As filed with the Securities and Exchange Commission on April 30, 1997.
Registration No. 33-95354
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Kansas City Life Variable Life Separate Account
(Exact name of trust)
KANSAS CITY LIFE INSURANCE COMPANY
(Name of depositor)
3520 Broadway
Kansas City, Missouri 64141-6139
(Complete address of depositor's principal executive offices)
C. John Malacarne
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64141-6139
(Name and complete address of agent for service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485 _X_ On May 1,
1998 pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to
paragraph (a)(1) of Rule 485 ___ on (date) pursuant to paragraph (a)(1) of Rule
485
Title of securities being registered: Individual Flexible Premium Variable Life
Insurance Contracts
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT
KANSAS CITY LIFE INSURANCE COMPANY
Cross Reference to Items Required by Form N-8B-2
N-8B-2 Item Caption in Prospectus
1 Cover Page
2 Cover Page
3 Not applicable
4 Sale of the Contracts
5 Kansas City Life Variable Life Separate Account
6 Kansas City Life Variable Life Variable Account
7 Not applicable
8 Not applicable
9 Legal Matters
10 Summary and Diagram of the Contract; Premium Payments and
Allocations; Addition, Deletion or Substitution of Investments; Voting Rights
11 The Funds
12 The Funds
13 Charges and Deductions
14 Premium Payments and Allocations
15 Premium Payments and Allocations
16 The Funds
17 Surrender Privilege; Withdrawal of Cash Surrender Value
18 Kansas City Life Variable Life Separate Account
19 Reports to Contract Owners
20 Not Applicable
21 Contract Loans
22 Not applicable
23 Not applicable
24 Not applicable
25 Kansas City Life Insurance Company
26 Not applicable
27 Kansas City Life Insurance Company
28 Kansas City Life Directors and Executive Officers
29 Not applicable
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 Not applicable
36 Not applicable
37 Not applicable
38 Sale of Contracts
39 Sale of Contracts
40 Sale of Contracts
41 Not applicable
42 Not applicable
43 Not applicable
44 Determining the Contract Value
45 Not applicable
46 Not applicable
47 General Information About Kansas City Life, the Variable Account and
the Funds
48 Not applicable
49 Not applicable
50 The Variable Account
51 Premium Payments and Allocations; Death Benefit and Changes in
Specified Amount; Sale of the Contracts
52 Addition, Deletion or Substitution of Investments
53 Not applicable
54 Not applicable
55 Illustration of Contract Values, Cash Surrender Value, Death Benefits
and Accumulated Premium Payments
56 Illustration of Contract Values, Cash Surrender Value, Death Benefits
and Accumulated Premium Payments
57 Illustration of Contract Values, Cash Surrender Value, Death Benefits
and Accumulated Premium Payments
58 Not applicable
59 Financial Statements
Prospectus
Individual Flexible Premium Variable Life Insurance Contracts
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT OF
Kansas City Life Insurance Company
Home Office: Correspondence to:
3520 Broadway Variable Administration
Kansas City, Missouri 64111-2565 P.O. Box 419364
Telephone (816) 753-7000 Kansas City, Missouri 64141-6364
Telephone (800) 616-3670
This Prospectus describes an individual flexible premium 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 23. The assets of each
Subaccount are invested in a corresponding portfolio (each, a "Portfolio") of
MFS( Variable Insurance TrustSM ("MFS Trust"), of American Century Variable
Portfolios, Inc. ("American Century Variable Portfolios"), of Federated
Insurance Series, of Dreyfus Variable Investment Fund and of Dreyfus Stock Index
Fund. (MFS Trust, American Century Variable Portfolios, Federated Insurance
Series, Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund are each
referred to as a "Fund"). Each Fund is managed by the investment adviser shown
below:
MFS(R)Variable Insurance TrustSM Manager
MFS Emerging Growth Series Massachusetts Financial
MFS Research Series Services Company
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
MFS Bond Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
American Century VP International Management, Inc.
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Advisers
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Capital Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation
The accompanying prospectuses for MFS Trust, American Century Variable
Portfolios, Federated Insurance Series, Dreyfus Variable Investment Fund and
Dreyfus Stock Index Fund describe their respective Portfolios, including the
risks of investing in the Portfolios, and provide other information on MFS
Trust, American Century Variable Portfolios, Federated Insurance Series, Dreyfus
Variable Investment Fund and Dreyfus Stock Index Fund.
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, AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC., FEDERATED INSURANCE SERIES, DREYFUS VARIABLE INVESTMENT FUND
AND DREYFUS STOCK INDEX FUND 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 May 1, 1998.
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 14
Kansas City Life Insurance Company 14
Kansas City Life Variable Life Separate Account
The Funds 14
Resolving Material Conflicts 17
Addition, Deletion or Substitution of Investments 17
Voting Rights 18
PREMIUM PAYMENTS AND ALLOCATIONS 18
Applying for a Contract 18
Free Look Right to Cancel Contract 20
Premiums 20
Premium Payments to Prevent Lapse 21
Premium Allocations and Crediting 22
Transfer Privilege 22
Dollar Cost Averaging Plan 23
Portfolio Rebalancing Plan 23
FIXED ACCOUNT 24
Minimum Guaranteed and Current Interest Rates 24
Calculation of Fixed Account Value 24
Transfers from Fixed Account 25
Payment Deferral 25
CHARGES AND DEDUCTIONS 25
Premium Expense Charge 25
Monthly Deduction 25
Monthly Expense Charge 27
Daily Mortality and Expense Risk Charge 27
Transfer Processing Fee 27
Surrender Charge 27
Partial Surrender Fee 29
Fund Expenses 29
Cost of Additional Benefits Provided by Riders 29
Bonus on Contract Value in the Variable Account 30
Reduced Charges for Eligible Groups 30
Other Tax Charge 30
HOW YOUR CONTRACT VALUES VARY 30
Determining the Contract Value 30
Cash Surrender Value 31
DEATH BENEFIT AND CHANGES IN SPECIFIED AMOUNT 31
Amount of Death Benefit Proceeds 31
Coverage Options 32
Initial Specified Amount and Coverage Option 32
Changes in Coverage Option 32
Changes in Specified Amount 32
Selecting and Changing the Beneficiary 34
CASH BENEFITS 34
Contract Loans 34
Surrendering the Contract for Cash Surrender Value 35
Partial Surrenders 35
Maturity Benefit 36
Payment Options 36
Specialized Uses of the Contract 37
ILLUSTRATIONS OF CONTRACT VALUES, CASH SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS 37
OTHER CONTRACT BENEFITS AND PROVISIONS 47
Limits on Rights to Contest the Contract 47
Changes in the Contract or Benefits 47
Payment of Proceeds 47
Reports to Contract Owners 48
Assignment 48
Reinstatement 48
Supplemental and/or Rider Benefits 48
TAX CONSIDERATIONS 50
Tax Status of the Contract 50
Tax Treatment of Contract Benefits 51
Possible Charge for Kansas City Life's Taxes 53
OTHER INFORMATION ABOUT THE CONTRACTS AND
KANSAS CITY LIFE 53
Sale of the Contracts 53
Telephone Transfer, Premium Allocation and Loan Privileges 54
Kansas City Life Directors and Executive Officers 54
State Regulation 56
Additional Information 56
Experts 57
Litigation 57
Preparing for Year 2000 56
Legal Matters 57
Financial Statements 57
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.
<PAGE>
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
Federated Prime Money Fund II 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 29.
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 20.
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
20.
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 21.
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 30.
Net Premium A premium payment minus the applicable Premium Expense Charge. See
page 24.
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 Federated Prime
Money Fund II 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 on 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.
<PAGE>
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, for as long as it remains in force, provides lifetime insurance
protection on the Insured named in the Contract through the Maturity Date.
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 20.
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 21. If a Contract lapses while loans are outstanding,
adverse tax consequences may result. See "Tax Considerations," page 49.
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 and
"Specialized Uses of the Contract" on page 36.
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 36. 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 49.
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 19. During this "free-look" period, Net
Premiums will be allocated to the Federated Prime Money Fund II Subaccount until
the Reallocation Date. See "Premium Allocations and Crediting," page 21. 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 22.
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.
<PAGE>
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 20.
Under certain circumstances, which include taking excessive Contract loans,
extra premium payments may be required to prevent lapse. See page 21.
DEDUCTIONS FROM PREMIUM PAYMENTS
For state and local premium taxes (2.25 % of premium payments). See page 24.
NET PREMIUM PAYMENTS
You direct the allocation of Net Premium payments among 14 Subaccounts of the
Variable Account and the Fixed Account. See page 21 for rules and limits on Net
Premium payment allocations.
Each Subaccount invests in a corresponding portfolio of a mutual fund:
Mutual Fund Portfolio
MFS(R)Variable Insurance TrustSM MFS Emerging Growth Series
Manager: Massachusetts Financial
Services Company MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
MFS Bond Series
American Century Variable Portfolios American Century VP
Manager: American Century Investment Capital Appreciation
Management, Inc.
American Century VP International
Federated Insurance Series Federated American Leaders Fund II
Manager: Federated Advisers Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Capital Appreciation Portfolio
Manager: The Dreyfus Corporation Small Cap Portfolio
Dreyfus Stock Index Fund Dreyfus Stock Index Fund
Manager: The Dreyfus Corporation
Interest is credited on amounts allocated to the Fixed Account at a minimum
guaranteed rate of 4%. See page 24 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 24.
DEDUCTIONS FROM ASSETS
Daily charge at a guaranteed annual rate of 0.90% from the Subaccounts for
mortality and expense risks. See page 27. 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 28.
Annual Fund Expenses -- (See below)
<TABLE>
MFS
MFS MFS World
Emerging MFS Total MFS Govern- MFS
Growth Research Return Utilities ments Bond
Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C>
MFSR Variable Insurance TrustSM
Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75% 0.75% 0.75% 0.75% 0.60%
Other Expenses (after any expense
reimbursement)1/ 2/ 0.12% 0.13% 0.25% 0.25% 0.25% 0.40%
Total Fund Annual Expenses 1/ 0.87% 0.88% 1.00% 1.00% 1.00% 1.00%
</TABLE>
<TABLE>
AM Cent
VP Capital Am Cent VP
Appreciation International
<S> <C> <C>
American Century Variable Portfolios
Annual Expenses
(as a percentage of average net assets)
Management Fees(Investment Advisory Fees) 1.00% 1.50%
Other Expenses 0.00% 0.00%
Total Fund Annual Expenses3/ 1.00% 1.50%
</TABLE>
<TABLE>
Federated Federated Federated
American High Income Prime
Leaders Bond Money
Fund II Fund II Fund II
<S> <C> <C> <C>
Federated Insurance Series Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.66% 0.51% 0.30%
Other Expenses (after any expense
reimbursement) 0.19% 0.29% 0.50%
Total Fund Annual Expenses4/ 0.85% 0.80% 0.80%
</TABLE>
<TABLE>
Dreyfus
Capital Dreyfus
Appreciation Small Cap
<S> <C> <C>
Dreyfus Variable Investment Fund Annual
Expenses (as a percentage of average
net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75%
Other Expenses (after any expense
reimbursement) 0.05% 0.03%
Total Fund Annual Expenses 0.80% 0.78%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Stock Index
Fund
<S> <C>
Dreyfus Stock Index Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.25%
Other Expenses (after any expense
reimbursement) 0.03%
Total Fund Annual Expenses 0.28%
</TABLE>
Premium taxes, currently ranging up to 3.5%, may be applicable, depending on
various states' laws.
The above tables are intended to assist you in understanding the fund expenses
that you will bear, directly or indirectly. The tables reflect expenses of the
Funds. The Annual Expenses for the Funds are expenses for the most recent fiscal
year, except as noted below. For a more complete description of the various
expenses see the Prospectuses for the underlying Funds that accompany this
Prospectus.
- --------------------------
1/ The investment adviser to MFS Variable Insurance Trust has agreed to bear
expenses for each Series, subject to reimbursement by each Series, such that
each Series' "Other Expenses" shall not exceed the following percentages of the
average daily net assets of the Series during the current fiscal year: .40% for
the Bond Series, and .25% for each remaining Series. Absent this expense
arrangement, "Other Expenses" for the Total Return Series, Utilities Series,
World Governments Series and Bond Series would be .27%, .45%, .40% and 2.98%,
respectively, and Total Annual Fund Expenses would be 1.02%, 1.20%, 1.15% and
3.58%, respectively, for these Series.
2/ Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
3/ The investment adviser to American Century Variable Portfolios pays all the
expenses of the Fund except brokerage, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. For its services, the adviser is paid a fee of 1.50% and 1.00% of the
average net assets of the Am Cent VP International and Am Cent VP Capital
Appreciation, respectively.
4/ The adviser to Federated Insurance Series has agreed to waive all or a
portion of its fee or reimburse the Fund for certain operating expenses so that
the Total Fund Annual Expenses would not exceed .85%, .80%, and .80%
respectively, of average net assets of those Portfolios. The adviser can
terminate this voluntary waiver at any time at its sole discretion. Without this
waiver, the Management Fees would be .75%, .60% and .50% of the average net
assets of Federated American Leaders Fund II, Federated High Income Bond Fund II
and the Federated Prime Money Fund II, respectively, and the Total Fund Annual
Expenses for these Portfolios would be .94%, .89%, and 1.00%, respectively, of
average net assets.
<PAGE>
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 29.
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 29.
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
22 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 33 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
34 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 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
34. Surrenders may be subject to adverse tax consequences.
Payment options are available. See page 35. 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 18.
Two Coverage Options available:
Option A, at least equal to the Specified Amount, and Option B, at least equal
to the Specified Amount plus Contract Value. See page 31.
Flexibility to change the Coverage Option and Specified Amount. See page 31 for
rules and limits.
Supplemental and/or rider benefits may be available. See page 47.
Any Indebtedness is deducted from the amount payable.
<PAGE>
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 48 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 Insurance Company is a member of the Insurance Marketplace
Standards Association ("IMSA") and, as such, may include the IMSA logo and
information about IMSA membership in its advertisements. Companies that belong
to IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
Kansas City Life Variable 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
MFS(R) Trust, American Century Variable Portfolios, Federated Insurance Series,
Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund 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.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of mutual fund portfolios other than the
Portfolios that may be managed by the same investment advisor or manager. The
investment results of the Portfolios, however, may be higher or lower than the
results of such other portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the Portfolios
will be comparable to the investment results of any other portfolios, even if
the other portfolio has the same investment adviser or manager.
MFS(R) Variable Insurance TrustSM
(Manager: Massachusetts Financial Services Company)
MFS Emerging Growth Series. The Emerging Growth Series seeks to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital. The Series' policy is to invest primarily (i.e., at
least 80% of its assets under normal circumstances) in common stocks of
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises (emerging growth companies).
MFS Research Series. The Research Series' investment objective is to
provide long-term growth of capital and future income. The Series' assets are
allocated to selected economic sectors and then to industry groups within those
sectors.
MFS Total Return Series. The Total Return Series' primary investment
objective is to obtain above-average income (compared to a portfolio entirely
invested in equity securities) consistent with the prudent employment of
capital, and its secondary objective is to provide a reasonable opportunity for
growth of capital and income, since many securities offering a better than
average yield may also possess growth potential.
MFS Utilities Series. The Utilities Series' investment objective is to
seek capital growth and current income (income above that available from a
portfolio invested entirely in equity securities). The Series will seek to
achieve its objective by investing, under normal circumstances, at least 65%
(but up to 100% at the discretion of the Series' adviser) of its assets in
equity and debt securities of both domestic and foreign companies in the
utilities industry.
MFS World Governments Series. The World Governments Series' investment
objective is to seek not only preservation, but also growth of capital, together
with moderate current income. The Series seeks to achieve its investment
objective through a professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a lesser extent equity
securities.
MFS Bond Series. The Bond Series' primary investment objective is to
provide as high a level of current income as is believed to be consistent with
prudent investment risk. The Series' secondary objective is to protect
shareholders' capital. Up to 20% of the Series' total assets may be invested in
lower-rated or non-rated debt securities commonly known as "junk bonds." The
risks of investing in junk bonds are described in the prospectus for the MFS(R)
Variable Insurance TrustSM, which should be read carefully before investing.
American Century Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.)
(Manager: American Century Investment Management, Inc. (formerly Investors
Research Corporation))
American Century VP Capital Appreciation Portfolio (formerly TCI Growth
Portfolio). The investment objective of American Century VP Capital Appreciation
is capital growth. The Portfolio will seek to achieve its investment objective
by investing primarily in common stocks that are considered by the investment
adviser to have better-than-average prospects for appreciation.
