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 M issouri. 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 C ity 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 A dditional 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 BOAR D, OR ANY OTHER AGENCY.
The date of this Prospectus is May 1, 1997.
>
TABLE OF CONTENTS
Page
DEFINITIONS
TABLE OF EXPENSES
HIGHLIGHTS
CONDENSED FINANCIAL INFORMATION
KANSAS CITY LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
Kansas City Life Insurance Company
Kansas City Life Variable Annuity Separate Account
The Funds
MFS(Variable Insurance TrustSM
American Century Portfolios, Inc. (formerly TCI Portfolios, Inc.)
Federated Insurance Series
Dreyfus Variable Investment Fund
Dreyfus Stock Index Fund
Resolving Material Conflicts
Addition, Deletion or Substitution of Investments
DESCRIPTION OF THE CONTRACT
Issuance of a Contract
Premiums
Free-Look Period
Allocation of Premiums
Variable Account Value
Transfer Privilege
Dollar Cost Averaging Plan
Portfolio Rebalancing Plan
Partial and Full Cash Surrenders
Contract Termination
Contract Loans
Death Benefit Before Maturity Date
Proceeds on Maturity Date
Payments
Modifications
Reports to Contract Owner
Contract Inquiries
THE FIXED ACCOUNT
Minimum Guaranteed and Current Interest Rates
Calculation of Fixed Account Value
Transfers from Fixed Account
Payment Deferral
Telephone Transfers and Premium Allocations
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
Transfer Processing Fee
Administrative Charges
Mortality and Expense Risk Charge
Premium Taxes
Reduced Charges for Eligible Groups
Other Taxes
Investment Advisory Fees and Other Expenses of the Funds
PAYMENT OPTIONS
Election of Options
Description of Options
YIELDS AND TOTAL RETURNS
FEDERAL TAX STATUS
Introduction
Tax Status of the Contract
Taxation of Annuities
Transfers, Assignments or Exchanges of a Contract
Withholding
Multiple Contracts
Taxation of Qualified Contracts
Possible Charge for Kansas City Life's Taxes
Other Tax Consequences
DISTRIBUTION OF THE CONTRACTS
LEGAL PROCEEDINGS
VOTING RIGHTS
COMPANY HOLIDAYS
FINANCIAL STATEMENTS
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
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.
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 Research Total MFS World MFS
Growth Series Return Utilities Government Bond
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)
Management Fees (Investment Advisory Fees) 0.75% 0.75% 0.75% 0.75% 0.75% 0.60%
Other Expenses (after any expense 0.25% 0.25% 0.25% 0.25% 0.25% 0.40%
reimbursement)2/3/
Total Fund Annual Expenses 2/ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
<CAPTION>
American Century American
VP Capital Century VP
Appreciation International
<S> <C> <C>
American Century Variable Portfolios Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 1.00% 1.50%
Other Expenses 0.00% 0.00%
Total Fund Annual Expenses4/ 1.00% 1.50%
<CAPTION>
Federated Federated Federated
American Leaders High Income Prime Money
Fund II Bond Fund II Fund II
<S> <C> <C> <C>
Federated Insurance Series Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.53% 0.01% 0.00%
Other Expenses (after any expense reimbursement) 0.32% 0.79% 0.80%
Total Fund Annual Expenses5/ 0.85% 0.80% 0.80%
<CAPTION>
Dreyfus Dreyfus
Capital Small
Appreciation Cap
Portfolio Portfolio
<S> <C> <C>
Dreyfus Variable Investment Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) .75% .75%
Other Expenses (after any expense reimbursement) .09% .04%
Total Fund Annual Expenses .84% .79%
<CAPTION>
Dreyfus Stock
Index Fund
<S> <C>
Dreyfus Stock Index Fund
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) .245%
Other Expenses (after any expense reimbursement) .055%
Total Fund Annual Expenses .300%
</TABLE>
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, An nual 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 th e 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 expenses for each Series, subject to reimbursement by each Series, such
that each Series' "Other Expenses" shall not exceed the following percentages
of the average daily net assets of the Series during the current fiscal year:
0.40% for the Bond Series, and 0.25% for each remaining Series. Absent this
expense arrangement, "Other Expenses" for the Emerging Growth Series, Research
Series, Total Return Series, Utili ties Series, World Governments Series and
Bond Series would be 0.41%, 0.73%, 1.35%, 2.00%, 1.28% and 8.85%, respectively,
and Total Annual Fund Expenses would be 1.16%, 1.48%, 2.10%, 2.75%, 2.03% and
9.45%, respectively, for these Series.
3/ 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."
4/ The investment adviser to American Century Variable Portfolios 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 Am Cent VP International and Am Cent
VP Capital Appreciation, respectively.
5/ 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 1.07%, 1.39%, and
1.37%, 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:
<TABLE>
<CAPTION>
Subaccount 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
MFS Research Series $ 89.79 $ 145.26 $181.24 $274.63
MFS Emerging Growth Series $ 89.79 $ 145.26 $181.24 $274.63
MFS Total Return Series $ 89.79 $ 145.26 $181.24 $274.63
MFS Bond Series $ 89.79 $ 145.26 $181.24 $274.63
MFS World Governments Series $ 89.79 $ 145.26 $181.24 $274.63
MFS Utilities Series $ 89.79 $ 145.26 $181.24 $274.63
American Century VP International $ 94.45 $ 159.11 $204.59 $322.82
American Century VP Capital Appreciation $ 89.79 $ 145.26 $181.24 $274.63
Federated American Leaders Fund II $ 88.39 $ 141.06 $174.11 $259.66
Federated High Income Bond Fund II $ 87.92 $ 139.66 $171.73 $254.61
Federated Prime Money Fund II $ 87.92 $ 139.66 $171.73 $254.61
Dreyfus Capital Appreciation $ 88.29 $ 140.78
Dreyfus Small Cap $ 87.83 $ 139.38
Dreyfus Stock Index Fund $ 83.23 $ 125.51
</TABLE>
2. If the Contract is not surrendered or is annuitized under a Life Option
at the end of the applicable time period:
<TABLE>
<CAPTION>
Subaccount 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
MFS Research Series $ 25.27 $ 77.59 $130.45 $274.63
MFS Emerging Growth Series $ 25.27 $ 77.59 $130.45 $274.63
MFS Total Return Series $ 25.27 $ 77.59 $130.45 $274.63
MFS Bond Series $ 25.27 $ 77.59 $130.45 $274.63
MFS World Governments Series $ 25.27 $ 77.59 $130.45 $274.63
MFS Utilities Series $ 25.27 $ 77.59 $130.45 $274.63
American Century VP International $ 30.26 $ 92.45 $155.05 $322.82
American Century VP Capital Appreciation $ 25.27 $ 77.59 $130.45 $274.63
Federated American Leaders Fund II $ 23.77 $ 73.09 $122.94 $259.66
Federated High Income Bond Fund II $ 23.27 $ 71.59 $120.42 $254.61
Federated Prime Money Fund II $ 23.27 $ 71.59 $120.42 $254.61
Dreyfus Capital Appreciation $ 23.67 $ 72.79
Dreyfus Small Cap $ 23.17 $ 71.29
Dreyfus Stock Index Fund $ 18.26 $ 56.40
</TABLE>
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 Admi nistrative 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. In most states the amount returned to you will be equal to
the Contract Value ( plus the $30 Annual Administration Fee, if applicable).
