As filed with the Securities and Exchange Commission on April 29, 1999.
Registration No. 333-25443
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
___immediately upon filing pursuant to paragraph (b) of Rule 485
_X_on May 1, 1999 pursurant to paragraph (b) of Rule 485
___60 days after filing pursuant to paragraph (a)(i) of Rule 485
___on (date) pursuant to paragraph (a)(i) of Rule 485
Copy to: Stephen E. Roth Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Ave, N.W.
Washington, D.C. 20004-2404
Securities Being Offered -- Flexible Premium Variable Joint Survivorship Life
Insurance Contracts.
PROSPECTUS
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE UNIVERSAL 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 219364
Telephone (816) 753-7000 Kansas City, Missouri 64121-9364
Telephone (800) 616-3670
This Prospectus describes a flexible premium survivorship variable universal
life insurance contract ("Contract") offered by Kansas City Life Insurance
Company. We have provided a definitions section at the beginning of this
Prospectus for your reference as you read.
The Contract is designed to provide insurance protection upon the death of the
second of the two Insureds named in the Contract. The Contract also provides you
the opportunity to allocate premiums and Contract Value to one or more
Subaccounts of the Kansas City Life Variable Life Separate Account ("Variable
Account") or to the Fixed Account. The assets of each Subaccount are invested in
a corresponding portfolio of a designated mutual fund ("Funds") as follows:
MFS(R)Variable Insurance TrustSM Manager
MFS Emerging Growth Series MFS Investment Management(R)
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS Global Governments Series
MFS Bond Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
Management, Inc.
American Century VP Income & Growth
American Century VP International
American Century VP Value
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Investment
Management Company
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Capital Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation &
Mellon Equity Associates
The Dreyfus Socially Responsible Growth Fund, Inc. Manager
The Dreyfus Corporation
Sub-Investment Adviser:
NCM Capital Management
Group, Inc.
J.P. Morgan Series Trust II Manager
J.P. Morgan Equity Portfolio J.P. Morgan Investment
Management Inc.
J.P. Morgan Small Company Portfolio
Templeton Variable Products Series Fund Manager
Templeton International Fund Class 2 Templeton Investment
Counsel, Inc.
Calamos Advisors Trust Manager
Calamos Convertible Portfolio Calamos Asset Management,
Inc.
<PAGE>
The accompanying prospectuses for the Funds describe these portfolios. The value
of amounts allocated to the Variable Account (prior to the date the Contract
matures) will vary according to the investment performance of the Portfolios of
the Funds. You bear the entire investment risk of amounts allocated to the
Variable Account. Another choice available for allocation of premiums is our
Fixed Account. The Fixed Account is part of Kansas City Life's general account.
It pays interest at declared rates guaranteed to equal or exceed 4%.
The Contract also offers you the flexibility to vary the amount and timing of
Premium Payments and to change the amount of Death Benefits payable. This
flexibility allows you to provide for your changing insurance needs under a
single insurance contract.
You can select from three Coverage Options available under the Contract:
o Option A: a level Death Benefit;
o Option B: a Death Benefit that fluctuates with the value of the Contract;
and
o Option L: provides a Death Benefit pattern that can be level for several
years and then can increase at a particular time that you choose.
We also offer a Guaranteed Minimum Death Benefit Option which guarantees payment
of the Specified Amount less Indebtedness and past due charges) upon the death
of the last surviving Insured provided that you meet the Premium Payment
requirements.
The Contract provides for a value that you can receive by surrendering the
Contract. If the value is insufficient to cover the charges due under the
Contract, the Contract will lapse without value. It may not be advantageous to
replace existing insurance.
Within certain limits, you may return the Contract or exercise the no-fee
transfer right.
This prospectus and the accompanying fund prospectuses provide important
information you should have before deciding to purchase a Contract. Please keep
these for future reference.
An investment in the Contract is not a deposit or obligation of, or guaranteed
or endorsed by, any bank, nor is the Contract federally insured by the Federal
Deposit Insurance Corporation or any other government agency. An investment in
the Contract involves certain risks, including the loss of Premium Payments
(principal).
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
The Date of this Prospectus is May 1, 1999.
<PAGE>
prospectus contents
DEFINITIONS............................................................
SUMMARY AND DIAGRAM OF THE CONTRACT....................................
DIAGRAM OF CONTRACT....................................................
GENERAL INFORMATION ABOUT KANSAS CITY LIFE.............................
KANSAS CITY LIFE INSURANCE COMPANY..................................
THE VARIABLE ACCOUNT AND THE FUNDS.....................................
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT.....................
THE FUNDS...........................................................
RESOLVING MATERIAL CONFLICTS........................................
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS...................
VOTING RIGHTS.......................................................
PURCHASING A CONTRACT..................................................
APPLYING FOR A CONTRACT.............................................
PREMIUM PAYMENTS.......................................................
PREMIUMS............................................................
PREMIUM PAYMENTS TO PREVENT LAPSE...................................
PREMIUM ALLOCATIONS AND CREDITING...................................
TRANSFER PRIVILEGE..................................................
DOLLAR COST AVERAGING PLAN..........................................
PORTFOLIO REBALANCING PLAN..........................................
FIXED ACCOUNT..........................................................
MINIMUM GUARANTEED AND CURRENT INTEREST RATES.......................
CALCULATION OF FIXED ACCOUNT VALUE..................................
DELAY OF PAYMENT....................................................
CHARGES AND DEDUCTIONS.................................................
PREMIUM EXPENSE CHARGES.............................................
MONTHLY DEDUCTION...................................................
DAILY MORTALITY AND EXPENSE RISK CHARGE.............................
TRANSFER PROCESSING FEE.............................................
PARTIAL SURRENDER FEE...............................................
FUND EXPENSES.......................................................
REDUCED CHARGES FOR ELIGIBLE GROUPS.................................
OTHER TAX CHARGE....................................................
HOW YOUR CONTRACT VALUES VARY..........................................
BONUS ON CONTRACT VALUE IN THE VARIABLE ACCOUNT.....................
DETERMINING THE CONTRACT VALUE......................................
CASH SURRENDER VALUE................................................
DEATH BENEFIT..........................................................
AMOUNT OF DEATH BENEFIT PROCEEDS....................................
TOTAL SUM INSURED, SPECIFIED AMOUNT, ADDITIONAL INSURANCE AMOUNT....
COVERAGE OPTIONS....................................................
CORRIDOR DEATH BENEFIT..............................................
GUARANTEED MINIMUM DEATH BENEFIT OPTION.............................
EFFECT OF COMBINATIONS OF SPECIFIED AMOUNT AND ADDITIONAL INSURANCE AMOUNT...
SELECTING AND CHANGING THE BENEFICIARY..............................
CHANGES IN DEATH BENEFIT...............................................
EFFECT OF INVESTMENT PERFORMANCE ON DEATH BENEFIT...................
CHANGES IN COVERAGE OPTION..........................................
INCREASES IN THE ADDITIONAL INSURANCE AMOUNT........................
DECREASES IN TOTAL SUM INSURED......................................
CASH BENEFITS..........................................................
CONTRACT LOANS......................................................
SURRENDERING THE CONTRACT FOR CASH SURRENDER VALUE..................
PARTIAL SURRENDERS..................................................
PAYMENT OPTIONS.....................................................
SPECIALIZED USES OF THE CONTRACT....................................
ILLUSTRATIONS..........................................................
ASSUMPTIONS.........................................................
CHARGES ILLUSTRATED.................................................
OTHER CONTRACT BENEFITS AND PROVISIONS.................................
LIMITS ON RIGHTS TO CONTEST THE CONTRACT............................
CHANGES IN THE CONTRACT OR BENEFITS.................................
PAYMENT OF PROCEEDS.................................................
REPORTS TO CONTRACT OWNERS..........................................
SELECTING AND CHANGING THE BENEFICIARY..............................
ASSIGNMENT..........................................................
REINSTATEMENT OF CONTRACT...........................................
OPTIONAL RIDERS.....................................................
TAX CONSIDERATIONS.....................................................
INTRODUCTION........................................................
TAX STATUS OF THE CONTRACT..........................................
OUR INCOME TAXES....................................................
POSSIBLE TAX LAW CHANGES............................................
OTHER INFORMATION ABOUT THE CONTRACTS AND KANSAS CITY LIFE.............
SALE OF THE CONTRACTS...............................................
TELEPHONE AUTHORIZATIONS............................................
KANSAS CITY LIFE DIRECTORS AND EXECUTIVE OFFICERS...................
STATE REGULATION....................................................
ADDITIONAL INFORMATION..............................................
EXPERTS.............................................................
LITIGATION..........................................................
PREPARING FOR YEAR 2000.............................................
COMPANY HOLIDAYS....................................................
LEGAL MATTERS.......................................................
FINANCIAL STATEMENTS................................................
<PAGE>
DEFINITIONS
Accumulation Unit An accounting unit used to measure the net investment
results of each of the Subaccounts.
Additional Insurance Amount The amount of insurance coverage under the
Contract which is not part of the Specified Amount. The Guaranteed Minimum Death
Benefit Option, if elected, does not guarantee the Additional Insurance Amount.
Age The age of each Insured on their last birthdays as of each Contract
Anniversary. The Contract is issued at the Age shown in the Contract.
Allocation Date The date we apply the initial premium to your Contract. We
allocate this premium to the Federated Prime Money Fund II Subaccount where it
remains until the Reallocation Date. The Allocation Date is the later of the
date we approve your application or the date we receive the initial premium at
our Home Office.
Beneficiary The person you have designated to receive any proceeds payable
at the death of the last surviving Insured.
Cash Surrender Value The Contract Value less 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 takes effect. Contract Months,
Years and Anniversaries are measured from the Contract Date.
Contract Value Measure of the value in your Contract. It is the sum of the
Variable Account Value and the Fixed Account Value which includes the Loan
Account Value.
Contract Year Any period of twelve months starting with the Contract Date
or any Contract Anniversary.
Corridor Death Benefit A Death Benefit under the Contract designed to
ensure that in certain situations the Contract will not be disqualified as a
life insurance contract under Section 7702 of the Internal Revenue Code, as
amended. The Corridor Death Benefit is calculated by multiplying the Contract
Value by the applicable corridor percentage.
Coverage Options Death Benefit options available which affect the
calculation of the Death Benefit. Three coverage options (A, B or L) are
available.
Death Benefit Proceeds The amount of proceeds payable upon the death of the
last surviving Insured.
Excess Premium The portion of total premiums we receive during any Contract
Year that exceeds the Target Premium.
Fixed Account Value Measure of value accumulating in the Fixed Account.
Guaranteed Minimum Death Benefit Option An optional benefit, available only
at issue of the Contract. If elected, it guarantees payment of the Specified
Amount less Indebtedness and any past due charges upon the death of the last
surviving Insured, provided you meet the Guaranteed Minimum Death Benefit Option
Premium requirement.
Guaranteed Minimum Death Benefit Option Premium The amount we require to
guarantee that the Guaranteed Minimum Benefit Option Premium Death Benefit
Option remains in effect.
Home Office 3520 Broadway, P.O. Box 219364, Kansas City, Missouri
64121-9364.
Indebtedness The sum of all outstanding Contract loans plus accrued
interest.
Insureds The two persons whose lives we insure under the Contract.
Lapse Termination of the Contract because there is not enough value in the
Contract when the Grace Period ends.
Loan Account The Loan Account is used to track loan amounts and accrued
interest. It is part of the Fixed Account.
Loan Account Value Measure of the amount of Contract Value assigned to the
Loan Account.
Minimum Premium The amount we require in the first Contract Year to issue
the Contract.
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 from the Contract Value to pay the
cost of insurance charge, monthly expense charge, any applicable Guaranteed
Minimum Death Benefit Option charge, and any charges for supplemental and/or
rider benefits. We make the Monthly Deduction as of each Monthly Anniversary
Day.
Net Investment Factor An index used to measure Subaccount performance. We
describe calculation of the Net Investment Factor on page 27.
Owner, You The person entitled to exercise all rights and privileges of the
Contract.
Planned Premium Payments The amount and frequency of Premium Payments you
chose to pay in your last instructions to us. This is the amount we will bill
you. It is only an indication of your preferences of future Premium Payments.
Premium Expense Charges The amounts we deduct from each Premium Payment
which include the sales charge and the premium processing charge.
Premium/Premium Payment(s) The amount you pay to purchase the Contract. It
includes both Planned Premium Payments and unscheduled premiums.
Proceeds The total amount we are obligated to pay.
Reallocation Date The date as of which the Contract Value we initially
allocated to the Federated Prime Money Fund II Subaccount on the Allocation Date
is allocated to the Subaccounts and/or to the Fixed Account. We allocate the
Contract Value based on the premium allocation percentages you specify in the
application. The Reallocation Date is 30 days after the Allocation Date.
Specified Amount The Total Sum Insured less any Additional Insurance Amount
provided under the Contract.
Subaccounts The divisions of the Variable Account. The assets of each
Subaccount are invested in a corresponding portfolio of a designated mutual
fund.
Subaccount Value Measure of the value in a particular Subaccount.
Target Premium This amount is segregated from Excess Premium for the
purpose of calculating certain charges. We show the annual Target Premium in the
Contract.
Total Sum Insured The sum of the Specified Amount and any Additional
Insurance Amount provided under the Contract. This amount does not include any
additional benefits provided by riders.
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 beginning at the close of business on
one Valuation Day and ending at the close of business on the next Valuation Day.
Close of business is at 3 p.m. Central Standard Time.
Variable Account Value The Variable Account Value is equal to the sum of
all Subaccounts Values of a Contract.
We, Our, Us Kansas City Life Insurance Company
Written Notice A written notice in a form satisfactory to us 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 provide an overview
of the Contract. Please read it along with the detailed information which
follows in this Prospectus and the Contract.
Who Should Purchase a Contract. The Contract is designed to provide
long-term insurance benefits on the two Insureds and may also provide long-term
accumulation of value. You should evaluate the Contract in conjunction with
other insurance policies that you own and you should consider your insurance
needs and the Contract's long-term investment potential. It may not be
advantageous to replace existing insurance coverage with this Contract. You
should carefully consider replacement especially if the decision to replace
existing coverage is based solely on a comparison of illustrations. (See
"Illustrations" below and "Specialized Uses of the Contract" on page 35.)
The Contract. The Contract is a flexible premium survivorship variable life
insurance contract. As long as it remains in force it provides lifetime
insurance protection on the death of the second of the two Insureds. You pay
premiums for insurance coverage. The Contract also provides for accumulation of
premiums and a value if the Contract terminates. The value during the early
years of the Contract is likely to be much lower than the premiums paid.
The Death Benefit may and the Contract Value will increase or decrease to
reflect the investment performance of the Subaccounts to which you allocate
premiums. There is no guaranteed minimum value. You may choose to elect the
Guaranteed Minimum Death Benefit Option. Under this option we guarantee that we
will pay the Specified Amount upon the death of the last surviving Insured
(regardless of the Contract's investment performance) as long as you have met
the Guaranteed Minimum Death Benefit Option Premium requirement. (See
"Guaranteed Minimum Death Benefit Option," page 29.) If this option in not in
effect and the value is not enough to pay charges due, then the Contract will
lapse without value after a Grace Period. (See "Premium Payments to Prevent
Lapse," page 19.) If a Contract lapses while loans are outstanding, adverse tax
consequences may result. (See "Tax Considerations," page 43.) The Contract also
permits loans and partial surrenders, within limits.
Free Look Right to Cancel. For a limited time, you have the right to cancel
your Contract and receive a refund. (See "Free Look Right to Cancel Contract",
page 16.)
Illustrations. Illustrations in this Prospectus or those 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 don't show past or
future performance. Actual rates of return may be higher or lower than those
shown in Contract illustrations. Actual Contract values will be different from
those illustrated.
The illustrations show Contract values based on both current charges and
guaranteed charges. (See "Illustrations," page 32.)
Contract Tax Compliance. We intend for the Contract to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code. Under certain circumstances, federal tax law views a Contract as a
"modified endowment contract." Violation of the definition of life insurance
and/or designation as a "modified endowment contract" will affect the tax
advantages offered. We will monitor Contracts and will notify you on a timely
basis if, based on our interpretation, your Contract is in jeopardy of violating
the definition of life insurance or becoming a modified endowment contract. (See
"Tax Considerations," page 46, for further discussion of the tax status of a
Contract and the tax consequences.)
Owner Inquiries. If you have any questions, you may write or call Kansas
City Life's Home Office at 3520 Broadway, P.O. Box 219364, Kansas City, MO
64121-9364, 1-800-616-3670.
<PAGE>
DIAGRAM OF CONTRACT
- --------------------------------------------------------------------------------
Premium Payments
- --------------------------------------------------------------------------------
o You select a payment plan (Planned Premium Payment), but you 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 19
for rules and limits.)
o The Contract's minimum initial Premium Payment and planned Premium Payment
depend on the Insureds' Age, sex, risk class, Specified Amount and any
optional benefits and riders selected.
o You may pay unplanned Premium Payments, within limits. (See page 19.)
o Under certain circumstances, which include taking excessive Contracts
loans, you may have to make extra Premium Payments to prevent lapse. (See
page 19.)
- --------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS
- --------------------------------------------------------------------------------
o We deduct a sales charge from Premium Payments which varies by Contract
Year. In Contract Year 1 the sales charge is 50% of Premium Payments up to
the Target Premium and 2% of Excess Premium. In Contract Years 2-5 the
sales charge is 15% up to the Target Premium and 2% of Excess Premium. In
Contract Years 6-10 the sales charge is 6% up to the Target Premium and 2%
of Excess Premium. In Contract Years 11-20 the sales charge is 2% of Target
and Excess Premium. We will not deduct a charge beginning in the 21st
Contract Year. We show the Target Premium in your Contract. Target Premiums
and Excess Premiums are amounts we use to determine the amount of sales
charge.
o We deduct a premium processing charge of 4.85% of Premium Payments for all
Contract Years.
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUM PAYMENTS
- --------------------------------------------------------------------------------
o You direct the allocation of Premium Payments among 21 Subaccounts of the
Variable Account and/or the Fixed Account. We apply premiums to your
Contract after deducting the sales charge and premium processing charge.
(See page 20 for rules and limits on premium allocations.)
o Each Subaccount invests in a corresponding portfolio of the Funds. While
this Contract is in effect, the Contract Value will vary according to the
investment performance of the Portfolios of the Funds.
o We credit amounts allocated to the Fixed Account at interest rates
guaranteed to equal or exceed 4%. (See page 20 for rules and limits on
transfers from the Fixed Account.)
<PAGE>
- --------------------------------------------------------------------------------
DEDUCTIONS FROM CONTRACT VALUE
- --------------------------------------------------------------------------------
o There is a Monthly Deduction for cost of insurance, monthly administrative
charge, monthly issue expense charge, and charges for any supplemental
and/or rider benefits.
o The monthly administrative expense charge is $7.50 per month plus $.02 per
$1,000 of Total Sum Insured per month for all Contract Years.
o The monthly issue expense charge is $12.50 per month for the first five
Contract Years.
o There is no charge for the Guaranteed Minimum Death Benefit Option for the
first 10 Contract Years. Beginning in the 11th Contract year, the monthly
Guaranteed Minimum Death Benefit Option charge is: Current--$.01 per $1,000
of Specified Amount; Guaranteed--$.03 per $1,000 of Specified Amount. This
charge only applies if you elect this option.
o Cost of insurance charges apply each month for all Contract Years. (See
page 23.)
o The partial surrender fee is the lesser of : (a) 2% of the amount
surrendered; or (b) $25.
o See page 25 for a description of charges for any additional benefits or
riders.
o A $25 transfer processing fee applies for any Subaccount and/or Fixed
Account transfers occurring after the first six transfers in each Contract
Year. The first six transfers are free.
- --------------------------------------------------------------------------------
DEDUCTIONS FROM ASSETS
- --------------------------------------------------------------------------------
o There is a daily charge from the Subaccounts for mortality and expense
risks. This charge is 0.625% on a current basis and 0.90% on a guaranteed
basis. (See page 25.) We don't deduct this charge from the Fixed Account
Value.
o Management fees and other expenses are deducted from the assets of each
Portfolio before calculation of Subaccount values. (See page 24.) The
following tables should assist you in understanding the fund expenses that
you will bear. The annual expenses for the Funds are expenses for the most
recent fiscal year, except as noted below. Expenses of the Funds are not
fixed or specified in the Contract and actual expenses may vary. For a more
complete description of the various expenses see the prospectuses for the
underlying Funds that accompany this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
MFS MFS MFS
Emerging MFS Total MFS Global MFS
Growth Research Return Utilities Gov't Bond
Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C>
MFS(R) Variable Insurance TrustSM Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75% 0.75% 0.75% 0.75% 0.60%
Other Expenses 1/ 0.10% 0.11% 0.16% 0.26% 0.36% 0.63%
----- ----- ----- ----- ----- -----
Total Annual Series Operating Expenses 1/ 0.85% 0.86% 0.91% 1.01% 1.11% 1.23%
Expense Reimbursement2/ (0.00%) (0.00%) (0.00%) (0.00%) (0.10%) (0.21%)
------- ------ ------- ------- ------- -------
Net Expenses1/ 0.85% 0.86% 0.91% 1.01% 1.01% 1.02%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Am Cent Am Cent VP
VP Capital Income & Am Cent VP Am Cent
Appreciation Growth International VP Value
<S> <C> <C> <C> <C>
American Century Variable Portfolios Annual Expenses (as a
percentage of average net assets)
Management Fees (Investment Advisory Fees) 1.00% 0.70% 1.50% 1.00%
Other Expenses (after any expense reimbursement) 0.00% 0.00% 0.00% 0.00%
----- ----- ----- -----
Total Fund Annual Expenses (after any expense 1.00% 0.70% 1.50% 1.00%
reimbursement)3/
</TABLE>
<TABLE>
<CAPTION>
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) 0.74% 0.60% 0.49%
Other Expenses (after waiver)4/ 0.14% 0.18% 0.31%
Shareholder Services Fee 5/ 0.00% 0.00% 0.00%
----- ----- -----
Total Fund Annual Operating Expenses (after waiver)4/ 0.88% 0.78% 0.80%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Capital Dreyfus
Appreciation Small Cap
Portfolio Portfolio
<S> <C> <C>
Dreyfus Variable Investment Fund Annual Expenses (as a
percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75%
Other Expenses 0.06% 0.02%
----- -----
Total Fund Annual Expenses 0.81% 0.77%
</TABLE>
Dreyfus Stock
Index Fund
Dreyfus Stock Index Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.25%
Shareholder Services Fee 6/ 0.00%
Other Expenses 0.01%
-----
Total Fund Annual Expenses6/ 0.26%
The Dreyfus
Socially
Responsible
Growth Fund,
Inc.
The Dreyfus Socially Responsible Growth Fund, Inc.
Annual Expenses (as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75%
Shareholder Services Fee 6/ 0.00%
Other Expenses 0.05%
-----
Total Fund Annual Expenses 6/ 0.80%
<PAGE>
<TABLE>
<CAPTION>
JP Morgan JP Morgan
Equity Small Company
Portfolio Portfolio
<S> <C> <C>
J.P. Morgan Series Trust II Annual Expenses
(as a percentage of average net assets)
Management Fees 0.40% 0.60%
Other Expenses 1.08% 2.83%
----- -----
Total Annual Series Operating Expenses 7/ 1.48% 3.43%
Expense Reimbursement7/ (0.58%) (2.28%)
------- -------
Net Expenses7/ 0.90% 1.15%
</TABLE>
Templeton
International
Fund Class 2 8/
Templeton Variable Product Series Fund
Annual Expenses (as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.69%
Rule 12b-1 Fees 0.25%
Other Expenses 0.17%
-----
Total Fund Annual Operating Expenses 1.11%
<PAGE>
Calamos
Convertible
Portfolio
Calamos Advisors Trust Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75%
Other Expenses9/ 1.25%
-----
Total Annual Portfolio Operating Expenses 2.00%
Expense Reimbursement (1.00)%
-------
Net Expenses10/ 1.00%
- -------------------------
1/ Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent. Each series may enter
into other such arrangements and directed brokerage arrangements, which
would also have the effect of reducing the series' expenses. Expenses do
not take into account these expense reductions and are therefore higher
than the actual expenses of the series.
2/ MFS has agreed to bear expenses for these series, subject to
reimbursement by the series, such that each such series' "Other
Expenses" shall not exceed the following percentages of the average
daily net assets of the series during the current fiscal year: 0.40% for
the Bond Series and 0.25% for each remaining series except for the
Emerging Growth Series and Research Series which have no such
limitation. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS which will
be accomplished by the payment of an expense reimbursement fee by the
series to MFS computed and paid monthly at a percentage of the series'
average daily net assets for its then current fiscal year with a
limitation that immediately after such payment the series "Other
Expenses" will not exceed the percentage set forth above for that
series. The obligation of MFS to bear a series' "Other Expenses"
pursuant to this arrangement and the series' obligation to pay the
reimbursement fee to MFS terminates on the earlier of the date on which
payments made by the series equal the prior payment of such reimbursable
expenses by MFS or December 31, 2004 (May 1, 2001) in the case of the
New Discovery Series and May 1, 2002 in the case of the Growth Series.
3/ The investment adviser to American Century Variable Portfolios pays all
the expenses of the Fund except brokerage, taxes, interest, fees and
expenses of the non-interested person directors (including counsel fees)
and extraordinary expenses. For the services provided to the American
Century VP Capital Appreciation Fund, the manager receives an annual fee
of 1.00% of the first $500 million of the average net assets of the
fund, 0.95% of the next $500 million and 0.90% thereafter. For the
services provided to the American Century VP International Fund, the
manager receives an annual fee of 1.50% of the first $250 million of the
average net assets of the fund, 1.20% of the next $250 million and 1.10%
thereafter. For the services provided to the American Century VP Value
Fund, the manager receives an annual fee of 1.00% of the first $500
million of the average net assets of the fund, 0.95% of the next $500
million and 0.90% thereafter.
4/ The 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 have been .89%, .78%, and .81%, respectively, of
average net assets.
5/ The Fund did not pay or accrue the shareholder services fee during the
fiscal year ended December 31, 1998. The Fund has no present intention
of paying or accruing the shareholder services fee during the fiscal
year ended December 31, 1999. The maximum shareholder services fee is
0.25%.
6/ The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Stock
Index Fund are subject to a shareholder services fee of up to 0.25% for
shareholder account service and maintenance.
<PAGE>
7/ The trust, on behalf of each portfolio, has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty Trust Company
of New York ("Morgan Guaranty"), under which Morgan Guaranty is
responsible for certain aspects of the administration and operation of
each portfolio. Under the Service Agreement, each portfolio has agreed
to pay Morgan Guaranty a fee based on the percentages described below.
If total expenses of each portfolio, excluding the advisory fees, exceed
the expense limits of: 0.50% of the average daily net assets of J.P.
Morgan Equity Portfolio and 0.55% of the average daily net assets of
J.P. Morgan Small Company Portfolio, Morgan Guaranty will reimburse each
portfolio for the excess expense amount and receive no fee. Should such
expenses be less than the expense limits, Morgan Guaranty's fees would
be limited to the difference between such expenses and the fees
calculated under the Services Agreement. For the fiscal year ended
December 31, 1998, Morgan Guaranty has agreed to reimburse the
portfolios for expenses under this agreement as follows: $72,953 and
$130,582 respectively.
8/ Class 2 of the Fund has a "Rule 12b-1 plan" which is described in the
Fund's prospectus. 9/ "Other Expenses" are based on estimated amounts for
the current fiscal year.
10/The annual expenses are estimated for the current fiscal year for the
Calamos Convertible Portfolio because the Portfolio does not have
financial statements covering a period of at least ten months. The
investment manager has voluntarily undertaken to waive fees and/or
reimburse portfolio expenses so that the Total Annual Portfolio
Operating Expenses are limited to 1.00% of the portfolio's average net
assets. The investment manager may terminate the expense limitation at
any time.
<PAGE>
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CONTRACT VALUE
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o Contract Value is equal to premiums less premium expense charges, as
adjusted each Valuation Day to reflect: Subaccount investment experience,
interest credited on Fixed Account Value, charges deducted and other
Contract transactions. (See page 25.)
o It 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 21.)
o It can be transferred among the Subaccounts and Fixed Account. We apply a
transfer fee of $25.00 if you make more than 6 transfers in a Contract
Year. (See page 19 for rules and limits.)
o It is the starting point for calculating certain values under a Contract,
such as the Cash Surrender Value and the Death Benefit.
o We may credit a "bonus" to the Contract Value on each Monthly Anniversary
Day beginning on the first Monthly Anniversary Date after the Contract
Date. The monthly bonus equals an annual rate of 0.125% of the Variable
Account Value. The bonus applies to Contracts with a Total Sum Insured of
$5,000,000 or above and equals an annual rate of 0.125% of the Variable
Account Value. This bonus is not guaranteed.
