<PAGE> 1
DEAR KILICO POLICY OWNER:
- ---------------------------------------
GENERAL ECONOMIC OVERVIEW
Investors enjoyed generally positive performance in both the fixed-income and
stock markets in the first six months of 1995. At this midpoint in the year, the
returns of most leading securities markets are significantly higher than they
were at the same time in 1994.
But recently, several events occurred to challenge the markets:
- - Early in July, the Federal Reserve Board acknowledged that economic growth had
slowed so much that a recession might now be possible. In response, the
Federal Reserve eased short-term interest rates by a small but symbolic 25
basis points. This action was significant because, since February 1994, the
Fed had been raising interest rates to slow down what was considered high
enough growth to rekindle troublesome inflation.
- - Then, midway into July, the stock market took a brief tumble. After a two-day
period of anxiety, the market recovered and finished the month well ahead. But
such a sudden, severe mini-correction served to remind investors that the
current bull market will probably come to an end someday and that some sectors
may be overextended today.
- - Finally, the late July release of the gross domestic product (GDP) revealed
that growth in the economy in the second quarter was almost nonexistent. The
economy has not experienced such a low real GDP change (0.5%) in four years.
Proof of the economic slowdown was good news for investors who worry about
runaway growth and its inevitable result, inflation. At the same time, we were
pleased to see economic data that suggest that certain sectors of the economy,
such as housing and foreign trade, are poised for growth in the third and
fourth quarters. These should help provide momentum and keep us clear of a
recession. In fact, we anticipate 2% to 3% real GDP growth for the next few
quarters. Nevertheless, additional action by the Federal Reserve to lower
interest rates would not surprise us.
OUR ECONOMIC OUTLOOK
As we view the remainder of 1995, we believe that the opportunities for common
stock investors will be increasingly concentrated in higher quality investments.
Companies cannot necessarily count on the economy to provide above average
earnings support. Rather, stocks that have proven themselves with a pattern of
consistent earnings are likely to attract investor support. Specifically,
sectors that produce more consistent earnings, such as health care, consumer
nondurables, selected technology and selected capital goods can be expected to
do well. Picking the right sectors to invest in will be the key challenge for
equity investors during the next few quarters.
In addition, we look for the fixed-income markets to continue their positive
performance, as they tend to do well during periods of slow growth and low
inflation.
Leading international economies are lagging the U.S. economy. Japan and Germany,
whose economies typically follow U.S. growth, are not as robust as in past
cycles. This phenomenon makes international investing very complex currently.
Moreover, conditions in emerging market countries underline the importance of
careful research and experience in understanding how these markets work.
Nevertheless, the same fundamentals that have driven markets higher in the U.S.
are to be found in many foreign countries currently.
Political leadership also has some bearing on the progress of the economy and
the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate growth.
Given our Republican Congress and Democratic President, however, we do not
consider this a foregone conclusion as we move closer to 1996.
We would like to direct your attention to the performance of the separate
account divisions, which are investment options available through your annuity
product. Please take a moment to review the market and performance summaries
prepared by the portfolio managers.
1
<PAGE> 2
<TABLE>
<CAPTION>
KEMPER HIGH YIELD FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 9.61%
- ---------------------------------------------------------
</TABLE>
The domestic bond market rebounded strongly in the first six months of 1995 as
investors were pleased to see that higher interest rates had the effect of
slowing down economic growth. It was an environment that presented many
opportunities for the Kemper High Yield Fund.
Below investment-grade bonds, the Fund's primary investment, continued to out
perform U.S. Treasuries.
Demand for the higher income offered by these bonds has been stimulated by the
recent decline in yields. At the same time, there has been a decline in new
issues, which also helps bond prices. This sector has benefitted from favorable
levels of supply and demand.
The Fund's exposure to BB-rated bonds, in particular, has also contributed to
performance. BB-rated bonds are the highest quality tier of high yield paper,
which means that their price movement tends to be more closely correlated to
Treasuries than lower quality bonds.