American Century VP International Portfolio (formerly TCI International
Portfolio). The investment objective of American Century VP International
Portfolio is capital growth. The Portfolio will seek to achieve its investment
objective by investing primarily in securities of foreign companies that meet
certain fundamental and technical standards of selection and that have, in the
opinion of the investment manager, potential for appreciation.
Federated Insurance Series
(Manager: Federated Advisers)
Federated American Leaders Fund II. The primary investment objective of
the Federated American Leaders Fund II is to achieve long-term growth of
capital. The Fund's secondary objective is to provide income. The Fund pursues
its investment objectives by investing, under normal circumstances, at least 65%
of its total assets in common stock of "blue-chip" companies, which are
generally top-quality, established growth companies.
Federated High Income Bond Fund II. The investment objective of the
Federated High Income Bond Fund II is to seek high current income. The Fund
endeavors to achieve its objective by investing primarily in lower-rated
corporate debt obligations commonly referred to as "junk bonds." The risks of
investing in junk bonds is described in the prospectus for Federated Insurance
Series, which should be read carefully before investing.
Federated Prime Money Fund II. The investment objective of the
Federated Prime Money Fund II is to provide current income consistent with
stability of principal and liquidity. The Fund pursues its investment objective
by investing exclusively in a portfolio of money market instruments maturing in
397 days or less.
Dreyfus Variable Investment Fund
(Manager: The Dreyfus Corporation)
Capital Appreciation Portfolio. The primary investment objective of the
Capital Appreciation Portfolio is to provide long-term capital growth consistent
with the preservation of capital. Current income is a secondary investment
objective. This series invests primarily in the common stocks of domestic and
foreign issuers.
Small Cap Portfolio. The investment objective of the Small Cap
Portfolio is to maximize capital appreciation. This series invests primarily in
common stocks of domestic and foreign issuers. This series will be particularly
alert to companies that it considers to be emerging smaller-sized companies
which are believed to be characterized by new or innovative products, services
or processes which should enhance prospects for growth in future earnings.
Dreyfus Stock Index Fund
(Manager: The Dreyfus Corporation)
The primary investment objective of the Stock Index Fund is to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index. In anticipation of taking a market
position, the Fund is permitted to purchase and sell stock index futures. The
Fund is neither sponsored by nor affiliated with Standard & Poor's.
THERE IS NO ASSURANCE THAT THE 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 pays Kansas City Life a fee based upon an annual percentage of the
average aggregate net amount invested by Kansas City Life on behalf of the
Variable Account and other separate accounts of Kansas City Life. These
percentages differ, and Kansas City Life is paid a greater percentage by some
investment advisers or distributors than other advisers or distributors. These
agreements reflect administrative services provided by Kansas City Life.
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 20. In
general, policies that are submitted with the required premium payment will have
a Contract Date which will be the date of the TIA. However, if the Contract Date
is calculated to be the 29th, 30th or 31st of the month then the date will be
set to the 1st of the next following month. For Contracts where premium is not
accepted at the time of application or Contracts where values are applied to the
new Contract from another contract, the Contract Date will be the approval date
plus up to two days, unless the approval is the 27th, 28th or 29th of the month
in which case the Contract Date would be the first of the next month. There are
several exceptions to these rules, based on the type of billing, whether the
contract involves a conversion and/or whether the specified amount exceeds
$250,000.
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB)--Premium With
Application If PAC or CB is requested and the initial premium is taken with the
application, the Contract Date will be the later of the TIA date or the first of
the month of approval. Combined Billing is a billing where more than one Kansas
City Life contract is billed together.
Combined Billing (CB)--No Premium With Application
If CB is requested and the initial premium is not taken with the application,
the Contract Date will be the earlier of the 1st of the month after the Contract
is approved or the date the initial premium is received. However, if approval
occurs on the 1st, 2nd, 3rd, 4th or 5th of the month the Contract Date will be
the first of the same month that the Contract is approved. In addition, if the
Contract Date is calculated to be the 29th, 30th or 31st of the month then the
date will be set to the 1st of the following month.
Government Allotment (GA) and Federal Allotment (FA)
If GA or FA is requested on the application and an initial premium is taken with
the application, the Contract Date will be the 1st of the month of approval. If
GA or FA is requested and no initial premium is received the Contract Date will
be the first of the month for which a full monthly allotment is received.
Conversions
If a Kansas City Life term insurance product is converted to a new Contract, the
Contract Date will be the date that the previous contract was paid to. If there
is more than one term policy being converted, the Contract Date will be
determined by the contract with the earliest date that premiums were paid to.
Specified Amount Exceeds $250,000
If the specified amount requested exceeds $250,000 and an initial premium is
taken with the application, the Contract Date will be the later of the TIA date
or the 1st of the month of approval.
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 49.
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 (except
in Texas) 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 49.
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,
based on Kansas City Life's interpretation of the relevant tax rules, your
Contract is in jeopardy of becoming a modified endowment contract. See "Tax
Considerations," page 49.
Also, Kansas City Life reserves the right to require satisfactory evidence of
insurability prior to accepting unscheduled premiums. See "Premium Allocations
and Crediting," page 21.
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," page 33.
Planned Periodic Premiums. When applying for a Contract, you select a plan
for paying level premium payments quarterly, semi-annually or annually. If you
elect, Kansas City Life will also arrange for payment of Planned Periodic
Premiums on a special monthly, quarterly, semi-annual or annual 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 21, and "Guaranteed Payment Period and Guaranteed Monthly
Premium," below.) Each premium after the initial premium must be at least $25.
Subject to the limits described above, you can change the amount and frequency
of Planned Periodic Premiums at any time. 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 31.
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 20.
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. 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
30. 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 47.
A grace period also may begin if Indebtedness becomes excessive. See "Loan
Repayment," page 33.
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%. Kansas City Life reserves the right to limit the
number of Subaccounts to which premiums may be allocated (not applicable to
Texas Contracts). In any case, we will never limit the number to less than 12.
You can change the allocation percentages at any time, subject to these rules,
by sending Written Notice to the Home Office. Changes in your allocation may
also be made by telephone if a proper authorization has been provided. See
"Telephone Transfer, Premium Allocation and Loan Privileges," page 53. 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
Federated Prime Money Fund II Subaccount. If any additional premiums are
received before the Reallocation Date, the corresponding Net Premiums also will
be allocated to the Federated Prime Money Fund II Subaccount. On the
Reallocation Date the Contract Value in the Federated Prime Money Fund II
Subaccount will be allocated to the Subaccounts and to the Fixed Account as
requested. See "Determining the Contract Value," page 29.
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
Period 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 Valuation Day that we receive Written Notice
requesting such transfer. Transfers may also be made by telephone if the
appropriate election has been made at the time of application or proper
authorization has been provided to us. See "Telephone Transfer, Premium
Allocation and Loan Privileges," page 53. 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 24, 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 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 remaining Contract Value.
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 Federated Prime Money Fund II
Subaccount to other Subaccounts. By allocating on a regularly scheduled basis,
as opposed to allocating the total amount at one particular time, you may be
less susceptible to the impact of market fluctuations. However, we make no
guarantee that the Dollar Cost Averaging Plan will result in a gain.
At least $250 must be transferred from the Federated Prime Money Fund II
Subaccount each month. The required amounts may be allocated to the Federated
Prime Money Fund II Subaccount through initial or subsequent premium payments or
by transferring amounts into the Federated Prime Money Fund II Subaccount from
the other Subaccounts or from the Fixed Account (which may be subject to certain
restrictions).
You may elect this plan at the time of application by completing the
authorization on the application or at any time after the Contract is issued by
properly completing the election form and returning it to us. The election form
allows you to specify the number of months for the Dollar Cost Averaging Plan to
be in effect. Dollar cost averaging transfers will commence on the next Monthly
Anniversary Day on or next following the Reallocation Date or the date you
request. Dollar cost averaging will terminate at the completion of the
designated number of months, or when the value of the Federated Prime Money Fund
II Subaccount is completely depleted, or the day we receive Written Notice
instructing us to cancel the Dollar Cost Averaging Plan.
Transfers made from the Federated Prime Money Fund II 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. If the
Contract Value is negative at the time portfolio rebalancing is scheduled, the
re-distribution will not be completed.
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 or transfers 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
We may realize a profit on any charges and deductions under the Contract. We may
use any such profit for any purpose, including payment of distribution charges.
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.
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 18. 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 31), 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, Specified Amount
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 47. 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. (In some states, the
cost of insurance rates do not vary by sex.)
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 18.
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. 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 47.
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.
The mortality risk Kansas City Life assumes is that the Insureds under 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 Contract 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 purpose of the Deferred Sales Load is to reimburse Kansas City Life for some
of the expenses incurred in the distribution of the Contracts.
Deferred Administrative Expense. The Table below shows the Deferred
Administrative Expense deducted if the Contract is completely surrendered or
lapses or if the Specified Amount is reduced (including when a partial surrender
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.
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.
Reduced Charges for Eligible Groups
The sales charge and administration charges otherwise applicable may be reduced
with respect to Contracts issued to a class of associated individuals or to a
trustee, employer or similar entity where Kansas City Life anticipates that the
sales to the members of the class will result in lower than normal sales or
administrative expenses. These reductions will be made in accordance with our
rules in effect at the time of the application for a Contract. The factors we
will consider in determining the eligibility of a particular group for reduced
charges and the level of the reduction are as follows: the nature of the
association and its organizational framework, the method by which sales will be
made to the members of the class, the facility with which premiums will be
collected from the associated individuals and the association's capabilities
with respect to administrative tasks, the anticipated persistency of the
Contract, the size of the class of associated individuals and the number of
years it has been in existence and any other such circumstances which justify a
reduction in sales or administrative expenses. Any reduction will be reasonable
and will apply uniformly to all prospective Contract purchases in the class and
will not be unfairly discriminatory to the interests of any Contract holder.
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 21) 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 20,
and "Grace Period," page 21.
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 transferred, 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.
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 20. It is also the amount that is available upon full
surrender of the Contract. See "Surrendering the Contract for Cash Surrender
Value," page 34.
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 "Payment of
Proceeds," page 46) or, if elected, under a payment option (see "Payment
Options," page 35). The Death Benefit proceeds will be paid to the Beneficiary.
See "Selecting and Changing the Beneficiary," page 32.
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 or the Death Benefit may not be payable. See "Limits on Rights
to Contest the Contract" and "Misstatement of Age or Sex," page 46.
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 38.
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
We reserve the right to require that no change in Coverage Option occur during
the first Contract Year and that no more than one change in Coverage Option be
made in any 12-month period. 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. Kansas
City Life may require satisfactory evidence of insurability.
Changes in Specified Amount
You may request a change in the Specified Amount. We reserve the right to
require that the Contract be in force for one Contract Year before a change in
Specified Amount; and, we reserve the right to only allow one change in
Specified Amount every 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 27.
Any increase in the Specified Amount must be at least $25,000 and an application
must be submitted. (In Pennsylvania and Texas an increase in the Specified
Amount must be at least $100,000 for ages 0-49 and $50,000 for ages 50-80 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 21.
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 20 and "Premium Payments Upon Increase in
Specified Amount," page 21.
An increase in Specified Amount may be canceled 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 19.
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 27). 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.
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.
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. Loans may also be made by
telephone if the appropriate election has been made at the time of application
or proper authorization has been provided to us. See "Telephone Transfer,
Premium Allocation and Loan Privileges," page 53. 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 "Payment of Proceeds," page 46.
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 4.0%. 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). Interest earned on
the Loan Account will be added to 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. 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 $10.00. 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.
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 49, 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. In
addition, interest paid on Contract Loans generally is not tax deductible.
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 30.
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 21.
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 27. 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 "Payment of Proceeds," page 46. The Cash
Surrender Value may be taken in one lump sum or it may be applied to a payment
option. See "Payment Options," page 35. 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 49.
(In Texas, if a surrender is requested within 31 days after a Contract
Anniversary, the Cash Surrender Value applicable to the Fixed Account Value will
not be less than the Cash Surrender Value applicable to the Fixed Account on
that anniversary, less any policy loans or partial surrenders made on or after
such Anniversary.)
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 28. 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 24.
Partial surrenders may have adverse tax consequences. See "Tax Considerations,"
page 49.
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 31.
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 "Payment
of Proceeds," page 46.
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 ($2,000 minimum may not apply in some states)
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.
Specialized Uses of the Contract
Because the Contract provides for an accumulation of cash value as well as a
death benefit, the Contract can be used for various individual and business
financial planning purposes. Purchasing the Contract in part for such purposes
entails certain risks. For example, if the investment performance of Subaccounts
to which Variable Account Value is allocated is poorer than expected or if
sufficient premiums are not paid, the Contract may lapse or may not accumulate
sufficient Variable Account Value to fund the purpose for which the Contract was
purchased. Partial surrenders and Contract loans may significantly affect
current and future Contract Value, Cash Surrender Value, or Death Benefit
proceeds. Depending upon Subaccount investment performance and the amount of a
Contract loan, the loan may cause a Contract to lapse. Because the Contract is
designed to provide benefits on a long-term basis, before purchasing a Contract
for a specialized purpose a purchaser should consider whether the long-term
nature of the Contract is consistent with the purpose for which it is being
considered. Using a Contract for a specialized purpose may have tax
consequences.
See "Tax Considerations" on page 49.