In some states we are required to refund premium payments under the free look
provision. In other states we are required to refund the greater of premiums
paid or Contract Value. In addition, some states require that we pay interest
on the refund if the refund is made beyond a specified time frame. 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 Be fore 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 cert ain 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%. I n 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 ea ch 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 "Trans fer 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 asset s 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 o f 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 Valu e. (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 Ac count'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 assignme nt 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 1/2. 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:
<TABLE>
<CAPTION>
No. of Units Unit Value Unit Value No. of Units Unit Value Unit Value
as of as of as of as of as of as of
12-31-96 12-31-96 01-01-96 12-31-95 12-31-95 09-06-95
<S> <C> <C> <C> <C> <C> <C>
Federated American Leaders Fund II 94,537 12.48 10.50 15,359 10.41 10.00
Federated High Income Bond Fund II 88,100 11.52 10.23 11,792 10.22 10.00
Federated Prime Money Fund II 53,502 10.45 10.12 11,335 10.07 10.00
MFS Research Series 190,114 12.64 10.49 19,430 10.48 10.00
MFS Emerging Growth Series 253,083 12.31 10.65 13,900 10.66 10.00
MFS Total Return Series 79,175 11.88 10.56 3,981 10.53 10.00
MFS Bond Series 58,082 10.34 10.29 1,273 10.27 10.00
MFS World Governments Series 22,139 10.44 10.39 9,423 10.17 10.00
MFS Utilities Series 32,814 12.32 10.58 11,752 10.54 10.00
American Century VP International 77,422 11.47 10.24 12,190 10.16 10.00
American Century VP Capital Appreciation 147,134 9.33 9.91 11,998 9.89 10.00
Dreyfus Capital Appreciation NA NA NA NA NA NA
Dreyfus Small Cap NA NA NA NA NA NA
Dreyfus Stock Index Fund NA NA NA NA NA NA
</TABLE>
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 a nd 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 investme nt 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 o f 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 14 Subaccounts: MFS Research, MFS Emerging
Growth, MFS Total Return, MFS Bond, MFS World Governments, MFS Utilities,
American Century VP International, American Century VP Capital Appreciation,
Federated American Le aders Fund II, Federated High Income Bond Fund II,
Federated Prime Money Fund II, Dreyfus Capital Appreciation, Dreyfus Small
Cap and Dreyfus Stock Index Fund. The assets of each Subaccount are invested
exclusively in shares of a corresponding Portf olio of a designated Fund.
The Funds
The Variable Account currently invests in Portfolios of five series-type
mutual funds: MFS Variable Insurance Trust, American Century Variable
Portfolios, Federated Insurance Series, Dreyfus Variable Investment Fund and
Dreyfus Stock Index Fund. 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 pe rformance 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 Informat ion. 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 Sub accounts 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.
MFSRVariable 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 iss ues 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 R eturn 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 cap ital. 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 c arefully 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").
American Century Portfolios, Inc. (formerly TCI Portfolios, Inc.)
The American Century VP International Subaccount and American Century VP
Capital Appreciation Subaccount invest in shares of American Century
Portfolios, Inc. The Fund currently issues four "series" or classes of shares,
each of which represents an i nterest in a separate Portfolio within the Fund.
Two of these series are available for investment under the Contracts:
American Century VP International and American Century VP Capital Appreciation.
The investment objectives of the Portfolios are set forth below:
American Century VP International (formerly TCI International). The
investment objective of American Century VP 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.
American Century VP Capital Appreciation (formerly TCI Growth). The
investment objective of American Century VP Capital Appreciation 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 American Century Investment Management, Inc. (formerly
Investors Research Corporation). American Century Investment Management, Inc.
is registered with the SEC as an investment adviser under the Advisers Act.
Federated Insurance 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 share s, 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. 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 obj ectives 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. 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. 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.
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio. The primary investment objective of
the Capital Appreciation Portfolio is to provide long-term capital growth
consistent with the preservation of capital. Current income is a secondary
investment objective. This series invests primarily in the common stocks of
domestic and foreign issuers.
Small Cap Portfolio. The investment objective of the Small Cap
Portfolio is to maximize capital appreciation. This series invests primarily
in common stocks of domestic and foreign issuers. This series will be
particularly alert to companies that it considers to be emerging smaller-sized
companies which are believed to be characterized by new or innovative products,
services or processes which should enhance prospects for growth in future
earnings.
The fund is advised by The Dreyfus Corporation. The Dreyfus Corporation is
registered with the SEC as an investment adviser under the Advisers Act.
Dreyfus Stock Index Fund
The primary investment objective of the Stock Index Fund is to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index. In anticipation of taking
a market position, the Fund is permitted to purchase and sell stock index
futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's.
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 ins urance 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 infor mation.
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 re fund 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 de ducted, 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. You can
change the allocation percentages at any time by sending Written Notice to the
Home Office. Changes in your allocation may also be made by telephone if proper
authorization has been provided. See "Telephone Transfers and Premium
Allocation," p. 24.
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 Z,
Y
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 b e 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. Transfers may also be made by telephone if proper authorization
has been provided. See "Telephone Transfers and Premium Allocations," page 24.
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 in "Telephone Transfers and
Premium Allocations," page 24) 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.
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. If the
Contract Value is negative at the time portfolio rebalancing is scheduled, the
re-distribution will not be completed.
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) o f 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) earning s 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 no t 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 t o 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 t he 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 S urrender 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.
Under certain circumstances and in accordance with established administrative
procedures, we will pay death benefit proceeds through Kansas City Life's
Personal Growth Account, an interest bearing account. Proceeds paid through the
Personal Growth Account are placed in our general account. Check-writing
privileges are provided in the Personal Growth Account under which the bank that
pays the check will be reimbursed by Kansas City Life out of the proceeds held
in our general account. The Persona l Growth Account is not a bank account and
is not insured nor guaranteed by the FDIC or any other government agency. A
Contract Owner or beneficiary (whichever applicable) will have immediate access
to the proceeds by writing a check on the account. We pay interest from the
date of death to the date the Personal Growth Account is closed.
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 payment
is not mad e 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 Ac t. 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 as sets 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 yea r (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.
Telephone Transfers and Premium Allocations
Telephone transfers and changes in premium allocations 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 rig ht to suspend telephone transfer and changes in premium
allocations 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 and changes in premium
allocations 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.
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. You are limited to one election of the Systematic Partial
Surrender Plan per Contract Year without being subject to the surrender charge,
even if the amount surrendered during that Contract Year is less than 10% of the
Contract Value. 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 t o 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 t o 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 wi ll 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.
Reduced Charges for Eligible Groups
The charges otherwise applicable may be reduced with respect to Contracts issued
to a class of associated individuals or to a trustee, employer or similar entity
where Kansas City Life anticipates that the sales to the members of the class
will result in lower than normal sales or administrative expenses. These
reductions will be made in accordance with our rules in effect at the time of
the application for a Contract. The factors we will consider in determining the
eligibility of a particular group for reduced charges and the level of the
reduction are as follows: the nature of the association and its organizational
framework, the method by which sales will be made to the members of the class,
the facility with which premiums will be collected from the associated
individuals and the association's capabilities with respect to administrative
tasks, the anticipated persistency of the Contract, the size of the class of
associated individuals and the number of years it has been in existence and any
other such circumstances which justify a reduction in sales or administrative
expenses. Any reduction will be reasonable and will apply uniformly to all
prospective Contract purchases in the class and will not be unfairly
discriminatory to the interest of the Contract holder.