The favorable supply conditions and the economic slowdown that is apparently
underway combine to make us optimistic about the Fund's potential going forward.
Fixed-income investments perform best during times of slow growth and moderate
inflation expectations.
Michael A. McNamara
Harry E. Resis, Jr.
Co-Portfolio Managers August 1, 1995
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 14.73%
- ---------------------------------------------------------
</TABLE>
The first six months of 1995 saw significant changes for the Kemper Total Return
Fund, including revisions to the Fund's investment strategy that enabled the
Fund to take advantage of the stock and bond market rallies.
Commensurate with a change announced early in the year, we said that we normally
expect to invest approximately 60% of the Fund's portfolio in stocks (which
provide the potential for long-term growth of capital) and 40% of the Fund in
bonds (which provide most of the Fund's yield, enabling the Fund to generate
current income). The Fund has a broad ability to invest in six basic asset
classes (domestic and international growth stocks and four types of bonds).
Throughout the six-month period, the Fund's domestic stock holdings led its
performance, helped alternately by global bonds and U.S. Treasuries. Halfway
into the year, the decision was made to shift funds from international equities
to take greater advantage of the domestic stock market.
The current environment of "reasonably good" corporate earnings and slow
economic growth is the "best of both worlds." Notwithstanding the stock market's
strength to date we continue to be bullish about the opportunities of the U.S.
stock market. Technology and financial stocks, in particular, remain an
emphasis.
Gary A. Langbaum,
Portfolio Manager August 1, 1995
<TABLE>
<CAPTION>
KEMPER GROWTH FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 15.75%
- ---------------------------------------------------------
</TABLE>
KEMPER GROWTH FUND
The stock market rose to a series of record highs during the first half of 1995,
spurred by declining interest rates, favorable earnings reports and an extended
rally for technology stocks. The fund benefitted from positions in technology
(Intel, Microsoft) and interest rate-sensitive stocks (MBNA, NationsBank), as
well as blue chip companies with international exposure (Coca-Cola, Proctor &
Gamble) which gained from strong sales and a weak dollar. Positions in retail
(Home Depot, Ann Taylor) were generally weak, reflecting a slowdown in consumer
spending. These holdings, as well as defensive positions such as foods and
household products, limited the Fund's gains relative to some of its peers.
Trading during the 2nd quarter included additional purchases in the technology
sector and selected stocks in the financial and consumer product sectors. New
holdings include Amgen, a leader in biotechnology, Boston Scientific, a producer
of medical devices, and more familiar names including DuPont, Goodrich,
2
<PAGE> 3
Boeing, Scott Paper and Xerox. Selected technology stocks including Motorola and
Compuware were sold due to concerns about valuation and earnings momentum.
Several retail positions including May Dept. Stores and Ann Taylor were
eliminated in response to weak sales and earnings projections. Positions in
Nucor, Warner Lambert, W.W. Grainger, Corning Glass and Morton International
were also eliminated. A number of positions were trimmed as the Fund took
profits on stocks that had posted substantial gains.
Looking ahead, a slower economy and low inflation should continue to favor
growth stocks through the next several months. We expect to maintain a defensive
position in larger companies that can sustain earnings growth in this
environment.
C. Beth Cotner
Portfolio Manager August 1, 1995
<TABLE>
<CAPTION>
KEMPER INCOME AND
CAPITAL PRESERVATION FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 12.01%
- ---------------------------------------------------------
</TABLE>
The domestic bond market rebounded strongly in the first six months of 1995 as
investors were pleased to see that higher interest rates had the effect of
slowing down economic growth.
It was an environment that presented many opportunities for the Kemper Income
and Capital Preservation Fund and, as the year progressed, we sought to be fully
invested. While the Fund closed 1994 with 26% of its portfolio in short-term
U.S. Treasuries and cash, all but 8% of the portfolio was redeployed by the end
of June. During the period, demand for the relatively high income offered by
corporate bonds was stimulated by the recent decline in yields, and corporate
bonds outperformed Treasuries.
