As filed with the Securities and Exchange Commission on April 27, 2000
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. 6 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 [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. 20004-2415
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485 _X__ On May
1, 2000 pursuant to paragraph (b) of Rule 485 ____ 60 days after filing pursuant
to paragraph (a)(1) of Rule 485 ___ on (date) 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 219364
Telephone: (816) 753-7000 Kansas City, Missouri 64121-9364
Telephone: (800) 616-3670
This Prospectus describes an individual flexible premium deferred variable
annuity contract (the "Contract") offered by Kansas City Life Insurance Company
("Kansas City Life"). 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 the Fixed 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 MFS Investment Management(R)
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS Global Governments Series
MFS Bond Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
Management, Inc.
American Century VP Income & Growth
American Century VP International
American Century VP Value
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Investment
Management Company
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio Sub-Investment Adviser for
Appreciation Portfolio:
Fayez Sarofim & Co.
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation
Index Fund Manager:
Mellon Equity Associates
The Dreyfus Socially Responsible Growth Fund, Inc. Manager
The Dreyfus Corporation
Sub-Investment Adviser:
NCM Capital Management
Group, Inc.
J.P. Morgan Series Trust II Manager
J.P. Morgan U.S. Disciplined Equity Portfolio J.P. Morgan Investment
Management Inc.
J.P. Morgan Small Company Portfolio
Franklin Templeton Variable Insurance
Products Trust Manager
Templeton International Securities
Fund Class 2 Templeton Investment
Counsel, Inc.
Calamos Advisors Trust Manager
Calamos Convertible Portfolio Calamos Asset Management,Inc.
The accompanying prospectuses for the Funds describe these portfolios. The value
of amounts allocated to the Variable Account 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 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 more information about the Contract and the Variable
Account. The date of the Statement of Additional Information is the same as this
Prospectus and is incorporated 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.
The Securities and Exchange Commission maintains a web site that contains the
Statement of Additional Information, material incorporated by reference, and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
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 1, 2000.
PROSPECTUS CONTENTS
DEFINITIONS...................................................................1
HIGHLIGHTS....................................................................2
The Contract...............................................................2
Charges and Deductions.....................................................3
Annuity Provisions.........................................................4
Federal Tax Status.........................................................4
TABLE OF EXPENSES.............................................................4
CONDENSED FINANCIAL INFORMATION............................................10
KANSAS CITY LIFE, THE VARIABLE ACCOUNT AND THE FUNDS..........................11
Kansas City Life Insurance Company.........................................11
Kansas City Life Variable Annuity Separate Account.........................11
The Funds..................................................................11
Resolving Material Conflicts...............................................14
Addition, Deletion or Substitution of Investments..........................14
Voting Rights..............................................................15
DESCRIPTION OF THE CONTRACT...................................................15
Purchasing a Contract......................................................15
Free-Look Period...........................................................15
Allocation of Premiums.....................................................16
Variable Account Value.....................................................16
Transfer Privilege.........................................................18
Dollar Cost Averaging Plan.................................................18
Portfolio Rebalancing Plan.................................................18
Partial and Full Cash Surrenders...........................................19
Contract Termination.......................................................20
Contract Loans.............................................................20
Death Benefit Before Maturity Date.........................................21
Proceeds on Maturity Date..................................................22
Payments...................................................................22
Modifications..............................................................23
Reports to Contract Owner..................................................23
Telephone Authorizations...................................................23
THE FIXED ACCOUNT.............................................................23
Minimum Guaranteed and Current Interest Rates..............................24
Calculation of Fixed Account Value.........................................24
Transfers from Fixed Account...............................................24
Delay of Payment...........................................................24
CHARGES AND DEDUCTIONS........................................................24
Surrender Charge (Contingent Deferred Sales Charge)........................24
Transfer Processing Fee....................................................26
Administrative Charges.....................................................26
Mortality and Expense Risk Charge..........................................26
Premium Taxes..............................................................26
Reduced Charges for Eligible Groups........................................26
Other Taxes................................................................27
Investment Advisory Fees and Other Expenses of the Funds...................27
PAYMENT OPTIONS...............................................................27
Election of Options........................................................28
Description of Options.....................................................28
YIELDS AND TOTAL RETURNS......................................................28
Yields.....................................................................28
Total Returns..............................................................29
Benchmarks and Ratings.....................................................29
FEDERAL TAX STATUS............................................................30
Introduction...............................................................30
Taxation of Non-Qualified Contracts........................................30
Taxation of Qualified Contracts............................................31
Possible Tax Law Changes...................................................32
DISTRIBUTION OF THE CONTRACTS.................................................32
LEGAL PROCEEDINGS.............................................................32
COMPANY HOLIDAYS..............................................................32
FINANCIAL STATEMENTS..........................................................33
CONDENSED FINANCIAL INFORMATION...............................................34
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS.........................36
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.
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 30.)
Tax favored arrangements, including IRAs and Roth IRAs, should carefully
consider the costs and benefits of the Contracts (including annuity income
benefits) before purchasing the Contract, since the tax arrangement itself
provides for tax-sheltered growth.
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 15.)
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 on your state. (See "Free-Look
Period," page 15.)
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 15.)
Premium Allocation. You direct the allocation of premium payments among the
Subaccounts of the Variable Account and/or the Fixed Account. In the Contract
application, you specify the percentage of a premium 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 23.) 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:
require premium payments to be refunded under the free-look provision; or
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 16.)
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 processing fee.
(See "Transfer Privilege," page 18.)
Full and Partial Surrender. You may surrender all or part of the Cash
Surrender Value (subject to certain limitations) any time before the earlier of:
o the date that the Annuitant dies; or
o the Maturity Date.
Death Benefit. If the Annuitant dies before the Maturity Date, the
Beneficiary will receive a death benefit. The death benefit is equal to the
greater of:
o premiums paid, adjusted for any surrenders (including applicable surrender
charges) less any indebtedness; and
o 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 21.)
Death Proceeds are taxable and generally are included in the income of the
recipient as follows:
o If received under a payment option, they are taxed in the same manner as
annuity payments.
o If distributed in a lump sum, they are taxed in the same manner as a full
surrender.
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, the first surrender
up to 10% of the Contract Value per Contract Year will not be subject to a
surrender charge. (See "Transfers from Fixed Account," page 24.)
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 "Transfers from Fixed Account," page 24.)
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 "Administrative Charges," page 26.)
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 26.)
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 "Administrative Charges," page 26.)
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 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
26.)
Premium Taxes. If state or other premium taxes are applicable to a
Contract, we will deduct them either upon surrender or when we apply the
proceeds to a payment option. (See "Premium Taxes," page 26.)
Investment Advisory Fees and Other Expenses of the Funds. The funds deduct
investment advisory fees on a daily basis and incur other expenses. 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. Expenses of the Funds are not fixed or specified in the
Contract and actual expenses may vary. See the prospectuses for the Funds for
specific information about these fees. (See " Investment Advisory Fees and Other
Expenses of the Funds," page 27.)
Annuity Provisions
Maturity Date. On the Maturity Date we will apply the proceeds to the
payment option you choose. If you choose a Life Payment Option, the amount of
proceeds will be the full Contract Value. 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 27.)
Payment Options. The payment options are:
o Interest Payments (Non-Life Payment Option)
o Installments of a Specified Amount (Non-Life Payment Option)
o Installments for a Specified Period (Non-Life Payment Option)
o Life Income (Life Payment Option)
o Joint and Survivor Income (Life Payment Option)
Payments under these options do not vary based on Variable Account performance.
(See "Payment Options," page 27.)
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 59 1/2. Special
tax rules apply to Qualified Contracts. 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 STATUStatus," page
30.)
TABLE OF EXPENSES
Contract Owner Transaction Expenses
Sales Charge Imposed on Premiums None
Surrender Charge (Contingent Deferred Sales Charge)
Note: Subject to certain restrictions, up to 10% of the Contract Value will not
be subject to a surrender charge each Contract Year. (See "Surrender Charge,"
page 24.)
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 Global MFS
Growth Research Return Utilities Gov't 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) 0.75% 0.75% 0.75% 0.75% 0.75% 0.60%
Other Expenses 1/ 0.09% 0.11% 0.15% 0.16% 0.30% 0.46%
Total Annual Fund Expenses 1/ 0.84% 0.86% 0.90% 0.91% 1.05% 1.06%
Expense Reimbursement2/ _NA_ _NA_ _NA_ _NA_ (0.14%) (0.30%)
Net Annual Fund Expenses1/ 0.84% 0.86% 0.90% 0.91% 0.91% 0.76%
</TABLE>
<TABLE>
<CAPTION>
Am Cent Am Cent VP
VP Capital Income & Am Cent VP Am Cent
Appreciation Growth International VP Value
<S> <C> <C> <C> <C>
American Century Variable Portfolios Annual Expenses (as a
percentage of average net assets)
Management Fees (Investment Advisory Fees) 1.00% 0.70% 1.34% 1.00%
Other Expenses 3/ 0.00% 0.00% 0.00% 0.00%
Total Annual Fund Expenses3/ 1.00% 0.70% 1.34% 1.00%
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Federated
American High Income Prime
Leaders Bond Money
Fund II Fund II Fund II
Federated Insurance Series Annual Expenses
(as a percentage of average net assets)
<S> <C> <C> <C>
Management Fees (Investment Advisory Fees) 0.75% 0.60% 0.50%
Other Expenses 0.13% 0.19% 0.23%
Shareholder Services Fee 4/ 0.25% 0.25% 0.25%
Total Annual Fund Expenses 1.13% 1.04% 0.98%
Waiver of Fund Expenses4/ (0.25%) (0.25%) (0.25%)
Net Annual Fund Expenses4/ 0.88% 0.79% 0.73%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus Dreyfus
Appreciation Small Cap
Portfolio Portfolio
Dreyfus Variable Investment Fund Annual Expenses (as a
percentage of average net assets)
<S> <C> <C>
Management Fees (Investment Advisory Fees) 0.75% 0.75%
Other Expenses 0.03% 0.03%
Total Annual Fund Expenses 0.78% 0.78%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus Stock
Index Fund
Dreyfus Stock Index Fund Annual Expenses
(as a percentage of average net assets)
<S> <C>
Management Fees (Investment Advisory Fees) 0.25%
Other Expenses5/ 0.01%
Net Annual Fund Expenses5/ 0.26%
</TABLE>
<TABLE>
<CAPTION>
The Dreyfus
Socially
Responsible
Growth Fund,
Inc.
The Dreyfus Socially Responsible Growth Fund, Inc.
Annual Expenses (as a percentage of average net assets)
<S> <C>
Management Fees (Investment Advisory Fees) 0.75%
Other Expenses 0.04%
Net Annual Fund Expenses5/ 0.79%
</TABLE>
<TABLE>
<CAPTION>
JP Morgan JP Morgan
U.S. Small Company
Disciplined Portfolio
Equity
Portfolio
J.P. Morgan Series Trust II Annual Expenses
(as a percentage of average net assets)
<S> <C> <C>
Management Fees (Investment Advisory Fees) 0.35% 0.60%
Other Expenses 0.52% 1.97%
Total Annual Fund Expenses 6/ 0.87% 2.57%
Expense Reimbursement6/ (0.02%) (1.42%)
Net Annual Fund Expenses6/ 0.85% 1.15%
</TABLE>
<TABLE>
<CAPTION>
Templeton
International
Securities
Fund Class 2 7/
Franklin Templeton Variable Insurance Products Trust
Annual Expenses (as a percentage of average net assets) 7/
<S> <C>
Management Fees (Investment Advisory Fees) 0.69%
Other Expenses 0.19%
Total Annual Fund Expenses1.13%
</TABLE>
<TABLE>
<CAPTION>
Calamos
Convertible
Portfolio
Calamos Advisors Trust Annual Expenses
(as a percentage of average net assets)
<S> <C>
Management Fees (Investment Advisory Fees) 0.75%
Other Expenses 9.11%
Total Annual Fund Expenses 9.86%
Expense Reimbursement (8.86)%
Net Annual Fund Expenses9/ 1.00%
</TABLE>
Premium taxes, currently ranging up to 3.5%, may be applicable, depending on
various states' laws.
The above tables are intended to assist you in understanding the costs and
expenses that you will bear, directly or indirectly. The tables reflect expenses
of the Variable Account as well as of 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 29 of this Prospectus and the prospectuses for the
underlying Funds that accompany it. __________________________
1/ 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. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal:
0.83% for Emerging Growth Series 0.90% for Utilities Series
0.85% for Research Series 0.90% for Global Governments Series
0.89% for Total Return Series 0.75% for Bond Series
2/ MFS has contractually agreed, subject to reimbursement, to bear expenses
for these series such that each such series' "Other Expenses" (after taking
into account the expense offset arrangement described above), do not exceed
the following percentages of the average daily net assets of the series
during the current fiscal year:
0.15% for Global Governments Series0.15% for Bond Series
These contractual fee arrangements will continue until at least May 1,
2001, unless changed with the consent of the board of trustees which
oversees the series.
3/ 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 the services provided to the American
Century VP Capital Appreciation Fund, the manager receives an annual fee of
1.00% of the first $500 million of the average net assets of the fund,
0.95% of the next $500 million and 0.90% thereafter. For the services
provided to the American Century VP International Fund, the manager
receives an annual fee of 1.50% of the first $250 million of the average
net assets of the fund, 1.20% of the next $250 million and 1.10%
thereafter. For the services provided to the American Century VP Value
Fund, the manager receives an annual fee of 1.00% of the first $500 million
of the average net assets of the fund, 0.95% of the next $500 million and
0.90% thereafter.
4/ The Fund did not pay or accrue the shareholder services fee during the
fiscal year ended December 31, 1999. The Fund has no present intention of
paying or accruing the shareholder services fee during the fiscal year
ended December 31, 2000. The maximum shareholder services fee is 0.25%.
5/ The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Stock
Index Fund reimburse their investment adviser, The Dreyfus Corporation, for
certain expenses relating to servicing and/or maintaining shareholder
accounts. These expenses are reflected as part of "Other Expenses." The
Dreyfus Corporation has agreed that these expenses will not exceed an
annual rate of 0.25% of 1.00% of each Fund's average daily net assets.
6/ The trust, on behalf of each portfolio, has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of
New York ("Morgan Guaranty"), under which Morgan Guaranty is responsible
for certain aspects of the administration and operation of each portfolio.