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 o f 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 t he 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 t he 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 t he 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 a s 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 Con tract 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. Th is 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 e nd 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 t heir 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 Cod e 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 annu ity 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 o f 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 th at 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 possibil ity 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 t he 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 o r 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 m ay 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
incorporate d 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 an y 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.
When policies are sold through other broker-dealers that have entered into
selling agreements with Sunset Financial Services, the commission which will be
paid by such broker-dealers to their representatives will be in accordance with
their establish ed rules. The commission rates may be more or less than those
set forth above for Kansas City Life's representatives. In addition, their
qualified registered representatives may be reimbursed by the broker-dealers
under expense reimbursement allowance programs in any year for approved
voucherable expenses incurred. The broker-dealers will be compensated as
provided in the selling agreements, and Sunset Financial Services, Inc. will
reimburse Kansas City Life for such amounts and for certain other direct
expenses in connection with marketing the Contracts through other broker-
dealers.
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 a ll 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 1997 will be September 26 and November 28. 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, 1996 and 1995
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996, appearing in the
Statement of Additional Information 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. Financial statements for the Variable Account for the year
ended December 31, 1996 and the period from September 6, 1995 to December 31,
1995 also appear 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 order a copy of the Statement of Additional Information you must complete and
mail the form below, or you may call (800) 616-3670 to order a copy.
To: Kansas City Life Insurance Company
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 ("Kans as 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, American Century Variable
Portfolios, Inc., Federated Ins urance Series, Dreyfus Variable Investment Fund
and Dreyfus Variable Stock Index Fund. 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, 1997.
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 ANNUAL ADMINISTRATION FEE ON PERFORMANCE DATA 6
TERMINATION OF PARTICIPATION AGREEMENTS 6
SAFEKEEPING OF ACCOUNT ASSETS 7
STATE REGULATION 8
RECORDS AND REPORTS 8
LEGAL MATTERS 8
EXPERTS 8
OTHER INFORMATION 8
FINANCIAL STATEMENTS 8
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 d efined 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 effec t 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 d etermine 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, an d
(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 yiel ds 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 portfoli o 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 ave rage 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 Ch arge, 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 averag e 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 foll owing 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 af fected 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 surren der 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 Administrat ion 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 a verage 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. Tot al 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 1996 are presented below.
Standard Total Returns for the Subaccounts
RETURN FROM RETURN FROM
SUBACCOUNT 1/1/1996 TO 12/31/1996 9/6/1995TO12/31/1996
MFS RESEARCH 10.80% 15.20%
EMERGING GROWTH 8.07% 15.91%
TOTAL RETURN 5.62% 11.55%
BOND -5.76% -2.80%
WORLD GOVT -3.97% 0.02%
UTILITIES 9.44% 16.35%
AMERICAN CENTURY VP INTERNATIONAL 5.60% -0.75%
VP CAPITAL APPRECIATION -11.68% -8.61%
FEDERATED AMERICAN LEADERS FUND II 12.25% 15.90%
HIGH INCOME BOND FUND II 5.53% 7.90%
PRIME MONEY FUND II -3.31% -1.63%
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 th e 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 from
of Inception of 1-year period 5-year period inception of the
Corresponding Portfolio ended 12/31/96 ended 12/31/96 Portfolio to 12/31/96
MFS Research (July 28, 1995) 10.80% N/A 14.95%
MFS Emerging Growth (July 25, 1995) 8.07% N/A 16.63%
MFS Total Return (January 3, 1995) 5.62% N/A 15.12%
MFS Bond (October 24, 1995) -5.76% N/A -2.80%
MFS World Governments -3.97% N/A 3.08%
(June 14, 1994)
MFS Utilities (January 3, 1995) 9.44% N/A 20.19%
American Century VP International 5.60% N/A -.57%
(May 1, 1994)
American Century VP Capital
Appreciation (November 20, 1987) -11.68% 3.56% 9.81%
Federated American Leaders Fund II 12.25% N/A 14.52%
(February 10, 1994)
Federated High Income Bond Fund II 5.53% N/A 6.37%
(March 1, 1994)
Federated Prime Money Fund II -3.31% N/A .22%
(November 11, 1994)
Dreyfus Capital Appreciation 15.94% 10.33% 14.29%
(April 5, 1993)
Dreyfus Small Cap (August 31, 1990) 7.64% 32.98% 46.30%
Dreyfus Stock Index Fund 13.13% 11.92% 12.02%
(September 29, 1989)
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 12/31/96 ended 12/31/96 Portfolio to 12/31/96
MFS Research (July 28, 1995) 18.25% N/A 20.35%
MFS Emerging Growth (July 25, 1995)15.33% N/A 21.80%
MFS Total Return (January 3, 1995) 12.73% N/A 18.93%
MFS Bond (October 24, 1995) .57% N/A 2.78%
MFS World Governments 2.49% N/A 5.71%
(June 14, 1994)
MFS Utilities (January 3, 1995) 16.80% N/A 24.16%
American Century VP International 12.70% N/A 6.80%
(May 1, 1994)
American Century VP Capital -5.74% 4.60% 9.81%
Appreciation (November 20, 1987)
Federated American Leaders Fund II 19.80% N/A 17.18%
(February 10, 1994)
Federated High Income Bond Fund II 12.63% N/A 8.84%
(March 1, 1994)
Federated Prime Money Fund II 3.20% N/A 3.40%
(November 11, 1994)
Dreyful Capital Appreciation 23.73% 11.35% 15.99%
(April 5, 1993)
Dreyfus Small Cap (August 31, 1990)14.88% 34.21% 46.72%
Dreyfus Stock Index Fund o 20.74% 12.95% 12.02%
(September 29, 1989)
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 Contra cts 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 certa in 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 advers e
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, fin ancial 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.
American Century Variable 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 requirement s of the Contracts; (3) at the option of either Kansas
City Life, the Fund, or American Century Investment Management, Inc. upon
institution of certain proceedings against any person marketing the Contracts,
the Variable account, Kansas City Life, th e Fund, or American Century
Investment Management, Inc.; (4) upon termination of the advisory agreement
between the Fund and American Century Investment Management, Inc.; (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
applicab le 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 materia l 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. 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 proceed ings 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 i rreconcilable
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 wi thin
30 days after written notice thereof.
Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund. This agreement
provides for termination as to either Fund or both Funds: (1) on 180 days'
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 the Fund or The Dreyfus Corporation 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) upon termination of the Investment Advisory Agreement between the
Fund and The Dreyfus Corporation or its successors unless Kansas City Life
specifically approves the selection of a new Fund investment adviser; (6) upon
a determination that shares of the Fund or the variable products are not
registered, issued or sold in conformity with federal or state laws or that Fund
shares may no longer be used as an investment medium for variable products; (7)
at the option of the Fund or The Dreyfus Corporation upon a determination that
Kansas City Life has suffered a material adverse change in its business,
operations, financial condition, or prospects; (8) at Kansas City Life's
option a d etermination that the Fund or The Dreyfus Corporation has suffered a
material adverse change in its business, operations, financial condition, or
prospects; (9) at either party's option upon the other party's material breach
of any provision of the Agreement and failure to remedy the breach within 30
days; or (10) upon assignment of the agreement, unless made with the written
consent of all parties; (11) at the option of the Fund upon a determination by
its Board in good faith that it is no longer advisable and in the best interests
of shareholders of that Fund to continue to operate pursuant to this agreement;
(12) at the option of the Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies, as applicable , under the Internal Revenue
Code, or if the Fund reasonably believes that the Contracts may fail to qualify;
or (13) if the Fund fails to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, or fails to manage and invest in a
manner that complies with the requirements of Section 817(h) of the Internal
Revenue Code.
