obtained as planned or at
all, nor that such expenditures will occur as scheduled, nor that Kemper's and
the Company's plans with respect to such projects may not change substantially.

Approximately half of the Company's real estate mortgage loans are on properties
or projects where the Company, Kemper, or their affiliates have taken ownership
positions in joint ventures with a small number of partners.

At December 31, 1998, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), a third-party real estate
developer, have ownership interests constituted approximately $64.5 million, or
39.3 percent, of the Company's real estate portfolio. The Nesbitt ventures
consist of nine hotel properties and two office buildings. At December 31, 1998,
the Company did not have any Nesbitt-related off-balance-sheet legal funding
commitments outstanding.

At December 31, 1998, loans to a master limited partnership (the "MLP") between
subsidiaries of Kemper and subsidiaries of Lumbermens Mutual Casualty Company
("Lumbermens"), a former affiliate, constituted approximately $51.6 million, or
31.4 percent, of the Company's real estate portfolio. Kemper's interest is 75
percent at December 31, 1998. At December 31, 1998, MLP-related commitments
accounted for approximately $6.1 million of the Company's off-balance-sheet
legal commitments.

The remaining significant real estate-related investments amounted to $27.3
million at December 31, 1998 and consisted of various zoned and unzoned
residential and commercial lots located in Hawaii. Due to certain negative
zoning restriction developments in January 1997 and a continuing economic slump
in Hawaii, the Company has placed these real estate-related investments on
nonaccrual status as of December 31, 1996. The Company is currently pursuing the
zoning of all remaining unzoned properties, as well as pursuing steps to sell
all remaining zoned properties. However, due to the state of Hawaii's economy,
which has lagged behind the economic expansion of most of the rest of the United
States, the Company anticipates that it could be several additional years until
the Company completely disposes of all of its investments in Hawaii.

At December 31, 1998, the Company no longer had any outstanding loans or
investments in projects with the Prime Group, Inc. or its affiliates, as all
such investments have been sold. However, the Company continues to have Prime
Group-related commitments, which accounted for $25.7 million of the Company's
off-balance-sheet legal commitments at December 31, 1998.

(6) INCOME TAXES

Income tax expense (benefit) was as follows for the years ended December 31,
1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Current................................................. $ 52,274 $130,662 $ 26,300
Deferred................................................ (12,470) (99,370) (897)
-------- -------- --------
Total......................................... $ 39,804 $ 31,292 $ 25,403
======== ======== ========
</TABLE>

B-68
<PAGE> 121

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES (CONTINUED)

Additionally, the deferred income tax expense (benefit) related to items
included in other comprehensive income was as follows for the years ended
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) ------- ------- ------
<S> <C> <C> <C>
Unrealized gains and losses on investments.................. $12,475 $ 9,002 $ --
Value of business acquired.................................. (684) (9,173) 7,331
Deferred insurance acquisition costs........................ (840) (814) 457
------- ------- ------
Total............................................. $10,952 $ (985) $7,789
======= ======= ======
</TABLE>

The actual income tax expense for 1998, 1997 and 1996 differed from the
"expected" tax expense for those years as displayed below. "Expected" tax
expense was computed by applying the U.S. federal corporate tax rate of 35
percent in 1998, 1997, and 1996 to income before income tax expense.

<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Computed expected tax expense............................... $36,734 $24,503 $20,938
Difference between "expected" and actual tax expense:
State taxes............................................... (434) 1,801 913
Amortization of goodwill.................................. 4,460 5,353 3,568
Dividend received deduction............................... (540) -- --
Foreign tax credit........................................ (250) (278) --
Other, net................................................ (166) (87) (16)
------- ------- -------
Total actual tax expense.......................... $39,804 $31,292 $25,403
======= ======= =======
</TABLE>

Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.
The valuation allowance is subject to future adjustments based upon, among other
items, the Company's estimates of future operating earnings and capital gains.

The Company has established a valuation allowance to reduce the deferred federal
tax asset related to real estate and other investments to the amount that, based
upon available evidence, is, in management's judgment, more likely than not, to
be realized. Any reversals of the valuation allowance are contingent upon the
recognition of future capital gains in the Company's federal income tax return
or a change in circumstances which causes the recognition of the benefits to
become more likely than not. The change in the valuation allowance is related
solely to the change in the net deferred federal tax asset or liability from
unrealized gains or losses on investments.

B-69
<PAGE> 122

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant portions
of the Company's net deferred federal tax assets or liabilities were as follows:

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
(in thousands) ----------- ------------ ------------
<S> <C> <C> <C>
Deferred federal tax assets:
Deferred insurance acquisition costs.............. $ 86,332 $ 75,522 $ 4,520
Unrealized losses on investments.................. -- -- 16,624
Life policy reserves.............................. 27,240 43,337 46,452
Unearned revenue.................................. 42,598 37,243 --
Real estate-related............................... 13,944 13,400 20,642
Other investment-related.......................... 5,770 3,298 5,409
Other............................................. 4,923 4,371 3,639
-------- -------- --------
Total deferred federal tax assets.............. 180,807 177,171 97,286
Valuation allowance............................... (15,201) (15,201) (31,825)
-------- -------- --------
Total deferred federal tax assets after
valuation allowance.......................... 165,606 161,970 65,461
-------- -------- --------
Deferred federal tax liabilities:
Value of business acquired........................ 41,598 48,469 66,373
Deferred insurance acquisition costs.............. 32,040 20,811 9,384
Depreciation and amortization..................... 19,111 20,201 15,473
Other investment-related.......................... 14,337 18,774 28,855
Unrealized gains on investments................... 21,477 9,002 --
Other............................................. 1,984 4,720 5,738
-------- -------- --------
Total deferred federal tax liabilities......... 130,547 121,977 125,823
-------- -------- --------
Net deferred federal tax assets (liabilities)....... $ 35,059 $ 39,993 $(60,362)
======== ======== ========
</TABLE>

The net deferred tax assets relate primarily to unearned revenue and the tax on
deferred insurance acquisition costs ("DAC Tax") associated with $1.5 billion
and $2.7 billion of new and renewal sales in 1998 and 1997, respectively from a
non-registered individual and group variable bank-owned life insurance contract
("BOLI"). Management believes that it is more likely than not that the results
of future operations will generate sufficient taxable income over the ten year
amortization period of the unearned revenue and DAC Tax to realize such deferred
tax assets.

The tax returns through the year 1993 have been examined by the Internal Revenue
Service ("IRS"). Changes proposed are not material to the Company's financial
position. The tax returns for the years 1994 through 1996 are currently under
examination by the IRS.

(7) RELATED-PARTY TRANSACTIONS

The Company received capital contributions from Kemper of $4.3 million, $45.0
million and $18.4 million during 1998, 1997 and 1996, respectively. The Company
paid cash dividends of $95.0 million and $29.3 million to Kemper during 1998 and
1997, respectively. The Company did not pay any cash dividends to Kemper during
1996.

The Company has loans to joint ventures, consisting primarily of mortgage loans
on real estate, in which the Company and/or one of its affiliates has an
ownership interest. At December 31, 1998 and 1997, joint venture mortgage loans
totaled $65.8 million and $72.7 million, respectively, and during 1998, 1997 and
1996, the Company earned interest income on these joint venture loans of $6.8
million, $7.5 million and $9.5 million, respectively.

All of the Company's personnel are employees of Federal Kemper Life Assurance
Company ("FKLA"), an affiliated company. The Company is allocated expenses for
the utilization of FKLA employees and facilities, the

B-70
<PAGE> 123

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) RELATED-PARTY TRANSACTIONS (CONTINUED)

investment management services of Scudder Kemper Investments, Inc. ("SKI") an
affiliated company, and the information systems of Kemper Service Company
("KSvC"), an SKI subsidiary, based on the Company's share of administrative,
legal, marketing, investment management, information systems and operation and
support services. During 1998, 1997 and 1996, expenses allocated to the Company
from SKI and KSvC amounted to $43 thousand, $114 thousand and $1.7 million,
respectively. The Company also paid to SKI investment management fees of $3.1
million, $3.5 million and $3.6 million during 1998, 1997 and 1996, respectively.
In addition, expenses allocated to the Company from FKLA during 1998, 1997 and
1996 amounted to $35.5 million, $30.0 million and $10.5 million, respectively.
The Company also paid to Kemper real estate subsidiaries $1.5 million, $2.2
million and $1.8 million in 1998, 1997 and 1996, respectively, related to the
management of the Company's real estate portfolio.

(8) REINSURANCE

In the ordinary course of business, the Company enters into reinsurance
agreements to diversify risk and limit its overall financial exposure to certain
blocks of fixed-rate annuities and to individual death claims. The Company
generally cedes 100 percent of the related annuity liabilities under the terms
of the reinsurance agreements. Although these reinsurance agreements
contractually obligate the reinsurers to reimburse the Company, they do not
discharge the Company from its primary liabilities and obligations to
policyholders. As such, these amounts paid or deemed to have been paid are
recorded on the Company's consolidated balance sheet as reinsurance recoverables
and ceded future policy benefits.

As of December 31, 1998 and 1997, the reinsurance recoverable related to
fixed-rate annuity liabilities ceded to an affiliate amounted to $344.8 million
and $382.6 million, respectively.

In December 1996, the Company assumed on a yearly renewable term basis
approximately $14.4 billion (face amount) of term life insurance from FKLA. As a
result of this transaction, the Company recorded premiums and reserves of
approximately $7.3 million. The difference between the cash transferred, which
represents the statutory reserves of the business assumed, and the reserves
recorded under generally accepted accounting principles ("GAAP"), of
approximately $18.4 million, was deemed to be a capital contribution from Kemper
and was recorded as additional paid-in-capital during 1996. As of the date of
this transaction, no deferred tax impact was recorded on the difference between
the statutory and GAAP reserves. This deferred tax impact of $6.5 million was
recorded in 1998 as a reduction to the original capital contribution. Premiums
assumed during 1998 under the terms of the treaty amounted to $21.6 million and
the face amount which remained outstanding at December 31, 1998 amounted to
$11.7 billion.

Effective January 1, 1997, the Company ceded 90 percent of all new term life
insurance premiums to outside reinsurers. Term life reserves ceded to outside
reinsurers on the Company's direct business amounted to approximately $293
thousand and $139 thousand as of December 31, 1998 and 1997, respectively.

During December 1997, the Company entered into a funds withheld reinsurance
agreement with a Zurich affiliated company, ZC Life Reinsurance Limited ("ZC
Life"), formerly EPICENTRE Reinsurance (Bermuda) Limited. Under the terms of
this agreement, the Company ceded, on a yearly renewable term basis, ninety
percent of the net amount at risk (death benefit payable to the insured less the
insured's separate account cash surrender value) related to the new BOLI product
developed in 1997, which is held in the Company's separate accounts. During
1997, the Company issued $59.3 billion (face amount) of new BOLI business and
ceded $51.1 billion (face amount) to ZC Life under the terms of the treaty.
During 1997, the Company also ceded $24.3 million of separate account fees (cost
of insurance charges) to ZC Life. The Company has also withheld approximately
$23.4 million of such funds due to ZC Life under the terms of the reinsurance
agreement as a component of benefits and funds payable in the accompanying
consolidated balance sheet as of December 31, 1997.

During 1998, the Company modified the reinsurance agreement to increase the
reinsurance from ninety percent to one hundred percent. During 1998, the Company
issued $6.9 billion (face amount) of new BOLI business and ceded $11.1 billion
(face amount) to ZC Life under the terms of the modified treaty. During 1998,
the Company also ceded $175.5 million of separate account fees (cost of
insurance charges) to ZC Life. The

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<PAGE> 124

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company has also withheld approximately $170.9 million of such funds due to ZC
Life under the terms of the reinsurance agreement as a component of benefits and
funds payable in the accompanying consolidated balance sheet as of December 31,
1998.

KILICO has a large and growing funds withheld account ("FWA") supporting reserve
credits on reinsurance ceded on the BOLI product. Amendments to the reinsurance
contracts during 1998 changed the methodology used to determine increases to the
FWA. A substantial portion of the FWA is now marked-to-market based upon the
Total Return of the Governmental Bond Division of the KILICO Variable Series I
Separate Account. During 1998, the Company recorded a $2.5 million increase to
the FWA related to this mark-to-market. To properly match revenue and expenses,
the Company has placed assets supporting the FWA in a segmented portion of its
General Account. This portfolio is classified as "trading" under Statement of
Financial Accounting Standards No. 115 ("FAS 115"). FAS 115 mandates that assets
held in a trading account be valued at fair value, with changes in fair value
flowing through the income statement as realized capital gains and losses.
During 1998, the Company recorded a realized capital gain of $2.8 million upon
transfer of these assets from "available for sale" to the trading portfolio as
required by FAS 115. In addition, the Company recorded realized capital losses
of $151 thousand related to the changes in fair value of this portfolio during
1998. The fair value of this portfolio was $101.8 million at December 31, 1998,
and the amortized cost was $99.1 million. The Company periodically purchases
assets into this segmented portfolio to support changes in the FWA.

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

FKLA sponsors a welfare plan that provides medical and life insurance benefits
to its retired and active employees and the Company is allocated a portion of
the costs of providing such benefits. The Company is self insured with respect
to medical benefits, and the plan is not funded except with respect to certain
disability-related medical claims. The medical plan provides for medical
insurance benefits at retirement, with eligibility based upon age and the
participant's number of years of participation attained at retirement. The plan
is contributory for pre-Medicare retirees, and will be contributory for all
retiree coverage for most current employees, with contributions generally
adjusted annually. Postretirement life insurance benefits are noncontributory
and are limited to $10,000 per participant.

The allocated accumulated postretirement benefit obligation accrued by the
Company amounted to $2.0 million and $1.9 million at December 31, 1998 and 1997,
respectively.

The discount rate used in determining the allocated postretirement benefit
obligation was 7.0 percent and 7.25 percent for 1998 and 1997, respectively. The
assumed health care trend rate used was based on projected experience for 1998,
8.0 percent for 1999, gradually declining to 6.4 percent by the year 2003 and
gradually declining thereafter.

A one percentage point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1998 and 1997 by $312 thousand and $242 thousand, respectively.

(10) COMMITMENTS AND CONTINGENT LIABILITIES

The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the consolidated financial
statements.

Although neither the Company nor its joint venture projects have been identified
as a "potentially responsible party" under Federal environmental guidelines,
inherent in the ownership of, or lending to, real estate projects is the
possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its
consolidated results of operations. However, the Company may be required in the
future to take actions to remedy environmental exposures, and there can be no
assurance that material environmental exposures will not

B-72
<PAGE> 125

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

develop or be identified in the future. The amount of future environmental costs
is impossible to estimate due to, among other factors, the unknown magnitude of
possible exposures, the unknown timing and extent of corrective actions that may
be required, the determination of the Company's liability in proportion to
others and the extent such costs may be covered by insurance or various
environmental indemnification agreements.

