KILICO VARIABLE SEPARATE ACCOUNT/IL, 485BPOS, 1997-04-28

KILICO VARIABLE SEPARATE ACCOUNT/IL
485BPOS, 1997-04-28

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1997

REGISTRATION STATEMENT 33-65399
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1

TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------

A. Exact name of trust: KILICO VARIABLE SEPARATE ACCOUNT

B. Name of depositor: KEMPER INVESTORS LIFE INSURANCE COMPANY

C. Complete address of depositor's principal executive offices:

1 Kemper Drive
Long Grove, Illinois 60049

D. Name and complete address of agent for service:

DEBRA P. REZABEK, ESQ.
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049

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COPIES TO:
FRANK JULIAN, ESQ. JOAN E. BOROS, ESQ.
Kemper Investors Life Insurance Company Katten Muchin & Zavis
1 Kemper Drive 1025 Thomas Jefferson Street, N.W.
Long Grove, Illinois 60049 Washington, D.C. 20007
</TABLE>

It is proposed that this filing will become effective (check appropriate
box)

[ ] Immediately upon filing pursuant to paragraph (b), or

[ ] 60 days after filing pursuant to paragraph (a)(1), or

[X] on May 1, 1997 pursuant to paragraph (b), or

[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.

If appropriate, check the following box:

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

E. Title and amount of securities being registered:

Units of Interests in the Separate Account under

Flexible Premium Variable Life Insurance Policies.

F. Proposed maximum aggregate offering price to the public of the
securities being registered.

Registration of Indefinite Amount of Securities filed February 6, 1987
(File No. 33-11803) pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Rule 24f-2 Notice for the Registrant's most recent
fiscal year was filed on February 27, 1997.

G. Amount of filing Fee:

None.

H. Approximate date of proposed public offering:

Continuous.

[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.

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REGISTRANT ELECTS TO BE GOVERNED BY THE PROVISIONS OF RULE 6E-3(T)(B)(13)(I)(B)

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PROSPECTUS--MAY 1, 1997

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FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------

ISSUED BY

KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT

HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (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) Investors Fund Series (formerly 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.
------------------------------

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.................................. 19
DISTRIBUTION OF POLICIES.................................... 20
FEDERAL TAX MATTERS......................................... 20
LEGAL CONSIDERATIONS........................................ 21
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 22
VOTING INTERESTS............................................ 22
STATE REGULATION OF KILICO.................................. 22
DIRECTORS AND OFFICERS OF KILICO............................ 23
LEGAL MATTERS............................................... 25
LEGAL PROCEEDINGS........................................... 25
EXPERTS..................................................... 25
REGISTRATION STATEMENT...................................... 25
FINANCIAL STATEMENTS........................................ 25
APPENDICES.................................................. 60
</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 following the date all requirements for
coverage have been completed by the Owner and coverage under the Policy is
recorded by KILICO as in force.

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

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

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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 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.)

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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 Investors Fund Series 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 Investors Fund Series (formerly 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.)

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

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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,"
page 15.)

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. Each Portfolio of the Funds incurs annual fund operating expenses which
consist of management fees and other expenses. The management fees for each
Portfolio for the year ending December 31, 1996 as a percentage of average net
assets were as follows: Money Market 0.50%; Total Return 0.55%; High Yield
0.60%; Growth 0.60%; Government Securities 0.55%; International 0.75%; Small Cap
Growth 0.65%; 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%.

The other expenses for each Portfolio for the year ending December 31, 1996
as a percentage of average net assets were as follows: Money Market 0.10%; Total
Return 0.04%; High Yield 0.05%; Growth 0.04%; Government Securities 0.11%;
International 0.21%; Small Cap Growth 0.10%; Lord Abbett Growth and Income
0.22%; JanCap Growth 0.20%; T. Rowe Price Asset Allocation 0.35%; T. Rowe Price
International Equity 0.30%; Founders Capital Appreciation 0.26%; INVESCO Equity
Income 0.23%; PIMCO Total Return Bond 0.24%; PIMCO Limited Maturity Bond 0.24%;
and Berger Capital Growth 0.26%. The investment manager for the American Skandia
Trust has agreed to reimburse each Portfolio to the extent expenses exceed
specified percentage limits. For additional information about the fees and
expenses of the Funds, see "The Funds", page 5, and 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 Appendix A 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

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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.

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 Investors Fund Series
(formerly 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.

INVESTORS FUND SERIES (FORMERLY KEMPER INVESTORS FUND)

The Investors Fund Series 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.

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

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 Investors Fund Series specified above and manages its daily
investments and business affairs, subject to the policies established by the
trustees of the Investors Fund Series. 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. ZKI uses the services of Zurich Investment Management
Limited ("ZIML"), an affiliate of ZKI, as a sub-adviser for the Total Return,
High Yield, Growth, International and Small Cap Growth Portfolios. ZKI pays ZIML
for its services a sub-advisory fee, payable monthly at the following annual
rates applied to the portion of the average daily net assets of the applicable
Portfolio allocated by ZKI to ZIML for management: .35 of 1% for the Total
Return, Growth, International and Small Cap Growth Portfolios and .30 of 1% for
the High Yield Portfolio.

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 by investing in common stocks of seasoned companies which are
expected to show above-average growth.

JANCAP GROWTH PORTFOLIO: This Portfolio seeks growth of capital in a manner
consistent with preservation of capital by emphasizing investments in common
stocks.

T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks total
return on its assets from long-term growth of capital and income principally
through investment primarily in common stocks of 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 U.S. companies
with market capitalizations of $1.5 billion or less. These stocks normally will
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. The Portfolio invests primarily in
dividend-paying, marketable common stocks of domestic and foreign industrial
issuers.

PIMCO TOTAL RETURN BOND PORTFOLIO: This Portfolio seeks to maximize total
return, consistent with preservation of capital by investing primarily in fixed
income securities of various types.

PIMCO LIMITED MATURITY BOND PORTFOLIO: This Portfolio seeks to maximize
total return, consistent with preservation of capital and prudent investment
management by investing primarily in fixed income securities of various types.

BERGER CAPITAL GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing primarily in 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 Investors Fund
Series 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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<PAGE> 10

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> 11

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. 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.

8
<PAGE> 12

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 reserves the right to charge up to $25 for each transfer. 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.

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<PAGE> 13

REINSTATEMENT. If a Policy lapses because of insufficient Surrender Value
to cover the monthly deductions, and it has not been surrendered for its
Surrender Value, it may be reinstated at any time within three years after the
date of lapse. 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 I POLICY II POLICY 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 Cash Value multiplied by the death

10
<PAGE> 14

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.

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

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<PAGE> 15

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.

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%.

12
<PAGE> 16

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 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

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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.

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.

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.

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<PAGE> 18

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 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%.

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.

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<PAGE> 19

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. 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.

TRANSFER CHARGE. KILICO reserves the right to charge up to $25 for each
transfer. The transfer charge is designed to reimburse KILICO for the
administrative expenses related to the transfer.

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.")

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<PAGE> 20

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 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 Commission;

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

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

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<PAGE> 21

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.

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,

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<PAGE> 22

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.

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,"

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<PAGE> 23

page 14.) 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 Tax Matters," below. 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.

The maximum sales commission payable to registered representatives will be
approximately 63% of premiums up to the commission target premium and 2.5% of
excess premium in the first year and 2.5% of total premium in renewal years two
through ten. Beginning in the second policy year, a service fee on assets which
have been maintained and serviced may also be paid. In addition, certain
overrides and production and managerial bonuses may be paid. These additional
amounts may constitute a substantial portion of total commissions and fees paid.
Firms to which service fees and commissions may be paid include affiliated
broker-dealers. In addition to the commissions described above, 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.

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

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<PAGE> 24

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.

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 the 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.

21
<PAGE> 25

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 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.

22
<PAGE> 26

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 (52) Chief Executive Officer, President and Director of Federal
Chief Executive Officer since Kemper Life Assurance Company (FKLA) and Fidelity Life
February 1992. President since Association (FLA) since 1988. Chief Executive Officer,
November 1993. Director since President and Director of Zurich Life Insurance Company of
1992. America (ZLICA) and Zurich Direct, Inc. (ZD) since March
1996. Chairman of the Board and Director of Investors
Brokerage Services, Inc. (IBS) and Investors Brokerage
Services Insurance Agency, Inc. (IBSIA) since 1993. Chairman
of the Board of FKLA and FLA from April 1988 to January
1996. Chairman of the Board of KILICO from February 1992 to
January 1996. Executive Vice President and Director of
Kemper Corporation (K-Corp.) 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.
Eliane C. Frye (49) Executive Vice President of FKLA and FLA since 1995.
Executive Vice President since Executive Vice President of ZLICA and ZD since March 1996.
1995. Director of IBS and IBSIA since 1995. Senior Vice President
of KILICO, FKLA and FLA from 1993 to 1995. Vice President of
FKLA and FLA from 1988 to 1993.
Frederick L. Blackmon (45) Senior Vice President and Chief Financial Officer of FKLA
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice
1995. Vice President and Chief Financial Officer of ZLICA since
March 1996. Senior Vice President, Chief Financial Officer
and Director of ZD since March 1996. Treasurer and Chief
Financial Officer of K-Corp. since January 1996. Chief
Financial Officer of Alexander Hamilton Life Insurance
Company from April 1989 to November 1995.
James C. Harkensee (38) Senior Vice President of FKLA and FLA since January 1996.
Senior Vice President since Senior Vice President of ZLICA since 1995. Senior Vice
January 1996. President of ZD since 1995. Vice President of ZLICA from
1992 to 1995. Chief Actuary of ZLICA from 1991 to 1994.
Assistant Vice President of ZLICA from 1990 to 1992. Vice
President of ZD from 1994 to 1995.
James E. Hohmann (41) Senior Vice President and Chief Actuary of FKLA since
Senior Vice President and Chief December 1995. Senior Vice President and Chief Actuary of
Actuary since December 1995. FLA since January 1996. Senior Vice President and Chief
Actuary of ZLICA since March 1996. Senior Vice President,
Chief Actuary and Director of ZD 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.
Edward K. Loughridge (42) Senior Vice President and Corporate Development Officer of
Senior Vice President and FKLA and FLA since January 1996. Senior Vice President and
Corporate Development Officer Corporate Development Officer for ZLICA and ZD since March
since January 1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
Debra P. Rezabek (41) Senior Vice President of FKLA and FLA since March 1996.
Senior Vice President since 1996. Corporate Secretary of FKLA and FLA since January 1996. Vice
General Counsel since 1992. President of KILICO, FKLA and FLA since 1995. General
Corporate Secretary since January Counsel and Director of Government Affairs of FKLA and FLA
1996. since 1992 and of KILICO since 1993. Senior Vice President,
General Counsel and Corporate Secretary of ZLICA since March
1996. Senior Vice President, General Counsel, Corporate
Secretary and Director of ZD since March 1996. Secretary of
IBS and IBSIA since 1993. Director of IBS and IBSIA from
1993 to 1996. Assistant General Counsel of FKLA and FLA from
1988 to 1992. General Counsel and Assistant Secretary of
KILICO, FKLA and FLA from 1992 to 1996. Assistant Secretary
of K-Corp. since January 1996.
</TABLE>

23
<PAGE> 27

<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
George Vlaisavljevich (54) Senior Vice President of FKLA, FLA and ZLICA since October 1996. Director of IBS
Senior Vice President since October and IBSIA since October 1996. Executive Vice President of The Copeland Companies
1996. from April 1983 to September 1996.
Loren J. Alter (58) Director of FKLA, FLA and Zurich Kemper Investments, Inc. (ZKI) since January
Director since January 1996. 1996. Director of ZLICA since May 1979. Executive Vice President of Zurich
Insurance Company since 1979. President, Chief Executive Officer and Director of
K-Corp. since January 1996.
William H. Bolinder (53) Chairman of the Board and Director of FKLA and FLA since January 1996. Chairman of
Chairman of the Board and Director the Board of ZLICA and ZD since March 1995. Chairman of the Board of K-Corp. since
since January 1996. January 1996. Vice Chairman and Director of ZKI since January 1996. Member of the
Corporate Executive Board of Zurich Insurance Group since October 1994. Chairman
of the Board of American Guarantee and Liability Insurance Company, Zurich
American Insurance Company of Illinois, American Zurich Insurance Company and
Steadfast Insurance Company since 1995. Chief Executive Officer of American
Guarantee and Liability Insurance Company, Zurich American Insurance Company of
Illinois, American Zurich Insurance Company and Steadfast Insurance Company from
1986 to June 1995. President of Zurich Holding Company of America since 1986.
Manager of Zurich Insurance Company, U.S. Branch since 1986. Underwriter for
Zurich American Lloyds since 1986.
Daniel L. Doctoroff (38) Director of FKLA, FLA and K-Corp. since January 1996. Director of ZLICA since
Director since January 1996. March 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; Specialty Foods Corporation since 1993; and Capstar
Hotel Company since 1995.
Steven M. Gluckstern (45) Director of FKLA, FLA and K-Corp. since January 1996. Director of ZLICA since
Vice Chairman and Director since March 1996. Vice Chairman of FKLA and FLA since January 1996. Member of the
January 1996. Corporate Executive Board of Zurich Insurance Group since March 1997. Chairman of
the Board and Director of ZKI 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.
Markus Rohrbasser (42) Director of FKLA, FLA and ZLICA since May 1997. Chief Financial Officer and Member
Director since May 1997. of the Corporate Executive Board of Zurich Insurance Company since January 1997.
Member of Enlarged Corporate Executive Board and Chief Executive Officer of Union
Bank of Switzerland (North America) from 1992 to 1997.
Michael P. Stramaglia (37) Director of FKLA and FLA since January 1996. Director of ZLICA since March 1996.
Director since January 1996. President of Zurich Life Insurance Company of Canada (ZLICC) since June 1994.
Chief Operating Officer of ZLICC since March 1997. President of KEZMO, L.L.C. and
President of KEZLI, L.L.C. since 1995. Chief Executive Officer of ZLICC from June
1994 to March 1997. Executive Vice President and Chief Operating Officer of ZLICC
from June 1993 to June 1994. Senior Vice President of the Corporate Division of
ZLICC from January 1990 to June 1993. Director of ZLICC, Zurich Life of Canada
Holdings Limited, Zurich Indemnity Company of Canada, Zurich Canadian Holdings
Limited, and Zurmex Canada Holdings Limited.
</TABLE>

24
<PAGE> 28

<TABLE>
<S> <C>
Paul H. Warren (41) Director of FKLA , FLA and K-Corp. since January 1996. Director of ZLICA since
Director since January 1996. March 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 June 1993; Unionamerica Insurance Company since September 1993;
Tarquin plc since November 1994; Charman Underwriting Agencies Ltd. since November
1994; and Corporate Health Dimensions since March 1997.
</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.

EXPERTS

The consolidated balance sheets of KILICO as of December 31, 1996 and
January 4, 1996 and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 and for each of the years in the two year period ended
December 31, 1995 and the statements of assets and liabilities and policy
owners' equity of the Separate Account as of December 31, 1996 and the related
statements of operations for the year then ended, and the statements of changes
in policy owners' equity for the years ended December 31, 1996 and 1995 have
been included herein and in the registration statement in reliance upon the
report 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. The report of KPMG Peat Marwick LLP covering KILICO's
financial statements contains an explanatory paragraph that states as a result
of the acquisition of its parent, Kemper Corporation, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.

Actuarial matters included in this prospectus have been examined by
Christopher J. Nickele, FSA as stated in the opinion filed as an exhibit to the
Registration Statement.

REGISTRATION STATEMENT

A registration statement has been filed with the Securities and Exchange
Commission 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.