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 emp loyees.
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 d o 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 sta tements, 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 a ny 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, 1996 and
1995 and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996, and the financial statements of the Variable Account for the year ended
December 31, 1996, and 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 reports thereon appearing elsewhere 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, a mendments 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 summ aries. 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, 1996 and 1995
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996
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 t he Variable Account for the year ended
December 31, 1996 and the period from September 6, 1995 to December 31, 1995
are also included herein.
Kansas City Life
Variable Annuity
Separate Account
Financial Statements
Year ended December 31, 1996 and
the Period from September 6, 1995 (Inception)
to December 31, 1995
Table of Contents
Balance Sheets 1
Statements of Operations and Changes in Net Assets 3
Notes to Financial Statements 5
Report of Independent Auditors 8
Kansas City Life Variable Annuity Separate Account
Balance Sheet
December 31,
Assets 1996 1995
Investments:
(in thousands)
Federated Securities - Federated Insurance Series:
American Leaders Fund II - 77,316 shares (12,493 - 1995)
at net asset value of $15.26 per share ($12.80 - 1995)
(cost $1,065,000; $158,000 - 1995) $ 1,180 160
High Income Bond Fund II - 99,125 shares (12,312 - 1995) at
net asset value of $10.24 per share ($9.79 - 1995)
(cost $977,000; $119,000 - 1995) 1,015 120
Prime Money Fund II - 558,972 shares (114,138 - 1995) at
net asset value of $1.00 per share ($1.00 - 1995)
(cost $559,000; $114,000 - 1995) 559 114
Massachusetts Financial Services (MFS):
Research Series - 182,988 shares (18,695 - 1995) at
net asset value of $13.13 per share ($10.89 - 1995)
(cost $2,211,000; $203,000 - 1995) 2,403 204
Emerging Growth Series -235,212 shares (12,991 - 1995) at
net asset value of $13.24 per share ($11.41 - 1995)
(cost $3,035,000; $149,000 - 1995) 3,114 148
Total Return Series - 68,580 shares (3,422 - 1995) at
net asset value of $13.71 per share ($12.25 - 1995)
(cost $892,000; $42,000 - 1995) 940 42
Bond Series - 59,711 shares (1,283 - 1995) at
net asset value of $10.06 per share ($10.19 - 1995)
(cost $599,000; $13,000 - 1995) 601 13
World Governments Series - 21,838 shares (9,428 - 1995) at
net asset value of $10.58 per share ($10.17 - 1995)
(cost $230,000; $103,000 - 1995) 231 96
Utilities Series -29,594 shares (9,857 - 1995) at
net asset value of $13.66 per share ($12.57 - 1995)
(cost $388,000; $130,000 - 1995) 404 124
American Century -TCI Portfolios:
Growth - 134,074 shares (9,841 - 1995) at
net asset value of $10.24 per share ($12.06 - 1995)
(cost $1,459,000; $119,000 - 1995) 1,373 119
International -148,936 shares (23,246 - 1995) at
net asset value of $5.96 per share ($5.33 - 1995)
(cost $818,000; $122,000 - 1995) 888 124
Total Assets $12,708 1,264
See accompanying Notes to Financial Statements
Kansas City Life Variable Annuity Separate Account
Balance Sheet
(continued)
December 31,
1996 1995
Net Assets (in thousands)
Federated Securities - Federated Insurance Series:
American Leaders Fund II - 94,537 units (15,359 - 1995)
at a unit value of $12.48 per unit ($10.41 - 1995) $ 1,180 160
High Income Bond Fund II - 88,100 units (11,792 - 1995)
at a unit value of $11.52 per unit ($10.22 - 1995) 1,015 120
Prime Money Fund II - 53,502 units (11,335 - 1995)
at a unit value of $10.45 per unit ($10.07 - 1995) 559 114
Massachusetts Financial Services (MFS):
Research Series - 190,114 units (19,430 - 1995)
at a unit value of $12.64 per unit ($10.48 - 1995) 2,403 204
Emerging Growth Series - 253,083 units (13,900 - 1995)
at a unit value of $12.31 per unit ($10.66 - 1995) 3,114 148
Total Return Series - 79,175 units (3,981 - 1995)
at a unit value of $11.88 per unit ($10.53 - 1995) 940 42
Bond Series - 58,082 units (1,273 - 1995)
at a unit value of $10.34 per unit ($10.27 - 1995) 601 13
World Governments Series - 22,139 units (9,423 - 1995)
at a unit value of $10.44 per unit ($10.17 - 1995) 231 96
Utilities Series - 32,814 units (11,752 - 1995)
at a unit value of $12.32 per unit ($10.54 - 1995) 404 124
American Century - TCI Portfolios:
Growth - 147,134 units (11,998 - 1995)
at a unit value of $9.33 per unit ($9.89 - 1995) 1,373 119
International - 77,422 units (12,190 - 1995)
at a unit value of $11.47 per unit ($10.16 - 1995) 888 124
Total Net Assets $12,708 1,264
See accompanying Notes to Financial Statements
<TABLE>
Kansas City Life Variable Annuity Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(in thousands)
<CAPTION>
Federated Insurance Series MFS Variable Insurance Trust TCI Portfolios
High
American Income Prime Emerging Total World
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities
Fund II Fund II Fund II Series Series Series Series Series Series Growth Int'lTotal
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C><C>
Investment Income:
Dividend Distributions $ 8 48 18 3 - 14 19 - 9 - 4 123
Capital Gains Distributions 2 - - 30 26 6 - - 24 38 2 128
Realized Gain (Loss)
on Investments 1 1 - 3 16 - - - - (5) - 16
Unrealized Appreciation
(Depreciation) on Investments 113 37 - 191 80 48 2 8 22 (86) 68 483
Net Investment Income 124 86 18 227 122 68 21 8 55 (53) 74 750
Expenses:
Mortality and Expense Fees 8 8 5 16 21 6 4 2 4 9 6 89
Administrative Fees 2 1 2 4 6 1 1 - 1 1 1 20
Expenses 10 9 7 20 27 7 5 2 5 10 7 109
Increase (Decrease) in Net
Assets from Operations 114 77 11 207 95 61 16 6 50 (63) 67 641
Deposits 866 790 2,070 1,786 2,531 685 457 105 220 1,038 60511,153
Payments and Withdrawals:
Withdrawals (7) (47) (83) (14) (35) (8) (6) (1) (2) (17) (10) (230)
Transfers in (out) 47 75 (1,553) 220 375 160 121 25 12 296 102 (120)
Total Payments
and Withdrawals 40 28 (1,636) 206 340 152 115 24 10 279 92 (350)
Net Assets:
Net Increase 1,020 895 445 2,199 2,966 898 588 135 280 1,254 76411,444
Beginning of Year 160 120 114 204 148 42 13 96 124 119 124 1,264
End of Year $ 1,180 1,015 559 2,403 3,114 940 601 231 404 1,373 88812,708
</TABLE>
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 Insurance Series MFS Variable Insurance Trust TCI Portfolios
High
American Income Prime Emerging Total World
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities
Fund II Fund II Fund II Series Series Series Series Series Series Growth Int'lTotal
<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 - - - - - - - - - - - -
Realized Gain (Loss)
on Investments - - - - - - - - - - - -
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 - -
Total Payments
and Withdrawals - - (26) - 3 19 - - 3 1 - -
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
Notes to Financial Statements
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 Company Act of 1940, as amended. 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 into KCL's Fixed Account.
