KILICO VARIABLE SEPARATE ACCOUNT/IL, 497, 1996-06-07

KILICO VARIABLE SEPARATE ACCOUNT/IL
497, 1996-06-07

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PROSPECTUS--

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FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
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ISSUED BY

KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT

HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500

This Prospectus describes a variable life insurance policy (the "Policy")
offered by Kemper Investors Life Insurance Company ("KILICO"). The Policy
provides for life insurance and for the accumulation of Cash Value on a variable
basis. Premiums under the Policy are flexible, subject to certain restrictions.
The Death Benefit and Cash Value of the Policy may vary to reflect the
investment experience of the KILICO Variable Separate Account (the "Separate
Account").

The Policy meets the definition of "life insurance" under Section 7702 of
the Internal Revenue Code. The Policy may be issued as or become a modified
endowment contract. For a Policy treated as a modified endowment contract,
certain distributions will be includable in gross income for Federal income tax
purposes.

See "Federal Tax Matters", page 20 for a discussion of laws that affect the
tax treatment of the Policy.

An Owner may allocate premiums under a Policy to one or more of the
Subaccounts of the Separate Account and the Fixed Account. Each Subaccount
invests in shares of one portfolio of an underlying mutual fund. The underlying
mutual funds (and the portfolios of the underlying mutual funds) currently
available under the Policy are: (a) Kemper Investors Fund (portfolios--Money
Market, Total Return, High Yield, Growth, Government Securities, International
and Small Cap Growth); and (b) American Skandia Trust (portfolios--Lord Abbett
Growth and Income, JanCap Growth, T. Rowe Price International Equity, T. Rowe
Price Asset Allocation, Founders Capital Appreciation, INVESCO Equity Income,
PIMCO Total Return Bond, PIMCO Limited Maturity Bond and Berger Capital Growth).
The other portfolios of the Funds are not currently available for investment
under the Policy. The accompanying Prospectuses for the Funds describe the
investment objectives and the attendant risks of the portfolios of the Funds.
The Cash Value in the Fixed Account will accrue interest at a rate that is
guaranteed by KILICO.

The Policy permits the Owner to choose from two death benefit options.
KILICO guarantees that the Death Benefit payable for a Policy will never be less
than the Death Benefit stated in the Policy Specifications, less Debt, as long
as the Policy is in force. There is no guaranteed Cash Value. If the Surrender
Value is insufficient to cover the charges under the Policy, the Policy will
lapse. A guarantee premium and guarantee period are stated in the Policy
Specifications. Payment of the guarantee premium is not required but if paid as
specified under the Policy will guarantee that the Policy will not lapse during
the guarantee period.

The Owner may examine the Policy and return it to KILICO for a refund
during the Free-Look Period.

It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if a flexible premium variable life insurance policy is already
owned.

This Prospectus generally describes only that portion of the Cash Value
allocated to the Separate Account. For a brief summary of the Fixed Account
option see "The Fixed Account Option" on page 7.

THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED
BY A CURRENT PROSPECTUS FOR THE APPLICABLE UNDERLYING
FUND. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Page
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DEFINITIONS................................................................................. 1
SUMMARY..................................................................................... 2
KILICO AND THE SEPARATE ACCOUNT............................................................. 4
THE FUNDS................................................................................... 5
FIXED ACCOUNT OPTION........................................................................ 7
THE POLICY.................................................................................. 7
POLICY BENEFITS AND RIGHTS.................................................................. 10
CHARGES AND DEDUCTIONS...................................................................... 15
GENERAL PROVISIONS.......................................................................... 17
DOLLAR COST AVERAGING....................................................................... 19
SYSTEMATIC WITHDRAWAL PLAN.................................................................. 20
DISTRIBUTION OF POLICIES.................................................................... 20
FEDERAL TAX MATTERS......................................................................... 20
LEGAL CONSIDERATIONS........................................................................ 22
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................................................ 22
VOTING INTERESTS............................................................................ 22
STATE REGULATION OF KILICO.................................................................. 23
DIRECTORS AND OFFICERS OF KILICO............................................................ 23
LEGAL MATTERS............................................................................... 25
LEGAL PROCEEDINGS........................................................................... 25
EXPERTS..................................................................................... 26
REGISTRATION STATEMENT...................................................................... 26
FINANCIAL STATEMENTS........................................................................ 26
APPENDICES.................................................................................. 54
</TABLE>

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DEFINITIONS

ACCUMULATION UNIT--An accounting unit of measure used to calculate the
value of each Subaccount.

AGE--The Insured's age on his or her nearest birthday.

BENEFICIARY--The person to whom the proceeds due on the Insured's death are
paid.

CASH VALUE--The sum of the value of Policy assets in the Separate Account,
Fixed Account and Loan Account.

DATE OF RECEIPT--Date of receipt means the valuation date during which a
request, form or payment is received at KILICO's Home Office. KILICO is deemed
to have received any request, form or payment on the date it is actually
received at the Home Office, provided that it is received before the close of
the New York Stock Exchange (which is normally 3:00 p.m. Long Grove time) on any
date when the New York Stock Exchange is open. Otherwise, it will be deemed to
be received on the next such day.

DEBT--Debt means (1) the principal of any outstanding loan, plus (2) any
loan interest due or accrued to KILICO.

FIXED ACCOUNT--The amount of assets held in the General Account
attributable to the fixed portion of the Policy.

FREE-LOOK PERIOD--The period of time in which an Owner may cancel the
Policy and receive a refund. The applicable period of time will depend on the
state in which the Policy is issued; however, it will be at least 10 days from
the date the Policy is received by the Owner.

FUNDS--The underlying mutual funds in which the Subaccounts of the Separate
Account invest.

GENERAL ACCOUNT--The assets of KILICO other than those allocated to the
Separate Account or any other separate account.

GUIDELINE SINGLE PREMIUM--The maximum initial amount of premium that can be
paid while retaining qualification as a life insurance policy under the Internal
Revenue Code.

INSURED--The person whose life is covered by the Policy and who is named in
the Policy Specifications.

ISSUE DATE--The date shown in the Policy Specifications. Incontestability
and suicide periods are measured from the Issue Date.

LOAN ACCOUNT--The amount of assets transferred from the Separate Account
and the Fixed Account and held in the General Account as collateral for Policy
Loans.

MATURITY DATE--The Policy Date anniversary nearest the Insured's 100th
birthday.

MONTHLY PROCESSING DATE--The same day in each month as the Policy Date.

MORTALITY AND EXPENSE RISK CHARGE--A charge deducted in the calculation of
the Accumulation Unit Value for the assumption of mortality risks and expense
guarantees.

PLANNED PREMIUM--The scheduled premium specified by the Owner in the
application.

POLICY DATE--The date shown in the Policy Specifications. The Policy Date
is the date used to determine Policy Years and Monthly Processing Dates. The
Policy Date is the date that insurance coverage takes effect subject to any
principles of conditional receipt under applicable law.

POLICY YEAR--Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.

SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s)
of the Separate Account.

SPECIFIED AMOUNT--The amount chosen by the Owner and used to calculate the
death benefit. The Specified Amount is shown in the Policy Specifications.

SUBACCOUNT--A subdivision of the Separate Account.

SURRENDER VALUE--The surrender value of a Policy is (1) the Cash Value
minus (2) any applicable Surrender Charge; minus (3) any Debt.

TRADE DATE--The date 30 days after the Issue Date. The Trade Date is the
date on which initial investment allocations are made pursuant to the Owner's
elections.

VALUATION DATE--Each business day on which valuation of the assets of the
Separate Account is required by applicable law, which currently is each day that
the New York Stock Exchange is open for trading.

VALUATION PERIOD--The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.

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SUMMARY

The following summary should be read in conjunction with the detailed
information in this prospectus. You should refer to the heading "Definitions"
for the meaning of certain terms. Variations from the information appearing in
this prospectus due to individual state requirements are described in
supplements which are attached to this prospectus, or in endorsements to the
Policy, as appropriate. Unless otherwise indicated, the description of the
Policy contained in this prospectus assumes that the Policy is in force, that
there is no indebtedness, and that current Federal tax laws apply.

The Owner of a Policy pays a premium for life insurance coverage on the
person insured. The Policy is a flexible premium policy, so subject to certain
limitations, a Policy Owner may choose the amount and frequency of premium
payments. The Policy provides for a Surrender Value which is payable if the
Policy is terminated during an Insured's lifetime. The Death Benefit and Cash
Value of the Policy may increase or decrease to reflect investment experience.
There is no guaranteed Cash Value. If the Surrender Value is insufficient to pay
charges under the Policy, the Policy will lapse unless an additional premium
payment or loan repayment is made. A guarantee premium and a guarantee period
are stated in the Policy Specifications. The Policy is guaranteed to remain in
force during the guarantee period provided the sum of the premiums paid less
withdrawals and debt is equal to or greater than the sum of the guarantee
premiums. (See "The Policy--Premiums and Allocation of Premiums and Separate
Account Value," page 8, "Charges and Deductions," page 15, and "Policy Benefits
and Rights," page 10.)

Under certain circumstances, a Policy may be issued as or become a modified
endowment contract as a result of a material change or reduction in benefits as
defined by the Internal Revenue Code. Excess premiums paid may also cause the
Policy to become a modified endowment contract. For a Policy treated as a
modified endowment contract, certain distributions will be included in the
Owner's gross income for purposes of Federal income tax (See "Federal Tax
Matters," page 20.)

The purpose of the Policy is to provide insurance protection for the
beneficiary named therein. No claim is made that the Policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.

POLICY BENEFITS

CASH VALUE. The Policy provides for a Cash Value. The Cash Value will
reflect the amount and frequency of premium payments, the investment experience
of the selected Subaccounts, any values in the Fixed Account and Loan Account,
and charges imposed in connection with the Policy. The Owner bears the entire
investment risk on that portion of the net premiums and Cash Value allocated to
the Separate Account. KILICO does not guarantee a minimum Separate Account
Value. (See "Policy Benefits and Rights--Cash Value," page 12.)

The Owner may surrender a Policy at any time and receive the Surrender
Value, which equals the Cash Value less any applicable surrender charge and
outstanding Debt. Partial withdrawals are also available subject to
restrictions. (See "Policy Benefits and Rights--Surrender Privilege," page 14.)

POLICY LOANS. The Owner may borrow up to 90% of the Policy's Cash Value
minus applicable surrender charges, subject to the requirements of the Internal
Revenue Code. The minimum amount of a loan is $500. Interest at an effective
annual rate of 4.50% in the first nine Policy Years and 3.00% thereafter will be
charged on outstanding loan amounts. (See "Federal Tax Matters," page 20.)

When a loan is made, a portion of the Policy's Cash Value equal to the
amount of the loan will be transferred from the Separate Account and the Fixed
Account (proportionately, unless the Owner requests otherwise) to the Loan
Account. Cash Values within the Loan Account will earn 3.00% annual interest.
Such earnings will be allocated to the Loan Account. (See "Policy Benefits and
Rights--Policy Loans," page 13.)

If the Policy is treated as a modified endowment contract, a loan will be
treated as a distribution for Federal income tax purposes and may be subject to
tax, withholding and penalties. (See "Federal Tax Matters," page 20.)

DEATH BENEFITS. As long as the Policy remains in force, the Policy provides
a death benefit payment upon the death of the Insured. The Policy contains two
death benefit options. Under Option A, the death benefit is the Specified Amount
stated in the Policy Specifications. Under Option B, the death benefit is the
Specified Amount stated in the Policy Specifications plus the Cash Value. In
either case, the death benefit

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will not be less than a specified multiple of the Cash Value. The death benefit
payable will be reduced by any Debt. (See "Policy Benefits and Rights--Death
Benefits," page 10.)

PREMIUMS

The Owner has flexibility concerning the amount and frequency of premium
payments. At the time of application, the Owner will determine a Planned
Premium. However, the Owner will not be required to adhere to the schedule and,
subject to certain restrictions, may make premium payments in any amount and at
any frequency. The amount, frequency, and period of time over which an Owner
pays premiums may affect whether the Policy will be classified as a modified
endowment contract. The minimum monthly premium payment is $50. Other minimums
apply for other payment modes.

Payment of the scheduled premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends on the Policy's
Surrender Value. A guarantee premium and a guarantee period are stated in the
Policy Specifications. A Policy will remain in force during the guarantee period
provided the sum of the premiums paid less withdrawals and Debt is equal to or
greater than the sum of the guarantee premiums. (See "The Policy--Premiums,"
page 8.)

THE SEPARATE ACCOUNT

ALLOCATION OF PREMIUMS. The portion of the premium available for allocation
equals the premium paid less applicable charges. An Owner indicates in the
application for the Policy the percentages of premium to be allocated among the
Subaccounts of the Separate Account and the Fixed Account. The Separate Account
currently consists of sixteen Subaccounts, each of which invests in shares of a
designated portfolio of the Kemper Investors Fund or American Skandia Trust.

On the day following the date of receipt, the initial premium less
applicable charges will be allocated to the Money Market Subaccount. On the
Trade Date, which is thirty days from the Issue Date, the Separate Account Value
in the Money Market Subaccount will be allocated among the Subaccounts and the
Fixed Account in accordance with the Owner's instructions in the application.
(See "The Policy -- Policy Issue," page 7.)

TRANSFERS. Separate Account Value may be transferred among the Subaccounts.
One transfer of all or part of the Separate Account Value may be made within a
fifteen day period. Transfers are also permitted between the Fixed Account and
the Subaccounts, subject to restrictions. (See "Allocation of Premiums and
Separate Account Value," page 8.)

THE FUNDS

The following portfolios of the Kemper Investors Fund are currently
available for investment by the Separate Account:

MONEY MARKET PORTFOLIO, TOTAL RETURN PORTFOLIO, HIGH YIELD PORTFOLIO,
GROWTH PORTFOLIO, GOVERNMENT SECURITIES PORTFOLIO, INTERNATIONAL PORTFOLIO AND
SMALL CAP GROWTH PORTFOLIO.

The following portfolios of American Skandia Trust are currently available
for investment by the Separate Account:

LORD ABBETT GROWTH AND INCOME, JANCAP GROWTH, T. ROWE PRICE INTERNATIONAL
EQUITY, T. ROWE PRICE ASSET ALLOCATION, FOUNDERS CAPITAL APPRECIATION, INVESCO
EQUITY INCOME, PIMCO TOTAL RETURN BOND, PIMCO LIMITED MATURITY BOND AND BERGER
CAPITAL GROWTH.

For a more detailed description of the Funds, see "The Funds," page 5, the
Funds' prospectuses, and Statements of Additional Information available upon
request.

CHARGES

A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. In addition, a
charge of 1% of each premium payment will be deducted to compensate KILICO for
higher corporate income tax liability resulting from changes in the tax law made
by the Omnibus Budget Reconciliation Act of 1990. (See Charges and
Deductions--Deductions from Premiums, page 15.)

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No other charges are currently made from premium or the Separate Account
for Federal, state or other taxes. Should KILICO determine that such taxes may
be imposed, it may make deductions from the Separate Account to pay those taxes.
(See "Federal Tax Matters," page 20.)

Deductions will be made from the Policy's Cash Value in each Subaccount and
the Fixed Account on the Policy Date and on each Monthly Processing Date for the
cost of providing life insurance coverage for the Insured. In addition, KILICO
deducts an asset charge from each Subaccount on a daily basis for the assumption
by KILICO of certain mortality and expense risks incurred in connection with the
Policy, at an annual rate of .90%. (See "Charges and Deductions--Cost of
Insurance Charge and Mortality and Expense Risk Charge," pages 15 and 16.)

A $5 per month administrative expense charge is deducted from the Policy's
Cash Value on each Monthly Processing Date. (See "Charges and
Deductions--Monthly Administrative Charge," page 16.)

If, prior to the 15th Policy year or the 15th Policy Year following an
increase in Specified Amount, the Policy is surrendered or the Cash Value is
applied under a Settlement Option, a surrender charge will be deducted. (See
"Policy Benefits and Rights--Surrender Privilege," page 14.)

In addition, the Subaccounts of the Separate Account purchase shares of the
Funds. For fees and expenses of the Funds, see the prospectuses for the Funds.

TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW

The Cash Value, while it remains in the Policy, and the Death Benefit
should be subject to the same Federal income tax treatment as the cash value
under a conventional fixed benefit life insurance policy. Under existing tax
law, if the Policy is not treated as a modified endowment contract, the Owner is
generally not deemed to be in receipt of the Cash Value under a Policy until a
distribution occurs through a withdrawal or surrender. If the Policy is treated
as a modified endowment contract, a loan will also be treated as a distribution.
A change of Owners, an assignment, a loan or a surrender of the Policy may have
tax consequences.

Death Benefits payable under the Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary generally
will not be subject to income tax on the Death Benefit. (See "Federal Tax
Matters," page 20.)

FREE-LOOK PERIOD

The Owner is granted a period of time to examine a Policy and return it for
a refund. The applicable period of time will depend on the state in which the
Policy is issued; however, it will be at least 10 days from the date the Policy
is received by the Owner. (See "Policy Benefits and Rights--Free-Look Period and
Exchange Rights," page 15.)

ILLUSTRATIONS OF CASH VALUES, SURRENDER VALUES, DEATH BENEFITS

Tables in the Appendix illustrate the Cash Values, Surrender Values and
Death Benefits based upon certain hypothetical assumed rates of return for the
Separate Account and the charges deducted under the Policy.

KILICO AND THE SEPARATE ACCOUNT

KEMPER INVESTORS LIFE INSURANCE COMPANY

Kemper Investors Life Insurance Company ("KILICO"), 1 Kemper Drive, Long
Grove, Illinois 60049, was organized in 1947 and is a stock life insurance
company organized under the laws of the State of Illinois. KILICO is a
wholly-owned subsidiary of Kemper Corporation, a nonoperating holding company.
Zurich Insurance Company and Insurance Partners L.P. and Insurance Partners
Offshore (Bermuda), L.P. indirectly and directly own 80 percent and 20 percent,
respectively, of Kemper Corporation. KILICO offers life insurance and annuity
products and is admitted to do business in the District of Columbia and all
states except New York.

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SEPARATE ACCOUNT

KILICO Variable Separate Account (the "Separate Account") was established
by KILICO as a separate investment account on January 22, 1987. The Separate
Account will receive and invest net premiums under the Policy. In addition, the
Separate Account may receive and invest net premiums for other variable life
insurance policies offered by KILICO.

The Separate Account is administered and accounted for as part of the
general business of KILICO, but the income, capital gains or capital losses of
the Separate Account are credited to or charged against the assets held in the
Separate Account, without regard to any other income, capital gains or capital
losses of any other separate account or arising out of any other business which
KILICO may conduct. The benefits provided under the Policy are obligations of
KILICO.

The Separate Account has been registered with the Securities and Exchange
Commission ("Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"). Such registration does not involve
supervision by the Commission of the management, investment practices or
policies of the Separate Account or KILICO.

The Separate Account is currently divided into sixteen Subaccounts. Each
Subaccount invests exclusively in shares of one of the corresponding portfolios
of the Funds. Income and both realized and unrealized gains or losses from the
assets of each Subaccount generally are credited to or charged against that
Subaccount without regard to income, gains or losses from any other Subaccount
of the Separate Account or arising out of any business KILICO may conduct.

