<PAGE> 1
Dear Kemper Investors Life Policyowner:
Zurich Kemper Life is pleased to send you the 1997 Semi-Annual Report for the
Kemper Advantage variable annuity as of June 30, 1997, a period marked by
extraordinary growth in the stock market. Of course, not every sector of the
market grew to the same degree, highlighting the advantage of diversification.
Within Kemper Advantage's unique portfolio of quality funds, you have the
ability to diversify your money according to your investment objectives and
financial needs.
Kemper Advantage also offers you many options when you choose to begin
receiving payments, options not available in mutual funds. As an example, you
can receive guaranteed payments over a certain period of time, for the rest of
your life or over the lifetimes of both you and your spouse. Not only does
this guarantee that you will always have an income, in some cases it can help
spread income taxes over all of your payments instead of having to pay taxes all
at once.
Zurich Kemper Life is committed to helping you satisfy your long-term insurance
and financial needs. If you have any questions regarding your Kemper Advantage
annuity, please feel free to contact your financial representative or our
Client Services Team at 800-621-5001. Or, check out our state-of-the-art web
site at www.zurichkemper.com for the latest news and information regarding new
products and features. Thank you for continuing to be a part of the Zurich
Kemper Life family; we pledge to assist you in taking care of your financial
needs.
Sincerely,
/s/ John B. Scott
John B. Scott
President
Chief Executive Officer
Securities distributed through Investors Brokerage Services, Inc.
THAT'S THE WAY LIFE SHOULD BE.
<PAGE> 2
1997 SEMI-ANNUAL
REPORT
----------
KEMPER
ADVANTAGE
Individual Variable Annuity Contracts
------
Kemper Investors Life Insurance Company
------
Variable Annuity Account C
PERIOD ENDED JUNE 30, 1997 KEMPER LOGO
<PAGE> 3
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1997 (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
ASSETS
Investments, at current value $24,074 8,304
Dividends and other receivables 63 61
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 24,137 8,365
- --------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges 21 7
Other 5 3
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 26 10
- --------------------------------------------------------------------------------------------
Contract owners' equity 24,111 8,355
- --------------------------------------------------------------------------------------------
ANALYSIS OF CONTRACT OWNERS' EQUITY
Deficiency of payments for units redeemed over proceeds from
units sold (65,292) (9,343)
Accumulated net investment income 84,263 14,226
Accumulated net realized gain (loss) on sales of investments 2,592 1,615
Unrealized appreciation (depreciation) of investments 2,548 1,857
- --------------------------------------------------------------------------------------------
Contract owners' equity $24,111 8,355
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 4
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER
INCOME AND KEMPER KEMPER U.S.
KEMPER CAPITAL KEMPER 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>
5,660 1,013 5,635 2,000 210 1,252
-- -- 2 -- -- --
- -------------------------------------------------------------------------------------------------
5,660 1,013 5,637 2,000 210 1,252
- -------------------------------------------------------------------------------------------------
5 1 5 2 -- 1
-- -- 2 -- -- --
- -------------------------------------------------------------------------------------------------
5 1 7 2 -- 1
- -------------------------------------------------------------------------------------------------
5,655 1,012 5,630 1,998 210 1,251
- -------------------------------------------------------------------------------------------------
(6,373) (2,551) (38,024) (3,736) (438) (4,827)
10,074 3,434 43,654 5,593 1,411 5,871
1,391 110 -- 8 (743) 211
563 19 -- 133 (20) (4)
- -------------------------------------------------------------------------------------------------
5,655 1,012 5,630 1,998 210 1,251
- -------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1997 (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
<S> <C> <C>
Dividends and capital gain distributions $ 426 116
- --------------------------------------------------------------------------------------------
Mortality and expense risk charges 119 43
- --------------------------------------------------------------------------------------------
Net investment income (loss) 307 73
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments 373 238
Change in unrealized appreciation (depreciation) of
investments 944 612
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1,317 850
- --------------------------------------------------------------------------------------------
NET INCREASE IN CONTRACT OWNERS' EQUITY RESULTING FROM
OPERATIONS $1,624 923
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 6
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER
INCOME AND KEMPER KEMPER U.S.
