As filed with the Securities and Exchange Commission on March 3, 1999
File No. 33-89984
File No. 811-8994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 4 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [X]
KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
KANSAS CITY LIFE INSURANCE COMPANY
(Name of Depositor)
3520 Broadway
Kansas City, Missouri 64141-6139
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (816) 753-7000
C. John Malacarne
3520 Broadway
Kansas City, Missouri 64141-6139
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan, LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485 _X__ On May
1, 1998 pursuant to paragraph (b) of Rule 485 ____ 60 days after filing pursuant
to paragraph (a)(1) of Rule 485 _X__ on May 3, 1999 pursuant to paragraph
(a)(1) of Rule 485
Title of securities being registered: Individual Flexible Premium Deferred
Variable Annuity Contracts
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Kansas City Life Insurance Company
through the Kansas City Life Variable Annuity Separate Account
Home Office: Correspondence to:
3520 Broadway Variable Administration
Kansas City, Missouri 64111-2565 P.O. Box 419364
Telephone: (816) 753-7000 Kansas City, Missouri 64141-6364
Telephone: (800) 616-3670
This Prospectus describes an individual flexible premium deferred variable
annuity contract (the "Contract") offered by Kansas City Life Insurance Company.
We have provided a Definitions section at the beginning of this Prospectus for
your reference as you read.
The Contract is designed to meet investors' long-term investment needs. The
Contract also provides you the opportunity to allocate premiums to one or more
divisions ("Subaccount") of Kansas City Life Variable Annuity Separate Account
("Variable Account") or another account. The assets of each Subaccount are
invested in a corresponding portfolio of a designated mutual fund ("Funds") as
follows:
MFS(R) Variable Insurance TrustSM Manager
MFS Emerging Growth Series Massachusetts Financial
MFS Research Series Services Company
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
MFS Bond Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
American Century VP International Management, Inc.
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Advisers
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Capital Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation
The accompanying prospectuses for the Funds describe these portfolios. The value
of amounts allocated to the Variable Account (prior to the date the Contract
Value is allocated to a payment option. ) will vary according to the investment
performance of the Funds. You bear the entire investment risk of amounts
allocated to the Variable Account. Another choice available for allocation of
premiums is to our Fixed Account. The Fixed Account is part of Kansas City
Life's general account. It pays interest at declared rates guaranteed to equal
or exceed 3%.
This Prospectus provides basic information about the Contract and the Variable
Account that you should know before investing. The Statement of Additional
Information contains additional information about the Contract and the Variable
Account. The date of the Statement of Additional Information is the same as this
Prospectus and is included by reference. We show the Table of Contents for the
Statement of Additional Information on page 36 of this Prospectus. You may
obtain a copy of the Statement of Additional Information free of charge by
writing or calling us at the address or phone number shown above.
If you already have a variable annuity contract, you should consider whether or
not purchasing another contract as a replacement for an existing contract is
advisable.
This Prospectus and the accompanying Fund prospectuses provide important
information you should have before deciding to purchase a Contract. Please keep
for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
An investment in the Contract is not a deposit or obligation of, or guaranteed
or endorsed by, any bank, nor is the Contract federally insured by the Federal
Deposit Insurance Corporation or any other government agency. An investment in
the Contract involves certain risks including the loss of premium payments
(principal).
The date of this Prospectus is May 3, 1999.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS...............................................................4
TABLE OF EXPENSES.........................................................9
CONDENSED FINANCIAL INFORMATION...........................................15
Federated........................................................15
MFS..............................................................15
AmCent...........................................................15
Dreyfus..........................................................15
No.of Units .....................................................15
Federated........................................................15
MFS..............................................................15
AmCent...........................................................15
Dreyfus..........................................................15
KANSAS CITY LIFE..........................................................16
THE VARIABLE ACCOUNT AND THE FUNDS........................................16
Kansas City Life Insurance Company...............................16
Kansas City Life Variable Annuity Separate Account...............16
The Funds........................................................16
Federated Insurance Series................................................18
Resolving Material Conflicts.....................................19
Addition, Deletion or Substitution of Investments................19
Voting Rights....................................................19
DESCRIPTION OF THE CONTRACT...............................................20
Purchasing a Contract............................................20
Free-Look Period.................................................20
Allocation of Premiums...........................................21
Variable Account Value...........................................21
Transfer Privilege...............................................23
Dollar Cost Averaging Plan.......................................23
Portfolio Rebalancing Plan.......................................24
Partial and Full Cash Surrenders.................................24
Contract Termination.............................................25
Contract Loans...................................................26
Death Benefit Before Maturity Date...............................27
Proceeds on Maturity Date........................................28
Payments ........................................................28
Modifications....................................................29
Reports to Contract Owner........................................29
Telephone Authorizations.........................................29
Contract Inquiries...............................................29
THE FIXED ACCOUNT.........................................................30
Minimum Guaranteed and Current Interest Rates....................30
Calculation of Fixed Account Value...............................30
Transfers from Fixed Account.....................................30
Delay of Payment.................................................31
CHARGES AND DEDUCTIONS....................................................31
Surrender Charge (Contingent Deferred Sales Charge)..............31
Transfer Processing Fee..........................................32
Administrative Charges...........................................32
Mortality and Expense Risk Charge................................32
Premium Taxes....................................................33
Reduced Charges for Eligible Groups..............................33
Other Taxes......................................................33
Investment Advisory Fees and Other Expenses of the Funds.........34
PAYMENT OPTIONS...........................................................34
Election of Options..............................................34
Description of Options...........................................35
YIELDS AND TOTAL RETURNS..................................................35
Yields...........................................................35
Benchmarks and Ratings...........................................36
FEDERAL TAX STATUS........................................................37
Introduction..............................................................37
Taxation of Non-Qualified Contracts.......................................37
Taxation of Qualified Contracts...........................................38
Possible Tax Law Changes..................................................39
DISTRIBUTION OF THE CONTRACTS.............................................
LEGAL PROCEEDINGS.........................................................
PREPARING FOR YEAR 2000...................................................
COMPANY HOLIDAYS..........................................................
FINANCIAL STATEMENTS......................................................
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS.....................
<PAGE>
DEFINITIONS
Annuitant The person on whose life the Contract's annuity benefit is based.
Beneficiary The person you designate to receive any proceeds payable under the
Contract at your death or the death of the Annuitant.
Cash Surrender Value The Contract Value less any applicable Surrender Charge,
indebtedness and premium taxes payable.
Contract Date The date from which Contract Months, Years, and Anniversaries are
measured.
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 or any
Contract Anniversary.
Fixed Account An account that is one option we offer for allocation of your
premiums. It is part of our general account and is not part of or dependent on
the investment performance of the Variable Account.
Fixed Account Value Measure of value accumulating in the Fixed Account.
Issue Age The Annuitant's age on his/her last birthday as of or on the Contract
Date.
Life Payment Option A Payment Option based upon the life of the Annuitant.
Maturity Date The date when the Contract terminates and we either pay the
proceeds under a Payment Option or pay you the Cash Surrender Value in a lump
sum. The latest Maturity Date is the later of the Contract Anniversary following
the Annuitant's 85th birthday and the tenth Contract Anniversary. (Certain
states and Qualified Contracts may place additional restrictions on the maximum
Maturity Date.)
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 issued in connection with plans that qualify for
special federal income tax treatment under sections 401, 403, 408 or 408A of the
Internal Revenue Code of 1986, as amended.
Subaccount The divisions of the Variable Account. The assets of each Subaccount
are invested in a portfolio of a designated 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 beginning at the close of business on one
Valuation Day and ending at the close of business on the next Valuation Day.
Variable Account Value The Variable Account Value is equal to the sum of all
Subaccount Values of a Contract.
Written Notice A written request or notice in a form satisfactory to us that is
signed by the Owner and received at the Home Office.
<PAGE>
HIGHLIGHTS
The Contract
Who Should Invest. The Contract is designed for investors seeking long-term
tax-deferred accumulation of funds. The goal for this accumulation is generally
retirement, but may be 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. We offer the Contract as both a Qualified
Contract and a Non-Qualified Contract. (See "Federal Tax Status," page 37.)
The Contract. The Contract is an individual flexible premium deferred
variable annuity. In order to purchase a Contract, you must complete an
application and submit it to us through a licensed Kansas City Life
representative, who is also a registered representative of Sunset Financial
Services, Inc. ("Sunset Financial"). You must pay the minimum initial premium.
The maximum Issue Age is 80. (See "Purchasing a Contract," page 20.)
Free-Look Period. You have the right to cancel your Contract and receive a
refund if you return the Contract within 10 days after you receive it. The
amount returned to you will vary depending by state. (See "Free-Look Period,"
page 20.)
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 may
not be less than $50 and you may pay them at any time during the Annuitant's
lifetime and before the Maturity Date. (See "Purchasing a Contract," page 20.)
Premium Allocation. You direct the allocation of premium payments among 14
Subaccounts of the Variable Account and/or Fixed Account. In the Contract
application, you specify the percentage of a premium less premium expense
charges) you want allocated to each Subaccount and/or to the Fixed Account. We
will invest the assets of each Subaccount 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 Subaccounts. 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.
The sum of your allocations must equal 100%. We have the right to limit the
number of Subaccounts to which you allocate premiums (not applicable to Texas
Contracts). We will never limit the number to less than 12. You can change the
allocation percentages at any time by sending Written Notice. You can make
changes in your allocation by telephone if you have provided proper
authorization. (See "Telephone Authorizations," page 29.) The change will apply
to the premium payments received with or after receipt of your notice.
We will allocate the initial premium to the Federated Prime Money Fund II
Subaccount for a 15-day period in states that
o require premium payments to be refunded under the free-look provision;or
o require the greater of premium payments or Contract Value to be refunded
under the free-look provision.
At the end of that period, we will allocate the amount in the Federated Prime
Money Fund II Subaccount to the Subaccounts and Fixed Account according to your
allocation instructions. (See "Allocation of Premiums," page 21.)
Transfers. After the free look period and before the Maturity Date, you may
transfer amounts among the Subaccounts and the Fixed Account. Certain
restrictions apply. The first six transfers during a Contract Year are free.
After the first six transfers, we will assess a $25 Transfer Fee. (See "Transfer
Privilege," page 23.)
Full and Partial Surrender. You may surrender all or part of the Cash
Surrender Value (subject to certain limitations) any time before the earlier:
the date that the Annuitant dies, or the Maturity Date.
Death Benefit. if the Annuitant dies before the Contract matures, 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 you die before the Maturity Date, the Contract Value (or, if the Owner is
also the Annuitant, the death benefit) must generally be distributed to the
Beneficiary within five years after the date of the Owner's death. (See "Death
Benefit Before Maturity Date," page 27.)
Charges and Deductions
The following charges and deductions apply to 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, we
will deduct a surrender charge for surrenders or partial surrenders during the
first seven Contract Years. Subject to certain restrictions, up to 10% of the
Contract Value per Contract Year will not be subject to a surrender charge. (See
"Amounts Not Subject to Surrender Charge," page 31.)
For the first three Contract Years, the surrender charge is 7% of the amount
surrendered. In the fourth, fifth, and sixth Contract Year, the surrender charge
is 6%, 5%, and 4%, respectively. In the seventh Contract Year, the surrender
charge is 2%. In the eighth Contract Year and after, there is no surrender
charge. The total surrender charges on any Contract will never exceed 8 1/2% of
the total premiums paid. (See "Charge for Partial Surrender or Surrender," page
31.)