Under the Service Agreement, each portfolio has agreed to pay Morgan
Guaranty a fee based on the percentages described below. If total expenses
of each portfolio, excluding the advisory fees, exceed the expense limits
of: 0.50% of the average daily net assets of J.P. Morgan U.S. Disciplined
Equity Portfolio and 0.55% of the average daily net assets of J.P. Morgan
Small Company Portfolio, Morgan Guaranty will reimburse each portfolio for
the excess expense amount and receive no fee. Should such expenses be less
than the expense limits, Morgan Guaranty's fees would be limited to the
difference between such expenses and the fees calculated under the Services
Agreement. For the fiscal year ended December 31, 1999, Morgan Guaranty has
agreed to reimburse the portfolios for expenses under this agreement as
follows: $7,543 for the U.S. Disciplined Equity and $129,795 for the Small
Company.
7/ On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton International Equity Fund, effective
5/1/00. The shareholders of that fund had approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows restated
total expenses based on the new fees and the assets of the fund as of
12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses
after 5/1/00 would be estimated as: Management Fees 0.65%, Distribution and
Service Fees 0.25%, Other Expenses 0.20%, and Total Fund Operating Expenses
1.10%.
8/ The fund's class 2 distribution plan or "rule 12b-1 plan" is described
in the fund's prospectus.
9/ Pursuant to a written agreement the investment manager has voluntarily
undertaken to waive fees and/or reimburse portfolio expenses so that the
Total Annual Fund Expenses are limited to 1.00% of the portfolio's average
net assets. The fee waiver and/or reimbursement is binding on the
investment manager through May 31, 2001.
Examples
The following information regarding expenses assumes that the entire Contract
Value is in the Variable Account.
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:
<TABLE>
<CAPTION>
Subaccount 1 Year 3 Years 5 Years* 10 Years*
<S> <C> <C> <C> <C>
MFS EMERGING GROWTH $88.05 $140.13 $ 174.48 $ 263.51
RESEARCH $ $ $ 175.43 $ 265.52
TOTAL RETURN $ $ $ 177.33 $ 269.51
UTILITIES $ $ $ 177.81 $ 270.51
GLOBAL GOVERNMENTS $ $ $ 177.81 $ 270.51
BOND $ $ $ 170.66 $ 255.46
AMERICAN CENTURY VP CAPITAL APPREC $ $ $ 182.07 $ 279.42
VP INCOME AND GROWTH $ $ $ 167.78 $ 249.37
VP INTERNATIONAL $ $ $ 197.99 $ 312.30
VP VALUE $ $ $ 182.07 $ 279.42
FEDERATED AMERICAN LEADERS FUND II $ $ $ 176.38 $ 267.52
HIGH INCOME BOND FUND II $ $ $ 172.09 $ 258.49
PRIME MONEY PRIME FUND II $ $ $ 169.22 $ 252.42
DREYFUS APPRECIATION $ $ $ 171.61 $ 257.48
SMALL CAP $ $ $ 171.61 $ 257.48
STOCK INDEX $ $ $ 146.42 $ 203.48
SOCIALLY RESPONSIBLE GROWTH $ $ $ 172.09 $ 258.49
J.P. MORGAN U.S. DISCIPLINED EQUITY $ $ $ 174.95 $ 264.52
SMALL COMPANY $ $ $ 189.13 $ 294.07
FRANKLIN TEMPLETON INTERNATIONAL SECURITIES FUND $ $ $ 188.19 $ 292.13
$ $
CALAMOS CONVERTIBLE 89.55 144.60 $ 182.07 $ 279.42
</TABLE>
2. If the Contract is not surrendered or is paid out under a Life Payment Option
at the end of the applicable time period:
<TABLE>
<CAPTION>
Subaccount 1 Year 3 Years 5 Years* 10 Years*
<S> <C> <C> <C> <C>
MFS EMERGING GROWTH $23.41 $72.08 $ 123.32 $ 263.51
RESEARCH $ $ $ 124.32 $ 265.52
TOTAL RETURN $ $ $ 126.32 $ 269.51
UTILITIES $ $ $ 126.82 $ 270.51
GLOBAL GOVERNMENTS $ $ $ 126.82 $ 270.51
BOND $ $ $ 119.29 $ 255.46
AMERICAN CENTURY VP CAPITAL APPREC $ $ $ 131.32 $ 279.42
VP INCOME AND GROWTH $ $ $ 116.26 $ 249.37
VP INTERNATIONAL $ $ $ 148.09 $ 312.30
VP VALUE $ $ $ 131.32 $ 279.42
FEDERATED AMERICAN LEADERS FUND II $ $ $ 125.32 $ 267.52
HIGH INCOME BOND FUND II $ $ $ 120.80 $ 258.49
PRIME MONEY PRIME FUND II $ $ $ 117.78 $ 252.42
DREYFUS APPRECIATION $ $ $ 120.30 $ 257.48
SMALL CAP $ $ $ 120.30 $ 257.48
STOCK INDEX $ $ $ $ 203.48
SOCIALLY RESPONSIBLE GROWTH $ $ $ 120.80 $ 258.49
J.P. MORGAN U.S. DISCIPLINED EQUITY $ $ $ 123.82 $ 264.52
SMALL COMPANY $ $ $ 138.75 $ 294.07
FRANKLIN TEMPLETON INTERNATIONAL SECURITIES FUND $ $ $ 137.77 $ 292.13
CALAMOS CONVERTIBLE $ $ $ 131.32 $ 279.42
</TABLE>
*In these Examples "N/A" indicates that SEC rules require that the Calamos
Convertible Portfolio complete the Examples for only the one and three year
periods.
The examples above assume that we assess no transfer charges or premium taxes.
The annual administration fee is $30.00 for Contracts with a Contract Value less
than $50,000 at the beginning of the Contract Year. There is no administration
fee for Contracts with a Contract Value greater than or equal to $50,000 at the
beginning of the Contract Year. As of 12/31/99, the average Contract Value is
equal to $33,052 with an average administration fee equal to $24.24. This
translates the annual administrative fee into an assumed .073% 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.
CONDENSED FINANCIAL INFORMATION
Condensed financial information containing the Accumulation Unit Value Listing
appears at the end of this prospectus.
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 adviser 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 adviser or manager.
MFS(R) Variable Insurance TrustSM
(Manager: MFS Investment Management(R))
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 65% 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 seeks 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 seeks to provide
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital, and secondarily
to provide a reasonable opportunity for growth of capital and income.
MFS Utilities Series. The Utilities Series seeks 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% of its assets in equity and debt securities
of both domestic and foreign (including emerging market) companies in the
utilities industry.
MFS Global Governments Series. The Global Governments Series seeks income
and capital appreciation. The Series invests, under normal market conditions, at
least 65% of its total assets in U.S. government securities, foreign government
securities, corporate bonds, mortgage-backed securities, asset-backed
securities, and derivative securities.
MFS Bond Series. The Bond Series seeks primarily to provide as high a level
of current income as is believed consistent with prudent investment risk and
secondarily 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."
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 Income & Growth. American Century VP Income & Growth
seeks dividend growth, current income and capital appreciation. The fund will
seek to achieve its investment objective by investing in common stocks.
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 an
internationally diversified portfolio of common stocks that are considered by
management to have prospects for appreciation. International investment involves
special risk considerations. These include economic and political conditions,
expected inflation rates and currency swings.
American Century VP Value. American Century VP Value seeks long-term
capital growth. Income is a secondary objective. The fund will seek to achieve
its investment objective by investing in securities that management believes to
be undervalued at the time of purchase.
Federated Insurance Series
(Manager: Federated Investment Management Company)
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."
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;
Sub-Investment Advisor for Appreciation Portfolio: Fayez Sarofim & Co.)
Appreciation Portfolio (formerly Capital Appreciation Portfolio). The
portfolio seeks long-term capital growth consistent with the preservation of
capital; current income is a secondary goal. To pursue these goals the portfolio
invests in common stocks focusing on "blue chip" companies with total market
values of more than $5 billion at the time of purchase.
Small Cap Portfolio. The portfolio seeks to maximize capital appreciation.
To pursue this goal, the portfolio generally invests at least 65% of its assets
in the common stock of U.S. and foreign companies. The portfolio focuses on
small-cap companies with total market values of less than $1.5 billion.
Dreyfus Stock Index Fund (Manager: The Dreyfus Corporation; Index Fund Manager:
Mellon Equity Associates)
The fund seeks to match the total return of the Standard & Poor's 500 Composite
Stock Price Index. To pursue this goal, the fund generally invests in all 500
stocks in the S&P 500(R) in proportion to their weighting in the index. The S &
P 500 is an unmanaged index of 500 common stocks chosen to reflect the
industries of the U.S. economy and is often considered a proxy for the stock
market in general. Each stock is weighted by its market capitalization, which
means larger companies have greater representation in the index than smaller
ones. The fund may also use stock index futures as a substitute for the sale or
purchase of securities. The fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the fund.
The Dreyfus Socially Responsible Growth Fund, Inc. (Manager: The Dreyfus
Corporation; Sub-Investment Adviser: NCM Capital Management Group, Inc.)
The fund seeks to provide capital growth, with current income as a secondary
goal. To pursue these goals, the fund invests primarily in the common stock of
companies that, in the opinion of the fund's management, meet traditional
investment standards and conduct their business in a manner that contributes to
the enhancement of the quality of life in America.
J.P. Morgan Series Trust II
(Manager: J.P. Morgan Investment Management Inc.)
J.P. Morgan U.S. Disciplined Equity Portfolio (formerly Equity Portfolio).
J.P. Morgan U.S. Disciplined Equity Portfolio seeks to provide a high total
return from a portfolio comprised of selected equity securities. Total return
will consist of realized and unrealized capital gains and losses plus income
less expenses. The Portfolio invests primarily in the common stocks of U.S.
corporations typically represented by the Standard & Poor's 500 Stock Index with
market capitalizations above $1.5 billion.
J.P. Morgan Small Company Portfolio. The investment objective of J.P.
Morgan Small Company Portfolio is to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalizations greater than
$110 million and less than $1.5 billion.
Franklin Templeton Variable Insurance Products Trust
(Manager: Templeton Investment Counsel, Inc.)
Effective May 1, 2000, each fund in the Templeton Variable Products Series Fund
merged with the similar, corresponding fund of the Franklin Templeton Variable
Insurance Products Trust.
Templeton International Securities Fund Class 2 (formerly Templeton
International Fund Class 2). The investment objective of Templeton International
Securities Fund is long-term capital growth. The Fund invests in equity
securities of companies located outside the United States, including those in
emerging markets.
Calamos Advisors Trust
(Manager: Calamos Asset Management, Inc.)
Calamos Convertible Portfolio. Calamos Convertible Portfolio seeks current
income as its primary objective with capital appreciation as its secondary
objective. The Portfolio invests primarily in a diversified portfolio of
convertible securities. These convertible securities may be either debt
securities (bonds) or preferred stock that are convertible into common stock,
and may be issued by both U.S. and foreign companies.
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 (or our affiliates) may receive significant compensation from a Fund's 12b-1
fees or from a Fund's investment adviser (or its affiliates) in connection with
administration, distribution, or other services provided with respect to the
Funds and their availability through the Contracts. The amount of this
compensation is generally based upon a percentage of the assets of the Fund
attributable to the Contracts and other contracts we issue. These percentages
differ, and some Funds or their advisers (or affiliates) may pay us (or our
affiliates) more than others. Currently, these percentages range from 0.15% to
0.25%.
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 for any other reason in our sole discretion, 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. The substituted fund may have different fees and
expenses. 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 warrants or for any reason in our sole
discretion. 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 de-register 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 and any shares held in our General Account 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;
o approve or disapprove an investment advisory agreement; or
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 "Premium Taxes," page 34.) We may
issue Contracts 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 23.)
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; and
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 Account
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; less
3. the per accumulation unit amount of any capital loss distribution on shares
held in the Subaccount during the current Valuation Day; less
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:
o the minimum transfer amount is the lesser of $250 or the entire amount in
that Subaccount or the Fixed Account;
o 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;
o 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 29, for restrictions); and
o 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 23.)
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 transfer 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 your request or on
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.
There is no transfer charge for participation in the Dollar Cost Averaging Plan
and 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 as a transfer permitted under the Contract
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 the
first partial surrender of up to 10% of the Contract Value per Contract Year.
(See "Surrender Charge," page 24.)
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 the
first amounts paid out under the Systematic Partial Surrender Plan of up to 10%
of the Contract Value each Contract Year . (See "Surrender Charge," page 24.)
You may discontinue participation in the Systematic Partial Surrender Plan at
any time by sending us Written Notice.
Certain federal income tax consequences may apply to partial and systematic
partial surrenders. You should consult your tax adviser before requesting a
partial or systematic partial surrender. (See "Federal Tax Status," page 30.)
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 "Surrender
Charge," page 24.)
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 30.)
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:
o elective contributions made in years beginning after December 31, 1988;
o earnings on those contributions; and
o 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:
o you have not paid premiums for at least two years;
o the Contract Value is less than $2,000; and
o 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 one-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 five-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. Any loan under this Contract
may also be subject to the rules of the plan it is part of.
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:
o the guaranteed death benefit less any indebtedness; or
o 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. In this situation, 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. 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.
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 and any applicable
premium taxes) if you elect to receive the proceeds under a Life Payment
Option; and
o we will apply the Cash Surrender Value (less any applicable premium taxes)
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 32.)
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:
o 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
o the SEC permits by an order the postponement for the protection of Contract
Owners; or
o 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.
Personal Growth Account. As described below, we will pay proceeds through
Kansas City Life's Personal Growth Account. We place proceeds to be paid through
the Personal Growth Account in our general account. The Personal Growth Account
pays interest and provides check-writing privileges under which we reimburse the
bank that pays the check out of the proceeds held in our general account. A
Contract Owner or Beneficiary (whichever applicable) has immediate and full
access to proceeds by writing a check on the account.
The Personal Growth Account is not a bank account and is not insured, nor
guaranteed, by the FDIC or any other government agency.
We will pay proceeds through the Personal Growth Account when:
o the proceeds are paid to an individual; and
o the amount of proceeds is $5,000 or more.
Any other use of the Personal Growth Account requires our approval.
Modifications
We may modify the Contract, subject to providing notice to you. We may only make
modification if it is necessary to:
o make the Contract or the Variable Account comply with any law or regulation
issued by a governmental agency to which we are subject;
o 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);
o reflect a change in the operation of the Variable Account; or
o 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 issue an endorsement to the
Contract (if required) which will reflect the changes.
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.
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 29.) 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 registered under the 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 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. Some states may require that we pay interest on
periods of delay less than 30 days and some states may require us to pay an
interest rate higher than 3% when we delay payment proceeds.
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 or full
surrender of 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 charge upon a full
surrender.
If you have elected to participate in the Systematic Partial Surrender Plan (see
Systematic Partial Surrender Plan, page 23), 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 surrender charges and/or 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;
o size 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 funds deduct investment advisory fees and other expenses. 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.
