PROSPECTUS
Individual Flexible Premium Variable Life Insurance Contracts
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT OF
KANSAS CITY LIFE INSURANCE COMPANY
Home Office:
3520 Broadway
Kansas City, Missouri 64111-2565
Telephone (816) 753-7000
Correspondence to:
Variable Administration
P. O. Box 419364
Kansas City, Missouri 64141-6364
Telephone (800) 616-3670
This Prospectus describes an individual flexible premium variable
life insurance contract (the "Contract") offered by Kansas City
Life Insurance Company ("Kansas City Life," "we," "us" or
"our"). The Contract is designed to provide insurance
protection on the Insured named in the Contract, and at the same
time provide you with the flexibility to vary the amount and
timing of premium payments and to change the amount of death
benefits payable under the Contract. This flexibility allows
you to provide for your changing insurance needs under a single
insurance contract.
You also have the opportunity to allocate Net Premium payments
and Contract Value to one or more Subaccounts of the Kansas City
Life Variable Life Separate Account (the "Variable Account") and
to Kansas City Life's general account (the "Fixed Account"),
within limits. This Prospectus generally describes only that
portion of the Contract Value allocated to the Variable Account.
For a brief summary of the Fixed Account, see "Fixed Account,"
page 21. The assets of each Subaccount are invested in a
corresponding portfolio (each, a "Portfolio") of MFS Variable
Insurance Trust ("MFS Trust"), of TCI Portfolios, Inc. ("TCI
Portfolios"), and of Insurance Management Series ("IMS") (MFS
Trust, TCI Portfolios, and IMS are each referred to as a
"Fund"). Each Fund is managed by the investment adviser shown
below:
MFS Variable Insurance Trust
MFS Research Series
MFS Emerging Growth Series
MFS Total Return Series
MFS Bond Series
MFS World Governments Series
MFS Utilities Series
Manager
Massachusetts Financial Services Company
TCI Portfolios
(a member of the Twentieth Century Family of Funds)
TCI Growth Portfolio
TCI International Portfolio
Manager
Investors Research Corporation
IMS
Equity Growth and Income Fund
Corporate Bond Fund
Prime Money Fund
Manager
Federated Advisers
The accompanying prospectuses for MFS Trust, TCI Portfolios, and
IMS describe their respective Portfolios, including the risks of
investing in the Portfolios, and provide other information on
MFS Trust, TCI Portfolios, and IMS.
You can select from two Coverage Options available under the
Contract: a level death benefit ("Option A") and a death
benefit that fluctuates with the Contract Value ("Option B").
Kansas City Life guarantees that the Death Benefit proceeds will never be
less than the Specified Amount of insurance (less any
Indebtedness and past due charges) so long as sufficient
premiums are paid to keep the Contract in force.
The Contract provides for a Cash Surrender Value that can be
obtained by surrendering the Contract. Because this value is
based on the performance of the Portfolios of the Funds, to the
extent of allocations to the Variable Account, there is no
guaranteed minimum Cash Surrender Value.
If the Cash Surrender Value is insufficient to cover the charges
due under the Contract, the Contract will lapse without value.
However, Kansas City Life guarantees to keep the Contract in
force during the Guaranteed Payment Period, so long as the
Guaranteed Monthly Premium requirement and other conditions have
been met. The Contract also permits loans and partial
surrenders, within limits.
It may not be advantageous to replace existing insurance with
this Contract. Within certain limits, you may return the
Contract, or convert it to a contract that provides benefits
that do not vary with the investment results of a separate
account by exercising the Special Transfer Right.
THIS PROSPECTUS PRESENTS CONCISELY THE INFORMATION YOU SHOULD
KNOW BEFORE DECIDING TO PURCHASE A CONTRACT. IT SHOULD BE
RETAINED FOR FUTURE REFERENCE. PROSPECTUSES FOR MFS VARIABLE
INSURANCE TRUST, TCI PORTFOLIOS, INC., AND INSURANCE MANAGEMENT
SERIES MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS.
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).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is January 5, 1996.
PROSPECTUS CONTENTS
Page
DEFINITIONS OF TERMS...5
SUMMARY AND DIAGRAM OF THE CONTRACT...8
GENERAL INFORMATION ABOUT KANSAS CITY LIFE, THE VARIABLE
ACCOUNT AND THE FUNDS...13
Kansas City Life Insurance Company...13
Kansas City Life Variable Life Separate Account...13
The Funds...13
Resolving Material Conflicts...15
Addition, Deletion or Substitution of Investments...15
Voting Rights...16
PREMIUM PAYMENTS AND ALLOCATIONS...16
Applying for a Contract...16
Free Look Right to Cancel Contract...17
Premiums...18
Premium Payments to Prevent Lapse...19
Premium Allocations and Crediting...19
Transfer Privilege...20
Dollar Cost Averaging Plan...21
Portfolio Rebalancing Plan...21
FIXED ACCOUNT...21
Minimum Guaranteed and Current Interest Rates...22
Calculation of Fixed Account Value...22
Transfers from Fixed Account...22
Payment Deferral...22
CHARGES AND DEDUCTIONS...23
Premium Expense Charge...23
Monthly Deduction...23
Monthly Expense Charge...24
Daily Mortality and Expense Risk Charge...25
Transfer Processing Fee...25
Surrender Charge...25
Partial Surrender Fee...27
Fund Expenses...27
Cost of Additional Benefits Provided by Riders...27
Bonus on Contract Value in the Variable Account...27
Other Tax Charge...28
HOW YOUR CONTRACT VALUES VARY...28
Determining the Contract Value...28
Cash Surrender Value...29
DEATH BENEFIT AND CHANGES IN SPECIFIED AMOUNT...29
Amount of Death Benefit Proceeds...29
Coverage Options...29
Initial Specified Amount and Coverage Option...30
Changes in Coverage Option...30
Changes in Specified Amount...30
Selecting and Changing the Beneficiary...31
CASH BENEFITS...31
Contract Loans...31
Surrendering the Contract for Cash Surrender Value...33
Partial Surrenders...33
Maturity Benefit...33
Payment Options...33
ILLUSTRATIONS OF CONTRACT VALUES, CASH SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUM PAYMENTS...34
OTHER CONTRACT BENEFITS AND PROVISIONS...44
Limits on Rights to Contest the Contract...44
Changes in the Contract or Benefits...44
When Proceeds Are Paid...44
Reports to Contract Owners...45
Assignment...45
Reinstatement...45
Supplemental and/or Rider Benefits...45
TAX CONSIDERATIONS...47
Tax Status of the Contract...47
Tax Treatment of Contract Benefits...48
Possible Charge for Kansas City Life's Taxes...50
OTHER INFORMATION ABOUT THE CONTRACTS AND KANSAS CITY LIFE...50
Sale of the Contracts...50
Kansas City Life Directors and Executive Officers...50
State Regulation...53
Additional Information...53
Experts...53
Litigation...53
Legal Matters...53
Financial Statements...53
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUSES OF THE FUNDS, OR THE STATEMENTS OF
ADDITIONAL INFORMATION OF THE FUNDS.
DEFINITIONS OF TERMS
Accumulation Unit - An accounting unit used to calculate
Variable Account Value. It is a measure of the net investment
results of each of the Subaccounts.
Age - Age means the age on the Insured's last birthday as of
each Contract Anniversary. The Contract is issued at the Age
shown in the Contract, which is the Insured's Age on the
Contract Date. If the Contract Date falls on the birthday of
the Insured, the Age will be the age attained by the Insured on
the Contract Date.
Allocation Date - The date on which the initial Net Premium is
allocated to the IMS Prime Money Subaccount. The Allocation
Date is the later of the date when all underwriting and other
requirements have been met and your application has been
approved, or the date the initial premium is received at the
Home Office.
Beneficiary - The Beneficiary is the person you have designated
in the application or in the last beneficiary designation filed
with us to receive any proceeds payable under the Contract at
the death of the Insured.
Cash Surrender Value - The Contract Value at the time of
surrender less any applicable Surrender Charge and any Contract
Indebtedness.
Contract Anniversary - The same day and month as the Contract
Date each year that the Contract remains in force.
Contract Date - The date on which coverage under the Contract
takes effect. Contract Months, Years and Anniversaries are
measured from the Contract Date. The incontestability and
suicide periods for the Initial Specified Amount are measured
from this date.
Contract Value - The sum of the Variable Account Value and the
Fixed Account Value (including the Loan Account Value).
Calculation of the Contract Value is described on page 28.
Contract Year - Any period of twelve months starting with the
Contract Date and each Contract Anniversary thereafter.
Coverage Options - Option A provides a Death Benefit at least
equal to the Specified Amount at the time of death. Option B
provides a Death Benefit at least equal to the Specified Amount
plus the Contract Value, both at the time of death.
Death Benefit Proceeds - The amount of Proceeds payable upon the
Insured's death. The Death Benefit is determined according to
the Coverage Option that has been elected. Any Indebtedness is
deducted from the amount payable.
Fixed Account - An account that is part of our General Account,
and is not part of or dependent on the investment performance of
the Variable Account.
Fixed Account Value - The Contract Value in the Fixed Account.
Guaranteed Monthly Premium - An amount used to measure premium
payments paid for purposes of determining whether the guarantee
that your Contract will not lapse during the Guaranteed Payment
Period is in effect. See page 18.
Guaranteed Payment Period - The period of time during which we
guarantee that your Contract will not lapse if the Guaranteed
Monthly Premiums are paid. See page 18.
Home Office - 3520 Broadway, P.O. Box 419364, Kansas City,
Missouri 64141-6364.
Indebtedness - The sum of all outstanding Contract loans plus
accrued interest.
Initial Specified Amount - The Specified Amount on the Contract
Date.
Insured - The person whose life is insured under the Contract.
Lapse - Termination of the Contract at the expiration of the
Grace Period while the Insured is still living. See page 19.
Loan Account - The Loan Account is part of the Fixed Account,
which is part of the General Account.
Loan Account Value - The Contract Value in the Loan Account.
Maturity Date - The date when coverage terminates and the Cash
Surrender Value, if any, is paid.
Monthly Anniversary Day - The day of each month as of which we
make the Monthly Deduction. It is the same day of each month as
the Contract Date or the last day of the month for those months
not having such a day.
Monthly Deduction - The amount we deduct as of each Monthly
Anniversary Day from the Contract Value to pay the cost of
insurance charge, monthly expense charge, any applicable
increase expense charge, and any charges for supplemental and/or
rider benefits for the month beginning on that Monthly
Anniversary Day.
Net Investment Factor - An index used to measure Subaccount
performance of the current Valuation Period. Subaccount
performance includes gains or losses in the Subaccounts,
dividends paid, any capital gains or losses, any taxes, and
mortality and expense risk charges. The calculation of the Net
Investment Factor is described on page 28.
Net Premium - A premium payment minus the applicable Premium
Expense Charge. See page 23.
Owner, You - The person entitled to exercise all rights and
privileges provided in the Contract.
Planned Premium Payments - The amount and frequency of premium
payments you elected to pay in your last application. This is
the amount we will bill you and is only an indication of your
preferences of future premium payments. You may change the
amount and frequency of premium payments at any time. The
actual amount and frequency of premium payments will affect the
Contract Value and the amount and duration of insurance.
Premium Payment(s) - The amount(s) paid by the Owner to purchase
the Contract; either a Planned Premium Payment or unscheduled
premium.
Proceeds - The total amount we are obligated to pay under the
terms of the Contract.
Reallocation Date - The date as of which Contract Value in the
IMS Prime Money Subaccount is allocated to the Subaccounts and
to the Fixed Account based on the Net Premium allocation
percentages specified in the application. The Reallocation Date
is 30 days after the Allocation Date.
Specified Amount - The amount of insurance coverage on the
Insured. The actual Death Benefit will depend upon whether
Option A or Option B is in effect at the time of death.
Subaccounts - The division of accounts making up the Variable
Account. The assets of each Subaccount are invested in a
corresponding portfolio of a designated mutual fund.
Subaccount Value - The Contract Value in a Subaccount.
Unscheduled Premium - Any premium other than a Planned Premium
Payment.
Valuation Day - Each day on which both the New York Stock
Exchange and Kansas City Life are open for business.
Valuation Period - The interval of time commencing at the close
of business one Valuation Day and ending at the close of
business on the next succeeding Valuation Day.
Variable Account - The Kansas City Life Variable Life Separate
Account. This is not part of our General Account. The Variable
Account has Subaccounts.
Variable Account Value - The total value of a Contract allocated
to Subaccounts of the Variable Account.
Written Notice - A written notice in a form satisfactory to Kansas City Life
that is signed by the Owner and received at the Home Office.
SUMMARY AND DIAGRAM OF THE CONTRACT
The following summary of Prospectus information and diagram of
the Contract should be read in conjunction with the detailed
information appearing elsewhere in this Prospectus. Unless
otherwise indicated, the description of the Contract in this
Prospectus assumes that the Contract is in force and there is no
outstanding Contract Indebtedness.
The Contract is similar in many ways to fixed-benefit life
insurance. As with fixed-benefit life insurance, the Owner of a
Contract pays premium payments for insurance coverage on the
person insured. Also like fixed-benefit life insurance, the
Contract provides for accumulation of Net Premiums and a Cash
Surrender Value that is payable if the Contract is surrendered
during the Insured's lifetime. As with fixed-benefit life
insurance, the Cash Surrender Value during the early Contract
Years is likely to be substantially lower than the premium
payments paid.
However, the Contract differs from fixed-benefit life insurance
in several important respects. Unlike fixed-benefit life
insurance, the Death Benefit may and the Contract Value will
increase or decrease to reflect the investment performance of
the Subaccounts to which Contract Value is allocated. Also,
there is no guaranteed minimum Cash Surrender Value.
Nonetheless, Kansas City Life guarantees to keep the Contract in
force during the first five Contract Years and during the five
years following the effective date of an increase in the
Specified Amount as long as the Guaranteed Monthly Premium
requirement has been met. See "Guaranteed Payment Period and
Guaranteed Monthly Premium," page 18. Otherwise, if the Cash
Surrender Value is insufficient to pay charges due, the Contract
will lapse without value after a grace period. See "Premium
Payments to Prevent Lapse," page 19. If a Contract lapses
while loans are outstanding, adverse tax consequences may
result. See "Tax Considerations," page 47.
The most important features of the Contract, such as charges,
cash surrender benefits, death benefits, and calculation of
Contract values, are summarized in the diagram on the following
pages.
Purpose of the Contract. The Contract is designed to provide
long-term insurance benefits, and may also provide long-term
accumulation of Contract Value. The Contract should be
evaluated in conjunction with other insurance policies that you
own, as well as the need for insurance and the Contract's
long-term investment potential. It may not be advantageous to
replace existing insurance coverage with this Contract. In
particular, replacement should be carefully considered if the
decision to replace existing coverage is based solely on a
comparison of Contract illustrations. (See "Illustrations" below).
Illustrations. Illustrations in this Prospectus or used in
connection with the purchase of a Contract are based on
hypothetical rates of return. These rates are not guaranteed.
They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of
return may be higher or lower than those reflected in Contract
illustrations, and therefore, actual Contract values will be
different from those illustrated.
The illustrations show Contract values based on current
charges and, alternatively, based on guaranteed charges. See
"Illustrations of Contract Values, Cash Surrender Values,
Death Benefits and Accumulated Premium Payments," page 34.
Contract values in the illustrations based on current charges
reflect a bonus that may be credited to the Contract beginning in the
eleventh Contract Year. The bonus is not guaranteed and will be
paid in Kansas City Life's sole discretion.
Contract Tax Compliance. Kansas City Life intends for the
Contract to satisfy the definition of a life insurance contract
under Section 7702 of the Internal Revenue Code. Under certain
circumstances, a Contract will be treated as a "modified
endowment contract" under federal tax law. Kansas City Life
will monitor Contracts and will notify you on a timely basis if
your Contract is in jeopardy of violating the definition of life
insurance or becoming a modified endowment contract. For
further discussion of the tax status of a Contract and the tax
consequences of being treated as a life insurance contract or a
modified endowment contract, see "Tax Considerations," page 47.
Free Look Right to Cancel and Special Transfer Right. For a
limited time, you have the right to cancel your Contract and
receive a refund. See "Free Look Right to Cancel Contract,"
page 17. During this "free-look" period, Net Premiums will be
allocated to the IMS Prime Money Subaccount until the Reallocation Date. See
"Premium Allocations and Crediting," page 19. In addition, for a limited
time after requesting an increase in the Contract's Specified Amount, you may
cancel the increase and you may be entitled to a refund of certain charges.
Once within the first 24 Contract Months or within 24 Contract
Months following the effective date of an increase in Specified
Amount, you may transfer all or a portion of the Variable
Account Value to the Fixed Account without payment of any
transfer fee. This transfer effectively "converts" the Contract
into a contract that provides fixed (non-variable) benefits.
See "Special Transfer Right," page 20.
Owner Inquiries. If you have any questions, you may write or
call Kansas City Life's Home Office at 3520 Broadway, P.O. Box
419364, Kansas City, Missouri 64141-6364, 1-800-616-3670.
DIAGRAM OF CONTRACT
PREMIUM PAYMENTS
You select a payment plan but are not required to pay premium
payments according to the plan. You can vary the amount and
frequency and can skip planned premium payments. See page 18
for rules and limits.
The Contract's minimum initial premium payment and planned
premium payment depend on the Insured's age, sex and risk class,
Initial Specified Amount selected, any supplemental and/or rider
benefits, and any planned periodic premiums you plan to make.
Unplanned premium payments may be made, within limits. See
page 18.
Under certain circumstances, which include taking excessive
Contract loans, extra premium payments may be required to
prevent lapse. See page 19.
DEDUCTIONS FROM PREMIUM PAYMENTS
For state and local premium taxes (2.25% of premium payments).
See page 23.
NET PREMIUM PAYMENTS
You direct the allocation of Net Premium payments among eleven
Subaccounts of the Variable Account and the Fixed Account. See
page 19 for rules and limits on Net Premium payment allocations.
Each Subaccount invests in a corresponding portfolio of a
mutual fund:
Mutual Fund
MFSr Variable Insurance Trustsm
Manager: Massachusetts Financial Services Company
Portfolio
MFS Research Series
MFS Emerging Growth Series
MFS Total Return Series
MFS Bond Series
MFS World Governments Series
MFS Utilities Series
TCI Portfolios (a member of the Twentieth Century Family of Funds)
Manager: Investors Research Corporation
TCI Growth Portfolio
TCI International Portfolio
Insurance Management Series
Manager: Federated Advisers
Equity Growth and Income Fund
Corporate Bond Fund
Prime Money Fund
Interest is credited on amounts allocated to the Fixed Account
at a minimum guaranteed rate of 4%. See page 22 for rules and
limits on transfers from the Fixed Account allocations.
DEDUCTIONS FROM CONTRACT VALUE
Monthly deduction for cost of insurance, administration fees, and charges
for any supplemental and/or rider benefits.
Administration fees are currently $26.00 per month for the first
Contract Year and $6.00 per month thereafter, plus $20.00 per
month for the 12 Contract Months following an increase in
Specified Amount. See page 23.
DEDUCTIONS FROM ASSETS
Daily charge at a guaranteed annual rate of 0.90% from the
Subaccounts for mortality and expense risks. See page 25.
This charge is not deducted from the Fixed Account Value.
Investment advisory fees and operating expenses are deducted
from the assets of each Portfolio. See page 27.
CONTRACT VALUE
Contract Value is equal to Net Premiums, as adjusted each
Valuation Day to reflect Subaccount investment experience,
interest credited on Fixed Account Value, charges deducted and
other Contract transactions (such as transfers and surrenders).
See page 28.
Varies from day to day. There is no minimum guaranteed
Contract Value. The Contract may lapse if the Contract Value is
insufficient to cover a Monthly Deduction due. See page 28.
Can be transferred among the Subaccounts and Fixed Account. A transfer
fee of $25.00 will apply if more than 6 transfers are
made in a Contract Year. See page 20 for rules and limits.
Is the starting point for calculating certain values under a
Contract, such as the Cash Surrender Value and the Death Benefit
used to determine Death Benefit proceeds.
Also, a "bonus" may be credited to the Contract Value on each Monthly
Anniversary Day beginning in the eleventh Contract Year.
The monthly bonus equals 0.0375% (0.45% on an annualized basis)
of the Variable Account Value. This bonus is not
guaranteed.
CASH BENEFITS
Loans may be taken for amounts up to Cash Surrender Value less loan
interest to the next Contract Anniversary, at an annual
effective interest rate of 6.0%. Currently, a preferred loan is
available beginning in the eleventh Contract Year. See page 31
for rules and limits.
