As filed with the Securities and Exchange Commission on April 30, 1996
File No. 33-89984
File No. 811-8994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 [X]
KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
KANSAS CITY LIFE INSURANCE COMPANY
(Name of Depositor)
3520 Broadway
Kansas City, Missouri 64141-6139
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (816) 753-7000
C. John Malacarne
3520 Broadway
Kansas City, Missouri 64141-6139
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485
_X__ On May 1, 1996 pursuant to paragraph (b) of Rule 485
____ 60 days after filing puruant to paragraph (a)(1) of Rule 485
____ on (date) pursuant to paragraph (a)(1) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite amount of the securities being offered.
Registrant filed its Rule 24f-2 Notice for the fiscal year ended
December 31, 1995 on February 28, 1996.
Cross Reference Sheet
Pursuant to Rules 481(a) and 495(a)
Showing location in Part A (prospectus) and Part B (Statement of
Additional Information) of registration statement of information required by
Form N-4
PART A
Item of Form N-4 Prospectus Caption
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Expense Tables; Summary
4. Condensed Financial Information Condensed Financial Information; Yields and
Total Returns
5. General
(a) Depositor Kansas City Life Insurance Company
(b) Registrant Kansas City Life Variable Annuity
Separate Account
(c) Portfolio Company Federated Insurance Series,
TCI Portfolios, Inc. and Insurance
Management Trust
(d) Fund Prospectus Federated Insurance Series, TCI
Portfolios, Inc. and Insurance
Management Trust
(e) Voting Rights Voting Rights
(f) Administrators N/A
6. Deductions and Expenses
(a) General Charges and Deductions; Summary
(b) Sales Load % Charges and Deductions; Summary
(c) Special Purchase Plan N/A
(d) Commissions Distribution of the Policies
(e) Expenses - Registrant Charges and Deductions; Summary
(f) Fund Expenses Federated Insurance Series, TCI
Portfolios, Inc. and Insurance
Management Trust; Charges and
Deductions
(g) Organizational Expenses N/A
7. Contracts
(a) Persons with Rights Summary; Addition, Deletion or
Substitution of Investments;
Description of Annuity Policy;
Payment Options; Voting Rights
(b)(i) Allocation of Purchase Summary; Premiums; Free-Look Period;
Allocation of Premiums
Payments Summary; Transfer Privilege
Transfers, Assignments or Exchange of a Policy
(ii) Transfers Additions, Deletions or Substitutions of
(iii) Exchanges Investments; Description of Annuity Policy;
Modification;
(c) Changes Cover page; Inquiries
(d) Inquiries
8. Annuity Period Summary; Payment Options
9. Death Benefit Death Benefit Before the Retirement Date;
10. Purchases and Contract Value
(a) Purchases Summary; Issuance of a Policy; Premiums; Free
Look Period; Allocation of Premiums; Variable
Contract Value;
(b) Valuation Definitions; Variable Contract Value
(c) Daily Calculation Definitions; Variable Contract Value;
(d) Underwriter Issuance of a Policy, Distribution of the
Policies
11. Redemptions
(a) - By Owners Summary; Transfer Privilege; Full Cash
Surrenders, Partial Surrenders and Systematic
Partial Surrenders; Proceeds on the Maturity
Date; Payments; Payment Options; Federal Tax
Matters Summary; Transfer Privilege; Full Cash
Surrenders, Systematic
- By Annuitant Partial Surrender and Partial Surrenders;
Proceeds on the Maturity Date; Payments; Payment
Options; Federal Tax Matters
N/A
Payments
(b) Texas ORP N/A
(c) Check Delay Summary; Free Look Period
(d) Lapse
(e) Free Look
12. Taxes Summary; Federal Tax Matters
13. Legal Proceedings Legal Proceedings
14. Table of Contents for the
Statement of Additional
Information Statement of Additional Information Table of
Contents
PART B
Item of Form N-4 Part B Caption
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and
History N/A
18. Services
(a) Fees and Expenses of
Registrant N/A
(b) Management Contracts N/A
(c) Custodian N/A
Independent Public
Accountant Experts
(d) Assets of Registrant N/A
(e) Affiliated Persons N/A
(f) Principal Underwriter Distribution of the Policies (prospectus)
19. Purchase of Securities
Being Offered Distribution of the Policies (prospectus)
Offering Sales Load N/A
20. Underwriters Distribution of the Policies (prospectus)
21. Calculation of Performance Calculation of Yields and Total Returns; Yields
Data and Total Returns (prospectus)
22. Annuity Payments Payment Options (prospectus)
23. Financial Statements Financial Statements
PART C -- OTHER INFORMATION
Item of Form N-4 Part C Caption
24. Financial Statements and
Exhibits Financial Statements and Exhibits
(a) Financial Statements (a) Financial Statements
(b) Exhibits (b) Exhibits
25. Directors and Officers of Directors and Officers of Kansas City Life
the Depositor Insurance Company
26. Persons Controlled By or
Under Common Control
with the Depositor or Persons Controlled By or In Common Control
Registrant with the Depositor or Registrant
27. Number of Contract Owners Number of owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and
Records Location of Books and Records
31. Management Services Management Services
32. Undertakings Undertakings and Representations
Signature Page Signatures
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Kansas City Life Insurance Company
Home Office:
3520 Broadway
Kansas City, Missouri 64111-2565
Telephone: (816) 753-7000
Correspondence to:
Variable Administration
P.O. Box 419364
Kansas City, Missouri 64141-6364
Telephone: (800) 616-3670
This Prospectus describes the individual flexible premium
deferred variable annuity contract (the "Contract") being
offered by Kansas City Life Insurance Company ("Kansas City
Life," "we," "us" or "our"), a stock life insurance company
domiciled in Missouri. The Contract is designed to meet
investors' long-term investment purposes, including retirement
plans that may or may not qualify for special federal tax
treatment under the Internal Revenue Code.
Your premiums and Contract Value will be allocated according to
your instructions to one or more of the Subaccounts of the
Kansas City Life Variable Annuity Separate Account (the
"Variable Account"), or to the Fixed Account (which is part of
Kansas City Life's General Account and pays interest at declared
rates guaranteed to equal or exceed 3%), or to both. The assets
of each Subaccount will be invested solely in a corresponding
portfolio ("Portfolio") of a designated mutual fund (the
"Funds"). The accompanying Prospectuses for the Funds describe
the Portfolios. The Contract Value prior to the Maturity Date,
except for amounts in the Fixed Account, will vary according to
the investment performance of the Portfolios of the Funds in
which the selected Subaccounts are invested. The Owner bears the
entire investment risk of amounts allocated to the Variable
Account.
This Prospectus sets forth basic information about the Contract
and the Variable Account that a prospective investor ought to
know before investing. Additional information about the Contract
and the Variable Account is contained in the Statement of
Additional Information, which has been filed with the Securities
and Exchange Commission. The Statement of Additional Information
is dated the same as this Prospectus and is incorporated herein
by reference. The Table of Contents for the Statement of
Additional Information is on page 36 of this Prospectus. You may
obtain a copy of the Statement of Additional Information free of
charge by writing to or calling Kansas City Life at the address
or phone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT
PROSPECTUS FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES IN THE FUNDS AND INTERESTS IN THE CONTRACTS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A
BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
The date of this Prospectus is May 1, 1996.
TABLE OF CONTENTS
DEFINITIONS 1
TABLE OF EXPENSES 3
HIGHLIGHTS 7
CONDENSED FINANCIAL INFORMATION 9
KANSAS CITY LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS 10
Kansas City Life Insurance Company 10
Kansas City Life Variable Annuity Separate Account 10
The Funds 10
MFS Variable Insurance TrustSM 11
TCI Portfolios, Inc. 12
Federated Insurance Series 12
Resolving Material Conflicts 13
Addition, Deletion or Substitution of Investments 13
DESCRIPTION OF THE CONTRACT 14
Issuance of a Contract 14
Premiums 14
Free-Look Period 14
Allocation of Premiums 15
Variable Account Value 15
Transfer Privilege 16
Dollar Cost Averaging Plan 17
Portfolio Rebalancing Plan 18
Partial and Full Cash Surrenders 18
Contract Termination 19
Contract Loans 19
Death Benefit Before Maturity Date 20
Proceeds on Maturity Date 21
Payments 21
Modifications 22
Reports to Contract Owner 22
Contract Inquiries 22
THE FIXED ACCOUNT 22
Minimum Guaranteed and Current Interest Rates 23
Calculation of Fixed Account Value 23
Transfers from Fixed Account 23
Payment Deferral 23
CHARGES AND DEDUCTIONS 23
Surrender Charge (Contingent Deferred Sales Charge) 23
Transfer Processing Fee 25
Administrative Charges 25
Mortality and Expense Risk Charge 25
Premium Taxes 26
Other Taxes 26
Investment Advisory Fees and Other Expenses of the Funds 26
PAYMENT OPTIONS 26
Election of Options 26
Description of Options 27
YIELDS AND TOTAL RETURNS 27
FEDERAL TAX STATUS 29
Introduction 29
Tax Status of the Contract 29
Taxation of Annuities 30
Transfers, Assignments or Exchanges of a Contract 32
Withholding 32
Multiple Contracts 32
Taxation of Qualified Contracts 32
Possible Charge for Kansas City Life's Taxes 33
Other Tax Consequences 33
DISTRIBUTION OF THE CONTRACTS 33
LEGAL PROCEEDINGS 34
VOTING RIGHTS 34
COMPANY HOLIDAYS 34
FINANCIAL STATEMENTS 34
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 36
DEFINITIONS
Annuitant The person on whose life the annuity benefit for the
Contract is based.
Beneficiary The person the Owner has designated in the
application or in the last beneficiary
designation filed with Kansas City Life to receive
any proceeds payable under the Contract at the death
of the Annuitant or the Contract Value at
the death of an Owner.
Cash Surrender Value The Contract Value at the time of surrender less any
applicable Surrender Charge, indebtedness, and
premium taxes payable.
Contract Date The date from which Contract Months, Years, and
Anniversaries are computed.
Contract Value The sum of the Variable Account Value and the
Fixed Account Value.
Contract Year Any period of twelve months starting with the
Contract Date and each Contract Anniversary
thereafter.
Fixed Account This account is part of Kansas City Life's General
Account. The Fixed Account is not part of the
Variable Account, and it does not depend upon the
Variable Account's investment performance.
This account is not FDIC-insured and is subject to
claim from Kansas City Life's creditors.
Fixed Account Value The value of a Contract allocated to the Fixed Account.
Home Office Kansas City Life's office at 3520 Broadway,
P.O. Box 419364, Kansas City, Missouri 64141-6364
Issue Age The age on the Annuitant's last birthday as of the
Contract Date. If the Contract Date falls on the
Annuitant's birthday, the Issue Age will be the age
attained by the Annuitant on the Contract Date.
Life Payment Option A Payment Option based upon the life of the Annuitant.
Maturity Date The date when the Contract Value will be applied
under a Life Payment Option or the Cash Surrender
Value will be applied under a Non-Life Payment
Option, unless the Owner has elected to receive a
lump sum payment of the Cash Surrender Value. The
latest Maturity Date is the later of the Contract
Anniversary following the Annuitant's 85th birthday
and the tenth Contract Anniversary. (Certain states
may place additional restrictions on the maximum
Maturity Date.) However, for Qualified Contracts,
distributions may be required to begin at age 70 1/2.
Non-Life Payment Option A Payment Option that is not based upon the life of
the Annuitant.
Non-Qualified Contract A Contract that is not a "Qualified Contract."
Owner The person entitled to exercise all rights and
privileges provided in the Contract. The terms
"you" and "your" refer to the Owner.
Qualified Contract A Contract that is issued in connection with plans
that qualify for special federal income tax treatment
under sections 401, 403, or 408 of the Internal
Revenue Code of 1986, as amended.
Subaccount The division of accounts making up the Variable
Account. The assets of each Subaccount are invested
in a corresponding Portfolio of a designated mutual
fund.
Valuation Day Each day on which both the New York Stock Exchange
and Kansas City Life are open for business.
Valuation Period The interval of time commencing at the close of
business on one Valuation Day and ending at the close
of business on the next succeeding Valuation Day.
Variable Account The Kansas City Life Variable Annuity Separate
Account, which is not part of Kansas City Life's
General Account. The Variable Account has
Subaccounts, each of which is invested in a
corresponding Portfolio of a designated mutual
fund.
Variable Account Value The total value of a Contract allocated to
Subaccounts of the Variable Account.
Written Notice A written request or notice in a form satisfactory to
Kansas City Life that is signed by the Owner and
received at the Home Office.
TABLE OF EXPENSES
The following information regarding expenses assumes that the
entire Contract Value is in the Variable Account.
Contract Owner Transaction Expenses
Sales Charge Imposed on Premiums None
Surrender Charge
(Contingent Deferred Sales Charge) 1/
Surrender Charge as
Contract Year in Which Percentage of Amount
Surrender Occurs Surrendered
1 7%
2 7
3 7
4 6
5 5
6 4
7 2
8 and after 0
Transfer Processing Fee No fee for first six transfers in
Contract Year; $25 for each transfer
thereafter during Contract Year.
Annual Administration Fee $30 per Contract Year -- Waived if
Contract Value is equal to or greater
than $50,000.
Variable Account Annual Expenses
(as a percentage of Variable Account assets)
Mortality and Expense Risk Charge 1.25%
Asset-Based Administration Charge .15%
------
Total Variable Account Annual Expenses 1.40%
<TABLE>
Annual Fund Expenses
<CAPTION>
MFS MFS MFS
MFS Emerging Total MFS World MFS
ResearchGrowth Return Bond Government Utilities
Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C>
MFS Variable Insurance TrustSM Annual Expenses
(as a percentage of average net assets)
ManagementFees
(Investment Advisory Fees) 0.75% 0.75% 0.75% 0.60% 0.75% .75%
Other Expenses
(after any expense reimbursement)4/ 0.25%2/ 0.25%2/ 0.25%2/ 0.40%2/ 0.25%3/ 0.25%2/
Total Fund Annual
Expenses 1.00%2/ 1.00%2/ 1.00%2/ 1.00%2/ 1.00%3/ 1.00%2/
</TABLE>
TCI TCI
International Growth
TCI Portfolios, Inc. Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 1.50% 1.00%
Other Expenses 0.00% 0.00%
Total Fund Annual Expenses5/ 1.50% 1.00%
Federated
Federated High Federated
American Income Prime
Leaders Bond Money
Fund II Fund II Fund II
Federated Insurance Series Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.00% 0.00% 0.00%
Other Expenses (after any expense reimbursement)0.85% 0.80% 0.80%
Total Fund Annual Expenses6/ 0.85% 0.80% 0.80%
Premium taxes, currently ranging up to 3.5%, may be applicable,
depending on various states' laws.
The above tables are intended to assist you in understanding the
costs and expenses that you will bear, directly or indirectly.
The tables reflect expenses of the Variable Account as well as
for the Funds. The Contract Owner Transaction Expenses, Annual
Administration Fee, and Variable Account Annual Expenses are
based on charges described in the Contract. The Annual Expenses
for the Funds are expenses for the most recent fiscal year,
except as noted below. For a more complete description of the
various costs and expenses, see "Charges and Deductions" on page
23 of this Prospectus and the Prospectuses for the underlying
Funds that accompany this Prospectus.
__________________________
1/ Subject to certain restrictions, up to 10% of the Contract
Value will not be subject to a Surrender Charge. (See "Amounts
Not Subject to Surrender Charge," page 24).
2/ The investment adviser to MFS Variable Insurance Trust has
agreed to bear, subject to reimbursement, expenses for the
Research Series, Emerging Growth Series, Total Return Series,
Bond Series, and Utilities Series such that each Series'
aggregate operating expenses shall not exceed, on an annualized
basis, 1.00% of the average daily net assets of the Series from
November 2, 1994 through December 31, 1996, 1.25% of the average
daily net assets of the Series from January 1, 1997 through
December 31, 1998, and 1.50% of the average daily net assets of
the Series from January 1, 1999 through December 21, 2004;
provided, however, that this obligation may be terminated or
revised at any time. Absent this expense arrangement, "Other
Expenses" for the Research Series, Emerging Growth Series, Total
Return Series, Bond Series, and Utilities Series would be 3.15%,
2.16%, 2.02%, 43.25%, and 2.33%, respectively, and Total Fund
Annual Expenses would be 3.90%, 2.91%, 2.77%, 43.85%, and 3.08%,
respectively, for these series.
3/ The investment adviser to MFS Variable Insurance Trust has
agreed to bear, subject to reimbursement, until December 31,
2004, expenses of the World Governments Series such that the
Series' aggregate expenses do not exceed 1.00%, on an annualized
basis, of its average daily net assets. Absent this expense
arrangement, "Other Expenses" and "Total Fund Annual Expenses"
would be 1.24% and 1.99%, respectively.
4/ Each Series has an expense offset arrangement which reduces
the Series' custodian fee based upon the amount of cash
maintained by the Series with its custodian and dividend
disbursing agent, and may enter into other such arrangements and
directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee
reductions are not reflected under "Other Expenses."
5/ The investment adviser to TCI Portfolios, Inc. pays all the
expenses of the Fund except brokerage, taxes, interest, fees and
expenses of the non-interested person directors (including
counsel fees) and extraordinary expenses. For its services, the
adviser is paid a fee of 1.50% and 1.00% of the average net
assets of the International and Growth Portfolio, respectively.
6/ The Total Fund Annual Expenses for the Federated American
Leaders Fund II, Federated High Income Bond Fund II and the
Federated Prime Money Fund II are 0.85%, 0.80%, and 0.80%,
respectively, of the average daily net assets. The adviser to
Federated Insurance Series has agreed to waive all or a portion
of its fee so that the Total Fund Annual Expenses would not
exceed .85%, .80%, and .80% respectively, of average net assets
of those Portfolios. The adviser can terminate this voluntary
waiver at any time at its sole discretion. Without this waiver,
the Management Fees would be .75%, .60% and .50% of the average
net assets of Federated American Leaders Fund II, Federated High
Income Bond Fund II and the Federated Prime Money Fund II,
respectively, and the Total Fund Annual Expenses for these
Portfolios would be 2.21%, 4.20%, and 3.49%, respectively, of
average net assets.
Examples
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the Contract is surrendered or is annuitized under a
Non-Life Payment Option at the end of the applicable time period:
Subaccount 1 Year 3 Years
MFS Research Series $ 89.79 $ 145.26
MFS Emerging Growth Series $ 89.79 $ 145.26
MFS Total Return Series $ 89.79 $ 145.26
MFS Bond Series $ 89.79 $ 145.26
MFS World Governments Series $ 89.79 $ 145.26
MFS Utilities Series $ 89.79 $ 145.26
TCI International $ 94.45 $ 159.11
TCI Growth $ 94.45 $ 159.11
Federated American Leaders Fund II $ 88.39 $ 141.06
Federated High Income Bond Fund II $ 87.92 $ 139.66
Federated Prime Money Fund II $ 87.92 $ 139.66
2. If the Contract is not surrendered or is annuitized under a
Life Option at the end of the applicable time period:
Subaccount 1 Year 3 Years
MFS Research Series $ 25.27 $ 77.59
MFS Emerging Growth Series $ 25.27 $ 77.59
MFS Total Return Series $ 25.27 $ 77.59
MFS Bond Series $ 25.27 $ 77.59
MFS World Governments Series $ 25.27 $ 77.59
MFS Utilities Series $ 25.27 $ 77.59
TCI International $ 30.26 $ 92.45
TCI Growth $ 30.26 $ 92.45
Federated American Leaders Fund II $ 23.77 $ 73.09
Federated High Income Bond Fund II $ 23.27 $ 71.59
Federated Prime Money Fund II $ 23.27 $ 71.59
The Examples provided above assume that no transfer charges or
premium taxes have been assessed. The Examples also assume that
the Annual Administration Fee is $30 and that the Contract Value
per Contract is $30,000, which translates the Annual
Administrative Fee into an assumed .10% charge for the purposes
of the examples based on a $1,000 investment.
The examples should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than
those shown. The assumed 5% annual rate of return is
hypothetical and should not be considered a representation of
past or future annual returns, which may be greater or less than
the assumed amount.
The expense information regarding the Funds was provided by
those Funds. The Funds and their investment advisers are not
affiliated with Kansas City Life. While Kansas City Life has no
reason to doubt the accuracy of these figures provided by these
non-affiliated Funds, Kansas City Life has not independently
verified the figures.
HIGHLIGHTS
The Contract
Who Should Invest. The Contract is designed for investors
seeking long-term tax-deferred accumulation of funds, generally
for retirement but also for other long-term investment purposes.
The tax-deferred feature of the Contract is most attractive to
investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract
and a Non-Qualified Contract. Both Qualified and Non-Qualified
Contracts offer tax deferral on increases in the Contract's
value prior to surrender or distribution -- however, premiums
paid by Owners of Qualified Contracts may be deductible from
gross income in the year such payments are made, subject to
certain statutory restrictions and limitations. (See "Federal
Tax Status," page 29.)
The Contract. The Contract is an individual flexible premium
deferred variable annuity issued by Kansas City Life. In order
to purchase a Contract, you must complete an application and
submit it to Kansas City Life through a licensed Kansas City
Life representative, who is also a registered representative of
Sunset Financial Services, Inc. ("Sunset Financial"). The
minimum initial premium must be paid to Kansas City Life. The
maximum Issue Age is 80. (See "Issuance of a Contract," page
14.)
Free-Look Period. You have the right to return the Contract
within 10 days after you receive it. We will treat the returned
Contract as if it were never issued. Although several states
require premium payments to be refunded under the free-look
provision, in most states the amount returned to you will be
equal to the Contract Value (plus the $30 Annual Administration
Fee, if applicable). The Contract Value will be determined as of
the earlier of the date we receive the returned Contract at our
Home Office or the date the returned Contract is received by the
Kansas City Life representative who sold you the Contract. (See
"Free-Look Period," page 14.)
Premiums. The minimum amount that we will accept as an initial
premium is a single premium of $5,000 or annualized payments of
$600. Subsequent premiums of not less than $50 may be paid under
the Contract at any time during the Annuitant's lifetime and
before the Maturity Date. (See "Premiums," page 14.)
Allocation of Premiums. Premiums under a Contract will be
allocated according to your instructions to one or more of the
Subaccounts of the Variable Account, to the Fixed Account, or to
both. The assets of each Subaccount will be invested solely in a
corresponding Portfolio of a designated Fund. The Contract
Value, except for amounts in the Fixed Account, will vary
according to the investment performance of the Portfolios of the
Fund in which the selected Subaccounts are invested. We will
credit interest to amounts in the Fixed Account at a guaranteed
minimum rate of 3% per year. We may declare a higher current
interest rate.
In states that require premium payments (or the greater of
premium payments or Contract Value) to be refunded under the
free-look provision, the initial premium will be allocated to
the Federated Prime Money Fund II Subaccount for a 15-day
period. At the end of that period, the amount in the Federated
Prime Money Fund II Subaccount will be allocated to the
Subaccounts and Fixed Account according to allocation
instructions. (See "Allocation of Premiums," page 15.)
Transfers. Before the Maturity Date, you may request a transfer
of all or part of the amount in a Subaccount or the Fixed
Account to another Subaccount or the Fixed Account. Certain
restrictions apply. Transfers are not available during the
free-look period.
The total amount transferred each time must be at least $250 or
the entire amount in the Subaccount or Fixed Account, if less.
We allow only one transfer from the Fixed Account each Contract
Year and that transfer may not be for more than 25% of the
unloaned Fixed Account Value. We will assess a $25 Transfer Fee
for the seventh and subsequent transfers during a Contract Year.
(See "Transfer Privilege," page 16.)
Partial Surrender. At any time before the earlier of the death
of the Annuitant or the Maturity Date, you may surrender part of
the Cash Surrender Value, subject to certain limitations. (See
"Partial Surrenders," page 18.)
Surrender. You may surrender the Contract for its Cash
Surrender Value, upon Written Notice received at our Home Office
at any time before the earlier of the death of the Annuitant or
the Maturity Date. (See "Full Surrender," page 18.)
Death Benefit If the Annuitant dies before the Maturity Date,
the Beneficiary will receive a death benefit. The death benefit
is equal to the greater of: (1) premiums paid, adjusted for any
surrenders (including applicable surrender charges) and less any
indebtedness; and (2) the Contract Value on the date we receive
proof of Annuitant's death.
If the Owner dies before the Maturity Date, the Contract Value
(or, if the Owner is also the Annuitant, the death benefit) must
generally be distributed to the Beneficiary within five years
after the date of the Owner's death. (See "Death Benefit Before
Maturity Date," page 20.)
Charges and Deductions
The following charges and deductions are assessed in connection
with the Contract:
Surrender Charge (Contingent Deferred Sales Charge). We do not
deduct a charge for sales expenses from premiums at the time
they are paid. However, if a Contract has not been in force for
seven full Contract Years, upon surrenders or, in certain
instances, partial surrenders, we will deduct a Surrender Charge
from the amount surrendered or from the remaining Contract Value.
For the first three Contract Years, the Surrender Charge is 7%
of the amount surrendered. In the fourth, fifth, and sixth
Contract Year, the Surrender Charge is 6%, 5%, and 4%,
respectively. In the seventh Contract Year, the Surrender Charge
is 2%. In the eighth Contract Year and after, there is no
Surrender Charge. In no event will the total Surrender Charges
on any Contract exceed 8 1/2% of the total premiums paid under
the Contract. (See "Charge for Surrender or Partial
Surrenders," page 24.)
Subject to certain restrictions, up to 10% of the Contract Value
will not be subject to a Surrender Charge. (See "Amounts Not
Subject to Surrender Charge," page 24.)