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 14 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 .90% 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 -1.79%, 4.16%
and 10.10%, 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 or 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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 482 0 100,000 524 0 100,000 567 0 100,000
2 2,153 1,184 265 100,000 1,308 388 100,000 1,436 517 100,000
3 3,310 1,864 464 100,000 2,113 713 100,000 2,383 983 100,000
4 4,526 2,521 821 100,000 2,941 1,241 100,000 3,414 1,714 100,000
5 5,802 3,154 1,154 100,000 3,791 1,791 100,000 4,538 2,538 100,000
6 7,142 3,760 1,798 100,000 4,662 2,700 100,000 5,761 3,799 100,000
7 8,549 4,341 2,429 100,000 5,555 3,643 100,000 7,093 5,181 100,000
8 10,027 4,894 3,032 100,000 6,468 4,606 100,000 8,545 6,683 100,000
9 11,578 5,420 3,608 100,000 7,402 5,590 100,000 10,128 8,316 100,000
10 13,207 5,916 4,406 100,000 8,357 6,847 100,000 11,855 10,345 100,000
15 22,657 8,208 8,208 100,000 13,840 13,840 100,000 23,852 23,852 100,000
20 34,719 9,693 9,693 100,000 20,113 20,113 100,000 43,402 43,402 100,000
25 50,113 9,880 9,880 100,000 26,987 26,987 100,000 75,877 75,877 101,000
30 69,761 7,883 7,883 100,000 34,061 34,061 100,000 129,636 129,636 155,563
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 482 0 100,000 524 0 100,000 567 0 100,000
2 2,153 1,184 265 100,000 1,308 388 100,000 1,436 517 100,000
3 3,310 1,864 464 100,000 2,113 713 100,000 2,383 983 100,000
4 4,526 2,521 821 100,000 2,941 1,241 100,000 3,414 1,714 100,000
5 5,802 3,154 1,154 100,000 3,791 1,791 100,000 4,538 2,538 100,000
6 7,142 3,760 1,798 100,000 4,662 2,700 100,000 5,761 3,799 100,000
7 8,549 4,341 2,429 100,000 5,555 3,643 100,000 7,093 5,181 100,000
8 10,027 4,894 3,032 100,000 6,468 4,606 100,000 8,545 6,683 100,000
9 11,578 5,420 3,608 100,000 7,402 5,590 100,000 10,128 8,316 100,000
10 13,207 5,916 4,406 100,000 8,357 6,847 100,000 11,855 10,345 100,000
15 22,657 7,902 7,902 100,000 13,399 13,399 100,000 23,185 23,185 100,000
20 34,719 8,805 8,805 100,000 18,712 18,712 100,000 40,962 40,962 100,000
25 50,113 7,966 7,966 100,000 23,761 23,761 100,000 69,518 69,518 100,000
30 69,761 4,220 4,220 100,000 27,609 27,609 100,000 116,093 116,093 139,311
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 480 0 100,480 523 0 100,523 566 0 100,566
2 2,153 1,181 81 101,181 1,304 204 101,304 1,432 332 101,432
3 3,310 1,857 457 101,857 2,105 705 102,105 2,373 973 102,373
4 4,526 2,508 808 102,508 2,926 1,226 102,926 3,396 1,696 103,396
5 5,802 3,134 1,134 103,134 3,767 1,767 103,767 4,508 2,508 104,508
6 7,142 3,732 1,770 103,732 4,626 2,664 104,626 5,713 3,751 105,713
7 8,549 4,301 2,389 104,301 5,502 3,590 105,502 7,022 5,110 107,022
8 10,027 4,841 2,979 104,841 6,395 4,533 106,395 8,443 6,581 108,443
9 11,578 5,351 3,539 105,351 7,303 5,491 107,303 9,986 8,174 109,986
10 13,207 5,829 4,319 105,829 8,227 6,717 108,227 11,660 10,150 111,660
15 22,657 7,989 7,989 107,989 13,435 13,435 113,435 23,105 23,105 123,105
20 34,719 9,242 9,242 109,242 19,088 19,088 119,088 41,038 41,038 141,038
25 50,113 9,048 9,048 109,048 24,609 24,609 124,609 68,921 68,921 168,921
30 69,761 6,508 6,508 106,508 28,823 28,823 128,823 111,961 111,961 211,961
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 480 0 100,480 523 0 100,523 566 0 100,566
2 2,153 1,181 81 101,181 1,304 204 101,304 1,432 332 101,432
3 3,310 1,857 457 101,857 2,105 705 102,105 2,373 973 102,373
4 4,526 2,508 808 102,508 2,926 1,226 102,926 3,396 1,696 103,396
5 5,802 3,134 1,134 103,134 3,767 1,767 103,767 4,508 2,508 104,508
6 7,142 3,732 1,770 103,732 4,626 2,664 104,626 5,713 3,751 105,713
7 8,549 4,301 2,389 104,301 5,502 3,590 105,502 7,022 5,110 107,022
8 10,027 4,841 2,979 104,841 6,395 4,533 106,395 8,443 6,581 108,443
9 11,578 5,351 3,539 105,351 7,303 5,491 107,303 9,986 8,174 109,986
10 13,207 5,829 4,319 105,829 8,227 6,717 108,227 11,660 10,150 111,660
15 22,657 7,676 7,676 107,676 12,985 12,985 112,985 22,420 22,420 122,420
20 34,719 8,332 8,332 108,332 17,636 17,636 117,636 38,477 38,477 138,477
25 50,113 7,101 7,101 107,101 21,234 21,234 121,234 62,045 62,045 162,045
30 69,761 2,905 2,905 102,905 22,122 22,122 122,122 96,146 96,146 196,146
</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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 503 0 100,000 546 0 100,000 590 0 100,000
2 2,153 1,226 337 100,000 1,352 463 100,000 1,483 595 100,000
3 3,310 1,926 526 100,000 2,180 780 100,000 2,456 1,056 100,000
4 4,526 2,601 901 100,000 3,032 1,332 100,000 3,516 1,816 100,000
5 5,802 3,253 1,457 100,000 3,907 2,111 100,000 4,672 2,876 100,000
6 7,142 3,878 2,132 100,000 4,803 3,057 100,000 5,929 4,183 100,000
7 8,549 4,476 2,780 100,000 5,722 4,026 100,000 7,299 5,603 100,000
8 10,027 5,048 3,402 100,000 6,664 5,018 100,000 8,794 7,148 100,000
9 11,578 5,595 3,999 100,000 7,630 6,034 100,000 10,427 8,831 100,000
10 13,207 6,116 4,786 100,000 8,623 7,293 100,000 12,214 10,884 100,000
15 22,657 8,713 8,713 100,000 14,523 14,523 100,000 24,819 24,819 100,000
20 34,719 10,825 10,825 100,000 21,664 21,664 100,000 45,658 45,658 100,000
25 50,113 12,316 12,316 100,000 30,291 30,291 100,000 80,501 80,501 104,651
30 69,761 12,786 12,786 100,000 40,580 40,580 100,000 138,153 138,153 165,784
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 503 0 100,000 546 0 100,000 590 0 100,000
2 2,153 1,226 337 100,000 1,352 463 100,000 1,483 595 100,000
3 3,310 1,926 526 100,000 2,180 780 100,000 2,456 1,056 100,000
4 4,526 2,601 901 100,000 3,032 1,332 100,000 3,516 1,816 100,000
5 5,802 3,253 1,457 100,000 3,907 2,111 100,000 4,672 2,876 100,000
6 7,142 3,878 2,132 100,000 4,803 3,057 100,000 5,929 4,183 100,000
7 8,549 4,476 2,780 100,000 5,722 4,026 100,000 7,299 5,603 100,000
8 10,027 5,048 3,402 100,000 6,664 5,018 100,000 8,794 7,148 100,000
9 11,578 5,595 3,999 100,000 7,630 6,034 100,000 10,427 8,831 100,000
10 13,207 6,116 4,786 100,000 8,623 7,293 100,000 12,214 10,884 100,000
15 22,657 8,317 8,317 100,000 13,981 13,981 100,000 24,039 24,039 100,000
20 34,719 9,692 9,692 100,000 19,964 19,964 100,000 42,863 42,863 100,000
25 50,113 10,032 10,032 100,000 26,550 26,550 100,000 73,489 73,489 100,000
30 69,761 8,864 8,864 100,000 33,616 33,616 100,000 123,357 123,357 148,029
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 502 0 100,502 545 0 100,545 589 0 100,589
2 2,153 1,223 137 101,223 1,348 263 101,348 1,480 394 101,480
3 3,310 1,919 519 101,919 2,173 773 102,173 2,448 1,048 102,448
4 4,526 2,590 890 102,590 3,018 1,318 103,018 3,500 1,800 103,500
5 5,802 3,235 1,439 103,235 3,884 2,088 103,884 4,644 2,848 104,644
6 7,142 3,852 2,106 103,852 4,769 3,023 104,769 5,886 4,140 105,886
7 8,549 4,439 2,743 104,439 5,673 3,977 105,673 7,234 5,538 107,234
8 10,027 4,999 3,353 104,999 6,595 4,949 106,595 8,700 7,054 108,700
9 11,578 5,531 3,935 105,531 7,538 5,942 107,538 10,295 8,699 110,295
10 13,207 6,036 4,706 106,036 8,502 7,172 108,502 12,032 10,702 112,032
15 22,657 8,520 8,520 108,520 14,168 14,168 114,168 24,162 24,162 124,162
20 34,719 10,452 10,452 110,452 20,821 20,821 120,821 43,718 43,718 143,718
25 50,113 11,670 11,670 111,670 28,489 28,489 128,489 75,308 75,308 175,308
30 69,761 11,715 11,715 111,715 36,855 36,855 136,855 126,167 126,167 226,167
</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.
<PAGE>
<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% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accum at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Interest per year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 502 0 100,502 545 0 100,545 589 0 100,589
2 2,153 1,223 137 101,223 1,348 263 101,348 1,480 394 101,480
3 3,310 1,919 519 101,919 2,173 773 102,173 2,448 1,048 102,448
4 4,526 2,590 890 102,590 3,018 1,318 103,018 3,500 1,800 103,500
5 5,802 3,235 1,439 103,235 3,884 2,088 103,884 4,644 2,848 104,644
6 7,142 3,852 2,106 103,852 4,769 3,023 104,769 5,886 4,140 105,886
7 8,549 4,439 2,743 104,439 5,673 3,977 105,673 7,234 5,538 107,234
8 10,027 4,999 3,353 104,999 6,595 4,949 106,595 8,700 7,054 108,700
9 11,578 5,531 3,935 105,531 7,538 5,942 107,538 10,295 8,699 110,295
10 13,207 6,036 4,706 106,036 8,502 7,172 108,502 12,032 10,702 112,032
15 22,657 8,110 8,110 108,110 13,602 13,602 113,602 23,340 23,340 123,340
20 34,719 9,269 9,269 109,269 19,009 19,009 119,009 40,669 40,669 140,669
25 50,113 9,282 9,282 109,282 24,426 24,426 124,426 67,309 67,309 167,309
30 69,761 7,666 7,666 107,666 29,209 29,209 129,209 108,300 108,300 208,300
</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.
<PAGE>
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 (or less if required by
state law), 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 (or less if required by state law).
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 (or less if required by
state law).
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.
Payment of Proceeds
Kansas City Life will ordinarily pay any Death Benefit proceeds, maturity
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.
Under certain circumstances and in accordance with established administrative
procedures, we will pay death benefit proceeds through Kansas City Life's
Personal Growth Account, an interest bearing account. Proceeds paid through the
Personal Growth Account are placed in our general account. Check-writing
privileges are provided in the Personal Growth Account under which the bank that
pays the check will be reimbursed by Kansas City Life out of the proceeds held
in our general account. The Personal Growth Account is not a bank account and is
not insured nor guaranteed by the FDIC or any other government agency. A
Contract Owner or beneficiary (whichever applicable) will have immediate access
to the proceeds by writing a check on the account. We pay interest from the date
of death to the date the Personal Growth Account is closed.
Other than the Death Benefit, which is determined as of the date of death, the
amount of a Contract transaction 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 providing updated
information about the Contract since the last report, including any 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 , 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.
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. DPB 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: 5-60
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.
The amount 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.
Maturity Extension Rider (MER)
Issue Ages: No restrictions
This rider provides the Contract owner with the option to delay the
Maturity Date of the Contract by 20 years.
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. ss. 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 Contract holders 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 Contract owners 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 excludable 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.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new Contract or a
change in an existing Contract should consult a tax advisor.
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 1/2, 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.
If a Contract becomes a modified endowment contract after it is issued,
distributions made during the Contract Year in which it becomes a modified
endowment contract, distributions in any subsequent Contract Year and
distributions within two years before the Contract becomes a modified endowment
contract will be subject to the tax treatment described above. This means that a
distribution from a Contract that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.
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. A preferred loan may not, however, be treated as
Indebtedness; instead, it may be treated as a distribution.
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. Interest paid on a loan under a Contract generally
is not deductible. 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.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the Contract could change by legislation
or otherwise. For instance, the President's 1999 Budget Proposal recommended
legislation that, if enacted, would adversely modify the federal taxation of
this Contract. It is possible that any legislative change could be retroactive
(that is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
Contract.
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 or of broker-dealers who have entered into written sales agreements
with Sunset Financial. Sunset Financial is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.
Sunset Financial acts as the Principal Underwriter, as defined in the 1940 Act,
of the Contracts for the Variable Account pursuant to an Underwriting Agreement
between Kansas City Life and Sunset Financial. Sunset Financial is not obligated
to sell any specific number of Contracts. Sunset Financial's principal business
address is 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.
When policies are sold through other broker-dealers that have entered into
selling agreements with Sunset Financial Services, the commission which will be
paid by such broker-dealers to their representatives will be in accordance with
their established rules. The commission rates may be more or less than those set
forth above for Kansas City Life's representatives. In addition, their qualified
registered representatives may be reimbursed by the broker-dealers under expense
reimbursement allowance programs in any year for approved voucherable expenses
incurred. The broker-dealers will be compensated as provided in the selling
agreements, and Sunset Financial Services, Inc. will reimburse Kansas City Life
for such amounts and for certain other direct expenses in connection with
marketing the Contracts through other broker-dealers.
Telephone Transfer, Premium Allocation and Loan Privileges
A transfer of Contract Value, change in premium allocation or Contract
loan may be made 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, change in premium allocation,
and loan privileges at any time, for any reason, if we deem such suspension to
be in the best interests of Contract Owners.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, and if we follow those procedures we will not be
liable for any losses due to unauthorized or fraudulent instructions. We may be
liable for such losses if we do not follow those reasonable procedures. The
procedures we will follow for telephone transfers and loans 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.
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. Director of Sunset
Life and Old American Insurance Company,
subsidiaries of Kansas City Life.
Walter E. Bixby Director, Kansas City Life; Vice Chairman of
the Board since 1974; President and CEO from
1990 until he retired in April, 1998. Chairman
of the Board of Sunset Life 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; Executive Vice
President in 1996 and President and CEO in
April, 1998; primarily responsible for the
operation of the Company.
W. E. Bixby, III Director, Kansas City Life; Director and
President of Old American Insurance Company, a
subsidiary of Kansas City Life. Director of
Sunset Life, a subsidiary of Kansas City Life.
Charles R. Duffy Jr. Elected Vice President,Insurance Administration
in November, 1989; Senior Account Executive,
Cybertek Corporation, January, 1989 to
November,1989; Senior Vice President, Operations
in 1996; responsible for Computer Information
Systems, Customer Services, Claims, Premium
Collection and Agency Administration. Director
of Sunset Life and Old American, subsidiaries of
Kansas City Life.
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 and
Director and Treasurer of Sunset Life,
subsidiaries 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, 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, Stock
Transfer Department and Market Compliance.
Director and Secretary of Sunset Life and Old
American, subsidiaries of Kansas City Life.
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.
Webb R. Gilmore Director, Kansas City Life since 1990; Partner-
Gilmore and Bell.
Nancy Bixby Hudson Director, Kansas City Life since 1996; Investor.
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.
Elizabeth T. Solberg Director, Kansas City Life since 1997; Executive
Vice President and Senior Partner,
Fleishman-Hilliard, Inc., a position she has
held since 1984.
Larry Winn Jr. Director, Kansas City Life since 1985; Retired
as the Kansas Third District Representative to
the U.S. Congress.
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 of Old
American, a subsidiary of Kansas City Life.
*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 balance sheets for Kansas City Life at December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997, and the statement of net assets of the Variable Account at December 31,
1997, and the related statements of operations and changes in net assets for the
year ended December 31, 1997, and for the period from January 29, 1996
(inception), to December 31, 1996, appearing herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Mark A.
Milton, Vice President and Associate Actuary of Kansas City Life.
Litigation
Kansas City Life and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Kansas City Life believes that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Variable Account or
Kansas City Life.
Preparing for Year 2000
Like all financial services providers, Kansas City Life utilizes systems that
may be affected by Year 2000 transition issues, and it relies on service
providers, including the Funds, that also may be affected. Kansas City Life has
developed, and is in the process of implementing, a Year 2000 transition plan,
and is confirming that its service providers are also so engaged. The resources
that are being devoted to this effort are substantial. It is difficult to
predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on Kansas City Life.
However, as of the date of this prospectus, it is not anticipated that Contract
Owners will experience negative effects of their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. Kansas City Life currently anticipates that its systems will be
Year 2000 compliant on or about January 1, 1999, but there can be no assurance
that we will be successful, or that interaction with other service providers
will not impair our services at that time.
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
Kansas City Life's consolidated balance sheet as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997
appearing herein 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. They should not be
considered as bearing on the investment performance of the assets held in the
Account. The statement of net assets of the Variable Account at December 31,
1997, and the related statement of operations and changes in net assets for the
period ended December 31, 1997, and for the period from January 29, 1996
(inception), to December 31, 1996, are also included herein.