THE FUNDS

The Separate Account invests in shares of the Kemper Investors Fund and
American Skandia Trust, series type mutual funds registered with the Commission
as open-end management investment companies. Registration of the Funds does not
involve supervision of their management, investment practices or policies by the
Commission. The Funds are designed to provide investment vehicles for variable
life insurance and variable annuity contracts. Shares of the Funds currently are
sold only to insurance company separate accounts and, with respect to American
Skandia Trust, certain qualified retirement plans. In addition to the Separate
Account, shares of the Funds may be sold to variable life insurance and variable
annuity separate accounts of insurance companies not affiliated with KILICO. It
is conceivable that in the future it may be disadvantageous for variable life
insurance separate accounts of companies unaffiliated with KILICO, or for
variable life insurance separate accounts, variable annuity separate accounts
and qualified retirement plans to invest simultaneously in the Funds. Currently
neither KILICO nor the Funds foresees any such disadvantages to variable life
insurance owners, variable annuity owners or qualified retirement plans.
Management of the Funds has an obligation to monitor events to identify material
conflicts between such owners and determine what action, if any, should be
taken. In addition, if KILICO believes that a Fund's response to any of those
events or conflicts insufficiently protects the Owners, it will take appropriate
action on its own.

The Separate Account invests in the underlying portfolios of the Funds. The
assets of each portfolio are held separate from the assets of the other
portfolios, and each portfolio has its own distinct investment objective and
policies. Each portfolio operates as a separate investment fund, and the income,
gains or losses of one portfolio generally have no effect on the investment
performance of any other portfolio.

KEMPER INVESTORS FUND

The Kemper Investors Fund portfolios in which the Separate Account invests
are summarized below:

MONEY MARKET PORTFOLIO: This Portfolio seeks maximum current income to the
extent consistent with stability of principal from a portfolio of high quality
money market instruments that mature in twelve months or less.

TOTAL RETURN PORTFOLIO: This Portfolio seeks a high total return, a
combination of income and capital appreciation, by investing in a combination of
debt securities and common stocks.

HIGH YIELD PORTFOLIO: This Portfolio seeks a high level of current income
by investing in fixed-income securities.

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

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

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

SMALL CAP GROWTH PORTFOLIO: This Portfolio seeks maximum appreciation of
investors' capital.

Zurich Kemper Investments, Inc. ("ZKI") (formerly Kemper Financial
Services, Inc.), an affiliate of KILICO, is the investment adviser to each
portfolio of the Kemper Investors Fund specified above and manages its daily
investments and business affairs, subject to the policies established by the
trustees of the Kemper Investors Fund. For its advisory services to the
Portfolios, ZKI receives compensation monthly at annual rates equal to .50 of
1%, .55 of 1%, .60 of 1%, .60 of 1%, .55 of 1%, .75 of 1% and .65% of 1% of the
average daily net asset values of the Money Market Portfolio, the Total Return
Portfolio, the High Yield Portfolio, the Growth Portfolio, the Government
Securities Portfolio, the International Portfolio and the Small Cap Growth
Portfolio, respectively.

AMERICAN SKANDIA TRUST

The American Skandia Trust portfolios in which the Separate Account invests
are summarized below:

LORD ABBETT GROWTH AND INCOME PORTFOLIO: This Portfolio seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in
market value.

JANCAP GROWTH PORTFOLIO: This Portfolio seeks growth of capital in a manner
consistent with preservation of capital.

T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks total
return on its assets from long-term growth of capital and income through
investment primarily in established, non-U.S. companies.

T. ROWE PRICE ASSET ALLOCATION PORTFOLIO: This Portfolio seeks a high level
of total return by investing primarily in a diversified group of fixed income
and equity securities.

FOUNDERS CAPITAL APPRECIATION PORTFOLIO: This Portfolio seeks capital
appreciation through investment primarily in common stocks of small U.S.
companies with market capitalizations of $1.5 billion or less. The Portfolio's
securities will ordinarily be traded in the over-the-counter market.

INVESCO EQUITY INCOME PORTFOLIO: This Portfolio seeks high current income
while following sound investment practices, with capital growth potential as an
additional but secondary consideration, by investing its assets primarily in
dividend-paying, marketable common stocks of domestic and foreign industrial
issuers.

PIMCO TOTAL RETURN BOND PORTFOLIO: This Portfolio seeks to realize maximum
total return consistent with preservation of capital.

PIMCO LIMITED MATURITY BOND PORTFOLIO: This Portfolio seeks to realize
maximum total return consistent with preservation of capital and prudent
investment management.

BERGER CAPITAL GROWTH PORTFOLIO: This Portfolio seeks to achieve long-term
capital appreciation primarily by investing in the common stocks of established
companies.

American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager for the American Skandia Trust. ASISI engages a sub-adviser
for each Portfolio as described in the Prospectus to the American Skandia Trust.
ASISI receives compensation at annual rates equal to the following percentages
of average daily net asset values: Lord Abbett Growth and Income 0.75%; JanCap
Growth 0.90%; T. Rowe Price Asset Allocation 0.85%; T. Rowe Price International
Equity 1.00%; Founders Capital Appreciation .90%; INVESCO Equity Income 0.75%;
PIMCO Total Return Bond 0.65%; PIMCO Limited Maturity Bond 0.65%; and Berger
Capital Growth 0.75%. ASISI is solely responsible for compensating the
sub-advisers.

There is no assurance that any of the Portfolios of the Kemper Investors
Fund or the American Skandia Trust will achieve its stated objective. More
detailed information, including a description of risks involved in investing in
each of the Portfolios may be found in the prospectus for each Fund and each
Fund's Statement of Additional Information.

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CHANGE OF INVESTMENTS

KILICO reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares held by the Separate Account or
that the Separate Account may purchase. KILICO reserves the right to eliminate
the shares of any of the portfolios of the Funds and to substitute shares of
another portfolio of the Funds or of another investment company, if the shares
of a portfolio are no longer available for investment, or if in its judgment
further investment in any portfolio becomes inappropriate in view of the
purposes of the Policy or the Separate Account. KILICO may also eliminate or
combine one or more subaccounts, transfer assets, or it may substitute one
subaccount for another subaccount, if, in its sole discretion, marketing, tax or
investment conditions warrant. KILICO will not substitute any shares
attributable to an Owner's interest in a Subaccount of the Separate Account
without notice to the Owner and prior approval of the Commission, to the extent
required by the 1940 Act or other applicable law. Nothing contained in this
Prospectus shall prevent the Separate Account from purchasing other securities
for other series or classes of policies, or from permitting a conversion between
series or classes of policies on the basis of requests made by Owners.

KILICO also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new portfolio of the Funds, or
in shares of another investment company, with a specified investment objective.
New subaccounts may be established when, in the sole discretion of KILICO,
marketing needs or investment conditions warrant, and any new subaccounts may be
made available to existing Owners as determined by KILICO.

If deemed by KILICO to be in the best interests of persons having voting
interests under the Policy, the Separate Account may be: (a) operated as a
management company under the 1940 Act; (b) deregistered under that Act in the
event such registration is no longer required; or (c) combined with other KILICO
separate accounts. To the extent permitted by law, KILICO may also transfer the
assets of the Separate Account associated with the Policy to another separate
account, or to the General Account.

FIXED ACCOUNT OPTION

NET PREMIUMS ALLOCATED BY POLICY OWNERS TO THE FIXED ACCOUNT OF THE POLICY
AND TRANSFERS TO THE FIXED ACCOUNT BECOME PART OF THE GENERAL ACCOUNT OF KILICO,
WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE FIXED ACCOUNT
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 AND KILICO HAS
BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED PORTION.
DISCLOSURES REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.

Under the Fixed Account Option offered under the Policies, KILICO allocates
payments to its General Account and pays a fixed interest rate for stated
periods. This Prospectus describes only the element of the Contract pertaining
to the Separate Account except where it makes specific reference to fixed
accumulation and settlement elements.

The Policies guarantee that payments allocated to the Fixed Account will
earn a minimum fixed interest rate of 3%. KILICO, at its discretion, may credit
interest in excess of 3%. KILICO reserves the right to change the rate of excess
interest credited as provided under the terms of the Policy. KILICO also
reserves the right to declare separate rates of excess interest for net premiums
or amounts transferred at designated times, with the result that amounts at any
given designated time may be credited with a higher or lower rate of excess
interest than the rate or rates of excess interest previously credited to such
amounts and net premiums or amounts transferred at any other designated time.

THE POLICY

POLICY ISSUE

Before KILICO will issue a Policy, it must receive a completed application
and a full initial premium at its Home Office. A Policy ordinarily will be
issued only for Insureds Age 1 through 75 who supply satisfactory evidence of
insurability to KILICO. Acceptance of an application is subject to underwriting
by KILICO.

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<PAGE> 10

After underwriting is complete and the Policy is delivered to the Owner,
insurance coverage under the Policy will be deemed to have begun as of the
Policy Date. (See "Premiums," below.)

PREMIUMS

Premiums are to be paid to KILICO at its Home Office. (See "Distribution of
Policies.") Checks ordinarily must be made payable to KILICO.

PLANNED PREMIUMS. When applying for a Policy, a Policy Owner will specify a
Planned Premium payment that provides for the payment of level premiums over a
specified period of time. However, the Policy Owner is not required to pay
Planned Premiums.

The minimum monthly premium that will be accepted by KILICO is $50. For
modes other than monthly the minimums are: single premium $5,000; annual $600;
semi-annual $300; quarterly $150. The amount, frequency and period of time over
which a Policy Owner pays premiums may affect whether the Policy will be
classified as a modified endowment contract, which is a type of life insurance
contract subject to different tax treatment than conventional life insurance
contracts for certain pre-death distributions. Accordingly, variations from the
Planned Premiums on a Policy that is not otherwise a modified endowment contract
may result in the Policy becoming a modified endowment contract for tax
purposes.

Payment of the Planned Premium will not guarantee that a Policy will remain
in force. Instead, the duration of the Policy depends upon the Policy's
Surrender Value. Even if Planned Premiums are paid, the Policy will lapse any
time Surrender Value is insufficient to pay the current monthly deductions and a
Grace Period expires without sufficient payment. (See "Policy Lapse and
Reinstatement.")

A guarantee period and a monthly guarantee premium are specified in the
Policy Specifications. The guarantee period is the period that ends on the third
Policy anniversary. During the guarantee period, the policy will remain in force
and no grace period will begin provided that the total premiums received, less
any withdrawals and any outstanding loans, equals or exceeds the monthly
guarantee premium times the number of months since the Policy Date, including
the current month.

KILICO may reject or limit any premium payment that is below the current
minimum premium amount requirements, or that would increase the death benefit by
more than the amount of the premium. All or a portion of a premium payment will
be rejected and returned to the Owner if it would disqualify the Policy as life
insurance under the Internal Revenue Code.

Certain charges will be deducted from each premium payment. (See "Charges
and Deductions.") The remainder of the premium, known as the net premium, will
be allocated as described below under "Allocation of Premiums and Separate
Account Value."

POLICY DATE. The Policy Date is the date used to determine Policy Years and
Monthly Processing Dates. The Policy Date will be the date that coverage on the
Insured takes effect. If such date is the 29th, 30th, or 31st of a month, the
Policy Date will be the first of the following month.

In the event an application is declined by KILICO, the Cash Value in the
Money Market Subaccount plus the total amount of monthly deductions and
deductions against premiums will be refunded.

The full initial premium is the only premium required to be paid under a
Policy. However, additional premiums may be necessary to keep the Policy in
force. (See "The Policy--Policy Lapse and Reinstatement.")

ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE

ALLOCATION OF PREMIUMS. The initial net premium will be allocated to the
Money Market Subaccount. The Separate Account Value will remain in the Money
Market Subaccount until the Trade Date, which is 30 days after the Issue Date.
On the Trade Date, the Separate Account Value in the Money Market Subaccount
will be allocated to the Subaccounts and the Fixed Account as elected by the
Owner in the application for the Policy. Additional premiums received will
continue to be allocated in accordance with the Owner's instructions in the
application unless contrary written instructions are received. Once a change in
allocation is made, all future premiums will be allocated in accordance with the
new allocation, unless contrary written instructions are received. The minimum
amount of any premium that may be allocated to a Subaccount is $50. Cash Value
may be allocated to a total of ten accounts at any given time.

The Separate Account Value will vary with the investment experience of the
chosen Subaccounts. The Owner bears the entire investment risk.

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<PAGE> 11

TRANSFERS. After the Trade Date, Separate Account Value may be transferred
among the Subaccounts and into the Fixed Account. One transfer of all or a part
of the Separate Account Value may be made within a fifteen day period. All
transfers made during a business day will be treated as one request.

Fixed Account Value may be transferred to one or more Subaccounts. One
transfer of part of the Fixed Account Value may be made once each Policy Year in
the thirty day period following the end of a Policy Year.

Transfer requests must be in writing in a form acceptable to KILICO, or by
telephone authorization under forms authorized by KILICO. (See "General
Provisions--Written Notices and Requests.") The minimum partial transfer amount
is $500. No partial transfer may be made if the value of the Owner's remaining
interest in a Subaccount or the Fixed Account, from which amounts are to be
transferred, would be less than $500 after such transfer. These minimums may be
waived for reallocations under established third party asset allocation
programs. Transfers will be based on the Accumulation Unit values next
determined following receipt of valid, complete transfer instructions by KILICO.
The transfer provision may be suspended, modified or terminated at any time by
KILICO. KILICO disclaims all liability for acting in good faith in following
instructions which are given in accordance with procedures established by
KILICO, including requests for personal identifying information, that are
designed to limit unauthorized use of the privilege. Therefore, a Policy Owner
would bear this risk of loss in the event of a fraudulent telephone transfer.

If a Policy Owner authorizes a third party to transact transfers on the
Policy Owner's behalf, we will reallocate the Cash Value pursuant to the asset
allocation program determined by such third party. 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
that will be available for transfer under third party authorizations.

AUTOMATIC ASSET REALLOCATION. A Policy Owner may elect to have transfers
made automatically among the Subaccounts of the Separate Account on an annual or
a quarterly basis so that Cash Value is reallocated to match the percentage
allocations in the Policy Owner's predefined premium allocation elections.
Transfers under this program will not be subject to the $500 minimum transfer
amounts. An election to participate in the automatic asset reallocation program
must be in writing in the form prescribed by KILICO and returned to KILICO at
its home office.

POLICY LAPSE AND REINSTATEMENT

LAPSE. Lapse will occur when the Surrender Value of a Policy is
insufficient to cover the monthly deductions, and a grace period expires without
a sufficient payment being made. (See "Charges and Deductions.")

A grace period of 61 days will be given to the Owner. It begins when notice
is sent that the Surrender Value of the Policy is insufficient to cover the
monthly deductions. Failure to make a premium payment or loan repayment during
the grace period sufficient to keep the Policy in force for three months will
cause the Policy to lapse and terminate without value.

If payment is received within the grace period, the premium or loan
repayment will be allocated to the Subaccounts and the Fixed Account in
accordance with the most current allocation instructions, unless otherwise
requested. Amounts over and above the amounts necessary to prevent lapse may be
paid as additional premiums, however, to the extent otherwise permitted. (See
"The Policy--Premiums.")

KILICO will not accept any payment that would cause the total premium
payment to exceed the maximum payment permitted by the Code for life insurance
under the guideline premium limits. However, the Owner may voluntarily repay a
portion of Debt to avoid lapse. (See "Federal Tax Matters.")

If premium payments have not exceeded the maximum payment permitted by the
Code, the Owner may choose to make a larger payment than the minimum required
payment to avoid the recurrence of the potential lapse of coverage. The Owner
may also combine premium payments with Debt repayments.

The death benefit payable during the grace period will be the Death Benefit
in effect immediately prior to the grace period, less any Debt and any unpaid
monthly deductions.

REINSTATEMENT. If a Policy lapses because of insufficient Surrender Value
to cover the monthly deductions, and it has not been surrendered for its
Surrender Value, it may be reinstated at any time within

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<PAGE> 12

three years after the date of lapse. Tax consequences may affect the decision to
reinstate. Reinstatement is subject to:

(1) receipt of evidence of insurability satisfactory to KILICO;

(2) payment of a minimum premium sufficient to cover monthly deductions for
the grace period and to keep the Policy in force three months; and

(3) payment or reinstatement of any Debt against the Policy which existed
at the date of termination of coverage.

The effective date of reinstatement of a Policy will be the Monthly
Processing Date that coincides with or next follows the date the application for
reinstatement is approved by KILICO. Suicide and incontestability provisions
will apply from the effective date of reinstatement.

POLICY BENEFITS AND RIGHTS

DEATH BENEFITS

While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse,"
above), the death benefit is based on the death benefit option, the Specified
Amount and the table of death benefit percentages applicable at the time of
death. The death benefit proceeds will be equal to the death benefit minus any
Debt and minus any monthly deductions due during the grace period.

A Policy Owner may select one of two death benefit options: Option A or
Option B. An applicant designates the death benefit option in the application.
Subject to certain restrictions, the Owner can change the death benefit option
selected. So long as the Policy remains in force, the death benefit under either
option will never be less than the Specified Amount.

The Specified Amount is chosen by the Owner on the application and is
stated in the Policy Specifications. The minimum Specified Amount permitted
under the Policy is $50,000.

OPTION A. Under Option A, the death benefit will be equal to the Specified
Amount or, if greater, the Cash Value (determined as of the end of the Valuation
Period during which the Insured dies) multiplied by a death benefit percentage.
The death benefit percentages vary according to the age of the Insured and will
be at least equal to the cash value corridor in Section 7702 of the Internal
Revenue Code. The death benefit percentage is 250% for an Insured at Age 40 or
under, and it declines for older Insureds. A table showing the death benefit
percentages is in the Appendix B to this Prospectus and in the Policy.

OPTION B. Under Option B, the death benefit will be equal to the Specified
Amount plus the Cash Value (determined as of the end of the Valuation Period
during which the Insured dies) or, if greater, the Cash Value multiplied by a
death benefit percentage. The specified percentage is the same as that used in
connection with Option A and as stated in the Appendix. The death benefit under
Option B will always vary as Cash Value varies.

EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the
determination of death benefits under Options A and B. The examples show three
Policies--Policies I, II, and III--with the same Specified Amount, but Cash
Values that vary as shown, and which assume an Insured is Age 35 at the time of
death and that there is no outstanding Debt.

<TABLE>
<CAPTION>
POLICY POLICY
POLICY I II III
-------- -------- --------
<S> <C> <C> <C>
Specified Amount........................ $100,000 $100,000 $100,000
Cash Value on Date of Death............. $ 25,000 $ 50,000 $ 75,000
Death Benefit Percentage................ 250% 250% 250%
Death Benefit Under Option A............ $100,000 $125,000 $187,500
Death Benefit Under Option B............ $125,000 $150,000 $187,500
</TABLE>

Under Option A, the death benefit for Policy I is equal to $100,000 since
the death benefit is the greater of the Specified Amount ($100,000) or the Cash
Value at the date of death multiplied by the death benefit percentage ($25,000 X
250% = $62,500). For both Policies II and III under Option A, the Cash Value
multiplied by the death benefit percentage ($50,000 X 250% = $125,000 for Policy
II; $75,000 X 250% = $187,500 for Policy III) is greater than the Specified
Amount ($100,000), so the death benefit is equal to the higher value. Under
Option B, the death benefit for Policy I is equal to $125,000 since the death
benefit is the greater of Specified Amount plus Cash Value ($100,000 + $25,000 =
$125,000) or the

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<PAGE> 13

Cash Value multiplied by the death benefit percentage ($25,000 X 250% =
$62,500). Similarly, in Policy II, Specified Amount plus Cash Value ($100,000 +
$50,000 = $150,000) is greater than Cash Value multiplied by the death benefit
percentage ($50,000 X 250% = $125,000). In Policy III, the Cash Value multiplied
by the death benefit percentage ($75,000 X 250% = $187,500) is greater than the
Specified Amount plus Cash Value ($100,000 + $75,000 = $175,000), so the death
benefit is equal to the higher value.

All calculations of death benefit will be made as of the end of the
Valuation Period during which the Insured dies. Death benefit proceeds may be
paid to a Beneficiary in a lump sum or under a payment plan offered under the
Policy. The Policy should be consulted for details.