(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK

At December 31, 1998, the Company had future legal loan commitments and stand-by
financing agreements totaling $64.4 million to support the financing needs of
various real estate investments. To the extent these arrangements are called
upon, amounts loaned would be collateralized by assets of the joint ventures,
including first mortgage liens on the real estate. The Company's criteria in
making these arrangements are the same as for its mortgage loans and other real
estate investments. These commitments are included in the Company's analysis of
real estate-related reserves and write-downs. The fair values of loan
commitments and standby financing agreements are estimated in conjunction with
and using the same methodology as the fair value estimates of mortgage loans and
other real estate-related investments.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. Fair value estimates for financial instruments not
carried at fair value are generally determined using discounted cash flow models
and assumptions that are based on judgments regarding current and future
economic conditions and the risk characteristics of the investments. Although
fair value estimates are calculated using assumptions that management believes
are appropriate, changes in assumptions could significantly affect the estimates
and such estimates should be used with care.

Fair value estimates are determined for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and certain liabilities that are not
considered financial instruments. Accordingly, the aggregate fair value
estimates presented do not represent the underlying value of the Company. For
example, the Company's subsidiaries are not considered financial instruments,
and their value has not been incorporated into the fair value estimates. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

FIXED MATURITIES AND EQUITY SECURITIES: Fair values were determined by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of fair values obtained from yield data relating to
instruments or securities with similar characteristics, or fair value as
determined in good faith by the Company's portfolio manager, SKI.

CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate fair values.

MORTGAGE LOANS AND OTHER REAL ESTATE-RELATED INVESTMENTS: Fair values were
estimated based upon the investments observable market price, net of estimated
costs to sell. The estimates of fair value should be used with care given the
inherent difficulty in estimating the fair value of real estate due to the lack
of a liquid quotable market.

OTHER LOANS AND INVESTMENTS: The carrying amounts reported in the consolidated
balance sheets for these instruments approximate fair values. The fair values of
policy loans were estimated by discounting the expected future cash flows using
an interest rate charged on policy loans for similar policies currently being
issued.

B-73
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KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LIFE POLICY BENEFITS: Fair values of the life policy benefits regarding
investment contracts (primarily deferred annuities) and universal life contracts
were estimated by discounting gross benefit payments, net of contractual
premiums, using the average crediting rate currently being offered in the
marketplace for similar contracts with maturities consistent with those
remaining for the contracts being valued. The Company had projected its future
average crediting rate in 1998 and 1997 to be 4.75 percent and 5.25 percent,
respectively, while the assumed average market crediting rate was 5.0 percent
and 6.0 percent in 1998 and 1997, respectively.

The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities............................ $3,482,820 $3,482,820 $3,668,643 $3,668,643
Trading account securities.................. 101,781 101,781 -- --
Cash and short-term investments............. 71,820 71,820 259,925 259,925
Mortgage loans and other real estate-related
assets................................... 164,375 164,375 220,046 220,046
Policy loans................................ 271,540 271,540 282,439 282,439
Equity securities........................... 66,854 66,854 24,839 24,839
Other invested assets....................... 23,645 27,620 20,820 24,404
Financial instruments recorded as liabilities:
Life policy benefits, excluding term life
reserves................................. 3,551,050 3,657,510 3,846,023 4,050,852
Funds withheld account...................... 170,920 170,920 23,420 23,420
</TABLE>

(13) STOCKHOLDER'S EQUITY--RETAINED EARNINGS

The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1999 is $64.9 million. The
Company paid cash dividends of $95.0 million and $29.3 million to Kemper during
1998 and 1997, respectively. The Company paid no cash dividends in 1996.

The Company's net income and capital and surplus as determined in accordance
with statutory accounting principles were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $ 64,871 $ 58,372 $ 37,287
======== ======== ========
Statutory capital and surplus............................... $455,213 $476,924 $411,837
======== ======== ========
</TABLE>

B-74
<PAGE> 127

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) UNAUDITED INTERIM FINANCIAL INFORMATION

The following table sets forth the Company's unaudited quarterly financial
information:

(in thousands)

<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998 OPERATING SUMMARY
Net investment income............................. $70,551 $68,467 $ 66,892 $ 67,602
Realized investment gains......................... 1,854 15,673 8,951 25,390
Premium income.................................... 5,203 5,941 5,278 5,924
Separate account fees and other income............ 20,418 19,922 17,631 14,042
------- ------- -------- --------
Total revenue............................. 98,026 110,003 98,752 112,958
------- ------- -------- --------
Interest credited and benefits to policyholders... 57,930 57,939 54,251 34,815
Commissions, taxes, licenses and fees............. 13,885 13,922 12,282 29,251
Operating expenses................................ 10,094 12,157 10,528 11,794
Net deferral of insurance acquisition costs....... (7,973) (11,983) (9,669) (4,858)
Amortization of value of business acquired........ 4,427 7,121 6,359 (230)
Amortization of goodwill.......................... 3,186 3,186 3,186 3,186
------- ------- -------- --------
Total benefits and expenses............... 81,549 82,342 76,937 73,958
------- ------- -------- --------
Income before income tax expense.................. 16,477 27,661 21,815 39,000
Income tax expense................................ 7,247 11,774 8,828 11,955
------- ------- -------- --------
Net income................................ $ 9,230 $15,887 $ 12,987 $ 27,045
======= ======= ======== ========
1997 OPERATING SUMMARY
Net investment income............................. $74,249 $74,050 $ 72,950 $ 74,946
Realized investment gains (losses)................ 889 8,161 (3,032) 4,528
Premium income.................................... 5,008 4,121 3,938 9,172
Separate account fees and other income............ 8,909 12,961 12,215 62,415(1)
------- ------- -------- --------
Total revenue............................. 89,055 99,293 86,071 151,061
------- ------- -------- --------
Interest credited and benefits to policyholders... 57,859 56,643 57,965 55,687
Commissions, taxes, licenses and fees............. 8,023 9,475 8,389 59,323(1)
Operating expenses................................ 7,175 8,780 10,014 10,868
Net deferral of insurance acquisition costs....... (7,216) (6,877) (7,471) (13,409)
Amortization of value of business acquired........ 4,821 6,991 6,743 6,393
Amortization of goodwill.......................... 2,547 2,552 2,549 7,647(2)
------- ------- -------- --------
Total benefits and expenses............... 73,209 77,564 78,189 126,509
------- ------- -------- --------
Income before income tax expense.................. 15,846 21,729 7,882 24,552
Income tax expense................................ 5,678 8,723 3,778 13,113
------- ------- -------- --------
Net income................................ $10,168 $13,006 $ 4,104 $ 11,439
======= ======= ======== ========
</TABLE>

- ---------------

Notes:

(1) Reflects premium tax expense loads received and premium taxes incurred of
$49.1 million related to new BOLI sales of $2.6 billion in the fourth
quarter of 1997.

(2) Reflects the effect of the change in amortization of goodwill from 25 to 20
years.

(15) OPERATING SEGMENTS AND RELATED INFORMATION

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for how
to report information about operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company adopted SFAS No. 131 as of December 31, 1998 and the
impact of implementation

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<PAGE> 128

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

did not affect the Company's consolidated financial position, results of
operations or cash flows. In the initial year of adoption, SFAS No. 131 requires
comparative information for earlier years to be restated, unless impracticable
to do so.

In connection with the acquisition by Zurich, the Company, FKLA, ZLICA, and
Fidelity Life Association ("FLA"), a Mutual Legal Reserve Company, owned by its
policyholders, began to operate under the trade name Zurich Kemper Life. For
purposes of this operating segment disclosure, Zurich Kemper Life will also
include the operations of Zurich Direct, Inc., an affiliated direct marketing
life insurance agency and excludes FLA, as it is owned by its policyholders.

Zurich Kemper Life is segregated by Strategic Business Unit ("SBU"). The SBU
concept employed by ZFS has each SBU concentrate on a specific customer market.
The SBU is the focal point of Zurich Kemper Life, because it is at the SBU level
that Zurich Kemper Life can clearly identify customer segments and then work to
understand and satisfy the needs of each customer. The contributions of Zurich
Kemper Life's SBU's to consolidated revenues, operating results and certain
balance sheet data pertaining thereto, are shown in the following tables on the
basis of generally accepted accounting principles. Zurich Kemper Life's SBU's
were formed in 1996, subsequent to the acquisition by Zurich, however, financial
information was not produced by SBU until 1997. Therefore, Zurich Kemper Life
has not provided segment information for 1996, as it would be impracticable to
do so.

Zurich Kemper Life is segregated into the Agency, Financial, Group Retirement
and Direct SBU's. The SBU's are not managed at the legal entity level, but
rather at the Zurich Kemper Life level. Zurich Kemper Life's SBU's cross legal
entity lines, as certain similar products are sold by more than one legal
entity. The vast majority of the Company's business is derived from the
Financial and Group Retirement SBU's.

Each SBU's revenue is derived from geographically dispersed areas as Zurich
Kemper Life is licensed in the District of Columbia and all states except New
York. During 1998 and 1997, Zurich Kemper Life did not derive net revenue from
one customer that exceeded 10 percent of the total revenue of Zurich Kemper
Life.

The principal products and markets of Zurich Kemper Life's SBU's are as follows:

AGENCY: The Agency SBU develops low cost term and universal life insurance, as
well as fixed annuities, to market through independent agencies and national
marketing organizations.

FINANCIAL: The Financial SBU focuses on a wide range of products that provide
for the accumulation, distribution and transfer of wealth and primarily includes
variable and fixed annuities, variable universal life and bank-owned life
insurance. These products are distributed to consumers through financial
intermediaries such as banks, brokerage firms and independent financial
planners.

GROUP RETIREMENT: The Group Retirement SBU has a sharp focus on its target
customer. This SBU markets variable annuities to K-12 schoolteachers,
administrators, and healthcare workers, along with college professors and
certain employees of selected non-profit organizations. This target market is
eligible for what the IRS designates as retirement-oriented savings or
investment plans that qualify for special tax treatment.

DIRECT: The Direct SBU is a direct marketer of basic, low-cost term life
insurance through various marketing media.

B-76
<PAGE> 129

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information for ZKL's SBU's are as follows:

As of and for the period ending December 31, 1998:

(in thousands)

<TABLE>
<CAPTION>
GROUP
AGENCY FINANCIAL RETIREMENT DIRECT TOTAL
INCOME STATEMENT ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Premium income..................... $ 160,067 $ 56 $ -- $ 5,583 $ 165,706
Net investment income.............. 141,171 180,721 100,695 271 422,858
Realized investment gains.......... 20,335 33,691 15,659 30 69,715
Fees and other income.............. 80,831 40,421 31,074 23,581 175,907
---------- ---------- ---------- -------- -----------
Total revenue................. 402,404 254,889 147,428 29,465 834,186
---------- ---------- ---------- -------- -----------
BENEFITS AND EXPENSES
Policyholder benefits.............. 243,793 117,742 73,844 2,110 437,489
Intangible asset amortization...... 58,390 15,669 15,703 -- 89,762
Net deferral of insurance
acquisition costs............... (55,569) (9,444) (22,964) (22,765) (110,742)
Commissions and taxes, licenses and
fees............................ 29,539 43,919 22,227 11,707 107,392
Operating expenses................. 61,659 24,924 20,279 35,593 142,455
---------- ---------- ---------- -------- -----------
Total benefits and expenses... 337,812 192,810 109,089 26,645 666,356
---------- ---------- ---------- -------- -----------
Income before income tax expense..... 64,592 62,079 38,339 2,820 167,830
Income tax expense................... 26,774 24,340 14,794 1,001 66,909
---------- ---------- ---------- -------- -----------
Net income.................... $ 37,818 $ 37,739 $ 23,545 $ 1,819 $ 100,921
========== ========== ========== ======== ===========
BALANCE SHEET
Total assets....................... $3,194,530 $8,232,927 $4,172,828 $ 46,254 $15,646,539
========== ========== ========== ======== ===========
</TABLE>

<TABLE>
<CAPTION>
NET
REVENUE INCOME ASSETS
----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue, net income and assets, respectively, from
above:................................................... $ 834,186 $100,921 $15,646,539
----------- -------- -----------
Less:
Revenue, net income and assets of FKLA................. 336,841 35,953 2,986,381
Revenue, net loss and assets of ZLICA.................. 54,058 (1,066) 416,115
Revenue, net income and assets Zurich Direct........... 23,548 885 4,322
----------- -------- -----------
Totals per the Company's consolidated financial
statements.......................................... $ 419,739 $ 65,149 $12,239,721
=========== ======== ===========
</TABLE>

B-77
<PAGE> 130

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the period ending December 31, 1997:

(in thousands)

<TABLE>
<CAPTION>
GROUP
AGENCY FINANCIAL RETIREMENT DIRECT TOTAL
INCOME STATEMENT ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Premium income................. $ 167,439 $ -- $ -- $ 4,249 $ 171,688
Net investment income.......... 155,885 212,767 91,664 455 460,771
Realized investment gains...... 2,503 7,744 2,692 50 12,989
Fees and other income.......... 78,668 73,823 23,663 8,007 184,161
---------- ---------- ---------- -------- -----------
Total revenue............. 404,495 294,334 118,019 12,761 829,609
---------- ---------- ---------- -------- -----------
BENEFITS AND EXPENSES
Policyholder benefits.......... 247,878 153,327 60,061 2,234 463,500
Intangible asset
amortization................ 58,534 25,593 15,589 -- 99,716
Net deferral of insurance
acquisition costs........... (50,328) (18,222) (13,033) (5,242) (86,825)
Commissions and taxes, licenses
and fees.................... 39,477 66,552 16,668 3,518 126,215
Operating expenses............. 55,859 20,282 14,320 19,472 109,933
---------- ---------- ---------- -------- -----------
Total benefits and
expenses............... 361,420 247,532 93,605 19,982 712,539
---------- ---------- ---------- -------- -----------
Income (loss) before income tax
expense (benefit).............. 53,075 46,802 24,414 (7,221) 117,070
Income tax expense (benefit)..... 25,554 21,144 10,545 (2,528) 54,715
---------- ---------- ---------- -------- -----------
Net income (loss)......... $ 27,521 $ 25,658 $ 13,869 $ (4,693) $ 62,355
========== ========== ========== ======== ===========
BALANCE SHEET
Total assets................... $2,877,854 $7,416,791 $3,759,173 $ 41,669 $14,095,487
========== ========== ========== ======== ===========
</TABLE>

<TABLE>
<CAPTION>
NET
REVENUE INCOME ASSETS
----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue, net income and assets, respectively, from
above:................................................... $ 829,609 $ 62,355 $14,095,487
Less:
Revenue, net income and assets of FKLA................. 338,854 24,740 3,105,396
Revenue, net income and assets of ZLICA................ 57,233 2,193 398,786
Revenue, net loss and assets of Zurich Direct.......... 8,042 (3,295) 1,655
----------- -------- -----------
Totals per the Company's consolidated financial
statements..................................... $ 425,480 $ 38,717 $10,589,650
=========== ======== ===========
</TABLE>

B-78
<PAGE> 131

APPENDIX

STATE PREMIUM TAX CHART

<TABLE>
<CAPTION>
RATE OF TAX
------------------------------------
QUALIFIED NON-QUALIFIED
PLANS PLANS
STATE --------- -------------
<S> <C> <C>
California.................................................. .50% 2.35%*
District of Columbia........................................ 2.25% 2.25%*
Kentucky.................................................... 2.00%* 2.00%*
Maine....................................................... -- 2.00%
Nevada...................................................... -- 3.50%*
South Dakota................................................ -- 1.25%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... -- 1.00%
</TABLE>

* Taxes become due when annuity benefits commence, rather than when the
premiums are collected. At the time of annuitization, the premium tax
payable will be charged against the Contract Value.