Annual Administration Fee. At the beginning of each Contract
Year, we will deduct an Annual Administration Fee of $30 from
the Contract Value. We will waive this fee for Contracts with
Contract Values of $50,000 or more at the beginning of each
Contract Year. (See "Annual Administration Fee," page 25.)
Transfer Processing Fee. The first six transfers of amounts in
the Subaccounts and the Fixed Account each Contract Year are
free. We will assess a $25 Transfer Processing Fee for each
additional transfer during such Contract Year. (See "Transfer
Processing Fee," page 25.)
Asset-Based Administration Charge. We will deduct a daily
Asset-based Administration Charge to compensate us for certain
expenses we incur in administration of the Contract. Prior to
the Maturity Date, we will deduct the charge from the assets of
the Variable Account at an annual rate of 0.15%. (See
"Asset-Based Administration Charge," page 25.)
Mortality and Expense Risk Charge. We will deduct a daily
Mortality and Expense Risk Charge to compensate us for assuming
certain mortality and expense risks. Prior to the Maturity Date,
we will deduct this charge from the assets of the Variable
Account at an annual rate of 1.25% (approximately .70% for
mortality risk and .55% for expense risk). (See "Mortality and
Expense Risk Charge," page 25.)
Premium Taxes. If state or other premium taxes are applicable
to a Contract, they will be deducted either upon surrender or
upon application of the proceeds to a Payment Option. (See
"Premium Taxes," page 26.)
Investment Advisory Fees and Other Expenses of the Funds.
Because the Variable Account purchases shares of the Funds, the
net assets of each Subaccount of the Variable Account will
reflect the investment advisory fee incurred by the
corresponding Portfolio of the Funds. For each Portfolio, an
investment adviser is paid a daily fee by the Funds for its
investment advisory services. The advisory fees are based on the
average daily net assets of the Portfolio, and, as a result, the
amount of the advisory fee will depend upon the Portfolio and
the assets of such Portfolio. Each Portfolio of the Fund in
which the Variable Account invests also pays other expenses.
(See "Investment Advisory Fees and Other Expenses of the Funds,"
page 26.)
Annuity Provisions
Maturity Date. On the Maturity Date, if you elect a Life
Payment Option, we will apply the Contract Value to that option.
If you elect a Non-Life Payment Option or you elect to receive a
lump sum payment, we will apply the Cash Surrender Value. (See
"Payment Options," page 26.)
Payment Options. The Payment Options are: Interest Payments;
Installments of a Specified Amount; Installments for a Specified
Period; Life Income; and Joint and Survivor Income. Payments
under these options do not depend upon the Variable Account's
performance. (See "Payment Options," page 26.)
Federal Tax Status
Under existing tax law there generally should be no federal
income tax on increases (if any) in the Contract Value until a
distribution under the Contract occurs (e.g., a surrender or
annuity payment) or is deemed to occur (e.g., a pledge or
assignment of a Contract). Generally, a portion of any
distribution or deemed distribution will be taxable as ordinary
income. In addition, a penalty tax of 10 percent of the amount
withdrawn may apply to certain distributions or deemed
distributions under the Contract made prior to the Owner's
attaining age 59+. Moreover, governing federal tax statutes, the
interpretation of which is, in all events, subject to a
continual evolution through judicial decisions and
administrative interpretations, may be amended, revoked, or
replaced by new legislation. IN VIEW OF THE FOREGOING, ALL
PROSPECTIVE OWNERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS.
CONDENSED FINANCIAL INFORMATION
The Unit Values and the number of accumulation units outstanding
for each Subaccount for the periods shown are as follows:
Unit Value Number of
as of Units as of
09-06-95 12-31-95 12-31-95
IMS Equity Growth and Income Fund
(Now Federated American Leaders Fund II) $10.00 10.41 15,359
IMS Corporate Bond Fund
(Now Federated High Income Bond Fund II) 10.00 10.22 11,792
IMS Prime Money Fund
(Now Federated Prime Money Fund II) 10.00 10.07 11,335
MFS Research Series 10.00 10.48 19,430
MFS Emerging Growth Series 10.00 10.66 13,900
MFS Total Return Series 10.00 10.53 3,981
MFS Bond Series 10.00 10.27 1,273
MFS World Governments Series 10.00 10.17 9,423
MFS Utilities Series 10.00 10.54 11,752
TCI International 10.00 10.16 12,190
TCI Growth 10.00 9.89 11,998
KANSAS CITY LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
Kansas City Life Insurance Company
The Contracts are issued by Kansas City Life Insurance Company,
which is a stock life insurance company organized under the laws
of the State of Missouri in 1895. Kansas City Life is currently
licensed to transact life insurance business in 47 states and
the District of Columbia.
Kansas City Life is subject to regulation by the Department of
Insurance of the State of Missouri as well as by the insurance
departments of all other states and jurisdictions in which it
does business. We submit annual statements on our operations and
finances to insurance officials in such states and
jurisdictions. The forms for the Contract described in this
Prospectus are filed with and (where required) approved by
insurance officials in each state and jurisdiction in which
Contracts are sold.
Kansas City Life Variable Annuity Separate Account
The Kansas City Life Variable Annuity Separate Account is a
separate investment account of Kansas City Life, established by
the Board of Directors of Kansas City Life on January 23, 1995,
under Missouri law. Kansas City Life has caused the Variable
Account to be registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). Such
registration does not involve supervision by the SEC of the
management or investment policies or practices of the Variable
Account.
We own the assets of the Variable Account. These assets,
however, are held separate from our other assets and are not
part of our General Account. The portion of the assets of the
Variable Account equal to the reserves or other contract
liabilities of the Variable Account will not be charged with
liabilities that arise from any other business we conduct. We
may transfer to our General Account any assets of the Variable
Account that exceed the reserves and the Contract liabilities of
the Variable Account (which will always be at least equal to the
aggregate Contract Value allocated to the Variable Account under
the Contracts).
The income, gains or losses, whether or not realized, from the
assets of each Subaccount of the Variable Account are credited
to or charged against that Subaccount without regard to any
other income, gains or losses. We may accumulate in the Variable
Account charges under the Contracts and investment results
applicable to those assets that are in excess of the net assets
supporting the Contracts.
The Variable Account currently has eleven Subaccounts: MFS
Research, MFS Emerging Growth, MFS Total Return, MFS Bond, MFS
World Governments, MFS Utilities, TCI International, TCI Growth,
Federated American Leaders Fund II, Federated High Income Bond
Fund II, and Federated Prime Money Fund II. The assets of each
Subaccount are invested exclusively in shares of a corresponding
Portfolio of a designated Fund.
The Funds
The Variable Account currently invests in Portfolios of three
series-type mutual funds: MFS Variable Insurance Trust, TCI
Portfolios, Inc., and Federated Insurance Series. Each of these
Funds is registered with the SEC under the 1940 Act as an
open-end diversified investment company. The SEC does not,
however, supervise the management or the investment practices
and policies of the Funds.
The assets of each Portfolio of a Fund are separate from other
Portfolios of that Fund, and each Portfolio has separate
investment objectives and policies. As a result, each Portfolio
operates as a separate investment portfolio, and the investment
performance of one Portfolio has no effect on the investment
performance of any other Portfolio. Some of the Funds may, in
the future, create additional Portfolios. The investment
experience of each of the Subaccounts of the Variable Account
depends on the investment performance of its corresponding
Portfolio.
Each Fund sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and
Kansas City Life. A summary of the termination provisions of
those agreements is in the Statement of Additional Information.
Should the agreement between Kansas City Life and a Fund
terminate, the Variable Account may not be able to purchase
additional shares of that Fund. In that event, you will no
longer be able to allocate premiums or transfer Contract Value
to Subaccounts investing in Portfolios of that Fund.
In certain circumstances, it is possible that a Fund or a
Portfolio of a Fund may refuse to sell its shares to the
Variable Account despite the fact that the participation
agreement between the Fund and Kansas City Life has not been
terminated. Should a Fund or a Portfolio decide not to sell its
shares to Kansas City Life, Kansas City Life will not be able to
honor your requests to allocate premiums or transfer Contract
Value to Subaccounts investing in shares of that Fund or
Portfolio.
Certain Subaccounts invest in Portfolios that have similar
investment objectives and/or policies. Therefore, before
choosing Subaccounts, carefully read the individual Prospectuses
for the Funds along with this Prospectus.
MFS Variable Insurance TrustSM
The MFS Research Subaccount, MFS Emerging Growth Subaccount, MFS
Total Return Subaccount, MFS Bond Subaccount, MFS World
Governments Subaccount, and MFS Utilities Subaccount invest in
shares of the MFS Variable Insurance Trust. The Fund currently
issues twelve "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the Fund.
Six of these series are available for investment under the
Contracts: MFS Research Series, MFS Emerging Growth Series, MFS
Total Return Series, MFS Bond Series, MFS World Governments
Series, and MFS Utilities Series.
The investment objectives of the Portfolios are set forth below:
MFS Research Series. The Research Series' investment objective
is to provide long-term growth of capital and future income. The
Series' assets are allocated to selected economic sectors and
then to industry groups within those sectors.
MFS Emerging Growth Series. The Emerging Growth Series seeks to
provide long-term growth of capital. Dividend and interest
income from portfolio securities, if any, is incidental to the
Series' investment objective of long-term growth of capital. The
Series' policy is to invest primarily (i.e., at least 80% of its
assets under normal circumstances) in common stocks of companies
that MFS believes are early in their life cycle but which have
the potential to become major enterprises (emerging growth
companies).
MFS Total Return Series. The Total Return Series' primary
investment objective is to obtain above-average income (compared
to a portfolio entirely invested in equity securities)
consistent with the prudent employment of capital, and its
secondary objective is to provide a reasonable opportunity for
growth of capital and income, since many securities offering a
better than average yield may also possess growth potential.
MFS Bond Series. The Bond Series' primary investment objective
is to provide as high a level of current income as is believed
to be consistent with prudent investment risk. The Series'
secondary objective is to protect shareholders' capital. Up to
20% of the Series' total assets may be invested in lower-rated
debt securities commonly known as junk bonds. The risks of
investing in these securities are described in the Prospectus
for the MFS Variable Insurance Trust, which should be read
carefully before investing.
MFS World Governments Series. The World Governments Series'
investment objective is to seek not only preservation, but also
growth of capital, together with moderate current income. The
Series seeks to achieve its investment objective through a
professionally managed, internationally diversified portfolio
consisting primarily of debt securities and to a lesser extent
equity securities. Although the percentage of the Series' assets
invested in foreign securities will vary, at least 65% of the
Series' assets will be invested in at least three different
countries, one of which is the United States, except when the
Series' adviser believes that investing for defensive purposes
is appropriate.
MFS Utilities Series. The Utilities Series' investment
objective is to seek capital growth and current income (income
above that available from a portfolio invested entirely in
equity securities). The Series will seek to achieve its
objective by investing, under normal circumstances, at least 65%
(but up to 100% at the discretion of the Series' adviser) of its
assets in equity and debt securities of both domestic and
foreign companies in the utilities industry.
The Fund is advised by Massachusetts Financial Services Company
("MFS"). MFS is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 ("Advisers Act").
TCI Portfolios, Inc.
The TCI International Subaccount and TCI Growth Subaccount
invest in shares of TCI Portfolios, Inc. The Fund currently
issues four "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the Fund.
Two of these series are available for investment under the
Contracts: TCI International and TCI Growth.
The investment objectives of the Portfolios are set forth below:
TCI International. The investment objective of TCI
International is capital growth. The Portfolio will seek to
achieve its investment objective by investing primarily in
securities of foreign companies that meet certain fundamental
and technical standards of selection and that have, in the
opinion of the investment manager, potential for appreciation.
TCI Growth. The investment objective of TCI Growth is capital
growth. The Portfolio will seek to achieve its investment
objective by investing primarily in common stocks that are
considered by the investment adviser to have better-than-average
prospects for appreciation.
The Fund is advised by Investors Research Corporation
("Investors Research"). Investors Research is registered with
the SEC as an investment adviser under the Advisers Act.
Federated Insurance Series (formerly known as Insurance
Management Series)
The Federated American Leaders Fund II Subaccount, Federated
High Income Bond Fund II Subaccount, and Federated Prime Money
Fund II Subaccount invest in shares of Federated Insurance
Series. The Fund currently issues five "series" or classes of
shares, each of which represents an interest in a separate
Portfolio within the Fund. Three of these series are available
for investment under the Contracts: Federated American Leaders
Fund II, Federated High Income Bond Fund II and Federated Prime
Money Fund II.
The investment objectives of the Portfolios are set forth below:
Federated American Leaders Fund II (formerly known as Equity
Growth and Income Fund). The primary investment objective of the
Federated American Leaders Fund II is to achieve long-term
growth of capital. The Fund's secondary objective is to provide
income. The Fund pursues its investment objectives by investing,
under normal circumstances, at least 65% of its total assets in
common stock of "blue-chip" companies, which are generally
top-quality, established growth companies.
Federated High Income Bond Fund II (formerly known as Corporate
Bond Fund). The investment objective of the Federated High
Income Bond Fund II is to seek high current income. The Fund
endeavors to achieve its objective by investing primarily in
lower-rated corporate debt obligations commonly referred to as
"junk bonds." The risks of investing in these securities is
described in the Prospectus for Federated Insurance Series,
which should be read carefully before investing.
Federated Prime Money Fund II (formerly known as Prime Money
Fund). The investment objective of the Federated Prime Money
Fund II is to provide current income consistent with stability
of principal and liquidity. The Fund pursues its investment
objective by investing exclusively in a portfolio of money
market instruments maturing in 397 days or less.
The Fund is advised by Federated Advisers. Federated Advisers is
registered with the SEC as an investment adviser under the
Advisers Act.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF
ANY OF THE FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives,
policies, and restrictions pertaining to the Funds and their
expenses, investment advisory services and charges and the risks
involved with investing in the Portfolios and other aspects of
their operations can be found in the current Prospectus for each
Fund that accompanies this Prospectus and the current Statement
of Additional Information for each Fund. The Funds'
Prospectuses should be read carefully before any decision is
made concerning the allocation of premium payments or transfers
among the Subaccounts.
Please note that not all of the Portfolios described in the
Prospectuses for the Funds are available with the Contract.
Moreover, Kansas City Life cannot guarantee that each Fund will
always be available for its variable annuity contracts, but in
the unlikely event that a Fund is not available, Kansas City
Life will take reasonable steps to secure the availability of a
comparable fund. Shares of each Portfolio are purchased and
redeemed at net asset value, without a sales charge.
Kansas City Life has entered into agreements with either the
investment adviser or distributor for each of the Funds pursuant
to which the adviser or distributor pays Kansas City Life a fee
based upon an annual percentage of the average aggregate net
amount invested by Kansas City Life on behalf of the Variable
Account and other separate accounts of Kansas City Life. These
percentages differ, and Kansas City Life is paid a greater
percentage by some investment advisers or distributors than
other advisers or distributors. These agreements reflect
administrative services provided by Kansas City Life.
Resolving Material Conflicts
The Funds presently serve as the investment medium for the
Contracts. In addition, the Funds are available to registered
separate accounts of insurance companies, other than Kansas City
Life, offering variable annuity contracts and variable life
insurance policies and, in some cases, to certain pension and
retirement plans.
We do not currently foresee any disadvantages to you resulting
from the Funds' selling shares to fund products other than the
Contracts. However, there is a possibility that a material
conflict of interest may arise between Owners whose Contract
Values are allocated to the Variable Account and the owners of
variable life insurance policies and variable annuity contracts
issued by other companies whose values are allocated to one or
more other separate accounts investing in any one of the Funds.
Shares of some of the Funds may also be sold to certain pension
and retirement plans. As a result, there is a possibility that a
material conflict may arise between the interests of Owners or
owners of such other contracts (including contracts issued by
other companies), and such pension or retirement plans or
participants in such plans. In the event of a material conflict,
we will take any necessary steps, including removing the
Variable Account from that Fund, to resolve the matter. The
Board of Directors of each Fund will monitor events in order to
identify any material conflicts that may arise and determine
what action, if any, should be taken in response to those events
or conflicts. See each individual Fund's Prospectus for more
information.
Addition, Deletion or Substitution of Investments
We reserve the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares
that are held in the Variable Account or that the Variable
Account may purchase. If the shares of a Portfolio of a Fund are
no longer available for investment or if, in our judgment,
further investment in any Portfolio should become inappropriate
in view of the purposes of the Variable Account, we may redeem
the shares, if any, of that Portfolio and substitute shares of
another registered open-end management investment company. We
will not substitute any shares attributable to a Contract's
interest in a Subaccount of the Variable Account without notice
and prior approval of the SEC and state insurance authorities,
to the extent required by the 1940 Act or other applicable law.
We also reserve the right to establish additional Subaccounts of
the Variable Account, each of which would invest in shares
corresponding to a Portfolio of a Fund or in shares of another
investment company having a specified investment objective.
Subject to applicable law and any required SEC approval, we may,
in our sole discretion, establish new Subaccounts or eliminate
one or more Subaccounts if marketing needs, tax considerations
or investment conditions warrant. Any new Subaccounts may be
made available to existing Contract Owners on a basis to be
determined by Kansas City Life.
If any of these substitutions or changes are made, we may, by
appropriate endorsement, change the Contract to reflect the
substitution or change. If we deem it to be in the best interest
of Contract Owners and Annuitants (subject to any approvals that
may be required under applicable law), the Variable Account may
be operated as a management investment company under the 1940
Act, it may be deregistered under that Act if registration is no
longer required, or it may be combined with other Kansas City
Life separate accounts.
DESCRIPTION OF THE CONTRACT
The Contract is a variable annuity that provides accumulation of
Variable Account Value based on the underlying performance of
Subaccounts within the Kansas City Life Variable Annuity
Separate Account. You may also allocate a portion of your
premiums to our Fixed Account. You may elect to participate in
our Dollar Cost Averaging, Portfolio Rebalancing, and Systematic
Partial Surrender Plans. On the Maturity Date, only fixed
annuity payout options will be offered.
Issuance of a Contract
Contracts may be sold to or in connection with retirement plans
that may or may not qualify for special federal tax treatment
under the Internal Revenue Code. The maximum Issue Age is 80.
However, for Qualified Contracts with an Issue Age of 70+ or
greater, distributions may be required to begin immediately.
(See "Federal Tax Status,"
page 29.) The maximum Issue Age may be exceeded under certain
circumstances.
Premiums
The minimum initial premium that we will accept is a single
premium of $5,000 or annualized payments of $600. Subsequent
premium payments may be paid under the Contract at any time
during the Annuitant's lifetime and before the Maturity Date.
These payments must be for at least $50. We reserve the right,
where permitted, to limit the number and amount of additional
premium payments.
Free-Look Period
The Contract provides for an initial "free-look" period. You
have the right to return the Contract within 10 days after you
receive it. When we receive the returned Contract at our Home
Office, we will cancel the Contract. The amount that we will
refund will vary according to state requirements. Most states
allow us to refund Contract Value. In those states, Kansas City
Life will return to the Owner an amount equal to the Contract
Value, plus the $30 Annual Administration Fee if it has been
deducted, as of the earlier of the date the returned Contract is
received by us at our Home Office or the date the returned
Contract is received by the Kansas City Life representative
through whom the Contract was purchased.
A few states require a return of premium payments or,
alternatively, the greater of premium payments or Contract
Value. In these states, Kansas City Life will refund the greater
of (a) the premiums paid under the Contract; and (b) the
Contract Value as of the earlier of the date when the returned
Contract is received by Kansas City Life at its Home Office or
the date the returned Contract is received by the Kansas City
Life representative through whom the Contract was purchased
(except that some states may only permit the return of
premiums). We will also refund the $30 Annual Administration
Fee, if it has been deducted.
Allocation of Premiums
At the time of application, you select how we will allocate the
initial premium among the Subaccounts of the Variable Account
and the Fixed Account. For Contracts sold to residents of states
where we will refund Contract Value under the free-look
provision, the initial premium will be allocated directly to the
Subaccounts and the Fixed Account.
For contracts sold to residents of states that require premiums
paid or the greater of Contract Value or premiums paid to be
refunded under the free look provision, the initial premium, and
any subsequent premiums received during a 15-day period
following the Contract Date, will be allocated to the Federated
Prime Money Fund II Subaccount for that 15-day period. At the
expiration of such 15-day period, we will allocate the amount in
the Federated Prime Money Fund II Subaccount to the Subaccounts
and the Fixed Account according to your allocation instructions.
We will allocate the initial premium, either directly to the
Subaccounts and the Fixed Account or to the Federated Prime
Money Fund II Subaccount for the 15-day period, within two
business days of receipt of such premium by us at our Home
Office. This assumes that the application for a Contract is
properly completed and is accompanied by all the information
necessary to process it, including payment of the initial
premium. If the application is not properly completed, we will
retain the premium for up to five business days while we attempt
to complete the application. If the application is not complete
at the end of the 5-day period, we will inform the applicant of
the reason for the delay, and the initial premium will be
returned immediately, unless the applicant specifically consents
to our retaining the premium until the application is complete.
Once the application is complete, we will allocate the initial
premium within two business days.
We will allocate subsequent premiums at the end of the Valuation
Period in which we receive the premium payment according to your
allocation instructions in effect at that time.
The values of the Subaccounts of the Variable Account will vary
with their investment experience, so that you bear the entire
investment risk with respect to the Variable Contract Value. You
should periodically review your premium allocation schedule in
light of market conditions and your overall financial objectives.
Variable Account Value
The Variable Account Value will reflect the investment
experience of the selected Subaccounts of the Variable Account,
any premiums paid, any surrenders, any transfers, any charges
assessed in connection with the Contract, and any Contract
indebtedness. There is no guaranteed minimum Variable Account
Value, and, because a Contract's Variable Account Value on any
future date depends upon a number of factors, it cannot be
predetermined.
Calculation of Variable Account Value. The Variable Account
Value is determined on each Valuation Date. Its value will be
the aggregate of the values attributable to the Contract in each
of the Subaccounts, determined for each Subaccount by
multiplying the Subaccount's Unit Value on the relevant
Valuation Date by the number of Subaccount accumulation units
allocated to the Contract.
Determination of Number of Accumulation Units. Any amounts
allocated to a Subaccount will be converted into accumulation
units of that Subaccount. The number of accumulation units to be
credited to the Contract is determined by dividing the dollar
amount being allocated to the Subaccount by the Unit Value for
that Subaccount at the end of the Valuation Period during which
the amount was allocated. The number of accumulation units in
any Subaccount will be increased at the end of the Valuation
Period by any premiums allocated to the Subaccount during the
current Valuation Period and by transfers to the Subaccount from
another Subaccount or from the Fixed Account during the current
Valuation Period. The number of accumulation units in any
Subaccount will be decreased at the end of the Valuation Period
by any amounts transferred from the Subaccount to another
Subaccount or the Fixed Account and any amounts surrendered
(including applicable charges) during the current Valuation
Period. The number of units in any Subaccount will also be
reduced at the beginning of each Contract Year by a pro rata
share of the $30 Annual Administration Fee.
Net Investment Factor. Each Valuation Day, a Net Investment
Factor will be calculated. A Subaccount's Net Investment Factor
measures the investment performance of an accumulation unit in
that Subaccount during a Valuation Period. The Net Investment
Factor is the ratio of the Subaccount's current value to the
immediately preceding Valuation Day's value, less the daily
Mortality and Expense Charge and the daily Asset-Based
Administration Charge. The formula for the Net Investment Factor
equals:
X/Y - Z,
where "X" equals the sum of:
1. the net asset value per accumulation unit held in the
Subaccount at the end of the current Valuation Day; plus
2. the per accumulation unit amount of any dividend or capital
gain distribution on shares held in the Subaccount during the
current Valuation Day; minus
3. the per accumulation unit amount of any capital loss
distribution on shares held in the Subaccount during the current
Valuation Day; minus
4. the per accumulation unit amount of any taxes or any amount
set aside during the Valuation Day as a reserve for taxes;
"Y" equals the net asset value per accumulation unit held in the
Subaccount as of the end of the immediately preceding Valuation
Day; and
"Z" equals the charges deducted from the Subaccount on a daily
basis. These two charges, the Asset-Based Administration Charge
and the Mortality and Expense Risk Charge, are equal on an
annual basis to 1.40% (0.15% for the Asset-Based Administration
Charge and 1.25% for the Mortality and Expense Risk Charge).
The Net Investment Factor may be greater or less than, or equal
to 1. Therefore, the value of the Subaccount may increase,
decrease, or remain the same.
Determination of Unit Value. The value of an accumulation unit
for each of the Subaccounts was arbitrarily set at $10 when the
first investments were bought. The accumulation unit value for
each subsequent Valuation Period is equal to:
A x B,
where "A" is equal to the Subaccount's accumulation unit value
for the end of the immediately preceding Valuation Day, and
"B" is equal to the Net Investment Factor for the current
Valuation Day. This accumulation unit value may increase or
decrease from day to day based on investment results.
Transfer Privilege
After the free-look period and prior to the Maturity Date, you
may transfer all or part of an amount in the Subaccount(s) to
another Subaccount(s) or to the Fixed Account, or transfer a
part of an amount in the Fixed Account to the Subaccount(s),
subject to the following restrictions. The minimum transfer
amount is the lesser of $250 or the entire amount in that
Subaccount or the Fixed Account. A transfer request that would
reduce the amount in a Subaccount or the Fixed Account below
$250 will be treated as a transfer request for the entire amount
in that Subaccount or the Fixed Account.