KEMPER CAPITAL KEMPER 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>
-- 36 143 80 7 44
- -------------------------------------------------------------------------------------------------
29 5 24 10 1 7
- -------------------------------------------------------------------------------------------------
(29) 31 119 70 6 37
- -------------------------------------------------------------------------------------------------
131 5 -- 9 (2) (8)
318 (10) -- 13 1 10
- -------------------------------------------------------------------------------------------------
449 (5) -- 22 (1) 2
- -------------------------------------------------------------------------------------------------
420 26 119 92 5 39
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 7
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, 1997 (unaudited) and for the year ended
December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
-------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ 307 3,246
Net realized gain (loss) on sales of investments 373 1,361
Change in unrealized appreciation (depreciation) of
investments 944 (1,943)
- ---------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 1,624 2,664
- ---------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 182 419
Net transfers (to) from affiliate or divisions (272) (181)
Payments for units redeemed (2,386) (6,079)
- ---------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (2,476) (5,841)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (852) (3,177)
- ---------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
Beginning of year 24,963 28,140
- ---------------------------------------------------------------------------------------------
End of period $24,111 24,963
- ---------------------------------------------------------------------------------------------
</TABLE>
COMBINED STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
KEMPER MONEY MARKET
FUND DIVISION
-------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ 119 253
Net realized gain (loss) on sales of investments -- --
Change in unrealized appreciation (depreciation) of
investments -- --
- ---------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 119 253
- ---------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 79 74
Net transfers (to) from affiliate or divisions (38) 4
Payments for units redeemed (352) (806)
- ---------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (311) (728)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (192) (475)
- ---------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
Beginning of year 5,822 6,297
- ---------------------------------------------------------------------------------------------
End of period $5,630 5,822
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 8
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER GROWTH KEMPER INCOME AND CAPITAL
FUND DIVISION FUND DIVISION PRESERVATION FUND DIVISION
------------------------- ------------------------- ---------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
73 1,204 (29) 1,406 31 70
238 549 131 734 5 23
612 (549) 318 (1,218) (10) (92)
- ---------------------------------------------------------------------------------------
923 1,204 420 922 26 1
- ---------------------------------------------------------------------------------------
39 88 46 127 1 13
(89) 1 (56) (95) (17) (29)
(837) (2,003) (645) (1,647) (113) (377)
- ---------------------------------------------------------------------------------------
(887) (1,914) (655) (1,615) (129) (393)
- ---------------------------------------------------------------------------------------
36 (710) (235) (693) (103) (392)
- ---------------------------------------------------------------------------------------
8,319 9,029 5,890 6,583 1,115 1,507
- ---------------------------------------------------------------------------------------
8,355 8,319 5,655 5,890 1,012 1,115
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD KEMPER DIVERSIFIED INCOME KEMPER U.S. GOVERNMENT SECURITIES
FUND DIVISION FUND DIVISION FUND DIVISION
------------------------- ------------------------- ---------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
70 183 6 16 37 114
9 61 (2) (5) (8) (1)
13 3 1 5 10 92
- ---------------------------------------------------------------------------------------------
92 247 5 16 39 21
- ---------------------------------------------------------------------------------------------
8 36 6 5 3 76
27 83 -- (6) (99) (139)
(90) (682) (18) (32) (331) (532)
- ---------------------------------------------------------------------------------------------
(55) (563) (12) (33) (427) (595)
- ---------------------------------------------------------------------------------------------
37 (316) (7) (17) (388) (574)
- ---------------------------------------------------------------------------------------------
1,961 2,277 217 234 1,639 2,213
- ---------------------------------------------------------------------------------------------
1,998 1,961 210 217 1,251 1,639
- ---------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
(Unaudited)
1 GENERAL INFORMATION ORGANIZATION. Kemper Investors Life Insurance
AND SIGNIFICANT Company Variable Annuity Account C (the "Separate
ACCOUNTING POLICIES 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
was acquired by an investor group led by Zurich
Insurance Company ("Zurich") on January 4, 1996.
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, 1997.
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 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> 10
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2 SUMMARY Investments, at cost, at June 30, 1997, are as
OF INVESTMENTS follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
-----------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS
-----------------------------------------------------------------------
Kemper Total Return Fund 751 $ 6,447
Kemper Growth Fund 406 5,097
Kemper Income and Capital Preservation Fund 122 994
Kemper Money Market Fund 5,635 5,635
Kemper High Yield Fund 241 1,867
Kemper Diversified Income Fund 36 230
Kemper U.S. Government Securities Fund 144 1,256
-----------------------------------------------------------------------
TOTAL INVESTMENTS $21,526
-----------------------------------------------------------------------
</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.
CONTINUED
9
<PAGE> 11
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 KILICO assumes the mortality risks associated with
AFFILIATES 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, 1997, KILICO received contingent deferred
sales charges of approximately $5,000.
Zurich Kemper Investments, Inc. ("ZKI"), an
affiliated company, is the investment manager of
the funds which serve as the underlying investments
of the Separate Account.
- --------------------------------------------------------------------------------
4 NET TRANSFERS (TO) Net transfers (to) from affiliate or divisions
FROM AFFILIATE OR include transfers of all or part of the contract
DIVISIONS owner's interest to or from another Division or to
the general account of KILICO.
- --------------------------------------------------------------------------------
5 CONTRACT OWNERS' The contract owners' equity is affected by the
EQUITY 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> 12
NOTES TO COMBINED FINANCIAL STATEMENTS
Contract owners' equity at June 30, 1997, is as
follows (in thousands, except unit value;
differences are due to rounding):
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
SEPARATE ACCOUNT DIVISION OF UNITS VALUE EQUITY
<S> <C> <C> <C>
KEMPER TOTAL RETURN FUND
Qualified 1,329 $6.240 $ 8,293
Nonqualified 10 6.244 62
----------------------------------------------------------------------------
8,355
------------------------------------------------------------------------------
KEMPER GROWTH FUND
Qualified 774 7.205 5,576
Nonqualified 11 7.186 79
----------------------------------------------------------------------------
5,655
------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL PRESERVATION FUND
Qualified 219 4.616 1,012
------------------------------------------------------------------------------
KEMPER MONEY MARKET FUND
Qualified 1,820 2.947 5,363
Nonqualified 91 2.947 267
----------------------------------------------------------------------------
5,630
------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
Qualified 319 5.881 1,877
Nonqualified 20 6.034 121
----------------------------------------------------------------------------
1,998
------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
Qualified 65 3.217 210
----------------------------------------------------------------------------
KEMPER U.S. GOVERNMENT SECURITIES FUND
Qualified 279 4.141 1,156
Nonqualified 22 4.302 95
----------------------------------------------------------------------------
1,251
------------------------------------------------------------------------------
TOTAL CONTRACT OWNERS' EQUITY $24,111
----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
Distributed by
Investors Brokerage Services, Inc.
KEMPER LOGO
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Policy Form Series L-5672, L-5454 & L-5797 K PRINTED ON RECYCLED PAPER.
L-5759 (2/97)1042
