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SUPPLEMENT DATED NOVEMBER 20, 2000
TO PROSPECTUS DATED MAY 1, 2000 FOR
KEMPER INVESTORS LIFE INSURANCE COMPANY
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PERIODIC PAYMENT
VARIABLE ANNUITY CONTRACTS
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KEMPER ADVANTAGE III
ISSUED BY
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
OF
KEMPER INVESTORS LIFE INSURANCE COMPANY
This Supplement amends your Prospectus and describes a new optional feature
available under your Contract. Please read this Supplement carefully and keep it
with your Prospectus for future reference.
The section entitled "SUMMARY," appearing on pages 2 and 3 of the Prospectus, is
hereby modified by adding the following new paragraph at the end of the section:
"You may elect, where available, to enter into a separate investment
advisory agreement with our affiliate, PMG Asset Management, Inc. ("PMG").
PMG provides asset allocation services under PMG's Managed Investment
Advisory Account ("MIAA"). MIAA allocates Contract Value among certain
Subaccounts and the General Account. (See "Asset Allocation Service.") The
MIAA and applicable fees are described more fully in a separate disclosure
statement. MIAA is not available in all states or through all distributors."
The following new section is hereby added immediately following the section
entitled "CONTRACT OWNER TRANSACTION EXPENSES" in the table entitled "SUMMARY OF
EXPENSES," appearing on page 4 of the Prospectus:
<TABLE>
<S> <C>
"MIAA EXPENSES
MIAA Initial Set Up Fee (optional).......................... $30
MIAA Expense (optional)..................................... .50%*
* Charged quarterly in arrears at the rate of .125% per
quarter of Contract Value subject to the MIAA
Expense, using an average daily weighted balance
methodology. (See "Asset Allocation Service.")"
</TABLE>
The following is hereby added as the first sentence of the paragraph immediately
following the table entitled "EXAMPLE," appearing on page 6 of the Prospectus:
"This table reflects expenses if you did NOT participate in the optional
MIAA program."
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The following tables are hereby added immediately following the table entitled
"EXAMPLE" and the subsequent paragraph, appearing on page 6 of the Prospectus:
"EXAMPLE
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
If you surrender your Contract at Kemper Money Market #1 $114 $146 $178 $298
the end of the periods shown and Kemper Technology Growth 118 158 198 338
you participated in the optional Kemper Total Return 115 148 182 305
MIAA program, you would pay Kemper High Yield 116 150 184 311
the following expenses on a Kemper Growth 115 149 184 310
$1,000 investment, assuming 5% Kemper Government Securities 115 149 183 307
annual return on assets: Kemper International 118 157 198 337
Kemper Small Cap Growth 116 151 186 315
Kemper Investment Grade Bond 115 149 184 309
Kemper Contrarian Value 117 153 191 324
Kemper Small Cap Value 117 155 193 328
Kemper Value+Growth 117 154 192 327
Kemper Horizon 20+ 117 153 190 322
Kemper Horizon 10+ 116 151 187 316
Kemper Horizon 5 116 152 189 320
Janus Aspen Growth 116 150 184 311
Janus Aspen Aggressive Growth 116 150 184 311
Janus Aspen Worldwide Growth 116 151 186 314
Janus Aspen Balanced 116 150 184 311
Lexington Natural Resources 122 169 216 374
Lexington Emerging Markets 125 179 234 407
Fidelity VIP Equity-Income 114 147 179 300
Fidelity VIP Growth 115 149 184 309
Fidelity VIP II Asset Manager 115 148 182 306
Fidelity VIP II Index 500 112 138 165 272
Fidelity VIP II Contrafund 115 149 184 309
Scudder VLIF Bond 115 147 180 301
Scudder VLIF Capital Growth 114 144 176 293
Scudder VLIF International 119 160 202 346
Dreyfus Socially Responsible Growth 117 153 190 323
J.P. Morgan Small Company 120 163 208 357
Alger American Growth 117 153 190 323
Alger American MidCap Growth 117 155 193 329
Alger American Small Capitalization 118 156 196 333
American Century VP Income & Growth 116 151 186 314
American Century VP Value 119 159 200 343
Warburg Pincus Trust-Emerging Markets 123 171 219 380
</TABLE>
