<PAGE> 1
1999 SEMI-ANNUAL
REPORT
----------
KEMPER
SELECT
Variable Universal Life Policies
------
Kemper Investors Life Insurance Company
------
Variable Separate Account
PERIOD ENDED JUNE 30, 1999 [ZURICH KEMPER LOGO]
<PAGE> 2
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND POLICY OWNERS' EQUITY
June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY TOTAL HIGH GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investment, at current value $13,769 1,414 3,486 1,237 3,258 4,374
- ------------------------------------------------------------------------------------------------------------------
Dividend and other receivables 12 10 -- -- 2 --
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 13,781 1,424 3,486 1,237 3,260 4,374
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND POLICY OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges 9 -- 2 1 3 3
- ------------------------------------------------------------------------------------------------------------------
Other 9 9 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 18 9 2 1 3 3
- ------------------------------------------------------------------------------------------------------------------
Policy owners' equity $13,763 1,415 3,484 1,236 3,257 4,371
- ------------------------------------------------------------------------------------------------------------------
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units sold
over payments for units redeemed $ 4,150 776 490 191 819 1,874
- ------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 7,127 639 2,012 1,019 1,392 2,065
- ------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on
sales of investments 2,202 -- 883 110 629 580
- ------------------------------------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) of investments 284 -- 99 (84) 417 (148)
- ------------------------------------------------------------------------------------------------------------------
Policy owners' equity $13,763 1,415 3,484 1,236 3,257 4,371
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 3
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY TOTAL HIGH GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Dividend and capital gain
Distributions $ 696 28 326 125 -- 217
- -------------------------------------------------------------------------------------------------------------------------
Mortality and expense risk
charges 61 7 12 9 14 19
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 635 21 314 116 (14) 198
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss)
on sales of investments 423 -- 67 44 310 2
- -------------------------------------------------------------------------------------------------------------------------
Change in unrealized
appreciation
(depreciation) of
investments (448) -- (118) (129) 17 (218)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments (25) -- (51) (85) 327 (216)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
POLICY OWNERS' EQUITY
RESULTING FROM OPERATIONS $ 610 21 263 31 313 (18)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 4
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENTS OF CHANGES IN
POLICY OWNERS' EQUITY
For the six months ended June 30, 1999 (unaudited) and the year ended
December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY MARKET
COMBINED SUBACCOUNT
-------------------------- --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income (loss) $ 635 1,289 21 66
Net realized gain (loss) on sales of
investments 423 (113) -- --
Change in unrealized appreciation
(depreciation) of investments (448) (30) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in policy owners'
equity resulting from operations 610 1,146 21 66
- -----------------------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 3,703 6,365 3,318 5,791
Net transfers (to) from affiliate or
subaccounts (1,523) (2,005) (642) (2,163)
Payments for units redeemed (2,868) (5,039) (2,248) (3,694)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in policy owners'
equity from account unit transactions (688) (679) 428 (66)
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease) in policy
owners' equity (78) 467 449 --
- -----------------------------------------------------------------------------------------------------------
POLICY OWNERS' EQUITY
Beginning of period 13,841 13,374 966 966
- -----------------------------------------------------------------------------------------------------------
End of period $13,763 13,841 1,415 966
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL RETURN HIGH YIELD GROWTH GOVERNMENT
SUBACCOUNT SUBACCOUNT SUBACCOUNT SECURITIES SUBACCOUNT
- ------------------------- ------------------------- ------------------------- -------------------------
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,
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
314 489 116 71 (14) 431 198 232
67 (67) 44 (42) 310 (288) 2 284
(118) (1) (129) (10) 17 234 (218) (253)
- -------------------------------------------------------------------------------------------------------------
263 421 31 19 313 377 (18) 263
- -------------------------------------------------------------------------------------------------------------
55 63 59 86 250 393 21 32
(346) 638 (15) (502) (536) 421 16 (399)
(167) (479) (171) (205) (241) (461) (41) (200)
- -------------------------------------------------------------------------------------------------------------
(458) 222 (127) (621) (527) 353 (4) (567)
- -------------------------------------------------------------------------------------------------------------
(195) 643 (96) (602) (214) 730 (22) (304)
- -------------------------------------------------------------------------------------------------------------
3,679 3,036 1,332 1,934 3,471 2,741 4,393 4,697
- -------------------------------------------------------------------------------------------------------------
3,484 3,679 1,236 1,332 3,257 3,471 4,371 4,393
- -------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
1 GENERAL INFORMATION
AND SIGNIFICANT
ACCOUNTING POLICIES ORGANIZATION. Kemper Investors Life Insurance
Company Variable Separate Account (the "Separate
Account") is a unit investment trust registered
under the Investment Company Act of 1940, as
amended, established by Kemper Investors Life
Insurance company ("KILICO"). KILICO is a
wholly-owned subsidiary of Zurich Financial
Services ("ZFS"). ZFS was formed with the September
7, 1998 merger of the Zurich Group with the
financial services business of B.A.T. Industries.