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CASH BENEFITS
- --------------------------------------------------------------------------------
o You may take loans for amounts up to the Cash Surrender Value less loan
interest to the next Contract Anniversary. A 6% annual effective interest
rate applies. Currently, a preferred loan is available beginning in the
11th Contract Year. (See page 33 for rules and limits.) Loans may have
adverse tax consequences.
o Partial surrenders generally are available provided you have enough
remaining Cash Surrender Value. A partial surrender fee applies which is
the lesser of 2% of the amount surrendered or $25. See page 30 for limits
and a description of the charges.
Partial surrenders may have adverse tax consequences.
o You may surrender the Contract in full at any time for its Cash Surrender
Value. (See page 23.) Surrenders may have adverse tax consequences.
o Payment options are available. (See page 31.)
<PAGE>
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DEATH BENEFITS
- --------------------------------------------------------------------------------
o Death Benefits pass income tax free to the Beneficiary.
o They are available as lump sum or under a variety of payment options.
o The minimum initial Total Sum Insured is $200,000 which may be made up of a
combination of Specified Amount and Additional Insurance Amount. The
Specified Amount must be at least $100,000. We may allow these minimum
limits to be reduced. (See page 18.)
o There are three Coverage Options available (see page 27):
Option A - at least equal to the Specified Amount;
Option B - at least equal to the Specified Amount plus Contract Value; and
Option L - at least equal to the sum of the Total Sum Insured and an amount
equal to the Contract Value multiplied by the applicable Option L Death
Benefit percentage less the Total Sum Insured.
o Guaranteed Minimum Death Benefit Option available at issue (restrictions
may apply). If elected, the Guaranteed Minimum Death Benefit Premium
requirement must be met to keep the option in effect. (See page 28.)
o There is flexibility to change the Coverage Option and Specified Amount.
(See page 27 for rules and limits.)
o Supplemental and/or rider benefits may be available. (See page 43.)
o We deduct any Indebtedness from the amount payable.
<PAGE>
GENERAL INFORMATION ABOUT KANSAS CITY LIFE
Kansas City Life Insurance Company
Kansas City Life Insurance Company is a stock life insurance company organized
under the laws of the State of Missouri in 1895. Kansas City Life is currently
licensed to transact life insurance business in 48 states and the District of
Columbia.
We are regulated by the Department of Insurance of the State of Missouri as well
as by the insurance departments of all other states and jurisdictions in which
we do business. We submit annual statements on our operations and finances to
insurance officials in such states and jurisdictions. We also file the forms for
the Contract described in this Prospectus with insurance officials in each state
and jurisdiction in which Contracts are sold.
We are a member of the Insurance Marketplace Standards Association ("IMSA") and
may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
THE VARIABLE ACCOUNT AND THE FUNDS
Kansas City Life Variable Life Separate Account
We established the Kansas City Life Variable Life Separate Account as a separate
investment account under Missouri law on April 24, 1995. This Variable Account
supports the Contracts and may be used to support other variable life insurance
contracts as well as 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. We
have established other separate investment accounts that may also be registered
with the SEC.
The Variable Account is divided into Subaccounts. The Subaccounts available
under the Contracts invest in shares of portfolios of the Funds. The Variable
Account may include other Subaccounts not available under the Contracts and not
otherwise discussed in this Prospectus. We own the assets in the Variable
Account.
We apply income, gains and losses of a Subaccount (realized or unrealized)
without regard to any other income, gains or losses of Kansas City Life or any
other separate account. We cannot use Variable Account assets (reserves and
other contract liabilities) to cover liabilities arising out of any other
business we conduct. We are obligated to pay all benefits provided under the
Contracts.
The Funds
Each of the Funds is registered with the SEC as a diversified open-end
management investment company under the 1940 Act. However, the SEC does not
supervise their management, investment practices or policies. Each Fund is a
series fund-type mutual fund made up of the Portfolios and other series that are
not available under the Contracts. The investment objectives of each of the
Portfolios is described below.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual fund portfolios that may be
managed by the same investment adviser or manager. The investment results of the
Portfolios, however, may be higher or lower than the results of such other
portfolios. There can be no assurance 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.
All of the Funds may not be available in California. See your registered
representative for specifics.
<PAGE>
MFS(R) Variable Insurance TrustSM
(Manager: MFS Investment Management(R))
MFS Emerging Growth Series. The Emerging Growth Series seeks to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital. The Series' policy is to invest primarily (i.e., at
least 65% of its assets under normal circumstances) in common stocks of
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises (emerging growth companies).
MFS Research Series. The Research Series seeks to provide long-term growth of
capital and future income. The Series' assets are allocated to selected economic
sectors and then to industry groups within those sectors.
MFS Total Return Series. The Total Return Series seeks to provide above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with the prudent employment of capital, and secondarily to provide a
reasonable opportunity for growth of capital and income.
MFS Utilities Series. The Utilities Series seeks capital growth and current
income (income above that available from a portfolio invested entirely in equity
securities). The Series will seek to achieve its objective by investing, under
normal circumstances, at least 65% (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 Global Governments Series. The Global Governments Series seeks income and
capital appreciation. 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 seeks primarily to provide as high a level of
current income as is believed consistent with prudent investment risk and
secondarily to protect Shareholders' capital. Up to 20% of the Series' total
assets may be invested in lower-rated or non-rated debt securities commonly
known as "junk bonds." The risks of investing in junk bonds are described in the
prospectus for the MFS(R) Variable Insurance TrustSMwhich you should read
carefully before investing.
American Century Variable Portfolios, Inc.
(Manager: American Century Investment Management, Inc.)
American Century VP Capital Appreciation Portfolio. The investment objective of
American Century VP Capital Appreciation is capital growth. The Portfolio will
seek to achieve its investment objective by investing primarily in common stocks
that are considered by the investment adviser to have better-than-average
prospects for appreciation.
American Century VP Income & Growth. American Century VP Income & Growth seeks
dividend growth, current income and capital appreciation. The fund will seek to
achieve its investment objective by investing in common stocks.
American Century VP International Portfolio. The investment objective of
American Century VP International Portfolio is capital growth. The Portfolio
will seek to achieve its investment objective by investing primarily in an
internationally diversified portfolio of common stocks that are considered by
management to have prospects for appreciation.
American Century VP Value. American Century VP Value seeks long-term capital
growth. Income is a secondary objective. The fund will seek to achieve its
investment objective by investing in securities that management believes to be
undervalued at the time of purchase.
<PAGE>
Federated Insurance Series
(Manager: Federated Investment Management Company)
Federated American Leaders Fund II. The primary investment objective of the
Federated American Leaders by investing, under normal circumstances, at least
65% of its total assets in common stock of "blue-chip" 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 companies, which are
generally top-quality, established growth companies.
Federated High Income Bond Fund II. The investment objective of the Federated
High Income Bond Fund II is to seek high current income. The Fund endeavors to
achieve its objective by investing primarily in lower-rated corporate debt
obligations commonly referred to as "junk bonds." The risks of investing in junk
bonds is described in the prospectus for Federated Insurance Series, which you
should read carefully before investing.
Federated Prime Money Fund II. The investment objective of the Federated Prime
Money Fund II is to provide current income consistent with stability of
principal and liquidity. The Fund pursues its investment objective by investing
exclusively in a portfolio of money market instruments maturing in 397 days or
less.
Dreyfus Variable Investment Fund
(Manager: The Dreyfus Corporation)
Capital Appreciation Portfolio. The primary investment objective of the Capital
Appreciation Portfolio is to provide long-term capital growth consistent with
the preservation of capital. Current income is a secondary investment objective.
This series invests primarily in the common stocks of domestic and foreign
issuers.
Small Cap Portfolio. The investment objective of the Small Cap Portfolio is to
maximize capital appreciation. This series invests primarily in common stocks of
domestic and foreign issuers. This series will be particularly alert to
companies that it considers to be emerging smaller-sized companies which are
believed to be characterized by new or innovative products, services or
processes which should enhance prospects for growth in future earnings.
Dreyfus Stock Index Fund
(Manager: The Dreyfus Corporation and Mellon Equity Associates)
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.
The Dreyfus Socially Responsible Growth Fund, Inc. (Manager: The Dreyfus
Corporation; Sub-Investment Adviser: NCM Capital Management Group, Inc.)
The fund seeks to provide capital growth by investing primarily in the common
stock of companies that, in the opinion of the fund's management, meet
traditional investment standards and conduct their business in a manner that
contributes to the enhancement of the quality of life in America. Current income
is a secondary goal.
J.P. Morgan Series Trust II
(Manager: J.P. Morgan Investment Management Inc.)
J.P. Morgan Equity Portfolio. The investment objective of J.P. Morgan Equity
Portfolio is to provide a high total return from a portfolio comprised of
selected equity securities. Total return will consist of realized and unrealized
capital gains and losses plus income less expenses. The Portfolio invests
primarily in the common stock of large and medium capitalization U.S. companies
typically represented by the Standard & Poor's 500 Stock Index.
J.P. Morgan Small Company Portfolio. The investment objective of J.P.
Morgan Small Company Portfolio is to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalization's greater
than $110 million and less than $1.5 billion.
Templeton Variable Products Series Fund
(Manager: Templeton Investment Counsel, Inc.)
Templeton International Fund Class 2. The investment objective of Templeton
International Fund is long-term capital growth. The Fund seeks to achieve this
objective by investing in stocks of companies located outside the United States,
including emerging markets.
Calamos Advisors Trust
(Manager: Calamos Asset Management, Inc.)
Calamos Convertible Portfolio. Calamos Convertible Portfolio seeks current
income as its primary objective with capital appreciation as its secondary
objective. The Portfolio invests primarily in a diversified portfolio of
convertible securities. These convertible securities may be either debt
securities (bonds) or preferred stock that are convertible into common stock,
and may be issued by both U.S. and foreign companies. The Portfolio may invest
without limit in high yield or "junk" bonds. The risks of investing in junk
bonds are described in the prospectus for Calamos Advisors Trust, which you
should read carefully before investing.
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR STATED OBJECTIVES AND
POLICIES.
See the current prospectus for each Fund that accompanies this Prospectus as
well as the current Statement of Additional Information for each Fund. These
important documents contain more detailed information regarding all aspects of
the Funds. Please read the prospectuses for the Funds carefully before making
any decision concerning the allocation of Premium Payments or transfers among
the Subaccounts.
We have entered into agreements with either the investment adviser or the
distributor for each of the Funds or with a Fund and its underwriter pursuant to
which they pay us a fee. This fee is based upon an annual percentage of the
average aggregate net amount or the value of assets we invest on behalf of the
Variable Account and any other of our separate accounts. These percentages
differ. Some investment advisers, distributors, underwriters or Funds pay us a
greater percentage than others. These fees are charged to provide compensation
to us for the administrative services we provide.
We cannot guarantee that each Fund or portfolio will always be available for the
Contracts, but in the event that a Fund or portfolio is not available, we will
take reasonable steps to secure the availability of a comparable fund. Shares of
each 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 other
insurance companies offering variable annuity and variable life insurance
contracts.
We don't currently foresee any disadvantages to you resulting from the Funds
selling shares to fund products other than the Contracts. However, there is a
possibility that a material conflict of interest may arise between Contract
Owners and the owners of variable contracts issued by other companies whose
values are allocated to one of the Funds. Shares of some of the Funds may also
be sold to certain qualified pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interests of Owners or owners of other contracts
(including contracts issued by other companies), and such retirement plans or
participants in such retirement plans. In the event of a material conflict, we
will take any necessary steps, including removing the Variable Account from that
Fund, to resolve the matter. The Board of Directors of each Fund will monitor
events in order to identify any material conflicts that may arise and determine
what action, if any, should be taken in response to those events or conflicts.
See the accompanying prospectuses of the Funds for more information.
Addition, Deletion or Substitution of Investments
Subject to applicable law, we may make additions to, deletions from, or
substitutions for the shares that are held in the Variable Account or that the
Variable Account may purchase. If the shares of a portfolio are no longer
available for investment or if further investment in any portfolio should become
inappropriate (in our judgment) in view of the purposes of the Variable Account,
we may redeem the shares, if any, of that portfolio and substitute shares of
another registered open-end management investment company. We will not
substitute any shares attributable to a Contract's interest in a Subaccount of
the Variable Account without notice and prior approval of the SEC and state
insurance authorities, to the extent required by applicable law.
Subject to applicable law and any required SEC approval, we may establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. We will determine on what basis
we might make any new Subaccounts available to existing Contract Owners.
If we make any of these substitutions or changes we may, by appropriate
endorsement, change the Contract to reflect the substitution or change. If we
decide it is in the best interests of Contract Owners (subject to any approvals
that may be required under applicable law), we may take the following actions
with regard to the Variable Account:
o operate the Variable Account as a management investment company under the
1940 Act;
o deregister it under that Act if registration is no longer required; or
o combine it with other Kansas City Life separate accounts.
Voting Rights
We are the legal owner of shares held by the Subaccounts and we have the right
to vote on all matters submitted to shareholders of the Funds. As required by
law, we will vote shares held in the Subaccounts in accordance with instructions
received from Owners with Contract Value in the Subaccounts. We may be permitted
to vote shares of the Funds in our own right if the applicable federal
securities laws, regulations or interpretations of those laws or regulations
change.
To obtain voting instructions from you, before a meeting you will be sent voting
instruction material, a voting instruction form and any other related material.
Your number of votes 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 your percentage
interest, if any, in a particular Subaccount to the total number of votes
attributable to that Subaccount. The number of votes for which you may give
instructions will be determined as of the date established by the Fund for
determining shareholders eligible to vote. We will vote shares held by a
Subaccount for which we have no instructions in the same proportion as those
shares for which we do receive voting instructions.
If required by state insurance officials, we may disregard voting instructions
if such instructions would require us to vote shares in a manner that would :
o cause a change in sub-classification or investment objectives of one or
more of the Portfolios;
o approve or disapprove an investment advisory agreement; or
o require changes in the investment advisory contract or investment adviser
of one or more of the Portfolios, if we reasonably disapprove of such
changes in accordance with applicable federal regulations.
If we ever disregard voting instructions, we will advise you of that action and
of the reasons for it in the next semiannual report. We may also modify the
manner in which we calculate the weight to be given to pass-through voting
instructions when such a change is necessary to comply with current federal
regulations or the current interpretation of them.
<PAGE>
PURCHASING A CONTRACT
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. As long as the initial Premium Payment accompanies
the TIA, the TIA provides insurance coverage from the date we receive the
required premium to the date we approve your application. In accordance with our
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 then we will return the initial premium to the
applicant.
For coverage under the TIA, you must pay an initial Premium Payment that is at
least equal to two months of minimum initial premium. We require only one month
of minimum initial premium for Contracts when you will be making Premium
Payments under a pre-authorized payment arrangement. (See "Premiums," page 19.)
In general, policies submitted with the required Premium Payment will have a
Contract Date that is the same as 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 first of the next 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 seven days. However, if the Contract Date is calculated to be the 29th,
30th or 31st of the month, then the Contract Date will be set to the first of
the next following month. We have several exceptions to these rules, described
as follows:
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB)-Premium
With Application. If you request PAC or CB and provide the initial premium 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 you request CB and
don't provide the initial premium with the application, the Contract Date will
be the earlier of the first of the month after the Contract is approved or the
date the initial premium is received. However, if approval occurs between the
first and fifth of the month the Contract Date will be the first of the same
month that we approve the Contract. In addition, if the Contract Date is
calculated to be the 29th, 30th or 31st of the month then the Contract Date will
be the first of the following month.
Government Allotment (GA) and Federal Allotment (FA). If you request GA or
FA on the application and provide an initial premium with the application, the
Contract Date will be the first of the month of approval. If you request GA or
FA and we receive no initial premium the Contract Date will be the first of the
month for which we receive a full monthly allotment.
Conversions. If you convert a Kansas City Life term insurance product to a
new Contract, the Contract Date will be the date that the previous contract was
paid to. If you are converting more than one term policy, the Contract Date will
be determined by the contract with the earliest date that premiums were paid to.
Total Sum Insured Above $250,000. If you request a Total Sum Insured above
$250,000 and provide an initial premium with the application, the Contract Date
will be the later of the TIA date or the first 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. We will charge Monthly
Deductions 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 you have met all underwriting and other requirements and we have
approved your application. We will deduct Contract charges as of the Contract
Date.
We require satisfactory evidence of both proposed Insureds' insurability, which
may include a medical examination. The available issue Ages are 20 through 85.
Age is determined on each Insured's Age last birthday on the Contract Date. The
minimum Total Sum Insured is $200,000. Acceptance of an application depends on
our underwriting rules and we have the right to reject an application.
As the Owner of the Contract, you may exercise all rights provided under the
Contract. The insureds are the Owner, unless a different Owner is named in the
application. While at least one of the Insureds is living, the Owner may by
Written Notice name a contingent Owner or a new Owner. If a contingent Owner has
not been named, on the death of the last surviving Owner, ownership of the
Contract passes to the estate of the last Owner to die. The Owner may also be
changed prior to the last surviving Insured's death by Written Notice
satisfactory to us. A change in Owner may have tax consequences. (See "Tax
Considerations," page 43.)
Free Look Right to Cancel Contract. You may cancel your Contract for a
refund during your "free-look" period. The free look period expires 10 days
after you receive your Contract. If you decide to cancel the Contract, you must
return it by mail or other delivery method to the Home Office or your Kansas
City Life agent. The Contract will be deemed void from the beginning immediately
after you mail or deliver it for cancellation. We will refund premiums paid
within seven days after we receive the returned Contract.
PREMIUM PAYMENTS
Premiums
The Contract is flexible with regard to the amount of premiums you pay. When we
issue the Contract we set a Planned Premium Payment. This amount is only an
indication of your preference in making Premium Payments. You may make
additional unscheduled Premium Payments at any time while the Contract is in
force. We have the right to limit the number (except in Texas) and amount of
such Premium Payments. We do have requirements regarding the minimum and maximum
premium amounts that you can pay.
We deduct premium expense charges from all premiums prior to allocating them to
your Contract. (See Charges and Deductions, page 23.)
Minimum Premium Amounts. The minimum initial Premium Payment required is
the least amount for which we will issue a Contract. The minimum initial Premium
Payment amount depends on a number of factors. These factors include Age, sex,
and risk class of the proposed Insureds, the Specified Amount, any optional
benefits and riders selected and the Planned Premium Payments you propose to
make. (See "Planned Premium Payments," below.) Consult your Kansas City Life
agent for information about the initial premium required for the coverage you
desire.
Each premium after the initial premium must be at least $25.
Maximum Premium Information. Total premiums paid may not exceed premium
limitations for life insurance set forth in the Internal Revenue Code. We 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 that we determine is in
excess of the guideline premium limit or you may submit an application to
increase the Additional Insurance Amount, subject to our underwriting approval.
If you choose to increase the Additional Insurance Amount and the Insured fails
to meet our underwriting requirements for the required increase in coverage, we
have the right to refund, with interest, any premium that we determine is in
excess of the guideline premium limit. (See "Tax Considerations," page 43.)
Your Contract may become a modified endowment contract if premiums paid exceed
the "7-Pay Test" as set forth in the Internal Revenue Code. We will monitor
Contracts and will attempt to notify you on a timely basis if, based on our
interpretation of the relevant tax rules, your Contract is in jeopardy of
becoming a modified endowment contract. (See "Tax Considerations," page 43.)
We have the right to require satisfactory evidence of insurability prior to
accepting unscheduled premiums. (See "Premium Allocations and Crediting," page
18.)
General Premium Information. You must make Premium Payments by check
payable to Kansas City Life Insurance Company or by any other method that we
deem acceptable. You must clearly mark a loan repayment as such or we will
credit it as a Premium Payment. (See "Loan Repayment," page 32.)
Planned Premium Payments. When applying for a Contract, you may select a
plan for paying premiums. Failure to pay Planned Premium Payments will not
necessarily cause a Contract to lapse. Conversely, paying all Planned Premium
Payments will not guarantee that a Contract will not lapse. You may elect to pay
level premiums quarterly, semi-annually or annually. You may also arrange to pay
Planned Premium Payments on a special monthly or quarterly basis under a
pre-authorized payment arrangement.
You are not required to pay Premium Payments in accordance with your plan. You
can pay more or less than planned or skip a Planned Premium Payment entirely.
(See, "Premium Payments to Prevent Lapse," page 19, and "Guaranteed Minimum
Death Benefit Option," page 29.) Subject to the minimum and maximum limits
described above, you can change the amount and frequency of Planned Premium
Payments at any time.
Premium Payments Upon an Increase in Additional Insurance Amount. Depending
upon the Contract Value at the time of an increase and the amount of the
increase requested, you may need to make an additional Premium Payment or change
the amount of Planned Premium Payments. (See "Increases in the Additional
Insurance Amount," page 30.)
Premium Payments to Prevent Lapse
If you elect the Guaranteed Minimum Death Benefit Option we guarantee that the
Specified Amount will remain in force as long as you meet the Guaranteed Minimum
Death Benefit Option Premium requirement. If you fail to meet the Guaranteed
Minimum Death Benefit Option Premium requirement, the Guaranteed Minimum Death
Benefit Option will terminate and the premiums required to prevent lapse will be
determined just as for a Contract without a Guaranteed Minimum Death Benefit
Option. The Guaranteed Minimum Death Benefit Option does not guarantee riders
and any riders will terminate if the Cash Surrender Value of your Contract
becomes negative. (See "Guaranteed Minimum Death Benefit Option," page 29.)
If you did not elect this option or if you don't pay the premium required to
keep the option in effect, your Contract will lapse if there is insufficient
value remaining in the Contract at the end of the Grace Period. Since the value
of amounts allocated to the Variable Account will vary according to the
investment performance of the Funds, the specific amount of premiums required to
prevent lapse will also vary.
For Contracts That Do Not Have the Guaranteed Minimum Death Benefit Option.
On each Monthly Anniversary Day we will check your Contract to determine if
there is enough value to prevent lapse. If your Contract does lapse you must pay
the required amount before the end of the Grace Period. The amount required is
enough premium to increase the Cash Surrender Value to at least the amount of
three Monthly Deductions.
For Contracts That Do Have the Guaranteed Minimum Death Benefit Option. We
will check your Contract on each Monthly Anniversary Day to determine if you
have met the Guaranteed Minimum Death Benefit Option Premium requirement. If you
have met the requirement, then we guarantee that the Contract will not lapse. If
you have not met the requirement then you have 61 days to keep the option in
force by paying the amount that will satisfy the Guaranteed Minimum Death
Benefit Option Premium requirement. (See Guaranteed Minimum Death Benefit
Option, page 35.)
Grace Period. The purpose of Grace Period is to give you the chance to pay
enough premiums to keep your Contract in force. We will send you notice of the
amount required to be paid. The Grace Period is 61 days and starts when we send
the notice. Your Contract remains in force during the Grace Period. If the last
surviving Insured dies during the Grace Period, we will pay the Death Benefit
proceeds, but we will deduct any Monthly Deductions due. (See Amount of Death
Benefit Proceeds, page 27.) If you don't pay adequate premiums before the Grace
Period ends, your Contract will terminate. (See "Reinstatement," page 43.)
Premium Allocations and Crediting
In the Contract application, you select how we will allocate premiums (less
premium expense charges) among the Subaccounts and the Fixed Account. The sum of
your allocations must equal 100%. We may limit the number of Subaccounts to
which you allocate premiums (not applicable to Texas Contracts). We will never
limit the number to less than 12. You may change the allocation percentages at
any time by sending Written Notice. You may make changes in your allocation by
telephone if you have provided proper authorization. (See "Telephone
Authorizations," page 53.) The change will apply to the Premium Payments
received with or after receipt of your notice.
On the Allocation Date, we will allocate the initial premium to the Federated
Prime Money Fund II Subaccount. If we receive any additional premiums before the
Reallocation Date, we will also allocate these premiums to the Federated Prime
Money Fund II Subaccount.
On the Reallocation Date we will allocate the amount in the Federated Prime
Money Fund II Subaccount as directed in your application. (See "Determining the
Contract Value," page 25.)
We will credit premiums received on or after the Reallocation Date as directed
by you. The premiums will be invested within the Valuation Period during which
we receive them at our Home Office unless we require additional underwriting. We
won't credit premiums requiring additional underwriting until we have completed
underwriting and accept the Premium Payment. If we reject the additional Premium
Payment, we will return the Premium Payment promptly, without any adjustment for
investment experience.
Transfer Privilege
After the Reallocation Date and prior to the Maturity Date, you may transfer
amounts among the Subaccounts and the Fixed Account, subject to the following
restrictions:
o the minimum transfer amount is the lesser of $250 or the entire amount in
that Subaccount or the Fixed Account;
o we will treat a transfer request that reduces the amount in a Subaccount or
the Fixed Account below $250 as a transfer request for the entire amount in
that Subaccount or the Fixed Account;
o we allow only one transfer each Contract Year from the Fixed Account;
o 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);
o we may, where permitted, suspend or modify this transfer privilege at any
time with notice to you.
There is no limit on the number of transfers you can make between the
Subaccounts or to the Fixed Account. The first six transfers during each
Contract Year are free. After the first six transfers, we will assess a $25
transfer processing fee. Unused free transfers don't carry over to the next
Contract Year. For the purpose of assessing the fee, we consider each Written
Notice or telephone request to be one transfer, regardless of the number of
Subaccounts or the Fixed Account affected by that transfer. We will deduct the
processing fee from the remaining Contract Value.
We will make the transfer on the Valuation Day that we receive Written Notice
requesting such transfer. You may also make transfers by telephone if you have
made the appropriate election at the time of application or have provided proper
authorization. (See "Telephone Authorizations," page 50. )
Additional No-Fee Transfer Right. This additional, one-time transfer
feature allows you to transfer all or a portion of the Variable Account Value to
the Fixed Account and we will make this transfer without applying the transfer
processing fee (even if you have already used the six free transfers for that
Contract Year.) This additional no-fee transfer right applies during the first
24 months of the Contract.
Dollar Cost Averaging Plan
The Dollar Cost Averaging Plan is an optional feature available with the
Contract. If elected, it enables you to automatically transfer amounts from the
Federated Prime Money Fund II Subaccount to other Subaccounts. The goal of the
Dollar Cost Averaging Plan is to make you less susceptible to market
fluctuations by allocating on a regularly scheduled basis instead of allocating
the total amount all at one time. We can not guarantee that the Dollar Cost
Averaging Plan will result in a gain.
Transfers under this plan occur on a monthly basis for a period you choose,
ranging from 3 to 36 months. To participate in the plan you must transfer at
least $250 from the Federated Prime Money Fund II Subaccount each month. You may
allocate the required amounts to the Federated Prime Money Fund II Subaccount
through initial 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. Restrictions apply to transfers from the Fixed Account.
You may elect this plan at the time of application by completing the
authorization. You may also elect it at any time after the Contract is issued by
completing the election form. You may make changes in dollar cost averaging by
telephone if you have provided proper authorization.
Dollar cost averaging transfers will start on the next Monthly Anniversary Day
on or following the Reallocation Date or the date you request. Once elected, we
will process transfers from the Federated Prime Money Fund II monthly until:
o we have completed the designated number of transfers;
o the value of the Federated Prime Money Fund II Subaccount is completely
depleted; or
o you send Written Notice instructing us to cancel the monthly transfers.
Transfers made under the Dollar Cost Averaging Plan will not count toward the
six free transfers allowed each Contract Year. We may cancel this feature at any
time with notice to you.
Portfolio Rebalancing Plan
The Portfolio Rebalancing Plan is an optional feature available with the
Contract. Under this plan we will redistribute the accumulated balance of each
Subaccount to equal a specified percentage of the Variable Account Value. We
will do this on a quarterly basis at three-month intervals from the Monthly
Anniversary Day on which portfolio rebalancing begins.
The purpose of the Portfolio Rebalancing Plan is to automatically diversify your
portfolio mix. This plan automatically adjusts your Portfolio mix to be
consistent with your current allocation instructions. If you make a change to
your premium allocation, we will also automatically change the allocation used
for portfolio rebalancing to be consistent with the new premium allocation
unless you instruct us otherwise.
The redistribution occurring under this plan will not count toward the six free
transfers permitted each Contract Year. If you also have elected the Dollar Cost
Averaging Plan and it has not been completed, the portfolio rebalancing Plan
will start on the Monthly Anniversary Day after the Dollar Cost Averaging Plan
ends.
You may elect this plan at the time of application by completing the
authorization on the application. You may also elect it after the Contract is
issued by completing the election form. You may make changes in portfolio
rebalancing by telephone if you have provided proper authorization. Portfolio
rebalancing will terminate when:
o you request any transfer unless you authorize a change in allocation at
that time; or
o the day we receive Written Notice instructing us to cancel the plan.
If the Contract Value is negative at the time portfolio rebalancing is
scheduled, we will not complete the redistribution. We may cancel the Portfolio
Rebalancing Plan at any time with notice to you.
FIXED ACCOUNT
The Fixed Account is not registered under the Securities Act of 1933 and is not
registered as an investment company under the investment Company Act of 1940.
The Securities and Exchange Commission has not reviewed the disclosure in this
Prospectus relating to the Fixed Account. Certain general provisions of the
Federal securities laws relating to the accuracy and completeness of statements
made in prospectuses may still apply.