Death Benefits under the Policy will ordinarily be paid within seven days
after KILICO receives all documentation required for such a payment. Payments
may be postponed in certain circumstances. (See "General Provisions --
Postponement of Payments")

CHANGES IN DEATH BENEFIT OPTION

After the first Policy Year, a Policy Owner may request that the death
benefit under the Policy be changed from Option A to Option B, or from Option B
to Option A. Changes in the death benefit option may be made only once per
Policy Year and should be made in writing to KILICO's Home Office. The effective
date of any such change is the next Monthly Processing Date after the change is
accepted.

A change in the death benefit from Option A to Option B will result in a
reduction in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option B at the
time of the change will equal that which would have been payable under Option A
immediately prior to the change. The change in option will affect the
determination of the death benefit since Cash Value will then be added to the
new Specified Amount, and the death benefit will then vary with Cash Value.

A change in the death benefit from Option B to Option A will result in an
increase in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option A at the
time of the change will equal that which would have been payable under Option B
immediately prior to the change. However, the change in option will affect the
determination of the death benefit since the Cash Value will no longer be added
to the Specified Amount in determining the death benefit. From that point on,
the death benefit will equal the new Specified Amount (or, if higher, the Cash
Value times the applicable specified percentage).

A change in death benefit option may affect the future monthly cost of
insurance charge since this charge varies with the net amount at risk, which
generally is the amount by which the death benefit exceeds Cash Value. (See
"Charges and Deductions--Cost of Insurance Charge.") Assuming that the Policy's
death benefit would not be equal to Cash Value times a death benefit percentage
under either Option A or B, changing from Option B to Option A will generally
decrease the future net amount at risk, and therefore decrease the future cost
of insurance charges. Changing from Option A to Option B will generally result
in a net amount at risk that remains level. Such a change, however, will result
in an increase in the cost of insurance charges over time, since the cost of
insurance rates increase with the insured's Age.

CHANGES IN SPECIFIED AMOUNT

After the first Policy Year, a Policy Owner may request an increase or
decrease in the Specified Amount under a Policy subject to approval from KILICO.
A change in Specified Amount may only be made once per Policy Year and must be
in an amount at least equal to $25,000. Increases are not allowed after the
Insured attains age 75. Increasing the Specified Amount could increase the death
benefit under a Policy, and decreasing the Specified Amount could decrease the
death benefit. (See "Federal Tax Matters.") The amount of change in the death
benefit will depend, among other things, upon the death benefit option chosen by
the Owner and the degree to which the death benefit under a Policy exceeds the
Specified Amount prior to the change. Changing the Specified Amount could affect
the subsequent level of the death benefit while the Policy is in force and the
subsequent level of Policy values. An increase in Specified Amount may increase
the net amount at risk under a Policy, which will increase an Owner's cost of
insurance charge and the guarantee premium amount. However, the guarantee period
will not be extended as a result of an increase in Specified Amount. Conversely,
a decrease in Specified Amount may decrease the net amount at risk, which will
decrease an Owner's cost of insurance charge. A decrease in Specified Amount
will not decrease the guarantee premium.

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<PAGE> 14

INCREASES. Additional evidence of insurability satisfactory to KILICO will
be required for an increase in Specified Amount.

DECREASES. Any decrease in Specified Amount will first be applied to the
most recent increases successively, then to the original Specified Amount. A
decrease will not be permitted if the Specified Amount would fall below the
lesser of the initial Specified Amount or $50,000. If a decrease in the
Specified Amount would result in total premiums paid exceeding the premium
limitations prescribed under tax law to qualify the Policy as a life insurance
contract, KILICO will refund the Policy Owner the amount of such excess above
the premium limitations.

KILICO reserves the right to disallow a requested decrease, and will not
permit a requested decrease, among other reasons, (1) if compliance with the
guideline premium limitations under tax law resulting from the requested
decrease would result in immediate termination of the Policy, or (2) if, to
effect the requested decrease, payments to the Owner would have to be made from
Cash Value for compliance with the guideline premium limitations, and the amount
of such payments would exceed the Surrender Value under the Policy.

Any request for an increase or decrease in Specified Amount must be made by
written application to KILICO's Home Office. It will become effective on the
Monthly Processing Date on or next following KILICO's acceptance of the request.
If the Owner is not the Insured, KILICO will also require the consent of the
Insured before accepting a request.

BENEFITS AT MATURITY

If the Insured is living on the Policy Date anniversary nearest the
Insured's 100th birthday, KILICO will pay the Owner the Surrender Value of the
Policy. On the Maturity Date, the Policy will terminate and KILICO will have no
further obligations under the Policy.

CASH VALUE

The Policy's Cash Value will reflect the investment experience of the
selected Subaccounts, the frequency and amount of premiums paid, transfers
between Subaccounts, withdrawals, any Fixed Account or Loan Account values, and
any charges assessed in connection with the Policy. An Owner may make partial
withdrawals of Cash Value or surrender the Policy and receive the Policy's
Surrender Value, which equals the Cash Value less surrender charges and Debt.
(See "Surrender Privilege.") There is no minimum guaranteed Cash Value.

CALCULATION OF CASH VALUE. The Cash Value of the Policy is the total of the
Policy's Separate Account Value, Fixed Account Value and Loan Account value. The
Cash Value is determined on each Valuation Date. It will first be calculated on
the Policy Date. On that date, the Cash Value equals the initial premium, less
the monthly deductions for the first Policy Month. (See "Charges and
Deductions.")

On any Valuation Date during the Policy Year, the Policy's Separate Account
Value in any Subaccount will equal:

(1) The Policy's Separate Account Value in the Subaccount at the end
of the preceding Valuation Period, multiplied by the Investment Experience
Factor (defined below) for the current Valuation Period; plus

(2) Any net premiums received during the current Valuation Period
which are allocated to the Subaccount; plus

(3) All amounts transferred to the Subaccount, either from another
Subaccount or the Fixed Account or from the Loan Account in connection with
the repayment of a Policy loan (see "Policy Benefits and Rights--Policy
Loans,") during the current Valuation Period; minus

(4) The pro rata portion of the monthly cost of insurance charge,
administrative charge, and any other charges assessed to the Subaccount.
(See "Charges and Deductions--Cost of Insurance Charge."); minus

(5) All amounts transferred from the Subaccount during the current
Valuation Period; minus

(6) All amounts withdrawn from the Subaccount during the current
Valuation Period; minus

(7) All amounts loaned from the Subaccount during the current
Valuation Period.

12
<PAGE> 15

There will also be Cash Value in the Loan Account if there is a Policy loan
outstanding. The Loan Account is credited with amounts transferred from
Subaccounts in connection with Policy loans. The Loan Account balance accrues
daily interest at an effective annual rate of 3.00%. (See "Policy Benefits and
Rights--Policy Loans.")

The Cash Value in the Fixed Account is credited with interest at the annual
rate declared by KILICO. The annual rate will never be less than 3%.

ACCUMULATION UNIT VALUE. Each Subaccount has a distinct Accumulation Unit
Value. When net premiums or other amounts are allocated to a Subaccount, a
number of units are purchased based on the Accumulation Unit Value of the
Subaccount at the end of the Valuation Period during which the allocation is
made. When amounts are transferred out of, or deducted from, a Subaccount, units
are redeemed in a similar manner.

For each Subaccount, the Accumulation Unit Value was initially set at the
same unit value as the net asset value of a share of the underlying Fund. The
Accumulation Unit Value for each subsequent Valuation Period is the Investment
Experience Factor for that Valuation Period multiplied by the Accumulation Unit
Value for the immediately preceding period. Each Valuation Period has a single
Accumulation Unit Value which applies for each day in the period. The number of
Accumulation Units will not change as a result of investment experience. The
Investment Experience Factor may be greater or less than one; therefore, the
Accumulation Unit Value may increase or decrease.

INVESTMENT EXPERIENCE FACTOR. The investment experience of the Separate
Account is calculated by applying the Investment Experience Factor to the
Separate Account Value in each Subaccount during a Valuation Period. Each
Subaccount has its own distinct Investment Experience Factor. The Investment
Experience Factor of a Subaccount for any Valuation Period is determined by
dividing (1) by (2) and subtracting (3) from the result, where:

(1) is the net result of:

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

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

c. a charge or credit for any taxes reserved for the current valuation
period which we determine to have resulted from the investment
operations of the Subaccount;

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

(3) is the factor representing the Mortality and Expense Risk Charge. (See
"Charges and Deductions --Mortality and Expense Risk Charge.")

POLICY LOANS

After the first Policy Year, the Owner may by written request to KILICO
borrow all or part of the maximum loan amount of the Policy. The maximum loan
amount is 90% of the Policy's Cash Value minus applicable surrender charges,
subject to the requirements of the Internal Revenue Code. The amount of any new
loan may not exceed the maximum loan amount less Debt on the date a loan is
granted. The minimum amount of a loan is $500. Any amount due an Owner under a
Policy Loan ordinarily will be paid within 7 days after KILICO receives a loan
request at its Home Office, although payments may be postponed under certain
circumstances. (See "Postponement of Payments," and "Federal Tax Matters.")

On the date a Policy loan is made, an amount equal to the loan amount will
be transferred from the Separate Account and Fixed Account to the Loan Account.
Unless the Owner directs otherwise, the loaned amount will be deducted from the
Subaccounts and the Fixed Account in proportion to the values that each bears to
the Separate Account Value of the Policy in all of the Subaccounts plus the
Fixed Account Value at the end of the Valuation Period during which the request
is received.

The loan interest will be assessed at an effective annual rate of 4.5% in
the first nine Policy Years and 3.00% thereafter. Interest not paid when due
will be added to the loan amount due upon the earlier of the next Policy Date
anniversary or when coverage ceases upon lapse, surrender, death or maturity and
bear

13
<PAGE> 16

interest at the same rate. When interest is added to the loan amount, a transfer
in this amount will be made from the Separate Account and the Fixed Account to
the Loan Account.

Cash Value in the Loan Account will earn 3.00% annual interest. Such
earnings will be allocated to the Loan Account.

LOAN REPAYMENT. While the Policy is in force, policy loans may be repaid
at any time, in whole or in part. At the time of repayment, Cash Value in the
Loan Account equal to the amount of the repayment which exceeds the difference
between interest due and interest earned will be allocated to the Subaccounts
and the Fixed Account according to the Owner's current allocation instructions,
unless otherwise requested by the Owner. Transfers from the Loan Account to the
Separate Account or the Fixed Account as a result of the repayment of Debt will
be allocated at the end of the Valuation Period during which the repayment is
received. Such transfers will not be counted in determining the transfers made
within a 15 day period.

EFFECTS OF POLICY LOAN. Policy loans decrease Surrender Value and,
therefore, the amount available to pay the charges necessary to keep the Policy
in force. If Surrender Value on the day immediately preceding a Monthly
Processing Date is less than the monthly deductions for the next month, KILICO
will notify the Owner. (See "General Provisions--Written Notices and Requests.")
The Policy will lapse and terminate without value, unless a sufficient payment
is made to KILICO within 61 days of the date such notice is sent to the Owner.
(See "The Policy--Policy Lapse and Reinstatement.")

EFFECT ON INVESTMENT EXPERIENCE. A Policy Loan will have an effect on the
Cash Value of a Policy. The collateral for the loan (the amount held in the Loan
Account) does not participate in the experience of the Subaccounts or the
current interest rate of the Fixed Accounts while the loan is outstanding. If
the interest credited to the Loan Account is more than the amount that would
have been earned in the Subaccounts or the Fixed Account, the Cash Value will,
and the Death Benefit may, be higher as a result of the loan. Conversely, if the
amount credited to the Loan Account is less than would have been earned in the
Subaccounts or the Fixed Account, the Cash Value, as well as the Death Benefit,
may be less.

TAX TREATMENT. If the Policy is treated as a modified endowment contract, a
loan will be taxed in the same way as a loan from an annuity. Therefore, a loan
may be subject to Federal income tax and a 10% tax penalty may apply. (See
"Federal Tax Matters.")

SURRENDER PRIVILEGE

While the Insured is living and the Policy is in force, the Owner may
surrender the Policy for its Surrender Value. To surrender the Policy, the Owner
must make written request to KILICO at its Home Office and return the Policy to
KILICO. The Surrender Value is equal to the Cash Value less any applicable
Surrender Charge and any Debt. (See "Surrender Charge," below.)

SURRENDER CHARGE. During the first fourteen Policy Years and the first
fourteen Policy Years following an increase in Specified Amount, if the Policy
is surrendered or if the Cash Value is applied under a Settlement Option, a
Surrender Charge is assessed against the Cash Value. The Surrender Charge
consists of two components, an administrative component (issue charge) and a
sales component (deferred sales charge).

The issue charge is a level charge of $5.00 per thousand of Specified
Amount and the sum of coverage amounts for any other insureds. For issue ages up
to age 66, the full issue charge will apply in Policy Years 1-5 and will decline
by 10% each year in Policy Years 6-14 until reaching zero at the beginning of
Policy Year 15. For issue ages 66-75, the full issue charge will apply in Policy
Years 1-3 and will decline by 10% each year in Policy Years 4-11 and by 5% in
Policy Years 12-14 until reaching zero at the beginning of Policy Year 15. This
charge is designed to cover the administrative expenses associated with
underwriting and issuing a Policy, including the costs of processing
applications, conducting medical examinations, determining insurability and the
Insured's underwriting class, and establishing policy records. KILICO does not
expect to profit from the issue charge.

The deferred sales charge is equal to 30% of premiums paid up to one Target
Premium shown in the Policy and a percentage of premiums paid above one Target
Premium equal to 7.5% for issue ages up to age 66 and 5% for issue ages 66-75.
For issue ages up to age 66, the full deferred sales charge will apply in Policy
Years 1-5 and will decline by 10% each year in Policy Years 6-14 until reaching
zero at the beginning of Policy Year 15. For issue ages 66-75, the full deferred
sales charge will apply in Policy Years 1-3 and will decline by 10% each year in
Policy Years 4-11 and by 5% in Policy Years 12-14 until reaching zero at the
beginning of Policy Year 15. The deferred sales charge is to reimburse KILICO
for some of the expenses of distributing the Policies.

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<PAGE> 17

During the first fourteen Policy Years following an increase in Specified
Amount, an additional surrender charge will apply. The additional charge will be
calculated as described above based on the amount of the increase, years
commencing on the date of the increase and Target Premium associated with the
increase.

The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.

PARTIAL WITHDRAWALS. After the first Policy Year, a Policy Owner may make
withdrawals of amounts less than the Surrender Value. The minimum amount of each
withdrawal is $500 and the maximum amount at any time that a surrender charge is
assessable is 10% of the Surrender Value. A $25 withdrawal charge will be
imposed for processing each withdrawal. (See "Charges and Deductions.") A
withdrawal will decrease the Cash Value by the amount of the withdrawal and, if
Death Benefit Option A is in effect, will reduce the Specified Amount by the
amount of the withdrawal.

FREE-LOOK PERIOD AND EXCHANGE RIGHTS

The Owner may, until the end of the period of time specified in the Policy,
examine the Policy and return it for a refund. The applicable period of time
will depend on the state in which the Policy is issued; however, it will be at
least 10 days from the date the Policy is received by the Owner, or, 45 days
after the Owner completes the application for insurance, whichever is later. The
amount of the refund will be the sum of the Cash Value in the Money Market
Subaccount plus the total amount of monthly deductions and deductions made
against Premiums. An Owner seeking a refund should return the Policy to KILICO
at its Home Office or to the agent who sold the Policy.

At any time during the first two years after the Issue Date, the Owner may
exchange the Policy for a non-variable permanent fixed benefit life insurance
policy then currently being offered by KILICO or an affiliate on the life of the
Insured. No evidence of insurability will be required. The amount of the new
policy may be, at the election of the Owner, either the initial Death Benefit or
the same net amount at risk as the Policy on the exchange date. All Debt under
the Policy must be repaid and the surrender of the Policy is required before the
exchange is made. The Policy Date and issue age will be the same as existed
under the Policy.

CHARGES AND DEDUCTIONS

DEDUCTIONS FROM PREMIUMS

A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. This charge is
to reimburse KILICO for the payment of state premium taxes. KILICO expects to
pay an average state premium tax rate of approximately 2.5% but the actual
premium tax attributable to a Policy may be more or less. In addition, a charge
for federal taxes equal to 1% of each premium payment will be deducted to
compensate KILICO for a higher corporate income tax liability resulting from
changes made to the Internal Revenue Code by the Omnibus Budget Reconciliation
Act of 1990.

COST OF INSURANCE CHARGE

A monthly deduction is made from the Subaccounts and the Fixed Account for
the cost of insurance to cover KILICO's anticipated mortality costs. The cost of
insurance charge is deducted monthly in advance and is allocated among the
Subaccounts and the Fixed Account in proportion each bears to the Cash Value of
the Policy less Debt.

The cost of insurance will be deducted on the Policy Date and on each
Monthly Processing Date thereafter by the cancellation of units. If the Monthly
Processing Date falls on a day other than a Valuation Date, the charge will be
determined on the next Valuation Date. The cost of insurance charge is
determined by multiplying the applicable cost of insurance rate (see below) by
the "net amount at risk" for each policy month. The net amount at risk is equal
to the Death Benefit minus the Cash Value on the Monthly Processing Date.

COST OF INSURANCE RATE. The monthly cost of insurance rates are based on
the issue age, sex, rate class of the Insured and Policy Year. The monthly cost
of insurance rates will be determined by KILICO based on its expectations as to
future mortality experience. Any change in the schedule of rates will apply to
all individuals of the same class as the Insured. The cost of insurance rate may
never exceed those shown in

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<PAGE> 18

the table of guaranteed maximum cost of insurance rates in the Policy. The
guaranteed maximum cost of insurance rates are based on the 1980 Commissioner's
Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age Nearest Birthday,
published by the National Association of Insurance Commissioners.

RATE CLASS. The rate class of an Insured will affect the cost of insurance
rate. KILICO currently places Insureds in preferred rate classes and rate
classes involving a higher mortality risk. The cost of insurance rates for rate
classes involving a higher mortality risk are multiples of the preferred rates.
(See "Charges and Deductions--Cost of Insurance Rate," above.)

MORTALITY AND EXPENSE RISK CHARGE

A daily charge is deducted from the Subaccounts of the Separate Account for
mortality and expense risks assumed by KILICO. This charge will be at an annual
rate of 0.90%. KILICO may profit from this charge.

The mortality and expense risk assumed is that KILICO's estimates of
longevity and of the expenses incurred over the lengthy period the Policy may be
in effect--which estimates are the basis for the level of other charges KILICO
makes under the Policy--will not be correct.

MONTHLY ADMINISTRATIVE CHARGE

KILICO deducts a monthly administrative expense charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to owners. This charge is designed only to
reimburse KILICO for certain actual administrative expenses. KILICO does not
expect to recover from this charge any amount in excess of aggregate maintenance
expenses. Currently, this charge is $5 per month.

OTHER CHARGES

The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.

WITHDRAWAL CHARGE. A charge of $25 will be imposed for each partial
withdrawal. This charge is designed to reimburse KILICO for the administrative
expenses related to the withdrawal. KILICO does not expect to recover any amount
in excess of aggregate expenses.

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TAXES. Currently, no charges are made against the Separate Account for
Federal, state or other taxes that may be attributable to the Separate Account.
KILICO may, however, in the future impose charges for Federal income taxes
attributable to the Separate Account. Charges for other taxes, if any,
attributable to the Policy may also be made. (See "Federal Tax Matters.")