Partial surrenders generally can be made provided there is
sufficient remaining Cash Surrender Value. A partial surrender
fee will apply and a surrender charge will be assessed for any
resulting reduction in the Specified Amount. See page 33 for
limits and a description of the charges. Partial surrenders may
be subject to adverse tax consequences.
The Contract may be surrendered in full at any time for its
Cash Surrender Value. A declining sales load charge of up to
30% of actual premiums paid up to a maximum premium amount shown
in the Contract, as well as a declining administrative charge,
will apply during the first 15 Contract Years and during the 15
years following the effective date of an increase in the
Specified Amount. See page 33. Surrenders may be subject to
adverse tax consequences.
Payment options are available. See page 33.
DEATH BENEFITS
Income tax free to Beneficiary.
Available as lump sum or under a variety of payment options.
For all Contracts, a minimum Specified Amount of $100,000 for Issue Ages
0-49 and $50,000 for Issue Ages 50-80. We may allow these minimum limits to be
reduced. See page 17.
Two Coverage Options available:
Option A, equal to the Specified Amount, and Option B, equal to the
Specified Amount plus Contract Value. See page 29.
Flexibility to change the Coverage Option and Specified
Amount. See pages 30 for rules and limits.
Supplemental and/or rider benefits may be available. See page 45.
Any Indebtedness is deducted from the amount payable.
GENERAL INFORMATION
ABOUT KANSAS CITY LIFE, THE VARIABLE ACCOUNT
AND THE FUNDS
Kansas City Life Insurance Company
The Contracts are issued by Kansas City Life Insurance Company,
which is a stock life insurance company organized under the laws
of the State of Missouri in 1895. Kansas City Life is currently
licensed to transact life insurance business in 47 states and
the District of Columbia.
Kansas City Life is subject to regulation by the Department of
Insurance of the State of Missouri as well as by the insurance
departments of all other states and jurisdictions in which it
does business. We submit annual statements on our operations
and finances to insurance officials in such states and
jurisdictions. The forms for the Contract described in this
Prospectus are filed with and (where required) approved by
insurance officials in each state and jurisdiction in which
Contracts are sold.
Kansas City Life Variable Life Separate Account
Kansas City Life Variable Life Separate Account was established
as a separate investment account under Missouri law on April 24,
1995. It is used to support the Contracts and may be used to
support other variable life insurance contracts, and for other
purposes 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. Kansas City Life has 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 Contracts invest in shares of
Portfolios of the Funds. The Variable Account may include other
Subaccounts that are not available under the Contracts and are
not otherwise discussed in this Prospectus. The assets in the
Variable Account are owned by Kansas City Life.
Income, gains and losses, realized or unrealized, of a
Subaccount are credited to or charged against the Subaccount
without regard to any other income, gains or losses of Kansas
City Life. Applicable insurance law provides that assets equal
to the reserves and other contract liabilities of the Variable
Account are not chargeable with liabilities arising out of any
other business of Kansas City Life. Kansas City Life is
obligated to pay all benefits provided under the Contracts.
The Funds
MFSr Trust, TCI Portfolios, and IMS are each registered with the
SEC as a diversified open-end management investment company
under the 1940 Act, although the SEC does not supervise their
management or investment practices and policies. Each of the
Funds 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.
MFSr Variable Insurance Trustsm
(Manager: Massachusetts Financial Services Company)
MFSr Research Seriessm. The Research Series' investment objective
is to provide long-term growth of capital and future income.
The Series' assets are allocated to selected economic sectors
and then to industry groups within those sectors.
MFSr Emerging Growth Seriessm. The Emerging Growth Series'
investment objective is to obtain long-term growth of capital.
The Series' policy is to invest primarily (i.e., at least 80% of
its assets under normal circumstances) in common stocks of small
and medium sized companies that are early in their life cycle,
but which have the potential to become major enterprises
(emerging growth companies).
MFSr Total Return Seriessm. The Total Return Series' primary
investment objective is to obtain above-average income (compared
to a portfolio entirely invested in equity securities)
consistent with the prudent employment of capital, and its
secondary objective is to provide a reasonable opportunity for
growth of capital and income, since many securities offering a
better than average yield may also possess growth potential.
MFSr Bond Seriessm. The Bond Series' primary investment objective
is to provide as high a level of current income as is believed
to be consistent with prudent investment risk. The Series'
secondary objective is to protect shareholders' capital. Up to
20% of the Series' total assets may be invested in lower-rated
or non-rated debt securities commonly known as "junk bonds."
The risks of investing in junk bonds are described in the
prospectus for the MFSr Variable Insurance Trust, which should be
read carefully before investing.
MFSr World Governments Seriessm. The World Governments Series'
investment objective is to seek not only preservation, but also
growth of capital, together with moderate current income. The
Series seeks to achieve its investment objective through a
professionally managed, internationally diversified portfolio
consisting primarily of debt securities and to a lesser extent
equity securities.
MFSr Utilities Seriessm. The Utilities Series' investment
objective is to seek capital growth and current income (income
above that available from a portfolio invested entirely in
equity securities). The Series will seek to achieve its
objective by investing, under normal circumstances, at least 65%
(but up to 100% at the discretion of the Series' adviser) of its
assets in equity and debt securities of both domestic and
foreign companies in the utilities industry.
TCI Portfolios, Inc.
A member of the Twentieth Century Family of Mutual Funds
(Manager: Investors Research Corporation)
TCI Growth Portfolio. The investment objective of TCI Growth
Portfolio 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.
TCI International Portfolio. The investment objective of TCI
International Portfolio is capital growth. The Portfolio will
seek to achieve its investment objective by investing primarily
in securities of foreign companies that meet certain fundamental
and technical standards of selection and that have, in the
opinion of the investment manager, potential for appreciation.
Insurance Management Series
(Manager: Federated Advisers)
IMS Equity Growth and Income Fund. The primary investment
objective of the Equity Growth and Income Fund 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.
IMS Corporate Bond Fund. The investment objective of the
Corporate Bond Fund is to seek high current income. The Fund
endeavors to achieve its objective by investing primarily in
lower-rated corporate debt obligations commonly referred to as
"junk bonds." The risks of investing in junk bonds is described
in the prospectus for Insurance Management Series, which should
be read carefully before investing.
IMS Prime Money Fund. The investment objective of the Prime
Money Fund 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.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF
ANY OF THE FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives,
policies, and restrictions pertaining to the Funds and
Portfolios and their expenses, investment advisory services and
charges and the risks involved with investing in the Portfolios
and other aspects of their operations can be found in the
current prospectus for each Fund or Portfolio that accompanies
this Prospectus and the current Statement of Additional
Information for each Fund or Portfolio. The prospectuses for
the Funds or Portfolios should be read carefully before any
decision is made concerning the allocation of Net Premium
payments or transfers among the Subaccounts.
Kansas City Life has entered into agreements with either the
investment adviser or distributor for each of the Funds pursuant
to which the adviser or distributor will pay Kansas City Life a
fee based upon an annual percentage of the average aggregate net
amount invested by Kansas City Life on behalf of the Variable
Account and other separate accounts of Kansas City Life. These
agreements reflect administrative services provided by Kansas
City Life.
Kansas City Life cannot guarantee that each Fund or Portfolio
will always be available for the Contracts, but in the unlikely
event that a Fund or Portfolio is not available, Kansas City
Life will take reasonable steps to secure the availability of a
comparable fund. Shares of each Portfolio are purchased and
redeemed at net asset value, without a sales charge.
Resolving Material Conflicts
The Funds presently serve as the investment medium for the
Contracts. In addition, the Funds are available to registered
separate accounts of insurance companies, other than Kansas City
Life, offering variable annuity and variable life insurance
contracts.
We do not currently foresee any disadvantages to you resulting
from the Funds selling shares to fund products other than the
Contracts. However, there is a possibility that a material
conflict of interest may arise between Owners whose Contract
Values are allocated to the Variable Account and the owners of
variable life insurance policies and variable annuity contracts
issued by other companies whose values are allocated to one or
more other separate accounts investing in any one of the Funds.
Shares of some of the Funds may also be sold to certain
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 for the Funds and
Portfolios for more information.
Addition, Deletion or Substitution of Investments
We reserve the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares
that are held in the Variable Account or that the Variable
Account may purchase. If the shares of a Portfolio of a Fund
are no longer available for investment or if, in our judgment,
further investment in any Portfolio should become inappropriate
in view of the purposes of the Variable Account, we may redeem
the shares, if any, of that Portfolio and substitute shares of
another registered open-end management investment company. We
will not substitute any shares attributable to a Contract's
interest in a Subaccount of the Variable Account without notice
and prior approval of the SEC and state insurance authorities,
to the extent required by the 1940 Act or other applicable law.
We also reserve the right to establish additional Subaccounts of
the Variable Account, each of which would invest in shares
corresponding to a Portfolio of a Fund or in shares of another
investment company having a specified investment objective.
Subject to applicable law and any required SEC approval, we may,
in our sole discretion, establish new Subaccounts or eliminate
one or more Subaccounts if marketing needs, tax considerations
or investment conditions warrant. Any new Subaccounts may be
made available to existing Contract Owners on a basis to be
determined by Kansas City Life.
If any of these substitutions or changes are made, we may, by
appropriate endorsement, change the Contract to reflect the
substitution or change. If we deem it to be in the best
interests of Contract Owners (subject to any approvals that may
be required under applicable law), the Variable Account may be
operated as a management investment company under the 1940 Act,
it may be deregistered under that Act if registration is no
longer required, or it may be combined with other Kansas City
Life separate accounts.
Voting Rights
Kansas City Life is the legal owner of shares held by the
Subaccounts and as such has the right to vote on all matters
submitted to shareholders of the Funds. However, as required by
law, Kansas City Life will vote shares held in the Subaccounts
at regular and special meetings of shareholders of the Funds in
accordance with instructions received from Owners with Contract
Value in the Subaccounts. Should the applicable federal
securities laws, regulations or interpretations thereof change,
Kansas City Life may be permitted to vote shares of the Funds in
its own right, and if so, Kansas City Life may elect to do so.
To obtain voting instructions from Owners, before a meeting
Owners will be sent voting instruction material, a voting
instruction form and any other related material. The number of
votes that are available to an Owner will be calculated
separately for each Subaccount of the Variable Account, and may
include fractional shares. The number of votes attributable to
a Subaccount will be determined by applying an Owner's
percentage interest, if any, in a particular Subaccount to the
total number of votes attributable to that Subaccount. The
number of votes for which an Owner may give instructions will be
determined as of the date coincident with the date established
by the Fund for determining shareholders eligible to vote at the
relevant meeting of the Fund. Shares held by a Subaccount for
which no timely instructions are received will be voted by
Kansas City Life in the same proportion as those shares for
which voting instructions are received.
Kansas City Life may, if required by state insurance officials,
disregard Owner voting instructions if such instructions would
require shares to be voted so as to cause a change in
sub-classification or investment objectives of one or more of
the Portfolios, or to approve or disapprove an investment
advisory agreement. In addition, Kansas City Life may under
certain circumstances disregard voting instructions that would
require changes in the investment advisory contract or
investment adviser of one or more of the Portfolios, provided
that Kansas City Life reasonably disapproves of such changes in
accordance with applicable federal regulations. If Kansas City
Life ever disregards voting instructions, Owners will be advised
of that action and of the reasons for such action in the next
semiannual report. Finally, Kansas City Life reserves the right
to modify the manner in which the weight to be given to
pass-through voting instructions is calculated when such a
change is necessary to comply with current federal regulations
or the current interpretation thereof.
PREMIUM PAYMENTS AND ALLOCATIONS
Applying for a Contract
To purchase a Contract, you must complete an application and
submit it through an authorized Kansas City Life agent. If you
are eligible for temporary insurance coverage, a temporary
insurance agreement ("TIA") should also accompany the
application. The TIA provides temporary insurance coverage
prior to the date when all underwriting and other requirements
have been met and your application has been approved, with
certain limitations, as long as an initial premium payment
accompanies the TIA. In accordance with Kansas City Life's
underwriting rules, temporary life insurance coverage may not
exceed $250,000. The TIA may not be in effect for more than 60
days. At the end of the 60 days, the TIA coverage terminates
and the initial premium will be returned to the applicant.
With the TIA, you must pay an initial premium payment at the
time of application that is at least equal to two Guaranteed
Monthly Premiums (one Guaranteed Monthly Premium is required for
Contracts when premium payments will be made under a
pre-authorized payment arrangement). See "Premiums," page 18. If the full
required initial premium payment is submitted with the application, your
Contract Date will be the date of the TIA. An initial premium will not be
accepted, however, from applicants that are not eligible for TIA coverage.
In such cases when the
application is not accompanied by the required initial premiums,
the Contract Date will be within two days after the underwriting
approval date. Coverage under the Contract begins on the
Contract Date, and Kansas City Life will deduct Contract charges
as of the Contract Date.
The Contract Date is determined by these guidelines except, as
provided for under state insurance law, the Owner may be
permitted to backdate the Contract to preserve insurance age.
In no case may the Contract Date be more than six months prior
to the date the application was completed. Monthly Deductions
will be charged from the Contract Date.
If coverage under an existing Kansas City Life insurance
contract is being replaced, that contract will be terminated and
values will be transferred on the date when all underwriting and
other requirements have been met and your application has been
approved. Kansas City Life will deduct Contract charges as of
the Contract Date.
Kansas City Life requires satisfactory evidence of the proposed
Insured's insurability, which may include a medical examination
of the proposed Insured. The available issue ages are 0 through
80 on a nonsmoker basis, 15 through 80 on a preferred nonsmoker
basis, and 15 through 80 on a smoker basis. Age is determined
on the Insured's age last birthday on the Contract Date. The
minimum Specified Amount is $100,000 for issue ages 0 through
49. The minimum Specified Amount is $50,000 for issue ages 50
through 80. Acceptance of an application depends on Kansas City
Life's underwriting rules, and Kansas City Life reserves the
right to reject an application.
As the Owner of the Contract, you may exercise all rights
provided under the Contract. The Insured is the Owner, unless a
different Owner is named in the application. The Owner may by
Written Notice name a contingent Owner or a new Owner while the
Insured is living. Unless a contingent Owner has been named, on
the death of the last surviving Owner, ownership of the Contract
passes to the estate of the last surviving Owner, who will
become the Owner if the Owner dies. The Owner may also be
changed prior to the Insured's death by Written Notice
satisfactory to us. A change in Owner may have tax
consequences. See "Tax Considerations," page 47.
Free Look Right to Cancel Contract
You may cancel your Contract for a refund during your
"free-look" period. This period expires 10 days after you
receive your Contract, 45 days after your application is signed,
or 10 days after Kansas City Life mails or delivers a
cancellation notice, whichever is latest. If you decide to
cancel the Contract, you must return it by mail or other
delivery method to the Home Office or to the authorized Kansas
City Life agent who sold it. Immediately after mailing or
delivery, the Contract will be deemed void from the beginning.
Within seven calendar days after Kansas City Life receives the
returned Contract, Kansas City Life will refund premiums paid.
In addition, you may cancel an increase in Specified Amount that
you have requested within 10 days after you receive the adjusted
Contract, within 45 days after the date the application for the
increased coverage is signed, or within 10 days after Kansas
City Life mails or delivers the cancellation notice for the Specified Amount
increase, whichever is latest. If you decide to cancel the increase in
Specified Amount, you must return the adjusted Contract by mail or other
delivery method to the Home Office or to the authorized Kansas City Life
agent who sold it. Immediately after mailing or delivery, the
increase will be deemed void from the beginning. Within seven calendar
days after Kansas City Life receives the adjusted contract, any charges
attributable to the increase will be returned to your Contract Value.
Premiums
The minimum initial premium payment required depends on a number
of factors, such as the Age, sex and risk class of the proposed
Insured, the Initial Specified Amount, any supplemental and/or
rider benefits and the Planned Periodic Premium payments you
propose to make. See "Planned Periodic Premiums," below.
Consult your Kansas City Life agent for information about the
initial premium required for the coverage you desire.
Additional unscheduled premium payments can be made at any time
while the Contract is in force. Kansas City Life has the right
to limit the number and amount of such premium payments.
In addition, total premiums paid may not exceed premium
limitations for life insurance set forth in the Internal Revenue
Code. Kansas City Life will monitor Contracts and will notify
you if a premium payment exceeds this limit and will cause the
Contract to violate the definition of insurance. You may choose
to take a refund of the portion of the premium payment that is
determined to be in excess of the guideline premium limit or you
may submit an application to modify the Contract so it continues
to qualify as a contract for life insurance. Modifying the
Contract may require evidence of insurability. See "Tax
Considerations," page 47.
Your Contract may become a modified endowment contract if
premiums paid exceed the "7-Pay Test" as set forth in the
Internal Revenue Code. Kansas City Life will monitor Contracts
and will attempt to notify you on a timely basis if your
Contract is in jeopardy of becoming a modified endowment
contract. See "Tax Considerations," page 47.
Also, Kansas City Life reserves the right to require
satisfactory evidence of insurability prior to accepting
unscheduled premiums. See "Net Premium Allocations and Crediting," page 19.
Lastly, no premium payment will be accepted after the Maturity
Date.
Premium payments must be made by check payable to Kansas City
Life Insurance Company or by any other method that Kansas City
Life deems acceptable. A loan repayment must be clearly marked
as such or it will be credited as a premium. See "Loan
Repayment; Effect if Not Repaid," page 32.
Planned Periodic Premiums. When applying for a Contract, you
select a plan for paying level premium payments semi-annually or annually. If
you elect, Kansas City Life will also arrange for payment of Planned Periodic
Premiums on a monthly or quarterly basis under a pre-authorized payment
arrangement. You are not required to pay premium payments in accordance with
these plans; rather, you can pay more or less than planned or skip a Planned
Periodic Premium entirely. (See, however, "Premium Payments to Prevent Lapse,"
page 19, and "Guaranteed Payment Period and Guaranteed Monthly Premium" below.)
Each premium after the initial premium must be at least $25. Kansas City Life
may increase this minimum limit 90 days after we send you a written notice of
such increase. Subject to the limits described above, you can change the amount
and frequency of Planned Periodic Premiums whenever you want by sending Written
Notice to the Home Office. However, Kansas City Life reserves the right to
limit the amount of a premium payment or the total premium payments paid, as
discussed above.
Guaranteed Payment Period and Guaranteed Monthly Premium. A
Guaranteed Payment Period is the period during which Kansas City
Life guarantees that the Contract will not lapse if the amount
of total premiums paid is greater than or equal to the sum of:
(1) the accumulated Guaranteed Monthly Premiums in effect on
each prior Monthly Anniversary Day, and (2) an amount equal to
the sum of any partial surrenders taken and Indebtedness under
the Contract. The Guaranteed Payment Periods are five years
following the Contract Date and five years following the
effective date of an increase in the Specified Amount.
The Guaranteed Monthly Premium is shown in the Contract. The
per $1,000 Guaranteed Monthly Premium factors for the Specified
Amount vary by risk class, issue Age, and sex. Additional
premiums for substandard ratings and supplemental and/or rider
benefits are included in the Guaranteed Monthly Premium.
However, upon a change to the Contract, Kansas City Life will
recalculate the Guaranteed Monthly Premium and will notify you
of the new Guaranteed Monthly Premium and amend your Contract to
reflect the change.
Premium Payments Upon Increase in Specified Amount. A new
Guaranteed Payment Period begins on the effective date of an
increase in Specified Amount. You will be notified of the new
Guaranteed Monthly Premium for this period. Depending on the
Contract Value at the time of an increase in the Specified
Amount and the amount of the increase requested, an additional
premium payment may be necessary or a change in the amount of
Planned Periodic Premiums may be advisable. See "Changes in
Specified Amount," page 30.
Premium Payments to Prevent Lapse
Failure to pay Planned Periodic Premiums will not necessarily cause a
Contract to lapse. Conversely, paying all Planned Periodic Premiums will
not guarantee that a Contract will not lapse. The conditions that
will result in your Contract lapsing will vary, as follows,
depending on whether a Guaranteed Payment Period is in effect.
During the Guaranteed Payment Period. A grace period starts if
on any Monthly Anniversary Day the Cash Surrender Value is less
than the amount of the Monthly Deduction and the accumulated
premiums paid as of the Monthly Anniversary Day are less than
required to guarantee the Contract will not lapse during the
Guaranteed Payment Period. See "Guaranteed Payment Period and
Guaranteed Monthly Premium," page 18.
The premium required to keep the Contract in force will be an
amount equal to the lesser of: (1) the amount to guarantee the
Contract will not lapse during the Guaranteed Payment Period
less the accumulated premiums paid; and (2) an amount sufficient
to provide a Cash Surrender Value equal to three Monthly
Deductions.
After the Guaranteed Payment Period. A grace period starts if
the Cash Surrender Value on a Monthly Anniversary Day will not
cover the Monthly Deduction. A premium sufficient to provide a
Cash Surrender Value equal to three Monthly Deductions must be
paid during the grace period to keep the Contract in force.