Federated Insurance Series
American Leaders Fund II Long-term growth of capital
(formerly IMS Equity Growth and Income Fund)
High Income Bond Fund II High current income
(formerly IMS Corporate Bond Fund)
Prime Money Fund II Current income with stability of principal and
liquidity
(formerly IMS Prime Money Fund )
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
Basis of Presentation and Use of Estimates
The preparation of financial statements 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 quoted
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 were as follows:
Cost of Proceeds Shares
1996: Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $1,114 208 80,305 15,481
High Income Bond Fund II 1,098 241 111,304 24,492
Prime Money Fund II 2,872 2,427 2,871,785 2,426,951
MFS Research Series 2,336 331 192,136 27,843
MFS Emerging Growth Series 3,498 628 270,880 48,659
MFS Total Return Series 953 103 73,319 8,161
MFS Bond Series 659 73 65,728 7,300
MFS World Governments Series 143 16 14,011 1,601
MFS Utilities Series 276 18 21,082 1,345
TCI Growth 1,511 166 139,543 15,311
TCI International 809 113 146,506 20,815
Cost of Proceeds Shares
1995: Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $158 - 12,501 8
High Income Bond Fund II 124 5 12,329 17
Prime Money Fund II 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 Growth 199 - 9,863 22
TCI International 122 - 23,274 28
Notes to Financial Statements (continued)
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 Units
as of Year end as of Year end
1996 1995 1996 1995
American Leaders Fund II $12.48 10.41 94,537 15,359
High Income Bond Fund II 11.52 10.22 88,100 11,792
Prime Money Fund II 10.45 10.07 53,502 11,335
MFS Research Series 12.64 10.48 190,114 19,430
MFS Emerging Growth Series 12.31 10.66 253,083 13,900
MFS Total Return Series 11.88 10.53 79,175 3,981
MFS Bond Series 10.34 10.27 58,082 1,273
MFS World Governments Series 10.44 10.17 22,139 9,423
MFS Utilities Series 12.32 10.54 32,814 11,752
TCI Growth 9.33 9.89 147,134 11,998
TCI International 11.47 10.16 77,422 12,190
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 0.70 percent is for assuming mortality risks and 0.55
percent is for expense risk. Additionally, KCL is compensated for
administration expenses by a fee based on 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.
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 1996, $5,000 (none -
1995) was assessed in surrender charges and other contract charges totaled
$109,000 ($2,000 - 1995).
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, 1996 and 1995, and the
related statements of operations and changes in net assets for the year ended
December 31, 1996 and 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 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. Our procedures included confirmation of investments owned as of
December 31, 1996 and 1995 by correspondence with the custodians. 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 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, 1996 and 1995, and the results
of its operations and changes in its net assets for the year ended December 31,
1996 and the period from September 6, 1995 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
March 26, 1997
<TABLE>
Consolidated Income Statement
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Insurance revenues:
Premiums:
Life insurance $103,263 101,341 103,324
Accident and health 37,575 29,475 30,896
Contract charges 78,755 74,642 69,607
Investment revenues:
Investment income, net 186,743 188,087 173,388
Realized investment gains, net 3,013 4,950 6,060
Other 12,662 10,290 10,179
TOTAL REVENUES 422,011 408,785 393,454
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 87,940 85,388 79,829
Surrenders of life insurance 15,488 16,345 16,490
Other benefits 65,437 53,441 54,146
Increase in benefit and contract reserves 85,614 89,139 83,158
Amortization of policy acquisition costs 30,086 27,992 29,370
Insurance operating expenses 78,121 76,557 73,487
TOTAL BENEFITS AND EXPENSES 362,686 348,862 336,480
Income before Federal income taxes 59,325 59,923 56,974
Federal income taxes:
Current 26,073 22,038 22,845
Deferred (9,063) (3,853) (4,729)
17,010 18,185 18,116
Income before nonrecurring item 42,315 41,738 38,858
Postemployment benefits, net - - 1,481
NET INCOME $ 42,315 41,738 37,377
PER COMMON SHARE
Income before nonrecurring item $6.84 6.76 6.32
Postemployment benefits, net - - .24
NET INCOME $6.84 6.76 6.08
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Balance Sheet
<CAPTION>
<S> <C> <C>
1996 1995
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost $1,762,091,000;
$1,604,415,000 -1995) $1,759,153 1,647,674
Held to maturity, at amortized cost
(fair value $256,042,000;
$339,911,000 - 1995) 248,433 320,394
Equity securities available for sale,
at fair value (amortized cost
$71,522,000; $62,352,000 -1995) 79,018 70,837
Mortgage loans on real estate, net 246,493 235,213
Real estate, net 43,750 48,542
Real estate joint ventures 28,356 36,103
Policy loans 94,412 94,312
Short-term 19,642 36,898
TOTAL INVESTMENTS 2,519,257 2,489,973
Cash 4,577 9,612
Accrued investment income 41,847 40,923
Receivables, net 6,854 7,228
Property and equipment, net 24,791 27,866
Deferred acquisition costs 207,020 192,476
Value of purchased insurance in force 38,031 39,084
Reinsurance assets 93,328 89,983
Other 5,089 5,359
Separate account assets 13,916 1,264
$2,954,710 2,903,768
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 671,204 658,350
Accident and health 30,356 27,379
Accumulated contract values 1,544,714 1,518,968
Policy and contract claims 35,223 31,919
Other policyholders' funds:
Dividend and coupon accumulations 43,141 42,610
Other 60,970 56,206
Income taxes:
Current 3,537 2,796
Deferred 19,748 43,230
Other 69,037 63,919
Separate account liabilities 13,916 1,264
TOTAL LIABILITIES 2,491,846 2,446,641
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 14,761 13,039
Unrealized gains (losses) on securities
available for sale, net 2,963 29,740
Retained earnings 509,748 477,826
Less treasury stock, at cost
(3,058,871 shares; 3,070,435 shares -1995) (87,729) (86,599)
TOTAL STOCKHOLDERS' EQUITY 462,864 457,127
$2,954,710 2,903,768
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Statement of Stockholders' Equity
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
COMMON STOCK, beginning and end of year $ 23,121 23,121 23,121
PAID-IN-CAPITAL:
Beginning of year 13,039 11,847 10,597
Excess of proceeds over cost of
treasury stock sold 1,722 1,192 1,250
End of year 14,761 13,039 11,847
UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE FOR SALE:
Beginning of year 29,740 (51,345) 13,501
Unrealized appreciation on cumulative effect
of accounting change, net - - 14,627
Unrealized appreciation (depreciation)
on securities available for sale, net (26,777) 81,085 (79,473)
End of year 2,963 29,740 (51,345)
RETAINED EARNINGS:
Beginning of year 477,826 446,149 417,381
Net income 42,315 41,738 37,377
Stockholder dividends of $1.68 per share
($1.63 - 1995 and $1.40 - 1994) (10,393) (10,061) (8,609)
End of year 509,748 477,826 446,149
TREASURY STOCK, at cost:
Beginning of year (86,599) (86,077) (85,643)