We will make the transfer on the date that we receive Written
Notice requesting such transfer. There is no limit on the number
of transfers that can be made between Subaccounts or to the
Fixed Account. However, only one transfer may be made from the
Fixed Account each Contract Year. (See "Transfers from Fixed
Account," page 23, for restrictions). The first six transfers
during each Contract Year are free. Any unused free transfers do
not carry over to the next Contract Year. We will assess a $25
Transfer Processing Fee for the seventh and each subsequent
transfer during a Contract Year. For the purpose of assessing
the fee, each written request (or telephone request described
below) is considered to be one transfer, regardless of the
number of Subaccounts or the Fixed Account affected by the
transfer. The processing fee will be deducted from the amount
being transferred or from the remaining Contract Value,
according to your instructions. We reserve the right, where
permitted, to suspend or modify this transfer privilege at any
time.
Telephone Transfers. Telephone transfers will be based upon
instructions given by telephone, provided the appropriate
election has been made at the time of application or proper
authorization has been provided to us. We reserve the right to
suspend telephone transfer privileges at any time, for any
reason, if we deem such suspension to be in the best interests
of Contract Owners.
We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if we
follow those procedures we will not be liable for any losses due
to unauthorized or fraudulent instructions. We may be liable for
such losses if we do not follow those reasonable procedures. The
procedures we will follow for telephone transfers include
requiring some form of personal identification prior to acting
on instructions received by telephone, providing written
confirmation of the transaction, and making a tape recording of
the instructions given by telephone.
Dollar Cost Averaging Plan
The Dollar Cost Averaging Plan, if elected, enables you to
transfer systematically and automatically, on a monthly basis
for a period of 3 to 36 months, specified dollar amounts from
the Federated Prime Money Fund II Subaccount to other
Subaccounts. By allocating on a regularly scheduled basis, as
opposed to allocating the total amount at one particular time,
you may be less susceptible to the impact of market
fluctuations. This technique will not, however, assure a profit
or protect against a loss in declining markets. Moreover, for
the Dollar Cost Averaging Plan to be effective, amounts should
be available for allocation from the Federated Prime Money Fund
II Subaccount through periods of low price levels as well as
higher price levels.
At least $250 must be transferred from the Federated Prime Money
Fund II Subaccount each month. The required amounts may be
allocated to the Federated Prime Money Fund II Subaccount
through initial or subsequent premium payments or by
transferring amounts into the Federated Prime Money Fund II
Subaccount from the other Subaccounts or from the Fixed Account
(which may be subject to certain restrictions).
You may elect this plan at the time of application by completing
the authorization on the application or at any time after the
Contract is issued by properly completing the election form and
returning it to us. The election form allows you to specify the
number of months for the Dollar Cost Averaging Plan to be in
effect. Dollar Cost Averaging transfers may not commence until
the later of (a) 30 days after the Contract Date and (b) 5 days
after the end of the free-look period.
Once elected, transfers from the Federated Prime Money Fund II
Subaccount will be processed monthly until the number of
designated transfers have been completed, or the value of the
Federated Prime Money Fund II Subaccount is completely depleted,
or you send us Written Notice instructing us to cancel the
monthly transfers.
Transfers made under the Dollar Cost Averaging Plan will not
count toward the six transfers permitted each Contract Year
without imposing the Transfer Processing Fee.
Portfolio Rebalancing Plan
You may elect to have the accumulated balance of each Subaccount
redistributed to equal a specified percentage of the Variable
Account Value. This will be done on a quarterly basis at
three-month intervals from the Monthly Anniversary Day on which
the Portfolio Rebalancing Plan commences. If elected, this plan
automatically adjusts your Portfolio mix to be consistent with
the allocation most recently requested. The redistribution will
not count toward the six transfers permitted each Contract Year
without imposing the Transfer Processing Fee. If the Dollar Cost
Averaging Plan has been elected and has not been completed, the
Portfolio Rebalancing Plan will commence on the Monthly
Anniversary Day following the termination of the Dollar Cost
Averaging Plan.
You may elect this plan at the time of application by completing
the authorization on the application or at any time after the
Contract is issued by properly completing the election form and
returning it to us. Portfolio rebalancing will terminate when
you request any transfer or the day we receive Written Notice
instructing us to cancel the Portfolio Rebalancing Plan.
Partial and Full Cash Surrenders
Partial Surrenders. At any time before the earlier of the death
of the Annuitant or the Maturity Date, you may surrender part of
the Cash Surrender Value. We will surrender the amount requested
from the Contract Value on the date we receive Written Notice
for the surrender at our Home Office. Any applicable Surrender
Charge will be deducted from the amount surrendered or from the
remaining Contract Value, according to your instructions. If
the remaining Contract Value is less than the Surrender Charge,
the amount surrendered will be reduced. The surrender will be
made from each Subaccount and the Fixed Account based on your
instructions.
Subject to certain restrictions, a partial surrender of up to
10% of the Contract Value will not be subject to a Surrender
Charge. (See "Amounts Not Subject to Surrender Charge," page
24.)
Systematic Partial Surrender Plan. The Systematic Partial
Surrender Plan enables you to preauthorize a periodic exercise
of the partial surrender right. If you wish to participate in
the plan, you should instruct us to surrender a particular
dollar amount from the Contract on a monthly, quarterly,
semi-annual or annual basis. The minimum distribution is $100.
The surrender will be made from each Subaccount and the Fixed
Account based on your instructions.
Subject to certain restrictions, you may surrender up to 10% of
the Contract Value each Contract Year under the Systematic
Partial Surrender Plan without incurring a Surrender Charge.
(See "Amounts Not Subject to Surrender Charge," page 24.)
You may discontinue participation in the Systematic Partial
Surrender Plan at any time by sending us Written Notice.
Certain federal income tax consequences may apply to partial and
systematic partial surrenders. Therefore, you should consult
with your tax adviser before requesting a partial or systematic
partial surrender. (See "Federal Tax Status," page 29.)
Full Surrender. At any time before the earlier of the death of
the Annuitant or the Maturity Date, you may request a surrender
of the Contract for its Cash Surrender Value. The Cash Surrender
Value will equal the Contract Value less any applicable
Surrender Charge, any indebtedness, any premium taxes payable,
and any withholding taxes. The Cash Surrender Value will be
determined on the date we receive Written Notice of surrender
and the Contract at our Home Office. The Cash Surrender Value
will be paid in a lump sum unless the Owner requests payment
under a Payment Option.
Subject to certain restrictions, up to 10% of the Contract Value
will not be subject to a Surrender Charge. (See "Amounts Not
Subject to Surrender Charge," page 24.)
Certain federal income tax consequences may apply to a surrender
of the Contract. Therefore, you should consult with your tax
adviser before requesting a surrender. (See "Federal Tax
Status," page 29.)
Restrictions on Distributions from Certain Contracts. There are
certain restrictions on surrenders and partial surrenders from
Contracts used as funding vehicles for Internal Revenue Code
Section 403(b) retirement plans. Section 403(b)(11) of the
Internal Revenue Code of 1986, as amended, restricts the
distribution under Section 403(b) annuity contracts of: (i)
elective contributions made in years beginning after December
31, 1988; (ii) earnings on those contributions; and (iii)
earnings in such years on amounts held as of the last year
beginning before January 1, 1989. Distributions of those amounts
may only occur upon the death of the employee, attainment of age
59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective
contributions may not be distributed in the case of hardship.
Contract Termination
We may end the Contract and pay you the Cash Surrender Value if,
before the Maturity Date, all of these events simultaneously
exist:
1. no premiums have been paid for at least two years;
2. the Contract Value is less than $2,000; and
3. the total premiums paid, less any partial surrenders, is
less than $2,000.
We will mail a termination notice to you at your last known
recorded address and to the holder of any assignment of record
at least six months before such termination. We reserve the
right to automatically terminate the Contract on the date
specified in the notice, unless we receive an additional premium
payment before the termination date specified in the notice or
the Contract Value has increased to the amount specified above.
This additional premium payment must be for at least the
required minimum amount.
Contract Loans
If your Contract is a 403(b) (TSA) Qualified Contract, you have
the option of taking a contract loan at any time after the first
Contract Year. You may obtain a contract loan by submitting a
Written Notice to us at our Home Office. The only security we
require is an assignment of the Contract to us. Only one loan per
Contract Year will be allowed.
The current loan amount and any withdrawals for unpaid interest
will be shown on your annual report.
Amount of Loan Available. You may borrow up to the lesser of:
(1) $50,000, reduced by the excess (if any) of the highest
outstanding loan balance during the 1-year period
ending on the day before the loan is made over the outstanding
loan balance on the day loan is made,
(2) the greater of 50% of the Cash Surrender Value of the
Contract or $10,000, or
(3) the Cash Surrender Value less any outstanding loans,
determined as of the date of the loan.
At any time a new loan is made, the sum of all prior loans and
loan interest outstanding, when added to the current loan
applied for, may not exceed the applicable limit described
above. Each loan must be at least $2,500.
Loan Account. When a loan is made, an amount equal to the loan
will be withdrawn from the Fixed Account and Variable Account
and transferred to the loan account. The loan account is part of
the Fixed Account. If allocation instructions are not specified
in your loan application, the loan will be withdrawn pro rata
from all Subaccounts of the Variable Account having Subaccount
values and from the Fixed Account. Amounts transferred to the
loan account do not participate in the investment experience of
the Fixed Account and Variable Account from which they were
withdrawn.
Interest Credited on Loaned Amount. Amounts in the loan account
will earn interest at the minimum guaranteed effective annual
interest rate of 3.0% per year. Different interest rates may be
applied to the loan account than the Fixed Account. Any interest
credited on loaned amounts will remain in the Fixed Account.
Loan Interest Charged. On each Contract Anniversary, accrued
interest will be charged on a contract loan at the maximum rate
of 8% per year. We may establish a lower rate for any period
during which the contract loan is outstanding. Interest is
payable at the end of each Contract Year and on the date the
loan is repaid.
If the loan interest payment is not received by the Contract
Anniversary, we will transfer the accrued loan interest from the
Fixed Account and Variable Accounts to the loan account on a pro
rata basis.
Repayment of Loan. Any loan repayment must be specifically
identified as such in order to insure that it will be applied
correctly. Each loan repayment will result in a transfer of an
amount equal to the loan repayment from the loan account to the
Fixed Account and/or Variable Account. Your current premium
allocation schedule will be used to allocate the loan repayment,
unless you provide specific instructions to allocate the loan
repayment differently. Each payment must be at least $25.
Principal and interest must be repaid in substantially equal
monthly payments over a 5-year period. You are allowed a 31-day
grace period from the installment due date. If a monthly
installment is not received within the 31-day grace period, a
deemed distribution of the entire amount of the outstanding
principal, interest due, and any applicable charges under this
Contract, including any Surrender Charge, will be made. This
deemed distribution may be subject to income and penalty tax
under the Code and may adversely affect the treatment of the
Contract under Internal Revenue Code section 403(b).
Indebtedness. Indebtedness means all unpaid contract loans and
loan interest. Any outstanding indebtedness will be deducted
from the Contract proceeds. Your Contract will be terminated
whenever your total indebtedness exceeds the Cash Surrender
Value of the Contract. We will mail notice to your last known
address recorded with us at least 31 days before such
termination.
ERISA Plans. If your 403(b) (TSA) Qualified Contract is part of
a plan subject to the Employee Retirement Income Security Act of
1974 ("ERISA"), you should consult with a qualified legal
adviser about compliance with ERISA requirements prior to
requesting a contract loan.
Death Benefit Before Maturity Date
Death of Annuitant. If the Annuitant dies before the Maturity
Date, we will pay the death benefit under the Contract to the
Beneficiary.
The death benefit is equal to the greater of: (i) the guaranteed
death benefit less any indebtedness; and (ii) the Contract Value
less any indebtedness on the date we receive due proof of the
Annuitant's death. On the Contract Date, the guaranteed death
benefit is equal to the initial premium payment. Thereafter, any
subsequent premium payment will immediately increase the
guaranteed minimum death benefit by the amount of the premium
payment. Any partial surrender will immediately decrease the
guaranteed death benefit by the same percentage that the
surrender decreases the Contract Value.
The proceeds will be paid to the Beneficiary in a lump sum
unless you or the Beneficiary elect a Payment Option. If the
Annuitant is the Owner, the proceeds must be distributed in
accordance with the rules described below in "Death of Owner"
for the death of an Owner before the Maturity Date.
There is no death benefit payable if the Annuitant dies on or
after the Maturity Date.
Death of Owner. If an Owner dies before the Maturity Date,
federal tax law requires (for a Non-Qualified Contract) that the
Contract Value (or if the Owner is the Annuitant, the proceeds
payable upon the Annuitant's death) be distributed to the
Beneficiary within five years after the date of the Owner's
death. If an Owner dies on or after the Maturity Date, any
remaining payments must be distributed at least as rapidly as
under the Payment Option in effect on the date of such Owner's
death.
These distribution requirements will be considered satisfied as
to any portion of the proceeds payable to or for the benefit of
the Beneficiary, and which is distributed over the life (or a
period not exceeding the life expectancy) of that Beneficiary,
provided that such distributions begin within one year of the
Owner's death and the Beneficiary is a natural person.
If the Owner's spouse is the designated Beneficiary, the
Contract may be continued with such surviving spouse as the new
Owner. If the Contract has joint Owners, the surviving joint
Owner will be the Beneficiary, unless otherwise specified in the
application. Joint Owners must be husband and wife as of the
Contract Date.
If the Owner is not an individual, the Annuitant, as determined
in accordance with Section 72(s) of the Internal Revenue Code,
will be treated as the Owner for purposes of these distribution
requirements, and any changes in the Annuitant will be treated
as the death of the Owner.
If the Beneficiary desires to leave the Contract in force and
the death benefit due to the Beneficiary is greater than the
Contract Value because the Owner is the Annuitant, we will
increase the Contract Value to equal the death benefit. This
increase will be based upon the Contract Value on the date we
are notified of the death of the Owner.
Other rules may apply to a Qualified Contract.
Proceeds on Maturity Date
You select the Maturity Date. The Maturity Date is when the
Contract Value, less any indebtedness, will be applied under a
Life Payment Option, unless you have elected to receive the Cash
Surrender Value as a lump sum payment or as a Non-Life Payment
Option. The latest Maturity Date is the later of the Contract
Anniversary following the Annuitant's 85th birthday and the
tenth Contract Anniversary. However, for Qualified Contracts,
distributions may be required to begin at age 70+. Certain
states limit the maximum Maturity Date.
On the Maturity Date, the proceeds will be applied under the
Life Annuity with Ten Year Certain Payment Option, unless you
have chosen to have the proceeds paid under another Payment
Option or in a lump sum. (See "Payment Options," page 26.) If a
Life Payment Option is elected, the amount that will be applied
is the Contract Value less any indebtedness as of the Maturity
Date; if a Non-Life Payment Option or a lump sum payment is
chosen, the proceeds applied or the amount paid will be the Cash
Surrender Value as of the Maturity Date.
The Maturity Date may be changed subject to these limitations:
your Written Notice must be received at our Home Office at least
30 days before the current Maturity Date; the requested Maturity
Date must be a date that is at least 30 days after receipt of
the Written Notice; and the requested Maturity Date must be not
later than any earlier Maturity Date required by law.
Payments
We will usually pay any partial surrender, full surrender, or
death benefit within seven days of receipt of a Written Notice
of surrender or receipt and filing of due proof of death.
However, payments may be postponed if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or trading on the exchange is
restricted as determined by the SEC; or
2. the SEC permits by an order the postponement for the
protection of contract owners; or
3. the SEC determines that an emergency exists that would make
the disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets
not reasonably practicable.
If a recent premium payment or loan repayment has been made by
check or draft, we reserve the right to defer payment until such
check or draft has been honored.
We reserve the right to defer payment of any surrender, partial
surrender, or transfer from the Fixed Account for up to six
months from the date of receipt of Written Notice for a partial
surrender, full surrender, or transfer. If pay-ment is not made
within 30 days after receipt of documentation necessary to
complete the transaction, or such shorter period required by a
particular jurisdiction, interest will be added to the amount
paid from the date of receipt of documentation at 3% or such
higher rate required for a particular state.
Modifications
Upon notice to the Owner, Kansas City Life may modify the
Contract, but only if such modification is necessary to:
1. make the Contract or the Variable Account comply with any
law or regulation issued by a governmental agency to which we
are subject;
2. assure continued qualification of the Contract under the
Internal Revenue Code or other federal or state laws relating to
retirement annuities or variable annuity contracts (except that
Owner consent may be required by some states);
3. reflect a change in the operation of the Variable Account; or
4. provide additional Variable Account and/or fixed accumulation
options.
We reserve the right to modify the Contract as necessary to
attempt to prevent the Contract Owner from being considered the
owner of the assets of the Variable Account.
In the event of any such modifications, we will make appropriate
endorsement to the Contract, if required.
Reports to Contract Owner
At least annually, we will mail to you, at your last known
address of record, a report containing the Contract Value and
Cash Surrender Value of the Contract and any further information
required by any applicable law or regulation. The information
will be as of a date not more than two months prior to the date
of mailing.
Contract Inquiries
Inquiries regarding a Contract may be made by writing to Kansas
City Life at its Home Office, 3520 Broadway, P.O. Box 419364,
Kansas City, Missouri 64141-6364.
THE FIXED ACCOUNT
You may allocate some or all of the premiums and transfer some
or all of the Variable Account Value to the Fixed Account, which
is part of our General Account and pays interest at declared
rates guaranteed for each calendar year (subject to a minimum
interest rate we guarantee to be 3%). The principal, after
deductions, is also guaranteed. Our General Account supports
our insurance and annuity obligations.
The Fixed Account has not been, and is not required to be,
registered with the SEC under the Securities Act of 1933 (the
"1933 Act"), and neither the Fixed Account nor our General
Account has been registered as an investment company under the
1940 Act. Therefore, neither Kansas City Life's General Account,
the Fixed Account, nor any interests therein are generally
subject to regulation under the 1933 Act or the 1940 Act. The
disclosures relating to these accounts that are included in this
Prospectus are for your information and have not been reviewed
by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities laws
relating to the accuracy and completeness of statements made in
prospectuses.
The portion of the Contract Value allocated to the Fixed Account
will be credited with rates of interest, as described below.
Since the Fixed Account is part of our General Account, we
assume the risk of investment gain or loss on this amount. All
assets in the General Account are subject to our general
liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
The Fixed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 3%. We intend to credit the
Fixed Account Value with current rates in excess of the minimum
guarantee but we are not obligated to do so. These current
interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Since
we, in our sole discretion, anticipate changing the current
interest rate from time to time, different allocations to and
from the Fixed Account Value will be credited with different
current interest rates, based upon the date amounts are
allocated into the Fixed Account. While we may change the
interest rate credited to new deposits at any time, the interest
rate credited to amounts allocated to the Fixed Account and
accrued interest thereon will not change more often than once
per year. Any interest credited on the amounts in the Fixed
Account in excess of the minimum guaranteed rate of 3% per year
will be determined in our sole discretion. You assume the risk
that interest credited may not exceed the guaranteed rate.
Amounts deducted from the Fixed Account for the Annual
Administration Fee, surrenders, transfers to the Subaccounts, or
charges are currently, for the purpose of crediting interest,
accounted for on a last-in, first-out ("LIFO") method. We
reserve the right to change the method of crediting from time to
time, provided that such changes do not have the effect of
reducing the guaranteed rate of interest below 3% per annum or
shorten the period for which the interest rate applies to less
than a year (except for the year in which such amount is
received or transferred).
Calculation of Fixed Account Value
The Fixed Account Value at any time is equal to amounts
allocated or transferred to it, plus interest credited to it,
minus amounts deducted, transferred, or surrendered from it.
Transfers from Fixed Account
One transfer each Contract Year is allowed from the Fixed
Account to any or all of the Subaccounts. The amount transferred
from the Fixed Account may not exceed 25% of the unloaned Fixed
Account Value on the date of transfer, unless the balance after
the transfer is less than $250, in which case we will transfer
the entire amount.
Payment Deferral
We reserve the right to defer payment of any surrender, partial
surrender, or transfer from the Fixed Account for up to six
months from the date of receipt of the Written Notice for the
partial or full surrender or transfer.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
General. We do not deduct a charge for sales expense from
premiums at the time premiums are paid. However, within certain
time limits described below, we will deduct a Surrender Charge
(contingent deferred sales charge) from the Contract Value if a
partial surrender is made, a Contract is surrendered, or if a
Non-Life Payment Option is elected. In the event Surrender
Charges are not sufficient to cover sales expenses, we will bear
the loss. Conversely, if the amount of such charges proves more
than enough, we will retain the excess. We do not currently
believe that the Surrender Charges imposed will cover the
expected costs of distributing the Contracts. Any shortfall will
be made up from our general assets, which may include amounts
derived from the Mortality and Expense Risk Charge.
Charge for Partial Surrender or Surrender. If a partial
surrender is made or a Contract is surrendered, the applicable
Surrender Charge will be as follows:
Contract Year in
Which Surrender Charge as Percentage
Occurs of Amount Surrendered
1 7%
2 7
3 7
4 6
5 5
6 4
7 2
8 and after 0
We will not deduct a Surrender Charge if the surrender occurs
after seven full Contract Years.
In no event will the total Surrender Charges assessed under a
Contract exceed 8+% of the total premiums paid under that
Contract.
If you surrender the Contract, we will deduct the Surrender
Charge from the Contract Value in determining the Cash Surrender
Value. For a partial surrender, we will deduct the Surrender
Charge from the amount surrendered or from Contract Value
remaining after the amount requested is surrendered, according
to your instructions.
Amounts Not Subject to Surrender Charge. If you have not
elected to participate in the Systematic Partial Surrender Plan,
your first partial surrender during a Contract Year will not be
subject to a Surrender Charge to the extent that the amount
surrendered is not in excess of 10% of the Contract Value at the
time of the surrender. This 10% free partial surrender is
limited to the first partial surrender per Contract Year, even
if the amount surrendered is less than 10% of the Contract
Value. We will assess a Surrender Charge on any amounts
surrendered in excess of 10% or subsequent to the first partial
surrender in a Contract Year. The 10% free partial surrender is
not cumulative from Contract Year to Contract Year.
Similarly, if you have not elected to participate in the
Systematic Partial Surrender Plan and you have not received any
partial surrenders during a Contract Year, upon a full
surrender, the Surrender Charge will not apply to 10% of the
Contract Value. That is, only 90% of the Contract Value will be
subject to a Surrender Charge.
If you have elected to participate in the Systematic Partial
Surrender Plan, up to 10% of the Contract Value may be
surrendered each Contract Year without a Surrender Charge. In
the Contract Year in which you elect to participate in the plan,
the 10% limitation will be calculated based on the Contract
Value at the time of election. In each subsequent Contract Year
in which you continue to participate in the Plan, the 10%
limitation will be calculated based on the Contract Value as of
the beginning of that year. We will notify you if the total
amount to be surrendered in a subsequent Contract Year will
exceed 10% of the Contract Value as of the beginning of such
Contract Year. Unless you instruct us to reduce the surrender
amount for that year so that it does not exceed the 10% limit,
we will continue to process surrenders for the designated
amount. Once the amount of the surrender exceeds the 10% limit,
we will deduct the applicable Surrender Charge from the
remaining Contract Value. After the seventh Contract year, when
the Surrender Charge reaches zero, we will not charge a
Surrender Charge on surrenders under the Systematic Partial
Surrender Plan, regardless of the amount of Contract Value
surrendered under the plan.
If you elect to participate in the Systematic Partial Surrender
Plan during a Contract Year in which you have already received a
partial surrender, that partial surrender will not be subject to
Surrender Charge (subject to the restrictions discussed above),
but the partial surrenders under the plan during the remainder
of that Contract Year will be subject to a Surrender Charge.
Nursing Home Waiver. If we receive satisfactory proof that the
Owner is admitted to a licensed nursing home, the full Contract
Value may be paid out equally over at least a three year period
with no Surrender Charges. The Owner must be confined for at
least 90 days before the Surrender Charges will be waived. This
waiver may not be available in all states.
Transfer Processing Fee
The first six transfers during each Contract Year are free. We
will assess a Transfer Processing Fee for each additional
transfer during such Contract Year. For the purpose of
assessing the fee, we will consider each Written Notice or
telephone request seeking a transfer to be one transfer,
regardless of the number of accounts affected by the transfer.
We will deduct the Transfer Processing Fee from the amount being
transferred or from the remaining Contract Value, according to
your instructions. We do not expect a profit from this fee.
Administrative Charges
Annual Administration Fee. At the beginning of each Contract
Year, we will deduct from the Contract Value an Annual
Administration Fee of $30 (or less if required by applicable
state law) to reimburse us for administrative expenses relating
to the Contract. We will waive this fee for Contracts with
Contract Values of $50,000 or more at the beginning of the
applicable Contract Year. We will deduct the charge from each
Subaccount and the Fixed Account based on the proportion that
the value in each such account bears to the total Contract
Value. We do not expect to make a profit on this fee. No Annual
Administration Fee is payable after the Maturity Date.
Asset-Based Administration Charge. To compensate us for costs
associated with administration of the Contracts, prior to the
Maturity Date we will deduct a daily Asset-Based Administration
Charge from the assets of the Variable Account equal to an
annual rate of .15%. We do not expect to make a profit from this
charge.
Mortality and Expense Risk Charge
To compensate us for assuming mortality and expense risks, prior
to the Maturity Date we will deduct a daily Mortality and
Expense Risk Charge from the assets of the Variable Account. We
will impose a charge in an amount that is equal to an annual
rate of 1.25% (daily rate of 0.0034247%) (approximately 0.70%
for mortality risk and 0.55% for expense risk).
The mortality risk we assume is that Annuitants may live for a
longer period of time than estimated when the guarantees in the
Contract were established. Because of these guarantees, each
Payee is assured that longevity will not have an adverse effect
on the annuity payments received. The mortality risk also
includes a guarantee to pay a death benefit if the Annuitant
dies before the Maturity Date. The expense risk we assume is the
risk that the Annual Administration Fee, Asset-Based
Administration Charge, and Transfer Processing Fee may be
insufficient to cover actual future expenses.