B-79
<PAGE> 132

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS:

(1) Financial Statements included in Part A of the Registration
Statement: Condensed Financial Information

(2) Financial Statements included in Part B of the Registration
Statement:

(i) KILICO Variable Annuity Separate Account

Reports of Independent Public Accountants

Statements of Assets and Liabilities and Contract Owners' Equity
as of December 31, 1998

Statements of Operations for the Year Ended December 31, 1998

Statements of Changes in Contract Owners' Equity for the Years
Ended December 31, 1998 and 1997

Notes to Combined Financial Statements

(ii) Kemper Investors Life Insurance Company

Reports of Independent Public Accountants

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets as of December 31, 1998 and 1997

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statement of Operations, years ended December 31,
1998, 1997 and 1996

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income, years ended
December 1998, 1997 and 1996

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statement of Stockholder's Equity, years ended
December 31, 1998, 1997 and 1996

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statement of Cash Flows, years ended December 31,
1998, 1997 and 1996

Notes to Consolidated Financial Statements

(b) EXHIBITS:

<TABLE>
<S> <C>
(5)1.1 A copy of resolution of the Board of Directors of Kemper
Investors Life Insurance Company dated September 13, 1977.
(5)1.2 A copy of Record of Action of Kemper Investors Life
Insurance Company dated April 15, 1983.
2. Not Applicable.
(3)3.1 Distribution Agreement between Investors Brokerage Services,
Inc. and KILICO.
(1)3.2 Addendum to Selling Group Agreement of Kemper Financial
Services, Inc.
(6)3.3 Selling Group Agreement of Investors Brokerage Services,
Inc.
(6)3.4 General Agent Agreement.
(7)4. Form of Variable Annuity Contract.
(7)5. Form of application.
(3)6.1 Kemper Investors Life Insurance Company articles of
incorporation.
(6)6.2 Kemper Investors Life Insurance Company bylaws.
7. Inapplicable.
(2)8.1 Fund Participation Agreement among KILICO, Lexington Natural
Resources Trust and Lexington Management Corporation.
</TABLE>

C-1
<PAGE> 133

<TABLE>
<S> <C>
(2)8.2 Fund Participation Agreement among KILICO, Lexington Emerging Markets Fund and Lexington Management
Corporation.
(2)8.3 Fund Participation Agreement among KILICO, Janus Aspen Series and Janus Capital Corporation.
(7)8.3(a) Service Agreement between KILICO and Janus Capital Corporation.
(4)8.4(a) Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund and Fidelity
Distributors Corporation.
(13)8.4(b) Amendment to Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund and
Fidelity Distributors Corporation.
(4)8.5(a) Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund II and Fidelity
Distributors Corporation.
(13)8.5(b) Amendment to Fund Participation Agreement among KILICO, Fidelity Variable Insurance Products Fund II and
Fidelity Distributors Corporation.
(10)8.6(a) Participation Agreement between Kemper Investors Life Insurance Company and Scudder Variable Life
Investment Fund
(10)8.6(b) Participating Contract and Policy Agreement between Kemper Investors Life Insurance Company and Scudder
Kemper Investments, Inc.
(10)8.6(c) Indemnification Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments,
Inc.
8.7 (a) Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially
Responsible Growth Fund, Inc.
8.7 (b) Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life
Insurance Company
8.8 Form of Fund Participation Agreement between Kemper Investors Life Insurance Company and J.P. Morgan Series
Trust II.
8.9 Form of Fund Participation Agreement by and among The Alger American Fund, Kemper Investors Life Insurance
Company and Fred Alger & Company, Incorporated
8.10 Form of Fund Participation Agreement by and between Kemper Investors Life Insurance Company and American
Century Investment Management, Inc.
(7)9. Opinion and Consent of Counsel.
10.1 Consents of PricewaterhouseCoopers LLP, Independent Accountants.
10.2 Consent of KPMG LLP, Independent Auditors.
11. Inapplicable.
12. Inapplicable.
(8)13. Schedules for Computation of Performance Information.
(14)14. Organizational Chart.
(12)17.1 Schedule IV: Reinsurance (year ended December 31, 1998).
(9)17.2 Schedule IV: Reinsurance (year ended December 31, 1997).
(11)17.3 Schedule IV: Reinsurance (year ended December 31, 1996).
(12)17.4 Schedule V: Valuation and qualifying accounts (year ended December 31, 1998).
(9)17.5 Schedule V: Valuation and qualifying accounts (year ended December 31, 1997).
(11)17.6 Schedule V: Valuation and qualifying accounts (year ended December 31, 1996).
</TABLE>

- ---------------

( 1) Incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement on Form N-4 filed on or about April 27, 1995.

( 2) Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-4 filed on or about September 14, 1995.

( 3) Incorporated by reference to Exhibits filed with the Registration Statement
on Form S-1 for KILICO (File No. 333-02491) filed on or about April 12,
1996.

C-2
<PAGE> 134

( 4) Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-4 filed on or about April 26, 1996.

( 5) Incorporated by reference to the Registration Statement on Form N-4 (File
No. 333-22375) filed on or about February 26, 1997.

( 6) Incorporated by reference to Amendment No. 2 to the Registration Statement
on Form S-1 (File No. 333-02491) filed on or about April 23, 1997.

( 7) Incorporated by reference to Amendment No. 25 to the Registration Statement
on Form N-4 (File No. 2-72671) filed on or about April 28, 1997.

( 8) Incorporated by reference to Amendment No. 26 to the Registration Statement
on Form N-4 (File No. 2-72671) filed on or about November 3, 1997.

( 9) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-4 for KILICO Variable Annuity Separate
Account (File No. 33-43501) filed on or about April 16, 1998.

(10) Incorporated by reference to Amendment No. 5 to the Registration Statement
on Form S-1 (File No. 333-22389) filed on or about April 20, 1999.

(11) Incorporated by reference to Form 10-K for Kemper Investors Life Insurance
Company for fiscal year ended 12/31/96 filed on or about March 25, 1997.

(12) Incorporated by reference to Amendment No. 4 to the Registration Statement
on Form S-1 (File No. 333-02491) filed on or about April 20, 1999.

(13) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form S-6 (File No. 33-65399) filed on or about
April 23, 1999.

(14) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-4 (File No. 333-22375) filed on or about
April 27, 1999.

ITEM 25. DIRECTORS AND OFFICERS OF KEMPER INVESTORS LIFE INSURANCE COMPANY

The directors and principal officers of KILICO are listed below
together with their current positions. The address of each officer and
director is 1 Kemper Drive, Long Grove, Illinois 60049.

<TABLE>
<CAPTION>
OFFICE WITH KILICO
NAME ------------------
<S> <C>
John B. Scott................................ President, Chief Executive Officer and Director
Frederick L. Blackmon........................ Senior Vice President and Chief Financial Officer
Edward L. Robbins............................ Senior Vice President and Chief Actuary
James E. Hohmann............................. Senior Vice President
William H. Bolinder.......................... Chairman of the Board and Director
David A. Bowers.............................. Director
Loren J. Alter............................... Director
Gunther Gose................................. Director
Eliane C. Frye............................... Executive Vice President
Debra P. Rezabek............................. Senior Vice President, General Counsel, and Corporate
Secretary
James C. Harkensee........................... Senior Vice President
Edward K. Loughridge......................... Senior Vice President and Corporate Development
Officer
Kenneth M. Sapp.............................. Senior Vice President
George Vlaisavljevich........................ Senior Vice President
Russell M. Bostick........................... Senior Vice President and Chief Information Officer
</TABLE>

ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE
COMPANY OR REGISTRANT

See Exhibit 14 for organizational charts of persons controlled or
under common control with Kemper Investors Life Insurance Company.

Investors Brokerage Services, Inc. and Investors Brokerage Services
Insurance Agency, Inc. are wholly owned subsidiaries of KILICO.

ITEM 27. NUMBER OF CONTRACT OWNERS

At March 31, 1999, the Registrant had approximately 132,481 qualified
and non-qualified Advantage III Contract Owners.

C-3
<PAGE> 135

ITEM 28. INDEMNIFICATION

To the extent permitted by law of the State of Illinois and subject to
all applicable requirements thereof, Article VI of the By-Laws of Kemper
Investors Life Insurance Company ("KILICO") provides for the
indemnification of any person against all expenses (including attorneys
fees), judgments, fines, amounts paid in settlement and other costs
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative in which he is a party or is threatened to
be made a party by reason of his being or having been a director, officer,
employee or agent of KILICO, or serving or having served, at the request of
KILICO, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of his
holding a fiduciary position in connection with the management or
administration of retirement, pension, profit sharing or other benefit
plans including, but not limited to, any fiduciary liability under the
Employee Retirement Income Security Act of 1974 and any amendment thereof,
if he acted in good faith and in a manner he reasonably believed to be in
and not opposed to the best interests of KILICO, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE
or its equivalent, shall not, of itself, create a presumption that he did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of KILICO, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. No indemnification shall be made in respect of any
claim, issue or matter as to which a director or officer shall have been
adjudged to be liable for negligence or misconduct in the performance of
his duty to the company, unless and only to the extent that the court in
which such action or suit was brought or other court of competent
jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
he is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, employees
or agents of KILICO pursuant to the foregoing provisions, or otherwise,
KILICO has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
that Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by KILICO
of expenses incurred or paid by a director, officer, employee of agent of
KILICO in the successful defense of any action, suit or proceeding) is
asserted by such director, officer, employee or agent of KILICO in
connection with variable annuity contracts, KILICO will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by KILICO is against public policy as
expressed in that Act and will be governed by the final adjudication of
such issue.

ITEM 29.(a) PRINCIPAL UNDERWRITER

Investors Brokerage Services, Inc., a wholly owned subsidiary of
Kemper Investors Life Insurance Company, acts as principal underwriter for
KILICO Variable Annuity Separate Account, KILICO Variable Separate Account,
KILICO Variable Separate Account-2, Kemper Investors Life Insurance Company
Variable Annuity Account C and FKLA Variable Separate Account.

ITEM 29.(b) INFORMATION REGARDING PRINCIPAL UNDERWRITER, INVESTORS BROKERAGE
SERVICES, INC.

The address of each officer is 1 Kemper Drive, Long Grove, IL 60049.

<TABLE>
<CAPTION>
POSITION AND OFFICES
NAME WITH UNDERWRITER
---- --------------------
<S> <C>
John B. Scott....................................... Chairman and Director
Otis R. Heldman, Jr................................. President and Director
Debra P. Rezabek.................................... Secretary
Kenneth M. Sapp..................................... Director
Eliane C. Frye...................................... Director
Michael A. Kelly.................................... Vice President
David S. Jorgensen.................................. Vice President and Treasurer
Frank J. Julian..................................... Assistant Secretary
George Vlaisavljevich............................... Director
</TABLE>

C-4
<PAGE> 136

ITEM 29.(c)

Inapplicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are maintained by Kemper Investors Life Insurance
Company at its home office at 1 Kemper Drive, Long Grove, Illinois 60049
and at 222 South Riverside Plaza, Chicago, Illinois 60606-5808.

ITEM 31. MANAGEMENT SERVICES

Inapplicable.

ITEM 32. UNDERTAKINGS AND REPRESENTATIONS

Representation Regarding Fees and Charges Pursuant to Section 26 of
the Investment Company Act of 1940

Kemper Investors Life Insurance Company ("KILICO") represents that the
fees and charges deducted under the Contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by KILICO.

C-5
<PAGE> 137

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, KILICO Variable Annuity Separate Account, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Amendment to the Registration Statement and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Long Grove and State of Illinois on
the 28th day of April, 1999.

KILICO VARIABLE ANNUITY SEPARATE
ACCOUNT
(Registrant)
By: Kemper Investors Life Insurance
Company

BY: /s/ JOHN B. SCOTT

--------------------------------------
John B. Scott,
Chief Executive Officer and
President

KEMPER INVESTORS LIFE INSURANCE
COMPANY
(Depositor)

BY: /s/ JOHN B. SCOTT

--------------------------------------
John B. Scott,
Chief Executive Officer and
President

As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed below by the following directors and principal
officers of Kemper Investors Life Insurance Company in the capacities indicated
on the 28th day of April, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ JOHN B. SCOTT Chief Executive Officer, President and Director
- ----------------------------------------------------- (Principal Executive Officer)
John B. Scott

/s/ W. H. BOLINDER Chairman of the Board and Director
- -----------------------------------------------------
William H. Bolinder

/s/ FREDERICK L. BLACKMON Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
Frederick L. Blackmon (Principal Financial Officer and
Principal Accounting Officer)

/s/ LOREN J. ALTER Director
- -----------------------------------------------------
Loren J. Alter

/s/ DAVID A. BOWERS Director
- -----------------------------------------------------
David A. Bowers

/s/ ELIANE C. FRYE Director
- -----------------------------------------------------
Eliane C. Frye

/s/ GUNTHER GOSE Director
- -----------------------------------------------------
Gunther Gose

/s/ JAMES E. HOHMANN Director
- -----------------------------------------------------
James E. Hohmann
</TABLE>

C-6
<PAGE> 138

EXHIBIT INDEX

<TABLE>
<C> <S>
8.7(a) Fund Participation Agreement between Kemper Investors Life
Insurance Company and The Dreyfus Socially Responsible
Growth Fund, Inc.
8.7(b) Administrative Services Agreement by and between The Dreyfus
Corporation and Kemper Investors Life Insurance Company
8.8 Form of Fund Participation Agreement between Kemper
Investors Life Insurance Company and J.P. Morgan Series
Trust II.
8.9 Form of Fund Participation Agreement by and among The Alger
American Fund, Kemper Investors Life Insurance Company and
Fred Alger & Company, Incorporated
8.10 Form of Fund Participation Agreement by and between Kemper
Investors Life Insurance Company and American Century
Investment Management, Inc.
10.1 Consents of PricewaterhouseCoopers, LLP, Independent
Accountants
10.2 Consent of KPMG LLP, Independent Auditors
</TABLE>

<PAGE> 1
Exhibit 8.7(a)

FUND PARTICIPATION AGREEMENT

This Agreement is entered into as of the 27th day of April, 1999, between KEMPER
INVESTORS LIFE INSURANCE COMPANY, a life insurance company organized under the
laws of the State of Illinois ("Insurance Company"), and THE DREYFUS SOCIALLY
RESPONSIBLE GROWTH FUND, INC. (the "Fund").