Cost of 27,876 shares acquired
(17,240 shares - 1995 and
17,329 shares - 1994) (1,501) (829) (771)
Cost of 39,440 shares sold
(32,709 shares - 1995
and 35,890 shares - 1994) 371 307 337
End of year (87,729) (86,599) (86,077)
TOTAL STOCKHOLDERS' EQUITY $462,864 457,127 343,695
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 42,315 41,738 37,377
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (4,071) (5,215) (3,882)
Depreciation 4,995 5,265 5,165
Policy acquisition costs capitalized (38,639) (40,388) (43,952)
Amortization of deferred policy
acquisition costs 30,086 27,992 29,370
Realized investment gains (3,013) (4,950) (6,060)
Changes in assets and liabilities:
Future policy benefits 15,831 15,071 15,747
Accumulated contract values 3,183 8,135 8,445
Other policy liabilities 5,294 3,852 414
Income taxes payable and deferred (8,322) (1,595) (4,784)
Postemployment benefits, net - - 1,481
Other, net 5,886 4,318 2,431
NET CASH FROM OPERATING ACTIVITIES 53,545 54,223 41,752
INVESTING ACTIVITIES
Investments called, matured or repaid:
Fixed maturities available for sale 131,545 136,574 203,640
Fixed maturities held to maturity 79,017 63,433 75,060
Equity securities available for sale 8,899 13,727 27,876
Mortgage loans on real estate 53,430 67,722 35,311
Decrease (increase) in
short-term investments, net 17,256 (17,558) 120,142
Other 10,440 4,884 2,469
Investments sold:
Fixed maturities available for sale 140,372 165,563 51,124
Fixed maturities held to maturity - 4,207 -
Equity securities available for sale 963 18,984 3,488
Investments purchased or originated:
Fixed maturities available for sale (431,916)(495,766)(574,667)
Fixed maturities held to maturity - - (21,533)
Equity securities available for sale (18,071) (12,896) (5,566)
Real estate joint ventures (6,439) (8,093) (5,707)
Mortgage loans on real estate (54,161) (31,053) (8,192)
Other (2,150) (1,068) (1,789)
Net additions to property and equipment (527) (2,918) (1,640)
NET CASH USED IN INVESTING ACTIVITIES (71,342) (94,258) (99,984)
FINANCING ACTIVITIES
Proceeds from borrowings 1,650 22,730 891
Repayment of borrowings (1,650) (22,730) (11,446)
Policyowner contract deposits 164,677 179,135 179,411
Withdrawals of policyowner contract deposits (142,114)(127,347)(107,354)
Cash dividends to stockholders (10,393) (10,061) (8,609)
Disposition of treasury stock, net 592 670 816
NET CASH FROM FINANCING ACTIVITIES 12,762 42,397 53,709
Increase (decrease) in cash (5,035) 2,362 (4,523)
Cash at beginning of year 9,612 7,250 11,773
CASH AT END OF YEAR $ 4,577 9,612 7,250
</TABLE>
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 affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Financial Accounting Standards Board (FASB) Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," was adopted in January 1996, with no impact to the financial statements.
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 .75 percent to 6.75
percent during 1996 (4.79 percent to 7.00 percent during 1995 and 4.50 percent
to 7.50 percent during 1994).
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 which
increased gross profits above those originally estimated. Calls and realized
gains related to them were negligible in 1995 and 1996. In accordance with
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, or
$.08 a share 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 $5,030,000 ($5,157,000 - 1995 and $5,310,000 - 1994) for accrual
of interest and reduced $6,082,000 ($6,088,000 - 1995 and $6,636,000 - 1994)
for amortization. A 13 percent interest rate was used. Through 1996, total
accumulated accrual of interest and amortization equal $27,583,000 and
$33,052,000, respectively. The percentage of the asset's current carrying
amount which will be amortized in each of the next five years is 7.3 percent
- - 1997 and 1998, 7.4 percent - 1999, 7.6 percent - 2000 and 7.5 percent -
2001. This percentage was 2.7 percent in 1996.
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. 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, 6,188,489 shares (6,173,294 shares - 1995 and
6,152,155 shares - 1994).
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.
1996 1995 1994
Net gain from operations for the year $ 27,345 29,307 29,151
Net income for the year 25,574 29,484 28,324
Unassigned surplus at December 31 284,417 268,239 235,226
Stockholders' equity at December 31 234,570 217,801 184,117
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 1997 without prior approval is $27,345,000. 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 $36,000,000 in 1996 and $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. On that date,
the value of securities available for sale at fair value increased
stockholders' equity $14,627,000, 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 provided 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.
At December 31, 1996, 88 percent of the Company's securities are categorized
as available for sale and are stated at fair value. 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.
<TABLE>
Investment Revenues
Major categories of investment revenues are summarized as follows.
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Fixed maturities $150,421 144,242 127,806
Equity securities 5,503 6,259 7,563
Mortgage loans 23,127 31,378 29,118
Real estate 13,237 12,342 11,732
Policy loans 6,372 6,174 6,295
Short-term 2,353 2,753 4,437
Other 2,222 2,533 2,433
203,235 205,681 189,384
Less investment expenses (16,492) (17,594) (15,996)
$186,743 188,087 173,388
Realized gains (losses):
Fixed maturities $ (1,862) (1,718) 1,995
Equity securities 961 4,634 4,568
Mortgage loans 2,000 (108) -
Real estate 1,894 2,172 300
Other 20 (30) 1
Deferred acquisition cost amortization for
realized investment gains - - (804)
$ 3,013 4,950 6,060
</TABLE>
<TABLE>
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Available for sale:
End of year $ 4,558 51,744 (86,601)
Deferred income taxes (1,595) (16,013) 27,661
Effect on deferred acquisition costs - (5,991) 7,595
$ 2,963 29,740 (51,345)
Increase (decrease) in net unrealized gains
during the year:
Fixed maturities $(26,216) 78,876 (55,150)
Equity securities (561) 2,209 (9,696)
$(26,777) 81,085 (64,846)
Held to maturity:
End of year $ 7,609 19,517 2,850
Increase (decrease) in net unrealized gains
during the year $(11,908) 16,667 (65,820)
</TABLE>
<TABLE>
Securities
The amortized cost and fair value of investments in securities at December 31,
1996, follow.
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U.S. government bonds $ 144,299 1,633 518 145,414
Public utility bonds 254,875 2,755 3,631 253,999
Corporate bonds 981,157 10,122 17,161 974,118
Mortgage-backed bonds 253,810 6,473 1,532 258,751
Other bonds 114,539 850 2,238 113,151
Redeemable preferred stocks 13,411 419 110 13,720
Total fixed maturities 1,762,091 22,252 25,190 1,759,153
Equity securities 71,522 8,340 844 79,018
$1,833,613 30,592 26,034 1,838,171
Held to maturity:
Public utility bonds $ 138,592 5,619 306 143,905
Corporate bonds 104,713 3,387 1,416 106,684
Other bonds 5,128 325 - 5,453
248,433 9,331 1,722 256,042
$2,082,046 39,923 27,756 2,094,213
</TABLE>
The amortized cost and fair value of investments in securities at December 31,
1995, follow.
