<PAGE> 1
1999 SEMI-ANNUAL
REPORT
KEMPER
ADVANTAGE
Individual Variable Annuity Contracts
------
Kemper Investors Life Insurance Company
------
Variable Annuity Account C
PERIOD ENDED JUNE 30, 1999 [ZURICH KEMPER LOGO]
<PAGE> 2
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
Investment, at current value $ 20,929 7,455
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 20,929 7,455
- ------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- ------------------------------------------------------------------------------------------
Liabilities:
Mortality and expense risk charges 17 6
- ------------------------------------------------------------------------------------------
Other 115 4
- ------------------------------------------------------------------------------------------
Total liabilities 132 10
- ------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY $ 20,797 7,445
- ------------------------------------------------------------------------------------------
ANALYSIS OF CONTRACT OWNERS' EQUITY
- ------------------------------------------------------------------------------------------
Excess of payments for units redeemed over proceeds from
units sold $(73,062) (12,342)
- ------------------------------------------------------------------------------------------
Accumulated net investment income 87,678 16,017
- ------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on sales of investments 4,208 2,576
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments 1,973 1,194
- ------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY $ 20,797 7,445
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 3
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
KEMPER INCOME KEMPER KEMPER U.S.
KEMPER AND CAPITAL ZURICH KEMPER STRATEGIC 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>
5,590 785 4,699 1,345 140 915
- ---------------------------------------------------------------------------------------------------
5,590 785 4,699 1,345 140 915
- ---------------------------------------------------------------------------------------------------
4 1 4 1 -- 1
- ---------------------------------------------------------------------------------------------------
106 -- 5 -- -- --
- ---------------------------------------------------------------------------------------------------
110 1 9 1 -- 1
- ---------------------------------------------------------------------------------------------------
5,480 784 4,690 1,344 140 914
- ---------------------------------------------------------------------------------------------------
(8,175) (2,850) (39,375) (4,533) (520) (5,267)
- ---------------------------------------------------------------------------------------------------
10,754 3,523 44,065 5,884 1,442 5,993
- ---------------------------------------------------------------------------------------------------
1,982 124 -- 73 (761) 214
- ---------------------------------------------------------------------------------------------------
919 (13) -- (80) (21) (26)
- ---------------------------------------------------------------------------------------------------
5,480 784 4,690 1,344 140 914
- ---------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
Dividends and capital gain distributions $ 345 104
- -------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 103 37
- -------------------------------------------------------------------------------------------
Net investment income (loss) 242 67
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 271 233
- -------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 613 244
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 884 477
- -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CONTRACT OWNERS' EQUITY RESULTING
FROM OPERATIONS $1,126 544
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
KEMPER
INCOME AND ZURICH KEMPER KEMPER U.S.
KEMPER CAPITAL MONEY KEMPER STRATEGIC GOVERNMENT
GROWTH PRESERVATION MARKET HIGH YIELD INCOME SECURITIES
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-- 23 108 71 8 31
- -------------------------------------------------------------------------------------------------
26 4 24 7 1 4
- -------------------------------------------------------------------------------------------------
(26) 19 84 64 7 27
- -------------------------------------------------------------------------------------------------
47 2 -- 5 (16) --
- -------------------------------------------------------------------------------------------------
491 (52) -- (40) 5 (35)
- -------------------------------------------------------------------------------------------------
538 (50) -- (35) (11) (35)
- -------------------------------------------------------------------------------------------------
512 (31) 84 29 (4) (8)
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
For the six months ended June 30, 1999 (unaudited) and the year ended
December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
--------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income (loss) $ 242 1,043
Net realized gain (loss) on sales of investments 271 781
Change in unrealized appreciation (depreciation) of
investments 613 304
- ------------------------------------------------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 1,126 2,128
- ------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- ------------------------------------------------------------------------------------------
Proceeds from units sold 79 117
Net transfers (to) from affiliate or divisions (251) 74
Payments for units redeemed (2,116) (3,341)
- ------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (2,288) (3,150)
- ------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (1,162) (1,022)
- ------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- ------------------------------------------------------------------------------------------
Beginning of period 21,959 22,981
- ------------------------------------------------------------------------------------------
End of period $20,797 21,959
- ------------------------------------------------------------------------------------------
</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,
1999 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income (loss) $ 84 230
Net realized gain (loss) on sales of investments -- --
Change in unrealized appreciation (depreciation) of
investments -- --
- ------------------------------------------------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 84 230
- ------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- ------------------------------------------------------------------------------------------
Proceeds from units sold 36 22
Net transfers (to) from affiliate or divisions (49) 459
Payments for units redeemed (646) (667)
- ------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (659) (186)
- ------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (575) 44
