<PAGE> 1
1996 ANNUAL
REPORT
----------
KEMPER
ADVANTAGE
Individual Variable Annuity Contracts
------
Kemper Investors Life Insurance Company
------
Variable Annuity Account C
[KEMPER LOGO]
ZURICH KEMPER
LIFE
PERIOD ENDED DECEMBER 31, 1996
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
KEMPER INVESTORS LIFE INSURANCE COMPANY
We have audited the accompanying combined statement of assets and liabilities
and contract owners' equity of Kemper Investors Life Insurance Company Variable
Annuity Account C as of December 31, 1996, and the related combined statement of
operations for the year then ended, and the combined statements of changes in
contract owners' equity for the years ended December 31, 1996 and 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Kemper
Investors Life Insurance Company Variable Annuity Account C as of December 31,
1996, 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, 1996 and 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 21, 1997
1
<PAGE> 3
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND CONTRACT OWNERS' EQUITY
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at current value $24,989 8,326
Dividend and other receivables 1 1
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 24,990 8,327
- --------------------------------------------------------------------------------------------
LIABILITIES AND CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------
Liabilities:
Mortality and expense risk charges 21 7
Other 6 1
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 27 8
- --------------------------------------------------------------------------------------------
Contract owners' equity 24,963 8,319
- --------------------------------------------------------------------------------------------
ANALYSIS OF CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------------------
Deficiency of payments for units redeemed over proceeds from
units sold (62,816) (8,456)
Accumulated net investment income 83,956 14,153
Accumulated net realized gain (loss) on sales of investments 2,219 1,377
Unrealized appreciation (depreciation) of investments 1,604 1,245
- --------------------------------------------------------------------------------------------
Contract owners' equity $24,963 8,319
- --------------------------------------------------------------------------------------------
</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 DIVISON FUND DIVISION FUND DIVISION FUND DIVISON FUND DIVISION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5,895 1,116 5,832 1,963 217 1,640
-- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
5,895 1,116 5,832 1,963 217 1,640
- -------------------------------------------------------------------------------------------------
5 1 5 2 -- 1
-- -- 5 -- -- --
- -------------------------------------------------------------------------------------------------
5 1 10 2 -- 1
- -------------------------------------------------------------------------------------------------
5,890 1,115 5,822 1,961 217 1,639
- -------------------------------------------------------------------------------------------------
(5,718) (2,422) (37,713) (3,681) (426) (4,400)
10,103 3,403 43,535 5,523 1,405 5,834
1,260 105 -- (1) (741) 219
245 29 -- 120 (21) (14)
- -------------------------------------------------------------------------------------------------
5,890 1,115 5,822 1,961 217 1,639
- -------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
KEMPER
TOTAL RETURN
COMBINED FUND DIVISION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend and capital gain distributions $ 3,537 1,298
- --------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 276 90
Maintenance fee 15 4
- --------------------------------------------------------------------------------------------
Total expenses 291 94
- --------------------------------------------------------------------------------------------
Net investment income 3,246 1,204
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 1,361 549
Change in unrealized appreciation (depreciation) of
investments (1,943) (549)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (582) --
- --------------------------------------------------------------------------------------------
NET INCREASE IN CONTRACT OWNERS' EQUITY RESULTING FROM
OPERATIONS $ 2,664 1,204
- --------------------------------------------------------------------------------------------
</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>
1,474 83 320 206 18 138
- -------------------------------------------------------------------------------------------------
65 12 62 22 2 23
3 1 5 1 -- 1
- -------------------------------------------------------------------------------------------------
68 13 67 23 2 24
- -------------------------------------------------------------------------------------------------
1,406 70 253 183 16 114
- -------------------------------------------------------------------------------------------------
734 23 -- 61 (5) (1)
(1,218) (92) -- 3 5 (92)
- -------------------------------------------------------------------------------------------------
(484) (69) -- 64 -- (93)
- -------------------------------------------------------------------------------------------------
922 1 253 247 16 21
- -------------------------------------------------------------------------------------------------
</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 years ended December 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
COMBINED
------------------------------
1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 3,246 2,010
Net realized gain (loss) on sales of investments 1,361 621
Change in unrealized appreciation (depreciation) of
investments (1,943) 2,435
- --------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 2,664 5,066
- --------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 419 603
Net transfers (to) from affiliate or divisions (181) (241)
Payments for units redeemed (6,079) (6,952)
- --------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (5,841) (6,590)
- --------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (3,177) (1,524)
- --------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
Beginning of period 28,140 29,664
- --------------------------------------------------------------------------------------------
End of period $24,963 28,140
- --------------------------------------------------------------------------------------------
</TABLE>
COMBINED STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
KEMPER MONEY MARKET
FUND DIVISION
-----------------------------