If the Mortality and Expense Risk Charge is insufficient to
cover the actual cost of the mortality and expense risks we
undertake, we will bear the shortfall. Conversely, if the charge
proves more than sufficient, the excess will be our profit and
will be available for any proper corporate purpose including,
among other things, payment of sales expenses.
Premium Taxes
Various states and other governmental entities levy a premium
tax, currently ranging up to 3.5%, on annuity contracts issued
by insurance companies. Premium tax rates are subject to change
from time to time by legislative and other governmental action.
In addition, other governmental units within a state may levy
such taxes.
If premium taxes are applicable to a Contract, we will deduct
them upon surrender or when we apply the Contract proceeds to a
Payment Option or a lump sum payment.
Other Taxes
Currently, no charge is made against the Variable Account for
federal income taxes. We may make such a charge in the future if
income or gains within the Variable Account result in any
federal income tax liability to us. We may also deduct charges
for other taxes attributable to the Variable Account, if any.
Investment Advisory Fees and Other Expenses of the Funds
Because the Variable Account purchases shares of the Funds, the
net assets of each Subaccount of the Variable Account will
reflect the investment advisory fees and operating expenses
incurred by the Funds. For each Portfolio, an investment adviser
is paid a daily fee by the Funds for its investment advisory
services. Each advisory fee is a percentage of a Portfolio's
average daily net assets, and thus the actual fee paid depends
on the Portfolio and the assets of such Portfolio. Each
Portfolio of the Funds is also responsible for its operating
expenses. The accompanying current Prospectuses for the Funds
give further details.
PAYMENT OPTIONS
The Contract ends on the Maturity Date. If you have elected a
Life Payment Option (Options 4 and 5 described below), we will
apply the Contract Value to that option. If you have elected a
Non-Life Payment Option (Options 1, 2, and 3 described below),
or you have elected to receive a lump sum payment, we will apply
the Cash Surrender Value. If an election of a Payment Option has
not been filed at our Home Office on the Maturity Date, we will
pay the Contract proceeds as a life annuity with payments for
ten years guaranteed. Prior to the Maturity Date, you may have
the Contract Value applied under a Life Payment Option, or the
Cash Surrender Value applied to a Non-Life Payment Option or you
may receive a lump sum payment. Upon the death of the Annuitant,
the Beneficiary can have the death benefit applied under a
Payment Option. We will deduct any premium tax applicable from
the Cash Surrender Value or the Contract Value at the time
payments commence. The Contract must be surrendered so that the
applicable amount can be paid in a lump sum or a supplemental
contract for the applicable Payment Option can be issued.
The Payment Options available are described below. The term
"Payee" means a person who is entitled to receive payment under
that option. The Payment Options are fixed, which means that
each option has a fixed and guaranteed amount to be paid during
the annuity payment period that is not in any way dependent upon
the investment experience of the Variable Account.
Election of Options
You may elect, revoke or change an option at any time before the
Maturity Date while the Annuitant is living. If the Payee is
other than the Owner, the election of a Payment Option requires
our consent. If an election is not in effect at the Annuitant's
death or if payment is to be made in one sum under an existing
election, the Beneficiary may elect one of the options after the
death of the Annuitant.
An election of option and any revocation or change must be made
by Written Notice and filed with the Home Office. An option may
not be elected if any periodic payment under the election would
be less than $50. Subject to this condition, we will make
payments annually or monthly at the end of such period.
Description of Options
Option 1 - Interest Payments. We will make guaranteed interest
payments to the Payee annually or monthly as elected. We will
pay interest on the proceeds at the guaranteed rate of 3.0% per
year and we may pay additional interest annually. The proceeds
and any unpaid interest may be withdrawn in full at any time.
Option 2: Installments of a Specified Amount. We will make
annual or monthly payments until the proceeds plus interest are
fully paid. We will pay interest on the proceeds at the
guaranteed rate of 3.0% per year, and we may pay additional
interest. The present value of any unpaid installments may be
withdrawn at any time.
Option 3: Installments for a Specified Period. We will pay the
proceeds in equal annual or monthly payments for a specified
number of years. We will pay interest on the proceeds at the
guaranteed rate of 3.0% per year. We may also pay additional
interest. The present value of any unpaid installments may be
withdrawn at any time.
Option 4: Life Income. We will pay an income during the
Payee's lifetime. A minimum guaranteed payment period may be
chosen. Payments received under the Installment Refund Option
will continue until the total income payments received equal the
proceeds applied.
Option 5: Joint and Survivor Income. We will pay an income
during the lifetime of two persons and will continue to pay an
income as long as either person is living. A minimum guaranteed
payment period of ten years may be chosen.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise or include in sales
literature yields, effective yields and total returns for the
Subaccounts. These figures are based on historical earnings and
do not indicate or project future performance. Each Subaccount
may, from time to time, advertise or include in sales literature
performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information
as to the calculation of performance information, as well as
comparisons with unmanaged market indices, appears in the
Statement of Additional Information.
Effective yields and total returns for the Subaccounts are based
on the investment performance of the corresponding Portfolio of
the Funds. The Funds' performance in part reflects the Funds'
expenses. (See the Prospectuses for the Funds.)
The yield of the Federated Prime Money Fund II Subaccount refers
to the annualized income generated by an investment in the
Subaccount over a specified seven-day period. The yield is
calculated by assuming that the income generated for that
seven-day period is generated each seven-day period over a
52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly but, when
annualized, the income earned by an investment in the Subaccount
is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The yield of a Subaccount (except the Federated Prime Money Fund
II Subaccount) refers to the annualized income generated by an
investment in the Subaccount over a specified 30-day or
one-month period. The yield is calculated by assuming that the
income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period
and is shown as a percentage of the investment.
The total return of a Subaccount refers to return quotations
assuming an investment under a Contract has been held in the
Subaccount for various periods of time including, but not
limited to, a period measured from the date the Subaccount
commenced operations. When a Subaccount has been in operation
for one, five, and ten years, respectively, the total return for
these periods will be provided. For periods prior to the date
the Variable Account commenced operations, performance
information for Contracts funded by the Subaccounts will be
calculated based on the performance of the Funds' Portfolios and
the assumption that the Subaccounts were in existence for the
same periods as those indicated for the Funds' Portfolios, with
the level of Contract charges that were in effect at the
inception of the Subaccounts for the Contracts.
The average annual total return quotations represent the average
annual compounded rates of return that would equate an initial
investment of $1,000 under a Contract to the redemption value of
that investment as of the last day of each of the periods for
which total return quotations are provided. Average annual total
return information shows the average percentage change in the
value of an investment in the Subaccount from the beginning date
of the measuring period to the end of that period. This
standardized version of average annual total return reflects all
historical investment results, less all charges and deductions
applied against the Subaccount (including any surrender charge
that would apply if you terminated the Contract at the end of
each period indicated, but excluding any deductions for premium
taxes).
In addition to the standard version described above, total
return performance information computed on two different
non-standard bases may be used in advertisements. Average annual
total return information may be presented, computed on the same
basis as described above, except deductions will not include the
Surrender Charge. In addition, we may from time to time
disclose average annual total return in non-standard formats and
cumulative total return for Contracts funded by Subaccounts.
We may, from time to time, also disclose yield, standard total
returns, and non-standard total returns for the Portfolios of
the Funds, including such disclosures for periods prior to the
date the Variable Account commenced operations.
Non-standard performance data will only be disclosed if the
standard performance data for the required periods is also
disclosed. For additional information regarding the calculation
of other performance data, please refer to the Statement of
Additional Information.
In advertising and sales literature, the performance of each
Subaccount may be compared to the performance of other variable
annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or
investment series of mutual funds with investment objectives
similar to each of the Subaccounts. Lipper Analytical Services,
Inc. ("Lipper"), Morningstar, Inc. ("Morningstar"), and the
Variable Annuity Research Data Service ("VARDS") are independent
services that monitor and rank the performance of variable
annuity issuers in each of the major categories of investment
objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life
insurance issuers as well as variable annuity issuers. VARDS
rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper, Morningstar and VARDS each rank
such issuers on the basis of total return, assuming reinvestment
of distributions, but do not take sales charges, redemption
fees, or certain expense deductions at the separate account
level into consideration. In addition, VARDS and Morningstar
prepare risk rankings, which consider the effects of market risk
on total return performance. This type of ranking provides data
as to which funds provide the highest total return within
various categories of funds defined by the degree of risk
inherent in their investment objectives. Performance data
published by CDA/Weisenberger also may be used in advertisements
and sales literature.
Advertising and sales literature may also compare the
performance of each Subaccount to the Standard & Poor's Index of
500 Common Stocks, a widely used measure of stock performance.
This unmanaged index assumes the reinvestment of dividends but
does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking
services and indices may also be used as a source of performance
comparison.
We may also report other information, including the effect of
tax-deferred compounding on a Subaccount's investment returns,
or returns in general, which may be illustrated by tables,
graphs, or charts. All income and capital gains derived from
Subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the
underlying Portfolio's investment experience is positive.
FEDERAL TAX STATUS
The Following Discussion is General and
Is Not Intended as Tax Advice
Introduction
This discussion is not intended to address the tax consequences
resulting from all of the situations in which a person may be
entitled to or may receive a distribution under the annuity
contract that we issued. Any person concerned about these tax
implications should consult a competent tax adviser before
initiating any transaction. This discussion is based upon our
understanding of the present federal income tax laws, as they
are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation
of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other
tax laws.
The Contract may be purchased on a non-qualified basis
("Non-Qualified Contract") or purchased and used in connection
with plans qualifying for favorable tax treatment ("Qualified
Contract"). The Qualified Contract is designed for use by
individuals whose premium payments are comprised solely of
proceeds from and/or contributions under retirement plans which
are intended to qualify as plans entitled to special income tax
treatment under Sections 401(a), 403(b), or 408 of the Internal
Revenue Code of 1986, as amended (the "Code"). The ultimate
effect of federal income taxes on the amounts held under a
Contract, or annuity payments, and on the economic benefit to
the Owner, the Annuitant, or the Beneficiary depends on the type
of retirement plan, on the tax and employment status of the
individual concerned, and on our tax status. In addition,
certain requirements must be satisfied in purchasing a Qualified
Contract with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Contract in order to continue
receiving favorable tax treatment. Therefore, purchasers of
Qualified Contracts should seek competent legal and tax advice
regarding the suitability of a Contract for their situation, the
applicable requirements, and the tax treatment of the rights and
benefits of a Contract. The following discussion assumes that
Qualified Contracts are purchased with proceeds from and/or
contributions under retirement plans that qualify for the
intended special federal income tax treatment.
Tax Status of the Contract
Diversification Requirements. Section 817(h) of the Code
provides that separate account investments underlying a Contract
must be "adequately diversified" in accordance with Treasury
regulations in order for the Contract to qualify as an annuity
contract under Section 72 of the Code. The Variable Account,
through each Portfolio of the Funds, intends to comply with the
diversification requirements prescribed in regulations under
Section 817(h) of the Code, which affect how the assets in the
various Subaccounts may be invested. Although we do not have
control over the Funds in which the Variable Account invests, we
believe that each Portfolio in which the Variable Account owns
shares will meet the diversification requirements.
In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes,
of the assets of the separate account used to support their
contracts. In those circumstances, income and gains from the
separate account assets would be includible in the variable
annuity Contract Owner's gross income. Several years ago, the
IRS stated in published rulings that a variable Contract Owner
will be considered the owner of separate account assets if the
Contract Owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the
assets. More recently, the Treasury Department announced, in
connection with the issuance of regulations concerning
investment diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor
control of the investments of a segregated asset account may
cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which Contract Owners
may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but
different in certain respects from, those described by the
Service in rulings in which it was determined that Contract
Owners were not owners of separate account assets. For example,
the Owner of a Contract has the choice of more Subaccounts in
which to allocate premiums and Contract values, and may be able
to transfer among Subaccounts more frequently than in such
rulings. These differences could result in the Contract Owner's
being treated as the owner of the assets of the Variable
Account. In addition, Kansas City Life does not know what
standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to
issue. Therefore, we reserve the right to modify the Contract as
necessary to attempt to prevent the Contract Owner from being
considered the owner of the assets of the Variable Account.
Required Distributions. In addition to the requirements of
Section 817(h) of the Code, in order to be treated as an annuity
contract for federal income tax purposes, Section 72(s) of the
Code requires any Non-Qualified Contract to provide that: (a) if
any Owner dies on or after the Maturity Date but prior to the
time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at
least as rapidly as under the method of distribution being used
as of the date of that Owner's death; and (b) if any Owner dies
prior to the Maturity Date, the entire interest in the Contract
will be distributed within five years after the date of the
Owner's death. These requirements will be considered satisfied
as to any portion of the deceased Owner's interest which is
payable to or for the benefit of a "designated beneficiary" and
which is distributed over the life of such Beneficiary or over a
period not extending beyond the life expectancy of that
Beneficiary, provided that such distributions begin within one
year of that Owner's death. The Owner's "designated beneficiary"
is the person designated by such owner as a Beneficiary and to
whom ownership of the Contract passes by reason of death and
must be a natural person. However, if the Owner's "designated
beneficiary" is the surviving spouse of the Owner, the Contract
may be continued with the surviving spouse as the new Owner.
The Non-Qualified Contracts contain provisions which are
intended to comply with the requirements of Section 72(s) of the
Code, although no regulations interpreting these requirements
have yet been issued. Kansas City Life intends to review such
provisions and modify them if necessary to assure that they
comply with the requirements of Code Section 72(s) when
clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify
as annuity contracts for federal income tax purposes.
Taxation of Annuities
In General. Section 72 of the Code governs taxation of
annuities in general. We believe that an Owner who is a natural
person generally is not taxed on increases in the value of a
Contract until distribution occurs by surrendering all or part
of the Contract Value (e.g., partial surrenders and surrenders)
or as annuity payments under the Payment Option elected. For
this purpose, the assignment, pledge, or agreement to assign or
pledge any portion of the Contract Value (and in the case of a
Qualified Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment
or payment option) is taxable as ordinary income.
The Owner of any annuity contract who is not a natural person
generally must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during
the taxable year. There are some exceptions to this rule, and a
prospective Owner that is not a natural person may wish to
discuss these with a competent tax adviser.
The following discussion generally applies to Contracts owned by
natural persons.
Partial Surrenders. In the case of a partial surrender from a
Qualified Contract, under Section 72(e) of the Code a ratable
portion of the amount received is taxable, generally based on
the ratio of the "investment in the contract" to the
participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally
equals the portion, if any, of any premium payments paid by or
on behalf of any individual under a Contract which was not
excluded from the individual's gross income. For Contracts
issued in connection with qualified plans, the "investment in
the contract" can be zero. Special tax rules may be available
for certain distributions from Qualified Contracts.
In the case of a partial surrender (including systematic
withdrawals) from a Non-Qualified Contract before the Maturity
Date, under Code Section 72(e) amount received are generally
first treated as taxable income to the extent that the Contract
Value immediately before the partial surrender exceeds the
"investment in the contract" at that time. Any additional amount
surrendered is not taxable.
In the case of a full surrender under a Qualified or
Non-Qualified Contract, the amount received generally will be
taxable only to the extent it exceeds the "investment in the
contract."
Annuity Payments. Although tax consequences may vary depending
on the Payment Option elected under an annuity contract, under
Code Section 72(b), generally (prior to recovery of the
investment in the contract) gross income does not include that
part of any amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the
investment in the contract bears to the expected return at the
annuity starting date. Stated differently, prior to recovery of
the investment in the contract, generally, there is no tax on
the amount of each payment which represents the same ratio that
the "investment in the contract" bears to the total expected
value of the annuity payments for the term of the payment;
however, the remainder of each income payment is taxable. After
the "investment in the contract" is recovered, the full amount
of any additional annuity payments is taxable.
Taxation of Death Benefit Proceeds. Amounts may be distributed
from a Contract because of the death of an Owner or an
Annuitant. Generally, such amounts are includible in the income
of the recipient as follows: (i) if distributed in a lump sum,
they are taxed in the same manner as a full surrender of the
Contract or (ii) if distributed under a Payment Option, they are
taxed in the same way as annuity payments. For these purposes,
the investment in the contract is not affected by the Owner's or
Annuitant's death. That is, the investment in the contract
remains the amount of any purchase payments paid that were not
excluded from gross income.
Penalty Tax on Certain Withdrawals. In the case of a
distribution pursuant to a Non-Qualified Contract, there may be
imposed a federal penalty tax equal to 10% of the amount treated
as taxable income. In general, however, there is no penalty on
distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder
is not an individual, the death of the primary annuitant);
3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments
(not less frequently than annually) for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and his or her designated
beneficiary;
5. made under an annuity contract that is purchased with a
single premium when the annuity starting date is no later than a
year from purchase of the annuity and substantially equal
periodic payments are made, not less frequently than annually,
during the annuity payment period; and
6. made under certain annuities issued in connection with
structured settlement agreements.
Other tax penalties may apply to certain distributions under a
Qualified Contract, as well as to certain contributions, loans,
and other circumstances.
Possible Tax Changes. In recent years, legislation has been
proposed that would have adversely modified the federal taxation
of certain annuities. For example, one such proposal would have
changed the tax treatment of non-qualified annuities that did
not have "substantial life contingencies" by taxing income as it
is credited to the annuity. Although as of the date of this
Prospectus Congress is not considering any legislation regarding
taxation of annuities, there is always the possibility that the
tax treatment of annuities could change by legislation or other
means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change
could be retroactive (that is, effective prior to the date of
the change).
Transfers, Assignments or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary who is not also the Owner,
the selection of certain Maturity Dates or the exchange of a
Contract may result in certain tax consequences to the Owner
that are not discussed herein. An Owner contemplating any such
transfer, assignment, or exchange of a Contract should contact a
competent tax adviser with respect to the potential tax effects
of such a transaction.
Withholding
Pension and annuity distributions generally are subject to
withholding for the recipient's federal income tax liability at
rates that vary according to the type of distribution and the
recipient's tax status. Recipients, however, generally are
provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distributions from
certain qualified plans are generally subject to mandatory
withholding.
Multiple Contracts
All non-qualified deferred annuity contracts that are issued by
Kansas City Life (or our affiliates) to the same Owner during
any calendar year are treated as one annuity contract for
purposes of determining the amount includible in gross income
under Section 72(e). The effects of this rule are not yet clear;
however, it could affect the time when income is taxable and the
amount that might be subject to the 10% penalty tax described
above. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of
Section 72(e) through the serial purchase of annuity contracts
or otherwise. There may also be other situations in which the
Treasury may conclude that it would be appropriate to aggregate
two or more annuity contracts purchased by the same Owner.
Accordingly, an Owner should consult a competent tax adviser
before purchasing more than one annuity contract.
Taxation of Qualified Contracts
The Contracts are designed for use with several types of
qualified plans. The tax rules applicable to participants in
these qualified plans vary according to the type of plan and the
terms and conditions of the plan itself. Adverse tax
consequences may result from contributions in excess of
specified limits; distributions prior to age 59 1/2 (subject to
certain exceptions); distributions that do not conform to
specified commencement and minimum distribution rules; aggregate
distributions in excess of a specified annual amount; and in
other specified circumstances. Therefore, no attempt is made to
provide more than general information about the use of the
Contracts with the various types of qualified retirement plans.
Contract Owners, the Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under these
qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and
conditions of the Contract, but we shall not be bound by the
terms and conditions of such plans to the extent such terms
contradict the Contract, unless Kansas City Life consents. Some
retirement plans are subject to distribution and other
requirements that are not incorporated into our administration
procedures. Owners, participants, and beneficiaries are
responsible for determining that contributions, distributions,
and other transactions with respect to the Contracts comply with
applicable law. Brief descriptions follow of the various types
of qualified retirement plans in connection with a Contract. We
will amend the Contract as necessary to conform it to the
requirements of such plan.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans.
Section 401(a) of the Code permits corporate employers to
establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contract to
provide benefits under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may
result if this Contract is assigned or transferred to any
individual as a means to provide benefit payments, unless the
plan complies with all legal requirements applicable to such
benefits prior to the transfer of the Contract. Corporate
employers intending to use the Contract with such plans should
seek competent advice.
Individual Retirement Annuities. Section 408 of the Code
permits eligible individuals to contribute to an individual
retirement program known as an "Individual Retirement Annuity"
or "IRA." These IRAs are subject to limits on the amount that
may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from
certain other types of qualified retirement plans may be "rolled
over" on a tax-deferred basis into an IRA. Sales of the Contract
for use with IRAs may be subject to special requirements of the
Internal Revenue Service. The Internal Revenue Service has not
reviewed the Contract for qualification as an IRA, and has not
addressed in a ruling of general applicability whether a death
benefit provision such as the provision in the Contract comports
with IRA qualification requirements.
Tax Sheltered Annuities. Section 403(b) of the Code allows
employees of certain Section 501(c)(3) organizations and public
schools to exclude from their gross income the premiums paid,
within certain limits, on a Contract that will provide an
annuity for the employee's retirement.
Restrictions under Qualified Contracts. Other restrictions with
respect to the election, commencement, or distribution of
benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
Possible Charge for Kansas City Life's Taxes
At the present time, we do not assess a charge to the
Subaccounts for any federal, state, or local taxes that we incur
which may be attributable to such Subaccounts or the Contracts.
However, we reserve the right in the future to make a charge for
any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly
attributable to the Subaccounts or to the Contracts.
Other Tax Consequences
As noted above, the foregoing comments about the federal tax
consequences under these Contracts are not exhaustive, and
special rules are provided with respect to other tax situations
not discussed in the Prospectus. Further, the federal income
tax consequences discussed herein reflect our understanding of
current law and the law may change. Federal estate and state and
local estate, inheritance and other tax consequences of
ownership or receipt of distributions under a Contract depend on
the individual circumstances of each Owner or recipient of the
distribution. A competent tax adviser should be consulted for
further information.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered to the public on a continuous
basis, and we do not anticipate discontinuing the offering of
the Contracts. However, we reserve the right to discontinue the
offering. Applications for Contracts are solicited by agents who
are licensed by applicable state insurance authorities to sell
our variable annuity contracts and who are also registered
representatives of Sunset Financial Services, Inc. ("Sunset
Financial"), one of our wholly-owned subsidiaries, or of
broker-dealers who have entered into written sales agreements
with Sunset Financial. Sunset Financial is registered with the
SEC under the Securities Exchange Act of 1934 as a broker-dealer
and is a member of the National Association of Securities
Dealers, Inc.
Sunset Financial acts as the Principal Underwriter, as defined
in the 1940 Act, of the Contracts for the Variable Account
pursuant to an Underwriting Agreement between Kansas City Life
and Sunset Financial. Sunset Financial is not obligated to sell
any specific number of Contracts. Sunset Financial's principal
business address is 3520 Broadway, Kansas City, Missouri 64111.
Sunset Financial will receive commissions of up to 4.2%.
Additional amounts may be paid in certain circumstances.
Underwriting commissions of $18,392 were paid to Sunset
Financial during 1995 for sale of the Contracts. None of this
amount was retained by Sunset Financial.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable
Account is a party or the assets of the Variable Account are
subject. Kansas City Life is not involved in any litigation
that is of material importance in relation to its total assets
or that relates to the Variable Account.
VOTING RIGHTS
In accordance with our view of current applicable law, we will
vote the Portfolio shares held in the Variable Account at
special shareholder meetings of the Funds in accordance with
instructions received from persons having voting interests in
the corresponding Subaccounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present
interpretation thereof should change, or we determine that we
are allowed to vote the Portfolio shares in our own right, we
may elect to do so.
The number of votes that are available to an Owner will be
calculated separately for each Subaccount of the Variable
Account, and may include fractional shares. The number of votes
attributable to a Subaccount will be determined by applying an
Owner's percentage interest, if any, in a particular Subaccount
to the total number of votes attributable to that Subaccount. An
Owner holds a voting interest in each Subaccount to which the
Variable Account is allocated. The Owner only has a voting
interest prior to the Maturity Date.
The number of votes of a Portfolio that are available to the
Owner will be determined as of the date coincident with the date
established by the Portfolio for determining shareholders
eligible to vote at the relevant meeting of each Fund. Voting
instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by the
Funds.
Fund shares as to which no timely instructions are received and
shares held by Kansas City Life in a Subaccount as to which an
Owner has no beneficial interest will be voted in proportion to
the voting instructions that are received with respect to all
Contracts participating in that Subaccount. Voting instructions
to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Subaccount will
receive proxy materials, reports, and other material relating to
the appropriate Portfolio.
COMPANY HOLIDAYS
We are closed on the following holidays: New Year's Day,
President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additional holidays in 1996
will be May 3 and November 29. Holidays that fall on a Saturday
will be recognized on the previous Friday. Holidays that fall
on a Sunday will be recognized on the following Monday.