You may allocate some or all of your premiums and transfer some or all of the
Variable Account Value to the Fixed Account. You may also make transfers from
the Fixed Account, but restrictions may apply. (See page 19, Transfer
Privilege.) The Fixed Account is part of our general account and pays interest
at declared rates guaranteed for each calendar year. We guarantee that this rate
will be at least 4%.
Our general account supports our insurance and annuity obligations. Since the
Fixed Account is part of our general account, we assume the risk of investment
gain or loss on this amount. All assets in the General Account are subject to
our general liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
We guarantee to credit the Fixed Account Value with a minimum 4% effective
annual interest rate. We intend to credit the Fixed Account Value with current
rates in excess of the 4% minimum, but we are not obligated to do so. Current
interest rates are influenced by, but don't necessarily correspond to,
prevailing general market interest rates. We will determine current rates. You
assume the risk that the interest we credit may not exceed the guaranteed rate.
Since we anticipate changing the current interest rate from time to time, we
will credit different allocations with different interest rates, based upon the
date amounts are allocated to the Fixed Account. We may change the interest rate
credited to allocations from premiums or new transfers at any time. We will not
change the interest rate more than once a year on amounts in the Fixed Account.
For the purpose of crediting interest, we currently account for amounts deducted
from the Fixed Account on a last-in, first-out ("LIFO") method. We may change
the method of crediting from time to time, provided that such changes don't have
the effect of reducing the guaranteed rate of interest below 4%. We may also
shorten the period for which the interest rate applies to less than a year
(except for the year in which an amount is received or transferred).
Calculation of Fixed Account Value
Fixed Account Value is equal to:
o amounts allocated or transferred to the Fixed Account; plus
o interest credited; less
o amounts deducted, transferred or surrendered.
Delay of Payment
We reserve the right to delay payment of any surrender, partial surrender, or
transfer from the Fixed Account for up to six months from the date we receive
the request.
CHARGES AND DEDUCTIONS
We may realize a profit on any charges and deductions under the Contract. We may
use this profit for any purpose, including payment of distribution charges.
Below is a listing and description of the applicable charges and deductions
under the Contract.
Premium Expense Charges
Sales Charge. We deduct a sales charge from each premium before allocation
to the Variable Account and/or the Fixed Account. The amount of the sales charge
varies by when we receive the premium and the amount of premium paid during that
Contract Year. During Contract Years 1-10, we deduct a higher sales charge on
the amount up to a Target Premium than we charge on Excess Premiums. The Target
Premium is an amount based on Age, sex, and risk class of the Insureds, the
Guaranteed Minimum Death Benefit Option, if elected, and level of Specified
Amount. Excess Premiums are premiums paid during a Contract Year that exceed the
Target Premium.
The following tables shows the sales charge applicable to total premiums paid up
to the Target Premium and to total premiums paid that are Excess Premiums:
- --------------------------------------------------------------------------------
Sales Charge as % of
Premiums Paid Sales Charge % of Excess
Contract Year up to Target Premium Premiums Paid
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year 1 50% of premiums 2% of premiums
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Years 2-5 15% of premiums 2% of premiums
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Years 6-10 6% of premiums 2% of premiums
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Years 11-20 2% of premiums 2% of premiums
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Years 21 + 0% 0%
- --------------------------------------------------------------------------------
Here is an example of how we calculate the sales charge:
Assume that the Target Premium specified in a Contract is $1,000. If premiums of
$1,500 are paid during Contract Year 1, a 50% sales charge applies to $1,000 of
the premiums paid (the amount up to the Target Premium) which equals $500. A 2%
sales charge applies to the Excess Premium of $500 which equals $10. The total
sales charge deducted in Contract Year 1 is $510. If premiums of $1,500 are paid
in Contract Year 6, a 6% applies to $1,000 of the premiums paid which equals
$60. A 2% sales charge applies to the Excess Premium of $500 which equals $10.
The total applicable sales charge in Contract Year 6 is $70.
While this example demonstrates that premiums paid in later Contract Years may
be subject to lower sales charges than premiums paid during earlier Contract
Years, deferring payment of premiums until later Contract Years may mean that
insufficient premiums are paid to meet the Guaranteed Minimum Death Benefit
Option Premium requirement in the early Contract Years (if selected), or may
also result in insufficient premiums being paid for the Cash Surrender Value to
cover Monthly Deductions. In either case, the Contract could lapse.
The sales charge reimburses us for various sales and administrative expenses
associated with issuing the Contract.
Premium Processing Charge. We deduct a 4.85% premium processing charge from
each Premium Payment. This charge reimburses us for a Federal "deferred
acquisition" tax on premiums received, state and local premium taxes, and for
administrative expenses associated with processing Premium Payments.
Monthly Deduction
We will make Monthly Deductions to collect various charges under your Contract.
We will make these Monthly Deductions on each Monthly Anniversary following the
Allocation Date. On the Allocation Date, we will deduct Monthly Deductions for
the Contract Date and each Monthly Anniversary that has occurred prior to the
Allocation Date. (See "Applying for Contract," page 17.) The Monthly Deduction
consists of:
(1) monthly expense charges;
(2) cost of insurance charges; and
(3) any optional benefit and/or rider charges, as described below.
We deduct the Monthly Deduction pro rata on the basis of the portion of Contract
Value in each Subaccount and/or the Fixed Account.
Monthly Expense Charge. The monthly expense charge is made up of two parts:
o a charge of $12.50 per month for the first five Contract Years.
o a monthly expense charge of $7.50 plus $.02 per $1,000 of Total Sum Insured
per month for all Contract Years.
The monthly expense charge reimburses us 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.
We guarantee that the monthly expense charge will not increase. Even if the
guaranteed charges prove to be insufficient, we will not increase the charges
above such guaranteed levels and will incur the loss.
Cost of Insurance Charge. This charge compensates us for the expense of
providing insurance coverage. The charge depends on a number of variables and
will vary from Contract to Contract and from month to month. For any Contract,
we calculate the cost of insurance on a Monthly Anniversary Day by multiplying
the current cost of insurance rate for the Insureds by the net amount at risk
for that Monthly Anniversary Day. The cost of insurance rate for a Contract on a
Monthly Anniversary Day is based on the Insureds' Age, sex, number of completed
Contract Years, Total Sum Insured, and risk class. We currently place Insureds
in one of the following classes, based on underwriting:
o Standard Tobacco User;
o Standard Nontobacco User;
o Preferred Nontobacco User; and
o Preferred Tobacco User.
We may place an Insured in a substandard risk class, which involves a higher
mortality risk than the Standard Tobacco User or Standard Nontobacco User
classes.
The net amount at risk on a Monthly Anniversary Day is the difference between
the Death Benefit (discounted at an interest rate which is the monthly
equivalent of 4% per year) and the Contract Value (as calculated on that Monthly
Anniversary Day before we deduct the cost of insurance charge). For purposes of
determining cost of insurance rates, we allocate Contract Value first to
Specified Amount and then to the Additional Insurance Amount coverage in the
order in which those coverages were issued. Then we allocate Contract Value to
any additional coverage amount applicable under Coverage Option L.
We place the Insureds in risk classes when we approve the Contract, based on our
underwriting of the application. When you request an increase in Additional
Insurance Amount, we do additional underwriting before approving the increase 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, we
apply the lower rates to the entire Total Sum Insured. If the risk class for the
increase has higher cost of insurance rates than the existing class, we apply
the higher rates only to the increase in Total Sum Insured and the existing risk
class will continue to apply to the existing Total Sum Insured.
We guarantee that the cost of insurance rates will not exceed the maximum cost
of insurance rates set forth in the Contract. The guaranteed rates for standard
and preferred risk 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.
Our current cost of insurance rates may be less than the guaranteed rates that
are set forth in the Contract. We will determine current cost of insurance rates
based on our expectations as to future mortality experience. We may change these
rates from time to time.
Cost of insurance rates (whether guaranteed or current) for one or both Insureds
in a nontobacco-user standard class are lower than rates for one or both
Insureds of the same age and sex in a tobacco-user standard class. Cost of
insurance rates (whether guaranteed or current) for one or both Insureds in a
nontobacco-user or tobacco-user standard risk class are lower than rates for one
or both Insureds of the same age, sex and tobacco-user class in a substandard
risk class.
Guaranteed Minimum Death Benefit Option Charge. There is no charge for the
Guaranteed Minimum Death Benefit Option in the first ten Contract Years.
Beginning in Contract Year 11, the charge is $.01 per $1,000 on a current basis
and $.03 per $1,000 on a guaranteed basis. This charge is based on the Specified
Amount and we will deduct it monthly.
Cost of Additional Benefits Provided by Riders. These charges are part of
the Monthly Deduction and vary by the benefit. (See "Supplemental and/or Rider
Benefits, page 43.)
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.)
We also offer Contracts that don't distinguish between males and female rates
where required by state law. Employers and employee organizations considering
purchase of a Contract should consult with their legal advisers 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. We will make available to such prospective purchasers Contracts with cost
of insurance rates that don't distinguish between males and females.
Daily Mortality and Expense Risk Charge
We deduct a daily charge from assets in the Subaccounts attributable to the
Contracts. This charge does not apply to Fixed Account assets. The current
charge is at an annual rate of 0.625% of net assets. We guarantee that this rate
will never exceed an annual rate of 0.90%.
The mortality risk we assume is that the Insureds may die sooner than
anticipated and we have to pay Death Benefits greater than we anticipated. The
expense risk we assume is that expenses incurred in issuing and administering
the Contracts and the Variable Account will exceed the administrative charges we
assess. We may make a profit from this charge. Any profit may be used to finance
distribution expenses.
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.
Partial Surrender Fee
We will deduct an administrative charge upon a partial surrender. This charge is
the lesser of 2% of the amount surrendered or $25. We will deduct this charge
from the Contract Value in addition to the amount you request to be surrendered
and the charge will be considered part of the partial surrender amount.
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. This means that these charges are deducted before we
calculate Subaccount Values. These charges are not directly deducted from your
Contract Value. See the prospectuses for the Funds.
Reduced Charges for Eligible Groups
We may reduce the sales and administration charges for Contracts issued to a
class of associated individuals or to a trustee, employer or similar entity. We
may reduce these charges if we anticipate that the sales to the members of the
class will result in lower than normal sales or administrative expenses. We will
make any reductions in accordance with our rules in effect at the time of the
application. The factors we will consider in determining the eligibility of a
particular group and the level of the reduction are as follows:
o nature of the association and its organizational framework;
o method by which sales will be made to the members of the class;
o facility with which premiums will be collected from the associated
individuals;
o association's capabilities with respect to administrative tasks;
o anticipated persistency of the Contract;
o size of the class of associated individuals;
o number of years the association has been in existence; and
o any other such circumstances which justify a reduction in sales or
administrative expenses.
Any reduction will be reasonable, will apply uniformly to all prospective
Contract purchases in the class and will not be unfairly discriminatory to the
interests of any Contract holder.
Other Tax Charge
We do not currently assess a charge for any taxes other than state and local
premium taxes and Federal DAC taxes incurred as a result of the operations of
the Subaccounts. We have the right to assess a charge for such taxes against the
Subaccounts if we determine that such taxes will be incurred.
HOW YOUR CONTRACT VALUES VARY
Your Contract does not provide a minimum guaranteed Contract Value or Cash
Surrender Value. 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. The Contract will be in default and
a Grace Period will begin if:
o the Cash Surrender Value on a Monthly Anniversary Day is less than the
amount of the Monthly Deduction on that date (see Premiums Payments to
Prevent Lapse, page 19); and
o the Guaranteed Minimum Death Benefit Option is not then in effect.
("Guaranteed Minimum Death Benefit Option," page 29.)
Bonus on Contract Value in the Variable Account
We may credit a bonus to the Contract on each Monthly Anniversary Day beginning
on the first Monthly Anniversary Day following the Contract Date. The monthly
bonus applies to Contracts with a Total Sum Insured of $5,000,000 and above and
equals an annual rate of 0.125% of the Contract Value in each Subaccount of the
Variable Account. We will pay this bonus at our sole discretion and we do not
guarantee it.
Determining the Contract Value
On the Allocation Date, the Contract Value is equal to the initial premium less
the premium expense charges and 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 following:
o performance of the selected Subaccounts;
o interest credited on amounts allocated to the Fixed Account;
o interest credited on amounts in the Loan Account;
o charges;
o transfers;
o partial surrenders; and
o loans and loan repayments.
Subaccount Values. When you allocate an amount to a Subaccount, either by
premium allocation or transfer, we credit your Contract with accumulation units
in that Subaccount. The number of accumulation units in the Subaccount 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 made.
The number of Subaccount accumulation units we credit to your Contract will
increase when you allocate premiums to the Subaccount and when you transfer
amounts to the Subaccount. The number of Subaccount accumulation units credited
to a Contract will decrease when:
o we take the allocated portion of the Monthly Deduction from the Subaccount;
o you make a loan;
o you transfer an amount from the Subaccount; or
o you take a partial surrender (including the Partial Surrender Fee) from the
Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the investment experience of the underlying Portfolio. It may increase
or decrease from one Valuation Day to the next. We arbitrarily set the
accumulation unit value for each Subaccount at $10 when we established the
Subaccount. For each Valuation Period after 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:
o all premiums allocated to the Fixed Account; plus
o any amounts transferred to the Fixed Account (including amounts transferred
in connection with Contract loans); plus
o interest credited on such premiums and amounts transferred; less
o the amount of any transfers from the Fixed Account; less
o the amount of any partial surrenders (including the Partial Surrender Fee)
taken from the Fixed Account; less
o 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:
o 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
o 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 is the amount you have available in cash if you fully
surrender the Contract. We use this amount to determine whether a partial
surrender may be taken, whether Contract loans may be taken, and whether a Grace
Period starts. (See "Premium Payments to Prevent Lapse," page 19.) It is also
the amount that is available upon full surrender of the Contract. (See
"Surrendering the Contract for Cash Surrender Value," page 34.) The Cash
Surrender Value on a Valuation Day is equal to the Contract Value less any
Indebtedness.
DEATH BENEFIT
As long as the Contract remains in force, we will pay the Death Benefit Proceeds
upon receipt at the Home Office of satisfactory proof of death of the last
surviving Insured. We may also require proof of the death of the Insured who
died first and may require return of the Contract. We will pay Death Benefit
Proceeds in a lump sum. (see "Payment of Proceeds," page 41) or, if you prefer,
under a payment option (See "Payment Options," page 34). We will pay Death
Benefit Proceeds to the Beneficiary. (See "Selecting and Changing the
Beneficiary," page 34.)
Amount of Death Benefit Proceeds
The Death Benefit proceeds payable upon the death of the last surviving Insured
are equal to the following:
o the greater of the Death Benefit under the Coverage Option selected
(calculated as of the date of the last surviving Insured's death) or the
Corridor Death Benefit; plus
o an amount equal to any benefits provided by any optional benefits or
riders; plus
o any premiums received after the date of death; less
o any Indebtedness on that date; less
o any past due Monthly Deductions if the death occurred during a Grace
Period.
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 45.)
The Guaranteed Minimum Death Benefit Option, if in effect, provides a minimum
Death Benefit. If all or part of the Death Benefit proceeds are paid in one sum,
we will pay interest on this sum (as required by applicable state law) from the
date of receipt of due proof of the last surviving Insured's death to the date
of payment.
<PAGE>
Total Sum Insured, Specified Amount, Additional Insurance Amount
The Total Sum Insured, Specified Amount and the Additional Insurance Amount are
set at the time the Contract is issued. The Specified Amount plus the Additional
Insurance Amount equals the Total Sum Insured. The minimum Total Sum Insured is
$200,000. Within the Total Sum Insured minimum, we also require that the minimum
Specified Amount be $100,000 while the minimum Additional Insurance Amount be
$10,000. The maximum amount of initial Additional Insurance Amount coverage is
four times the Specified Amount at issue.
You may decrease the Total Sum Insured or increase the Additional Insurance
Amount as described below. The Guaranteed Minimum Death Benefit Option only
applies to the Specified Amount and not to the Additional Insurance Amount.
Therefore, even if the Guaranteed Minimum Death Benefit Option is in effect, if
the Contract Value is insufficient to pay Monthly Deductions, the Additional
Insurance Amount may lapse. (See "Guaranteed Minimum Death Benefit Option," page
29.)
Coverage Options
When you apply for the Contract you may choose one of three Coverage Options,
which will be used to determine the Death Benefit:
o Option A: Death Benefit is equal to the Total Sum Insured on the date of
death of the last surviving Insured.
o Option B: Death Benefit is equal to the Total Sum Insured on the date of
death of the last surviving Insured, plus the Contract Value on the date of
such death
o Coverage Option L: Death Benefit will be the sum of: (1) the Total Sum
Insured on the date of death of the last surviving Insured; and (2) the
Contract Value on the Contract Anniversary preceding the death of the last
surviving Insured multiplied by the applicable Option L Death Benefit
Percentage less the Total Sum Insured on that Contract Anniversary. If the
amount in (2) of the Option L Death Benefit calculation is less than zero
then the Option L Death Benefit will be the amount calculated in (1).
You may also change the Coverage Option, as described below. However, Coverage
Option L is only available at issue.
Corridor Death Benefit
The purpose of the Corridor Death Benefit is to ensure that the amount of
insurance we provide meets the definition of life insurance under the Internal
Revenue Code. We calculate the Corridor Death Benefit by multiplying the
Contract Value by the appropriate corridor percentage. The corridor percentages
vary by Age, sex, risk class, Specified Amount, Additional Insurance Amount, the
number of years coverage has been in effect and any applicable optional benefits
or riders.
Guaranteed Minimum Death Benefit Option
An optional Guaranteed Minimum Death Benefit Option is available only at issue.
This option is not available if you elect Coverage Option B or if the Joint
First to Die Rider is issued. If you choose this option, it guarantees that we
will pay the Specified Amount (less Indebtedness and any past due charges) upon
the death of the last surviving Insured, regardless of the Contract's investment
performance, if you meet the Guaranteed Minimum Death Benefit Option Premium
requirement. The Guaranteed Minimum Death Benefit Option does not guarantee any
Additional Insurance Amount.
The Guaranteed Minimum Death Benefit Option Premium is the amount which
guarantees that the Guaranteed Minimum Death Benefit Option will remain in
effect. Your Contract shows the Guaranteed Minimum Death Benefit Premium. You
satisfy the Guaranteed Minimum Death Benefit Option Premium requirement if, on
each Monthly Anniversary Day, the cumulative premiums that you have paid equal
or exceed the cumulative Guaranteed Minimum Death Benefit Option Premiums plus
Indebtedness.
"Cumulative premiums that you have paid" means the amount that is equal to:
(a) the sum of all premiums paid; less
(b) the sum of all partial surrenders; with
(c) (a) and (b) each accumulated at an annual effective interest rate of 4%
from the date your Contract is issued to the Monthly Anniversary Date on
which the Guaranteed Minimum Death Benefit Option Premium requirement is
calculated.
"Cumulative Guaranteed Minimum Death Benefit Option Premiums" is equal to the
sum of the Guaranteed Minimum Death Benefit Option Premiums. Each such premium
is accumulated at an annual effective interest rate of 4% to the Monthly
Anniversary Date on which the Guaranteed Minimum Death Benefit Option Premium
requirement is calculated.
If you do not meet the Guaranteed Minimum Death Benefit Option Premium
requirement, the Guaranteed Minimum Death Benefit Option is in default. A 61-day
notice period begins on the day we mail the notice that the option is in default
and inform you of the amount of premium required to maintain the Guaranteed
Minimum Death Benefit Option. The premium amount required to prevent default of
the option is equal to:
o the cumulative Guaranteed Minimum Death Benefit Option
Premium plus Indebtedness; less
o the cumulative paid premium.
The Guaranteed Minimum Death Benefit Option will terminate if you do not pay
sufficient premium by the end of the notice period.
If the Contract contains any Additional Insurance Amount coverage or any
optional benefit riders, then we will also test the Contract to ensure that the
you have funded the Contract at a sufficient level to support the Additional
Insurance Amount or other optional riders. On each Monthly Anniversary Day we
will test the Cash Surrender Value to determine if it is sufficient to cover the
Monthly Deduction. If not, a 61-day notice period begins on the day we mail
notice of the amount of premium required to keep the Additional Insurance Amount
and/or any optional riders in effect. The premium required to keep the
Additional Insurance Amount is equal to the amount which would provide a Cash
Surrender Value equal to three Monthly Deductions. We will remove the Additional
Insurance Amount coverage and other optional riders from the Contract if we do
not receive the required premium by the end of the notice period.
We do not charge for this option during the first 10 Contract Years. Beginning
in Contract Year 11 we will apply a monthly charge per $1,000 of Specified
Amount at issue. The Guaranteed Minimum Death Benefit Option is not available
for:
o Coverage Option B Contracts;
o Contracts on which the Additional Insurance Amount exceeds or is scheduled
to exceed the Specified Amount; or o Contracts which include the Joint
First to Die Rider.
The Guaranteed Minimum Death Benefit Option will terminate:
o upon your request;
o if you change the Coverage Option to B; or
o if you increase the Additional Insurance Amount to more than the Specified
Amount.
You may apply to have the Guaranteed Minimum Death Benefit Option reactivated
within two years of termination of such option. Re-activation requires:
(1) Written Notice to restore the option;
(2) evidence of insurability of the Insureds satisfactory to us, unless you
request re-activation within one year after the beginning of the notice
period, and
(3) payment of the amount by which the cumulative Guaranteed Minimum Death
Benefit Option Premium plus Indebtedness exceeds the cumulative paid
premiums on the date of re-activation.
On the Monthly Anniversary Day on which the re-activation takes effect, we will
deduct from the Contract Value any unpaid Guaranteed Minimum Death Benefit
Option charges. We have the right to deny re-activation of the Guaranteed
Minimum Death Benefit Option more than once during the life of the Contract.
<PAGE>
Effect of Combinations of Specified Amount and Additional Insurance Amount
You should consider the following factors in determining how to allocate
coverage in the form of the Specified Amount or in the form of an Additional
Insurance Amount: o the Specified Amount cannot be increased after issue, while
the Additional Insurance Amount may be increased after issue, subject to
application and evidence of insurability;
o the Additional Insurance Amount does not increase the Target Premium under
a Contract. Accordingly, the amount of sales charge paid and the amount of
compensation paid to the agent may be less if coverage is included as
Additional Insurance Amount, rather than as Specified Amount;
o the Guaranteed Minimum Death Benefit Option covers only the Specified
Amount and does not cover the Additional Insurance Amount. If the Contract
Value is insufficient to pay the monthly expenses (including charges for
the Additional Insurance Amount) the Additional Insurance Amount and rider
coverage will terminate, even though the Specified Amount may stay in
effect under the Guaranteed Minimum Death Benefit Option.
Generally, you will incur lower Contract Year charges and have more flexible
coverage with respect to the Additional Insurance Amount than with the Specified
Amount. On the other hand, if you wish to take advantage of the Guaranteed
Minimum Death Benefit Option, the proportion of the Total Sum Insured that is
guaranteed can be increased by taking out a larger part of the coverage as
Specified Amount at the time of issue. The Guaranteed Minimum Death Benefit
Option is not available at all if the Additional Insurance Amount exceeds or is
scheduled to exceed the Specified Amount at any time. In such case, it could be
to your advantage to increase the amount of coverage applied for at issue as
Specified Amount in order that the Guaranteed Minimum Death Benefit Option will
be available. However, if this guarantee is not important to you, you could
choose to maximize the proportion of the Additional Insurance Amount.
CHANGES IN DEATH BENEFIT
Effect of Investment Performance on Death Benefit
If investment performance is favorable, the amount of the Death Benefit Proceeds
may increase. The impact of investment performance will vary depending upon
which Coverage Option applies:
o Under Option A, the Death Benefit Proceeds will not usually change for
several years to reflect any favorable investment performance and may not
change at all. (See the illustrations beginning on page 35 to see how and
when investment performance may begin to affect the Death Benefit
Proceeds);
o Option B provides a Death Benefit that varies directly with the investment
performance of the Contract Value; o Option L provides a Death Benefit
pattern that can be level for several years and then can increase at a
particular time that your choose.
Changes in Coverage Option
You may change the Coverage Option subject to the following rules:
o we have the right to require that there be no change in Coverage Option during
the first Contract Year; o we have the right to allow only one increase in any
12-month period; o Coverage Option L is only available at issue; o after any
change in Coverage Option, we require that the Total Sum Insured be at least
$200,000 and the Specified Amount be at least $100,000;
o the effective date of change will be the Monthly Anniversary Day following
the date we approve your application. If the Coverage Option is B or L, it
may be changed to A. The Total Sum Insured will not change;
o if the Coverage Option is A or L, it may be changed to B subject to
satisfactory evidence of insurability. The new Total Sum Insured will be
the greater of the Total Sum Insured less the Contract Value as of the date
of change or $25,000; and
o if the Coverage Option is changed to B, the Guaranteed Minimum Death
Benefit Option, if in effect, will terminate.
We have the right to decline any Coverage Option change that we determine would
cause the Contract to not qualify as life insurance under applicable tax laws.
Changes in the Coverage Option may have tax consequences.
You should consult a tax adviser before changing the Coverage Option.
Increases in the Additional Insurance Amount
You may make increases to the Additional Insurance Amount through either
scheduled annual increases requested at issue or unscheduled increases you
request. The maximum Additional Insurance Amount coverage at issue is four times
the Specified Amount. This coverage may increase to a maximum of eight times the
Specified Amount after issue under scheduled annual increases.
Scheduled Increases. Scheduled increases to the Additional Insurance
Amount, subject to our approval, may be based on a flat amount annual increase
or a percentage annual increase. Available percentage increases range from 0-25%
of the Additional Insurance Amount. We will base the percentage increase on the
specified percentage of the Additional Insurance Amount at the time the
scheduled increase occurs. Available amounts for a flat amount increase range
from 0-25% of the Additional Insurance Amount at issue. The Guaranteed Minimum
Death Benefit Option is not available if the Additional Insurance Amount is, or
is scheduled to, exceed the Specified Amount
Unscheduled Increases. You may request increases to the Additional
Insurance Amount other than the annual, scheduled increases available at issue.
We have the right to not allow increases in Additional Insurance Amount during
the first Contract Year and to allow only one increase in any 12-month period.
The following requirements apply for an unscheduled increase: o you must submit
an application for the increase; o we may require satisfactory evidence of
insurability.; o any requested, unscheduled increase in the Additional Insurance
Amount must be at least $10,000; o the Insureds' attained Age must be less than
the current maximum issue Age for the Contracts, as we determine from time to
time;
o a change in Planned Premium Payments may be advisable;
o the increase in the Additional Insurance Amount will become effective on
the Monthly Anniversary Day on or following the date we approve the request
for the increase;
o if the Additional Insurance Amount is increased to be greater than the
Specified Amount, the Guaranteed Minimum Death Benefit Option, if
applicable, will terminate.
For both a scheduled or unscheduled increase, if the Cash Surrender Value is at
any time insufficient to pay Monthly Deductions for the Contract, the Additional
Insurance Amount and riders will terminate in order to preserve the Guaranteed
Minimum Death Benefit Option. (See "Guaranteed Minimum Death Benefit Option,"
page 29.) Increases in the Additional Insurance Amount may have tax
consequences. You should consult a tax adviser before increasing the Additional
Insurance Amount.
Decreases in Total Sum Insured
You may request a decrease in the Total Sum Insured. When you make a decrease in
Total Sum Insured, we will first reduce any amount of Additional Insurance
Amount remaining. Then we will reduce the Specified Amount, starting with the
latest increase and continuing in the reverse order in which the increases were
made. If the Specified Amount is decreased, the Guaranteed Minimum Death Benefit
Option coverage amount will be decreased by the same amount. Under certain
circumstances, a partial surrender will result in a decrease in the Total Sum
Insured. (See "Partial Surrenders," page 34.)
We have the right to require that no decreases occur during the first Contract
Year and that you make no more than one decrease in any 12-month period.
We have the right to require that the Total Sum Insured after any decrease be at
least $200,000 and that the Specified Amount be $100,000. You must provide
Written Notice of your request to decrease your Specified Amount. The effective
date of the decrease will be the Monthly Anniversary Day following the date we
approve your request.
Decreasing the Total Sum Insured may have the effect of decreasing monthly cost
of insurance charges. However, a decrease will not decrease the Target Premium
or Guaranteed Minimum Death Benefit Option Premium.
A decrease in the Total Sum Insured may have adverse tax consequences. You
should consult a tax adviser before decreasing the Total Sum Insured.
CASH BENEFITS
Contract Loans
You may borrow from your Contract (prior to the death of the Insured) at any
time by submitting a Written Request. You may also make loans by telephone if
you have provided proper authorization to do so. (See "Telephone
Authorizations," page 50.) The maximum loan amount available is the Contract's
Cash Surrender Value on the effective date of the loan less loan interest to the
next Contract Anniversary. We will process Contract loans as of the date we
approve your Written Request. We will generally send loan proceeds to you within
seven calendar days. (See "Payment of Proceeds," page 41.)