ZFS is owned by Zurich Allied AG and Allied Zurich
p.l.c., fifty-seven percent and forty-three
percent, respectively. Zurich Allied AG,
representing the financial interest of the former
Zurich Group, is listed on the Swiss Market Index
(SMI) replacing Zurich, Allied Zurich p.l.c.,
representing the financial interest of the
financial services business of B.A.T. Industries,
is included in the FTSE-100 Share Index in London.
The Separate Account is used to fund policies
("Policy") for Select variable universal life
policies and Power V and Farmers VUL flexible
premium variable universal life policies. The
Separate Account is divided into five subaccounts
and each subaccount invests exclusively in the
shares of a corresponding portfolio of the Kemper
Variable Series (formerly Investors Fund Series)
(The "Fund"), an open-end diversified management
investment company. The Fund has added additional
subaccounts, which are not reflected in the
accompanying financial statements, and which are
not available investment options to Select Policy
Owners of the Separate Account. The Power V and
Farmers VUL Policy Owners have additional
subaccounts which invest exclusively in the shares
of other funds, which are not reflected in the
accompanying financial statements.
ESTIMATES. The preparation of financial statements
in conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that could affect the reported
amounts of assets and liabilities as well as the
disclosure of contingent amounts at the date of the
financial statements. As a result, actual results
reported as income and expenses could differ from
the estimates reported in the accompanying
financial statements.
SECURITY VALUATION. The investments are stated at
current value which is based on the closing bid
price, net asset value, at June 30, 1999.
6
<PAGE> 7
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
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.
ACCOUNT UNIT TRANSACTIONS. Proceeds from a Policy
are automatically allocated to the Money Market
subaccount on the trade date for a 15 day period.
At the end of this period, the Separate Account
value (cash value) may be allocated to other
subaccounts as designated by the owner of the
Policy.
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 subaccount's investments and other
assets, less liabilities, by the number of
accumulation units outstanding in the respective
subaccount.
FEDERAL INCOME TAXES. The operations of the
Separate Account are included in the Federal income
tax return of KILICO. Under existing Federal income
tax law, investment income and realized capital
gains and losses of the Separate Account increase
liabilities under the policy and are, therefore,
not taxed. Thus the Separate Account may realize
net investment income and capital gains and losses
without Federal income tax consequences.
- --------------------------------------------------------------------------------
2 SUMMARY
OF INVESTMENTS Investments, at cost, at June 30, 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
---------------------------------------------------------------------------
<S> <C> <C>
Kemper Money Market Subaccount 1,414 $ 1,414
Kemper Total Return Subaccount 1,288 3,387
Kemper High Yield Subaccount 1,076 1,321
Kemper Growth Subaccount 1,001 2,841
Kemper Government Securities Subaccount 3,806 4,522
---------------------------------------------------------------------------
TOTAL INVESTMENTS $13,485
---------------------------------------------------------------------------
</TABLE>
The underlying investments are summarized below.
KEMPER MONEY MARKET SUBACCOUNT: This subaccount
seeks maximum current income to the extent
consistent with the stability of principal from a
portfolio of high quality money market instruments.
The Portfolio seeks to maintain a net asset value
of $1.00 per share but there is no assurance that
the Portfolio will be able to do so.
KEMPER TOTAL RETURN SUBACCOUNT: This subaccount
seeks a high total return, a combination of income
and capital appreciation, consistent with
reasonable risk.
KEMPER HIGH YIELD SUBACCOUNT: This subaccount seeks
to provide a high level of current income.
KEMPER GROWTH SUBACCOUNT: This subaccount seeks
maximum appreciation of capital through
diversification of investment securities having
potential for capital appreciation.
KEMPER GOVERNMENT SECURITIES SUBACCOUNT: This
subaccount seeks high current return consistent
with preservation of capital.