25
<PAGE> 29

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS

KEMPER INVESTORS LIFE INSURANCE COMPANY:

We have audited the accompanying statements of assets and liabilities and
policy owners' equity of the Money Market Subaccount, Total Return Subaccount,
High Yield Subaccount, Growth Subaccount, Government Securities Subaccount,
International Subaccount, SmallCap Growth Subaccount (investment options within
the Investors Fund Series) Founders Capital Appreciation Subaccount, Berger
Capital Growth Subaccount, Jancap Growth Subaccount, Lord Abbett Growth & Income
Subaccount, T. Rowe Price International Equity Subaccount, T. Rowe Price Asset
Allocation Subaccount, PIMCO Limited Maturity Bond Subaccount, PIMCO Total
Return Subaccount, and INVESCO Equity Income Subaccount (investment options
within the American Scandia Trust) of KILICO Variable Separate Account (the
Account) as of December 31, 1996 and the related statements of operations for
the year then ended, and the statements of changes in policy owners' equity for
each of the years in the two-year period then ended. These financial statements
are the responsibility of the Account'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. Our procedures included
confirmation of investments owned at December 31, 1996 by correspondence with
transfer agents. 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 financial statements referred to above present fairly,
in all material respects, the financial position of the subaccounts of KILICO
Variable Separate Account at December 31, 1996 and the results of their
operations, and changes in their policy owners' equity for the periods stated in
the first paragraph above, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Chicago, Illinois

March 26, 1997

26
<PAGE> 30

(This page intentionally left blank)

27
<PAGE> 31

KILICO VARIABLE SEPARATE ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY

DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
---------------------------------------------------------------------------------------------
MONEY GOVERNMENT SMALLCAP
MARKET TOTAL RETURN HIGH YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
value......................... $1,038 3,097 1,507 2,362 3,990 -- 2
Dividends and other
receivables................... 3 -- 3 -- 2 -- --
------ ----- ----- ----- ----- -- --
Total assets.............. 1,041 3,097 1,510 2,362 3,992 -- 2
LIABILITIES AND POLICY OWNERS'
EQUITY
Liabilities:
Mortality and expense risk
charges..................... 4 6 -- 2 6 -- --
------ ----- ----- ----- ----- -- --
Other........................... -- -- 2 -- 1 -- --
------ ----- ----- ----- ----- -- --
Total liabilities............. 4 6 2 2 7 -- --
------ ----- ----- ----- ----- -- --
Policy owners' equity........... $1,037 3,091 1,508 2,360 3,985 -- 2
====== ===== ===== ===== ===== == ==
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units
sold over payments for units
redeemed...................... 519 1,316 669 1,077 2,052 -- 2
Accumulated net investment
income........................ 518 819 745 479 1,352 -- --
Accumulated net realized gain on
sales of investments.......... -- 457 12 617 275 -- --
Unrealized appreciation of
investments................... -- 499 82 187 306 -- --
------ ----- ----- ----- ----- -- --
Policy owners' equity........... $1,037 3,091 1,508 2,360 3,985 -- 2
====== ===== ===== ===== ===== == ==
</TABLE>

See accompanying notes to financial statements.

28
<PAGE> 32

<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
----------------------------------------------------------------------------------------------------
FOUNDERS BERGER LORD ABBETT T. ROWE PRICE T. ROWE PRICE PIMCO LIMITED
CAPITAL CAPITAL JANCAP GROWTH & INTERNATIONAL ASSET MATURITY
APPRECIATION GROWTH GROWTH INCOME EQUITY ALLOCATION BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ---------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- 2 4 2 -- -- --
-- -- -- -- -- -- --
-- --- --- --- --- --- --
-- 2 4 2 -- -- --
-- -- -- -- -- -- --
== === === === === === ==
-- -- -- -- -- -- --
-- --- --- --- --- --- --
-- 2 4 2 -- -- --
== === === === === === ==
-- 2 4 2 -- -- --
== == == == == == ==
-- -- -- -- -- -- --
-- --- --- --- --- --- --
-- 2 4 2 -- -- --
== === === === === === ==

<CAPTION>
AMERICAN SKANDIA TRUST
---------------------------

PIMCO TOTAL INVESCO
RETURN EQUITY INCOME
SUBACCOUNT SUBACCOUNT
----------- -------------
<S> <C> <C>
== ==
--- ---
-- --

-- --
=== ===
-- --
--- ---
-- --
=== ===

-- --

-- --
--- ---
-- --
=== ===
</TABLE>

29
<PAGE> 33

KILICO VARIABLE SEPARATE ACCOUNT

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
---------------------------------------------------------------------------------------------
MONEY GOVERNMENT SMALLCAP
MARKET TOTAL RETURN HIGH YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions................... $58 166 170 280 287 -- --
Mortality and expense risk
charges......................... 12 24 16 19 36 -- --
--- --- --- ---- ---- -- --
Net investment income............. 46 142 154 261 251 -- --
--- --- --- ---- ---- -- --
Net realized and unrealized gain
on investments:
Net realized gain on sales of
investments................... -- 128 9 397 17 -- --
Change in unrealized
appreciation (depreciation) of
investments................... -- 117 34 (228) (203) -- --
--- --- --- ---- ---- -- --
Net realized and unrealized gain
(loss) on investments........... -- 245 43 169 (186) -- --
--- --- --- ---- ---- -- --
Net increase in policy owners'
equity resulting from
operations...................... $46 387 197 430 65 -- --
=== === === ==== ==== == ==
</TABLE>

See accompanying notes to financial statements.

30
<PAGE> 34

<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
--------------------------------------------------------------------------------------------------------
FOUNDERS LORD ABBETT T. ROWE PRICE T. ROWE PRICE PIMCO LIMITED
CAPITAL BERGER CAPITAL JANCAP GROWTH & INTERNATIONAL ASSET MATURITY
APPRECIATION GROWTH GROWTH INCOME EQUITY ALLOCATION BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
== == == == == == ==
== == == == == == ==
== == == == == == ==
== == == == == == ==
== == == == == == ==
-- -- -- -- -- -- --
== == == == == == ==

<CAPTION>
AMERICAN SKANDIA TRUST
----------------------------

PIMCO TOTAL INVESCO EQUITY
RETURN INCOME
SUBACCOUNT SUBACCOUNT
----------- --------------
<S> <C> <C>
== ==
== ==
== ==
== ==
== ==
-- --
== ==
</TABLE>

31
<PAGE> 35

KILICO VARIABLE SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
----------------------------------------------------------------------------
MONEY MARKET TOTAL RETURN HIGH YIELD
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------- ------------------- -------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income.................... $ 46 68 142 47 154 75
Net realized gain on sales of
investments............................ -- -- 128 14 9 54
Change in unrealized appreciation
(depreciation) of investments.......... -- -- 117 442 34 106
====== ===== ===== ===== ===== =====
Net increase in policy owners' equity
resulting from operations............ 46 68 387 503 197 235
------ ----- ----- ----- ----- -----
Account unit transactions:
Proceeds from units sold................. 270 76 43 -- 6 17
Net transfers (to) from subaccounts...... 55 (348) 484 72 (567) 270
Payments for units redeemed.............. (336) (104) (376) (146) (217) (147)
------ ----- ----- ----- ----- -----
Net increase (decrease) in policy
owners' equity from account unit
transactions......................... (11) (376) 151 (74) (778) 140
------ ----- ----- ----- ----- -----
Total increase (decrease) in policy owners'
equity................................... 35 (308) 538 429 (581) 375
Policy owners' equity:
Beginning of year........................ 1,002 1,310 2,553 2,124 2,089 1,714
------ ----- ----- ----- ----- -----
End of year.............................. $1,037 1,002 3,091 2,553 1,508 2,089
====== ===== ===== ===== ===== =====
</TABLE>

See accompanying notes to financial statements.

32
<PAGE> 36

<TABLE>
<CAPTION>
INVESTORS FUND SERIES
- ---------------------------------------------------------------
GOVERNMENT
GROWTH SECURITIES INTERNATIONAL SMALLCAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------- ------------- ------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
- ---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
261 102 251 214 -- -- -- --
397 31 17 45 -- -- -- --
(228) 301 (203) 404 -- -- -- --
===== ===== ===== ===== == == == ==
430 434 65 663 -- -- -- --
- ----- ----- ----- ----- -- -- -- --
121 3 22 12 -- -- 2 --
65 508 (37) (502) -- -- -- --
(179) (143) (162) (251) -- -- -- --
- ----- ----- ----- ----- -- -- -- --
7 368 (177) (741) -- -- 2 --
- ----- ----- ----- ----- -- -- -- --
437 802 (112) (78) -- -- 2 --
1,923 1,121 4,097 4,175 -- -- -- --
- ----- ----- ----- ----- -- -- -- --
2,360 1,923 3,985 4,097 -- -- 2 --
===== ===== ===== ===== == == == ==
</TABLE>

33
<PAGE> 37

KILICO VARIABLE SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
-------------------------------------------------------
FOUNDERS BERGER LORD ABBETT
CAPITAL CAPITAL JANCAP GROWTH &
APPRECIATION GROWTH GROWTH INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income.............................. $-- -- -- -- -- -- -- --
Net realized gain (loss) on sales of investments... -- -- -- -- -- -- -- --
Change in unrealized appreciation (depreciation) of
investments...................................... -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
Net increase (decrease) in policy owners' equity
resulting from operations...................... -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
Account unit transactions:
Proceeds from units sold........................... -- -- 2 -- 4 -- 2 --

Net transfers (to) from subaccounts................ -- -- -- -- -- -- -- --
Payments for units redeemed........................ -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
Net increase in policy owners' equity from
account unit transactions...................... -- -- 2 -- 4 -- 2 --
-- -- -- -- -- -- -- --
Total increase in policy owners' equity.............. -- -- 2 -- 4 -- 2 --
Policy owners' equity:
Beginning of year.................................. -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
End of year........................................ $-- -- 2 -- 4 -- 2 --
== == == == == == == ==
</TABLE>

See accompanying notes to financial statements.

34
<PAGE> 38

<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
-------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE PIMCO LIMITED INVESCO
INTERNATIONAL ASSET MATURITY PIMCO TOTAL EQUITY
EQUITY ALLOCATION BOND RETURN INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ------------- ------------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
== == == == == == == == == ==
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
== == == == == == == == == ==
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
== == == == == == == == == ==
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
== == == == == == == == == ==
</TABLE>

35
<PAGE> 39

KILICO VARIABLE SEPARATE ACCOUNT

NOTES TO 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, a wholly-owned subsidiary of Kemper Corporation, was acquired by an
investor group led by Zurich Insurance Company ("Zurich") on January 4, 1996.

The Separate Account is used to fund policies ("Policy") for Select
variable universal life policies and Power V variable universal life policies.
The Separate Account is divided into Subaccounts. For the Select policies five
Subaccounts are available to Policy Owners and invests exclusively in a
corresponding Portfolio of the Investors Fund Series (The "Fund"), an open-end
diversified management investment company. For the Power V policies, sixteen
Subaccounts are available to Policy Owners from the Investors Fund Series and
American Skandia Trust.

ESTIMATES

SECURITY VALUATION

The investments are stated at current value which is based on the closing
bid price, net asset value, at December 31, 1996.

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.

36
<PAGE> 40

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF INVESTMENTS

Investments, at cost, at December 31, 1996, are as follows (in thousands):

<TABLE>
<CAPTION>
SHARES
OWNED COST
------ -------
<S> <C> <C>
INVESTORS FUND SERIES
Money Market Portfolio.................................... 1,038 $ 1,038
Total Return Portfolio.................................... 1,100 2,598
High Yield Portfolio...................................... 1,177 1,425
Growth Portfolio.......................................... 700 2,175
Government Securities Portfolio........................... 3,304 3,684
International Portfolio................................... -- --
Small Cap Growth Portfolio................................ -- 2
AMERICAN SKANDIA TRUST
Founders Capital Appreciation Portfolio................... -- --
Berger Capital Growth Portfolio........................... -- 2
Jancap Growth Portfolio................................... -- 4
Lord Abbett Growth & Income Portfolio..................... -- 2
T. Rowe Price International Equity Portfolio.............. -- --
T. Rowe Price Asset Allocation Portfolio.................. -- --
PIMCO Limited Maturity Bond Portfolio..................... -- --
PIMCO Total Return Portfolio.............................. -- --
INVESCO Equity Income Portfolio........................... -- --
-------
TOTAL INVESTMENTS.................................... $10,930
=======
</TABLE>

The underlying investments are summarized below.

INVESTORS FUND SERIES

MONEY MARKET PORTFOLIO: This Portfolio invests primarily in short-term
obligations of major banks and corporations.

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).

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.

GROWTH 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).

GOVERNMENT SECURITIES PORTFOLIO: This Portfolio invests primarily in U.S.
Government Securities. The Portfolio may also invest in fixed-income securities
other than U.S. Government securities and may engage in options and financial
futures transactions.

INTERNATIONAL PORTFOLIO: This Portfolio's investments will normally
consist of equity securities of non-United States issuers, however, it may also
invest in convertible and debt securities of non-United States issuers and
foreign currencies.

SMALL CAP GROWTH PORTFOLIO: This Portfolio's investments will consist
primarily of common stocks and securities convertible into or exchangeable for
common stocks and to a limited degree in preferred stocks and debt securities.
At least 65% of the Portfolio's total assets will be invested in equity
securities of companies having a market capitalization of $1 billion or less at
the time of initial investment.

37
<PAGE> 41

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

AMERICAN SKANDIA TRUST

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

JANCAP GROWTH PORTFOLIO: This Portfolio seeks growth of capital in a
manner consistent with preservation of capital by emphasizing investments in
common stocks.

LORD ABBETT GROWTH & INCOME PORTFOLIO: This Portfolio seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in
market value by investing in common stocks of seasoned companies which are
expected to show above-average growth.

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.

PIMCO TOTAL RETURN PORTFOLIO: This Portfolio seeks to maximize total
return, consistent with preservation of capital by investing primarily in fixed
income securities of various types.

(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 $131,500 and $1,900 for the Select and
Power V variable universal life products, respectively, for the year ended
December 31, 1996. 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, 1996, KILICO received contingent deferred sales charges of approximately
$27,800 and $0 for the Select and Power V variable universal life products,
respectively.

Zurich Kemper Investments, Inc. ("ZKI"), formerly Kemper Financial
Services, Inc., an affiliated company, is the investment manager of the
Portfolios of the Investors Fund Series Portfolios. In connection with the
acquisition of Kemper Corporation on January 4, 1996, Zurich also acquired 100%
of ZKI. American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager for the American Skandia Trust.