FINANCIAL STATEMENTS
Kansas City Life's consolidated balance sheets as
of December 31, 1995 and 1994 and the related statements of
income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995, appearing
in the Statement of Additional Information should be considered
only as bearing on Kansas City Life's abaility to meet its
obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the
Account. Financial statements for the Variable Account for the
period from September 6, 1995 to December 31, 1995 also
in the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Page
Additional Contract Provisions 1
The Contract 1
Incontestability 1
Misstatement of Age or Sex 1
Non-Participation 1
Calculation of Yields and Total Returns 1
Federated Prime Money Fund II Subaccount Yields 1
Other Subaccount Yields 2
Average Annual Total Returns 3
Other Total Returns 5
Effect of the Administration Fee on Performance Data 6
Termination of Participation Agreements 6
Safekeeping of Account Assets 7
State Regulation 7
Records and Reports 7
Legal Matters 7
Experts 7
Other Information 8
Financial Statements 8
To: Kansas City Life InsuranceCompany
Variable Administration Department
P.O. Box 419364
Kansas City, Missouri 64141-6364
Please mail a copy of the Statement of Additional Information
for the Kansas City Life Variable Annuity Separate Account to:
Name:____________________________________________________________
Address:_________________________________________________________
Street _________________________________________________________________
City
State Zip
Signature of
Requestor:_______________________________________________________
____________________________________
Date:____________________________________________________________
PART B
STATEMENT OF ADDITIONAL INFORMATION
Kansas City Life Insurance Company
3520 Broadway
P.O. Box 419364
Kansas City, Missouri 64141-6364
(800) 616-3670
STATEMENT OF ADDITIONAL INFORMATION
KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the flexible premium
deferred variable annuity contract (the "Contract") offered by Kansas City
Life Insurance Company ("Kansas City Life"). This Statement of Additional
Information is not a Prospectus, and it should be read only in conjunction
with the Prospectuses for the Contract and MFS Variable Insurance Trust,
TCI Portfolios, Inc., and Federated Insurance Series. The Prospectus is
dated the same as this Statement of Additional Information. You may obtain a
copy of the Prospectus by writing or calling Kansas City Life at the address
or phone number shown above.
The date of this Statement of Additional Information is May 1, 1996.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ADDITIONAL CONTRACT PROVISIONS 4
The Contract 4
Incontestability 4
Misstatement of Age or Sex 4
Non-Participation 4
CALCULATION OF YIELDS AND TOTAL RETURNS 4
Federated Prime Money Fund II Subaccount Yields 4
Other Subaccount Yields 5
Average Annual Total Returns 6
Other Total Returns 7
Effect of the Administrative Fee on Performance Data 8
TERMINATION OF PARTICIPATION AGREEMENTS 8
SAFEKEEPING OF ACCOUNT ASSETS 9
STATE REGULATION 9
RECORDS AND REPORTS 10
LEGAL MATTERS 10
EXPERTS 10
OTHER INFORMATION 10
FINANCIAL STATEMENTS 10
ADDITIONAL CONTRACT PROVISIONS
The Contract
The entire Contract is made up of the contract and the application. The
statements made in the application are deemed representations and not
warranties. We cannot use any statement in defense of a claim or to void
the Contract unless it is contained in the application and a copy of the
application is attached to the Contract at issue.
Incontestability
We will not contest the Contract after it has been in force during the
Annuitant's lifetime for two years from the Contract Date of the Contract.
Misstatement of Age or Sex
If the age or sex of the Annuitant has been misstated, the amount that we
will pay is the amount that the proceeds would have purchased at the correct
age and sex.
If an overpayment is made because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against the Contract.
If the debt is not repaid, we will reduce future payments accordingly.
If an underpayment is made because of an error in age or sex, any annuity
payments will be calculated at the correct age and sex and we will adjust
future payments. We will pay the underpayment with interest at 3% compounded
annually in a single sum.
Non-Participation
The Contract is not eligible for dividends and will not participate in our
divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, we may disclose yields, total returns, and other
performance data pertaining to the Contracts for a Subaccount. Such
performance data will be computed, or accompanied by performance data
computed, in accordance with the standards defined by the SEC.
Because of the charges and deductions imposed under a Contract, the yield for
the Subaccounts will be lower than the yield for their respective Portfolios.
The calculations of yields, total returns, and other performance data do not
reflect the effect of any premium tax that may be applicable to a particular
Contract. Premium taxes currently range from 0% to 3.5% of premium based on
the state in which the Contract is sold.
Federated Prime Money Fund II Subaccount Yields
From time to time, advertisements and sales literature may quote the current
annualized yield of the Federated Prime Money Fund II Subaccount for a
seven-day period in a manner that does not take into consideration any
realized or unrealized gains or losses on shares of the Federated Prime Money
Fund II or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the seven-day period
in the value of a hypothetical account under a Contract having a balance of
1 unit of the Federated Prime Money Fund II Subaccount at the beginning of
the period, dividing such net change in account value by the value of the
hypothetical account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis. The net
change in account value reflects: 1) net income from the Federated Prime
Money Fund II attributable to the hypothetical account; and 2) charges and
deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit
charges for the hypothetical account for: 1) the Annual Administration Fee,
2) the Asset-Based Administration Charge, and (3) the Mortality and Expense
Risk Charge. For purposes of calculating current yields for a Contract, an
average per unit administrative fee is used based on the $30 Annual
Administration Fee deducted at the beginning of each Contract Year. Current
Yield will be calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio
(exclusive of realized gains or losses on the sale of
securities and unrealized appreciation and
depreciation) for the seven-day period attributable
to a hypothetical account having a balance of 1
subaccount unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
365/7
Effective Yield = (1 + ((NCS-ES)/UV)) - 1
Where:F
NCS = the net change in the value of the Portfolio
(exclusive of realized gains or losses on the sale
of securities and unrealized appreciation and
depreciation) for the seven-day period attributable
to a hypothetical account having a balance of 1
subaccount unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
Because of the charges and deductions imposed under the Contract, the yield
for the Federated Prime Money Subaccount will be lower than the yield for the
Federated Prime Money Fund II.
The current and effective yields on amounts held in the Federated Prime Money
Fund II Subaccount normally will fluctuate on a daily basis. Therefore,
the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The Federated Prime
Money Fund II Subaccount's actual yield is affected by changes in interest
rates on money market securities, average portfolio maturity of the Federated
Prime Money Fund II, the types and quality of portfolio securities held by
the Federated Prime Money Fund II, and the Federated Prime Money Fund II's
operating expenses. Yields on amounts held in the Federated Prime Money Fund
II Subaccount may also be presented for periods other than a seven-day
period.
Other Subaccount Yields
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Federated
Prime Money Fund II Subaccount) for a Contract for 30-day or one-month
periods. The annualized yield of a Subaccount refers to income generated by
the Subaccount during a 30-day or one-month period that is assumed to be
generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for
the period; by 2) the maximum offering price per unit on the last day of the
period times the daily average number of units outstanding for the period;
by 3) compounding that yield for a six-month period; and by 4) multiplying
that result by 2. Expenses attributable to the Subaccount include the
Annual Administration Fee, Asset-Based Administration Charge, and Mortality
and Expense Risk Charge. The yield calculation assumes an Annual
Administration Fee of $30 per year per Contract deducted at the beginning of
each Contract Year. For purposes of calculating the 30-day or one-month
yield, an average Annual Administration Fee per dollar of Contract value in
the Account is used to determine the amount of the charge attributable to
the subaccount for the 30-day or one-month period. The 30-day or one-month
yield is calculated according to the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)6 - 1)
Where:
NI = net income of the Portfolio for the 30-day or
one-month period attributable to the Subaccount's
units.
ES = expenses of the Subaccount for the 30-day or
one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the
30-day one-month period.
Because of the charges and deductions imposed under the Contracts, the yield
for the Subaccount will be lower than the yield for the corresponding Funds'
Portfolio.
The yield on the amounts held in the Subaccounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. A
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Portfolio and its operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 2% to 7% of the amount surrendered during the first seven
Contract years. Subject to certain restrictions, a Surrender Charge will not
be imposed upon surrender or on the first partial surrender in any Contract
year on an amount up to 10% of the Contract Value as of the beginning of the
Contract Year.
Average Annual Total Returns
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Subaccounts for various periods
of time.
When a Subaccount has been in operation for 1, 5, and 10 years, respectively,
the average annual total return for these periods will be provided. Average
annual total returns for other periods of time may, from time to time, also
be disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication that will be stated in
the communication.
Standard average annual total returns will be calculated using Subaccount
unit values which Kansas City Life calculates on each valuation day based on
the performance of the Subaccount's underlying Portfolio, the deductions for
the Annual Administration Fee, Asset-Based Administration Charge, and
Mortality and Expense Risk Charge. The calculation assumes that the Annual
Administration Fee is $30 per year per Contract deducted at the beginning of
each Contract year. For purposes of calculating average annual total return,
an average per dollar Annual Administration Fee attributable to the
hypothetical account for the period is used. The calculation also assumes
surrender of the Contract at the end of the period for the return quotation.
Total returns will therefore reflect a deduction of the Surrender Charge for
any period less than eight years. The total return will then be calculated
according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of Subaccount
recurring charges.
ERV = the ending redeemable value (net of any applicable
Surrender Charge) of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standard total returns for the Subaccounts for the period of each
Subaccount's operations during 1995 are presented below. Note that these
total returns have not been annualized.
Standard Total Returns for the Subaccounts
Returns from October 1, 1995 until December 31, 1995
RETURN FROM
SUBACCOUNT 10/1/1995 UNTIL 12/31/1995
MFS RESEARCH -0.70%
EMERGING GROWTH 0.84%
TOTAL RETURN -0.60%
BOND -3.81%
WORLD GOVT -3.45%
UTILITIES 0.27%
TCI INTERNATIONAL -3.94%
GROWTH -10.16%
FEDERATED AMERICAN LEADERS FUND II -1.98%
(formerly IMS Equity Growth and Income Fund)
HIGH INCOME BOND FUND II -3.04%
(formerly IMS Corporate Bond Fund)
PRIME MONEY FUND II -5.48%
(formerly IMS Prime Money Fund)
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts will
be calculated based on the performance of the Portfolios and the assumption
that the Subaccounts were in existence for the same periods as those
indicated for the Portfolios, with the level of Contract charges currently
in effect.
Such average annual total return information for the Subaccounts (including
deduction of the Surrender Charge) is as follows:
Subaccount and Date For the For the For the period
of Inception of 1-year period 5-year period from inception of
Corresponding Portfolio ended 12/31/95 ended 12/31/95 Portfolio to 12/31/95
MFS Research (July 28, 1995) N/A N/A 7.39%
MFS Emerging Growth (July 25, 1995 N/A N/A 19.27%
MFS Total Return (January 3, 1995) 17.56% N/A 17.56%
MFS Bond (October 24, 1995) N/A N/A -20.79%
MFS World Governments(June 14, 1994) 5.60% N/A 3.45%
MFS Utilities (January 3, 1995) 23.67% N/A 23.67%
TCI International (May 1, 1994) 3.60% N/A -0.93%
TCI Growth (November 20, 1987) 21.04% 12.14% 11.90%
Federated American Leaders Fund II
(February 10, 1994) 23.48% N/A 11.74%
Federated High Income Bond Fund II
(March 1, 1994) 11.12% N/A 3.11%
Federated Prime Money Fund II
(November 11, 1994) -2.90% N/A -2.45%
Other Total Returns
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns
described above, except that the ending redeemable value of the hypothetical
account for the period is replaced with an ending value for the period that
does not take into account any charges on amounts surrendered. Sales
literature or advertisements may also quote such average annual total returns
for periods prior to the date the Variable Account commenced operations,
calculated based on the performance of the Portfolios and the assumption
that the Subaccounts were in existence for the same periods as those
indicated for the Portfolios, with the level of Contract charges currently
in effect except for the Surrender Charge.
Such average annual total return information for the Subaccounts
(not including deduction of the Surrender Charge) is as follows:
Subaccount and Date For the For the For the period from
of Inception of 1-year period 5-year period inception of the
Corresponding Portfolio ended 12/31/95 ended 12/31/95 Portfolio to 12/31/95
MFS Research (July 28, 1995) N/A N/A 25.54%
MFS Emerging Growth(July 25, 1995) N/A N/A 35.85%
MFS Total Return (January 3, 1995) 25.47% N/A 25.47%
MFS Bond (October 24, 1995) N/A N/A 17.04%
MFS World Govts (June 14, 1994) 12.71% N/A 7.79%
MFS Utilities (January 3, 1995) 31.99% N/A 31.99%
TCI International (May 1, 1994) 10.56% N/A 3.23%
TCI Growth (November 20, 1987) 29.18% 13.18% 11.90%
Federated American Leaders Fund II
(February 10, 1994) 31.78% N/A 15.78%
Federated High Income Bond Fund II
(March 1, 1994) 18.59% N/A 6.83%
Federated Prime Money Fund II
(November 11, 1994) 3.63% N/A 3.59%
We may disclose cumulative total returns in conjunction with the standard
formats described above. The cumulative total returns will be calculated
using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount
recurring charges for the period.
ERV = The ending redeemable value of the hypothetical
investment at the end of the period.
P = A hypothetical single payment of $1,000.
Effect of the Annual Administration Fee on Performance Data
The Contract provides for a $30 Annual Administration Fee (waived for
Contracts with a Contract Value of at least $50,000 at the beginning of the
Contract Year) to be deducted annually at the beginning of each Contract
Year, from the Subaccounts and the Fixed Account based on the proportion
that the value of each such account bears to the total Contract Value. For
purposes of reflecting the Annual Administration Fee in yield and total
return quotations, the annual charge is converted into a per-dollar per-day
charge based on the average Contract Value in the Variable Account of all
Contracts on the last day of the period for which quotations are provided.
The per-dollar per-day average charge will then be adjusted to reflect the
basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sells their shares
to the Variable Account contain provisions regarding termination. The
following summarizes those provisions:
MFS Variable Insurance Trust. This agreement provides for termination: (1)
on six months' advance written notice by any party; (2) at Kansas City Life's
option if shares of the Fund are not reasonably available to meet the
requirements of the Contracts or are not "appropriate funding vehicles" for
the Contracts, as reasonably determined by Kansas City Life; (3) at the
option of the Fund or Massachusetts Financial Services Company ("MFS"), the
Fund's investment adviser, upon institution of certain proceedings against
Kansas City Life; (4) at Kansas City Life's option upon institution of
certain enforcement proceedings against the Fund; (5) at the option of Kansas
City Life, the Fund or MFS upon receipt of any necessary regulatory approvals
and/or the vote of Contract Owners to substitute the shares of another
investment company for shares of the Fund; (6) by the Fund or MFS upon
written notice to Kansas City Life upon a determination that Kansas City Life
has suffered a material adverse change in its business, operations, financial
condition, or prospects; (7) by Kansas City Life upon written notice to the
Fund and MFS upon a determination that the Fund or MFS has suffered a
material adverse change in its business, operations, financial condition, or
prospects; (8) at any party's option upon another party's material breach of
any provision of the agreement; or (9) upon assignment of the agreement,
unless made with the written consent of all parties.
TCI Portfolios, Inc. This agreement provides for termination: (1) on six
months' advance written notice by any party; (2) at Kansas City Life's
option if the Fund's shares are not available for any reason to meet the
requirements of the Contracts; (3) at the option of either Kansas City Life,
the Fund, or Investors Research Corporation ("Investors Research") upon
institution of certain proceedings against any person marketing the
Contracts, the Variable account, Kansas City Life, the Fund, or Investors
Research; (4) upon termination of the advisory agreement between the Fund
and Investors Research; (5) upon vote of Contract Owners to substitute the
shares of another investment company for the shares of the Fund, or similar
regulatory approval; (6) upon assignment of the agreement, unless made with
written consent of all parties, (7) upon a determination that continuing to
perform under the agreement would violate applicable federal or state law,
rule, regulation, or judicial order; (8) at the option of Kansas City Life
if the Fund fails to meet the requirements of applicable diversification
requirements; (9) upon a determination that a party has experienced a
material adverse change in its business operations or financial condition, or
is the subject of substantial adverse publicity; or (10) as a result of any
other breach by a non-affiliated party.
Federated Insurance Series (formerly known as Insurance Management Series).
This agreement provides for termination: (1) on 180 days advance written
notice by any party; (2) at Kansas City Life's option if the Fund's shares
are not reasonably available to meet the requirements of the Contracts; (3)
at the option of the Fund or Federated Securities Corp., the Fund's
distributor (the "Distributor") upon institution of certain proceedings
against Kansas City Life or its agent; (4) at Kansas City Life's option upon
institution of certain proceedings against the Fund or the Distributor; (5)
upon vote of Contract Owners to substitute the shares of another investment
company for the shares of the Fund, or similar regulatory approval; (6) in
the event any of the Fund's shares are not registered, issued or sold in
accordance with applicable law, or such law precludes the use of such shares
to fund the Contracts; (7) by any party upon a determination by a majority of
the Fund's trustees, or a majority of its disinterested trustees, that an
irreconcilable conflict exists; (8) at the option of Kansas City Life if the
Fund fails to meet the requirements of applicable diversification
requirements; or (9) by any party upon another party's failure to cure a
material breach of the agreement within 30 days after written notice thereof.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our Account assets
and from the assets in any other separate account.
Records are maintained of all purchases and redemptions of Portfolio shares
held by each of the Subaccounts.
Our officers and employees are covered by an insurance company blanket bond
issued by Fidelity and Deposit Company of Maryland to Kansas City Life in
the amount of $5,000,000. The bond insures against dishonest and fraudulent
acts of officers and employees.
STATE REGULATION
We are subject to regulation and supervision by the Department of Insurance
of the State of Missouri, which periodically examines our affairs. We are
also subject to the insurance laws and regulations of all jurisdictions where
we are authorized to do business. A copy of the Contract form has been filed
with, and where required approved by, insurance officials in each
jurisdiction where the Contracts are sold. We are required to submit annual
statements of our operations, including financial statements, to the
insurance departments of the various jurisdictions in which we do business
for the purposes of determining solvency and compliance with local insurance
laws and regulations.
RECORDS AND REPORTS
We will retain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be
required under the Act or by any other applicable law or regulation will be
sent to Contract Owners semi-annually at the Owner's last known address of
record.
LEGAL MATTERS
All matters relating to Missouri law pertaining to the Contracts, including
the validity of the Contracts and Kansas City Life's authority to issue the
Contracts, have been passed upon by C. John Malacarne, General Counsel of
Kansas City Life. Sutherland, Asbill & Brennan of Washington, D.C. has
provided advice on certain matters relating to the federal securities laws.
EXPERTS
The consolidated balance sheets for Kansas City Life as of December 31, 1995
and 1994 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995 and the financial statements of the Variable Account
for the period from September 6, 1995 to December 31, 1995, appearing herein
have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report included herein, and are included herein in reliance upon
such reports given upon the authority of such firm as experts in
accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act
of 1933, as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in
the registration statement, amendments and exhibits thereto has been included
in this Statement of Additional Information. Statements contained in this
Statement of Additional Information concerning the content of the Contracts
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
Kansas City Life's consolidated balance sheets as of December 31, 1995 and
1994 and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995 appearing herein, should be considered only as bearing on Kansas City
Life's ability to meet its obligations under the Contracts. They should not
be considered as bearing on the investment performance of the assets held
in the Account. The financial statements of the Variable Account for the
period from September 6, 1995 to December 31, 1995 are also included herein.
Kansas City Life
Variable Annuity Separate Account
Financial Statements
Period from September 6, 1995 (inception) to December 31, 1995
Kansas City Life Variable Annuity Separate Account
Balance Sheet
December 31, 1995
(In thousands, except share data)
Assets
Investments:
Federated Securities - Insurance Management Services (IMS):
Equity Growth and Income Fund - 12,493 shares at net asset
value of $12.80 per share (cost $158,000) $ 160
Corporate Bond Fund - 12,312 shares at net asset value of
$9.79 per share (cost $119,000) 120
Prime Money Fund - 114,138 shares at net asset value of
$1.00 per share (cost $114,000) 114
Massachusetts Financial Services (MFS):
Research Series - 18,695 shares at net asset value of $10.89 per
share (cost $203,000) 204
Emerging Growth Series - 12,991 shares at net asset value of
$11.41 per share (cost $149,000) 148
Total Return Series - 3,422 shares at net asset value of $12.25
per share (cost $42,000) 42
Bond Series - 1,283 shares at net asset value of $10.19 per
share (cost $13,000) 13
World Governments Series - 9,428 shares at net asset value of
$10.17 per share (cost $103,000) 96
Utilities Series - 9,857 shares at net asset value of $12.57 per
share (cost $130,000) 124
Twentieth Century, Inc. (TCI):
Growth - 9,841 shares at net asset value of $12.06 per
share (cost $119,000) 119
International - 23,246 shares at net asset value of $5.33
per share (cost $122,000) 124
Total Assets $ 1,264
See accompanying notes to financial statements
Kansas City Life Variable Annuity Separate Account
Balance Sheet
(continued)
December 31, 1995
(In thousands, except unit data)
Number Unit
of Units Value
Liabilities and Net Assets
Federated Securities - IMS:
Equity Growth and Income Fund 15,359 $ 10.41 $ 160
Corporate Bond Fund 11,792 10.22 120
Prime Money Fund 11,335 10.07 114
Massachusetts Financial Services:
Research Series 19,430 10.48 204
Emerging Growth Series 13,900 10.66 148
Total Return Series 3,981 10.53 42
Bond Series 1,273 10.27 13
World Governments Series 9,423 10.17 96
Utilities Series 11,752 10.54 124
Twentieth Century, Inc.:
Growth 11,998 9.89 119
International 12,190 10.16 124
Total Liabilities and Net Assets $ 1,264
See accompanying notes to financial statements
<TABLE>
Kansas City Life Variable Annuity Separate Account
Statement of Operations and Changes in Net Assets
Period from September 6, 1995 (inception) to December 31, 1995
(In thousands)
<CAPTION>
Federated Securities - IMS Massachusetts Financial Services Twentieth Century
Equity
Growth Corp. Prime Emerging Total World
& Income Bond Money Research Growth Return Bond Gov'ts Utilities
Fund Fund Fund Series Series Series Series Series Series Growth Int'l Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Distributions $ - - - 3 4 1 - 8 7 - - 23
Capital Gains Distributions - - - - - - - - - - - -
Unrealized Appreciation
(Depreciation) on Investments 2 1 - 1 (1) - - (7) (6) - 2 (8)
Net Investment Income 2 1 - 4 3 1 - 1 1 - 2 15
Expenses:
Mortality and Expense Fees - - - - - - - - - - - -
Administrative Fees - - - - - - - - - - - -
Expenses - - - - - - - - - - - -
Increase in Net Assets
from Operations 2 1 - 4 3 1 - 1 1 - 2 15
Deposits 158 119 140 200 142 22 13 95 120 118 122 1,249
Payments and Withdrawals:
Withdrawals - - - - - - - - - - - -
Transfers in (out) - - (26) - 3 19 - - 3 1 - -
Annuity Payments - - - - - - - - - - - -
Net Assets:
Net Increase 160 120 114 204 148 42 13 96 124 119 124 1,264
Beginning of Period - - - - - - - - - - - -
End of Year $ 160 120 114 204 148 42 13 96 124 119 124 1,264
</TABLE>
See accompanying notes to financial statements
Kansas City Life Variable Annuity Separate Account
Notes to Financial Statements
December 31, 1995
1. Organization and Significant Accounting Policies
Organization
Kansas City Life Variable Annuity Separate Account, marketed as Century II
Variable Annuity, (the Account) is a separate account of Kansas City Life
Insurance Company (KCL). The Account is registered as a unit investment trust
under the Investment C ompany Act of 1940, as amended. Deposits were first
received into the Account in late 1995. All deposits received by the Account
have been directed by the contract owners into subaccounts of three series-type
mutual funds, as listed below, or Kansa s City Life's General Account.
MFS Variable Insurance Trust
MFS Research Series Long-term growth of capital and future income
MFS Emerging Growth Series Long-term growth of capital
MFS Total Return Series Income and opportunities for growth of
capital and income
MFS Bond Series Current income and protection of shareholders'
capital
MFS World Governments Series Preservation and growth of capital with moderate
current income
MFS Utilities Series Capital growth and current income
TCI Portfolio, Inc.
TCI Growth Capital growth through investment in common
stocks
TCI International Capital growth through investment in foreign
securities
Federated Securities - (IMS)
IMS Equity Growth & Inc. Fund Long-term growth of capital
IMS Corporate Bond Fund High current income
IMS Prime Money Fund Current income with stability of principal
and liquidity
Basis of Presentation and Use of Estimates
The inception date of the plan was September 6, 1995. The preparation of
financial statememts requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reinvestment of Dividends
Interest and dividend income and capital gains distributions paid by the mutual
funds to the Account are reinvested in additional shares of each respective
subaccount. Capital gains distributions are recorded as income on the date of
receipt.
Notes to Financial Statements (continued)
Federal Income Taxes
Under current law, no Federal income taxes are payable with respect to the
Account.
Investment Valuation
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The average cost method
is used to determine gains and losses.
The aggregate cost of purchases and proceeds from sales and the number of
shares thereon from September 6, 1995 (inception) to December 31, 1995
follow:
Cost of Proceeds Shares
Purchases from Sales Purchased Sold
(in thousands)
IMS Equity Growth
and Income Fund $158 - 12,501 8
IMS Corporate
Bond Fund 124 5 12,329 17
MS Prime Money Fund 140 26 140,135 25,997
MFS Research Series 203 - 18,717 22
MFS Emerging
Growth Series 149 - 13,019 28
MFS Total
Return Series 42 - 3,428 6
MFS Bond Series 13 - 1,288 5
MFS World
Governments Series 103 - 9,434 6
MFS Utilities Series 130 - 9,861 4
TCI International 122 - 23,274 28
TCI Growth 119 - 9,863 22
2. Accumulation Unit Value
The Accumulation Unit Values and the number of accumulation units outstanding
for each Investment Subaccount for the periods shown are as follows.
