<PAGE> 1
1999 ANNUAL
REPORT
----------
KEMPER
ADVANTAGE
Individual Variable Annuity Contracts
------
Kemper Investors Life Insurance Company
------
Variable Annuity Account C
PERIOD ENDED DECEMBER 31, 1999 [KEMPER LOGO]
<PAGE> 2
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<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS OF
KEMPER INVESTORS LIFE INSURANCE COMPANY AND
CONTRACT OWNERS OF VARIABLE ANNUITY ACCOUNT C
In our opinion, the accompanying combined statements of assets and liabilities
and contract owners' equity and the related combined statements of operations
and combined statements of changes in contract owners' equity present fairly, in
all material respects, the financial position of Kemper Investors Life Insurance
Company Variable Separate Account (the "Company") at December 31, 1999 and the
combined results of its operations for the year then ended and the combined
changes in its contract owners' equity for the years ended December 31, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management and
evaluations of the overall financial statement presentation. Our procedures
included confirmation of portfolio shares owned at December 31, 1999 by
correspondence with the fund. We believe that our audits provide a reasonable
basis for our opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
February 24, 2000
1
<PAGE> 4
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND CONTRACT OWNERS' EQUITY
December 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
- ----------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------
Investments, at current value $ 20,645 6,977
- ----------------------------------------------------------------------------------------
Dividend and other receivables 2 --
- ----------------------------------------------------------------------------------------
TOTAL ASSETS 20,647 6,977
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- ----------------------------------------------------------------------------------------
Liabilities:
Mortality and expense risk charges 18 6
- ----------------------------------------------------------------------------------------
Other 5 2
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES 23 8
- ----------------------------------------------------------------------------------------
Contract owners' equity $ 20,624 6,969
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ANALYSIS OF CONTRACT OWNERS' EQUITY
- ----------------------------------------------------------------------------------------
Excess of payments for units redeemed over proceeds from
units sold $(74,926) (13,178)
- ----------------------------------------------------------------------------------------
Accumulated net investment income 88,715 16,336
- ----------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on sales of investments 4,768 2,831
- ----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments 2,067 980
- ----------------------------------------------------------------------------------------
Contract owners' equity $ 20,624 6,969
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 5
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER INCOME KEMPER KEMPER U.S.
KEMPER AND 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> <C>
6,206 750 4,581 1,205 132 794
- ---------------------------------------------------------------------------------------------------
2 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
6,208 750 4,581 1,205 132 794
- ---------------------------------------------------------------------------------------------------
5 1 4 1 -- 1
- ---------------------------------------------------------------------------------------------------
1 -- 2 -- -- --
- ---------------------------------------------------------------------------------------------------
6 1 6 1 -- 1
- ---------------------------------------------------------------------------------------------------
6,202 749 4,575 1,204 132 793
- ---------------------------------------------------------------------------------------------------
(8,698) (2,883) (39,588) (4,664) (527) (5,388)
- ---------------------------------------------------------------------------------------------------
11,266 3,542 44,163 5,945 1,447 6,016
- ---------------------------------------------------------------------------------------------------
2,303 124 -- 66 (764) 208
- ---------------------------------------------------------------------------------------------------
1,331 (34) -- (143) (24) (43)
- ---------------------------------------------------------------------------------------------------
6,202 749 4,575 1,204 132 793
- ---------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
Dividend and capital gain distributions $1,499 464
- -------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 211 75
- -------------------------------------------------------------------------------------------
Maintenance fee 9 3
- -------------------------------------------------------------------------------------------
Total expenses 220 78
- -------------------------------------------------------------------------------------------
Net investment income 1,279 386
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 831 488
- -------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 707 30
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1,538 518
- -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CONTRACT OWNERS' EQUITY RESULTING
FROM OPERATIONS $2,817 904
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 7
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER
INCOME AND ZURICH KEMPER KEMPER U.S.
KEMPER CAPITAL MONEY KEMPER DIVERSIFIED 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> <C>
543 46 233 140 14 59
- -------------------------------------------------------------------------------------------------
55 8 48 14 2 9
- -------------------------------------------------------------------------------------------------
2 -- 3 1 -- --
- -------------------------------------------------------------------------------------------------
57 8 51 15 2 9
- -------------------------------------------------------------------------------------------------
486 38 182 125 12 50
- -------------------------------------------------------------------------------------------------
368 2 -- (2) (19) (6)
- -------------------------------------------------------------------------------------------------
903 (73) -- (103) 2 (52)
- -------------------------------------------------------------------------------------------------
1,271 (71) -- (105) (17) (58)
- -------------------------------------------------------------------------------------------------
1,757 (33) 182 20 (5) (8)
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
For the years ended December 31, 1999 and 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
-----------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------
Net investment income (loss) $ 1,279 1,043
Net realized gain (loss) on sales of investments 831 781
Change in unrealized appreciation (depreciation) of
investments 707 304
- ---------------------------------------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 2,817 2,128
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- ---------------------------------------------------------------------------------
Proceeds from units sold 100 117
Net transfers (to) from affiliate or divisions (299) 74
Payments for units redeemed (3,953) (3,341)
- ---------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (4,152) (3,150)
- ---------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (1,335) (1,022)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- ---------------------------------------------------------------------------------
Beginning of period 21,959 22,981