Interest. We 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 you don't pay interest when due, we add the amount of the
interest to the loan and it becomes part of the Indebtedness.
Loan Collateral. When you make a Contract loan, we transfer an amount
sufficient to secure the loan out of the Subaccounts and the unloaned value in
the Fixed Account and into the Contract's Loan Account. We will reduce the Cash
Surrender Value by the amount transferred to the Loan Account. The loan does not
have an immediate effect on the Contract Value. You may specify the Variable
Accounts and/or Fixed Account from which we transfer collateral. If you don't
specify we will transfer collateral in the same proportion that the Contract
Value in each Subaccount and the unloaned value in the Fixed Account bears to
the total unloaned Contract Value on the date you make the loan. On each
Contract Anniversary we will transfer an amount of Cash Surrender Value equal to
any due and unpaid loan interest to the Loan Account. We will transfer due and
unpaid interest in the same proportion that each Subaccount Value and the
unloaned value in the Fixed Account Value bears to the total unloaned Contract
Value.
We will credit the Loan Account 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). We will add the
interest earned on the Loan Account to the Fixed Account.
Preferred Loan Provision. Beginning in the eleventh Contract Year, an
additional type of loan is available called a preferred loan. For a preferred
loan we will credit the amount in the Loan Account securing the preferred loan
with interest at an effective annual rate of 6.0%. Thus, the net cost of the
preferred loan is 0.0% per year. The maximum amount available for a preferred
loan is the Contract Value less premiums paid. This amount may not exceed the
maximum loan amount. The preferred loan provision is not guaranteed.
The tax consequences of a preferred loan are uncertain. You should consult a tax
adviser before taking out a preferred loan.
Loan Repayment. You may repay all or part of your Indebtedness at any time
while at least one Insured is living and the Contract is in force. We reserve
the right to require that each loan repayment be at least $10.00. Loan
repayments must be sent to the Home Office and we will credit them as of the
date received. You should clearly mark a loan repayment as such or we will
credit it as a premium. (Sales charges and premium processing charges do not
apply to loan repayments, unlike unscheduled Premium Payments.) When you make a
loan repayment, we transfer Contract Value in the Loan Account in an amount
equal to the repayment from the Loan Account to the Subaccounts and the unloaned
value in the Fixed Account. Thus, a loan repayment will immediately increase the
Cash Surrender Value by the amount transferred from the Loan Account. A loan
repayment does not have an immediate effect on the Contract Value. Unless you
specify otherwise , we will transfer loan repayment amounts 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 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. Loans may increase the potential
for lapse if investment results of the Subaccounts are less than anticipated.
Loans can (particularly if not repaid) make it more likely than otherwise for a
Contract to terminate. (See "Tax Considerations," page 43, 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. We will deduct Indebtedness from any Death Benefit proceeds.
(See "Amount of Death Benefit Proceeds," page 28.)
Your Contract will be in default if the Loan Account Value on any Valuation Day
exceeds the Contract Value We will send you notice of the default. You will have
a 61-day grace period to submit a sufficient payment to avoid termination of
coverage under the Contract. The notice will specify the amount that must be
repaid to prevent termination. (See "Premium Payments to Prevent Lapse," page
19.)
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. We may require return of the Contract. We will
process a surrender request as of the date we receive your Written Request and
all required documents. Generally we will make payment within seven calendar
days. (See "Payment of Proceeds," page 41.) You may receive the Cash Surrender
Value in one lump sum or you may apply it to a payment option. (See "Payment
Options," page 34.) Your Contract will terminate and cease to be in force if you
surrender it for one lump sum. You will not be able to reinstate it later.
Surrenders may have adverse tax consequences. (See "Tax Considerations," page
43.)
Partial Surrenders
You may make partial surrenders under your Contract at any time subject to the
conditions below. You must submit a Written Request. Each partial surrender must
be at least $500 and the partial surrender amount may not exceed the Cash
Surrender Value, less $300. We will assess a partial surrender fee. (See
"Partial Surrender Fee," page 26.) We will deduct this charge from your Contract
Value along with the amount requested to be surrendered and the charge will be
considered part of the surrender (together, "partial surrender amount").
When you request a partial surrender, you can direct how we deduct the partial
surrender amount from your Contract Value in the Subaccounts and Fixed Account.
If you provide no directions, we will deduct the partial surrender amount from
your Contract Value in the Subaccounts and Fixed Account on a pro rata basis.
(See "Minimum Guaranteed and Current Interest Rates," page 22). Partial
surrenders may have adverse tax consequences. (See "Tax Considerations," page
43.)
If Coverage Option A or L is in effect, we will reduce the Contract Value by the
partial surrender amount. We will reduce the Total Sum Insured by the partial
surrender amount minus the excess, if any, of the Death Benefit over the Total
Sum Insured at the time you make the partial surrender. If the partial surrender
amount is less than the excess of the Death Benefit over the Total Sum Insured,
we will not reduce the Total Sum Insured. If Coverage Option B is in effect, we
will reduce the Contract Value by the partial surrender amount.
We have the right to reject a partial surrender request if the partial surrender
would reduce the Total Sum Insured below the minimum amount for which the
Contract would be issued under our then-current rules.
We will process partial surrender requests as of the date we receive your
written request. Generally we will make payment within seven calendar days. (See
"Payment of Proceeds," page 41.)
Payment Options
The Contract offers a variety of ways, in addition to a lump sum, for you to
receive proceeds payable. Payment options are available for use with various
types of proceeds, such as surrender or death. We summarize these payment
options below. All of these options are forms of fixed benefit annuities which
don't vary with the investment performance of a separate account.
You may apply proceeds of $2,000 (this 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. We will pay interest on the proceeds at the
guaranteed rate of 3.0% per year and we may increase this by additional interest
paid annually. You may withdraw the proceeds and any unpaid interest in full at
any time.
Option 2 - Installments of a Specified Amount. We will make annual or
monthly payments until the proceeds plus interest are fully paid. We will pay
interest on the proceeds at the guaranteed rate of 3.0% per year and we may
increase this by additional interest.
You may withdraw the present value of any unpaid installments at any time.
Option 3 - Installments For a Specified Period. We pay proceeds in equal
annual or monthly payments for a specified number of years. We will pay interest
on the proceeds at the guaranteed rate of 3.0% per year and we may increase this
by additional interest.
You may withdraw the present value of any unpaid installments at any time.
Option 4 - Life Income. We will pay an income during the payee's lifetime.
You may choose a minimum guaranteed payment period. One form of minimum
guaranteed payment period is the installment refund option, under which we will
make payments until the total income payments received equal the proceeds
applied.
Option 5 - Joint and Survivor Income. We will pay an income during the
lifetime of two persons and will continue to pay the same income as long as
either person is living. The minimum guaranteed payment period will be ten
years.
Minimum Amounts. We have the right to pay the total amount of the Contract
in one lump sum, if less than $2,000. If payments under the payment option
selected are less than $50, payments may be made less frequently at our option.
If we have options or rates available on a more favorable basis at the time you
elect a payment option, we will apply the more favorable benefits.
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 you
do not pay sufficient premiums, the Contract may lapse or may not accumulate
sufficient value to fund the purpose for which you purchased the Contract.
Partial surrenders and Contract loans may significantly affect current and
future values and proceeds. A loan may cause a Contract to lapse, depending upon
Subaccount investment performance and the amount of the loan. Before purchasing
a Contract for a specialized purpose, you should consider whether the long-term
nature of the Contract is consistent with the purpose for which you are
considering it. Using a Contract for a specialized purpose may have tax
consequences. (See "Tax Considerations" on page 43.)
ILLUSTRATIONS
We have prepared the following tables 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 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 Premium Payments accumulated at 5%
interest compounded annually.
<PAGE>
Assumptions
The hypothetical investment rates of return are illustrative only. Don't assume
they are representative 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 you make, prevailing interest rates and
rates of inflation. These illustrations assume that you allocate premiums
equally among the 21 Subaccounts available under the Contract, and that you
allocate no amounts to the Fixed Account. We have based these illustrations on
the following assumptions:
o there are no Contract loans;
o you pay an annual premium at the beginning of each Contract Year. Values
will be different if you pay the premiums with a different frequency or in
different amounts.
Charges Illustrated
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 0.91% 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. This
average annual expense ratio takes into account expense reimbursement
arrangements to be in place for 1999 for some of the Portfolios. In the absence
of the reimbursement arrangements for some of the Portfolios the average annual
expense ratio would be assumed to equal 1.11% of the average daily net assets of
the Portfolios available under the Contracts. If the reimbursement arrangements
were discontinued, the values in the illustrations could be less. For
information on the Portfolios' expenses, see the prospectuses for the Funds and
Portfolios accompanying this Prospectus.
In addition, the values calculated using current charges shown in the
illustrations reflect the current daily charge to the Variable Account for
assuming mortality and expense risks, which is equivalent to an annual charge of
0.625%. 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% corresponds to approximate net annual rates of -1.53%, 4.44% and 10.40%,
respectively on a current basis. The values calculated using guaranteed charges
shown in the illustrations reflect the guaranteed 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 guaranteed
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
- -1.80%, 4.15% and 10.09%, respectively.
The illustrations also reflect the deduction of the premium expense charges and
the Monthly Deduction. The Monthly Deduction includes the cost of insurance
charge. We have the contractual right to charge higher guaranteed maximum
charges than our current cost of insurance charges. The current cost of
insurance charges and, alternatively, the guaranteed cost of insurance charges
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 our sex distinct rates for nontobacco users. Upon
request, we will furnish you with a comparable illustration based upon the
proposed Insureds' specific circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the following
tables.
<PAGE>
<TABLE>
<CAPTION>
$6540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35; Female, Standard Nonsmoker, Age 35
- ---------- --------------------- ----------------------------------------------- -------------------------------------
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 Year Accumulated at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Interest per Year Value Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,430 2,430 1,000,000 2,590 2,590 1,000,000 2,751 2,751 1,000,000
2 14,077 7,071 7,071 1,000,000 7,680 7,680 1,000,000 8,309 8,309 1,000,000
3 21,648 11,634 11,634 1,000,000 12,989 12,989 1,000,000 14,438 14,438 1,000,000
4 29,598 16,120 16,120 1,000,000 18,525 18,525 1,000,000 21,197 21,197 1,000,000
5 37,945 20,529 20,529 1,000,000 24,298 24,298 1,000,000 28,648 28,648 1,000,000
6 46,709 25,588 25,588 1,000,000 31,084 31,084 1,000,000 37,672 37,672 1,000,000
7 55,911 30,557 30,557 1,000,000 38,158 38,158 1,000,000 47,620 47,620 1,000,000
8 65,574 35,434 35,434 1,000,000 45,530 45,530 1,000,000 58,587 58,587 1,000,000
9 75,719 40,219 40,219 1,000,000 53,211 53,211 1,000,000 70,677 70,677 1,000,000
10 86,372 44,911 44,911 1,000,000 61,212 61,212 1,000,000 84,003 84,003 1,000,000
15 148,180 68,114 68,114 1,000,000 107,883 107,883 1,000,000 175,828 175,828 1,000,000
20 227,064 88,491 88,491 1,000,000 164,706 164,706 1,000,000 325,342 325,342 1,000,000
25 327,742 106,390 106,390 1,000,000 234,526 234,526 1,000,000 569,559 569,559 1,391,495
30 456,236 120,947 120,947 1,000,000 319,689 319,689 1,000,000 966,012 966,012 1,977,533
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should not assume that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are representative of past or future
investment rates of return. These rates are hypothetical. Actual rates of return
may be more or less than those shown. The actual rates will depend on a number
of factors including the investment allocations you make, prevailing rates and
rates of inflation. The values for a Contract will be different from those shown
if the actual rates of return averages 0%, 6% or 12% over a period of years but
also fluctuated above or below those averages for individual Contract Years.
Neither we nor any Fund can make the statement that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
$6540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35; Female, Standard Nonsmoker, Age 35
- ---------- --------------------- ----------------------------------------------- -------------------------------------
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 Year Accumulated at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Interest per Year Value Value Value
- ------------ ------------------- --------- --------- ---------- -------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,422 2,422 1,000,000 2,582 2,582 1,000,000 2,743 2,743 1,000,000
2 14,077 7,043 7,043 1,000,000 7,650 7,650 1,000,000 8,276 8,276 1,000,000
3 21,648 11,574 11,574 1,000,000 12,920 12,920 1,000,000 14,361 14,361 1,000,000
4 29,598 16,015 16,015 1,000,000 18,401 18,401 1,000,000 21,051 21,051 1,000,000
5 37,945 20,366 20,366 1,000,000 24,099 24,099 1,000,000 28,407 28,407 1,000,000
6 46,709 25,354 25,354 1,000,000 30,788 30,788 1,000,000 37,299 37,299 1,000,000
7 55,911 30,239 30,239 1,000,000 37,740 37,740 1,000,000 47,074 47,074 1,000,000
8 65,574 35,019 35,019 1,000,000 44,964 44,964 1,000,000 57,819 57,819 1,000,000
9 75,719 39,694 39,694 1,000,000 52,468 52,468 1,000,000 69,629 69,629 1,000,000
10 86,372 44,262 44,262 1,000,000 60,261 60,261 1,000,000 82,610 82,610 1,000,000
15 148,180 66,660 66,660 1,000,000 105,324 105,324 1,000,000 171,265 171,265 1,000,000
20 227,064 85,615 85,615 1,000,000 158,975 158,975 1,000,000 313,203 313,203 1,000,000
25 327,742 100,141 100,141 1,000,000 222,132 222,132 1,000,000 540,116 540,116 1,319,561
30 456,236 105,709 105,709 1,000,000 292,746 292,746 1,000,000 895,553 895,553 1,833,294
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should not assume that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are representative of past or future
investment rates of return. These rates are hypothetical. Actual rates of return
may be more or less than those shown. The actual rates will depend on a number
of factors including the investment allocations you make, prevailing rates and
rates of inflation. The values for a Contract will be different from those shown
if the actual rates of return averages 0%, 6% or 12% over a period of years but
also fluctuated above or below those averages for individual Contract Years.
Neither we nor any Fund can make the statement that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
$6540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35; Female, Standard Nonsmoker, Age 35
- ---------- --------------------- ----------------------------------------------- -------------------------------------
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 Year Accumulated at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Interest per Year Value Value Value
- ------------ ------------------- --------- --------- ---------- -------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,430 2,430 1,002,430 2,590 2,590 1,002,590 2,751 2,751 1,002,751
2 14,077 7,071 7,071 1,007,071 7,680 7,680 1,007,680 8,309 8,309 1,008,309
3 21,648 11,634 11,634 1,011,634 12,988 12,988 1,012,988 14,438 14,438 1,014,438
4 29,598 16,119 16,119 1,016,119 18,524 18,524 1,018,524 21,196 21,196 1,021,196
5 37,945 20,527 20,527 1,020,527 24,296 24,296 1,024,296 28,646 28,646 1,028,646
6 46,709 25,585 25,585 1,025,585 31,081 31,081 1,031,081 37,668 37,668 1,037,668
7 55,911 30,553 30,553 1,030,553 38,153 38,153 1,038,153 47,613 47,613 1,047,613
8 65,574 35,428 35,428 1,035,428 45,521 45,521 1,045,521 58,575 58,575 1,058,575
9 75,719 40,209 40,209 1,040,209 53,197 53,197 1,053,197 70,657 70,657 1,070,657
10 86,372 44,895 44,895 1,044,895 61,190 61,190 1,061,190 83,972 83,972 1,083,972
15 148,180 68,035 68,035 1,068,035 107,750 107,750 1,107,750 175,599 175,599 1,175,599
20 227,064 88,230 88,230 1,088,230 164,175 164,175 1,164,175 324,225 324,225 1,324,225
25 327,742 105,731 105,731 1,105,731 232,909 232,909 1,232,909 566,400 566,400 1,566,400
30 456,236 119,574 119,574 1,119,574 315,594 315,594 1,315,594 960,375 960,375 1,960,375
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should not assume that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are representative of past or future
investment rates of return. These rates are hypothetical. Actual rates of return
may be more or less than those shown. The actual rates will depend on a number
of factors including the investment allocations you make, prevailing rates and
rates of inflation. The values for a Contract will be different from those shown
if the actual rates of return averages 0%, 6% or 12% over a period of years but
also fluctuated above or below those averages for individual Contract Years.
Neither we nor any Fund can make the statement that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
$6540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED COST OF INSURANCE RATES
Male, Standard Nonsmoker, Age 35; Female, Standard Nonsmoker, Age 35
- ---------- --------------------- ----------------------------------------------- -------------------------------------
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 Year Accumulated at 5% Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Interest per Year Value Value Value
- ------------ ------------------- --------- --------- ---------- -------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,422 2,422 1,002,422 2,582 2,582 1,002,582 2,743 2,743 1,002,743
2 14,077 7,043 7,043 1,007,043 7,650 7,650 1,007,650 8,276 8,276 1,008,276
3 21,648 11,573 11,573 1,011,573 12,920 12,920 1,012,920 14,360 14,360 1,014,360
4 29,598 16,014 16,014 1,016,014 18,400 18,400 1,018,400 21,050 21,050 1,021,050
5 37,945 20,365 20,365 1,020,365 24,098 24,098 1,024,098 28,405 28,405 1,028,405
6 46,709 25,352 25,352 1,025,352 30,785 30,785 1,030,785 37,295 37,295 1,037,295
7 55,911 30,234 30,234 1,030,234 37,734 37,734 1,037,734 47,066 47,066 1,047,066
8 65,574 35,011 35,011 1,035,011 44,954 44,954 1,044,954 57,806 57,806 1,057,806
9 75,719 39,683 39,683 1,039,683 52,453 52,453 1,052,453 69,608 69,608 1,069,608
10 86,372 44,246 44,246 1,044,246 60,238 60,238 1,060,238 82,576 82,576 1,082,576
15 148,180 66,578 66,578 1,066,578 105,184 105,184 1,105,184 171,026 171,026 1,171,026
20 227,064 85,314 85,314 1,085,314 158,370 158,370 1,158,370 311,939 311,939 1,311,939
25 327,742 99,221 99,221 1,099,221 219,914 219,914 1,219,914 535,757 535,757 1,535,757
30 456,236 103,221 103,221 1,103,221 285,425 285,425 1,285,425 886,515 886,515 1,886,515
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should not assume that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are representative of past or future
investment rates of return. These rates are hypothetical. Actual rates of return
may be more or less than those shown. The actual rates will depend on a number
of factors including the investment allocations you make, prevailing rates and
rates of inflation. The values for a Contract will be different from those shown
if the actual rates of return averages 0%, 6% or 12% over a period of years but
also fluctuated above or below those averages for individual Contract Years.
Neither we nor any Fund can make the statement 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 Insureds'
lifetime for two years from the Contract Date (or less if required by state
law), we may not contest the Contract, except if the Contract lapses after the
end of a Grace Period.
We will not contest any increase in the Additional Insurance Amount after the
increase has been in force during the Insureds' lifetimes 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 Insureds' lifetimes for
two years from the date of the reinstatement application (or less if required by
state law).
Suicide Exclusion. If either Insured dies by suicide, while sane or insane,
within two years of the Contract Date (or less if required by state law), the
Contract will terminate on the date of such suicide and the amount payable by us
(in place of any other benefits) will be equal to the Contract Value less any
Indebtedness. If either Insured dies by suicide, while sane or insane, within
two years after the effective date of any increase in the Additional Insurance
Amount (or less if required by state law), the amount of the Additional
Insurance Amount associated with the increase will terminate and the amount
payable by us 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 either
or both the Insureds are alive, it is determined that the Age or sex of either
Insured as stated in the Contract is not correct, we will adjust the Contract
Value. The adjustment will be the difference between the following amounts
accumulated at 4% interest annually. The two amounts are:
o the cost of insurance deductions that have been made; and o the cost of
insurance deductions that should have been made.
If, after the death of the last surviving Insured while this Contract is in
force, it is determined the Age or sex of either 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 to you, we may modify the Contract. We can only do so
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 we are 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.
We have the right to modify the Contract as necessary to attempt to prevent you
from being considered the owner of the assets of the Variable Account. In the
event of any such modification, we will issue an appropriate amendment to the
Contract, if required. We will exercise these changes in accordance with
applicable law, including approval of Contract Owners if required.
<PAGE>
Payment of Proceeds
We will usually pay Proceeds within seven calendar days after we receive all the
documents required for such a payment.
We determine the amount of the Death Benefit Proceeds as of the date of the
Insured's death. But, we determine the amount of all other Proceeds as of the
date we receive the required documents. We may delay a payment or a transfer
request if: (1) the New York Stock Exchange is closed for other than a regular
holiday or weekend; (2) 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 practical; or
(3) the SEC, by order, permits postponement of payment to protect Kansas City
Life's Contract Owners.
Personal Growth Account. As described below, we will pay Death Benefit
proceeds through Kansas City Life's Personal Growth Account. We place proceeds
to be paid through the Personal Growth Account in our general account. The
Personal Growth Account pays interest and provides check-writing privileges
under which we reimburse the bank that pays the check out of the proceeds held
in our general account. A Contract Owner or beneficiary (whichever applicable)
has immediate and full access to proceeds by writing a check on the account. We
pay interest on Death Benefit Proceeds from the date of death to the date the
Personal Growth Account is closed.
The Personal Growth Account is not a bank account and is not insured, nor
guaranteed, by the FDIC or any other government agency.
We will pay Death Benefit proceeds through the Personal Growth Account when:
o the proceeds are paid to an individual; and
o the amount of proceeds is $5,000 or more.
Any other use of the Personal Growth Account requires our approval.
Reports to Contract Owners
At least once each Contract Year, we will send you a report showing updated
information about the Contract since the last report, including any information
required by law. We will also send you an annual and semi-annual report for each
Fund or Portfolio underlying a Subaccount to which you have allocated Contract
Value. This will include a list of the securities held in each Fund, as required
by the 1940 Act. In addition, we will send you written confirmation of all
Contract transactions.
Selecting and Changing the Beneficiary
You select the Beneficiary in your application. You may change the Beneficiary
in accordance with the terms of the Contract. If you designate a Beneficiary as
irrevocable, then you must obtain the Beneficiary's consent to change the
Beneficiary. The Primary Beneficiary is the person entitled to receive the Death
Benefit Proceeds under the Contract. If the Primary Beneficiary is not living,
the Contingent Beneficiary is entitled to receive the Death Benefit Proceeds. If
both Insureds die and there is no surviving Beneficiary, the Owner will be the
Beneficiary.
Assignment
You may assign the Contract in accordance with its terms. In order for any
assignment to bind us, it must be in writing and filed at the Home Office. When
we receive a signed copy of the assignment, your rights and the interest of any
Beneficiary (or any other person) will be subject to the assignment. We assume
no responsibility for the validity or sufficiency of any assignment. An
assignment is subject to any Indebtedness. We will send notices to any assignee
we have on record concerning amounts required to be paid during a Grace Period
in addition to sending these notices to you.
<PAGE>
Reinstatement of Contract
If your Contract lapses, you may reinstate it within two years (or such longer
period if required by state law) after lapse. This reinstatement must meet
certain conditions, including the payment of the required premium and proof of
insurability. See your Contract for further information.
Optional Riders
The following optional riders are available and may be added to your Contract.
We will deduct monthly charges for these optional riders from your Contract
Value as part of the Monthly Deduction. All of these riders may not be available
in all states.
Contract Split Option Rider
Issue Ages: 20-75
This rider allows you to split the Contract equally into two individual
policies, one on the life of each Insured. This split option will be
offered without evidence of insurability under the condition that you make
the request as the result of either:
1) the divorce of the two Insureds; or
2) as a result of a change in the Unlimited Federal Estate Tax marital
deduction or a reduction in the maximum Federal Estate Tax bracket rate to
a rate below 25%.
You must also meet specific other conditions in order to qualify. When you
exercise this option, we will terminate the existing Contract. (In
Pennsylvania this option may not be exercised in the event of divorce.)
The new contracts will be based on the Insureds' Age, sex, and based on the
risk class at the time of issue of the original Contract.
This rider will terminate at the older Insured's age 80. The rider will
also terminate if you elect to keep the Guaranteed Minimum Death Benefit
Option in effect after it is determined that funding is not adequate to
cover these rider charges. (See "Guaranteed Minimum Death Benefit Option,"
page 29.)
The tax consequences of a contract split are uncertain. (See "Tax Treatment
of Contract Benefits," page 45). A significant unresolved federal tax issue
affecting a Contract is whether the issuance of two individual life
insurance contracts in exchange for a survivorship life insurance contract
will be treated as a nontaxable exchange. If you are considering a contract
split, you should be aware that it is possible that such a contract split
may not be treated as a nontaxable exchange, in which case the tax
treatment of the Contract could be significantly less favorable than that
described in this discussion. In addition, it is not clear whether two
individual contracts received in exchange for a survivorship contract in a
Contract split transaction will be classified as Modified Endowment
Contracts. Before proceeding with a contract split, you should consult a
competent tax adviser as to the possible tax consequences of such a split.
Joint First to Die Term Life Insurance Rider
Issue Ages: 20-85
This rider covers the Insureds under the Contract and provides yearly
renewable term coverage on the first Insured to die on or before the older
Insured's age 100 and while this rider is in force. You may increase
(subject to insurability) or decrease the coverage under this rider. You
may also choose at issue a schedule for the coverage to decrease annually.
The scheduled decreases may be based on the percentage of the coverage
amount or may be a flat dollar amount. If this rider is elected, the
Guaranteed Minimum Death Benefit Option is not available on the Contract.
Joint Survivorship Four- Year Term Life Insurance Rider
Issue Ages: 20-85
This rider provides four-year level term insurance and expires four years
after the effective date of the rider. The term insurance provides a death
benefit payable at the death of the last surviving Insured. The minimum
coverage is $100,000 and the maximum coverage is equal to the Total Sum
Insured. This rider is available at issue only.
The rider will also terminate if you elect to keep the Guaranteed Minimum
Death Benefit Option in effect after it is determined that funding is not
adequate to cover these rider charges. (See "Guaranteed Minimum Death
Benefit Option," page 29.)
Additional rules and limits apply to these optional riders. Not all such
benefits may be available at any time, and optional benefits or riders 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
Introduction
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 tax situations. This discussion is not intended as tax advice.
You should consult counsel or other competent tax advisers for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws. We make no representation as to the likelihood of
continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
Tax Status of the Contract
In order to qualify as a life insurance contract for Federal income tax purposes
and to receive the tax treatment normally accorded life insurance contracts
under Federal tax law, a Contract must satisfy certain requirements which are
set forth in the Internal Revenue Code. Guidance as to how these requirements
are to be applied to certain features of the Contract is limited. Nevertheless,
we believe it is reasonable to conclude that the Contracts should satisfy the
applicable requirements. There is necessarily some uncertainty, however,
particularly if you pay the full amount of premiums permitted under the
Contract. If it is subsequently determined that a Contract does not satisfy the
applicable requirements, we may take appropriate steps to bring the Contract
into compliance with such requirements and we reserve the right to restrict
Contract transactions as necessary in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of
variable account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the Owners have
been currently taxed on income and gains attributable to variable account
assets. There is little guidance in this area, and some features of the
Contracts, such as the flexibility of an Owner to allocate Premium Payments and
Contract Value, have not been explicitly addressed in published rulings. While
we believe that the Contracts do not give Owners investment control over
Variable Account assets, we reserve the right to modify the Contracts as
necessary to prevent an Owner from being treated as the owner of a pro rata
share of the assets of the Subaccounts.
In addition, the Code requires that the investments of each of the Subaccounts
must be "adequately diversified" in order for the Contract to be treated as a
life insurance contract for Federal income tax purposes. It is intended that the
Subaccounts, through the Portfolios, will satisfy these diversification
requirements.
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: We believe that the Death Benefit under a Contract should be
excludable from the gross income of the beneficiary.
Generally, the Owner will not be deemed to be in constructive receipt of the
Contract Value until there is a distribution. When distributions from a Contract
occur, or when loans are taken out from or secured by a Contract, the tax
consequences depend on whether the Contract is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Contracts as to premiums and benefits, the individual
circumstances of each Contract will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Contract years. Certain changes in a Contract after it is issued could also
cause it to be classified as a Modified Endowment Contract. A current or
prospective Owner should consult with a competent adviser to determine whether a
Contract transaction will cause the Contract to be classified as a Modified
Endowment Contract.
Distributions (Other Than Death Benefits) from Modified Endowment
Contracts. Contracts classified as Modified Endowment Contracts are subject to
the following tax rules:
1) All distributions other than Death Benefits, including distributions upon
surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Contract only after all
gain has been distributed.
2) Loans taken from or secured by a Contract classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
3) A 10 percent additional income tax is imposed on the amount subject to tax
except where the distribution or loan is made when the Owner has attained
age 591/2or is disabled, or where the distribution 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 or designated beneficiary.