Annual Administration Fee. We will deduct an Annual Administration Fee of
$30 from the Contract Value for administrative expenses at the beginning of each
Contract Year. We will waive this fee for Contracts with Contract Values of
$50,000 or more. (See "Annual Administration Fee," page 32.)
Transfer Processing Fee. The first six transfers of amounts in the
Subaccounts and the Fixed Account each Contract Year are free. We assess a $25
Transfer Processing Fee for each additional transfer during a Contract Year.
(See "Transfer Processing Fee," page 32.)
Asset-Based Administration Charge. We deduct a daily Asset-based
Administration Charge for expenses we incur in administration of the Contract.
Prior to the Maturity Date, we deduct the charge from the assets of the Variable
Account at an annual rate of 0.15%.
(See "Asset-Based Administration Charge," page 32.)
Mortality and Expense Risk Charge. We deduct a daily Mortality and Expense
Risk Charge to compensate us for assuming certain mortality and expense risks.
Prior to the date the Maturity Date , we 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 32.)
Premium Taxes. If state or other premium taxes are applicable to a
Contract, we will deduct them either upon surrender or upon application of the
proceeds to a payment option. (See "Premium Taxes," page 33.)
Investment Advisory Fees and Other Expenses of the Funds. The value of
the net assets of each Subaccount already reflects the investment advisory fees
and other expenses incurred by the corresponding Fund in which the Subaccount
invests. This means that these charges are deducted before we calculate
Subaccount Values. See the prospectuses for the Funds for specific information
about these fees. (See "Investment Advisory Fees and Other Expenses of the
Funds," page 34.)
Annuity Provisions
Maturity Date. On the Maturity Date we will apply the Contract Value to a
Life Payment Option if you choose this option. If you elect a payment option
other than a Life Payment Option or if you elect to receive a lump sum payment,
we will apply the Cash Surrender Value. (See "Payment Options," page 34.)
Payment Options. The Payment Options are:
Interest Payments (Non-Life Payment Option)
Installments of a Specified Amount (Non-Life Payment Option)
Installments for a Specified Period (Non-Life Payment Option)
Life Income (Life Payment Option)
Joint and Survivor Income (Life Payment Option)
Payments under these options do not vary based on Variable Account
performance. (See "Payment Options," page 34.)
Federal Tax Status
Under existing tax law there generally should be no federal income tax on
increases in the Contract Value until a distribution under the Contract occurs.
A distribution includes an actual distribution of funds such as surrender or
annuity payment. However, a distribution also includes certain changes in the
Contract such as a pledge or assignment. Generally, a portion of any
distribution is taxable as ordinary income. In addition, a penalty tax may apply
to certain distributions made prior to the Owner's reaching age 591h. Governing
federal tax statutes may be amended, revoked, or replaced by new legislation.
Changes in interpretation of these statutes may also occur. We encourage you to
consult your own tax adviser before making a purchase of the Contract. (See
"Federal Tax Status," page 37.)
<PAGE>
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
additional transfer during a
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 0.15%
------
Total Variable Account Annual Expenses 1.40%
<TABLE>
<CAPTION>
MFS MFS MFS
Emerging MFS Total MFS World MFS
Annual Fund Expenses Growth Research Return Utilities Governments Bond
Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C>
MFS(R) Variable Insurance TrustSM Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) X% X% X% X% X% X%
Other Expenses (after any expense X% X% X% X% X% X%
reimbursement)2/3/
Total Fund Annual Expenses 2/ X% X% X% X% X% X%
</TABLE>
<PAGE>
<TABLE>
<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) X% X%
Other Expenses X% X%
Total Fund Annual Expenses4/ X% X%
</TABLE>
<TABLE>
<CAPTION>
Federated
Federated High Federated
American Income Prime
Leaders Bond Money
Fund II 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) X% X% X%
Other Expenses (after any expense reimbursement) X% X% X%
Total Fund Annual Expenses5/ X% X% X%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Capital Dreyfus
Appreciation Small Cap
Portfolio Portfolio
<S> <C> <C>
Dreyfus Variable Investment Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) X% X%
Other Expenses (after any expense reimbursement) X% X%
Total Fund Annual Expenses X% X%
</TABLE>
Dreyfus Stock
Index Fund
Dreyfus Stock Index Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) X%
Other Expenses (after any expense reimbursement) X%
Total Fund Annual Expenses X%
Premium taxes, currently ranging up to 3.5%, may be applicable, depending on
various states' laws.
The above tables are intended to assist you in understanding the costs and
expenses that you will bear, directly or indirectly. The tables reflect expenses
of the Variable Account as well as for the Funds. The Contract Owner Transaction
Expenses, Annual Administration Fee, and Variable Account Annual Expenses are
based on charges described in the Contract. The Annual Expenses for the Funds
are expenses for the most recent fiscal year, except as noted below. For a more
complete description of the various costs and expenses, see "Charges and
Deductions" on page 31 of this Prospectus and the prospectuses for the
underlying Funds that accompany it.
- --------------------------
1/ Subject to certain restrictions, up to 10% of the Contract Value per
Contract Year will not be subject to a Surrender Charge. (See "Amounts
Not Subject to Surrender Charge," page 31).
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: .40% for the Bond Series, and .25% for each
remaining Series. Absent this expense arrangement, "Other Expenses" for
the Total Return Series, Utilities Series, World Governments Series and
Bond Series would be .27%, .45%, .40% and 2.98%, respectively, and Total
Annual Fund Expenses would be 1.02%, 1.20%, 1.15% and 3.58%,
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 adviser to Federated Insurance Series has agreed to waive all or a
portion of its fee or reimburse the Fund for certain operating expenses
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 .94%, .89%, and 1.00%, respectively, of average net
assets.
<PAGE>
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 paid out under a Non-Life Payment
Option at the end of the applicable time period:
Subaccount 1 Year 3 Years 5 Years 10 Years
MFS Research Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Emerging Growth Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Total Return Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Bond Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS World Governments Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Utilities Series $ XXXX $ XXXX $ XXXX $ XXXX
American Century VP International $ XXXX $ XXXX $ XXXX $ XXXX
American Century VP Capital Appreciation $ XXXX $ XXXX $ XXXX $ XXXX
Federated American Leaders Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Federated High Income Bond Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Federated Prime Money Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Capital Appreciation $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Small Cap $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Stock Index Fund $ XXXX $ XXXX $ XXXX $ XXXX
2. If the Contract is not surrendered or is paid out under a Life Payment Option
at the end of the applicable time period:
Subaccount 1 Year 3 Years 5 Years 10 Years
MFS Research Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Emerging Growth Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Total Return Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Bond Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS World Governments Series $ XXXX $ XXXX $ XXXX $ XXXX
MFS Utilities Series $ XXXX $ XXXX $ XXXX $ XXXX
American Century VP International $ XXXX $ XXXX $ XXXX $ XXXX
American Century VP Capital Appreciation $ XXXX $ XXXX $ XXXX $ XXXX
Federated American Leaders Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Federated High Income Bond Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Federated Prime Money Fund II $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Capital Appreciation $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Small Cap $ XXXX $ XXXX $ XXXX $ XXXX
Dreyfus Stock Index Fund $ XXXX $ XXXX $ XXXX $ XXXX
The examples above assume that we assess no transfer charges or premium taxes.
They also assume an average Contract Value of $XX and that the Annual
Administration Fee is $30. This translates the Annual Administrative Fee into an
assumed .XX% charge on a $1,000 investment for the purposes of the examples.
You should not consider the assumed expenses in the examples to represent past
or future expenses. Actual expenses may be greater or less than those shown. The
assumed 5% annual rate of return is hypothetical and you should not view it as a
representation of past or future annual returns. Actual returns may be greater
or less than the assumed amount.
The various Funds themselves provided the expense information regarding the
Funds. The Funds and their investment advisers are not affiliated with us. While
we have no reason to doubt the accuracy of these figures provided by these
non-affiliated Funds, we have not independently verified the figures.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The unit values and the number of accumulation units for each Subaccount for the
periods shown are as follows:
No. of Units Unit Value
as of as of
12-31-98 12-31-98 1-1-98
Federated
American Leaders Fund II
High Income Bond Fund II
Prime Money Fund II
MFS
Research Series
Emerging Growth Series
Total Return Series
Bond Series
World Governments Series
Utilities Series
AmCent
VP International
VP Capital Appreciation
Dreyfus
Capital Appreciation
Small Cap
Stock Index Fund
<TABLE>
<CAPTION>
No. of Units Unit Value No. of Units Unit Value No. of Units Unit Value
as of as of as of as of as of as of
12-31-97 12-31-97 1-1-97 12-31-96 12-31-96 1-1-96 12-31-95 12-31-95 9-6-95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federated
American Leaders Fund II 341,341 $16.29 $12.43 94,537 $12.48 $10.50 15,359 $10.41 $10.00
High Income Bond Fund II 348,642 12.93 11.52 88,100 11.52 10.23 11,792 10.22 10.00
Prime Money Fund II 141,386 10.81 10.45 53,502 10.45 10.12 11,335 10.07 10.00
MFS
Research Series 516,667 14.99 12.51 190,114 12.64 10.49 19,430 10.48 10.00
Emerging Growth Series 518,578 14.79 12.17 253,083 12.31 10.65 13,900 10.66 10.00
Total Return Series 292,413 14.20 11.81 79,175 11.88 10.56 3,981 10.53 10.00
Bond Series 94,899 11.23 10.29 58,082 10.34 10.29 1,273 10.27 10.00
World Governments Series 36,847 10.17 10.39 22,139 10.44 10.39 9,423 10.17 10.00
Utilities Series 204,977 16.00 12.21 32,814 12.32 10.58 11,752 10.54 10.00
AmCent
VP International 188,540 13.41 11.37 77,422 11.47 10.24 12,190 10.16 10.00
VP Capital Appreciation 200,605 8.90 9.15 147,134 9.33 9.91 11,998 9.89 10.00
Dreyfus
Capital Appreciation 154,014 10.97 NA NA NA NA NA NA NA
Small Cap 349,294 11.50 NA NA NA NA NA NA NA
Stock Index Fund 355,380 11.52 NA NA NA NA NA NA NA
</TABLE>
<PAGE>
KANSAS CITY LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS
Kansas City Life Insurance Company
Kansas City Life Insurance Company is a stock life insurance company organized
under the laws of the State of Missouri on May 1, 1895. Kansas City Life is
currently licensed to transact life insurance business in 48 states and the
District of Columbia.
We are regulated 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
we do business. We submit annual statements on our operations and finances to
insurance officials in such states and jurisdictions. We also file the forms for
the Contract described in this Prospectus with insurance officials in each state
and jurisdiction in which Contracts are sold.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
Kansas City Life Variable Annuity Separate Account
We established the Kansas City Life Variable Annuity Separate Account as a
separate investment account under Missouri law on January 23, 1995. This
Variable Account supports the Contracts and may be used to support other
variable annuity insurance contracts and for other purposes as permitted by law.
The Variable Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act") and is a "separate account" within the meaning of the federal
securities laws. We have established other separate investment accounts that may
also be registered with the SEC.
The Variable Account is divided into Subaccounts. The Subaccounts available
under the Contract invest in shares of corresponding fund portfolios. The
Variable Account may include other Subaccounts not available under the Contracts
and not otherwise discussed in this Prospectus. We own the assets in the
Variable Account.