ARTICLE I
DEFINITIONS

1.1 "Act" shall mean the Investment Company Act of 1940, as amended.

1.2 "Board" shall mean the Board of Directors of the Fund, which has the
responsibility for management and control of the Fund.

1.3 "Business Day" shall mean any day for which the Fund calculates net asset
value per share as described in the Fund's Prospectus.

1.4 "Commission" shall mean the Securities and Exchange Commission.

1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying investment
medium. Individuals who participate under a group Contract are
"Participants."

1.6 "Contractholder" shall mean any entity that is a party to a Contract with a
Participating Company (as defined below).

1.7 "Disinterested Board Members" shall mean those members of the Board of the
Fund that are not deemed to be "interested persons" of the Fund, as defined
by the Act.

1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates, including
Dreyfus Service Corporation.

1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with the Fund.

1.10 "Participating Fund" shall mean the Fund and any other funds in the Dreyfus
Family of Funds, including, as applicable, any series thereof, specified in
Exhibit A, as such Exhibit may be amended from time to time by agreement of
the parties hereto, the shares of which are available to serve as the
underlying investment medium for the aforesaid Contracts.
<PAGE> 2

1.11 "Prospectus" shall mean the current prospectus and statement of additional
information of the Fund, as most recently filed with the Commission.

1.12 "Separate Account" shall mean KILICO Variable Annuity Separate Account, a
separate account established by Insurance Company in accordance with the
laws of the State of Illinois.

1.13 "Software Program" shall mean the software program used by the Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by the Fund is not
available, such information may be provided by telephone. The Lion System
shall be provided to Insurance Company at no charge.

1.14 "Insurance Company's General Account(s)" shall mean the general account(s)
of Insurance Company and its affiliates that invest in the Fund.

ARTICLE II
REPRESENTATIONS

2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Illinois Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c) it
has registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts; and
(d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any Participating
Fund as an investment medium for insurance company separate accounts
supporting variable annuity contracts or variable life insurance contracts.

2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state
laws; and (c) the sale of the Contracts shall comply in all material
respects with state insurance law requirements. Insurance Company agrees to
notify each Participating Fund promptly of any investment restrictions
imposed by state insurance law and applicable to the Participating Fund.

2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited to
or charged against such Separate Account without regard to other income,
gains or losses from assets allocated to any other accounts of Insurance
Company. Insurance Company represents and warrants that the assets of the
Separate Account are and will be kept separate from Insurance Company's
General Account and any other separate accounts Insurance Company may have,
and will not be

-2-
<PAGE> 3

charged with liabilities from any business that Insurance Company may
conduct or the liabilities of any companies affiliated with Insurance
Company.

2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.

2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.

2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies or
annuity contracts, whichever is appropriate, under applicable provisions of
the Code, and that it will make every effort to maintain such treatment and
that it will notify each Participating Fund and Dreyfus immediately upon
having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future. Insurance
Company agrees that any prospectus offering a Contract that is a "modified
endowment contract," as that term is defined in Section 7702A of the Code,
will identify such Contract as a modified endowment contract (or policy).

2.7 Each Participating Fund represents and warrants that its assets shall be
managed and invested in a manner that complies with the requirements of
Section 817(h) of the Code and the rules and regulations thereunder.

2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares available
to other Participating Companies and Contractholders.

2.9 Each Participating Fund represents and warrants that any of its directors,
trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the
Participating Fund in an amount not less than that required by Rule 17g-1
under the Act. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.

2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than

-3-
<PAGE> 4

the coverage required to be maintained by the Participating Fund. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.

2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.

ARTICLE III
FUND SHARES

3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.

3.2 Each Participating Fund agrees to make its shares available for purchase at
the then applicable net asset value per share by Insurance Company and the
Separate Account on each Business Day pursuant to rules of the Commission.
Notwithstanding the foregoing, each Participating Fund may refuse to sell
its shares to any person, or suspend or terminate the offering of its
shares, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of its Board, acting in
good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary and in the best interests of the
Participating Fund's shareholders.

3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to Participating Companies and their separate accounts. No
shares of any Participating Fund will be sold to the general public.

3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis to
Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and capital
gain information shall be reported immediately upon discovery to Insurance
Company. Non-material errors will be corrected in the next Business Day's
net asset value per share. If any Participating Fund provides materially
incorrect share net asset value information, Insurance Company shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct net asset value per share. Each party to this Agreement
shall have the right to rely on information or confirmations provided by
the other party (or by that party's designee), and shall not be liable in
the event that an error results from any incorrect information or
confirmations supplied by the other party (or by that party's designee). If
an error is made in reliance upon incorrect information or confirmations,
any amount required to make an account of a Contractholder whole shall be
borne by the party who provided the incorrect information or confirmation.

3.5 At the end of each Business Day, Insurance Company will use the information
described in Sections 3.2 and 3.4 to calculate the unit values of the
Separate Account for the day. Using this unit value, Insurance Company will
process the day's Separate Account

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<PAGE> 5
transactions received by it by the close of trading on the floor of the New
York Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of each Participating Fund's shares that will be purchased or
redeemed at that day's closing net asset value per share. The net purchase
or redemption orders will be transmitted to each Participating Fund by
Insurance Company by 11:00 a.m. Eastern time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of each Participating Fund next calculated after receipt of the order
by the Participating Fund or its Transfer Agent.

3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating Fund
will execute orders at the applicable net asset value per share determined
as of the close of trading on the day of receipt of such orders by
Insurance Company acting as agent ("effective trade date"), provided that
the Participating Fund receives notice of such orders by 11:00 a.m. Eastern
time on the next following Business Day and, if such orders request the
purchase of Participating Fund shares, the conditions specified in Section
3.8, as applicable, are satisfied. A redemption or purchase request that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value per share computed on
the Business Day immediately preceding the next following Business Day upon
which such conditions have been satisfied in accordance with the
requirements of this Section and Section 3.8. Insurance Company represents
and warrants that all orders submitted by the Insurance Company for
execution on the effective trade date shall represent purchase or
redemption orders received from Contractholders prior to the close of
trading on the New York Stock Exchange on the effective trade date.

3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any purchase or redemption orders
exceeding $1 million.

3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial account
on the day the order is transmitted. Insurance Company shall make all
reasonable efforts to transmit to the applicable Participating Fund payment
in Federal Funds by 12:00 noon Eastern time on the Business Day the
Participating Fund receives the notice of the order pursuant to Section
3.5. Each applicable Participating Fund will execute such orders at the
applicable net asset value per share determined as of the close of trading
on the effective trade date if the Participating Fund receives payment in
Federal Funds by 12:00 midnight Eastern time on the Business Day the
Participating Fund receives the notice of the order pursuant to Section
3.5. If payment in Federal Funds for any purchase is not received or is
received by a Participating Fund after 12:00 noon Eastern time on such
Business Day, Insurance Company shall promptly, upon each applicable
Participating Fund's request, reimburse the respective Participating Fund
for any charges, costs, fees, interest or other expenses incurred by the
Participating Fund in connection with any advances to, or borrowings or
overdrafts by, the

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<PAGE> 6

Participating Fund, or any similar expenses incurred by the Participating
Fund, as a result of portfolio transactions effected by the Participating
Fund based upon such purchase request. If Insurance Company's order
requests the redemption of any Participating Fund's shares valued at or
greater than $1 million, the Participating Fund will wire such amount to
Insurance Company within seven days of the order.

3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.

3.10 Each Participating Fund will confirm each purchase or redemption order made
by Insurance Company. Transfer of Participating Fund shares will be by book
entry only. No share certificates will be issued to Insurance Company.
Insurance Company will record shares ordered from a Participating Fund in
an appropriate title for the corresponding account.

3.11 Each Participating Fund shall credit Insurance Company with the appropriate
number of shares.

3.12 On each ex-dividend date of a Participating Fund or, if not a Business Day,
on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be automatically
reinvested in additional shares of the applicable Participating Fund at the
net asset value per share on the ex-dividend date. Each Participating Fund
shall, on the day after the ex-dividend date or, if not a Business Day, on
the first Business Day thereafter, notify Insurance Company of the number
of shares so issued.

ARTICLE IV
STATEMENTS AND REPORTS

4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.

4.2 Each Participating Fund shall distribute to Insurance Company copies of the
Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as Insurance
Company may reasonably request for distribution to each Contractholder and
Participant. Each Participating Fund will use its reasonable best efforts
to deliver or cause to be delivered such materials to Insurance Company at
least 10 days prior to Insurance Company's distribution thereof to
Contractholders and Participants. If such materials are not delivered to
Insurance Company within such time period and, as a result thereof,
Insurance Company incurs additional costs in connection with such
distribution, the relevant Participating Fund(s) will review such
additional costs with Insurance Company

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<PAGE> 7

and may agree, in the sole discretion of Participating Fund(s), to bear
some or all of such additional costs.

4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Participating Fund or its shares,
contemporaneously with the filing of such document with the Commission or
other regulatory authorities. In addition, at the request of Insurance
Company, each Participating Fund will provide to Insurance Company
electronic versions of the documents referenced in this Section 4.3 in one
of the following formats: ASCII (EDGAR), TXT (Text File),WPD or DOC (Word
or WordPerfect Document) or RFT (Rich Text).

4.4 Insurance Company will provide to each Participating Fund at least one copy
of all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of
the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.

ARTICLE V
EXPENSES

5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be included in
the determination of the Participating Fund's daily net asset value per
share.

5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the distribution
of its shares. Insurance Company shall pay the following expenses or costs:

a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's
Prospectus, or marketing materials for prospective Insurance Company
Contractholders and Participants as Dreyfus and Insurance Company
shall agree from time to time.

b. Distribution expenses of any Participating Fund materials or marketing
materials for prospective Insurance Company Contractholders and
Participants.

c. Distribution expenses of any Participating Fund materials or marketing
materials for Insurance Company Contractholders and Participants.

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<PAGE> 8

Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company. Each Participating Fund agrees to
reimburse Insurance Company for any costs incurred by Insurance Company
related to the printing, mailing or tabulation of any proxy initiated by
the Participating Fund, its investment adviser or its distributor.

ARTICLE VI
EXEMPTIVE RELIEF

6.1 Insurance Company has reviewed a copy of the order dated February 5, 1998
of the Securities and Exchange Commission under Section 6(c) of the Act
with respect to the Fund and, in particular, has reviewed the conditions to
the relief set forth in the related Notice. As set forth therein, if the
Fund is a Participating Fund, Insurance Company agrees, as applicable, to
report any potential or existing conflicts promptly to the Fund's Board
and, in particular, whenever contract voting instructions are disregarded,
and recognizes that it will be responsible for assisting the Board in
carrying out its responsibilities under such application. Insurance Company
agrees to carry out such responsibilities with a view to the interests of
existing Contractholders.

6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in a Participating Fund, the Board shall give
prompt notice to all Participating Companies and any other Participating
Fund. If the Board determines that Insurance Company is responsible for
causing or creating said conflict, Insurance Company shall at its sole cost
and expense, and to the extent reasonably practicable (as determined by a
majority of the Disinterested Board Members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:

a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment medium,
or submitting the question of whether such segregation should be
implemented to a vote of all affected Contractholders; and/or

b. Establishing a new registered management investment company.

6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote
by all Contractholders having an interest in a Participating Fund,
Insurance Company may be required, at the Board's election, to withdraw the
investments of the Separate Account in that Participating Fund.

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<PAGE> 9

expense of establishing a new funding medium for any Contract. Insurance
Company shall not be required by this Article to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contractholders materially adversely affected by the
irreconcilable material conflict.

6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result of
any act or failure to act by Insurance Company pursuant to this Article VI,
shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.

ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES

7.1 Each Participating Fund shall provide Insurance Company with copies, at no
cost to Insurance Company, of the Participating Fund's proxy material,
reports to shareholders and other communications to shareholders in such
quantity as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.

Insurance Company shall:

(a) solicit voting instructions from Contractholders or Participants on a
timely basis and in accordance with applicable law;

(b) vote the Participating Fund shares in accordance with instructions
received from Contractholders or Participants;

(c) vote the Participating Fund shares for which no instructions have been
received in the same proportion as Participating Fund shares for which
instructions have been received; and

(d) reserve the right to disregard voting instructions from
Contractholders or Participants to the extent permitted by Rule 6e-2
or Rule 6c-3(T) under the Act or applicable state insurance laws.

Insurance Company agrees at all times to vote its General Account shares in
the same proportion as the Participating Fund shares for which instructions
have been received from Contractholders or Participants. Insurance Company
further agrees to be responsible for assuring that voting the Participating
Fund shares for the Separate Account is conducted in a manner consistent
with other Participating Companies.

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<PAGE> 10

ARTICLE VIII
MARKETING AND REPRESENTATIONS

8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as Insurance
Company may reasonably request:

a. Current Prospectus and any supplements thereto; and

b. Other marketing materials.

Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.

8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company shall
make reasonable efforts to market the Contracts and shall comply with all
applicable federal and state laws in connection therewith.

8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.

8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or supplemented
from time to time, or in reports or proxy statements for, the applicable
Participating Fund, or in sales literature or other promotional material
approved by the applicable Participating Fund.

8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales literature
or other promotional material in which Insurance Company or the Separate
Account is named, at least fifteen Business Days prior to its use. No such
material shall be used unless Insurance Company approves such material.
Such approval (if given) must be in writing and shall be presumed

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<PAGE> 11
not given if not received within ten Business Days after receipt of such
material. Insurance Company shall use all reasonable efforts to respond
within ten days of receipt.