CONSOLIDATED INCOME STATEMENT
1997 1996 1995
REVENUE
Insurance revenues:
Premiums:
Life insurance $106 051 103 263 101 341
Accident and health 44 931 37 575 29 475
Contract charges 93 713 78 755 74 642
Investment revenues:
Investment income, net 193 696 186 743 188 087
Realized investment gains, net 14 505 3 013 4 950
Other 9 998 9 768 10 290
TOTAL REVENUES 462 894 419 117 408 785
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 100 037 87 940 85 388
Surrenders of life insurance 14 999 15 488 16 345
Other benefits 71 338 65 437 53 441
Increase in benefit and contract reserves 86 804 85 614 89 139
Amortization of policy acquisition costs 35 712 30 086 27 992
Insurance operating expenses 91 381 75 227 76 557
TOTAL BENEFITS AND EXPENSES 400 271 359 792 348 862
Income before Federal income taxes 62 623 59 325 59 923
Federal income taxes:
Current 15 073 26 073 22 038
Deferred 2 689 (9 063) (3 853)
17 762 17 010 18 185
NET INCOME $ 44 861 42 315 41 738
Basic and diluted earnings per share $7.25 6.84 6.76
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
1997 1996
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost $1,952,741,000;
$1,762,091,000 - 1996) $2 004 516 1 759 153
Held to maturity, at amortized cost
(fair value $151,495,000;
$256,042,000 - 1996) 145 661 248 433
Equity securities available for sale,
at fair value (cost $107,034,000;
$71,522,000 - 1996) 114 986 79 018
Mortgage loans on real estate, net 270 054 246 493
Real estate, net 36 764 43 750
Real estate joint ventures 43 347 28 356
Policy loans 123 186 94 412
Short-term 74 341 19 642
Other 7 500 -
TOTAL INVESTMENTS 2 820 355 2 519 257
Cash 50 927 4 577
Accrued investment income 42 385 41 847
Receivables, net 10 204 6 854
Property and equipment, net 23 628 24 791
Deferred acquisition costs 209 826 207 020
Value of purchased insurance in force 108 458 38 031
Reinsurance assets 99 593 93 328
Other 16 096 5 089
Separate account assets 57 980 13 916
$3 439 452 2 954 710
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 766 583 671 204
Accident and health 37 155 30 356
Accumulated contract values 1 755 133 1 544 714
Policy and contract claims 37 569 35 223
Other policyholders' funds:
Dividend and coupon accumulations 62 056 43 141
Other 68 861 60 970
Income taxes:
Current 16 113 3 537
Deferred 39 917 19 748
Other 67 491 69 037
Separate account liabilities 57 980 13 916
TOTAL LIABILITIES 2 908 858 2 491 846
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 16 256 14 761
Unrealized gains on securities
available for sale, net 36 448 2 963
Retained earnings 543 715 509 748
Less treasury stock, at cost
(3,055,275 shares; 3,058,871 shares -1996) (88 946) (87 729)
TOTAL STOCKHOLDERS' EQUITY 530 594 462 864
$3 439 452 2 954 710
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
1997 1996 1995
COMMON STOCK, beginning and end of year $ 23 121 23 121 23 121
PAID IN CAPITAL:
Beginning of year 14 761 13 039 11 847
Excess of proceeds over
cost of treasury stock sold 1 495 1 722 1 192
End of year 16 256 14 761 13 039
UNREALIZED GAINS (LOSSES ON SECURITIES
AVAILABLE FOR SALE:
Beginning of year 2 963 29 740 (51 345)
Unrealized appreciation (depreciation)
on securities available for sale, net 33 485 (26 777) 81 085
End of year 36 448 2 963 29 740
RETAINED EARNINGS:
Beginning of year 509 748 477 826 446 149
Net income 44 861 42 315 41 738
Stockholder dividends of $1.76 per share
($1.68 - 1996 and $1.63 - 1995) (10 894) (10 393) (10 061)
End of year 543 715 509 748 477 826
TREASURY STOCK, at cost:
Beginning of year (87 729) (86 599) (86 077)
Cost of 20,090 shares acquired
(27,876 shares - 1996 and
17,240 shares - 1995) (1 440) (1 501) (829)
Cost of 23,686 shares sold
(39,440 shares - 1996 and
32,709 shares - 1995) 223 371 307
End of year (88 946) (87 729) (86 599)
TOTAL STOCKHOLDERS' EQUITY $530 594 462 864 457 127
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
1997 1996 1995
OPERATING ACTIVITIES
Net income $ 44 861 42 315 41 738
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (1 290) (4 071) (5 215)
Depreciation 5 379 4 995 5 265
Policy acquisition costs capitalized (42 170) (38 639) (40 388)
Amortization of deferred
policy acquisition costs 35 712 30 086 27 992
Realized investment gains (14 505) (3 013) (4 950)
Changes in assets and liabilities:
Future policy benefits 16 227 15 831 15 071
Accumulated contract values (9 933) 3 183 8 135
Other policy liabilities 7 137 5 294 3 852
Income taxes payable and deferred 4 768 (8 322) (1 595)
Other, net (3 685) 5 886 4 318
NET CASH PROVIDED 42 501 53 545 54 223
INVESTING ACTIVITIES Investments called, matured or repaid:
Fixed maturities available for sale 163 867 131 545 136 574
Fixed maturities held to maturity 106 188 79 017 63 433
Equity securities available for sale 31 473 8 899 13 727
Mortgage loans on real estate 47 048 53 430 67 722
Other 278 (100) 1 542
Investments sold:
Fixed maturities available for sale 503 351 140 372 165 563
Fixed maturities held to maturity - - 4 207
Other 19 969 11 503 22 326
Investments purchased or originated:
Fixed maturities available for sale (855 980) (431 916) (495 766)
Equity securities available for sale (69 434) (18 071) (12 896)
Real estate joint ventures (16 731) (6 439) (8 093)
Mortgage loans on real estate (68 599) (54 161) (31 053)
Decrease (increase) in
short-term investments, net (54 699) 17 256 (17 558)
Other (9 144) (2 150) (1 068)
Acquisition of life block:
Cash received net of purchase price paid 213 092 - -
Net additions to property and equipment (2 872) (527) (2 918)
NET CASH PROVIDED (USED) 7 807 (71 342) (94 258)
FINANCING ACTIVITIES
Proceeds from borrowings 245 050 1 650 22 730
Repayment of borrowings (245 050) (1 650) (22 730)
Policyowner contract deposits 169 699 164 677 179 135
Withdrawals of policyowner
contract deposits (163 041) (142 114) (127 347)
Cash dividends to stockholders (10 894) (10 393) (10 061)
Disposition of treasury stock, net 278 592 670
NET CASH PROVIDED (USED) (3 958) 12 762 42 397
Increase (decrease) in cash 46 350 (5 035) 2 362
Cash at beginning of year 4 577 9 612 7 250
CASH AT END OF YEAR $ 50 927 4 577 9 612
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are generally stated in thousands,
except per share data.)
SIGNIFICANT ACCOUNTING POLICIES
Organization
Kansas City Life Insurance Company is a Missouri domiciled stock life insurance
company which, with its affiliates, is licensed to sell insurance products in 48
states and the District of Columbia. The Company offers a diversified portfolio
of individual insurance, annuity and group products distributed through numerous
general agencies. In recent years, the Company's new business activities have
been concentrated in interest sensitive and variable products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP) and include the
accounts of Kansas City Life Insurance Company and its subsidiaries. Significant
intercompany transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year results to conform with the
current year's presentation. GAAP requires management to make certain estimates
and assumptions which affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized as
revenues when due. Accident and health insurance premiums are recognized as
revenues over the terms of the policies. Universal life-type products include
universal life insurance and flexible annuities. Revenues for these products are
amounts assessed against contract values for cost of insurance, policy
administration and surrenders, as well as amortization of deferred front-end
contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a net
level premium method based upon estimates at the time of issue for investment
yields, mortality and withdrawals. These estimates include provisions for
experience less favorable than actually expected. Investment yield assumptions
for new issues are graded and range from 5.75 percent to 7.75 percent. Mortality
assumptions are based on standard mortality tables. The 1965-70 Select and
Ultimate Basic Table is used for business issued since 1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For traditional
life and accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life-type products represent accumulated contract
values, without reduction for potential surrender charges, and deferred
front-end contract charges which are amortized over the term of the policies.
Benefits and claims are charged to expense in the period incurred net of related
accumulated contract values. Interest on accumulated contract values is credited
to contracts as earned. Crediting rates for universal life insurance and
flexible annuity products ranged from 4.75 percent to 6.50 percent during 1997
(4.75 percent to 6.75 percent during 1996 and 4.79 percent to 7.00 percent
during 1995).
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.
Value of Purchased Insurance in Force
The value of purchased insurance in force arising from the acquisition of a life
insurance subsidiary and, in 1997, the acquisition of a life insurance block of
business is being amortized in proportion to projected future gross profits.
This asset was increased $76,533,000 for the acquisition of the life insurance
block of business and $8,856,000 ($5,030,000 -1996 and $5,157,000 - 1995) for
accrual of interest and reduced $14,962,000 ($6,082,000 - 1996 and $6,088,000 -
1995) for amortization. The increase for accrual of interest was calculated
using a 13.0 percent interest rate for the life insurance subsidiary and, on the
acquired block, a 7.0 percent interest rate on the traditional life portion and
a 5.4 percent rate on the interest sensitive portion. Through 1997, total
accumulated accrual of interest and amortization equal $35,496,000 and
$47,071,000, respectively. The percentage of the asset's current carrying amount
which will be amortized in each of the next five years is 6.9 percent - 1998,
6.8 percent - 1999, 6.7 percent - 2000, 6.5 percent - 2001 and 6.1 percent -
2002.
Participating Policies
Participating business at year end approximates 15 percent of the consolidated
life insurance in force. The amount of dividends to be paid is determined
annually by the Board of Directors. Provision has been made in the liability for
future policy benefits to allocate amounts to participating policyholders on the
basis of dividend scales contemplated at the time the policies were issued.
Additional provisions have been made for policyholder dividends in excess of the
original scale which have been declared by the Board of Directors.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and related
adjustments in deferred acquisition costs, and are included in a separate
stockholders' equity account.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are carried
at depreciated cost. Real estate joint ventures are valued at cost adjusted for
the Company's equity in earnings since acquisition. Policy loans are carried at
cost less payments received. Realized gains and losses on disposals of
investments, determined by the specific identification method, are included in
investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method. Under that method,
deferred tax assets and liabilities are determined based on the differences
between their financial reporting and their tax bases and are measured using the
enacted tax rates.
Income Per Share
In 1997 the Company adopted Financial Accounting Standard No. 128, "Earnings per
Share". Due to the Company's capital structure and lack of other potentially
dilutive securities, there is no difference between basic and diluted earnings
per common share for any of the years or periods reported. The weighted average
number of shares outstanding during the year was 6,190,793 shares (6,188,489
shares - 1996 and 6,173,294 shares - 1995).
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.
1997 1996 1995
Net gain (loss) from operations for the year $(21 214) 27 345 29 307
Net income (loss) for the year (18 681) 25 574 29 484
Unassigned surplus at December 31 246 717 284 417 268 239
Stockholders' equity at December 31 197 147 234 570 217 801
The statutory loss reported in 1997 arose from the acquisition of a block of
business as discussed in a following Note. In accordance with statutory
accounting guidelines for coinsurance transactions, the acquisition reduced
statutory earnings and stockholders' equity at the date of acquisition $51.4
million, the purchase price paid less related tax benefits.
Stockholder dividends may not exceed statutory unassigned surplus. Additionally,
under Missouri law, the Company must have the prior approval of the Missouri
Director of Insurance in order to pay a dividend exceeding the greater of
statutory net gain from operations for the preceding year or 10 percent of
statutory stockholders' equity at the end of the preceding year. The maximum
payable in 1998 without prior approval is $19,715,000. The Company believes
these statutory limitations impose no practical restrictions on its dividend
payment plans.
The Company is required to deposit a defined amount of assets with state
regulatory authorities. Such assets had an aggregate carrying value of
approximately $36,000,000 ($36,000,000 - 1996 and $100,000,000 - 1995).
INVESTMENTS
Investment Revenues Major categories of investment revenues are summarized as
follows.
1997 1996 1995
Investment income:
Fixed maturities $154 393 150 421 144 242
Equity securities 7 288 5 503 6 259
Mortgage loans 23 984 23 127 31 378
Real estate 10 350 13 237 12 342
Policy loans 7 296 6 372 6 174
Short-term 3 612 2 353 2 753
Other 3 132 2 222 2 533
210 055 203 235 205 681
Less investment expenses (16 359) (16 492) (17 594)
$193 696 186 743 188 087
Realized gains (losses:
Fixed maturities $ 4 778 (1 862) (1 718)
Equity securities 3 702 961 4 634
Mortgage loans - 2 000 (108)
Real estate 6 025 1 894 2 172
Other - 20 (30)
$ 14 505 3 013 4 950
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
1997 1996 1995
Available for sale:
End of year $ 59 726 4 558 51 744
Deferred income taxes (19 626) (1 595) (16 013)
Effect on deferred acquisition costs (3 652) - (5 991)
$ 36 448 2 963 29 740
Increase (decrease) in net unrealized gains during the year:
Fixed maturities $ 33 209 (26 216) 78 876
Equity securities 276 (561) 2 209
$ 33 485 (26 777) 81 085
Held to maturity:
End of year $ 5 834 7 609 19 517
Increase (decrease) in
net unrealized gains during the year $ (1 775) (11 908) 16 667
The Company's securities categorized as available for sale are stated at fair
value. The resulting adjustment to fair value results in significant volatility
on stockholders' equity and the various calculations that are dependent on
stockholders' equity, such as return on equity.
Securities
The amortized cost and fair value of investments in securities at December 31,
1997, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 135 182 3 166 297 138 051
Public utility bonds 281 781 6 956 662 288 075
Corporate bonds 1 130 938 34 827 3 315 1 162 450
Mortgage-backed bonds 315 621 9 416 375 324 662
Other bonds 81 469 2 260 425 83 304
Redeemable preferred stocks 7 750 261 38 7 974
Total fixed maturities 1 952 741 56 886 5 112 2 004 516
Equity securities 107 034 8 709 757 114 986
2 059 775 65 595 5 869 2 119 502
Held to maturity:
Public utility bonds 50 291 2 494 56 52 729
Corporate bonds 92 350 3 727 641 95 436
Other bonds 3 020 310 - 3 330
145 661 6 531 697 151 495
$2 205 436 72 126 6 566 2 270 997
The amortized cost and fair value of investments in securities at December 31,
1996, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 144 299 1 633 518 145 414
Public utility bonds 254 875 2 755 3 631 253 999
Corporate bonds 981 157 10 122 17 161 974 118
Mortgage-backed bonds 253 810 6 473 1 532 258 751
Other bonds 114 539 850 2 238 113 151
Redeemable preferred stocks 13 411 419 110 13 720
Total fixed maturities 1 762 091 22 252 25 190 1 759 153
Equity securities 71 522 8 340 844 79 018
1 833 613 30 592 26 034 1 838 171
Held to maturity:
Public utility bonds 138 592 5 619 306 143 905
Corporate bonds 104 713 3 387 1 416 106 684
Other bonds 5 128 325 - 5 453
248 433 9 331 1 722 256 042
$2 082 046 39 923 27 756 2 094 213
All fixed maturity securities produced income in 1997.
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 $ 60 259 60 510
Due after one year through five years 290 534 295 928
Due after five years through ten years 706 504 717 050
Due after ten years 579 823 606 366
Mortgage-backed bonds 315 621 324 662
$1 952 741 2 004 516
Held to maturity:
Due in one year or less $ 27 043 27 342
Due after one year through five years 50 554 53 023
Due after five years through ten years 28 944 30 892
Due after ten years 39 120 40 238
$ 145 661 151 495
Sales of investments in securities available for sale, excluding normal
maturities and calls, follow.
1997 1996 1995
Proceeds $509 502 141 335 184 547
Gross realized gains 11 597 1 400 6 416
Gross realized losses 2 349 1 420 6 527
At December 31, 1997, the Company did not hold securities of any corporation and
its affiliates which exceeded 10 percent of stockholders' equity.
Kansas City Life employs no derivative financial instruments.
The Company maintains a $60 million bank line of credit which may be used to
support investment strategies. This line is unused at December 31, 1997, and
will expire in April 1998.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $327,000
($2,077,000 - 1996). Mortgage loans are carried net of a valuation reserve of
$8,500,000 ($8,500,000 - 1996).
At December 31, 1997 and 1996, the mortgage portfolio is diversified
geographically and by property type as follows.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic region:
East north central $ 26 937 27 421 21 890 22 162
Mountain 64 602 66 321 75 058 76 163
Pacific 91 963 94 366 81 955 82 599
West south central 32 997 33 961 36 155 36 940
West north central 55 320 56 485 35 463 36 003
Other 6 735 7 017 4 472 4 662
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
Property type:
Industrial $170 199 174 278 136 266 137 633
Retail 29 532 30 531 45 555 46 681
Office 58 658 60 267 54 332 55 280
Other 20 165 20 495 18 840 18 935
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
As of December 31, 1997, the Company has commitments which expire in 1998 to
originate mortgage loans of $13,794,000 and to advance $10,454,000 on an
existing short-term line of credit.
Mortgage loans foreclosed upon and transferred to real estate investments during
the year equaled $3,189,000 ($2,977,000 - 1996 and $4,322,000 - 1995).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $4,299,000 ($6,579,000 - 1996 and $9,571,000 - 1995).
Real Estate
Detail concerning the Company's real estate investments follows.
1997 1996
Penntower office building, at cost:
Land $ 1 106 1 106
Building 18 068 17 644
Less accumulated depreciation (9 809) (9 303)
Foreclosed real estate, at lower of
cost or net realizable value 13 362 18 218
Other investment properties, at cost:
Land 3 214 3 370
Buildings 24 216 25 907
Less accumulated depreciation (13 393) (13 192)
$ 36 764 43 750
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 $3,686,000 ($5,227,000 - 1996) to reflect net
realizable value.
The Company held non-income producing real estate equaling $820,000 ($758,000 -
1996).
PROPERTY AND EQUIPMENT
1997 1996
Land $ 1 029 1 029
Home office buildings 23 149 23 131
Furniture and equipment 27 502 24 760
51 680 48 920
Less accumulated depreciation (28 052) (24 129)
$23 628 24 791
Property and equipment are stated at cost and depreciated using the
straight-line method. Home office buildings are depreciated over 25 to 50 years
and furniture and equipment over 3 to 10 years, their estimated useful lives.
POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit postretirement plans providing medical benefits
for substantially all its employees, full-time agents, and their dependents, and
life insurance coverage for its employees. The Company and retirees share the
cost of the postretirement medical plan which incorporates cost-sharing features
such as annually adjusted contributions, deductibles and coinsurance. The
medical benefits for agents are contributory, incorporating cost-sharing
features similar to the retired employees' medical plan. The life insurance
benefit is non-contributory. The Company pays the cost of the postretirement
health care benefits as they occur. The Company makes level annual contributions
to its life insurance plan over the plan participants' expected service periods.
The plans' funded status, reconciled with the amounts recognized in the
Company's balance sheet, follows.
1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 6 516 7 750
Fully eligible active plan participants 2 914 1 904
Other active plan participants 8 242 5 803
17 672 15 457
Unrecognized net loss (1 735) (590)
$15 937 14 867
The net periodic postretirement benefit cost included the following components.
1997 1996 1995
Service cost $ 560 536 314
Interest cost 930 794 669
Net amortization of experience gains (6) - (93)
$1 484 1 330 890
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for the medical plans is 10 percent for 1998, and is assumed to
decrease gradually to 6 percent in 2004. Increasing the assumed health care cost
growth rates by one percentage point increases the accrued postretirement
benefit costs $2,207,000 and $2,040,000 as of December 31, 1997 and 1996,
respectively. The aggregate service and interest cost components of the net
periodic postretirement benefit cost for 1997 would increase $312,000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent and 7.75 percent at December
31, 1997 and 1996, respectively.
EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all its
employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company annually
funds an amount greater than the minimum required by ERISA but no more than the
maximum deductible for Federal income tax purposes. Contributions provide not
only for benefits attributed to service to date, but also for those expected to
be earned in the future. The table below outlines the plan's funded status and
those amounts recognized in the Company's financial statements.
1997 1996
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$94,698,000 ($79,913,000 - 1996) $102 846 86 635
Projected benefit obligation for service
rendered to date $119 651 100 571
Plan assets at fair value, primarily
listed corporate and U.S. bonds 95 899 85 241
Plan assets less than projected benefit obligation (23 752) (15 330)
Items not yet recognized in earnings:
Net loss from past experience 25 452 15 571
Prior service costs 12 14
Net asset at January 1, 1987, being recognized
over 16 years (1 030) (1 236)
Net prepaid (unfunded) pension costs $ 682 (981)
1997 1996 1995
Net pension cost includes:
Service costs - benefits earned
during the period $ 3 150 3 369 2 403
Interest cost on projected benefit obligation 7 823 6 647 6 156
Actual return on plan assets (9 752) (2 951)(14 139)
Net amortization and deferral 2 354 (4 547) 7 412
Net periodic pension cost $ 3 575 2 518 1 832
Assumptions were as follows:
Weighted average discount rate 7.25 % 7.75 7.00
Weighted average compensation increase 4.50 4.50 5.50
Weighted average expected
long-term return on plan assets 9.00 9.00 9.00
At December 31, 1996, the Company utilized more recent mortality experience
which caused some increase in the benefit obligations.
The 1997 contribution to the pension plan was $4,967,000 (none - 1996 and
$992,000 - 1995).
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 $133,000 ($174,000 -1996 and $287,000 - 1995). The Company
also sponsors a non-contributory deferred compensation plan for eligible agents
based upon earned first-year commissions. Contributions to this plan were
$226,000 ($318,000 - 1996 and $405,000 - 1995).
Savings plans for eligible employees and agents are sponsored in which the
Company matches employee contributions up to 10 percent of salary and agent
contributions up to 2.5 percent of prior year paid commissions. Contributions to
the plans were $2,102,000 ($2,082,000 -1996 and $1,826,000 - 1995). The
employees' plan will change for 1998 in that the Company will match employee
contributions up to 6 percent of salary and the Company may contribute a profit
sharing amount up to 4 percent of salary depending upon the Company's profit
performance.
The Company also has a non-contributory trusteed employee stock ownership plan
covering substantially all salaried employees. The Company made no contributions
to this plan between 1995 and 1997.
Effective January 1, 1998, the Company amended the defined benefit plan for all
employees other than those who are age 55 or over with at least 15 years of
vested service. For these employees the defined benefit pension plan is
converted to a cash balance plan whereby each employee will have a cash balance
account. Generally, the cash balance account consists of credits to the account
based on an employee's years of service and compensation, and interest credits,
which for 1998 will be 7 percent.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
1997 1996 1995
Federal income tax rate 35% 35 35
Special tax credits (6) (5) (4)
Other permanent differences (1) (1) (1)
Actual income tax rate 28% 29 30
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below.
1997 1996
Deferred tax assets:
Future policy benefits $ 53 923 46 518
Employee retirement benefits 13 104 13 055
Other 2 882 5 176
Gross deferred tax assets 69 909 64 749
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 40 844 49 175
Basis differences between tax and GAAP
accounting for investments 28 080 20 093
Property and equipment, net 1 704 1 770
Value of insurance in force 36 551 11 790
Other 2 647 1 669
Gross deferred tax liabilities 109 826 84 497
Net deferred tax liability $ 39 917 (19 748)
Federal income taxes paid for the year were $14,335,000 ($25,332,000 - 1996 and
$19,981,000 - 1995).
Policyholders' surplus, which is frozen under the Deficit Reduction Act of 1984,
is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life Insurance
Company of America (Sunset Life) and $13,700,000 for Old American Insurance
Company (Old American). The Companies do not plan to distribute their
policyholders' surplus. Consequently, the possibility of such surplus becoming
subject to tax is remote, and no provision has been made in the financial
statements for taxes thereon. Should the balance in policyholders' surplus
become taxable, the tax computed at current rates would approximate $19,950,000.
Income taxed on a current basis is accumulated in "shareholders' surplus" and
can be distributed to stockholders without tax to the Company. At December 31,
1997, this shareholders' surplus was $348,057,000 for Kansas City Life,
$73,170,000 for Sunset Life and $44,703,000 for Old American.
SEPARATE ACCOUNTS
These accounts arise from the variable line of business. Their assets are
legally segregated and are not subject to the claims which may arise from any
other business of the Company. These assets are reported at fair value since the
underlying investment risks are assumed by the policyholders. Therefore the
related liabilities are recorded at amounts equal to the underlying assets.
Investment income and gains or losses arising from separate accounts accrue
directly to the policyholders and are, therefore, not included in investment
earnings in the accompanying consolidated income statement. Revenues to the
Company from separate accounts consist principally of contract maintenance
charges, administrative fees and mortality and risk charges.
REINSURANCE
1997 1996 1995
Life insurance in force (in millions):
Direct $ 22 800 22 121 20 991
Ceded (3 375) (2 742) (2 442)
Assumed 3 796 28 33
Net $ 23 221 19 407 18 582
Premiums:
Life insurance:
Direct $128 491 127 150 124 504
Ceded (26 262) (24 380) (23 292)
Assumed 3 822 493 129
Net $106 051 103 263 101 341
Accident and health:
Direct $ 55 022 48 694 42 971
Ceded (10 091) (11 370) (13 496)
Assumed - 251 -
Net $ 44 931 37 575 29 475
Contract charges arise generally from directly issued business. However contract
charges also arise from a block of business assumed during 1997 as described
below. Ceded benefit recoveries were $39,483,000 ($37,829,000 - 1996 and
$27,613,000 - 1995).
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, 1997, these policies had a face value of
$136,519,000. The reserve for future policy benefits ceded under this agreement
was $51,003,000 ($52,556,000 - 1996).
As discussed in a following Note, the Company acquired a block of life insurance
business through a reinsurance treaty during 1997. At December 31, 1997, the
block had $3.8 billion of insurance in force, future policy benefits of
$88,476,000 and accumulated contract values of $213,300,000. During 1997, life
insurance premiums of $3,096,000 and contract charges of $9,997,000 were
recognized related to this block.
The maximum retention on any one life is $350,000 for ordinary life plans and
$100,000 for group coverage. A contingent liability exists with respect to
reinsurance, which may become a liability of the Company in the unlikely event
that the reinsurers should be unable to meet obligations assumed under
reinsurance contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for securities are based on quoted market prices, where available.
For those securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of the
investments. Fair values for mortgage loans are based upon discounted cash flow
analyses using an interest rate assumption 2 percent above the comparable U.S.
Treasury rate.
Fair values for the Company's liabilities under investment-type insurance
contracts, included with accumulated contract values for flexible annuities and
with other policyholder funds for supplementary contracts without life
contingencies, are estimated to be their cash surrender values.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the financial instruments follow.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $2 119 502 2 119 502 1 838 171 1 838 171
Securities held
to maturity 145 661 151 495 248 433 256 042
Mortgage loans 270 054 277 071 246 493 250 029
Liabilities:
Individual and
group annuities 830 495 802 461 862 605 829 261
Supplementary contracts
without life contingencies 21 526 21 526 21 835 21 835
The Investments Note provides further details regarding the investments above.
QUARTERLY CONSOLIDATED FINANCIAL DATA
(unaudited)
First Second Third Fourth
1997:
Total revenues $108 379 108 836 124 932 120 747
Operating income $ 10 299 8 548 7 639 8 946
Realized gains, net 1 835 957 4 119 2 517
Net income $ 12 134 9 505 11 758 11 463
Per common share:
Operating income $ 1.66 1.39 1.23 1.44
Realized gains, net .30 .15 .67 .41
Net income $ 1.96 1.54 1.90 1.85
1996:
Total revenues $106 434 101 263 104 924 106 497
Operating income $ 11 933 10 002 8 643 9 777
Realized gains (losses), net 614 (308) 671 982
Net income $ 12 547 9 694 9 314 10 759
Per common share:
Operating income $ 1.93 1.62 1.39 1.58
Realized gains (losses), net .10 (.05) .11 .16
Net income $ 2.03 1.57 1.50 1.74
CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are defendants in lawsuits involving
claims and disputes with policyholders that may include claims seeking punitive
damages. Some of these lawsuits arise in jurisdictions that permit punitive
damages disproportionate to the actual damages alleged. Although no assurances
can be given and no determinations can be made at this time as to the outcome of
any particular lawsuit or proceeding, the Company and its subsidiaries believe
that there are meritorious defenses for these claims and are defending them
vigorously. Management believes that the amounts that would ultimately be paid,
if any, would have no material effect on the Company's consolidated results of
operations and financial position.
ACQUISITION OF A BLOCK OF BUSINESS
In September 1997, the Company acquired a block of traditional life and
universal life-type products through a reinsurance treaty. The ceding company
transferred $331,434,000 in liabilities and $254,901,000 in assets, principally
cash. The difference was recorded as value of purchased insurance inforce and is
being amortized in proportion to projected future gross profits over 30 years,
the estimated life of the business.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheet of Kansas City Life
Insurance Company (the Company) as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Kansas
City Life Insurance Company at December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
January 26, 1998
Kansas City Life
Variable Life
Separate Account
Financial Statements
Year ended December 31, 1997 and
Period from January 29, 1996 (inception)
to December 31, 1996
Kansas City Life Variable Life Separate Account
Statement of Net Assets
December 31, 1997
(in thousands except shares, net asset value per share, and cost)
Assets
Investments:
Federated Advisors - Federated Insurance Series:
American Leaders Fund II - 31,587 shares at net asset
value of $19.63 per share (cost $560,000) $ 620
High Income Bond Fund II - 32,891 shares at net asset
value of $10.95 per share (cost $346,000) 360
Prime Money Fund II - 1,762,046 shares at net asset
value of $1.00 per share (cost $1,762,000) 1,762
Massachusetts Financial Services - (MFS):
Research Series - 70,989 shares at net asset
value of $15.79 per share (cost $1,028,000) 1,121
Emerging Growth Series - 75,773 shares at net asset
value of $16.14 per share (cost $1,101,000) 1,223
Total Return Series - 27,442 shares at net asset
value of $16.63 per share (cost $422,000) 457
Bond Series - 10,960 shares at net asset
value of $11.08 per share (cost $117,000) 121
World Governments Series - 3,375 shares at net asset
value of $10.21 per share (cost $34,000) 34
Utilities Series - 16,833 shares at net asset
value of $17.99 per share (cost $264,000) 303
American Century, Inc. - ACI Variable Portfolios:
VP Capital Appreciation - 22,232 shares at net asset
value of $9.68 per share (cost $224,000) 215
VP International - 51,737 shares at net asset
value of $6.84 per share (cost $337,000) 354
Dreyfus Corporation:
Capital Appreciation Portfolio - 8,480 shares at net asset
value of $27.90 per share (cost $235,000) 237
Small Cap Portfolio - 7,273 shares at net asset
value of $57.14 per share (cost $442,000) 416
Stock Index Fund - 29,401 shares at net asset
value of $25.75 per share (cost $750,000) 757
Total Assets $ 7,980
See accompanying Notes to Financial Statements
Kansas City Life Variable Life Separate Account
Statement of Net Assets
(Continued)
Net Assets
Federated Advisors - Federated Insurance Series:
American Leaders Fund II $ 620
High Income Bond Fund II 360
Prime Money Fund II 1,762
Massachusetts Financial Services - (MFS):
Research Series 1,121
Emerging Growth Series 1,223
Total Return Series 457
Bond Series 121
World Governments Series 34
Utilities Series 303
American Century, Inc. - ACI Variable Portfolios:
VP Capital Appreciation 215
VP International 354
Dreyfus Corporation:
Capital Appreciation Portfolio 237
Small Cap Portfolio 416
Stock Index Fund 757
Total Net Assets $7,980
See accompanying Notes to Financial Statements
<TABLE>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(in thousands)
<CAPTION>
Federated Ins. Series MFS Variable Insurance Trust ACI Port. Dreyfus Corporation
High
Amern. Income Prime Emerging Total World VP Capital Small
Leaders Bond Money Resch. Growth Return Bond Gov'ts Util Capital VP Apprec Cap Stock
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Port. Port. Index Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income:
Dividend Distributions $ 1 6 21 - - - - - - - 1 2 - 3 34
Capital Gains
Distributions 2 - - - - - - - - 3 3 - 23 14 45
Realized Gain (Loss) 8 3 - 8 6 4 1 - 1 (2) 2 - 1 1 33
Unrealized Appreciation
(Depreciation) 55 13 - 79 120 30 4 - 38 (5) 13 2 (26) 6 329
Net Investment Income 66 22 21 87 126 34 5 - 39 (4) 19 4 (2) 24 441
Expenses:
Mortality and Expense
Fees 2 1 4 5 6 2 - - 1 1 2 - 1 1 26
Contract Expense Charges 72 46 218 133 176 48 8 5 26 41 45 9 19 45 891
Change in Net Assets
from Operations (8) (25) (201) (51) (56) (16) (3) (5) 12 (46) (28) (5) (22) (22) (476)
Deposits 293 214 4,299 509 643 176 36 22 107 134 168 52 112 267 7,032
Withdrawals (12) (16) (72) (17) (21) (4) (3) (1) (4) (7) (6) (2) (2) (35) (202)
Transfers in (out) 281 147 (2,773) 411 331 216 72 7 135 9 143 189 322 425 (85)
Net Assets:
Net Increase 554 320 1,253 852 897 372 102 23 250 90 277 234 410 635 6,269
Beginning of Year 65 40 146 266 324 84 19 11 52 125 76 - - - 1,208
End of Year $619 360 1,399 1,118 1,221 456 121 34 302 215 353 234 410 635 7,477
Survivorship Variable Universal Life:
Invest. Income:
Dividend Distributions $ - - 1 - - - - - - - - - - - 1
Capital Gains
Distributions - - - - - - - - - - - - - 2 2
Realized Gain (Loss) - - - - - - - - - - - - - - -
Unrealized Appreciation
(Depreciation) - - - - - - - - - - - - - 1 1
Net Investment Income - - 1 - - - - - - - - - - 3 4
Expenses:
Mortality and Expense
Fees - - - - - - - - - - - - - - -
Contract Expense Charges - - 3 - - - - - - - - - - 1 4
Change in Net Assets
from Operations - - (2) - - - - - - - - - - 2 -
Deposits - - 460 - - - - - - - - - - 43 503
Withdrawals - - - - - - - - - - - - - - -
Transfers in (out) 1 - (95) 3 2 1 - - 1 - 1 3 6 77 -
Net Assets:
Net Increase 1 - 363 3 2 1 - - 1 - 1 3 6 122 503
Beginning of Period - - - - - - - - - - - - - - -
End of Year $ 1 - 363 3 2 1 - - 1 - 1 3 6 122 503
Total Survivorship &
Variable Universal Life
End of Year $620 360 1,762 1,121 1,223 457 121 34 303 215 354 237 416 757 7,980
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets
Period from January 29, 1996 (inception) to December 31, 1996
(in thousands)
<CAPTION>
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Distributions $ - 1 5 - - 1 1 1 1 - - 10
Capital Gains Distributions - - - 4 3 1 - - 3 - - 11
Realized Gain (Loss) - - - - - - - - - - - -
Unrealized Appreciation
(Depreciation) 5 1 - 13 2 4 - - 1 (4) 4 26
Net Investment Income 5 2 5 17 5 6 1 1 5 (4) 4 47
Expenses:
Mortality and Expense Fees - - 1 1 1 - - - - - - 3
Contract Expense Charges 5 4 62 22 33 5 3 3 4 12 8 161
Change in Net Assets from
Operations - (2) (58) (6) (29) 1 (2) (2) 1 (16) (4) (117)
Deposits 12 12 1,019 73 105 11 9 6 14 44 25 1,330
Withdrawals - (2) - - - - (3) - - - - (5)
Transfers In (Out) 53 32 (815) 199 248 72 15 7 37 97 55 -
Net Assets:
Net Increase 65 40 146 266 324 84 19 11 52 125 76 1,208
Beginning of Period - - - - - - - - - - - -
End of Year $65 40 146 266 324 84 19 11 52 125 76 1,208
See accompanying Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Organization
Kansas City Life Variable Life Separate Account, marketed as Century II Variable
Universal Life and Century II Survivorship Variable Universal Life, (the
Account) is a separate account of Kansas City Life Insurance Company (KCL). The
inception date for the Century II Survivorship Variable Universal Life product
was August 1, 1997. The Account is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. All deposits received by the
Account have been directed by the contract owners into subaccounts of four
series-type mutual funds, as listed below, or into KCL's Fixed Account. The
Dreyfus Corporation subaccounts were added in May, 1997.