Grace Period. The grace period is a 61-day period to make a
premium payment sufficient to prevent lapse. See "Premium
Payments to Prevent Lapse," page 19. Kansas City Life will
send notice of the amount required to be paid during the grace
period to your last known address and the address of any
assignee of record. The grace period will begin when the notice
is sent. Your Contract will remain in force during the grace
period. If the Insured should die during the grace period, the
Death Benefit proceeds will still be payable to the Beneficiary,
although the amount paid will reflect a reduction for the
Monthly Deductions due on or before the date of the Insured's
death (and for any Indebtedness). See "Amount of Death Benefit
Proceeds," page 29. If the grace period premium payment has not
been paid before the grace period ends, your Contract will
lapse. It will have no value and no benefits will be payable.
See "Reinstatement," page 45.
A grace period also may begin if Indebtedness becomes excessive.
See "Loan Repayment; Effect if Not Repaid," page 32.
Premium Allocations and Crediting
In the Contract application, you specify the percentage of a Net
Premium to be allocated to each Subaccount and to the Fixed
Account. The sum of your allocations must equal 100%, and
Kansas City Life reserves the right to limit the number of
Subaccounts to which premiums may be allocated. You can change
the allocation percentages at any time, subject to these rules,
by sending Written Notice to the Home Office. The change will
apply to the premium payments received with or after receipt of
your notice.
On the Allocation Date, the initial Net Premium will be
allocated to the IMS Prime Money Subaccount. If any additional
premiums are received before the Reallocation Date, the
corresponding Net Premiums also will be allocated to the IMS
Prime Money Subaccount. The "free-look" period under the
Contract is assumed to end on the Reallocation Date, and on that
date, Contract Value in the IMS Prime Money Subaccount will be
allocated to the Subaccounts and to the Fixed Account as
requested. See "Determining the Contract Value," page 28.
Premiums received on or after the Reallocation Date will be
credited to the Contract and the Net Premiums will be invested
as requested on the Valuation Day they are received at our Home
Office, except if additional underwriting is required. Premium
payments requiring additional underwriting will not be credited
to the Contract until underwriting has been completed and the
premium payment has been accepted. If the additional premium
payment is rejected, Kansas City Life will return the premium
payment immediately, without any adjustment for investment
experience.
Transfer Privilege
After the Reallocation Date and prior to the Maturity Date, you
may transfer all or part of an amount in the Subaccount(s) to
another Subaccount(s) or to the Fixed Account, or transfer a
part of the amount in the Fixed Account to the Subaccount(s),
subject to the following restrictions. The minimum transfer
amount is the lesser of $250 or the entire amount in that
Subaccount or the Fixed Account. A transfer request that would
reduce the amount in a Subaccount or the Fixed Account below
$250 will be treated as a transfer request for the entire amount
in that Subaccount or the Fixed Account.
We will make the transfer on the date that we receive Written
Notice requesting such transfer. There is no limit on the
number of transfers that can be made between Subaccounts or to
the Fixed Account. However, only one transfer may be made from
the Fixed Account each Contract Year. See "Transfers from Fixed
Account," page 22, for restrictions. The first six transfers
during each Contract Year are free. Any unused free transfers
do not carry over to the next Contract Year. We will assess a
$25 Transfer Processing Fee for the seventh and each subsequent
transfer during a Contract Year. For the purpose of assessing
the fee, each Written Notice (or telephone request described
below) is considered to be one transfer, regardless of the
number of Subaccounts or the Fixed Account affected by the
transfer. The processing fee will be deducted from the amount
being transferred or from the remaining Contract Value,
according to your instructions.
Telephone Transfers. Telephone transfers will be based upon
instructions given by telephone, provided the appropriate
election has been made at the time of application or proper
authorization has been provided to us. We reserve the right to
suspend telephone transfer privileges at any time, for any
reason, if we deem such suspension to be in the best interests
of Contract Owners.
We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if we
follow those procedures we will not be liable for any losses due
to unauthorized or fraudulent instructions. We may be liable
for such losses if we do not follow those reasonable procedures.
The procedures we will follow for telephone transfers include
requiring some form of personal identification prior to acting
on instructions received by telephone, providing written
confirmation of the transaction, and making a tape recording of
the instructions given by telephone.
Special Transfer Right. During the first 24 Contract Months
following the Contract Date and during the first 24 Contract
Months following the effective date of an increase to the
Specified Amount, the Owner may exercise a one-time Special
Transfer Right by requesting that all or a portion of the
Variable Account Value be transferred to the Fixed Account.
Exercise of the Special Transfer Right does not count toward the
six transfers that are permitted each Contract Year without
imposing the Transfer Processing Fee, and is not subject to a
Transfer Processing Fee.
Dollar Cost Averaging Plan
The Dollar Cost Averaging Plan, if elected, enables you to
transfer systematically and automatically, on a monthly basis
for a period of 3 to 36 months, specified dollar amounts from
the IMS Prime Money Subaccount to other Subaccounts. By
allocating on a regularly scheduled basis, as opposed to
allocating the total amount at one particular time, you may be
less susceptible to the impact of market fluctuations. However,
we make no guarantee that the Dollar Cost Averaging Plan will
result in a gain.
At least $250 must be transferred from the IMS Prime Money
Subaccount each month. The required amounts may be allocated to
the IMS Prime Money Subaccount through initial or subsequent
premium payments or by transferring amounts into the IMS Prime
Money Subaccount from the other Subaccounts or from the Fixed
Account (which may be subject to certain restrictions).
You may elect this plan at the time of application by completing
the authorization on the application or at any time after the
Contract is issued by properly completing the election form and
returning it to us. The election form allows you to specify the
number of months for the Dollar Cost Averaging Plan to be in
effect. Dollar cost averaging transfers will commence on the
next Monthly Anniversary Day on or next following the
Reallocation Date. Dollar cost averaging will terminate at the
completion of the designated number of months or the day we
receive Written Notice instructing us to cancel the Dollar Cost
Averaging Plan.
Transfers made from the IMS Prime Money Subaccount for the
Dollar Cost Averaging Plan will not count toward the six
transfers permitted each Contract Year without imposing the
Transfer Processing Fee.
Portfolio Rebalancing Plan
You may elect to have the accumulated balance of each Subaccount
redistributed to equal a specified percentage of the Variable
Account Value. This will be done on a quarterly basis at
three-month intervals from the Monthly Anniversary Day on which
the Portfolio Rebalancing Plan commences. If elected, this plan
automatically adjusts your Portfolio mix to be consistent with
the allocation most recently requested. The redistribution will
not count toward the six transfers permitted each Contract Year
without imposing the Transfer Processing Fee. If the Dollar
Cost Averaging Plan has been elected and has not been completed,
the Portfolio Rebalancing Plan will commence on the Monthly
Anniversary Day following the termination of the Dollar Cost
Averaging Plan.
You may elect this plan at the time of application by completing the
authorization on the application or at any time after the Contract is issued
by properly completing the election form and returning it to us. Portfolio
rebalancing will terminate when you request any transfer or the day we
receive Written Notice instructing us to cancel the Portfolio Rebalancing Plan.
FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in
the Fixed Account have not been registered under the Securities
Act of 1933 nor has the Fixed Account been registered as an
investment company under the Investment Company Act of 1940.
Accordingly, neither the Fixed Account nor any interests therein
are subject to the provisions of these Acts and, as a result,
the staff of the Securities and Exchange Commission has not
reviewed the disclosure in this Prospectus relating to the Fixed
Account. The disclosure regarding the Fixed Account may,
however, be subject to certain generally applicable provisions
of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
You may allocate some or all of the Net Premiums and transfer
some or all of the Variable Account Value to the Fixed Account,
which is part of our General Account and pays interest at
declared rates guaranteed for each calendar year (subject to a
minimum interest rate we guarantee to be 4%). Our General
Account supports our insurance and annuity obligations.
The portion of the Contract Value allocated to the Fixed Account
will be credited with rates of interest, as described below.
Since the Fixed Account is part of our General Account, we
assume the risk of investment gain or loss on this amount. All
assets in the General Account are subject to our general
liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
Fixed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. We intend to credit Fixed
Account Value with current rates in excess of the minimum
guarantee but we are not obligated to do so. These current
interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Since
we, in our sole discretion, anticipate changing the current
interest rate from time to time, different allocations to and
from the Fixed Account Value will be credited with different
interest rates, based upon the date amounts are allocated into
the Fixed Account. While we may change the interest rate
credited to allocations from Net Premiums at any time, the
interest rate credited to amounts allocated to the Fixed Account
and accrued interest thereon will not change more often than
once per year. Any interest credited on the amounts in the
Fixed Account in excess of the minimum guaranteed rate of 4% per
year will be determined in our sole discretion. You assume the
risk that interest credited may not exceed the guaranteed rate.
Amounts deducted from the Fixed Account for the Monthly
Deduction, surrenders, transfers to the Subaccounts, or charges
are currently, for the purpose of crediting interest, accounted
for on a last-in, first-out ("LIFO") method. We reserve the
right to change the method of crediting from time to time,
provided that such changes do not have the effect of reducing
the guaranteed rate of interest below 4% per annum or shorten
the period for which the interest rate applies to less than a
year (except for the year in which such amount is received or
transferred).
Calculation of Fixed Account Value
Fixed Account Value at any time is equal to amounts allocated or
transferred to it, plus interest credited to it, minus amounts
deducted, transferred, or surrendered from it.
Transfers from Fixed Account
One transfer each Contract Year is allowed from the Fixed
Account to any or all of the Subaccounts. The amount
transferred from the Fixed Account may not exceed 25% of the
unloaned Fixed Account Value on the date of transfer, unless the
balance after the transfer is less than $250, in which case we
will transfer the entire amount.
Payment Deferral
We reserve the right to defer payment of any surrender, partial
surrender, or transfer from the Fixed Account for up to six
months from the date of receipt of the Written Notice for the
partial or full surrender or transfer.
CHARGES AND DEDUCTIONS
Premium Expense Charge
A 2.25% charge for state and local premium taxes and
administrative expenses is deducted from each premium payment.
The state and local premium tax charge reimburses Kansas City
Life for premium taxes and related administrative expenses
associated with the Contracts. Kansas City Life expects to pay
an average state and local premium tax rate (including related
administrative expenses) of approximately 2.25% of premium
payments for all states.
Monthly Deduction
On the Allocation Date, Kansas City Life will deduct Monthly
Deductions for the Contract Date and each Monthly Anniversary
that have occurred prior to the Allocation Date. See "Applying
for Contract," page 16. Subsequent Monthly Deductions will be
made as of each Monthly Anniversary Day thereafter. Your
Contract Date is the date used to determine your Monthly
Anniversary Day. The Monthly Deduction consists of (1) cost of
insurance charges, (2) administration fees (the "Monthly Expense
Charge"), and (3) any charges for supplemental and/or rider
benefits, as described below. The Monthly Deduction is deducted
from the Variable Accounts and Fixed Account pro rata on the
basis of the portion of Contract Value in each account on the
Monthly Anniversary Day.
Cost of Insurance Charge. This charge compensates Kansas City
Life for the expense of providing insurance coverage. The
charge depends on a number of variables and therefore will vary
from Contract to Contract and from Monthly Anniversary Day to
Monthly Anniversary Day. For any Contract, the cost of
insurance on a Monthly Anniversary Day is calculated by
multiplying the current cost of insurance rate for the Insured
by the net amount at risk for that Monthly Anniversary Day.
The net amount at risk on a Monthly Anniversary Day is the
difference between the Death Benefit (see "Coverage Options,"
page 29), discounted with one month of interest and the
Contract Value, as calculated on that Monthly Anniversary Day
before the cost of insurance charge is taken. The interest rate
used to discount the Death Benefit is the monthly
equivalent of 4% per year.
The cost of insurance rate for a Contract on a Monthly
Anniversary Day is based on the Insured's Age, sex, number of
completed Contract Years, and risk class, and therefore varies
from time to time. Kansas City Life currently places Insureds
in the following classes, based on underwriting: Standard
Smoker, Standard Nonsmoker, or Preferred Nonsmoker. An Insured
may be placed in a substandard risk class, which involves a
higher mortality risk than the Standard Smoker or Standard
Nonsmoker classes. Standard Nonsmoker rates are available for
Issue Ages 0-80. Standard Smoker and Preferred Nonsmoker rates
are available for Issue Ages 15-80.
The cost of insurance rate for an increase in Specified Amount
will be determined on each Monthly Anniversary Day and is based
on the Insured's Age, sex, number of completed Contract Years,
and risk class.
Kansas City Life places the Insured in a risk class when the
Contract is given underwriting approval, based on Kansas City
Life's underwriting of the application. When an increase in
Specified Amount is requested, Kansas City Life conducts
underwriting before approving the increase (except as noted
below) to determine the risk class that will apply to the
increase. If the risk class for the increase has lower cost of
insurance rates than the existing risk class, the lower rates
will apply to the entire Specified Amount. If the risk class
for the increase has higher cost of insurance rates than the
existing class, the higher rates will apply only to the increase
in Specified Amount, and the existing risk class will continue
to apply to the existing Specified Amount.
Kansas City Life does not conduct underwriting for an increase
in Specified Amount if the increase is requested as part of a
conversion from a term contract or on exercise of the Option to
Increase Specified Amount Rider. See "Supplemental and/or
Rider Benefits," page 45. In the case of a term conversion,
the risk class that applies to the increase will be based on the
provisions of the term contract. In the case of an increase
under the Option to Increase Specified Amount Rider, the
Insured's risk class for an increase will be the class in effect
on the initial Specified Amount at the time that the increase is
elected.
The net amount at risk associated with a Specified Amount
increase is determined by the percentage that the Specified
Amount increase bears to the Contract's total Specified Amount
immediately following the increase. The resulting percentage is
the part of the Contract's total net amount at risk that is
attributed to the Specified Amount increase. The remaining
percentage of the Contract's total net amount at risk is
attributed to the existing Specified Amount. (For example, if
the Contract's Specified Amount is increased by $100,000 and the
total Specified Amount is $250,000, then 40% of the total net
amount at risk is attributed to the Specified Amount increase.)
On each Monthly Anniversary Day, the net amount at risk used to
determine the cost of insurance charge associated with the
Specified Amount increase is the Contract's total net amount of
risk at that time, multiplied by the percentage calculated as
described above. This percentage remains fixed until the
Specified Amount is changed.
Kansas City Life guarantees that the cost of insurance rates
used to calculate the monthly cost of insurance charge will not
exceed the maximum cost of insurance rates set forth in the
Contracts. The guaranteed rates for standard and preferred
classes are based on the 1980 Commissioners' Standard Ordinary
Mortality Tables, Male or Female, Smoker or Nonsmoker Mortality
Rates ("1980 CSO Tables"). The guaranteed rates for substandard
classes are based on multiples of or additives to the 1980 CSO
Tables.
Kansas City Life's current cost of insurance rates may be less
than the guaranteed rates that are set forth in the Contract.
Current cost of insurance rates will be determined based on
Kansas City Life's expectations as to future mortality
experience. These rates may change from time to time.
Cost of insurance rates (whether guaranteed or current) for an
Insured in a nonsmoker standard class are lower than rates for
an Insured of the same age and sex in a smoker standard class.
Cost of insurance rates (whether guaranteed or current) for an
Insured in a nonsmoker or smoker standard class are lower than
guaranteed rates for an Insured of the same age, sex and smoking
class in a substandard class.
Legal Considerations Relating to Sex-Distinct Premium Payments
and Benefits. Cost of insurance rates for Contracts generally
distinguish between males and females. Thus, premium payments
and benefits under Contracts covering males and females of the
same age will generally differ.
Kansas City Life does, however, also offer Contracts that do not
distinguish between males and females if required by state law.
Employers and employee organizations considering purchase of a
Contract should consult with their legal advisors to determine
whether purchase of a Contract based on sex-distinct cost of
insurance rates is consistent with Title VII of the Civil Rights
Act of 1964 or other applicable law. Kansas City Life will
offer to such prospective purchasers Contracts with cost of
insurance rates that do not distinguish between males and
females.
Monthly Expense Charge
Kansas City Life will begin deducting the Monthly Expense Charge
from the Contract Value as of the Contract Date. See "Applying
for a Contract," page 16. Thereafter, Kansas City Life will
deduct a Monthly Expense Charge from the Contract Value as of
each Monthly Anniversary Day. The Monthly Expense Charge is
made up of two parts:
(1) a maintenance charge which is a level monthly charge which applies in
all years. The maintenance charge is guaranteed not to exceed $6.00.
(2) an acquisition charge which is a charge of $20 per Contract Month for
the first Contract Year and $20 per Contract Month for 12 months following the
effective date of an increase in Specified Amount.
The Monthly Expense Charge reimburses Kansas City Life for expenses incurred in
the administration of the Contracts and the Variable Account. Such expenses
include but are not limited to:
underwriting and issuing the Contract, confirmations, annual
reports and account statements, maintenance of Contract records,
maintenance of Variable Account records, administrative
personnel costs, mailing costs, data processing costs, legal
fees, accounting fees, filing fees, the costs of other services
necessary for Contract Owner servicing and all accounting,
valuation, regulatory and updating requirements.
Kansas City Life does not expect to profit from these charges.
Should the guaranteed charges prove to be insufficient, the
Company will not increase the charges above such guaranteed
levels and will incur the loss.
Supplemental and/or Rider Benefit Charges. See "Supplemental
and/or Rider Benefits," page 45.
Daily Mortality and Expense Risk Charge
Kansas City Life deducts a daily charge from assets in the
Subaccounts attributable to the Contracts. This charge does not
apply to Fixed Account assets attributable to the Contracts.
The current charge is at an annual rate of 0.90% of net assets,
and is guaranteed not to increase for the duration of a
Contract. Kansas City Life may realize a profit from this
charge.
The mortality risk Kansas City Life assumes is that the Insureds
on the Contracts may die sooner than anticipated and therefore
Kansas City Life will pay an aggregate amount of death benefits
greater than anticipated. The expense risk Kansas City Life
assumes is that expenses incurred in issuing and administering
the Contracts and the Variable Account will exceed the amounts
realized from the administrative charges assessed against the
Contracts.
Transfer Processing Fee
The first six transfers during each Contract Year are free. We
will assess a $25 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 seeking a transfer to be one transfer, regardless of the
number of accounts affected by the transfer. We will deduct the
Transfer Processing Fee from the amount being transferred or
from the remaining Contract Value, according to your
instructions. We do not expect a profit from this fee.
Surrender Charge
During the first fifteen Contact Years, a Surrender Charge will
be deducted from the Contract Value if the Contract is
completely surrendered or lapses or the Specified Amount is
reduced (including when a partial surrender reduces the
Specified Amount). The Surrender Charge is the sum of two
parts, the Deferred Sales Load and the Deferred Administrative
Expense. The total Surrender Charge will not exceed the maximum
Surrender Charge set forth in your Contract. An additional
Surrender Charge and Surrender Charge period will apply to each
portion of the Contract resulting from a Specified Amount
increase, starting with the effective date of the increase.
Any Surrender Charge deducted upon lapse is credited back to the
Contract Value upon reinstatement. The Surrender Charge on the
date of reinstatement will be the same as it was on the date of
lapse. For purposes of determining the Surrender Charge on any
date after reinstatement, the period the Contract was lapsed
will not count.
Deferred Sales Load. The Deferred Sales Load is 30% of actual
premiums paid up to a maximum premium amount shown in the
Contract. The maximum premium amount shown in the Contract is
based on the issue Age, sex, Specified Amount, and smoking class
applicable to the Insured. If you increase the Contract's
Specified Amount, a separate Deferred Sales Load will apply to
the Specified Amount increase, based on the Insured's Age, sex,
and smoking class at the time of the increase.
The Deferred Sales Load in the first nine years of the Surrender
Charge period is 30% of actual premiums paid up to the maximum
premium amount shown in the Contract. After the ninth year of
the Surrender Charge Period, the Deferred Sales Load declines
until it reaches 0% in the fifteenth year of the Surrender
Charge period.
Notwithstanding the sales load applicable during a Surrender
Charge period, the Deferred Sales Load that applies during the
first two years of a Surrender Charge period may not exceed 30%
of premiums paid up to the first "SEC guideline annual premium,"
10% of premiums paid in excess of the first guideline annual
premium and up to the second SEC guideline annual premium, and
9% of premium payments made in excess of two guideline annual
premiums. An "SEC guideline annual premium" is a hypothetical
level amount that would be payable through the Maturity Date for
the benefits provided under the Contract, assuming cost of
insurance rates based on the 1980 Commissioners Standard
Ordinary Mortality Tables, net investment earnings under the
Contract at an effective annual rate of 5%, and sales and other
charges imposed under the Contract.