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<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
If you do not surrender your Kemper Money Market #1 $ 55 $104 $156 $298
Contract and you participated Kemper Technology Growth 59 116 176 338
in the optional MIAA program, Kemper Total Return 55 106 160 305
you would pay the following Kemper High Yield 56 108 163 311
expenses on a $1,000 investment, Kemper Growth 56 108 162 310
assuming 5% annual return Kemper Government Securities 55 107 161 307
on assets: Kemper International 59 116 176 337
Kemper Small Cap Growth 56 109 165 315
Kemper Investment Grade Bond 56 107 162 309
Kemper Contrarian Value 57 112 169 324
Kemper Small Cap Value 58 113 171 328
Kemper Value+Growth 58 113 171 327
Kemper Horizon 20+ 57 111 168 322
Kemper Horizon 10+ 56 109 165 316
Kemper Horizon 5 57 111 167 320
Janus Aspen Growth 56 108 163 311
Janus Aspen Aggressive Growth 56 108 163 311
Janus Aspen Worldwide Growth 56 109 164 314
Janus Aspen Balanced 56 108 163 311
Lexington Natural Resources 63 128 195 374
Lexington Emerging Markets 66 139 213 407
Fidelity VIP Equity-Income 55 105 157 300
Fidelity VIP Growth 56 107 162 309
Fidelity VIP II Asset Manager 55 106 160 306
Fidelity VIP II Index 500 52 96 143 272
Fidelity VIP II Contrafund 56 107 162 309
Scudder VLIF Bond 55 105 158 301
Scudder VLIF Capital Growth 54 103 154 293
Scudder VLIF International 60 119 180 346
Dreyfus Socially Responsible Growth 57 112 169 323
J.P. Morgan Small Company 61 122 186 357
Alger American Growth 57 112 169 323
Alger American MidCap Growth 58 113 172 329
Alger American Small Capitalization 58 115 174 333
American Century VP Income & Growth 56 109 164 314
American Century VP Value 59 118 179 343
Warburg Pincus Trust-Emerging Markets 63 130 198 380
</TABLE>
This table reflects expenses if you DID participate in the optional
MIAA program. The purpose of the preceding table, which includes the
"SUMMARY OF EXPENSES" above, is to assist you in understanding the
various costs and expenses that an Owner in a Subaccount will bear
directly or indirectly. The table reflects expenses of the Separate
Account and the Funds, as well as expenses you will incur under the
optional MIAA program. The Example should not be considered to be a
representation of past or future expenses and does not include the
deduction of state premium taxes, which may be assessed before or upon
annuitization. Actual expenses may be greater or less than those
shown. "Management Fees" and "Other Expenses" in the "SUMMARY OF
EXPENSES" for the Funds have been provided by the Funds' investment
managers or advisers and have not been independently verified. The
Example assumes a 5% annual rate of return pursuant to requirements of
the Securities and Exchange Commission. This hypothetical rate of
return is not intended to be representative of past or future
performance of any Subaccount. The Records Maintenance Charge is a
single charge; it is not a separate charge for each Subaccount. In
addition, the effect of the Records Maintenance Charge has been
reflected in the Example by applying the percentage derived by
dividing the total amounts of annual Records Maintenance Charge
collected by the total net
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assets of all the Subaccounts in the Separate Account. This table also
assumes that all the Contract Value in a particular Subaccount is in
the MIAA program. See "Contract Charges and Expenses" for more
information regarding the various costs and expenses."
The second paragraph under the section entitled "4. TRANSFER DURING ACCUMULATION
PERIOD." appearing on page 20 of the Prospectus, is hereby modified to read as
follows:
"If you authorize an unaffiliated third party outside the MIAA program
(See "Asset Allocation Service") to transact transfers on your behalf,
we will reallocate the Contract Value pursuant to the authorized
advisory program. However, we take no responsibility for any
unaffiliated third party advisory program. We may suspend or cancel
acceptance of an unaffiliated third party's instructions at any time
and may restrict the investment options available for transfer under
third party authorizations."