Description of Options
Option1: 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. Another form of minimum
guaranteed payment period is the installment refund option under which we will
make payments 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 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, each
beginning with 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 standard subaccount average annual total return
quotations are provided. Standard subaccount 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 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 standard subaccount
average annual total return in non-standard formats and cumulative total return
for Contracts funded by Subaccounts.
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 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 annual increases in the excess of the Contract Value. 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
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 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.
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 P.O. Box 219365, Kansas City, Missouri 64121-9365. 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: $322,347 in 1996, $932,204
in 1997, $1,623,593 in 1998 and $1,969,297 in 1999. All commissions paid to
Sunset Financial were paid out to Sunset Financial's registered representatives.
Compensation may also be paid in the form of non-cash compensation, subject to
applicable regulatory requirements.
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.
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 2000 will be October 9, November 24 and December 26. 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, 1999 and 1998; and
o related statements of income, stockholders' equity and cash flows for each
of the three years ended December 31, 1999.
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, 1999, and
o related statement of operations and changes in net assets for the periods
ended December 31, 1999 and 1998.
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.
CONDENSED FINANCIAL INFORMATION
The unit values and the number of accumulation units for each Subaccount for the
periods shown are as follows:
<TABLE>
<CAPTION>
No. of No. of
Units as of Units as
Unit Value as of of Unit Value as of
12-31-99 12-31-99 1-1-99 12-31-98 12-31-98 1-1-98
MFS
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth Series 959,024 33.58 19.52 772,321 19.57 14.82
Research Series 854,627 22.15 18.15 770,593 18.23 15.01
Total Return Series 663,964 15.96 15.71 525,904 15.73 14.23
Utilities Series 779,090 23.87 18.78 476,246 18.63 15.96
Global Governments Series 37,881 10.42 10.89 32,531 10.83 10.16
Bond Series 248,885 11.51 11.84 228,058 11.83 11.29
American Century
VP Capital Appreciation 201,336 13.62 8.55 209,506 8.59 8.84
VP Income & Growth 127,360 7.89 N/A N/A N/A N/A
VP International 351,829 25.33 16.30 318,032 15.71 13.49
VP Value 119,093 5.86 N/A N/A N/A N/A
Federated
American Leaders Fund II 880,408 19.76 18.91 671,781 18.89 16.33
High Income Bond Fund II 725,350 13.21 13.12 629,345 13.10 12.94
Prime Money Fund II 1,637,233 11.54 11.19 732,947 11.19 10.81
Dreyfus
Appreciation 850,787 15.46 14.07 522,930 14.08 11.07
Small Cap 1,022,402 13.04 10.87 916,842 10.95 11.45
Stock Index Fund 1,478,541 17.27 14.55 866,145 14.56 11.57
The Socially Responsible Growth Fund, Inc. 46,470 39.92 N/A N/A N/A N/A
J.P. Morgan
U.S. Disciplined Equity Portfolio 64,227 18.39 N/A N/A N/A N/A
Small Company Portfolio 15,815 16.77 N/A N/A N/A N/A
Franklin Templeton
International Securities Fund Class 2 42,265 21.84 N/A N/A N/A N/A
Calamos
Convertible Portfolio 175,917 12.03 N/A N/A N/A N/A
</TABLE>
<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
MFS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth Series 518,578 14.79 12.17 253,083 12.31 10.65 13,900 10.66 10.00
Research Series 516,667 14.99 12.51 190,114 12.64 10.49 19,430 10.48 10.00
Total Return Series 292,413 14.20 11.81 79,175 11.88 10.56 3,981 10.53 10.00
Utilities Series 204,977 16.00 12.21 32,814 12.32 10.58 11,752 10.54 10.00
Global Governments Series 36,847 10.17 10.39 22,139 10.44 10.39 9,423 10.17 10.00
Bond Series 94,899 11.23 10.29 58,082 10.34 10.29 1,273 10.27 10.00
American Century
VP Capital Appreciation 200,605 8.90 9.15 147,134 9.33 9.91 11,998 9.89 10.00
VP Income & Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A
VP International 188,540 13.41 11.37 77,422 11.47 10.24 12,190 10.16 10.00
VP Value N/A N/A N/A N/A N/A N/A N/A N/A N/A
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
Dreyfus
Appreciation 154,014 10.97 N/A N/A N/A N/A N/A N/A N/A
Small Cap 349,294 11.50 N/A N/A N/A N/A N/A N/A N/A
Stock Index Fund 355,380 11.52 N/A N/A N/A N/A N/A N/A N/A
The Socially N/A N/A N/A N/A N/A N/A N/A N/A N/A
J. P. Morgan
U.S. Disciplined N/A N/A N/A N/A N/A N/A N/A N/A N/A
Small Company Portfolio N/A N/A N/A N/A N/A N/A N/A N/A N/A
Franklin Templeton
International Securities N/A N/A N/A N/A N/A N/A N/A N/A N/A
Calamos
Convertible Portfolio N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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...................................... 2
Federated Prime Money Fund II Subaccount Yields..................... 2
Other Subaccount Yields............................................. 4
Standard Subaccount Average Annual Total Returns.................... 5
Effect of the Annual Administration Fee on Performance Data......... 9
TERMINATION OF PARTICIPATION AGREEMENTS...................................... 9
SAFEKEEPING OF ACCOUNT ASSETS................................................ 11
STATE REGULATION............................................................. 12
RECORDS AND REPORTS.......................................................... 12
LEGAL MATTERS................................................................ 12
EXPERTS...................................................................... 12
OTHER INFORMATION............................................................ 12
FINANCIAL STATEMENTS......................................................... 13
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 219364
Kansas City, Missouri 64121-9364
Please mail a copy of the Statement of Additional Information for the Kansas
City Life Variable Annuity Separate Account to:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
Signature of Requestor:_________________________________________________________
Date:___________________________________________________________________________
PART B
STATEMENT OF ADDITIONAL INFORMATION
Kansas City Life Insurance Company
3520 Broadway
P.O. Box 219364
Kansas City, Missouri 64121-9364
(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 1, 2000.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
ADDITIONAL CONTRACT PROVISIONS................................................1
The Contract..................................................................1
Incontestability..............................................................1
Misstatement of Age or Sex....................................................1
Non-Participation.............................................................1
Tax Status of the Contracts...................................................1
CALCULATION OF YIELDS AND TOTAL RETURNS.......................................2
Federated Prime Money Fund II Subaccount Yields...............................2
Other Subaccount Yields.......................................................4
Standard Subaccount Average Annual Total Returns..............................6
Effect of the Annual Administration Fee on Performance Data...................10
TERMINATION OF PARTICIPATION AGREEMENTS.......................................10
SAFEKEEPING OF ACCOUNT ASSETS.................................................12
STATE REGULATION..............................................................12
RECORDS AND REPORTS...........................................................12
LEGAL MATTERS.................................................................13
EXPERTS.......................................................................13
OTHER INFORMATION.............................................................13
FINANCIAL STATEMENTS..........................................................14
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 an
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.
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 one unit of the Federated Prime
Money Fund II Subaccount at the beginning of the period, dividing such net
change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis.
The net change in account value reflects:
1) net income from the Federated Prime Money Fund II attributable to the
hypothetical account; and
2) charges and deductions imposed under the Contract which are attributable to
the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for:
1) the annual administration fee,
2) the asset-based administration charge, and
3) the mortality and expense risk charge.
For purposes of calculating current yields for a Contract, an average per unit
administrative fee is used based on the $30 annual administration fee deducted
at the beginning of each Contract Year and an assumed account size equal to the
subaccount's average account size. 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
one 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:
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
one 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.
The current and effective yields for the Federated Prime Money Fund II
subaccount for the seven-day period ended December 31, 1999 was 3.42% and 3.48%,
respectively.
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 two. 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.
<TABLE>
<CAPTION>
Subaccount Yields for 30-day Period Ended December 31, 1999
Fund Manager Subaccount Sub-account Yields
for the 30 Day Period
ending 12/31/1999
<S> <C>
MFS EMERGING GROWTH 446.63%
RESEARCH 131.73%
TOTAL RETURN 6.71%
UTILITIES 118.17%
GLOBAL GOV'T -2.69%
BOND -6.95%
AMER. CENTURY VP CAPITAL APPRECIATION 322.44%
VP INCOME AND GROWTH 75.92%
VP INTERNATIONAL 315.71%
VP VALUE -13.26%
FEDERATED AMERICAN LEADERS FUND II 39.47%
HIGH INCOME BOND FUND II 10.51%
PRIME MONEY FUND II 3.67%
DREYFUS APPRECIATION 28.84%
SMALL CAPITALIZATION 144.61%
STOCK INDEX 74.39%
SOCIALLY RESPONSIBLE 112.97%
J.P. MORGAN U.S. DISCIPLINED EQUITY 53.95%
SMALL COMPANY PORTFOLIO 203.46%
FRANKLIN INTERNATIONAL SECURITIES 116.98%
CALAMOS CONVERTIBLE 160.17%
Note: These yields are shown on an annualized basis
</TABLE>
Standard Subaccount Average Annual Total Returns
From time to time, sales literature or advertisements may also quote standard
subaccount average annual total returns for the Subaccounts for various periods
of time.
When a Subaccount has been in operation for one, five and 10 years,
respectively, the standard subaccount average annual total return for these
periods will be provided. Standard subaccount average annual total returns for
other periods of time may, from time to time, also be disclosed.
Standard subaccount 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 subaccount 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 based on an account size equal to the subaccount's average account size.
The calculation also assumes surrender of the Contract at the end of the period
for the return quotation. Standard subaccount average annual 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 standard subaccount 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 subaccount average annual total returns for the Subaccounts for the
period of each Subaccount's operations during 1999 are presented below.
<TABLE>
<CAPTION>
Standard Subaccount Average Annual Total Returns
One Year Three Year Since
Return From Return From Inception Subaccount
Fund 1/1/1999 to 1/1/1997 to Return to Inception
Manager Subaccount 12/31/1999 12/31/1999 12/31/1999 Date
<S> <C> <C> <C> <C>
MFS EMERGING GROWTH 63.24% 37.37% 32.93% Sept 6, 1995
RESEARCH 14.54% 18.16% 19.54% Sept 6, 1995
TOTAL -4.87% 7.97% 11.20% Sept 6, 1995
UTILITIES 20.79% 22.18% 22.71% Sept 6, 1995
GLOBAL -10.01% -2.33% 0.32% Sept 6, 1995
BOND -9.14% 1.24% 2.13% Sept 6, 1995
AMER. CENTURY VP CAPITAL APPRECIATION 51.95% 11.53% 6.95% Sept 6, 1995
VP INCOME & GROWTH NA NA 3.66% May 1, 1999
VP INTERNATIONAL 51.50% 27.25% 23.55% Sept 6, 1995
VP VALUE NA NA -14.96% May 1, 1999
FEDERATED AMERICAN LEADERS FUND II -1.54% 14.17% 16.95% Sept 6, 1995
HIGH INCOME BOND FUND II -5.57% 2.33% 6.05% Sept 6, 1995
PRIME MONEY FUND II -3.41% 1.06% 2.19% Sept 6, 1995
DREYFUS APPRECIATION 2.90% NA 17.14% May 1, 1997
SMALL CAPITALIZATION 13.71% NA 11.03% May 1, 1997
STOCK INDEX 11.34% NA 22.09% May 1, 1997
SOCIALLY RESPONSIBLE NA NA 12.32% May 1, 1999
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO NA NA 1.21% May 1, 1999
SMALL COMPANY PORTFOLIO NA NA 33.69% May 1, 1999
FRANKLIN TEMPLETON INTERNATIONAL SECURITIES FUND CLASS 2 NA NA 5.49% May 1, 1999
CALAMOS CONVERTIBLE NA NA 14.34% May 1, 1999
</TABLE>
Other Total Returns
Adjusted Historic Portfolio Average Annual Total Return. From time to time,
sales literature or advertisements may also quote total returns for periods
prior to the date the Variable Account began operations. Such performance
information 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>
Adjusted Historic Portfolio Average Annual Total Returns
(Net of Surrender Charge)
From Inception
For the For the For the of Series Fund
1-year Period 3-year Period 5-year Period Ended 12/31/99
Inception Date Ended 12/31/99 Ended 12/31/99 Ended 12/31/99
Portfolio
<S> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH July 25, 1995 63.24% 37.37% NA 33.07%
RESEARCH July 28, 1995 14.54% 18.16% NA 19.37%
TOTAL Jan. 3, 1995 -4.87% 7.97% NA 12.66%
UTILITIES Jan. 3, 1995 20.79% 22.18% NA 23.44%
GLOBAL June 14, 1994 -10.01% -2.33% 1.87% 1.83%
BOND Oct. 24, 1995 -9.14% 1.24% NA 2.13%
AMER. CENTURY VP CAPITAL APPRECIATION Nov. 20, 1987 51.95% 11.53% 11.48% 10.83%
VP INCOME AND GROWTH Nov.1, 1997 8.95% 12.86% NA 18.93%
VP INTERNATIONAL May 1, 1994 51.50% 27.25% 21.21% 17.94%
VP VALUE May 1, 1996 -8.48% 5.49% NA 7.81%
FEDERATED AMERICAN LEADERS FUND II Feb.10, 1994 -1.54% 14.17% 19.08% 16.19%
HIGH INCOME BOND FUND II March 1, 1994 -5.57% 2.33% 7.84% 5.96%
PRIME MONEY FUND II Nov.11, 1994 -3.41% 1.06% 2.38% 2.59%
DREYFUS APPRECIATION April 5, 1993 2.90% 18.55% 22.55% 17.94%
SMALL CAPITALIZATION Aug. 31, 1990 13.71% 7.55% 13.18% 33.71%
STOCK INDEX Sept. 29, 1989 11.34% 22.60% 25.04% 15.75%
SOCIALLY RESPONSIBLE Oct. 1, 1993 20.12% 24.69% 25.63% 21.86%
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO Jan. 3, 1995 9.44% 18.65% NA 21.81%
SMALL COMPANY PORTFOLIO Jan. 3, 1995 33.36% 14.43% NA 19.14%
FRANKLIN
TEMPLETON INTERNATIONAL SECURITIES FUND CLASS 2 May 1, 1992 14.50% 11.12% 14.29% 13.57%
CALAMOS CONVERTIBLE May 1, 1999 NA NA NA 14.34%
</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.
