<PAGE> 1
1998
SemiAnnual
Report
----------
KEMPER
ADVANTAGE
Individual Variable Annuity Contracts
------
Kemper Investors Life Insurance Company
------
Variable Annuity Account C
PERIOD ENDED JUNE 30, 1998 ZURICH KEMPER LOGO
<PAGE> 2
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1998 (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at current value $ 23,611 8,151
Dividend and other receivables 8 2
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 23,619 8,153
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------
Liabilities:
Mortality and expense risk charges 18 7
Other 31 2
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 49 9
- --------------------------------------------------------------------------------------------
Contract owners' equity $ 23,570 8,144
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
ANALYSIS OF CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------
Excess of payments for units redeemed over proceeds from
units sold $(68,910) (10,829)
Accumulated net investment income 86,689 15,435
Accumulated net realized gain (loss) on sales of investments 3,601 2,123
Unrealized appreciation (depreciation) of investments 2,190 1,415
- --------------------------------------------------------------------------------------------
Contract owners' equity $ 23,570 8,144
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 3
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER
INCOME AND KEMPER KEMPER U.S.
KEMPER CAPITAL ZURICH KEMPER DIVERSIFIED GOVERNMENT
GROWTH PRESERVATION MONEY MARKET HIGH YIELD INCOME SECURITIES
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6,042 844 5,566 1,771 223 1,014
1 -- -- -- -- 5
- -------------------------------------------------------------------------------------------------
6,043 844 5,566 1,771 223 1,019
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
5 -- 4 2 -- --
2 1 9 -- -- 17
- -------------------------------------------------------------------------------------------------
7 1 13 2 -- 17
- -------------------------------------------------------------------------------------------------
6,036 843 5,553 1,769 223 1,002
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
(7,222) (2,793) (38,323) (4,144) (442) (5,157)
10,786 3,483 43,876 5,749 1,426 5,934
1,824 122 -- 62 (743) 213
648 31 -- 102 (18) 12
- -------------------------------------------------------------------------------------------------
6,036 843 5,553 1,769 223 1,002
- -------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------
Dividend and capital gain distributions $ 392 111
- --------------------------------------------------------------------------------------------
Mortality and expense risk charges 96 42
- --------------------------------------------------------------------------------------------
Net investment income (loss) 296 69
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain on sales of investments 445 247
Change in unrealized appreciation (depreciation) of
investments 1,134 502
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,579 749
- --------------------------------------------------------------------------------------------
NET INCREASE IN CONTRACT OWNERS' EQUITY RESULTING FROM
OPERATIONS $1,875 818
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER
INCOME AND KEMPER KEMPER U.S.
KEMPER CAPITAL ZURICH KEMPER DIVERSIFIED GOVERNMENT
GROWTH PRESERVATION MONEY MARKET HIGH YIELD INCOME SECURITIES
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
-- 27 132 85 8 29
- -------------------------------------------------------------------------------------------------
32 4 7 10 1 --
- -------------------------------------------------------------------------------------------------
(32) 23 125 75 7 29
- -------------------------------------------------------------------------------------------------
158 4 -- 35 -- 1
662 -- -- (34) -- 4
- -------------------------------------------------------------------------------------------------
820 4 -- 1 -- 5
- -------------------------------------------------------------------------------------------------
788 27 125 76 7 34
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
For the six months ended June 30, 1998 (Unaudited) and for the year ended
December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
-------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income (loss) $ 296 2,437
Net realized gain (loss) on sales of investments 445 937
Change in unrealized appreciation (depreciation) of
investments 1,134 (548)
- ---------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 1,875 2,826
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Proceeds from units sold 74 282
Net transfers (to) from affiliate or divisions 185 89
Payments for units redeemed (1,545) (5,179)
- ---------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (1,286) (4,808)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity 589 (1,982)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- ---------------------------------------------------------------------------------------------