CHARGES AGAINST THE FUND. Under the investment advisory agreements between
each Fund, on behalf of the portfolios, and the investment manager and/or
adviser, such entities provide investment advisory and/or management services
for the portfolios. The Funds are responsible for the advisory fees and various
other expenses. The investment advisory fees differ with respect to each of the
portfolios of the Funds. (See "The Funds.") KILICO 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. For more information concerning the investment
advisory fees and other charges against the portfolios of the Funds, see the
prospectuses for the Funds and the Statements of Additional Information
available upon request.

SYSTEMATIC WITHDRAWAL PLAN. A charge of $50 is imposed to enter into a
Systematic Withdrawal Plan (SWP.) In addition, a $25 charge will be imposed each
time a change is made to the SWP. These charges are to reimburse KILICO for
expenses related to the administration of the SWP. (See "Systematic Withdrawal
Plan.")

REDUCTION OF CHARGES. KILICO may reduce certain charges and the minimum
initial premium in special circumstances that result in lower sales,
administrative, or mortality expenses. For example, special circumstances may
exist in connection with group or sponsored arrangements, sales to KILICO
policyowners, or sales to employees or clients of members of the Kemper group of
companies. The amounts of any reductions will reflect the reduced sales effort
and administrative costs resulting from, or the different mortality experience
expected as a result of, the special circumstances. Reductions will not be
unfairly discriminatory against any person, including the affected Owners and
owners of all other policies funded by the Separate Account.

GENERAL PROVISIONS

SETTLEMENT OPTIONS

The Owner, or Beneficiary at the death of the Insured if no election by the
Owner is in effect, may elect to have all of the Death Benefit or Surrender
Value of this Policy paid in a lump sum or have the amount applied to one of the
Settlement Options. Payments under these options will not be affected by the
investment experience of the Separate Account after proceeds are applied under a
Settlement Option. Payment will be made as elected by the payee on a monthly,
quarterly, semi-annual or annual basis. The option selected must result in a
payment that is at least equal to KILICO's required minimum, according to rules
in effect at the time the option is chosen. If at any time the payments are less
than the minimum payment, KILICO may increase the period between payments to
quarterly, semi-annual or annual so that the payment is at least equal to our
minimum payment or to make the payment in one lump sum.

The Cash Value on the day immediately preceding the date on which the first
benefit payment is due will first be reduced by any applicable Surrender Charge
and Debt. The Surrender Value will be used to determine the benefit payment. The
payment will be based on the settlement option elected in accordance with the
appropriate settlement option table.

OPTION 1--INCOME FOR SPECIFIED PERIOD. KILICO will pay income for the
period and payment mode elected but not less than 5 years nor more than 30
years.

OPTION 2--LIFE INCOME. KILICO will pay a monthly income to the payee during
the payee's lifetime. If this Option is elected, annuity payments terminate
automatically and immediately on the death of the payee without regard to the
number or total amount of payments made. Thus, it is possible for an individual
to receive only one payment if death occurred prior to the date the second
payment was due.

OPTION 3--LIFE INCOME WITH INSTALLMENTS GUARANTEED. KILICO will pay a
monthly income for the guaranteed period elected and thereafter for the
remaining lifetime of the payee. The period elected may only be 5, 10, 15 or 20
years.

OPTION 4--JOINT AND SURVIVOR ANNUITY. KILICO will pay the full monthly
income while both payees are living. Upon the death of either payee, the income
will continue during the lifetime of the surviving payee. The surviving payee's
income shall be the percentage of such full amount chosen at the time of
election of this option. The percentages available are 50%, 66 2/3%, 75% and
100%. Payments terminate automatically

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<PAGE> 20

and immediately upon the death of the surviving payee without regard to the
number or total amount of payments received.

KILICO's consent is necessary for any other payment methods.

The guaranteed monthly payments are based on an interest rate of 2.50% per
year and, where mortality is involved, the "1983 Table a" individual mortality
table developed by the Society of Actuaries, with a 5 year setback.

POSTPONEMENT OF PAYMENTS

GENERAL. Payment of any amount due upon: (a) Policy termination at the
Maturity Date, (b) surrender of the Policy, (c) payment of any Policy loan, or
(d) death of the Insured, may be postponed whenever:

(1) The New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC;

(2) The SEC by order permits postponement for the protection of
Owners; or

(3) An emergency exists, as determined by the SEC, as a result of
which disposal of securities of the Fund is not reasonably practicable or
it is not reasonably practicable to determine the value of the net assets
of the Separate Account.

Transfers may also be postponed under these circumstances.

PAYMENT NOT HONORED BY BANK. The portion of any payment due under the
Policy which is derived from any amount paid to KILICO by check or draft may be
postponed until such time as KILICO determines that such instrument has been
honored by the bank upon which it was drawn.

THE CONTRACT

The Policy, any endorsements, and the application constitute the entire
contract between KILICO and the Owner. All statements made by the Insured or
contained in the application will, in the absence of fraud or misrepresentation,
be deemed representations and not warranties.

Only the President, the Secretary, or an Assistant Secretary of KILICO is
authorized to change or waive the terms of a Policy. Any change or waiver must
be in writing and signed by one of those persons.

MISSTATEMENT OF AGE OR SEX

If the age or sex of the Insured is misstated, the Death Benefit will be
changed to what the cost of insurance on the previous Monthly Processing Date
would have purchased based on the correct sex and age.

INCONTESTABILITY

KILICO may contest the validity of a Policy if any material
misrepresentations are made in the application. However, a Policy will be
incontestable after it has been in force during the lifetime of the Insured for
two years from the Issue Date. A new two year contestability period will apply
to increases in insurance, and to reinstatements beginning with the effective
date of the increase or reinstatement.

SUICIDE

Suicide by the Insured, while sane or insane, within two years from the
Issue Date of the Policy is a risk not assumed under the Policy. KILICO's
liability for such suicide is limited to the premiums paid less any withdrawals
and Debt. When the laws of the state in which a Policy is delivered require less
than a two year period, the period or amount paid will be as stated in such
laws.

ASSIGNMENT

No assignment of a Policy is binding on KILICO until it is received by
KILICO at its Home Office. KILICO assumes no responsibility for the validity of
the assignment. Any claim under an assignment is subject to proof of the extent
of the interest of the assignee. If this Policy is assigned, the rights of the
Owner and Beneficiary are subject to the rights of the assignee of record.

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<PAGE> 21

NONPARTICIPATING

This Policy will not pay dividends. It will not participate in any of
KILICO's surplus or earnings.

OWNER AND BENEFICIARY

The Owner may, at any time during the life of the Insured and while the
Policy is in force, designate a new Owner.

Primary and secondary Beneficiaries may be designated by the Owner in the
application. If changed, the primary or secondary Beneficiary is as shown in the
latest change filed with KILICO. If no Beneficiary survives the Insured, the
Insured's estate will be the Beneficiary. The interest of any Beneficiary may be
subject to that of an assignee.

Any change of Owner or Beneficiary must be made in writing in a form
acceptable to KILICO. The change will take effect as of the date the request is
signed. KILICO will not be liable for any payment made or other action taken
before the notice has been received at KILICO's Home Office.

RECORDS AND REPORTS

KILICO will maintain all records relating to the Separate Account. KILICO
will send Owners, at their last known address of record, an annual report
stating the Death Benefit, the Accumulation Unit Value, the Cash Value and
Surrender Value under the Policy, and indicating any additional premium
payments, partial withdrawals, transfers, Policy loans and repayments and
charges made during the Policy Year. In addition, Owners will be sent
confirmations and acknowledgments of various transactions. Owners will also be
sent annual and semi-annual reports for the Fund to the extent required by the
1940 Act.

WRITTEN NOTICES AND REQUESTS

Any written notice or request to be sent to KILICO should be sent to its
Home Office, 1 Kemper Drive, Long Grove, Illinois 60049. The notice or request
should include the Policy number and the Insured's full name. Any notice sent by
KILICO to an Owner will be sent to the address shown in the application unless
an address change has been filed with KILICO.

OPTIONAL INSURANCE BENEFITS

Subject to certain requirements, a Policy Owner may elect to add one or
more of the following optional insurance benefits to the Policy by a Rider at
the time of application for a Policy. These optional benefits are: waiver of all
monthly deductions against the Policy in the event of total disability of the
Insured; term insurance on the Insured's dependent children; acceleration of the
payment of a portion of the death benefit when the Insured is terminally ill;
and term insurance on an additional insured specified by the Owner. The cost of
any additional insurance benefits will be deducted as part of the monthly
deductions. Certain restrictions may apply. Restrictions and provisions related
to these benefits are more fully described in the applicable rider. Samples of
the provisions are available from KILICO upon written request.

DOLLAR COST AVERAGING

A Policy Owner may predesignate a portion of the Cash Value under a Policy
attributable to the Fixed Account, the Money Market Subaccount or the Government
Securities Subaccount (the designated account is referred to as the "DCA
Account") to be automatically transferred on a monthly basis to one or more of
the other Subaccounts and the Fixed Account. A Policy Owner may enroll in this
program at the time the Policy is issued or anytime thereafter by properly
completing the Dollar Cost Averaging enrollment form and returning it to KILICO
at its home office at least five (5) business days prior to the 10th day of a
month which is the date that all Dollar Cost Averaging transfers will be made
("Transfer Date").

Transfers will commence on the first Transfer Date following the Trade
Date. Transfers will be made in the amounts designated by the Policy Owner and
must be at least $500 per Subaccount or General Account. The total Cash Value in
the DCA Account at the time Dollar Cost Averaging is elected must be at least
equal to the greater of $10,000 or the amount designated to be transferred on
each Transfer Date multiplied by the duration selected. Dollar Cost Averaging
will cease automatically if the Cash Value does not equal or exceed the amount
designated to be transferred on each Transfer Date and the remaining amount will
be transferred.

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<PAGE> 22

Dollar Cost Averaging will terminate when (i) the number of designated
monthly transfers has been completed, (ii) the Cash Value attributable to the
DCA Account is insufficient to complete the next transfer, (iii) the Policy
Owner requests termination in writing and such writing is received by KILICO at
its home office at least five business days prior to the next Transfer Date in
order to cancel the transfer scheduled to take effect on such date, or (iv) the
Policy is surrendered. KILICO reserves the right to amend Dollar Cost Averaging
on thirty days notice or terminate it at any time.

A Policy Owner may initiate, reinstate or change Dollar Cost Averaging or
change existing Dollar Cost Averaging terms by properly completing the new
enrollment form and returning it to KILICO at its home office at least five (5)
business days, (ten (10) business days for Fixed Account transfers), prior to
the next Transfer Date such transfer is to be made.

When utilizing Dollar Cost Averaging, a Policy Owner must be invested in
the DCA Account and may be invested in the Fixed Account and a maximum of eight
other Subaccounts at any given time.

SYSTEMATIC WITHDRAWAL PLAN

KILICO administers a Systematic Withdrawal Plan ("SWP") which allows
certain Policy Owners to preauthorize periodic withdrawals after the first
Policy Year. Policy Owners entering into a SWP agreement instruct KILICO to
withdraw selected amounts from the Fixed Account, or from a maximum of two
Subaccounts on a monthly, quarterly, semi-annual or annual basis. Currently the
SWP is available to Policy Owners who request a minimum $500 periodic payment.
The amounts distributed under the SWP are partial withdrawals and will be
subject to surrender charges, if applicable. (See "Policy Benefits and
Rights--Surrender Privileges.") The $25 withdrawal charge does not apply.
However, a charge of $50 will be imposed at the time a SWP is established. In
addition, a $25 charge will be imposed each time a change is made to the SWP.
These charges are designed to reimburse KILICO for expenses related to the
administration of the SWP. Withdrawals taken under the SWP may be subject to
income taxes, withholding and tax penalties. See "Federal Income Taxes." Policy
Owners interested in the SWP may obtain an application and full information
concerning this program and its restrictions from their representative or
KILICO's home office. The right is reserved to amend the SWP on thirty days'
notice. The SWP may be terminated at any time by the Contract Owner or KILICO.

DISTRIBUTION OF POLICIES

The Policy is sold by licensed insurance representatives who represent
KILICO and 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 Policy is distributed
through the principal underwriter, Investors Brokerage Services, Inc. ("IBS"),
an affiliate of KILICO. IBS is engaged in the sale and distribution of other
variable life policies and annuities.

Gross commissions paid by KILICO on the sale of the Policy plus fees for
marketing services provided by affiliates of KILICO are not more than 115% up to
the commission target premium and 5% of excess premium in the first year and 5%
of total premium in renewal years two through ten. Beginning in the second
Policy Year, a service fee at an annual rate of .05% increasing by .05% per year
to .30% in the seventh and later years on assets which have been maintained and
serviced may also be paid. Firms to which service fees and commissions may be
paid include affiliated broker-dealers. In addition to the commissions described
above, KILICO may, from time to time, pay or allow additional promotional
incentives, in the form of cash or other compensation, to licensed
broker-dealers that sell the Policies. In some instances, such other incentives
may be offered only to certain licensed broker-dealers that sell or are expected
to sell during specified time periods certain minimum amounts of the Policy or
other contracts issued by KILICO.

FEDERAL TAX MATTERS

The ultimate effect of Federal income taxes on the Policy, on settlement
options and on the economic benefit to the Owner, Beneficiary or payee depends
on KILICO's tax status, and upon the tax status of the individual concerned.

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<PAGE> 23

KILICO'S TAX STATUS

Under current interpretations of Federal income tax law, KILICO is taxed as
a life insurance company and the operations of the Separate Account are treated
as part of the total operations of KILICO. The operations of the Separate
Account do not materially affect KILICO's Federal income tax liability because
KILICO is allowed a deduction to the extent that net investment income of the
Separate Account is applied to increase Owners' equity. KILICO may incur state
and local taxes attributable to the Separate Account. At present, these taxes
are not significant. Accordingly, KILICO does not charge or credit the Separate
Account for Federal, state or local taxes. Thus, the Separate Account may
realize net investment income, such as interest, dividends or capital gains, and
reinvest such income all without tax consequences to the Separate Account.

If there is a material change in applicable Federal, state or local law,
however, charges or credits may be made to the Separate Account for Federal,
state or local taxes, or reserves for such taxes, if any, attributable to the
Separate Account. Such charges or credits will be determined independent of the
taxes actually paid by KILICO.

TAX STATUS OF THE POLICY

Section 7702 of the Internal Revenue Code ("Code") provides that if certain
tests are met, a Policy will be treated as a life insurance policy for federal
tax purposes. KILICO will monitor compliance with these tests. The Policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death benefit payable under a Policy is excludable
from gross income of the beneficiary under Section 101 of the Code.

Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed on or after June 21, 1988 on which the
total premiums paid during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits after seven level
annual premiums. The Code provides for taxation of surrenders, partial
surrenders, loans, collateral assignments and other pre-death distributions from
modified endowment contracts in the same way annuities are taxed. Modified
endowment contract distributions are defined by the Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty also applies to the taxable portion of such distributions unless the
Policy Owner is over age 59 1/2 or disabled, or if other exceptions apply.

It may not be advantageous to replace existing insurance with Policies
described in this prospectus. It may also be disadvantageous to purchase a
policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy.

The Policies offered by this prospectus may or may not be issued as
modified endowment contracts. KILICO will monitor premiums paid and will notify
the Policy Owner when the Policy's non-modified endowment status is in jeopardy.
If a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the Policy. Under certain conditions, a Policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A(c) of the Code.

In addition to meeting the tests required under Section 7702 and Section
7702A, Section 817(h) of the Code requires that the investments of separate
accounts such as the Separate Account be adequately diversified. Regulations
issued by the Secretary of the Treasury, set the standards for measuring the
adequacy of this diversification. A variable life policy that is not adequately
diversified under these regulations would not be treated as life insurance under
Section 7702 of the Code. To be adequately diversified, each Subaccount of the
Separate Account must meet certain tests. KILICO believes that the investments
of the Separate Account meet the applicable diversification standards.

Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, KILICO will take
whatever steps are available to remain in compliance.

KILICO will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.

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<PAGE> 24

A total surrender or cancellation of the Policy by lapse may have adverse
tax consequences depending on the circumstances.

Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.

OTHER CONSIDERATIONS

Because of the complexity of the law in its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Policy or the exercise of elections under a Policy. The above comments
concerning the Federal income tax consequences are not exhaustive and are not
intended as tax advice. Counsel and other competent advisers should be consulted
for more complete information. This discussion is based on KILICO's
understanding of Federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations. KILICO also believes the
Policy meets other requirements concerning Owner control over investments.
However, the Secretary of Treasury has not issued regulations on this subject.
Such regulations, if adopted, could include requirements not included in the
Policy. Because the guidance has not been published, there can be no assurance
as to content or even whether application will be prospective only. KILICO will
make modifications to the Policy to comply with such regulations.

LEGAL CONSIDERATIONS

On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
The Policy described in this Prospectus contains cost of insurance rates that
distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
federal, state and local laws, including Title VII of the Civil Rights Act, the
Equal Pay Act, and Norris and subsequent cases on any employment-related
insurance or fringe benefit program before purchasing this Policy.

SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

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 the shares of each
portfolio of the Funds by each of the Subaccounts.

VOTING INTERESTS

To the extent required by law, KILICO will vote a Fund's shares held in the
Separate Account at regular and special shareholder meetings of the Fund in
accordance with instructions received from persons having voting interests in
the corresponding Subaccounts of the Separate Account. If, however, the 1940 Act
or any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result KILICO determines that it is permitted to
vote a Fund's shares in its own right, it may elect to do so.

Owners of all Policies participating in each Subaccount shall have voting
interests with respect to that Subaccount, based upon each Owner's proportionate
interest in that Subaccount as measured by units.

Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio of
the Funds.

KILICO will vote shares of the Funds for which it has not received timely
instructions in proportion to the voting instructions that KILICO has received
with respect to all variable policies participating in a portfolio. KILICO will
also vote any Fund shares attributed to amounts it has accumulated in the
Subaccounts in the same proportions that Owners vote.

KILICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the subclassification or investment objective
of the Fund or of one or more of its portfolios or to approve or disapprove an
investment advisory contract for a portfolio of the Fund. In addition, KILICO
itself may disregard voting instructions in favor of changes initiated by an
Owner in the investment policy or the investment adviser of

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a portfolio of a Fund if KILICO reasonably disapproves of such changes. A
proposed change would be disapproved only if the change is contrary to state law
or prohibited by state regulatory authorities, or if KILICO determines that the
change would have an adverse effect on its General Account in that the proposed
investment policy for a portfolio may result in overly speculative or unsound
investments. In the event KILICO does disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Owners.

STATE REGULATION OF KILICO

KILICO, a stock life insurance company organized under the laws of
Illinois, is subject to regulation by the Illinois Department of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1st
of each year covering the operations and reporting on the financial condition of
KILICO as of December 31st of the preceding year. Periodically, the Director of
Insurance examines the liabilities and reserves of KILICO and the Separate
Account and certifies to their adequacy, and a full examination of KILICO's
operations is conducted by the National Association of Insurance Commissioners
at least once every three years.

In addition, KILICO is subject to the insurance laws and regulations of
other states within which it is licensed to operate. Generally, the insurance
department of any other state applies the laws of the state of domicile in
determining permissible investments.

DIRECTORS AND OFFICERS OF KILICO

The directors and principal officers of KILICO are listed below together
with their current positions and their other business experience during the past
five years. The address of each officer and director is 1 Kemper Drive, Long
Grove, Illinois 60049.