Federated Insurance Series
American Leaders Fund II Long-term growth of capital
High Income Bond Fund II High current income
Prime Money Fund II Current income with stability of
principal and liquidity
MFS Variable Insurance Trust
MFS Research Series Long-term growth of capital and future
income
MFS Emerging Growth Series Long-term growth of capital
MFS Total Return Series Income and opportunities for growth of
capital and income
MFS Bond Series Current income and protection of
shareholders' capital
MFS World Governments Series Preservation and growth of capital
with moderate current income
MFS Utilities Series Capital growth and current income
ACI Variable Portfolios, Inc.
ACI VP Capital Appreciation Capital growth through investment in
(formerly TCI Growth) common stocks
ACI VP International Capital growth through investment in
(formerly TCI International) foreign securities
Dreyfus Corporation
Capital Appreciation Portfolio Long-term capital growth with
preservation of capital
Small Cap Portfolio Capital appreciation
Stock Index Fund Price and yield performance that
corresponds to the Standard & Poor's
500 Composite Stock Price Index
Basis of Presentation and Use of Estimates
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Reinvestment of Dividends
Interest and dividend income and capital gains distributions paid by the mutual
funds to the Account are reinvested in additional shares of each respective
subaccount. Capital gains distributions are recorded as income on the date of
receipt.
Federal Income Taxes
Under current law, no Federal income taxes are payable with respect to the
Account.
Investment Valuation
Investments in mutual fund shares are carried in the statement of net assets at
quoted market value (net asset value of the underlying mutual fund). The average
cost method is used to determine gains and losses.
The aggregate cost of purchases and proceeds from sales, and the number of
shares thereon were as follows:
1997:
Cost of Proceeds Shares
Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $ 713 221 39,267 11,971
High Income Bond Fund II 485 181 46,117 17,107
Prime Money Fund II 5,826 4,210 5,825,963 4,209,855
MFS Research 1,088 321 71,955 21,229
MFS Emerging Growth Series 1,136 363 75,073 23,766
MFS Total Return Series 458 120 29,009 7,686
MFS Bond Series 133 36 12,428 3,383
MFS World Governments Series 33 10 3,243 938
MFS Utilities Series 281 69 17,379 4,340
ACI VP Capital Appreciation 228 131 23,295 13,242
ACI VP International 379 116 56,237 17,245
Dreyfus Capital Appreciation Portfolio 271 36 9,788 1,308
Dreyfus Small Cap Portfolio 521 80 8,602 1,329
Dreyfus Stock Index 887 138 34,785 5,384
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
1996:
Cost of Proceeds Shares
Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $ 69 9 4,936 646
High Income Bond Fund II 59 20 5,946 2,066
Prime Money Fund II 1,354 1,208 1,353,623 1,207,685
MFS Research 338 85 26,925 6,662
MFS Emerging Growth Series 425 103 32,224 7,759
MFS Total Return Series 91 11 6,949 831
MFS Bond Series 26 7 2,573 657
MFS World Governments Series 15 4 1,491 421
MFS Utilities Series 83 32 6,138 2,344
ACI VP Capital Appreciation Portfolio 156 27 14,700 2,520
ACI VP International 88 16 15,517 2,772
2. Accumulation Unit Value
The unit values and the number of units outstanding for each subaccount follow.
Century II Variable Universal Life:
Unit Value Number of Units
American Leaders Fund II $15.49 39,960
High Income Bond Fund II 12.59 28,582
Prime Money Fund II 10.77 129,968
MFS Research Series 14.46 77,326
MFS Emerging Growth Series 14.03 86,997
MFS Total Return Series 13.63 33,428
MFS Bond Series 11.07 10,935
MFS World Governments Series 10.16 3,392
MFS Utilities Series 15.24 19,829
ACI VP Capital Appreciation 9.40 22,893
ACI VP International 13.34 26,447
Dreyfus Capital Appreciation Portfolio 11.00 21,282
Dreyfus Small Cap Portfolio 11.54 35,500
Dreyfus Stock Index Fund 11.56 54,922
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Century II Survivorship Variable Universal Life:
Unit Value Number of
as of Units as of
December 31 August 1 December 31
1997 1997 1997
American Leaders Fund II $10.71 10.00 109
High Income Bond Fund II 10.44 10.00 16
Prime Money Fund II 10.15 10.00 35,724
MFS Research Series 10.17 10.00 290
MFS Emerging Growth Series 10.23 10.00 219
MFS Total Return Series 10.60 10.00 56
MFS Bond Series 10.49 10.00 35
MFS World Governments Series 10.12 10.00 -
MFS Utilities Series 11.49 10.00 53
ACI VP Capital Appreciation Portfolio 9.06 10.00 -
ACI VP International 10.04 10.00 111
Dreyfus Capital Appreciation Portfolio 10.40 10.00 236
Dreyfus Small Cap Portfolio 10.08 10.00 600
Dreyfus Stock Index Fund 10.65 10.00 11,495
3. Variable Life Contract Charges
KCL deducts an administrative fee for each contract of $26 per month for the
first 12 months and $6 per month thereafter. An additional deduction of $20 per
month is made for the 12 contract months following an increase in specified
amount. A deduction for insurance costs also is made monthly and is based on the
insured's attained age, sex, risk class, specified amount, supplemental benefit,
rider benefits, contract value, and the number of completed policy years.
Mortality and expense risks assumed by KCL are compensated for by a fee
equivalent to an annual rate of 0.9 percent of the asset value of each contract.
A premium expense charge for premium taxes of 2.25 percent of premium receipts
are deducted from each premium receipt prior to their transfer to the separate
accounts. Other charges are deducted from each contract when certain events
occur, such as the seventh fund transfer in a contract year.
A contingent deferred sales charge is assessed against certain withdrawals
during the first 15 years of the contract. During 1997, $130,000 (none - 1996)
was assessed in surrender charges and other contract charges totaled $917,000
($164,000 - 1996).
4. Survivorship Variable Life Contract Charges
KCL deducts a monthly administrative fee for each contract of $7.50 plus $.02
per $1,000 of the total amount insured per month for all contracts. An
additional fee of $12.50 per month is charged for the first five contract years.
A deduction for insurance costs also is made monthly and is based on the
insured's attained age, sex, risk class, total amount insured, any optional
benefits, or any additional benefits provided by riders, contract value, and the
number of completed policy years. Mortality and expense risks assumed by KCL are
compensated for by a fee equivalent to 0.625 percent of the average daily net
assets of each contract.
Kansas City Life Insurance Company
Notes to Financial Statements (continued)
A sliding premium expense charge, which varies by contract year for the first 20
years, is deducted from each target and excess premium payment.
In addition, a 4.85 percent premium processing charge is deducted from each
premium payment for all contract years. Other charges are deducted from each
contract when certain events occur, such as the seventh fund transfer in a
contract year.
The plan has no contingent deferred sales charge. During 1997, other contract
charges totaled $4,000.
Report of Independent Auditors
The Contract Owners of Kansas City Life Variable
Life Separate Account and The Board of Directors
of Kansas City Life Insurance Company
We have audited the accompanying statement of net assets of Kansas City Life
Variable Life Separate Account (the Company) as of December 31, 1997, and the
related statements of operations and changes in net assets for the year ended
December 31, 1997 and the period from January 29, 1996 (inception) to December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
resonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1997 by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kansas City Life Variable Life
Separate Account at December 31, 1997, and the results of its operations and
changes in its net assets for the year ended December 31, 1997 and the period
from January 29, 1996 (inception) to December 31 1996, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
Ernst & Young LLP
April 17, 1998
Supplement Dated May 1, 1998
to Prospectus Dated May 1, 1998
Kansas City Life Variable Life Separate Account
Variable Universal Life Contract
Maryland
For contracts sold in the state of Maryland, the prospectus is supplemented as
follows:
The definitions for "No-Lapse Monthly Premium" and "No-Lapse Payment Period" are
added to page 6 of the prospectus and are as follows:
No-Lapse Monthly Premium - An amount used to measure premium payments paid for
purpose of determining whether the guarantee that your Contract will not lapse
during the No-Lapse Payment Period is in effect.
No-Lapse Payment Period - The period of time during which we guarantee that your
Contract will not lapse if the No Lapse Monthly Premiums are paid.
The following wording is added after the "Guaranteed Payment Period and
Guaranteed Monthly Premium" section of the prospectus on page 19:
No-Lapse Monthly Premium and No-Lapse Payment Period - In addition to the
Guaranteed Payment Period described above, there is a fifteen year No-Lapse
Payment Period. A No-Lapse 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 No-Lapse Monthly
Premiums in effect on each prior Monthly Anniversary Date, and (2) an amount
equal to the sum of any partial surrenders taken and Indebtedness under the
Contract. The No-Lapse Payment Periods are fifteen years following the Contract
Date and fifteen years following the effective date of an increase in the
Specified Amount. The No-Lapse Monthly Premium is shown in the Contract. The per
$1,000 No Lapse 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 No-Lapse Monthly Premium.
However, upon a change to the Contract, Kansas City Life will recalculate the
No-Lapse Monthly Premium and will notify you of the new No-Lapse Monthly Premium
and amend your Contract to reflect the change.
The following paragraph is added to the "Premium Payments Upon Increase in
Specified Amount" section on page 19 of the prospectus:
A new No-Lapse Payment Period begins on the effective date of an increase in
Specified Amount. You will be notified of the new No-Lapse Monthly Premium for
this period.
The "After the Guaranteed Payment Period" section on page 20 of the prospectus
is deleted and replaced with the following:
After the Guaranteed Payment Period but during the No-Lapse 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 Date are less than required to guarantee the
Contract will not lapse during the No-Lapse Payment Period.
After the No-Lapse 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.
The following paragraph is added to the "Changes in Specified Amount" section on
page 30 of the prospectus:
In addition, a new No-Lapse Payment Period will begin on the effective date of
the increase and will continue for fifteen years. The Contract's No-Lapse
Monthly Premium will be recalculated to reflect the increase. If a No-Lapse
Payment Period is in effect, the Contract's No-Lapse Monthly Premium will also
generally be increased. See "No-Lapse Monthly Premium and No-Lapse Payment
Period" above.
The "Special Transfer Right" shown on page 21 of the prospectus is deleted and
replaced with the following:
Right to Exchange - 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 Right to
Exchange by requesting that this Contract be exchanged for any flexible premium
fixed benefit policy we offer for exchange on the Contract Date.
Supplement Dated May 1, 1998
to Prospectus Dated May 1, 1998
Kansas City Life Variable Life Separate Account
Variable Universal Life Contract
Connecticut
For contracts sold in the state of Connecticut, the provisions of the Variable
Universal Life Contract, as described in the Variable Universal Life Prospectus,
are changed to provide for the Right to Exchange provision. These changes are
outlined below.
The Special Transfer Right shown on page 22 of the prospectus is deleted and
replaced with the following:
Right to Exchange - 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 Right to Exchange by requesting that this Contract be
exchanged for any flexible premium fixed benefit policy we offer for
exchange on the Contract Date.
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The By-Laws of Kansas City Life Insurance Company provide, in part, in
Article XII:
1. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the Company, by reason of the fact
that he or she is or was a Director, Officer or employee of the Company, or is
or was serving at the request of the Company as a Director, Officer or employee
of another company, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
2. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the company to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer or employee of
the company, or is or was serving at the request of the company as a director,
officer or employee of another company, partnership, joint venture, trust or
other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him or her in connection with the defense or settlement
of the action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
company; except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his or her duty to the
company unless and only to the extent that the court in which the action or suit
was brought determines upon application that, despite the adjudication of
liability and in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Missouri law authorizes Missouri corporations to provide indemnification to
directors, officers and other persons.
Kansas City Life owns a directors and officers liability insurance policy
covering liabilities that directors and officers of Kansas City Life and its
subsidiaries and affiliates may incur in acting as directors and officers.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATIONS RELATING TO FEES AND CHARGES
Kansas City Life Insurance Company hereby represents that the fees and charges
deducted under the contracts described in the post-effective amendment are, in
the aggregrate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by Kansas City Life
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 77 pages. Undertaking to file reports.
Rule 484 undertaking.
Representations relating to fees and charges.
The signatures.
Written consents of the following persons:
(a) C. John Malacarne, Esq.
(b) Mark A. Milton, Vice President and Associate Actuary (c) Sutherland,
Asbill & Brennan.
(d) Independent Auditors.
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1.A. (1) Resolutions of the Board of Directors of Kansas City Life Insurance
Company establishing the Kansas City Life Variable Life Separate Account.*
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Kansas City Life Insurance
Company and Sunset Financial Services, Inc..**
(b) Not applicable.
(c) Schedule of Sales Commissions.
(4) Not applicable.
(5) (a) Specimen Contract Form.*
(b) Disability Continuance of Insurance Rider.
(c) Accidental Death Rider.
(d) Option to Increase Specified Amount Rider.
(e) Spouse's Term Insurance Rider.
(f) Children's Term Insurance Rider.
(g) Other Insured Term Insurance Rider.
(h) Extra Protection Rider.
(i) Disability Premium Benefit Rider.
(j) Temporary Life Insurance Agreement.*
(k) Limited Aviation Rider.
(l) Unisex Contract Amendment.
(6) (a) Articles of Incorporation of Bankers Life Association of
Kansas City.*
(b) Restated Articles of Incorporation of Kansas City Life
Insurance Company.*
(c) By-Laws of Kansas City Life Insurance Company.*
(7) Not applicable.
(8) (a) Agreement between Kansas City Life Insurance Company, MFS
Variable Insurance Trust, and Massachusetts Financial Services Company.*
(b) Agreement between Kansas City Life Insurance Company, TCI
Portfolios, Inc. and Investors Research Corporation.*
(c) Agreement between Kansas City Life Insurance Company,
Insurance Management Series, and Federated Securities Corp.*
(d) Agreement between Kansas City Life Insurance Company and each of
Dreyfus Variable Investment Fund, The Dreyfus Socially Responsible Growth Fund,
Inc., and The Dreyfus Life and Annuity Index Fund, Inc.
(9) Not Applicable.
(10) Application Form.*
(11) Memorandum describing issuance, transfer, and redemption procedures.
B. Not applicable.
C. Not applicable.
2. Opinion and consent of C. John Malacarne, Esq., as to the legality of the
securities being registered.
3. Not applicable. 4. Not applicable. 5. Not applicable.
6. Opinion and consent of Mark A. Milton, Vice President and Associate Actuary,
as to actuarial matters pertaining to the securities being registered.
7. (a) Consent of Ernst & Young LLP.
(b) Consent of Sutherland, Asbill & Brennan.