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
</TABLE>
All fixed maturity securities produced income in 1996.
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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Available for sale:
Due in one year or less $ 39,749 40,037
Due after one year through five years 286,030 290,506
Due after five years through ten years 731,349 722,058
Due after ten years 451,153 447,801
Mortgage-backed bonds 253,810 258,751
$1,762,091 1,759,153
Held to maturity:
Due in one year or less $ 92,171 94,186
Due after one year through five years 68,567 71,624
Due after five years through ten years 37,613 39,314
Due after ten years 50,082 50,918
$ 248,433 256,042
</TABLE>
Sales of investments in securities available for sale in 1996, excluding
normal maturities and calls, follow.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Proceeds $141,336 184,547 54,612
Gross realized gains 1,400 6,416 1,065
Gross realized losses 1,420 6,527 377
</TABLE>
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, 1996, the Company did 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 $2,077,000
($2,862,000 - 1995). Mortgage loans are carried net of a valuation reserve of
$8,500,000 ($10,500,000 in 1995).
At December 31, 1996 and 1995, the mortgage portfolio is diversified
geographically and by property type as follows.
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Geographic region:
Mountain $ 75,058 76,163 78,843 82,753
Pacific 81,955 82,599 80,334 82,802
West south central 36,155 36,940 35,541 37,483
West north central 35,463 36,003 28,172 29,717
Other 26,362 26,824 22,823 24,233
Valuation reserve (8,500) (8,500) (10,500) (10,500)
$246,493 250,029 235,213 246,488
Property type:
Industrial $136,266 137,633 104,728 109,247
Retail 45,555 46,681 57,246 60,114
Office 54,332 55,280 66,404 69,656
Other 18,840 18,935 17,335 17,971
Valuation reserve (8,500) (8,500) (10,500) (10,500)
$246,493 250,029 235,213 246,488
</TABLE>
As of December 31, 1996, the Company has commitments which expire in 1997 to
originate mortgage loans of $7,253,000.
Mortgage loans foreclosed upon and transferred to real estate investments
during the year equaled $2,977,000 ($4,322,000 - 1995 and $3,391,000 - 1994).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $6,579,000 ($9,571,000 - 1995 and $877,000 - 1994).
Real Estate
Detail concerning the Company's real estate investments follows.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Penntower office building, at cost:
Land $ 1,106 1,106
Building 17,644 17,543
Less accumulated depreciation (9,303) (8,721)
Foreclosed real estate, at lower of
cost or net realizable value 18,218 22,736
Other investment properties, at cost:
Land 3,370 3,370
Buildings 25,907 24,890
Less accumulated depreciation (13,192) (12,382)
$ 43,750 48,542
</TABLE>
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 $5,227,000 ($7,378,000 - 1995) to
reflect net realizable value.
The Company held non-income producing real estate equaling $758,000 ($931,000
- - 1995).
<TABLE>
PROPERTY AND EQUIPMENT
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 1,029 1,029
Home office buildings 23,131 23,122
Furniture and equipment 24,760 26,382
48,920 50,533
Less accumulated depreciation (24,129) (22,667)
$24,791 27,866
</TABLE>
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.
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.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 7,750 7,233
Fully eligible active plan participants 1,904 1,780
Other active plan participants 5,803 5,844
15,457 14,857
Unrecognized net loss (590) (722)
$14,867 14,135
</TABLE>
The net periodic postretirement benefit cost included the following
components.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 536 314 379
Interest cost 794 669 535
Net amortization of experience gains - (93) (87)
$1,330 890 827
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for the medical plans is 12 percent for 1997, the same as for
1996, and is assumed to decrease gradually to 6 percent in 2005. Increasing
the assumed health care cost growth rates by one percentage point increases
the accrued postretirement benefit costs $2,040,000 and $1,931,000 as of
December 31, 1996 and 1995, respectively. The aggregate service and interest
cost components of the net periodic postretirement benefit cost for 1996 would
increase $268,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75 percent and 7.00
percent at December 31, 1996 and 1995, 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.
1996 1995
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$79,913,000 ($80,212,000 - 1995) $ 86,635 81,769
Projected benefit obligation for service
rendered to date $100,571 96,771
Plan assets at fair value, primarily listed
corporate and U.S. bonds 85,241 85,710
Plan assets less than projected benefit obligation (15,330) (11,061)
Items not yet recognized in earnings:
Net loss from past experience 15,571 13,885
Prior service costs 14 16
Net asset at January 1, 1987,
being recognized over 16 years (1,236) (1,442)
Net prepaid (unfunded) pension costs $ (981) 1,398
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net pension cost includes:
Service costs - benefits earned during the period $ 3,369 2,403 3,178
Interest cost on projected benefit obligation 6,647 6,156 5,835
Actual return on plan assets (2,951) (14,139) 1,907
Net amortization and deferral (4,547) 7,412 (8,923)
Net periodic pension cost $ 2,518 1,832 1,997
Assumptions were as follows:
Weighted average discount rate 7.75% 7.00 8.50
Weighted average compensation increase 4.50 5.50 5.50
Weighted average expected
long-term return on plan assets 9.00 9.00 9.00
</TABLE>
At December 31, 1996, the Company utilized more recent mortality experience
which caused some increase in the benefit obligations.
No contribution was made to the pension plan in 1996 ($992,000 - 1995 and none
- - 1994).
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 $174,000 ($287,000 -1995 and $111,000 -
1994). The Company also sponsors a non-contributory deferred compensation plan
for eligible agents based upon earned first-year commissions. Contributions
to this plan were $318,000 ($405,000 -1995 and $377,000 - 1994).
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 $2,082,000 ($1,826,000 - 1995 and $1,898,000 - 1994).
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 1994 and 1996.
The Company 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 has
not materially aff ected operating expenses in any year since then.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal income tax rate 35% 35 35
Special tax credits (5) (4) (2)
Other permanent differences (1) (1) (1)
Actual income tax rate 29% 30 32
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 46,518 43,906
Employee retirement benefits 13,055 11,598
Other 5,176 3,073
Gross deferred tax assets 64,749 58,577
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 49,175 47,321
Basis differences between tax and
GAAP accounting for investments 20,093 38,933
Property and equipment, net 1,770 2,073
Value of insurance in force 11,790 12,116
Other 1,669 1,364
Gross deferred tax liabilities 84,497 101,807
Net deferred tax liability $ 19,748 43,230
</TABLE>
Federal income taxes paid for the year were $25,332,000 ($19,981,000 - 1995
and $22,684,000 - 1994).
Policyholders' 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
policyholders' 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 policyholders' 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
1996 this shareholders' surplus was $340,549,000 for Kansas City Life,
$62,740,000 for Sunset Life and $38,544,000 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 invest ment risks are assumed by the policyholders. 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 policyholders 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.