Beginning of period 22,981 24,963
- ---------------------------------------------------------------------------------------------
End of period $23,570 22,981
- ---------------------------------------------------------------------------------------------
</TABLE>
COMBINED STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
ZURICH MONEY MARKET
FUND DIVISION
-------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $ 125 216
Net realized gain (loss) on sales of investments -- --
Change in unrealized appreciation (depreciation) of
investments -- --
- -----------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 125 216
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- -----------------------------------------------------------------------------------------------
Proceeds from units sold 13 130
Net transfers (to) from affiliate or divisions 454 (70)
Payments for units redeemed (260) (877)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in contract owners' equity from
account unit transactions 207 (817)
- -----------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity 332 (601)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- -----------------------------------------------------------------------------------------------
Beginning of period 5,221 5,822
- -----------------------------------------------------------------------------------------------
End of period $5,553 5,221
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 7
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER GROWTH KEMPER INCOME AND CAPITAL
FUND DIVISION FUND DIVISION PRESERVATION FUND DIVISION
- ----------------------------- ------------------------- ---------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
69 1,213 (32) 715 23 57
247 499 158 406 4 13
502 (332) 662 (259) -- 2
- ---------------------------------------------------------------------------------------
818 1,380 788 862 27 72
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
27 63 24 59 1 2
(97) (105) (65) 452 (16) (103)
(611) (1,650) (328) (1,646) (50) (205)
- ---------------------------------------------------------------------------------------
(681) (1,692) (369) (1,135) (65) (306)
- ---------------------------------------------------------------------------------------
137 (312) 419 (273) (38) (234)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
8,007 8,319 5,617 5,890 881 1,115
- ---------------------------------------------------------------------------------------
8,144 8,007 6,036 5,617 843 881
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD KEMPER DIVERSIFIED INCOME KEMPER U.S. GOVERNMENT
FUND DIVISION FUND DIVISION SECURITIES FUND DIVISION
- ----------------------------- ------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
75 151 7 14 29 71
35 28 -- (2) 1 (7)
(34) 16 -- 3 4 22
- -------------------------------------------------------------------------------------
76 195 7 15 34 86
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
11 14 -- 7 -- 7
(78) 16 -- -- (13) (101)
(215) (211) (5) (18) (78) (572)
- -------------------------------------------------------------------------------------
(282) (181) (5) (11) (91) (666)
- -------------------------------------------------------------------------------------
(206) 14 2 4 (57) (580)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
1,975 1,961 221 217 1,059 1,639
- -------------------------------------------------------------------------------------
1,769 1,975 223 221 1,002 1,059
- -------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
NOTES TO COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
1 GENERAL INFORMATION
AND SIGNIFICANT
ACCOUNTING POLICIES ORGANIZATION. Kemper Investors Life Insurance
Company Variable Annuity Account C (the "Separate
Account") is a unit investment trust registered
under the Investment Company Act of 1940, as
amended, established by Kemper Investors Life
Insurance Company ("KILICO"). KILICO is a
wholly-owned subsidiary of Kemper Corporation which
is ultimately a wholly owned subsidiary of Zurich
Insurance Company ("Zurich").
The Separate Account is divided into seven
subaccounts and each subaccount invests exclusively
in a corresponding Kemper or Zurich Fund ("Fund").
Each Fund is an open-end diversified management
investment company.
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 amounts at the date of the
financial statements. As a result, actual results
reported as income and expenses could differ from
the estimates reported in the accompanying
financial statements.
SECURITY VALUATION. The investments are stated at
current value which is based on the closing bid
price, net asset value, at June 30, 1998.
SECURITY TRANSACTIONS AND INVESTMENT INCOME.
Security transactions are accounted for on the
trade date (the date the order to buy or sell is
executed). Dividends and capital gains
distributions are recorded as income on the ex-
dividend date. Realized gains and losses from
security transactions are reported on a first in,
first out ("FIFO") cost basis.