(c) Consent of C. John Malacarne. See Exhibit 2.
- ----------------------
* Incorporated herein by reference to the Form S-6 Registration Statement
(File No. 33-95354) for Kansas City Life Variable Life Separate Account filed
on August 2, 1995.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement (File No. 33-89984) for Kansas City Life
Variable Annuity Separate Account filed on August 25, 1995.
*** Incorporated herein by reference to Pre-Effective Amendment No. 1. to the
Form S-6 Registration Statement (File No. 33-95354) for Kansas City Variable
Life Separate Account filed on December 19, 1995.
**** Incorporated herein by reference to the Form S-6 Registration Statement
(File No. 33-95354) filing for Kansas City Life Variable Life Separate Account
filed on April 18, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Kansas City Life
Insurance Company certifies that it meets all of the requirements of Securities
Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its
Registration Statement and has duly caused this Post-Effective Amendment to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Kansas City and the
State of Missouri, on the 27h day of April, 1998
[SEAL] Kansas City Life Insurance Company
Attest /s/ C. John Malacarne By: /s/ R. Philip Bixby
C. John Malacarne R. Philip Bixby, President
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 3 to the Registraton Statement has been signed below by the
following persons in the capacities indicated on the date(s) set forth below.
Signature Title Date
/s/ R. Philip Bixby President, CEO and Director April 27, 1998
R. Philip Bixby
/s/ Richard L. Finn Senior Vice President, Finance April 27, 1998
Richard L. Finn Director
(Principal Financial Officer)
/s/ John K. Koetting Vice President and Controller April 27, 1998
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and April 27, 1998
J.R. Bixby Director
/s/ W. E. Bixby Vice Chairman of the Board April 27, 1998
W. E. Bixby and Director
/s/ W. E. Bixby III Director April 27, 1998
W. E. Bixby III
/s/Daryl D. Jensen Director April 27, 1998
Daryl D. Jensen
/s/ Francis P. Lemery Director April 27, 1998
Francis P. Lemery
/s/ C. John Malacarne Director April 27, 1998
C. John Malacarne
/s/ Jack D. Hayes Director April 27, 1998
Jack D. Hayes
/s/ Webb R. Gilmore Director April 27, 1998
Webb R. Gilmore
/s/ Warren J. Hunzicker, M.D. Director April 27, 1998
Warren J. Hunzicker, M.D.
/s/ Michael J. Ross Director April 27, 1998
Michael J. Ross
/s/ Elizabeth T. Solberg Director April 27, 1998
Elizabeth T. Solberg
/s/ E. Larry Winn, Jr. Director April 27, 1998
E. Larry Winn, Jr.
/s/ Nancy Bixby Hudson Director April 27, 1998
Nancy Bixby Hudson
Exhibit Index List
1.A.(5)(a)Extended Maturity Rider
1.A.(11) Memorandum describing issuance, transfer and redemption procedures
2. Opinion and consent of C. John Malacarne as to the legality of the
securities being registered
6. Opinion and consent of Mark A. Milton, Vice President and Associate
Actuary, as to actuarial matters pertaining to the securities being
registered
7.(a) Consent of Ernst & Young LLP
7.(b) Consent of Sutherland, Asbill & Brennan
8. Undertaking
Exhibit 1.A.(5)(a)
Extended Maturity Rider
General Provisions
This Rider is part of your contract. It starts on the date it is added to your
contract. It must be read with all contract provisions.
Your contract contains a maturity date. We refer to this date as the "original
maturity date."
Benefit
This rider gives you the option to defer the maturity date by a period of 20
years from the original maturity date. To exercise this option, you must give
Kansas City Life Insurance Company written notice of your intention to defer the
maturity date. This notice must be given during the three year period prior to
the original maturity date. No premium may be paid after the original maturity
date. The death proceeds payable after the original maturity date will be equal
to the contract value minus any unpaid loan balance and unpaid interest.
However, the death proceeds will never be less than the amount necessary to
remain qualified as a life insurance contract under the then current Internal
Revenue Code or interpretations. We reserve the right to charge for any net
amount at risk necessary to achieve such qualification.
Contract Values
All contract values after the original maturity date will be calculated as
described in your contract.
Any benefit rider, including any term insurance rider or premium waiver rider,
attached to your contract will be discontinued after the original maturity date.
Termination
This rider will end on the earlier of your written request, or on the date the
contract terminates.
Signed for Kansas City Life Insurance Company, a stock company, at its Home
Office, 3520 Broadway, PO Box 419139, Kansas City, MO 64141-6139.
/s/ C. J. Malacarne /s/W. E. Bixby
Secretary President
March 1998
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR CONTRACTS
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
FOR FLEXIBLE PREMIUM LIFE INSURANCE CONTRACTS
ISSUED BY
KANSAS CITY LIFE INSURANCE COMPANY
This document sets forth the current administrative procedures that will be
followed by Kansas City Life Insurance Company ("Kansas City Life") in
connection with its issuance of individual flexible premium variable life
insurance contracts (the "Contracts"), the transfer of assets held thereunder,
and the redemption by Contract owners (the "Owners") of their interests in those
Contracts. Capitalized terms used herein have the same meaning as in the
prospectus for the Contract that is included in the current registration
statement on Form S-6 for the Contract as filed with the Securities and Exchange
Commission ("Commission" or "SEC").
I. Procedures Relating to Purchase and Issuance of the Contracts
and Acceptance of Premiums
A. Offer of the Contracts, Applications, Initial Net Premiums, and Issuance
of the Contracts
1. Offer of the Contracts. The Contracts will be offered and
sold for premiums pursuant to established premium schedules and
underwriting standards in accordance with state insurance laws.
Premiums for the Contracts and related insurance charges will
not be the same for all Owners selecting the same Specified
Amount. Insurance is based on the principle of pooling and
distribution of mortality risks, which assumes that each Owner
pays a premium and related insurance charges commensurate with
the Insured's mortality risk as actuarially determined utilizing
factors such as age, sex, level of specified amount, health and occupation. A
uniform premium and insurance charges for all Insureds would
discriminate unfairly in favor of those Insureds representing
greater risk. Although there will be no uniform insurance
charges for all Insureds, there will be a uniform insurance rate
for all Insureds of the same risk class and same band for cost of insurance
rates. A description of the Monthly Deduction under the Contract, which
includes charges for cost of insurance and for supplemental benefits, is in
Appendix A to this memorandum.
2. Application. To purchase a Contract, the Owner must
complete an application and submit it through an authorized
Kansas City Life agent. An application will not be deemed to be
complete unless all required information, including without
limitation age, sex, and medical and other background
information, has been provided in the application.
If the applicant is 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 the 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.
3. Payment of Minimum Initial Premium and Determination of Contract Date. With
the TIA, the applicant 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). 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 the Owner
proposes to make. (See "Planned Periodic Premiums," below.)
In general, policies that are submitted with the required premium payment (and
the premium payment is submitted in "good order") will have a Contract Date
which will be the date of the TIA. However, if the Contract Date is calculated
to be the 29th, 30th or 31st of the month then the date will be set t the 1st of
the next following month. For Contracts where values are applied to the new
Contract from another contract, the Contract Date will be the approval date plus
up to two days, unless the approval is the 27th, 28th or 29th of the month in
which case then the Contract Date would be the first of the next month. There
are several exceptions to these rules based on the type of billing, whether the
contract involves a conversion and/or whether the specified amount exceeds
$250,000.
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB) -- Premium with
Application If PAC or CB is requested and the initial premium is taken with the
application, the Contract Date will be the later of the TIA date or the first of
the month of approval. Combined Billing is a billing where more than one Kansas
City Life contract is billed together.
Combined Billing (CB)--No Premium With Application
If CB is requested and the initial premium is not taken with the application,
the Contract Date will be the earlier of the 1st month after the Contract is
approved or the date the initial premium is received. However, if approval
occurs on the 1st, 2nd, 3rd, 4th or 5th of the month the Contract Date will be
the first of the same month that the Contract is approved. In addition, if the
Contract Date is calculated to be the 29th, 30th or 31st of the month then the
date will be set to the 1st of the following month.
Government Allotment (GA) and Federal Allotment (FA)
If GA or FA is requested on the application and an initial premium is taken with
the application, the Contract Date will be the 1st of the month of approval. If
GA or FA is requested and no initial premium is received the Contract Date will
be the first of the month for which a full monthly allotment is received.
Conversions
If a Kansas City Life term insurance product is converted to a new Contract the
Contract Date will be the date that the previous contract was paid to. If there
is more than one term policy being converted, the Contract Date will be
determined by the contract with the earliest date that premiums were paid to.
Specified Amount Exceeds $250,000
If the specified amount requested exceeds $250,000 and an initial premium is
taken with the application, the Contract Date will be the later of the TIA date
or the 1st of the month of approval.
Kansas City Life may specify the form in which a premium payment must be made in
order for the premium to be in "good order." Ordinarily, a check will be deemed
to be in good order upon receipt, although Kansas City Life may require that the
check first be converted into federal funds. In addition, for a premium to be
received in "good order," it must be accompanied by all required supporting
documentation, in whatever form required.
An initial premium will not be accepted from applicants that are not eligible
for TIA coverage. 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 the
application has been approved. (For a discussion of underwriting requirements,
see "Underwriting Requirements" below). Kansas City Life will deduct contract
charges as of the Contract Date.
4. Underwriting Requirements. 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 standard
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.
5. Determination of Owner of the Contract. The Owner of the Contract 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 Kansas
City Life.
B. Payment and Acceptance of Additional Premiums
1. Generally. 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 and to require satisfactory evidence
of insurability prior to accepting unscheduled premiums. A loan repayment must
be clearly marked as such or it will be credited as a premium. No premium
payment will be accepted after the Maturity Date.
2. Procedures for Accepting Additional Premium Payments. 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. Kansas City Life may specify the
form in which a premium payment must be made in order for the premium to be in
"good order." Ordinarily, a check will be deemed to be in good order upon
receipt, although Kansas City Life may require that the check first be converted
into federal funds. In addition, for a premium to be received in "good order,"
it must be accompanied by all required supporting documentation, in whatever
form required.
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 the Owner if a premium payment exceeds this limit and will cause the
Contract to violate the definition of insurance. The Owner may choose to take a
refund of the portion of the premium payment that is determined to be in excess
of applicable limitations, or the Owner 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 "Underwriting
Requirements" above.) Kansas City Life will monitor Contracts and will attempt
to notify the Owner on a timely basis if premiums paid under a Contract exceed
the "7-Pay Test" as set forth in the Internal Revenue Code and, therefore, the
Contract is in jeopardy of becoming a modified endowment contract.
3. Planned Periodic Premiums. When applying for a Contract, the Owner selects a
plan for paying level premium payments at specified intervals, e.g., quarterly,
semi-annually or annually. If the Owner elects, Kansas City Life will also
arrange for payment of Planned Periodic Premiums on a special monthly,
quarterly, semi-annual or annual basis under a pre-authorized payment
arrangement. The Owner is not required to pay premium payments in accordance
with these plans; rather, the Owner can pay more or less than planned or skip a
Planned Periodic Premium entirely. Each premium after the initial premium must
be at least $25. Kansas City Life may increase this minimum limit 90 days after
sending the Owner a Written Notice of such increase. Subject to the limits
described above, the Owner can change the amount and frequency of Planned
Periodic Premiums by sending Written Notice to the Home Office. Kansas City
Life, however, reserves the right to limit the amount of a premium payment or
the total premium payments paid, as discussed above.
4. 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 the Owner of the new Guaranteed Monthly Premium
and amend the Owner's Contract to reflect the change.
5. Premium Payments Upon Increase in Specified Amount. A new Guaranteed Payment
Period begins on the effective date of an increase in Specified Amount. The
Owner 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.
6. 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 the Owner's Contract lapsing will vary, as
follows, depending on whether a Guaranteed Payment Period is in effect.
a. 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. 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.
b. 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.
7. Grace Period. The grace period is a 61-day period to make a premium payment
sufficient to prevent lapse. Kansas City Life will send notice of the amount
required to be paid during the grace period to the Owner's last known address
and the address of any assignee of record. The grace period will begin when the
notice is sent. The Owner's 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). If the grace period premium payment
has not been paid before the grace period ends, the Owner's Contract will lapse.
It will have no value and no benefits will be payable.
A grace period also may begin if Indebtedness becomes excessive.
C. Allocation and Crediting of Initial and Additional Premiums 1. The
Separate Account, Subaccounts, and Fixed Account. The variable benefits under
the Contracts are supported by the Kansas City Life Variable Life Separate
Account (the "Variable Account"). The Variable Account currently consists of
fourteen Subaccounts, the assets of which are used to purchase shares of a
designated corresponding mutual fund Portfolio that is part of one of the
following Funds: MFS Variable Insurance Trust ("MFS Trust"), American Century
Variable Portfolios Inc. ("American Century Variable Portfolios), Federated
Insurance Series, Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund.
Each Fund is registered under the Investment Company Act of 1940 as an open-end
management investment company. Owners also may allocate Contract Value to Kansas
City Life's general account (the "Fixed Account"). Additional Subaccounts may be
added from time to time to invest in portfolios of MFS Trust, American Century
Variable Portfolios, Federated Insurance Series, Dreyfus Variable Investment
Fund and Dreyfus Stock Index Fund or any other investment company. 2.
Allocations Among the Accounts. Net Premiums and Contract Value are allocated to
the Subaccounts and the Fixed Account in accordance with the following
procedures.
a. General. In the Contract application, the Owner specifies the percentage of a
Net Premium to be allocated to each Subaccount and to the Fixed Account. The sum
of the allocations must equal 100%, and Kansas City Life reserves the right to
limit the number of Subaccounts to which premiums may be allocated. The Owner
can change the allocation percentages at any time, subject to these rules, by
sending Written Notice to the Home Office. Changes in allocation may also be
made by telephone if a proper authorization has been provided. The change will
apply to premium payments received with or after receipt of that Written Notice.
b. Allocation of Initial Premium. On the Allocation Date, the initial Net
Premium will be allocated to the Money Market Subaccount. The Allocation Date is
the later of the date when all underwriting and other requirements have been met
and an application has been approved, or the date the initial premium is
received in good order at the Home Office. Kansas City Life may specify the form
in which a premium payment must be made in order for the premium to be in "good
order." Ordinarily, a check will be deemed to be in good order upon receipt,
although Kansas City Life may require that the check first be converted into
federal funds. In addition, for a premium to be received in "good order," it
must be accompanied by all required supporting documentation, in whatever form
required. If any additional premiums are received in good order before the
Reallocation Date (as defined below), the corresponding Net Premiums also will
be allocated to the Money Market Subaccount.
The "free-look" period under the Contract is assumed to end on the Reallocation
Date, and on that date, Contract Value in the Money Market Subaccount will be
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.
c. Allocation of Additional Premiums. 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 Kansas City
Life's 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.
(See "Underwriting Requirements" above). If the additional premium payment is
rejected, Kansas City Life will return the premium payment immediately, without
any adjustment for investment experience.
II. Transfers Among Accounts
A. Transfer Privilege
1. General. After the Reallocation Date and prior to the Maturity Date, the
Owner may transfer all or part of an amount in the Subaccount(s) to another
Subaccount(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the Subaccount(s), subject to the restrictions described below.
Kansas City Life will make the transfer on the date that it receives Written
Notice requesting such transfer.
2. General Restrictions on Transfer Privilege. 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.
There is no limit on the number of transfers that can be made among Subaccounts
or to the Fixed Account. However, only one transfer may be made from the Fixed
Account each Contract Year. (For a description of those restrictions, see
"Restrictions on Transfers from Fixed Account," below.) The first six transfers
during each Contract Year are free. Any unused free transfers do not carry over
to the next Contract Year. Kansas City Life will assess a $25 Transfer
Processing Fee for the seventh and each subsequent transfer during a Contract
Year. For the purpose of assessing the fee, each Written Request (or telephone
request described below) is considered to be one transfer, regardless of the
number of Subaccounts or the Fixed Account affected by the transfer. The
processing fee will be deducted from the amount being transferred or from the
remaining Contract Value, according to the Owner's instructions.
3. Restrictions on 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 Kansas City Life will transfer the entire amount.