The Deferred Sales Load is calculated separately for the Initial
Specified Amount and any increase in Specified Amount. Net
Premiums paid after each increase will be allocated to the
initial Specified Amount and each increase made. Net Premiums
are allocated based upon the proportion that the SEC guideline
annual premium for the Initial Specified Amount and each
increase bears to the total SEC guideline annual premium for the
Contract.
The purpose of the Deferred Sales Load is to reimburse Kansas
City Life for some of the expenses incurred in the distribution
of the Contracts. It may be insufficient to recover
distribution expenses related to the sale of the Contracts.
Unrecovered expenses are borne by Kansas City Life's general
assets, which may include profits, if any, from the Mortality
and Expense Risk Charge and mortality gains from cost of
insurance charges. See "Daily Mortality and Expense Risk
Charge," page 25, and "Cost of Insurance Charge," page 23.
Deferred Administrative Expense. The Table below shows the
Deferred Administrative Expense deducted if you surrender,
lapse, reduce the Specified Amount, or take a partial surrender
that reduces the Specified Amount during the first fifteen Contract
Years or during the fifteen years following an increase in
Specified Amount. The Deferred Administrative Expense is
an amount per $1,000 of Specified Amount and will grade
down to zero at the end of fifteen years.
Table of Deferred Administrative Expenses per $1,000 of
Specified Amount
End of Year* Deferred Administrative Expense
1-5 $5.00
6 4.50
7 4.00
8 3.50
9 3.00
10 2.50
11 2.00
12 1.50
13 1.00
14 0.50
15 0.00
* End of year means number of completed Contract Years or
number of completed years following an increase in Specified
Amount.
After the fifth year, the Deferred Administrative Expense
between years will be pro-rated monthly. The charge for the
first five years will be level.
The Deferred Administrative Expense partially covers the
administrative costs of underwriting and issuing the Contracts,
processing surrenders, lapses, and reductions in Specified
Amount, as well as legal, actuarial, systems, mailing, and other
overhead costs connected with Kansas City Life's variable life
insurance operations. This charge has been designed to cover
actual costs and is not intended to produce a profit.
Partial Surrender Fee
Kansas City Life will deduct an administrative charge upon a
partial surrender. This charge is the lesser of 2% of the
amount surrendered or $25. This charge will be deducted from
the Contract Value in addition to the amount requested to be
surrendered and will be considered to be part of the partial
surrender amount. Kansas City Life does not anticipate making a
profit on this charge.
Fund Expenses
The value of the net assets of each Subaccount reflects the
investment advisory fees and other expenses incurred by the
corresponding Portfolio in which the Subaccount invests. See
the prospectuses for the Funds or Portfolios.
Cost of Additional Benefits Provided by Riders
The cost of additional benefits provided by riders is part of
the Monthly Deduction and is charged to the Contract Value on
the Monthly Anniversary Day.
Bonus on Contract Value in the Variable Account
A bonus may be credited to the Contract on each Monthly
Anniversary Day beginning in the eleventh Contract Year. The
monthly bonus equals 0.0375% (0.45% on an annualized basis) of
the Contract Value in each Subaccount of the Variable Account at
the end of each Contract Month. The bonus is not guaranteed,
and will be paid in Kansas City Life's sole discretion.
Other Tax Charge
Kansas City Life does not currently assess a charge for any
taxes other than state premium taxes incurred as a result of the
operations of the Subaccounts of the Variable Account. We
reserve the right, however, to assess a charge for such taxes
against the Subaccounts if we determine that such taxes will be
incurred.
HOW YOUR CONTRACT VALUES VARY
There is no minimum guaranteed Contract Value or Cash Surrender
Value. These values will vary with the investment experience of
the Subaccounts and/or the crediting of interest in the Fixed
Account, and will depend on the allocation of Contract Value.
If the Cash Surrender Value on a Monthly Anniversary Day is less
than the amount of the Monthly Deduction to be deducted on that
date (see "Premium Payments To Prevent Lapse," page 19) and the
Guaranteed Payment Period is not
then in effect, the Contract will be in default and a grace
period will begin. See "Guaranteed Payment Period and
Guaranteed Monthly Premium," page 18, and "Grace Period," page
19.
Determining the Contract Value
On the Allocation Date, the Contract Value is equal to the
initial Net Premium less the Monthly Deductions deducted from
the Contract Date. On each Valuation Day thereafter, the
Contract Value is the aggregate of the Subaccount Values and the
Fixed Account Value (including the Loan Account Value). The
Contract Value will vary to reflect the performance of the
Subaccounts to which amounts have been allocated, interest
credited on amounts allocated to the Fixed Account, interest
credited on amounts in the Loan Account, charges, transfers,
partial surrenders, loans and loan repayments.
Subaccount Values. When you allocate an amount to a Subaccount,
either by Net Premium payment allocation or transfer, your
Contract is credited with accumulation units in that Subaccount.
The number of accumulation units is determined by dividing the
amount allocated to the Subaccount by the Subaccount's
accumulation unit value for the Valuation Day when the
allocation is effected.
The number of Subaccount accumulation units credited to your
Contract will increase when Net Premium payments are allocated
to the Subaccount and when amounts are transferred to the
Subaccount. The number of Subaccount accumulation units
credited to a Contract will decrease when the allocated portion
of the Monthly Deduction is taken from the Subaccount, a loan is
made, an amount is transferred from the Subaccount, or a partial
surrender, including the Partial Surrender Fee, is taken from
the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit
value varies to reflect the investment experience of the
underlying Portfolio, and may increase or decrease from one
Valuation Day to the next. The accumulation unit value for each
Subaccount was arbitrarily set at $10 when the Subaccount was
established. For each Valuation Period after the date of
establishment, the accumulation unit value is determined by
multiplying the value of an accumulation unit for a Subaccount
for the prior valuation period by the net investment factor for
the Subaccount for the current valuation period.
Net Investment Factor. The net investment factor is an index
used to measure the investment performance of a Subaccount from
one Valuation Day to the next. It is based on the change in net
asset value of the Fund shares held by the Subaccount, and
reflects any gains or losses in the Subaccounts, dividends paid,
any capital gains or losses, any taxes, and the daily mortality
and expense risk charge.
Fixed Account Value. On any Valuation Day, the Fixed Account
Value of a Contract is the total of all Net Premium payments
allocated to the Fixed Account, plus any amounts transferred to
the Fixed Account (including amounts transferred in connection
with Contract loans), plus interest credited on such Net Premium
payments and amounts, less the amount of any transfers from the
Fixed Account, less the amount of any partial surrenders,
including the Partial Surrender Fee, taken from the Fixed
Account, and less the pro-rata portion of the Monthly Deduction
deducted from the Fixed Account.
Loan Account Value. On any Valuation Day, if there have been
any Contract loans, the Loan Account Value is equal to amounts
transferred to the Loan Account from the Subaccounts and from
the unloaned value in the Fixed Account as collateral for
Contract loans and for due and unpaid loan interest, less
amounts transferred from the Loan Account to the Subaccounts and
the unloaned value in the Fixed Account as Indebtedness is
repaid, and plus interest credited.
Cash Surrender Value
The Cash Surrender Value on a Valuation Day is the Contract
Value reduced by any applicable Surrender Charges and any
Indebtedness. Cash Surrender Value is used to determine whether
a partial surrender may be taken, whether Contract loans may be
taken, and whether a grace period starts. See "Premium Payments
to Prevent Lapse," page 19. It is also the amount that is
available upon full surrender of the Contract. See
"Surrendering the Contract for Cash Surrender Value," page 33.
DEATH BENEFIT AND CHANGES IN SPECIFIED AMOUNT
As long as the Contract remains in force, Kansas City Life will
pay the Death Benefit proceeds upon receipt at the Home Office
of proof of the Insured's death that Kansas City Life deems
satisfactory. Kansas City Life may require return of the
Contract. The Death Benefit proceeds will be paid in a lump sum
generally within seven calendar days of receipt of satisfactory
proof (see "When Proceeds Are Paid," page 44) or, if elected,
under a payment option (see "Payment Options," page 33). The
Death Benefit proceeds will be paid to the Beneficiary. See "Selecting
and Changing the Beneficiary," page 31.
Amount of Death Benefit Proceeds
The Death Benefit proceeds are equal to the sum of the Death
Benefit under the Coverage Option selected calculated on the
date of the Insured's death, plus any supplemental and/or rider
benefits, minus any Indebtedness on that date and, if the date
of death occurred during a grace period, minus any past due
Monthly Deductions. Under certain circumstances, the amount of
the Death Benefit may be further adjusted. See "Limits on
Rights to Contest the Contract" and "Misstatement of Age or
Sex," page 44.
If part or all of the Death Benefit is paid in one sum, Kansas
City Life will pay interest on this sum as required by
applicable state law from the date of receipt of due proof of
the Insured's death to the date of payment.
Coverage Options
The Contract Owner may choose one of two Coverage Options, which
will be used to determine the Death Benefit. Under Option A,
the Death Benefit is the greater of the Specified Amount or the
Applicable Percentage (as described below) of Contract Value on
the date of the Insured's death. Under Option B, the Death
Benefit is the greater of the Specified Amount plus the Contract
Value on the date of death, or the Applicable Percentage of the
Contract Value on the date of the Insured's death.
If investment performance is favorable, the amount of the Death
Benefit may increase. However, under Option A, the Death
Benefit ordinarily will not change for several years to reflect
any favorable investment performance and may not change at all.
Under Option B, the Death Benefit will vary directly with the
investment performance of the Contract Value. To see how and
when investment performance may begin to affect the Death
Benefit, see the illustrations beginning on page 34.
The "Applicable Percentage" is 250% when the Insured has
attained Age 40 or less, and decreases each year thereafter to
100% when the Insured has attained Age 95.
Initial Specified Amount and Coverage Option
The Initial Specified Amount is set at the time the Contract is
issued. You may change the Specified Amount from time to time,
as discussed below. You select the Coverage Option when you
apply for the Contract. You also may change the Coverage
Option, as discussed below.
Changes in Coverage Option
On or after the first Contract Anniversary, you may change the
Coverage Option on your Contract subject to the following rules.
After the Coverage Option has been changed, it cannot be
changed again for the next twelve Contract Months. After any
change, the Specified Amount must be at least $100,000 for issue
Ages 0-49 and $50,000 for issue Ages 50-80. The effective date
of the change will be the Monthly Anniversary Day that coincides
with or next follows the day that Kansas City Life receives and
accepts the request. Kansas City Life may require satisfactory
evidence of insurability.
When a change from Option A to Option B is made, the Specified
Amount after the change is effective will be equal to the
Specified Amount before the change. The Death Benefit will
increase by the Contract Value on the effective date of the
change. When a change from Option B to Option A is made, the
Specified Amount after the change will be equal to the Specified
Amount before the change is effected plus the Contract Value on
the effective date of the change.
Changes in Specified Amount
On or after the first Contract Anniversary, you may request a
change in the Specified Amount. Once the Specified Amount has
been changed, it cannot be changed again for the next twelve
Contract Months. If a change in the Specified Amount would
result in total premiums paid exceeding the premium limitations
prescribed under current tax law to qualify your Contract as a
life insurance contract, Kansas City Life will refund, after the
next Monthly Anniversary, to the Owner the amount of such excess
above the premium limitations.
Kansas City Life reserves the right to decline a requested
decrease in the Specified Amount if compliance with the
guideline premium limitations under current tax law resulting
from this decrease would result in immediate termination of the
Contract, or if to effect the requested decrease, payments to
the Owner would have to be made from the Contract Value for
compliance with the guideline premium limitations, and the
amount of such payments would exceed the Cash Surrender Value
under the Contract.
The Specified Amount after any decrease must be at least
$100,000 for Contracts that were issued at issue Ages 0-49 and
$50,000 for Contracts that were issued at issue Ages 50-80. A
decrease in Specified Amount will become effective on the
Monthly Anniversary Day that coincides with or next follows
receipt and acceptance of a request at the Home Office.
Decreasing the Specified Amount of the Contract may have the
effect of decreasing monthly Cost of Insurance Charges.
However, if the Specified Amount is decreased, a Surrender
Charge will apply. See "Surrender Charge," page 25.
Any increase in the Specified Amount must be at least $25,000
and an application must be submitted. Kansas City Life reserves
the right to require satisfactory evidence of insurability. In
addition, the Insured's attained Age must be less than the
current maximum issue Age for the Contracts, as determined by
Kansas City Life from time to time. A change in Planned
Periodic Premiums may be advisable. See "Premium Payments Upon
Increase in Specified Amount," page 19.
The increase in Specified Amount will become effective on the
Monthly Anniversary Day on or next following the date the
request for the increase is received and approved. A new
Guaranteed Payment Period will begin on the effective date of
the increase and will continue for five years. The Contract's
Guaranteed Monthly Premium will be recalculated to reflect the
increase. If a Guaranteed Payment Period is in effect, the
Contract's Guaranteed Monthly Premium amount will also generally
be increased. See "Guaranteed Payment Period and Guaranteed
Monthly Premium," page 18 and "Premium Payments Upon Increase
in Specified Amount," page 19.
An increase in Specified Amount may be cancelled by the Owner in
accordance with the Contract's "free look" provisions. In such
case, the amount refunded will be limited to those charges that
are attributable to the increase. See "Free Look Right to
Cancel Contract," page 17.
A new Surrender Charge and Surrender Charge period will apply to
each portion of the Contract resulting from an increase in
Specified Amount, starting with the effective date of the
increase. (See "Surrender Charge," page 25). After an
increase, Kansas City Life will, for purposes of calculating
Surrender Charges, attribute a portion of each premium payment
you make to the Specified Amount increase, even if you do not
increase the amount or frequency of your premiums. Kansas City
Life will calculate the portion of the premium that is
attributable to the Specified Amount increase in accordance with
SEC regulations.
For purposes of calculating Surrender Charges and cost of
insurance charges, any Specified Amount decrease will be used to
reduce any previous Specified Amount increase then in effect,
starting with the latest increase and continuing in the reverse
order in which the increases were made. If any portion of the
decrease is left after all Specified Amount increases have been
reduced, it will be used to reduce the Initial Specified Amount.
Selecting and Changing the Beneficiary
You select the Beneficiary in your application. You may later
change the Beneficiary in accordance with the terms of the
Contract. The Primary Beneficiary, or, if the Primary
Beneficiary is not living, the Contingent Beneficiary, is the
person entitled to receive the Death Benefit proceeds under the
Contract. If the Insured dies and there is no surviving
Beneficiary, the Owner will be the Beneficiary. If a
Beneficiary is designated as irrevocable, then the Beneficiary's
consent must be obtained to change the Beneficiary.
CASH BENEFITS
Contract Loans
Prior to the death of the Insured, you may borrow against your
Contract at any time by submitting a written request to the Home
Office, provided that the Cash Surrender Value of the Contract
is greater than zero. The maximum loan amount is equal to the
Contract's Cash Surrender Value on the effective date of the
loan less loan interest to the next Contract Anniversary.
Outstanding loans reduce the amount available for new loans.
Contract loans will be processed as of the date your written
request is received and approved. Loan proceeds generally will
be sent to you within seven calendar days. See "When Proceeds
Are Paid," page 44.
Interest. Kansas City Life will charge interest on any
Indebtedness at an annual rate of 6.0%. Interest is due and
payable at the end of each Contract Year while a loan is
outstanding. If interest is not paid when due, the amount of
the interest is added to the loan and becomes part of the
Indebtedness.
Loan Collateral. When a Contract loan is made, an amount
sufficient to secure the loan is transferred out of the
Subaccounts and the unloaned value in the Fixed Account and into
the Contract's Loan Account. Thus, a loan will have no
immediate effect on the Contract Value, but the Cash Surrender
Value will be reduced immediately by the amount transferred to
the Loan Account. The Owner can specify the Variable Accounts
and/or Fixed Account from which collateral will be transferred.
If no allocation is specified, collateral will be transferred
from each Subaccount and from the unloaned value in the Fixed
Account in the same proportion that the Contract Value in each
Subaccount and the unloaned value in the Fixed Account bears to
the total Contract Value in those accounts on the date that the
loan is made. An amount of Cash Surrender Value equal to any
due and unpaid loan interest will also be transferred to the
Loan Account on each Contract Anniversary. Due and unpaid
interest will be transferred from each Subaccount and the
unloaned value in the Fixed Account in the same proportion that
each Subaccount Value and the unloaned value in the Fixed
Account Value bears to the total unloaned Contract Value.
The Loan Account will be credited with interest at an effective
annual rate of not less than 4%. Thus, the maximum net cost of
a loan is 2.0% per year (the net cost of a loan is the
difference between the rate of interest charged on Indebtedness
and the amount credited to the Loan Account). On each Monthly
Anniversary, the interest earned on the Loan Account since the
previous Monthly Anniversary will be transferred to the unloaned
value in the Fixed Account.
Preferred Loan Provision. Beginning in the eleventh Contract
Year, a preferred loan may be made. The maximum amount
available for a preferred loan is the Contract Value less
premiums paid and may not exceed the maximum loan amount. The
amount in the Loan Account securing the preferred loan will be
credited with interest at an effective annual rate of 6.0%.
Thus, the net cost of the preferred loan is 0.0% per year. The
preferred loan provision is not guaranteed.
Loan Repayment; Effect if Not Repaid. You may repay all or part
of your Indebtedness at any time while the Insured is living and
the Contract is in force. Each loan repayment must be at least
$50.00. Loan repayments must be sent to the Home Office and
will be credited as of the date received. A loan repayment must
be clearly marked as "loan repayment" or it will be credited as
a premium. (Loan repayments, unlike unscheduled premium
payments, are not subject to Premium Expense Charges.) When a
loan repayment is made, Contract Value in the Loan Account in an
amount equal to the repayment is transferred from the Loan
Account to the Subaccounts and the unloaned value in the Fixed
Account. Thus, a loan repayment will have no immediate effect
on the Contract Value, but the Cash Surrender Value will be
increased immediately by the amount transferred from the Loan
Account. Unless specified otherwise by the Owner, loan
repayment amounts will be transferred to the Subaccounts and the
unloaned value in the Fixed Account according to the premium
allocation instructions in effect at that time.
If the Death Benefit becomes payable while a loan is
outstanding, the Indebtedness will be deducted in calculating
the Death Benefit proceeds. See "Amount of Death Benefit
Proceeds," page 29.
If the Loan Account Value exceeds the Contract Value less any
applicable Surrender Charge on any Valuation Day, the Contract
will be in default. You, and any assignee of record, will be
sent notice of the default. You will have a 61-day grace period
to submit a sufficient payment to avoid termination of coverage
under the Contract. The notice will specify the amount that
must be repaid to prevent termination. See "Premium Payments to
Prevent Lapse," page 19.
Effect of Contract Loan. A loan, whether or not repaid, will
have a permanent effect on the Death Benefit and Contract values
because the investment results of the Subaccounts of the
Variable Account and current interest rates credited on Contract
Value in the Fixed Account will apply only to the non-loaned
portion of the Contract Value. The longer the loan is
outstanding, the greater the effect is likely to be. Depending
on the investment results of the Subaccounts or credited
interest rates for the unloaned value in the Fixed Account while
the loan is outstanding, the effect could be favorable or
unfavorable. Contract loans may increase the potential for
lapse if investment results of the Subaccounts are less than
anticipated. Also, loans could, particularly if not repaid,
make it more likely than otherwise for a Contract to terminate.
See "Tax Considerations," page 47, for a discussion of the tax
treatment of policy loans, and the adverse tax consequences if a
Contract lapses with loans outstanding. In particular, if your
Contract is a "modified endowment contract," loans may be
currently taxable and subject to a 10% penalty tax.
Surrendering the Contract for Cash Surrender Value
You may surrender your Contract at any time for its Cash
Surrender Value by submitting a written request to the Home
Office. Kansas City Life may require return of the Contract. A
Surrender Charge may apply. See "Surrender Charge," page 25. A
surrender request will be processed as of the date your written
request and all required documents are received. Payment will
generally be made within seven calendar days. See "When
Proceeds are Paid," page 44. The Cash Surrender Value may be
taken in one lump sum or it may be applied to a payment option.
See "Payment Options," page 33. Your Contract will terminate
and cease to be in force if it is surrendered for one lump sum.
It cannot later be reinstated. Surrenders may have adverse tax
consequences. See "Tax Considerations," page 47.
Partial Surrenders
You may make partial surrenders under your Contract at any time
subject to the conditions below. You must submit a written
request to the Home Office. Each partial surrender must be at
least $500. The partial surrender amount may not exceed the
Cash Surrender Value, less $300. A Partial Surrender Fee will
be assessed on a partial surrender. See "Partial Surrender
Fee," page 27. This charge will be deducted from your Contract
Value along with the amount requested to be surrendered and will
be considered part of the surrender (together, "partial
surrender amount"). As of the date Kansas City Life receives a
written request for a partial surrender, the Contract Value will
be reduced by the partial surrender amount.