Such Adjusted Historic Portfolio Average Annual Total Return information (not
including deduction of the surrender charge) is as follows:
<TABLE>
<CAPTION>
Adjusted Historic Portfolio Average Annual Total Returns
(No Surrender Charge Deducted)
From
For the For the For the Inception of
1-year period 3-year period 5-year period Series Fund
Inception ended 12/31/99 ended 12/31/99 ended 12/31/99 ended 12/31/99
Portfolio Date
<S> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH July 25,1995 74.21% 40.39% NA 34.46%
RESEARCH July 28,1995 22.24% 20.75% NA 20.62%
TOTAL RETURN Jan. 3,1995 1.53% 10.34% NA 13.70%
UTILITIES Jan. 3,1995 28.91% 24.86% NA 24.58%
GLOBAL GOV'T June 14,1994 -3.96% -0.19% 2.81% 2.50%
BOND Oct. 24,1995 -3.03% 3.46% NA 3.26%
AMER. CENTURY VP CAPITAL APPRECIATION Nov. 20,1997 62.17% 13.97% 12.51% 10.83%
VP INCOME AND GROWTH Nov.1,1997 16.27% NA NA 22.55%
VP INTERNATIONAL May 1,1994 61.68% 30.04% 22.33% 18.72%
VP VALUE May 1,1996 -2.33% 7.81% NA 9.46%
FEDERATED AMERICAN LEADERS FUND II Feb.10,1994 5.08% 16.67% 20.18% 16.92%
HIGH INCOME BOND FUND II March 1,1994 0.78% 4.57% 8.84% 6.63%
PRIME MONEY FUND II Nov.11,1994 3.08% 3.28% 3.33% 3.33%
DREYFUS APPRECIATION April 5,1993 9.82% 21.15% 23.69% 18.26%
SMALL CAPITALIZATION Aug. 31,1990 21.36% 9.91% 14.22% 33.71%
STOCK INDEX Sept. 29,1989 18.83% 25.29% 26.20% 15.75%
SOCIALLY RESPONSIBLE Oct. 1,1993 28.20% 27.42% 26.79% 22.21%
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO 3-Jan-95 16.80% 21.25% 22.93% 22.93%
SMALL COMPANY PORTFOLIO Jan. 3,1995 42.33% 16.94% 20.24% 20.24%
FRANKLIN INTERNATIONAL SECURITIES FUND May 1,1992 22.20% 13.56% 15.34% 13.57%
CALAMOS CONVERTIBLE May 1,1999 NA NA NA 22.03%
</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.
Kansas City Life may receive compensation from the investment adviser of a Fund
(or affiliates thereof) and/or from the Fund's 12b-1 fees in connection with
administration, distribution, or other services provided with respect to the
Fund and their availability through the Contracts. The amount of this
compensation is based upon a percentage of the assets of the Fund attributable
to the Contracts, and in some cases, other contracts issued by Kansas City Life.
These percentages range from 0.15% to 0.25% of net assets.
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, Dreyfus Stock Index Fund and The Dreyfus
Socially Responsible Growth Fund, Inc. This agreement provides for
termination as to any of the 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.
J.P. Morgan Series Trust II. This agreement provides for termination: (1)
on 180 days' notice by any party; (2) by Kansas City Life if shares of any
Series are not available to meet the requirements of the Contracts; (3) by
Kansas City Life upon the institution of formal proceedings against the
Fund by the SEC, NASD or any other regulatory body; (4) by the Fund, upon
the institution of formal proceedings against Kansas City Life by the SEC,
NASD, or any other regulatory body; (5) by the Fund upon determination that
Kansas City Life has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity; (6)
upon termination of the Investment Advisory Agreement between the Fund and
its investment adviser or its successors unless Kansas City Life
specifically approves the selection of the new Fund investment adviser; (7)
upon a determination that the Fund's shares are not registered, issued or
sold in accordance with applicable federal law or that Fund shares may no
longer be used as an investment medium for Contracts; (8) by 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; (9) by the Fund if the Contracts cease
to qualify as annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the Contracts may
fail to so qualify; (10) by either party, upon the other party's failure to
cure a breach of any material provision within 30 days after written notice
thereof; (11) by the Fund, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law; (12) upon
assignment of this agreement, unless made with the written consent of the
non-assigning party; (13) by Kansas City Life upon a determination that the
Fund has suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity; (14) if the Fund
fails to qualify as a regulated investment company under Subchapter M of
the Code or fails to comply with the requirements of Section 817(h) of the
Code.
Franklin Templeton Variable Products Series Fund. This agreement provides
for termination: (1) by any party with six months advance written notice;
(2) of one, some or all of the Portfolios by any party by sixty (60) days
advance written notice delivered to the other parties; (3) immediately in
the event of its assignment, as that term is used in the 1940 Act; (4)
immediately by either Franklin Templeton Variable Insurance Products Trust
or Franklin Templeton Distributors, Inc. if Kansas City Life notifies
Franklin Templeton Variable Insurance Products Trust or Franklin Templeton
Distributors, Inc. that the exemption from registration under Section 3(c)
of the 1940 Act no longer applies, or might not apply in the future, to the
unregistered Accounts, or that the exemption from registration under
Section 4(2) or Regulation D promulgated under the 1933 Act no longer
applies or might not apply in the future, to interests under the
unregistered Contracts; (5) immediately by either Franklin Templeton
Variable Insurance Products Trust or Franklin Templeton Distributors, Inc.
upon determination that Kansas City Life has suffered a material adverse
change in its business, operations, financial condition or prospects or is
the subject of material adverse publicity; (6) immediately by either
Franklin Templeton Variable Insurance Products Trust or Franklin Templeton
Distributors, Inc. upon Kansas City Life's failure to cure any material
breach of the agreement; (7) by Kansas City Life with respect to any
Portfolio based upon Kansas City Life's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the
Contracts; (8) by Kansas City Life in the event that formal administrative
proceedings are instituted against Franklin Templeton Variable Insurance
Products Trust or Franklin Templeton Distributors, Inc. by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body; (9) by Kansas City Life in the event of formal
substitution of shares of any Portfolio with the shares of any other
investment company; (10) by Kansas City Life upon failure by Franklin
Templeton Variable Insurance Products Trust or Franklin Templeton
Distributors, Inc. to cure any material breach of this agreement.
Calamos Advisors Trust. This agreement provides for termination: (1) on six
months' advance written notice by any party; (2) by Kansas City Life if the
Fund's shares are not available to meet the requirements of the Contracts;
(3) by Kansas City Life upon a determination that shares of the Fund are
not registered, issued or sold in accordance with applicable state and/or
federal securities laws or such law precludes the use of such shares to
fund the Contracts; (4) by the Fund, Calamos Advisors Trust or Calamos
Financial Services, Inc. upon institution of certain proceedings against
Kansas City Life or any affiliate; (5) by Kansas City Life upon the
institution of certain proceedings against the Fund, Calamos Advisors Trust
or Calamos Financial Services, Inc.; (6) by Kansas City Life in the event
that the Fund, Calamos Advisors Trust or Calamos Financial Services, Inc.
ceases to qualify or Kansas City Life reasonably believes it/they may fail
to qualify as a regulated investment company under Subchapter M or fails to
comply with Section 817(h) diversification requirements; (7) by the Fund,
Calamos Advisors Trust or Calamos Financial Services, Inc. if the Contracts
fail to meet the qualifications specified in the agreement; (8) by the
Fund, Calamos Advisors Trust or Calamos Financial Services, Inc. if it is
determined that Kansas City Life has suffered a material and adverse change
in its business, operations, financial condition, insurance company rating
or prospects or is the subject of material adverse publicity; (9) by Kansas
City Life if it is determined that the Fund, Calamos Advisors Trust or
Calamos Financial Services, Inc. has suffered a material adverse change in
its business, operations, financial condition or prospects or is the
subject of material adverse publicity; (10) by Kansas City Life (as one
party) or by the Fund, Calamos Advisors Trust or Calamos Financial
Services, Inc. (as one party) upon the other party's material breach of any
provision of this agreement upon 30 days written notice and opportunity to
cure.
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 financial
statements included in this Prospectus:
o consolidated financial statements for Kansas City Life at December 31,
1999, 1998 and 1997;
o financial statements of the Variable Account at December 31, 1999 and 1998.
The Independent Auditor's Reports are also included in this Statement of
Additional Information and are provided in reliance upon the authority of such
firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The following financial statements for Kansas City Life are included in the
Statement of Additional Information:
o balance sheets as of December 31, 1999 and 1998; and
o related statements of income, stockholders' equity and cash flows for each
of the three years ended December 31, 1999.
The following financial statements for the Variable Account are included in the
Statement of Additional Information:
o statements of net assets for the Variable Account for the year ended
December 31, 1999; and
o related statement of operations and changes in net assets for the periods
ended December 31, 1999 and 1998.
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.
CONSOLIDATED INCOME STATEMENT
(Thousands, except per share data)
1999 1998 1997
REVENUES
Insurance revenues:
Premiums:
Life insurance $104 086 108 510 106 051
Accident and health 42 636 42 441 44 931
Contract charges 108 873 108 608 93 713
Investment revenues:
Investment income, net 202 003 197 302 193 064
Realized investment gains, net 2 860 11 426 14 505
Other 13 956 14 671 9 998
TOTAL REVENUES 474 414 482 958 462 262
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 110 672 107 355 100 037
Surrenders of life insurance 14 592 19 368 14 999
Other benefits 70 702 72 190 71 338
Increase in benefit and contract reserves 85 206 84 427 86 804
Amortization of deferred acquisition costs 31 261 36 201 35 712
Insurance operating expenses 97 918 95 468 90 749
TOTAL BENEFITS AND EXPENSES 410 351 415 009 399 639
Income before Federal income taxes 64 063 67 949 62 623
Federal income taxes:
Current 21 172 20 471 15 073
Deferred (2 154) (1 034) 2 689
19 018 19 437 17 762
NET INCOME $ 45 045 48 512 44 861
Basic and diluted earnings per share $3.66 3.92 3.63
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
1999 1998
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value (amortized
cost $2,079,458,000; $2,012,975,000 - 1998) $1 999 215 2 094 362
Held to maturity, at amortized cost
(fair value $107,570,000; $123,515,000 - 1998) 107 606 115 504
Equity securities available for sale, at fair value
(cost $122,371,000; $98,509,000 - 1998) 115 968 100 749
Mortgage loans on real estate, net 340 704 315 705
Real estate, net 42 011 43 840
Real estate joint ventures 37 336 39 388
Policy loans 118 521 122 860
Short-term 19 380 59 160
TOTAL INVESTMENTS 2 780 741 2 891 568
Cash 22 355 16 763
Accrued investment income 43 907 42 515
Receivables, net 15 823 12 997
Property and equipment, net 22 010 22 436
Deferred acquisition costs 236 370 218 957
Value of purchased insurance in force 95 636 104 331
Reinsurance assets 123 724 117 772
Deferred income tax asset 14 716 -
Other 6 103 7 067
Separate account assets 259 899 143 008
$3 621 284 3 577 414
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 782 341 774 701
Accident and health 47 215 47 641
Accumulated contract values 1 688 706 1 731 262
Policy and contract claims 34 721 34 347
Other policyholders' funds:
Dividend and coupon accumulations 61 740 62 726
Other 90 885 75 033
Notes payable 69 500 -
Income taxes:
Current 7 870 4 582
Deferred - 43 739
Other 84 602 82 442
Separate account liabilities 259 899 143 008
TOTAL LIABILITIES 3 127 479 2 999 481
Stockholders' equity:
Common stock, par value $1.25 per share
Authorized 36,000,000 shares,
issued 18,496,680 shares 23 121 23 121
Paid in capital 18 498 17 633
Retained earnings 614 278 581 074
Accumulated other comprehensive income (loss) (59 095) 45 466
Less treasury stock, at cost
(6,411,738 shares; 6,087,894 shares - 1998) (102 997) (89 361)
TOTAL STOCKHOLDERS EQUITY 493 805 577 933
$3 621 284 3 577 414
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY
1999 1998 1997
COMMON STOCK, beginning and end of year $ 23 121 23 121 23 121
PAID IN CAPITAL:
Beginning of year 17 633 16 256 14 761
Excess of proceeds over cost of treasury stock sold 865 1 377 1 495
End of year 18 498 17 633 16 256
RETAINED EARNINGS:
Beginning of year 581 074 543 715 509 748
Net income 45 045 48 512 44 861
Other comprehensive income:
Unrealized gains (losses) on securities (104 921) 15 094 33 485
Decrease (increase) in unfunded pension liability 360 (6 076) -
Comprehensive income (loss) (59 516) 57 530 78 346
Transfer other comprehensive (income) loss to
accumulated other comprehensive income 104 561 (9 018) (33 485)
Stockholder dividends of $.96 per share
($.90 - 1998 and $.88 - 1997) (11 841) (11 153) (10 894)
End of year 614 278 581 074 543 715
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Beginning of year 45 466 36 448 2 963
Other comprehensive income (loss) (104 561) 9 018 33 485
End of year (59 095) 45 466 36 448
TREASURY STOCK, at cost:
Beginning of year (89 361) (88 946) (87 729)
Cost of 349,087 shares acquired (24,640
shares - 1998 and 40,180 shares - 1997) (14 094) (1 063) (1 440)
Cost of 32,243 shares sold (47,296
shares - 1998 and 47,372 shares - 1997) 458 648 223
End of year (102 997) (89 361) (88 946)
TOTAL STOCKHOLDERS' EQUITY $493 805 577 933 530 594
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
1999 1998 1997
OPERATING ACTIVITIES
Net income $ 45 045 48 512 44 861
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment premium
(discount), net 2 061 2 398 (1 290)
Depreciation 5 265 5 153 5 379
Policy acquisition costs capitalized (39 553) (46 011) (42 170)
Amortization of deferred acquisition costs 31 261 36 201 35 712
Realized investment gains (2 860) (11 426) (14 505)
Changes in assets and liabilities:
Future policy benefits 12 375 25 855 16 227
Accumulated contract values (10 182) (12 264) (9 933)
Other policy liabilities 14 867 6 842 7 137
Income taxes payable and deferred (14 748) (11 399) 4 768
Other, net 18 449 (718) (3 685)
NET CASH PROVIDED 61 980 43 143 42 501
INVESTING ACTIVITIES
Purchases of investments:
Fixed maturities available for sale (654 943) (644 087) (855 980)
Fixed maturities held to maturity (3 354) - -
Equity securities available for sale (43 130) (28 047) (69 434)
Sales of fixed maturities available for sale 406 785 372 930 503 351
Maturities and principal paydowns
of security investments:
Fixed maturities available for sale 173 990 216 247 163 867
Fixed maturities held to maturity 10 913 30 453 106 188
Equity securities available for sale 22 644 28 043 31 473
Purchases of other investments (36 300) (78 298) (152 045)
Sales, maturities and principal
paydowns of other investments 59 655 60 500 67 295
Acquisitions and dispositions of insurance
blocks - net cash received (paid) (5 162) (13 250) 213 092
NET CASH PROVIDED (USED) (68 902) (55 509) 7 807
FINANCING ACTIVITIES
Proceeds from borrowings 95 850 1 100 245 050
Repayment of borrowings (26 350) (1 100) (245 050)
Policyowner contract deposits 148 993 175 421 169 699
Withdrawals of policyowner contract deposits (181 367) (187 028) (163 041)
Cash dividends to stockholders (11 841) (11 153) (10 894)
Disposition (acquisition) of treasury stock, net (12 771) 962 278
NET CASH PROVIDED (USED) 12 514 (21 798) (3 958)
Increase (decrease) in cash 5 592 (34 164) 46 350
Cash at beginning of year 16 763 50 927 4 577
CASH AT END OF YEAR $ 22 355 16 763 50 927
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are generally stated in thousands, except per share data)
SIGNIFICANT ACCOUNTING POLICIES
Organization
Kansas City Life Insurance Company is a Missouri domicled stock life insurance
company which, with its affiliates, is licensed to sell insurance products in 49
states and the District of Columbia. The Company offers a diversified portfolio
of individual insurance, annuity and group products distributed through numerous
general agencies. In recent years, the Company's new business activities have
been concentrated in interest sensitive and variable products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of accounting principles generally accepted in the United States (GAAP)
and include the accounts of Kansas City Life Insurance Company and its
subsidiaries, principally Sunset Life Insurance Company of America (Sunset Life)
and Old American Insurance Company (Old American). Significant intercompany
transactions have been eliminated in consolidation. Certain reclassifications
have been made to prior year results to conform with the current year's
presentation. GAAP requires management to make certain estimates and assumptions
which affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized as
revenues when due. Accident and health insurance premiums are recognized as
revenues over the terms of the policies. Revenues for universal life and
flexible annuity products are amounts assessed against contract values for cost
of insurance, policy administration and surrenders, as well as amortization of
deferred front-end contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a net
level premium method based upon estimates at the time of issue for investment
yields, mortality and withdrawals. These estimates include provisions for
experience less favorable than actually expected. Investment yield assumptions
for new issues are graded down and range from 7.00 to 5.00 percent. Mortality
assumptions are based on standard mortality tables. The 1965-70 Select and
Ultimate Basic Table is used for business issued since 1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For traditional
life and accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life and flexible annuity products represent
accumulated contract values, without reduction for potential surrender charges,
and deferred front-end contract charges which are amortized over the term of the
policies. Benefits and claims are charged to expense in the period incurred net
of related accumulated contract values. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates for universal life insurance
and flexible annuity products ranged from 3.85 percent to 6.50 percent (3.85
percent to 7.25 percent during 1998 and 4.75 percent to 6.50 percent during
1997).