Unit Value Number of
as of Units as of
09/06/95 12/31/95 12/31/95
Equity Growth and Income Fund $10.00 10.41 15,359
IMS Corporate Bond Fund 10.00 10.22 11,792
IMS Prime Money Fund 10.00 10.07 11,335
MFS Research Series 10.00 10.48 19,430
MFS Emerging Growth Series 10.00 10.66 13,900
MFS Total Return Series 10.00 10.53 3,981
MFS Bond Series 10.00 10.27 1,273
MFS World Governments Series 10.00 10.17 9,423
MFS Utilities Series 10.00 10.54 11,752
TCI International 10.00 10.16 12,190
TCI Growth 10.00 9.89 11,998
Notes to Financial Statements (continued)
3. Variable Annuity Contract Charges
KCL deducts an administrative fee of $30 per year for each contract under
$50,000. Mortality and expense risks assumed by KCL are compensated for by a
fee equivalent to an annual rate of 1.25 percent of the asset value of each
contract, of which 0.7 0 percent is for assuming mortality risks and 0.55
percent is for expense risk. Additionally, KCL is compensated for
administration expenses by a fee equivalent to an annual rate of 0.15 percent of
the asset value of each contract.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law upon surrender, when the proceeds are applied to a payment
option or if a lump sum payment is made.
Other charges are deducted from each contract when certain events occur, such as
the seventh fund transfer in a contract year or the second transfer of funds
from the Fixed Account in a contract year.
A contingent deferred sales charge is assessed against certain withdrawals
during the first seven years of the contract, declining from 7 percent in the
first three years to 2 percent in the seventh year. During 1995, there were no
surrender charges and other contract charges totaled $2,000.
Report of Independent Auditors
The Contract Owners of Kansas City Life Variable
Annuity Separate Account and The Board of Directors
of Kansas City Life Insurance Company
We have audited the accompanying balance sheet of Kansas City Life Variable
Annuity Separate Account (the Company) as of December 31, 1995, and the related
statement of operations and changes in net assets for the period from
September 6, 1995 (inception) to December 31, 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 audit.
We conducted our audit 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. Our procedures
included confirmation of investments owned as of December 31, 1995, by
correspondence with the custodian. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kansas City Life Variable
Annuity Separate Account at December 31, 1995, and the results of its operations
and changes in i ts net assets for the period from September 6, 1995 (inception)
to December 31, 1995, in conformity with generally accepted accounting
principles.
March 8, 1996
/s/ Ernst & Young LLP
Consolidated Income Statement
(Thousands, except per share data)
1995 1994 1993
Revenues
Insurance revenues:
Premiums:
Life insurance $101 341 103 324 99 941
Accident and health 29 475 30 896 29 988
Contract charges 74 642 69 607 66 900
Investment revenues:
Investment income, net 188 087 173 388 163 237
Realized gains, net 4 950 6 060 24 648
Other 10 290 10 179 9 609
Total revenues 408 785 393 454 394 323
Benefits and Expenses
Policy benefits:
Death benefits 85 388 79 829 72 128
Surrenders of life insurance 16 345 16 490 15 525
Other benefits 53 441 54 146 50 680
Increase in benefit and contract reserves 89 139 83 158 96 188
Amortization of policy acquisition costs 27 992 29 370 22 350
Insurance operating expenses 76 535 73 043 73 990
Interest expense 22 444 926
Total benefits and expenses 348 862 336 480 331 787
Income before Federal income taxes 59 923 56 974 62 536
Federal income taxes:
Current 22 038 22 845 27 772
Deferred (3 853) (4 729) (7 290)
18 185 18 116 20 482
Income before nonrecurring item 41 738 38 858 42 054
Postemployment benefits, net - 1 481 -
Net income $ 41 738 37 377 42 054
Per common share:
Income before nonrecurring item $6.76 6.32 6.84
Postemployment benefits, net - .24 -
Net income $6.76 6.08 6.84
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheet
1995 1994
Assets
Investments:
Fixed maturities:
Available for sale, at fair value (cost
$1,604,415,000; $1,400,616,000 -1994) $1 647 674 1 309 297
Held to maturity, at amortized cost
(fair value $339,911,000; $398,736,000 -1994) 320 394 395 886
Equity securities available for sale, at fair value
(cost $62,352,000; $77,533,000 -1994) 70 837 82 251
Mortgage loans on real estate, net 235 213 267 695
Real estate, net 48 542 54 976
Real estate joint ventures 36 103 26 120
Policy loans 94 312 95 854
Short-term 36 898 19 340
Total investments 2 489 973 2 251 419
Cash 9 612 7 250
Accrued investment income 40 923 39 480
Receivables, net 7 228 9 088
Property and equipment, net 27 866 28 805
Deferred acquisition costs 192 476 193 667
Value of purchased insurance in force 39 084 40 015
Reinsurance assets 89 983 88 887
Other 6 623 5 142
$2 903 768 2 663 753
Liabilities and Stockholders' Equity
Future policy benefits:
Life insurance $ 658 350 643 672
Accident and health 27 379 26 986
Accumulated contract values 1 518 968 1 459 045
Policy and contract claims 31 919 32 548
Other policyowners' funds:
Dividend and coupon accumulations 42 610 42 737
Other 56 206 52 228
Income taxes:
Current 2 796 538
Deferred 43 230 3 608
Other 65 183 58 696
Total liabilities 2 446 641 2 320 058
Stockholders' equity:
Common stock, par value $2.50 per share
Authorized 18,000,000 shares, issued 9,248,340 shares 23 121 23 121
Paid-in capital 13 039 11 847
Unrealized gains (losses) on securities
available for sale and equity securities, net 29 740 (51 345)
Retained earnings 477 826 446 149
Less treasury stock, at cost
(3,070,435 shares; 3,085,904 shares - 1994) (86 599) (86 077)
Total stockholders' equity 457 127 343 695
$2 903 768 2 663 753
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Equity
1995 1994 1993
Common stock, beginning and end of year $ 23 121 23 121 23 121
Paid-in-capital:
Beginning of year 11 847 10 597 9 342
Excess of proceeds over cost of treasury stock sold 1 192 1 250 1 255
End of year 13 039 11 847 10 597
Unrealized gains (losses) on securities:
Beginning of year (51 345) 13 501 15 298
Unrealized appreciation on cumulative effect
of accounting change, net - 14 627 -
Unrealized appreciation (depreciation) on securities
available for sale, net 81 085 (79 473) (1 797)
End of year 29 740 (51 345) 13 501
Retained earnings:
Beginning of year 446 149 417 381 383 685
Net income 41 738 37 377 42 054
Stockholder dividends of $1.63 per share
($1.40 - 1994 and $1.36 - 1993) (10 061) (8 609) (8 358)
End of year 477 826 446 149 417 381
Treasury stock, at cost:
Beginning of year (86 077) (85 643) (84 258)
Cost of 17,240 shares acquired
(17,329 shares -1994 and 31,594 shares - 1993) (829) (771) (1 661)
Cost of 32,709 shares sold (35,890
shares - 1994 and 29,301 shares - 1993) 307 337 276
End of year (86 599) (86 077) (85 643)
Total stockholders' equity $457 127 343 695 378 957
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows
1995 1994 1993
Operating Activities
Net income $ 41 738 37 377 42 054
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (5 215) (3 882) (5 590)
Depreciation 5 265 5 165 4 638
Policy acquisition costs capitalized (40 388) (43 952) (50 574)
Amortization of deferred policy
acquisition costs 27 992 29 370 22 350
Realized gains (4 950) (6 060) (24 648)
Changes in assets and liabilities:
Future policy benefits 15 071 15 747 22 793
Accumulated contract values 8 135 8 445 19 822
Accrued investment income (1 443) (2 611) (1 705)
Income taxes payable and deferred (1 595) (4 784) (12 295)
Postemployment benefits, net - 1 481 -
Other, net 9 613 5 456 6 166
Net cash from operating activities 54 223 41 752 23 011
Investing Activities
Investments called, matured or repaid:
Fixed maturities available for sale 136 574 203 640 -
Fixed maturities held to maturity 63 433 75 060 809 347
Equity securities available for sale 13 727 27 876 55 026
Mortgage loans on real estate 67 722 35 311 49 151
Decrease in policy loans, net 1 542 1 929 4 927
Other 3 342 540 2 899
Investments sold:
Fixed maturities available for sale 165 563 51 124 -
Fixed maturities held to maturity 4 207 - 206 923
Equity securities available for sale 18 984 3 488 36 236
Investments purchased or originated:
Fixed maturities available for sale (495 766) (574 667) -
Fixed maturities held to maturity - (21 533) (1 221 873)
Equity securities available for sale (12 896) (5 566) (25 425)
Real estate joint ventures (8 093) (5 707) (10 661)
Mortgage loans on real estate (31 053) (8 192) (6 468)
Decrease (increase) in short-term
investments, net (17 558) 120 142 29 425
Other (1 068) (1 789) (5 762)
Net additions to property and equipment (2 918) (1 640) (11 370)
Net cash used in investing activities (94 258) (99 984) (87 625)
Financing Activities
Proceeds from borrowings 22 730 891 2 586
Repayment of borrowings (22 730) (11 446) (27 994)
Policyowner contract deposits 179 135 179 411 167 979
Withdrawals of policyowner contract deposits (127 347) (107 354) (70 258)
Cash dividends to stockholders (10 061) (8 609) (8 358)
Disposition (acquisition)
of treasury stock, net 670 816 (130)
Net cash from financing activities 42 397 53 709 63 825
Increase (decrease) in cash 2 362 (4 523) (789)
Cash at beginning of year 7 250 11 773 12 562
Cash at end of year $ 9 612 7 250 11 773
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Amounts in tables are generally stated in thousands, except per share data)
Significant Accounting Policies
Organization
Kansas City Life Insurance Company is a Missouri-domiciled stock life insurance
company which, with its affiliates, is licensed to sell insurance products in 48
states and the District of Columbia. The Company offers a diversified
portfolio of individual insurance, annuity and group products distributed
through numerous general agencies. In recent years, the Company's new business
activities have been concentrated in interest sensitive products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP) and include the
accounts of Kansas City Life Insurance Company and its subsidiaries.
Significant intercompany transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year results to conform with
the current year's presentation. GAAP requires management to make certain
estimates and assumptions which effect amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized as
revenues when due. Accident and health insurance premiums are recognized as
revenues over the terms of the policies. Universal life-type products include
universal life insurance and flexible annuities. Revenues for these products are
amounts assessed against contract values for cost of insurance, policy
administration and surrenders, as well as amortization of deferred front-end
contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a net
level premium method based upon estimates at the time of issue for investment
yields, mortality and withdrawals. These estimates include provisions for
experience less favorable than actually expected. Investment yield assumptions
for new issues are graded and range from 5.75 percent to 7.75 percent.
Mortality assumptions are based on standard mortality tables. The 1965-70 Select
and Ultimate Basic Table is used for business issued since 1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For traditional
life and accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life-type products represent accumulated contract
values, without reduction for potential surrender charges, and deferred front-
end contract charges which are amortized over the term of the policies.
Benefits and claims are charged to expense in the period incurred net of related
accumulated contract values. Interest on accumulated contract values is credited
to contracts as earned. Crediting rates for universal life insurance and
flexible annuity products ranged from 4.79 percent to 7.00 percent during 1995
(4.50 percent to 7.50 percent during 1994 and 4.50 percent to 8.00 percent
during 1993).
Withdrawal assumptions for all products are based on corporate experience.
Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain policy
issue and underwriting expenses and certain variable agency expenses, are
deferred. For traditional life products, deferred acquisition costs are
amortized in proportion to premium revenues over the premium-paying period of
related policies, using assumptions consistent with those used in computing
benefit reserves. Acquisition costs for universal life-type products are
amortized over a period not exceeding 30 years in proportion to estimated
gross profits arising from interest spreads and mortality, expense and surrender
charges expected to be realized over the term of the contracts.
Calls in the securities portfolio resulted in realized gains in 1994 and 1993
which increased gross profits above those originally estimated. Calls and
realized gains related to them were negligible in 1995. In accordance with
Financial Accounting Standards Board (FASB) Statement No. 97, these higher than
expected gross profits required the Company to recompute its amortization of
deferred acquisition costs retrospectively to the date the amortization was
originally determined. This increased the amortization of deferred acquisition
costs $804,000 in 1994 and $3,030,000 in 1993, or $.08 a share in 1994 and $.32
a share in 1993 after taxes. This increased amortization was netted against
realized investment gains in the accompanying income statement.
Value of Purchased Insurance in Force
The value of Old American's purchased insurance in force was capitalized and is
being amortized in proportion to projected future gross profits. This asset was
increased $5,157,000 ($5,310,000 - 1994 and $5,513,000 - 1993) for accrual of
interest and reduced $6,088,000 ($6,636,000 -1994 and $7,217,000 - 1993) for
amortization. A 13 percent interest rate was used. Through 1995, total
accumulated accrual of interest and amortization equal $22,553,000 and
$26,969,000, respectively. The percentage of the asset's current carrying amount
which will be amortized in each of the next five years is 2.7 percent - 1996,
7.1 percent - 1997 and 1998, 7.2 percent - 1999 and 7.4 percent - 2000.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and related
adjustments in deferred acquisition costs, and are included in a separate
stockholders' equity account.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are carried
at depreciated cost. Real estate joint ventures are valued at cost adjusted for
the Company's equity in earnings since acquisition. Policy loans are carried at
cost less payments received. Realized gains and losses on disposals of
investments, determined by the specific identification method, are included in
investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, "Accounting for Income Taxes." Under that method,
deferred tax assets and liabilities are determined based on the differences
between their financial reporting and their tax bases and are measured using the
enacted tax rates.
Income Per Common Share
Income per common share is based upon the weighted average number of shares
outstanding during the year, 6,173,294 shares (6,152,155 shares - 1994 and
6,146,583 shares - 1993).
Statutory Information and Stockholder Dividends Restriction
The Company's earnings, unassigned surplus (retained earnings and stockholders'
equity, on the statutory basis used to report to regulatory authorities, follow.
1995 1994 1993
Net gain from operations for the year $ 29 307 29 151 20 685
Net income for the year 29 484 28 324 24 035
Unassigned surplus at December 31 268 239 235 226 202 538
Stockholders' equity at December 31 217 801 184 117 150 613
Stockholder dividends may not exceed statutory unassigned surplus.
Additionally, under Missouri law, the Company must have the prior approval of
the Missouri Director of Insurance in order to pay a dividend exceeding the
greater of statutory net gain from operations for the preceding year or 10
percent of statutory stockholders' equity at the end of the preceding year.
The maximum payable in 1996 without prior approval is $29,307,000. The Company
believes these statutory limitations impose no practical restrictions on its
dividend payment plans.
The Company is required to deposit a defined amount of assets with state
regulatory authorities. Such assets had an aggregate carrying value of
approximately $100,000,000 in 1995 and 1994.
Investments
Accounting Change
Kansas City Life adopted FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," on January 1, 1994, and classified
73 percent of its securities as available for sale, with the balance
classified as held to maturity. Prior to 1994 fixed maturities were carried at
amortized cost and equity securities were carried at their market value.
Valuing securities available for sale at market increased stockholders' equity
$14,627,000 at January 1, 1994, net of related deferred acquisition costs of
$5,068,000 and taxes of $7,876,000.
Late in 1995, the FASB issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities". This report provides companies with an opportunity for a one-time
reassessment and reclassification of securities as of a single measurement date
without tainting the held to maturity debt securities classification. On
December 31, 1995, the Company reclassified securities with an amortized cost of
$14,737,000 from held to maturity to available for sale which increased
unrealized gains on securities by approximately $185,000, net of related
deferred acquisition costs and taxes.
Currently 84 percent of the Company's securities are categorized as available
for sale and are valued at market. The resulting adjustment causes significant
volatility in these securities' carrying values which affects various
calculations that are dependent on stockholders' equity, such as return on
equity.
Kansas City Life employs no derivative financial instruments.
Investment Revenues
Major categories of investment revenues are summarized as follows.
1995 1994 1993
Investment Income:
Fixed maturities $144 242 127 806 107 880
Equity securities 6 259 7 563 11 971
Mortgage loans 31 378 29 118 33 337
Real estate 12 342 11 732 10 106
Policy loans 6 174 6 295 6 524
Short-term 2 753 4 437 8 192
Other 2 533 2 433 1 785
205 681 189 384 179 795
Less investment expenses (17 594) (15 996) (16 558)
$188 087 173 388 163 237
Realized Gains (Losses):
Fixed maturities $ (1 718) 1 995 19 087
Equity securities 4 634 4 568 11 433
Mortgage loans (108) - (3 500)
Real estate 2 172 300 875
Other (30) 1 (217)
Deferred acquisition cost
amortization for realized gains - (804) (3 030)
$ 4 950 6 060 24 648
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow. Held to maturity
and available for sale securities relate to 1995 and 1994, while fixed
maturities relate only to 1993.
1995 1994 1993
Held to maturity and fixed maturities $ 19 517 2 850 68 670
Available for sale and equity securities $ 51 744 (86 601) 20 771
Deferred income taxes (16 013) 27 661 (7 270)
Effect on deferred acquisition costs (5 991) 7 595 -
$ 29 740 (51 345) 13 501
Increase (decrease) in
net unrealized gains:
Held to maturity and fixed maturities $ 16 667 (65 820) (7 478)
Available for sale fixed maturities $ 78 876 (55 150) -
Available for sale equity securities 2 209 (9 696) (1 797)
$ 81 085 (64 846) (1 797)
Securities
The amortized cost and fair value of investments in securities at December 31,
1995, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 138 372 3 479 253 141 599
Public utility bonds 279 156 7 641 1 612 285 185
Corporate bonds 865 960 29 744 3 609 892 094
Mortgage-backed bonds 242 187 9 350 261 251 276
Other bonds 65 230 609 1 672 64 168
Redeemable preferred stocks 13 510 632 790 13 352
Total fixed maturities 1 604 415 51 455 8 197 1 647 674
Equity securities 62 352 9 345 859 70 837
1 666 767 60 800 9 056 1 718 511
Held to maturity:
Public utility bonds 175 700 13 023 114 188 608
Corporate bonds 138 727 6 969 863 144 834
Other bonds 5 967 511 9 6 469
320 394 20 503 986 339 911
$1 987 161 81 303 10 042 2 058 422
The amortized cost and fair value of investments in fixed maturity and equity
securities at December 31, 1994, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 137 522 567 3 268 134 821
Public utility bonds 305 749 439 21 837 284 351
Corporate bonds 583 648 684 47 437 536 895
Mortgage-backed bonds 263 824 2 683 14 445 252 062
Other bonds 84 687 268 8 323 76 632
Redeemable preferred stocks 25 186 495 1 145 24 536
Total fixed maturities 1 400 616 5 136 96 455 1 309 297
Equity securities 77 533 6 846 2 128 82 251
$1 478 149 11 982 98 583 1 391 548
Held to maturity:
Public utility bonds $203 747 10 079 1 644 212 182
Corporate bonds 174 879 3 285 8 899 169 265
Other bonds 17 260 397 368 17 289
395 886 13 761 10 911 398 736
$1 874 035 25 743 109 494 1 790 284
All fixed maturity securities produced income in 1995.
The distribution of the fixed maturity securities' contractual maturities
follows. However, expected maturities may differ from these contractual
maturities since borrowers may have the right to call or prepay obligations.
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 32 075 32 267
Due after one year through five years 329 480 334 365
Due after five years through ten years 650 309 663 764
Due after ten years 350 364 366 002
Mortgage-backed bonds 242 187 251 276
$1 604 415 1 647 674
Held to maturity:
Due in one year or less $ 48 608 49 527
Due after one year through five years 137 623 148 560
Due after five years through ten years 61 102 65 602
Due after ten years 73 061 76 222
$ 320 394 339 911
Sales of investments in securities available for sale in 1995 and 1994 and fixed
maturity securities in 1993, excluding normal maturities and calls, follow.
1995 1994 1993
Proceeds $184 547 54 612 206 923
Gross realized gains 6 416 1 065 2 480
Gross realized losses 6 527 377 241
During 1995, the Company sold a held to maturity security with an amortized cost
of $4,284,000, resulting in a realized investment loss of $77,000, due to a
perceived significant deterioration in the issuer's credit worthiness.
At December 31, 1995, the Company does not hold securities of any corporation
and its affiliates which exceeded 10 percent of stockholders' equity.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $2,862,000
($3,040,000 - 1994). Mortgage loans are carried net of a valuation reserve of
$10,500,000 in 1995 and 1994.
At December 31, 1995 and 1994, the mortgage portfolio is diversified
geographically and by property type as follows.
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic Region:
Mountain $ 78 843 82 753 102 673 101 589
Pacific 80 334 82 802 84 617 84 509
West South Central 35 541 37 483 38 573 38 252
West North Central 28 172 29 717 28 272 27 778
Other 22 823 24 233 24 060 23 571
Valuation reserve (10 500) (10 500) (10 500) (10 500)
$235 213 246 488 267 695 265 199
Property Type:
Industrial $104 728 109 247 111 946 111 608
Retail 57 246 60 114 64 464 63 631
Office 66 404 69 656 62 496 62 117
Other 17 335 17 971 39 289 38 343
Valuation reserve (10 500) (10 500) (10 500) (10 500)
$235 213 246 488 267 695 265 199
As of December 31, 1995, the Company has commitments which expire in 1996 to
originate mortgage loans of $2,550,000.
Mortgage loans foreclosed upon and transferred to real estate investments during
the year equaled $4,322,000 ($3,391,000 - 1994 and $4,466,000 - 1993).
Real Estate
Detail concerning the Company's real estate investments follows.
1995 1994
Penntower office building, at cost:
Land $ 1 106 1 106
Building 17 543 17 254
Less accumulated depreciation (8 721) (8 134)
Foreclosed real estate, at lower of
cost or net realizable value 22 736 28 904
Other investment properties, at cost:
Land 3 370 3 560
Buildings 24 890 23 875
Less accumulated depreciation (12 382) (11 589)
$ 48 542 54 976
Investment real estate, other than foreclosed properties, is depreciated on a
straight-line basis. Penntower office building is depreciated over 60 years and
all other properties from 10 to 35 years. Foreclosed real estate is carried net
of a valuation allowance of $7,378,000 ($9,942,000 - 1994) to reflect net
realizable value.
The Company held non-income producing real estate equaling $931,000 in 1995 and
1994.
Postretirement Benefit Plans
The Company has defined benefit postretirement plans providing medical benefits
for substantially all its employees, full-time agents, and their dependents, and
life insurance coverage for its employees. The Company and retirees share the
cost of the postretirement medical plan which incorporates cost-sharing
features such as annually adjusted contributions, deductibles and coinsurance.
The medical benefits for agents are contributory, incorporating cost-sharing
features similar to the retired employees' medical plan. The life insurance
benefit is non-contributory. The Company pays the cost of the postretirement
health care benefits as they occur. The Company makes level annual contributions
to its life insurance plan over the plan participants' expected service periods.
The plans' funded status, reconciled with the amounts recognized in the
Company's balance sheet, follows.
1995 1994
Life Life
Medical Insurance MedicaI Insurance
Plans Plan Plans Plan
Accumulated postretirement
benefit obligation:
Retirees $ 5 170 2 063 4 172 1 923
Fully eligible active
plan participants 1 358 422 796 306
Other active plan participants 5 058 786 3 105 537
11 586 3 271 8 073 2 766
Unrecognized net gain (loss) (679) (43) 2 298 306
$10 907 3 228 10 371 3 072
The net periodic postretirement benefit cost included the following components
by plan.
1995 1994 1993
Medical plans:
Service cost $ 274 305 434
Interest cost 669 535 658
Net amortization of experience gains (93) (87) -
$ 850 753 1 092
Life insurance plan:
Service cost $ 40 74 81
Interest cost - - -
$ 40 74 81
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for the medical plans is 12 percent for 1996, the same as for
1995, and is assumed to decrease gradually to 6 percent in 2004. Increasing the
assumed health care cost growth rates by one percentage point increases the
accrued postretirement benefit costs $1,931,000 and $1,119,000 as of December
31, 1995 and 1994, respectively. The aggregate service and interest cost
components of the net periodic postretirement benefit cost for 1995 would
increase $268,000. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0 percent and 8.5
percent at December 31, 1995 and 1994, respectively.
Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all its
employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company annually
funds an amount greater than the minimum required by ERISA but no more than the
maximum deductible for Federal income tax purposes. Contributions provide not
only for benefits attributed to service to date, but also for those expected to
be earned in the future. The table below states the plan's funded status and
those amounts recognized in the Company's financial statements.
1995 1994
Actuarial present value of
accumulated benefit obligation, including vested
benefits of $80,212,000 ($63,829,000 - 1994) $81 769 64 979
Projected benefit obligation for service
rendered to date $96 771 74 093
Plan assets at fair value, primarily
listed corporate and U.S. bonds 85 710 74 098
Plan assets in excess of (less than)
projected benefit obligation (11 061) 5
Items not yet recognized in earnings:
Net loss from past experience 13 885 3 733
Prior service costs 16 18
Net asset at January 1, 1987,
being recognized over 16 years (1 442) (1 648)
Net prepaid pension costs $ 1 398 2 108
1995 1994 1993
Net pension cost includes:
Service costs - benefits earned during the period $ 2 403 3 178 3 156
Interest cost on projected benefit obligation 6 156 5 835 5 367
Actual return on plan assets (14 139) 1 907 (7 631)
Net amortization and deferral 7 412 (8 923) 1 047
Net periodic pension cost $ 1 832 1 997 1 939
Assumptions were as follows:
Weighted average discount rate 7.0% 8.5 7.0
Weighted average compensation increase 5.5 5.5 5.5
Weighted average expected
long-term return on plan assets 9.0 9.0 9.0
The Company made no pension contributions in 1993 and 1994. Contributions for
1995 were $992,000.
