<PAGE> 1
2000
SEMI-ANNUAL
REPORT
----------
KEMPER
SELECT
A Variable Life Insurance Policy
------
KILICO Variable Separate Account
PERIOD ENDED JUNE 30, 2000 ZURICH KEMPER LOGO
<PAGE> 2
Combined FINANCIAL STATEMENTS (unaudited)
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF ASSETS AND LIABILITIES
AND POLICY OWNERS' EQUITY
June 30, 2000 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER KEMPER KEMPER KEMPER
MONEY TOTAL HIGH KEMPER GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment, at current value $13,417 1,583 3,129 663 3,731 4,311
-------------------------------------------------------------------------------------------------------------------
Dividend and other receivables 19 6 13 -- -- --
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 13,436 1,589 3,142 663 3,731 4,311
-------------------------------------------------------------------------------------------------------------------
LIABILITIES AND POLICY OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges 10 -- 3 -- 4 3
-------------------------------------------------------------------------------------------------------------------
Other 68 60 1 -- 7 --
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 78 60 4 -- 11 3
-------------------------------------------------------------------------------------------------------------------
Policy owners' equity $13,358 1,529 3,138 663 3,720 4,308
-------------------------------------------------------------------------------------------------------------------
ANALYSIS OF POLICY OWNERS' EQUITY
Excess (deficiency) of proceeds from
units sold over payments for units
redeemed $ 2,457 849 (43) (342) 334 1,659
-------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 8,077 680 2,250 1,124 1,706 2,317
-------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss)
on sales of investments 3,107 -- 1,037 (32) 1,528 574
-------------------------------------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) of investments (283) -- (106) (87) 152 (242)
-------------------------------------------------------------------------------------------------------------------
Policy owners' equity $13,358 1,529 3,138 663 3,720 4,308
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 3
Combined FINANCIAL STATEMENTS (unaudited)
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 2000 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER KEMPER KEMPER KEMPER
MONEY TOTAL HIGH KEMPER GOVERNMENT
MARKET RETURN YIELD GROWTH SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
Dividend and capital gain
distributions $ 1,054 38 257 111 356 292
-------------------------------------------------------------------------------------------------------------------------
Mortality and expense risk
charges 67 13 5 3 27 19
-------------------------------------------------------------------------------------------------------------------------
Net investment income 987 25 252 108 329 273
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments:
Net realized gain (loss)
on sales of investments 513 -- 26 (57) 548 (4)
-------------------------------------------------------------------------------------------------------------------------
Change in unrealized
depreciation of
investments (1,274) -- (307) (74) (770) (123)
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (761) -- (281) (131) (222) (127)
-------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
POLICY OWNERS' EQUITY
RESULTING FROM OPERATIONS $ 226 25 (29) (23) 107 146
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 4
Combined FINANCIAL STATEMENTS (unaudited)
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENTS OF CHANGES IN
POLICY OWNERS' EQUITY
For the six months ended June 30, 2000 (unaudited) and the year ended
December 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
KEMPER
MONEY MARKET
COMBINED SUBACCOUNT
---------------------------- ----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 987 601 25 39
Net realized gain (loss) on sales of
investments 513 817 -- --
Change in unrealized appreciation
(depreciation) of investments (1,274) 258 -- --
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in policy
owners' equity resulting from
operations 226 1,676 25 39
------------------------------------------------------------------------------------------------------------
ACCOUNT UNIT TRANSACTIONS
Proceeds from units sold 2,714 6,213 2,376 5,456
Net transfers (to) from affiliate or
subaccounts (1,004) (2,491) (1,080) (1,180)
Payments for units redeemed (3,374) (4,443) (1,723) (3,350)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in policy
owners' equity from account unit
transactions (1,664) (721) (427) 926
------------------------------------------------------------------------------------------------------------
Total increase (decrease) in policy
owners' equity (1,438) 955 (402) 965
------------------------------------------------------------------------------------------------------------
POLICY OWNERS' EQUITY
Beginning of period 14,796 13,841 1,931 966
------------------------------------------------------------------------------------------------------------
End of period $13,358 14,796 1,529 1,931
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
Combined FINANCIAL STATEMENTS (unaudited)
<TABLE>
<CAPTION>