We apply income, gains and losses of a Subaccount (realized or unrealized)
without regard to any other income, gains or losses of Kansas City Life or any
other separate account. We cannot use Variable Account assets (reserves and
other contract liabilities) to cover liabilities arising out of any other
business we conduct. We are obligated to pay all benefits provided under the
Contracts.
The Funds
Each of the Funds is registered with the SEC as a diversified open-end
management investment company under the 1940 Act. However, the SEC does not
supervise their management, investment practices or policies. Each Fund is a
series fund-type mutual fund made up of the Portfolios and other series that are
not available under the Contracts. The investment objectives of each of the
Portfolios is described below.
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.
The investment objectives and policies of certain Funds are similar to the
investment objectives and policies of other funds that may be managed by the
same investment advisor or manager. The investment results of the Portfolios,
however, may be higher or lower than the results of such other funds. There can
be no assurance that the investment results of any of the funds will be
comparable to the investment results of any other funds, even if the other fund
has the same investment advisor or manager.
MFS(R) Variable Insurance TrustSM
(Manager: Massachusetts Financial Services Company)
MFS Emerging Growth Series. The Emerging Growth Series seeks to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital. The Series' policy is to invest primarily (i.e., at
least 80% of its assets under normal circumstances) in common stocks of
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises (emerging growth companies).
MFS 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 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. 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 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.
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.
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 or non-rated debt securities commonly known as "junk bonds." The
risks of investing in junk bonds are described in the prospectus for the MFS(R)
Variable Insurance TrustSM, which you should read carefully before investing.
American Century Variable Portfolios, Inc.
(Manager: American Century Investment Management, Inc.
American Century VP Capital Appreciation Portfolio. . 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.
American Century VP International Portfolio. The investment objective of
American Century VP International Portfolio 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.
Federated Insurance Series
(Manager: Federated Advisers)
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 objectives by investing, under normal circumstances, at least 65% of
its total assets in common stock of "blue-chip" companies, which are generally
top-quality, established growth companies.
Federated High Income Bond Fund II. 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 junk bonds is described in the prospectus for Federated Insurance
Series, which you should 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.
Dreyfus Variable Investment Fund
(Manager: The Dreyfus Corporation)
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.
Dreyfus Stock Index Fund
(Manager: The Dreyfus Corporation)
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 Funds will achieve their stated objectives and
policies.
See the current prospectus for each Fund that accompanies this prospectus as
well as the current Statement of Additional Information for each Fund. These
important documents contain more detailed information regarding all aspects of
the Funds. Please read the prospectuses for the Funds carefully before making
any decision concerning the allocation of premium payments or transfers among
the Subaccounts.
We have entered into agreements with either the investment adviser or the
distributor for each of the Funds pursuant to which they pay us a fee. This fee
is based upon an annual percentage of the average aggregate net amount we invest
on behalf of the Variable Account and any other of our separate accounts. These
percentages differ. Some investment advisers or distributors pay us a greater
percentage than other advisers or distributors. These fees are paid to
compensate us for the administrative services we provide.
We cannot guarantee that each Fund or portfolio will always be available for the
Contracts, but in the event that a Fund or portfolio is not available, we will
take reasonable steps to secure the availability of a comparable fund. Shares of
each Fund are purchased and redeemed at net asset value, without a sales charge.
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 other
insurance companies offering variable annuity and variable life insurance
contracts.
We don't 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 Contract
Owners and the owners of variable contracts issued by other companies whose
values are allocated to one of the Funds. Shares of some of the Funds may also
be sold to certain qualified pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interests of Owners or owners of other contracts
(including contracts issued by other companies), and such retirement plans or
participants in such retirement 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 the accompanying prospectuses of the Funds for more information.
Addition, Deletion or Substitution of Investments
Subject to applicable law, we may 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 are no longer
available for investment or if we decide that 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 applicable law.
Subject to applicable law and any required SEC approval, we may establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. We will determine on what basis
we might make any new Subaccounts available to existing Contract Owners.
If we make any of these substitutions or changes we may, by appropriate
endorsement, change the Contract to reflect the substitution or change. If we
decide it is in the best interests of Contract Owners (subject to any approvals
that may be required under applicable law), we may take the following actions
with regard to the Variable Account: o operate the Variable Account as a
management investment company under the 1940 Act, o deregister it under that Act
if registration is no longer required, or o combine it with other Kansas City
Life separate accounts.
Voting Rights
We are the legal owner of shares held by the Subaccounts and we have the right
to vote on all matters submitted to shareholders of the Funds. As required by
law, we will vote shares held in the Subaccounts in accordance with instructions
received from Owners with Contract Value in the Subaccounts. We may be permitted
to vote shares of the Funds in our own right if the applicable federal
securities laws, regulations or interpretations of those laws or regulations
change.
To obtain voting instructions from you, before a meeting you will be sent voting
instruction material, a voting instruction form and any other related material.
Your votes will be calculated separately for each Subaccount of the Variable
Account, and may include fractional shares. We will determine the number of
votes attributable to a Subaccount by applying your percentage interest, if any,
in a particular Subaccount to the total number of votes attributable to that
Subaccount. The number of votes for which you may give instructions will be
determined as of the date established by the Fund for determining shareholders
eligible to vote. We will vote shares held by a Subaccount for which we have no
instructions in the same proportion as those shares for which we do receive
voting instructions.
If required by state insurance officials, we may disregard voting instructions
when it would require us to vote shares in a manner that would: o cause a change
in sub-classification or investment objectives of one or more of the Portfolios,
or o approve or disapprove an investment advisory agreement. o require changes
in the investment advisory contract or investment adviser of one or more of the
Portfolios, if we reasonably disapprove of such changes in accordance with
applicable federal regulations.
If we ever disregard voting instructions, we will advise you of that action and
of the reasons for it in the next semiannual report. We may change how we
calculate the weight given to pass-through voting instructions when such a
change is necessary to comply with current federal regulations or the current
interpretation of them.
DESCRIPTION OF THE CONTRACT
The Contract is a variable annuity that provides accumulation of Variable
Account Value based on the 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. We provide options such as Dollar Cost Averaging,
Portfolio Rebalancing and the Systematic Partial Surrender Plan. The Contract
offers only fixed annuity payment options.
Purchasing a Contract
The maximum Issue Age for which we issue a Contract is 80. However, for
Qualified Contracts with an Issue Age of 70 1/2 or greater, tax laws may require
that distributions begin immediately. (See "Federal Tax Status," page 28.) We
may issue Contracts at ages above the maximum Issue Age under certain
circumstances. We may issue Contracts in connection with retirement plans that
may or may not qualify for special federal tax treatment under the Internal
Revenue Code.
The minimum initial premium that we accept is a single premium of $5,000 or
annualized payments of $600. You may pay additional premium payments at any time
while the Annuitant is alive and before the Maturity Date. These payments must
be at least $50. We may limit the number and amount of additional premium
payments (where permitted).
Free-Look Period
You may cancel your Contract for a refund during your "free-look" period. The
free look period applies for the 10 days after you receive the Contract. When we
receive the returned Contract at our Home Office, we will cancel the Contract.
The amount that we will refund will vary according to state requirements. Most
states allow us to refund Contract Value. In those states, we will return an
amount equal to the Contract Value. We will determine the amount of the Contract
Value as of the earlier of: o the date the returned Contract is received by us
at our Home Office; or o the date the returned Contract is received by the
Kansas City Life representative who sold you the Contract.
A few states require a return of the greater of premium payments or Contract
Value. In these states, we will refund the greater of: (a) the premiums paid
under the Contract; and (b) the Contract Value as of the earlier of: o the date
we receive the returned Contract at our Home Office: or o the date the Kansas
City Life representative who sold the Contract receives the returned Contract.
Some states permit only the return of premiums even if this amount is less than
what we would have returned otherwise.
In all states we will also refund the $30 Annual Administration Fee, if it was
deducted prior to the return of the Contract.
Allocation of Premiums
At the time of application, you select how we will allocate premiums among the
Subaccounts and the Fixed Account. You can change the allocation percentages at
any time by sending Written Notice to us. You may also change your allocation by
telephone if you have provided proper authorization. (See "Telephone
Authorizations," page 30.)
Our procedures for allocation of premiums during the free-look period vary by
state, based on the amount that each state requires to be refunded if the
Contract is returned within the free-look period: o For Contracts sold to
residents of states that allow refund of Contract Value we will immediately
allocate premiums
according to the allocation you requested.
o For contracts sold to residents of states that require either the refund of
premiums paid or the refund of the greater of Contract Value or premiums
paid, we will allocate premiums received during a 15-day period following
the Contract Date to the Federated Prime Money Fund II Subaccount for that
15-day period. At the end of this 15-day period, we will allocate the
amount in the Federated Prime Money Fund II Subaccount according to your
allocation instructions.
We will allocate the initial premium within two business days of when we receive
the premium at our Home Office. In order to allocate the premium in this time
frame, you must properly complete the application and it must include 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 you
of the reason for the delay. We will also return the initial premium
immediately, unless you specifically consent to our keeping 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.
The values of the Subaccounts 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 reflects the following:
o the investment experience of the selected Subaccounts;
o premiums paid;
o surrenders;
o transfers;
o charges assessed in connection with the Contract; and
o Contract indebtedness.
There is no guaranteed minimum Variable Account Value. Since 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. We calculate the Variable Account
Value on each Valuation Date. Its value will be the sum of the values
attributable to the Contract in each of the Subaccounts. We will determine the
amount for each Subaccount by multiplying the Subaccount's Unit Value on the
Valuation Date by the number of Subaccount accumulation units allocated to the
Contract. The value of a Subaccount may increase, decrease, or remain the same.
Determination of Number of Accumulation Units. We will convert any amounts
allocated to a Subaccount into accumulation units of that Subaccount. We
determine the number of accumulation units credited to the Contract by dividing
the dollar amount allocated to the Subaccount by the Unit Value for that
Subaccount at the end of the Valuation Period during which the amount was
allocated.
We will increase the number of accumulation units in any Subaccount at the end
of the Valuation Period by o any premiums allocated to the Subaccount during the
current Valuation Period; and o transfers to the Subaccount from another
Subaccount or from the Fixed Account during the current Valuation Period.
We will decrease the number of accumulation units in any Subaccount at the end
of the Valuation Period by o amounts transferred from the Subaccount to another
Subaccount or the Fixed Account; and o 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. We will calculate a Net Investment Factor on each
Valuation Day. 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 we deduct from the Subaccount on a daily basis. These
charges equal a total of 1.40% on an annual basis and consist of two separate
charges. The two charges are the Asset-Based Administration Charge (0.15%) and
the Mortality and Expense Risk Charge (1.25%).
Determination of Unit Value. We arbitrarily set the value of an
accumulation unit for each of the Subaccounts at $10 when the first investments
were bought. The accumulation unit value for each subsequent Valuation Period is
equal to:
A x B
"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 before the Maturity Date, you may transfer
amounts among the Subaccounts and the Fixed Account. Transfers are subject to
the following restrictions:
1. The minimum transfer amount is the lesser of $250 or the entire amount in
that Subaccount or the Fixed Account.
2. We will treat a transfer request that would reduce the amount in a Subaccount
or the Fixed Account below $250 as a transfer request for the entire amount in
that Subaccount or the Fixed Account.
3. We have no limit on the number of transfers that you can make between
Subaccounts or to the Fixed Account. However, you can make only one transfer
from the Fixed Account each Contract Year. (See "Transfers from Fixed Account,"
page 30, for restrictions).
4. We have the right, where permitted, to suspend or modify this transfer
privilege at any time.