38
<PAGE> 42

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(4) POLICY OWNERS' EQUITY

Policy owners' equity at December 31, 1996, 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>
POWER V SUBACCOUNT
INVESTORS FUND SERIES
Money Market Subaccount..................................... 55 $1.010 $ 55
Total Return Subaccount..................................... -- 1.205 --
High Yield Subaccount....................................... -- 2.809 --
Growth Subaccount........................................... -- 3.364 --
Government Securities Subaccount............................ -- 1.278 --
International Subaccount.................................... -- 1.561 --
Small Cap Growth Subaccount................................. 1 1.673 2
</TABLE>

AMERICAN SKANDIA TRUST

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Founders Capital Appreciation Subaccount.................... -- $16.762 --
Berger Capital Growth Subaccount............................ -- 14.358 2
JanCap Growth Subaccount.................................... -- 18.748 4
Lord Abbett Growth & Income Subaccount...................... -- 17.131 2
T. Rowe Price International Equity Subaccount............... -- 12.043 --
T. Rowe Price Asset Allocation Subaccount................... -- 13.240 --
PIMCO Limited Maturity Bond Subaccount...................... -- 10.786 --
PIMCO Total Return Subaccount............................... -- 11.085 --
Invesco Equity Income Subaccount............................ -- 13.958 --
--
TOTAL POWER V POLICY OWNERS' EQUITY......................... 65
--
</TABLE>

<TABLE>
<CAPTION>
SELECT SUBACCOUNT
<S> <C> <C> <C>
Money Market Subaccount..................................... 627 $1.567 $ 982
Total Return Subaccount..................................... 1,477 2.093 3,091
High Yield Subaccount....................................... 682 2.211 1,508
Growth Subaccount........................................... 846 2.789 2,360
Government Securities Subaccount............................ 2,137 1.864 3,985
-------
TOTAL SELECT POLICY OWNERS' EQUITY.......................... $11,926
-------
</TABLE>

39
<PAGE> 43

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Stockholder

Kemper Investors Life Insurance Company:

We have audited the accompanying consolidated balance sheets of Kemper
Investors Life Insurance Company and subsidiaries as of December 31, 1996 and as
of January 4, 1996, and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 (post-acquisition), and for each of the years in the two-year
period ended December 31, 1995 (pre-acquisition). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 aforementioned post-acquisition consolidated financial
statements present fairly, in all material respects, the financial position of
Kemper Investors Life Insurance Company and subsidiaries as of December 31, 1996
and as of January 4, 1996, and the results of their operations and their cash
flows for the post-acquisition period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned
pre-acquisition consolidated financial statements present fairly, in all
material respects, the financial position of Kemper Investors Life Insurance
Company and subsidiaries and the results of their operations and their cash
flows for the pre-acquisition periods, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective
January 4, 1996, an investor group as described in Note 1, acquired all of the
outstanding stock of Kemper Investors Life Insurance Company in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.

KPMG PEAT MARWICK LLP

Chicago, Illinois

March 21, 1997

40
<PAGE> 44

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value (cost:
December 31, 1996, $3,929,650; January 4, 1996,
$3,749,323)............................................... $3,866,431 $3,749,323
Short-term investments...................................... 71,696 372,515
Joint venture mortgage loans................................ 110,971 110,194
Third-party mortgage loans.................................. 106,585 144,450
Other real estate-related investments....................... 50,157 34,296
Policy loans................................................ 288,302 289,390
Other invested assets....................................... 23,507 19,215
---------- ----------
Total investments................................. 4,517,649 4,719,383
Cash........................................................ 2,776 25,811
Accrued investment income................................... 115,199 104,402
Goodwill.................................................... 244,688 254,883
Value of business acquired.................................. 189,639 190,222
Deferred insurance acquisition costs........................ 26,811 --
Federal income tax receivable............................... 3,840 112,646
Reinsurance recoverable..................................... 427,165 502,836
Receivable on sales of securities........................... 32,569 902
Other assets and receivables................................ 30,277 10,540
Assets held in separate accounts............................ 2,127,247 1,761,110
---------- ----------
Total assets...................................... $7,717,860 $7,682,735
========== ==========
LIABILITIES
Future policy benefits...................................... $4,256,521 $4,585,148
Ceded future policy benefits................................ 427,165 502,836
Benefits and claims payable to policyholders................ 36,142 4,535
Other accounts payable and liabilities...................... 59,462 30,030
Deferred income taxes....................................... 60,362 53,472
Liabilities related to separate accounts.................... 2,127,247 1,761,110
---------- ----------
Total liabilities................................. 6,966,899 6,937,131
---------- ----------
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.................................. 761,538 743,104
Unrealized loss on investments.............................. (47,498) --
Retained earnings........................................... 34,421 --
---------- ----------
Total stockholder's equity........................ 750,961 745,604
---------- ----------
Total liabilities and stockholder's equity........ $7,717,860 $7,682,735
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

41
<PAGE> 45

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
PREACQUISITION
----------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
REVENUE
Net investment income....................................... $299,688 $ 348,448 $353,084
Realized investment gains (losses).......................... 13,602 (318,700) (54,557)
Premium income.............................................. 7,822 236 --
Fees and other income....................................... 35,095 38,101 31,950
-------- --------- --------
Total revenue..................................... 356,207 68,085 330,477
-------- --------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders............. 237,349 245,615 248,494
Commissions, taxes, licenses and fees....................... 28,135 31,793 26,910
Operating expenses.......................................... 24,678 20,837 25,324
Deferral of insurance acquisition costs..................... (27,820) (36,870) (31,852)
Amortization of insurance acquisition costs................. 2,316 14,423 20,809
Amortization of value of business acquired.................. 21,530 -- --
Amortization of goodwill.................................... 10,195 -- --
-------- --------- --------
Total benefits and expenses....................... 296,383 275,798 289,685
-------- --------- --------
Income (loss) before income tax expense (benefit)........... 59,824 (207,713) 40,792
Income tax expense (benefit)................................ 25,403 (74,664) 14,431
-------- --------- --------
Net income (loss)................................. $ 34,421 $(133,049) $ 26,361
======== ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

42
<PAGE> 46

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(in thousands)

<TABLE>
<CAPTION>
PREACQUISITION
-------------------------
DECEMBER 31 JANUARY 4 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL STOCK, beginning and end of period..... $ 2,500 $ 2,500 $ 2,500 $ 2,500
-------- -------- --------- ---------

ADDITIONAL PAID-IN CAPITAL, beginning of
period....................................... 743,104 491,994 491,994 409,423
Capital contributions from parent.............. 18,434 -- -- 82,500
Adjustment to reflect purchase accounting
method....................................... -- 251,110 -- --
Transfer of limited partnership interest to
parent....................................... -- -- -- 71
-------- -------- --------- ---------
End of period........................ 761,538 743,104 491,994 491,994
-------- -------- --------- ---------

UNREALIZED GAIN (LOSS) ON INVESTMENTS,
beginning of period.......................... -- 68,502 (236,443) 93,096
Unrealized gain (loss) on revaluation of
investments, net............................. (47,498) -- 304,945 (329,539)
Adjustment to reflect purchase accounting
method....................................... -- (68,502) -- --
-------- -------- --------- ---------
End of period........................ (47,498) -- 68,502 (236,443)
-------- -------- --------- ---------

RETAINED EARNINGS, beginning of period......... -- 42,880 175,929 149,568
Net income (loss).............................. 34,421 -- (133,049) 26,361
Adjustment to reflect purchase accounting
method....................................... -- (42,880) -- --
-------- -------- --------- ---------
End of period........................ 34,421 -- 42,880 175,929
-------- -------- --------- ---------

Total stockholder's equity........... $750,961 $745,604 $ 605,876 $ 433,980
======== ======== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

43
<PAGE> 47

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
PREACQUISITION
-------------------------
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $ 34,421 $(133,049) $ 26,361
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses (gains)............... (13,602) 318,700 54,557
Interest credited and other charges.............. 230,298 237,984 242,591
Deferred insurance acquisition costs............. (25,504) (22,447) (11,043)
Amortization of value of business acquired....... 21,530 -- --
Amortization of goodwill......................... 10,195 -- --
Amortization of discount and premium on
investments.................................... 25,743 4,586 (1,383)
Deferred income taxes............................ (897) 38,423 20,809
Net change in Federal income tax receivable...... 108,806 (86,990) 809
Other, net....................................... (22,283) (29,905) (14,161)
----------- --------- -----------
Net cash provided from operating
activities................................ 368,707 327,302 318,540
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................ 264,383 320,143 144,717
Fixed maturities sold prior to maturity.......... 891,995 297,637 910,913
Mortgage loans, policy loans and other invested
assets......................................... 168,727 450,573 536,668
Cost of investments purchased or loans originated:
Fixed maturities................................. (1,369,091) (549,867) (1,447,393)
Mortgage loans, policy loans and other invested
assets......................................... (119,044) (131,966) (281,059)
Short-term investments, net......................... 300,819 (168,351) 198,299
Net change in receivable and payable for securities
transactions..................................... (31,667) (1,397) (16,553)
Net reductions in other assets...................... 105 1,996 2,678
----------- --------- -----------
Net cash provided by investing activities... 106,237 218,768 48,270
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits......................................... 141,159 247,778 215,034
Withdrawals...................................... (700,084) (755,917) (652,513)
Capital contributions from parent................... 18,434 -- 82,500
Other............................................... 42,512 (35,309) 3,871
----------- --------- -----------
Net cash used in financing activities....... (497,979) (543,448) (351,108)
----------- --------- -----------
Net increase (decrease) in cash........ (23,035) 2,622 15,702
CASH, beginning of period............................. 25,811 23,189 7,487
----------- --------- -----------
CASH, end of period................................... $ 2,776 $ 25,811 $ 23,189
=========== ========= ===========
</TABLE>

See accompanying notes to consolidated financial statements.

44
<PAGE> 48

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Kemper Investors Life Insurance Company and subsidiaries (the "Company")
issues fixed and variable annuity products, variable life, term life and
interest-sensitive life insurance products marketed primarily through a network
of financial institutions, securities brokerage firms, insurance agents and
financial planners. The Company is licensed in the District of Columbia and all
states except New York. The Company is a wholly-owned subsidiary of Kemper
Corporation ("Kemper"). On January 4, 1996, an investor 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 own 80 percent
and 20 percent, respectively, of Kemper and therefore the Company.

The financial statements include the accounts of the Company on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated.

PURCHASE ACCOUNTING METHOD

The acquisition of the Company on January 4, 1996, was accounted for using
the purchase method of accounting. The consolidated financial statements of the
Company prior to January 4, 1996, were prepared on a historical cost basis in
accordance with generally accepted accounting principles. The accompanying
financial statements and notes thereto prepared prior to January 4, 1996 have
been labeled "preacquisition". The accompanying consolidated financial
statements of the Company as of January 4, 1996 (the acquisition date) and as of
and for the year ended December 31, 1996, have been prepared in conformity with
the purchase method of accounting. The Company has presented January 4, 1996
(the acquisition date), as the opening purchase accounting balance sheet for
comparative purposes throughout the accompanying financial statements and notes
thereto.

Under purchase accounting, the Company's assets and liabilities have been
marked to their relative fair market values as of the acquisition date. The
difference between the cost of acquiring the Company and the net fair market
values of the Company's assets and liabilities as of the acquisition date has
been recorded as goodwill. The Company is amortizing goodwill on a straight-line
basis over twenty-five years. The allocated cost of acquiring the Company was
$745.6 million and the acquisition resulted in goodwill of $254.9 million as of
January 4, 1996.

The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding goodwill
as of each reporting period. In the event that the Company determines that
goodwill is not recoverable, it would amortize such amounts as additional
goodwill expense in the accompanying financial statements. As of December 31,
1996, the Company believes that no such adjustment is necessary.

Purchase accounting adjustments primarily affected the recorded historical
values of fixed maturities, mortgage loans, other invested assets, deferred
insurance acquisition costs, future policy benefits and deferred income taxes.

Deferred insurance acquisition costs, and the related amortization thereof,
for policies sold prior to January 4, 1996, have been replaced by the value of
business acquired.

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

A 15 percent discount rate was used to determine such value and represents
the rate of return required by Zurich and Insurance Partners to invest in the
business being acquired. In selecting the rate of return used to value the
policies purchased, the Company considered the magnitude of the risks associated
with each of the actuarial assumptions used in determining expected future cash
flows, the cost of capital available to fund the acquisition, the perceived
likelihood of changes in insurance regulations and tax laws, the complexity of
the Company's business, and the prices paid (i.e., discount rates used in
determining other life insurance company valuations) on similar blocks of
business sold in recent periods.

45
<PAGE> 49

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The value of the business acquired is amortized over the estimated contract
life of the business acquired in relation to the present value of estimated
gross profits using current assumptions based on an interest rate equal to the
liability or contract rate on the value of business acquired. The estimated
amortization and accretion of interest for the value of business acquired for
each of the years through December 31, 2001 are as follows:

<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ----------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996........................................... $190,222 $(31,427) $ 9,897 $168,692
1997........................................... 168,692 (26,330) 10,152 152,514
1998........................................... 152,514 (26,769) 9,085 134,830
1999........................................... 134,830 (26,045) 8,000 116,785
2000........................................... 116,785 (24,288) 6,834 99,331
2001........................................... 99,331 (21,538) 5,867 83,660
</TABLE>

The projected ending balance of the value of business acquired will be
further adjusted to reflect the impact of unrealized gains or losses on fixed
maturities held as available for sale in the investment portfolio. Such
adjustments are not recorded in the Company's net income but rather are recorded
as a credit or charge to stockholder's equity, net of income tax. As of December
31, 1996, this adjustment increased the value of business acquired and
stockholder's equity by approximately $20.9 million and $13.6 million,
respectively.

ESTIMATES

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

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 note
captioned "Reinsurance".)

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

DEFERRED INSURANCE ACQUISITION COSTS

The costs of acquiring new business after January 4, 1996, principally
commission expense and certain policy issuance and underwriting expenses, have
been deferred to the extent they are recoverable from estimated future gross
profits on the related contracts and policies. The deferred insurance
acquisition costs for annuities, separate account business and
interest-sensitive life insurance products are being amortized over the
estimated contract life in relation to the present value of estimated gross
profits. Deferred insurance acquisition costs related to such interest-sensitive
products also reflect the estimated impact of unrealized gains or losses on
fixed maturities held as available for sale in the investment portfolio, through
a credit or charge to stockholder's equity, net of income tax. The deferred
insurance acquisition costs for term-life insurance products are being amortized
over the premium paying period of the policies.

46
<PAGE> 50

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FUTURE POLICY BENEFITS

Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 4.0 percent to 7.5 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.5 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 3.0 percent to 12.0
percent.

Liabilities for future term life policy benefits have been computed
principally by a net level premium method. Anticipated rates of mortality are
based on the 1975-1980 Select and Ultimate Table modified by Company experience,
including withdrawals. Estimated future investment yields are a level 7 percent
for reinsurance assumed and for direct business, 8 percent for three years; 7
percent for year four; and 6 percent thereafter.

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 note
captioned "Fair Value of Financial Instruments".)

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

Mortgage loans are carried at their unpaid balance, net of unamortized
discount and any applicable reserves or write-downs. Other real estate-related
investments net of any applicable reserve and write-downs include notes
receivable from real estate ventures; investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures; common
stock carried at fair value and real estate owned carried 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. At year-end
1995, reflecting the Company's change in strategy with respect to its real
estate portfolio, and the disposition thereof, and on January 4, 1996,
reflecting the acquisition of the Company, real estate-related investments were
valued using an estimate of the investments observable market price, net of
estimated costs to sell. 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.

Under purchase accounting, the market value of the Company's policy loans
and other invested assets consisting primarily of venture capital investments
and a leveraged lease, became the Company's new cost basis in such investments.
Investments in policy loans and other invested assets after January 4, 1996 are
carried at cost. Other invested assets also include equity securities, not
related to real estate-related investments, which are carried at fair value.

Realized gains or losses on sales of investments, determined on the basis
of identifiable cost on the disposition of the respective investment,
recognition of other-than-temporary declines in value and changes in real
estate-related reserves and write-downs are included in revenue. Net unrealized
gains or losses on revaluation of

47
<PAGE> 51

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

SEPARATE ACCOUNT BUSINESS

The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding variable
annuity and variable life insurance contracts for the exclusive benefit of
variable annuity and variable life insurance contract holders. The Company
receives administrative fees from the 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 prior to January 4, 1996 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 consolidated Federal tax return. Subsequent
to January 4, 1996, the Company and its subsidiaries will file separate Federal
income tax returns.