8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any representations
on behalf of Insurance Company or concerning Insurance Company, the
Separate Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as may be amended or supplemented from time to time, or in
published reports for the Separate Account that are in the public domain or
approved by Insurance Company for distribution to Contractholders or
Participants, or in sales literature or other promotional material approved
by Insurance Company.

8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. rules,
the Act or the 1933 Act.

ARTICLE IX
INDEMNIFICATION

9.1 Insurance Company agrees to indemnify and hold harmless each Participating
Fund, Dreyfus, each respective Participating Fund's investment adviser and
sub-investment adviser (if applicable), each respective Participating
Fund's distributor, and their respective affiliates, and each of their
directors, trustees, officers, employees, agents and each person, if any,
who controls or is associated with any of the foregoing entities or persons
within the meaning of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of Section 9.1), against any and all losses, claims, damages
or liabilities joint or several (including any investigative, legal and
other expenses reasonably incurred in connection with, and any amounts paid
in settlement of, any action, suit or proceeding or any claim asserted) for
which the Indemnified Parties may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect to thereof) (i) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the alleged
omission to state therein a

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<PAGE> 12

material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) arise out of or as a result of
conduct, statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the respective Participating Fund) of Insurance Company
or its agents, with respect to the sale and distribution of Contracts for
which the respective Participating Fund's shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance Company or
persons under its control with respect to the sale or distribution of the
Contracts or the respective Participating Fund's shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of net
purchase or redemption orders; or (v) arise out of any breach by Insurance
Company of a material term of this Agreement or as a result of any failure
by Insurance Company to provide the services and furnish the materials or
to make any payments provided for in this Agreement. Insurance Company will
reimburse any Indemnified Party in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that with respect to clauses (i) and (ii) above Insurance Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue
statement or omission or alleged omission made in such registration
statement, prospectus, sales literature, or advertisement in conformity
with written information furnished to Insurance Company by the respective
Participating Fund specifically for use therein. This indemnity agreement
will be in addition to any liability which Insurance Company may otherwise
have.

9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to which
Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the respective Participating Fund any
material fact required to be stated therein or necessary to make the
statements therein not misleading; (3) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in the registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts and
such statements were based on information provided to Insurance Company by
the respective Participating Fund; or (4) arise out of or are based upon
the respective Participating Fund's failure to comply with the requirements
set forth in Subchapter M of the Code or Section 817(h) of the Code and the
rules and regulations thereunder. Participating Fund will reimburse any
legal or other expenses reasonably incurred by Insurance Company or any
such director, officer, employee, agent or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the respective Participating Fund will not
be liable in any such case to the extent that any such

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<PAGE> 13

loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such registration
statement, Prospectus, sales literature or advertisements in conformity
with written information furnished to the respective Participating Fund by
Insurance Company specifically for use therein. This indemnity agreement
will be in addition to any liability which the respective Participating
Fund may otherwise have.

9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of the
daily net asset value, dividend rate or capital gain distribution rate; (2)
incorrect reporting of the daily net asset value, dividend rate or capital
gain distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the
respective Participating Fund shall have no obligation to indemnify and
hold harmless Insurance Company if the incorrect calculation or incorrect
or untimely reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this Agreement by
Insurance Company.

9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is performing its obligations under this
Article, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent.

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<PAGE> 14

A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.

9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund harmless
against any tax liability incurred by the Participating Fund under Section
851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the account of its affiliates.

ARTICLE X
COMMENCEMENT AND TERMINATION

10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.

10.2 This Agreement shall terminate without penalty:

a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;

b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;

c. As to a Participating Fund, at the option of Insurance Company, upon
the institution of formal proceedings against that Participating Fund
by the Commission, National Association of Securities Dealers or any
other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in Insurance Company's reasonable judgment,
materially impair that Participating Fund's ability to meet and
perform the Participating Fund's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt of notice;

d. As to a Participating Fund, at the option of each Participating Fund,
upon the institution of formal proceedings against Insurance Company
by the Commission, National Association of Securities Dealers or any
other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in the Participating Fund's reasonable
judgment, materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.

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Prompt notice of election to terminate shall be furnished by such
Participating Fund with said termination to be effective upon receipt
of notice;

e. As to a Participating Fund, at the option of that Participating Fund,
if the Participating Fund shall determine, in its sole judgment
reasonably exercised in good faith, that Insurance Company has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to
have a material adverse impact upon the business and operation of that
Participating Fund or Dreyfus, such Participating Fund shall notify
Insurance Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions taken by
Insurance Company and any other changes in circumstances since the
giving of such notice, such determination of the Participating Fund
shall continue to apply on the sixtieth (60th) day following the
giving of such notice, which sixtieth day shall be the effective date
of termination;

f. As to a Participating Fund, at the option of Insurance Company, if the
Insurance Company shall determine, in its sole judgment reasonably
exercised in good faith, that the Participating Fund has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and such material adverse
change or material adverse publicity is likely to have a material
adverse impact upon the business and operation of Insurance Company,
Insurance Company shall notify the Participating Fund in writing of
such determination and its intent to terminate this Agreement, and
after considering the actions taken by the Participating Fund and any
other changes in circumstances since the giving of such notice, such
determination of Insurance Company shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination;

g. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or its
successors unless Insurance Company specifically approves the
selection of a new Participating Fund investment adviser. Such
Participating Fund shall promptly furnish notice of such termination
to Insurance Company;

h. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with
applicable federal law, or such law precludes the use of such shares
as the underlying investment medium of Contracts issued or to be
issued by Insurance Company. Termination shall be effective
immediately as to that Participating Fund only upon such occurrence
without notice;

i. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement.

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Termination pursuant to this Subsection (h) shall be effective upon
notice by such Participating Fund to Insurance Company of such
termination;

j. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund reasonably
believes that the Contracts may fail to so qualify;

k. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;

l. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or

m. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.

Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2g or
10.2l herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.

10.3 Notwithstanding any termination of this Agreement by Insurance Company
pursuant to Section 10.2 hereof, each Participating Fund and Dreyfus may,
at the option of Insurance Company, continue to make available additional
shares of that Participating Fund for as long as Insurance Company desires
pursuant to the terms and conditions of this Agreement as provided below
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Notwithstanding any termination of this Agreement by a Participating Fund
pursuant to Section 10.2 hereof, the Participating Fund and Dreyfus may, at
the option of the Participating Fund, continue to make available additional
shares of the Participating Fund for as long as the Participating Fund
desires pursuant to the terms and conditions of this Agreement as provided
below for Existing Contracts. Specifically, without limitation, if
Insurance Company or a Participating Fund, as the case may be, so elects to
make additional Participating Fund shares available, the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in that
Participating Fund, redeem investments in that Participating Fund and/or
invest in that Participating Fund upon the making of additional purchase
payments under the Existing Contracts. In the event of a termination of
this Agreement by Insurance Company pursuant to Section 10.2 hereof,
Insurance Company, as promptly as is practicable under the circumstances,
shall notify the Participating Fund and Dreyfus whether Insurance Company
desires to continue to make the Participating Fund's shares available after
such termination. In the event of a termination of this Agreement by a
Participating Fund pursuant to Section 10.2 hereof, such Participating Fund
and Dreyfus, as promptly as is practicable under the circumstances, shall
notify Insurance Company whether Dreyfus and that Participating Fund desire
to continue to make that Participating Fund's shares available after such
termination. If such Participating Fund shares continue to be made
available after any such termination, the provisions of this Agreement
shall

-16-
<PAGE> 17

remain in effect and thereafter either of that Participating Fund or
Insurance Company may terminate this Agreement as to that Participating
Fund, as so continued pursuant to this Section 10.3, upon prior written
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Participating Fund,
need not be for more than six months.

10.3 Termination of this Agreement as to any one Participating Fund shall not be
deemed a termination as to any other Participating Fund unless Insurance
Company or such other Participating Fund, as the case may be, terminates
this Agreement as to such other Participating Fund in accordance with this
Article X.

ARTICLE XI
AMENDMENTS

11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each respective
Participating Fund.

ARTICLE XII
NOTICE

12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:

Insurance Company: Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Attn: General Counsel

Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary

with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman, Esq.

and

-17-
<PAGE> 18

Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.

Notice shall be deemed to be given on the date of receipt by the addresses
as evidenced by the return receipt.

MISCELLANEOUS XIII

13.1 Subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted
by this Agreement, shall not disclose, disseminate or utilize such names
and addresses and other confidential information without the express
written consent of the affected party until such time as such information
may come into the public domain. Without limiting the foregoing, no party
hereto shall disclose any information that another party has designated as
proprietary.

13.2 This Agreement has been executed on behalf of each Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any director, trustee,
officer or shareholder of the Fund individually. It is agreed that the
obligations of the Funds are several and not joint, that no Fund shall be
liable for any amount owing by another Fund and that the Funds have
executed one instrument for convenience only.

LAW XIV

14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.

-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be duly executed and attested as of the date first above written.

KEMPER INVESTORS LIFE INSURANCE COMPANY

By: /s/ Otis R. Heldman, Jr.
------------------------------------

Its: Vice President
-----------------------------------

Attest: /s/ Allen R. Reed
---------------------

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.

By: /s/ Stephanie Pierce
------------------------------------
Its: Assistant Treasurer, Vice
-----------------------------------
President & Assistant Secretary
-----------------------------------

Attest:
---------------------

-19-
<PAGE> 20

EXHIBIT A

LIST OF PARTICIPATING FUNDS

The Dreyfus Socially Responsible Growth Fund, Inc.

-20-

<PAGE> 1
Exhibit 8.7(b)

ADMINISTRATIVE SERVICES AGREEMENT

ADMINISTRATIVE SERVICES AGREEMENT made as of the 27th day of
April, 1999 by and between The Dreyfus Corporation ("Dreyfus"), a New York
corporation, and Kemper Investors Life Insurance Company ("Insurance Company"),
an Illinois corporation.

WITNESSETH:

WHEREAS, each of the investment companies listed on Schedule A
hereto, as such Schedule may be amended from time to time (each, a "Dreyfus
Fund" and collectively, the "Dreyfus Funds"), is an investment company
registered under the Investment Company Act of 1940, as amended, or a series
thereof;

WHEREAS, Insurance Company, on its own behalf and on behalf of
each of the Separate Accounts identified therein (each, a "Separate Account"),
has entered into a Fund Participation Agreement (the "Participation Agreement")
with each of the Dreyfus Funds;

WHEREAS, Dreyfus provides investment advisory and/or
administrative services to the Dreyfus Funds; and

WHEREAS, Dreyfus desires that Insurance Company provide
certain administrative services which will benefit each of the Dreyfus Funds,
and Insurance Company desires to furnish such services on the terms and
conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, each party hereto severally agrees as follows:

1. Insurance Company agrees to provide to each of the Dreyfus
Funds the administrative services specified in Exhibit A hereto (the
"Administrative Services").

2. In consideration of the anticipated administrative expense
savings resulting to the Dreyfus Funds from Insurance Company's services,
Dreyfus agrees to pay Insurance Company at the end of each calendar month a fee
(the "Service Fee") which will accrue daily at an annual rate of twenty-five
basis points (0.25%) of the aggregate net asset value of all of the issued and
outstanding shares of each Dreyfus Fund held in the subaccounts of the Separate
Accounts.

3. The parties to this Agreement recognize and agree that
Dreyfus' payments to Insurance Company relate to administrative services
provided to the Dreyfus Funds and do not constitute payment in any manner for
administrative services provided by Insurance Company to the Separate Accounts
or to Contractholders (as defined in the Participation Agreement), for
investment advisory services or for costs of distribution of the Contracts (as
defined in the Participation Agreement) or shares of the Dreyfus Funds, and that
these payments are not otherwise related to investment advisory or distribution
services or expenses.

<PAGE> 2

4. Insurance Company agrees to indemnify and hold harmless
Dreyfus and its directors, officers, and employees from any and all loss,
liability, damage and expense resulting from any gross negligence or willful
wrongful act of Insurance Company in performing its services under this
Agreement or from a breach of a material provision of this Agreement, except to
the extent such loss, liability, damage or expense is the result of Dreyfus'
willful misfeasance, bad faith or gross negligence in the performance of its
duties.

Dreyfus agrees to indemnify and hold harmless Insurance
Company and its directors, officers, agents and employees from any and all loss,
liability, damage and expense resulting from any gross negligence or willful
wrongful act of Dreyfus in performing its services under this Agreement or from
a breach of a material provision of this Agreement, except to the extent such
loss, liability, damage or expense is the result of Insurance Company's willful
misfeasance, bad faith or gross negligence in the performance of its duties.
Dreyfus also agrees to indemnify and hold harmless Insurance Company and its
directors, officers, agents and employees from any and all loss, liability,
damage and expense resulting from a Dreyfus Fund's failure, whether
unintentional or in good faith or otherwise, to comply with the diversification
requirements set forth in Section 817(h) of the Internal Revenue Code of 1986,
as amended, and the rules and regulations thereunder.

5. It is understood and agreed that in performing the services
under this Agreement, Insurance Company, acting in its capacity described
herein, shall at no time be acting as an agent for Dreyfus or any of the Dreyfus
Funds. Insurance Company agrees, and agrees to cause its agents, not to make any
representations concerning a Dreyfus Fund except those contained in the Dreyfus
Fund's then current prospectus or in current sales literature furnished by the
Dreyfus Fund or Dreyfus to Insurance Company.

6. Any party may terminate this Agreement, without penalty, on
sixty (60) days' written notice to the other party.

This Agreement will terminate at the option of any party in
the event-of the termination of the Participation Agreement.

Termination of this Agreement under the preceding two
sentences is subject to payment by Dreyfus, within ten (10) days following the
termination date, of all Services Fees remaining unpaid for any completed
calendar month and pro-rated Service Fees through the termination date for any
partial calendar month.

This Agreement will terminate immediately upon the
determination of any party, with the advice of counsel, that the payment of the
Service Fee is in conflict with applicable law.

7. This Agreement, including the provisions set forth in
paragraph 2, may be amended only pursuant to a written instrument signed by the
party to be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the other
party.

-2-
<PAGE> 3

8. This Agreement shall be governed by the laws of the State
of New York, without giving effect to the principles of conflicts of law of such
jurisdiction.

9. This Agreement, including its Exhibit and Schedule,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes any previous agreements and documents with
respect to such matters.

IN WITNESS HEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.