Our actions were based on a positive outlook for slow growth and moderate
inflation. Specifically, longer term investments were favored to take advantage
of falling rates. The average maturity of the Fund was extended from 8.1 years
at the end of 1994 to 11.9 years at mid-1995.
The favorable supply conditions and the economic slowdown that is apparently
underway combine to make us optimistic about the Fund's potential going forward.
Fixed-income investments perform best during times of slow growth and moderate
inflation expectations.
Robert S. Cessine
Portfolio Manager July 26, 1995
<TABLE>
<CAPTION>
KEMPER MONEY MARKET FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 2.34%
- ---------------------------------------------------------
</TABLE>
The Money Market Fund benefitted from the last Federal rate increase in February
in terms of higher yields. However, by the end of June, it seemed likely that
the economic slowdown would soon cause a halt in the trend to higher rates. In
fact the Federal Reserve eased monetary conditions in the beginning of July.
However, we do not anticipate an extended trend of lower rates.
We believe that the current economic slowdown will cease and some rebounding
will occur during the fourth quarter. However, to respond to the Fed's expected
action, we are slightly extending the average life of the Fund, which invests in
high quality short-term investments that can provide both stability of principal
and the opportunity for competitive money market yields.
Frank J. Rachwalski, Jr.
Portfolio Manager August 2, 1995
<TABLE>
<CAPTION>
KEMPER DIVERSIFIED INCOME FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 11.52%
- ---------------------------------------------------------
</TABLE>
The domestic bond market rebounded strongly in the first six months of 1995 as
fixed-income investors were pleased to see that higher interest rates had the
effect of slowing down economic growth. It was an environment that presented
many opportunities for the Kemper Diversified Income Fund and, as the year
progressed, we sought to increase its diversification. While the Fund closed
1994 with 27% of its portfolio in short-term U.S. Treasuries and cash, all but
8% of the portfolio was redeployed by the end of June to sectors that would be
expected to benefit from the prevailing economic conditions.
3
<PAGE> 4
With the exception of a month of underperformance in May, high yield corporate
bonds, one of the Fund's core sectors, continued to outperform U.S. Treasuries.
The corporate sector has benefitted from favorable levels of supply and demand.
The recent decline in yields stimulated demand for the higher income offered by
corporate bonds. At the same time, there has been a decline in new issues, which
also helps corporate prices. Foreign currency bonds, in which the Fund has
another core position, were especially strong from January to June as a result
of the weakening dollar. Throughout the period, we continued to fine-tune the
Fund's exposure to emerging markets. At its high of 14% of the portfolio in May,
investments in emerging markets securities were scaled back to 10% by the end of
June.
Completing the Fund's transition to a multi-sector investment strategy, we
converted to a team approach. The team of specialists in the various
fixed-income market sectors includes Mike McNamara and Harry Resis, high yield
corporate bonds; Rob Cessine, high grade corporate bonds; Paul Sloan, government
bonds; Gordon Johns, global bonds; and Jonathan Trutter, emerging markets.
Michael A. McNamara
Harry E. Resis, Jr.
Co-Portfolio Managers August 1, 1995
<TABLE>
<CAPTION>
KEMPER U.S. GOVERNMENT
SECURITIES FUND PERCENT CHANGE IN
SEPARATE ACCOUNT DIVISION ACCUMULATION UNIT VALUE+
- ---------------------------------------------------------
<S> <C>
Six Months Ended 6/30/95 10.83%
- ---------------------------------------------------------
</TABLE>
The fixed-income market rebounded strongly in the first six months of 1995 as
slower economic growth quelled investors' concerns about inflation. Despite
considerable market volatility during the second quarter, the market posted
impressive gains. Early in the second quarter, the Kemper U.S. Government
Securities Fund's Treasury holdings were increased. Treasuries outperformed
mortgages in April and May as volatility and the prospect of prepayment alarmed
mortgage investors. In June, we reduced the allocation of Treasuries in favor of
mortgages. We expect mortgages to outperform as volatility declines in the
second half of the year.
Looking ahead, we remain optimistic about the investment climate. A slower pace
of economic growth is expected to keep inflationary pressures subdued. A low
inflation environment is optimal for fixed income investments.