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 refunded by Kemper under the tax allocation arrangement for
the period from January 1, 1996 to January 4, 1996 and for the years ended
December 31, 1995 and 1994 amounted to $108.8 million, $25.2 million and $10.7
million, respectively. The Company paid $28.1 million of Federal income taxes
directly to the United States Treasury Department during 1996.

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

48
<PAGE> 52

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME

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

<TABLE>
<CAPTION>
Estimated Unrealized
Carrying Amortized ---------------------
Value Cost Gains Losses
(in thousands) -------- --------- ----- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 92,238 $ 93,202 $ -- $ (964)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 30,853 31,519 -- (666)
Debt securities issued by foreign governments.......... 105,394 108,456 504 (3,566)
Corporate securities................................... 1,896,615 1,935,511 5,918 (44,814)
Mortgage and asset-backed securities................... 1,741,331 1,760,962 1,990 (21,621)
---------- ---------- ------ --------
Total fixed maturities.......................... $3,866,431 $3,929,650 $8,412 $(71,631)
========== ========== ====== ========

JANUARY 4, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 215,637 $ 215,637 $ -- $ --
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 24,241 24,241 -- --
Debt securities issued by foreign governments.......... 139,361 139,361 -- --
Corporate securities................................... 1,695,268 1,695,268 -- --
Mortgage and asset-backed securities................... 1,674,816 1,674,816 -- --
---------- ---------- ------ --------
Total fixed maturities.......................... $3,749,323 $3,749,323 $ -- $ --
========== ========== ====== ========
</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 $267.7 million real estate portfolio at December 31, 1996
consists of joint venture and third-party mortgage loans and other real
estate-related investments.

At December 31, 1996 and January 4, 1996, total impaired loans were as
follows:

<TABLE>
<CAPTION>
December 31 January 4
1996 1996
(in millions) ----------- ---------
<S> <C> <C>
Impaired loans without reserves--gross...................... $39.8 $--
Impaired loans with reserves--gross......................... 7.6 21.9
----- -----
Total gross impaired loans........................... 47.4 21.9
Reserves related to impaired loans.......................... (4.4) (6.5)
----- -----
Net impaired loans................................... $43.0 $15.4
===== =====
</TABLE>

49
<PAGE> 53

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

Impaired loans without reserves include loans in which the deficit in
equity investments in real estate-related investments is considered in
determining reserves and write-downs. At December 31, 1996, the Company's
deficit in equity investments considered in determining reserves and write-downs
amounted to $5.9 million. The Company had an average balance of $30.8 million
and $124.2 million in impaired loans for 1996 and 1995, respectively. Cash
payments received on impaired loans are generally applied to reduce the
outstanding loan balance.

At December 31, 1996 and January 4, 1996, loans on nonaccrual status
amounted to $43.5 million and $3.5 million, respectively. The Company's
nonaccrual loans are generally included in impaired loans.

At December 31, 1996, securities carried at approximately $6.1 million were
on deposit with governmental agencies as required by law.

At December 31, 1996, the Company had six separate asset-backed securities
included in fixed maturity investments from trusts formed to securitize assets
underwritten by Green Tree Financial Corporation, which in aggregate amounted to
$90.7 million. No other investments exceeded ten percent of the Company's
stockholder's equity at December 31, 1996.

Proceeds from sales of investments in fixed maturities prior to maturity
were $892.0 million, $297.6 million and $910.9 million during 1996, 1995 and
1994, respectively. Gross gains of $9.9 million, $21.2 million and $6.0 million
and gross losses of $16.2 million, $11.9 million and $55.9 million were realized
on sales of fixed maturities in 1996, 1995 and 1994, respectively.

The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1996:

<TABLE>
<CAPTION>
Carrying Amortized
Value Cost Value
(in thousands) -------- ----------
<S> <C> <C>
One year or less............................................ $ 36,814 $ 36,862
Over one year through five.................................. 643,741 648,811
Over five years through ten................................. 1,170,034 1,200,620
Over ten years.............................................. 274,511 282,395
Securities not due at a single maturity date(1)............. 1,741,331 1,760,962
---------- ----------
Total fixed maturities............................... $3,866,431 $3,929,650
========== ==========
</TABLE>

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

(1) Weighted average maturity of 4.6 years.

The sources of net investment income were as follows:

<TABLE>
<CAPTION>
Preacquisition
-----------------------
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities.................. $250,683 $269,934 $274,231
Dividends on equity securities.............................. 646 681 1,751
Income from short-term investments.......................... 9,130 13,159 10,668
Income from mortgage loans.................................. 20,257 40,494 41,713
Income from policy loans.................................... 20,700 19,658 18,517
Income from other real estate-related investments........... 4,917 15,565 21,239
Income from other loans and investments..................... 2,480 1,555 3,533
-------- -------- --------
Total investment income.............................. 308,813 361,046 371,652
Investment expense.......................................... (9,125) (12,598) (18,568)
-------- -------- --------
Net investment income................................ $299,688 $348,448 $353,084
======== ======== ========
</TABLE>

50
<PAGE> 54

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)

Realized gains (losses) for the years ended December 31, 1996, 1995 and
1994, were as follows:

<TABLE>
<CAPTION>
Realized Gains (Losses)
------------------------------------------
Preacquisition
--------------------------
1996 1995 1994
(in thousands) ------- --------- --------
<S> <C> <C> <C>
Real estate-related......................................... $17,462 $(325,611) $(41,720)
Fixed maturities............................................ (6,344) 9,336 (49,857)
Equity securities........................................... -- (346) 28,243
Other....................................................... 2,484 (2,079) 8,777
------- --------- --------
Realized investment gains (losses) before income tax
expense (benefit)...................................... 13,602 (318,700) (54,557)
Income tax expense (benefit)................................ 4,761 (111,545) (19,095)
------- --------- --------
Net realized investment gains (losses).................... $ 8,841 $(207,155) $(35,462)
======= ========= ========
</TABLE>

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, 1996,
1995 and 1994 were as follows:

<TABLE>
<CAPTION>
Change in Unrealized Gains (Losses)
------------------------------------------------
Preacquisition
--------------------
December 31
December 31 January 4 --------------------
1996 1996 1995 1994
(in thousands) ------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Fixed maturities................................... $(63,219) $-- $351,964 $(351,646)
Equity securities.................................. 1,256 -- 180 (32,710)
Adjustment to deferred insurance acquisition
costs............................................ 1,307 -- (14,277) 11,325
Adjustment to value of business acquired........... 20,947 -- -- --
-------- --- -------- ---------
Unrealized gain (loss) before income tax expense
(benefit)..................................... (39,709) -- 337,867 (373,031)
Income tax expense (benefit)....................... 7,789 -- 32,922 (43,492)
-------- --- -------- ---------
Net unrealized gain (loss) on investments... $(47,498) $-- $304,945 $(329,539)
======== === ======== =========
</TABLE>

(4) UNCONSOLIDATED INVESTEES

At December 31, 1996, the Company, along with other Kemper subsidiaries,
directly held partnership interests in a number of real estate joint ventures.
The Company's direct and indirect real estate joint venture investments are
accounted for utilizing the equity method, with the Company recording its share
of the operating results of the respective partnerships. The Company, as an
equity owner, has the ability to fund, and historically has elected to fund,
operating requirements of certain of the joint ventures. Consolidation
accounting methods are not utilized as the Company, in most instances, does not
own more than 50 percent in the aggregate, and in any event, major decisions of
the partnership must be made jointly by all partners.

As of December 31, 1996 and January 4, 1996, the Company's net equity
investment in unconsolidated investees amounted to $11.7 million and $11.4
million, respectively. The Company's share of net income related to such
unconsolidated investees amounted to $223 thousand for the year ended December
31, 1996, compared with net losses of $453 thousand, and $6.3 million for the
years ended December 31, 1995 and 1994, respectively.

Also at January 4, 1996, 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"), had
equity interests. These joint venture-related loans were sold during 1996.

51
<PAGE> 55

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) CONCENTRATION OF CREDIT AND INTEREST RATE RISK

The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of risk exist in the Company's
ownership of mortgage-backed and asset-backed securities and real estate.

Approximately 36.4 percent of the Company's investment-grade fixed
maturities at December 31, 1996 were mortgage-backed securities, down from 45.7
percent at January 4, 1996, due to sales and paydowns during 1996. These
investments had an average yield of 6.83 percent during 1996 and consisted
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.

As a result of purchases during 1996, approximately 8.8 percent of the
Company's investment-grade fixed maturities at December 31, 1996 consisted of
corporate asset-backed securities. The majority of the Company's investments in
asset-backed securities were backed by manufactured housing loans, auto loans
and home equity loans.

Investment income was lower in 1996, compared with both 1995 and 1994,
primarily reflecting purchase accounting adjustments related to the amortization
of premiums on fixed maturity investments. Under purchase accounting, the market
value of the Company's fixed maturity investments as of January 4, 1996 became
the Company's new cost basis in such investments. The difference between the new
cost basis and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result of the
interest rate environment as of January 4, 1996, the market value of the
Company's fixed maturity investments was approximately $133.9 million greater
than original par. The amortization of such premiums reduced investment income
by approximately $22.7 million in 1996, compared with 1995 and 1994.

Future investment income from mortgage-backed securities and other
asset-backed securities may be affected by the timing of principal payments and
the yields on reinvestment alternatives available at the time of such payments.
As a result of purchase accounting adjustments to fixed maturities, most of the
Company's mortgage-backed securities are carried at a premium over par.
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, 1996, the Company had unamortized premiums and
discounts of $24.7 million and $5.7 million, respectively, related to
mortgage-backed and asset-backed securities. The Company believes that as a
result of the purchase accounting adjustments and the current interest rate
environment, anticipated prepayment activity is expected to result in reductions
to future investment income similar to those reductions experienced by the
Company in 1996.

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, 1996

<TABLE>
<S> <C>
California........................ 35.2%
Illinois.......................... 13.5
Hawaii............................ 11.0
Colorado.......................... 7.9
Oregon............................ 7.6
Washington........................ 7.4
Florida........................... 5.4
Texas............................. 4.2
Ohio.............................. 2.7
Other states...................... 5.1
-----
Total................... 100.0%
=====
</TABLE>

DISTRIBUTION BY PROPERTY TYPE AS OF DECEMBER 31, 1996

<TABLE>
<S> <C>
Hotel............................. 38.8%
Land.............................. 24.4
Office............................ 14.1
Residential....................... 9.1
Retail............................ 2.6
Industrial........................ 1.0
Other............................. 10.0
-----
Total................... 100.0%
=====
</TABLE>

52
<PAGE> 56

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. Portions of California's
and Hawaii's 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 continue to show some stabilization and improvement.

Undeveloped land represented approximately 24.4 percent of the Company's
real estate portfolio at December 31, 1996. To maximize the value of certain
land and other projects, additional development has been proceeding or has been
planned. Such development of existing projects would continue to require
funding, either from the Company or third parties. In the present real estate
markets, third-party financing can require credit enhancing arrangements (e.g.,
standby financing arrangements and loan commitments) from the Company. The
values of development projects are dependent on a number of factors, including
Kemper's and the Company's plans with respect thereto, obtaining necessary
construction and zoning permits and market demand for the permitted use of the
property. 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.

Approximately half 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 note captioned
"Unconsolidated Investees".)

At December 31, 1996, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), have interests constituted
approximately $101.3 million, or 37.8 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of eleven hotel properties. At
December 31, 1996, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.

At December 31, 1996, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $53.0 million, or 19.8 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, 1996. At December 31, 1996, MLP-related commitments
accounted for approximately $9.4 million of the Company's off-balance-sheet
legal commitments, which the Company expects to fund.

At December 31, 1996, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $(5.3)
million. Negative amounts represent the Company's share of project related
operating losses in excess of the Company's investment. Prime Group-related
commitments, however, accounted for $145.2 million of the off-balance-sheet
legal commitments at December 31, 1996, of which the Company expects to fund
$15.9 million.

(6) INCOME TAXES

Income tax expense (benefit) was as follows for the years ended December
31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
Preacquisition
----------------------
1996 1995 1994
(in thousands) ------- --------- -------
<S> <C> <C> <C>
Current.................................................... $26,300 $(113,087) $(6,898)
Deferred................................................... (897) 38,423 21,329
------- --------- -------
Total............................................ $25,403 $ (74,664) $14,431
======= ========= =======
</TABLE>

Included in the 1995 current tax benefit is the recognition of a net
operating loss carryover at December 31, 1995 which was 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 and its subsidiaries will each file a stand alone Federal income tax
return. Previously, the Company had filed a consolidated Federal income tax
return with Kemper. In 1996, the Company and Kemper settled all outstanding
balances under the tax allocation agreement.

53
<PAGE> 57

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES (CONTINUED)

The actual income tax expense (benefit) for 1996, 1995 and 1994 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 1996, 1995, and 1994 to income (loss) before
income tax expense (benefit).

<TABLE>
<CAPTION>
Preacquisition
---------------------
1996 1995 1994
(in thousands) ------- -------- -------
<S> <C> <C> <C>
Computed expected tax expense (benefit)..................... $20,938 $(72,700) $14,277
Difference between "expected" and actual tax expense
(benefit):
State taxes............................................... 913 (1,370) 645
Amortization of goodwill.................................. 3,568 -- --
Foreign tax credit........................................ -- (183) (155)
Other, net................................................ (16) (411) (336)
------- -------- -------
Total actual tax expense (benefit)................ $25,403 $(74,664) $14,431
======= ======== =======
</TABLE>

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. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.

The Company has established a valuation allowance to reduce the deferred
Federal tax asset related to real estate and other investments to the amount
that, based upon available evidence, is, in management's judgment, more likely
than not to be realized. Any reversals of the valuation allowance are contingent
upon the recognition of future capital gains in the Company's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. The change in the valuation allowance is related
solely to the change in the net deferred Federal tax asset or liability from
unrealized gains or losses on investments.

54
<PAGE> 58

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
Preacquisition
---------------------
December 31
December 31 January 4 ---------------------
1996 1996 1995 1994
(in thousands) ----------- --------- --------- --------
<S> <C> <C> <C> <C>
Deferred Federal tax assets:
Unrealized losses on investments............. $ 16,624 $ -- $ -- $ 85,331
Life policy reserves......................... 46,452 46,654 42,512 51,519
Real estate-related.......................... 20,642 27,736 21,920 39,360
Other investment-related..................... 5,409 1,773 1,725 7,435
Other........................................ 8,159 9,750 6,864 6,415
-------- -------- --------- --------
Total deferred Federal tax assets......... 97,286 85,913 73,021 190,060
Valuation allowance.......................... (31,825) (15,201) (15,201) (100,532)
-------- -------- --------- --------
Total deferred Federal tax assets after
valuation allowance..................... 65,461 70,712 57,820 89,528
-------- -------- --------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs......... 9,384 -- 111,523 108,663
Value of business acquired................... 66,373 66,578 -- --
Other investment-related..................... 28,855 37,919 -- --
Unrealized gains on investments.............. -- -- 37,919 --
Depreciation and amortization................ 15,473 15,490 18,767 18,878
Other........................................ 5,738 4,197 2,320 3,351
-------- -------- --------- --------
Total deferred Federal tax liabilities.... 125,823 124,184 170,529 130,892
-------- -------- --------- --------
Net deferred Federal tax liabilities........... $(60,362) $(53,472) $(112,709) $(41,364)
======== ======== ========= ========
</TABLE>

The valuation allowance is subject to future adjustments based on, among
other items, the Company'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 1993 are
currently under examination by the IRS.

(7) RELATED-PARTY TRANSACTIONS

The Company received cash capital contributions of $18.4 million and $82.5
million during 1996 and 1994, respectively.