We will make a transfer on the date that we receive Written Notice requesting
the transfer. You may also make transfers by telephone if you have provided
proper authorization. (See "Telephone Authorizations," page 30.)
The first six transfers during each Contract Year are free. We will charge a $25
Transfer Processing Fee for all transfers during a Contract Year in addition to
the six free ones. For the purpose of charging the fee, we will consider each
request to be one transfer, regardless of the number of Subaccounts or the Fixed
Account affected by that request. We will deduct the processing fee from the
amount being transferred or from the remaining Contract Value, according to your
instructions.
Dollar Cost Averaging Plan
The Dollar Cost Averaging Plan is an optional feature available with the
Contract. If you elect this plan, it enables you to automatically transfer
amounts from the Federated Prime Money Fund II Subaccount to other Subaccounts.
The goal of the Dollar Cost Averaging Plan is to make you less susceptible to
market fluctuations by allocating on a regularly scheduled basis instead of
allocating the total amount all at one time. We do not guarantee that the Dollar
Cost Averaging Plan will result in a gain.
Transfers under this plan occur on a monthly basis for a period you choose,
ranging from 3 to 36 months. To participate in this plan you must transfer at
least $250 from the Federated Prime Money Fund II Subaccount each month. You may
allocate the required amounts to the Federated Prime Money Fund II Subaccount
through initial and subsequent premium payments or by transferring amounts into
the Federated Prime Money Fund II Subaccount from the other Subaccounts or from
the Fixed Account. Restrictions apply to transfers from the Fixed Account.
You may elect this plan at the time of application by completing the
authorization. You may also elect it at any time after the Contract is issued by
completing the election form. Dollar Cost Averaging transfers will start on the
next Monthly Anniversary Day following the date we receive our request or the
date you request.
Once elected, we will process transfers from the Federated Prime Money Fund II
Subaccount monthly until o we have completed the number of designated transfers;
o the value of the Federated Prime Money Fund II Subaccount is completely
depleted; or o you send us Written Notice instructing us to cancel the monthly
transfers.
Transfers made under the Dollar Cost Averaging Plan won't count toward the six
free transfers allowed each Contract Year. We have the right to cancel this
feature at any time with notice to you.
Portfolio Rebalancing Plan
The Portfolio Rebalancing Plan is an optional feature available with the
Contract. Under this plan we will redistribute the accumulated balance of each
Subaccount to equal a specified percentage of the Variable Account Value. We
will do this on a quarterly basis at three month intervals from the Monthly
Anniversary Day on which the Portfolio Rebalancing Plan begins. The purpose of
the Portfolio Rebalancing Plan is to automatically diversify your portfolio mix.
The plan automatically adjusts your Portfolio mix to be consistent with your
current premium allocation instructions. If you make a change to your premium
allocation, we will also automatically change the allocation used for Portfolio
Rebalancing to be consistent with the new premium allocation.
The redistribution will not count toward the six free transfers permitted each
Contract Year. If you also have elected the Dollar Cost Averaging Plan and it
has not been completed, the Portfolio Rebalancing Plan will start on the Monthly
Anniversary Day the Dollar Cost Averaging Plan ends. If the Contract Value is
negative at the time portfolio rebalancing is scheduled, we will not complete
the redistribution.
You may elect this plan at the time of application by completing the
authorization. You may also elect it at any time after the Contract is issued by
completing the election form. Portfolio rebalancing will terminate when: o you
request any transfer unless you authorize a new allocation; or o the day we
receive Written Notice instructing us to cancel the plan.
Partial and Full Cash Surrenders
Partial Surrenders. You may surrender part of the Cash Surrender Value at
any time before the Annuitant's death and before the Maturity Date. We will
surrender the amount requested from the Contract Value on the date we receive
Written Notice for the surrender. We will deduct any applicable surrender charge
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, we will reduce the amount surrendered . We will make the surrender from
each Subaccount and the Fixed Account based on your instructions.
Subject to certain restrictions, we will not apply a surrender charge on a
partial surrender of up to 10% of the Contract Value per Contract Year. (See
"Amounts Not Subject to Surrender Charge," page 31.)
Systematic Partial Surrender Plan. The Systematic Partial Surrender Plan
enables you to authorize an automatic regular payment of a partial surrender
amount. 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 payment under this plan is $100. We
will make the surrender from each Subaccount and the Fixed Account based on your
instructions.
Subject to certain restrictions, we will not apply a surrender charge on amounts
paid out under the Systematic Partial Surrender Plan of up to 10% of the
Contract Value each Contract Year . (See "Amounts Not Subject to Surrender
Charge," page 31.)
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. You should consult your tax adviser before requesting a
partial or systematic partial surrender. (See "Federal Tax Status," page 28.)
Full Surrender. You may request a surrender of the Contract for its Cash
Surrender Value at any time before the Annuitant's death and before the Maturity
Date. The Cash Surrender Value will equal the Contract Value less:
o any applicable surrender charge;
o any indebtedness;
o any premium taxes payable; and
o any withholding taxes.
We will determine the Cash Surrender Value on the date we receive Written Notice
of surrender and the Contract. We will pay the Cash Surrender Value in a lump
sum unless you request payment under a payment option.
Subject to certain restrictions, we will not apply a surrender charge on up to
10% of the Contract Value when you surrender the Contract. (See "Amounts Not
Subject to Surrender Charge," page 31.)
Certain federal income tax consequences may apply to a surrender of the
Contract. You should consult your tax adviser before requesting a surrender.
(See "Federal Tax Status," page 37.)
Restrictions on Distributions from Certain Contracts. Certain restrictions
apply to surrenders and partial surrenders from Contracts used as funding
vehicles for Internal Revenue Code Section 403(b) retirement plans. Section
403(b)(11) of the Internal Revenue Code of 1986, as amended, restricts the
distribution under Section 403(b) annuity contracts of: (i) elective
contributions made in years beginning after December 31, 1988; (ii) earnings on
those contributions; and (iii) earnings in such years on amounts held as of the
last year beginning before January 1, 1989.
Distributions of those amounts may only occur upon the:
o death of the employee;
o attainment of age 59 1/2;
o separation from employment;
o disability; or
o financial hardship.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
Contract Termination
We may terminate the Contract and pay you the Cash Surrender Value if all of
these events simultaneously exist prior to the Maturity Date:
1. you have not paid premiums for at least two years;
2. the Contract Value is less than $2,000; and
3. total premiums paid under the Contract, less any partial surrenders, is
less than $2,000.
We will mail a termination notice to you and to the holder of any assignment of
record at least six months before we terminate the Contract. We have 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 or the Contract Value has increased to the amount required. 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 loan by submitting Written Notice. The only security we require is an
assignment of the Contract to us. We allow only one loan per Contract Year.
We will show the current loan amount and any withdrawals for unpaid interest 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 you make a new loan, the sum of all prior loans, loan interest
outstanding, and the current loan applied for, may not exceed the applicable
limit described above. Each loan must be at least $2,500.
Loan Account. When you make a loan, we will withdraw an amount equal to the
loan from the Fixed Account and Variable Account and transfer this amount to the
loan account. The loan account is part of the Fixed Account. If you do not
specify allocation instructions in your loan application, we will withdraw the
loan pro rata from all Subaccounts having values and from the Fixed Account.
Amounts transferred to the loan account do not participate in the investment
experience of the Fixed Account and the Subaccounts from which they were
withdrawn.
Interest Credited on Loaned Amount. We will pay interest on amounts in the
loan account at the minimum guaranteed effective annual interest rate of 3.0%
per year. We may apply different interest rates to the loan account than the
Fixed Account. Any interest we credit on loaned amounts will remain in the Fixed
Account.
Loan Interest Charged. On each Contract Anniversary, we will charge accrued
interest 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 we do not receive the loan interest payment by the Contract Anniversary, we
will transfer the accrued loan interest from the Fixed Account and Subaccounts
to the loan account on a pro rata basis.
Repayment of Loan. You must specifically identify any loan repayment as
such in order to ensure that it will be applied correctly. Each loan repayment
will result in a transfer of an amount equal to the loan repayment from the loan
account to the Fixed Account and/or Subaccounts. We will use your current
premium allocation schedule to allocate the loan repayment, unless you provide
specific instructions to allocate the loan repayment differently. Each loan
repayment must be at least $25.
You must repay principal and interest 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, federal tax laws require us to make a deemed distribution of the entire
amount of the outstanding principal, interest due, and any applicable charges
under this Contract, including any surrender charge. 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. We will deduct any outstanding indebtedness from the Contract
proceeds. We will terminate your Contract if your total indebtedness exceeds the
Cash Surrender Value of the Contract. We will mail notice to you 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 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; or (ii) the Contract Value less any indebtedness on the
date we receive 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 increases the
guaranteed minimum death benefit by the amount of the payment. Any partial
surrender will decrease the guaranteed death benefit by the same percentage that
the surrender decreases the Contract Value.
We will pay the proceeds to the Beneficiary in a lump sum unless you or the
Beneficiary elect a payment option. If the Annuitant is the Owner, we are
required to distribute the proceeds in accordance with the rules described below
in "Death of Owner" for the death of an Owner before the Maturity Date.
No death benefit is 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 we distribute the Contract Value
(or if an Owner is the Annuitant, the proceeds payable upon the Annuitant's
death) to the Beneficiary within five years after the date of the Owner's death.
If an Owner dies on or after the Maturity Date, we must distribute any remaining
payments 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
payable to the benefit of the Beneficiary if: o the proceeds are distributed
over the life of that Beneficiary (or a period not exceeding the Beneficiary's
life expectancy); o the distributions begin within one year of the Owner's
death; and o the Beneficiary is a person.
If the deceased 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 an Owner is not an individual, the Annuitant, as determined in accordance
with Section 72(s) of the Internal Revenue Code, will be treated as an Owner for
purposes of these distribution requirements. Any change in or death of the
Annuitant will be treated as the death of an Owner.
If the Beneficiary wants to leave the Contract in force and the death benefit
due to the Beneficiary is greater than the Contract Value, we will increase the
Contract Value to equal the death benefit. We will base this increase on 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
The Maturity Date is the latest date when proceeds under the Contract are
payable. The proceeds available on the Maturity Date vary depending upon how you
elect to receive the proceeds:
o we will apply the Contract Value (less any indebtedness) if you elect to
receive the proceeds under a Life Payment Option; and
o we will apply the Cash Surrender Value if you elect to receive the proceeds
as a lump sum payment or as a Non-Life Payment Option.
You select the Maturity Date, subject to the following restrictions. The latest
Maturity Date is the later of:
o the Contract Anniversary following the Annuitant's 85th birthday; or
o the tenth Contract Anniversary.
For Qualified Contracts, distributions may be required to begin at age 70 1/2.
Certain states limit the maximum Maturity Date.
You may change the Maturity Date subject to these limitations:
o we must receive your Written Notice at least 30 days before the current
Maturity Date;
o you must request a Maturity Date that is at least 30 days after receipt of
the Written Notice; and
o the requested Maturity Date must be not later than any earlier Maturity
Date required by law.
On the Maturity Date, we will apply the proceeds under the Life Annuity with Ten
Year Certain Payment Option, unless you have chosen to receive the proceeds
under another payment option or in a lump sum. (See "Payment Options," page 34.)
Payments
We will usually pay any partial surrender, full surrender, or death benefit
within seven days of receipt of a Written Notice. We must also receive proof of
death to pay a death benefit. We may postpone payments 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 practical.