When you request a partial surrender, you can direct how the
partial surrender amount will be deducted from your Contract
Value in the Subaccounts and Fixed Account. If you provide no
directions, the partial surrender amount will be deducted from
your Contract Value in the Subaccounts and Fixed Account on a
pro-rata basis. See "Minimum Guaranteed and Current Interest
Rates," page 21. Partial surrenders may have adverse tax
consequences. See "Tax Considerations," page 47.
If Coverage Option A is in effect, Kansas City Life will reduce
the Specified Amount by an amount equal to the partial surrender
amount, less the excess, if any, of the Death Benefit over the
Specified Amount at the time the partial surrender is made. If
the partial surrender amount is less than the excess of the
Death Benefit over the Specified Amount, the Specified Amount
will not be reduced. Kansas City Life reserves the right to
reject a partial surrender request if the partial surrender
would reduce the Specified Amount below the minimum amount for
which the Contract would be issued under Kansas City Life's
then-current rules, or if the partial surrender would cause the
Contract to fail to qualify as a life insurance contract under
applicable tax laws, as interpreted by Kansas City Life. If a
partial surrender does result in a reduction of the Specified
Amount, a Surrender Charge will apply as described in "Changes
in Specified Amount," page 30.
Partial surrender requests will be processed as of the date your
written request is received, and generally will be paid within
seven calendar days. See "When Proceeds Are Paid," page 44.
Maturity Benefit
The Maturity Date is the Contract Anniversary next following the
Insured's 95th birthday. If the Contract is still in force on
the Maturity Date, the Maturity Benefit will be paid to you.
The Maturity Benefit is equal to the Cash Surrender Value on the
Maturity Date.
Payment Options
The Contract offers a variety of ways of receiving proceeds
payable under the Contract, such as on surrender, death or
maturity, other than in a lump sum. These payment options are
summarized below. All of these options are forms of
fixed-benefit annuities which do not vary with the investment
performance of a separate account. Any agent authorized to sell
this Contract can further explain these options upon request.
You may apply proceeds of $2,000 or more which are payable under
this Contract to any of the following options:
Option 1 - Interest Payments. We will make interest payments
to the payee annually or monthly as elected. Interest on the
proceeds will be paid at the guaranteed rate of 3.0% per year
and may be increased by additional interest paid 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. Interest on the proceeds will be paid at the
guaranteed rate of 3.0% per year and may be increased by
additional interest. The present value of any unpaid
installments may be withdrawn at any time.
Option 3 - Installments For a Specified Period. Payment of the
proceeds may be made in equal annual or monthly payments for a
specified number of years. Interest on the proceeds will be
paid at the guaranteed rate of 3.0% per year and may be
increased by additional interest. The present value of any
unpaid installments may be withdrawn at any time.
Option 4 - Life Income. We will pay an income during the
payee's lifetime. A minimum guaranteed payment period may be
chosen. Payments received under the Installment Refund Option
will continue until the total income payments received equal the
proceeds applied.
Option 5 - Joint and Survivor Income. We will pay an income
during the lifetime of two persons and will continue to pay the
same income as long as either person is living. The minimum
guaranteed payment period will be ten years.
Minimum Amounts. Kansas City Life reserves the right to pay the
total amount of the Contract in one lump sum, if less than
$2,000. If payments are less than $50, payments may be made less
frequently at Kansas City Life's option.
If Kansas City Life has available at the time a payment option
is elected options or rates on a more favorable basis than those
guaranteed, the more favorable benefits will apply.
ILLUSTRATIONS OF CONTRACT VALUES, CASH SURRENDER VALUES, DEATH
BENEFITS AND ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate
hypothetically how certain values under a Contract change with
investment performance over an extended period of time. The
tables illustrate how Contract Values, Cash Surrender Values and
Death Benefits under a Contract covering an Insured of a given
age on the Contract Date, would vary over time if planned premium
payments were paid annually and the return on the assets in each
of the Funds were an assumed uniform gross annual rate of 0%, 6%
and 12%. The values would be different from those shown if the
returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show
Planned Periodic Premiums accumulated at 5% interest compounded
annually. The hypothetical investment rates of return are
illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of
return for a particular Contract may be more or less than the
hypothetical investment rates of return and will depend on a
number of factors including the investment allocations made by
an Owner and prevailing interest rates and rates of inflation.
These illustrations assume that Net Premiums are allocated
equally among the eleven Subaccounts available under the
Contract, and that no amounts are allocated to the Fixed
Account. These illustrations also assume that no Contract
loans have been made and that the premium is paid at the beginning
of each Contract Year. Values would be different if the
premiums are paid with a different frequency or in different amounts.
The illustrations reflect the fact that the net investment
return on the assets held in the Subaccounts is lower than the
gross after tax return of the selected Portfolios. The tables
assume an average annual expense ratio of 1.0% of the average
daily net assets of the Portfolios available under the
Contracts. This average annual expense ratio is based on the
expense ratios of each of the Portfolios for the last fiscal
year, adjusted, as appropriate, for any material changes in
expenses effective for the current fiscal year of a Portfolio.
For information on the Portfolios' expenses, see the
prospectuses for the Funds and Portfolios accompanying this
Prospectus.
In addition, the illustrations reflect the daily charge to the
Variable Account for assuming mortality and expense risks, which
is equivalent to an annual charge of 0.90%. After
deduction of Portfolio expenses and the mortality and expense
risk charge, the illustrated gross annual investment rates of
return of 0%, 6% and 12% would correspond to approximate net
annual rates of -1.89, 4.06% and 10.01%, respectively.
The illustrations also reflect the deduction of the Premium
Expense Charge and the Monthly Deduction. The Monthly Deduction
includes the cost of insurance charge, Kansas City Life has the
contractual right to charge higher guaranteed maximum charges than its
current cost of insurance charges. In addition, the bonus, which, if paid,
would partially offset the Monthly Deduction beginning in the eleventh
Contract Year, is not guaranteed and will be paid in Kansas City Life's sole
discretion. The current cost of insurance charges and payment of the bonus
beginning in the eleventh Contract Year and, alternatively, the guaranteed
cost of insurance charges and nonpayment of the bonus, are reflected in
separate illustrations on each of the following pages. All the illustrations
reflect the fact that no charges for Federal of state income taxes are
currently made against the Variable Account and assume no Indebtedness or
charges for supplemental and/or rider benefits.
The illustrations are based on Kansas City Life's sex distinct
rates for nonsmokers. Upon request, an Owner will be furnished
with a comparable illustration based upon the proposed Insured's
individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in
the following tables.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Inv Ret 6% Hypo Gr Invest Ret 12% Hypol Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 481 0 100,000 523 0 100,000 566 0 100,000
2 2,153 1,182 82 100,000 1,306 206 100,000 1,434 334 100,000
3 3,310 1,860 460 100,000 2,109 709 100,000 2,378 978 100,000
4 4,526 2,514 814 100,000 2,934 1,234 100,000 3,406 1,706 100,000
5 5,802 3,144 1,144 100,000 3,780 1,780 100,000 4,524 2,524 100,000
6 7,142 3,747 1,785 100,000 4,646 2,684 100,000 5,741 3,779 100,000
7 8,549 4,323 2,411 100,000 5,532 3,620 100,000 7,064 5,152 100,000
8 10,027 4,871 3,009 100,000 6,438 4,576 100,000 8,505 6,643 100,000
9 11,578 5,392 3,580 100,000 7,364 5,552 100,000 10,075 8,263 100,000
10 13,207 5,882 4,372 100,000 8,308 6,798 100,000 11,786 10,276 100,000
15 22,657 8,139 8,139 100,000 13,717 13,717 100,000 23,633 23,633 100,000
20 34,719 9,580 9,580 100,000 19,863 19,863 100,000 42,840 42,840 100,000
25 50,113 9,719 9,719 100,000 26,532 26,532 100,000 74,572 74,572 100,000
30 69,761 7,675 7,675 100,000 33,284 33,284 100,000 126,869 126,869 154,780
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 481 0 100,000 523 0 100,000 566 0 100,000
2 2,153 1,182 82 100,000 1,306 206 100,000 1,434 334 100,000
3 3,310 1,860 460 100,000 2,109 709 100,000 2,378 978 100,000
4 4,526 2,514 814 100,000 2,934 1,234 100,000 3,406 1,706 100,000
5 5,802 3,144 1,144 100,000 3,780 1,780 100,000 4,524 2,524 100,000
6 7,142 3,747 1,785 100,000 4,646 2,684 100,000 5,741 3,779 100,000
7 8,549 4,323 2,411 100,000 5,532 3,620 100,000 7,064 5,152 100,000
8 10,027 4,871 3,009 100,000 6,438 4,576 100,000 8,505 6,643 100,000
9 11,578 5,392 3,580 100,000 7,364 5,552 100,000 10,075 8,263 100,000
10 13,207 5,882 4,372 100,000 8,308 6,798 100,000 11,786 10,276 100,000
15 22,657 7,834 7,834 100,000 13,279 13,279 100,000 22,971 22,971 100,000
20 34,719 8,698 8,698 100,000 18,473 18,473 100,000 40,424 40,424 100,000
25 50,113 7,819 7,819 100,000 23,338 23,338 100,000 68,290 68,290 100,000
30 69,761 4,041 4,041 100,000 26,903 26,903 100,000 113,542 113,542 138,521
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 480 0 100,480 522 0 100,522 565 0 100,565
2 2,153 1,179 79 101,179 1,302 202 101,302 1,430 330 101,430
3 3,310 1,853 453 101,853 2,100 700 102,100 2,369 969 102,369
4 4,526 2,502 802 102,502 2,919 1,219 102,919 3,388 1,688 103,388
5 5,802 3,124 1,124 103,124 3,755 1,755 103,755 4,494 2,494 104,494
6 7,142 3,718 1,756 103,718 4,609 2,647 104,609 5,694 3,732 105,694
7 8,549 4,283 2,371 104,283 5,479 3,567 105,479 6,994 5,082 106,994
8 10,027 4,819 2,957 104,819 6,365 4,503 106,365 8,404 6,542 108,404
9 11,578 5,324 3,512 105,324 7,266 5,454 107,266 9,934 8,122 109,934
10 13,207 5,796 4,286 105,796 8,179 6,669 108,179 11,592 10,082 111,592
15 22,657 7,922 7,922 107,922 13,317 13,317 113,317 22,894 22,894 122,894
20 34,719 9,135 9,135 109,135 18,852 18,852 118,852 40,509 40,509 140,509
25 50,113 8,901 8,901 108,901 24,196 24,196 124,196 67,738 67,738 167,738
30 69,761 6,331 6,331 106,331 28,162 28,162 128,162 109,501 109,501 209,501
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 480 0 100,480 522 0 100,522 565 0 100,565
2 2,153 1,179 79 101,179 1,302 202 101,302 1,430 330 101,430
3 3,310 1,853 453 101,853 2,100 700 102,100 2,369 969 102,369
4 4,526 2,502 802 102,502 2,919 1,219 102,919 3,388 1,688 103,388
5 5,802 3,124 1,124 103,124 3,755 1,755 103,755 4,494 2,494 104,494
6 7,142 3,718 1,756 103,718 4,609 2,647 104,609 5,694 3,732 105,694
7 8,549 4,283 2,371 104,283 5,479 3,567 105,479 6,994 5,082 106,994
8 10,027 4,819 2,957 104,819 6,365 4,503 106,365 8,404 6,542 108,404
9 11,578 5,324 3,512 105,324 7,266 5,454 107,266 9,934 8,122 109,934
10 13,207 5,796 4,286 105,796 8,179 6,669 108,179 11,592 10,082 111,592
15 22,657 7,611 7,611 107,611 12,869 12,869 112,869 22,214 22,214 122,214
20 34,719 8,231 8,231 108,231 17,411 17,411 117,411 37,973 37,973 137,973
25 50,113 6,970 6,970 106,970 20,855 20,855 120,855 60,952 60,952 160,952
30 69,761 2,758 2,758 102,758 21,542 21,542 121,542 93,939 93,939 193,939
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST OF INSURANCE RATES
Female, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 502 0 100,000 546 0 100,000 589 0 100,000
2 2,153 1,224 124 100,000 1,350 250 100,000 1,481 381 100,000
3 3,310 1,922 522 100,000 2,176 776 100,000 2,452 1,052 100,000
4 4,526 2,595 895 100,000 3,024 1,324 100,000 3,508 1,808 100,000
5 5,802 3,243 1,447 100,000 3,895 2,099 100,000 4,658 2,862 100,000
6 7,142 3,864 2,118 100,000 4,786 3,040 100,000 5,909 4,163 100,000
7 8,549 4,458 2,762 100,000 5,699 4,003 100,000 7,270 5,574 100,000
8 10,027 5,025 3,379 100,000 6,633 4,987 100,000 8,754 7,108 100,000
9 11,578 5,566 3,970 100,000 7,591 5,995 100,000 10,373 8,777 100,000
10 13,207 6,082 4,752 100,000 8,573 7,243 100,000 12,143 10,813 100,000
15 22,657 8,642 8,642 100,000 14,396 14,396 100,000 24,594 24,594 100,000
20 34,719 10,706 10,706 100,000 21,404 21,404 100,000 45,080 45,080 100,000
25 50,113 12,143 12,143 100,000 29,817 29,817 100,000 79,171 79,171 106,089
30 69,761 12,554 12,554 100,000 39,774 39,774 100,000 135,317 135,317 165,087
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED COST OF INSURANCE RATES
Female, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 502 0 100,000 546 0 100,000 589 0 100,000
2 2,153 1,224 124 100,000 1,350 250 100,000 1,481 381 100,000
3 3,310 1,922 522 100,000 2,176 776 100,000 2,452 1,052 100,000
4 4,526 2,595 895 100,000 3,024 1,324 100,000 3,508 1,808 100,000
5 5,802 3,243 1,447 100,000 3,895 2,099 100,000 4,658 2,862 100,000
6 7,142 3,864 2,118 100,000 4,786 3,040 100,000 5,909 4,163 100,000
7 8,549 4,458 2,762 100,000 5,699 4,003 100,000 7,270 5,574 100,000
8 10,027 5,025 3,379 100,000 6,633 4,987 100,000 8,754 7,108 100,000
9 11,578 5,566 3,970 100,000 7,591 5,995 100,000 10,373 8,777 100,000
10 13,207 6,082 4,752 100,000 8,573 7,243 100,000 12,143 10,813 100,000
15 22,657 8,247 8,247 100,000 13,858 13,858 100,000 23,820 23,820 100,000
20 34,719 9,581 9,581 100,000 19,717 19,717 100,000 42,311 42,311 100,000
25 50,113 9,876 9,876 100,000 26,111 26,111 100,000 72,236 72,236 100,000
30 69,761 8,665 8,665 100,000 32,887 32,887 100,000 120,755 120,755 147,321
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT COST OF INSURANCE RATES
Female, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 501 0 100,501 545 0 100,545 588 0 100,588
2 2,153 1,221 121 101,221 1,346 246 101,346 1,477 377 101,477
3 3,310 1,915 515 101,915 2,168 768 102,168 2,443 1,043 102,443
4 4,526 2,583 883 102,583 3,011 1,311 103,011 3,492 1,792 103,492
5 5,802 3,225 1,429 103,225 3,873 2,077 103,873 4,631 2,835 104,631
6 7,142 3,838 2,092 103,838 4,753 3,007 104,753 5,866 4,120 105,866
7 8,549 4,421 2,725 104,421 5,650 3,954 105,650 7,205 5,509 107,205
8 10,027 4,976 3,330 104,976 6,565 4,919 106,565 8,660 7,014 108,660
9 11,578 5,503 3,907 105,503 7,499 5,903 107,499 10,241 8,645 110,241
10 13,207 6,002 4,672 106,002 8,453 7,123 108,453 11,962 10,632 111,962
15 22,657 8,451 8,451 108,451 14,045 14,045 114,045 23,944 23,944 123,944
20 34,719 10,338 10,338 110,338 20,574 20,574 120,574 43,168 43,168 143,168
25 50,113 11,508 11,508 111,508 28,047 28,047 128,047 74,066 74,066 174,066
30 69,761 11,505 11,505 111,505 36,128 36,128 136,128 123,554 123,554 223,554
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<TABLE>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED COST OF INSURANCE RATES
Female, Standard Nonsmoker, Age 35
<CAPTION>
0% Hypo Gr Invest Ret 6% Hypo Gr Invest Ret 12% Hypo Gr Invest Ret
End of Prem Cash Cash Cash
ContractAccum Contract Surrender Death Contract Surrender Death Contract Surrender Death
Year 5% / Yr Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 501 0 100,501 545 0 100,545 588 0 100,588
2 2,153 1,221 121 101,221 1,346 246 101,346 1,477 377 101,477
3 3,310 1,915 515 101,915 2,168 768 102,168 2,443 1,043 102,443
4 4,526 2,583 883 102,583 3,011 1,311 103,011 3,492 1,792 103,492
5 5,802 3,225 1,429 103,225 3,873 2,077 103,873 4,631 2,835 104,631
6 7,142 3,838 2,092 103,838 4,753 3,007 104,753 5,866 4,120 105,866
7 8,549 4,421 2,725 104,421 5,650 3,954 105,650 7,205 5,509 107,205
8 10,027 4,976 3,330 104,976 6,565 4,919 106,565 8,660 7,014 108,660
9 11,578 5,503 3,907 105,503 7,499 5,903 107,499 10,241 8,645 110,241
10 13,207 6,002 4,672 106,002 8,453 7,123 108,453 11,962 10,632 111,962
15 22,657 8,042 8,042 108,042 13,482 13,482 113,482 23,128 23,128 123,128
20 34,719 9,163 9,163 109,163 18,775 18,775 118,775 40,147 40,147 140,147
25 50,113 9,139 9,139 109,139 24,025 24,025 124,025 66,166 66,166 166,166
30 69,761 7,492 7,492 107,492 28,576 28,576 128,576 105,968 105,968 205,968
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER,
PREVAILING RATES AND RATES OF INFLATION. THE VALUES FOR A
CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN
BE MADE BY KANSAS CITY LIFE OR ANY FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
OTHER CONTRACT BENEFITS AND PROVISIONS
Limits on Rights to Contest the Contract
Incontestability. After the Contract has been in force during
the Insured's lifetime for two years from the Contract Date,
Kansas City Life may not contest the Contract, except if the
Contract lapses after the end of a grace period.
Any increase in the Specified Amount will not be contested after
the increase has been in force during the Insured's lifetime for
two years following the effective date of the increase.
If a Contract lapses and it is reinstated, we cannot contest the
reinstated Contract after the Contract has been in force during
the Insured's lifetime for two years from the date of the
reinstatement application.
Suicide Exclusion. If the Insured dies by suicide, while sane
or insane, within two years of the Contract Date (or less if
required by state law), the amount payable by Kansas City
Life will be equal to the Contract Value less any Indebtedness.
If the Insured dies by suicide, while sane or insane, within two
years after the effective date of any increase in the Specified
Amount (or less if required by state law), the amount payable
by Kansas City Life associated with such increase will be limited
to the cost of insurance charges associated with the increase.
Changes in the Contract or Benefits
Misstatement of Age or Sex. If, while the Contract is in force
and the Insured is alive, it is determined that the Age or sex
of the Insured as stated in the Contract is not correct, Kansas
City Life will adjust the Contract Value under the Contract.
The adjustment to the Contract Value will be the difference
between the following amounts accumulated at 4% interest
annually. The two amounts are: (1) the cost of insurance
deductions that have been made; and (2) the cost of insurance
deductions that should have been made. If, after the death of
the Insured while this Contract is in force, it is determined
the Age or sex of the Insured as stated in the Contract is not
correct, the Death Benefit will be the net amount at risk that
the most recent cost of insurance deductions at the correct Age
and sex would have provided plus the Contract Value on the date
of death (unless otherwise required by state law).
Other Changes. Upon notice, Kansas City Life may modify the
Contract, but only if such modification is necessary to: (1)
make the Contract or the Variable Account comply with any
applicable law or regulation issued by a governmental agency to
which Kansas City Life is subject; (2) assure continued
qualification of the Contract under the Internal Revenue Code or
other federal or state laws relating to variable life contracts;
(3) reflect a change in the operation of the Variable Account;
or (4) provide additional Variable Account and/or fixed
accumulation options. Kansas City Life reserves 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,
Kansas City Life will issue an appropriate endorsement to the
Contract, if required. Kansas City Life will exercise these rights
in accordance with applicable law, including approval of Contract
Owners if required.