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, 1996 and January 4, 1996, joint venture
mortgage loans totaled $111.0 million and $110.2 million, respectively, and
during 1996, 1995 and 1994, the Company earned interest income on these joint
venture loans of $9.5 million, $19.6 million and $22.0 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 1996, 1995 and 1994, expenses allocated to the Company from ZKI and KSvC
amounted to $1.7 million, $4.4 million and $6.5 million, respectively. The
Company also paid to ZKI investment management fees of $3.6 million, $3.4
million and $6.0 million during 1996, 1995 and 1994, respectively. In addition,
expenses

55
<PAGE> 59

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) RELATED-PARTY TRANSACTIONS (CONTINUED)

allocated to the Company from FKLA during 1996, 1995 and 1994 amounted to $10.5
million, $14.3 million and $11.1 million, respectively.

During 1995 and 1994, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $3.5
million and $154.0 million, respectively, to an affiliated non-life realty
company, in exchange for cash. No gain or loss was recognized on these sales.
During 1996, the Company purchased approximately $24.5 million of real
estate-related investments from such affiliated non-life realty subsidiaries for
cash. The Company also paid to Kemper real estate subsidiaries $1.8 million in
both 1996 and 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 and to individual death claims. The Company
generally cedes 100 percent of the related annuity liabilities under the terms
of the reinsurance agreements. Although these reinsurance agreements
contractually obligate the reinsurers to reimburse the Company, they do not
discharge the Company from its primary liabilities and obligations to
policyholders. As such, these amounts paid or deemed to have been paid are
recorded on the Company's consolidated balance sheet as reinsurance recoverables
and ceded future policy benefits.

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 and common board members with the Company, FKLA
and Kemper. As of December 31, 1996 and January 4, 1996, the reinsurance
recoverable related to the fixed-rate annuity liabilities ceded to FLA amounted
to $427.0 million and $502.8 million, respectively. During 1995, the Company
recorded income of $4.4 million related to a ceding commission experience
adjustment from the 1992 reinsurance agreement.

In December 1996, the Company assumed on a yearly renewable term basis
approximately $14.4 billion (face amount) of term life insurance from FKLA. As a
result of this transaction, the Company recorded premiums and reserves of
approximately $7.3 million. The difference between the cash transferred, which
represents the statutory reserves of the business assumed, and the reserves
recorded under generally accepted accounting principles, of approximately $18.4
million, was deemed to be a capital contribution from Kemper and was recorded as
additional paid-in-capital during 1996.

The Company's retention limit on term life insurance is $300 thousand (face
amount) on the life of any one individual with the excess amounts ceded to
outside reinsurers. The term life insurance business assumed from FKLA during
1996 did not have any individual contracts greater than $300 thousand in face
amount. Reserves ceded to outside reinsurers on the Company's direct business
amounted to approximately $94 thousand as of December 31, 1996.

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

FKLA sponsors a welfare plan that provides medical and life insurance
benefits to its retired and active employees and the Company is allocated a
portion of the costs of providing such benefits. The Company is self insured
with respect to medical benefits, and the plan is not funded except with respect
to certain disability-related medical claims. The medical plan provides for
medical insurance benefits at retirement, with eligibility based upon age and
the participant's number of years of participation attained at retirement. The
plan is contributory for pre-Medicare retirees, and will be contributory for all
retiree coverage for most current employees, with contributions generally
adjusted annually. Postretirement life insurance benefits are noncontributory
and are limited to $10,000 per participant.

The allocated accumulated postretirement benefit obligation accrued by the
Company amounted to $1.7 million and $687 thousand at December 31, 1996 and
January 4, 1996, respectively.

The discount rate used in determining the allocated postretirement benefit
obligation was 7.75 percent and 7.25 percent for 1996 and 1995, respectively.
The assumed health care trend rate used was based on projected

56
<PAGE> 60

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)

experience for 1996 and 1997, 10 percent in 1998, gradually declining to 5.0
percent by the year 2001 and remaining at that level thereafter.

A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 and January 4, 1996 by $56 thousand and $146 thousand,
respectively.

During 1995, 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.

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
1996 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. 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, 1996.

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

At December 31, 1996, the Company had future legal loan commitments and
stand-by financing agreements totaling $197.4 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 $39.6
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.

57
<PAGE> 61

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) DERIVATIVE FINANCIAL INSTRUMENTS

The Company was 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 Company sold its interest in such securities during 1996.
The following table summarizes various information regarding these derivative
financial instruments as of January 4, 1996:

<TABLE>
<CAPTION>
WEIGHTED
(IN THOUSANDS) WEIGHTED AVERAGE
AVERAGE REPRICING
NOTIONAL CARRYING ESTIMATED YEARS TO FREQUENCY
JANUARY 4, 1996 AMOUNT VALUE FAIR VALUE EXPIRATION (DAYS)
--------------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Non-trading foreign exchange forward options................ $43,754 $112 $112 .32 30
</TABLE>

The Company's hedges relating to foreign currency exposure were 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 1996,
1995 and 1994 totaled $227 thousand, $(1.0) million and $6.4 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 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 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 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

58
<PAGE> 62

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

maturities consistent with those remaining for the contracts being valued. The
Company had projected its future average crediting rate in 1996 to be 4.75
percent, while the assumed average market crediting rate was 5.8 percent in
1996.

The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and January 4, 1996 were as follows:

<TABLE>
<CAPTION>
December 31, 1996 January 4, 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities(1)........................... $3,866,431 $3,866,431 $3,749,323 $3,749,323
Cash and short-term investments............... 74,472 74,472 398,326 398,326
Mortgage loans and other real estate-related
assets..................................... 267,713 267,713 288,940 288,940
Policy loans.................................. 288,302 288,302 289,390 289,390
Other invested assets......................... 23,507 23,507 19,215 19,215
Financial instruments recorded as liabilities:
Life policy benefits.......................... 4,249,264 4,101,588 4,585,148 4,585,148
</TABLE>

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

(1) Includes $112 thousand carrying value and fair value for January 4, 1996, 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 1997 is $40.9 million. The
Company paid no cash dividends in 1996, 1995 or 1994.

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

<TABLE>
<CAPTION>
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $ 37,287 $(64,707) $ 44,491
======== ======== ========
Statutory surplus........................................... $411,837 $383,374 $416,243
======== ======== ========
</TABLE>

59
<PAGE> 63

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.

60
<PAGE> 64

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

25 50,113 10,923 10,923 100,000 28,575 28,575 100,000 78,636 78,636 105,372
30 69,761 8,599 8,599 100,000 35,318 35,318 100,000 131,633 131,633 160,592
35 94,836 2,275 2,275 100,000 41,110 41,110 100,000 215,714 215,714 250,228
40 126,840 0 0 0 44,302 44,302 100,000 349,794 349,794 374,279
45 167,685 0 0 0 40,832 40,832 100,000 565,945 565,945 594,242
</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.

61
<PAGE> 65

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

25 50,113 8,534 8,534 100,000 25,240 25,240 100,000 74,373 74,373 100,000
30 69,761 5,161 5,161 100,000 29,953 29,953 100,000 124,441 124,441 151,818
35 94,836 0 0 0 32,143 32,143 100,000 203,535 203,535 236,101
40 126,840 0 0 0 28,278 28,278 100,000 329,234 329,234 352,281
45 167,685 0 0 0 8,456 8,456 100,000 531,604 531,604 558,184
</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> 66

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>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS -------------------------------- ----------------------------- ---------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ---------- --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,032 787 100,000 2,180 935 100,000 2,328 1,083 100,000
2 6,457 3,968 2,499 100,000 4,392 2,922 100,000 4,835 3,365 100,000
3 9,930 5,803 4,108 100,000 6,631 4,936 100,000 7,533 5,838 100,000
4 13,577 7,539 5,619 100,000 8,902 6,983 100,000 10,448 8,529 100,000
5 17,406 9,164 7,019 100,000 11,195 9,050 100,000 13,596 11,451 100,000
6 21,426 10,721 8,588 100,000 13,553 11,420 100,000 17,045 14,913 100,000
7 25,647 12,267 10,191 100,000 16,040 13,964 100,000 20,893 18,817 100,000
8 30,080 13,804 11,830 100,000 18,662 16,688 100,000 25,183 23,209 100,000
9 34,734 15,332 13,505 100,000 21,427 19,600 100,000 29,968 28,141 100,000
10 39,620 16,850 15,215 100,000 24,342 22,707 100,000 35,304 33,669 100,000
11 44,751 18,358 16,960 100,000 27,417 26,019 100,000 41,255 39,857 100,000
12 50,139 19,857 18,741 100,000 30,659 29,543 100,000 47,892 46,776 100,000
13 55,796 21,347 20,558 100,000 34,078 33,289 100,000 55,293 54,504 100,000
14 61,736 22,827 22,410 100,000 37,683 37,266 100,000 63,548 63,131 100,000
15 67,972 24,298 24,298 100,000 41,484 41,484 100,000 72,753 72,753 100,000
16 74,521 25,760 25,760 100,000 45,493 45,493 100,000 83,020 83,020 100,000
17 81,397 27,213 27,213 100,000 49,720 49,720 100,000 94,444 94,444 106,722
18 88,617 28,657 28,657 100,000 54,177 54,177 100,000 107,045 107,045 118,820
19 96,198 30,092 30,092 100,000 58,878 58,878 100,000 120,941 120,941 131,826
20 104,158 31,518 31,518 100,000 63,834 63,834 100,000 136,268 136,268 145,807

25 150,340 21,578 21,578 100,000 86,603 86,603 100,000 237,080 237,080 248,934
30 209,282 0 0 0 119,288 119,288 125,253 395,181 395,181 414,940
35 284,509 0 0 0 157,008 157,008 164,858 638,100 638,100 670,005
40 380,519 0 0 0 203,214 203,214 205,246 1,026,437 1,026,437 1,036,702
45 503,055 0 0 0 265,449 265,449 265,449 1,685,814 1,685,814 1,685,814
</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.

63
<PAGE> 67

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>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ---------------------------- ---------------------------- ---------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ------ --------- ------- ------ --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,030 785 100,000 2,178 933 100,000 2,326 1,081 100,000
2 6,457 3,962 2,492 100,000 4,385 2,915 100,000 4,827 3,358 100,000
3 9,930 5,795 4,100 100,000 6,623 4,928 100,000 7,523 5,829 100,000
4 13,577 7,527 5,608 100,000 8,890 6,970 100,000 10,434 8,515 100,000
5 17,406 9,152 7,007 100,000 11,181 9,036 100,000 13,579 11,435 100,000
6 21,426 10,663 8,530 100,000 13,493 11,360 100,000 16,981 14,848 100,000
7 25,647 12,053 9,977 100,000 15,819 13,743 100,000 20,668 18,592 100,000
8 30,080 13,310 11,336 100,000 18,153 16,180 100,000 24,667 22,693 100,000
9 34,734 14,421 12,594 100,000 20,486 18,659 100,000 29,014 27,187 100,000
10 39,620 15,372 13,737 100,000 22,806 21,171 100,000 33,750 32,115 100,000
11 44,751 16,150 14,752 100,000 25,108 23,710 100,000 38,929 37,531 100,000
12 50,139 16,745 15,629 100,000 27,389 26,273 100,000 44,619 43,503 100,000
13 55,796 17,142 16,353 100,000 29,644 28,855 100,000 50,904 50,115 100,000
14 61,736 17,329 16,912 100,000 31,870 31,454 100,000 57,886 57,469 100,000
15 67,972 17,283 17,283 100,000 34,062 34,062 100,000 65,687 65,687 100,000
16 74,521 16,973 16,973 100,000 36,205 36,205 100,000 74,457 74,457 100,000
17 81,397 16,306 16,306 100,000 38,244 38,244 100,000 84,370 84,370 100,000
18 88,617 15,323 15,323 100,000 40,229 40,229 100,000 95,616 95,616 106,133
19 96,198 13,905 13,905 100,000 42,096 42,096 100,000 108,027 108,027 117,750
20 104,158 11,972 11,972 100,000 43,819 43,819 100,000 121,716 121,716 130,236

25 150,340 0 0 0 49,628 49,628 100,000 213,228 213,228 223,890
30 209,282 0 0 0 46,231 46,231 100,000 355,822 355,822 373,613
35 284,509 0 0 0 8,445 8,445 100,000 572,633 572,633 601,265
40 380,519 0 0 0 0 0 0 918,269 918,269 927,452
45 503,055 0 0 0 0 0 0 1,510,177 1,510,177 1,510,177
</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.

64
<PAGE> 68

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>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ---------------------------- ----------------------------- -----------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ------ --------- ------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,115 62 150,000 1,192 139 150,000 1,269 216 150,000
2 3,229 2,203 1,037 150,000 2,427 1,261 150,000 2,660 1,495 150,000
3 4,965 3,255 1,977 150,000 3,697 2,419 150,000 4,177 2,899 150,000
4 6,788 4,287 2,896 150,000 5,020 3,629 150,000 5,848 4,458 150,000
5 8,703 5,302 3,799 150,000 6,401 4,898 150,000 7,693 6,190 150,000
6 10,713 6,300 4,846 150,000 7,842 8,388 150,000 9,729 8,275 150,000
7 12,824 7,282 5,900 150,000 9,346 7,963 150,000 11,977 10,594 150,000
8 15,040 8,248 6,960 150,000 10,916 9,628 150,000 14,458 13,169 150,000
9 17,367 9,198 8,027 150,000 12,555 11,383 150,000 17,197 16,025 150,000
10 19,810 10,133 9,100 150,000 14,265 13,232 150,000 20,220 19,187 150,000
11 22,376 11,052 10,181 150,000 16,050 15,179 150,000 23,558 22,687 150,000
12 25,069 11,957 11,270 150,000 17,914 17,226 150,000 27,242 26,555 150,000
13 27,898 12,846 12,366 150,000 19,859 19,378 150,000 31,309 30,828 150,000
14 30,868 13,721 13,470 150,000 21,889 21,637 150,000 35,798 35,547 150,000
15 33,986 14,582 14,582 150,000 24,008 24,008 150,000 40,754 40,754 150,000
16 37,261 15,429 15,429 150,000 26,219 26,219 150,000 46,224 46,224 150,000
17 40,699 16,261 16,261 150,000 28,528 28,528 150,000 52,263 52,263 150,000
18 44,309 17,081 17,081 150,000 30,937 30,937 150,000 58,929 58,929 150,000
19 48,099 17,886 17,886 150,000 33,452 33,452 150,000 66,288 66,288 150,000
20 52,079 18,679 18,679 150,000 36,077 36,077 150,000 74,411 74,411 150,000

25 75,170 20,280 20,280 150,000 48,989 48,989 150,000 128,390 128,390 172,043
30 104,641 19,653 19,653 150,000 63,509 63,509 150,000 215,487 215,487 262,894
35 142,254 15,296 15,296 150,000 79,573 79,573 150,000 354,743 354,743 411,501
40 190,260 4,372 4,372 150,000 97,457 97,457 150,000 578,149 578,149 618,620
45 251,528 0 0 0 118,321 118,321 150,000 939,143 939,143 986,101
</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.

65
<PAGE> 69

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

25 75,170 13,448 13,448 150,000 39,289 39,289 150,000 115,080 115,080 154,208
30 104,641 8,530 8,530 150,000 47,001 47,001 150,000 192,468 192,468 234,811
35 142,254 0 0 0 51,289 51,289 150,000 314,710 314,710 365,064
40 190,260 0 0 0 47,287 47,289 150,000 508,980 508,980 544,609
45 251,528 0 0 0 21,445 21,445 150,000 821,747 821,747 862,835
</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.