Withdrawal assumptions for all products are based on corporate experience.
Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain policy
issue and underwriting expenses and certain variable agency expenses, are
deferred. For traditional life products, deferred acquisition costs are
amortized in proportion to premium revenues over the premium-paying period of
related policies, using assumptions consistent with those used in computing
benefit reserves. Acquisition costs for interest sensitive and variable products
are amortized over a period not exceeding 30 years in proportion to estimated
gross profits arising from interest spreads and charges for mortality, expenses
and surrenders that are expected to be realized over the term of the contracts.
The amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a block of business are revised.
Value of Purchased Insurance in Force
The value of purchased insurance in force arising from the acquisition of a life
insurance subsidiary and, in 1997, the acquisition of a block of life insurance
business, is being amortized in proportion to projected future premium revenues
or gross profits. Such amortization is included in insurance operating expenses.
If these projections should change, the amortization is adjusted prospectively.
This asset was increased $76,533,000 in 1997 for the acquisition of a life
insurance block of business and $9,313,000 ($9,609,000 - 1998 and $8,856,000 -
1997) for accrual of interest and reduced $18,008,000 ($17,194,000 - 1998 and
$14,962,000 - 1997) for amortization. The increase for accrual of interest for
the life insurance subsidiary was calculated using a 13.0 percent interest rate
for the life block and a 7.0 percent rate for the accident and health block and,
on the acquired block, a 7.0 percent interest rate on the traditional life
portion and a 5.4 percent rate on the interest sensitive portion. Total
accumulated accrual of interest and amortization equal $54,419,000 and
$81,615,000, respectively. Based upon current conditions and assumptions as to
future events, the Company expects that the amortization will be between 6 and 8
percent of the asset's current carrying amount in each of the next five years.
Separate Accounts
These accounts arise from the sale of variable life insurance and annuity
products. Their assets are legally segregated and are not subject to the claims
which may arise from any other business of the Company. These assets are
reported at fair value since the underlying investment risks are assumed by the
policyholders. Therefore the related liabilities are recorded at amounts equal
to the underlying assets. Investment income and gains or losses arising from
separate accounts accrue directly to the policyholders and are, therefore, not
included in investment earnings in the accompanying consolidated income
statement. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees and mortality and risk
charges.
Participating Policies
Participating business at year end approximates 12 percent of the consolidated
life insurance in force. The amount of dividends to be paid is determined
annually by the Board of Directors. Provision has been made in the liability for
future policy benefits to allocate amounts to participating policyholders on the
basis of dividend scales contemplated at the time the policies were issued.
Additional provisions have been made for policyholder dividends in excess of the
original scale which have been declared by the Board of Directors.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and related
adjustments in deferred acquisition costs, and are included in accumulated other
comprehensive income.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are carried
at depreciated cost. Real estate joint ventures are valued at cost adjusted for
the Company's equity in earnings since acquisition. Policy loans are carried at
cost less payments received. Realized gains and losses on disposals of
investments, determined by the specific identification method, are included in
investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method. Under that method,
deferred tax assets and liabilities are determined based on the differences
between their financial reporting and their tax bases and are measured using the
enacted tax rates.
Income Per Share
Due to the Company's capital structure and lack of other potentially dilutive
securities, there is no difference between basic and diluted earnings per common
share for any of the years or periods reported. The weighted average number of
shares outstanding during the year was 12,316,220 shares (12,394,104 shares -
1998 and 12,381,586 shares - 1997).
Statutory Information and
Stockholder Dividends Restriction
The Company's earnings, unassigned surplus (retained earnings) and stockholders'
equity, on the statutory basis used to report to regulatory authorities, follow.
1999 1998 1997
Net gain (loss) from operations
for the year $ 41 902 35 185 (21 214)
Net income (loss) for the year 42 012 36 152 (18 681)
Unassigned surplus
at December 31 281 254 257 853 246 717
Stockholders' equity
at December 31 219 875 209 246 197 147
The statutory loss reported in 1997 arose from the acquisition of a block of
business as discussed in a following Note. In accordance with statutory
accounting guidelines for coinsurance transactions, the acquisition reduced
statutory earnings and stockholders' equity at the date of acquisition $51.4
million, the purchase price paid less related tax benefits.
Stockholder dividends may not exceed statutory unassigned surplus. Additionally,
under Missouri law, the Company must have the prior approval of the Missouri
Director of Insurance in order to pay a dividend exceeding the greater of
statutory net gain from operations for the preceding year or 10 percent of
statutory stockholders' equity at the end of the preceding year. The maximum
payable in 2000 without prior approval is $41,902,000.
The Company believes these statutory limitations impose no practical
restrictions on its dividend payment plans.
The Company is required to deposit a defined amount of assets with state
regulatory authorities. Such assets had an aggregate carrying value of
$21,000,000 ($18,000,000 - 1998 and $36,000,000 - 1997).
Comprehensive Income
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains or losses on securities available for sale and
unfunded pension liabilities as shown below.
Unrealized Unfunded
Gain (Loss) Pension
on Securities Liability Total
1999:
Unrealized holding losses
arising during the year $(172 801) (172 801)
Less: Realized losses included
in net income (2 527) (2 527)
Net unrealized losses (170 274) (170 274)
Decrease in unfunded
pension liability - 554 554
Effect on deferred
acquisition costs 8 858 8 858
Deferred income taxes 56 495 (194) 56 301
Other comprehensive income $(104 921) 360 (104 561)
1998:
Unrealized holding gains
arising during the year $33 261 33 261
Less: Realized gains included
in net income 9 360 9 360
Net unrealized gains 23 901 23 901
Increase in unfunded
pension liability - (9 348) (9 348)
Effect on deferred
acquisition costs (680) (680)
Deferred income taxes (8 127) 3 272 (4 855)
Other comprehensive income $15 094 (6 076) 9 018
1997:
Unrealized holding gains
arising during the year $63 486 63 486
Less: Realized gains included
in net income 8 318 8 318
Net unrealized gains 55 168 55 168
Effect on deferred
acquisition costs (3 652) (3 652)
Deferred income taxes (18 031) (18 031)
Other comprehensive income $33 485 33 485
The accumulated balances related to each component of accumulated other
comprehensive income follow.
Change in
Unrealized Unfunded
Gain (Loss) Pension
on Securities Liability Total
End of 1997 $ 36 448 - 36 448
Other comprehensive income
(loss) for 1998 15 094 (6 076) 9 018
End of 1998 51 542 (6 076) 45 466
Other comprehensive income
(loss) for 1999 (104 921) 360 (104 561)
End of 1999 $ (53 379) (5 716) (59 095)
REINSURANCE
1999 1998 1997
Life insurance in force (in millions):
Direct $ 23 616 23 261 22 800
Ceded (5 483) (4 488) (3 375)
Assumed 3 131 3 380 3 796
Net $ 21 264 22 153 23 221
Premiums:
Life insurance:
Direct $127 805 128 584 128 491
Ceded (29 255) (26 748) (26 262)
Assumed 5 536 6 674 3 822
Net $104 086 108 510 106 051
Accident and health:
Direct $ 56 723 54 022 55 022
Ceded (14 087) (11 581) (10 091)
Assumed - - -
Net $ 42 636 42 441 44 931
Contract charges arise generally from directly issued business. However contract
charges also arise from a block of business assumed during 1997 as described
below. Ceded benefit recoveries were $49,687,000 ($57,048,000 - 1998 and
$39,483,000 - 1997).
Old American has two coinsurance agreements. One agreement reinsures certain
whole life policies issued by Old American prior to December 1, 1986. These
policies had a face value of $114,062,000 as of this year end. The reserve for
future policy benefits ceded under this agreement was $46,741,000 ($49,041,000 -
1998). The second agreement ceded $10.4 million of home health care reserves in
October 1998.
In 1997, Kansas City Life acquired a block of traditional life and universal
life-type products. As of this year end, the block had $3.1 billion of life
insurance in force ($3.4 billion - 1998). The block generated life insurance
premiums of $5,788,000 ($6,656,000 - 1998). Additionally, in November 1999, the
Company ceded its group long-term disability reserves, totaling $5.2 million.
The maximum retention on any one life is $350,000 for ordinary life plans and
$100,000 for group coverage. A contingent liability exists with respect to
reinsurance, which may become a liability of the Company in the unlikely event
that the reinsurers should be unable to meet obligations assumed under
reinsurance contracts.
PROPERTY AND EQUIPMENT
1999 1998
Land $ 766 1 029
Home office complex 21 404 22 995
Furniture and equipment 32 258 30 238
54 428 54 262
Less accumulated depreciation (32 418) (31 826)
$22 010 22 436
Property and equipment are stated at cost and depreciated using the
straight-line method. The home office is depreciated over 25 to 50 years and
furniture and equipment over 3 to 10 years, their estimated useful lives.
NOTES PAYABLE
1999 1998
Federal Home Loan Bank loan with
various maturities and a weighted
average variable interest rate,
currently 5.62 percent, secured
by specified securities $55 000 -
Commerce Bank unsecured revolving
credit loan agreement providing a
$20,000,000 line of credit with a
variable interest rate, currently
4.755 percent 2 500 -
UMB Bank unsecured revolving credit
loan agreements providing a
$40,000,000 line of credit with a
variable interest rate, currently
4.95 percent 12 000 -
$69 500 -
As a member of the Federal Home Loan Bank with a capital investment of
$23,400,000, the Company has the ability to borrow up to $55,000,000 from the
bank. The Company earns 6.35 percent on the capital investment in the bank. All
borrowing is used to enhance investment strategies. Interest paid on all
borrowings equaled $1,135,000 ($717,000 - 1998 and $515,000 - 1997).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for securities are based on quoted market prices, where available.
For those securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of the
investments. Fair values for mortgage loans are based upon discounted cash flow
analyses using an interest rate assumption 2 percent above the comparable U.S.
Treasury rate.
Fair values for the Company's liabilities under investment-type insurance
contracts, included with accumulated contract values for flexible annuities and
with other policyholder funds for supplementary contracts without life
contingencies, are estimated to be their cash surrender values.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the financial instruments follow.
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $2 115 183 2 115 183 2 195 111 2 195 111
Securities held
to maturity 107 606 107 570 115 504 123 515
Mortgage loans 340 704 328 973 315 705 332 419
Liabilities:
Individual and
group annuities $743 438 724 908 793 068 767 537
Supplementary
contracts without
life contingencies 21 216 21 216 21 899 21 899
The following Investments Note provides further details regarding the
investments above.
INVESTMENTS
Investment Revenues
Major categories of investment revenues are summarized as follows.
1999 1998 1997
Investment income:
Fixed maturities $157 766 154 213 154 393
Equity securities 9 378 6 583 7 288
Mortgage loans 27 608 26 024 23 984
Real estate 9 907 9 587 10 350
Policy loans 7 959 8 098 7 296
Short-term 3 639 4 832 3 612
Other 3 709 3 948 3 132
219 966 213 285 210 055
Less investment expenses (17 963) (15 983) (16 991)
$202 003 197 302 193 064
Realized gains (losses):
Fixed maturities $ (2 714) 8 052 4 778
Equity securities 126 1 360 3 702
Mortgage loans 1 500 - -
Real estate 3 684 2 014 6 025
Other 264 - -
$ 2 860 11 426 14 505
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities
follow.
