SUPPLEMENT DATED JANUARY 12, 1998 TO
PROSPECTUS DATED MAY 1, 1997 FOR
PERIODIC PAYMENT VARIABLE ANNUITY CONTRACTS
KEMPER ADVANTAGE III
ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
Effective January 1, 1998, Kemper Investors Life Insurance Company has revised
the Contracts to provide for: 1) a pre-authorized bank draft (PAC) program
available under Non-Qualified Plan Contracts and Contracts issued as
Individual Retirement Annuities, and for revised Purchase Payment minimums
under the PAC program; and 2) subject to regulatory approvals, to permit
Contracts to be issued in connection with a Roth IRA. These changes are
described below with references to those parts of the Prospectus that are
modified by this Supplement.
Pre-Authorized Bank Draft Program
The following new paragraph is added to the "Summary" section after the second
paragraph thereunder appearing on Page 2 of the Prospectus and to the "A.
General Information" section after the first paragraph thereunder appearing
on page 17 of the Prospectus:
"Effective January 1, 1998, a Contract Owner may make Purchase Payments
to Non-Qualified Plan Contracts and Contracts issued as Individual
Retirement Annuities ("IRAs") by authorizing KILICO to draw on an account
of the Contract Owner via check or electronic debit ("Pre-Authorized
Checking [PAC] Agreement"). For Purchase Payments made pursuant to a PAC
Agreement, the following minimum Purchase Payment provisions apply:
1. The minimum initial Purchase Payment to an IRA made pursuant to a PAC
Agreement is $100. The minimum initial Purchase Payment to a
Non-Qualified Plan Contract made pursuant to a PAC Agreement is $1,000
unless the Contract Owner also owns an existing Contract, in which
case the minimum is $100.
2. The minimum subsequent Purchase Payment made pursuant to a PAC
Agreement is $100."
Roth IRAs
The definition of "Qualified Plan Contract", appearing on page 2 of the
Prospectus, is revised to read as follows:
"Qualified Plan Contract - A Contract issued in connection with a
retirement plan which receives favorable tax treatment under Section
401, 403, 408, 408A or 457 of the Internal Revenue Code."
The following new section "Roth IRAs" is added under "1. Qualified Plan
Types" appearing on page 30 of the Prospectus:
"Roth IRAs. Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA." Roth
IRAs differ from other IRAs in several respects. Among the differences
is that, although contributions to a Roth IRA are not deductible,
"qualified distributions" from a Roth IRA will be excludable from income.
Additionally, the eligibility and mandatory distribution requirements for
Roth IRAs differ from non-Roth IRAs.
Contributions: The maximum amount of contributions allowable for any
taxable year to all Roth IRAs maintained for an individual (the
"contribution limit") generally is the lesser of $2,000 and 100% of
compensation for the taxable year. The contribution limit is reduced by
the amount of any deductible and non-deductible contributions to a
non-Roth IRA. For individuals who file a joint return and receive less
compensation for the taxable year than their spouse, special rules apply.
For taxpayers with adjusted gross incomes in excess of certain limits no
contribution (or only a reduced contribution) to a Roth IRA is allowed.
For married individuals filing a joint return, the contribution limit is
phased out for adjusted gross income between $150,000 and $160,000.
(Special rules apply to married individuals filing separate returns.)
For single individuals, the contribution limit is phased out for adjusted
gross incomes between $95,000 and $110,000.
<PAGE>
Rollovers: A rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution"
is a rollover contribution to a Roth IRA from another Roth IRA or from
a non-Roth IRA, but only if such rollover contribution meets the rollover
requirements for IRAs under section 408(d)(3) of the Code. In addition,
a transfer may be made to a Roth IRA directly from another Roth IRA or
from a non-Roth IRA. Persons with adjusted gross incomes in excess of
$100,000 or who are married and file a separate return are not eligible
to make a qualified rollover contribution or a transfer in a taxable year
from a non-Roth IRA to a Roth IRA.
In the case of a qualified rollover contribution or a transfer from a
non-Roth IRA to a Roth IRA, any portion of the amount rolled over which
would be includible in gross income were it not part of a qualified
rollover contribution or a nontaxable transfer will be includible in
gross income. However, the 10 percent penalty tax on premature
distributions generally will not apply. If such a rollover occurs before
January 1, 1999, any portion of the amount rolled over which is required
to be included in gross income must be included ratably over the
4-taxable year period beginning with the taxable year in which the
rollover is made.
Conversions: All or part of amounts in a non-Roth IRA may be converted
into a Roth IRA. Such a conversion can be made without taking an actual
distribution from the IRA. For example, an individual may make a
conversion by notifying the IRA issuer or trustee, whichever is
applicable. The conversion of an IRA to a Roth IRA is a special type of
qualified rollover distribution. Hence, the IRA participant must be
eligible to make a qualified rollover distribution in order to convert
an IRA to a Roth IRA. A conversion typically will result in the
inclusion of some or all of the IRA value in gross income, as described
above.
UNDER SOME CIRCUMSTANCES, IT MAY NOT BE ADVISABLE TO ROLLOVER, TRANSFER,
OR CONVERT ALL OR PART OF A NON-ROTH IRA TO A ROTH IRA. WHETHER AN OWNER
SHOULD DO SO WILL DEPEND ON THE IRA OWNER'S PARTICULAR FACTS AND
CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO, SUCH FACTORS AS WHETHER
THE OWNER IS QUALIFIED TO MAKE SUCH A ROLLOVER, TRANSFER, OR CONVERSION,
HIS OR HER FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS,
YEARS TO RETIREMENT, CURRENT AND FUTURE TAX RATES, AND ABILITY AND DESIRE
TO PAY TAXES WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR
CONVERTED. PERSONS CONSIDERING A ROLLOVER, TRANSFER, OR CONVERSION
SHOULD CONSULT A QUALIFIED TAX ADVISOR.
Qualified Distributions: Any "qualified distribution" from a Roth IRA
is excludible from gross income. A "qualified distribution" is a payment
or distribution which satisfies two requirements. First, the payment or
distribution must be (a) made after the Owner attains age 59 1/2, (b)
made after the Owner's death, (c) attributable to the Owner being
disabled, or (d) a qualified first-time homebuyer distribution within the
meaning of section 72(t)(2)(F) of the Code. Second, the payment or
distribution must be made in a taxable year that is at least five years
after (a) the first taxable year for which a contribution was made to
any Roth IRA established for the Owner, or (b) in the case of a payment
or distribution properly allocable to a qualified rollover contribution
from a non-Roth IRA (or income allocable thereto), the taxable year in
which the rollover contribution was made.
Nonqualified Distributions: A distribution from a Roth IRA which is not
a qualified distribution is generally taxed in the same manner as a
distribution from non-Roth IRAs. However, such a distribution will be
treated as made first from contributions to the Roth IRA to the extent
that such distribution, when added to all previous distributions from the
Roth IRA, does not exceed the aggregate amount of contributions to the
Roth IRA. Generally, all Roth IRAs are aggregated to determine the tax
treatment of distributions.
Mandatory Distributions: Distributions from a Roth IRA need not commence
at age 70 1/2. However, if the Owner dies before the entire interest in
a Roth IRA is distributed, any remaining interest in the Contract must be
distributed by December 31 of the calendar year containing the fifth
anniversary of the Owner's death, subject to certain exceptions.
As described elsewhere in "1. Qualified Plan Types," there is some
uncertainty regarding the proper characterization of the Contract's
death benefit for purposes of the tax rules governing IRAs (which
include Roth IRAs). Persons intending to use the Contract in connection
with a Roth IRA should seek competent advice.