66
<PAGE> 70

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>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ----------------------------- ---------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- -------- --------- ------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,725 3,078 1,217 150,000 3,300 1,440 150,000 3,524 1,663 150,000
2 9,686 6,083 3,886 150,000 6,725 4,527 150,000 7,395 5,197 150,000
3 14,896 9,059 6,523 150,000 10,322 7,786 150,000 11,694 9,159 150,000
4 20,365 12,003 9,131 150,000 14,099 11,226 150,000 16,470 13,597 150,000
5 26,109 14,918 11,708 150,000 18,066 14,856 150,000 21,775 18,565 150,000
6 32,139 17,803 14,610 150,000 22,233 19,040 150,000 27,667 24,474 150,000
7 38,471 20,658 17,550 150,000 26,609 23,501 150,000 34,212 31,104 150,000
8 45,120 23,484 20,528 150,000 31,205 28,249 150,000 41,481 38,525 150,000
9 52,101 26,281 23,545 150,000 36,032 33,295 150,000 49,555 46,819 150,000
10 59,431 29,049 26,600 150,000 41,101 38,652 150,000 58,524 56,075 150,000
11 67,127 31,789 29,695 150,000 46,425 44,331 150,000 68,485 66,391 150,000
12 75,208 34,501 32,829 150,000 52,016 50,344 150,000 79,550 77,878 150,000
13 83,694 37,185 36,003 150,000 57,889 56,707 150,000 91,839 90,657 150,000
14 92,604 39,842 39,217 150,000 64,056 63,431 150,000 105,490 104,865 150,000
15 101,959 42,471 42,471 150,000 70,533 70,533 150,000 120,652 120,652 150,000
16 111,782 45,074 45,074 150,000 77,336 77,336 150,000 137,477 137,477 158,099
17 122,096 47,650 47,650 150,000 84,481 84,481 150,000 156,033 156,033 176,317
18 132,926 50,199 50,199 150,000 91,984 91,984 150,000 176,486 176,486 195,899
19 144,297 52,722 52,722 150,000 99,865 99,865 150,000 199,033 199,033 216,946
20 156,237 55,220 55,220 150,000 108,142 108,142 150,000 223,894 223,894 239,566

25 225,511 52,731 52,731 150,000 152,731 152,731 160,367 388,823 388,823 408,264
30 313,924 37,427 37,427 150,000 208,639 208,639 219,071 650,497 650,497 683,022
35 426,763 0 0 0 273,977 273,977 287,676 1,060,127 1,060,127 1,113,133
40 570,779 0 0 0 354,062 354,062 357,603 1,718,253 1,718,253 1,735,436
45 754,583 0 0 0 458,769 458,769 458,769 2,818,909 2,818,909 2,818,909
</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.

67
<PAGE> 71

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>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS --------------------------------- -------------------------------- ---------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----------- --------- ------- ---------- --------- ------- --------- --------- ---------
<S> <C> <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 1,660 150,000
2 9,686 6,002 3,804 150,000 6,641 4,443 150,000 7,308 5,110 150,000
3 14,896 8,781 6,246 150,000 10,031 7,496 150,000 11,392 8,856 150,000
4 20,365 11,409 8,536 150,000 13,468 10,595 150,000 15,802 12,929 150,000
5 26,109 13,875 10,665 150,000 16,943 13,733 150,000 20,568 17,358 150,000
6 32,139 16,170 12,977 150,000 20,450 17,257 150,000 25,726 22,533 150,000
7 38,471 18,284 15,175 150,000 23,983 20,875 150,000 31,317 28,209 150,000
8 45,120 20,199 17,243 150,000 27,530 24,574 150,000 37,386 34,430 150,000
9 52,101 21,896 19,159 150,000 31,077 28,341 150,000 43,984 41,248 150,000
10 59,431 23,352 20,904 150,000 34,610 32,161 150,000 51,177 48,728 150,000
11 67,127 24,550 22,456 150,000 38,120 36,026 150,000 59,046 56,952 150,000
12 75,208 25,474 23,802 150,000 41,603 39,931 150,000 67,698 66,026 150,000
13 83,694 26,103 24,921 150,000 45,053 43,870 150,000 77,258 76,076 150,000
14 92,604 26,416 25,792 150,000 48,465 47,840 150,000 87,883 87,258 150,000
15 101,959 26,384 26,384 150,000 51,833 51,833 150,000 99,761 99,761 150,000
16 111,782 25,956 25,956 150,000 55,137 55,137 150,000 113,120 113,120 150,000
17 122,096 24,997 24,997 150,000 58,296 58,296 150,000 128,232 128,232 150,000
18 132,926 23,565 23,565 150,000 61,385 61,385 150,000 145,322 145,322 161,307
19 144,297 21,485 21,485 150,000 64,313 64,313 150,000 164,155 164,155 178,929
20 156,237 18,639 18,639 150,000 67,044 67,044 150,000 184,927 184,927 197,872

25 225,511 0 0 0 76,957 76,957 150,000 323,789 323,789 339,979
30 313,924 0 0 0 75,011 75,011 150,000 540,164 540,164 567,172
35 426,763 0 0 0 29,675 29,675 150,000 869,152 869,152 912,609
40 570,779 0 0 0 0 0 0 1,393,618 1,393,618 1,407,554
45 754,583 0 0 0 0 0 0 2,291,787 2,291,787 2,291,787
</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.

68
<PAGE> 72

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

69
<PAGE> 73

(This page intentionally left blank)

70
<PAGE> 74

UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.

UNDERTAKING PURSUANT TO RULE 484(B)(1)
UNDER THE SECURITIES ACT OF 1933

Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, Kemper Investors Life Insurance Company (KILICO) and the
Separate Account will agree to indemnify Investors Brokerage Services, Inc.
(IBS) against any claims, liabilities and expenses which IBS may incur under the
Securities Act of 1933, common law or otherwise, arising out of or based upon
any alleged untrue statements of material fact contained in any registration
statement or prospectus of the Separate Account, or any omission to state a
material fact therein, the omission of which makes any statement contained
therein misleading. IBS will agree to indemnify KILICO and the Separate Account
against any and all claims, demands, liabilities and expenses which KILICO or
the Separate Account may incur, arising out of or based upon any act or deed of
IBS or of any registered representative of an NASD member investment dealer
which has an agreement with IBS and is acting in accordance with KILICO's
instructions.

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
KILICO or the Separate Account (by virtue of the fact that they may also be
agents, employees or controlling persons of IBS) pursuant to the foregoing
provisions, or otherwise KILICO and the Separate Account have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
may be against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by KILICO or the Separate Account of
expenses incurred or paid by a director, officer or controlling person of KILICO
or the Separate Account in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, KILICO and the Separate Account
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

REPRESENTATION REGARDING FEES AND CHARGES PURSUANT TO

SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940

Kemper Investors Life Insurance Company (KILICO) represents that the fees
and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by KILICO.

II-1
<PAGE> 75

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following Papers and Documents:

The Facing sheet.

(1) Reconciliation and tie between items in N-8B-2 and Prospectus.

The prospectus consisting of 69 pages.

The undertaking to file reports.

Undertaking pursuant to Rule 484(b)(1) under the Securities Act of
1933.

Representation Regarding Fees and Charges Pursuant to Section 26
of the Investment Company Act of 1940.

The signatures.

Written consents of the following persons:

(2) A. Frank J. Julian, Esq. (Included in Opinion filed as Exhibit
3(a)).

B. KPMG Peat Marwick LLP, independent auditors (Filed as Exhibit
6(a)).

C. Christopher J. Nickele, FSA (Included in Opinion filed as Exhibit
3(b)).

The following exhibits:

<TABLE>
<S> <C>
(1) 1-A(1) KILICO Resolution establishing the Separate Account
(1) 1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage
Services, Inc. (IBS)
(3) 1-A(3)(b) Specimen Selling Group Agreement of IBS
(2) 1-A(3)(c) Schedules of commissions
(3) 1-A(3)(d) General Agent Agreement
(2) 1-A(5) Form of Policy
(1) 1-A(6)(a) KILICO Articles of Incorporation
(3) 1-A(6)(b) By-Laws of KILICO
1-A(8)(a) Participation Agreement among KILICO, American Skandia Trust and
American Skandia Investment Services, Incorporated
1-A(8)(b) Service Agreement between KILICO and American Skandia Investment
Services, Incorporated
(2) 1-A(10) Application for Policy
(2) 2 Specimen Notice of Withdrawal Right
(2) 3(a) Opinion and consent of legal officer of KILICO as to legality of
policies being registered
3(b) Opinion and consent of actuarial officer of KILICO regarding
prospectus illustrations and actuarial matters
6(a) Consent of independent auditors
(2) 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
(1) 11 Representation, description and undertakings regarding mortality and
expense risk charge pursuant to Rule 6e-3(T)(b)(13)(iii)(F)
</TABLE>

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

(1) Filed with the Registration Statement of the Registrant on Form S-6 filed on
or about December 26, 1995 (File No. 33-65399).

(2) Filed with Pre-Effective Amendment No. 1 to the Registration Statement of
the Registrant on Form S-6 filed on or about June 5, 1996 (File No.
33-65399).

(3) Filed with Amendment No. 2 to the Registration Statement on Form S-1 (File
No. 333-02491) filed on or about April 23, 1997.

II-2
<PAGE> 76

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account, certifies that it meets the requirements of
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Long Grove and State of Illinois on
the 24th day of April, 1997.

KILICO VARIABLE SEPARATE ACCOUNT
(Registrant)

By: Kemper Investors Life Insurance
Company
(Depositor)

By:

/s/ JOHN B. SCOTT*

------------------------------------
John B. Scott, Chief Executive
Officer
and President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following directors
and principal officers of Kemper Investors Life Insurance Company in the
capacities indicated on the 24th day of April, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>

/s/ JOHN B. SCOTT* Chief Executive Officer, President and Director
- ----------------------------------------------- (Principal Executive Officer)
John B. Scott

/s/ W. H. BOLINDER* Chairman of the Board and Director
- -----------------------------------------------
William H. Bolinder

/s/ FREDERICK L. BLACKMON* Senior Vice President and Chief Financial
- ----------------------------------------------- Officer (Principal Financial Officer and
Frederick L. Blackmon Principal Accounting Officer)

/s/ LOREN J. ALTER* Director
- -----------------------------------------------
Loren J. Alter

/s/ DANIEL L. DOCTOROFF* Director
- -----------------------------------------------
Daniel L. Doctoroff

/s/ STEVEN M. GLUCKSTERN* Director
- -----------------------------------------------
Steven M. Gluckstern

/s/ MICHAEL P. STRAMAGLIA* Director
- -----------------------------------------------
Michael P. Stramaglia

/s/ PAUL H. WARREN* Director
- -----------------------------------------------
Paul H. Warren

*By:
/s/ FRANK J. JULIAN
------------------------------------------
Frank J. Julian
Attorney-in-Fact**
April 24, 1997
</TABLE>

** Pursuant to Power of Attorney forms filed as Exhibit 24 to Amendment No. 2 to
the Registration Statement of Kemper Investors Life Insurance Company on Form
S-1 filed on April 23, 1997 (File No. 333-02491) which are hereby
incorporated herein by reference.

II-3
<PAGE> 77

EXHIBIT INDEX

<TABLE>
<S> <C>
1-A(8)(a) Participation Agreement among KILICO, American Skandia Trust
and American Skandia Investment Services, Incorporated
1-A(8)(b) Service Agreement between KILICO and American Skandia
Investment Services, Incorporated
3(b) Opinion and consent of actuarial officer of KILICO regarding
prospectus illustrations and actuarial matters
6(a) Consent of independent auditors
</TABLE>

<PAGE> 1
EX 1-A(8)(a)

PARTICIPATION AGREEMENT

This AGREEMENT is made as of the 7th day of June, 1996, by and between
American Skandia Trust ("FUND"), a Massachusetts business trust. American
Skandia Investment Services, Incorporated ("ASISI"), an Investment Advisor for
Fund, and Kemper Investors Life Insurance Company ("COMPANY"), a life
insurance company organized under the laws of the State of Illinois.

WHEREAS, FUND is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end diversified investment management Company; and

WHEREAS, FUND is organized as a series fund authorized to issue separate
series of shares ("Portfolios"); and

WHEREAS, ASISI is registered as an investment advisor under the Investment
Advisors Act of 1940, as amended; and

WHEREAS, FUND has obtained an order from the Securities and Exchange
Commission, dated August 1, 1995, granting participating insurance companies
and variable annuity and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 40 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by certain qualified plans
and to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance
companies; and

WHEREAS, COMPANY has registered or will register certain variable annuity and
variable life insurance contracts under the Securities Act of 1933 Act, as
amended (the "1933 Act"); and

WHEREAS, each segregated asset account of the COMPANY set forth on Schedule
"A" hereto as may be amended from time to time ("Account") is a duly
organized, validly existing segregated asset account, established by
resolution of the Board of Directors of the COMPANY, on the date shown for
such Account on Schedule A, to set aside and invest assets attributable to
such variable annuity and variable life insurance contracts; and

WHEREAS, COMPANY has registered or will register each Account as a unit
investment trust under the 1940 Act;

WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the COMPANY wishes to purchase shares in the Portfolios on behalf of each
Account to fund certain variable annuity and variable life insurance
contracts;

NOW, THEREFORE, AND IN consideration of the mutual covenants herein contained,
it is hereby agreed by and between FUND and COMPANY as follows:

ARTICLE I. SALE OF FUND SHARES

1.1 FUND will make available to the Accounts shares of FUND Portfolios
designated by FUND and listed in Appendix "A" for purchase by the COMPANY and
its Accounts at the applicable net asset value per share on those days on
which the Fund calculates its net asset value pursuant to the rules of the
Securities and Exchange Commission and the FUND shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the FUND (the "Board") may refuse to sell shares of any Portfolio
to any person, or suspend or terminate the offering of shares of any
Portfolio, if such action is required by

<PAGE> 2

law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Portfolio.

1.2 Orders shall be placed for such shares with FUND or its designee pursuant
to procedures which are then in effect and which may be modified from time to
time. FUND will inform COMPANY of the procedures for placing orders with the
FUND or its designee and will undertake to inform COMPANY of any modifications
to such procedures, all such procedures to be consistent with this Agreement.
Issuance and transfer of FUND'S shares will be by book entry only. Stock
certificates will not be issued to the COMPANY or any Account. Shares ordered
from the FUND or its designee will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.

For purposes of this Section 1.2, the COMPANY shall be the designee of
the FUND for receipt of orders for such shares and receipt by such designee
shall constitute receipt by the FUND; provided that, the FUND receives notice
of such orders for shares on the next following business day, before 8:45
Central time. Business day shall mean any day on which the New York Stock
Exchange is open for trading.

1.3 FUND agrees to redeem for cash, on COMPANY'S request, any full or
fractional shares of the FUND held by COMPANY, executing such requests on a
daily basis at the net asset value computed after receipt by FUND or its
designee of the request for redemption. For purposes of this Section 1.3, the
COMPANY shall be the designee of the FUND for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the FUND; provided that, the FUND receives notice of such request
for redemption on the next following business day, as set out in Section 1.2.
Business day shall mean any day on which the New York Stock Exchange is open
for trading.

1.4 COMPANY agrees that purchases and redemptions of Portfolio shares offered
by the then current prospectus of the FUND shall be made in accordance with
the applicable provisions of such prospectus and the FUND'S statement of
additional information. COMPANY agrees that all net amounts available under
the variable annuity and variable life insurance contracts which are listed on
Schedule A hereto, as such Schedule A may be amended by the parties in writing
("Contracts"), shall be invested in the FUND and in such other investment
companies advised by American Skandia Life Investment Management, Inc.
("Advisor") as may be agreed to in writing by the parties to this Agreement,
provided that such amounts may also be invested in an investment company other
than the FUND if (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of all of the Portfolios of the Fund; or
(b) COMPANY gives FUND sixty (60) days written notice of its intention to make
such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the COMPANY
so informs the FUND prior to its signing this Agreement; or (d) the FUND
consents in writing to the use of such other investment company.