When Proceeds Are Paid
Kansas City Life will ordinarily pay any Death Benefit proceeds,
loan proceeds, partial surrender proceeds, or full surrender
proceeds within seven calendar days after receipt at the Home
Office of all the documents required for such a payment. Other
than the Death Benefit, which is determined as of the date of
death, the amount will be determined as of the date of receipt
of required documents. However, Kansas City Life may delay
making a payment or processing a transfer request if (1) the New
York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists as a result of which the
disposal or valuation of Variable Account assets is not
reasonably practicable; or (2) the SEC by order permits
postponement of payment to protect Kansas City Life's Contract
Owners.
Reports to Contract Owners
At least once each Contract Year, you will be sent a report at
your last known address showing, as of the end of the current
report period: the Death Benefit; Contract Value; Fixed Account
Value; Variable Account Value; Indebtedness; Subaccount values;
premiums paid since the last report; surrenders since the last
report; any Contract loans and accrued interest; Cash Surrender
Value; current premium allocations; charges deducted since the
last report; and any other information required by law. You
will also be sent an annual and a semi-annual report for each
Fund or Portfolio underlying a Subaccount to which you have
allocated Contract Value, including a list of the securities
held in each Fund, as required by the 1940 Act. In addition,
when you pay premium payments (except for premiums deducted
automatically), or if you take out a loan, transfer amounts
among the Variable Accounts and Fixed Account or take
surrenders, you will receive a written confirmation of these
transactions.
Assignment
The Contract may be assigned in accordance with its terms. In
order for any assignment to be binding upon Kansas City Life, it
must be in writing and filed at the Home Office. Once Kansas
City Life has received a signed copy of the assignment, the
Owner's rights and the interest of any Beneficiary (or any other
person) will be subject to the assignment. Kansas City Life
assumes no responsibility for the validity or sufficiency of any
assignment. An assignment is subject to any Indebtedness.
Reinstatement
The Contract may be reinstated within two years (or such longer
period if required by state law) after lapse and before the
Maturity Date, subject to compliance with certain
conditions, including the payment of a necessary premium payment
and submission of satisfactory evidence of insurability. See
your Contract for further information.
Supplemental and/or Rider Benefits
The following supplemental and/or rider benefits are available
and may be added to your Contract. Monthly charges for these
benefits and/or riders will be deducted from your Contract Value
as part of the Monthly Deduction. All of these riders may not be
available in all states.
Disability Continuance of Insurance (DCOI)
Issue Ages: 15-55, renewal through age 59
This rider covers the Contract's Monthly Deductions during the period of
total disability of the Insured. DCOI benefits become payable after the
Insured's total disability exists for six consecutive months and total
disability occurs before age 60. Benefits under this rider continue until the
Insured is no longer totally disabled.
Accidental Death Benefit (ADB)
Issue Ages: 0-60
This rider provides for the payment of an additional amount of insurance
in the event of accidental death. The rider terminates when the Insured
attains age 70.
Option to Increase Specified Amount (Assured Insurability - AI)
Issue Ages: 0-38
This rider allows the Specified Amount of the Contract to
increase by the option amount or less, without evidence of
insurability on the Insured. These increases may occur on
regular option dates or alternate option dates. See the rider
contract for the specific dates.
Spouse's Term insurance (STI)
Issue Ages: 15-50 (Spouse's age)
This rider provides decreasing term insurance on the Insured's spouse.
Theamount of insurance coverage is expressed in units and a maximum number of
five units may be purchased. The amount of insurance per unit of coverage is
based on the Insured Spouse's attained age. A table specifying the amount of
insurance per unit of coverage is in the rider contract.
Children's Term Insurance (CTI)
Issue Ages: 14 Days - 17 Years (Children's ages)
This rider provides level term insurance on each Insured Child. This term
insurance continues until the Contract anniversary on which the Insured Child's
attained age is 25. The rider expires on the Contract Anniversary on which the
Insured is age 65.
Other Insured Term Insurance (OI)
Issue Ages: 0-65 (Other Insured's age)
This rider provides level yearly renewable term coverage on the Insured,
the Insured's spouse, and/or children. The coverage
expires at the earlier of the Contract Anniversary on which the
Insured or the Other Insured is age 95 unless an earlier date is
requested. The term insurance provided by this rider can be
converted to a permanent contract at any time the rider is in
force without evidence of insurability.
Extra Protection (EXP)
Issue Ages: 0-80
This rider provides level yearly renewable term coverage on the Insured.
The coverage expires at the Contract Anniversary on
which the Insured is age 95 unless an earlier date is requested.
Disability Premium Benefit Rider (DPB)
Issue Ages: 15-55, renewal through 59
This rider provides for the payment of the disability premium benefit
amount as premium to the Contract during a period of total disability of the
Insured. The DPB benefit amount is a
monthly amount that is requested by the Owner.
The Other Insured Term Insurance and Extra Protection riders
permit an Owner, by purchasing term insurance, to increase
insurance coverage without increasing the Contract's Specified
Amount. However, you should be aware that the cost of insurance
charges and Surrender Charges associated with purchasing
insurance coverage under these term riders may be different than
would be associated with increasing the Specified Amount under
the Contract.
The Other Insured rider has one risk class for nonsmokers and
one risk class for smokers. The nonsmoker cost of insurance
rates for this rider are generally between the Contract's
preferred and standard nonsmoker rates. The smoker cost of
insurance rates are near the Contract's smoker rates. The cost
of insurance rates for the Extra Protection Rider are generally
lower than the Contract's rates. In addition, since the term
insurance riders do not have surrender charges, a Contract
providing insurance coverage with a combination of Specified
Amount and term insurance will have a lower maximum Surrender
Charge than a Contract with the same amount of insurance
coverage provided solely by the Specified Amount. In addition,
sales representatives generally receive somewhat lower
compensation from a term insurance rider than if the insurance
coverage were part of the Contract's Specified Amount.
Your determination as to how to purchase a desired level of
insurance coverage should be based on your specific insurance
needs. Consult your sales representative for further
information.
Additional rules and limits apply to these supplemental and/or
rider benefits. Not all such benefits may be available at any
time, and supplemental and/or rider benefits in addition to
those listed above may be made available. Please ask your
Kansas City Life agent for further information, or contact the
Home Office.
TAX CONSIDERATIONS
The following summary provides a general description of the
Federal income tax considerations associated with the Contract
and does not purport to be complete or to cover all situations.
This discussion is not intended as tax advice. Counsel or other
competent tax advisers should be consulted for more complete
information. This discussion is based upon Kansas City Life's
understanding of the present Federal income tax laws as they are
currently interpreted by the Internal Revenue Service (the
"Service"). No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the
current interpretations by the Service.
Tax Status of the Contract
Section 7702 of the Internal Revenue Code of 1986, as amended
(the "Code") sets forth a definition of a life insurance
contract for Federal income tax purposes. Although the
Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed
regulations and other interim guidance has been issued, final
regulations have not been adopted. In short, guidance as to how
Section 7702 is to be applied is limited. If a Contract were
determined not to be a life insurance contract for purposes of
Section 7702, such Contract would not provide the tax advantages
normally provided by a life insurance contract.
With respect to a Contract issued on a standard basis, Kansas
City Life believes that such a Contract should meet the Section
7702 definition of a life insurance contract. With respect to a
Contract that is issued on a substandard basis (i.e., a premium
class with extra rating involving higher than standard mortality
risk), there is less guidance, in particular as to how the
mortality and other expense requirements of Section 7702 are to
be applied in determining whether such a Contract meets the
Section 7702 definition of a life insurance contract. Thus, it
is not clear whether or not a Contract issued on a substandard
basis would satisfy Section 7702, particularly if the owner pays
the full amount of premiums permitted under the Contract.
If it is subsequently determined that a Contract does not
satisfy Section 7702, Kansas City Life may take whatever steps
are appropriate and reasonable to attempt to cause such a
Contract to comply with Section 7702. For these reasons, Kansas
City Life reserves the right to restrict Contract transactions
as necessary to attempt to qualify it as a life insurance
contract under Section 7702.
Section 817(h) of the Code requires that the investments of each
of the Subaccounts must be "adequately diversified" in
accordance with Treasury regulations in order for the Contract
to qualify as a life insurance contract under Section 7702 of
the Code (discussed above). The Subaccounts, through the
Portfolios, intend to comply with the diversification
requirements prescribed in Treas. Reg. 1.817-5, which affect
how the Portfolio's assets are to be invested. Kansas City Life
believes that the Subaccounts will, thus, meet the
diversification requirements, and Kansas City Life will monitor
continued compliance with this requirement.
In certain circumstances, owners of variable life insurance
contracts may be considered the owners, for federal income tax
purposes, of the assets of the subaccounts used to support their
contracts. In those circumstances, income and gains from the
subaccount assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of
subaccount assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has
also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor
control of the investments of a segregated asset account may
cause the investor (i.e., the Contract Owner), rather than the
insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to
which Contractholders may direct their investments to particular
subaccounts without being treated as owners of the underlying
assets."
The ownership rights under the Contract are similar to, but
different in certain respects from, those described by the IRS
in rulings in which it was determined that contractowners were
not owners of subaccount assets. For example, an Owner has
additional flexibility in allocating Net Premium payments and
Contract Value. These differences could result in an Owner
being treated as the owner of a pro rata portion of the assets
of the Subaccounts. In addition, Kansas City Life does not know
what standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to
issue. Kansas City Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent an Owner from
being considered the Owner of a pro rata share of the assets of
the Subaccounts.
The following discussion assumes that the Contract will qualify
as a life insurance contract for Federal income tax purposes.
Tax Treatment of Contract Benefits
In General. Kansas City Life believes that the proceeds and
Contract Value increases of a Contract should be treated in a
manner consistent with a fixed-benefit life insurance Contract
for Federal income tax purposes. Thus, the death benefit under
the Contract should be excludible from the gross income of the
beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Contract, a
change in the Contract's Coverage Option, a Contract loan, a
partial surrender, a surrender, a change in ownership, or an
assignment of the Contract may have Federal income tax
consequences. In addition, federal, state and local transfer,
and other tax consequences of ownership or receipt of Contract
proceeds depends on the circumstances of each Owner or
beneficiary.
The Contract may also be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans,
split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you
are contemplating the use of a Contract in any arrangement the
value of which depends in part on its tax consequences, you
should be sure to consult a qualified tax adviser regarding the
tax attributes of the particular arrangement.
Generally, the Owner will not be deemed to be in constructive
receipt of the Contract Value, including increments thereof,
until there is a distribution. The tax consequences of
distributions from, and loans taken from or secured by, a
Contract depend on whether the Contract is classified as a
"Modified Endowment Contract." Whether a Contract is or is not
a Modified Endowment Contract, upon a complete surrender or
lapse of a Contract or when benefits are paid at a Contract's
Maturity Date, if the amount received plus the amount of
Indebtedness exceeds the total investment in the Contract, the
excess will generally be treated as ordinary income subject to
tax.
Modified Endowment Contracts. Section 7702A establishes a class
of life insurance contracts designated as "Modified Endowment
Contracts." The rules relating to whether a Contract will be
treated as a Modified Endowment Contract are extremely complex
and cannot be adequately described in the limited confines of
this summary. In general, a Contract will be a Modified
Endowment Contract if the accumulated premiums paid at any time
during the first seven Contract Years exceed the sum of the net
level premiums which would have been paid on or before such time
if the Contract provided for paid-up future benefits after the
payment of seven level annual premiums. A Contract may also
become a Modified Endowment Contract after a material change.
The determination of whether a Contract will be a Modified
Endowment Contract after a material change generally depends
upon the relationship of the death benefit and Contract Value at
the time of such change and the additional premiums paid in the
seven years following the material change.
Due to the Contract's flexibility, classification as a Modified
Endowment Contract will depend on the individual circumstances
of each Contract. In view of the foregoing, a current or
prospective Owner should consult with a tax adviser to determine
whether a Contract transaction will cause the Contract to be
treated as a Modified Endowment Contract. However, at the time
a premium is credited which in Kansas City Life's view would
cause the Contract to become a Modified Endowment Contract,
Kansas City Life will notify the Owner that unless a refund of
the excess premium (with any appropriate interest) is requested
by the Owner, the Contract will become a Modified Endowment
Contract. The Owner will have 30 days after receiving such
notification to request the refund.
Distributions from Contracts Classified as Modified Endowment
Contracts. Contracts classified as Modified Endowment Contracts
will be subject to the following tax rules: First, all
distributions, including distributions upon surrender and
partial surrender from such a Contract are treated as ordinary
income subject to tax up to the amount equal to the excess (if
any) of the Contract Value immediately before the distribution
over the investment in the Contract (described below) at such
time. Second, loans taken from or secured by such a Contract,
are treated as distributions from the Contract and taxed
accordingly. Past due loan interest that is added to the loan
amount will be treated as a loan. Third, a 10 percent
additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a
Contract that is included in income except where the
distribution or loan is made on or after the Owner attains age
59.5, is attributable to the Owner's becoming disabled, or is
part of a series of substantially equal periodic payments for
the life (or life expectancy) of the Owner or the joint lives
(or joint life expectancies) of the Owner and the Owner's
beneficiary.
Distributions From Contracts Not Classified as Modified
Endowment Contracts. Distributions from a Contract that is not
a Modified Endowment Contract are generally treated as first,
recovering the investment in the Contract (described below) and
then, only after the return of all such investment in the
Contract, as distributing taxable income. An exception to this
general rule occurs in the case of a decrease in the Contract's
death benefit or any other change that reduces benefits under
the Contract in the first 15 years after the Contract is issued
and that results in a cash distribution to the Owner in order
for the Contract to continue complying with the Section 7702
definitional limits. Such a cash distribution will be taxed in
whole or in part as ordinary income (to the extent of any gain
in the Contract) under rules prescribed in Section 7702.
Loans from, or secured by, a Contract that is not a Modified
Endowment Contract are not treated as distributions. Instead,
such loans are treated as Indebtedness of the Owner.
Finally, neither distributions (including distributions upon
surrender) nor loans from, or secured by, a Contract that is not
a Modified Endowment Contract are subject to the 10 percent
additional income tax rule.
Contract Loan Interest. Generally, consumer interest paid on
any loan under a Contract which is owned by an individual is not
deductible. In addition, interest on any loan under a Contract
owned by a taxpayer and covering the life of any individual who
is an officer or employer of or is financially interested in the
business carried on by the taxpayer will not be tax deductible
to the extent the aggregate amount of such loans with respect to
contracts covering such individuals exceeds $50,000. The
deduction of interest on Contract loans may also be subject to
other restrictions under the Code. A qualified tax adviser
should be consulted before deducting any Contract loan interest.
Investment in the Contract. Investment in the Contract means:
(i) the aggregate amount of any premiums or other consideration
paid for a Contract, minus (ii) the aggregate amount received
under the Contract which is excluded from gross income of the
Owner (except that the amount of any loan from, or secured by, a
Contract that is a Modified Endowment Contract, to the extent
such amount is excluded from gross income, will be disregarded),
plus (iii) the amount of any loan from, or secured by, a
Contract that is a Modified Endowment Contract to the extent
that such amount is included in the gross income of the owner.
Multiple Contracts. All Modified Endowment Contracts that are
issued by Kansas City Life (or its affiliates) to the same Owner
during any calendar year are treated as one Modified Endowment
Contract for purposes of determining the amount includible in an
Owner's gross income under Section 72(e) of the Code.
Possible Charge for Kansas City Life's Taxes
At the present time, Kansas City Life makes no charge for any
Federal, state or local taxes (other than the charge for state
and local premium taxes) that it incurs that may be attributable
to the Subaccounts or to the Contracts. Kansas City Life,
however, reserves the right in the future to make additional
charges for any such tax or other economic burden resulting from
the application of the tax laws that it determines to be
properly attributable to the Subaccounts or to the Contracts.
OTHER INFORMATION ABOUT THE CONTRACTS AND KANSAS CITY LIFE
Sale of the Contracts
The Contracts will be offered to the public on a continuous
basis, and we do not anticipate discontinuing the offering of
the Contracts. However, we reserve the right to discontinue the
offering. Applications for Contracts are solicited by agents
who are licensed by applicable state insurance authorities to
sell our variable life contracts and who are also registered
representatives of Sunset Financial Services, Inc. ("Sunset
Financial"), one of our wholly-owned subsidiaries. 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 419365, Kansas City, Missouri
64141-6365.
Registered representatives may be paid commissions on a Contract they sell
based on premiums paid in amounts up to 50% of premiums paid during the first
Contract Year and up to 3% on premiums paid after the first Contract Year.
Additional commissions may be paid in certain circumstances. Other allowances
and overrides also may be paid.
Kansas City Life Directors and Executive Officers
The following table sets forth the name, address and principal
occupations during the past five years of each of Kansas City
Life's directors and executive officers.
Name and Principal
Business Address* Principal Occupation During Past Five Years
Joseph R. Bixby Director, Kansas City Life; Chairman of the
Board since 1972; President from 1964 until he retired in April, 1990;
responsible for overall corporate policy. Director of Sunset Life, a
subsidiary of Kansas City Life.
Walter E. Bixby Director, Kansas City Life; Vice Chairman of
the Board since 1974; elected Executive Vice President in January, 1987 and
President and CEO in April, 1990; primarily responsible for the operation of
the Company. Chairman of the Board of Sunset Life and President and Chairman
of the Board of Old American Insurance Company, subsidiaries of Kansas City
Life.
R. Philip Bixby Director, Kansas City Life; Elected
Assistant Secretary in 1979; Assistant Vice President in 1982, Vice President
in 1984 and Senior Vice President, Operations, in 1990; responsible for
Customer Services, Computer Services, Claims.
Richard L. Finn Director, Kansas City Life; Elected Vice
President in 1976; Financial Vice President in 1983 and Senior Vice President,
Finance, in 1984; Chief Financial Officer and responsible for investment of
Kansas City Life's funds, accounting and taxes. Director, Vice President and
Chief Financial Officer of Old American, a subsidiary of Kansas City Life.
Jack D. Hayes Director, Kansas City Life; Elected Senior Vice
President, Marketing in February, 1994, responsible for
Marketing, Marketing Administration, Communications and Public
Relations. Served as Executive Vice President and Chief
Marketing Officer of Fidelity Union Life, Dallas, Texas, from
June, 1981 to January, 1994.
Francis P. Lemery Director, Kansas City Life; Elected Vice
President in 1979; Vice President and Actuary in 1980, and
Senior Vice President and Actuary in 1984; responsible for Group
Insurance Department, Actuarial Services, State Compliance and
New Business Issue and Underwriting. Director of Sunset Life
and Old American, subsidiaries of Kansas City Life.
C. John Malacarne Director, Kansas City Life; Elected
Associate General Counsel in 1976; General Counsel in 1980; Vice
President and General Counsel in 1981; and Vice President,
General Counsel and Secretary in 1991. Responsible for Legal
Department, Office of the Secretary and Stock Transfer
Department. Director of Sunset Life and Director and Secretary
of Old American, subsidiaries of Kansas City Life.
Kathryn A. Bixby-Haddad Director, Kansas City Life since 1984;
Investor.
Ilus W. Davis Director, Kansas City Life since 1985; Partner
- - Armstrong, Teasdale, Schlafly, and Davis.
David D. Dysart Director, Kansas City Life since 1972;
served as Executive Vice President, Kansas City Life, from 1980 until
retirement in 1987.
Webb R. Gilmore Director, Kansas City Life since 1990;
Partner - Gilmore and Bell.
Warren J. Hunzicker, M.D. Director, Kansas City Life since 1989.
Daryl D. Jensen Director, Kansas City Life; Elected Vice
Chairman of the Board and President, Sunset Life Insurance
Company of America, a subsidiary of Kansas City Life, in 1975.
Michael J. Ross Director, Kansas City Life since 1972;
President and Chairman of the Board, Jefferson Bank and Trust
Company, St. Louis, Missouri, since 1971.
Larry Winn Jr. Director, Kansas City Life since 1985; Retired
as the Kansas Third District Representative to the U.S. Congress.
Robert C. Miller Elected Assistant Auditor in 1972; Auditor
in 1973; Vice President and Auditor in 1987, and Senior Vice
President, Administrative Services, in 1991. Responsible for
Human Resources and Home Office building and maintenance.
Bret L. Benham Elected Assistant Vice President, Planning and
Research in August, 1991; Vice President, Research Planning in
May, 1993; and Vice President, Agency Marketing, in June, 1994;
responsible for directing the development and execution of
marketing plans and programs and managing the agency force.
Served as a Consultant with Tillinghast from 1987 to August, 1991.