ACCUMULATION UNIT VALUATION. On each day the New
York Stock Exchange (the "Exchange") is open for
trading, the accumulation unit value is determined
as of the earlier of 3:00 p.m. (Chicago time) or
the close of the Exchange by dividing the total
value of each Fund's investments and other assets,
less liabilities, by the number of accumulation
units outstanding in the respective Fund.
FEDERAL INCOME TAXES. Under Revenue Ruling 81-225,
the contract owner is treated as the owner of the
underlying Fund shares with respect to purchase
payments made after December 31, 1980, except in
the case of individual retirement annuities, tax
sheltered 403(b) annuities and annuities under a
qualified 403(a) retirement plan issued before
September 26, 1981 ("Qualified Contracts").
With respect to purchase payments made before
January 1, 1981, and Qualified Contracts, KILICO is
treated as the owner of the underlying Fund shares
and the contract owner is treated as the owner of
an annuity contract for all Federal income tax
purposes. Under current law, dividends and realized
gains attributable to Fund shares considered owned
by KILICO are not currently taxed to the extent
they are applied to liabilities under the contract.
The Tax Reform Act of 1984 authorized the Secretary
of the Treasury to prescribe diversification
requirements for the investments underlying a
variable annuity contract. The final regulation
issued March 1, 1989, provided that such
diversification requirements do not apply to
Qualified Contracts or purchase payments before
January 1, 1981.
8
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 SUMMARY
OF INVESTMENTS Investments, at cost, at June 30, 1998, are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
-----------------------------------------------------------------------
INVESTMENTS
-----------------------------------------------------------------------
<S> <C> <C>
Kemper Total Return Fund 738 $ 6,736
Kemper Growth Fund 401 5,394
Kemper Income and Capital Preservation Fund 98 813
Zurich Money Market Fund 5,566 5,566
Kemper High Yield Fund 210 1,669
Kemper Diversified Income Fund 37 241
Kemper U.S. Government Securities Fund 115 1,002
-----------------------------------------------------------------------
TOTAL INVESTMENTS $21,421
-----------------------------------------------------------------------
</TABLE>
The underlying investments of the Funds are
summarized below.
KEMPER TOTAL RETURN FUND: This Fund invests in
fixed-income securities (bonds and other debt
securities) and equity securities (stocks). The
Fund also may invest a small portion of its assets
in put and call options, purchase and sell
financial futures contracts and options thereon,
invest in foreign securities, engage in related
foreign currency transactions and lend its
securities.
KEMPER GROWTH FUND: This Fund invests primarily in
common stocks but can invest in any security with
potential for capital growth. The Fund may also
invest a small portion of its assets in put and
call options, purchase and sell financial futures
contracts and options thereon, invest in foreign
securities, engage in foreign currency transactions
and lend its securities.
KEMPER INCOME AND CAPITAL PRESERVATION FUND: This
Fund invests primarily in investment grade debt
securities including corporate bonds, United States
or Canadian Government securities, commercial paper
and money market instruments. The Fund may also
purchase and sell put and call options and
financial futures and options thereon, invest in
foreign securities and engage in related foreign
currency transactions.
ZURICH MONEY MARKET FUND: This Fund invests
primarily in short-term obligations of major banks
and corporations.
KEMPER HIGH YIELD FUND: This Fund invests in
fixed-income securities. The Fund may also sell put
and call options and financial futures contracts
and options thereon, invest in foreign securities
and engage in related foreign currency
transactions. The Fund invests a substantial
portion of its net assets in high yielding
fixed-income securities. These securities will
ordinarily 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.
CONTINUED
9
<PAGE> 10
NOTES TO COMBINED FINANCIAL STATEMENTS
KEMPER DIVERSIFIED INCOME FUND: This Fund invests
primarily in fixed-income securities and dividend
paying common stocks and by writing options. The
Fund invests a substantial portion of its assets in
high yield bonds. These bonds ordinarily are in the
lower rating categories of recognized rating
agencies or are non-rated, and thus involve more
risk than higher rated bonds. The Fund may also
invest a small portion of its assets in put and
call options, purchase and sell financial futures
contracts and options thereon, invest in foreign
securities, engage in foreign currency and delayed
delivery transactions and lend its securities.