Distributions (Other Than Death Benefits) From Contracts That Are Not
Modified Endowment Contracts. Distributions (other than Death Benefits) from a
Contract that is not classified as a Modified Endowment Contract are generally
treated first as a recovery of the Owner's investment in the Contract and only
after the recovery of all investment in the Contract as taxable income. However,
certain distributions which must be made in order to enable the Contract to
continue to qualify as a life insurance contract for Federal income tax purposes
if Contract benefits are reduced during the first 15 Contract years may be
treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Contract that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Contract loans that are outstanding after the first 10 Contract
years is less clear and you should consult a tax adviser about such loans.
Finally, neither distributions from nor loans from or secured by a Contract that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
Investment in the Contract. Your investment in the Contract is generally
your aggregate Premiums. When a distribution is taken from the Contract, your
investment in the Contract is reduced by the amount of the distribution that is
tax-free.
Contract Loans. In general, interest on a Contract loan will not be
deductible. If a Contract is surrendered or lapses with a Contract loan
outstanding, the outstanding Indebtedness will be treated as distributed to the
Owner and taxed accordingly. Before taking out a Contract loan, you should
consult a tax adviser as to the tax consequences.
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 the Owner's income when a taxable distribution occurs.
Other Owner Tax Matters. Federal, state and local transfer, estate,
inheritance, and other tax consequences of ownership or receipt of Contract
proceeds depend on the circumstances of each Owner or beneficiary. You should
consult a tax adviser as to these consequences.
The tax consequences of continuing the Contract beyond the younger Insured's
100th year are unclear. You should consult a tax adviser if you intend to keep
the Contract in force beyond the younger Insured's 100th year.
The Contracts can be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such arrangements may
vary depending on the particular facts and circumstances. If you are purchasing
the Contract for any arrangement the value of which depends in part on its tax
consequences, you should consult a qualified tax adviser. In recent years,
moreover, 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 adviser.
Our Income Taxes
At the present time, we make no charge for any Federal, state or local taxes
(other than the premium expense charge ) that we incur that may be attributable
to the Subaccounts or to the Contracts. We do have 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 we determine is attributable to the
Subaccounts or the Contracts.
Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the Contract could change by legislation
or otherwise. Consult a tax adviser with respect to legislative developments and
their effect on the Contract.
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 don't
plan to discontinue the offering of the Contracts. However, we have the right to
do so. Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell our variable life contracts. They
are generally registered representatives of Sunset Financial Services, Inc.
("Sunset Financial"), one of our wholly-owned subsidiaries. It is also possible
that these agents are instead registered representatives 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 Under-writer, as defined in the 1940 Act,
of the Contracts for the Variable Account as described in an Underwriting
Agreement between Kansas City Life and Sunset Financial. Sunset Financial is not
obligated to sell any specific number of Contracts. Sunset Financial's principal
business address is P.O. Box 219365, Kansas City, Missouri 64121-9365.
Sunset Financial may pay registered representatives 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% of premiums paid after the first Contract
Year. In certain circumstances Sunset Financial may pay additional commissions,
other allowances and overrides.
When Contracts are sold through other broker-dealers that have entered into
selling agreements with us, 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
<PAGE>
under expense reimbursement allowance programs in any year for approved
expenses. We will compensate the broker-dealers 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 Authorizations
You may request the following transactions by telephone if you made the election
at the time of application or provided proper authorization to us:
o transfer of Contract Value;
o change in premium allocation;
o change in dollar cost averaging;
o change in portfolio rebalancing; or
o Contract loan
We may suspend these telephone privileges at any time if we decide that such
suspension is in the best interests of Contract Owners.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If we follow those procedures, we will not be liable
for any losses due to unauthorized or fraudulent instructions. The procedures we
will follow for telephone privileges include requiring some form of personal
identification prior to acting on instructions received by telephone, providing
written confirmation of the transaction, and making a tape recording of the
instructions given by telephone.
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.
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 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 Vice President, Operations since 1996; responsible
for Computer Information Systems, Customer Services, Claims and Agency
Administration. Director of Sunset Life and Old American, subsidiaries of
Kansas City Life.
Richard L. Finn Director, Kansas City Life; Senior Vice President, Finance,
since 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 since 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; Senior Vice President and Actuary
since 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; Vice President, General Counsel
and Secretary since 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 Senior Vice President, Administrative Services, since 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.
DarylD. Jensen Director, Kansas City Life; Vice Chairman of the Board and
President, Sunset Life Insurance Company of America, a subsidiary of Kansas
City Life, since 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. since 1984.
LarryWinn Jr. Director, Kansas City Life since 1985; Retired as the Kansas
Third District Representative to the U.S. Congress.
John K. Koetting Vice President and Controller since 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
64111-2565.
<PAGE>
State Regulation
We are regulated by the Department of Insurance of the State of Missouri, which
periodically examines our financial condition and operations. We are also
subject to the insurance laws and regulations of all jurisdictions where we do
business.
Additional Information
We have filed a registration statement under the Securities Act of 1933 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
Ernst & Young LLP, independent auditors has audited the following reports
included in this prospectus:
o consolidated balance sheets for Kansas City Life at December 31, 1998 and
1997;
o related consolidated statements of income, stockholders' equity and cash
flows for the years ended December 31, 1998, 1997 and 1996;
o statement of net assets of the Variable Account at December 31, 1998;
o related statements of operations and changes in net assets for the years
ended December 31, 1998 and 1997.
The Independent Auditor's reports is also included in this Prospectus and is
provided in reliance upon these reports.
Mark A. Milton, Vice President and Associate Actuary of Kansas City Life has
examined actuarial matters in this Prospectus.
Litigation
We and our 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, we believe that at the present
time there are not pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the Variable Account or Kansas City Life.
Preparing for Year 2000
We are closely monitoring our ability and the ability of our primary vendors and
business partners to successfully operate in the year 2000. We are assessing and
taking steps to resolve potential problems in both our information technology
systems and other systems. As of December 31, 1998 we were about 85% complete as
far as addressing the information technology systems. Our other systems are,
with one exception, year 2000 compliant. We will address the system that is not
compliant during 1999. We are also actively monitoring the compliance programs
of third parties with which we have business relationships and are developing
contingency plans based on those assessments.
We expect to have contingency plans in place and internal systems year 2000
compliant by the end of 1999. We base this expectation on numerous assumptions
of future events. We cannot be sure that these assumptions are accurate and
actual results could differ from expected results.
Company Holidays
We are closed on the following holidays: New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additional holidays in 1999 will be October 11, November 26, December 24 and
December 31. We will recognize holidays that fall on a Saturday on the previous
Friday. We will recognize holidays that fall on a Sunday on the following
Monday. On these holidays, there will be no valuation.
Legal Matters
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. C. John Malacarne,
General Counsel of Kansas City Life has passed on matters of Missouri law
pertaining to the Contracts, including our right to issue the Contracts and our
qualification to do so under applicable laws and regulations.
Financial Statements
Kansas City Life's financial statements included in this Prospectus should be
distinguished from financial statements of the Variable Account. You should
consider Kansas City Life's financial statements only as an indication of Kansas
City Life's ability to meet its obligations under the Contracts. You should not
consider them as having an effect on the investment performance of the assets
held in the Variable Account. The following reports for the Variable Account are
also included in the Prospectus:
o statement of net assets of the Variable Account at December 31, 1998, and
o related statement of operations and changes in net assets for the periods
ended December 31, 1998 and 1997.
CONSOLIDATED INCOME STATEMENT
(Thousands, except per share data)
1998 1997 1996
REVENUE
Insurance revenues:
Premiums:
Life insurance $108 510 106 051 103 263
Accident and health 42 441 44 931 37 575
Contract charges 108 608 93 713 78 755
Investment revenues:
Investment income, net 198 181 193 696 186 743
Realized investment gains, net 11 426 14 505 3 013
Other 14 671 9 998 9 768
TOTAL REVENUES 483 837 462 894 419 117
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 107 355 100 037 87 940
Surrenders of life insurance 19 368 14 999 15 488
Other benefits 72 190 71 338 65 437
Increase in benefit and contract reserves 84 427 86 804 85 614
Amortization of deferred acquisition costs 36 201 35 712 30 086
Insurance operating expenses 96 347 91 381 75 227
TOTAL BENEFITS AND EXPENSES 415 888 400 271 359 792
Income before Federal income taxes 67 949 62 623 59 325
Federal income taxes:
Current 20 471 15 073 26 073
Deferred (1 034) 2 689 (9 063)
19 437 17 762 17 010
NET INCOME $ 48 512 44 861 42 315
Basic and diluted earnings per share $7.83 7.25 6.84
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
1998 1997
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost $2,012,975,000;
$1,952,741,000 - 1997) $2 094 362 2 004 516
Held to maturity, at amortized cost (fair value $123,515,000;
$151,495,000 - 1997) 115 504 145 661
Equity securities available for sale, at fair value
(cost $98,509,000; $107,034,000 - 1997) 100 749 114 986
Mortgage loans on real estate, net 315 705 270 054
Real estate, net 43 840 36 764
Real estate joint ventures 39 388 43 347
Policy loans 122 860 123 186
Short-term 59 160 74 341
Other - 7 500
TOTAL INVESTMENTS 2 891 568 2 820 355
Cash 16 763 50 927
Accrued investment income 42 515 42 385
Receivables, net 12 997 10 204
Property and equipment, net 22 436 23 628
Deferred acquisition costs 218 957 209 826
Value of purchased insurance in force 104 331 108 458
Reinsurance assets 117 772 99 593
Other 7 067 16 096
Separate account assets 143 008 57 980
$3 577 414 3 439 452
LIABILITIES AND STOCKHOLDERS' EQUITY Future policy benefits:
Life insurance $ 774 701 766 583
Accident and health 47 641 37 155
Accumulated contract values 1 731 262 1 755 133
Policy and contract claims 34 347 37 569
Other policyholders' funds:
Dividend and coupon accumulations 62 726 62 056
Other 75 033 68 861
Income taxes:
Current 4 582 16 113
Deferred 43 739 39 917
Other 82 442 67 491
Separate account liabilities 143 008 57 980
TOTAL LIABILITIES 2 999 481 2 908 858
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 17 633 16 256
Retained earnings 581 074 543 715
Accumulated other comprehensive income 45 466 36 448
Less treasury stock, at cost (3,043,947 shares;
3,055,275 shares - 1997) (89 361) (88 946)
TOTAL STOCKHOLDERS' EQUITY 577 933 530 594
$3 577 414 3 439 452
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
1998 1997 1996
COMMON STOCK, beginning and end of year $ 23 121 23 121 23 121
PAID IN CAPITAL:
Beginning of year 16 256 14 761 13 039
Excess of proceeds over cost of treasury stock sold1 377 1 495 1 722
End of year 17 633 16 256 14 761
RETAINED EARNINGS:
Beginning of year 543 715 509 748 477 826
Net income 48 512 44 861 42 315
Other comprehensive income:
Unrealized gains (losses) on securities 15 094 33 485 (26 777)
Increase in unfunded pension liability (6 076) - -
Comprehensive income 57 530 78 346 15 538
Transfer other comprehensive (income) loss to
accumulated other comprehensive income (9 018) (33 485) 26 777
Stockholder dividends of $1.80 per share
($1.76 - 1997 and $1.68 - 1996) (11 153) (10 894) (10 393)
End of year 581 074 543 715 509 748
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Beginning of year 36 448 2 963 29 740
Other comprehensive income (loss) 9 018 33 485 (26 777)
End of year 45 466 36 448 2 963
TREASURY STOCK, at cost:
Beginning of year (88 946) (87 729) (86 599)
Cost of 12,320 shares acquired
(20,090 shares - 1997 and 27,876 shares - 1996) (1 063) (1 440) (1 501)
Cost of 23,648 shares sold
(23,686 shares - 1997 and 39,440 shares - 1996) 648 223 371
End of year (89 361) (88 946) (87 729)
TOTAL STOCKHOLDERS' EQUITY $577 933 530 594 462 864
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
1998 1997 1996
OPERATING ACTIVITIES
Net income $ 48 512 44 861 42 315
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment premium (discount),
net 2 398 (1 290) (4 071)
Depreciation 5 153 5 379 4 995
Policy acquisition costs capitalized (46 011) (42 170) (38 639)
Amortization of deferred acquisition costs 36 201 35 712 30 086
Realized investment gains (11 426) (14 505) (3 013)
Changes in assets and liabilities:
Future policy benefits 25 855 16 227 15 831
Accumulated contract values (12 264) (9 933) 3 183
Other policy liabilities 6 842 7 137 5 294
Income taxes payable and deferred (11 399) 4 768 (8 322)
Other, net (718) (3 685) 5 886
NET CASH PROVIDED 43 143 42 501 53 545
INVESTING ACTIVITIES
Purchases of available for sale investments:
Fixed maturities (644 087) (855 980) (431 916)
Equity securities (28 047) (69 434) (18 071)
Sales of fixed maturities available for sale 372 930 503 351 140 372
Maturities and principal paydowns
of security investments:
Fixed maturities available for sale 216 247 163 867 131 545
Fixed maturities held to maturity 30 453 106 188 79 017
Equity securities available for sale 28 043 31 473 8 899
Purchases of other investments (78 298) (152 045) (46 021)
Sales, maturities and principal
paydowns of other investments 60 500 67 295 64 833
Acquisitions and dispositions of insurance
blocks - net cash received (paid) (13 250) 213 092 -
NET CASH PROVIDED (USED) (55 509) 7 807 (71 342)
FINANCING ACTIVITIES
Proceeds from borrowings 1 100 245 050 1 650
Repayment of borrowings (1 100) (245 050) (1 650)
Policyowner contract deposits 175 421 169 699 164 677
Withdrawals of policyowner contract deposits (187 028) (163 041) (142 114)
Cash dividends to stockholders (11 153) (10 894) (10 393)
Disposition of treasury stock, net 962 278 592
NET CASH PROVIDED (USED) (21 798) (3 958) 12 762
Increase (decrease) in cash (34 164) 46 350 (5 035)
Cash at beginning of year 50 927 4 577 9 612
CASH AT END OF YEAR $ 16 763 50 927 4 577
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 49
states and the District of Columbia. The Company offers a diversified portfolio
of individual insurance, annuity and group products distributed through numerous
general agencies. In recent years, the Company's new business activities have
been concentrated in interest sensitive and variable products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP) and include the
accounts of Kansas City Life Insurance Company and its subsidiaries, principally
Sunset Life Insurance Company of America (Sunset Life) and Old American
Insurance Company (Old American). Significant intercompany transactions have
been eliminated in consolidation. Certain reclassifications have been made to
prior year results to conform with the current year's presentation. GAAP
requires management to make certain estimates and assumptions which affect
amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized as
revenues when due. Accident and health insurance premiums are recognized as
revenues over the terms of the policies. Revenues for universal life and
flexible annuity products are amounts assessed against contract values for cost
of insurance, policy administration and surrenders, as well as amortization of
deferred front-end contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a net
level premium method based upon estimates at the time of issue for investment
yields, mortality and withdrawals. These estimates include provisions for
experience less favorable than actually expected. Investment yield assumptions
for new issues are graded down and range from 5.00 to 7.00 percent. Mortality
assumptions are based on standard mortality tables. The 1965-70 Select and
Ultimate Basic Table is used for business issued since 1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For traditional
life and accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life and flexible annuity products represent
accumulated contract values, without reduction for potential surrender charges,
and deferred front-end contract charges which are amortized over the term of the
policies. Benefits and claims are charged to expense in the period incurred net
of related accumulated contract values. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates for universal life insurance
and flexible annuity products ranged from 3.85 percent to 7.25 percent during
1998 (4.75 percent to 6.50 percent during 1997 and 4.75 percent to 6.75 percent
during 1996).
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 and flexible annuity
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 or
premium revenues. This asset was increased $76,533,000 in 1997 for the
acquisition of a life insurance block of business and $8,683,000 ($8,856,000 -
1997 and $5,030,000 - 1996) for accrual of interest and reduced $16,375,000
($14,962,000 - 1997 and $6,082,000 - 1996) for amortization. The increase for
accrual of interest was calculated using a 7.4 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 1998, total accumulated accrual of interest and
amortization equal $43,455,000 and $62,721,000, respectively. The percentage of
the asset's current carrying amount which will be amortized in each of the next
five years is 7.9 percent - 1999, 7.6 percent - 2000, 7.3 percent - 2001, 6.9
percent - 2002 and 6.3 percent - 2003.
Separate Accounts
These accounts arise from the sale of variable life insurance and annuity
products. Their assets are legally segregated and are not subject to the claims
which may arise from any other business of the Company. These assets are
reported at fair value since the underlying investment risks are assumed by the
policyholders. Therefore the related liabilities are recorded at amounts equal
to the underlying assets. Investment income and gains or losses arising from
separate accounts accrue directly to the policyholders and are, therefore, not
included in investment earnings in the accompanying consolidated income
statement. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees and mortality and risk
charges.
Participating Policies
Participating business at year end approximates 16 percent of the consolidated
life insurance in force. The amount of dividends to be paid is determined
annually by the Board of Directors. Provision has been made in the liability for
future policy benefits to allocate amounts to participating policyholders on the
basis of dividend scales contemplated at the time the policies were issued.
Additional provisions have been made for policyholder dividends in excess of the
original scale which have been declared by the Board of Directors.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and related
adjustments in deferred acquisition costs, and are included in accumulated other
comprehensive income.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are carried
at depreciated cost. Real estate joint ventures are valued at cost adjusted for
the Company's equity in earnings since acquisition. Policy loans are carried at
cost less payments received. Realized gains and losses on disposals of
investments, determined by the specific identification method, are included in
investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method. Under that method,
deferred tax assets and liabilities are determined based on the differences
between their financial reporting and their tax bases and are measured using the
enacted tax rates.
Income Per Share
Due to the Company's capital structure and lack of other potentially dilutive
securities, there is no difference between basic and diluted earnings per common
share for any of the years or periods reported. The weighted average number of
shares outstanding during the year was 6,197,052 shares (6,190,793 shares - 1997
and 6,188,489 shares - 1996).
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.
1998 1997 1996
Net gain (loss) from operations
for the year $ 35 185 (21 214) 27 345
Net income (loss) for the year 36 152 (18 681) 25 574
Unassigned surplus
at December 31 257 853 246 717 284 417
Stockholders' equity
at December 31 209 246 197 147 234 570
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 1999 without prior approval is $35,185,000. 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
$18,000,000 ($36,000,000 - 1997 and $36,000,000 - 1996).
Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standard No.
130, "Reporting Comprehensive Income." This standard governs the reporting and
display of comprehensive income and its components; however, the adoption of
this new standard had no impact on net income or stockholders' equity. Standard
No. 130 requires unrealized gains or losses on securities available for sale and
unfunded pension liabilities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income, as shown
below. Prior year financial statements have been reclassified to conform to the
requirements of this standard.
Unrealized
Gains on Unfunded
Available-for- Pension
Sale Securities Liability Total
1998:
Unrealized holding gains
arising during the year $33 261 33 261
Less: Realized gains included
in net income 9 360 9 360
Net unrealized gains 23 901 23 901
Increase in unfunded
pension liability - (9 348) (9 348)
Effect on deferred
acquisition costs (680) (680)
Deferred income taxes (8 127) 3 272 (4 855)
Other comprehensive income $15 094 (6 076) 9 018
1997:
Unrealized holding gains
arising during the year $63 486 63 486
Less: Realized gains included
in net income 8 318 8 318
Net unrealized gains 55 168 55 168
Effect on deferred
acquisition costs (3 652) (3 652)
Deferred income taxes (18 031) (18 031)
Other comprehensive income $33 485 33 485
INVESTMENTS
Investment Revenues
Major categories of investment revenues are summarized as follows.
1998 1997 1996
Investment income:
Fixed maturities $154 213 154 393 150 421
Equity securities 6 583 7 288 5 503
Mortgage loans 26 024 23 984 23 127
Real estate 9 587 10 350 13 237
Policy loans 8 098 7 296 6 372
Short-term 4 832 3 612 2 353
Other 3 948 3 132 2 222
213 285 210 055 203 235
Less investment expenses (15 104) (16 359) (16 492)
$198 181 193 696 186 743
1998 1997 1996
Realized gains (losses):
Fixed maturities $ 8 052 4 778 (1 862)
Equity securities 1 360 3 702 961
Mortgage loans - - 2 000
Real estate 2 014 6 025 1 894
Other - - 20
$ 11 426 14 505 3 013
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
1998 1997 1996
Available for sale:
End of year $ 83 627 59 726 4 558
Effect on deferred
acquisition costs (4 332) (3 652) -
Deferred income taxes (27 753) (19 626) (1 595)
$ 51 542 36 448 2 963
Increase (decrease) in net unrealized gains during the year:
Fixed maturities $ 18 701 33 209 (26 216)
Equity securities (3 607) 276 (561)
$ 15 094 33 485 (26 777)
Held to maturity:
End of year $ 8 011 5 834 7 609
Increase (decrease) in
net unrealized gains
during the year $ 2 177 (1 775) (11 908)
Securities
The amortized cost and fair value of investments in securities at December 31,
1998, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S.government bonds $ 45 079 1 747 381 46 445
Public utility bonds 294 016 15 850 1 946 307 920
Corporate bonds 1 321 368 66 176 13 151 1 374 393
Mortgage-backed bonds 278 657 10 942 618 288 981
Other bonds 70 224 3 216 441 72 999
Redeemable preferred
stocks 3 631 121 128 3 624
Total fixed maturities 2 012 975 98 052 16 665 2 094 362
Equity securities 98 509 6 184 3 944 100 749
$2 111 484 104 236 20 609 2 195 111
Held to maturity:
Public utility bonds $ 25 325 1 934 7 27 252
Corporate bonds 87 302 6 267 511 93 058
Other bonds 2 877 328 - 3 205
115 504 8 529 518 123 515
$2 226 988 112 765 21 127 2 318 626
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 Company holds one non-income producing fixed maturity with a par value of
$5,000,000.
The distribution of the fixed maturity securities' contractual maturities at
December 31, 1998, 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 $ 63 900 64 657
Due after one year through five years 450 887 461 883
Due after five years through ten years 471 322 487 598
Due after ten years 748 209 791 243
Mortgage-backed bonds 278 657 288 981
$2 012 975 2 094 362
Held to maturity:
Due in one year or less $ 8 528 8 700
Due after one year through five years 50 820 53 615
Due after five years through ten years 36 202 39 556
Due after ten years 19 954 21 644
$ 115 504 123 515
Sales of investments in securities available for sale, excluding normal
maturities and calls, follow.
1998 1997 1996
Proceeds $422 241 509 502 141 335
Gross realized gains 12 512 11 597 1 400
Gross realized losses 5 234 2 349 1 420
At December 31, 1998, 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, 1998, and
will expire in April 1999.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $1,004,000
($327,000 - 1997). Mortgage loans are carried net of a valuation reserve of
$8,500,000 ($8,500,000 - 1997).
At December 31, 1998 and 1997, the mortgage portfolio is diversified
geographically and by property type as follows.
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic region:
East north central $ 31 068 32 373 26 937 27 421
Mountain 67 530 71 397 64 602 66 321
Pacific 106 982 112 461 91 963 94 366
West south central 33 044 34 813 32 997 33 961
West north central 69 594 73 157 55 320 56 485
Other 15 987 16 718 6 735 7 017
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$315 705 332 419 270 054 277 071
Property type:
Industrial $209 752 220 474 170 199 174 278
Retail 22 847 24 301 29 532 30 531
Office 74 633 78 291 58 658 60 267
Other 16 973 17 853 20 165 20 495
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$315 705 332 419 270 054 277 071
As of December 31, 1998, the Company has commitments which expire in 1999 to
originate mortgage loans of $13,982,000.
Mortgage loans foreclosed upon and transferred to real estate investments during
the year equaled $1,181,000 ($3,189,000 - 1997 and $2,977,000 - 1996).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $2,025,000 ($4,299,000 - 1997 and $6,579,000 - 1996).
Real Estate
Detail concerning the Company's real estate investments follows.
1998 1997
Penntower office building, at cost:
Land $ 1 106 1 106
Building 18 244 18 068
Less accumulated depreciation (10 340) (9 809)
Foreclosed real estate, at lower of
cost or net realizable value 10 946 13 362
Other investment properties, at cost:
Land 4 493 3 214
Buildings 32 848 24 216
Less accumulated depreciation (13 457) (13 393)
$ 43 840 36 764
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 $2,877,000 ($3,686,000 - 1997) to reflect net
realizable value.
The Company held non-income producing real estate equaling $6,099,000 ($820,000
- - 1997).
PROPERTY AND EQUIPMENT
1998 1997
Land $ 1 029 1 029
Home office buildings 22 995 23 149
Furniture and equipment 30 238 27 502
54 262 51 680
Less accumulated depreciation (31 826) (28 052)
$22 436 23 628
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.
PENSIONS AND OTHER
POSTRETIREMENT BENEFITS
The Company has pension and other postretirement benefit plans covering
substantially all its employees. The defined benefits pension plan covers
employees who were age 55 or over with at least 15 years of vested service at
December 31, 1997. This plan's benefits are based on years of service and the
employee's compensation during the last five years of employment. All other
employees have a cash balance account consisting of credits to the account based
upon an employee's years of service and compensation, and interest credits of
7.00 percent for 1998. As disclosed in the tables at right, the amendment to
change the plan to a cash balance plan in 1998 decreased the projected benefit
obligation $10,038,000. The postretirement medical plans for the employees,
full-time agents, and their dependents are contributory with contributions
adjusted annually. The Company pays these medical costs as incurred and the plan
incorporates cost-sharing features. The postretirement life insurance plan is
noncontributory with level annual payments over the participants' expected
service periods. The plan covers only those employees with at least one year of
service as of December 31, 1997. The benefits in this plan are frozen using the
employees' years of service and compensation as of December 31, 1997. The tables
at right outline the plans' funded status and their impact on the Company's
financial statements.
Pension Benefits Other Benefits
1998 1997 1998 1997
Accumulated benefit obligation $107 488 102 846 - -
Change in plan assets:
Fair value of plan assets at
beginning of year $ 95 899 85 241 1 634 1 501
Return on plan assets 10 988 9 752 86 83
Company contributions 3 000 4 967 - 104
Benefits paid (7 018) (4 061) (106) (54)
Fair value of plan assets at end of year$102 869 95 899 1 614 1 634
Change in projected benefit obligation:
Benefit obligation at beginning of year $119 651 100 572 15 485 13 379
Service cost 2 746 3 150 615 560
Interest cost 7 650 7 823 1 193 1 014
Plan amendments (10 038) - - -
Net loss from past experience 637 12 276 1 991 1 083
Benefits paid (10 099) (4 170) (476) (551)
Benefit obligation at end of year $110 547 119 651 18 808 15 485
Plan underfunding $ (7 678) (23 752) (17 194) (13 851)
Unrecognized net loss 22 488 25 452 3 653 1 734
Unrecognized prior service cost (9 257) 12 - -
Unrecognized net transition asset (824) (1 030) - -
Prepaid (accrued) benefit cost $ 4 729 682 (13 541) (12 117)
Amounts recognized in the consolidated balance sheet:
Prepaid (accrued) benefit cost $ 4 729 682 (13 541) (12 117)
Minimum pension liability (9 348) - - -
Net amount recognized $ (4 619) 682 (13 541) (12 117)
Weighted average assumptions:
Discount rate 7.00% 7.25 7.00 7.25
Expected return on plan assets 9.00 9.00 5.50 5.50
Rate of compensation increase 4.50 4.50 - -
The assumed growth rate of health care costs has a significant effect on the
amounts reported as the table below demonstrates.
One Percentage Point
Change in the Growth Rate
Increase Decrease
Service and interest cost components $ 401 (326)
Postretirement benefit obligation 3 172 (2 684)
The components of the net periodic benefits cost follow.
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
Service cost $ 2 746 3 150 3 369 615 560 536
Interest cost 7 650 7 823 6 647 1 194 1 014 869
Expected return on plan assets (8 539) (7 776) (7 557) (90) (85) (75)
Amortization of:
Unrecognized net (gain) loss 1 152 582 263 76 (5) -
Unrecognized prior service cost (769) 2 2 - - -
Unrecognized net transition asset (206) (206) (206) - - -
Net periodic benefits cost $ 2 034 3 575 2 518 1 795 1 484 1 330
Non-contributory defined contribution retirement plans for general agents and
eligible sales agents provide supplemental payments based upon earned agency
first-year individual life and annuity commissions. Contributions to these plans
were $134,000 ($133,000 - 1997 and $174,000 - 1996). A non-contributory deferred
compensation plan for eligible agents based upon earned first-year commissions
is also offered. Contributions to this plan were $724,000 ($265,000 - 1997 and
$318,000 - 1996).
Savings plans for eligible employees and agents match employee contributions up
to 6 percent of salary and agent contributions up to 2.5 percent of prior year
paid commissions. Contributions to the plan were $1,485,000 ($2,102,000 - 1997
and $2,082,000 - 1996). Effective in 1998, the Company may contribute an
additional profit sharing amount up to 4 percent of salary depending upon
corporate profits. No profit sharing contribution was made in 1998.
A non-contributory trusteed employee stock ownership plan covers substantially
all salaried employees. The Company has made no contributions to this plan since
1992.