KEMPER KEMPER KEMPER KEMPER
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,
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C>
252 300 108 112 329 (29) 273 179
26 196 (57) (41) 548 662 (4) --
)
(307 (16) (74) (58) (770) 521 (123) (189)
-------------------------------------------------------------------------------------------------------------
)
(29 480 (23) 13 107 1,154 146 (10)
-------------------------------------------------------------------------------------------------------------
44 97 61 121 222 506 11 33
81 (358) (54) (341) 45 (568) 4 (44)
(423) (433) (293) (153) (778) (439) (157) (68)
-------------------------------------------------------------------------------------------------------------
)
(298 (694) (286) (373) (511) (501) (142) (79)
-------------------------------------------------------------------------------------------------------------
)
(327 (214) (309) (360) (404) 653 4 (89)
-------------------------------------------------------------------------------------------------------------
3,465 3,679 972 1,332 4,124 3,471 4,304 4,393
-------------------------------------------------------------------------------------------------------------
3,138 3,465 663 972 3,720 4,124 4,308 4,304
-------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
Notes to COMBINED FINANCIAL STATEMENTS (unaudited)
KILICO VARIABLE SEPARATE ACCOUNT
--------------------------------------------------------------------------------
1
GENERAL INFORMATION
AND SIGNIFICANT
ACCOUNTING POLICIES ORGANIZATION. KILICO 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 Kemper Corporation, a
nonoperating holding company. KILICO and Kemper
Corporation are wholly-owned subsidiaries of Zurich
Financial Services ("ZFS"). ZFS is owned by Zurich
Allied A.G. and Allied Zurich p.l.c., fifty-seven
percent and forty-three percent, respectively.
Zurich Allied A.G. is listed on the Swiss Market
Index (SMI). Allied Zurich p.l.c. is included in
the FTSE-100 Share Index in London.
The Separate Account is used to fund policies
("Policy") for the Kemper Select variable life
policies ("Kemper Select"), the Power V flexible
premium variable universal life policies ("Power
V"), the Farmers Variable Universal Life I flexible
premium variable universal life policies ("Farmers
Variable Universal Life I"), the Kemper
Destinations Life modified single premium variable
universal life policies ("Kemper Destinations
Life") and as of February 1, 2000, Zurich Kemper
LifeINVESTOR flexible premium variable universal
life policies ("Zurich Kemper LifeINVESTOR"). The
Separate Account is divided into seventy-six
subaccount options available to Policy Owners
depending upon their respective Policy. The Kemper
Select policies have five subaccounts which are
available to Policy Owners and each subaccount
invests exclusively in the shares of a
corresponding portfolio of the Kemper Variable
Series (formerly Investors Fund Series), an
open-end diversified management investment company.
The Power V policies have twenty-three subaccounts
which are available to Policy Owners and each
subaccount invests exclusively in the shares of a
corresponding portfolio of the Kemper Variable
Series, the American Skandia Trust, the Fidelity
Variable Insurance Products Fund (Initial Class
Shares), the Fidelity Variable Insurance Products
Fund II (Initial Class Shares), the Fidelity
Variable Insurance Products Fund III (Initial Class
Shares) and the Scudder Variable Life Investment
Fund (Class B Shares), all of which are open-end
diversified management investment companies. The
Farmers Variable Universal Life I policies have
twelve subaccounts which are available to Policy
Owners and each subaccount invests exclusively in
the shares of a corresponding portfolio of the
Kemper Variable Series, the Janus Aspen Series, the
PIMCO Variable Insurance Trust, the Franklin
Templeton Variable Insurance Products Trust (Class
2 Shares) and the Scudder Variable Life Investment
Fund (Class A Shares), all of which are open-end
diversified management investment companies. The
Kemper Destinations Life policies have thirty-seven
subaccounts which are available to Policy Owners
and each subaccount invests exclusively in the
shares of a corresponding portfolio of the Kemper
Variable Series, the Scudder Variable Life
Investment Fund (Class A Shares), The Alger
American Fund, The Dreyfus Socially Responsible
Growth Fund, Inc., the Dreyfus Investment
Portfolios and the Warburg Pincus Trust, all of
which are open-end diversified management
investment companies. Zurich Kemper LifeINVESTOR
policies have thirty-one subaccounts which are
available to Policy Owners and each subaccount
invests exclusively in the shares of a
corresponding portfolio of The Alger American Fund,
The Dreyfus Socially Responsible Growth Fund, Inc.,
the Dreyfus Life & Annuity Index Fund d/b/a Dreyfus
Stock Index Fund, the Dreyfus Variable Investment
Fund, the Franklin Templeton Variable Insurance
Products Trust
6
<PAGE> 7
Notes to COMBINED FINANCIAL STATEMENTS (unaudited)
(Class 2 Shares), the Fidelity Variable Insurance
Products Fund (Initial Class Shares), the Janus
Aspen Series, the Scudder Variable Life Investment
Fund (Class A Shares) and the Kemper Variable
Series, all of which are open-end diversified
management investment companies.