<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
John B. Scott (51) Chief Executive Officer and President of Federal Kemper Life
Chief Executive Officer since Assurance Company and Fidelity Life Association since 1988. Chief
February 1992. President since Executive Officer and President of Zurich Life Insurance Company
November 1993. Director since of America since January 1996. Chairman of the Board of Federal
1992. Kemper Life Assurance Company from April 1988 to January 1996.
Chairman of the Board of KILICO from February 1992 to January
1996. Executive Vice President and director of Kemper Corporation
from January 1994 and March 1996, respectively. Executive Vice
President of Kemper Financial Companies, Inc. from January 1994 to
January 1996 and Director from 1992 to January 1996.
Jerome J. Cwiok (48) Executive Vice President of Federal Kemper Life Assurance Company
Executive Vice President since and Fidelity Life Association since 1995. Executive Vice President
1995. of Zurich Life Insurance Company of America since March 1996.
Senior Vice President of KILICO, Federal Kemper Life Assurance
Company and Fidelity Life Association from 1993 to 1995. Vice
President of Federal Kemper Life Assurance Company and Fidelity
Life Association since 1993. Executive Vice President of Academy
Insurance Group from 1986 to 1993.
Eliane C. Frye (47) Executive Vice President of Federal Kemper Life Assurance Company
Executive Vice President since and Fidelity Life Association since 1995. Executive Vice President
1995. of Zurich Life Insurance Company of America since March 1996.
Senior Vice President of KILICO from 1992 to 1995. Senior Vice
President of Federal Kemper Life Assurance Company and Fidelity
Life Association from 1993 to 1995. Vice President of Federal
Kemper Life Assurance Company and Fidelity Life Association from
1988 to 1993.
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
Frederick L. Blackmon (43) Senior Vice President and Chief Financial Officer of Federal
Senior Vice President and Kemper Life Assurance Company and Fidelity Life Association since
Chief Financial Officer since November 1995. Treasurer and Chief Financial Officer of Kemper
November 1995. Corporation since January 1996. Senior Vice President and Chief
Financial Officer of Zurich Life Insurance Company of America
since March 1996. Chief Financial Officer of Alexander Hamilton
Life Insurance Company from April 1989 to November 1995.
James E. Hohmann (40) Senior Vice President and Chief Actuary of Federal Kemper Life
Senior Vice President and Assurance Company and Fidelity Life Association since December
Chief Actuary since December 1995. Senior Vice President and Chief Actuary of Zurich Life
1995. Insurance Company of America since March 1996. Managing Principal
(Partner) of Tillinghast--Towers Perrin from January 1991 to
December 1995. Consultant/Principal (Partner) of
Tillinghast--Towers Perrin from November 1986 to January 1991.
Debra P. Rezabek (40) Senior Vice President of Federal Kemper Life Assurance Company and
Senior Vice President since Fidelity Life Association since 1996. General Counsel of Federal
1996. General Counsel since Kemper Life Assurance Company and Fidelity Life Association since
1992. Corporate Secretary 1992. Corporate Secretary of Federal Kemper Life Assurance Company
since January 1996. and Fidelity Life Association since January 1996. Senior Vice
President and General Counsel of Zurich Life Insurance Company of
America since March 1996. Assistant General Counsel of Federal
Kemper Life Assurance Company and Fidelity Life Association from
1988 to 1992. Assistant Secretary of KILICO, Federal Kemper Life
Assurance Company and Fidelity Life Association from 1992 to 1996.
Assistant Secretary of Kemper Corporation since January 1996.
Loren J. Alter (57) Director of Federal Kemper Life Assurance Company, Fidelity Life
Director since January 1996. Association and Zurich Kemper Investments, Inc. since January
1996. Director of Zurich Life Insurance Company of America since
May 1979. Executive Vice President of Zurich Insurance Company
since 1979. President, Chief Executive Officer and Director of
Kemper Corporation since January 1996.
William H. Bolinder (52) Chairman of the Board and Director of Federal Kemper Life
Chairman of the Board and Assurance Company and Fidelity Life Association since January
Director since January 1996. 1996. Chairman of the Board and Director of Zurich Life Insurance
Company of America since March 1995. Chairman of the Board of
Kemper Corporation since January 1996. Vice Chairman and Director
of Zurich Kemper Investments, Inc. since January 1996. Chairman of
the Board of American Guarantee and Liability Insurance Company,
Zurich American Insurance Company of Illinois, American Zurich
Insurance Company and Steadfast Insurance Company since 1986.
Chief Executive Officer of American Guarantee and Liability
Company, Zurich American Insurance Company of Illinois, American
Zurich Insurance Company and Steadfast Insurance Company from 1986
to June 1995. President of Zurich Holding Company of America since
1986. U.S. Manager of Zurich Insurance Company, U.S. Branch since
1986. Underwriter for Zurich American Lloyds since 1986.
</TABLE>

24
<PAGE> 27

<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
Daniel L. Doctoroff (37) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Managing
Partner of Insurance Partners Advisors, L.P. since February 1994.
Vice President of Keystone, Inc. since October 1992. Managing
Director of Rosecliff Inc./Oak Hill Partners, Inc. since August
1987. Director of Bell & Howell Company since 1989; National Re
Corporation since 1990; Specialty Foods Corporation since 1993;
and Transport Holdings Inc. since 1995.
Steven M. Gluckstern (45) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Chairman
of the Board and Director of Zurich Kemper Investments, Inc. since
January 1996. Chairman of the Board and Chief Executive Officer of
Zurich Reinsurance Centre, Inc. since May 1993. President of
Centre Re, Bermuda from December 1986 to May 1993.
Michael P. Stramaglia (36) Director of Federal Kemper Life Assurance Company and Fidelity
Director since January 1996. Life Association since January 1996. Chief Executive Officer and
President of Zurich Life Insurance Company of Canada since June
1994. Executive Vice-President and Chief Operating Officer of
Zurich Life Insurance Company of Canada from June 1993 to June
1994. Senior Vice-President of the Corporate Division of Zurich
Life Insurance Company of Canada from November 1990 to January
1993. Director of Zurich Life Insurance Company of Canada, Zurich
Life of Canada Holdings Limited, Zurich Indemnity Company of
Canada, Zurich Canadian Holdings Limited, and Zurmex Canada
Holdings Limited.
Paul H. Warren (40) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Partner
of Insurance Partners Advisors, L.P. since March 1994. Managing
Director of International Insurance Advisors since March 1992.
Vice President of J.P. Morgan from June 1986 to March 1992.
Director of Unionamerica Holdings plc since 1993; Unionamerica
Insurance Company since 1993; Tarquin plc since 1994; and Chairman
Underwriting Agencies Ltd. since 1994.
</TABLE>

LEGAL MATTERS

All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and KILICO's right to issue the Policy under Illinois
Insurance Law, have been passed upon by Frank J. Julian, Associate General
Counsel of KILICO. Katten Muchin & Zavis, Washington, D.C., has advised KILICO
on certain legal matters concerning federal securities laws applicable to the
issue and sale of Policies.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. KILICO is not a party
in any litigation that is of material importance in relation to its total assets
or that relates to the Separate Account.

25
<PAGE> 28

EXPERTS

The financial statements of KILICO and the Separate Account have been
included in the Prospectus in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing. As
discussed in the notes to KILICO's consolidated financial statements, effective
January 1, 1994, KILICO changed its method of accounting for investment
securities to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as discussed in the notes
effective January 1, 1993, KILICO changed its method of accounting for
impairment of loans receivable to adopt the provisions of SFAS 114, ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its method of accounting for
income taxes to adopt the provisions of SFAS 109, ACCOUNTING FOR INCOME TAXES.

Actuarial matters included in this prospectus have been examined by Steven
D. Powell, FSA as stated in the opinion filed as an exhibit to the Registration
Statement.

REGISTRATION STATEMENT

A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies. For further information concerning the Separate Account, KILICO and
the Policy, reference is made to the Registration Statement as amended with
exhibits. Copies of the Registration Statement are available from the Commission
upon payment of a fee.

FINANCIAL STATEMENTS

The financial statements of the Separate Account relate to life insurance
policies other than those offered by this Prospectus. The financial statements
of KILICO that are included should be considered only as bearing upon KILICO's
ability to meet its contractual obligations under the Policy. KILICO's financial
statements do not bear on the investment experience of the assets held in the
Separate Account.

26
<PAGE> 29

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS

KEMPER INVESTORS LIFE INSURANCE COMPANY:

We have audited the accompanying combined statement of assets and
liabilities and policy owners' equity of the KILICO Variable Separate Account as
of December 31, 1995, and the related combined statement of operations for the
year then ended, and the combined statements of changes in policy owners' equity
for the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the KILICO
Variable Separate Account as of December 31, 1995, and the combined results of
its operations for the year then ended, and the combined changes in its policy
owners' equity for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Chicago, Illinois

February 16, 1996

27
<PAGE> 30

KILICO VARIABLE SEPARATE ACCOUNT

COMBINED STATEMENT OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY

DECEMBER 31, 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at current value.......... $11,671 1,001 2,557 2,087 1,925 4,101
Dividends and other receivables........ 7 3 -- 4 -- --
------- ----- ----- ----- ----- -----
Total assets..................... 11,678 1,004 2,557 2,091 1,925 4,101
LIABILITIES AND POLICY OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges... 14 2 4 2 2 4
------- ----- ----- ----- ----- -----
Policy owners' equity.................. $11,664 1,002 2,553 2,089 1,923 4,097
======= ===== ===== ===== ===== =====
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units sold over
payments for units redeemed.......... $ 6,441 530 1,165 1,447 1,070 2,229
Accumulated net investment income...... 3,059 472 677 591 218 1,101
Accumulated net realized gain on sales
of
investments.......................... 810 -- 329 3 220 258
Unrealized appreciation of
investments.......................... 1,354 -- 382 48 415 509
------- ----- ----- ----- ----- -----
Policy owners' equity.................. $11,664 1,002 2,553 2,089 1,923 4,097
======= ===== ===== ===== ===== =====
</TABLE>

See accompanying notes to combined financial statements.

28
<PAGE> 31

KILICO VARIABLE SEPARATE ACCOUNT

COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions..................... $ 613 88 67 90 116 252
Mortality and expense risk
charges........................... 107 20 20 15 14 38
------ ---- --- --- --- ---
Net investment income............... 506 68 47 75 102 214
------ ---- --- --- --- ---
Net realized and unrealized gain on
investments:
Net realized gain on sales of
investments..................... 144 -- 14 54 31 45
Change in unrealized appreciation
of investments.................. 1,253 -- 442 106 301 404
------ ---- --- --- --- ---
Net realized and unrealized gain on
investments....................... 1,397 -- 456 160 332 449
------ ---- --- --- --- ---
Net increase in policy owners'
equity resulting from
operations........................ $1,903 68 503 235 434 663
====== ==== === === === ===
</TABLE>

See accompanying notes to combined financial statements.

29
<PAGE> 32

KILICO VARIABLE SEPARATE ACCOUNT

COMBINED STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
MONEY MARKET
COMBINED SUBACCOUNT
----------------------- --------------------
1995 1994 1995 1994
------- ------ ----- -----
<S> <C> <C> <C> <C>
Operations:
Net investment income............................................. $ 506 615 68 43
Net realized gain (loss) on sales of investments.................. 144 55 -- --
Change in unrealized appreciation (depreciation)
of investments.................................................. 1,253 (1,154) -- --
------- ------ ----- -----
Net increase (decrease) in policy owners' equity
resulting from operations..................................... 1,903 (484) 68 43
------- ------ ----- -----
Account unit transactions:
Proceeds from units sold.......................................... 108 514 76 507
Net transfers (to) from subaccounts............................... -- -- (348) 14
Payments for units redeemed....................................... (791) (563) (104) (96)
------- ------ ----- -----
Net increase (decrease) in policy owners' equity
from account unit transactions................................ (683) (49) (376) 425
------- ------ ----- -----
Total increase (decrease) in policy owners' equity.................. 1,220 (533) (308) 468
Policy owners' equity:
Beginning of year................................................. 10,444 10,977 1,310 842
------- ------ ----- -----
End of year....................................................... $11,664 10,444 1,002 1,310
======= ====== ===== =====
</TABLE>

See accompanying notes to combined financial statements.

30
<PAGE> 33

<TABLE>
<CAPTION>
GOVERNMENT
TOTAL RETURN HIGH YIELD EQUITY SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------- --------------- --------------- ---------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
47 188 75 88 102 57 214 239
14 20 54 28 31 (1) 45 8
442 (458) 106 (171) 301 (143) 404 (382)
----- ----- ----- ----- ----- ----- -----
503 (250) 235 (55) 434 (87) 663 (135)
----- ----- ----- ----- ----- ----- -----
-- -- 17 6 3 1 12 --
72 (455) 270 13 508 (71) (502) 499
(146) (133) (147) (177) (143) (75) (251) (82)
----- ----- ----- ----- ----- ----- -----
(74) (588) 140 (158) 368 (145) (741) 417
----- ----- ----- ----- ----- ----- -----
429 (838) 375 (213) 802 (232) (78) 282
2,124 2,962 1,714 1,927 1,121 1,353 4,175 3,893
----- ----- ----- ----- ----- ----- -----
2,553 2,124 2,089 1,714 1,923 1,121 4,097 4,175
===== ===== ===== ===== ===== ===== =====
</TABLE>

31
<PAGE> 34

KILICO VARIABLE SEPARATE ACCOUNT

NOTES TO COMBINED FINANCIAL STATEMENTS

(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

KILICO Variable Separate Account (the "Separate Account") is a unit
investment trust registered under the Investment Company Act of 1940, as
amended, established by Kemper Investors Life Insurance Company ("KILICO").
KILICO is owned by Kemper Corporation which was acquired by an investor group
led by Zurich Insurance Company ("Zurich") on January 4, 1996.

The Separate Account receives and invests premiums under a variable life
insurance policy ("Policy"). The Separate Account is divided into five
Subaccounts and each Subaccount invests exclusively in a corresponding Portfolio
of the Kemper Investors Fund (The "Fund"), an open-end diversified management
investment company. The Fund has added two additional Subaccounts, the
International Portfolio and the Small Capitalization Equity Portfolio, which are
not available investment vehicles to policy owners of the Separate Account.

SECURITY VALUATION

The investments are stated at current value which is based on the closing
bid price, net asset value, at December 31, 1995.

SECURITY TRANSACTIONS AND INVESTMENT INCOME

Security transactions are accounted for on the trade date (date when KILICO
accepts risks of providing insurance coverage to the insured). Dividends and
capital gains distributions are recorded as income on the ex-dividend date.
Realized gains and losses from security transactions are reported on an
identified cost basis.

ACCOUNT UNIT TRANSACTIONS

Proceeds from a Policy are automatically allocated to the Money Market
Subaccount on the trade date for a 15 day period. At the end of this period, the
Separate Account value (cash value) may be allocated to other Subaccounts as
designated by the owner of the Policy.

ACCUMULATION UNIT VALUATION

On each day the New York Stock Exchange (the "Exchange") is open for
trading, the accumulation unit value is determined as of the earlier of 3:00
p.m. (Chicago 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.

FEDERAL INCOME TAXES

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

32
<PAGE> 35

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF INVESTMENTS

Investments, at cost, at December 31, 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
SHARES
OWNED COST
----- -------
<S> <C> <C>
INVESTMENT PORTFOLIO
Kemper Investors Fund Money Market Portfolio.............................. 1,001 $ 1,001
Kemper Investors Fund Total Return Portfolio.............................. 991 2,175
Kemper Investors Fund High Yield Portfolio................................ 1,658 2,039
Kemper Investors Fund Equity Portfolio.................................... 590 1,510
Kemper Investors Fund Government Securities Portfolio..................... 3,231 3,592
-------
TOTAL INVESTMENTS.................................................... $10,317
=======
</TABLE>

The underlying investments and significant industry concentrations are
summarized below.

MONEY MARKET PORTFOLIO: This Portfolio invests primarily in short-term
obligations of major banks and corporations. At December 31, 1995, no industry
exceeded 20% of the Portfolio's assets.

TOTAL RETURN PORTFOLIO: This Portfolio's investments will normally consist
of fixed-income and equity securities. Fixed-income securities will include
bonds and other debt securities and preferred stocks. Equity investments
normally will consist of common stocks and securities convertible into or
exchangeable for common stocks, however, the Portfolio may also make private
placement investments (which are normally restricted securities). At December
31, 1995, 21.9% of the Portfolio's assets were invested in U.S. Government
obligations. No other industry exceeded 20% of the Portfolio's assets.

HIGH YIELD PORTFOLIO: This Portfolio invests in fixed-income securities, a
substantial portion of which are high yielding fixed-income securities. These
securities ordinarily will be in the lower rating categories of recognized
rating agencies or will be non-rated, and generally will involve more risk than
securities in the higher rating categories. At December 31, 1995, 21.4% of the
Portfolio's assets were invested in the broadcasting, cable systems and
publishing industry. No other industry exceeded 20% of the Portfolio's assets.

EQUITY PORTFOLIO: This Portfolio's investments normally will consist of
common stocks and securities convertible into or exchangeable for common stocks,
however, it may also make private placement investments (which are normally
restricted securities). At December 31, 1995, no industry exceeded 20% of the
Portfolio's assets.

GOVERNMENT SECURITIES PORTFOLIO: This Portfolio invests primarily in U.S.
Government Securities. The Portfolio will also invest in fixed-income securities
other than U.S. Government securities and will engage in options and financial
futures transactions. At December 31, 1995, the Portfolio had 84.2% of its
assets invested in U.S. Government obligations. No other industry exceeded 20%
of the Portfolio's assets.

(3) TRANSACTIONS WITH AFFILIATES

KILICO assesses a monthly charge to the Subaccounts for the cost of
insurance. The cost of insurance charge is allocated among the Subaccounts in
the proportion of each Subaccount to the Separate Account value. Cost of
insurance charges totaled approximately $140,300 for the year ended December 31,
1995. Additionally, KILICO assesses a daily charge to the Subaccounts for
mortality and expense risk assumed by KILICO at an annual rate of .90% of
assets.

Proceeds payable on the surrender of a Policy are reduced by the amount of
any applicable contingent deferred sales charge. During the year ended December
31, 1995, KILICO received contingent deferred sales charges of approximately
$5,200.

Kemper Financial Services, Inc. ("KFS"), an affiliated company, is the
investment manager of the Portfolios of the Fund which serve as the underlying
investments of the Separate Account. In connection with the acquisition of
Kemper Corporation on January 4, 1996, Zurich also acquired 100% of KFS.

33
<PAGE> 36

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(4) POLICY OWNERS' EQUITY

Policy owners' equity at December 31, 1995 is as follows (in thousands,
except unit value; differences are due to rounding):

<TABLE>
<CAPTION>
NUMBER POLICY
OF UNIT OWNERS'
UNITS VALUE EQUITY
------ ------ -------
<S> <C> <C> <C>
Money Market Subaccount................................................ 666 $1.505 $ 1,002
Total Return Subaccount................................................ 1,412 1.808 2,553
High Yield Subaccount.................................................. 1,068 1.956 2,089
Equity Subaccount...................................................... 831 2.314 1,923
Government Securities Subaccount....................................... 2,235 1.834 4,097
-------
TOTAL POLICY OWNERS' EQUITY.................................. $11,664
=======
</TABLE>

34
<PAGE> 37

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors

Kemper Investors Life Insurance Company:

We have audited the consolidated balance sheet of Kemper Investors Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kemper
Investors Life Insurance Company and subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.

As discussed in the notes to the consolidated financial statements,
effective January 1, 1994, the Company changed its method of accounting for
investment securities to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as
discussed in the notes, effective January 1, 1993, the Company changed its
method of accounting for impairment of loans receivable to adopt the provisions
of SFAS 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its
method of accounting for income taxes to adopt the provisions of SFAS 109,
ACCOUNTING FOR INCOME TAXES.