SEGMENT INFORMATION
Kansas City Life Sunset Old
Individual Group Life American Total
1998:
Revenues from external customers $ 112 898 52 537 28 794 80 001 274 230
Investment revenues 151 045 1 146 32 040 13 950 198 181
Segment income (loss) 27 918 (985) 8 954 5 198 41 085
Other significant noncash items:
Increase in policy reserves 57 581 535 16 269 10 042 84 427
Amortization of deferred
acquisition costs 16 861 - 8 323 11 017 36 201
Amortization of the value of
purchased insurance in force 4 660 - - 2 925 7 585
Income tax expense 12 997 (422) 4 314 2 548 19 437
Segment assets 2 627 568 16 215 538 254 395 377 3 577 414
Expenditures for other long-lived assets2 658 259 97 69 3 083
1997:
Revenues from external customers $ 90 759 53 698 28 269 81 967 254 693
Investment revenues 147 125 1 216 32 288 13 067 193 696
Segment income (loss) 24 704 (493) 8 259 2 963 35 433
Other significant noncash items:
Increase in policy reserves 55 924 202 16 768 13 910 86 804
Amortization of deferred
acquisition costs 15 138 - 8 026 12 548 35 712
Amortization of the value of
purchased insurance in force 2 211 - - 2 683 4 894
Income tax expense 12 735 (212) 3 904 1 335 17 762
Segment assets 2 533 546 16 828 517 423 371 655 3 439 452
Expenditures for other long-lived assets2 326 473 60 13 2 872
1996:
Revenues from external customers $ 77 861 42 547 27 260 81 693 229 361
Investment revenues 141 333 1 215 32 483 11 712 186 743
Segment income (loss) 25 330 (806) 9 440 6 395 40 359
Other significant noncash items:
Increase in policy reserves 51 670 678 17 819 15 447 85 614
Amortization of deferred
acquisition costs 14 618 - 6 292 9 176 30 086
Amortization of the value of
purchased insurance in force - - - 946 946
Income tax expense 10 330 (434) 3 903 3 211 17 010
Expenditures for other long-lived assets 175 148 171 33 527
Enterprise-Wide Disclosures
1998 1997 1996
Revenues from external customers by line of business:
Variable life insurance and annuities $ 6 928 2 062 312
Interest sensitive products 101 680 91 651 78 443
Traditional individual insurance products 103 171 101 332 100 298
Group life and disability products 47 780 49 650 40 540
Group ASO services 4 716 4 048 2 007
Other 9 955 5 950 7 761
Total $274 230 254 693 229 361
In 1998 the Company adopted Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Company operations
have been classified and summarized into the four reportable segments at left.
The segments, while generally classified along Company lines, are based upon
distribution method, product portfolio and target market. The Parent Company was
divided into two segments. The Kansas City Life-Individual segment consists of
sales of variable life and annuities, interest sensitive products and
traditional life insurance products by a career general agency sales force. The
block acquired in 1997 is included in this segment. The Kansas City Life-Group
segment consists of sales of group life and disability products and
administrative services only (ASO) by the Company's career general agency sales
force and appointed group agents. The Sunset Life segment consists of sales of
interest sensitive and traditional products by personal producing general
agents. The Old American segment markets whole life final expense products to
seniors through a general agency sales force.
Separate investment portfolios are maintained for each of the companies.
However, investments are allocated to the group segment based upon its cash
flows and its investment revenue is modeled using the year of investment method.
Operating expenses are allocated to the segments based upon internal cost
studies which are consistent with industry cost methodologies. The totals at
left agree to the consolidated financial statements. Intersegment revenues are
not material and there is no interest expense. The Company operates solely in
the United States and no individual customer accounts for 10 percent or more of
the Company's revenue.
REINSURANCE
1998 1997 1996
Life insurance in force (in millions):
Direct $ 23 261 22 800 22 121
Ceded (4 488) (3 375) (2 742)
Assumed 3 380 3 796 28
Net $ 22 153 23 221 19 407
Premiums:
Life insurance:
Direct $128 584 128 491 127 150
Ceded (26 748) (26 262) (24 380)
Assumed 6 674 3 822 493
Net $108 510 106 051 103 263
Accident and health:
Direct $ 54 022 55 022 48 694
Ceded (11 581) (10 091) (11 370)
Assumed - - 251
Net $ 42 441 44 931 37 575
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 $57,048,000 ($39,483,000 - 1997 and
$37,829,000 - 1996).
Old American has two coinsurance agreements. One agreement reinsures certain
whole life policies issued by Old American prior to December 1, 1986. As of
December 31, 1998, these policies had a face value of $125,017,000. The reserve
for future policy benefits ceded under this agreement was $49,041,000
($51,003,000 - 1997). The other agreement, entered into in 1998, reinsures the
home health care policies.
In 1997, the Company acquired a block of traditional life and universal
life-type products. At December 31, 1998, the block had $3.4 billion of life
insurance in force ($3.8 billion - 1997). During 1998, the block generated life
insurance premiums of $6,656,000 ($3,096,000 - 1997).
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.
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $2 195 111 2 195 111 2 119 502 2 119 502
Securities held
to maturity 115 504 123 515 145 661 151 495
Mortgage loans 315 705 332 419 270 054 277 071
Liabilities:
Individual and
group annuities $793 068 767 537 830 495 802 461
Supplementary
contracts without
life contingencies 21 899 21 899 21 526 21 526
The Investments Note provides further details regarding the investments above.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
1998 1997 1996
Federal income tax rate 35 % 35 35
Special tax credits (6) (6) (5)
Other permanent differences - (1) (1)
Actual income tax rate 29 % 28 29
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below.
1998 1997
Deferred tax assets:
Future policy benefits $ 51 205 53 923
Employee retirement benefits 18 271 13 104
Other 3 036 2 882
Gross deferred tax assets 72 512 69 909
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 42 487 40 844
Basis differences between tax and
GAAP accounting for investments 35 104 28 080
Property and equipment, net 1 792 1 704
Value of insurance in force 36 070 36 551
Other 798 2 647
Gross deferred tax liabilities 116 251 109 826
Net deferred tax liability $ 43 739 39 917
Federal income taxes paid for the year were $20,164,000 ($14,335,000 - 1997 and
$25,332,000 - 1996).
Policyholders' surplus, which is frozen under the Deficit Reduction Act of 1984,
is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life and $13,700,000
for Old American. The Companies do not plan to distribute their policyholders'
surplus. Consequently, the possibility of such surplus becoming subject to tax
is remote, and no provision has been made in the financial statements for taxes
thereon. Should the balance in policyholders' surplus become taxable, the tax
computed at current rates would approximate $20,000,000.
Income taxed on a current basis is accumulated in "shareholders' surplus" and
can be distributed to stockholders without tax to the Company. At December 31,
1998, this shareholders' surplus was $373,841,000 for Kansas City Life,
$80,914,000 for Sunset Life and $49,116,000 for Old American.
QUARTERLY CONSOLIDATED
FINANCIAL DATA (unaudited)
First Second Third Fourth
1998:
Total revenues $117 651 124 846 125 706 115 634
Operating income $ 8 098 11 492 12 930 8 565
Realized gains, net 1 643 1 582 2 679 1 523
Net income $ 9 741 13 074 15 609 10 088
Per common share:
Operating income $ 1.31 1.85 2.09 1.38
Realized gains, net .26 .26 .43 .25
Net income $ 1.57 2.11 2.52 1.63
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
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.
SUBSEQUENT EVENT
The Board authorized a two-for-one stock split in January 1999. However, the
stock split must be approved by the stockholders at their annual meeting on
April 22, 1999.
MANAGEMENT'S REPORT
To Our Stockholders
Management prepared the preceding consolidated financial statements and all
other financial information included in this Annual Report and is responsible
for its integrity, consistency and objectivity. In preparing these statements,
management necessarily made certain estimates and judgments and selected
accounting principles in conformity with generally accepted accounting
principles appropriate in the circumstances.
The Company maintains a system of internal accounting controls and
procedures to provide reasonable assurance, at an appropriate cost, that its
assets are protected and that its financial transactions are properly authorized
and recorded. Qualified personnel in the Company maintain and monitor these
internal controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets annually and, as required, with the independent auditors,
management and the internal auditors. Each has free and separate access to the
committee. The committee reviews audit procedures, scope and findings, and the
adequacy of the Company's financial reporting.
The independent auditors, Ernst & Young LLP, are elected by the Board of
Directors to audit the financial statements and render an opinion thereon.
/s/Richard L. Finn
Richard L. Finn
Senior Vice President, Finance
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
January 25, 1999
KANSAS CITY LIFE
VARIABLE LIFE
SEPARATE ACCOUNT
FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
Kansas City Life Variable Life Separate Account
Statement of Net Assets
December 31, 1998
(in thousands)
Assets
Investments:
Federated Advisors - Federated Insurance Series:
American Leaders Fund II - 115,618 shares at net asset
value of $21.68 per share (cost $2,277,000) $ 2,507
High Income Bond Fund II - 83,908 shares at net asset value of
$10.92 per share (cost $910,000) 916
Prime Money Fund II - 2,062,682 shares at net asset value of
$1.00 per share (cost $2,063,000) 2,063
Massachusetts Financial Services - (MFS):
Research Series - 167,772 shares at net asset value of $19.05 per
share (cost $2,701,000) 3,196
Emerging Growth Series - 169,433 shares at net asset value of
$21.47 per share (cost $2,817,000) 3,638
Total Return Series - 72,761 shares at net asset value of $18.12
per share (cost $1,212,000) 1,318
Bond Series - 33,043 shares at net asset value of $11.38 per
share (cost $371,000) 376
World Governments Series - 3,194 shares at net asset value of
$10.88 per share (cost $33,000) 35
Utilities Series - 81,481 shares at net asset value of $19.82 per
share (cost $1,460,000) 1,615
American Century (ACI) - Variable Portfolios:
VP Capital Appreciation - 43,277 shares at net asset value
of $9.02 per share (cost $409,000) 390
VP International - 165,786 shares at net asset value of $7.62
per share (cost $1,189,000) 1,263
Dreyfus Corporation:
Capital Appreciation Portfolio - 54,874 shares at net asset
value of $36.11 per share (cost $1,743,000) 1,982
Small Cap Portfolio - 49,293 shares at net asset value of
$53.91 per share (cost $2,727,000) 2,657
Stock Index Fund - 176,616 shares at net asset value of
$32.52 per share (cost $5,016,000) 5,744
Total Assets $ 27,700
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 $ 2,507
High Income Bond Fund II 916
Prime Money Fund II 2,063
Massachusetts Financial Services - (MFS):
Research Series 3,196
Emerging Growth Series 3,638
Total Return Series 1,318
Bond Series 376
World Governments Series 35
Utilities Series 1,615
American Century (ACI) - Variable Portfolios:
VP Capital Appreciation 390
VP International 1,263
Dreyfus Corporation:
Capital Appreciation Portfolio 1,982
Small Cap Portfolio 2,657
Stock Index Fund 5,744
Total Net Assets $ 27,700
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, 1998
(in thousands)
<CAPTION>
Federated Insurance Series MFS Variable Insurance Trust
High
American Income Prime Emerging Total World
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities
Fund II Fund II Fund II Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income: Dividend Distributions $ 4 13 65 3 13 9 4 1 8
Capital Gains Distributions 59 4 - 42 4 11 2 - 36
Realized Gain (Loss) - (3) - 14 20 9 4 1 2
Unrealized Appreciation (Depreciation) 156 (7) - 368 641 64 (1) 2 106
Investment Income (Loss) 219 7 65 427 678 93 9 4 152
Expenses: Mortality and Expense Fees 13 7 12 19 20 7 2 - 8
Contract Expense Charges 318 140 1,460 402 448 175 55 10 170
Change in Net Assets from Operations (112) (140) (1,407) 6 210 (89) (48) (6) (26)
Deposits 934 356 11,147 1,124 1,226 430 82 18 475
Withdrawals 58 36 22 70 135 37 21 16 18
Transfers (in) out (921) (317) 9,523 (686) (759) (375) (190) (5) (757)
Net Assets:Net Increase 1,685 497 195 1,746 2,060 679 203 1 1,188
Beginning of Year 619 360 1,399 1,118 1,221 456 121 34 302
End of Year 2,304 857 1,594 2,864 3,281 1,135 324 35 1,490
Survivorship Variable Universal Life:
Invest. Income: Dividend Distributions - - 13 - 1 - 1 - -
Capital Gains Distributions - - - 1 - 1 1 - 2
Realized Gain (Loss) - - - 1 - 1 - - -
Unrealized Appreciation (Depreciation) 14 - - 34 57 8 1 - 10
Investment Income 14 - 13 36 58 10 3 - 12
Expenses: Mortality and Expense Fees - - 2 1 1 1 - - -
Contract Expense Charges 8 5 204 14 11 11 2 - 7
Change in Net Assets from Operations 6 (5) (193) 21 46 (2) 1 - 5
Deposits 56 43 2,063 94 69 89 3 - 42
Withdrawals 2 - - 1 - 2 - - 2
Transfers (in) out (142) (21) 1,764 (215) (240) (97) (48) - (79)
Net Assets: Net Increase 202 59 106 329 355 182 52 - 124
Beginning of Year 1 - 363 3 2 1 - - 1
End of Year 203 59 469 332 357 183 52 - 125
Total Survivorship & Variable Universal Life-End of Year$ 2,507 916 2,063 3,196 3,638 1,318 376 35 1,615
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets (Continued)
Year ended December 31, 1998
(in thousands)
ACI Portfolios Dreyfus Corporation
VP Capital Small
Capital VP Apprec Cap Stock
Apprec Int'l Portfolio Portfolio Index Total
<S> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income: Dividend Distributions $ - 3 9 - 41 173
Capital Gains Distributions 12 32 - 40 8 250
Realized Gain (Loss) (6) - 5 (44) 38 40
Unrealized Appreciation (Depreciation) (9) 56 203 (55) 572 2,096
Investment Income (Loss) (3) 91 217 (59) 659 2,559
Expenses: Mortality and Expense Fees 3 7 7 14 24 143
Contract Expense Charges 62 172 186 351 743 4,692
Change in Net Assets from Operations (68) (88) 24 (424) (108)(2,276)
Deposits 192 487 505 1,162 1,760 19,898
Withdrawals 22 55 43 82 94 709
Transfers (in) out (48) (494) (967) (1,301) (2,478) 225
Net Assets: Net Increase 150 838 1,453 1,957 4,036 16,688
Beginning of Year 215 353 234 410 635 7,477
End of Year 365 1,191 1,687 2,367 4,671 24,165
Survivorship Variable Universal Life:
Invest. Income: Dividend Distributions - - 2 - 8 25
Capital Gains Distributions 1 2 - 4 2 14
Realized Gain (Loss) - - - (1) 3 4
Unrealized Appreciation (Depreciation) - 2 34 11 149 320
Investment Income 1 4 36 14 162 363
Expenses: Mortality and Expense Fees - - 1 1 3 10
Contract Expense Charges 1 3 11 16 72 365
Change in Net Assets from Operations - 1 24 (3) 87 (12)
Deposits 3 11 81 116 502 3,172
Withdrawals - 1 2 1 3 14
Transfers (in) out (22) (60) (189) (172) (365) 114
Net Assets: Net Increase 25 71 292 284 951 3,032
Beginning of Year - 1 3 6 122 503
End of Year 25 72 295 290 1,073 3,535
Total Survivorship & Variable Universal Life-End of Year $ 390 1,263 1,982 2,657 5,744 27,700
See accompanying Notes to Financial Statements
</TABLE>
<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 Insurance Series MFS Variable Insurance Trust
High
American Income Prime Emerging Total World
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities
Fund II Fund II Fund II Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income: Dividend Distributions $ 1 6 21 - - - - - -
Capital Gains Distributions 2 - - - - - - - -
Realized Gain (Loss) 8 3 - 8 6 4 1 - 1
Unrealized Appreciation (Depreciation) 55 13 - 79 120 30 4 - 38
Investment Income (Loss) 66 22 21 87 126 34 5 - 39
Expenses: Mortality and Expense Fees 2 1 4 5 6 2 - - 1
Contract Expense Charges 93 61 527 170 222 61 11 7 34
Change in Net Assets from Operations (29) (40) (510) (88) (102) (29) (6) (7) 4
Deposits 314 229 4,608 546 689 189 39 24 115
Withdrawals 12 16 72 17 21 4 3 1 4
Transfers (in) out (281) (147) 2,773 (411) (331) (216) (72) (7) (135)
Net Assets:Net Increase 554 320 1,253 852 897 372 102 23 250
Beginning of Year 65 40 146 266 324 84 19 11 52
End of Year 619 360 1,399 1,118 1,221 456 121 34 302
Survivorship Variable Universal Life:
Invest. Income: Dividend Distributions - - 1 - - - - - -
Capital Gains Distributions - - - - - - - - -
Realized Gain (Loss) - - - - - - - - -
Unrealized Appreciation (Depreciation) - - - - - - - - -
Investment Income - - 1 - - - - - -
Expenses: Mortality and Expense Fees - - - - - - - - -
Contract Expense Charges - - 36 - - - - - -
Change in Net Assets from Operations - - (35) - - - - - -
Deposits - - 493 - - - - - -
Withdrawals - - - - - - - - -
Transfers (in) out (1) - 95 (3) (2) (1) - - (1)
Net Assets:Net Increase 1 - 363 3 2 1 - - 1
Beginning of Period - - - - - - - - -
End of Year 1 - 363 3 2 1 - - 1
Total Survivorship & Variable Universal Life-End of Year $ 620 360 1,762 1,121 1,223 457 121 34 303
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets (Continued)
Year ended December 31, 1997
(in thousands)
ACI Portfolios Dreyfus Corporation
VP Capital Small
Capital VP Apprec Cap Stock
Apprec Int'l Portfolio Portfolio Index Total
<S> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income: Dividend Distributions $ - 1 2 - 3 34
Capital Gains Distributions 3 3 - 23 14 45
Realized Gain (Loss) (2) 2 - 1 1 33
Unrealized Appreciation (Depreciation) (5) 13 2 (26) 6 329
Investment Income (Loss) (4) 19 4 (2) 24 441
Expenses: Mortality and Expense Fees 1 2 - 1 1 26
Contract Expense Charges 51 57 13 27 64 1,398
Change in Net Assets from Operations (56) (40) (9) (30) (41) (983)
Deposits 144 180 56 120 286 7,539
Withdrawals 7 6 2 2 35 202
Transfers (in) out (9) (143) (189) (322) (425) 85
Net Assets: Net Increase 90 277 234 410 635 6,269
Beginning of Year 125 76 - - - 1,208
End of Year 215 353 234 410 635 7,477
Survivorship Variable Universal Life:
Invest. Income: Dividend Distributions - - - - - 1
Capital Gains Distributions - - - - 2 2
Realized Gain (Loss) - - - - - -
Unrealized Appreciation (Depreciation) - - - - 1 1
Investment Income - - - - 3 4
Expenses: Mortality and Expense Fees - - - - - -
Contract Expense Charges - - - - 4 40
Change in Net Assets from Operations - - - - (1) (36)
Deposits - - - - 46 539
Withdrawals - - - - - -
Transfers (in) out - (1) (3) (6) (77) -
Net Assets: Net Increase - 1 3 6 122 503
Beginning of Period - - - - - -
End of Year - 1 3 6 122 503
Total Survivorship & Variable Universal Life-End of Year $ 215 354 237 416 757 7,980
See accompanying Notes to Financial Statements
</TABLE>
Kansas City Life Variable Life Separate Account
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
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.
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 Emerging Growth Series Long-term growth of capital
MFS Research Series Long-term growth of capital and future
income
MFS Total Return Series Income and opportunities for growth of
capital and income
MFS Utilities Series Capital growth and current income
MFS World Governments Series Preservation and growth of capital
with moderate current income
MFS Bond Series Current income and protection of
shareholders' capital
American Century - Variable Portfolios
VP Capital Appreciation Capital Growth through investment in
common stocks
VP International Capital Growth through investment in
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 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.
Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
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
The operations of the Account form a part of, and are taxed with, the operations
of KCL, which is taxed as a life insurance company under the Internal Revenue
Code. As a result, the net asset values of the subaccounts are not affected by
federal income taxes on income distributions received by the subaccounts.
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 realized gains and losses.
The aggregate cost of purchases and proceeds from sales, and the number of
shares thereon were as follows:
Cost of Proceeds Shares
1998: Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $ 2,225 508 109,171 25,140
High Income Bond Fund II 976 409 88,930 37,913
Prime Money Fund II 19,112 18,811 19,111,531 18,810,895
MFS Emerging Growth Series 2,876 1,180 158,623 64,963
MFS Research Series 2,726 1,068 159,184 62,401
MFS Total Return Series 1,185 405 68,816 23,497
MFS Utilities Series 1,519 325 82,288 17,640
MFS World Governments 29 31 2,777 2,958
MFS Bond Series 606 356 53,615 31,532
AC VP Capital Appreciation 350 159 38,957 17,912
AC VP International 1,230 378 165,900 51,851
Dreyfus Capital Appreciation
Portfolio 1,955 452 60,303 13,909
Dreyfus Small Cap Portfolio 3,355 1,025 61,695 19,675
Dreyfus Stock Index 7,390 3,165 257,806 110,591
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Cost of Proceeds Shares
1997: 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 Emerging Growth Series 1,136 363 75,073 23,766
MFS Research Series 1,088 321 71,955 21,229
MFS Total Return Series 458 120 29,009 7,686
MFS Utilities Series 281 69 17,379 4,340
MFS World Governments 33 10 3,243 938
MFS Bond Series 133 36 12,428 3,383
AC VP Capital Appreciation 228 131 23,295 13,242
AC 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
2. Accumulation Unit Value
The Accumulation Unit Values and the number of accumulation units outstanding
for each Investment Subaccount as of December 31, 1998 are as follows:
Century II Variable Universal Life:
Unit Value Number of Units
American Leaders Fund II $18.05 127,612
High Income Bond Fund II 12.82 66,841
Prime Money Fund II 11.20 142,409
MFS Emerging Growth Series 18.66 175,835
MFS Research Series 17.68 161,988
MFS Total Return Series 15.18 74,816
MFS Utilities Series 17.83 83,577
MFS World Governments 10.86 3,199
MFS Bond Series 11.72 27,628
AC VP Capital Appreciation 9.12 40,120
AC VP International 15.70 75,851
Dreyfus Capital Appreciation Portfolio 14.20 118,815
Dreyfus Small Cap Portfolio 11.04 214,449
Dreyfus Stock Index 14.68 318,043
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Century II Survivorship Variable Universal Life:
Unit Value Number of Units
American Leaders Fund II $12.52 16,196
High Income Bond Fund II 10.65 5,582
Prime Money Fund II 10.58 44,260
MFS Emerging Growth Series 13.64 26,183
MFS Research Series 12.46 26,657
MFS Total Return Series 11.84 15,448
MFS Utilities Series 13.48 9,240
MFS World Governments 10.85 -
MFS Bond Series 11.13 4,697
AC VP Capital Appreciation 8.81 2,798
AC VP International 11.85 6,123
Dreyfus Capital Appreciation Portfolio 13.46 21,879
Dreyfus Small Cap Portfolio 9.67 29,978
Dreyfus Stock Index 13.56 79,135
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 1998, $341,000 ($130,000 -
1997) was assessed in surrender charges and other contract charges totaled
$4,835,000 ($1,424,000 - 1997).
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
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
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.
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 1998, other contract
charges totaled $ 375,000 ($40,000 - 1997).
5. Year 2000 Readiness (unaudited)
KCL is closely monitoring its ability, and that of its primary vendors and
business partners, to be fully operational in the year 2000. This assessment
extends to both information technology (IT) systems and non-information
technology systems. KCL has addressed approximately 80 percent of its IT issues
and expects to have these fully resolved and all required changes implemented by
mid-1999. Non-IT systems are largely compliant, with one minor system yet to be
converted during 1999. KCL conducts business with various third parties. These
parties will be monitored until full compliance is achieved. Contingency plans
are being developed and will be completed by early 1999. KCL expects to have
contingency plans in place an internal systems year 2000 compliant by the end of
1999. These expectations are based on numerous assumptions of future events.
While KCL feels these are valid assumptions and estimates, KCL cannot be sure
these estimates will be achieved or that the assumptions are accurate, and
actual results could differ materially from those anticipated.
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 Account) as of December 31, 1998, and the
related statements of operations and changes in net assets for the years ended
December 31, 1998 and 1997. These financial statements are the responsibility of
the Account'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 an test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1998 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, 1998, and the results of its operations and
changes in its net assets for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Ernst & Young LLP
April 19, 1999
Dated May 1, 1999 to Prospectus Dated May 1, 1999
Kansas City Variable Life Separate Account
Survivorship VUL Contract
Illinois
For Contracts sold in the state of Illinois, we change the Prospectus as
follows:
Delete the Guaranteed Minimum Death Benefit Option described in the Prospectus
and replace any reference to or discussion of the Guaranteed Minimum Death
Benefit with the following description of the Guaranteed Monthly Premium and
Guaranteed Payment Period.
The Guaranteed Payment Period and Guaranteed Monthly Premium provisions
guarantee that your policy will remain in effect for five years following the
Contract Date, provided that you meet the Guaranteed Monthly Premium
requirement. The Guaranteed Payment Period and Guaranteed Monthly Premium
provisions are part of each Contract and we do not charge for these provisions.
Unlike the Guaranteed Minimum Death Benefit described in the Prospectus, the
Guaranteed Payment Period and Guaranteed Monthly Premium provisions apply to the
Additional Insurance Amount and these provisions are available regardless of
which Coverage Option and riders you select. These provisions will not terminate
if certain riders are deleted, if the Coverage Option is changed or if the
amount of Additional Insurance Amount is changed. The illustrations in the
Prospectus assume that you have met the Guaranteed Monthly Premium requirement.
The Guaranteed Monthly Premium and Guaranteed Payment Period provisions operate
as follows:
Guaranteed Payment Period --The five years following the Contract Date of the
Contract, during which one of the following conditions must exist to prevent
your Contract from lapsing: (1) the Cash Surrender Value of this Contract on a
Monthly Anniversary Date must be sufficient to cover the Monthly Deduction for
the month beginning on that Monthly Anniversary Date; or (2) total premiums paid
must be equal to or greater than the Guaranteed Monthly Premium times the number
of Monthly Anniversary Dates that the Contract has been in force, plus the
amount of current indebtedness and the total amount of partial surrenders.
Guaranteed Monthly Premiums--If you pay the Guaranteed Monthly Premium, your
Contract will not lapse during the Guaranteed Payment Period. The Guaranteed
Monthly Premium will change for the remainder of the Guaranteed Payment Period
if you increase the Additional Insurance Amount, add or delete any riders. A
decrease in the Total Sum Insured will not decrease the Guaranteed Monthly
Premium during the Guaranteed Payment Period. We show the initial Guaranteed
Monthly Premium in the Contract.
(over)
The Grace Period provision in the Contract is also impacted by the fact that the
Guaranteed Payment Period and Guaranteed Monthly Premium are applicable, rather
than the Guaranteed Death Benefit. Replace any reference to or discussion of the
Grace Period with the following description. The Grace Period operates as
follows:
Grace Period--The conditions which will result in your Contract lapsing will
vary, as follows, depending on whether the Guaranteed Payment Period has
expired.
During the Guaranteed Payment Period: A Grace Period begins if on any
Monthly Anniversary Day the Cash Surrender Value will not cover the Monthly
Deduction on that Monthly Anniversary Day and if the accumulated premiums paid
as of each Monthly Anniversary Day are less than:
X + Y + Z
"X" is the accumulated Guaranteed Monthly Premium in effect on each
Monthly Anniversary Day that the Contract is in force based on the coverage in
force for that month.
"Y" is the amount of current indebtedness.
"Z" is the total amount of partial surrenders.
A 61-day Grace Period begins on the day we mail notice of the premium
required to keep this Contract in force. The premium required to keep this
Contract in force will be an amount equal to the lesser of: (1) the amount by
which X + Y + Z is greater than the accumulated premiums paid as of the Monthly
Anniversary Date on which the Grace Period began; and (2) an amount sufficient
to provide a Cash Surrender Value equal to three Monthly Deductions.
After the Guaranteed Payment Period: A Grace Period begins if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction on that Monthly Anniversary Day.
A 61-day Grace Period will begin on the day we mail notice of the
premium required to keep this Contract in force. You must pay a total premium
sufficient to provide a Cash Surrender Value equal to the next three Monthly
Deductions during the Grace Period to keep this Contract in force.
This Contract will terminate without value if you do not pay sufficient premium
by the end of the Grace Period.
If the last surviving Insured dies during the Grace Period, we will deduct any
past due Monthly Deductions from the Death Benefit proceeds.
We limit scheduled increases to the Additional Insurance Amount to between 0-10%
instead of between 0-25%.