- ------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- ------------------------------------------------------------------------------------------
Beginning of period 5,265 5,221
- ------------------------------------------------------------------------------------------
End of period $4,690 5,265
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 7
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
<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,
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
67 584 (26) (38) 19 44
233 467 47 269 2 4
244 37 491 442 (52) 8
- -----------------------------------------------------------------------------------
544 1,088 512 673 (31) 56
- -----------------------------------------------------------------------------------
29 50 8 32 -- 1
16 (194) (88) 24 -- (15)
(718) (1,377) (437) (861) (53) (55)
- -----------------------------------------------------------------------------------
(673) (1,521) (517) (805) (53) (69)
- -----------------------------------------------------------------------------------
(129) (433) (5) (132) (84) (13)
- -----------------------------------------------------------------------------------
7,574 8,007 5,485 5,617 868 881
- -----------------------------------------------------------------------------------
7,445 7,574 5,480 5,485 784 868
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD KEMPER STRATEGIC 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,
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
64 146 7 16 27 61
5 41 (16) (2) -- 2
(40) (176) 5 (8) (35) 1
- -----------------------------------------------------------------------------------
29 11 (4) 6 (8) 64
- -----------------------------------------------------------------------------------
6 15 -- -- -- (3)
(86) (189) (1) -- (43) (11)
(164) (253) (73) (9) (25) (119)
- -----------------------------------------------------------------------------------
(244) (427) (74) (9) (68) (133)
- -----------------------------------------------------------------------------------
(215) (416) (78) (3) (76) (69)
- -----------------------------------------------------------------------------------
1,559 1,975 218 221 990 1,059
- -----------------------------------------------------------------------------------
1,344 1,559 140 218 914 990
- -----------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
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 Zurich Financial
Services ("ZFS"). ZFS was formed with the September
7, 1998 merger of the Zurich Group with the
financial services business of B.A.T. Industries.
ZFS is owned by Zurich Allied AG and Allied Zurich
p.l.c., fifty-seven percent and forty-three
percent, respectively. Zurich Allied AG,
representing the financial interest of the former
Zurich Group, is listed on the Swiss Market Index
(SMI) replacing Zurich. Allied Zurich p.l.c.,
representing the financial interest of the
financial services business of B.A.T. Industries,
is included in the FTSE-100 Share Index in London.
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, 1999.
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
8
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
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.
- --------------------------------------------------------------------------------
2 SUMMARY
OF INVESTMENTS Investments, at cost, at June 30, 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
INVESTMENTS OWNED COST
---------------------------------------------------------------------------
<S> <C> <C>
Kemper Total Return Fund 654 $ 6,260
Kemper Growth Fund 341 4,671
Kemper Income and Capital Preservation Fund 96 798
Zurich Money Market Fund 4,699 4,699
Kemper High Yield Fund 177 1,425
Kemper Strategic Income Fund 26 161
Kemper U.S. Government Securities Fund 108 941
---------------------------------------------------------------------------
TOTAL INVESTMENTS $18,955
---------------------------------------------------------------------------
</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.
KEMPER STRATEGIC INCOME FUND (FORMERLY DIVERSIFIED
INCOME): This Fund invests primarily in
fixed-income securities and dividend paying common
stocks
9
<PAGE> 10
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
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., an affiliated
company, is the investment manager of the Funds
which serve as the underlying investments of the
Separate Account.
Investors Brokerage Services, Inc., 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 (UNAUDITED)
Contract owners' equity at June 30, 1999, 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 892 $8.124 $ 7,241
Nonqualified 25 8.129 204
-----------------------------------------------------------------------------
7,445
-----------------------------------------------------------------------------
KEMPER GROWTH FUND
-----------------------------------------------------------------------------
Qualified 554 9.602 5,318
-----------------------------------------------------------------------------
Nonqualified 17 9.576 162
-----------------------------------------------------------------------------
5,480
-----------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL PRESERVATION FUND
-----------------------------------------------------------------------------
Qualified 157 4.994 784
-----------------------------------------------------------------------------
ZURICH MONEY MARKET FUND
-----------------------------------------------------------------------------
Qualified 1,438 3.194 4,589
-----------------------------------------------------------------------------
Nonqualified 32 3.194 101
-----------------------------------------------------------------------------
4,690
-----------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
-----------------------------------------------------------------------------
Qualified 191 6.339 1,212
Nonqualified 20 6.504 132
-----------------------------------------------------------------------------
1,344
-----------------------------------------------------------------------------
KEMPER STRATEGIC INCOME FUND
-----------------------------------------------------------------------------
Qualified 41 3.396 140
-----------------------------------------------------------------------------
KEMPER U.S. GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------------------
Qualified 180 4.554 818
Nonqualified 19 4.732 96
-----------------------------------------------------------------------------
914
-----------------------------------------------------------------------------
TOTAL CONTRACT OWNERS' EQUITY $20,797
-----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Distributed by
Investors Brokerage Services, Inc.
[ZURICH KEMPER LOGO]
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
<TABLE>
<S> <C> <C>
Policy Form Series L-5672, L-5454 & L-5797 PRINTED ON RECYCLED PAPER L-5759 (8/99)1042
</TABLE>