Paul F. Sloan
Portfolio Manager July 27, 1995
We appreciate your support as a Kemper policy owner and look forward to
continuing to serve your insurance needs.
Sincerely,
[SIGNATURE] [SIGNATURE]
John B. Scott
Stephen B. Timbers
Chairman
Chief Executive Officer
President
Chief Investment Officer
Chief Executive Officer
Kemper Financial Services, Inc.
Kemper Investors Life
Insurance Company
[PHOTO] [PHOTO]
+ The percent change in accumulation unit value is net of mortality and
expense risk charges. No adjustment has been made for the annual $25 records
maintenance charge or surrender charges. No withdrawals are assumed. The
returns are based upon historical results and are not representative of
future results. For the Money Market Fund, there can be no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per
share and the Fund is not insured or guaranteed by the U.S. Government. For
the High Yield Fund, investment in lower-rated and non-rated securities
present greater risk of loss to principal and interest than higher-rated
securities.
4
<PAGE> 5
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LEFT BLANK
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5
<PAGE> 6
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1995 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Kemper
Kemper Income Kemper Kemper
Total Kemper and Capital Money High
Return Growth Preservation Market Yield
Fund Fund Fund Fund Fund
Combined Division Division Division Division Division
-------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at current value......... $29,831 9,338 6,666 1,510 7,561 2,277
Dividends and other receivables....... 2 -- -- -- 2 --
------- ------- ------- ------ ------- -------
Total assets.................... 29,833 9,338 6,666 1,510 7,563 2,277
------- ------- ------- ------ ------- -------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Mortality and expense risk.......... 3 1 -- -- 2 --
Other............................... 23 7 5 1 6 2
------- ------- ------- ------ ------- -------
Total liabilities............... 26 8 5 1 8 2
------- ------- ------- ------ ------- -------
Contract owners' equity............... $29,807 9,330 6,661 1,509 7,555 2,275
======= ======= ======= ====== ======= =======
ANALYSIS OF CONTRACT OWNERS' EQUITY
Deficiency of payments for units
redeemed over proceeds from units
sold................................ $(53,249) (5,496) (3,233) (1,926) (35,576) (2,986)
Accumulated net investment income..... 79,125 12,407 8,055 3,290 43,131 5,225
Accumulated net realized gain (loss)
on sales of investments............. 253 548 211 81 -- (70)
Unrealized appreciation (depreciation)
of investments...................... 3,678 1,871 1,628 64 -- 106
-------- ------- ------- ------ ------- ------
Contract owners' equity............... $29,807 9,330 6,661 1,509 7,555 2,275
======== ======= ======= ====== ======= ======
<CAPTION>
Kemper Kemper U.S.
Diversified Government
Income Securities
Fund Fund
Division Division
----------- -----------
<S> <C> <C>
ASSETS
Investments, at current value......... 251 2,228
Dividends and other receivables....... -- --
----- --------
Total assets.................... 251 2,228
----- --------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Mortality and expense risk.......... -- --
Other............................... -- 2
----- --------
Total liabilities............... -- 2
----- --------
Contract owners' equity............... 251 2,226
===== ========
ANALYSIS OF CONTRACT OWNERS' EQUITY
Deficiency of payments for units
redeemed over proceeds from units
sold................................ (361) (3,671)
Accumulated net investment income..... 1,376 5,641
Accumulated net realized gain (loss)
on sales of investments............. (733) 216
Unrealized appreciation (depreciation)
of investments...................... (31) 40
----- --------
Contract owners' equity............... 251 2,226
===== ========
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 7
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Kemper
Kemper Income Kemper Kemper
Total Kemper and Capital Money High
Return Growth Preservation Market Yield
Fund Fund Fund Fund Fund
Combined Division Division Division Division Division
-------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions......................... $ 561 108 -- 59 203 113
Expenses:
Mortality and expense risk charges.... 136 45 32 7 29 11
------ ------- --- --- --- ---
Net investment income (loss)............ 425 63 (32) 52 174 102
------ ------- --- --- --- ---
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on sales of
investments......................... 16 (31) 62 (10) -- 7
Change in unrealized appreciation of
investments......................... 2,566 1,237 897 135 -- 103
------ ------- --- --- --- ---
Net realized and unrealized gain on
investments........................... 2,582 1,206 959 125 -- 110
------ ------- --- --- --- ---
Net increase in contract owners' equity
resulting from operations............. $3,007 1,269 927 177 174 212
====== ======= === === === ===
<CAPTION>
Kemper Kemper U.S.