W. E. Bixby, III Elected Assistant Vice President, Electronic
Sales Support in 1985; Assistant Vice President, Marketing
Operations in 1989; Vice President, Marketing in 1990; and Vice
President, Marketing Operations, in 1992. President, KCL
Service Company. Director and Chairman of the Board of Sunset
Financial Services. Director of Sunset Life and Old American,
subsidiaries of Kansas City Life.
Charles R. Duffy Jr. Elected Vice President, Insurance
Administration, in November, 1989; responsible for Kansas City
Life's computer operations, Senior Account Executive, Cybertek
Corporation, January, 1989 to November, 1989. Director of
Sunset Life and Old American, subsidiaries of Kansas City Life.
Michael P. Horton Elected Vice President, Group, in July,
1984; responsible for the Company's group insurance operations.
John K. Koetting Elected Assistant Controller in 1975 and
Vice President and Controller in 1980; chief accounting officer;
responsible for all corporate accounting reports. Director and
Vice President and Controller of Old American, a subsidiary of
Kansas City Life.
Ronald E. Hiatt Elected Assistant Treasurer in 1976 and
Treasurer in 1983; responsible for cash management and
safeguarding of Company assets.
* The principal business address of all the persons listed
above is 3520 Broadway, Kansas City, Missouri 64111.
State Regulation
Kansas City Life is subject to regulation by the Department of
Insurance of the State of Missouri, which periodically examines
the financial condition and operations of Kansas City Life.
Kansas City Life is also subject to the insurance laws and
regulations of all jurisdictions where it does business. The
Contract described in this prospectus has been filed with and,
where required, approved by, insurance officials in those
jurisdictions where it is sold.
Kansas City Life is required to submit annual statements of
operations, including financial statements, to the insurance
departments of the various jurisdictions where it does business
to determine solvency and compliance with applicable insurance
laws and regulations.
Additional Information
A registration statement under the Securities Act of 1933 has
been filed with the SEC relating to the offering described in
this prospectus. This prospectus does not include all the
information set forth in the registration statement. The
omitted information may be obtained at the SEC's principal
office in Washington, D.C. by paying the SEC's prescribed fees.
Experts
The consolidated financial statements of Kansas City Life at
December 31, 1994 and 1993 and for each of the three years in the period ended
December 31, 1994, appearing herein have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Actuarial
matters included in this prospectus have been examined by Mark A. Milton,
Vice President and Associate Actuary, of Kansas City Life.
Litigation
The Variable Account is not a party to any litigation. Its
depositor, Kansas City Life, as an insurance company, ordinarily
is involved in litigation. Kansas City Life is of the opinion
that such litigation is not material to the Contract Owners of
the Variable Account.
Legal Matters
Sutherland, Asbill & Brennan of Washington, D.C. has provided
advice on certain matters relating to the federal securities
laws. Matters of Missouri law pertaining to the Contracts,
including Kansas City Life's right to issue the Contracts and
its qualification to do so under applicable laws and regulations
issued thereunder, have been passed upon by C. John Malacarne,
General Counsel of Kansas City Life.
Financial Statements
No financial statements of the Variable Account are included
herein because, as of the date of this Prospectus, the Variable
Account had not yet commenced operations, had no assets, and had
incurred no liabilities. The financial statements of Kansas
City Life appear on the following pages. The financial
statements of Kansas City Life should be distinguished from
financial statements of the Variable Account and should be
considered only as bearing upon Kansas City Life's ability to
meet its obligations under the Contracts.
<TABLE>
Consolidated Income Statement
(Thousands, except per share data)
1994 1993 1992
<S> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance $103 324 99 941 94 945
Accident and health 30 896 29 988 30 345
Contract charges 69 607 66 900 63 202
Investment revenues:
Investment income, net 173 388 163 237 171 581
Realized gains, net 6 060 24 648 8 273
Other 10 179 9 609 9 742
Total revenues 393 454 394 323 378 088
Benefits and Expenses
Policy benefits:
Death benefits 79 829 72 128 67 444
Surrenders of life insurance 16 490 15 525 19 430
Other benefits 54 146 50 680 45 667
Increase in benefit and contract reserves 83 158 96 188 90 658
Amortization of policy acquisition costs 29 370 22 350 21 758
Insurance operating expenses 73 043 73 990 76 635
Interest expense 444 926 1 416
Total benefits and expenses 336 480 331 787 323 008
Income before Federal income taxes 56 974 62 536 55 080
Federal income taxes:
Current 22 845 27 772 16 349
Deferred (4 729) (7 290) 2 081
18 116 20 482 18 430
Income before nonrecurring items 38 858 42 054 36 650
Nonrecurring expenses, net 1 481 - 5 592
Net income $ 37 377 42 054 31 058
Per common share:
Income before nonrecurring items $6.32 6.84 5.98
Nonrecurring expenses, net .24 - .91
Net income $6.08 6.84 5.07
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Consolidated Balance Sheet
1994 1993
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Available for sale, at fair value
(cost $1,400,616,000) $1 309 297 -
Held to maturity, at amortized cost
(fair value $398,736,000;
$1,593,056,000 -1993) 395 886 1 524 387
Equity securities available for sale,
at fair value (cost $77,533,000;
$99,915,000 - 1993) 82 251 120 686
Mortgage loans on real estate, net 267 695 296 243
Real estate, net 54 976 51 987
Real estate joint ventures 26 120 20 385
Policy loans 95 854 97 783
Short-term 19 340 139 482
Other - 4 000
Total investments 2 251 419 2 254 953
Cash 7 250 11 773
Accrued investment income 39 480 36 869
Receivables, net 9 088 9 705
Property and equipment, net 28 805 31 069
Deferred acquisition costs 193 667 172 294
Value of purchased insurance in force 40 015 41 341
Reinsurance assets 88 887 85 362
Other 5 142 8 064
$2 663 753 2 651 430
Liabilities and Stockholders' Equity
Future policy benefits:
Life insurance $ 643 672 627 856
Accident and health 26 986 27 055
Accumulated contract values 1 459 045 1 378 543
Policy and contract claims 32 548 29 433
Other policyowners' funds:
Dividend and coupon accumulations 42 737 42 298
Other 52 228 53 081
Income taxes:
Current 538 593
Deferred 3 608 43 761
Other 58 696 69 853
Total liabilities 2 320 058 2 272 473
Stockholders' equity:
Common stock, par value $2.50 per share
Authorized 18,000,000 shares, issued
9,248,340 shares 23 121 23 121
Paid-in capital 11 847 10 597
Unrealized gains (losses on
securities available for sale
and equity securities, net (51 345) 13 501
Retained earnings 446 149 417 381
Less treasury stock, at cost
(3,085,904 shares;
3,104,465 shares -1993) (86 077) (85 643)
Total stockholders' equity 343 695 378 957
$2 663 753 2 651 430
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Consolidated Statement of Stockholders' Equity
1994 1993 1992
<S> <C> <C> <C>
Common stock, beginning and end of year $ 23 121 23 121 23 121
Paid-in-capital:
Beginning of year 10 597 9 342 8 290
Excess of proceeds over cost of
treasury stock sold 1 250 1 255 1 052
End of year 11 847 10 597 9 342
Unrealized gains (losses) on securities:
Beginning of year 13 501 15 298 12 301
Unrealized appreciation on cumulative
effect of accounting change, net 14 627 - -
Unrealized appreciation (depreciation)
on securities available for sale
and equity securities, net (79 473) (1 797) 2 997
End of year (51 345) 13 501 15 298
Retained earnings:
Beginning of year 417 381 383 685 360 471
Net income 37 377 42 054 31 058
Stockholder dividends of $1.40 per share
($1.36 - 1993 and $1.28 - 1992) (8 609) (8 358) (7 844)
End of year 446 149 417 381 383 685
Treasury stock, at cost:
Beginning of year (85 643)(84 258)(84 426)
Cost of 17,329 shares acquired (31,594
shares - 1993 and 3,754 shares - 1992) (771) (1 661) (149)
Cost of 35,890 shares sold (29,301
shares - 1993 and 33,722 shares - 1992) 337 276 317
End of year (86 077)(85 643)(84 258)
Total stockholders' equity $343 695 378 957 347 188
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Consolidated Statement of Cash Flows
1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net income $ 37 377 42 054 31 058
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment
discount, net (3 882) (5 590) (10 468)
Depreciation 5 165 4 638 5 335
Policy acquisition costs capitalized (43 952) (50 574) (50 551)
Amortization of deferred
policy acquisition costs 29 370 22 350 21 758
Realized gains (6 060) (24 648) (8 273)
Changes in assets and liabilities:
Future policy benefits 15 747 22 793 6 691
Accumulated contract values 8 445 19 822 35 152
Accrued investment income (2 611) (1 705) (2 366)
Income taxes payable and deferred (4 784) (12 295) 1 828
Nonrecurring items 1 481 - 5 592
Other, net 5 456 6 166 10 748
Net cash from operating activities 41 752 23 011 46 504
Investing Activities
Investments called, matured or repaid:
Fixed maturities available for sale 203 640 - -
Fixed maturities held to maturity 75 060 809 347 414 130
Equity securities available for sale 27 876 55 026 34 825
Mortgage loans on real estate 35 311 49 151 45 255
Decrease in policy loans, net 1 929 4 927 323
Decrease (increase in short-term
investments, net 120 142 29 425 (12 025)
Other 540 2 899 1 387
Investments sold:
Fixed maturities available for sale 51 124 - -
Fixed maturities held to maturity - 206 923 96 058
Equity securities available for sale 3 488 36 236 12 149
Investments purchased or originated:
Fixed maturities available for sale (574 667) - -
Fixed maturities held to maturity (21 533)(1 221 873)(657 919)
Equity securities available for sale (5 566) (25 425) (38 737)
Real estate joint ventures (5 707) (10 661) (1 084)
Mortgage loans on real estate (8 192) (6 468) (24 585)
Other (1 789) (5 762) (2 446)
Net additions to property and equipment (1 640) (11 370) (3 353)
Net cash used in investing activities (99 984) (87 625)(136 022)
Financing Activities
Proceeds from borrowings 891 2 586 20 685
Repayment of borrowings (11 446) (27 994) (27 402)
Policyowner contract deposits 179 411 167 979 169 439
Withdrawals of policyowner
contract deposits (107 354) (70 258) (71 420)
Cash dividends to stockholders (8 609) (8 358) (7 844)
Disposition (acquisition) of
treasury stock, net 816 (130) 1 220
Net cash from financing activities 53 709 63 825 84 678
Decrease in cash (4 523) (789) (4 840)
Cash at beginning of year 11 773 12 562 17 402
Cash at end of year $ 7 250 11 773 12 562
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
Notes to Consolidated Financial Statements
(Amounts in tables are generally stated in thousands,
except per share data)
Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared
on the basis of generally accepted accounting principles (GAAP).
Certain reclassifications have been made to 1993 and 1992 results to
conform with the 1994 presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Kansas City Life Insurance Company and its sub-sidiaries.
Significant intercompany transactions have been eliminated in
consolidation.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term
life insurance and certain annuities. Premiums for these products are
recognized as revenues when due. Accident and health insurance
premiums are recognized as revenues over the terms of the policies.
Universal life-type products include universal life insurance and
flexible annuities. Revenues for these products are amounts assessed
against contract values for cost of insurance, policy administration
and surrenders, as well as amortization of deferred front-end contract
charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by
a net level premium method based upon estimates at the time of issue
for investment yields, mortality and withdrawals. These estimates
include provisions for experience less favorable than actually
expected. Investment yield assumptions for new issues are graded and
range from 7.75 percent to 5.75 percent. Mortality assumptions are
based on standard mortality tables. The 1965-70 Select and Ultimate
Basic Table is used for business issued since 1977. Reserves and claim
liabilities for accident and health insurance include estimated unpaid
claims and claims incurred but not reported. For traditional life and
accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life-type products represent accumulated
contract values, without reduction for potential surrender charges, and
deferred front-end contract charges which are amortized over the term
of the policies. Benef its and claims are charged to expense in the
period incurred net of related accumulated contract values. Interest
on accumulated contract values is credited to contracts as earned.
Crediting rates for universal life insurance and flexible annuity
products ranged from 4.50 percent to 7.50 percent during 1994.
Withdrawal assumptions for all products are based on corporate
experience.
Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
policy issue and underwriting expenses and certain variable agency
expenses, are deferred. For traditional life products, deferred
acquisition costs are amortized in proportion to premium revenues over
the premium-paying period of related policies, using assumptions
consistent with those used in computing benefit reserves. Acquisition
costs for universal life-type products are amortized over a period not
exceeding 30 years in proportion to estimated gross profits arising
from interest spreads and mortality, expense and surrender charges
expected to be realized over the term of the contracts.
Calls in the securities portfolio resulted in realized gains in
1994 and 1993 which increased gross profits above those originally
estimated. In accordance with Financial Accounting Standards Board
(FASB) Statement No. 97, these higher than expected gross profits
required the Company to recompute its amortization of deferred
acquisition costs retrospectively to the date the amortization was
originally determined. This increased the amortization of deferred
acquisition costs $804,000, ($3,030,000 - 1993) or $.08 a share ($.32
a share - 1993) after taxes. This increased amortization was netted
against realized investment gains in the accompanying income
statement.
Value of Purchased Insurance in Force
The value of Old American's purchased insurance in force was
capitalized and is being amortized in proportion to projected future
gross profits. This asset was increased $5,310,000 ($5,513,000 - 1993
and $5,632,000 - 1992) for accrual of interest and reduced $6,636,000
($7,217,000 - 1993 and $6,074,000 - 1992) for amortization. A 13
percent interest rate was used. The percentage of the asset's current
carrying amount which will be amortized in each of the next five years
is 2.3 percent - 1995, 2.6 percent - 1996, 7.0 percent -1997, 6.9
percent - 1998 and 7.1 percent - 1999.
Investments
Prior to January 1, 1994, the Company classified fixed maturities in
accordance with the then existing accounting standards. Such
securities were carried at cost, adjusted for amortization of premium
or discount since the Company had both the ability and intent to hold
those securities until maturity. Equity securities were carried at
fair value.
Effective January 1, 1994, securities held to maturity and short-term
investments are stated at cost adjusted for amortization of premium
and accrual of discount. Securities available for sale are stated at
fair value. Unrealized gains and losses on securities available for
sale are reduced by deferred income taxes and related adjustments in
deferred acquisition costs, and are included in a separate
stockholders' equity account. Mortgage loans are stated at cost
adjusted for amortization of premium and accrual of discount less an
allowance for possible losses. Foreclosed real estate is stated at
fair value at the date of foreclosure (cost or net realizable value,
whichever is lower.
Other real estate investments are carried at depreciated cost.
Real estate joint ventures are valued at cost adjusted for the
Company's equity in earnings since acquisition. Policy loans are
carried at cost less payments received. Realized gains and losses on
disposals of investments, determined by the specific identification
method, are included in investment revenues.
Fair Value of Financial Instruments
The carrying amounts for cash, short-term investments and policy loans
as reported in the accompanying balance sheet approximate their fair
values. The fair values for securities held to maturity are based on
quoted market prices, where available. For those securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements,
are estimated by discounting expected future cash flows using a current
market rate applicable to the yield, credit quality and maturity of the
investments. The fair values for securities available for sale are
based on quoted market prices. Fair values for mortgage loans are
based upon discounted cash flow analyses using an interest rate
assumption of 10 percent.
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.
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $1 391 548 1 391 548 120 686 120 686
Securities held
to maturity 395 886 398 736 1 524 387 1 593 056
Mortgage loans 267 695 265 199 296 243 295 672
Liabilities:
Individual and
group annuities 851 847 822 946 816 324 788 212
Supplementary
contracts without
life contingencies 22 403 22 403 22 303 22 303
The Investments note provides further details regarding the investments
above.
Federal Income Taxes
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
Under that method, deferred tax assets and liabilities are determined
based on the differences between their financial reporting and their
tax bases and are measured using the enacted tax rates.
Income Per Common Share
Income per common share is based upon the weighted average number of
shares outstanding during the year, 6,152,155 shares (6,146,583 shares
- - 1993 and 6,129,494 shares - 1992).
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.
1994 1993 1992
Net gain from operations
for the year $ 29 151 20 685 23 392
Net income for the year 28 324 24 035 25 395
Unassigned surplus
at December 31 235 226 202 538 202 549
Stockholders' equity
at December 31 184 117 150 613 150 754
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 1995 without
prior approval is $29,151,000. 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 $102,381,000 ($70,874,000 - 1993).
Investments
Accounting Change
FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," categorizes debt securities into three
classifications. Securities classified as held to maturity are carried
at amortized cost and include only those securities which the Company
has the positive intent and ability to hold to maturity. Trading
securities are those purchased for the purpose of realizing a trading
profit. These securities are valued at market with the changes in
market value recognized through the income statement. Securities
available for sale include securities which may be sold but which are
not considered trading securities. These securities are carried at
market, but the changes in market value are reflected in equity.
Kansas City Life adopted this statement on January 1, 1994, and
classified 73 percent of its securities as available for sale, with the
balance classified as held to maturity. In accordance with this
statement, the prior year financial statements have not been restated
to reflect this change in accounting principle. Prior to 1994 fixed
maturities were carried at amortized cost and equity securities were
carried at their market value. Valuing securities available for sale
at market increased stockholders' equity $14,627,000 at January 1,
1994, net of related deferred acquisition costs of $5,068,000 and
taxes of $7,876,000.
Currently 79 percent of the Company's securities are categorized as
available for sale and are valued at market. The resulting adjustment
causes significant volatility in these securities' carrying values, and
will affect various calculations which are dependent on stockholders'
equity, such as return on equity.
FASB Statement No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," requires
additional disclosures concerning derivative financial instruments
which have off-balance sheet risk. Kansas City Life employs no
instruments which fall within this Statement's scope.
Investment Revenues
Major categories of investment revenues are summarized as follows.
1994 1993 1992
Investment Income:
Fixed maturities $127 806 107 880 107 635
Equity securities 7 563 11 971 14 095
Mortgage loans 29 118 33 337 38 472
Real estate 11 732 10 106 8 621
Policy loans 6 295 6 524 6 599
Short-term 4 437 8 192 7 875
Other 2 433 1 785 2 413
189 384 179 795 185 710
Less investment expenses (15 996) (16 558) (14 129)
$173 388 163 237 171 581
1994 1993 1992
Realized Gains (Losses):
Fixed maturities $ 1 995 19 087 9 876
Equity securities 4 568 11 433 5 362
Mortgage loans - (3 500) (5 271)
Real estate 300 875 (2 671)
Other 1 (217) 977
Deferred acquisition cost
amortization for realized gains (804) (3 030) -
$ 6 060 24 648 8 273
Unrealized Gains and Losses
Unrealized gains (losses on the Company's securities follow. Held to
maturity and available for sale securities relate only to 1994, while
fixed maturities relate to 1993 and 1992.
1994 1993 1992
Held to maturity and fixed maturities $ 2 850 68 670 76 148
Available for sale and equity securities $(86 601) 20 771 23 179
Deferred income taxes 27 661 (7 270) (7 881)
Effect on deferred acquisition costs 7 595 - -
$(51 345) 13 501 15 298
Increase (decrease in
net unrealized gains:
Held to maturity and fixed maturities $(65 820) (7 478) 2 815
Available for sale fixed maturities $(55 150) - -
Available for sale equity securities (9 696) (1 797) 2 997
$(64 846) (1 797) 2 997
Securities
The amortized cost and fair value of investments in securities at
December 31, 1994, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 137 522 567 3 268 134 821
Public utility bonds 305 749 439 21 837 284 351
Corporate bonds 583 648 684 47 437 536 895
Mortgage-backed bonds 263 824 2 683 14 445 252 062
Other bonds 84 687 268 8 323 76 632
Redeemable preferred stocks 25 186 495 1 145 24 536
Total fixed maturities 1 400 616 5 136 96 455 1 309 297
Equity securities 77 533 6 846 2 128 82 251
1 478 149 11 982 98 583 1 391 548
Held to maturity:
U.S. government bonds 3 948 66 103 3 911
Public utility bonds 203 747 10 079 1 644 212 182
Corporate bonds 174 879 3 285 8 899 169 265
Other bonds 13 312 331 265 13 378
395 886 13 761 10 911 398 736
$1 874 035 25 743 109 494 1 790 284
The amortized cost and fair value of investments in fixed maturity
and equity securities at December 31, 1993, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
U.S. government bonds $ 100 658 7 354 1 108 011
Public utility securities 444 743 35 276 846 479 172
Corporate securities 741 343 19 672 3 922 757 093
Mortgage-backed bonds 174 299 7 760 1 788 180 272
Other bonds 63 344 5 618 454 68 508
Total fixed maturities 1 524 387 75 680 7 011 1 593 056
Equity securities 99 915 20 995 224 120 686
$1 624 302 96 675 7 235 1 713 742
All fixed maturity securities produced income in 1994.