ESTIMATES. The preparation of financial statements
in conformity with accounting principles generally
accepted in the United States requires management
to make estimates and assumptions that could affect
the reported amounts of assets and liabilities as
well as the disclosure of contingent amounts at the
date of the financial statements. As a result,
actual results reported as income and expenses
could differ from the estimates reported in the
accompanying financial statements.
SECURITY VALUATION. The investments are stated at
current value which is based on the closing bid
price, net asset value, at June 30, 2000.
SECURITY TRANSACTIONS AND INVESTMENT
INCOME. Security transactions are generally
accounted for on the trade date (the date when
KILICO accepts risk of providing insurance coverage
to the insured). Dividends and capital gains
distributions are recorded as income on the
ex-dividend date. Realized gains and losses from
security transactions are generally reported on a
first in, first out ("FIFO") cost basis.
ACCUMULATION UNIT VALUATION. On each day the New
York Stock Exchange (the "Exchange") is open for
trading, the accumulation unit value is determined
as of the earlier of 3:00 p.m. (central 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, 2000, are as
follows (in thousands, differences are due to
rounding):
<TABLE>
<CAPTION>
SHARES
OWNED COST
---------------------------------------------------------------------------
<S> <C> <C>
KEMPER VARIABLE SERIES*:
Kemper Money Market Subaccount 955 $ 1,583
Kemper Total Return Subaccount 1,090 3,235
Kemper High Yield Subaccount 468 750
Kemper Growth Subaccount 619 3,579
Kemper Government Securities Subaccount 3,805 4,553
---------------------------------------------------------------------------
TOTAL INVESTMENTS $13,700
---------------------------------------------------------------------------
</TABLE>
* Formerly Investors Fund Series.
The underlying investments are summarized below.
KEMPER MONEY MARKET SUBACCOUNT: This subaccount
invests in the Kemper Money Market Portfolio of the
Kemper Variable Series. The Portfolio seeks maximum
current income to the extent consistent with
stability of principal. The Portfolio seeks to
maintain a net asset value of $1.00 per share.
7
<PAGE> 8
Notes to COMBINED FINANCIAL STATEMENTS (unaudited)
KEMPER TOTAL RETURN SUBACCOUNT: This subaccount
invests in the Kemper Total Return Portfolio of the
Kemper Variable Series. The Portfolio seeks a high
total return, a combination of income and capital
appreciation.
KEMPER HIGH YIELD SUBACCOUNT: This subaccount
invests in the Kemper High Yield Portfolio of the
Kemper Variable Series. The Portfolio seeks to
provide a high level of current income.
KEMPER GROWTH SUBACCOUNT: This subaccount invests
in the Kemper Growth Portfolio of the Kemper
Variable Series. The Portfolio seeks maximum
appreciation of capital.
KEMPER GOVERNMENT SECURITIES SUBACCOUNT: This
subaccount invests in the Kemper Government
Securities Portfolio of the Kemper Variable Series.
The Portfolio seeks high current return consistent
with preservation of capital.
--------------------------------------------------------------------------------
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 $49,701, $1,746,209, $115,535 and
$3,168 for the Kemper Select, Power V, Farmers
Variable Universal Life I and Zurich Kemper
LifeINVESTOR policies, respectively, for the six
months ended June 30, 2000. Additionally, KILICO
assesses a daily charge to the subaccounts for
mortality and expense risk assumed by KILICO at an
annual rate of 0.90% of assets except for Zurich
Kemper LifeINVESTOR, which assesses a daily charge
at a current annual rate of 0.60% for the first ten
policy years, 0.40% for policy years eleven through
twenty and 0.20% for policy years twenty-one and
thereafter.