5642 5-99a
Dated May 1, 1999 to Prospectus Dated May 1, 1999
Kansas City Variable Life Separate Account
Survivorship VUL Contract
Massachusetts
For Contracts sold in the state of Massachusetts, we change the Prospectus as
follows:
Delete the Guaranteed Minimum Death Benefit Option described in the Prospectus
and replace any reference to or discussion of the Guaranteed Minimum Death
Benefit with the following description of the Guaranteed Monthly Premium and
Guaranteed Payment Period.
The Guaranteed Payment Period and Guaranteed Monthly Premium guarantee that your
Contract will remain in effect for five years following the Issue Date if you
meet the Guaranteed Monthly Premium requirement. The Guaranteed Payment Period
and Guaranteed Monthly Premium are part of each Contract and we do not charge
for these provisions. Unlike the Guaranteed Minimum Death Benefit described in
the Prospectus, the Guaranteed Payment Period and Guaranteed Monthly Premium
provisions apply to the Additional Insurance Amount and these provisions are
available regardless of which Coverage Option and riders you select. These
provisions will not terminate if certain riders are deleted, if the Coverage
Option is changed or if the amount of Additional Insurance Amount is changed.
The illustrations in the Prospectus assume that you have met the Guaranteed
Monthly Premium requirement.
The Guaranteed Monthly Premium and Guaranteed Payment Period provisions operate
as follows:
Guaranteed Payment Period --The five years following the Issue Date of the
Contract, during which one of the following conditions must exist to prevent
your Contract from lapsing: (1) the Cash Surrender Value of this Contract on a
Monthly Anniversary Date must be sufficient to cover the Monthly Deduction for
the month beginning on that Monthly Anniversary Date ; or (2) total premiums
paid must be equal to or greater than the Guaranteed Monthly Premium times the
number of Monthly Anniversary Dates that the Contract has been in force, plus
the amount of current indebtedness and the total amount of partial surrenders.
Guaranteed Monthly Premiums--If you pay the Guaranteed Monthly Premium, your
Contract will not lapse during the Guaranteed Payment Period. The Guaranteed
Monthly Premium will change for the remainder of the Guaranteed Payment Period
if you increase the Additional Insurance Amount, add or delete any riders. A
decrease in the Total Sum Insured will not decrease the Guaranteed Monthly
Premium during the Guaranteed Payment Period. We show the initial Guaranteed
Monthly Premium in the Contract.
(over)
The Grace Period provision in the Contract is also impacted by the fact that the
Guaranteed Payment Period and Guaranteed Monthly Premium are applicable, rather
than the Guaranteed Death Benefit. Replace any reference to or discussion of the
Grace Period is replaced with the following description. The Grace Period
operates as follows:
Grace Period--_The conditions which will result in your Contract lapsing will
vary, as follows, depending on whether the Guaranteed Payment Period has
expired.
During the Guaranteed Payment Period : A Grace Period begins if on any
Monthly Anniversary Day the Cash Surrender Value will not cover the Monthly
Deduction on that Monthly Anniversary Day and if the accumulated premiums paid
as of each Monthly Anniversary Day are less than:
X + Y + Z
"X" is the accumulated Guaranteed Monthly Premium in effect on each
Monthly Anniversary Day that the Contract is in force based on the coverage in
force for that month.
"Y" is the amount of current indebtedness.
"Z" is the total amount of partial surrenders.
A 61-day Grace Period begins on the day we mail notice of the premium
required to keep this Contract in force. The premium required to keep this
Contract in force will be an amount equal to the lesser of: (1) the amount by
which X + Y + Z is greater than the accumulated premiums paid as of the Monthly
Anniversary Date on which the Grace Period began; and (2) an amount sufficient
to provide a Cash Surrender Value equal to three Monthly Deductions.
After the Guaranteed Payment Period: A Grace Period begins if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction on that Monthly Anniversary Day.
A 61-day Grace Period will begin on the day we mail notice of the
premium required to keep this Contract in force. You must pay a total premium
sufficient to provide a Cash Surrender Value equal to the next three Monthly
Deductions during the Grace Period to keep this Contract in force.
This Contract will terminate without value if you do not pay sufficient premium
by the end of the Grace Period.
If the last surviving Insured dies during the Grace Period, we will deduct any
past due Monthly Deductions from the Death Benefit proceeds.
The term "Issue Date" replaces any reference in the prospectus to "Contract
Date."
We limit scheduled increases to the Additional Insurance Amount to between 0-10%
instead of between 0-25%.
5641 5-99a
Dated May 1, 1999 to Prospectus Dated May 1, 1999
Kansas City Life Variable Life Separate Account
Survivorship VUL Contract
Maryland
For Contracts sold in the state of Maryland, we change the Prospectus as
follows:
Delete the Guaranteed Minimum Death Benefit Option described in the Prospectus
and replace any reference to or discussion of the Guaranteed Minimum Death
Benefit with the following description of the No-Lapse Guaranteed Monthly
Premium and No-Lapse Guaranteed Payment Period.
The No-Lapse Guaranteed Payment Period and No-Lapse Guaranteed Monthly Premium
provisions guarantee that your policy will remain in effect for five years
following the Contract Date, if you meet the No-Lapse Guaranteed Monthly Premium
requirement. The No-Lapse Guaranteed Payment Period and No-Lapse Guaranteed
Monthly Premium are part of each Contract and we do not charge for these
provisions. Unlike the Guaranteed Minimum Death Benefit described in the
Prospectus, the No-Lapse Guaranteed Payment Period and No-Lapse Guaranteed
Monthly Premium provisions apply to the Additional Insurance Amount and these
provisions are available regardless of which Coverage Option and riders you
select. These provisions will not terminate if certain riders are deleted, if
the Coverage Option is changed or if the amount of Additional Insurance Amount
is changed. The illustrations in the prospectus assume that you have met the
No-Lapse Guaranteed Monthly Premium requirement.
The No-Lapse Guaranteed Monthly Premium and No-Lapse Guaranteed Payment Period
provisions operate as follows:
No-Lapse Guaranteed Payment Period -- The five years following the Contract Date
of the Contract, during which one of the following conditions must exist to
prevent your Contract from lapsing: the Cash Surrender Value of this Contract on
a Monthly Anniversary Date must be sufficient to cover the Monthly Deduction for
the month beginning on that Monthly Anniversary Date; or total premiums paid
must be equal to or greater than the No-Lapse Guaranteed Monthly Premium times
the number of Monthly Anniversary Dates that the Contract has been in force,
plus the amount of current indebtedness and the total amount of partial
surrenders.
No-Lapse Guaranteed Monthly Premium -- If you pay the No-Lapse Guaranteed
Monthly Premium, your Contract will not lapse during the No-Lapse Guaranteed
Payment Period. The No-Lapse Guaranteed Monthly Premium will change for the
remainder of the No-Lapse Guaranteed Payment Period if you increase the
Additional Insurance Amount, add or delete any riders. A decrease in the Total
Sum Insured will not decrease the No-Lapse Guaranteed Monthly Premium during the
Guaranteed Payment Period. We show the initial No-Lapse Guaranteed Monthly
Premium in the Contract.
The Grace Period provision in the Contract is also impacted by the fact that the
No-Lapse Guaranteed Payment Period and No-Lapse Guaranteed Monthly Premium are
applicable, rather than the Guaranteed Death Benefit. Replace any reference to
or discussion of the Grace Period with the following description. The Grace
Period operates as follows:
Grace Period -- The conditions which will result in your Contract lapsing will
vary, as follows, depending on whether the No-Lapse Guaranteed Payment Period
has expired.
During the No-Lapse Guaranteed Payment Period: A Grace Period begins if on any
Monthly Anniversary Day the Cash Surrender Value will not cover the Monthly
Deduction on that Monthly Anniversary Day and if the accumulated premiums paid
as of each Monthly Anniversary Day are less than: X + Y + Z "X" is the
accumulated No-Lapse Guaranteed Monthly Premium in effect on each Monthly
Anniversary Day that the Contract is in force based on the coverage in force for
that month. "Y" is the amount of current indebtedness. "Z" is the total amount
of partial surrenders.
A 61-day Grace Period begins on the day we mail notice of the premium required
to keep this Contract in force. The premium required to keep this Contract in
force will be an amount equal to the lesser of: (1) the amount by which X + Y +
Z is greater than the accumulated premiums paid as of the Monthly Anniversary
Date on which the Grace Period began; and (2) an amount sufficient to provide a
Cash Surrender Value equal to three Monthly Deductions.
After the No-Lapse Guaranteed Payment Period: A Grace Period begins if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction on that Monthly Anniversary Day.
A 61-day Grace Period will begin on the day we mail notice of the premium
required to keep this Contract in force. You must pay a total premium sufficient
to provide a Cash Surrender Value equal to the next three Monthly Deductions
during the Grace Period to keep this Contract in force.
This Contract will terminate without value if you do not pay sufficient premium
by the end of the Grace Period.
If the last surviving Insured dies during the Grace Period, we will deduct any
past due Monthly Deductions from the Death Benefit proceeds.
We limit scheduled increases to the Additional Insurance Amount to between 0 -
10% instead of between 0 - 25%.
5646 5-99a
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 this post-effective amendment are, in
the aggregate, reasonable in relationship to the services rendered, the expenses
expected to be incurred, and the risks assumed by Kansas City Life Insurance
Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents: The
facing sheet.
The prospectus consisting of 71 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 LLP
(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.1
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Kansas City Life Insurance
Company and Sunset Financial Services, Inc..1
(b) Not applicable.
(c) Schedule of Sales Commissions.3
(4) Not applicable.
(5) (a) Specimen Contract Form.3
(b) Contract Split Option Rider.3
(c) Joint First to Die Term Life Insurance Rider.3
(d) Joint Survivorship Four-Year Term Life Insurance Rider.3
(6) (a) Articles of Incorporation of Bankers Life Association of
Kansas City.1
(b) Restated Articles of Incorporation of Kansas City Life
Insurance Company.1
(c) By-Laws of Kansas City Life Insurance Company.1
(7) Not applicable.
(8) (a) Agreement between Kansas City Life Insurance Company, MFS Variable
Insurance Trust, and Massachusetts Financial Services Company.1
(b) Agreement between Kansas City Life Insurance Company, TCI
Portfolios, Inc. and Investors Research Corporation.1
(c) Agreement between Kansas City Life Insurance Company, Insurance
Management Series, and Federated Securities Corp.1
(d) Agreement between Kansas City Life Insurance Company and each of
Dreyfus Variable Investment Fund, The Dreyfus Socially
Responsible Growth Fund, Inc., and Dreyfus Life and Annuity Index
Fund, Inc.3
(e) Agreement between Kansas City Life Insurance Company and J.P.
Morgan Series Trust II. 4
(f) Amended and Restated
Agreement between Kanss City Life Insurance Company and each of
Calamos Insurance Trust, Calamos Asset Management, Inc. and
Calamos Financial Services, Inc.
(g) Agreement between Kansas City Life Insurance Company and each of
Templeton Variable Products Series Fund and Franklin Templeton
Distributors, Inc. 4
(h) Amendment to Participation Agreement between Kansas City Life
Insurance Company and each of Dreyfus Variable Investment Fund,
The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus
Life and Annuity Index Fund, Inc.
(d/b/a Drefus Stock Index Fund). 4
(9) Not Applicable.
(10) Application Form.1
(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 LLP. (c) Consent of C. John Malacarne. See Exhibit 2.
- ----------------------
1 Incorporated herein by reference to the Form S-6 Registration Statement (File
No. 033-95354) for Kansas City Life Variable Life Separate Account filed on
August 2, 1995.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
N-4 Registration statement (File No. 033-89984) for Kansas City Life Variable
Annuity Separate Account filed in August 25, 1995.
3 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement (File No. 333-25443) for Kansas City Variable
Life Separate Account filed on July 15, 1997
4 Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement (File No. 33-95354) for Kansas City Variable
Life Separate Account filed on April 19, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Kansas City Life Variable Life Separate Account certifies that it meets all of
the requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 2 to its Registration Statement and has duly caused
this Post-Effective Amendment No. 2 to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be herunto affixed and
attested, all in the City of Kansas City and the State of Missouri on the 26th
day of April, 1999.
[SEAL]
Kansas City Life Variable Life
Separate Account
Registrant
Kansas City Life Insurance Company
By:/s/ R. Philip Bixby
R. Philip Bixby, President
Attest: /s/ C. John Malacarne
C. John Malacarne
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 2 to the Registration 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 26, 1999
R. Philip Bixby
/s/ Richard L. Finn Senior Vice President, Finance April 26, 1999
Richard L. Finn and Director
(Principal Financial Officer)
/s/ John K. Koetting Vice President and Controller April 26, 1999
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and
R. Philip Bixby Director April 26, 1999
/s/ W. E. Bixby III Director April 26, 1999
W. E. Bixby III
/s/ W. E. Bixby Vice Chairman of the Board and April 26, 1999
W. E. Bixby Director
Director April 26, 1999
Daryl D. Jensen
/s/ Francis P. Lemery Director April 26, 1999
Francis P. Lemery
/s/ C. John Malacarne Director April 26, 1999
C. John Malacarne
/s/ Jack D. Hayes Director April 26, 1999
Jack D. Hayes
Director April 26, 1999
Webb R. Gilmore
Director April 26, 1999
Warren J. Hunzicker, M.D.
Director April 26, 1999
Michael J. Ross
Director April 26, 1999
Elizabeth T. Solberg
Director April 26, 1999
E. Larry Winn Jr.
Director April 26, 1999
Nancy Bixby Hudson
Exhibit Index
List
Page
1.A.(8)(f) Amended and restated agreement between Kansas City Life Insurance
Company and each of Calamos Insurance Trust, Calamos Asset
Management, Inc. and Calamos Financial Services, Inc.
1.A.(11) Memorandum describing issuance, transfer and redemption
procedures.
2. Opinion and Consent of C. John Malacarne, Esq., 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, L.L.P.
7.(b) Consent of Sutherland Asbill & Brennan LLP
Exhibit 1.A.(8)(f)
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
AMONG
CALAMOS(R) ADVISORS TRUST
CALAMOS(R) ASSET MANAGEMENT, INC.
CALAMOS(R) FINANCIAL SERVICES, INC.
and
KANSAS CITY LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of May 1999 by and
among Kansas City Life Insurance Company (hereinafter, the "Company"), a
Missouri insurance company, on its own behalf and on behalf of each separate
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as an "Account" and
collectively as the "Accounts"), Calamos Advisors Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund"), Calamos Asset Management, Inc. (hereinafter the "Adviser"), an Illinois
corporation, and Calamos Financial Services, Inc.
(hereinafter the "Underwriter"), an Illinois corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established for variable life insurance and variable annuity contracts
(hereinafter the "Variable Insurance Products") offered by insurance companies
that have entered into participation agreements with the Fund (hereinafter
"Participating Insurance Companies"); and (ii) the investment vehicle for
certain pension plans and retirement arrangements and accounts ("Retirement
Plans"); and
WHEREAS, the beneficial interest in the Fund may be divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets any one or more of
which may be made available for Variable Insurance Products of Participating
Insurance Companies; and
WHEREAS, the Fund will seek to obtain an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(l5) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and Retirement Plans (hereinafter the "Shared Funding Exemption Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and issues shares of beneficial interest registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act") pursuant to a
registration statement initially filed with the Securities and Exchange
Commission on February 17, 1999 and effective on April 30, 1999; and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended and any applicable state securities
laws; and
WHEREAS, the Adviser acts as investment Adviser to the Portfolio of the Fund;
and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, each Account is duly established and maintained as a validly segregated
separate account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under the
Securities
Exchange Act of 1934, as amended ("1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company, on behalf of the Accounts intends to purchase and the Fund intends
to offer shares of the Portfolios listed in Schedule A hereto, as it may be
amended from time to time by mutual written agreement ("Designated Portfolios"),
to fund the aforesaid Contracts, and the Underwriter is authorized to sell such
shares to unit investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated Funds")
on behalf of the Accounts to fund the Contracts.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the Designated
Portfolios that the Accounts order, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of each Designated Portfolio available for
purchase at the applicable net asset value per share by the Company on behalf of
the Accounts on those days on which the Fund calculates such Designated
Portfolio's net asset value pursuant to rules of the SEC, and the Fund shall use
reasonable efforts to calculate such net asset value on the days and at the
times described in the Fund's prospectus (as of the close of the New York Stock
Exchange on each day when the New York Stock Exchange is open for trading).
Notwithstanding the foregoing, the Board of Trustees of the Fund ("Board") may
refuse to sell shares of any Designated Portfolio to any person, or suspend or
terminate the offering of shares of any Designated Portfolio if such action is
required by law or by regulatory authorities having jurisdiction, or is, in the
sole discretion of the Board acting in good faith and in light of its fiduciary
duties under federal and any applicable state laws, necessary in the best
interest of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold only
to Participating Insurance Companies or their separate accounts, or to certain
Retirement Plans. No shares of any Designated Portfolios will be sold to the
general public. The Fund and the Underwriter will not sell shares of any
Designated Portfolio to any insurance company or separate account unless an
agreement containing provisions substantially the same as Sections 2.1, 3.4, 3.5
and 3.6 and Article VII of this Agreement is in effect to govern such sales. In
addition, the Fund and the Underwriter agree that shares of the Fund will be
sold only to the Company, on behalf of the Accounts, and not to any other
insurance company or separate account or Retirement Plans until such time as the
Fund has obtained the Shared Funding Exemption Order.
1.4 The Fund agrees to redeem, on the Company's request, any full or fractional
shares of the Designated Portfolios held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt by the Fund
or its designee of the request for redemption, and receipt of requests for
redemption by such designee by 4:00 p.m. New York time shall constitute receipt
by the Fund, except that the Fund reserves the right to suspend the right of
redemption or postpone the date of payment or satisfaction upon redemption
consistent with Section 22(e) of the 1940 Act and any rules or order thereunder,
and in accordance with the procedures and policies of the Fund as described in
the Fund's then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee of
the Fund solely for receipt of purchase and redemption orders from the Accounts,
and receipt by such designee shall constitute receipt by the Fund; provided that
the Company receives the order prior to 4:00 p.m. New York time on a Business
Day and the Fund receives notice of such order by 9:30 a.m. New York time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the Fund's then current prospectus in accordance with the
provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by 11:00 a.m.
New York time. If payment in federal funds for any purchase is not received or
is received by the Fund after 11:00 a.m. New York time on such Business Day, the
Company shall promptly, upon the Fund's request, reimburse the Fund for any
charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the Fund, or any
similar expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. For purposes of Section
2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
1.7A In the event of net redemptions, the Fund shall pay the redemption proceeds
in federal funds transmitted by wire on the next Business Day after an order to
redeem a Designated Portfolio's shares is made in accordance with the provision
of Section 1.4 hereof. Notwithstanding the foregoing, if the payment of
redemption proceeds on the next Business day would require the Designated
Portfolio to dispose of securities or otherwise incur substantial additional
costs and if the Fund had determined to settle redemption transactions for all
shareholder of the Designated Portfolio on a delayed basis, proceeds shall be
wired to the Company within seven (7) days and the Designated Portfolio shall
notify in writing the person designated by the Company as the recipient for such
notice of such delay by 3:00 p.m. New York time on the same Business Day that
the Company transmits the redemption order to the Fund. For purposes of Section
2.8 and 2.9 hereof, upon receipt by the Company of the federal funds so wired,
such funds shall cease to be the responsibility of the Fund and shall become the
responsibility of the Company.
1.8 Unless otherwise determined by the Board, issuance and transfer of the
shares of a Designated Portfolio will be by book entry only. Stock certificates
will not be issued to the Company or any Account. Shares of a Designated
Portfolio ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same-day notice by 6:00 p.m. New York time by wire or
telephone, followed by written confirmation, to the Company of any income,
dividends or capital gain distributions payable on shares of the Designated
Portfolios. The Company hereby elects to receive all such income, dividends, and
capital gain distributions as are payable on shares of a Designated Portfolio in
additional shares of that Designated Portfolio. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions. The Company reserves the right to revoke this election and to
receive all such dividends and capital gain distributions in cash. The Fund
shall use its best efforts to furnish advance notice of the day such dividends
and distributions are expected to be paid.
1.10 The Fund shall use its best efforts to make the net asset value per share
for each Designated Portfolio available to the Company on a daily basis as soon
as reasonably practical after the net asset value per share is calculated
(normally by 6:30 p.m. New York time) and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York time. The Fund
will provide NAV per share by modem with fax follow-up. Neither the Adviser nor
the Fund shall be liable for any information provided to the Company pursuant to
this Agreement, which information is based on incorrect information supplied by
the Company or any other Participating Insurance Company.
1.11 If the Fund provides materially incorrect share net asset value information
through no fault of the Company, the Company shall be entitled to an adjustment
with respect to the Fund shares purchased or redeemed to reflect the correct net
asset value per share. The determination of the materiality of any net asset
value pricing error shall be based on the SEC's recommended guidelines, if any.
The correction of any such errors shall be made at the Company level and shall
be made pursuant to the SEC's recommended guidelines. Any material error in the
calculation or reporting of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
1.12 The Fund shall provide statements of account no less frequently than
monthly (and if possible, shall provide same daily or weekly on a rolling
monthly basis) by the 15th day of the following month.
1.13 (a) The Company may withdraw the Account's investment in the Fund or a
Portfolio of the Fund only: (i) as necessary to facilitate Contract Owner
requests; (ii) as provided in Article VII; or (iii) in the event that the shares
of another investment company are substituted for Portfolio shares in accordance
with the terms of the Contracts upon the (x) requisite vote of the contract
owners having an interest in the affected Portfolios and the written consent of
the Fund (unless otherwise required by applicable law); (y) upon issuance of an
SEC exemptive order pursuant to Section 26(b) of the 1940 Act permitting such
substitution; or (z) as may otherwise be permitted under applicable law.
(b) The Company shall not, without the prior written consent of the Fund (unless
otherwise required by applicable law), take any action to operate the Account as
a management investment company under the 1940 Act.
(c) The Fund shall not, without the prior written consent of the Company (unless
otherwise required by applicable law), take any action to operate the Trust as a
unit investment trust under the 1940 Act.
(d) The Company shall not, without the prior written consent of the Fund (unless
otherwise required by applicable law), solicit, induce or encourage Contract
Owners to change or modify the Fund or change the Fund's investment adviser.
1.14 The Parties hereto acknowledge that the arrangement contemplated by this
Agreement is not exclusive; the shares of the Designated Portfolios (and other
Portfolios of the Fund) may be sold to other insurance companies (subject to
Section 1.3 and Article VII hereof) and Retirement Plans and the cash value of
the Contracts may be invested in other investment companies.
ARTICLE II
Representations and Warranties
2.1 The Company represents and warrants that the interests of the Account (the
"Contracts") are or will be registered under the 1933 Act; that the Contracts
will be continually issued, offered for sale and sold in compliance in all
material respects with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a separate
account under the Missouri insurance laws and has registered or, prior to any
issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
separate account for the Contracts.
2.2 The Fund represents and warrants that shares of the Designated Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance in accordance with the laws of the Commonwealth of
Massachusetts and sold in compliance with all applicable federal and state
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall file all notification filings
related to the sale of shares of the Designated Portfolios in accordance with
the laws of the various states only if and to the extent deemed advisable by the
Fund.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future subject to applicable law and after providing
notice to the Company.
2.4 The Fund makes no representations as to whether any aspect of its operation,
including but not limited to, investments policies, fees and expenses, complies
with the insurance and other applicable laws of the various states, except that
the Fund represents that the investment policies, fees and expenses of the
Designated Portfolios are and shall at all times remain in compliance with the
insurance laws of the State of Missouri to the extent required to perform this
Agreement. The Company will advise the Fund in writing as to any requirements of
Missouri insurance law that affect the Designated Portfolios, and the Fund will
be deemed to be in compliance with this Section 2.4 so long as the Fund complies
with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly existing as a
business trust under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the shares of the Designated
Portfolios in accordance with any applicable state and federal securities laws.
2.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal laws and that
the Adviser shall perform its obligations for the Fund in compliance in all
material respects with any applicable state and federal securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and warrant that all
their directors, officers, employees, investment advisers, and other individuals
or entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage required currently by Rule 17g-1 under the 1940 Act or such related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount equal to
the greater of the bond required under the preceding Section 2.8 or any amount
required by applicable federal or state law or regulation. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees that this bond or another bond containing
these provisions will always be in effect, and agrees to notify the Fund, the
Adviser and the Underwriter in the event that such coverage no longer applies.
2.10 The Company represents and warrants that all shares of the Designated
Portfolios purchased by the Company will be purchased on behalf of one or more
unmanaged separate accounts that offer interests therein that are registered
under the 1933 Act and upon which a registration fee has been or will be paid;
and the Company acknowledges that the Fund intends to rely upon this
representation and warranty for purposes of calculating SEC registration fees
payable with respect to such shares of the Designated Portfolios pursuant to
Instruction C.3. to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
2.11 The Company shall amend the Contracts registration statement and the
Account 1940 Act registration statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts registration statement and the Account's registration under the 1940
Act for so long as the contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Fund with an opinion of counsel to the effect that maintaining such
registration statement is no longer required; or (c) the Company has notified
the Fund in writing that, with respect to such registration statement, the
Company meets the terms and conditions of, and is relying on Great West Life &
Annuity Insurance Company (pub. Avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter.
2.12 Each party represents that the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been authorized by
all necessary corporate or trust action, as applicable, by such party, and, when
so executed and delivered, this Agreement will be the valid and binding
obligation of such party, enforceable in accordance with its terms.
ARTICLE III
Prospectuses, Statements of Additional
Information, and Proxy Statements; Voting
3.1 The Fund shall provide ( in hard copy, camera ready form or on diskette, as
the Company may specify) the Company with as many copies of the Fund's current
prospectus for the Designated Portfolios as the Company may reasonably request.
If requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the new prospectus) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus for a Designated Portfolio is amended) to
have the prospectus for the Contracts and the prospectus for the Designated
Portfolios printed together in one document. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.2 The Fund's prospectus shall disclose that (a) the Fund is intended to be a
funding vehicle for all types of variable annuity and variable life insurance
contracts offered by Participating Insurance Companies and as an investment
vehicle for Retirement Plans, (b) material irreconcilable conflicts of interest
may arise, and (c) the Fund's Board will monitor events in order to identify the
existence of any material irreconcilable conflicts and determine what action, if
any, should be taken in response to such conflicts. The Fund hereby notifies the
Company that disclosure in the prospectus for the Contracts regarding the
potential risks of mixed and shared funding may be appropriate. Further, the
Fund's prospectus shall state that the current Statement of Additional
Information ("SAI") for the Fund is available from the Fund, and the Fund shall
provide a copy of such SAI to any owner of a Contract who requests such SAI and
to the Company in such quantities as the Company may reasonably request.
Expenses with respect to the foregoing shall be borne as provided under Article
V.
<PAGE>
3.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
3.4 The Company shall.
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in
accordance with instructions received from Contract
owners; and
(iii) vote shares of each Designated Portfolio for which no
instructions have been received in the same
proportion as shares of such Designated Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote shares
of each Designated Portfolio held in any separate account in its own right, to
the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of its separate
accounts participating in a Designated Portfolio calculates voting privileges as
required by the Shared Funding Exemption Order and consistent with any
reasonable standards that the Fund has adopted or may adopt and that have been
provided to the Company.
3.6 The Fund will comply with all provisions of the 1940 Act requiring voting by
shareholders, and in particular the Fund will either provide for annual meetings
or comply with Section 16(c) of the 1940 Act (although the Fund is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, Section l6(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate from time to time with respect thereto. The Fund
reserves the right, upon prior written notice to the Company (given at the
earliest practicable time), to take all actions, including but not limited to,
the dissolution, termination, merger and sale of all assets of the Fund or any
Designated Portfolio upon the sole authorization of the Board, to the extent
permitted by the laws of the Commonwealth of Massachusetts and the 1940 Act.
3.7 It is understood and agreed that (except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser), none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus or statement of additional information for the Contracts.
<PAGE>
ARTICLE IV
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund or
the Underwriter, each piece of sales literature or other promotional material
("sales literature") that the Company develops or uses and in which the Fund (or
a Designated Portfolio thereof) or the Adviser or the Underwriter is named, at
least eight business days prior to its use. No such material shall be used if
the Fund or its designee reasonably objects to such use within eight business
days after receipt of such material. The Fund or its designee reserves the right
to reasonably object to the continued use of such material, and no such material
shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any representation or
statement on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus or SAI for the shares of the Designated
Portfolios, as such registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature approved by the Fund or its designee or by the
Underwriter, except with the permission of the Fund or the Underwriter or the
designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be furnished,
to the Company, each piece of sales literature that the Fund or Underwriter
develops or uses in which the Company and/or its Account is named, at least
eight business days prior to its use. No such material shall be used if the
Company reasonably objects to such use within eight business days after receipt
of such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus, or statement of additional information for
the Contracts, as such registration statement, prospectus or statement of
additional information may be amended or supplemented from time to time, or in
published reports for the Accounts which are the public domain or approved by
the Company for distribution to Contract owners, or in sales literature approved
by the Company or its designee, except with the permission of the Company.