Diversified Government
Income Securities
Fund Fund
Division Division
----------- -------------
<S> <C> <C>
Dividends and capital gains
distributions......................... 9 69
Expenses:
Mortality and expense risk charges.... 1 11
--
---
Net investment income (loss)............ 8 58
--
---
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on sales of
investments......................... (6) (6)
Change in unrealized appreciation of
investments......................... 25 169
--
---
Net realized and unrealized gain on
investments........................... 19 163
--
---
Net increase in contract owners' equity
resulting from operations............. 27 221
==== ====
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE> 8
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
Kemper Total Return Kemper Growth
Combined Fund Division Fund Division
------------------------ ------------------------ ------------------------
Six months Year Six months Year Six months Year
ended June ended ended June ended ended June ended
30, December 31, 30, December 31, 30, December 31,
1995 1994 1995 1994 1995 1994
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss)................. $ 425 963 63 154 (32) 20
Net realized gain (loss) on sales of
investments................................ 16 68 (31) 20 62 156
Change in unrealized appreciation
(depreciation) of investments.............. 2,566 (2,773) 1,237 (1,418) 897 (628)
-------- ------ ----- ------ ----- ------
Net increase (decrease) in contract owners'
equity resulting from operations......... 3,007 (1,742) 1,269 (1,244) 927 (452)
-------- ------ ----- ------ ----- ------
Account unit transactions:
Proceeds from units sold..................... 433 559 65 184 65 169
Net transfers (to) from affiliate or
divisions.................................. (73) (451) (426) (885) 76 451
Payments for units redeemed.................. (3,224) (6,902) (911) (1,710) (727) (1,631)
-------- ------ ----- ------ ----- ------
Net decrease in contract owners' equity
from account unit transactions........... (2,864) (6,794) (1,272) (2,411) (586) (1,011)
-------- ------ ----- ------ ----- ------
Total increase (decrease) in contract owners'
equity....................................... 143 (8,536) (3) (3,655) 341 (1,463)
Contract owners' equity:
Beginning of year............................ 29,664 38,200 9,333 12,988 6,320 7,783
-------- ------ ----- ------ ----- ------
End of year.................................. $ 29,807 29,664 9,330 9,333 6,661 6,320
======== ====== ===== ====== ===== ======
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE> 9
<TABLE>
<CAPTION>
Kemper Income
and Capital Kemper Kemper Kemper
Preservation Money Market High Yield Diversified Income
Fund Division Fund Division Fund Division Fund Division
--------------------------- --------------------------- --------------------------- ---------------------------
Six months Year Six months Year Six months Year Six months Year
ended ended ended ended ended ended ended ended
June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31,
1995 1994 1995 1994 1995 1994 1995 1994
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
52 116 174 261 102 217 8 19
(10) (11) -- -- 7 (62) (6) (17)
135 (191) -- -- 103 (250) 25 (17)
----- ----- ----- ----- ----- ----- --- ---
177 (86) 174 261 212 (95) 27 (15)
----- ----- ----- ----- ----- ----- --- ---
7 18 255 116 27 42 5 7
18 (222) (31) 1,049 99 (568) 16 33
(298) (174) (778) (2,186) (253) (667) (28) (54)
----- ----- ----- ----- ----- ----- --- ---
(273) (378) (554) (1,021) (127) (1,193) (7) (14)
----- ----- ----- ----- ----- ----- --- ---
(96) (464) (380) (760) 85 (1,288) 20 (29)
1,605 2,069 7,935 8,695 2,190 3,478 231 260
----- ----- ----- ----- ----- ----- --- ---
1,509 1,605 7,555 7,935 2,275 2,190 251 231
===== ===== ===== ===== ===== ===== === ===
<CAPTION>
Kemper U.S.