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, Farmers Variable Universal Life I and Zurich
Kemper LifeINVESTOR policies 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 actual 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 cost 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 under the Power V, Farmers
Variable Universal Life I and Zurich Kemper
LifeINVESTOR policies before investment of a Policy
Owner's funds into the Separate Account. Under the
Kemper Destinations Life policies, for the first
ten policy years, a tax charge equal to an annual
rate of 0.40% of
8
<PAGE> 9
Notes to COMBINED FINANCIAL STATEMENTS (unaudited)
the average monthly cash value is assessed against
the Policy. The tax charge covers a portion of
KILICO'S state premium tax expense and a certain
Federal income tax liability incurred as a result
of the receipt of premium.
Policy loans are also provided for under the terms
of the Policy. The minimum amount of the loan under
the Power V, Farmers Variable Universal Life I and
Zurich Kemper LifeINVESTOR policies is $500 and is
limited to 90% of the surrender value, less
applicable surrender charges. The minimum amount of
the loan under the Kemper Destinations Life
policies is $1,000 and is limited to 90% of the
surrender value, less applicable surrender charges.
Interest is assessed against a 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 Kemper
Variable Series. 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 eligible
subaccount or to the general account of KILICO.
--------------------------------------------------------------------------------
5
POLICY OWNERS'
EQUITY Policy owners' equity at June 30, 2000, is as
follows (in thousands, except unit value;
differences are due to rounding):
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
KEMPER SELECT POLICIES OF UNITS VALUE EQUITY
---------------------- -------- ----- -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 527 $1.813 $ 957
----------------------------------------------------------------------------
Kemper Total Return Subaccount 905 3.236 2,929
----------------------------------------------------------------------------
Kemper High Yield Subaccount 190 2.432 461
----------------------------------------------------------------------------
Kemper Growth Subaccount 444 5.399 2,398
----------------------------------------------------------------------------
Kemper Government Securities Subaccount 1,933 2.205 4,261
----------------------------------------------------------------------------
TOTAL KEMPER SELECT POLICY OWNERS' EQUITY $11,006
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
POWER V POLICIES OF UNITS VALUE EQUITY
---------------- -------- ------ -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 182 $1.169 $ 213
----------------------------------------------------------------------------
Kemper Total Return Subaccount 48 4.343 209
----------------------------------------------------------------------------
Kemper High Yield Subaccount 139 1.405 197
----------------------------------------------------------------------------
Kemper Growth Subaccount 203 6.512 1,322
----------------------------------------------------------------------------
Kemper Government Securities Subaccount 25 1.424 36
----------------------------------------------------------------------------
TOTAL POWER V POLICY OWNERS' EQUITY $1,977
----------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
Notes to COMBINED FINANCIAL STATEMENTS (unaudited)
--------------------------------------------------------------------------------
5
POLICY OWNERS'
EQUITY (CONTINUED)
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
FARMER'S VARIABLE UNIVERSAL LIFE I POLICIES OF UNITS VALUE EQUITY
------------------------------------------- -------- ------ -------
<S> <C> <C> <C>
Kemper High Yield Subaccount 4 $1.216 $ 5
-----------------------------------------------------------------------------
Kemper Government Securities Subaccount 9 1.249 11
-----------------------------------------------------------------------------
TOTAL FARMERS VARIABLE UNIVERSAL LIFE I POLICY
OWNERS' EQUITY $16
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
KEMPER DESTINATIONS LIFE POLICIES OF UNITS VALUE EQUITY
--------------------------------- -------- ------- -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 29 $10.335 $294
----------------------------------------------------------------------------
TOTAL KEMPER DESTINATIONS LIFE POLICY
OWNERS' EQUITY $294
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
POLICY
NUMBER UNIT OWNERS'
ZURICH KEMPER LIFEINVESTOR POLICIES OF UNITS VALUE EQUITY
----------------------------------- -------- ------ -------
<S> <C> <C> <C>
Kemper Money Market Subaccount 64 $1.020 $65
----------------------------------------------------------------------------
TOTAL ZURICH KEMPER LIFEINVESTOR POLICY
OWNERS' EQUITY $65
----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
NOTES
11
<PAGE> 12
Distributed by
Investors Brokerage Services, Inc.
<TABLE>
<C> <S>
Kemper Investors Life Insurance Company
1 Kemper Drive
[ZURICH KEMPER LOGO] Long Grove, IL 60049
</TABLE>
Individual Policy Form Series L-8001 [RECYCLE LOGO] PRINTED ON RECYCLED PAPER.
L-8071S (8/00)