The distribution of the fixed maturity securities' contractual
maturities follows. However, expected maturities may differ from
these contractual maturities since borrowers may have the right to
call or prepay obligations.
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 51 069 50 913
Due after one year through five years 349 276 336 595
Due after five years through ten years 559 026 502 156
Due after ten years 177 421 167 571
Mortgage-backed securities 263 824 252 062
$1 400 616 1 309 297
Held to maturity:
Due in one year or less $ 49 947 50 351
Due after one year through five years 167 528 176 330
Due after five years through ten years 78 075 75 643
Due after ten years 100 336 96 412
$ 395 886 398 736
Sales of investments in securities available for sale in 1994 and
fixed maturity securities in 1993 and 1992, excluding normal
maturities and calls, follow.
1994 1993 1992
Proceeds $54 612 206 923 96 058
Gross realized gains 1 065 2 480 1 547
Gross realized losses 377 241 2 781
At December 31, 1994, the Company held securities of one
corporation and its affiliates which exceeded 10 percent of
stockholders' equity. Entergy Corporation securities were held
with a carrying value of $34,789,000 and an amortized cost of
$34,534,000.
Mortgage Loans
The Company held non-income producing mortgage loans equaling
$3,040,000 ($2,536,000 - 1993). Mortgage loans are carried net of a
valuation reserve of $10,500,000 in 1994 and 1993.
At December 31, 1994, the mortgage portfolio is diversified
geographically and by property type as follows.
Carrying Fair
Amount Value
Geographic Region:
Mountain $102 673 101 589
Pacific 84 617 84 509
West South Central 38 573 38 252
West North Central 28 272 27 778
Other 24 060 23 571
Valuation reserve (10 500) (10 500)
$267 695 265 199
Property Type:
Industrial $111 946 111 608
Retail 64 464 63 631
Office 62 496 62 117
Other 39 289 38 343
Valuation reserve (10 500) (10 500)
$267 695 265 199
Real Estate
Detail concerning the Company's real estate investments follows.
1994 1993
Penntower office building, at cost:
Land $ 1 106 1 106
Building 17 254 16 900
Less accumulated depreciation (8 134) (7 593)
Foreclosed real estate, at lower of
cost or net realizable value 28 904 25 606
Other investment properties, at cost:
Land 3 560 4 419
Buildings 23 875 22 447
Less accumulated depreciation (11 589) (10 898)
$ 54 976 51 987
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 $9,942,000 ($11,113,000 - 1993) to reflect net
realizable value.
The Company held non-income producing real estate equaling
$931,000 in 1994 and 1993.
Mortgage loans foreclosed upon and transferred to real estate
investments during the year equaled $3,391,000 ($4,466,000 -
1993 and $7,873,000 - 1992).
Subsequent Event
The Company held U.S. dollar-denominated Mexican and Argentinean
corporate and sovereign debt with an amortized cost of $80.4 million at
year end 1994, representing 3.4 percent of Company investments.
Uncertainty in the economies of both countries has led to a market
value decline of these investments.
The market for these securities is volatile and illiquid. Their
indicated market value declined to $68.2 million at year end 1994, and
to $53.2 million at March 13, 1995. Thus the securities' indicated
market value declined $15.0 million, or 22 percent, thus far in 1995.
This additional unrealized loss in 1995, net of related income taxes
and deferred acquisition costs, would have reduced stockholders' equity
$9.3 million below year end 1994's level. However, this unrealized
loss was more than offset by unrealized appreciation in the remainder
of the investment portfolio.
Following a detailed analysis of the Latin American bonds in late
February 1995, certain of the above unrealized losses were realized.
Losses totaling $2.7 million, net of taxes, were taken on three
securities with an amortized cost of $8.3 million. These investment
losses were recorded in the first quarter of 1995 and are expected to
be offset during the quarter by investment gains realized elsewhere in
the investment portfolio.
Postretirement Benefit Plans
The Company has defined benefit postretirement plans providing
medical benefits for substantially all its employees, full-time
agents, and their dependents, and life insurance coverage for
its employees. The Company and retirees share the cost of the
postretirement medical plan which incorporates cost-sharing
features such as annually adjusted contributions, deductibles
and coinsurance. The medical benefits for agents are
contributory, incorporating cost-sharing features similar to the
retired employees' medical plan. The life insurance benefit is non-
contributory. The Company pays the cost of the postretirement health
care benefits as they occur. The Company makes level annual
contributions to its life insurance plan over the plan participants'
expected service periods.
The plans' funded status, reconciled with the amounts recognized
in the Company's statement of financial position, follows.
1994 1993
Life Life
Medical Insurance MedicaI Insurance
Plans Plan Plans Plan
Accumulated postretirement
benefit obligation:
Retirees $ 4 172 1 923 3 524 1 938
Fully eligible active
plan participants 796 306 785 415
Other active plan
participants 3 105 537 3 492 753
8 073 2 766 7 801 3 106
Unrecognized net gain 2 298 306 2 181 5
$10 371 3 072 9 982 3 111
The net periodic postretirement benefit cost included the
following components by plan.
1994 1993 1992
Medical plans:
Service cost $ 305 434 426
Interest cost 535 658 599
Net amortization of
experience gains (87) - -
$ 753 1 092 1 025
Life insurance plan:
Service cost $ 74 81 113
Interest cost - - -
$ 74 81 113
The weighted average annual assumed rate of increase in the per
capita cost of covered benefits for the medical plans is 12
percent for 1995, compared with 13 percent for 1994, and is
assumed to decrease gradually to 6 percent in 2003. Increasing
the assumed health care cost growth rates by one percentage
point increases the accrued postretirement benefit costs
$1,119,000 and $1,205,000 as of December 31, 1994 and 1993,
respectively. The aggregate service and interest cost
components of the net periodic postretirement benefit cost for
1994 would increase $168,000. The weighted average discount
rate used in determining the accumulated postretirement benefit
obligation was 8.5 percent and 7.0 percent at December 31, 1994
and 1993, respectively.
The Company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in
1992, resulting in a nonrecurring charge to earnings of
$5,592,000, net of taxes. This one-time charge reflected
accrued retiree benefits as of the beginning of 1992, arising
from the switch from the previous pay-as-you-go method to the
required accrual method.
Property and Equipment
1994 1993
Land $ 1 029 1 029
Home office buildings 23 262 23 208
Furniture and equipment 23 552 32 933
47 843 57 170
Less accumulated depreciation (19 038) (26 101)
$28 805 31 069
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method. Home office buildings
are depreciated over 25 to 50 years and furniture and equipment
over 3 to 10 years, their estimated useful lives.
Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially
all its employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The
Company annually funds an amount greater than the minimum required by
ERISA but no more than the maximum deductible for Federal income tax
purposes. Contributions provide not only for benefits attributed to
service to date, but also for those expected to be earned in the
future. The table below states the plan's funded status and those
amounts recognized in the Company's financial statements.
1994 1993
Actuarial present value of
accumulated benefit obligation,
including vested benefits of
$63,829,000 ($71,496,000 - 1993) $64 979 73 011
Projected benefit obligation for
service rendered to date $74 093 84 935
Plan assets at fair value, primarily
listed corporate and U.S. bonds 74 098 79 272
Plan assets in excess of (less than)
projected benefit obligation 5 (5 663)
Items not yet recognized in earnings:
Net loss from past experience 3 733 11 474
Prior service costs 18 21
Net asset at January 1, 1987,
being recognized over 16 years (1 648) (1 854)
Net prepaid pension costs $ 2 108 3 978
1994 1993 1992
Net pension cost includes:
Service costs - benefits earned
during the period $ 3 178 3 156 2 571
Interest cost on projected
benefit obligation 5 835 5 367 4 956
Actual return on plan assets 1 907 (7 631) (5 529)
Net amortization and deferral (8 923) 1 047 (1 049)
Net periodic pension cost $ 1 997 1 939 949
Assumptions were as follows:
Weighted average discount rate 8.5% 7.0 7.0
Weighted average
compensation increase 5.5 5.5 5.5
Weighted average expected
long-term return on plan assets 9.0 9.0 9.0
The Company made no pension contributions from 1992 through 1994.
Non-contributory defined contribution retirement plans are offered
for general agents and eligible sales agents which provide
supplemental payments based upon earned agency first-year individual
life and annuity commissions. Contributions to these plans were
$111,000 ($114,000 - 1993 and $130,000 - 1992). The Company also
sponsors a non-contributory deferred compensation plan for eligible
agents based upon earned first-year commissions. Contributions to
this plan were $377,000 ($370,000 -1993 and $464,000 -1992).
Savings plans for eligible employees and agents are sponsored in
which the Company matches employee contributions up to 10 percent of
salary and agent contributions up to 2.5 percent of prior year paid
commissions. Contributions to the plans were $1,898,000 ($1,839,000
- -1993 and $1,467,000 - 1992).
The Company also has a non-contributory trusteed employee stock
ownership plan covering substantially all salaried employees.
The Company made no contributions to this plan in 1994 and 1993,
but contributed $186,000 in 1992.
Kansas City Life adopted FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits," on January 1, 1994.
This statement generally requires the accrual of liabilities for
providing benefits, such as severance and disability, to former
or inactive employees whose employment ended before becoming
eligible for retirement. This accounting change resulted in the
immediate recognition of a $1,481,000 transition liability, net
of applicable income taxes, reported as a 1994 nonrecurring
expense. Statement No. 112 did not materially effect current
year operating expenses.
Contingent Liability
In April 1994 a jury rendered a verdict against the Company
related to an agent's misappropriation of a portion of the death
benefit payable to a beneficiary. The verdict called for
compensatory damages of $25,000, actual damages of $500,000, and
punitive damages of $10 million. It is the Company's position
that the trial court committed numerous errors in the conduct of
the trial, determination of issues of evidence and rulings on
dispositive motions, and in instructing the jury. Management
believes the Company's loss, if any, related to this matter
should be significantly less than the amounts awarded. However,
the ultimate outcome cannot be presently determined.
Accordingly, these damages have not been provided for in the
accompanying financial statements.
Federal Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement
No. 109, "Accounting for Income Taxes," which requires income
taxes be accounted for by the "liability method" rather than the
"deferred method" which had been in effect.
The Company elected to recognize the adjustment required by this
standard by means of restatement of previous years' financial
statements. As permitted, the Company retroactively adopted
this statement as of January 1, 1988. The cumulative effect of
this change resulted in a $7.7 million reduction to retained
earnings and a corresponding increase to the deferred tax
liability. Since the required adjustment arises primarily from
differing effective tax rates prior to 1988, the accounting
change had no material impact on reported net income for any of
the years presented. With the exception of changes in Federal
income tax rates, on an ongoing basis, the new accounting method
is expected to produce a financial statement impact that is
generally similar to the impact under previous accounting
principles.
As tax rates change, the Company will recognize the impact by a
charge or credit to the income statement. Due to a Federal
income tax rate change from 34 percent to 35 percent during
1993, the Company had a charge of $900,000 to 1993 earnings.
There were no such tax rate changes in 1994. Assets and
liabilities of Old American also have been restated to their
pretax values in accordance with the guideline for treatment of
prior business combinations. This increased assets and the
deferred tax liability $13.3 million each at January 1, 1993.
A reconciliation of the Federal income tax rate and the actual
tax rate experienced is shown below.
1994 1993 1992
Federal income tax rate 35% 35 34
Tax exempt income, dividends and credits (3) (2) (1)
Actual income tax rate 32% 33 33
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below.
1994 1993
Deferred tax assets:
Future policy benefits $41 118 36 692
Basis differences between tax and
GAAP accounting for investments 9 580 -
Employee retirement benefits 10 753 9 058
Other 3 286 3 510
Gross deferred tax assets 64 737 49 260
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 51 151 46 257
Basis differences between tax and
GAAP accounting for investments - 28 178
Property and equipment, net 2 167 1 549
Value of insurance in force 12 405 12 816
Other 2 622 4 221
Gross deferred tax liabilities 68 345 93 021
Net deferred tax liability $ 3 608 43 761
Federal income taxes paid for the year were $22,684,000
($33,191,000 - 1993 and $18,644,000 - 1992).
Prior to 1984, the Life Insurance Company Income Tax Act of 1959
permitted deferring a portion of statutory income to
"policyowners' surplus" without taxation, subject to certain
limitations on distributions to stockholders. Policyowners'
surplus, which is frozen under the Deficit Reduction Act of
1984, is $40,500,000 for Kansas City Life, $2,800,000 for Sunset
Life and $13,700,000 for Old American. The companies do not
plan to distribute their policyowners' surplus. Consequently,
the possibility of such surplus becoming subject to tax is
remote, and no provision has been made in the financial
statements for taxes thereon. Should the balance in
policyowners' surplus become taxable, the tax computed at
current rates would approximate $19,950,000.
Under current and prior law, income taxed on a current basis is
accumulated in "shareholders' surplus" and can be distributed to
stockholders without tax to the Company. At year end 1994, this
shareholders' surplus was $276,251,000 for Kansas City Life,
$57,977,000 for Sunset Life and $24,734,000 for Old American.
Reinsurance
1994 1993 1992
Life Insurance in Force (in millions:
Direct $19 987 18 990 18 824
Ceded (2 072) (1 616) (1 544)
Assumed 36 39 38
Net $17 951 17 413 17 318
Percentage of assumed to net 0% 0 0
Premiums:
Life insurance:
Direct $126 652 121 577 117 421
Ceded (23 538) (21 829) (22 717)
Assumed 210 193 241
Net $103 324 99 941 94 945
Percentage of assumed to net 0% 0 0
Accident and health:
Direct $ 42 709 41 529 41 233
Ceded (11 956) (11 788) (11 094)
Assumed 143 247 206
Net $ 30 896 29 988 30 345
Percentage of assumed to net 0% 1 1
Contract charges arise generally from directly issued business.
Ceded benefit recoveries were $27,365,000 ($30,487,000 - 1993 and
$17,186,000 - 1992).
Old American has a coinsurance agreement with Employers
Reassurance Corporation which reinsures certain whole life
policies issued by Old American prior to December 1, 1986. As
of December 31, 1994, these policies had a face value of
$175,071,000. The reserve for future policy benefits ceded
under this agreement was $54,686,000 ($55,153,000 - 1993).
The maximum retention on any one life is $350,000. A contingent
liability exists with respect to reinsurance, which may become a
liability of the Company in the unlikely event that the
reinsurers should be unable to meet obligations assumed under
reinsurance contracts.
Quarterly Consolidated
Financial Data (unaudited)
First Second Third Fourth
1994:
Total revenues $98 478 98 688 98 174 98 114
Operating income $ 8 978 9 381 9 855 6 705
Realized gains, net 1 020 1 504 1 383 32
Income before
nonrecurring item 9 998 10 885 11 238 6 737
Postemployment
benefits, net 1 481 - - -
Net income $ 8 517 10 885 11 238 6 737
Per common share:
Operating income $ 1.46 1.53 1.60 1.09
Realized gains, net .17 .23 .23 .01
Income before
nonrecurring item 1.63 1.76 1.83 1.10
Postemployment
benefits, net .24 - - -
Net income $ 1.39 1.76 1.83 1.10
1993:
Total revenues $98 293 96 292 101 366 98 372
Operating income $ 7 441 9 491 6 332 2 769
Realized gains, net 2 712 3 915 4 519 4 875
Net income $10 153 13 406 10 851 7 644
Per common share:
Operating income $ 1.20 1.54 1.04 .46
Realized gains, net .45 .64 .73 .78
Net income $ 1.65 2.18 1.77 1.24
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 (the Company as of December
31, 1994 and 1993 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material aspects, the consolidated
financial position of Kansas City Life Insurance Company at
December 31, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in the Notes to the financial statements, the Company
changed its method of accounting for investments and postemployment
benefits in 1994, and postretirement benefits in 1992.
s/ Ernst & Young LLP
Kansas City, Missouri
January 27, 1995, except for the
Subsequent Event note, as to which
the date is March 13, 1995
Interim Financial Statements
<TABLE>
Consolidated
Balance Sheet
(in thousands)
[MULTIPLIER]
1,000
<CAPTION>
September 30 December 31
1995 1994
------------- -------------
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 1,534,923 1,309,297
Securities held to maturity,
at amortized cost 357,531 395,886
Equity securities available
for sale, at market 74,133 82,251
Mortgage loans 254,039 267,695
Real estate, net 49,394 54,976
Real estate joint ventures 28,794 26,120
Policy loans 94,747 95,854
Short-term 35,406 19,340
------------- -------------
2,428,967 2,251,419
Deferred acquisition costs 193,610 193,667
Other assets 215,720 218,667
------------- -------------
$ 2,838,297 2,663,753
============= =============
Liabilities and equity
Future policy benefits $ 680,309 670,658
Accumulated contract values 1,506,330 1,459,045
Other liabilities 227,297 190,355
------------- -------------
Total liabilities 2,413,936 2,320,058
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 12,778 11,847
Unrealized gains (losses) on
securities available for sale 5,553 (51,345)
Retained earnings 469,250 446,149
Less treasury stock (86,341) (86,077)
------------- -------------
424,361 343,695
------------- -------------
$ 2,838,297 2,663,753
============= =============
<FN>
Notes:
* These financial statements are unaudited but, in
management's opinion, include all adjustments
necessary for a fair presentation of the results.
* Income per common share is based upon the weighted
average number of shares outstanding during the period
(6172200 - 1995 and 6150042 - 1994).
* Certain amounts from the prior year's financial
statements have been reclassified to conform with
current year presentation.
</FN>
</TABLE>
<TABLE>
Consolidated
Income Statement
[MULTIPLIER]
1,000
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance $ 24,699 25,222 75,271 78,011
Accident and health 7,226 7,395 21,698 23,481
Contract charges 18,476 17,130 55,516 52,045
Investment revenues:
Investment income, net 46,980 43,573 138,632 128,259
Realized gains 3,505 2,128 3,651 6,011
Other 2,155 2,724 7,361 7,533
------- ------- ------- -------
Total revenues 103,041 98,172 302,129 295,340
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 22,360 18,886 63,905 58,691
Surrenders of life insurance 3,899 3,277 12,858 12,720
Other benefits 12,908 14,348 39,083 41,632
Increase in benefit and contract reserve 23,027 22,361 64,160 62,394
Amortization of policy acquisition costs 6,918 6,215 20,961 20,437
Insurance operating expenses 18,981 16,679 56,642 52,064
Interest expense 18 30 18 444
------- ------- ------- -------
Total benefits and expenses 88,111 81,796 257,627 248,382
------- ------- ------- -------
Pretax income 14,930 16,376 44,502 46,958
------- ------- ------- -------
Federal income taxes:
Current 5,034 4,486 15,331 17,159
Deferred (548) 652 (1,583) (2,321)
------- ------- ------- -------
4,486 5,138 13,748 14,838
------- ------- ------- -------
Income before nonrecurring item 10,444 11,238 30,754 32,120
Postemployment benefits, net 0 0 0 1,481
------- ------- ------- -------
Net income $ 10,444 11,238 30,754 30,639
======= ======= ======= =======
Per common share
Income before nonrecurring item $ 1.69 1.83 4.98 5.22
------- ------- ------- -------
Postemployment benefits, net - - - .24
------- ------- ------- -------
Net income $ 1.69 1.83 4.98 4.98
======= ======= ======= =======
</TABLE>
<TABLE>
Consolidated
Statement of Cash Flows
[MULTIPLIER]
1,000
<CAPTION>
Nine Months ended
September 30
1995 1994
<S> <C> <C>
Operating activities
Net cash provided $30,647 34,289
Investing activities
Investments called or matured:
Fixed maturities available for sale 83,318 179,828
Fixed maturities held to maturity 39,598 64,278
Equity securities available for sale 9,004 26,840
Mortgage loans 38,893 30,057
Other 2,041 1,475
Investments sold:
Fixed maturities available for sale 154,069 32,003
Equity securities available for sale 18,984 0
Real estate 5,410 387
Other 5,314 0
Investments made:
Decrease (increase) in
short-term investments, net (16,112) 84,641
Fixed maturities available for sale (373,293) (461,580)
Fixed maturities held to maturity 0 (21,533)
Equity securities available for sale (12,387) (2,990)
Mortgage loans (21,915) (5,242)
Real estate joint ventures (4,198) (5,465)
Other (1,209) 0
Other, net 177 (1,607)
Net cash used (72,306) (78,908)
Financing activities
Policyowner contract deposits 136,140 135,697
Withdrawals of policyowner
contract deposits (89,087) (80,889)
Dividends paid to stockholders (7,652) (6,395)
Repayment of borrowings 0 (11,446)
Other, net (1,720) 1,264
Net cash provided 37,681 38,231
Decrease in cash ($3,978) (6,388)
</TABLE>