Non-contributory defined contribution retirement plans are offered for general
agents and eligible sales agents which provide supplemental payments based upon
earned agency first-year individual life and annuity commissions. Contributions
to these plans were $287,000 ($111,000 - 1994 and $114,000 - 1993). The Company
also sponsors a non-contributory deferred compensation plan for eligible
agents based upon earned first-year commissions. Contributions to this plan were
$405,000 ($377,000 - 1994 and $370,000 - 1993).
Savings plans for eligible employees and agents are sponsored in which the
Company matches employee contributions up to 10 percent of salary and agent
contributions up to 2.5 percent of prior year paid commissions. Contributions to
the plans were $1,826,000 ($1,898,000 - 1994 and $1,839,000 - 1993).
The Company also has a non-contributory trusteed employee stock ownership plan
covering substantially all salaried employees. The Company made no contributions
to this plan between 1993 and 1995.
Kansas City Life adopted FASB Statement No. 112, "Employers'Accounting for
Postemployment Benefits," on January 1, 1994. This statement generally requires
the accrual of liabilities for providing benefits, such as severance and
disability, to former or inactive employees whose employment ended before
becoming eligible for retirement. This accounting change resulted in the
immediate recognition of a $1,481,000 transition liability, net of applicable
income taxes, reported as a 1994 nonrecurring expense. Statement No. 112 did not
materially effect 1995 and 1994 operating expenses.
Property and Equipment
1995 1994
Land $ 1 029 1 029
Home office buildings 23 122 23 262
Furniture and equipment 26 382 23 552
50 533 47 843
Less accumulated depreciation (22 667) (19 038)
$27 866 28 805
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method. Home office buildings are depreciated over 25 to 50 years
and furniture and equipment over 3 to 10 years, their estimated useful lives.
Federal Income Taxes
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
1995 1994 1993
Federal income tax rate 35 % 35 35
Special tax credits (4) (2) (1)
Other permanent differences (1) (1) (1)
Actual income tax rate 30 % 32 33
Due to a Federal income tax rate change from 34 percent to 35 percent during
1993, the Company had a charge of $900,000 to 1993 earnings. There were no such
tax rate changes in 1994 and 1995.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below.
1995 1994
Deferred tax assets:
Future policy benefits $ 43 906 41 118
Basis differences between tax and
GAAP accounting for investments - 9 580
Employee retirement benefits 11 598 10 753
Other 3 073 3 286
Gross deferred tax assets 58 577 64 737
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 47 321 51 151
Basis differences between tax and
GAAP accounting for investments 38 933 -
Property and equipment, net 2 073 2 167
Value of insurance in force 12 116 12 405
Other 1 364 2 622
Gross deferred tax liabilities 101 807 68 345
Net deferred tax liability $ 43 230 3 608
Federal income taxes paid for the year were $19,981,000 ($22,684,000 - 1994 and
$33,191,000 - 1993).
Policyowners' surplus, which is frozen under the Deficit Reduction Act of 1984,
is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life and $13,700,000
for Old American. The Companies do not plan to distribute their policyowners'
surplus. Consequently, the possibility of such surplus becoming subject to tax
is remote, and no provision has been made in the financial statements for taxes
thereon. Should the balance in policyowners' surplus become taxable, the tax
computed at current rates would approximate $19,950,000.
Income taxed on a current basis is accumulated in "shareholders' surplus" and
can be distributed to stockholders without tax to the Company. At year-end 1995
this shareholders' surplus was $304,545,000 for Kansas City Life, $59,474,000
for Sunset Life and $31,218,000 for Old American.
Separate Accounts
These accounts arise from the variable line of business. Their assets are
legally segregated and are not subject to the claims which may arise from any
other business of the Company. These assets are reported at fair value since the
underlying investment risks are assumed by the policyowners. Therefore the
related liabilities are recorded at amounts equal to the underlying assets.
Investment income and gains or losses arising from separate accounts accrue
directly to the policyowners and are, therefore, not included in investment
earnings in the accompanying income statement. Revenues to the Company from
separate accounts consist principally of contract maintenance charges,
administrative fees and mortality and risk charges. Separate account assets and
liabilities each equaled $1,264,000
(none - 1994).
Reinsurance
1995 1994 1993
Life Insurance in Force (in millions):
Direct $20 991 19 988 18 990
Ceded (2 442) (2 073) (1 616)
Assumed 33 36 39
Net $18 582 17 951 17 413
Premiums:
Life insurance:
Direct $124 504 126 652 121 577
Ceded (23 292) (23 538) (21 829)
Assumed 129 210 193
Net $101 341 103 324 99 941
Accident and health:
Direct $ 42 971 42 709 41 529
Ceded (13 496) (11 956) (11 788)
Assumed - 143 247
Net $ 29 475 30 896 29 988
Contract charges arise generally from directly issued business. Ceded benefit
recoveries were $27,613,000 ($27,365,000 - 1994 and $30,487,000 - 1993).
Old American has a coinsurance agreement with Employers Reassurance Corporation
which reinsures certain whole life policies issued by Old American prior to
December 1, 1986. As of December 31, 1995, these policies had a face value of
$161,855,000. The reserve for future policy benefits ceded under this agreement
was $53,649,000 ($54,686,000 - 1994).
The maximum retention on any one life is $350,000. A contingent liability exists
with respect to reinsurance, which may become a liability of the Company in the
unlikely event that the reinsurers should be unable to meet obligations assumed
under reinsurance contracts.
Fair Value of Financial Instruments
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for securities held to maturity are based on quoted market prices,
where available. For those securities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in
the case of private placements, are estimated by discounting expected future
cash flows using a current market rate applicable to the yield, credit quality
and maturity of the investments. The fair values for securities available for
sale are based on quoted market prices. Fair values for mortgage loans are based
upon discounted cash flow analyses using an interest rate assumption of 2
percent above the comparable U.S. Treasury rate.
Fair values for the Company's liabilities under investment-type insurance
contracts, included with accumulated contract values for flexible annuities and
with other policyholder funds for supplementary contracts without life
contingencies, are estimated to be their cash surrender values.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the financial instruments follow.
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available for sale $1 718 511 1 718 511 1 391 548 1 391 548
Securities held to maturity 320 394 339 911 395 886 398 736
Mortgage loans 235 213 246 488 267 695 265 199
Liabilities:
Individual and group annuities 871 340 842 809 851 847 822 946
Supplementary contracts without
life contingencies 23 343 23 343 22 403 22 403
The Investments Note provides further details regarding the investments above.
Quarterly Consolidated
Financial Data (unaudited)
First Second Third Fourth
1995:
Total revenues $98 733 100 356 103 041 106 655
Operating income $10 960 9 255 8 166 10 140
Realized gains, net 68 27 2 278 844
Net income $11 028 9 282 10 444 10 984
Per common share:
Operating income $ 1.78 1.50 1.32 1.64
Realized gains, net .01 - .37 .14
Net income $ 1.79 1.50 1.69 1.78
1994:
Total revenues $98 478 98 688 98 174 98 114
Operating income $ 8 978 9 381 9 855 6 705
Realized gains, net 1 020 1 504 1 383 32
Income before nonrecurring item 9 998 10 885 11 238 6 737
Postemployment benefits, net 1 481 - - -
Net income $ 8 517 10 885 11 238 6 737
Per common share:
Operating income $ 1.46 1.53 1.60 1.09
Realized gains, net .17 .23 .23 .01
Income before
nonrecurring item 1.63 1.76 1.83 1.10
Postemployment benefits, net .24 - - -
Net income $ 1.39 1.76 1.83 1.10
Contingent Liability
In April 1994, an Oklahoma jury returned a $10.7 million verdict against the
Company, consisting of actual and punitive damages. The case arose out of
certain alleged actions by one of the Company's agents. The Company appealed the
adverse jury verdict citing that the trial court committed numerous errors in
the conduct of the trial, determination of issues of evidence, rulings on
dispositive motions, and in jury instructions. On January 16, 1996, a division
of the Oklahoma Appellate Court issued an opinion affirming a judgment of $1.3
million. While the opinion substantially reduced the jury verdict, the Company
believes this award should be further reduced and has filed a petition for
certiorari with the Oklahoma Supreme Court. It is anticipated that the
plaintiffs will also petition for certiorari to seek reinstatement of the
original verdict. Management believes that damages, if any, related to this
matter would not have a material effect on the Company's consolidated results of
operations and financial position.
In addition to the above case, the Company and certain of its subsidiaries are
defendants in various lawsuits involving claims and disputes with policyowners
that often include claims seeking punitive damages. Some of these lawsuits arise
in jurisdictions such as Alabama where juries sometimes award punitive damages
grossly disproportionate to the actual damages alleged. Although no assurances
can be given and no determinations can be made at this time as to the outcome of
any particular lawsuit or proceeding, the Company and its subsidiaries believe
that there are meritorious defenses for all of these claims and are
defending them vigorously. Management believes that the amounts that would
ultimately be paid, if any, would have no material effect on the Company's
consolidated results of operations and financial position.
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheets of Kansas City Life
Insurance Company (the Company) as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These consolidated
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 consolidated financial statements referred to above
present fairly, in all material aspects, the consolidated financial position of
Kansas City Life Insurance Company at December 31, 1995 and 1994 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. As discussed in the Notes to the financial
statements, the Company changed its method of accounting for investments and
postemployment benefits in 1994.
/s/ Ernst & Young LLP
Kansas City, Missouri
January 22, 1996
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
(1) Resolutions of the board of directors of Kansas City Life
Insurance Company ("Kansas City Life") establishing Kansas City
Life Variable Annuity Separate Account (the "Variable
Account").*
(2) Not Applicable.
(3) Underwriting Agreement between Kansas City Life and Sunset
Financial Services, Inc. ("Sunset Financial").**
(4) Contract Form.*
(5) Contract Application.**
(6) (a) Articles of Incorporation of Bankers Life Association of
Kansas City.*
(b) Restated Articles of Incorporation of Kansas City Life.*
(c) By-Laws of Kansas City Life.*
(7) Not Applicable.
(8) (a) Form of Participation Agreement with MFS Variable
Insurance Trust.**
(b) Form of Participation Agreement with TCI Portfolios,
Inc.**
(c) Form of Participation Agreement with Federated Insurance
Series.**
(9) Opinion and Consent of Counsel.
(10) (a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Ernst & Young LLP.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of performance quotations.
(14) Not applicable.
________________
*Incorporated by reference to the Registrant's initial registration
statement filed with the Securities and Exchange Commission on March 3,
1995 (File No. 33-89984).
**Incorporated by reference to the Registrant's Pre-Effective
Amendment No.1 to its Registration statement filed with the
Securities and Exchange Commission on August 25, 1995
(File No. 33-89984).
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Position and Offices with Depositor
Joseph R. Bixby Director, Chairman of the Board
W. E. Bixby Director, Vice Chairman of the Board,
President and CEO
Robert Philip Bixby Director, Executive Vice President
Richard L. Finn Director, Senior Vice President, Finance
Jack D. Hayes Director, Senior Vice President,
Marketing
Francis P. Lemery Director, Senior Vice President, Actuary
Robert C. Miller Senior Vice President, Administrative
Services
Charles R. Duffy, Jr. Senior Vice President, Operations
Michael P. Horton Vice President, Group
John K. Koetting Vice President and Controller
C. John Malacarne Director, Vice President, General
Counsel and Secretary
Walter E. Bixby, III Director
Ronald E. Hiatt Treasurer
Daryl D. Jensen Director
Nancy Bixby Hudson Director
David D. Dysart Director
Webb R. Gilmore Director
Warren J. Hunzicker, M.D. Director
Michael J. Ross Director
E. Larry Winn Jr. Director
Scott M. Stone Assistant Vice President, Director,
Securities
Mark A. Milton Vice President and Associate Actuary
Glenda R. Cline Assistant Vice President, Tax and
Qualified Plan Administration
Robert J. Milroy Vice President, Customer Services
Robert Janes Assistant Vice President, Assistant
Controller
David Laird Assistant Vice President, Assistant
Controller
Jeffrey Murphy Accounting Director
* The principal business address of all the persons listed above is
3520 Broadway, Kansas City, Missouri 64141-6139.
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
Percent of Voting
Name Jurisdiction Securities Owned Principal Business
Sunset Life Insurance Washington Ownership of all voting Insurance
Company of America securities by depositor
Sunset Financial Ownership of all voting
Services, Inc. Washington securities by Sunset Life
Insurance Company of
America Broker/Dealer
KCL Service Ownership of all voting
Company Missouri securities by depositor Marketing Insurance
Lioness Realty Ownership of all voting Real Estate
Group, Inc. Missouri securities by depositor Services
Property Operating Ownership of all voting Real Estate
Company Missouri securities by depositor Services
Old American Ownership of all voting
Insurance Company Missouri securities by depositor Insurance
Item 27. Number of Contract owners
238--As of April 24, 1996
Item 28. Indemnification
The By-Laws of Kansas City Life Insurance Company provide, in part, in
Article XII:
1. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the Company, by reason of the fact
that he or she is or was a Director, Officer or employee of the Company, or is
or was serving at the request of the Company as a Director, Officer or employee
of another company, partner ship, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or sh e acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
2. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the company to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer or employee of
the company, or is or was serving at the request of the company as a director,
officer or employee of another company, partnership, joint venture, trust or
other enterprise against expe nses, including attorneys' fees, actually and
reasonably incurred by him or her in connection with the defense or settlement
of the action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
company; except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his or her duty to the
company unless and only to the extent that the court in which the action or suit
was brought determines upon application that, despite the adjudication of
liability and in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
3. To the extent that a Director, Officer or employee of the Company
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, iss ue or matter therein, he or she shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him or
her in connection with the action, suit or proceeding.
4. Any indemnification under Sections 1 and 2 of this Article, unless
ordered by a court, shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director, Officer
or employee is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in this Article. The determination
shall be made by the Board of Directors of the Company by a majority vote of a
quorum consisting of Directors who w ere not parties to the action, suit or
proceeding, or, if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, or by the Stockholders of the Company .
5. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Company in advance of the final disposition of the
action, suit or proceeding as authorized by the Board of Directors in the
specific case up on receipt of an undertaking by or on behalf of the Director,
Officer or employee to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the Company as
authorized in this Article.
6. The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the Articles of Incorporation or Bylaws, or any agreement, vote
of Stockholders or disinterested Directors or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
7. The Company shall have the power to give any further indemnity, in
addition to the indemnity authorized or contemplated under this Article,
including subsection 6, to any person who is or was a Director, Officer,
employee or agent of the Company, or to any person who is or was serving at the
request of the Company as a Director, Officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, provided
such further indemnity is either (i) autho rized, directed, or provided for in
the Articles of Incorporation of the Company or any duly adopted amendment
thereof or (ii) is authorized, directed, or provided for in any bylaw or
agreement of the Company which has been adopted by a vote of the Stockholders of
the Company, and provided further that no such indemnity shall indemnify any
person from or on account of such person's conduct which was finally adjudged to
have been knowingly fraudulent, deliberately dishonest, or willful misconduct .
Nothing in this paragraph shall be deemed to limit the power of the Company
under subsection 6 of this Bylaw to enact Bylaws or to enter into agreement
without Stockholder adoption of the same.
8. The Company may purchase and maintain insurance on behalf of any
person who is or was a Director, Officer, employee or agent of the Company, or
is or was serving at the request of the Company as a Director, Officer, employee
or agent of a nother corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, or arising out of his or her status as such,
whether or not the Company would have the power to indemnify him or her against
such liability under the provisions of this Article.
9. For the purpose of this Article, references to "the Company" include
all constituent corporations absorbed in a consolidation or merger as well as
the resulting or surviving corporation so that any person who is or was a
Director, Officer , employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a Director,
Officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stan d in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he or
she would if he or she had served the resulting or surviving corporation in the
same capacity.
10. For purposes of this Article, the term "other enterprise" shall
include employee benefit plans; the term "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and the term
"serving at the r equest of the Company" shall include any service as a
Director, Officer or employee of the Company which imposes duties on, or
involves services by, such Director, Officer or employee with respect to an
employee benefit plan, its participants, or ben eficiaries; and a person who
acted in good faith and in a manner he or she reasonable believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Article.
11. Any Director, Officer or employee of the Company shall be
indemnified under this Article for any act taken in good faith and upon reliance
upon the books and records of the Company, upon financial statements or other
reports prepared by the Officers of the Company, or on financial statements
prepared by the Company's independent accountants, or on information or
documents prepared or provided by legal counsel to the Company.
12. To the extent that the indemnification of Officers, Directors or
employees as permitted under Section 351.355 (as amended or superseded) of The
General and Business Corporation Law of Missouri, as in effect from time to
time, provides for greater indemnification of those individuals than the
provisions of this Article XII, then the Company shall indemnify its Directors,
Officers, employees as provided in and to the full extent allowed by Section
351.355.
13. The indemnification provided by this Article shall continue as to a
person who has ceased to be a Director or Officer of the Company and shall
inure to the benefit of the heirs, executors, and administrators of such a
person. All rights to indemnification under this Article shall be deemed to be
provided by a contract between the Company and the person who serves in such
capacity at any time while these Bylaws and other relevant provisions of the
applicable law, if any, are in effect. Any repeal or modification thereof
shall not affect any rights or obligations then existing.
14. If this Article or any portion or provision hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each person entitled to indemnification
pursuant too this Article to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated, or to the fullest
extent provided by any other applicable law.
Missouri law authorizes Missouri corporations to provide indemnification
to directors, officers and other persons.
Kansas City Life owns a directors and officers liability insurance
policy covering liabilities that directors and officers of Kansas City Life and
its subsidiaries and affiliates may incur in acting as directors and officers.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) Sunset Financial Services, Inc. is the registrant's principal
underwriter.
(b) Officers and Directors of Sunset Financial.
Name and Principal Positions and Offices
Business Address* With the Underwriter
Gregory E. Smith President, Director
Daryl D. Jensen Vice President, Director
Michael P. McKennedy Vice President
Barney D. White Vice President, Director
Gary Hoffman Secretary
Robert E. Janes Treasurer
Jack D. Hayes Chairman of the Board and Director
Walter E. Bixby, III Director
Bret L. Benham Assistant Vice President
Billy J. Dahle Assistant Vice President
Julie E. Gay Assistant Vice President
Kelly T. Ullom Assistant Vice President
Ronald E. Hiatt Assistant Treasurer
* The principal business address of all of the persons listed above is
3200 Capitol Boulevard South, Olympia, Washington 98501-3396.
Item 30. Location Books and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Kansas City Life at 3520 Broadway, Kansas City,
Missouri 64141-6139.
Item 31. Management Services
All management contracts are discussed in Part A or Part B of this
registration statement.
Item 32. Undertakings and Representations
(a) The registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement are never
more than 16 months old for as long as purchase payments under the policies
offered herein are being accepted.
(b) The registrant undertakes that it will include either (1) as
part of any application to purchase a policy offered by the prospectus, a space
that an applicant can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or included in the
prospectus that the applicant can remove and send to Kansas City Life for a
Statement of Additional Information.
(c) The registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request to Kansas City Life at the
address or phone number listed in the prospectus.
(d) Kansas City Life represents that in connection with its offering
of the policies as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it is
relying on a no-action le tter dated November 28, 1988, to the American Council
of Life Insurance (Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and
27(d) of the Investment Company Act of 1940, and that paragraphs numbered (1)
through (4) of that letter will be compli ed with.
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the registrant has caused this registration statement to be signed on
its behalf, in the City of Kansas City, and the State of Missouri, on this ___
day of Apri l, 1996.
KANSAS CITY LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT (Registrant)
Attest: /s/C. J. Malacarne By: /s/W. E.Bixby ___________
_________________,
President
Kansas City Life Insurance
Company
BY: KANSAS CITY LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/C. J. Malacarne By: /s/W. E. Bixby_____________
___________________________
President
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the duties
indicated.
Signature Title Date
/s/W. E. Bixby_____ Vice Chairman of the Board, April 22, 1996
W. E. Bixby President, CEO, and Director
(Principal Executive Officer)
/s/Richard L. Finn_ Senior Vice President, Finance April 22, 1996
Richard L. Finn (Principal Financial Officer)
/s/John K. Koetting Vice President and Controller April 22, 1996
John K. Koetting (Principal Accounting Officer)
/s/R. Philip Bixby__ Senior Vice President, Operations April 22, 1996
R. Philip Bixby and Director
/s/Jack D. Hayes____ Senior Vice President, Marketing April 22, 1996
Jack D. Hayes and Director
/s/W. E. Bixby, III_ Director April 22, 1996
W. E. Bixby, III
/s/Richard L. Finn___ Director April 22, 1996
Richard L. Finn
/s/Daryl D. Jensen____ Director April 22, 1996
Daryl D. Jensen
/s/Francis P. Lemery___ Director April 22, 1996
Francis P. Lemery
/s/C. John Malacarne____ Director
C. John Malacarne April 22, 1996
/s/Nancy Bixby Hudson____ Director April 22, 1996
Nancy Bixby Hudson
/s/David D. Dysart________ Director April 22, 1996
David D. Dysart
__________________________ Director April 22, 1996
Webb R. Gilmore
/s/Warren J. Hunzicker_____ Director April 22, 1996
Warren J. Hunzicker, M.D.
/s/Michael J. Ross____________ Director April 22, 1996
Michael J. Ross
/s/E. Larry Winn Jr.___________ Director April 22, 1996
E. Larry Winn Jr.
_______________________________ Director April 22, 1996
J.R. Bixby
Pursuant to the requirements of Rule 485(b) under the Investment Company Act
of 1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment to its Registration Statement.
KANSAS CITY LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT
By: /s/ C. John Malacarne
C. John Malacarne
Vice President, General Counsel and Secretary
EXHIBIT INDEX
Page No.*
9. Opinion and Consent of Counsel
10(a). Consent of Sutherland, Asbill & Brennan
10(b). Consent of Ernst & Young LLP.
13. Schedule for computation of performance quotations.
* Page numbers included only in manually executed original in compliance with
Rule 403(d) under the Securities Act of 1933.
Exhibit 9
Opinion and Consent of Counsel
Exhibit 10(a)
Consent of Sutherland, Asbill & Brennan
Exhibit 10(b)
Consent of Ernst & Young LLP.
April 24, 1996
Kansas City Life Insurance Company
3520 Broadway
Kansas City MO 64111
Re: Registration Statement
To Whom It May Concern:
In connection with the proposed registration under the Securities Act of
1933, as amended, of individual variable annuity contracts ("the Contracts") and
interest in the Kansas City Life Annuity Separate Account (the "Separate
Account"), I have examined the documents relating to the establishment of the
Separate Account by the Board of Directors of Kansas City Life Insurance Company
(the "Company") as a separate account for assets applicable to variable annuity
contracts, pursuant to Section 376.309 RSMo., as amended, and the Registration
Statement, on Form N-4 (the "Registration Statement"), and I have examined such
other documents and reviewed such matters of law as I deem necessary for this
opinion, and I advise you that in my opinion:
1. The Separate Account is a separate account of the Company duly
created and validly existing pursuant to the laws of the State of
Missouri.
2. The Contracts, when issued in accordance with the Prospectus
constituting a part of the Registration Statement and upon
compliance with applicable local law, will be legal and binding
obligations of the Company in accordance with their re spective
terms.
3. The portion of the assets held in the Separate Account equal to
reserves and other contract liabilities with respect to the Separate
Account are not chargeable with liabilities arising out of any other
business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of my name under the heading "Legal Matters"
in the Prospectus constituting a part of the Registration Statement and to the
references to me where ver appearing therein.
Yours very truly,
/s/ C. John Malacarne
C. John Malacarne
Ehibit 10(a)
Consent of Sutherland, Asbill & Brennan
[Sutherland, Asbill & Brennan]
April 30, 1996
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64141-6139
Re: Kansas City Life Variable Annuity Separate Account
File No. 33-89984
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Staetment of Additional Information filed as part of Post-
Effective Amendment No. 1 to the Form N-4 Registration Statement for Kansas
City Variable Annuity Separate Account. In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
/s/ Stephen E. Roth
Stephen E. Roth
Exhibit 10(b)
Consent of Ernst & Young LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts," to the
use of our report dated January 22, 1996, with respect to the consolidated
financial statements of Kansas City Life Insurance Company and to the use
of our report dated March 8, 1996 with respect to the financial statements
of Kansas City Life Variable Annuity Separate Account, included in the
Post-effective Amendment No. 1 to the Registration Statement
(Form N-4 No. 33-89984) and the related Statement of Additional
Information accompanying the Prospectus.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 29, 1996
<TABLE>
Exhibit 13
Schedule for computation of performance quotations.