KEMPER U.S. GOVERNMENT SECURITIES FUND: This Fund
invests in obligations issued or guaranteed by the
U.S. Government or its agencies.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES KILICO assumes the mortality risks associated with
the annuity contracts and incurs all expenses
involved in administering the contracts. In return,
KILICO assesses a daily charge based on assets for
mortality and expense risk which amounts to an
aggregate of one percent (1.00%) per annum.
Additionally, KILICO assesses against each contract
participating in the Separate Account a records
maintenance charge of $25 on December 31st of each
calendar year whether or not any purchase payments
have been made during the year.
Proceeds payable on the redemption of units are
reduced by the amount of any applicable contingent
deferred sales charge.
Scudder Kemper Investments, Inc. ("SKI"), an
affiliated company, is the investment manager of
the Funds which serve as the underlying investments
of the Separate Account.
Investors Brokerage Services, Inc. ("IBS"), a
wholly-owned subsidiary of KILICO, is the principal
underwriter for the Separate Account.
- --------------------------------------------------------------------------------
4 NET TRANSFERS (TO)
FROM AFFILIATE OR
DIVISIONS Net transfers (to) from affiliate or divisions
include transfers of all or part of the contract
owner's interest to or from another Fund or to the
general account of KILICO.
- --------------------------------------------------------------------------------
5 CONTRACT OWNERS'
EQUITY The contract owners' equity is affected by the
investment results of each Fund and contract
charges. The accompanying combined financial
statements include only contract owners' payments
pertaining to the variable portions of their
contracts and exclude any payments for the fixed
portion, the latter being included in the general
account of KILICO. Contract owners may elect to
annuitize the contract under one of several annuity
options, as specified in the prospectus.
10
<PAGE> 11
NOTES TO COMBINED FINANCIAL STATEMENTS
Contract owners' equity at June 30, 1998, is as follows (in
thousands, except unit value; differences are due to
rounding):
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
SEPARATE ACCOUNT FUND DIVISION OF UNITS VALUE EQUITY
------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
------------------------------------------------------------------------------
Qualified 1,114 $7.269 $ 8,099
Nonqualified 6 7.273 45
------------------------------------------------------------------------------
8,144
------------------------------------------------------------------------------
KEMPER GROWTH FUND
------------------------------------------------------------------------------
Qualified 668 8.885 5,938
Nonqualified 11 8.861 98
------------------------------------------------------------------------------
6,036
------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL PRESERVATION FUND
------------------------------------------------------------------------------
Qualified 168 5.005 843
------------------------------------------------------------------------------
843
------------------------------------------------------------------------------
KEMPER MONEY MARKET FUND
------------------------------------------------------------------------------
Qualified 1,708 3.075 5,252
Nonqualified 98 3.075 301
------------------------------------------------------------------------------
5,553
------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
------------------------------------------------------------------------------
Qualified 254 6.444 1,637
Nonqualified 20 6.612 132
------------------------------------------------------------------------------
1,769
------------------------------------------------------------------------------
KEMPER DIVERSIFIED FUND
------------------------------------------------------------------------------
Qualified 64 3.477 223
------------------------------------------------------------------------------
223
------------------------------------------------------------------------------
KEMPER U.S. GOVERNMENT SECURITIES FUND
------------------------------------------------------------------------------
Qualified 205 4.459 914
Nonqualified 19 4.633 88
------------------------------------------------------------------------------
1,002
------------------------------------------------------------------------------
TOTAL CONTRACT OWNERS' EQUITY $23,570
------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Distributed by
Investors Brokerage Services, Inc.
Kemper Investors Life Insurance Company
1 Kemper Drive
KEMPER LOGO Long Grove, IL 60049
[RECYCLED LOGO]
PRINTED ON RECYCLED PAPER.
Policy Form Series L-5672, L-5454 & L-5797
L-5759 (2/97)1042