Government Securities
Fund Division
---------------------------
Six months Year
ended ended
June 30, December 31,
1995 1994
---------- ------------
<S> <C>
58 176
(6) (18)
169 (269)
----- -----
221 (111)
----- -----
9 23
175 (309)
(229) (480)
----- -----
(45) (766)
----- -----
176 (877)
2,050 2,927
----- -----
2,226 2,050
===== =====
</TABLE>
9
<PAGE> 10
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(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"). The Separate Account is divided into seven subaccounts and
each subaccount invests exclusively in a corresponding Kemper Fund. Each fund is
an open-end diversified management investment company.
SECURITY VALUATION.
The investments are stated at current value which is based on the closing bid
price, net asset value, at
June 30, 1995.
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 an identified 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
Division's investments and other assets, less liabilities, by the number of
accumulation units outstanding in the respective Division.
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 22, 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.
10
<PAGE> 11
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(2) SUMMARY OF INVESTMENTS
Investments, at cost, at June 30, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
Shares
Owned Cost
----- --------
<S> <C> <C>
INVESTMENTS
Kemper Total Return Fund......................................................................... 929 $ 7,467
Kemper Growth Fund............................................................................... 452 5,038
Kemper Income and Capital Preservation Fund...................................................... 177 1,446
Kemper Money Market Fund......................................................................... 7,561 7,561
Kemper High Yield Fund........................................................................... 287 2,171
Kemper Diversified Income Fund................................................................... 42 282
Kemper U.S. Government Securities Fund........................................................... 251 2,188
--------
TOTAL INVESTMENTS.......................................................................... $ 26,153
=======
</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.
KEMPER 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
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.
11
<PAGE> 12
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(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. During the six months ended June
30, 1995, KILICO received contingent deferred sales charges of approximately
$6,000.
Kemper Financial Services, Inc., an affiliated company, is the investment
manager of the funds which serve as the underlying investments of 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 Division 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.
12
<PAGE> 13
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Contract owners' equity at June 30, 1995, is as follows (in thousands, except
unit value; differences are due to rounding):
<TABLE>
<CAPTION>
Contract
Number Unit Owners'
of Units Value Equity
---------------- ------ ----------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT DIVISION
Kemper Total Return Fund............ Qualified 2,076 $ 4.471 $ 9,280
Nonqualified 11 4.474 50
--------
9,330
--------
Kemper Growth Fund.................. Qualified 1,280 5.163 6,609
Nonqualified 10 5.150 52
--------
6,661
--------
Kemper Income and Capital
Preservation Fund................. Qualified 363 4.163 1,509
--------
1,509
--------
Kemper Money Market Fund............ Qualified 2,644 2.708 7,160
Nonqualified 146 2.708 395
--------
7,555
--------
Kemper High Yield Fund.............. Qualified 453 4.710 2,134
Nonqualified 29 4.834 141
--------
2,275
--------
Kemper Diversified Income Fund...... Qualified 91 2.752 251
--------
251
--------
Kemper U.S. Government Securities
Fund.............................. Qualified 572 3.738 2,137
Nonqualified 23 3.884 89
--------
2,226
--------
TOTAL CONTRACT OWNERS' EQUITY........................................................................... $ 29,807
========
</TABLE>
13
<PAGE> 14
[KEMPER LOGO]
KEMPER
ADVANTAGE
SEMI-ANNUAL REPORT
- - Individual Variable
Annuity Contracts
- - Kemper Investors Life
Insurance Company
- - Variable Annuity
Account C
Period Ended June 30, 1995
Distributed by
Investor Brokerage Services, Inc.
[KEMPER LOGO] Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Il 60049
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
L-5759S(8/95) Policy form series L-5672, L-5454 & L-5797 1041