- ---------------------------------------------------------------------------------
End of period $20,624 21,959
- ---------------------------------------------------------------------------------
</TABLE>
COMBINED STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ZURICH MONEY
MARKET
FUND DIVISION
---------------
1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (loss) $ 182 230
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 182 230
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
- -------------------------------------------------------------------------------
Proceeds from units sold 38 22
Net transfers (to) from affiliate or divisions (62) 459
Payments for units redeemed (848) (667)
- -------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (872) (186)
- -------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (690) 44
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
- -------------------------------------------------------------------------------
Beginning of period 5,265 5,221
- -------------------------------------------------------------------------------
End of period $4,575 5,265
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 9
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER GROWTH KEMPER INCOME AND CAPITAL
FUND DIVISION FUND DIVISION PRESERVATION FUND DIVISION
- ------------------- -------------- ---------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
386 584 486 (38) 38 44
488 467 368 269 2 4
30 37 903 442 (73) 8
- ------------------------------------------------------------------
904 1,088 1,757 673 (33) 56
- ------------------------------------------------------------------
42 50 13 32 -- 1
(3) (194) (29) 24 1 (15)
(1,548) (1,377) (1,024) (861) (87) (55)
- ------------------------------------------------------------------
(1,509) (1,521) (1,040) (805) (86) (69)
- ------------------------------------------------------------------
(605) (433) 717 (132) (119) (13)
- ------------------------------------------------------------------
7,574 8,007 5,485 5,617 868 881
- ------------------------------------------------------------------
6,969 7,574 6,202 5,485 749 868
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD KEMPER DIVERSIFIED INCOME KEMPER U.S. GOVERNMENT
FUND DIVISION FUND DIVISION SECURITIES FUND DIVISION
- ----------------- ------------------------- ------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
125 146 12 16 50 61
(2) 41 (19) (2) (6) 2
(103) (176) 2 (8) (52) 1
- ------------------------------------------------------------------------
20 11 (5) 6 (8) 64
- ------------------------------------------------------------------------
7 15 -- -- -- (3)
(120) (189) (1) -- (85) (11)
(262) (253) (80) (9) (104) (119)
- ------------------------------------------------------------------------
(375) (427) (81) (9) (189) (133)
- ------------------------------------------------------------------------
(355) (416) (86) (3) (197) (69)
- ------------------------------------------------------------------------
1,559 1,975 218 221 990 1,059
- ------------------------------------------------------------------------
1,204 1,559 132 218 793 990
- ------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
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 Zurich Financial
Services ("ZFS"). ZFS is owned by Zurich Allied AG
and Allied Zurich p.l.c., fifty-seven percent and
forty-three percent, respectively. Zurich Allied AG
is listed on the Swiss Market Index (SMI) replacing
Zurich. Allied Zurich p.l.c. 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 accounting principles generally
accepted in the United States 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 December 31, 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,
as modified by Revenue Procedure 99-44, the
contract owner is treated as the owner of the
underlying Fund shares with respect to purchase
payments made after December 31, 1980. This ruling
does not apply in the case of individual retirement
annuities, tax sheltered 403(b) annuities and
annuities under a qualified 403(a) retirement plan
("Qualified Contracts").
With respect to purchase payments made before
January 1, 1981, and excluding 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.
8
<PAGE> 11
NOTES TO COMBINED FINANCIAL STATEMENTS
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 December 31, 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
INVESTMENTS OWNED COST
-------------------------------------------------------- ------ -------
<S> <C> <C>
Kemper Total Return Fund Division....................... 609 $ 5,997
Kemper Growth Fund Division............................. 334 4,875
Kemper Income and Capital Preservation Fund Division.... 94 784
Zurich Money Market Fund Division....................... 4,581 4,581
Kemper High Yield Fund Division......................... 168 1,348
Kemper Diversified Income Fund Division................. 25 156
Kemper U.S. Government Securities Fund Division......... 96 837
---------------------------------------------------------------------------
TOTAL INVESTMENTS $18,578
---------------------------------------------------------------------------
</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 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
9
<PAGE> 12
NOTES TO COMBINED FINANCIAL STATEMENTS
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> 13
NOTES TO COMBINED FINANCIAL STATEMENTS
Contract owners' equity at December 31, 1999, is as
follows (in thousands, except unit value;
differences are due to rounding):
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNITS OWNERS'
SEPARATE ACCOUNT FUND DIVISION OF UNITS VALUE EQUITY
<S> <C> <C> <C>
-----------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
-----------------------------------------------------------------------------
Qualified 788 $ 8.581 $ 6,762
Nonqualified 24 8.586 207
-----------------------------------------------------------------------------
6,969
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
KEMPER GROWTH FUND
-----------------------------------------------------------------------------
Qualified 506 11.897 6,014
Nonqualified 16 11.866 188
-----------------------------------------------------------------------------
6,202
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL PRESERVATION FUND
-----------------------------------------------------------------------------
Qualified 151 4.981 749
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ZURICH MONEY MARKET FUND
-----------------------------------------------------------------------------
Qualified 1,371 3.262 4,473
Nonqualified 31 3.262 102
-----------------------------------------------------------------------------
4,575
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
-----------------------------------------------------------------------------
Qualified 170 6.303 1,073
Nonqualified 20 6.468 131
-----------------------------------------------------------------------------
1,204
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
-----------------------------------------------------------------------------
Qualified 39 3.408 132
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
KEMPER U.S. GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------------------
Qualified 153 4.563 698
Nonqualified 20 4.742 95
-----------------------------------------------------------------------------
793
-----------------------------------------------------------------------------
TOTAL CONTRACT OWNERS' EQUITY $20,624
-----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
NOTES
12
<PAGE> 15
NOTES
13
<PAGE> 16
Distributed by
Investors Brokerage Services, Inc.
<TABLE>
<C> <S>
Kemper Investors Life Insurance Company
1 Kemper Drive
[KEMPER LOGO] Long Grove, IL 60049
</TABLE>
Policy Form Series L-5672, L-5454 & L-5797
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
L-5759 (2/00)1042