1999 1998 1997
Available for sale:
End of year $ (86 647) 83 627 59 726
Effect on deferred
acquisition costs 4 526 (4 332) (3 652)
Deferred income taxes 28 742 (27 753) (19 626)
$ (53 379) 51 542 36 448
Increase (decrease) in
net unrealized gains
during the year:
Fixed maturities $ (99 595) 18 701 33 209
Equity securities (5 326) (3 607) 276
$(104 921) 15 094 33 485
Held to maturity:
End of year $ (36) 8 011 5 834
Increase (decrease) in
net unrealized gains
during the year $ (8 047) 2 177 (1 775)
Securities
The amortized cost and fair value of investments in securities at this year end
follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
Bonds:
U.S.government $ 47 264 170 607 46 827
Public utility 270 618 1 938 11 098 261 458
Corporate 1 405 241 7 119 78 468 1 333 892
Mortgage-backed 299 933 5 522 3 480 301 975
Other 55 537 217 1 556 54 198
Redeemable
preferred stocks 865 12 12 865
Fixed maturities 2 079 458 14 978 95 221 1 999 215
Equity securities 122 371 1 916 8 319 115 968
$2 201 829 16 894 103 540 2 115 183
Bonds held to maturity:
Public utility $ 18 101 743 45 18 799
Corporate 83 429 1 282 2 127 82 584
Other 6 076 117 6 6 187
107 606 2 142 2 178 107 570
$2 309 435 19 036 105 718 2 222 753
The amortized cost and fair value of investments in securities at last year end
follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
Bonds:
U.S. government $ 45 079 1 747 381 46 445
Public utility 294 016 15 850 1 946 307 920
Corporate 1 321 368 66 176 13 151 1 374 393
Mortgage-backed 278 657 10 942 618 288 981
Other 70 224 3 216 441 72 999
Redeemable
preferred stocks 3 631 121 128 3 624
Fixed maturities 2 012 975 98 052 16 665 2 094 362
Equity securities 98 509 6 184 3 944 100 749
2 111 484 104 236 20 609 2 195 111
Bonds held to maturity:
Public utility $ 25 325 1 934 7 27 252
Corporate 87 302 6 267 511 93 058
Other 2 877 328 - 3 205
115 504 8 529 518 123 515
$2 226 988 112 765 21 127 2 318 626
The Company does not hold any non-income producing fixed maturity securities.
The distribution of the fixed maturity securities' contractual maturities at
this year end follows. However, expected maturities may differ from these
contractual maturities since borrowers may have the right to call or
prepay obligations.
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 54 611 53 865
Due after one year through five years 439 949 426 273
Due after five years through ten years 516 096 497 165
Due after ten years 768 869 719 937
Mortgage-backed bonds 299 933 301 975
$2 079 458 1 999 215
Held to maturity:
Due in one year or less $ 13 053 13 143
Due after one year through five years 41 025 42 071
Due after five years through ten years 44 057 42 584
Due after ten years 9 471 9 772
$ 107 606 107 570
Sales of investments in securities available for sale, excluding normal
maturities and calls, follow.
1999 1998 1997
Proceeds $428 425 422 241 509 502
Gross realized gains 9 455 12 512 11 597
Gross realized losses 10 371 5 234 2 349
The Company does not hold securities of any corporation and its affiliates which
exceeded 10 percent of stockholders' equity.
No derivative financial instruments are employed.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $1,528,000
($1,004,000 - 1998). Mortgage loans are carried net of a valuation reserve of
$7,000,000 ($8,500,000 - 1998).
The mortgage portfolio is diversified geographically and by property type as
follows.
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic region:
East north central $ 29 470 28 250 31 068 32 373
Mountain 69 522 67 325 67 530 71 397
Pacific 123 581 119 375 106 982 112 461
West south central 30 708 30 071 33 044 34 813
West north central 71 030 68 703 69 594 73 157
Other 23 393 22 249 15 987 16 718
Valuation reserve (7 000) (7 000) (8 500) (8 500)
$340 704 328 973 315 705 332 419
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Property type:
Industrial $229 103 221 036 209 752 220 474
Retail 19 510 19 515 22 847 24 301
Office 81 540 78 310 74 633 78 291
Other 17 551 17 112 16 973 17 853
Valuation reserve (7 000) (7 000) (8 500) (8 500)
$340 704 328 973 315 705 332 419
The Company has commitments which expire in 2000 to originate mortgage loans of
$3,440,000.
No mortgage loans were foreclosed upon and transferred to real estate
investments during the year ($1,181,000 - 1998 and $3,189,000 - 1997).
No mortgage loans were acquired in the sale of real estate assets during the
year ($2,025,000 - 1998 and $4,299,000 - 1997).
Real Estate
Detail concerning the Company's real estate investments follows.
1999 1998
Penntower office building, at cost:
Land $ 1 106 1 106
Building 18 582 18 244
Less accumulated depreciation (10 881) (10 340)
Foreclosed real estate, at lower of
cost or net realizable value 4 655 10 946
Other investment properties, at cost:
Land 6 110 4 493
Buildings 36 710 32 848
Less accumulated depreciation (14 271) (13 457)
$ 42 011 43 840
Investment real estate, other than foreclosed properties, is depreciated on a
straight-line basis. Penntower office building is depreciated over 60 years and
all other properties from 10 to 35 years. Foreclosed real estate is carried net
of a valuation allowance of $1,519,000 ($2,877,000 - 1998) to reflect net
realizable value.
The Company held non-income producing real estate equaling $3,483,000
($6,099,000 - 1998).
PENSIONS AND OTHER
POSTRETIREMENT BENEFITS
The Company has pension and other postretirement benefit plans covering
substantially all its employees. The defined benefits pension plan covers
employees who were age 55 or over with at least 15 years of vested service at
December 31, 1997. This plan's benefits are based on years of service and the
employee's compensation during the last five years of employment. Employees have
a cash balance account consisting of credits to the account based upon an
employee's years of service and compensation and interest credits. As disclosed
in the tables at right, the amendment to change the plan to a cash balance plan
in 1998 decreased the projected benefit obligation $10,038,000. The closure of
Sunset Life's office in 1999 and significant retirements at Kansas City Life
resulted in the recognition of settlement and curtailment costs of $3,562,000.
The postretirement medical plans for the employees, full-time agents, and their
dependents are contributory with contributions adjusted annually. The Company
pays these medical costs as due and the plan incorporates cost-sharing features.
The postretirement life insurance plan is noncontributory with level annual
payments over the participants' expected service periods. The plan covers only
those employees with at least one year of service as of December 31, 1997. The
benefits in this plan are frozen using the employees' years of service and
compensation as of December 31, 1997. The tables at the right outline the plans'
funded status and their impact on the Company's financial statements.
Non-contributory defined contribution retirement plans for general agents and
eligible sales agents provide supplemental payments based upon earned agency
first-year individual life and annuity commissions. Contributions to these plans
were $143,000 ($134,000 - 1998 and $133,000 - 1997). A non-contributory deferred
compensation plan for eligible agents based upon earned first-year commissions
is also offered. Contributions to this plan were $609,000 ($724,000 - 1998 and
$265,000 - 1997).
Savings plans for eligible employees and agents match employee contributions up
to 6 percent of salary and agent contributions up to 2.5 percent of prior year
paid commissions. Contributions to the plan were $1,468,000 ($1,485,000 - 1998
and $2,102,000 - 1997). Effective in 1998, the Company may contribute an
additional profit sharing amount up to 4 percent of salary depending upon
corporate profits. No profit sharing contribution was made in 1998 or 1999.
A non-contributory trusteed employee stock ownership plan covers substantially
all salaried employees. The Company has made no contributions to this plan since
1992.
Pension Benefits Other Benefits
1999 1998 1999 1998
Accumulated benefit obligation $ 88 405 107 488 - -
Change in plan assets:
Fair value of plan assets
at beginning of year $102 869 95 899 1 614 1 634
Return on plan assets 934 10 988 82 86
Company contributions 2 400 3 000 - -
Benefits paid (20 963) (7 018) (293) (106)
Fair value of plan assets
at end of year $ 85 240 102 869 1 403 1 614
Change in projected benefit obligation:
Benefit obligation
at beginning of year $110 547 119 651 18 808 15 485
Service cost 2 760 2 746 626 615
Interest cost 7 673 7 650 1 200 1 193
Plan amendments - (10 038) - -
Curtailment 469 - (1 043) -
Settlement 5 375 - - -
Net (gain) loss from past experience (3 921) 637 (2 008) 1 991
Benefits paid (24 552) (10 099) (641) (476)
Benefit obligation
at end of year $ 98 351 110 547 16 942 18 808
Plan underfunding $(13 111) (7 678) (15 539) (17 194)
Unrecognized net loss 26 404 22 488 557 3 653
Unrecognized prior service cost (7 147) (9 257) - -
Unrecognized net transition asset (517) (824) - -
Prepaid (accrued) benefit cost $ 5 629 4 729 (14 982) (13 541)
Amounts recognized in the
consolidated balance sheet:
Accrued benefit liability $ (3 165) (4 619) (14 982) (13 541)
Accumulated other
comprehensive income 8 794 9 348 - -
Net amount recognized $ 5 629 4 729 (14 982) (13 541)
Weighted average assumptions:
Discount rate 7.75 % 7.00 7.75 7.00
Expected return on plan assets 8.75 9.00 5.50 5.50
Rate of compensation increase 4.50 4.50 - -
The assumed growth rate of health care costs has a significant effect on the
amounts reported as the table below demonstrates.
One Percentage Point
Change in the Growth Rate
Increase Decrease
Service and interest cost components $ 367 (301)
Postretirement benefit obligation 2 845 (2 429)
The components of the net periodic benefits cost follow.
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
Service cost $ 2 760 2 746 3 150 626 615 560
Interest cost 7 673 7 650 7 823 1 200 1 194 1 014
Expected return on plan assets (9 067) (8 539) (7 776) (88) (90) (85)
Amortization of:
Unrecognized net (gain) loss 1 014 1 152 582 52 76 (5)
Unrecognized prior service cost (647) (769) 2 - - -
Unrecognized net transition asset (206) (206) (206) - - -
Net periodic benefits cost $ 1 527 2 034 3 575 1 790 1 795 1 484
For measurement purposes, a 10 percent annual increase in the per capita cost of
covered health care benefits was assumed to decrease gradually to 6 percent in
2004.
SEGMENT INFORMATION
Kansas City Life Sunset Old
Individual Group Life American Total
1999:
Revenues from external customers $ 113 399 53 311 26 750 76 091 269 551
Investment revenues 152 338 1 083 33 617 14 965 202 003
Segment income (loss) 30 622 (898) 8 049 5 413 43 186
Other significant noncash items:
Increase in policy reserves 60 072 681 16 411 8 042 85 206
Amortization of deferred
acquisition costs 12 443 - 7 765 11 053 31 261
Amortization of the value of
purchased insurance in force 5 128 - - 3 567 8 695
Interest expense 1 148 - - - 1 148
Income tax expense 12 931 (385) 3 898 2 574 19 018
Segment assets 2 679 521 16 107 528 708 396 948 3 621 284
Expenditures for other
long-lived assets 3 742 214 3 298 4 257
1998:
Revenues from external customers $ 112 898 52 537 28 794 80 001 274 230
Investment revenues 150 328 1 146 31 878 13 950 197 302
Segment income (loss) 27 918 (985) 8 954 5 198 41 085
Other significant noncash items:
Increase in policy reserves 57 581 535 16 269 10 042 84 427
Amortization of deferred
acquisition costs 16 861 - 8 323 11 017 36 201
Amortization of the value of
purchased insurance in force 4 660 - - 2 925 7 585
Interest expense 717 - - - 717
Income tax expense 12 997 (422) 4 314 2 548 19 437
Segment assets 2 627 568 16 215 538 254 395 377 3 577 414
Expenditures for other
long-lived assets 2 658 259 97 69 3 083
1997:
Revenues from external customers $ 90 759 53 698 28 269 81 967 254 693
Investment revenues 146 610 1 216 32 171 13 067 193 064
Segment income (loss) 24 704 (493) 8 259 2 963 35 433
Other significant noncash items:
Increase in policy reserves 55 924 202 16 768 13 910 86 804
Amortization of deferred
acquisition costs 15 138 - 8 026 12 548 35 712
Amortization of the value of
purchased insurance in force 2 211 - - 2 683 4 894
Interest expense 515 - - - 515
Income tax expense 12 735 (212) 3 904 1 335 17 762
Segment assets 2 533 546 16 828 517 423 371 655 3 439 452
Expenditures for other
long-lived assets 2 326 473 60 13 2 872
Enterprise-Wide Disclosures
1999 1998 1997
Revenues from external customers by line of business:
Variable life insurance and annuities $ 11 153 6 928 2 062
Interest sensitive products 97 720 101 680 91 651
Traditional individual insurance products 97 616 103 171 101 332
Group life and disability products 49 106 47 780 49 650
Group ASO services 4 205 4 716 4 048
Other 9 751 9 955 5 950
Total $269 551 274 230 254 693
Company operations have been classified and summarized into the four reportable
segments at left. The segments, while generally classified along Company lines,
are based upon distribution method, product portfolio and target market. The
Parent Company was divided into two segments. The Kansas City Life - Individual
segment consists of sales of variable life and annuities, interest sensitive
products and traditional life insurance products by a career general agency
sales force. The block of universal life and traditional life insurance acquired
in 1997 is included in this segment. The Kansas City Life - Group segment
consists of sales of group life, disability and dental products and
administrative services only (ASO) by the Company's career general agency sales
force and appointed group agents. The Sunset Life segment consists of sales of
interest sensitive and traditional products by personal producing general
agents. The Old American segment markets whole life final expense products to
seniors through a general agency sales force.
Separate investment portfolios are maintained for each of the companies.
However, investments are allocated to the group segment based upon its cash
flows. Its investment revenue is modeled using the year of investment method.
Home office functions are fully integrated for the three companies in order to
maximize economies of scale. Therefore, operating expenses are allocated to the
segments based upon internal cost studies which are consistent with industry
cost methodologies.
The totals at left agree to the selected financial data which reconciles to the
consolidated financial statements. Intersegment revenues are not material. The
Company operates solely in the United States and no individual customer accounts
for 10 percent or more of the Company's revenue.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
1999 1998 1997
Federal income tax rate 35 % 35 35
Special tax credits (5) (6) (6)
Other permanent differences - - (1)
Actual income tax rate 30 % 29 28
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below.
1999 1998
Deferred tax assets:
Basis differences between tax and
GAAP accounting for investments $26 774 -
Future policy benefits 49 133 51 205
Employee retirement benefits 11 990 14 999
Other 9 413 6 308
Gross deferred tax assets 97 310 72 512
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 44 809 42 487
Basis differences between tax and
GAAP accounting for investments - 35 104
Property and equipment, net 3 841 1 792
Value of insurance in force 33 102 36 070
Other 841 798
Gross deferred tax liabilities 82 593 116 251
Net deferred tax asset (liability) $14 717 (43 739)
A "valuation allowance" must be established for any portion of the deferred tax
asset which is believed not to be realizable. In management's opinion, it is
more likely than not that the Company will realize the benefit of the net
deferred tax asset and, therefore, no valuation allowance has been established.