The following new section is hereby added between the sections entitled
"SYSTEMATIC WITHDRAWAL PLAN" and "PROVISIONS OF PRIOR CONTRACTS," appearing on
page 35 of the prospectus:
"ASSET ALLOCATION SERVICE
You may elect, where available, to enter into a separate investment advisory
agreement with our affiliate, PMG Asset Management, Inc. ("PMG"). PMG is
registered as an investment adviser with the SEC. For a fee, PMG provides a
discretionary asset allocation service under its Managed Investment Advisory
Account ("MIAA") which is fully described in a separate disclosure
statement. Under an agreement with PMG, BARRA RogersCasey ("BARRA") performs
certain functions for the MIAA program. BARRA is an unaffiliated registered
investment adviser. MIAA is not available in all states or through all
distributors.
A. SUMMARY OF THE SERVICE PROVIDED.
Under MIAA, your Contract Value is allocated among certain Subaccounts and
the General Account. PMG selects the appropriate allocation model based on
your financial objectives and risk tolerance, utilizing BARRA's proprietary
analysis of the Subaccounts and the underlying Funds. PMG then periodically
transfers Contract Value between the Subaccounts and between the Subaccounts
and the General Account, in accordance with your selected allocation model.
Currently, if you enroll in the MIAA program, all of your Contract Value
must be placed under the MIAA program. If you transfer your Contract Value
placed under the MIAA program, your participation in the MIAA program will
automatically end. In the future, however, we expect to make changes to
permit you to place only a portion of your Contract Value under the MIAA
program and to allocate the remainder yourself.
B. MIAA CHARGES.
PMG's annual charge for the MIAA program is one-half of one percent (.50%)
of the Contract Value allocated under the MIAA program. The MIAA Expense is
paid by quarterly withdrawals from your Contract Value. The quarterly MIAA
Expense with respect to the amount in each Subaccount covered by the MIAA
program equals the average daily number of units in that Subaccount covered
by the MIAA program, multiplied by the ending unit value for that Subaccount
plus amounts in the General Account covered by the MIAA program, and
multiplied by .125%. You will also be charged an MIAA Initial Set Up Fee
("Set Up Fee") of $30.00. The MIAA Expense and Set Up Fee are in addition to
the Contract Charges and Expenses appearing in the "Summary of Expenses".
C. TAX TREATMENT OF FEES AND CHARGES.
This discussion is not exhaustive and is not intended as tax advice. A
qualified tax adviser should always be consulted in the application of the
law to individual circumstances.
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For Qualified Contracts, the MIAA Expense and Set Up Fee will not be treated
as taxable distributions. For Non-Qualified Contracts, payments of MIAA
Expense and Set Up Fee are treated as a taxable event. This means the MIAA
Expense and Set Up Fee are taxable distributions to you and may subject you
to an additional 10% tax penalty.
D. RISKS TO YOU.
When you elect the MIAA program, you understand that:
- all investments involve risk, the amount of which may vary significantly,
- performance cannot be predicted or guaranteed, and
- the value of your allocations in the Subaccounts will fluctuate due to
market conditions and other factors.
PMG has not authorized anyone to make any guarantee, either written or oral,
that your investment objectives will be met.
PMG seeks to perform services in a professional manner. However, except for
negligence, malfeasance, or violations of applicable law, PMG and its
officers, directors, agents and employees are not liable for any action
performed or omitted to be performed or for any errors of judgment in your
asset allocation or in transferring your Contract Value. The federal
securities laws impose liabilities under certain circumstances on persons
who act in good faith and, therefore, nothing herein in any way constitutes
a waiver or limitation on any rights that you may have under federal
securities laws.
E. CONFLICTS OF INTEREST.
The MIAA program is marketed directly by officers of PMG and through
solicitors who recommend the MIAA program, but who have no discretionary
investment authority. The PMG solicitor is a registered representative with
a broker-dealer registered under the Securities Exchange Act of 1934. As
such, the PMG solicitor may receive or may have received commissions for
your purchase of your Contract. PMG solicitors may also receive a portion of
the MIAA Expense (See "MIAA Charges") as compensation. You will be charged
the same fees for the MIAA program whether or not a PMG solicitor is
involved. Since the PMG solicitor may receive commissions for the purchase
of your Contract and may receive a portion of the MIAA Expense charged to
your Contract, there is a potential for a conflict of interest."