If you have made a recent premium or loan payment by check or draft, we may
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
interest-bearing Personal Growth Account. We place proceeds through the Personal
Growth Account in our general account. The Personal Growth Account provides
check writing privileges under which the bank that pays the check will be
reimbursed by us out of the Contract proceeds held in our general account. The
Personal 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 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 have the right to defer payment of any surrender, partial surrender, or
transfer from the Fixed Account for up to six months from the date we receive
Written Notice for a partial surrender, full surrender, or transfer. If we do
not make the payment within 30 days after we receive the documentation required
to complete the transaction, we will add 3% interest to the amount paid from the
date we receive documentation. Certain states may require that we pay interest
on periods of delay less than 30 days and certain states may require us to pay
an interest rate higher than 3% when we delay payment proceeds.
Modifications
We may modify the Contract, subject to providing notice to you. We may only make
modification if it 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 your 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 also have 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 modification, we will endorse the Contract, if
required.
Reports to Contract Owner
We will mail you a report containing key information about the Contract at least
annually. The report will include the Contract Value and Cash Surrender Value of
your Contract and any further information required by any applicable law or
regulation. We will show the information in the report as of a date no more than
two months prior to the date of mailing.
Telephone Authorizations
You may request a transfer of Contract Value, change in premium allocation,
change in Dollar Cost Averaging, change in Portfolio Rebalancing or Contract
loan by telephone, provided you made the election at the time of application or
provided proper authorization to us. We may suspend these telephone privileges
at any time if we decide that such suspension is in the best interests of
Contract Owners.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If we follow those procedures, we will not be liable
for any losses due to unauthorized or fraudulent instructions. The procedures we
will follow for telephone privileges 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.
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. You may also make transfers from
the Fixed Account, but restrictions may apply. (See Transfers from Fixed
Account, page 30.) The Fixed Account is part of our General Account and pays
interest at declared rates guaranteed for each calendar year. We guarantee that
this rate will be at least 3%. We guarantee the amount of premiums paid plus
guaranteed interest and less applicable deductions.
Our General Account supports our insurance and annuity obligations. Since the
Fixed Account is part of our General Account, we assume the risk of investment
gain or loss on this amount. All assets in the General Account are subject to
our general liabilities from business operations.
The Fixed Account is not under Securities Act of 1933 and is not registered as
an investment company under the Investment Company Act of 1940 The Securities
and Exchange Commission has not reviewed the disclosure in this Prospectus
relating to the Fixed Account. Certain general provisions of the Federal
securities laws relating to the accuracy and completeness of statements made in
prospectuses may still apply.
Minimum Guaranteed and Current Interest Rates
We guarantee to credit the Fixed Account Value with a minimum 3% effective
annual interest rate. We intend to credit the Fixed Account Value with current
rates in excess of 3% minimum, but are not obligated to do so. Current interest
rates are influenced by, but don't necessarily correspond to, prevailing general
market interest rates. We will determine current rates in our discretion. You
assume the risk that the interest we credit may not exceed the guaranteed rate.
Since we anticipate changing the current interest rate from time to time, we
will credit different allocations with different interest rates, based upon the
date amounts are allocated to the Fixed Account. We may change the interest rate
credited to allocations from premiums or new transfers at any time. We will not
change the interest rate more than once a year on amounts in the Fixed Account.
For the purpose of crediting interest, we currently account for amounts deducted
from the Fixed Account on a last-in, first-out ("LIFO") method. We may 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%. We may
also shorten the period for which the interest rate applies to less than a year
(except for the year in which such amount is received or transferred).
Calculation of Fixed Account Value
Fixed Account Value is equal to:
o amounts allocated or transferred to the Fixed Account; plus
o interest credited, less
o amounts deducted, transferred, or surrendered.
Transfers from Fixed Account
We allow one transfer each Contract Year from the Fixed Account. 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.)
Delay of Payment
We have the right to delay payment of any surrender, partial surrender, or
transfer from the Fixed Account for up to six months from the date we receive
the request.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
General. We do not deduct a charge for sales expense from premiums at the
time you pay them. However, within certain time limits described below, we will
deduct a surrender charge (contingent deferred sales charge) from the Contract
Value when you surrender the contract, make a partial surrender, or if you elect
a Non-Life Payment Option. The purpose of the surrender charge is to reimburse
us for some of the expenses we incur in distributing the Contracts. If the
surrender charges are not enough to cover sales expenses, we will bear the loss.
If the amount of such charges proves more than enough, we will keep the excess.
We do not currently believe that the surrender charges imposed will cover the
expected costs of distributing the Contracts. We will make up any shortfall from
our general assets, which may include amounts we derive from the Mortality and
Expense Risk Charge.
Charge for Partial Surrender or Surrender. If you take a partial surrender
or surrender the Contract, the applicable surrender charge will be as follows:
Contract Year in Charge as
Which Surrender Percentage of
Occurs 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 we assess under a Contract exceed 8
1/2% of the total premiums paid.
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. Your first partial surrender
during a Contract Year will not be subject to a surrender charge to the extent
that the amount you surrender under the plan is not in excess of 10% of the
Contract Value. We limit this 10% free partial surrender to the first partial
surrender per Contract Year, even if the amount you surrender is less than 10%
of the Contract Value. We will assess a surrender charge on any amounts
surrendered in excess of 10% and any additional surrenders which occur after the
first partial surrender in a Contract Year. The 10% free partial surrender is
not cumulative from year to year.
If you make a full surrender of the Contract the surrender charge does not apply
to 10% of the Contract Value provided you have not already received credit for
the 10% free partial surrender during that Contract Year. If you have not
already received the free 10% partial surrender in that Contract Year, then only
90% of the Contract Value is subject to a surrender upon a full surrender.
If you have elected to participate in the Systematic Partial Surrender Plan (see
Systematic Partial Surrender Plan, page 24), your 10% free partial withdrawal
may apply to payments under this plan as long as you have not already received
your free partial withdrawal for that Contract Year. You are limited to one
election of the Systematic Partial Surrender Plan per Contract Year without
being subject to the surrender charge. (This limitation applies 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, we
will calculate the 10% limitation based on the Contract Value at the time of
election. In each subsequent Contract Year in which you continue to participate
in the Plan, we will calculate the 10% limitation 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 no longer apply a surrender charge.
Nursing Home Waiver. If you meet the requirements described below for the
Nursing Home Waiver, we will pay out the full Contract Value without applying
any surrender charges. In order to be eligible for this waiver: o we must
receive satisfactory proof that you are admitted to a licensed nursing home; o
the Contract Value must be paid out in equal amounts over at least a three year
period; and o you must be confined for at least 90 days before we will waive the
surrender charges .
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 or telephone
request for 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.
Administrative Charges
Annual Administration Fee. At the beginning of each Contract Year we will
deduct an Annual Administration Fee of $30 (or less if required by applicable
state law) from the Contract Value. The purpose of this fee is to reimburse us
for administrative expenses relating to the Contract. We will waive this fee for
Contracts with Contract Values of $50,000 or more at the beginning of the
applicable Contract Year. We will deduct the charge from each Subaccount and the
Fixed Account based on the proportion that the value in each account bears to
the total Contract Value. This fee does not apply after the Maturity Date.
Asset-Based Administration Charge. We will deduct a daily Asset-Based
Administration Charge from the assets of the Variable Account equal to an annual
rate of .15%. The purpose of this charge is to reimburse us for costs associated
with administration of the Contract amounts allocated to the Variable Account.
This charge does not apply after the Maturity Date.
Mortality and Expense Risk Charge
We will deduct a daily Mortality and Expense Risk Charge from the assets of the
Variable Account. This charge will be equal to an annual rate of 1.25%
(approximately 0.70% for mortality risk and 0.55% for expense risk). This
translates to a daily rate of 0.0034247%. The purpose of this charge is to
compensate us for assuming mortality and expense risks. This charge does not
apply after the Maturity Date.
The mortality risk we assume is that Annuitants may live for a longer period of
time than estimated when we established the guarantees in the Contract. Because
of these guarantees, we provide each payee with the assurance that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk we assume 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 not enough to cover the actual cost
of the mortality and expense risks we undertake, we will bear the loss. If the
amount of such charges proves more than enough, we will keep the excess and this
amount will be available for any proper corporate purpose including financing of
distribution 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 may 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, 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
We may reduce the sales and administration charges for Contracts issued to a
class of associated individuals or to a trustee, employer or similar entity. We
may reduce these charges if we anticipate that the sales to the members of the
class will result in lower than normal sales or administrative expenses. We will
make any reductions in accordance with our rules in effect at the time of the
application. The factors we will consider in determining the eligibility of a
particular group and the level of the reduction are as follows:
o nature of the association and its organizational framework,
o method by which sales will be made to the members of the class,
o facility with which premiums will be collected from the associated
individuals,
o association's capabilities with respect to administrative tasks,
o anticipated persistency of the Contract, osize of the class of
associated individuals,
o number of years the association has been in existence, and
o any other such circumstances which justify a reduction in sales or
administrative expenses.
Any reduction will be reasonable, will apply uniformly to all prospective
Contract purchases in the class and will not be unfairly discriminatory to the
interests of any Contract holder.
Other Taxes
We do not currently assess a charge 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.
Investment Advisory Fees and Other Expenses of the Funds
The value of the net assets of each Subaccount already reflects the investment
advisory fees and other expenses incurred by the corresponding Fund in which the
Subaccount invests. This means that these charges are deducted before we
calculate Subaccount Values. These charges are not directly deducted from your
Contract Value. See the prospectuses for the Funds for more information about
the investment advisory fees and other expenses.
PAYMENT OPTIONS
The Contract offers a variety of ways, in addition to a lump sum, for you to
receive proceeds payable under the Contract. Payment options are available for
use with various types of proceeds, such as surrender, death or maturity. We
summarize these payment options below. All of these options are forms of
fixed-benefit annuities which don't vary with the investment performance of a
separate account.
The Contract ends on the Maturity Date and we will pay the proceeds to the payee
under the payment option selected. The amount we apply to the payment option
will vary depending upon which payment option you select. If you elect a Life
Payment Option (Options 4 and 5 described below), we will apply the full
Contract Value to that option. If you elect 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 you have not filed an election of a
payment option with us on the Maturity Date, we will pay the Contract proceeds
as a life annuity with payments guaranteed for ten years.
You may also apply Contract proceeds under a payment option prior to the
Maturity Date. If you elect a Life Payment Option we will apply the full
Contract Value. If you elect a Non-Life Payment Option or a lump sum payment we
will apply the Cash Surrender Value.
The Beneficiary may also apply a death benefit (upon the Annuitant's death)
under a payment option.
We will deduct any premium tax applicable from proceeds at the time payments
start. In order for us to pay proceeds under a payment option or a lump sum, the
Contract must be surrendered.
We describe the payment options available below. The term "payee" means a person
who is entitled to receive payment under that option.
If we have options or rates available on a more favorable basis than those
guaranteed at the time a payment option is elected, the more favorable benefits
will apply.
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 not the Owner, we must provide
our consent for the election of a payment option. 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
Annuitant's death.
An election of a payment option and any revocation or change must be made by
Written Notice. You may not elect an option 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.
If we have options or rates available on a more favorable basis than those
guaranteed at the time a payment option is elected, the more favorable benefits
will apply.
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. 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. We may pay
additional interest. The present value of any unpaid installments may be
withdrawn at any time.