KEMPER INVESTORS LIFE INSURANCE COMPANY

By: /s/ Otis R. Heldman, Jr.
--------------------------------------------
Authorized Signatory

Otis R. Heldman, Jr.
-----------------------------------------------
Print or Type Name

THE DREYFUS CORPORATION

By: /s/ Stephanie Pierce
--------------------------------------------
Authorized Signatory

Stephanie Pierce
-----------------------------------------------
Print or Type Name

-3-
<PAGE> 4

SCHEDULE A

The Dreyfus Socially Responsible Growth Fund, Inc.

-4-
<PAGE> 5
EXHIBIT A

Maintenance of Books and Records

- Assist as necessary to maintain book entry records on behalf of the
Dreyfus Funds regarding issuance to, transfer within (via net purchaser
orders), and redemption by, the Separate Accounts of Dreyfus Fund
shares.

- Maintain general ledgers regarding the Separate Accounts' holdings of
Dreyfus Fund shares, coordinate and reconcile information, and
coordinate maintenance of ledgers by financial institutions and other
contract owner service providers.

Communication with the Dreyfus Funds

- Serve as the designee of the Dreyfus Funds for the receipt of purchase
and redemption orders from the Separate Accounts and the transmission of
such orders and payment therefor to the Dreyfus Funds.

- Coordinate with the Dreyfus Funds' agents respecting daily valuation of
the Dreyfus Funds' shares and the Separate Accounts' units

Purchase Orders

- Determine net amount available for investment in the Dreyfus Funds.

- Deposit receipt at the Dreyfus Funds' custodian(s) (generally by
wire transfer).

- Notify the custodian(s) of the estimated amount required to pay
dividends or distributions.

Redemption Orders

- Determine net amount required for redemptions by the Dreyfus Funds.
Notify the custodian(s) and the Dreyfus Funds of cash required to
meet payments.

- Purchase and redeem shares of the Dreyfus Funds on behalf of the
Separate Accounts at the then-current price in accordance with the terms
of each Dreyfus Fund's then current prospectus.

- Assist in routing and revising sales and marketing materials to
incorporate or reflect the comments made on behalf of the Dreyfus Funds.
Assist in enforcing procedures adopted by the Dreyfus Funds to reduce,
discourage, or eliminate market timing transactions in Dreyfus Fund
shares in order to reduce or eliminate adverse effects on the Dreyfus
Fund or its shareholders.

Processing Distributions from the Dreyfus Funds

- Process ordinary dividends and capital gains.

- Reinvest the Dreyfus Funds' distributions.

Reports

- Periodic information reporting to the Dreyfus Funds, including, but not
limited to, furnishing registration statements, prospectuses, statements
of additional information, reports, solicitations for voting
instructions, sales or promotional materials and any other SEC filings
with respect to the Separate Accounts invested in the Dreyfus Funds, as
not otherwise provided for.

- Periodic information reporting about the Dreyfus Funds, including any
necessary delivery of a Dreyfus Fund's prospectus, annual and
semi-annual reports and other

-5-
<PAGE> 6

materials that the Dreyfus Fund is required by law or otherwise to
provide to its shareholders, as not otherwise provided for.

Dreyfus Fund-related Contract Owner Services

- Maintain adequate fidelity bond or similar coverage for all Insurance
Company officers, employees, investment advisers and other individuals
or entities controlled by the Insurance Company who deal with the money
and/or securities of the Dreyfus Funds.

- Provide general information with respect to Dreyfus Fund inquiries (not
including information about performance or related to sales).

- Provide information regarding performance of the Dreyfus Funds and the
subaccounts of the Separate Accounts.

- Oversee and assist the solicitation, counting and voting or contract
owner voting interests in the Dreyfus Funds pursuant to Dreyfus Fund
proxy statements.

Other Administrative Support

- Provide other administrative and legal compliance support for the Funds
as mutually agreed upon by the Insurance Company and the Dreyfus Funds.

- Provide financial consultants with advise with respect to inquiries
related to the Dreyfus Funds (not including information related to
sales).

- Provide such other administrative support for the Dreyfus Fund as may be
mutually agreed to by Insurance Company and Dreyfus to the extent
permitted or required under applicable statutes, and relieve the Dreyfus
Fund of other usual or incidental administrative services provided to
individual Contractholders.

-6-

<PAGE> 1

EXHIBIT 8.8

12//98

FUND PARTICIPATION AGREEMENT

This Agreement is entered into as of the ___ day of _____, 199_, between
___________________________________________ ("Insurance Company"), a life
insurance company organized under the laws of the State of ________, and J.P.
Morgan Series Trust II ("Fund"), a business trust organized under the laws of
Delaware, with respect to the Fund's portfolio or portfolios set forth on
Schedule 1 hereto, as such Schedule may be revised from time to time (the
"Series"; if there are more than one Series to which this Agreement applies, the
provisions herein shall apply severally to each such Series).

ARTICLE I 1.
DEFINITIONS

1.1. "Plans" shall mean qualified pension and retirement benefit plans.

1.2. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission,
with respect to the Series.

1.3. "Separate Account" shall mean _____________________ Company Variable
Annuity Separate Account, a separate account established by Insurance
Company in accordance with the laws of the State of __________.

1.4. "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net asset
value per share.

1.5. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.

1.6. "Plans" shall mean qualified pension and retirement benefit plans.

1.7. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission,
with respect to the Series.

1.8. "Separate Account" shall mean _____________________ Company Variable
Annuity Separate Account, a separate account established by Insurance
Company in accordance with the laws of the State of
----------.

1.9. "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net asset
value per share.

1.10. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.

ARTICLE II 2.
REPRESENTATIONS

2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
the __________ Insurance Code for the purpose of offering to the public
certain individual variable annuity contracts; (c) it has registered
the Separate Account as a unit investment trust under the Act to serve
as the segregated investment account for the Contracts; (d) each
Separate Account is eligible to invest in shares of the Fund without
such investment disqualifying the Fund as an investment medium for
insurance
<PAGE> 2

company separate accounts supporting variable annuity contracts or
variable life insurance contracts; and (e) each Separate Account shall
comply with all applicable legal requirements.

2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities Act
of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and
sold in compliance in all material respects with all applicable federal
and state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the Fund.

2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account are and will be kept
separate from Insurance Company's General Account and any other
separate accounts Insurance Company may have, and will not be charged
with liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance Company.

2.4 Fund represents that the Fund is registered with the Commission under
the Act as an open-end management investment company and possesses, and
shall maintain, all legal and regulatory licenses, approvals, consents
and/or exemptions required for the Fund to operate and offer its shares
as an underlying investment medium for Participating Companies. The
Fund has established five portfolios and may in the future establish
other portfolios.

2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.

2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
its investment adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future. Insurance Company agrees that
any prospectus offering a Contract that is a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
identify such Contract as a modified endowment contract (or policy).

2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the
Code.

2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders and to Plans.

2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.

2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.

2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce
any and all rights conferred by virtue of this Agreement.

<PAGE> 3

ARTICLE III 3.
FUND SHARES

3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series' shares

3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.

3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.

3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset value per
share for the Series in question.

3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received
by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of Series shares which will be purchased or redeemed at that
day's closing net asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 8:30 a.m. Eastern Time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of the relevant Series next calculated after receipt of the order
by the Fund or its Transfer Agent.

3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of the
close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 8:30 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase of
Series shares, the conditions specified in Section 3.8, as applicable,
are satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value computed for such
Series on the Business Day immediately preceding the next following
Business Day upon which such conditions have been satisfied.

3.7 Insurance Company will make its best efforts to notify Fund in advance
of any unusually large purchase or redemption orders.

3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by 12:00 noon Eastern
Time on the Business Day the Fund receives the notice of the order
pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if Fund receives payment in Federal
Funds by 12:00 noon Eastern Time on the Business Day the Fund receives
the notice of the order pursuant to Section 3.5. If payment in Federal
Funds for any purchase is not received or is received by the Fund after
12:00 noon Eastern Time on such Business Day, Insurance Company shall
promptly upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of
portfolio transactions effected by the Fund based upon such purchase
request. If Insurance Company's order requests the redemption of Series
shares valued at or greater than $1 million dollars, the Fund may wire
such amount to Insurance Company within seven days of the order.

3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.

<PAGE> 4

3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company
will record shares ordered from Fund in an appropriate title for the
corresponding account.

3.11 Fund shall credit Insurance Company with the appropriate number of
shares.

3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.

ARTICLE IV 4.
STATEMENTS AND REPORTS

4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.

4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.

4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.

4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.

ARTICLE V 5.
EXPENSES

5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.

5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:

a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or marketing
materials for prospective Insurance Company Contractholders and
Participants as the Fund's investment adviser and Insurance
Company shall agree from time to time.

b. Distribution expenses of any Fund materials or marketing materials
for prospective Insurance Company Contractholders and
Participants.

c. Distribution expenses of Fund materials or marketing materials for
Insurance Company Contractholders and Participants.

Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.

<PAGE> 5

ARTICLE VI
EXEMPTIVE RELIEF

6.1 Insurance Company has reviewed a copy of the order dated December 1996
of the Securities and Exchange Commission under Section 6(c) of the Act
and, in particular, has reviewed the conditions to the relief set forth
in the related Notice. As set forth therein, Insurance Company agrees
to report any potential or existing conflicts promptly to the Board,
and in particular whenever contract voting instructions are
disregarded, and recognizes that it will be responsible for assisting
the Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.

6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:

a. Withdrawing the assets allocable to the Separate Account from the
Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote or all affected Contractholders;
and/or

b. Establishing a new registered management investment company.

6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund.

6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.

6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.

ARTICLE VII 7.
VOTING OF FUND SHARES

7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.

Insurance Company shall:

(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;

(b) vote the Series shares in accordance with instructions received
from Contractholders or Participants; and

(c) vote Series shares for which no instructions have been received in
the same proportion as Series shares for which instructions have
been received.

<PAGE> 6

Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting
Series shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.

7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to or
delete the Fund from the current investment media for the Contracts.

ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS

8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:

a. Current Prospectus and any supplements thereto;

b. other marketing materials.

Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.

8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.

8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless the Fund approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. The
Fund shall use all reasonable efforts to respond within ten days of
receipt.

8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.

8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless Insurance Company approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within
ten days of receipt.

8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.

8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional

<PAGE> 7

information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. rules, the Act or the 1933 Act.

ARTICLE IX 9.
INDEMNIFICATION

9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein; and
provided, further, that Insurance Company shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which Insurance Company may
otherwise have.

9.2 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the 1933 Act
against any losses, claims, damages or liabilities to which Insurance
Company or any such director, officer, employee, agent or controlling
person may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Fund will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the Fund by Insurance Company specifically for use
therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.

9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate
or capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or

<PAGE> 8

incorrect or untimely reporting was the result of incorrect information
furnished by Insurance Company or information furnished untimely by
Insurance Company or otherwise as a result of or relating to a breach
of this Agreement by Insurance Company; and provided, further, that the
Fund shall not be liable for special, consequential or incidental
damages.

9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and to the extent
that the indemnifying party has given notice to such effect to the
indemnified party and is performing its obligations under this Article,
the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.

A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.

9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.

ARTICLE X 10.
COMMENCEMENT AND TERMINATION

10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.

10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:

a. At the option of Insurance Company or the Fund at any time from
the date hereof upon 180 days' notice, unless a shorter time is
agreed to by the parties;

b. At the option of Insurance Company, if shares of any Series are
not reasonably available to meet the requirements of the Contracts
as determined by Insurance Company. Prompt notice of election to
terminate shall be furnished by Insurance Company, said
termination to be effective ten days after receipt of notice
unless the Fund makes available a sufficient number of shares to
meet the requirements of the Contracts within said ten-day period;

c. At the option of Insurance Company, upon the institution of formal
proceedings against the Fund by the Commission, National
Association of Securities Dealers or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in Insurance Company's reasonable judgment, materially
impair the Fund's ability to meet and perform the Fund's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said
termination to be effective upon receipt of notice;

d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission, National
Association of Securities Dealers or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in the Fund's reasonable judgment, materially impair
Insurance Company's ability to meet and perform Insurance
Company's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by the Fund with said
termination to be effective upon receipt of notice;

e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of

<PAGE> 9

material adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact upon the
business and operation of the Fund or its investment adviser, the Fund
shall notify Insurance Company in writing of such determination and its
intent to terminate this Agreement, and after considering the actions
taken by Insurance Company and any other changes in circumstances since
the giving of such notice, such determination of the Fund shall
continue to apply on the sixtieth (60th) day following the giving of
such notice, which sixtieth day shall be the effective date of
termination;

f. Upon termination of the Investment Advisory Agreement between the
Fund and its investment adviser or its successors unless Insurance
Company specifically approves the selection of a new Fund
investment adviser. The Fund shall promptly furnish notice of such
termination to Insurance Company;

g. In the event the Fund's shares are not registered, issued or sold
in accordance with applicable federal law, or such law precludes
the use of such shares as the underlying investment medium of
Contracts issued or to be issued by Insurance Company. Termination
shall be effective immediately upon such occurrence without
notice;

h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;

i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts
may fail to so qualify;

j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;

k. At the option of the Fund, if the Contracts are not registered,
issued or sold in accordance with applicable federal and/or state
law; or

l. Upon assignment of this Agreement, unless made with the written
consent of the non-assigning party.

Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.

10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser may, at the option of
the Fund, continue to make available additional Series shares for so
long as the Fund desires pursuant to the terms and conditions of this
Agreement as provided below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if the
Fund so elects to make additional Series shares available, the owners
of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments
in the Series, redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, the Fund, as promptly as is practicable under the
circumstances, shall notify Insurance Company whether the Fund will
continue to make Series shares available after such termination. If
Series shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter
either the Fund or Insurance Company may terminate the Agreement, as so
continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more
than six months.

ARTICLE XI 11.
AMENDMENTS

11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.

<PAGE> 10

ARTICLE XII 12.
NOTICE

12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:

Insurance Company:

Fund:

J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp

Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.

ARTICLE XIII 13.
MISCELLANEOUS

13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.

ARTICLE XIV 14.
LAW

14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.

INSURANCE COMPANY

By:
-------------------------------
Its:
------------------

J.P.MORGAN SERIES TRUST II

By:
------------------

<PAGE> 11

Its:
------------------
SCHEDULE 1

Name of Series
- --------------

particpk.doc

<PAGE> 1
Exhibit 8.9

PARTICIPATION AGREEMENT

THIS AGREEMENT is made this _____ day of ______________ , 1999, by and
among The Alger American Fund (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, __________________________,
a life insurance company organized as a corporation under the laws of the State
of _______________, (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").

WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");

WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");

WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;

WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");

WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");

WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is

1
<PAGE> 2

available and the Trust has been so advised;

WHEREAS, the Company desires to use shares of the Portfolios indicated
on Schedule A as investment vehicles for the Accounts;

NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:

ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares

1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio,
provided that the Company notifies the Trust of such purchase orders
and requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3.