B. Telephone Transfer, Premium Allocation Changes and Loan Privileges
1. Election of the Program. Transfers, changes in premium allocation and loan
requests 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 Kansas City Life. Kansas City Life reserves
the right to suspend telephone transfer, premium allocation and/or loan
privileges at any time, for any reason, if it deems such suspension to be in the
best interests of Contract Owners. 2. Procedures Employed to Confirm
Genuineness of Telephone Transfer, Premium Allocation Changes and Loan
Privileges Instructions. Kansas City Life will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and if Kansas
City Life follows those procedures it will not be liable for any losses due to
unauthorized or fraudulent instructions. Kansas City Life may be liable for such
losses if it does not follow those reasonable procedures. The procedures Kansas
City Life will follow for telephone transfers, premium allocation changes and
loans 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.
C. Dollar Cost Averaging Plan
1. General. The Dollar Cost Averaging Plan, if elected, enables the Owner to
transfer systematically and automatically, on a monthly basis for a period of 3
to 36 months, specified dollar amounts from the Money Market Subaccount to other
Subaccounts. At least $250 must be transferred from the Money Market Subaccount
each month. The required amounts may be allocated to the Money Market Subaccount
through initial or subsequent premium payments or by transferring amounts into
the Money Market Subaccount from the other Subaccounts or from the Fixed Account
(which may be subject to certain restrictions).
2. Election and Operation of the Program. The Owner 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 Kansas City Life. The election form allows the Owner 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 or the date The Owner requests. Dollar cost
averaging will terminate at the completion of the designated number of months or
the day Kansas City Life receives Written Notice instructing Kansas City Life to
cancel the Dollar Cost Averaging Plan. Transfers made from the Money Market
Subaccount for the Dollar Cost Averaging Plan will not count toward the six
transfers permitted each Contract Year without imposing the Transfer Processing
Fee.
D. Portfolio Rebalancing Plan
1. General. The Owner 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.
2. Election and Operation of the Plan. If elected, this plan automatically
adjusts the Owner's 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. If the Contract
Value is negative at the time portfolio rebalancing is scheduled, the
redistribution will not be completed. III. "Redemption" Procedures: Full
and Partial Surrenders, Maturity Benefit,
Death Benefits, and Loans
A. "Free-Look" Period
The Owner may cancel the Contract for a refund during the "free-look" period.
This period expires 10 days after the Owner receives the Contract, 45 days after
the application for the Contract is signed, or 10 days after Kansas City Life
mails or delivers a Notice of Withdrawal Right (described below), whichever is
latest. If the Owner decides to cancel the Contract, the Owner 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 some states we may be required to refund the greater of Contract Value
and premiums paid.
In addition, the Owner may cancel an increase in Specified Amount that the Owner
has requested within 10 days after the Owner receives 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 the Notice of Withdrawal
Right for the Specified Amount increase, whichever is latest. The Specified
Amount increase will be canceled from its beginning and any charges attributable
to the increase will be returned to Contract Value.
B. Notice of Withdrawal Right Required by Rule 6e-3(T)(b)(13)(viii)
Upon issuance of a Contract, Kansas City Life will send by first class mail or
personal delivery to the Contract Owner a written document containing (i) a
notice of the right to return the Contract to Kansas City Life or to one of its
authorized agents before the latest of: (a) 10 days after the Owner receives the
Contract; (b) 45 days after the application for the Contract is signed; and (c)
10 days after Kansas City Life mails or delivers such notice of the right to
return the Contract to the Owner; (ii) a statement of Contract fees and other
charges and an illustration of guideline annual premiums, death benefits, and
cash surrender values applicable to the age, sex, and risk class of the Insured;
and (iii) a form of request for refund of gross premiums paid on the Contract
setting forth (a) instructions as to the manner in which a refund may be
obtained, including the address to which the request form should be mailed; and
(b) spaces necessary to indicate the date of such request, the Contract number,
and the signature of the Contract Owner.
C. Surrendering the Contract for Cash Surrender Value
The Owner may surrender the 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. A surrender request will
be processed as of the date the Owner's written request and all required
documents are received. Payment will generally be made within seven calendar
days. The Cash Surrender Value may be taken in one lump sum or it may be applied
to a payment option. The Owner's Contract will terminate and cease to be in
force if it is surrendered for one lump sum. It cannot later be reinstated.
D. Partial Surrenders
1. General. The Owner may make partial surrenders under the contract at any
time, subject to the conditions below. The Owner 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. This charge will be
deducted from the Owner's 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.
2. Allocation of Partial Surrender Among the Accounts. When the Owner requests a
partial surrender, the Owner can direct how the partial surrender amount will be
deducted from Contract Value in the Subaccounts and Fixed Account. If the Owner
provides no directions, the partial surrender amount will be deducted from
Contract Value in the Subaccounts and Fixed Account on a pro-rata basis.
3. Effect of Partial Surrender on Death Benefit. 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.
4. Date Partial Surrender Requests Are Processed. Partial surrender requests
will be processed as of the date the Owner's written request is received in good
order, and generally will be paid within seven calendar days. A written request
for a partial surrender will be deemed to be good order when, among other
things, all required supporting documentation has been received.
E. 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 the 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.
1. 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 the Owner increases 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 paid in excess of two guideline annual premiums. An "SEC guideline
annual premium" is a hypothetical level amount that would be payable to 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.
2. Deferred Administrative Expense. The Table below shows the Deferred
Administrative Expense deducted if the Owner surrenders, lapses, reduces the
Specified Amount, or takes a partial surrender 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.
F. 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.
G. Redemptions for 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. (The Monthly Deduction is described in Appendix A.) Subsequent
Monthly Deductions will be made as of each Monthly Anniversary Day thereafter.
The Owner's Contract Date is the date used to determine the Owner's Monthly
Anniversary Day. The Monthly Deduction consists of (1) cost of insurance
charges, (2) administration fees, and (3) any charges for supplemental and/or
rider benefits. 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.
H. Death Benefits
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 will be paid in a lump sum generally within
seven calendar days of receipt of satisfactory proof or, if elected, under a
payment option. The Death Benefit will be paid to the Beneficiary. Under
certain circumstances and in accordance with established administrative
procedures, we will pay death benefit proceeds through Kansas City Life's
Personal Growth Account, an interest bearing account. Proceeds paid through the
Personal Growth Account are placed in our general account. Check-writing
privileges are provided in the Personal Growth Account under which the bank that
pays the check will be reimbursed by Kansas City Life out of the proceeds held
in our general account. The Personal Growth Account is not a bank account and is
not insured nor guaranteed by the FDIC or any other government agency. A
Contract Owner or beneficiary (whichever applicable) will have immediate access
to the proceeds by writing a check on the account. We pay interest from the date
of death to the date the Personal Growth Account is closed. 1. 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,
including without limitation when the age or sex of the Insured has been
misstated or when the Insured dies by suicide within two years of the Contract
Date or within two years after the effective date of any increase in the
Specified Amount, the amount of the Death Benefit may be further adjusted.
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.
2. 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.
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.
3. Initial Specified Amount and Coverage Option. The Initial Specified Amount is
set at the time the Contract is issued. The Owner may change the Specified
Amount from time to time, as discussed below. The Owner selects the Coverage
Option when the Owner applies for the Contract. The Owner also may change the
Coverage Option, as discussed below. 4. Changes in Coverage Option. We
reserve the right to require that the Contract be in force for one Contract Year
before any change in Coverage Option and that no more than one change in
Coverage Option be made in any 12-month period. On or after the first Contract
Anniversary, the Owner may change the Coverage Option on the 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. (See "Underwriting Requirements," above.) 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. 5. Ability to Adjust
Specified Amount. We reserve the right to require that the Contract be in force
for one Contract Year before a change in Specified Amount and we reserve the
right to only allow one change in Specified Amount every 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
the 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.
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.
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.
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.
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. After an increase, Kansas City Life will, for
purposes of calculating Surrender Charges, attribute a portion of each premium
payment the Owner makes to the Specified Amount increase, even if the Owner does
not increase the amount or frequency of the Owner's 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.
I. Loans
1. When Loans are Permitted. Prior to the death of the Insured, the Owner may
borrow against the 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. Contract loans will be processed as of the date the Owner's written
request is received and approved. Loan proceeds generally will be sent to the
Owner within seven calendar days.
2. 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.
3. 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%. Interest earned on the Loan Account will be added to the Fixed
Account. 4. 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%. The preferred loan
provision is not guaranteed.
5. Loan Repayment;. The Owner may repay all or part of the Owner's Indebtedness
at any time while the Insured is living and the Contract is in force. Each loan
repayment must be at least $10.00. 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. 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. 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.
6. Reduction in Death Benefit. If the Death Benefit becomes payable while a loan
is outstanding, the Indebtedness will be deducted in calculating the Death
Benefit proceeds.
7. Default. If the Loan Account Value exceeds the Contract Value less any
applicable Surrender Charge on any Valuation Day, the Contract will be in
default. The Owner, and any assignee of record, will be sent notice of the
default. The Owner 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.
J. 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. The Owner may apply proceeds of
$2,000 or more which are payable under this Contract to any of the following
options:
1. Option 1 - Interest Payments. Kansas City Life 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.
2. Option 2 - Installments of a Specified Amount. Kansas City Life 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.
3. 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.
4. Option 4 - Life Income. Kansas City Life 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.
5. Option 5 - Joint and Survivor Income. Kansas City Life 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.
6. Minimum Amounts. Kansas City Life reserves the right to pay the total amount
of the Contract in one lump sum, if less than $2000. 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.
K. Delay in Redemptions or Transfers 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.
L. 24-Month Conversion Right
The conversion right required by Rule 6e-3(T)(b)(13)(v)(B) is provided by
permitting the Contract Owner 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, to 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. Since a new contract, under which payments (or charges),
dividends, and cash values could vary from those under the existing Contract,
will not be issued, no adjustment in payments and cash values under the Contract
would be required to address such variances.
M. Maturity Benefit
The Maturity Date is the Contract Anniversary an or 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.
APPENDIX A
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary Day that have occurred prior to the
Allocation Date. Subsequent Monthly Deductions will be made as of each Monthly
Anniversary Day thereafter. The Contract Date is the date used to determine the
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. 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 on that Monthly
Anniversary Day.
The net amount at risk on a Monthly Anniversary Day is the difference between
the Death Benefit, 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
current interest rate that is being credited on portions of any Net Premiums
that are allocated to the Fixed Account as of that Monthly Anniversary Day.
The cost of insurance rate for a Contract on a Monthly Anniversary Day is based
on the Insured's Age, sex, level of specified amount, 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. Contracts with a specified
amount of $500,000 and above currently are subject to a lower level of cost of
insurance charges. 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 the Specified Amount Rider. 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.
Monthly Expense Charge
Kansas City Life will begin deducting the Monthly Expense Charge
from the Contract Value as of the Contract Date. 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.
Reduced Charges for Eligible Groups
The charges otherwise applicable may be reduced with respect to Contracts issued
to a class of associated individuals or to a trustee, employer or similar entity
where Kansas City Life anticipates that the sales to the members of the class
will result in lower than normal sales or administrative expenses. These
reductions will be made in accordance with our rules in effect at the time of
the application for a Contract. The factors we will consider in determining the
eligibility of a particular group for reduced charges and the level of the
reduction are as follows: the nature of the association and it organizational
framework, the method by which sales will be made to the members of the class,
the facility with which premiums will be collected from the associated
individuals and the association capabilities with respect to administrative
tasks, the anticipated persistency of the Contract, the size of the class of
associated individuals and the number of years it has been in existence and any
other such circumstances which justify a reduction in sales or administrative
expenses. Any reduction will be reasonable and will apply uniformly to all
prospective Contract purchases in the class and will not be unfairly
discriminatory to the interest of any Contract holder.
Supplemental and/or Rider Benefits
The following supplemental and/or rider benefits are available and may be added
to the Owner's Contract. Monthly charges for these benefits and/or riders will
be deducted from the Owner's 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.
The amount 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. DPB 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.
Maturity Extension Rider Issue Ages: No restrictions This rider
provides the Contract Owner with the option to delay the Maturity Date
of the Contract by 20 years.
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. This bonus is not guaranteed, and
Kansas City Life may decide not to pay the bonus.
Exhibit 2
April 28, 1998
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64111-2565
Re: Registration Statement
To Whom It May Concern:
In connection with the proposed registration under the Securities Act of 1933,
as amended, of individual variable life insurance contracts (the "Contracts")
and interests in the Kansas City Life Variable Life Separate Account (the
"Separate Account"), I have examined the documents relating to the establishment
of the Separate Account by the Board of Directors of Kansas City Life Insurance
Company (the "Company") as a separate account for assets applicable to variable
life insurance contracts, pursuant to Section 376.309 RSMo., as amended, and the
Registration Statement, on Form S-6 (the "Registration Statement"), and I have
examined such other documents and reviewed such matters of law as I deem
necessary for this opinion, and I advise you that in my opinion: 1. The Separate
Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Missouri.
2. The Contracts, when issued in accordance with the Prospectus constituting a
part of the Registration Statement and upon compliance with applicable local
law, will be legal and binding obligations of the Company in accordance with
their respective terms.
3. The portion of the assets held in the Separate Account equal to reserves and
other contract liabilities with respect to the Separate Account are not
chargeable with liabilities arising out of any other business the Company
may conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of my name under the heading "Legal Matters" in the
Prospectus constituting a part of the Registration Statement and to the
references to me wherever appearing herein.
Yours very truly,
/s/C. John Malacarne
C. John Malacarne
CJM/jp
Exhibit 6
Actuarial Opinion
In my capacity as Vice President and Associate Actuary of Kansas City Life
Insurance Company, I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 3 to the registration statement
on Form S-6, filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to flexible premium variable
life insurance contract (the "Registration Statement") and
The preparation on contract forms for the flexible premium variable life
insurance contracts described in the Registration Statement (the "Contract").
It is my professional opinion that:
The illustrations of death benefits, account values, net cash surrender values
and accumulated premiums in the Prospectus, based on the assumptions stated in
the illustrations, are consistent with the provisions of the Contracts. The rate
structure of the Contracts has not been designed as to make the relationship
between premiums and benefits, as shown in the illustrations, appear to be
correspondingly more favorable to prospective purchasers of Contracts age 35 in
the underwriting classes illustrated than to prospective purchasers of Contracts
at other ages or underwriting classes.
I hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the use of my name under the heading "Experts" in the
Prospectus.
Sincerely,
/s/ Mark A. Milton
Mark A. Milton, FSA, MAAA
Vice President and Associate Actuary
Kansas City Life Insurance Company
Exhibit 7 (a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", to the use
of our report dated January 26, 1998, with respect to the consolidated financial
statements of Kansas City Life Insurance Company and to the use of our report
dated April 17, 1998 with respect to the financial statements of Kansas City
Life Variable Life Separate Account, included in the Post- Effective Amendment
No. 3 to the Registration Statement (Form S-6 No. 33-95354) and the related
Prospectus.
Ernst & Young LLP
Kansas City, Missouri
April 28, 1998
Exhibit 7 (b)
Consent of Sutherland, Asbill & Brennan
April 28, 1997
Board of Directors
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64141-6139
Re: Kansas City Life Variable Life Separate Account
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 3 to
the registration statement on Form S-6 for Kansas City Life Variable Life
Separate Account (File No. 33-95354). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
Stephen E. Roth
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000948972
<NAME>Kansas City Life Insurance Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 2,004,516<F1>
<DEBT-CARRYING-VALUE> 145,661<F2>
<DEBT-MARKET-VALUE> 151,661<F2>
<EQUITIES> 114,986<F3>
<MORTGAGE> 270,054
<REAL-ESTATE> 80,111<F4>
<TOTAL-INVEST> 2,746,014
<CASH> 125,268
<RECOVER-REINSURE> 99,593
<DEFERRED-ACQUISITION> 209,826
<TOTAL-ASSETS> 3,439,452
<POLICY-LOSSES> 803,738
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 37,569
<POLICY-HOLDER-FUNDS> 1,886,050<F5>
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,121
<OTHER-SE> 507,473
<TOTAL-LIABILITY-AND-EQUITY> 3,439,452
150,982
<INVESTMENT-INCOME> 193,696
<INVESTMENT-GAINS> 14,505
<OTHER-INCOME> 103,711
<BENEFITS> 273,178
<UNDERWRITING-AMORTIZATION> 35,712
<UNDERWRITING-OTHER> 4,894<F6>
<INCOME-PRETAX> 62,623
<INCOME-TAX> 17,762
<INCOME-CONTINUING> 44,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,861
<EPS-PRIMARY> 7.25
<EPS-DILUTED> 7.25
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
Footnotes:
<F1> Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2> Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3> Equity securities include equity securities that are available for sale
under FASB 115.
<F4> Real estate includes real estate joint ventures.
<F5> Policyholder funds include accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6> Underwriting expenses - other represent amortization of the value of
purchased insurance in force.
</FN>
</TABLE>