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 253 325
Net realized gain (loss) on sales of investments -- --
Change in unrealized appreciation (depreciation) of
investments -- --
- ---------------------------------------------------------------------------------------------
Net increase in contract owners' equity resulting from
operations 253 325
- ---------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 74 311
Net transfers (to) from affiliate or divisions 4 (164)
Payments for units redeemed (806) (2,110)
- ---------------------------------------------------------------------------------------------
Net decrease in contract owners' equity from account
unit transactions (728) (1,963)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in contract owners' equity (475) (1,638)
- ---------------------------------------------------------------------------------------------
CONTRACT OWNERS' EQUITY
Beginning of period 6,297 7,935
- ---------------------------------------------------------------------------------------------
End of period $5,822 6,297
- ---------------------------------------------------------------------------------------------
</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
------------------- --------------- ---------------------------
1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,204 605 1,406 610 70 95
549 249 734 377 23 (9)
(549) 1,160 (1,218) 732 (92) 192
- -----------------------------------------------------------------------
1,204 2,014 922 1,719 1 278
- -----------------------------------------------------------------------
88 101 127 114 13 13
1 (299) (95) (70) (29) 32
(2,003) (2,120) (1,647) (1,500) (377) (421)
- -----------------------------------------------------------------------
(1,914) (2,318) (1,615) (1,456) (393) (376)
- -----------------------------------------------------------------------
(710) (304) (693) 263 (392) (98)
- -----------------------------------------------------------------------
9,029 9,333 6,583 6,320 1,507 1,605
- -----------------------------------------------------------------------
8,319 9,029 5,890 6,583 1,115 1,507
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD KEMPER DIVERSIFIED INCOME KEMPER U.S. GOVERNMENT
FUND DIVISION FUND DIVISION SECURITIES FUND DIVISION
----------------- ------------------------- -------------------------
1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
183 217 16 21 114 137
61 15 (5) (9) (1) (2)
3 114 5 30 (92) 207
- -----------------------------------------------------------------------------
247 346 16 42 21 342
- -----------------------------------------------------------------------------
36 36 5 5 76 23
83 140 (6) (6) (139) 126
(682) (435) (32) (38) (532) (328)
- -----------------------------------------------------------------------------
(563) (259) (33) (39) (595) (179)
- -----------------------------------------------------------------------------
(316) 87 (17) 3 (574) 163
- -----------------------------------------------------------------------------
2,277 2,190 234 231 2,213 2,050
- -----------------------------------------------------------------------------
1,961 2,277 217 234 1,639 2,213
- -----------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
1 GENERAL INFORMATION
AND SIGNIFICANT
ACCOUNTING POLICIES ORGANIZATION. Kemper Investors Life Insurance
Company Variable Annuity Account C (the "Separate
Account") is a unit investment trust registered
under the Investment Company Act of 1940, as
amended, established by Kemper Investors Life
Insurance Company ("KILICO"). KILICO is a
wholly-owned subsidiary of Kemper Corporation which
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 December 31, 1996.
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
OF INVESTMENTS Investments, at cost, at December 31, 1996, are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
-----------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS
-----------------------------------------------------------------------
Kemper Total Return Fund 826 $ 7,081
Kemper Growth Fund 452 5,650
Kemper Income and Capital Preservation Fund 132 1,087
Kemper Money Market Fund 5,832 5,832
Kemper High Yield Fund 238 1,843
Kemper Diversified Income Fund 36 238
Kemper U.S. Government Securities Fund 190 1,654
-----------------------------------------------------------------------
TOTAL INVESTMENTS $23,385
=======================================================================
</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
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 year ended
December 31, 1996, KILICO received contingent
deferred sales charges of approximately $7
thousand.
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)
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.
10
<PAGE> 12
NOTES TO COMBINED FINANCIAL STATEMENTS
Contract owners' equity at December 31, 1996, 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 1,479 $5.586 $ 8,262
Nonqualified 10 5.590 57
------------------------------------------------------------------------------
8,319
------------------------------------------------------------------------------
KEMPER GROWTH FUND
Qualified 866 6.711 5,814
Nonqualified 11 6.693 76
------------------------------------------------------------------------------
5,890
------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL PRESERVATION FUND
Qualified 247 4.510 1,115
------------------------------------------------------------------------------
KEMPER MONEY MARKET FUND
Qualified 1,929 2.886 5,566
Nonqualified 89 2.886 256
------------------------------------------------------------------------------
5,822
------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
Qualified 329 5.616 1,846
Nonqualified 20 5.762 115
------------------------------------------------------------------------------
1,961
------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
Qualified 69 3.149 217
------------------------------------------------------------------------------
KEMPER U.S. GOVERNMENT SECURITIES FUND
Qualified 386 4.016 1,551
Nonqualified 21 4.174 88
------------------------------------------------------------------------------
1,639
------------------------------------------------------------------------------
TOTAL CONTRACT OWNERS' EQUITY $24,963
------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
NOTES
<PAGE> 14
NOTES
<PAGE> 15
Distributed by
Investors Brokerage Services, Inc.
[KEMPER LOGO] Kemper Investors Life Insurance Company
ZURICH KEMPER 1 Kemper Drive
LIFE Long Grove, IL 60049
Policy Form Series L-5672, L-5454 & L-5797
[RECYCLED LOGO]
PRINTED ON RECYCLED PAPER.
L-5759 (2/97)1042