KPMG PEAT MARWICK LLP

Chicago, Illinois

March 15, 1996

35
<PAGE> 38

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value (cost: 1995,
$3,643,985;
1994, $3,707,356)................................................ $3,752,325 $3,463,732
Short-term investments............................................. 372,515 204,164
Joint venture mortgage loans....................................... 120,359 351,359
Third-party mortgage loans......................................... 144,450 318,682
Other real estate-related investments.............................. 34,780 237,242
Policy loans....................................................... 289,390 277,743
Other invested assets.............................................. 29,809 40,527
---------- ----------
Total investments........................................ 4,743,628 4,893,449
Cash............................................................... 25,811 23,189
Accrued investment income.......................................... 104,402 125,543
Deferred insurance acquisition costs............................... 318,636 310,465
Federal income tax receivable...................................... 112,646 25,656
Reinsurance recoverable............................................ 502,836 642,801
Other assets and receivables....................................... 12,617 7,993
Assets held in separate accounts................................... 1,761,110 1,507,984
---------- ----------
Total assets............................................. $7,581,686 $7,537,080
========== ==========
LIABILITIES
Future policy benefits............................................. $4,573,212 $4,843,690
Ceded future policy benefits....................................... 502,836 642,801
Other accounts payable and liabilities............................. 25,943 67,261
Deferred income taxes.............................................. 112,709 41,364
Liabilities related to separate accounts........................... 1,761,110 1,507,984
---------- ----------
Total liabilities........................................ 6,975,810 7,103,100
---------- ----------
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......................................... 491,994 491,994
Unrealized gain (loss) on investments.............................. 68,502 (236,443)
Retained earnings.................................................. 42,880 175,929
---------- ----------
Total stockholder's equity............................... 605,876 433,980
---------- ----------
Total liabilities and stockholder's equity............... $7,581,686 $7,537,080
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

36
<PAGE> 39

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
REVENUE
Net investment income.................................... $ 348,448 $353,084 $339,274
Realized investment losses............................... (318,700) (54,557) (27,584)
Fees and other income.................................... 38,337 31,950 25,687
--------- -------- --------
Total revenue.................................. 68,085 330,477 337,377
--------- -------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders.......... 245,615 248,494 275,689
Commissions, taxes, licenses and fees.................... 31,793 26,910 33,875
Operating expenses....................................... 20,837 25,324 24,383
Deferral of insurance acquisition costs.................. (36,870) (31,852) (31,781)
Amortization of insurance acquisition costs.............. 14,423 20,809 12,376
--------- -------- --------
Total benefits and expenses.................... 275,798 289,685 314,542
--------- -------- --------
Income (loss) before income tax expense (benefit) and
cumulative effect of change in accounting principle.... (207,713) 40,792 22,835
Income tax expense (benefit)............................. (74,664) 14,431 11,142
--------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle............... (133,049) 26,361 11,693
Cumulative effect of change in accounting principle...... -- -- 2,350
--------- -------- --------
Net income (loss).............................. $(133,049) $ 26,361 $ 14,043
========= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

37
<PAGE> 40

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

(in thousands)

<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CAPITAL STOCK, beginning and end of year..................... $ 2,500 $ 2,500 $ 2,500
--------- --------- --------
ADDITIONAL PAID-IN CAPITAL, beginning of year................ 491,994 409,423 310,237
Capital contributions from parent............................ -- 82,500 90,000
Transfer of limited partnership interest to parent........... -- 71 9,186
--------- --------- --------
End of year........................................ 491,994 491,994 409,423
--------- --------- --------
UNREALIZED GAIN (LOSS) ON INVESTMENTS, beginning of year..... (236,443) 93,096 39,872
Unrealized gain (loss) on revaluation of investments, net.... 304,945 (329,539) 53,224
--------- --------- --------
End of year........................................ 68,502 (236,443) 93,096
--------- --------- --------
RETAINED EARNINGS, beginning of year......................... 175,929 149,568 136,055
Net income (loss)............................................ (133,049) 26,361 14,043
Dividend of limited partnership interest to parent........... -- -- (530)
--------- --------- --------
End of year........................................ 42,880 175,929 149,568
--------- --------- --------
Total stockholder's equity......................... $ 605,876 $ 433,980 $654,587
========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

38
<PAGE> 41

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $(133,049) $ 26,361 $ 14,043
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses......................... 318,700 54,557 27,584
Interest credited and other charges................ 237,984 242,591 269,766
Deferred insurance acquisition costs............... (22,447) (11,043) (19,405)
Amortization of discount and premium on
investments...................................... 4,586 (1,383) (203)
Deferred income taxes.............................. 38,423 20,809 14,596
Federal income tax receivable...................... (86,990) 809 (10,110)
Other, net......................................... (29,905) (14,161) 40,258
--------- ----------- -----------
Net cash provided from operating activities... 327,302 318,540 336,529
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity.................. 320,143 144,717 187,949
Fixed maturities sold prior to maturity............ 297,637 910,913 1,652,119
Mortgage loans, policy loans and other invested
assets........................................... 450,573 536,668 881,505
Cost of investments purchased or loans originated:
Fixed maturities................................... (549,867) (1,447,393) (2,322,085)
Mortgage loans, policy loans and other invested
assets........................................... (131,966) (281,059) (443,445)
Short-term investments, net........................... (168,351) 198,299 (214,999)
Net change in receivable and payable for securities
transactions....................................... (1,397) (16,553) 39,078
Net reductions in other assets........................ 1,996 2,678 8,062
--------- ----------- -----------
Net cash provided by (used in) investing
activities.................................. 218,768 48,270 (211,816)
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits........................................... 247,778 215,034 246,219
Withdrawals........................................ (755,917) (652,513) (516,340)
Capital contributions from parent..................... -- 82,500 90,000
Other................................................. (35,309) 3,871 16,776
--------- ----------- -----------
Net cash used in financing activities......... (543,448) (351,108) (163,345)
--------- ----------- -----------
Net increase (decrease) in cash.......... 2,622 15,702 (38,632)
CASH, beginning of period............................... 23,189 7,487 46,119
--------- ----------- -----------
CASH, end of period..................................... $ 25,811 $ 23,189 $ 7,487
========= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

39
<PAGE> 42

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 and interest-sensitive life insurance
products marketed primarily through a network of financial institutions,
nonaffiliated and affiliated 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"). On January 4, 1996, an investors group comprised of
Zurich Insurance Company ("Zurich"), Insurance Partners, L.P. ("IP") and
Insurance Partners Offshore (Bermuda), L.P. (together with IP, "Insurance
Partners") acquired all of the issued and outstanding common stock of Kemper. As
a result of the change in control, Zurich and Insurance Partners indirectly and
directly own 80 percent and 20 percent, respectively, of Kemper and therefore
the Company. The consolidated financial statements of the Company as of December
31, 1995 have been prepared on a historical cost basis and have not been
adjusted to reflect the fair values of the Company's assets and liabilities as
of the date of the acquisition by Zurich and Insurance Partners.

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The statements include the accounts of
the Company on a consolidated basis. All significant intercompany balances and
transactions have been eliminated.

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, 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.

LIFE INSURANCE REVENUE AND EXPENSES

Revenue for annuities and interest-sensitive life insurance products
consists of investment income, and policy charges such as mortality, expense and
surrender charges. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs. Also reflected in fees and other income is a ceding
commission experience adjustment received in 1995 as a result of certain
reinsurance transactions entered into by the Company during 1992. (See the note
captioned "Reinsurance".)

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. Beginning in 1994, deferred insurance
acquisition costs 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 stockholder's equity, net of income tax.

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 4 percent to 8.35 percent.
Future minimum guaranteed interest rates vary from 4 percent to 8.35 percent for
periods ranging from a portion of 1996 up to a portion of 1998 and are

40
<PAGE> 43

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

generally 3 percent to 4.5 percent thereafter. For contracts that have
annuitized, interest rates used in determining the present value of future
payments range principally from 3 percent to 11.25 percent.

INVESTED ASSETS AND RELATED INCOME

Investments in fixed maturities are carried at fair value. Short-term
investments are carried at cost, which approximates fair value. (See the note
captioned "Fair Value of Financial Instruments".)

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 reserve and write-downs include certain bonds
issued by real estate finance or development companies; notes receivable from
real estate ventures; investments in real estate ventures carried at cost,
adjusted for the equity in the operating income or loss of such ventures; and
real estate owned carried primarily at fair value.

Real estate reserves are established when declines in collateral values,
estimated in light of current economic conditions and calculated in conformity
with Statement of Financial Accounting Standards ("SFAS") 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, indicate a likelihood of loss. Prior to
year-end 1995, the Company evaluated its real estate-related assets (including
accrued interest) by estimating the probabilities of loss utilizing various
projections that included several factors relating to the borrower, property,
term of the loan, tenant composition, rental rates, other supply and demand
factors and overall economic conditions. Generally, at that time, the reserve
was based upon the excess of the loan amount over the estimated future cash
flows from the loan discounted at the loan's contractual rate of interest taking
into consideration the effects of recourse to, and subordination of loans held
by, affiliated non-life realty companies. At year-end 1995, reflecting the
Company's change in strategy with respect to its real estate portfolio, and the
disposition thereof, real estate-related investments were valued using an
estimate of the investments observable market price, net of estimated costs to
sell.

SFAS 114 defines "impaired loans" as loans in which it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. In the fourth quarter of 1994, the Company adopted
SFAS 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME RECOGNITION
AND DISCLOSURES. SFAS 118 amends SFAS 114, providing clarification of income
recognition issues and requiring additional disclosures relating to impaired
loans. The adoption of SFAS 118 had no effect on the Company's financial
position or results of operations at or for the year ended December 31, 1994.

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. Unrealized
gains or losses on revaluation of investments are credited or charged to
stockholder's equity. Such unrealized gains are recorded net of deferred income
tax expense, while unrealized losses are not tax benefitted.

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 securities, over the estimated life of the security. Such
amortization is included in net interest income. Amortization of the discount or
premium from mortgage-backed securities is recognized using a level effective
yield method which considers the estimated timing and amount of prepayments of
the underlying mortgage 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
mortgage-backed 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, real estate-related bonds and
other real estate loans where the likelihood of collection of interest is
doubtful.

Policy loans are carried at their unpaid balance. Other invested assets
consist primarily of venture capital investments and a leveraged lease and are
carried at cost. Other invested assets also included equity securities which are
carried at fair value.

41
<PAGE> 44

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SEPARATE ACCOUNT BUSINESS

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

The operations of the Company have been included in the consolidated
Federal income tax return of Kemper. Income taxes receivable or payable have
been determined on a separate return basis, and payments have been received from
or remitted to Kemper pursuant to a tax allocation arrangement between Kemper
and its subsidiaries, including the Company. The Company generally had received
a tax benefit for losses to the extent such losses can be utilized in Kemper's
Federal consolidated tax return.

Under SFAS 109, ACCOUNTING FOR INCOME TAXES, 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.
Federal income tax paid to (refunded by) Kemper under the tax allocation
arrangement for the years ended December 31, 1995, 1994 and 1993 amounted to
$(25.2 million), $(10.7 million) and $4.2 million, respectively.

Not reflected in the statement of cash flows are rollovers of mortgage
loans, other loans and investments totaling approximately $57.0 million and
$146.0 million in 1994 and 1993, respectively.

The Company also transferred its equity ownership interests in two limited
partnerships during 1994 and 1993. (See the note captioned "Related-Party
Transactions".)

(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,
depending upon certain economic and business conditions.

42
<PAGE> 45

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

The carrying value (estimated fair value) of fixed maturities compared with
amortized cost, adjusted for other-than-temporary declines in value, at December
31, 1995 and 1994, were as follows:

<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
CARRYING AMORTIZED ---------------------
(in thousands) VALUE COST GAINS LOSSES
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
1995
U.S. treasury securities and obligations of U.S.
government agencies and authorities............ $ 215,637 $ 212,494 $ 3,163 $ (20)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.............. 24,241 22,469 1,772 --
Debt securities issued by foreign governments.... 139,361 134,715 5,120 (474)
Corporate securities............................. 1,698,270 1,638,178 65,075 (4,983)
Mortgage-backed securities....................... 1,674,816 1,636,129 40,278 (1,591)
---------- ---------- -------- ---------
Total fixed maturities.................... $3,752,325 $3,643,985 $115,408 $ (7,068)
========== ========== ======== =========
1994
U.S. treasury securities and obligations of U.S.
government agencies and authorities............ $ 10,682 $ 10,998 $ 24 $ (340)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.............. 25,021 25,691 -- (670)
Debt securities issued by foreign governments.... 109,624 120,950 50 (11,376)
Corporate securities............................. 1,679,428 1,805,933 7,027 (133,532)
Mortgage-backed securities....................... 1,638,977 1,743,784 -- (104,807)
---------- ---------- -------- ---------
Total fixed maturities.................... $3,463,732 $3,707,356 $ 7,101 $(250,725)
========== ========== ======== =========
</TABLE>

Upon default or indication of potential default by an issuer of fixed
maturity securities, the Company-owned 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 $300 million real estate portfolio consists of joint venture
and third-party mortgage loans and other real estate-related investments.

At December 31, 1995 and 1994, total impaired loans amounted to $21.9
million and $75.9 million, respectively. Impaired loans with reserves were $21.9
million and $67.6 million with corresponding reserves of $6.5 million and $18.8
million at December 31, 1995 and 1994, respectively. The Company had an average
balance of $124.2 million and $93.9 million in impaired loans for 1995 and 1994,
respectively. Cash payments received on impaired loans are generally applied to
reduce the outstanding loan balance. At December 31, 1995 and 1994, loans on
nonaccrual status amounted to $3.5 million and $274.6 million, respectively.
Impaired loans are generally included in the Company's nonaccrual loans.

43
<PAGE> 46

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

At December 31, 1995, securities carried at approximately $5.9 million were
on deposit with governmental agencies as required by law.

Proceeds from sales of investments in fixed maturities prior to maturity
were $297.6 million, $910.9 million and $1.7 billion during 1995, 1994 and 1993,
respectively. Gross gains of $21.2 million, $6.0 million and $80.4 million and
gross losses of $4.7 million, $55.9 million and $37.8 million were realized on
sales of fixed maturities in 1995, 1994 and 1993, respectively.

The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1995:

<TABLE>
<CAPTION>
CARRYING AMORTIZED
(in thousands) VALUE COST VALUE
---------- ----------
<S> <C> <C>
One year or less........................................................ $ 25,617 $ 25,202
Over one year through five.............................................. 576,138 562,374
Over five years through ten............................................. 1,248,675 1,200,157
Over ten years.......................................................... 227,079 220,123
Securities not due at a single maturity date(1)......................... 1,674,816 1,636,129
---------- ----------
Total fixed maturities........................................... $3,752,325 $3,643,985
========== ==========
</TABLE>

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

(1) Weighted average maturity of 5.4 years.

The sources of net investment income were as follows:

<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities................. $269,934 $274,231 $221,144
Dividends on equity securities............................. 681 1,751 3,084
Income from short-term investments......................... 13,159 10,668 12,155
Income from mortgage loans................................. 40,494 41,713 82,028
Income from policy loans................................... 19,658 18,517 16,826
Income from other real estate-related investments.......... 15,565 21,239 11,755
Income from other loans and investments.................... 1,555 3,533 8,008
-------- -------- --------
Total investment income............................. 361,046 371,652 355,000
Investment expense......................................... (12,598) (18,568) (15,726)
-------- -------- --------
Net investment income............................... $348,448 $353,084 $339,274
======== ======== ========
</TABLE>

Realized gains (losses) for the years ended December 31, 1995, 1994 and
1993, were as follows:

<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
-------------------------------------------
(in thousands) 1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Real estate-related................................. $(325,611) $(41,720) $(79,652)
Fixed maturities.................................... 9,336 (49,857) 36,234
Equity securities................................... (346) 28,243 17,086
Other............................................... (2,079) 8,777 (1,252)
--------- -------- --------
Realized investment losses before income tax
benefit........................................ (318,700) (54,557) (27,584)
Income tax benefit.................................. (111,545) (19,095) (7,917)
--------- -------- --------
Net realized investment losses.................... $(207,155) $(35,462) $(19,667)
========= ======== ========
</TABLE>

44
<PAGE> 47

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 securities and other--the
difference between fair value and cost. The change in unrealized investment
gains (losses) by class of investment for the years ended December 31, 1995,
1994 and 1993 were as follows:

<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
------------------------------------------
(in thousands) 1995 1994 1993
-------- --------- -------
<S> <C> <C> <C>
Fixed maturities.................................... $351,964 $(351,646) $60,258
Equity securities................................... 180 (32,710) 19,882
Adjustment to deferred insurance acquisition
costs............................................. (14,277) 11,325 --
-------- --------- -------
Unrealized gain (loss) before income tax expense
(benefit)...................................... 337,867 (373,031) 80,140
Income tax expense (benefit)........................ 32,922 (43,492) 26,916
-------- --------- -------
Net unrealized gain (loss) on investments.... $304,945 $(329,539) $53,224
======== ========= =======
</TABLE>

(4) UNCONSOLIDATED INVESTEES

At December 31, 1995, the Company, along with other Kemper subsidiaries,
directly held partnership interests or options to acquire equity interests (or
has made loans with additional interest features) 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, 1995 and 1994, the Company's net equity investment in
unconsolidated investees amounted to $17.1 million and $45.4 million,
respectively. The Company's share of net losses related to such unconsolidated
investees amounted to $453 thousand and $6.3 million for the years ended
December 31, 1995 and 1994, respectively.

Also at December 31, 1995, the Company had joint venture-related loans
totaling $21.8 million before reserves to partnerships in which Lumbermens
Mutual Casualty Company, an affiliate until August 1993 ("Lumbermens"), and
Fidelity Life Association ("FLA"), an affiliated mutual insurance company, had
equity interests. These joint venture-related loans totaled $37.5 million before
reserves at December 31, 1994. (See the note captioned "Financial
Instruments--Off-Balance-Sheet Risk".)

(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-backed securities and real estate. Approximately 45.7 percent of the
Company's investment-grade fixed maturities at December 31, 1995 were
mortgage-backed securities, down from 49.2 percent at December 31, 1994. These
investments consist primarily of marketable mortgage pass-through securities
issued by the Government National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally of AAA
credit quality, and the markets for these investments have been and are expected
to remain liquid. The Company plans to continue to reduce its holding of such
investments over time.

Future investment income from mortgage-backed securities may be affected by
the timing of principal payments and the yields on reinvestment alternatives
available at the time of such payments. Due to the

45
<PAGE> 48

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) CONCENTRATION OF CREDIT RISK (CONTINUED)

fact that the Company's investments in mortgage-backed securities were
predominately made since 1992, the current interest rate environment is not
expected to cause any material extension of the average maturities of these
investments. With the exception of many of the Company's September 1994
purchases of such investments, most of these investments were purchased by the
Company at discounts. Prepayment activity on securities purchased at a discount
is not expected to result in any material losses to the Company because
prepayments would generally accelerate the reporting of the discounts as
investment income. Prepayment activity resulting from a decline in interest
rates on such securities purchased at a premium would accelerate the
amortization of the premiums which would result in reductions of investment
income related to such securities. At December 31, 1995, the Company had
unamortized discounts and premiums of $17.0 million and $11.0 million,
respectively, related to mortgage-backed securities. Given the credit quality,
liquidity and anticipated payment characteristics of the Company's investments
in mortgage-backed securities, the Company believes that the associated risk can
be managed without material adverse consequences on its consolidated financial
statements.

The Company's real estate portfolio is distributed by geographic location
and property type, as shown in the following two tables:

GEOGRAPHIC DISTRIBUTION AS OF DECEMBER 31, 1995 DISTRIBUTION BY PROPERTY TYPE
AS OF DECEMBER 31, 1995

<TABLE>
<S> <C>
California................... 28.7%
Illinois..................... 24.4
Texas........................ 10.2
Oregon....................... 7.4
Colorado..................... 6.5
Hawaii....................... 6.2
Washington................... 5.7
Florida...................... 4.8
Ohio......................... 2.9
Other(1)..................... 3.2
-----
Total.............. 100.0%
=====
Hotel........................ 34.3%
Office....................... 30.2
Land......................... 17.2
Residential.................. 4.8
Retail....................... 4.5
Industrial................... 3.0
Other........................ 6.0
-----
Total.............. 100.0%
=====
</TABLE>

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

(1) No other single location exceeded 2.0 percent.

Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. California real estate
market conditions have continued to be worse than in many other areas of the
country. Real estate markets in northern California and Illinois show some
stabilization and improvement.

Undeveloped land represented approximately 17.2 percent of the Company's
real estate portfolio at December 31, 1995. 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
permits and market demand for the permitted use of the property. The values of
certain development projects have been written down as of December 31, 1995,
reflecting changes in plans in connection with the Zurich-led acquisition of
Kemper. 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.

The majority of the Company's real estate 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. (See the note
captioned "Unconsolidated Investees".)

46
<PAGE> 49

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) CONCENTRATION OF CREDIT RISK (CONTINUED)

At December 31, 1995, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt") have interests constituted
approximately $99.7 million, or 33.3 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of eleven hotel properties. At
December 31, 1995, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.

At December 31, 1995, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $66.0 million, or 22.0 percent, of the
Company's real estate portfolio. The Company's interest in the MLP is a less
than one percent limited partnership interest, and Kemper's interest is 75
percent at December 31, 1995. Prior to 1995, Kemper's interest was 50 percent.
At December 31, 1995, MLP-related commitments accounted for approximately $29.8
million of the Company's off-balance-sheet legal commitments, of which the
Company expects to fund $17.0 million.

At December 31, 1995, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $24.8
million, or 8.3 percent, of the Company's real estate portfolio. Prime
Group-related commitments accounted for $165.6 million of the off-balance-sheet
legal commitments at December 31, 1995, of which the Company expects to fund
$15.0 million.

(6) INCOME TAXES

Income tax expense (benefit) was as follows for the years ended December
31, 1995, 1994 and 1993:

<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
--------- ------- -------
<S> <C> <C> <C>
Current.................................................. $(113,087) $(6,898) $(5,773)
Deferred................................................. 38,423 21,329 16,915
--------- ------- -------
Total.......................................... $ (74,664) $14,431 $11,142
========= ======= =======
</TABLE>

Included in the current tax benefit is the recognition of a net operating
loss carryover at December 31, 1995 which will be utilized against taxable
income on Kemper's consolidated short period Federal income tax return for the
January 1 through January 4, 1996 tax year. Beginning January 5, 1996, the
Company will file a stand alone Federal income tax return. Previously, the
Company had filed a consolidated Federal income tax return with Kemper. In the
first quarter of 1996, the Company and Kemper settled the outstanding balances
for the short period under the tax allocation agreement with Kemper making a
payment to the Company of approximately $30 million. The Company's receivable
from Kemper for all remaining balances under the tax allocation agreement, after
adjusting for the $30 million payment, totaled approximately $82.6 million at
December 31, 1995. Such remaining amounts are expected to be settled in the
fourth quarter of 1996.

The actual income tax expense (benefit) for 1995, 1994 and 1993 differed
from the "expected" tax expense (benefit) for those years as displayed below.
"Expected" tax expense (benefit) was computed by applying the U.S. Federal
corporate tax rate of 35 percent in 1995, 1994, and 1993 to income (loss) before
income tax expense (benefit) and cumulative effect of change in accounting
principle.

<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense (benefit)....................... $(72,700) $14,277 $7,992
Difference between "expected" and actual tax expense
(benefit):
State taxes................................................. (1,370) 645 332
Foreign tax credit.......................................... (183) (155) 358
Change in tax rate.......................................... -- -- 1,441
Change in valuation allowance............................... -- -- 701
Other, net.................................................. (411) (336) 318
-------- ------- -------
Total actual tax expense (benefit).................. $(74,664) $14,431 $11,142
======== ======= =======
</TABLE>

47
<PAGE> 50

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES (CONTINUED)

Under SFAS 109 ACCOUNTING FOR INCOME TAXES, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. SFAS 109 allows recognition of deferred tax assets if future realization
of the tax benefit is more likely than not, with a valuation allowance for the
portion that is not likely to be realized.

The implementation of SFAS 109 in 1993 resulted in a one-time increase to
earnings of $2.4 million.

Under SFAS 109, a valuation allowance is established 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 Kemper's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. During 1995 and 1994, the change in the
valuation allowance related solely to the change in the net deferred Federal tax
asset or liability from unrealized gains or losses on investments.

The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred Federal tax liability were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
(in thousands) 1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Deferred Federal tax assets:
Unrealized losses on investments..................... $ -- $ 85,331 $ --
Life policy reserves................................. 42,512 51,519 60,446
Real estate-related.................................. 21,920 39,360 45,851
Other investment-related............................. 1,725 7,435 12,498
Other................................................ 6,864 6,415 5,804
--------- --------- --------
Total deferred Federal tax assets................. 73,021 190,060 124,599
Valuation allowance.................................. (15,201) (100,532) (15,201)
--------- --------- --------
Total deferred Federal tax assets after valuation
allowance....................................... 57,820 89,528 109,398
--------- --------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs................. 111,523 108,663 100,834
Unrealized gains on investments...................... 37,919 -- 49,193
Depreciation and amortization........................ 18,767 18,878 21,367
Other................................................ 2,320 3,351 2,049
--------- --------- --------
Total deferred Federal tax liabilities............ 170,529 130,892 173,443
--------- --------- --------
Net deferred Federal tax liabilities................... $(112,709) $ (41,364) $(64,045)
========= ========= ========
</TABLE>

The valuation allowance is subject to future adjustments based on, among
other items, Kemper's estimates of future operating earnings and capital gains.

The tax returns through the year 1986 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 1987 through 1990 are
currently under examination by the IRS.

(7) RELATED-PARTY TRANSACTIONS

The Company received cash capital contributions of $82.5 million and $90.0
million during 1994 and 1993, respectively.

48
<PAGE> 51

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) RELATED-PARTY TRANSACTIONS (CONTINUED)

In 1994 and 1993, the Company transferred the majority of its deficit
equity ownership interest in two limited partnerships to another Kemper
subsidiary resulting in an increase of the Company's additional paid-in capital
of $71 thousand and $9.2 million, respectively. The Company also paid a non-cash
dividend of $530 thousand in December 1993, which represented the positive
equity ownership interests of the majority of one of its limited partnerships.
Net losses associated with the Company's ownership interests in these limited
partnerships amounted to $0.4 million, $1.4 million and $5.4 million in 1995,
1994 and 1993, respectively, and are included in the Company's consolidated
statement of operations.

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, 1995 and 1994, joint venture mortgage loans
totaled $120 million and $351 million, respectively, and during 1995, 1994 and
1993, the Company earned interest income on these joint venture loans of $19.6
million, $22.0 million and $63.1 million, respectively.

All of the Company's personnel are employees of Federal Kemper Life
Assurance Company ("FKLA"), an affiliated company. The Company is allocated
expenses for the utilization of FKLA employees and facilities, the investment
management services of Zurich Kemper Investments, Inc. ("ZKI"), an affiliated
company, and the information systems of Kemper Service Company ("KSvC"), a ZKI
subsidiary, based on the Company's share of administrative, legal, marketing,
investment management, information systems and operation and support services.
During 1995, 1994 and 1993, expenses allocated to the Company from ZKI and KSvC
amounted to $4.4 million, $6.5 million and $3.1 million, respectively. The
Company also paid to ZKI investment management fees of $3.4 million, $6.0
million and $6.7 million during 1995, 1994 and 1993, respectively. In addition,
expenses allocated to the Company from FKLA during 1995, 1994 and 1993 amounted
to $14.3 million, $11.1 million and $13.1 million, respectively.

During 1995, 1994 and 1993, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $3.5
million, $154.0 million and $343.7 million respectively, to KFC Portfolio Corp.,
an affiliated non-life realty company, in exchange for cash. No gain or loss was
recognized on these sales. The Company also paid KFC Portfolio Corp. $1.8
million in 1995 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. 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.

In 1992 and 1991, the Company entered into 100 percent indemnity
reinsurance agreements ceding $515.7 million and $416.3 million, respectively,
of its fixed-rate annuity liabilities to FLA. FLA is a mutual insurance company
that shares common management with the Company and FKLA and common board members
with the Company, FKLA and Kemper. As of December 31, 1995, the reinsurance
recoverable related to the fixed-rate annuity liabilities ceded to FLA amounted
to approximately $503 million. During 1995 the Company recorded income of $4.4
million related to a ceding commission experience adjustment from the 1992
reinsurance agreement.

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company and FKLA sponsor a welfare plan that provides medical and life
insurance benefits to their 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

49
<PAGE> 52

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)

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 discount rate used in determining the allocated postretirement benefit
obligation was 7.25 percent and 8 percent for 1995 and 1994, respectively. The
assumed health care trend rate used was based on projected experience for 1995
and 1996, 10 percent in 1997, gradually declining to 6 percent by the year 2000
and remaining at that level thereafter.

The status of the plan as of December 31, 1995 and 1994, was as follows:

Accumulated postretirement benefit obligation:

<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Retirees.......................................................................... $234 $206
Fully eligible active plan participants........................................... 111 58
Other active plan participants.................................................... 427 101
Unrecognized gain (loss) from actuarial experience................................ (85) 314
---- ----
Accrued liability....................................................... $687 $679
==== ====
Components of the net periodic postretirement benefit cost:
</TABLE>

<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Service cost-benefits attributed to service during the period..................... $ 58 $ 31
Interest cost on accumulated postretirement benefit obligations................... 41 43
Amortization of unrecognized actuarial gain....................................... (19) (35)
---- ----
Total................................................................... $ 80 $ 39
===== =====
</TABLE>

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, 1995 and 1994 by $146 thousand and $48 thousand,
respectively, and the net postretirement health care interest and service costs
for the years ended December 31, 1995 and 1994 by $24 thousand and $14 thousand,
respectively.

During 1994, the Company adopted certain severance-related policies to
provide benefits, generally limited in time, to former or inactive employees
after employment but before retirement. The effect of adopting these policies
was immaterial.

(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 none of the Company or its joint venture projects have been
identified as a "potentially responsible party" under Federal environmental
guidelines, inherent in the ownership of or lending to real estate projects is
the possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its
consolidated results of operations. However, the Company may be required in the
future to take actions to remedy environmental exposures, and there can be no
assurance that material environmental exposures will not develop or be
identified in the future. The amount of future environmental costs is impossible
to estimate due to, among other factors, the unknown magnitude of possible
exposures, the unknown timing and extent of corrective actions that may be
required, the determination of the Company's liability in proportion to others
and the extent such costs may be covered by insurance or various environmental
indemnification agreements.

50
<PAGE> 53

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

See the note captioned "Financial Instruments--Off-Balance-Sheet Risk"
below for the discussion regarding the Company's loan commitments and standby
financing agreements.

The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1995 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. Assessments
levied against the Company and charged to expense in 1995, 1994 and 1993
amounted to $5.8 million, $0.0 million and $5.8 million, respectively. Such
amounts relate to accrued guaranty fund assessments of $5.0 million and $4.0
million at December 31, 1995 and 1994, respectively. The Company is also
contingently liable for any future guaranty fund assessments related to
insolvencies of unaffiliated insurance companies, for which the life insurance
industry has been unable to estimate the cost to cover losses to policyholders.
No specific amount can be reasonably estimated for such insolvencies as of
December 31, 1995.

(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK

At December 31, 1995, the Company had loan commitments and stand-by
financing agreements totaling $248.2 million to support the financing needs of
various real estate investments. To the extent these arrangements are called
upon, amounts loaned would be secured 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. The Company presently expects to fund approximately $56.4 million
of these arrangements. 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) DERIVATIVE FINANCIAL INSTRUMENTS

The Company is party to derivative financial instruments in the normal
course of business for other than trading purposes to hedge exposures in foreign
currency fluctuations related to certain foreign fixed maturity securities held
by the Company. The following table summarizes various information regarding
these derivative financial instruments as of December 31, 1995 and 1994:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REPRICING
(in thousands) NOTIONAL CARRYING ESTIMATED YEARS TO FREQUENCY
1995 AMOUNT VALUE FAIR VALUE EXPIRATION (DAYS)
- ----------------------------------------------------------------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Non-trading foreign exchange forward options..................... $ 43,754 $112 $112 .32 30
1994
- -----------------------------------------------------------------
Non-trading foreign exchange forward options..................... 34,541 18 18 .25 30
</TABLE>

The Company's hedges relating to foreign currency exposure are implemented
using forward contracts on foreign currencies. These are generally short
duration contracts with U.S. money-center banks. The Company records realized
and unrealized gains and losses on such investments in net income on a current
basis. The amounts of gain (loss) included in net income during 1995, 1994 and
1993 totaled $(1.0 million), $6.4 million and $(2.8 million), respectively.

(13) 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. (See the note captioned "Invested Assets and Related
Income".) Fair value estimates for financial instruments not carried at fair
value are generally determined using discounted cash flow models and assumptions
that are

51
<PAGE> 54

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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 for fixed maturity
securities and for equity securities 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, ZKI.

Cash and short-term investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values.

Mortgage loans and other real estate-related investments: Fair values for
mortgage loans and other real estate-related investments for year-end 1994 were
estimated on a project-by-project basis. Generally, the projected cash flows of
the collateral were discounted using a discount rate of 10 to 12 percent. The
resulting collateral estimates were then used to determine the value of the
Company's real estate-related investments. Fair values for mortgage loans and
other real estate-related investments for year-end 1995 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 of 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 sheet for these instruments approximate fair values. The
fair values of policy loans were estimated by discounting the expected future
cash flows using an interest rate charged on policy loans for similar policies
currently being issued.

Life policy benefits: Fair values of the life policy benefits regarding
investment contracts (primarily deferred annuities) and universal life contracts
were estimated by discounting gross benefit payments, net of contractual
premiums, using the average crediting rate currently being offered in the
marketplace for similar contracts with maturities consistent with those
remaining for the contracts being valued. The Company had projected its future
average crediting rate in 1995 and 1994 to be 4.5 percent and 5.5 percent,
respectively, while the assumed average market crediting rate was 5.5 percent in
1995 and 6.5 percent in 1994.

52
<PAGE> 55

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1995 1994
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
(in thousands) VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities(1)........................ $3,752,325 $3,752,325 $3,463,732 $3,463,732
Cash and short-term investments............ 398,326 398,326 227,353 227,353
Mortgage loans and other real
estate-related assets................... 299,589 299,589 907,283 804,867
Policy loans............................... 289,390 289,390 277,743 277,743
Other invested assets...................... 29,809 21,043 40,527 40,527
Financial instruments recorded as
liabilities:
Life policy benefits....................... 4,573,212 4,488,297 4,843,690 4,709,561
</TABLE>

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

(1) Includes $112 and $18 carrying value and fair value for 1995 and 1994,
respectively, of derivative securities used to hedge the foreign currency
exposure on certain specific foreign fixed maturity investments.

(14) 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 1996, assuming that there is
sufficient statutory earned surplus, is $38.3 million. The Company paid no cash
dividends in 1995, 1994 or 1993.

The Company's net income (loss) and stockholder's equity as determined in
accordance with statutory accounting principles were as follows:

<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)............................................. $(64,707) $ 44,491 $(36,178)
======== ======== ========
Statutory surplus............................................. $383,374 $416,243 $329,430
======== ======== ========
</TABLE>

53
<PAGE> 56

APPENDIX A

ILLUSTRATIONS OF CASH VALUES,

CASH SURRENDER VALUES,

DEATH BENEFITS

The tables in this Prospectus have been prepared to help show how values
under a Policy change with investment experience. The tables illustrate how Cash
Values, Surrender Values (reflecting the deduction of Surrender Charges, if any)
and Death Benefits under a Policy issued on an insured of a given age would vary
over time if the hypothetical gross investment rates of return were a uniform,
after tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment
rate of return averages 0%, 6%, or 12%, but fluctuates over or under those
averages throughout the years, the Cash Values, Surrender Values and Death
Benefits may be different.

The amounts shown for the Cash Value, Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Subaccounts is lower than the gross return. This is
because of a daily charge to the Subaccounts for assuming mortality and expense
risks, which is equivalent to an effective annual charge of 0.90%. This charge
is guaranteed not to exceed an effective annual rate of 0.90%. In addition, the
net investment returns also reflect the deduction of the Fund investment
advisory fees and other Fund expenses, (.92%, the average of the fees and
expenses). The tables also reflect applicable charges and deductions including a
3.5% deduction against premiums, a monthly administrative charge of $5 and
monthly charges for providing insurance protection. For each hypothetical gross
investment rate of return, tables are provided reflecting current and guaranteed
cost of insurance charges. Hypothetical gross average investment rates of return
of 0%, 6% and 12% correspond to the following approximate net annual investment
rate of return of -1.82%, 4.18% and 10.18%, on a current basis. On a guaranteed
basis, these rates of return would be -1.82%, 4.18% and 10.18%, respectively.
Cost of insurance rates vary by issue age, sex, rating class and Policy Year
and, therefore, are not reflected in the approximate net annual investment rate
of return above.

Values are shown for Policies which are issued to a male standard nonsmoker
and a male preferred nonsmoker. Values for Policies issued on a basis involving
a higher mortality risk would result in lower Cash Values, Surrender Values and
Death Benefits than those illustrated. Females generally have a more favorable
rate structure than males.

The tables also reflect the fact that no charges for federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.

Upon request, KILICO will furnish an illustration based on the proposed
Insured's age, sex and premium payment requested.

54
<PAGE> 57

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE STANDARD NON-SMOKER $1,000. ANNUAL PREMIUM ISSUE AGE 35

$100,000 INITIAL DEATH BENEFIT:

VALUES--CURRENT COST OF INSURANCE

<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 724 17 100,000 774 68 100,000 825 118
2 2,153 1,429 648 100,000 1,576 794 100,000 1,729 947
3 3,310 2,112 1,255 100,000 2,401 1,544 100,000 2,715 1,858
4 4,526 2,771 1,840 100,000 3,250 2,318 100,000 3,791 2,859
5 5,802 3,409 2,403 100,000 4,125 3,118 100,000 4,966 3,960
6 7,142 4,019 3,046 100,000 5,020 4,047 100,000 6,247 5,273
7 8,549 4,603 3,678 100,000 5,938 5,013 100,000 7,643 6,718
8 10,027 5,161 4,298 100,000 6,880 6,017 100,000 9,168 8,306
9 11,578 5,693 4,909 100,000 7,846 7,062 100,000 10,836 10,052
10 13,207 6,216 5,525 100,000 8,855 8,164 100,000 12,677 11,987
11 14,917 6,730 6,148 100,000 9,909 9,326 100,000 14,712 14,130
12 16,713 7,237 6,778 100,000 11,010 10,550 100,000 16,961 16,501
13 18,599 7,736 7,415 100,000 12,160 11,838 100,000 19,445 19,124
14 20,579 8,227 8,059 100,000 13,362 13,193 100,000 22,190 22,022
15 22,657 8,711 8,711 100,000 14,617 14,617 100,000 25,223 25,223
16 24,840 9,187 9,187 100,000 15,929 15,929 100,000 28,574 28,574
17 27,132 9,656 9,656 100,000 17,299 17,299 100,000 32,277 32,277
18 29,539 10,118 10,118 100,000 18,731 18,731 100,000 36,368 36,368
19 32,066 10,573 10,573 100,000 20,227 20,227 100,000 40,889 40,889
20 34,719 11,020 11,020 100,000 21,789 21,789 100,000 45,883 45,883
25 50,113 10,923 10,923 100,000 28,575 28,575 100,000 78,636 78,636
30 69,761 8,599 8,599 100,000 35,318 35,318 100,000 131,633 131,633
35 94,836 2,275 2,275 100,000 41,110 41,110 100,000 215,714 215,714
40 126,840 (11,752) 0 100,000 44,302 44,302 100,000 349,794 349,794
45 167,685 (42,893) 0 100,000 40,832 40,832 100,000 565,945 565,945

POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 100,000
19 100,000
20 100,000
25 105,372
30 160,592
35 250,228
40 374,279
45 594,242
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.