1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from
time to time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such
Portfolio.

1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.

1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at
the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with
the provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the

2
<PAGE> 3

manner established from time to time by the Trust. Proceeds of
redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business
Day after the receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. The Trust reserves
the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder.

1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.

1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.

1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions
payable on the shares of any Portfolio of the Trust. The Company hereby
elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.

1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day.

1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.

1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and

3
<PAGE> 4

responsibilities regarding pass-through voting and conflicts of
interest corresponding materially to those contained in Section 2.9 and
Article IV of this Agreement.

ARTICLE II.
Obligations of the Parties

2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.

2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.

2.3. The Trust shall provide such documentation (including a final copy of
the Trust's prospectus as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to
print together in one document the current prospectus for the Contracts
issued by the Company and the current prospectus for the Trust. The
Trust shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Contract owners, and
the Company shall bear the expense of printing copies of the Trust's
prospectus that are used in connection with offering the Contracts
issued by the Company.

2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.

2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for purposes of distributing to Contract owners. The
Trust, at the Company's expense, shall provide the Company with copies
of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type

4
<PAGE> 5

or in camera-ready copy) and other assistance as reasonably necessary
in order for the Company to print such shareholder communications for
distribution to Contract owners.

2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.

2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or request
for no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.

2.8. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented
from time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company shall
adopt and implement procedures reasonably designed to ensure that
"broker only" materials including information therein about the Trust
or the Distributor are not distributed to existing or prospective
Contract owners.

2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.

5
<PAGE> 6

2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or supplemented
from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials,
except as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.

2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by
the Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered Account
and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contacts without the prior written
consent of the Trust, which consent may be withheld in the Trust's sole
discretion. The Company reserves the right, to the extent permitted by
law, to vote shares held in any Account in its sole discretion.

2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.

2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.

ARTICLE III.
Representations and Warranties

3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
_______________ and that it has legally and validly established each
Account as a segregated asset account under such law as of

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<PAGE> 7

the date set forth in Schedule A, and that _______________________, the
principal underwriter for the Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member
in good standing of the National Association of Securities Dealers,
Inc.

3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.

3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.

3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.

3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.

3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will immediately take
all reasonable steps to adequately diversify the Portfolio to achieve
compliance within the grace period afforded by Regulation 1.817-5.

3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify
the Company immediately upon having a reasonable basis for believing it
has ceased to so qualify or might not so qualify in the future.

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<PAGE> 8

3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.

3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.

ARTICLE IV.
Potential Conflicts

4.1. The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all Participating Insurance Companies. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Trust shall
promptly inform the Company of any determination by the Trustees that a
material irreconcilable conflict exists and of the implications
thereof.

4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order by providing the Trustees with all information
reasonably necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.

4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its own expense and to the extent
reasonably practicable (as determined by the Trustees) take whatever
steps are necessary to remedy

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<PAGE> 9

or eliminate the material irreconcilable conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the
Accounts from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question of whether or not
such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.

4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account; provided, however that such
withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end
of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of
shares of the Trust.

4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six (6) months after the
Trustees inform the Company in writing that the Trust has determined
that such decision has created a material irreconcilable conflict;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
Until the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.

4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in
no event will the Trust be required to establish a new funding medium
for any Contract. The Company shall not be required to establish a new
funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of Contract owners materially adversely affected
by the material irreconcilable conflict. In the event that the Trustees
determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the

<PAGE> 10

Trustees inform the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.

4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.

4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.

ARTICLE V.
Indemnification

5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:

(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon

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<PAGE> 11

the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and was accurately derived from
written information furnished to the Company by or on behalf
of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares;
or

(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or

(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or

(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under
the terms of this Agreement; or

(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or

(f) arise out of or result from the provision by the Company to
the Trust of insufficient or incorrect information regarding
the purchase or sale of shares of any Portfolio, or the
failure of the Company to provide such information on a timely
basis.

5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as

11
<PAGE> 12

such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:

(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust
Documents" for the purposes of this Article V), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to
the Distributor or the Trust by or on behalf of the Company
for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or

(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Distributor or persons under its control, with respect
to the sale or acquisition of the Contracts or Portfolio
shares; or

(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on
behalf of the Trust; or

(d) arise out of or result from any failure by the Distributor or
the Trust to provide the services or furnish the materials
required under the terms of this Agreement; or

(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Distributor or
the Trust.

5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.

5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim

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<PAGE> 13

made against an Indemnified party unless such Indemnified Party shall
have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of
the nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified Party
shall have received notice of service upon or other notification to any
designated agent), but failure to notify the party against whom
indemnification is sought of any such claim shall not relieve that
party from any liability which it may have to the Indemnified Party in
the absence of Sections 5.1 and 5.2.

5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice
from the indemnifying party to the Indemnified Party of an election to
assume such defense, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.

ARTICLE VI.
Termination

6.1. This Agreement shall terminate:

(a) at the option of any party upon 60 days advance written notice
to the other parties, unless a shorter time is agreed to by
the parties;

(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or

(c) at the option of any party upon a determination by a majority
of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or

(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or

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<PAGE> 14

the operation of the Trust; or

(e) at the option of the Company if the Trust or a Portfolio fails
to meet the diversification requirements specified in Section
3.6 hereof; or

(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company,
and upon prompt notice by the Company to the other parties; or

(g) at the option of the Company in the event any of the shares of
the Portfolio are not registered, issued or sold in accordance
with applicable state and/or federal law, or such law
precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the
Company; or

(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or

(i) at the option of the Distributor if it shall determine in its
sole judgment exercised in good faith, that the Company and/or
its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity.

6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.

6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall
survive the termination of this Agreement as long as shares of the
Trust are held on behalf of Contract owners in accordance with Section
6.2.

ARTICLE VII.
Notices

Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.

If to the Trust or its Distributor:

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<PAGE> 15

Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch

If to the Company:

ARTICLE VIII.
Miscellaneous

8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.

8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.

8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.

8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders. Copies of any such orders shall be promptly forwarded by
the Trust to the Company.

8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.

8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.

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<PAGE> 16
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.

8.8. This Agreement shall not be exclusive in any respect.

8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.

8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.

8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.

IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.

Fred Alger & Company, Incorporated

By:_______________________________
Name:
Title:

The Alger American Fund

By:_______________________________
Name:
Title:

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<PAGE> 17

SCHEDULE A

The Alger American Fund:

Alger American Growth Portfolio

Alger American Leveraged AllCap Portfolio

Alger American Income and Growth Portfolio

Alger American Small Capitalization Portfolio

Alger American Balanced Portfolio

Alger American MidCap Growth Portfolio

The Accounts:

<PAGE> 1

EXHIBIT 8.10

SHAREHOLDER SERVICES AGREEMENT

THIS SHAREHOLDER SERVICES AGREEMENT is made and entered into as of
___________, 1999 by and between ___________________________________ (the
"Comany"), and AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM").

WHEREAS, the Company offers to the public certain group and individual
variable annuity and variable life insurance contracts (the "Contracts"); and

WHEREAS, the Company wishes to make available as investment options
under the Contracts VP Balanced, VP Income & Growth, VP International and VP
Value (the "Funds"), each of which is a series of mutual fund shares registered
under the Investment Company Act of 1940, as amended, and issued by American
Century Variable Portfolios, Inc. (the "Issuer"); and

WHEREAS, on the terms and conditions hereinafter set forth, ACIM
desires to make shares of the Funds available as investment options under the
Contracts and to retain the Company to perform certain administrative services
on behalf of the Funds, and the Company is willing and able to furnish such
services;

NOW, THEREFORE, the Company and ACIM agree as follows:

1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of
this Agreement, ACIM will cause the Issuer to make shares of the Funds available
to be purchased, exchanged, or redeemed, by or on behalf of the Accounts
(defined in SECTION 7(A) below) through a single account per Fund at the net
asset value applicable to each order. The Funds' shares shall be purchased and
redeemed on a net basis in such quantity and at such time as determined by the
Company to satisfy the requirements of the Contracts for which the Funds serve
as underlying investment media. Dividends and capital gains distributions will
be automatically reinvested in full and fractional shares of the Funds.

2. ADMINISTRATIVE SERVICES. The Company agrees to provide all
administrative services for the Contract owners, including but not limited to
those services specified in EXHIBIT A (the "Administrative Services"). Neither
ACIM nor the Issuer shall be required to provide Administrative Services for the
benefit of Contract owners. The Company agrees that it will maintain and
preserve all records as required by law to be maintained and preserved in
connection with providing the Administrative Services, and will otherwise comply
with all laws, rules and regulations applicable to the marketing of the
Contracts and the provision of the Administrative Services. Upon request, the
Company will provide ACIM or its representatives reasonable information
regarding the quality of the Administrative Services being provided and its
compliance with the terms of this Agreement.

3. TIMING OF TRANSACTIONS. ACIM hereby appoints the Company as agent
for the Funds for the limited purpose of accepting purchase and redemption
orders for Fund shares from the Contract owners. On each day the New York Stock
Exchange (the "Exchange") is open for business (each, a "Business Day"), the
Company may receive instructions from the Contract owners for the purchase or

<PAGE> 2

redemption of shares of the Funds ("Orders"). Orders received and accepted by
the Company prior to the close of regular trading on the Exchange (the "Close of
Trading") on any given Business Day (currently, 4:00 p.m. Eastern time) and
transmitted to the Funds' transfer agent by 10:00 p.m. Eastern time on such
Business Day will be executed at the net asset value determined as of the Close
of Trading on such Business Day. Any Orders received by the Company on such day
but after the Close of Trading, and all Orders that are transmitted to the
Funds' transfer agent after 10:00 p.m. Eastern time on such Business Day, will
be executed at the net asset value determined as of the Close of Trading on the
next Business Day following the day of receipt of such Order. The day as of
which an Order is executed by the Funds' transfer agent pursuant to the
provisions set forth above is referred to herein as the "Trade Date".

4. PROCESSING OF TRANSACTIONS.

(a) If transactions in Fund shares are to be settled through the
National Securities Clearing Corporation's Mutual Fund Settlement, Entry, and
Registration Verification (Fund/SERV) system, the terms of the FUND/SERV
AGREEMENT, between Company and American Century Services Corporation, shall
apply.

(b) If transactions in Fund shares are to be settled directly with
the Funds' transfer agent, the following provisions shall apply:

(1) By 6:30 p.m. Eastern time on each Business Day, ACIM (or
one of its affiliates) will provide to the Company via facsimile or other
electronic transmission acceptable to the Company the Funds' net asset value,
dividend and capital gain information and, in the case of income funds, the
daily accrual for interest rate factor (mil rate), determined at the Close of
Trading.

(2) By 10:00 p.m. Eastern time on each Business Day, the
Company will provide to ACIM via facsimile or other electronic transmission
acceptable to ACIM a report stating whether the instructions received by the
Company from Contract owners by the Close of Trading on such Business Day
resulted in the Accounts being a net purchaser or net seller of shares of the
Funds. As used in this Agreement, the phrase "other electronic transmission
acceptable to ACIM" includes the use of remote computer terminals located at the
premises of the Company, its agents or affiliates, which terminals may be linked
electronically to the computer system of ACIM, its agents or affiliates
(hereinafter, "Remote Computer Terminals").

(3) Upon the timely receipt from the Company of the report
described in (2) above, the Funds' transfer agent will execute the purchase or
redemption transactions (as the case may be) at the net asset value computed as
of the Close of Trading on the Trade Date. Payment for net purchase transactions
shall be made by wire transfer to the applicable Fund custodial account
designated by the Funds on the Business Day next following the Trade Date. Such
wire transfers shall be initiated by the Company's bank prior to 4:00 p.m.
Eastern time and received by the Funds prior to 6:00 p.m. Eastern time on the
Business Day next following the Trade Date ("T+1"). If payment for a purchase
Order is not timely received, such Order will be executed at the net asset value
next

<PAGE> 3

computed following receipt of payment. Payments for net redemption transactions
shall be made by wire transfer by the Issuer to the account(s) designated by the
Company on T+1; provided, however, the Issuer reserves the right to settle
redemption transactions within the time period set forth in the applicable
Fund's then-current prospectus. On any Business Day when the Federal Reserve
Wire Transfer System is closed, all communication and processing rules will be
suspended for the settlement of Orders. Orders will be settled on the next
Business Day on which the Federal Reserve Wire Transfer System is open and the
original Trade Date will apply.

5. PROSPECTUS AND PROXY MATERIALS.

(a) ACIM shall provide the Company with copies of the Issuer's proxy
materials, periodic fund reports to shareholders and other materials that are
required by law to be sent to the Issuer's shareholders. In addition, ACIM shall
provide the Company with a sufficient quantity of prospectuses of the Funds to
be used in conjunction with the transactions contemplated by this Agreement,
together with such additional copies of the Issuer's prospectuses as may be
reasonably requested by Company. If the Company provides for pass-through voting
by the Contract owners, or if the Company determines that pass-through voting is
required by law, ACIM will provide the Company with a sufficient quantity of
proxy materials for each, as directed by the Company.

(b) The cost of preparing, printing and shipping of the
prospectuses, proxy materials, periodic fund reports and other materials of the
Issuer to the Company shall be paid by ACIM or its agents or affiliates;
provided, however, that if at any time ACIM or its agent reasonably deems the
usage by the Company of such items to be excessive, it may, prior to the
delivery of any quantity of materials in excess of what is deemed reasonable,
request that the Company demonstrate the reasonableness of such usage. If ACIM
believes the reasonableness of such usage has not been adequately demonstrated,
it may request that the party responsible for such excess usage pay the cost of
printing (including press time) and delivery of any excess copies of such
materials. Unless the Company agrees to make such payments, ACIM may refuse to
supply such additional materials and ACIM shall be deemed in compliance with
this SECTION 5 if it delivers to the Company at least the number of prospectuses
and other materials as may be required by the Issuer under applicable law.

(c) The cost of any distribution of prospectuses, proxy materials,
periodic fund reports and other materials of the Issuer to the Contract owners
shall be paid by the Company and shall not be the responsibility of ACIM or the
Issuer.

6. COMPENSATION AND EXPENSES.

(a) The Accounts shall be the sole shareholder of Fund shares
purchased for the Contract owners pursuant to this Agreement (the "Record
Owner"). The Record Owner shall properly complete any applications or other
forms required by ACIM or the Issuer from time to time.