Federal income taxes paid for the year were $17,884,000 ($20,164,000 - 1998 and
$14,335,000 - 1997).
Policyholders' surplus, which is frozen under the Deficit Reduction Act of 1984,
is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life and $13,700,000
for Old American. The Companies do not plan to distribute their policyholders'
surplus. Consequently, the possibility of such surplus becoming subject to tax
is remote, and no provision has been made in the financial statements for taxes
thereon. Should the balance in policyholders' surplus become taxable, the tax
computed at current rates would approximate $20,000,000.
Income taxed on a current basis is accumulated in "shareholders' surplus" and
can be distributed to stockholders without tax to the Company. Shareholders'
surplus equals $388,267,000 for Kansas City Life, $85,411,000 for Sunset Life
and $57,668,000 for Old American.
QUARTERLY CONSOLIDATED
FINANCIAL DATA (unaudited)
First Second Third Fourth
1999:
Total revenues $118 777 115 690 122 137 117 810
Operating income $ 12 241 7 256 12 225 11 464
Realized gains, net 201 239 1 197 222
Net income $ 12 442 7 495 13 422 11 686
Per common share:
Operating income $ .99 .58 .99 .95
Realized gains, net .01 .03 .10 .01
Net income $ 1.00 .61 1.09 .96
1998:
Total revenues $117 615 124 799 125 667 114 877
Operating income $ 8 098 11 492 12 930 8 565
Realized gains net 1 643 1 582 2 679 1 523
Net income $ 9 741 13 074 15 609 10 088
Per common share:
Operating income $ .66 .93 1.04 .68
Realized gains net .13 .13 .22 .13
Net income $ .79 1.06 1.26 .81
CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are defendants in lawsuits involving
claims and disputes with policyholders. It has become increasingly common for
plaintiffs in these cases to seek class action status and punitive damages. Some
of these lawsuits arise in jurisdictions that permit punitive damages
disproportionate to the actual damages alleged. Although no assurances can be
given and no determinations can be made at this time as to the outcome of any
particular lawsuit or proceeding, the Company and its subsidiaries believe that
there are meritorious defenses for these claims and are defending them
vigorously. In management's opinion the amounts ultimately paid, if any, would
have no material effect on the Company's consolidated results of operations and
financial position.
REPORT OF
INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheets of Kansas City Life
Insurance Company and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kansas City Life
Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Kansas City, Missouri January 24, 2000
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
Kansas City Life Insurance Company
3520 Broadway
Post Office Box 219139
Kansas City, Missouri 64121-9139
Telephone: (816) 753-7000
Fax: (816) 753-4902
Internet: http://www.kclife.com
E-Mail: [email protected]
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held at
9 a.m. Thursday, April 20, 2000,
at Kansas City Life's corporate headquarters.
TRANSFER AGENT
Cheryl Keefer, Assistant Secretary
Kansas City Life Insurance Company
Post Office Box 219139
Kansas City, Missouri 64121-9139
10-K REQUEST
Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed
with the Securities and Exchange Commission, by writing to Secretary, Kansas
City Life Insurance Company.
SECURITY HOLDERS
As of February 2, 2000, Kansas City Life had approximately 725 security holders,
including individual participants in security position listings.
STOCK AND DIVIDEND INFORMATION
Stock Quotation Symbol
Over-the-Counter--KCLI
Bid Dividend
High Low Paid
(per share)
1999:
First Quarter $43.82 39.25 $ .240
Second Quarter 42.75 43.00 .240
Third Quarter 52.25 34.50 .240
Fourth Quarter 40.00 32.75 .240
$ .960
1998:
First Quarter $48.75 41.00 $.225
Second Quarter 47.44 41.63 .225
Third Quarter 47.75 34.50 .225
Fourth Quarter 42.75 39.00 .225
$.900
The above has been restated to reflect a two-for-one stock split in June 1999.
A quarterly dividend of $.25 per share was paid February 22, 2000.
Over-the-counter market quotations are compiled according to Company records and
may reflect inter-dealer prices, without markup, markdown or commission and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Net Assets
December 31, 1999
Market
Assets Value Cost
Investments: (in thousands)
Federated Securities - Federated Insurance Series:
<S> <C> <C>
American Leaders Fund II - 840,406 shares at a net asset value (NAV) of $20.70 per share $17,396 16,355
High Income Bond Fund II - 935,958 shares at a NAV of $10.24 per share 9,583 9,960
Prime Money Fund II - 18,898,525 shares at a NAV of $1.00 per share 18,899 18,899
Massachusetts Financial Services (MFS):
Research Series - 816,780 shares at a NAV of $23.18 per share 18,933 13,035
Emerging Growth Series - 862,013 shares at a NAV of $37.36 per share 32,205 15,461
Total Return Series - 598,321 shares at a NAV of $17.71 per share 10,596 9,915
Bond Series - 261,463 shares at a NAV of $10.96 per share 2,866 2,856
World Governments Series - 39,313 shares at a NAV of $10.04 per share 395 407
Utilities Series - 774,838 shares at a NAV of $24.00 per share 18,596 14,463
American Century - (ACI) Variable Portfolios:
VP Capital Appreciation - 189,051 shares at a NAV of $14.50 per share 2,741 1,901
VP International - 715,194 shares at a NAV of $12.46 per share 8,911 5,143
VP Value - 118,044 shares at a NAV of $5.91 per share 698 735
VP Income and Growth - 126,240 shares at a NAV of $7.96 per share 1,005 938
Dreyfus Corporation:
Capital Appreciation Portfolio - 330,308 shares at a NAV of $39.82 per share 13,153 11,203
Small Cap Portfolio - 204,944 shares at a NAV of $65.03 per share 13,328 11,590
Stock Index Fund - 666,105 shares at a NAV of $38.33 per share 25,532 21,265
Socially Responsible Fund - 47,665 shares at a NAV of $38.92 per share 1,855 1,699
JP Morgan:
Equity Portfolio - 68,245 shares at a NAV of $17.31 per share 1,181 1,182
Small Company Portfolio - 16,033 shares at a NAV of $16.54 per share 265 227
Templeton:
International Fund- 41,895 shares at a NAV of $22.03 per share 923 845
Calamos:
Convertible Portfolio - 176,396 shares at a NAV of $12.00 per share 2,117 1,868
Total Assets $201,178 159,947
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Net Assets
(Continued)
Number Unit Market
Net Assets of Units Value Value
(in thousands)
Federated Securities - Federated Insurance Series:
<S> <C> <C> <C>
American Leaders Fund II 880,408 $19.76 $ 17,396
High Income Bond Fund II 725,350 13.21 9,583
Prime Money Fund II 1,637,233 11.54 18,899
Massachusetts Financial Services:
Research Series 854,627 22.15 18,933
Emerging Growth Series 959,024 33.58 32,205
Total Return Series 663,964 15.96 10,596
Bond Series 248,885 11.51 2,866
World Governments Series 37,881 10.42 395
Utilities Series 779,090 23.87 18,596
American Century - Variable Portfolios:
VP Capital Appreciation 201,336 13.62 2,741
VP International 351,829 25.33 8,911
VP Value 119,093 5.86 698
VP Income and Growth 127,360 7.89 1,005
Dreyfus Corporation:
Capital Appreciation Portfolio 850,787 15.46 13,153
Small Cap Portfolio 1,022,402 13.04 13,328
Stock Index Fund 1,478,541 17.27 25,532
Socially Responsible Fund 46,470 39.92 1,855
JP Morgan:
Equity Portfolio 64,227 18.39 1,181
Small Company Portfolio 15,815 16.77 265
Templeton:
International Fund 42,265 21.84 923
Calamos:
Convertible Portfolio 175,917 12.03 2,117
Total Net Assets $201,178
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Operations
Year ended December 31, 1999 (except as noted)
(in thousands)
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP VP *
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP VP Income
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Value* &Gth
Investment Income:
Income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend Distributions $ 128 677 568 30 - 172 70 23 133 - - - -
Capital Gains
Distributions 1,282 58 - 160 - 320 5 - 670 - - - -
Total Income 1,410 735 568 190 - 492 75 23 803 - - - -
Expenses:
Mortality and Expense
Fees 216 128 173 221 273 138 42 5 180 29 84 2 3
Administrative Fees 16 6 15 18 24 8 2 - 12 2 7 1 -
Total Expenses 232 134 188 239 297 146 44 5 192 31 91 3 3
Investment Income (Loss) 1,178 601 380 (49) (297) 346 31 18 611 (31) (91) (3) (3)
Realized and Unrealized
Gain on Investments:
Realized Gain (Loss) 77 (36) - 306 967 46 3 (2) 83 17 277 - -
Unrealized Appreciation
(Depreciation) (672) (518) - 3,053 12,473 (282) (124) (30) 3,044 1,036 3,225 (37) 67
Net Gain (Loss)
on Investments (595) (554) - 3,359 13,440 (236) (121) (32) 3,127 1,053 3,502 (37) 67
Increase (Decrease) in Net
Assets from Operation $ 583 47 380 3,310 13,143 110 (90) (14) 3,738 1,022 3,411 (40) 64
</TABLE>
<TABLE>
<CAPTION>
Dreyfus Corporation JP Morgan Templeton Calamos
Capital Small Small*
Apprec. Cap Stock Socially* Equity* Company Int'l* Convertible*
Portfolio Portfolio Index Responsible Portfolio Portfolio Fund Portfolio Total
Investment Income:
Income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend Distributions $ 74 7 209 - 3 - - 23 2,117
Capital Gains
Distributions 49 - 184 61 69 7 - - 2,865
Total Income 123 7 393 61 72 7 - 23 4,982
Expenses:
Mortality and Expense
Fees 145 159 252 5 3 1 2 7 2,068
Administrative Fees 12 16 19 - 2 1 1 1 163
Total Expenses 157 175 271 5 5 2 3 8 2,231
Investment Income (Loss) (34) (168) 122 56 67 5 (3) 15 2,751
Realized and Unrealized
Gain on Investments:
Realized Gain (Loss) 104 36 94 - - 12 2 1 1,987
Unrealized Appreciation
(Depreciation) 898 2,236 3,017 156 (1) 38 78 249 27,906
Net Gain (Loss)
on Investments 1,002 2,272 3,111 156 (1) 50 80 250 29,893
Increase (Decrease) in Net
Assets from Operation $ 968 2,104 3,233 212 66 55 77 265 32,644
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Changes in Net Assets
Year ended December 31, 1999 (except as noted)
(in thousands)
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP VP *
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP VP Income
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Value* &Gth
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Assets from Operations $ 583 47 380 3,310 13,143 110 (90) (14) 3,738 1,022 3,411 (40) 64
Deposits 3,784 1,732 23,646 2,764 5,232 1,948 485 48 4,533 343 1,267 441 636
Payments and Withdrawals:
Death Benefits 122 26 722 157 78 100 16 8 42 16 12 - -
Withdrawals 599 342 1,065 697 1,221 383 561 19 589 103 295 - 2
Transfers (in) out (1,058) 71 11,539 339 (15) (746) (350) (36) (2,085) 304 455 (297) (307)
Payments and Withdrawals (337) 439 13,326 1,193 1,284 (263) 227 (9) (1,454) 423 762 (297) (305)
Net Assets:
Net Increase 4,704 1,340 10,700 4,881 17,091 2,321 168 43 9,725 942 3,916 698 1,005
Beginning of Year 12,692 8,243 8,199 14,052 15,114 8,275 2,698 352 8,871 1,799 4,995 - -
End of Year $ 17,396 9,583 18,899 18,933 32,205 10,596 2,866 395 18,596 2,741 8,911 698 1,005
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Dreyfus Corporation JP Morgan Templeton Calamos
Capital Small Small*
Apprec. Cap Stock Socially* Equity* Company Int'l* Convertible*
Portfolio Portfolio Index Responsible Portfolio Portfolio Fund Portfolio Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Assets from Operations $ 968 2,104 3,233 212 66 55 77 265 32,644
Deposits 3,665 2,264 7,215 975 763 180 348 1,280 64,549
Payments and Withdrawals:
Death Benefits 31 25 20 - - - - - 1,375
Withdrawals 347 318 709 6 4 - 6 16 7,282
Transfers (in) out (1,533) 736 (3,198) (674) (356) (30) (504) (588) 1,667
Payments and Withdrawals (1,155) 1,079 (2,469) (668) (352) (30) (498) (572) 10,324
Net Assets:
Net Increase 5,788 3,289 12,917 1,855 1,181 265 923 2,117 85,869
Beginning of Year 7,365 10,039 12,615 - - - - - 115,309
End of Year $ 13,153 13,328 25,532 1,855 1,181 265 923 2,117 201,178
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Operations
Year ended December 31, 1998
(in thousands)
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP VP *
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP VP Income
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Value* &Gth
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Income:
Dividend Distributions $ 32 124 267 16 64 79 33 4 64 - 18 - -
Capital Gains Distributions 416 34 - 209 23 93 16 - 290 89 180 - -
Total Income 448 158 267 225 87 172 49 4 354 89 198 - -
Expenses:
Mortality and Expense Fees 129 95 79 151 153 88 26 5 85 24 53 - -
Administrative Fees 13 6 11 16 17 7 2 - 8 3 6 - -
Total Expenses 142 101 90 167 170 95 28 5 93 27 59 - -
Investment Income (Loss) 306 57 177 58 (83) 77 21 (1) 261 62 139 - -
Realized and Unrealized Gain
on Investments:
Realized Gain (Loss) 34 10 - 76 109 24 23 2 30 (55) 14 - -
Unrealized Appreciation
(Depreciation) 907 (73) - 1,926 3,183 512 50 21 614 (64) 343 - -
Net Gain (Loss) on
Investments 941 (63) - 2,002 3,292 536 73 23 644 (119) 357 - -
Increase (Decrease) in Net
Assets from Operation$ 1,247 (6) 177 2,060 3,209 613 94 22 905 (57) 496 - -
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Operations
Year ended December 31, 1998
(in thousands)
Dreyfus Corporation JP Morgan Templeton Calamos
Capital Small Small*
Apprec. Cap Stock Socially* Equity* Company Int'l* Convertible*
Portfolio Portfolio Index Responsible Portfolio Portfolio Fund Portfolio Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Income:
Dividend Distributions $ 39 - 114 - - - - - 854
Capital Gains Distributions 1 164 23 - - - - - 1,538
Total Income 40 164 137 - - - - - 2,392
Expenses:
Mortality and Expense Fees 60 94 104 - - - - - 1,146
Administrative Fees 7 13 10 - - - - - 119
Total Expenses 67 107 114 - - - - - 1,265
Investment Income (Loss) (27) 57 23 - - - - - 1,127
Realized and Unrealized Gain
on Investments:
Realized Gain (Loss) 7 (22) 315 - - - - - 567
Unrealized Appreciation
(Depreciation) 1,032 (270) 1,186 - - - - - 9,367
Net Gain (Loss) on
Investments 1,039 (292) 1,501 - - - - - 9,934
Increase (Decrease) in Net
Assets from Operation$ 1,012 (235) 1,524 - - - - - 11,061
* For the period May 3, 1999 (inception date) through December 31, 1999.