1.5 COMPANY shall pay for FUND shares by wire transfer no later than 10:00 am
central time on the next Business Day after contract owners of the COMPANY
enter orders to purchase Fund shares. Payment shall be made in federal funds
transmitted by wire. For the purpose of Section 2.10 and 2.11, upon receipt
by the FUND of the federal funds so wired, such funds shall cease to be the
responsibility of the COMPANY and shall become the responsibility of the
FUND.

1.6 FUND shall furnish same day notice (by wire or telephone, followed by
written confirmation) to the COMPANY of any income, dividends or capital
gain distributions payable on the FUND'S shares. COMPANY hereby elects to
receive all such income dividends and capital gains distributions as are
payable on the Portfolio shares in additional shares of that Portfolio.
COMPANY reserves the right to revoke this election and to receive all such
income dividends and capital gains distributions in cash.

2
<PAGE> 3

FUND shall promptly notify COMPANY of the number of shares so issued as payment
of such dividends and distributions.

1.7 FUND shall make the net asset value per share for each Portfolio
available to the COMPANY on a daily basis as soon as reasonable practical
after the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available by 6 p.m. New York
time.

ARTICLE II. REPRESENTATIONS

2.1 COMPANY represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. COMPANY further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under applicable insurance law and has registered, prior to any issuance or
sale of the Contracts, or will register, each Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.

2.2 COMPANY represents and warrants that the Contracts are currently treated
as annuity or variable life insurance contracts, under applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), and that it
will make every effort to maintain such treatment and that it will notify the
FUND immediately upon having a reasonable basis for believing the Contracts
have ceased to be so treated or that they might not be so treated in the
future.

2.3 COMPANY represents and warrants that all of its officers, directors,
employees, investment advisors, and other individuals/entities, if any,
dealing with the money and or securities of the Fund are and shall continue to
be covered by a blanket fidelity bond or similar coverage for the benefit of
the FUND in an amount not less than $5 million. The aforesaid includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.

2.4 FUND represents and warrants that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts.

2.5 FUND represents and warrants that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification and that it will notify the COMPANY
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify as of the FUND'S fiscal year end.

2.6 FUND represents and warrants that all of its officers, directors,
employees, and investment advisors are and shall continue to be covered by a
blanket fidelity bond or similar coverage for the benefit of the FUND in an
amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.

2.7 FUND represents and warrants that the FUND will diversify the assets in
each Portfolio in the manner required for the variable contracts to be treated
as such under Section 817(h) of the Code, and the rules and regulations
thereunder. In the event of a breach of this Section 2.7 by the FUND, the FUND
will take all reasonable steps (a) to notify COMPANY of such breach, and (b)
to adequately diversify the FUND so as to achieve compliance within the grace
period afforded by Regulation 817-5 of the Code.

2.8 ASISI represents and warrants that:

3
<PAGE> 4

(a) it is lawfully organized and validly existing under the laws of the
State of Connecticut;

(b) the FUND will diversify the assets in each Portfolio in the manner
required for the variable contracts to be treated as such under Section 817(h)
of the Code, and the rules and regulations thereunder; and

(c) In the event of a breach of this Section 2.7 by the FUND, ASISI will
take all reasonable steps (a) to notify COMPANY of such breach, and (b) to
use its best efforts to adequately diversify the FUND so as to achieve
compliance within the grace period afforded by Regulation 817-5 of the Code.

ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING

3.1 FUND will provide COMPANY camera ready copy of the current FUND
prospectus, and any supplements thereto for printing by COMPANY. FUND will
provide COMPANY a copy of the statement of additional information for
duplication. FUND will provide COMPANY copies of its proxy material suitable
for printing. FUND will provide COMPANY annual and semi-annual reports and
any supplements thereto, in camera-ready form.

3.2 COMPANY shall provide pass-through voting privileges to all variable
contract owners so long as the Securities and Exchange Commission continues to
interpret the 1940 Act to require such passthrough voting privileges for
variable contract owners. COMPANY shall be responsible for assuring that each
of its separate accounts participating in the FUND calculates voting
privileges in a manner CONSISTENT with the 1940 Act. It is a condition of the
Agreement that COMPANY will vote shares of FUND, for which it has not received
voting instructions as well as shares attributable to COMPANY, in the same
proportion as it votes shares for which it has received instructions.

ARTICLE IV. SALES MATERIAL AND INFORMATION

4.1 COMPANY will only (i) convey any information or make any representations
concerning FUND or its investment advisor, its shares or operations which are
contained in the most recent Registration Statement relating to the FUND and
any supplements thereto or (ii) use any materials or advertising which mention
the FUND or its investment advisor (including sales literature, brochures,
letters, illustrations and other similar material, whether transmitted
directly to potential applicants or published in print or audio-visual media),
if, in either case, FUND approves such items prior to use.

4.2 COMPANY shall furnish to the FUND or its designee, each piece of sales
literature or other promotional material in which the FUND or its investment
advisor or any affiliate thereof is named, at least eight (8) Business Days
prior to its use, and the Fund has five (5) days to respond and comment
thereon.

4.3 FUND will provide to the COMPANY at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional
Information, proxy statements, applications for exemptions, requests for
no-action letters and all amendments to any of the above, that relate to the
FUND or its shares, promptly after filing such documents with the Securities
and Exchange Commission.

4.4 COMPANY will provide to the FUND at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional
Information, solicitations for voting instructions, applications for
exemptions, requests for no-action letters and all amendments to any of the
above, that relate to the Contracts or each Account promptly after filing such
documents with the Securities and Exchange Commission. COMPANY will provide
to the FUND, final copies of all sales literature and other promotional
literature that relates to the FUND or its shares, promptly after they become
available.

<PAGE> 5

4.5 For the purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following
that refer to the FUND or any affiliate of the FUND (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures or other public media), sales
literature (namely, any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communication distributed or made generally
available to some or all agents or employees, and registration statements,
Prospectuses, Statements of Additional Information, shareholder reports and
proxy materials.

4.6 Neither COMPANY nor FUND will use the other's name nor any other name,
logo, trademark, service mark nor symbol that is now or may hereafter be owned
by the other party, a parent or an affiliate or subsidiary thereof, except in
the manner and to the extent that the other party agrees to in furtherance of
the purposes of this Agreement. Each party will discontinue the use of such
name, logo, trademark, service mark or symbol belonging to the other party,
parent, affiliate or subsidiary thereof on termination of this Agreement. Such
discontinuance will occur immediately or, if applicable, as soon as permitted
under applicable law or regulation.

ARTICLE V. FEES AND EXPENSES

5.1 The COMPANY shall bear the expense of printing and distributing the
FUND's prospectus, statement of additional information, proxy materials, and
annual and semi-annual reports. For providing these services, the FUND will
pay COMPANY 0.10% per annum of the average daily net asset value of FUND
shares legally owned by the Accounts of COMPANY. Such value is payable within
ten (10) days after the end of each month.

5.2 The COMPANY represents that it will pay 24f-2 fees as required by law. If
the COMPANY does not pay such fees and the FUND is obligated to pay such fees,
the COMPANY will reimburse the FUND for those fees.

ARTICLE VI. INDEMNIFICATION

6.1 COMPANY shall be solely responsible for its actions in connection with its
use of FUND and its shares and shall indemnify and hold harmless FUND,
including its officers, trustees and employees, from any losses, claims,
damages, liabilities or expenses (including reasonable attorneys' fees and
disbursements) arising from the grossly negligent or intentional wrongful act
or failure to act with respect to the use of FUND or its shares by the
COMPANY, including COMPANY's officers, directors and employees; or arising
from the bad faith, willful misconduct or gross negligence in the performance
by the COMPANY, or COMPANY's officers, directors and employees, of such
person's duties either under this Agreement or to COMPANY, as applicable; or
arising from the reckless disregard of the obligations of the COMPANY, or
COMPANY's officers, directors and employees, either under this Agreement or to
the COMPANY, as applicable; or arising from COMPANY's furnishing of
information to FUND, for use in FUND's Prospectus or Statement of Additional
Information, which is misleading or omits to state a material fact necessary
to make the statements made, in light of the circumstances in which made, not
misleading. Notwithstanding the foregoing, COMPANY will not be liable to the
extent; that any such loss, claim, damage, liability or expense (including
reasonable attorneys fees and disbursements) arises out of or is based upon an
untrue statement or omission or alleged omission made in good faith reliance
upon and in conformity with information furnished by FUND specifically for use
in the Registration Statement or sales literature relating to the variable
contracts.

COMPANY shall not be liable under this Paragraph 6.1 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the FUND), its officers, trustees, or employees to the extent that such
losses, claims, damages, liabilities or expenses arose from the FUND's willful

<PAGE> 6

misconduct, bad faith or gross negligence in the performance of FUND'S duties
or by reason of FUND's reckless disregard of its obligations under this
Agreement.

6.2 FUND shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages,
liabilities or expenses (including reasonable attorneys fees and
disbursements) arising from the breach of its representations and warranties
of this Agreement; arising from the grossly negligent or intentional wrongful
act or failure to act by the FUND, including FUND's officers trustees and
employees; or arising from the bad faith, willful misconduct or gross
negligence in the performance by the FUND, or FUND's officers, trustees and
employees, of such person's duties either under this Agreement or to FUND, as
applicable; or arising from the reckless disregard of the obligations of the
FUND, or its officers, trustees and employees, either under this Agreement or
to the FUND, as applicable, or arising from FUND's furnishing of information
to COMPANY for use in COMPANY's Prospectus or Statement of Additional
Information which is misleading or omits to state a material fact necessary to
make the statements made, in light of the circumstances in which made, not
misleading. Notwithstanding the foregoing, FUND will not be liable to the
extent that any such loss, claim, damage, liability or expense (including
reasonable attorney's fees and disbursements) arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in good faith reliance upon and in conformity with information
furnished by COMPANY specifically for use in Registration Statement or sales
literature relating to FUND.

FUND shall not be liable under this Paragraph 6.2 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's
willfull misconduct, bad faith or gross negligence in the performance of such
party's duties or by reason of such party's reckless disregard of its
obligations under this Agreement or to the COMPANY, as applicable.

6.3 ASISI shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages,
liabilities or expenses (including reasonable attorneys fees and
disbursements) arising from the breach of its representations and warranties
of Section 2.8(b); from the grossly negligent or intentional wrongful act or
failure to act by ASISI, including ASISI's officers and employees; or arising
from the bad faith, willful misconduct or gross negligence in the performance
by ASISI, or ASISI's officers and employees, of such person's duties either
under this Agreement or to ASISI, as applicable; or arising from the reckless
disregard of the obligations of ASISI, or its officers and employees, either
under this Agreement or to ASISI, as applicable, or arising from ASISI's
furnishing of information to COMPANY for use in COMPANY's Prospectus or
Statement of Additional Information which is misleading or omits to state a
material fact necessary to make the statements made, in light of the
circumstances in which made, not misleading. Notwithstanding the foregoing,
ASISI will not be liable to the extent that any such loss, claim, damage,
liability or expense (including reasonable attorney's fees and disbursements)
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in good faith reliance upon and in
conformity with information furnished by COMPANY specifically for use in the
Registration Statement or sales literature relating to ASISI.

ASISI shall not be liable under this Paragraph 6.3 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's
willfull misconduct, bad faith or gross negligence in the performance of such
party's duties or by reason of such party's reckless disregard of its
obligations under this Agreement or to the COMPANY, as applicable.

ARTICLE Vll. POTENTIAL CONFLICTS

7.1 COMPANY agrees to inform the Board of the existence of, or any potential
of, any material irreconcilable conflict of interest of which it becomes aware
between the interests of owners of contracts

<PAGE> 7

using the Accounts of COMPANY which invest in the FUND and/or the interests of
owners of contracts using any other separate account of any other insurance
company which invests in the FUND.

7.2 The Board shall monitor FUND for the existence of any material
irreconcilable conflicts between the interests of the contract owners of all
separate accounts investing in the FUND.

7.3 A material irreconcilable conflict may arise for a variety of reasons,
including:

(a) an action by any state insurance regulatory authority;

(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, or any
similar action by insurance, tax or securities regulatory authorities;

(d) the manner in which the investments of any portfolio are being
managed;

(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing FUND; or

(f) a decision by COMPANY to disregard the voting instructions of contract
owners.

COMPANY will be responsible for assisting the Board in carrying out its
responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issue raised including, inter alia,
any potential or existing conflicts between contract owners and information as
to a decision by COMPANY to disregard voting instructions of contract owners.

It is agreed that if it is determined by a majority of the members of the
Board or a majority of its disinterested Directors that a material
irreconcilable conflict exists affecting COMPANY, COMPANY shall, at its own
expense, take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps may include, but are not limited
to:

(i) withdrawing the assets allocable to some or all of the separate
accounts of COMPANY from FUND or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the FUND, if
any, or submitting to a vote of all affected contract owners the question of
whether segregation of assets should be implemented and, as appropriate,
segregating the assets of any particular group (i.e., annuity contract owners,
life insurance contract owners or qualified contract owners) that votes in
favor of such segregation, or offering to the affected contract owners the
option of making such a change; or

(ii) establishing a new registered management investment company or managed
separate account.

If a material irreconcilable conflict anses because of COMPANY'S
decisions to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, COMPANY may
be required, at the FUND'S election, to withdraw its Accounts' investment in
FUND. No penalty, other than applicable transaction costs, will be imposed
against an Account as a result of such a withdrawal. COMPANY agrees that any
remedial action taken by it in resolving any material conflicts of interest
will be carried out with a view only to the interest of contract owners.

<PAGE> 8

For purposes hereof, a majority of the disinterested members of the Board
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event will FUND be required to
establish a new funding medium for any variable contracts. COMPANY shall not
be required by the terms hereof to establish a new funding medium for any
variable contracts if an offer to do so has been declined by vote of a
majority of adversely affected contract owners. Should FUND or any affiliate
of FUND choose to establish a new funding medium or recommend other remedial
action as a way to resolve any material irreconcilable conflict, COMPANY will
recommend to its policyowners that they decline an offer to establish a new
funding medium or take other remedial action only if it believes it is in the
best interest of the contract owners to do so.

FUND will undertake to promptly make known to COMPANY the Board's
determination of the existence of a material irreconcilable conflict and its
implications.

ARTICLE VIII. TERMINATION

8.1 This Agreement shall terminate automatically in the event of its
assignment, unless made with the written consent of each party.

8.2 This Agreement shall continue in full force and effect from its effective
date, and may be terminated at any time on six (6) months' written notice to
the other party hereto.

ARTICLE IX. MISCELLANEOUS

9.1 This Agreement shall be subject to the provisions of the federal
securities laws and the rules and regulations, thereunder, including any
exemptive relief therefrom and the orders of the Securities and Exchange
Commission setting forth such relief, and the laws of the State of
Connecticut.

FUND will comply with applicable state law concerning permissible
investments for separate accounts, provided that COMPANY will notify the FUND
of any changes in such laws when COMPANY has been made aware of such changes
in connection with COMPANY contracts which utilize the FUND.

9.2 If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.

9.3 Any notice required under this Agreement shall be deemed to have been
sufficiently given when sent by registered or certified mail to the COMPANY at:

Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Attention: General Counsel

or to the FUND at:

American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Attention: Mary Ellen O'Leary, Secretary

or to such other address furnished to the other party pursuant hereto.

9.4 The waiver by any party of a breach by any other party of any of the
provisions of this Agreement shall not operate or be deemed as a waiver of any
other provision of this Agreement or of any subsequent breach thereof by any
party.