7
<PAGE> 8
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES KILICO provides a death benefit payment upon the
death of the Policy Owner under the terms of the
death benefit option selected by the Policy Owner
as further described in the Policy. KILICO assesses
a monthly charge to the subaccounts for the cost of
providing this insurance protection to the Policy
Owner. These cost of insurance charges vary with
the issue age, sex and rate class of the Policy
Owner, and are allocated among the subaccounts in
the proportion of each subaccount to the Separate
Account value. Cost of insurance charges totaled
approximately $52,600 and $1,313,300 for the Select
and Power V Variable Universal Life products,
respectively, for the six months ended June 30,
1999. Additionally, KILICO assesses a daily charge
to the subaccounts for mortality and expense risk
assumed by KILICO at an annual rate of .90% of
assets.
Proceeds payable on the surrender of a Policy are
reduced by the amount of any applicable contingent
deferred sales charge.
A state and local premium tax charge of 2.5% is
deducted from each premium payment under the Power
V policy prior to allocation of the net premium.
This charge is to reimburse KILICO for the payment
of state premium taxes. KILICO expects to pay an
average state premium tax rate of approximately
2.5% but the accrual premium tax attributable to a
Policy may be more or less. Under Section 848 of
the Internal Revenue Code (the "Code"), the receipt
of premium income by a life insurance company
requires the deferral of a portion of the
acquisition costs over a maximum of a 120 month
period. The effect of Section 848 for KILICO is an
acceleration of income recognition over a deferral
of the associated deductions for tax purposes; this
is referred to as deferred acquisition cost or, the
"DAC tax". As compensation for this accelerated
liability, a DAC tax charge of 1.00% of each
premium dollar is deducted from the premium by
KILICO before investment of a policy owner's funds
into the Separate Account.
Policy loans are also provided for under the terms
of the Policy. The minimum amount of the loan is
$500 and is limited to 90% of the Policy's
investment value, less applicable surrender
charges. Interest is assessed against the policy
loan under the terms of the Policy. Policy loans
are carried in KILICO's general account.
Scudder Kemper Investments, Inc., an affiliated
company, is the investment manager of the
portfolios of the Fund 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
SUBACCOUNTS Net transfers (to) from affiliate or subaccounts
include transfers of all or part of the Policy
Owner's interest to or from another subaccount or
to the general account of KILICO.
8
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
5
POLICY OWNERS'
EQUITY Policy owners' equity at June 30, 1999, is as
follows (in thousands, except unit value;
differences are due to rounding):
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
SELECT POLICIES OF UNITS VALUE EQUITY
--------------- -------- ------ -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 612 $1.734 $ 1,062
----------------------------------------------------------------------------
Kemper Total Return Subaccount 1,092 3.049 3,328
----------------------------------------------------------------------------
Kemper High Yield Subaccount 421 2.512 1,057
----------------------------------------------------------------------------
Kemper Growth Subaccount 574 4.196 2,407
----------------------------------------------------------------------------
Kemper Government Securities 2,031 2.127 4,321
----------------------------------------------------------------------------
Subaccount
----------------------------------------------------------------------------
TOTAL SELECT POLICY OWNERS' EQUITY $12,175
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
POWER V POLICIES OF UNITS VALUE EQUITY
---------------- -------- ------ -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 316 $1.118 $ 353
----------------------------------------------------------------------------
Kemper Total Return Subaccount 38 4.107 156
----------------------------------------------------------------------------
Kemper High Yield Subaccount 123 1.453 179
----------------------------------------------------------------------------
Kemper Growth Subaccount 168 5.092 850
----------------------------------------------------------------------------
Kemper Government Securities 37 1.397 50
----------------------------------------------------------------------------
Subaccount
----------------------------------------------------------------------------
TOTAL POWER V POLICY OWNERS' EQUITY $ 1,588
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
FARMERS VUL POLICIES OF UNITS VALUE EQUITY
-------------------- -------- ------ -------
<S> <C> <C> <C>
Kemper High Yield Subaccount -- 1.256 --
----------------------------------------------------------------------------
Kemper Government Securities -- 1.205 --
----------------------------------------------------------------------------
Subaccount
----------------------------------------------------------------------------
TOTAL FARMERS VUL POLICY OWNERS' EQUITY $ 0
----------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
NOTES
10
<PAGE> 11
NOTES
11
<PAGE> 12
Distributed by
Investors Brokerage Services, Inc.
Kemper Investors Life Insurance Company
1 Kemper Drive
[ZURICH KEMPER LOGO] Long Grove, IL 60049
Policy Form Series L-5672, L-5454 & L-5797
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER.
L-5759 (8/99)1042