<TABLE>
REINSURANCE
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Life insurance in force (in millions):
Direct $ 22,180 20 991 19 988
Ceded (2,742) (2 442) (2 073)
Assumed 28 33 36
Net $ 19,466 18 582 17 951
Premiums:
Life insurance:
Direct $127,150 124,504 126,652
Ceded (24,380) (23,292) (23,538)
Assumed 493 129 210
Net $103,263 101,341 103,324
Accident and health:
Direct $ 48,694 42,971 42,709
Ceded (11,370) (13,496) (11,956)
Assumed 251 - 143
Net $ 37,575 29,475 30,896
</TABLE>
Contract charges arise generally from directly issued business. Ceded benefit
recoveries were $37,829,000 ($27,613,000 - 1995 and $27,365,000 - 1994).
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, 1996, these policies had a face
value of $148,430,000. The reserve for future policy benefits ceded under this
agreement was $52,556,000 ($53,649,000 - 1995).
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 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. Fair values for mortgage loans are based upon discounted cash
flow analyses using an interest rate assumption 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.
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Investments:
Securities available for sale $1,838,171 1 838,171 1,718,511 1 718,511
Securities held to maturity 248,433 256,042 320,394 339,911
Mortgage loans 246,493 250,029 235,213 246,488
Liabilities:
Individual and group annuities 862,605 829,261 871,340 842,809
Supplementary contracts without
life contingencies 21,835 21,835 23,343 23,343
</TABLE>
The Investments Note provides further details regarding the investments above.
QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
1996:
Total revenues $106,868 102,088 105,677 107,377
Operating income $ 11,933 10,002 8,643 9,777
Realized gains, net 614 (308) 671 982
Net income $ 12,547 9,694 9,314 10,759
Per common share:
Operating income $ 1.93 1.62 1.39 1.58
Realized gains, net .10 (.05) .11 .16
Net income $ 2.03 1.57 1.50 1.74
1995:
Total revenues $ 98,733 100,356 103,041 106,656
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
</TABLE>
CONTINGENT LIABILITY
In January 1996, a division of the Oklahoma Appellate Court issued an opinion
reducing a prior $10,700,000 judgment against the Company to $1,300,000 which
the Company has accrued. The case arose out of certain actions by one of the
Company's agents. In November 1996, an Oklahoma District Court Judge ruled
that the Company was also responsible for $2,500,000 of a judgment rendered
against the agent in the same case. The Company believes that the court's
ruling violates the Company's rights and guarantees under the Oklahoma and
Federal Constitutions as well as Oklahoma common and statutory law. The
Oklahoma Supreme Court has agreed to hear the Company's appeal. 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 lawsuits involving claims and disputes with policyholders that
may 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 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.
Report of Independent Auditors
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheet of Kansas City
Life Insurance Company (the Company) as of December 31, 1996 and 1995 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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 respects, the consolidated financial position
of Kansas City Life Insurance Company at December 31, 1996 and 1995 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in the Notes to the consolidated financial statements, the
Company changed its method of accounting for investments and postemployment
benefits in 1994.
Kansas City, Missouri
January 27, 1997
Stckholder Information
CORPORATE HEADQUARTERS
Kansas City Life Insurance Company
3520 Broadway
Post Office Box 419139
Kansas City, Missouri 64141-6139
Telephone: (816) 753-7000
Fax: (816) 753-4902
Internet: http://www.kclife.com
E-Mail: Kclife @ Kclife.com
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held at 9 a.m. Thursday, April 24,
1997, at Kansas City Life's corporate headquarters.
TRANSFER AGENT
Sherri Morehead, Assistant Secretary
Kansas City Life Insurance Company
Post Office Box 419139
Kansas City, Missouri 64141-6139
10-K REQUEST
Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed
with the Securities and Exchange Commission, by writing to Secretary, Kansas
City Life Insurance Company.
SECURITY HOLDERS
As of February 10, 1997, Kansas City Life had approximately 855 security
holders, including individual participants in security position listings.
STOCK AND DIVIDEND INFORMATION
Stock Quotation Symbol
Over-the-Counter_KCLI
Dividend
Bid Paid
High Low (per share)
1996:
First Quarter $58.25 51.00 $ .42
Second Quarter 57.50 52.50 .42
Third Quarter 56.50 52.00 .42
Fourth Quarter 63.50 53.50 .42
$1.68
1995:
First Quarter $44.50 42.00 $ .36
Second Quarter 48.00 41.00 .49
Third Quarter 50.50 48.00 .39
Fourth Quarter 52.00 51.00 .39
$1.63
The above includes a special $.10 per share dividend in the second quarter,
1995 commemorating the Company's Centennial.
A quarterly dividend of $.44 per share was paid February 24, 1997.
Over-the-counter market quotations are compiled according to Company records
and may reflect inter-dealer prices, without mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Dividend Restrictions
Refer to the Significant Accounting Policies Note to the Consolidated
Financial Statements.
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).
***Incorporated by reference to the Registrant's Post-Effective
Amendment No. 2 to its Registration Statement filed with the Securities
and Exchange Commission on April 30, 1996. (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
R. 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
Webb R. Gilmore Director
Warren J. Hunzicker Director
Michael J. Ross Director
Larry Winn Jr. Director
Peter Hathaway, M.D. Vice President and Medical Director
Scott M. Stone Assistant Vice President, Director,
Securities
Mark A. Milton Vice President and Associate Actuary
Glenda R. Cline Assistant Vice President, Special Plan
Administration
Robert J. Milroy Vice President, Policy Administration
Robert E. Janes Assistant Vice President, Assistant
Controller
David A. Laird Assistant Vice President, Assistant
Controller
Jeffrey P. 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
845--As of December 31, 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 K. 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.
(e) Kansas City Life Insurance Company hereby represents that the
fees and charges deducted under the Contracts described in this post-effective
amendment are, in the aggregrate, reasonable in relationship to the services
rendered, the expenses expected to be incurred, and the risks assumed by Kansas
City Life Insurance Company.
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets all of the requirements of
Securities Act Rule of 485(b) for effectiveness of the Post-Effective Amendment
to its Registration Statement and has caused this Registration Statement to be
signed on its behalf, in the City of Kansas City, and the State of Missouri, on
this 28th day of April, 1997.
KANSAS CITY LIFE INSURANCE COMPANY
Attest: /s/C. J. Malacarne By: /s/W. E.Bixby ___________
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 28, 1997
W. E. Bixby President, CEO, and Director
(Principal Executive Officer)
/s/Richard L. Finn_ Senior Vice President, Finance April 28, 1997
Richard L. Finn and Director
(Principal Financial Officer)
/s/John K. Koetting Vice President and Controller April 28, 1997
John K. Koetting (Principal Accounting Officer)
/s/R. Philip Bixby__ Director April 28, 1997
R. Philip Bixby
/s/Daryl D. Jensen____ Director April 28, 1997
Daryl D. Jensen
/s/Francis P. Lemery___ Director April 28, 1997
Francis P. Lemery
/s/C. John Malacarne___ Director
C. John Malacarne April 28, 1997
/s/Jack D. Hayes____ Director April 28, 1997
Jack D. Hayes
/s/ J. R. Bixby________ Director April 28, 1997
J.R. Bixby
_______________________ Director April , 1997
Webb R. Gilmore
_______________________ Director April , 1997
Warren J. Hunzicker, M.D.
______________________ Director April , 1997
Michael J. Ross
______________________ Director April , 1997
E. Larry Winn Jr.
/s/W. E. Bixby, III_ Director April 28, 1997
W. E. Bixby, III
/s/Nancy Bixby Hudson Director April 28, 1997
Nancy Bixby Hudson