<PAGE> 9

9.5 This Agreement may be executed in any number of counterparts and by the
different parties hereto each of which shall be deemed to be an original and
all of which, when so executed and delivered by the parties, taken together,
shall constitute one and the same instrument.

9.6 This Agreement constitutes the entire agreement between the parties
hereto, and supersedes all prior agreements, written or oral, between the
parties, and may not be modified except in a written instrument executed by
all parties hereto.

9.7 It is understood by the parties that this Agreement is not to be deemed an
exclusive arrangement.

IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement
to be executed by their authorized officers as of the day and year first above
written.

AMERICAN SKANDIA TRUST

By: [Signature]
------------------------------
Print Name:
----------------------
Title:
---------------------------
Attest:
--------------------------

AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
For the purposes of Sections 2.8 and 6.3 only

By: [Signature]
------------------------------
Print Name:
----------------------
Title:
---------------------------
Attest:
--------------------------

KEMPER INVESTORS LIFE INSURANCE COMPANY

By: /s/ OTIS R. HELDMAN, JR.
------------------------------

Print Name: OTIS R. HELDMAN, JR.
----------------------

Title: MARKETING OFFICER
---------------------------

Attest: /s/ FRANK J. JULIAN
--------------------------

<PAGE> 10

APPENDIX A

The following portfolios are available for purchase by the COMPANY and its
Accounts:

<TABLE>
<CAPTION>
Investment Options Fund Portfolios
- ------------------ --------------
<S> <C>
Founders Capital Appreciation Portfolio Founders Capital Appreciation Portfolio
Berger Capital Growth Portfolio Berger Capital Growth Portfolio
JanCap Growth Portfolio JanCap Growth Portfolio
Lord Abbett Growth and Income Portfolio Lord Abbett Growth and Income Portfolio
INVESCO Equity Income Portfolio INVESCO Equity Income Portfolio
T. Rowe Price International Equity Portfolio T. Rowe Price International Equity Portfolio
T. Rowe Price Asset Allocation Portfolio T. Rowe Price Asset Allocation Portfolio
PIMCO Limited Maturity Bond Portfolio PIMCO Limited Maturity Bond Portfolio
PIMCO Total Return Bond Portfolio PIMCO Total Return Bond Portfolio

</TABLE>

<PAGE> 1
EX.1-A(8)(b)

SERVICE AGREEMENT

This SERVICE AGREEMENT, as of June 7, 1995 between Kemper Investors Life
Insurance Company, ("KILICO") an Illinois insurance corporation having its
principal offices and place of business at 1 Kemper Drive, T-1, Long Grove, IL
60049, and American Skandia Investment Services, Incorporated ("ASISI"), as
Investment Advisor for the American Skandia Trust (the "Fund"), a Connecticut
corporation having its principal office and place of business at One Corporate
Drive, Shelton, CT 06484.

In consideration of the promises and mutual covenants set forth in this
Service Agreement, KILICO and ASISI agree as follows:

1. KILICO agrees to provide services to beneficial shareholders of
Portfolios of the Fund ("Beneficial Holders") on behalf of ASISI, to the same
extent ASISI is authorized to provide such services, including the following
services:

a) responding to inquiries from Beneficial Holders regarding the
services performed by KILICO or any affiliate of KILICO, as they
relate to the Fund;

b) providing information to ASISI and to Beneficial Holders with
respect to shares beneficially owned by Beneficial Holders;

c) communicating directly with Beneficial Holders concerning the Fund's
operations, and portfolio composition and performance;

d) including the Fund portfolios that are offered as underlying
investment options for accounts that serve as investment vehicles
for certain variable life and/or variable annuity contracts (the
"Variable Insurance Contracts") and qualified plan funding
agreements offered by KILICO, as well as relevant financial and
performance data, in any software program currently available or
proposed, that are or will be made available by KILICO to financial
professionals that sell products or provide investment allocation
services in relation to such products ("Portfolio Support
Services");

e) updating any Portfolio Support Services and other printed portfolio
information on a quarterly basis; and

f) providing such other similar services in connection with the Fund as
ASISI may reasonably request, to the extent permitted under
applicable statutes, rules and regulations.

2. KILICO also agrees to consult, either directly or through one of its
affiliates, with ASISI in connection with the design and implementation of
shareholder servicing arrangements relating to shares issued by the Fund,
including without limitation, sponsoring and/or participating in seminars
and/or sales meetings relating to the distribution of shares of the Fund and
servicing of Fund Portfolios.

3. ASISI agrees to provide or arrange to provide, to KILICO, or its
designated representative, with the portfolio information reasonably requested
to support any Portfolio Support Services.

4. ASISI recognizes KILICO as the sole legal shareholder of the shares of
the Fund purchased pursuant to the Variable Insurance Contracts offered by
KILICO. ASISI also recognizes that substantial savings in administrative and
shareholder servicing support expenses will be derived by virtue of the Fund
having a sole legal shareholder of such shares rather than multiple legal
shareholders. These substantial savings to ASISI will be the result of
KlLICO's performing the services set forth in Paragraphs 1 and 2 above. In
consideration of the administrative and shareholder servicing support savings
resulting from such arrangement, ASISI agrees to pay KILICO a fee (the
"Portfolio Servicing Fee") calculated as a percentage of the average daily
net asset value of all shares in Portfolios of the Fund purchased by

<PAGE> 2

KILICO, including such shares purchased through reinvestment of dividends and
distributions, which fee shall be payable monthly. The current Portfolio
Servicing Fee Schedule is set forth in Appendix A. The Portfolio Servicing
Fee, which is payable ten (10) days after the end of a calendar month, shall
be payable only so long as the portfolios of the Fund continue to be available
as investment options for accounts that serve as investment vehicles for the
Variable Insurance Contracts and qualified plan funding agreements offered by
KILICO as set forth in Schedule A ("Investment Option(s)"). If a new portfolio
of the Fund becomes available or ceases to be available as an Investment
Option during a calendar month, the Portfolio Servicing Fee payable shall be
pro-rated for the time period such portfolio was available as an Investment
Option. Any Investment Option additions or deletions will be reflected in
Schedule A. Fees described in this Paragraph 4 shall cease to accrue with
respect to shares that are redeemed. Any overpayment of compensation and fees
pursuant to this Paragraph 4 shall reduce amounts payable to KILICO in
subsequent months. ASISI and KILICO agree that the services provided
thereunder will be reviewed not less than annually. Neither ASISI nor KILICO
will agree to waive any portion of the Portfolio Servicing Fee unless clearly
mandated by law, without the consent and concurrence of the other, which
consent and concurrence will not be unreasonably withheld.

5. KILICO represents, warrants and covenants that it is a corporation
organized under the laws of the State of Illinois, and has the authority,
pursuant to such laws, to enter into and perform services under this Service
Agreement, and that it may lawfully receive the Portfolio Servicing Fee under
all applicable laws.

6. ASISI represents, warrants and covenants that it is a corporation
organized under the laws of the State of Connecticut, and has the authority,
pursuant to such laws, to enter into and perform services under this Service
Agreement, and that it may lawfully pay the Portfolio Servicing Fee under all
applicable laws.

7. ASISI agrees to indemnify and hold harmless KILICO and its officers,
directors and each affiliated person of KILICO within the meaning of Section
2(a)(3) of the Investment Company Act of 1940, as amended (collectively, the
"KILICO Indemnified Parties"), from any and all loss, liability and expense
resulting from willful misfeasance, bad faith or gross negligence, or by
reason of the reckless disregard of the respective obligations and duties of
the ASISI Indemnified Parties, as defined below, under this Service Agreement,
or breach of a representation, warranty or covenant contained in paragraph 6,
except to the extent such loss, liability or expense is the result of (a) the
breach of a representation, warranty or covenant contained in paragraph 5
hereof, or (b) the willful misfeasance, bad faith or gross negligence of any
of the KILICO Indemnified Parties in the performance of their respective
duties, or by reason of the reckless disregard of respective obligations and
duties of the KILICO Indemnified Parties under this Service Agreement.

8. KILICO agrees to indemnify and hold harmless ASISI and its officers,
directors and each affiliated person of ASISI within the meaning of Section
2(a)(3) of the Investment Company Act of 1940, as amended (collectively, the
"ASISI Indemnified Parties"), from any and all loss, liability and expense
resulting from willful misfeasance, bad faith or gross negligence, or by
reason of the reckless disregard of the respective obligations and duties of
the KILICO Indemnified Parties under this Service Agreement, or breach of a
representation, warranty or convenant contained in paragraph 5, except to the
extent such loss, liability or expense is the result of (a) the breach of a
representation, warranty or covenant contained in paragraph 6 hereof, or (b)
the willfull misfeasance, bad faith or gross negligence of any of the ASISI
Indemnified Parties in the performance of their respective duties, or by
reason of the reckless disregard or respective obligations and duties of the
ASISI Indemnified Parties under this Service Agreement.

<PAGE> 3

9. Either party may terminate this Service Agreement on six (6) months'
written notice to the other party. Any notice shall be sufficiently given when
sent by registered or certified mail to KILICO at:

Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Attention: General Counsel

or to ASISI at:

American Skandia Investment Services, Incorporated
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484-0883
Attention: Mr. Thomas M. Mazzaferro
Telecopy Number: (203) 929-8071

or to such other address furnished to the other party pursuant hereto.

10. In the event that ASISI ceases to act as Investment Advisor for the
Fund, this Service Agreement will terminate at the option of KILICO on thirty
(30) days written notice. This Service Agreement is terminable immediately
upon notice by one party to another upon (a) dissolution or bankruptcy of
either party, (b) a material breach of this Service Agreement by either party,
or (c) termination of the Participation Agreement, dated June , 1996, between
the parties and the Fund.

11. ASISI, unless otherwise objecting, agrees that an affiliate of KILICO
may provide any of the services set forth in paragraphs 1 and 2, subject to
KILICO's reasonable and good faith determination that its affiliate will
provide such services in a manner consistent with this Agreement

12. No waiver by either party of any provision of this Service Agreement
shall operate as, or be construed as, a waiver of any subsequent breach
thereof, or waiver of any other provision of this Service Agreement.

13. In the event that any provision of this Service Agreement shall be
held invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Service Agreement and such provision, to the extent
that the rights and mutual obligations of the parties hereto are not
materially adversely affected, shall be deemed to be severable therefrom.

14. Except as set forth in Paragraph 11, neither this Service Agreement
nor any rights or obligations hereunder shall be assignable by either ASISI or
KILICO without prior written consent of the other party thereto.

15. KILICO and ASISI agree to attempt to resolve any dispute that may
arise under the Service Agreement amicably between themselves. If such
discussions fail to result in an amicable settlement, then the parties shall
arbitrate such dispute in Shelton, Connecticut. Each party shall select an
arbitrator from among the business community familiar with the type of
business conducted by ASISI and KILICO, and such two arbitrators shall select
a third arbitrator. The American Arbitration Association rules shall govern
the procedures to be followed. However, arbitration shall not be under the
auspices of the American Arbitration Association.

16. This Service Agreement shall be construed in accordance with, and its
performance shall be governed by, the laws of the State of Connecticut.

3
<PAGE> 4

17. This Service Agreement may be amended or modified in whole or in part
only by a written Service Agreement executed by both parties.

IN WITNESS WHEREOF, the parties to this Service Agreement have caused this
Service Agreement to be executed by their authorized officers as of the day
and year first above written.

KEMPER INVESTORS LIFE INSURANCE COMPANY

By: /s/OTIS R. HELDMAN, JR.
--------------------------------
Authorized Signature

Print Name: OTIS R. HELDMAN, JR.
------------------------
Print Title: MARKETING OFFICER
-----------------------

AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED

By: /s/[SIGNATURE]
--------------------------------
Authorized Signature

Print Name:
------------------------
Print Title:
-----------------------

4
<PAGE> 5

APPENDIX A

Portfolio Servicing Fee Schedule

The breakpoints listed below are determined by the total value of portfolio
shares of the Fund owned by KILICO. The annual fee is listed as a percentage
of that value, and is calculated in accordance with Paragraph 4 of the Service
Agreement. Each annual fee, as listed below, is paid only on those assets
which exceed the indicated breakpoint.

Breakpoint (millions) Annual Fee
--------------------- ----------

$0 - $49.9 0.00%

$50.0 - $99.9 0.10%

$100.0 - $499.99 0.15%

$500.0 - + 0.20%

5
<PAGE> 6

SCHEDULE A

<TABLE>
<CAPTION>
Investment Options Fund Portfolios
- ------------------ ---------------
<S> <C>
Founders Capital Appreciation Portfolio Founders Capital Appreciation Portfolio
Berger Capital Growth Portfolio Berger Capital Growth Portfolio
JanCap Growth Portfolio JanCap Growth Portfolio
Lord Abbett Growth and Income Portfolio Lord Abbett Growth and Income Portfolio
INVESCO Equity Income Portfolio INVESCO Equity Income Portfolio
T. Rowe Price International Equity Portfolio T. Rowe Price International Equity Portfolio
T. Rowe Price Asset Allocation Portfolio T. Rowe Price Asset Allocation Portfolio
PIMCO Limited Maturity Bond Portfolio PIMCO Limited Maturity Bond Portfolio
PIMCO Total Return Bond Portfolio PIMCO Total Return Bond Portfolio

</TABLE>

<PAGE> 1
EXHIBIT 3(b)

ACTUARIAL OPINION

This opinion is supplied with the filing of Post-Effective Amendment No. 1 to
the Registration Statement on Form S-6, File No. 33-65399, by the KILICO
Variable Separate Account (the "Separate Account") and Kemper Investors Life
Insurance Company ("KILICO") covering an indefinite number of units of interest
in the Separate Account. Premiums received under KILICO's Variable Life
Policies may be allocated by KILICO to the Separate Account as described in the
Prospectus included in the Registration Statement.

I am familiar with the Policy provisions and the description in the Prospectus
and it is my opinion that the illustrations of death benefits, accumulated
values, cash values, and accumulated premiums included in Appendix A of the
Prospectus, based on the assumptions in the illustrations, are consistent with
the Policy provisions. The Policy rate structure has not been designed to make
the relationship between planned premiums and benefits, as shown in the
illustrations, appear more favorable to prospective nonsmoker males ages 35 and
55, than to nonsmoker males at other ages. The nonsmoker risk class generally
has a more favorable rate structure than the smoker risk classes. Female risk
classes generally have a more favorable rate structure than male risk classes.

The current and guaranteed monthly mortality rates used in the illustrations
have not been designed so as to make the relationship between current and
guaranteed rates more favorable for the ages and sexes illustrated than for a
nonsmoker male at other ages. The nonsmoker risk classes generally have lower
monthly mortality rates than the smoker risk classes. The female risk classes
generally have lower monthly mortality rates than the male risk classes.

I consent to the use of this opinion as an Exhibit to Post-Effective Amendment
No. 1 to the Registration Statement and to the reference to me under the
heading "Experts" in the Prospectus.

/s/ Christopher J. Nickele
--------------------------------
Christopher J. Nickele, FSA MAAA
Actuarial Officer - Agency

<PAGE> 1

Exhibit 6(a)

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Kemper Investors Life Insurance Company

We consent to the use of our reports included herein on Kemper Investors Life
Insurance Company (KILICO) and on the financial statements of the subaccounts
of KILICO Variable Separate Account and to the reference to our firm under the
heading "Experts" in the prospectus. Our report on KILICO's financial
statements dated March 21, 1997, contains an explanatory paragraph that states
as a result of the acquisition of its parent, Kemper Corporation, the
consolidated financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.

KPMG PEAT MARWICK LLP

Chicago, Illinois
April 25, 1997