Option 3: Installments for a Specified Period. We will pay the proceeds in
equal annual or monthly payments for a specified number of years. We will pay
interest on the proceeds at the guaranteed rate of 3.0% per year. We may also
pay additional interest. The present value of any unpaid installments may be
withdrawn at any time.
Option 4: Life Income. We will pay an income during the payee's lifetime. A
minimum guaranteed payment period may be chosen. Payments received under the
Installment Refund Option will continue until the total income payments received
equal the proceeds applied.
Option 5: Joint and Survivor Income. We will pay an income during the
lifetime of two persons and will continue to pay an income as long as either
person is living. A minimum guaranteed payment period of ten years may be
chosen.
YIELDS AND TOTAL RETURNS
Yields
From time to time, we may advertise or include in sales literature yields,
effective yields and total returns for the Subaccounts. These figures are based
on historical earnings and do not indicate or project future performance. Each
Subaccount may, from time to time, advertise or include in sales literature
performance relative to certain performance rankings and indices compiled by
independent organizations. More detailed information as to the calculation of
performance information, as well as comparisons with unmanaged market indices,
appears in the Statement of Additional Information.
Effective yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Portfolio of the Funds. The Funds'
performance in part reflects the Funds' expenses. (See the prospectuses for the
Funds.)
The yield of the Federated Prime Money Fund II Subaccount refers to the
annualized income generated by an investment in the Subaccount over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Federated Prime Money Fund II Subaccount)
refers to the annualized income generated by an investment in the Subaccount
over a specified 30-day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30-day or one-month
period is generated each period over a 12-month period and is shown as a
percentage of the investment.
Total Returns
Standard Subaccount Average Annual Total Return
The average annual 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.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Subaccount from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the Subaccount (including any surrender charge that
would apply if you terminated the Contract at the end of each period indicated,
but excluding any deductions for premium taxes).
Adjusted Historic Portfolio Average Annual Total Returns
In addition to the standard version described above, other total return
performance information computed on two different bases may be used in
advertisements. For periods prior to the date the Variable Account commenced
operations, performance information for Contracts funded by the Subaccounts will
be calculated based on the performance of the Funds' Portfolios and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Funds' Portfolios, with the level of Contract charges that
were in effect at the inception of the Subaccounts for the Contracts. Adjusted
Historic Portfolio 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.
We will only disclose other total returns if we also disclose the standard
average annual total returns for the required periods. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
Benchmarks and Ratings
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
as such may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
In advertising and sales literature, the performance of each Subaccount may be
compared to the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper"),
Morningstar, Inc. ("Morningstar"), and the Variable Annuity Research Data
Service ("VARDS") are independent services that monitor and rank the performance
of variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS and Morningstar prepare risk rankings, which consider the
effects of market risk on total return performance. This type of ranking
provides data as to which funds provide the highest total return within various
categories of funds defined by the degree of risk inherent in their investment
objectives. Performance data published by CDA/Weisenberger also may be used in
advertisements and sales literature.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
We may also report other information, including the effect of tax-deferred
compounding on a Subaccount's investment returns, or returns in general, which
may be illustrated by tables, graphs, or charts. All income and capital gains
derived from Subaccount investments are reinvested and can lead to substantial
long-term accumulation of assets, provided that the underlying Portfolio's
investment experience is positive.
FEDERAL TAX STATUS
Introduction
The following discussion is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state tax or other tax laws.
When you invest in an annuity contract, you usually do not pay taxes on
your investment gains until you withdraw the money -- generally for retirement
purposes. If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your contract is called a Qualified
Contract. If your annuity is independent of any formal retirement or pension
plan, it is termed a Non-Qualified Contract. The tax rules applicable to
Qualified Contracts vary according to the type of retirement plan and the terms
and conditions of the plan.
Taxation of Non-Qualified Contracts
Non-Natural Person. If a non-natural person (e.g., a corporation or a
trust) owns a Non-Qualified Contract, the taxpayer generally must include in
income any increase in the excess of the Contract Value over the investment in
the Contract (generally, the premiums or other consideration paid for the
contract) during the taxable year. There are some exceptions to this rule and a
prospective owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by
natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs,
the amount received will be treated as ordinary income subject to tax up to an
amount equal to the excess (if any) of the Contract Value immediately before the
distribution over the Owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from
a Non-Qualified Contract, there may be imposed a federal tax penalty equal to
10% of the amount treated as income. In general, however, there is no penalty on
distributions:
o made on or after the taxpayer reaches age 59 1/2
o made on or after the death of an Owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments 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.
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. You should
consult a tax adviser with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the contract has
been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of your death or the death of the 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 surrender of
the contract, or (ii) if distributed under a payment option, they are taxed in
the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or
assignment of ownership of a contract, the designation of an annuitant, the
selection of certain maturity dates, or the exchange of a contract may result in
certain tax consequences to you that are not discussed herein. An Owner
contemplating any such transfer, assignment or exchange should consult a tax
adviser as to the tax consequences.
Withholding. Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
Multiple Contracts. All annuity contracts that are issued by us (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 such
owner's income when a taxable distribution occurs.
Further Information. We believe that the Contracts will qualify as annuity
contracts for Federal income tax purposes and the above discussion is based on
that assumption. Further details can be found in the Statement of Additional
Information under the heading "Tax Status of the Contracts."
Taxation of Qualified Contracts
<PAGE>
The tax rules applicable to Qualified Contracts vary according to the
type of retirement plan and the terms and conditions of the plan. Your rights
under a Qualified Contract may be subject to the terms of the retirement plan
itself, regardless of the terms of the Qualified Contract. Adverse tax
consequences may result if you do not ensure that contributions, distributions
and other transactions with respect to the contract comply with the law.
Individual Retirement Accounts (IRAs), as defined in Sections 219 and
408 of the Code, permit individuals to make annual contributions of up to the
lesser of $2,000 or 100% of adjusted gross income. The contributions may be
deductible in whole or in part, depending on the individual's income.
Distributions from certain pension plans may be "rolled over" into an IRA on a
tax-deferred basis without regard to these limits. Amounts in the IRA (other
than nondeductible contributions) are taxed when distributed from the IRA. A 10%
penalty tax generally applies to distributions made before age 59 1/2, unless
certain exceptions apply.
SIMPLE IRAs permit certain small employers to establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to defer
to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased for cost
of living adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the first two years after the
commencement of the employee's participation in the plan.
Roth IRAs, as described in Code section 408A, permit certain eligible
individuals to make non-deductible contributions to a Roth IRA in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA is generally subject to tax and other special
rules apply. The Owner may wish to consult a tax adviser before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions to
the Roth IRA, income tax and a 10% penalty tax may apply to distributions made
(1) before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
any Roth IRA. A 10% penalty tax may apply to amounts attributable to a
conversion from an IRA if they are distributed during the five taxable years
beginning in the year in which the conversion was made.
Corporate pension and profit-sharing plans under Section 401(a) of the
Code allow corporate employers to establish various types of retirement plans
for employees, and self-employed individuals to establish qualified plans for
themselves and their employees. Adverse tax consequences to the retirement plan,
the participant or both may result if the contract is transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all the requirements applicable to such benefits prior to transferring the
contract.
<PAGE>
Tax Sheltered Annuities under section 403(b) of the Code allow
employees of certain Section 501(c)(3) organizations and public schools to
exclude from their gross income the premium payments made, within certain
limits, on a contract that will provide an annuity for the employee's
retirement. These premium payments may be subject to FICA (social security) tax.
Distributions of (1) salary reduction contributions made in years beginning
after December 31, 1988; (2) earnings on those contributions; and (3) earnings
on amounts held as of the last year beginning before January 1, 1989, are not
allowed prior to age 59 1/2, separation from service, death or disability.
Salary reduction contributions may also be distributed upon hardship, but would
generally be subject to penalties.
Other Tax Issues. Qualified Contracts have minimum distribution rules
that govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax adviser for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to
withholding for the Owner's federal income tax liability. The withholding rate
varies according to the type of distribution and the Owner's tax status. The
Owner will be provided the opportunity to elect not have tax withheld from
distributions.
"Eligible rollover distributions" from section 401(a) plans are subject
to a mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan, except
certain distributions such as distributions required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the Owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the contract could change by legislation
or otherwise. Consult a tax adviser with respect to legislative developments and
their effect on the Contract. We have the right to modify the Contract in
response to legislative changes that could otherwise diminish the favorable tax
treatment that Contract Owners currently receive. We make no guarantee regarding
the tax status of any Contact and do not intend the above discussion as tax
advice.
DISTRIBUTION OF THE CONTRACTS
We will offer the Contracts to the public on a continuous basis and we do not
anticipate discontinuing the offering of the Contracts. However, we have 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 was incorporated in the state
of Washington on April 23, 1964 and the address is 3200 Capitol Blvd. South,
Olympia, WA 98501-3396. 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 the following amounts were paid to
Sunset Financial for sale of the Contracts: $905,864 in 1996, $4,696,138 in 1997
and $XXXX in 1998. Sunset Financial did not retain any of these amounts.
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 established 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
Kansas City Life and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Kansas City Life believes that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Variable Account or
Kansas City Life.
PREPARING FOR YEAR 2000
We are closely monitoring our ability and the ability of our primary vendors and
business partners to successfully operate in the year 2000. We are assessing and
taking steps to resolve potential problems in both our information technology
systems and other systems. As of December 31, 1998 we were about 85% complete as
far as addressing the information technology systems. Our other systems are,
with one exception, year 2000 compliant. We will address the system that is not
compliant during 1999. We are also actively monitoring the compliance programs
of third parties with which we have business relationships and are developing
contingency plans based on those assessments.
We expect to have contingency plans in place and internal systems year 2000
compliant by the end of 1999. We base this expectation on numerous assumptions
of future events. We cannot be sure that these assumptions are accurate and
actual results could differ from expected results.
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 1999 will be October 11, November 26, December 24 and
December 31. We will recognize holidays that fall on a Saturday on the previous
Friday. We will recognize holidays that fall on a Sunday on the following
Monday.
FINANCIAL STATEMENTS
The following financial statements for Kansas City Life are included in the
Statement of Additional Information: o balance sheets as of December 31, 1998
and 1997; and o related statements of income, stockholders' equity and cash
flows for each of the three years ended December 31, 1998.
The following reports for the Variable Account are included in the Statement of
Additional Information: o financial statements for the Variable Account for the
year ended December 31, 1998, and o related statement of operations and changes
in net assets for the periods ended December 31, 1998, December 31, 1997 and
December 31, 1996.