(b) ACIM acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by

<PAGE> 4

virtue of having a single shareholder account per Fund for the Accounts rather
than having each Contract owner as a shareholder. In consideration of the
Administrative Services and performance of all other obligations under this
Agreement by the Company, ACIM will pay the Company a fee (the "Administrative
Services Fee") equal to 20 basis points (0.20%) per annum of the average
aggregate amount invested by the Company under this Agreement.

(c) The payments received by the Company under this Agreement are
for administrative and shareholder services only and do not constitute payment
in any manner for investment advisory services or for costs of distribution.

(d) For the purposes of computing the payment to the Company
contemplated by this SECTION 6, the average aggregate amount invested by the
Company on behalf of the Accounts in the Funds over a one month period shall be
computed by totaling the Company's aggregate investment (share net asset value
multiplied by total number of shares of the Funds held by the Company) on each
Business Day during the month and dividing by the total number of Business Days
during such month.

(e) ACIM will calculate the amount of the payment to be made
pursuant to this SECTION 6 at the end of each calendar quarter and will make
such payment to the Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the calculation of the
amounts being paid by ACIM for the relevant months and such other supporting
data as may be reasonably requested by the Company and shall be mailed to:

___________________________________
___________________________________
___________________________________
Attention:_________________________
Phone No: _________________________
Fax No:____________________________

<PAGE> 5

7. REPRESENTATIONS.

(a) The Company represents and warrants that (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established the
__________ and the ____________________ (the "Accounts"), each of which is a
duly authorized and established separate account under __________ Insurance law,
and has registered each Account as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act") to serve as an investment vehicle for the
Contracts; (iii) each Contract provides for the allocation of net amounts
received by the Company to an Account for investment in the shares of one or
more specified investment companies selected among those companies available
through the Account to act as underlying investment media; (iv) selection of a
particular investment company is made by the Contract owner under a particular
Contract, who may change such selection from time to time in accordance with the
terms of the applicable Contract; and (v) the activities of the Company
contemplated by this Agreement comply in all material respects with all
provisions of federal and state securities laws applicable to such activities.

(b) ACIM represents that (i) this Agreement has been duly authorized
by all necessary corporate action and, when executed and delivered, shall
constitute the legal, valid and binding obligation of ACIM, enforceable in
accordance with its terms; (ii) the prospectus of each Fund complies in all
material respects with federal and state securities laws, and (iii) shares of
the Issuer are registered and authorized for sale in accordance with all federal
and state securities laws.

8. ADDITIONAL COVENANTS AND AGREEMENTS.

(a) Each party shall comply with all provisions of federal and state
laws applicable to its respective activities under this Agreement. All
obligations of each party under this Agreement are subject to compliance with
applicable federal and state laws.

(b) Each party shall promptly notify the other parties in the event
that it is, for any reason, unable to perform any of its obligations under this
Agreement.

(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners, in
proper form prior to the Close of Trading of the Exchange on that Business Day.
The Company shall time stamp all Orders or otherwise maintain records that will
enable the Company to demonstrate compliance with SECTION 8(C) hereof.

(d) The Company covenants and agrees that all Orders transmitted to
the Issuer, whether by telephone, telecopy, or other electronic transmission
acceptable to ACIM, shall be sent by or under the authority and direction of a
person designated by the Company as being duly authorized to act on behalf of
the owner of the Accounts. ACIM shall be entitled to rely on the existence of
such authority and to assume that any person transmitting Orders for the
purchase, redemption or transfer of Fund

<PAGE> 6

shares on behalf of the Company is "an appropriate person" as used in Sections
8-107 and 8-401 of the Uniform Commercial Code with respect to the transmission
of instructions regarding Fund shares on behalf of the owner of such Fund
shares. The Company shall maintain the confidentiality of all passwords and
security procedures issued, installed or otherwise put in place with respect to
the use of Remote Computer Terminals and assumes full responsibility for the
security therefor. The Company further agrees to be responsible for the
accuracy, propriety and consequences of all data transmitted to ACIM by the
Company by telephone, telecopy or other electronic transmission acceptable to
ACIM.

(e) The Company agrees that, to the extent it is able to do so, it
will use its best efforts to give equal emphasis and promotion to shares of the
Funds as is given to other underlying investments of the Accounts, subject to
applicable Securities and Exchange Commission rules. In addition, the Company
shall not impose any fee, condition, or requirement for the use of the Funds as
investment options for the Contracts that operates to the specific prejudice of
the Funds vis-a-vis the other investment media made available for the Contracts
by the Company.

(f) The Company shall not, without the written consent of ACIM, make
representations concerning the Issuer or the shares of the Funds except those
contained in the then-current prospectus and in current printed sales literature
approved by ACIM or the Issuer.

(g) Advertising and sales literature with respect to the Issuer or
the Funds prepared by the Company or its agents, if any, for use in marketing
shares of the Funds as underlying investment media to Contract owners shall be
submitted to ACIM for review and approval before such material is used.

9. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither ACIM nor any of its affiliates or the Funds shall use any
trademark, trade name, service mark or logo of the Company, or any variation of
any such trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the Company's sole
option. Except as otherwise expressly provided for in this Agreement, the
Company shall not use any trademark, trade name, service mark or logo of the
Issuer, ACIM or any of its affiliates or any variation of any such trademarks,
trade names, service marks, or logos, without the prior written consent of
either the Issuer or ACIM, as appropriate, the granting of which shall be at the
sole option of ACIM and/or the Issuer.

10. PROXY VOTING.

(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the

<PAGE> 7

responsibility of the Company to assure that it and the separate accounts of the
other Participating Companies (as defined in SECTION 12(A) below) participating
in any Fund calculate voting privileges in a consistent manner.

(b) The Company will distribute to Contract owners all proxy
material furnished by ACIM and will vote shares in accordance with instructions
received from such Contract owners. The Company shall vote Fund shares for which
no voting instructions are received in the same proportion as shares for which
such instructions have been received. The Company and its agents shall not
oppose or interfere with the solicitation of proxies for Fund shares held for
such Contract owners.

11. INDEMNITY.

(a) ACIM agrees to indemnify and hold harmless the Company and its
officers, directors, employees, agents, affiliates and each person, if any, who
controls the Company within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this SECTION 11(A))
against any losses, claims, expenses, damages or liabilities (including amounts
paid in settlement thereof) or litigation expenses (including legal and other
expenses) (collectively, "Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses result from a breach by ACIM of a material
provision of this Agreement. ACIM will reimburse any legal or other expenses
reasonably incurred by the Indemnified Parties in connection with investigating
or defending any such Losses. ACIM shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or misconduct of the
Company in performing its obligations under this Agreement.

(b) The Company agrees to indemnify and hold harmless ACIM and the
Issuer, and their respective officers, directors, employees, agents, affiliates
and each person, if any, who controls Issuer or ACIM within the meaning of the
Securities Act of 1933 (collectively, the "Indemnified Parties" for purposes of
this SECTION 11(B)) against any Losses to which the Indemnified Parties may
become subject, insofar as such Losses result from a breach by the Company of a
material provision of this Agreement or the use by any person of the Remote
Computer Terminals. The Company will reimburse any legal or other expenses
reasonably incurred by the Indemnified Parties in connection with investigating
or defending any such Losses. The Company shall not be liable for
indemnification hereunder if such Losses are attributable to the negligence or
misconduct of ACIM or the Issuer in performing their obligations under this
Agreement.

(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this SECTION 11. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the

<PAGE> 8

indemnifying party will be entitled to participate therein and, to the extent
that it may wish to, assume the defense thereof, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
SECTION 11 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.

(d) If the indemnifying party assumes the defense of any such
action, the indemnifying party shall not, without the prior written consent of
the indemnified parties in such action, settle or compromise the liability of
the indemnified parties in such action, or permit a default or consent to the
entry of any judgment in respect thereof, unless in connection with such
settlement, compromise or consent, each indemnified party receives from such
claimant an unconditional release from all liability in respect of such claim.

12. POTENTIAL CONFLICTS

(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by the Issuer on December 21, 1987, with the SEC and
the order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in such
application, the Board of Directors of the Issuer (the "Board") will monitor the
Issuer for the existence of any material irreconcilable conflict between the
interests of the contract owners of all separate accounts ("Participating
Companies") investing in funds of the Issuer. An irreconcilable material
conflict may arise for a variety of reasons, including: (i) an action by any
state insurance regulatory authority; (ii) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
actions by insurance, tax or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the manner
in which the investments of any portfolio are being managed; (v) a difference in
voting instructions given by variable annuity contract owners and variable life
insurance contract owners; or (vi) a decision by an insurer to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.

(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.

<PAGE> 9

(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists with
regard to contract owner investments in a Fund, the Board shall give prompt
notice to all Participating Companies. If the Board determines that the Company
is responsible for causing or creating said conflict, the Company shall at its
sole cost and expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include but shall not be limited to:

(i) withdrawing the assets allocable to the Accounts from
the Fund and reinvesting such assets in a different
investment medium or submitting the question of whether
such segregation should be implemented to a vote of all
affected contract owners and as appropriate,
segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract
owners, or variable contract owners of one or more
Participating Companies) that votes in favor of such
segregation, or offering to the affected contract
owners the option of making such a change; and/or

(ii) establishing a new registered management investment
company or managed separate account.

(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contract owner voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contract owners having an interest in the Issuer, the Company at
its sole cost, may be required, at the Board's election, to withdraw an
Account's investment in the Issuer and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.

(e) For the purpose of this SECTION 12, a majority of the
disinterested Board members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Issuer be required to establish a new funding medium for any Contract. The
Company shall not be required by this SECTION 12 to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners materially adversely affected by the
irreconcilable material conflict.

13. TERMINATION; WITHDRAWAL OF OFFERING. This Agreement may be
terminated by either party upon 180 days' prior written notice to the other
parties. Notwithstanding the above, the Issuer reserves the right, without prior
notice, to suspend sales of shares of any Fund, in whole or in part, or to make
a limited offering of shares of any of the Funds in the event that (A) any
regulatory body commences formal proceedings against the Company, ACIM,
affiliates of ACIM, or the Issuer, which proceedings ACIM reasonably believes
may have a material adverse impact on the ability of ACIM, the Issuer or the
Company to perform its obligations under this Agreement or (B) in the judgment
of ACIM, declining to accept any additional instructions for the purchase or
sale of shares of any such

<PAGE> 10

Fund is warranted by market, economic or political conditions. Notwithstanding
the foregoing, this Agreement may be terminated immediately (i) by any party as
a result of any other breach of this Agreement by another party, which breach is
not cured within 30 days after receipt of notice from the other party, or (ii)
by any party upon a determination that continuing to perform under this
Agreement would, in the reasonable opinion of the terminating party's counsel,
violate any applicable federal or state law, rule, regulation or judicial order.
Termination of this Agreement shall not affect the obligations of the parties to
make payments under SECTION 4 for Orders received by the Company prior to such
termination and shall not affect the Issuer's obligation to maintain the
Accounts as set forth by this Agreement. Following termination, ACIM shall not
have any Administrative Services payment obligation to the Company (except for
payment obligations accrued but not yet paid as of the termination date).

14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees
that this Agreement and the arrangement described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.

15. SURVIVAL. The provisions of SECTION 9 (use of names) and
SECTION 11 (indemnity) of this Agreement shall survive termination of this
Agreement.

16. AMENDMENT. Neither this Agreement, nor any provision hereof, may
be amended, waived, discharged or terminated orally, but only by an instrument
in writing signed by all of the parties hereto.

17. NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they are directed at
the following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.

To the Company:

____________________________________
____________________________________
____________________________________
( )_________(office number)
( )_________(telecopy number)

10
<PAGE> 11

To the Issuer or ACIM:

American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)

Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.

18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned
without the written consent of all parties to the Agreement at the time of such
assignment. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns.

19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.

20. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.

21. ENTIRE AGREEMENT. This Agreement, including the attachments hereto,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes all previous agreements, written or oral, with
respect to such matters.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.

____________________________________ AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.

By:_________________________________ By:_______________________________
Name:_______________________________ William M. Lyons
Title:______________________________ Executive Vice President

<PAGE> 12

EXHIBIT A

ADMINISTRATIVE SERVICES

Pursuant to the Agreement to which this is attached, the Company shall perform
all administrative and shareholder services required or requested under the
Contracts with respect to the Contract owners, including, but not limited to,
the following:

1. Maintain separate records for each Contract owner, which records
shall reflect the shares purchased and redeemed and share balances of such
Contract owners. The Company will maintain a single master account with each
Fund on behalf of the Contract owners and such account shall be in the name of
the Company (or its nominee) as the record owner of shares owned by the Contract
owners.

2. Disburse or credit to the Contract owners all proceeds of
redemptions of shares of the Funds and all dividends and other distributions not
reinvested in shares of the Funds.

3. Prepare and transmit to the Contract owners, as required by law
or the Contracts, periodic statements showing the total number of shares owned
by the Contract owners as of the statement closing date, purchases and
redemptions of Fund shares by the Contract owners during the period covered by
the statement and the dividends and other distributions paid during the
statement period (whether paid in cash or reinvested in Fund shares), and such
other information as may be required, from time to time, by the Contracts.

4. Transmit purchase and redemption orders to the Funds on behalf
of the Contract owners in accordance with the procedures set forth in SECTION 4
to the Agreement.

5. Distribute to the Contract owners copies of the Funds'
prospectus, proxy materials, periodic fund reports to shareholders and other
materials that the Funds are required by law or otherwise to provide to their
shareholders or prospective shareholders.

6. Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Administrative
Services for the Contracts.

A-1

<PAGE> 1

Exhibit 10.1

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Periodic Payment Variable Annuity Contracts

We consent to the inclusion in this registration statement on Form N-4 (File
Nos. 2-72671 and 811-3199) of our report dated February 19, 1999, on our audit
of the financial statements of KILICO Variable Annuity Separate Account
and to the reference to our firm under the caption "Experts".

PricewaterhouseCoopers LLP

Chicago, Illinois
April 28, 1999

<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Periodic Payment Variable Annuity Contracts

We consent to the inclusion in this registration statement on Form N-4 (File
Nos. 2-72671 and 811-3199) of our report dated March 12, 1999, on our audit
of the consolidated financial statements of Kemper Investors Life
Insurance Company and to the reference to our firm under the caption "Experts".

PricewaterhouseCoopers LLP

Chicago, Illinois
April 28, 1999

<PAGE> 1
EXHIBIT 10.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Kemper Investors Life Insurance Company

We consent to the use of our report included herein on the consolidated
financial statements and financial statement schedules of Kemper Investors Life
Insurance Company and to the reference to our firm under the heading "Experts"
in the prospectus.

KPMG LLP

Chicago, Illinois
April 28, 1999