55
<PAGE> 58

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE STANDARD NON-SMOKER $1,000. ANNUAL PREMIUM ISSUE AGE 35

$100,000 INITIAL DEATH BENEFIT:

VALUES--GUARANTEED COST OF INSURANCE

<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 723 16 100,000 773 67 100,000 824 117
2 2,153 1,425 644 100,000 1,572 790 100,000 1,725 943
3 3,310 2,106 1,249 100,000 2,395 1,538 100,000 2,708 1,851
4 4,526 2,764 1,832 100,000 3,241 2,310 100,000 3,781 2,850
5 5,802 3,398 2,391 100,000 4,112 3,105 100,000 4,952 3,945
6 7,142 4,007 3,034 100,000 5,006 4,032 100,000 6,230 5,256
7 8,549 4,590 3,665 100,000 5,922 4,997 100,000 7,623 6,698
8 10,027 5,147 4,285 100,000 6,862 6,000 100,000 9,145 8,283
9 11,578 5,676 4,892 100,000 7,824 7,040 100,000 10,807 10,023
10 13,207 6,177 5,486 100,000 8,810 8,119 100,000 12,624 11,933
11 14,917 6,647 6,065 100,000 9,816 9,234 100,000 14,609 14,026
12 16,713 7,086 6,626 100,000 10,844 10,385 100,000 16,779 16,320
13 18,599 7,492 7,170 100,000 11,893 11,571 100,000 19,154 18,833
14 20,579 7,863 7,695 100,000 12,962 12,794 100,000 21,756 21,587
15 22,657 8,198 8,198 100,000 14,049 14,049 100,000 24,606 24,606
16 24,840 8,495 8,495 100,000 15,155 15,155 100,000 27,731 27,731
17 27,132 8,749 8,749 100,000 16,276 16,276 100,000 31,160 31,160
18 29,539 8,953 8,953 100,000 17,406 17,406 100,000 34,921 34,921
19 32,066 9,104 9,104 100,000 18,543 18,543 100,000 39,053 39,053
20 34,719 9,194 9,194 100,000 19,681 19,681 100,000 43,594 43,594
25 50,113 8,534 8,534 100,000 25,239 25,239 100,000 74,373 74,373
30 69,761 5,161 5,161 100,000 29,953 29,953 100,000 124,442 124,442
35 94,836 (3,252) 0 100,000 32,143 32,143 100,000 203,536 203,536
40 126,840 (21,775) 0 100,000 28,278 28,278 100,000 329,236 329,236
45 167,685 (64,123) 0 100,000 8,455 8,455 100,000 531,607 531,607

POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 100,000
19 100,000
20 100,000
25 100,000
30 151,819
35 236,102
40 352,282
45 558,187
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

56
<PAGE> 59

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE STANDARD NON-SMOKER $3,000. ANNUAL PREMIUM ISSUE AGE 55

$100,000 INITIAL DEATH BENEFIT:

VALUES--CURRENT COST OF INSURANCE

<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------ --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ---------- --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,032 787 100,000 2,180 935 100,000 2,328 1,083
2 6,457 3,968 2,499 100,000 4,392 2,922 100,000 4,835 3,365
3 9,930 5,803 4,108 100,000 6,631 4,936 100,000 7,533 5,838
4 13,577 7,539 5,619 100,000 8,902 6,983 100,000 10,448 8,529
5 17,406 9,164 7,019 100,000 11,195 9,050 100,000 13,596 11,451
6 21,426 10,721 8,588 100,000 13,553 11,420 100,000 17,045 14,913
7 25,647 12,267 10,191 100,000 16,040 13,964 100,000 20,893 18,817
8 30,080 13,804 11,830 100,000 18,662 16,688 100,000 25,183 23,209
9 34,734 15,332 13,505 100,000 21,427 19,600 100,000 29,968 28,141
10 39,620 16,850 15,215 100,000 24,342 22,707 100,000 35,304 33,669
11 44,751 18,358 16,960 100,000 27,417 26,019 100,000 41,255 39,857
12 50,139 19,857 18,741 100,000 30,659 29,543 100,000 47,892 46,776
13 55,796 21,347 20,558 100,000 34,078 33,289 100,000 55,293 54,504
14 61,736 22,827 22,410 100,000 37,683 37,266 100,000 63,548 63,131
15 67,972 24,298 24,298 100,000 41,484 41,484 100,000 72,753 72,753
16 74,521 25,760 25,760 100,000 45,493 45,493 100,000 83,020 83,020
17 81,397 27,213 27,213 100,000 49,720 49,720 100,000 94,444 94,444
18 88,617 28,657 28,657 100,000 54,177 54,177 100,000 107,045 107,045
19 96,198 30,092 30,092 100,000 58,878 58,878 100,000 120,941 120,941
20 104,158 31,518 31,518 100,000 63,834 63,834 100,000 136,268 136,268
25 150,340 21,578 21,578 100,000 86,603 86,603 100,000 237,080 237,080
30 209,282 (8,154) 0 100,000 119,288 119,288 125,253 395,181 395,181
35 284,509 (97,968) 0 100,000 157,008 157,008 164,858 638,100 638,100
40 380,519 (411,771) 0 100,000 203,214 203,214 205,246 1,026,438 1,026,438
45 503,055 (2,584,062) 0 100,000 266,594 266,594 266,594 1,693,207 1,693,207

POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 106,722
18 118,820
19 131,826
20 145,807
25 248,934
30 414,940
35 670,005
40 1,036,702
45 1,693,207
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

57
<PAGE> 60

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE STANDARD NON-SMOKER $3,000. ANNUAL PREMIUM ISSUE AGE 55

$100,000 INITIAL DEATH BENEFIT:

VALUES--GUARANTEED COST OF INSURANCE

<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------- ------------------------------------ -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ----------- --------- ------- ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,030 785 100,000 2,178 933 100,000 2,326 1,081
2 6,457 3,962 2,492 100,000 4,385 2,915 100,000 4,827 3,358
3 9,930 5,795 4,100 100,000 6,623 4,928 100,000 7,523 5,829
4 13,577 7,527 5,608 100,000 8,890 6,970 100,000 10,434 8,515
5 17,406 9,152 7,007 100,000 11,181 9,036 100,000 13,579 11,435
6 21,426 10,663 8,530 100,000 13,493 11,360 100,000 16,981 14,848
7 25,647 12,053 9,977 100,000 15,819 13,743 100,000 20,668 18,592
8 30,080 13,310 11,336 100,000 18,153 16,180 100,000 24,667 22,693
9 34,734 14,421 12,594 100,000 20,486 18,659 100,000 29,014 27,187
10 39,620 15,372 13,737 100,000 22,806 21,171 100,000 33,750 32,115
11 44,751 16,150 14,752 100,000 25,108 23,710 100,000 38,929 37,531
12 50,139 16,745 15,629 100,000 27,389 26,273 100,000 44,619 43,503
13 55,796 17,142 16,353 100,000 29,644 28,855 100,000 50,904 50,115
14 61,736 17,329 16,912 100,000 31,870 31,454 100,000 57,886 57,469
15 67,972 17,283 17,283 100,000 34,062 34,062 100,000 65,687 65,687
16 74,521 16,973 16,973 100,000 36,205 36,205 100,000 74,457 74,457
17 81,397 16,306 16,306 100,000 38,244 38,244 100,000 84,370 84,370
18 88,617 15,323 15,323 100,000 40,229 40,229 100,000 95,616 95,616
19 96,198 13,905 13,905 100,000 42,096 42,096 100,000 108,027 108,027
20 104,158 11,972 11,972 100,000 43,819 43,819 100,000 121,716 121,716
25 150,340 (8,555) 0 100,000 49,628 49,628 100,000 213,228 213,228
30 209,282 (66,744) 0 100,000 46,230 46,230 100,000 355,823 355,823
35 284,509 (256,141) 0 100,000 8,441 8,441 100,000 572,636 572,636
40 380,519 (1,034,340) 0 100,000 (210,236) 0 100,000 918,273 918,273
45 503,055 (16,453,799) 0 100,000 (5,702,159) 0 100,000 1,520,785 1,520,785

POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 106,133
19 117,750
20 130,236
25 223,890
30 373,614
35 601,267
40 927,456
45 1,520,785
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

58
<PAGE> 61

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE PREFERRED NON-SMOKER $1,500. ANNUAL PREMIUM ISSUE AGE 35

$150,000 INITIAL DEATH BENEFIT:

VALUES--CURRENT COST OF INSURANCE

<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS -------------------------------- --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------ --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,421 368 150,000 1,508 455 150,000 1,595 542
2 3,229 2,816 1,651 150,000 3,079 1,913 150,000 3,352 2,186
3 4,965 4,186 2,908 150,000 4,716 3,438 150,000 5,288 4,010
4 6,788 5,531 4,141 150,000 6,421 5,030 150,000 7,421 6,031
5 8,703 6,852 5,349 150,000 8,197 6,694 150,000 9,772 8,269
6 10,713 8,148 6,694 150,000 10,048 8,594 150,000 12,361 10,907
7 12,824 9,421 8,039 150,000 11,976 10,593 150,000 15,215 13,832
8 15,040 10,671 9,382 150,000 13,985 12,696 150,000 18,358 17,070
9 17,367 11,898 10,726 150,000 16,077 14,905 150,000 21,822 20,650
10 19,810 13,102 12,069 150,000 18,257 17,224 150,000 25,638 24,605
11 22,376 14,285 13,414 150,000 20,528 19,657 150,000 29,843 28,972
12 25,069 15,446 14,759 150,000 22,894 22,207 150,000 34,476 33,789
13 27,898 16,586 16,106 150,000 25,359 24,879 150,000 39,581 39,100
14 30,868 17,705 17,454 150,000 27,927 27,676 150,000 45,205 44,953
15 33,986 18,804 18,804 150,000 30,603 30,603 150,000 51,401 51,401
16 37,261 19,883 19,883 150,000 33,390 33,390 150,000 58,229 58,229
17 40,699 20,943 20,943 150,000 36,294 36,294 150,000 65,752 65,752
18 44,309 21,983 21,983 150,000 39,319 39,319 150,000 74,040 74,040
19 48,099 23,004 23,004 150,000 42,470 42,470 150,000 83,172 83,172
20 52,079 24,006 24,006 150,000 45,753 45,753 150,000 93,234 93,234
25 75,170 28,751 28,751 150,000 64,347 64,347 150,000 161,158 161,158
30 104,641 33,080 33,080 150,000 87,164 87,164 150,000 271,450 271,450
35 142,254 37,029 37,029 150,000 115,167 115,167 150,000 450,533 450,533
40 190,260 40,632 40,632 150,000 149,532 149,532 159,999 741,316 741,316
45 251,528 43,918 43,918 150,000 191,705 191,705 201,290 1,213,470 1,213,470

POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 150,000
19 150,000
20 150,000
25 215,952
30 331,169
35 522,618
40 793,209
45 1,274,144
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

59
<PAGE> 62

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE PREFERRED NON-SMOKER $1,500. ANNUAL PREMIUM ISSUE AGE 35

$150,000 INITIAL DEATH BENEFIT:

VALUES--GUARANTEED COST OF INSURANCE

<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,114 60 150,000 1,190 137 150,000 1,267 214
2 3,229 2,197 1,031 150,000 2,421 1,255 150,000 2,654 1,488
3 4,965 3,247 1,968 150,000 3,688 2,410 150,000 4,167 2,889
4 6,788 4,262 2,871 150,000 4,993 3,603 150,000 5,819 4,429
5 8,703 5,241 3,738 150,000 6,335 4,832 150,000 7,623 6,119
6 10,713 6,182 4,728 150,000 7,714 6,260 150,000 9,591 8,137
7 12,824 7,084 5,701 150,000 9,129 7,746 150,000 11,739 10,357
8 15,040 7,946 6,657 150,000 10,580 9,292 150,000 14,086 12,797
9 17,367 8,765 7,593 150,000 12,067 10,895 150,000 16,649 15,477
10 19,810 9,542 8,510 150,000 13,591 12,558 150,000 19,451 18,418
11 22,376 10,274 9,402 150,000 15,149 14,277 150,000 22,515 21,644
12 25,069 10,957 10,270 150,000 16,740 16,053 150,000 25,866 25,179
13 27,898 11,591 11,110 150,000 18,366 17,885 150,000 29,534 29,054
14 30,868 12,173 11,922 150,000 20,024 19,773 150,000 33,553 33,302
15 33,986 12,700 12,700 150,000 21,713 21,713 150,000 37,958 37,958
16 37,261 13,170 13,170 150,000 23,433 23,433 150,000 42,791 42,791
17 40,699 13,574 13,574 150,000 25,178 25,178 150,000 48,094 48,094
18 44,309 13,905 13,905 150,000 26,941 26,941 150,000 53,915 53,915
19 48,099 14,155 14,155 150,000 28,717 28,717 150,000 60,311 60,311
20 52,079 14,314 14,314 150,000 30,500 30,500 150,000 67,344 67,344
25 75,170 13,448 13,448 150,000 39,289 39,289 150,000 115,081 115,081
30 104,641 8,530 8,530 150,000 47,001 47,001 150,000 192,469 192,469
35 142,254 (3,905) 0 150,000 51,289 51,289 150,000 314,711 314,711
40 190,260 (31,401) 0 150,000 47,288 47,288 150,000 508,982 508,982
45 251,528 (94,364) 0 150,000 21,442 21,442 150,000 821,751 821,751

POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 150,000
19 150,000
20 150,000
25 154,208
30 234,812
35 365,065
40 544,611
45 862,839
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

60
<PAGE> 63

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE PREFERRED NON-SMOKER $4,500. ANNUAL PREMIUM ISSUE AGE 55

$150,000 INITIAL DEATH BENEFIT:

VALUES--CURRENT COST OF INSURANCE

<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS --------------------------------- --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,725 4,263 2,403 150,000 4,524 2,664 150,000 4,785 2,924
2 9,686 8,449 6,251 150,000 9,237 7,039 150,000 10,056 7,858
3 14,896 12,559 10,024 150,000 14,147 11,612 150,000 15,864 13,329
4 20,365 16,594 13,721 150,000 19,263 16,390 150,000 22,264 19,391
5 26,109 20,555 17,345 150,000 24,592 21,381 150,000 29,315 26,105
6 32,139 24,445 21,252 150,000 30,144 26,951 150,000 37,084 33,891
7 38,471 28,263 25,155 150,000 35,928 32,819 150,000 45,644 42,535
8 45,120 32,012 29,056 150,000 41,954 38,998 150,000 55,075 52,119
9 52,101 35,693 32,957 150,000 48,231 45,495 150,000 65,466 62,730
10 59,431 39,307 36,858 150,000 54,771 52,322 150,000 76,915 74,466
11 67,127 42,855 40,761 150,000 61,585 59,491 150,000 89,530 87,435
12 75,208 46,339 44,667 150,000 68,683 67,011 150,000 103,428 101,756
13 83,694 49,759 48,577 150,000 76,078 74,896 150,000 118,742 117,560
14 92,604 53,116 52,492 150,000 83,782 83,157 150,000 135,614 134,989
15 101,959 56,413 56,413 150,000 91,808 91,808 150,000 154,204 154,204
16 111,782 59,650 59,650 150,000 100,170 100,170 150,000 174,687 174,687
17 122,096 62,828 62,828 150,000 108,881 108,881 150,000 197,255 197,255
18 132,926 65,948 65,948 150,000 117,956 117,956 150,000 222,120 222,120
19 144,297 69,011 69,011 150,000 127,410 127,410 150,000 249,516 249,516
20 156,237 72,018 72,018 150,000 137,260 137,260 150,000 279,702 279,702
25 225,511 86,254 86,254 150,000 193,040 193,040 202,692 483,475 483,475
30 313,924 99,241 99,241 150,000 261,493 261,493 274,568 814,349 814,349
35 426,763 111,088 111,088 150,000 345,500 345,500 362,775 1,351,599 1,351,599
40 570,779 121,895 121,895 150,000 448,595 448,595 453,081 2,223,949 2,223,949
45 754,583 131,754 131,754 150,000 575,115 575,115 575,115 3,640,411 3,640,411

POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 158,669
15 178,877
16 200,890
17 222,898
18 246,553
19 271,973
20 299,281
25 507,649
30 855,067
35 1,419,179
40 2,246,189
45 3,640,411
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

61
<PAGE> 64

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY

MALE PREFERRED NON-SMOKER $4,500. ANNUAL PREMIUM ISSUE AGE 55

$150,000 INITIAL DEATH BENEFIT:

VALUES--GUARANTEED COST OF INSURANCE

<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------- ------------------------------------ -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ----------- --------- ------- ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,725 3,075 1,214 150,000 3,297 1,437 150,000 3,520 1,660
2 9,686 6,002 3,804 150,000 6,641 4,443 150,000 7,308 5,110
3 14,896 8,781 6,246 150,000 10,031 7,496 150,000 11,392 8,856
4 20,365 11,409 8,536 150,000 13,468 10,595 150,000 15,802 12,929
5 26,109 13,875 10,665 150,000 16,943 13,733 150,000 20,568 17,358
6 32,139 16,170 12,977 150,000 20,450 17,257 150,000 25,726 22,533
7 38,471 18,284 15,175 150,000 23,983 20,875 150,000 31,317 28,209
8 45,120 20,199 17,243 150,000 27,530 24,574 150,000 37,386 34,430
9 52,101 21,896 19,159 150,000 31,077 28,341 150,000 43,984 41,248
10 59,431 23,352 20,904 150,000 34,610 32,161 150,000 51,177 48,728
11 67,127 24,550 22,456 150,000 38,120 36,026 150,000 59,046 56,952
12 75,208 25,474 23,802 150,000 41,603 39,931 150,000 67,698 66,026
13 83,694 26,103 24,921 150,000 45,053 43,870 150,000 77,258 76,076
14 92,604 26,416 25,792 150,000 48,465 47,840 150,000 87,883 87,258
15 101,959 26,384 26,384 150,000 51,833 51,833 150,000 99,761 99,761
16 111,782 25,956 25,956 150,000 55,137 55,137 150,000 113,120 113,120
17 122,096 24,997 24,997 150,000 58,296 58,296 150,000 128,232 128,232
18 132,926 23,565 23,565 150,000 61,385 61,385 150,000 145,322 145,322
19 144,297 21,485 21,485 150,000 64,313 64,313 150,000 164,155 164,155
20 156,237 18,639 18,639 150,000 67,044 67,044 150,000 184,927 184,927
25 225,511 (11,771) 0 150,000 76,956 76,956 150,000 323,790 323,790
30 313,924 (98,215) 0 150,000 75,008 75,008 150,000 540,165 540,165
35 426,763 (379,805) 0 150,000 29,668 29,668 150,000 869,155 869,155
40 570,779 (1,537,009) 0 150,000 (241,236) 0 150,000 1,393,624 1,393,624
45 754,583 (24,467,369) 0 150,000 (7,091,810) 0 150,000 2,307,887 2,307,887

POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 161,307
19 178,929
20 197,872
25 339,980
30 567,174
35 912,613
40 1,407,561
45 2,307,887
</TABLE>

ASSUMPTIONS:

(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.

(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.

(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.

(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.

(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.

62
<PAGE> 65

APPENDIX B

TABLE OF DEATH BENEFIT FACTORS

<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95-99 100
</TABLE>

* ATTAINED AGE AS OF THE BEGINNING OF THE POLICY YEAR