Kansas City Life's financial statements should be distinguished from financial
statements of the Variable Account. You should consider Kansas City Life's
financial statements only as an indication of Kansas City Life's ability to meet
its obligations under the Contracts. You should not consider them as having an
effect on the investment performance of the assets held in the Variable Account.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Additional Contract Provisions.............................................1
The Contract..................................................... 1
Incontestability................................................. 1
Misstatement of Age or Sex....................................... 1
Non-Participation................................................ 1
Tax Status of the Contracts.......................................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....................................................... 8
Legal Matters............................................................. 8
Experts................................................................... 8
Other Information......................................................... 8
Financial Statements...................................................... 8
<PAGE>
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
<PAGE>
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") we offer. This Statement of
Additional Information is not a Prospectus and you should read it only in
conjunction with the Prospectus for the Contract and the prospectuses for the
Funds. 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 3, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
ADDITIONAL CONTRACT PROVISIONS...............................................2
THE CONTRACT.................................................................2
INCONTESTABILITY.............................................................2
MISSTATEMENT OF AGE OR SEX...................................................2
NON-PARTICIPATION............................................................2
TAX STATUS OF THE CONTRACTS..................................................2
CALCULATION OF YIELDS AND TOTAL RETURNS......................................1
FEDERATED PRIME MONEY FUND II SUBACCOUNT YIELDS..............................1
OTHER SUBACCOUNT YIELDS......................................................2
AVERAGE ANNUAL TOTAL RETURNS.................................................3
EFFECT OF THE ANNUAL ADMINISTRATION FEE ON PERFORMANCE DATA..................6
TERMINATION OF PARTICIPATION AGREEMENTS......................................6
SAFEKEEPING OF ACCOUNT ASSETS................................................8
STATE REGULATION.............................................................8
RECORDS AND REPORTS..........................................................8
LEGAL MATTERS................................................................8
EXPERTS......................................................................8
OTHER INFORMATION............................................................8
FINANCIAL STATEMENTS.........................................................9
<PAGE>
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 to deny a claim or to void the Contract
unless it is in the application and we attach a copy of the application 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 we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% (compounded annually) will be a debt against the Contract.
If you do not repay this amount, we will reduce future payments accordingly.
If an underpayment is made because of an error in age or sex, we will calculate
any annuity payments 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 any dividends and will not participate in our
surplus earnings.
Tax Status of the Contracts
Tax law imposes several requirements that variable annuities must
satisfy in order to receive the tax treatment normally accorded to annuity
contracts.
Diversification Requirements. The Internal Revenue Code ("Code")
requires that the investments of each investment division of the separate
account underlying the contracts be "adequately diversified" in order for the
Contracts to be treated as annuity contracts for Federal income tax purposes. It
is intended that the Variable Account, through each Portfolio of the Funds, will
satisfy these diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of the Contract, such as the flexibility of an Owner to allocate
premium payments and transfer amounts among the investment divisions of the
separate account, have not been explicitly addressed in published rulings. While
we believe that the Contract does not give an Owner investment control over
separate account assets, we reserve the right to modify the Contract as
necessary to prevent an Owner from being treated as the owner of the separate
account assets supporting the Contract.
Required Distributions. 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 contain certain provisions specifying how your
interest in the Contract will be distributed in the event of the death of an
Owner of the Contract. Specifically, section 72(s) requires that (a) if any
owner dies on or after the annuity starting date, but prior to the time the
entire interest in the contract has been distributed, the entire interest in the
contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such owner's death; and (b) if any
owner dies prior to the annuity starting date, the entire interest in the
contract will be distributed within five years after the date of such owner's
death. These requirements will be considered satisfied as to any portion of a
owner's interest which is payable to or for the benefit of a designated
beneficiary and which is distributed over the life of such designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
owner's death. The designated beneficiary refers to a natural person designated
by the owner as a beneficiary and to whom ownership of the contract passes by
reason of death. However, if the designated beneficiary is the surviving spouse
of the deceased owner, the contract may be continued with the surviving spouse
as the new owner.
<PAGE>
The Non-Qualified Contracts contain provisions that are intended to
comply with these Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, we may disclose yields, total returns, and other performance
data pertaining to the Contracts for a Subaccount. Such performance data will be
computed, or accompanied by performance data computed, in accordance with the
standards defined by the SEC.
Because of the charges and deductions imposed under a Contract, the yield for
the Subaccounts will be lower than the yield for their respective Portfolios.
The calculations of yields, total returns, and other performance data do not
reflect the effect of any premium tax that may be applicable to a particular
Contract. Premium taxes currently range from 0% to 3.5% of premium based on the
state in which the Contract is sold.
Federated Prime Money Fund II Subaccount Yields
From time to time, advertisements and sales literature may quote the current
annualized yield of the Federated Prime Money Fund II Subaccount for a seven-day
period in a manner that does not take into consideration any realized or
unrealized gains or losses, or income other than investment income, 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 and exclusive of income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Contract having a balance of 1 unit of the Federated Prime Money
Fund II Subaccount at the beginning of the period, dividing such net change in
account value by the value of the hypothetical account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis.
The net change in account value reflects:
1) net income from the Federated Prime Money Fund II attributable to the
hypothetical account;
2) charges and deductions imposed under the Contract which are attributable to
the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for:
1) the Annual Administration Fee,
2) the Asset-Based Administration Charge, and
3) the Mortality and Expense Risk Charge.
For purposes of calculating current yields for a Contract, an average per unit
administrative fee is used based on the $30 Annual Administration Fee deducted
at the beginning of each Contract Year. Current Yield will be calculated
according to the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio
(exclusive of realized gains or losses on the sale
of securities and unrealized appreciation and
depreciation and exclusive of income other than
investment income) 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 and exclusive of income other than
investment income) for the seven-day period
attributable to a hypothetical account having a
balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
Because of the charges and deductions imposed under the Contract, the yield for
the Federated Prime Money Subaccount will be lower than the yield for the
Federated Prime Money Fund II.
The current and effective yields on amounts held in the Federated Prime Money
Fund II Subaccount normally will fluctuate on a daily basis. Therefore, the
disclosed yield for any given past period is not an indication or representation
of future yields or rates of return. The Federated Prime Money Fund II
Subaccount's actual yield is affected by:
o changes in interest rates on money market securities;
o average portfolio maturity of the Federated Prime Money Fund II;
o the types and quality of portfolio securities held by the Federated Prime
Money Fund II; and o the Federated Prime Money Fund II's operating
expenses.
Yields on amounts held in the Federated Prime Money Fund II Subaccount may also
be presented for periods other than a seven-day period.
Other Subaccount Yields
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Federated Prime
Money Fund II Subaccount) for a Contract for 30-day or one-month periods. The
annualized yield of a Subaccount refers to income generated by the Subaccount
during a 30-day or one-month period that is assumed to be generated each period
over a 12-month period.
The yield is computed by:
1) dividing the net investment income of the Portfolio attributable to the
Subaccount units less Subaccount expenses for the period; by
2) the maximum offering price per unit on the last day of the period times the
daily average number of units outstanding for the period; by
3) compounding that yield for a six-month period; and by
4) multiplying that result by 2. Expenses attributable to the Subaccount
include the Annual Administration Fee, Asset-Based Administration Charge,
and Mortality and Expense Risk Charge.
The yield calculation assumes an Annual Administration Fee of $30 per year per
Contract deducted at the beginning of each Contract Year. For purposes of
calculating the 30-day or one-month yield, an average Annual Administration Fee
per dollar of Contract value in the Account is used to determine the amount of
the charge attributable to the Subaccount for the 30-day or one-month period.
The 30-day or one-month yield is calculated according to the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)6 - 1)
Where:
NI = net income of the Portfolio for the 30-day or
one-month period attributable to the Subaccount's
units.
ES = expenses of the Subaccount for the 30-day or
one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the
30-day one-month period.
Because of the charges and deductions imposed under the Contracts, the yield for
the Subaccount will be lower than the yield for the corresponding Funds'
Portfolio.
The yield on the amounts held in the Subaccounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. A Subaccount's
actual yield is affected by the types and quality of portfolio securities held
by the corresponding Portfolio and its operating expenses.
Yield calculations do not take into account the surrender charge under the
Contract equal to 2% to 7% of the amount surrendered during the first seven
Contract years. Subject to certain restrictions, a surrender charge will not be
imposed upon surrender or on the first partial surrender in any Contract year on
an amount up to 10% of the Contract Value as of the beginning of the Contract
Year.
Average Annual Total Returns
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Subaccounts for various periods of
time.
When a Subaccount has been in operation for 1, 5, and 10 years, respectively,
the average annual total return for these periods will be provided. Average
annual total returns for other periods of time may, from time to time, also be
disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication that will be stated in the
communication.
We will calculate standard average annual total returns using Subaccount unit
values which we calculate on each valuation day based on:
o the performance of the Subaccount's underlying Portfolio;
o the deductions for the Annual Administration Fee;
o Asset-Based Administration Charge; and
o Mortality and Expense Risk Charge.
The calculation assumes that the Annual Administration Fee is $30 per year per
Contract deducted at the beginning of each Contract year. For purposes of
calculating average annual total return, an average per dollar Annual
Administration Fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will therefore reflect a
deduction of the surrender charge for any period less than eight years.
The total return will then be calculated according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of Subaccount
recurring charges.
ERV = the ending redeemable value (net of any
applicable surrender charge) of the hypothetical
account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standard total returns for the Subaccounts for the period of each
Subaccount's operations during 1998 are presented below.
Standard Average Annual Total Returns for the Subaccounts
ONE YEAR SINCE INCEPTION
SUBACCOUNT RETURN FROM RETURN FROM
1/1/1998 TO 9/6/95 TO
12/31/1998 12/31/98
MFS
RESEARCH XX% XX%
EMERGING GROWTH XX% XX%
TOTAL RETURN XX% XX%
BOND XX% XX%
WORLD GOVT XX% XX%
UTILITIES XX% XX%
AMERICAN CENTURY
VP INTERNATIONAL XX% XX%
VP CAPITAL APPRECIATION XX% XX%
FEDERATED
AMERICAN LEADERS FUND II
HIGH INCOME BOND FUND II XX% XX%
PRIME MONEY FUND II XX% XX%
DREYFUS CAPITAL XX% XX%
APPRECIATION XX% XX%
SMALL CAPITALIZATION XX% XX%
STOCK INDEX XX% XX%
Other Total Returns
Adjusted Historic Portfolio Average Annual Total Return
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Variable Account began
operations. Such performance information for the Subaccounts will be calculated
based on the performance of the Portfolios and the assumption that the
Subaccounts were in existence for the same periods as those indicated for the
Portfolios, with the level of Contract charges currently in effect.
Such Adjusted Historic Portfolio Average Annual Total Return information
(including deduction of the surrender charge) is as follows:
<TABLE>
<CAPTION>
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 12/31/98 ended 12/31/98 Portfolio to 12/31/98
<S> <C> <C> <C>
MFS Research (July 28, 1995) XX% XX% XX%
MFS Emerging Growth (July 25, 1995) XX% XX% XX%
MFS Total Return (January 3, 1995) XX% XX% XX%
MFS Bond (October 24, 1995) XX% XX% XX%
MFS World Governments (June 14, 1994) XX% XX% XX%
MFS Utilities (January 3, 1995) XX% XX% XX%
American Century VP International (May 1, 1994) XX% XX% XX%
American Century VP Capital Appreciation XX% XX% XX%
(November 20, 1987)
Federated American Leaders Fund II (February 10, 1994) XX% XX% XX%
Federated High Income Bond Fund II (March 1, 1994) XX% XX% XX%
Federated Prime Money Fund II (November 11, 1994) XX% XX% XX%
Dreyfus Capital Appreciation (April 5, 1993) XX% XX% XX%
Dreyfus Small Cap (August 31, 1990) XX% XX% XX%
Dreyfus Stock Index Fund (September 29, 1989) XX% XX% XX%
</TABLE>
From time to time, sales literature or advertisements may also quote Adjusted
Historic Portfolio Average Annual Total Returns that do not reflect the
surrender charge. These are calculated in exactly the same way as the Adjusted
Historic Portfolio 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
Adjusted Historic Portfolio 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 Adjusted Historic Portfolio Average Annual Total Return information (not
including deduction of the surrender charge) is as follows:
<TABLE>
<CAPTION>
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 12/31/98 ended 12/31/98 Portfolio to 12/31/98
<S> <C> <C> <C>
MFS Research (July 28, 1995) XX% XX% XX%
MFS Emerging Growth (July 25, 1995) XX% XX% XX%
MFS Total Return (January 3, 1995) XX% XX% XX%
MFS Bond (October 24, 1995) XX% XX% XX%
MFS World Governments (June 14, 1994) XX% XX% XX%
MFS Utilities (January 3, 1995) XX% XX% XX%
American Century VP International (May 1, 1994) XX% XX% XX%
American Century VP Capital Appreciation XX% XX% XX%
(November 20, 1987)
Federated American Leaders Fund II (February 10, 1994) XX% XX% XX%
Federated High Income Bond Fund II (March 1, 1994) XX% XX% XX%
Federated Prime Money Fund II (November 11, 1994) XX% XX% XX%
Dreyfus Capital Appreciation (April 5, 1993) XX% XX% XX%
Dreyfus Small Cap (August 31, 1990) XX% XX% XX%
Dreyfus Stock Index Fund o(September 29, 1989) XX% XX% XX%
</TABLE>
We may disclose cumulative total returns in conjunction with the standard
formats described above. The cumulative total returns will be calculated using
the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount
recurring charges for the period.