MFS Utilities
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 2.400% 0.125% 1,022.75
2/ 1995 0.980% 0.125% 1,031.49
3/ 1995 -0.580% 0.125% 1,024.22
4/ 1995 3.790% 0.125% 1,061.76
5/ 1995 3.370% 0.125% 1,096.21
6/ 1995 2.090% 0.125% 1,117.75
7/ 1995 4.350% 0.125% 1,164.98
8/ 1995 1.450% 0.125% 1,180.42
9/ 1995 4.610% 0.125% 1,233.36
10/ 1995 1.200% 0.125% 1,246.62
11/ 1995 1.660% 0.125% 1,265.75
12/ 1995 4.400% 0.125% 1,319.86
12 31.99% 6.30% 23.67%
</TABLE>
<TABLE>
MFS Total
Return
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 0.500% 0.125% 1,003.75
2/ 1995 3.180% 0.125% 1,034.41
3/ 1995 1.830% 0.125% 1,052.05
4/ 1995 2.270% 0.125% 1,074.62
5/ 1995 3.980% 0.125% 1,116.04
6/ 1995 0.890% 0.125% 1,124.58
7/ 1995 0.970% 0.125% 1,134.08
8/ 1995 1.140% 0.125% 1,145.60
9/ 1995 3.370% 0.125% 1,182.77
10/ 1995 -0.250% 0.125% 1,178.33
11/ 1995 4.440% 0.125% 1,229.18
12/ 1995 2.200% 0.125% 1,254.69
12 25.47% 6.30% 17.56%
</TABLE>
<TABLE>
MFS
World Government
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C> <S>
1,000.00
1/ 1995 0.920% 0.125% 1,007.95
2/ 1995 2.120% 0.125% 1,028.06
3/ 1995 5.140% 0.125% 1,079.62
4/ 1995 0.470% 0.125% 1,083.34
5/ 1995 1.780% 0.125% 1,101.27
6/ 1995 0.280% 0.125% 1,102.98
7/ 1995 -0.180% 0.125% 1,099.61
8/ 1995 -1.470% 0.125% 1,082.07
9/ 1995 1.210% 0.125% 1,093.81
10/ 1995 1.470% 0.125% 1,108.53
11/ 1995 1.720% 0.125% 1,126.21
12/ 1995 0.200% 0.125% 1,127.05
12 12.71% 6.30% 5.60%
</TABLE>
<TABLE>
TCI
International
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 -5.680% 0.125% 941.95
2/ 1995 0.890% 0.125% 949.16
3/ 1995 2.880% 0.125% 975.31
4/ 1995 3.440% 0.125% 1,007.64
5/ 1995 1.660% 0.125% 1,023.10
6/ 1995 1.020% 0.125% 1,032.26
7/ 1995 4.860% 0.125% 1,081.14
8/ 1995 -3.090% 0.125% 1,046.38
9/ 1995 3.190% 0.125% 1,078.45
10/ 1995 -0.580% 0.125% 1,070.85
11/ 1995 0.000% 0.125% 1,069.51
12/ 1995 3.500% 0.125% 1,105.61
12 10.56% 6.30% 3.60%
</TABLE>
<TABLE>
TCI
Growth
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 -2.060% 0.125% 978.15
2/ 1995 3.660% 0.125% 1,012.73
3/ 1995 4.180% 0.125% 1,053.79
4/ 1995 2.880% 0.125% 1,082.83
5/ 1995 2.900% 0.125% 1,112.87
6/ 1995 6.700% 0.125% 1,186.05
7/ 1995 7.640% 0.125% 1,275.18
8/ 1995 1.010% 0.125% 1,286.46
9/ 1995 4.850% 0.125% 1,347.25
10/ 1995 -2.790% 0.125% 1,307.98
11/ 1995 0.160% 0.125% 1,308.43
12/ 1995 -1.150% 0.125% 1,291.75
12 29.18% 6.30% 21.04%
</TABLE>
<TABLE>
IMS
EQUITY GROWTH FUND
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 1.540% 0.125% 1,014.15
2/ 1995 4.040% 0.125% 1,053.85
3/ 1995 3.020% 0.125% 1,084.36
4/ 1995 1.420% 0.125% 1,098.41
5/ 1995 4.020% 0.125% 1,141.19
6/ 1995 1.800% 0.125% 1,160.30
7/ 1995 3.460% 0.125% 1,199.00
8/ 1995 1.460% 0.125% 1,215.01
9/ 1995 3.800% 0.125% 1,259.66
10/ 1995 -0.650% 0.125% 1,249.90
11/ 1995 4.610% 0.125% 1,305.95
12/ 1995 1.030% 0.125% 1,317.77
12 31.78% 6.30% 23.48%
</TABLE>
<TABLE>
IMS
CORPORATE BOND FUND
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 1.240% 0.125% 1,011.15
2/ 1995 3.370% 0.125% 1,043.96
3/ 1995 0.940% 0.125% 1,052.47
4/ 1995 2.690% 0.125% 1,079.47
5/ 1995 2.420% 0.125% 1,104.24
6/ 1995 0.380% 0.125% 1,107.06
7/ 1995 1.990% 0.125% 1,127.70
8/ 1995 0.400% 0.125% 1,130.80
9/ 1995 1.470% 0.125% 1,146.01
10/ 1995 1.450% 0.125% 1,161.20
11/ 1995 0.720% 0.125% 1,168.11
12/ 1995 1.650% 0.125% 1,185.92
12 18.59% 6.30% 11.12%
</TABLE>
<TABLE>
IMS PRIME MONEY FUND
One Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 0.380% 0.125% 1,002.55
2/ 1995 0.390% 0.125% 1,005.21
3/ 1995 0.440% 0.125% 1,008.37
4/ 1995 0.430% 0.125% 1,011.45
5/ 1995 0.450% 0.125% 1,014.74
6/ 1995 0.440% 0.125% 1,017.93
7/ 1995 0.440% 0.125% 1,021.14
8/ 1995 0.430% 0.125% 1,024.25
9/ 1995 0.420% 0.125% 1,027.27
10/ 1995 0.420% 0.125% 1,030.31
11/ 1995 0.410% 0.125% 1,033.24
12/ 1995 0.420% 0.125% 1,036.29
12 3.63% 6.30% -2.90%
</TABLE>
<TABLE>
TCI Growth
Five Year Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1991 8.710% 0.125% 1,085.85
2/ 1991 8.160% 0.125% 1,173.10
3/ 1991 4.050% 0.125% 1,219.14
4/ 1991 -1.880% 0.125% 1,194.70
5/ 1991 4.380% 0.125% 1,245.53
6/ 1991 -8.520% 0.125% 1,137.86
7/ 1991 6.730% 0.125% 1,213.01
8/ 1991 5.370% 0.125% 1,276.63
9/ 1991 -0.510% 0.125% 1,268.53
10/ 1991 1.920% 0.125% 1,291.30
11/ 1991 -5.030% 0.125% 1,224.73
12/ 1991 14.290% 0.125% 1,398.21
1/ 1992 -1.130% 0.125% 1,380.67
2/ 1992 0.710% 0.125% 1,388.74
3/ 1992 -4.320% 0.125% 1,327.01
4/ 1992 -1.100% 0.125% 1,310.76
5/ 1992 1.360% 0.125% 1,326.95
6/ 1992 -6.570% 0.125% 1,238.11
7/ 1992 3.260% 0.125% 1,276.92
8/ 1992 -2.900% 0.125% 1,238.29
9/ 1992 2.860% 0.125% 1,272.16
10/ 1992 0.250% 0.125% 1,273.75
11/ 1992 4.790% 0.125% 1,333.17
12/ 1992 2.070% 0.125% 1,359.10
1/ 1993 2.830% 0.125% 1,395.87
2/ 1993 -2.760% 0.125% 1,355.60
3/ 1993 2.360% 0.125% 1,385.89
4/ 1993 -4.730% 0.125% 1,318.61
5/ 1993 6.300% 0.125% 1,400.03
6/ 1993 1.140% 0.125% 1,414.24
7/ 1993 -0.560% 0.125% 1,404.56
8/ 1993 4.640% 0.125% 1,467.97
9/ 1993 1.410% 0.125% 1,486.83
10/ 1993 1.600% 0.125% 1,508.77
11/ 1993 -4.310% 0.125% 1,441.85
12/ 1993 2.560% 0.125% 1,476.96
1/ 1994 5.360% 0.125% 1,554.28
2/ 1994 -2.140% 0.125% 1,519.08
3/ 1994 -5.200% 0.125% 1,438.18
4/ 1994 0.990% 0.125% 1,450.62
5/ 1994 -0.540% 0.125% 1,440.98
6/ 1994 -5.360% 0.125% 1,361.94
7/ 1994 1.730% 0.125% 1,383.80
8/ 1994 5.680% 0.125% 1,460.67
9/ 1994 -2.360% 0.125% 1,424.37
10/ 1994 3.960% 0.125% 1,479.00
11/ 1994 -4.340% 0.125% 1,412.96
12/ 1994 1.880% 0.125% 1,437.76
1/ 1995 -2.060% 0.125% 1,406.34
2/ 1995 3.660% 0.125% 1,456.06
3/ 1995 4.180% 0.125% 1,515.10
4/ 1995 2.880% 0.125% 1,556.84
5/ 1995 2.900% 0.125% 1,600.04
6/ 1995 6.700% 0.125% 1,705.25
7/ 1995 7.640% 0.125% 1,833.39
8/ 1995 1.010% 0.125% 1,849.62
9/ 1995 4.850% 0.125% 1,937.01
10/ 1995 -2.790% 0.125% 1,880.55
11/ 1995 0.160% 0.125% 1,881.21
12/ 1995 -1.150% 0.125% 1,857.22
60 13.18% 4.50% 12.14%
</TABLE>
<TABLE>
TCI
Growth
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
12/ 1987 12.610% 0.125% 1,124.85
1/ 1988 -7.560% 0.125% 1,038.41
2/ 1988 4.500% 0.125% 1,083.84
3/ 1988 -5.090% 0.125% 1,027.31
4/ 1988 2.680% 0.125% 1,053.56
5/ 1988 0.000% 0.125% 1,052.24
6/ 1988 7.030% 0.125% 1,124.90
7/ 1988 -4.320% 0.125% 1,074.90
8/ 1988 -6.080% 0.125% 1,008.20
9/ 1988 5.220% 0.125% 1,059.57
10/ 1988 2.580% 0.125% 1,085.58
11/ 1988 -1.740% 0.125% 1,065.34
12/ 1988 1.730% 0.125% 1,082.44
1/ 1989 7.440% 0.125% 1,161.62
2/ 1989 -2.000% 0.125% 1,136.93
3/ 1989 3.350% 0.125% 1,173.60
4/ 1989 5.040% 0.125% 1,231.28
5/ 1989 5.140% 0.125% 1,293.03
6/ 1989 -4.070% 0.125% 1,238.79
7/ 1989 12.390% 0.125% 1,390.72
8/ 1989 1.660% 0.125% 1,412.07
9/ 1989 -0.890% 0.125% 1,397.74
10/ 1989 -2.550% 0.125% 1,360.35
11/ 1989 1.540% 0.125% 1,379.60
12/ 1989 -0.270% 0.125% 1,374.15
1/ 1990 -5.770% 0.125% 1,293.14
2/ 1990 3.060% 0.125% 1,331.10
3/ 1990 3.960% 0.125% 1,382.14
4/ 1990 -2.380% 0.125% 1,347.52
5/ 1990 11.710% 0.125% 1,503.63
6/ 1990 0.000% 0.125% 1,501.75
7/ 1990 -1.600% 0.125% 1,475.85
8/ 1990 -8.280% 0.125% 1,351.80
9/ 1990 -6.450% 0.125% 1,262.92
10/ 1990 -6.030% 0.125% 1,185.19
11/ 1990 8.620% 0.125% 1,285.87
12/ 1990 4.050% 0.125% 1,336.34
1/ 1991 8.710% 0.125% 1,451.06
2/ 1991 8.160% 0.125% 1,567.66
3/ 1991 4.050% 0.125% 1,629.19
4/ 1991 -1.880% 0.125% 1,596.52
5/ 1991 4.380% 0.125% 1,664.45
6/ 1991 -8.520% 0.125% 1,520.56
7/ 1991 6.730% 0.125% 1,621.00
8/ 1991 5.370% 0.125% 1,706.02
9/ 1991 -0.510% 0.125% 1,695.18
10/ 1991 1.920% 0.125% 1,725.61
11/ 1991 -5.030% 0.125% 1,636.66
12/ 1991 14.290% 0.125% 1,868.49
1/ 1992 -1.130% 0.125% 1,845.04
2/ 1992 0.710% 0.125% 1,855.83
3/ 1992 -4.320% 0.125% 1,773.34
4/ 1992 -1.100% 0.125% 1,751.62
5/ 1992 1.360% 0.125% 1,773.25
6/ 1992 -6.570% 0.125% 1,654.53
7/ 1992 3.260% 0.125% 1,706.40
8/ 1992 -2.900% 0.125% 1,654.78
9/ 1992 2.860% 0.125% 1,700.04
10/ 1992 0.250% 0.125% 1,702.17
11/ 1992 4.790% 0.125% 1,781.57
12/ 1992 2.070% 0.125% 1,816.22
1/ 1993 2.830% 0.125% 1,865.35
2/ 1993 -2.760% 0.125% 1,811.54
3/ 1993 2.360% 0.125% 1,852.02
4/ 1993 -4.730% 0.125% 1,762.11
5/ 1993 6.300% 0.125% 1,870.92
6/ 1993 1.140% 0.125% 1,889.91
7/ 1993 -0.560% 0.125% 1,876.96
8/ 1993 4.640% 0.125% 1,961.71
9/ 1993 1.410% 0.125% 1,986.92
10/ 1993 1.600% 0.125% 2,016.22
11/ 1993 -4.310% 0.125% 1,926.80
12/ 1993 2.560% 0.125% 1,973.72
1/ 1994 5.360% 0.125% 2,077.05
2/ 1994 -2.140% 0.125% 2,030.00
3/ 1994 -5.200% 0.125% 1,921.90
4/ 1994 0.990% 0.125% 1,938.53
5/ 1994 -0.540% 0.125% 1,925.64
6/ 1994 -5.360% 0.125% 1,820.01
7/ 1994 1.730% 0.125% 1,849.23
8/ 1994 5.680% 0.125% 1,951.95
9/ 1994 -2.360% 0.125% 1,903.44
10/ 1994 3.960% 0.125% 1,976.44
11/ 1994 -4.340% 0.125% 1,888.19
12/ 1994 1.880% 0.125% 1,921.33
1/ 1995 -2.060% 0.125% 1,879.35
2/ 1995 3.660% 0.125% 1,945.79
3/ 1995 4.180% 0.125% 2,024.69
4/ 1995 2.880% 0.125% 2,080.47
5/ 1995 2.900% 0.125% 2,138.20
6/ 1995 6.700% 0.125% 2,278.79
7/ 1995 7.640% 0.125% 2,450.04
8/ 1995 1.010% 0.125% 2,471.72
9/ 1995 4.850% 0.125% 2,588.51
10/ 1995 -2.790% 0.125% 2,513.05
11/ 1995 0.160% 0.125% 2,513.93
12/ 1995 -1.150% 0.125% 2,481.88
97 11.90% 0.00% 11.90%
</TABLE>
<TABLE>
MFS
Research
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
8/ 1995 1.000% 0.125% 1,008.75
9/ 1995 2.970% 0.125% 1,037.45
10/ 1995 0.670% 0.125% 1,043.10
11/ 1995 3.250% 0.125% 1,075.70
12/ 1995 2.330% 0.125% 1,099.42
5 25.54% 6.30% 7.39%
</TABLE>
<TABLE>
MFS EMERGING GROWTH
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
7/ 1995 0.700% 0.125% 1,005.75
8/ 1995 2.980% 0.125% 1,034.46
9/ 1995 4.820% 0.125% 1,083.03
10/ 1995 1.750% 0.125% 1,100.63
11/ 1995 5.700% 0.125% 1,161.99
12/ 1995 0.430% 0.125% 1,165.54
6 35.85% 6.30% 19.27%
</TABLE>
<TABLE>
MFS
Total Return
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 0.500% 0.125% 1,003.75
2/ 1995 3.180% 0.125% 1,034.41
3/ 1995 1.830% 0.125% 1,052.05
4/ 1995 2.270% 0.125% 1,074.62
5/ 1995 3.980% 0.125% 1,116.04
6/ 1995 0.890% 0.125% 1,124.58
7/ 1995 0.970% 0.125% 1,134.08
8/ 1995 1.140% 0.125% 1,145.60
9/ 1995 3.370% 0.125% 1,182.77
10/ 1995 -0.250% 0.125% 1,178.33
11/ 1995 4.440% 0.125% 1,229.18
12/ 1995 2.200% 0.125% 1,254.69
12 25.47% 6.30% 17.56%
</TABLE>
<TABLE>
MFS
World Government
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
6/ 1994 0.200% 0.125% 1,000.75
7/ 1994 -1.000% 0.125% 989.49
8/ 1994 -0.200% 0.125% 986.28
9/ 1994 0.400% 0.125% 988.99
10/ 1994 2.210% 0.125% 1,009.61
11/ 1994 -0.980% 0.125% 998.45
12/ 1994 0.200% 0.125% 999.20
1/ 1995 0.920% 0.125% 1,007.14
2/ 1995 2.120% 0.125% 1,027.24
3/ 1995 5.140% 0.125% 1,078.75
4/ 1995 0.470% 0.125% 1,082.47
5/ 1995 1.780% 0.125% 1,100.39
6/ 1995 0.280% 0.125% 1,102.10
7/ 1995 -0.180% 0.125% 1,098.73
8/ 1995 -1.470% 0.125% 1,081.21
9/ 1995 1.210% 0.125% 1,092.94
10/ 1995 1.470% 0.125% 1,107.64
11/ 1995 1.720% 0.125% 1,125.31
12/ 1995 0.200% 0.125% 1,126.15
19 7.79% 6.30% 3.45%
</TABLE>
<TABLE>
MFS
Utilities
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
1/ 1995 2.400% 0.125% 1,022.75
2/ 1995 0.980% 0.125% 1,031.49
3/ 1995 -0.580% 0.125% 1,024.22
4/ 1995 3.790% 0.125% 1,061.76
5/ 1995 3.370% 0.125% 1,096.21
6/ 1995 2.090% 0.125% 1,117.75
7/ 1995 4.350% 0.125% 1,164.98
8/ 1995 1.450% 0.125% 1,180.42
9/ 1995 4.610% 0.125% 1,233.36
10/ 1995 1.200% 0.125% 1,246.62
11/ 1995 1.660% 0.125% 1,265.75
12/ 1995 4.400% 0.125% 1,319.86
12 31.99% 6.30% 23.67%
</TABLE>
<TABLE>
MFS Bond
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1000
11/ 1995 1.500% 0.125% 1,013.75
12/ 1995 1.390% 0.125% 1,026.57
2 17.04% 6.30% -20.79%
</TABLE>
<TABLE>
TCI International
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <S><C>
1,000.00
6/ 1994 -1.210% 0.125% 986.65
7/ 1994 2.250% 0.125% 1,007.62
8/ 1994 2.400% 0.125% 1,030.54
9/ 1994 -1.370% 0.125% 1,015.13
10/ 1994 0.000% 0.125% 1,013.86
11/ 1994 -4.750% 0.125% 964.44
12/ 1994 -1.250% 0.125% 951.18
1/ 1995 -5.680% 0.125% 895.96
2/ 1995 0.890% 0.125% 902.82
3/ 1995 2.880% 0.125% 927.69
4/ 1995 3.440% 0.125% 958.44
5/ 1995 1.660% 0.125% 973.15
6/ 1995 1.020% 0.125% 981.86
7/ 1995 4.860% 0.125% 1,028.35
8/ 1995 -3.090% 0.125% 995.29
9/ 1995 3.190% 0.125% 1,025.80
10/ 1995 -0.580% 0.125% 1,018.57
11/ 1995 0.000% 0.125% 1,017.29
12/ 1995 3.500% 0.125% 1,051.63
19 3.23% 6.30% -0.93%
</TABLE>
<TABLE>
IMS
EQUITY GROWTH FUND
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
3/ 1994 -3.860% 0.125% 960.15
4/ 1994 0.740% 0.125% 966.05
5/ 1994 1.470% 0.125% 979.05
6/ 1994 -0.650% 0.125% 971.46
7/ 1994 3.350% 0.125% 1,002.79
8/ 1994 2.230% 0.125% 1,023.90
9/ 1994 -1.300% 0.125% 1,009.31
10/ 1994 1.920% 0.125% 1,027.43
11/ 1994 -4.260% 0.125% 982.37
12/ 1994 1.180% 0.125% 992.74
1/ 1995 1.540% 0.125% 1,006.78
2/ 1995 4.040% 0.125% 1,046.20
3/ 1995 3.020% 0.125% 1,076.49
4/ 1995 1.420% 0.125% 1,090.43
5/ 1995 4.020% 0.125% 1,132.90
6/ 1995 1.800% 0.125% 1,151.88
7/ 1995 3.460% 0.125% 1,190.29
8/ 1995 1.460% 0.125% 1,206.18
9/ 1995 3.800% 0.125% 1,250.51
10/ 1995 -0.650% 0.125% 1,240.82
11/ 1995 4.610% 0.125% 1,296.47
12/ 1995 1.030% 0.125% 1,308.20
22 15.78% 6.30% 11.74%
</TABLE>
<TABLE>
IMS CORPORATE BOND FUND
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
3/ 1994 -4.040% 0.125% 958.35
4/ 1994 -0.520% 0.125% 952.17
5/ 1994 1.100% 0.125% 961.45
6/ 1994 0.590% 0.125% 965.92
7/ 1994 -0.470% 0.125% 960.18
8/ 1994 0.720% 0.125% 965.89
9/ 1994 0.500% 0.125% 969.51
10/ 1994 -0.380% 0.125% 964.61
11/ 1994 -1.860% 0.125% 945.47
12/ 1994 0.800% 0.125% 951.85
1/ 1995 1.240% 0.125% 962.46
2/ 1995 3.370% 0.125% 993.69
3/ 1995 0.940% 0.125% 1,001.79
4/ 1995 2.690% 0.125% 1,027.49
5/ 1995 2.420% 0.125% 1,051.07
6/ 1995 0.380% 0.125% 1,053.75
7/ 1995 1.990% 0.125% 1,073.40
8/ 1995 0.400% 0.125% 1,076.35
9/ 1995 1.470% 0.125% 1,090.83
10/ 1995 1.450% 0.125% 1,105.28
11/ 1995 0.720% 0.125% 1,111.86
12/ 1995 1.650% 0.125% 1,128.82
22 6.83% 6.30% 3.11%
</TABLE>
<TABLE>
IMS
PRIME MONEY FUND
Return from Inception
Assuming 100 shares @ $10
<CAPTION>
Total Return Average Annual Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
12/ 1994 0.380% 0.125% 1,002.55
1/ 1995 0.380% 0.125% 1,005.11
2/ 1995 0.390% 0.125% 1,007.77
3/ 1995 0.440% 0.125% 1,010.94
4/ 1995 0.430% 0.125% 1,014.03
5/ 1995 0.450% 0.125% 1,017.32
6/ 1995 0.440% 0.125% 1,020.53
7/ 1995 0.440% 0.125% 1,023.74
8/ 1995 0.430% 0.125% 1,026.87
9/ 1995 0.420% 0.125% 1,029.89
10/ 1995 0.420% 0.125% 1,032.93
11/ 1995 0.410% 0.125% 1,035.88
12/ 1995 0.420% 0.125% 1,038.93
13 3.59% 6.30% -2.45%
</TABLE>
<TABLE>
MFS Research
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 0.670% 0.125% 1,005.45
11/ 1995 3.250% 0.125% 1,036.87
12/ 1995 2.330% 0.125% 1,059.73
3 5.97% 6.30% -0.70%
</TABLE>
<TABLE>
MFS EMERGING GROWTH
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 1.750% 0.125% 1,016.25
11/ 1995 5.700% 0.125% 1,072.91
12/ 1995 0.430% 0.125% 1,076.18
3 7.62% 6.30% 0.84
</TABLE>
<TABLE>
MFS Total Return
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 -0.250% 0.125% 996.25
11/ 1995 4.440% 0.125% 1,039.24
12/ 1995 2.200% 0.125% 1,060.80
3 6.08% 6.30% -0.60%
</TABLE>
<TABLE>
MFS World Government
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 1.470% 0.125% 1,013.45
11/ 1995 1.720% 0.125% 1,029.61
12/ 1995 0.200% 0.125% 1,030.39
3 3.04% 6.30% -3.45%
</TABLE>
<TABLE>
MFS Utilities
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 1.200% 0.125% 1,010.75
11/ 1995 1.660% 0.125% 1,026.27
12/ 1995 4.400% 0.125% 1,070.14
3 7.01% 6.30% 0.27%
</TABLE>
<TABLE>
MFS Bond
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
11/ 1995 1.500% 0.125% 1,013.75
12/ 1995 1.390% 0.125% 1,026.57
2 2.66% 6.30% -3.81%
</TABLE>
<TABLE>
TCI International
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 -0.580% 0.125% 992.95
11/ 1995 0.000% 0.125% 991.71
12/ 1995 3.500% 0.125% 1,025.18
3 2.52% 6.30% -3.94%
</TABLE>
<TABLE>
IMS EQUITY GROWTH FUND
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 -0.650% 0.125% 992.25
11/ 1995 4.610% 0.125% 1,036.75
12/ 1995 1.030% 0.125% 1,046.14
3 4.61% 6.30% -1.98%
</TABLE>
<TABLE>
IMS CORPORATE BOND FUND
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 1.450% 0.125% 1,013.25
11/ 1995 0.720% 0.125% 1,019.28
12/ 1995 1.650% 0.125% 1,034.82
3 3.48% 6.30% -3.04%
</TABLE>
<TABLE>
IMS PRIME MONEY FUND
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 0.420% 0.125% 1,002.95
11/ 1995 0.410% 0.125% 1,005.81
12/ 1995 0.420% 0.125% 1,008.78
3 0.88% 6.30% -5.48%
</TABLE>
<TABLE>
TCI Growth
1995 Return
Assuming 100 shares @ $10
<CAPTION>
Total Return Surrender Charge Average Annual
Month by Month Administration and Fund Return % before (Net of 10% Return % after
Date (Net of Fees) Monthly M&E Fee Value Surrender Charge Free Provision) Surrender Charge
<C> <C> <C> <C> <C> <C> <C>
1,000.00
10/ 1995 -2.790% 0.125% 970.85
11/ 1995 0.160% 0.125% 971.19
12/ 1995 -1.150% 0.125% 958.81
3 -4.12% 6.30% -10.16%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,264
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,264
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,264
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,264
<NOTES-PAYABLE> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,264
0
<INVESTMENT-INCOME> 15
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,249
<BENEFITS> 1,264
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