</TABLE>
<TABLE>
<CAPTION>
See accompanying Notes to Financial Statements
Kansas City Life Variable Annuity Separate Account
Statement of Changes in Net Assets
Year ended December 31, 1998
(in thousands)
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP VP *
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP VP Income
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Value* &Gth
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Assets from Operations $ 1,247 (6) 177 2,060 3,209 613 94 22 905 (57) 496 - -
Deposits 5,126 3,457 17,112 4,301 3,955 2,955 1,179 140 4,157 372 1,668 - -
Payments and Withdrawals:
Death Benefits 6 5 - 13 2 56 - - 56 - - - -
Withdrawals 300 263 238 383 440 187 50 10 210 71 142 - -
Transfers in (out) (1,065) (551) 10,381 (344) (721) (797) (409) 175 (796) 231 (444) - -
Payments and Withdrawals (759) (283) 10,619 52 (279) (554) (359) 185 (530) 302 (302) - -
Net Assets:
Net Increase (Decrease) 7,132 3,734 6,670 6,309 7,443 4,122 1,632 (23) 5,592 13 2,466 - -
Beginning of Year 5,560 4,509 1,529 7,743 7,671 4,153 1,066 375 3,279 1,786 2,529 - -
End of Year $ 12,692 8,243 8,199 14,052 15,114 8,275 2,698 352 8,871 1,799 4,995 - -
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Annuity Separate Account
Statement of Changes in Net Assets
Year ended December 31, 1998
(in thousands)
Dreyfus Corporation JP Morgan Templeton Calamos
Capital Small Small*
Apprec. Cap Stock Socially* Equity* Company Int'l* Convertible*
Portfolio Portfolio Index Responsible Portfolio Portfolio Fund Portfolio Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Assets from Operations $ 1,012 (235) 1,524 - - - - - 11,061
Deposits 3,384 5,099 5,285 - - - - - 58,190
Payments and Withdrawals:
Death Benefits - 32 43 - - - - - 213
Withdrawals 83 211 376 - - - - - 2,964
Transfers in (out) (1,363) (1,401) (2,131) - - - - - 765
Payments and Withdrawals (1,280) (1,158) (1,712) - - - - - 3,942
Net Assets:
Net Increase (Decrease) 5,676 6,022 8,521 - - - - - 65,309
Beginning of Year 1,689 4,017 4,094 - - - - - 50,000
End of Year 7,365 10,039 12,615 - - - - - 115,309
* For the period May 3, 1999 (inception date) through December 31, 1999.
See accompanying Notes to Financial Statements
</TABLE>
Kansas City Life Variable Annuity Separate Account
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Organization
Kansas City Life Variable Annuity Separate Account, marketed as Century II
Variable Annuity, (the Account) is a separate account of Kansas City Life
Insurance Company (KCL). The Account is registered as a unit investment trust
under the Investment Company Act of 1940, as amended. All deposits received by
the Account have been directed by the contract owners into subaccounts of seven
series-type mutual funds, as listed below, or into KCL's Fixed Account.
Federated Insurance Series
American Leaders Fund II Long-term growth of capital
High Income Bond Fund II High current income
Prime Money Fund II Current income with stability of
principal and liquidity
MFS Variable Insurance Trust
MFS Research Series Long-term growth of capital and
future income
MFS Emerging Growth Series Long-term growth of capital
MFS Total Return Series Income and opportunities for growth
of capital and income
MFS Bond Series Current income and protection of
shareholders' capital
MFS World Governments Series Preservation and growth of capital
with moderate current income
MFS Utilities Series Capital growth and current income
American Century - Variable Portfolios
VP Capital Appreciation Capital growth through investment in
common stocks
VP International Capital growth through investment in
foreign securities
VP Value Long-term growth of capital
VP Income and Growth Capital growth and current income
through investment in common
stocks
Dreyfus Corporation
Capital Appreciation Portfolio Long-term capital growth with
preservation of capital
Small Cap Portfolio Capital appreciation
Stock Index Fund Price and yield performance that
corresponds to the Standard &
Poor's 500 Composite Stock
Price Index
Socially Responsible Fund Capital growth through investment in
common stocks
JP Morgan
Equity Portfolio High return on selected equity
securities of large U.S.
corporations
Small Company Portfolio Long-term growth through investments
in equity securities of small
companies
Kansas City Life Variable Annuity Separate Account
Notes to Financial Statements (continued)
Templeton
International Fund Long-term growth through investment
in foreign equity securities
Calamos
Convertible Portfolio Current income and equity protection
through investment in
convertible bonds
Basis of Presentation and Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reinvestment of Dividends
Interest and dividend income and capital gains distributions paid by the mutual
funds to the Account are reinvested in additional shares of each respective
subaccount. Capital gains distributions are recorded as income on the date of
receipt.
Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the operations
of KCL, which is taxed as a life insurance company under the Internal Revenue
Code. As a result, the net asset values of the subaccounts are not affected by
federal income taxes on income distributions received by the subaccounts.
Kansas City Life Variable Annuity Separate Account
Notes to Financial Statements (continued)
Investment Valuation
Investments in mutual fund shares are carried in the statement of net assets at
quoted market value (NAV of the underlying mutual fund). The average cost method
is used to determine realized gains and losses.
The aggregate cost of purchases and proceeds from sales and the number of shares
thereon were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
1999: Purchases from Sales
(in thousands)
<S> <C> <C>
American Leaders Fund II $ 9,036 3,737
High Income Bond Fund II 4,542 2,648
Prime Money Fund II 42,253 31,553
MFS Research Series 5,327 3,805
MFS Emerging Growth Series 10,630 6,979
MFS Total Return Series 4,526 1,969
MFS Bond Series 1,588 1,299
MFS World Governments Series 251 176
MFS Utilities Series 9,589 2,991
ACI VP Capital Appreciation 543 654
ACI VP International 2,680 2,266
ACI VP Value 858 123
ACI VP Income and Growth 1,319 381
Dreyfus Capital Appreciation Portfolio 7,618 2,832
Dreyfus Small Cap Portfolio 4,690 3,673
Dreyfus Stock Index Fund 14,134 4,328
Dreyfus Socially Responsible Fund 2,154 455
JP Morgan Equity Portfolio 1,407 225
JP Morgan Small Company Portfolio 350 135
Templeton International Fund 1,004 161
Calamos Convertible Portfolio 2,125 258
</TABLE>
Kansas City Life Variable Annuity Separate Account
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Cost of Proceeds
1998: Purchases from Sales
(in thousands)
<S> <C> <C>
American Leaders Fund II $ 8,620 2,429
High Income Bond Fund II 6,524 2,727
Prime Money Fund II 30,772 24,102
MFS Research Series 6,697 2,390
MFS Emerging Growth Series 6,808 2,658
MFS Total Return Series 4,788 1,203
MFS Bond Series 2,751 1,192
MFS World Governments Series 221 267
MFS Utilities Series 6,934 1,986
ACI VP Capital Appreciation 944 812
ACI VP International 3,026 916
Dreyfus Capital Appreciation Portfolio 5,605 969
Dreyfus Small Cap Portfolio 9,027 2,712
Dreyfus Stock Index Fund 13,269 6,249
</TABLE>
2. Variable Annuity Contract Charges
KCL deducts an administrative fee of $30 per year for each contract under
$50,000. Mortality and expense risks assumed by KCL are compensated for by a fee
equivalent to an annual rate of 1.25 percent of the asset value of each contract
of which 0.70 percent is for assuming mortality risks and 0.55 percent is for
expense risk. Additionally, KCL is compensated for administration expenses by a
fee based on an annual rate of 0.15 percent of the asset value of each contract.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law upon surrender.
Other charges are deducted from each contract when certain events occur, such as
the seventh fund transfer in a contract year.
A contingent deferred sales charge is assessed against certain withdrawals
during the first seven years of the contract, declining from 7 percent in the
first three years to 2 percent in the seventh year. During 1999, $335,000
($124,000 - 1998) was assessed in surrender charges and other contract charges
totaled $2,231,000 ($1,265,000 - 1998).
3. Y2K Postmortem (Unaudited)
KCL's Y2K efforts were successful and it is estimated that the incremental cost
of KCL's compliance effort was $1.0 million. While this effort obviously was
necessary to allow KCL to continue to function effectively in 2000 and beyond,
it also benefited KCL by upgrading and standardizing systems throughout the
organization.
Report of Independent Auditors
The Contract Owners
Kansas City Life Variable Annuity Separate Annuity
and
The Board of Directors
Kansas City Life Insurance Company
We have audited the accompanying statements of net assets of Kansas City Life
Variable Annuity Separate Account (the Account) (comprised of the individual
subaccounts as indicated therein) as of December 31, 1999, and the related
statement of operations and changes in net assets for the years ended December
31, 1999 and 1998, except for those individual series operating for portions of
such periods as disclosed in the financial statements. These financial
statements are the responsibility of Kansas City Life Insurance Company's
management. Our responsibility is to express an opinion of these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 1999 by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kansas City Variable Annuity
Separate Account at December 31, 1999, and the results of its operations and
changes in its assets for the periods described above in conformity with
accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 31, 2000
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
(d) Agreement between Kansas City Life Insurance Company and each of
Dreyfus Variable Investment Fund, The Dreyfus Socially
Responsible Growth Fund, Inc., and Dreyfus Life and Annuity Index
Fund, Inc.6
(e) Agreement between Kansas City Life Insurance Company and J. P.
Morgan Series Trust II.4
(f) Amended and Restated agreement between Kansas City Life Insurance
Company and each of Calamos Insurance Trust, Calamos Asset
management, Inc. and Calamos Financial Services, Inc.5
(g) Agreement between Kansas City Life Insurance Company and each of
Templeton Variable Products Series Fund and Franklin Templeton
Distributors, Inc.4
(h) Amendment to Participation Agreement between Kansas City Life
Insurance Company and each of Dreyfus Variable Investment Fund,
The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus
Life and Annuity Index Fund, Inc. (d/b/a/ Dreyfus Stock Index
Fund).4
(9) Opinion and Consent of Counsel.
(10) (a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Ernst & Young LLP.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of performance quotations.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).
4 Incorporated by reference to the Form S-6 Registration Statement (File
No. 033-95354) for Kansas City Life Variable Life Separate Account
filed on April 19, 1999.
5 Incorporated by reference to the Form S-6 Registration Statement (File
No. 333-25443) for Kansas City Life Variable Life Separate Account
filed on April 30, 19999.
6 Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Form S-6 Registration Statement (File No. 333-25443) for Kansas
City Variable Life Separate Account filed on July 15, 1997.
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
R. Philip Bixby Director, Vice Chairman of the Board,
President and CEO
Richard L. Finn Director, Senior Vice President, Finance
Jack D. Hayes Director, Senior Vice President,
Marketing
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 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
7,069--As of April 11, 2000
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
Kelly T. Ullom Vice President
Ann C. Moberg Assistant Treasurer
Agatha C. Robinson Vice President
Kelly T. Ullom Vice President
Agatha Robinson Vice President
Susanna J. Denney Assistant 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.
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Kansas City Life Variable Annuity Separate Account, certifies that it meets all
of the requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 6 to its Registration Statement and has duly caused
this Post-Effective Amendment No. 6 to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Kansas City and the State of Missouri on the 24th
day of April, 2000.
[Seal] Kansas City Life Variable
Annuity Separate Account
Registrant
KANSAS CITY LIFE INSURANCE COMPANY
Depositor
Attest: /s/C. John Malacarne By: /s/R. Philip Bixby
C. John Malacarne R. Philip Bixby, President,
CEO, and Vice Chairman of
the Board
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 Vice Chairman April 24, 2000
R. Philip Bixby of the Board
/s/Richard L. Finn Senior Vice President, Finance April 24, 2000
Richard L. Finn and Director
(Principal Financial Officer)
/s/John K. Koetting Vice President and Controller April 24, 2000
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and April 24, 2000
J.R. Bixby Director
/s/W. E. Bixby III Director April 24, 2000
W. E. Bixby III
/s/Daryl D. Jensen Director April 24, 2000
Daryl D. Jensen
/s/C. John Malacarne Director April 24, 2000
C. John Malacarne
/s/Jack D. Hayes Director April 24, 2000
Jack D. Hayes
/s/Webb R. Gilmore Director April 24, 2000
Webb R. Gilmore
/s/Warren J. Hunzicker, M.D. Director April 24, 2000
Warren J. Hunzicker, M.D.
/s/Michael J. Ross Director April 24, 2000
Michael J. Ross
/s/Elizabeth T. Solberg Director April 24, 2000
Elizabeth T. Solberg
E. Larry Winn Jr. Director April 24, 2000
/s/Nancy Bixby Hudson Director April 24, 2000
Nancy Bixby Hudson
EXHIBIT INDEX
Page No.*
9. Opinion and Consent of Counsel
10 (a). Consent of Sutherland, Asbill & Brennan
(b). Consent of Ernst & Young LLP
* Page numbers included only in manually executed original in compliance with
Rule 403(d) under the Securities Act of 1933.
Exhibit 9
Opinion and Consent of Counsel
Exhibit 10(a)
Consent of Sutherland, Asbill & Brennan
Exhibit 10(b)
Consent of Ernst & Young LLP
Exhibit 9
April 24, 2000
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 Variable 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
Exhibit 10(a)
Consent of Sutherland, Asbill & Brennan
April 26, 2000
Board of Directors
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64141-6139
Re: Kansas City Life Variable Annuity Separate Account
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of Post-Effective
Amendment No. 6 to the registration statement on Form N-4 for Kansas City Life
Variable Life Annuity Separate Account (File No. 33-89984). In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By:/s/ Stephen E. Roth
Stephen E. Roth
Exhibit 10(b)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts," and to the
use of our report dated January 24, 2000, with respect to the consolidated
financial statements of Kansas City Life Insurance Company and to the use of our
report dated March 31, 2000 with respect to the financial statements of Kansas
City Life Variable Annuity Separate Account, included in the Post-Effective
Amendment No. 6 to the Registration Statement under the Securities Act of 1933
(File No. 33-89984) on Form N-4 and Post-Effective Amendment No. 6 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-8994) and the related Statement of Additional Information accompanying
the Prospectus of Century II Variable Annuity.
ERNST & YOUNG LLP
Kansas City, Missouri
April 27, 2000