ERV = The ending redeemable value of the hypothetical
investment at the end of the period.
P = A hypothetical single payment of $1,000.
Effect of the Annual Administration Fee on Performance Data
The Contract provides for a $30 Annual Administration Fee (waived for Contracts
with a Contract Value of at least $50,000 at the beginning of the Contract Year)
to be deducted annually at the beginning of each Contract Year, from the
Subaccounts and the Fixed Account based on the proportion that the value of each
such account bears to the total Contract Value. For purposes of reflecting the
Annual Administration Fee in yield and total return quotations, the annual
charge is converted into a per-dollar per-day charge based on the average
Contract Value in the Variable Account of all Contracts on the last day of the
period for which quotations are provided. The per-dollar per-day average charge
will then be adjusted to reflect the basis upon which the particular quotation
is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sells their shares to
the Variable Account contain provisions regarding termination. The following
summarizes those provisions:
MFS Variable Insurance Trust. This agreement provides for termination:
(1) on six months' advance written notice by any party; (2) at Kansas
City Life's option if shares of the Fund are not reasonably available to
meet the requirements of the Contracts or are not "appropriate funding
vehicles" for the Contracts, as reasonably determined by Kansas City
Life; (3) at the option of the Fund or Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser, upon institution of
certain proceedings against Kansas City Life; (4) at Kansas City Life's
option upon institution of certain enforcement proceedings against the
Fund; (5) at the option of Kansas City Life, the Fund or MFS upon
receipt of any necessary regulatory approvals and/or the vote of
Contract Owners to substitute the shares of another investment company
for shares of the Fund; (6) by the Fund or MFS upon written notice to
Kansas City Life upon a determination that Kansas City Life has suffered
a material adverse change in its business, operations, financial
condition, or prospects; (7) by Kansas City Life upon written notice to
the Fund and MFS upon a determination that the Fund or MFS has suffered
a material adverse change in its business, operations, financial
condition, or prospects; (8) at any party's option upon another party's
material breach of any provision of the agreement; or (9) upon
assignment of the agreement, unless made with the written consent of all
parties.
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 requirements 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,
the 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 applicable federal or state law, rule, regulation, or judicial
order; (8) at the option of Kansas City Life if the Fund fails to meet
the requirements of applicable diversification requirements; (9) upon a
determination that a party has experienced a material adverse change in
its business operations or financial condition, or is the subject of
substantial adverse publicity; or (10) as a result of any other breach
by a non-affiliated party.
Federated Insurance Series. This agreement provides for termination: (1)
on 180 days advance written notice by any party; (2) at Kansas City
Life's option if the Fund's shares are not reasonably available to meet
the requirements of the Contracts; (3) at the option of the Fund or
Federated Securities Corp., the Fund's distributor (the "Distributor")
upon institution of certain proceedings against Kansas City Life or its
agent; (4) at Kansas City Life's option upon institution of certain
proceedings against the Fund or the Distributor; (5) upon vote of
Contract Owners to substitute the shares of another investment company
for the shares of the Fund, or similar regulatory approval; (6) in the
event any of the Fund's shares are not registered, issued or sold in
accordance with applicable law, or such law precludes the use of such
shares to fund the Contracts; (7) by any party upon a determination by a
majority of the Fund's trustees, or a majority of its disinterested
trustees, that an irreconcilable conflict exists; (8) at the option of
Kansas City Life if the Fund fails to meet the requirements of
applicable diversification requirements; or (9) by any party upon
another party's failure to cure a material breach of the agreement
within 30 days after written notice thereof.
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
determination 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 employees.
STATE REGULATION
We are subject to regulation and supervision by the Department of Insurance of
the State of Missouri, which periodically examines our affairs. We are also
subject to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. A copy of the Contract form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Contracts are sold. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
RECORDS AND REPORTS
We will retain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Contract Owners semi-annually at the Owner's last known address of record.
LEGAL MATTERS
All matters relating to Missouri law pertaining to the Contracts, including the
validity of the Contracts and Kansas City Life's authority to issue the
Contracts, have been passed upon by C. John Malacarne, General Counsel of Kansas
City Life. Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided
advice on certain matters relating to the federal securities laws.
EXPERTS
Ernst & Young, LLP, independent auditors has audited the following reports
included in this prospectus:
o consolidated balance sheets for Kansas City Life at December 31, 1998 and
1997,
o related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
o financial statements of the Variable Account at December 31, 1998 and 1997.
The Independent Auditor's Report is also included in this Statement of
Additional Information and is provided in reliance upon these reports.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The following financial statements for Kansas City Life are included in the
Statement of Additional Information:
o balance sheets as of December 31, 1998 and 1997; and
o related statements of income, stockholders' equity and cash flows for each
of the three years ended December 31, 1998.
The following financial statements for the Variable Account are included in the
Statement of Additional Information:
o financial statements for the Variable Account for the year ended December
31, 1998, and
o related statement of operations and changes in net assets for the periods
ended December 31, 1998, December 31, 1997 and December 31, 1996.
Kansas City Life's financial statements should be distinguished from financial
statements of the Variable Account. You should consider Kansas City Life's
financial statements only as an indication of Kansas City Life's ability to meet
its obligations under the Contracts. You should not consider them as having an
effect on the investment performance of the assets held in the Variable Account.
April 17, 1998
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(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").1
(2) Not Applicable.
(3) Underwriting Agreement between Kansas City Life and Sunset
Financial Services, Inc. ("Sunset Financial").2
(4) Contract Form.1
(5) Contract Application.2
(6) (a) Articles of Incorporation of Bankers Life Association of
Kansas City.1
(b) Restated Articles of Incorporation of Kansas City Life.1
(c) By-Laws of Kansas City Life.1
(7) Not Applicable.
(8) (a) Form of Participation Agreement with MFS Variable
Insurance Trust.2
(b) Form of Participation Agreement with TCI Portfolios,
Inc.2
(c) Form of Participation Agreement with Federated Insurance
Series.2
(9) Opinion and Consent of Counsel.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of performance quotations.3
(14) Not applicable.
- ----------------
1 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).
2 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).
3 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
R. Philip Bixby Director, President and CEO
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
Ann C. Moberg Treasurer
Daryl D. Jensen Director
Nancy Bixby Hudson Director
Webb R. Gilmore Director
Warren J. Hunzicker Director
Michael J. Ross Director
Elizabeth T. Solberg Director
Larry Winn Jr. Director
Peter Hathaway, M.D. Vice President and Medical Director
Scott M. Stone Vice President, 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
* 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
Contact Data, Inc. Missouri Ownership of all voting
securities by depositor Direct Marketing
Kansas City Life
Financial Group, Inc. Missouri Ownership of all voting
securities by depositor Insurance Marketing
Item 27. Number of Contract owners
4,656--As of December 31, 1998
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 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, 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 expenses, 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, issue 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 were 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) authorized, 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 another 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 stand 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 request 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 beneficiaries; 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 Director
Gary K. Hoffman Secretary, Director
Robert E. Janes Treasurer
Jack D. Hayes Chairman of the Board and Director
Walter E. Bixby, III Director
R. Philip Bixby Director
Bret L. Benham Vice President
Billy J. Dahle Assistant Vice President
Kelly T. Ullom Vice President
Ann C. Moberg Assistant Treasurer
Agatha C. Robinson Vice President
Kelly T. Ullom Vice President
* 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 letter 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 complied 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 aggregate, 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 has caused this Registration Statement to
be signed on its behalf, in the City of Kansas City, and the State of Missouri,
on this 25th day of February, 1999.
KANSAS CITY LIFE INSURANCE COMPANY
Attest: /s/C. John Malacarne By: /s/R. Philip Bixby
C. John Malacarne R. Philip Bixby
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/R. Philip Bixby President, CEO, and Director February 25, 1999
R. Philip Bixby
/s/Richard L. Finn Senior Vice President, Finance February 25, 1999
Richard L. Finn and Director
(Principal Financial Officer)
/s/John K. Koetting Vice President and Controller February 25, 1999
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and February 25, 1999
J.R. Bixby Director
/s/W. E. Bixby Vice Chairman of the Board February 25, 1999
W. E. Bixby and Director
/s/W. E. Bixby III Director February 25, 1999
W. E. Bixby III
Director February 25, 1999
Daryl D. Jensen
/s/Francis P. Lemery Director February 25, 1999
Francis P. Lemery
/s/C. John Malacarne Director February 25, 1999
C. John Malacarne
/s/Jack D. Hayes Director February 25, 1999
Jack D. Hayes
Director February 25, 1999
Webb R. Gilmore
Director February 25, 1999
Warren J. Hunzicker, M.D.
Director February 25, 1999
Michael J. Ross
Director February 25, 1999
Elizabeth T. Solberg
Director February 25, 1999
E. Larry Winn Jr.
Director February 25, 1999
Nancy Bixby Hudson
EXHIBIT INDEX
Page No.*
9. Opinion and Consent of Counsel
* Page numbers included only in manually executed original in compliance with
Rule 403(d) under the Securities Act of 1933.
Exhibit 9
Opinion and Consent of Counsel
Exhibit 9
March 2, 1999
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64111
Re: Registration Statement
To Whom It May Concern:
In connection with the proposed registration under the Securities Act of 1933,
as amended, of individual variable annuity contracts ("the Contracts") and
interests in the Kansas City Life Annuity Separate Account (the "Separate
Account"), I have examined the documents relating to the establishment of the
Separate Account by the Board of Directors of Kansas City Life Insurance Company
(the "Company") as a separate account for assets applicable to variable annuity
contracts, pursuant to Section 376.309 RSMo., as amended, and the Registration
Statement, on Form N-4 (the "Registration Statement"), and I have examined such
other documents and reviewed such matters of law as I deem necessary for this
opinion, and I advise you that in my opinion:
1. The Separate Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Missouri.
2. The Contracts, when issued in accordance with the Prospectus constituting a
part of the Registration Statement and upon compliance with applicable
local law, will be legal and binding obligations of the Company in
accordance with their respective terms.
3. The portion of the assets held in the Separate Account equal to reserves
and other contract liabilities with respect to the Separate Account are not
chargeable with liabilities arising out of any other business the Company
may conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of my name under the heading "Legal Matters" in the
Prospectus constituting a part of the Registration Statement and to the
references to me wherever appearing therein.
Yours very truly,
/s/ C. John Malacarne
C. John Malacarne