4.5 At the request of the Company, the Fund will provide to the Company at least
one complete copy of all registration statements, prospectuses, SAIs, reports,
proxy statements, sales literature, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Designated Portfolios, contemporaneously with the filing of such document(s)
with the SEC or other regulatory authorities.
4.6 At the request of the Fund, the Company will provide to the Fund at least
one complete copy of all registration statements, prospectuses, statements of
additional information, shareholder reports, solicitations for voting
instructions, sales literature, applications for exemptions, request for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or the Accounts, contemporaneously with the filing of such document(s)
with the SEC or other regulatory authorities.
4.7 For purposes of this Agreement. the phrase "sales literature" includes, but
is not limited to, any of the following: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e. any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other party will make
available to the requesting party's independent auditors all records, data and
access to operating procedures that may reasonably be requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
5.1 All expenses incident to performance by the Fund under this Agreement shall
be paid by the Fund, except and as further provided in Schedule B.
5.2 The parties hereto shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, SAI, proxy materials and reports as provided
in Schedule B.
5.3 5.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole shareholder
of shares of the Designated Portfolios issued under the Agreement.
ARTICLE VI
Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will, with respect to each Designated Portfolio, comply with Section 817(h) of
the Code and Treasury Regulation ss. 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI, the Fund will take all reasonable steps
(a) to notify the Company of such breach and (b) to adequately diversify the
affected Designated Portfolio so as to seek to achieve compliance within the
grace period afforded by Treasury Regulation ss.1.817-5.
6.2 The Fund represents that each Designated Portfolio is currently qualified
(and for new Designated Portfolios, intends to qualify) as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that a Designated Portfolio has ceased to so
qualify or that a Designated Portfolio might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund, the Adviser and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
<PAGE>
ARTICLE VII
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including but not limited to: (a) an action by
any state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Designated Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2 The Company and the Adviser will report any potential or existing conflicts
of which each is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemption Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded. At least annually, and more frequently if deemed appropriate by
the Board, the Company shall submit to the Adviser, and the Adviser shall at
least annually submit to the Board, such reports, materials and data as the
Board may reasonably request so that the Board may finally carry out the
obligations imposed upon it by the conditions contained in the Shared Funding
Exemption Order; and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board. The responsibility to report such
information and conflicts to the Board will be carried out with a view only to
the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Designated Portfolio and reinvesting such assets in a different
investment medium, which may include another Designated Portfolio of the Fund,
or submitting to a vote of all affected contract owners the question whether
such segregation should be implemented and, as appropriate, segregating the
assets of any appropriate group (i.e. annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in any Designated Portfolio and terminate this Agreement with respect
to such Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. The
Company will bear the cost of any remedial action, including such withdrawal and
termination. No penalty will be imposed by the Fund upon the affected Account
for withdrawing assets from the Fund in the event of a material irreconcilable
conflict. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolio.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the affected Designated Portfolio and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict; but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw an Account's investment in any Designated Portfolio and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in the Shared
Funding Exemption Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemption Order) on terms and conditions materially different from those
contained in the Shared Funding Exemption Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
8.1 Indemnification by the Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees, directors and
each person, if any, who controls the Fund, the Adviser or the Underwriter
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the shares of the Designated Portfolios or
the Contracts and;
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus, or statement of additional
information for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the
Fund for use in the Registration Statement, prospectus or statement of
additional information for the Contracts or in the Contracts or sales
literature for the Contracts (for any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus, SAI or sales literature of the
Fund not supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its authorization or
control, with respect to the sale or distribution of the Contracts or
shares of the Designated Portfolios; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
prospectus, SAI or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished
to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in any
Registration Statement, prospectus, statement of additional information
or sales literature for any Unaffiliated Fund, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or otherwise pertain to or arise in connection
with the availability of any Unaffiliated Fund as an underlying funding
vehicle in respect of the Contracts; or
(vi) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability that it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Company has been prejudiced by such
failure to give notice. In case any such action is brought against an
Indemnified Party, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Company to such party of the Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the Contracts
or the operation of the Fund.
8.2 Indemnification by the Underwriter and the Adviser
(a) The Underwriter and the Adviser agree to indemnify and hold
harmless the Company and its broker-dealer subsidiary and each of their
directors and officers and each person, if any, who controls the Company or its
broker-dealer subsidiary within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of shares of the
Designated Portfolios or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or SAI of the Fund or sales
literature of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter, Adviser or Fund by or on
behalf of the Company for use in the Registration Statement or
prospectus for the Fund or its sales literature (or any amendment or
supplement thereto) or otherwise for use in connection with the sale of
the Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its control)
or wrongful conduct of the Fund or Underwriter or person under their
control with respect to the sale or distribution of the Contracts or
shares of the Designated Portfolios; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus or sales literature for the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter or the Adviser in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
(b) The Underwriter and the Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Accounts, whichever is applicable.
(c) The Underwriter and the Adviser shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter or the
Adviser in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
the Underwriter or the Adviser of any such claim shall not relieve the
Underwriter or the Adviser from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision, except to the extent that the Underwriter or
the Adviser has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Party, the Underwriter or the Adviser
will be entitled to participate, at its own expense, in the defense thereof. The
Underwriter and the Adviser also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action and to
settle the claim at is own expense; provided, however, that no such settlement
shall, without the Indemnified Parties' written consent, include any factual
stipulation referring to the Indemnified Parties or their conduct. After notice
from the Underwriter or the Adviser to such party of the Underwriter's or the
Adviser's election to assume the defense thereof the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Underwriter or the Adviser will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
(d) The Company and its broker-dealer subsidiary agree promptly to
notify the Underwriter or the Adviser of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of the Contracts or the operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and its
broker-dealer subsidiary and each of their directors and officers and each
person, if any, who controls the Company or its broker-dealer subsidiary within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund); or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereto) or settlements, are related to the operations of the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
prospectus or SAI of the Fund or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnify Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by or on behalf of
the Company for use in the Registration Statement or prospectus for the
Fund or its sales literature (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the Contracts or shares of
the Designated Portfolios;
(i) or arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or person under their control with
respect to the sale or distribution of the Contracts or shares of the
Designated Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus or
sales literature of the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement ( including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification and qualification
requirements specified in article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever is
applicable.
(c) The Fund shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve the
Fund from any liability that it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company, its broker-dealer subsidiary, the Adviser and the
Underwriter agree to notify the Fund promptly of the commencement of any
litigation or proceeding against it or any of its respective officers or
directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of any Account, or the sale or acquisition of shares of
the Designated Portfolios.
ARTICLE IX
Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder, including such
exemptions from the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemption Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X
Termination
10.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party, for any reason with respect to any Designated
Portfolio, by 6 months' advance written notice delivered to the other parties;
or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio based upon
the Company's reasonable and good faith determination that shares of such
Designated Portfolio are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio if the
shares of such Designated Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal securities laws or such law
precludes the use of such shares to fund the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event
that administrative proceedings are instituted against the Company or any
affiliate by the NASD, the SEC, or the Insurance Commissioner or like official
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the shares of a Designated Portfolio or the shares
of any Unaffiliated Fund, provided, however, that the Fund, the Adviser or
Underwriter determines in its sole judgement exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund, the Adviser or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio in the
event that such Designated Portfolio ceases to qualify or the Company reasonably
believes such Designated Portfolios may fail to so qualify as a Regulated
Investment Company under Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI hereof; or
(g) termination by the Fund, the Adviser or Underwriter by written
notice to the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter by
written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgement exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or prospects
since the date of this Agreement or is the subject of material adverse
publicity, and that material adverse change or publicity will have a material
adverse effect on the Company's ability to perform its obligations under this
Agreement; or
(i) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, the Adviser or the Underwriter
has suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject of
material adverse publicity and that material adverse change or publicity will
have a material adverse effect on the Fund's or the Underwriter's ability to
perform its obligations under this Agreement; or
(j) at the option of the Company, as one party, or the Fund, the
Adviser and the Underwriter, as one party, upon the other party's material
breach of any provision of this Agreement upon 30 days' written notice and
opportunity to cure.
10.2 Effect of Termination. Notwithstanding any termination of this Agreement,
the Fund and the Underwriter shall, at the option of the Company, continue to
make available additional shares of a Designated Portfolio pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may in such
event be permitted to reallocate investments in the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in the Designated
Portfolios upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
ARTICLE XI
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Calamos Advisors Trust
1111 E. Warrenville Road
Naperville, Illinois 60563-1493
Attention: Secretary
If to the Company:
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64111-2565
Attention: Secretary
If to the Adviser:
Calamos Asset Management, Inc.
1111 E. Warrenville Road
Naperville, Illinois 60563-1493
Attention: Secretary
If to the Underwriter:
Calamos Financial Services, Inc.
1111 E. Warrenville Road
Naperville, Illinois 60563-1493
Attention: Secretary
ARTICLE XII
Foreign Tax Credits
The Fund and the Adviser agree to consult with the Company concerning whether
any Designated Portfolio qualifies to provide a foreign tax credit pursuant to
Section 853 of the Code.
<PAGE>
ARTICLE XIII
Miscellaneous
12.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.3 If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
12.4 Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
12.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.6 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
12.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund individually, but are binding
upon only the assets and property of such Designated Portfolio. All parties
dealing with the Fund with respect to a Designated Portfolio shall look solely
to the assets of such Designated Portfolio for the enforcement of any claims
against the Fund hereunder.
12.8 This Agreement has been executed on behalf of each party by officers in
their capacities as such. The obligations of this Agreement shall not be
individually binding on any shareholder, trustee, director, officer or employee
of any such party.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in its name and on behalf by its duly authorized representative and its seal to
be hereunder affixed hereto as of the date specified below.
COMPANY: Kansas City Life Insurance Company
By: /s/ Richard L. Finn________________________
Title: Senior Vice President____________________
FUND: Calamos Advisors Trust
By: /s/ John P. Calamos________________________
Title: President________________________________
ADVISER Calamos Asset Management, Inc.
By: /s/ John P. Calamos________________________
Title: President________________________________
UNDERWRITER Calamos Financial Services, Inc.
By: /s/ John P. Calamos________________________
Title: President________________________________
<PAGE>
SCHEDULE A
Name of Separate Account and Date
Established by Board of Directors
Kansas City Life Variable Annuity Separate Account
Kansas City Life Variable Life Separate Account
Contracts Funded
by Separate Account
Individual Flexible Premium Deferred Variable Annuity Contract
Individual Flexible Premium Variable Life Insurance Contract
Flexible Premium Survivorship Variable Universal Life Insurance Contract
Designated Portfolios
Calamos Convertible Portfolio
<PAGE>
SCHEDULE B
EXPENSES
In the event the prospectus, SAI, annual report or other communication of the
Fund is combined with a document of another party, the Fund will pay the costs
based upon the relative number of pages attributable to the Fund.
========================= ======================== =======================
ITEM FUNCTION RESPONSIBLE
PARTY
========================= ======================== =======================
========================= ======================== =======================
PROSPECTUS
========================= ======================== =======================
========================= ======================== =======================
Update Typesetting Fund
========================= ======================== =======================
========================= ======================== =======================
New Sales: Printing Company
Distribution Company
========================= ======================== =======================
========================= ======================== =======================
Printing
Existing Fund
Owners Distribution
Fund
========================= ======================== =======================
========================= ======================== =======================
========================= ======================== =======================
========================= ======================== =======================
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
========================= ======================== =======================
========================= ======================== =======================
PROXY MATERIALS OF Typesetting Fund
THE FUND
Printing Fund
Distribution Fund
========================= ======================== =======================
========================= ======================== =======================
========================= ======================== =======================
<PAGE>
========================= ======================== ======================
ANNUAL REPORTS &
OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
========================= ======================== ======================
========================= ======================== ======================
All Typesetting Fund
========================= ======================== ======================
========================= ======================== ======================
Marketing: Printing Company
Distribution Company
========================= ======================== ======================
========================= ======================== ======================
Printing Fund
Existing Owners:
Distribution Fund
========================= ======================== ======================
========================= ======================== ======================
OPERATIONS OF FUND All operations and related expenses, FUND
including the cost of registration and
qualification of the Fund's shares,
preparation and filing of the Fund's
prospectus and registration statement,
proxy materials and reports, the
preparation of all statements and notices
required by any federal or state law and all
taxes on the issuance of the Fund's shares, and
all costs of management of the business affairs
of the Fund.
========================= ======================== ======================
Exhibit 1.A.(11)
APRIL 1999
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR CONTRACTS
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
FOR FLEXIBLE PREMIUM SURVIVORSHIP 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
survivorship 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 amount
and type of Death Benefit. 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 Insureds' mortality risk as
actuarially determined utilizing factors such as Age, sex, level of Specified
Amount, health and occupation of each Insured. 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 Total Sum Insured. 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 on each
proposed Insured, 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 months of minimum initial premium (one
month of minimum initial 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 Insureds, the Specified Amount, any optional
benefits and riders selected and the Planned Premium Payments the Owner proposes
to make. (See "Planned Premium Payments," 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 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
seven days, unless the Contract Date is calculated to be the 29th, 30th or 31st
of the month, then the Contract Date will be set to 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
of 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 Insureds' insurability, which may include a medical examination of
the proposed Insureds. The available issue ages are 20 through 85 for each
Insured. There are four risk classes available: preferred non-tobacco user,
standard non-tobacco user, preferred tobacco user, tobacco user. Age is
determined on the Insured's age last birthday on the Contract Date. For various
purposes under the Contracts the Insureds' joint age will be calculated under
the Frasier method. The minimum Total Sum Insured is $200,000. The minimum
Specified Amount is $100,000. The minimum Additional Insured Amount is $10,000
and the maximum Additional Insurance Amount at the time of issue is four times
the Specified Amount. This coverage may increase to a maximum of 8 times the
Specified Amount after issue. The minimum $200,000. 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 Insureds are 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 at least one 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 both Insureds' deaths 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, subject to the procedures described
below. 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 increase
the Additional Insurance Amount, subject to our underwriting requirements. (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 Premium Payments. 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 Premium Payments on a special monthly or
quarterly 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 Premium Payment
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 Premium Payments by sending
Written Notice to the Home Office. Kansas City Life, however, reserves the right
to limit the amount of any increase in planned premium payment.
4. Guaranteed Minimum Death Benefit Option and Guaranteed Minimum Death Benefit
Option Premium.
An optional Guaranteed Minimum Death Benefit Option is available only at issue.
This option is not available if Coverage Option B is elected or if the Joint
First to Die Rider is issued with the Contract. If this option has been elected,
it guarantees payment of the Specified Amount (less Indebtedness and any past
due charges) upon the death of the last surviving Insured, regardless of the
Contract's investment performance, provided that the Guaranteed Minimum Death
Benefit Option Premium requirement is met. The Guaranteed Minimum Death Benefit
Option does not guarantee any Additional Insurance Amount.
The Guaranteed Minimum Death Benefit Option Premium is the amount which
guarantees that the Guaranteed Minimum Death Benefit Option will remain in
effect. The Guaranteed Minimum Death Benefit Option Premium requirement is met
if, on each Monthly Anniversary Day: o the cumulative premiums paid equal or
exceed the cumulative Guaranteed Minimum Death Benefit Options Premiums (the
amount of the Guaranteed Minimum Death Benefit Option Premium is shown in the
Contract), plus Indebtedness, where
o the term "the cumulative premiums paid" means the amount that is equal to
(A) the sum of all premiums paid, less (B) the sum of all partial
surrenders, with (A) and (B) each accumulated at an annual effective
interest rate of 4.)% from the date the Contract is issued to the Monthly
Anniversary Date on which the Guaranteed Minimum Death Benefit Option
Premium requirement is calculated, and
o the term "cumulative Guaranteed Minimum Death Benefit Option Premiums means
the amount that is equal to the sum of the Guaranteed Minimum Death Benefit
Option Premiums, with each such premium accumulated at an annual effective
interest rate of 4% to the Monthly Anniversary Date on which the Guaranteed
Minimum Death Benefit Option Premium requirement is calculated.
If the Guaranteed Minimum Death Benefit Option Premium requirement is not met,
the Guaranteed Minimum Death Benefit Option is in default. A 61-day notice
period begins on the day Kansas City Life mails the notice that the Guaranteed
Minimum Death Benefit Option is in default and the amount of premium required to
maintain the Guaranteed Minimum Death Benefit Option. The default premium will
be the amount by which the cumulative Guaranteed Minimum Death Benefit Option
Premium plus indebtedness is greater than the cumulative paid premium. The
Guaranteed Minimum Death Benefit Option will terminate if sufficient premium is
not paid by the end of the notice period.
If the policy contains any Additional Insurance Amount coverage or any optional
benefit riders, then in addition to testing the Guaranteed Minimum Death Benefit
Option Premium requirement as outlined above, the Contract Value will be tested
to ensure that the policy is funded at a sufficient level to support the
Additional Insurance Amount or other optional benefit riders. On each Monthly
Anniversary Day the Cash Surrender Value will be tested to determine if it is
sufficient to cover the Monthly Deduction. If not, a 61-day notice period begins
on the day Kansas City Life mail notice of the default premium amount. The
default premium will be equal to the payment which would be sufficient to
provide a Cash Surrender Value equal to three monthly deductions. The Additional
Insurance Amount coverage and other optional benefit riders will be removed from
the contract if payment at least equal to the default premium is not received by
the end of the notice period.
There is no charge for this option during the first 10 Contract Years. Beginning
in Contract Year 11 a monthly charge per $1,000 of Specified Amount at issue
will apply. The Guaranteed Minimum Death Benefit Option is not available for
Coverage Option B Contracts, for Contracts on which the Additional Insurance
Amount exceeds or is scheduled to exceed the Specified Amount or for Contracts
which include the Joint First to Die Rider. The Guaranteed Minimum Death Benefit
Option will terminate upon your request, if the Coverage Option is changed to B
or if the amount of the Additional Insurance Amount is increased to more than
the Specified Amount.
The Guaranteed Minimum Death Benefit Option may be reactivated within two years
of termination of such option. Re-activation requires: (1) written notice to
restore the option, (2) evidence of insurability of the Insureds satisfactory to
us, unless Re-activation is requested within one year after the beginning of the
notice period; and (3) payment of the amount by which the cumulative Guaranteed
Minimum Death Benefit Option Premium plus Indebtedness exceeds the cumulative
paid premiums on the date of Re-activation. On the Monthly Anniversary Day on
which the Re-activation takes effect, Kansas City Life will deduct from the
Contract Value any unpaid Guaranteed Minimum Death Benefit Option Charges.
Kansas City Life reserves the right to deny Re-activation of the Guaranteed
Minimum Death Benefit Option more than once during the life of the Contract.
5. Premium Payments Upon Increase in Additional Insurance Amount. Depending on
the Contract Value at the time of an increase in the Additional Insured Amount
and the amount of the increase requested, an additional premium payment may be
necessary or a change in the amount of Planned Premium Payments may be
advisable.
6. Premium Payments to Prevent Lapse. If the Guaranteed Minimum Death Benefit
Option has been elected, the Specified Amount is guaranteed to remain in force
as long as the Guaranteed Minimum Death Benefit Option Premium requirement is
met on each Monthly Anniversary Day. However, while failure to meet the
Guaranteed Minimum Death Benefit Option Premium requirement will cause the
Guaranteed Minimum Death Benefit Option to terminate, such failure will not
necessarily cause the Contract to lapse. Riders are not guaranteed by the
Guaranteed Minimum Death Benefit Option and will terminate if the Cash Surrender
Value becomes negative.
If the Guaranteed Minimum Death Benefit Option has not been elected or has been
removed, 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 Contract will remain in force during the grace period. If
the last surviving 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
last surviving Insured's death (and for any Indebtedness). If the grace period
premium payment has not been paid before the grace period ends, the 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
forty-two Subaccounts, twenty-one of which support the Contracts, and twenty-one
of which support other flexible premium variable life insurance contracts used
by Kansas City Life. The assets of the Subaccounts 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, Dreyfus Stock Index Fund,
The Dreyfus Socially Responsible Growth Fund, Inc, J.P. Morgan Series Trust II,
Templeton Variable Products Series Fund and Calamos Advisors Trust. 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, Dreyfus Stock Index Fund, The Dreyfus Socially Responsible Growth Fund,
Inc., J.P. Morgan Series Trust II, Templeton Variable Products Series Fund and
Calamos Advisors Trust or any other investment company. Not all Funds may be
available in California.
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, although the
number of Subaccounts to which net premiums may be allocated will never be less
than twelve. 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 notice.
b. Allocation of Initial Net 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. On the Reallocation 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 Valuation Day that it receives
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.
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) 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.
4. No-Fee Transfer Right. This additional, one-time transfer feature
allows the Owner to transfer all or a portion of the Variable Account
Value to the Fixed Account and Kansas City Life will make this transfer
without applying the transfer processing fee (even if the Owner has
already used the six free transfers for the Contract Year.) This
Additional No-Fee Transfer Right applies during the first 24 months of
the Contract or within the 24 months following the effective date of an
increase to the Additional Insurance Amount.
B. 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. Changes
may be made in dollar cost averaging by telephone if proper authorization has
been provided. 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, when the value of the Federated Prime Money Fund II
Subaccount is completely depleted, 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.
C. 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. 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 us. 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. Changes may be made in the Portfolio Rebalancing Plan if
proper authorization has been provided. 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. Portfolio rebalancing will terminate when
you request any transfer or the day Kansas City Life 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.
Portfolio rebalancing will terminate when the Owner requests any transfer
unless the Owner authorizes a change in allocation at that time or the day
Kansas City Life receives written notice instructing Kansas City Life to
cancel the plan.
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. 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. Within seven calendar days after Kansas City Life receives the returned
Contract, Kansas City Life will refund premiums paid. In some states Kansas City
Life may be required to refund the greater of Contract Value and premiums paid.
B. 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 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.
C. 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 in addition to 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 or L is in
effect, Kansas City Life will reduce the Contract Value by the partial surrender
amount. The Total Sum Insured will be reduced by the partial surrender amount
minus the excess, if any, of the Death Benefit over the Total Sum Insured at the
time the partial surrender is made. If the partial surrender amount is less than
the excess of the Death Benefit over the Total Sum Insured, the Total Sum
Insured will not be reduced. If Coverage Option B is in effect Kansas City Life
will reduce the Contract Value by the partial surrender amount. Kansas City Life
reserves the right to reject a partial surrender request if the partial
surrender would reduce the Total Sum Insured below the minimum amount for which
the Contract would be issued under Kansas City Life's then-current rules, 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.
D. 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.
E.. Redemptions for Monthly Deduction
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that has occurred prior or on 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) monthly expense charges,
(2) cost of insurance charges, and (3) any charges for optional 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.
F. 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 death of the
last surviving Insured that Kansas City Life deems satisfactory. Kansas City
Life may also require proof of the death of the Insured who died first and 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.
As described below, Kansas City Life will pay Death Benefit proceeds
through Kansas City Life's Personal Growth Account. Kansas City Life places
proceeds to be paid through the Personal Growth Account in their general
account. The Personal Growth Account pays interest and provides check-writing
privileges under which Kansas City Life reimburses the bank that pays the check
out of the proceeds held in their general account. A Contract Owner or
beneficiary (whichever applicable) has immediate and full access to Proceeds by
writing a check on the account. Kansas City Life pays interest on Death Benefit
Proceeds from the date of death to the date the Personal Growth Account is
closed.
The Personal Growth Account is not a bank account and is not insured, nor
guaranteed, by the FDIC or any other government agency.
Kansas City Life will pay Death Benefit proceeds through the Personal Growth
Account when:
o the proceeds are paid to an individual; and
o the amount of proceeds is $5,000 or more.
Any other use of the Personal Growth Account requires Kansas City Life's
approval.
1. Amount of Death Benefit Proceeds. The Death Benefit proceeds payable upon the
death of the last surviving Insured are equal to the sum of: (1) the greater of:
(a) the Death Benefit under the Coverage Option selected, calculated as of the
date of the last surviving Insured's death, or (b) the Corridor Death Benefit;
and (2) an amount equal to any benefits provided by any option benefits or
riders, plus any premiums received after the date of death, minus any
indebtedness on that date, and, if the death occurred during a grace period,
minus any past due Monthly Deductions. A minimum Death Benefit may be provided
under the Guaranteed Minimum Death Benefit Option. If all or part of the Death
Benefit proceeds are 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 last surviving Insured's death to the date of payment.
2. Coverage Options. The Contract Owner may choose one of three Coverage
Options, which will be used to determine the Death Benefit. Under Option A, the
Death Benefit is equal to the Total Sum Insured on the date of death of the last
surviving Insured. Under Option B, the Death Benefit is the Total Sum Insured on
the date of death of the last surviving Insured plus the Contract Value on the
date of such death. Under Coverage Option L, the Death Benefit will be the sum
of: (1) the Total Sum Insured on the date of death of the last surviving
Insured; and (2) the Contract Value on the Contract Anniversary preceding the
death of the last surviving Insured multiplied by the applicable Option L Death
Benefit Percentage less the Total Sum Insured on that Contract Anniversary. If
the amount in (2) of the Option L Death Benefit calculation is less than zero
then the Option L Death Benefit will be equal to the amount calculated in (1).
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. Kansas City Life reserves the right to require
that no change in Coverage Option occur during the first Contract Year and that
no more than one increase be made in any 12-month period. Coverage Option L is
only available at issue. After any change, the Total Sum Insured must be at
least $200,000 and the Specified Amount must be at least $100,000. The effective
date of the change will be the Monthly Anniversary Day following the date Kansas
City Life approves the Owner's application for change.
If the Coverage Option is B or L, it may be changed to A. The Total Sum Insured
will not change. If the Coverage Option is A or L, it may be changed to B
subject to evidence of insurability satisfactory to Kansas City Life. (See
"Underwriting Requirements," above.) The new Total Sum Insured will be the
greater of the Total Sum Insured less the Contract Value as of the date of
change or $25,000. If the Coverage Option is changed to B, the Guaranteed
Minimum Death Benefit Option, if in effect, will terminate.
Kansas City Life reserves the right to decline any Coverage Option change that
Kansas City Life determines would cause the Contract to not qualify as life
insurance under applicable tax laws.
5. Increases in the Additional Insurance Amount
Increases to the Additional Insurance Amount may be made either through
scheduled annual increases requested and through unscheduled increases requested
at any other time of the Owner's choosing. The maximum Additional Insurance
Amount coverage is four times the Specified Amount at issue. This coverage may
increase to a maximum of eight times the Specified Amount after issue under
scheduled annual increases.
Scheduled increases to the Additional Insurance Amount, subject to Kansas City
Life's approval, may be based on a flat amount annual increase or a percentage
annual increase. Available percentage increases range from 0-25% of the
Additional Insurance Amount. The percentage increase will be based on the
specified percentage of the Additional Insurance Amount at the time the
scheduled increase occurs. Available amounts for a flat amount increase not to
exceed a dollar amount equal to 25% of the Additional Insurance Amount at issue.
The Guaranteed Minimum Death Benefit Option will not be available if the
Additional Insurance Amount is, or is scheduled to, exceed the Specified Amount.
The Owner may request increases to the Additional Insurance Amount other than
the annual, scheduled increases available at issue. Kansas City Life reserve the
right to require that no increases in Additional Insurance Amount occur during
the first Contract Year and that no more than one increase be made in any
12-month period.
Any requested, unscheduled increase in the Additional Insurance Amount must be
at least $10,000 and an application must be submitted. Kansas City Life reserves
the right to require satisfactory evidence of insurability. In addition, the
Insureds' 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 Premium Payments may be advisable.
The increase in the Additional Insurance Amount will become effective on the
Monthly Anniversary Day on or next following the date the request for the
increase is received and approved. If the Additional Insurance Amount is
increased to be greater than the Specified Amount, the Guaranteed Minimum Death
Benefit Option, if applicable, will terminate. In addition, if the Cash
Surrender Value is at any time insufficient to pay monthly deductions for the
Contract, the Additional Insurance Amount and riders will terminate in order to
preserve the Guaranteed Minimum Death Benefit Option.
6. Decreases in Total Sum Insured
The Owner may request a decrease in the Total Sum Insured. When a decrease in
Total Sum Insured is made, Kansas City Life will first reduce any amount of
Additional Insurance Amount remaining and only then reduce the Specified Amount,
starting with the latest increase and continuing in the reverse order in which
the increases were made. If the Specified Amount is decreased, the Guaranteed
Minimum Death Benefit Option coverage amount will be decreased by the same
amount. Under certain circumstances, a partial surrender will result in a
decrease in the Total Sum Insured.
Kansas City Life reserves the right to require that no decreases occur during
the first Contract Year and that no more than one decrease be made in any
12-month period.
Kansas City Life reserves the right to require that the Total Sum Insured after
any decrease be at least $200,000 and the Specified Amount must be $100,000. The
Owner must provide written notice to the Home Office of his intention to
decrease the Specified Amount. The effective date of the decrease will be the
Monthly Anniversary Day following the date Kansas City Life approves the Owner's
request for a decrease.
Decreasing the Total Sum Insured may have the effect of decreasing monthly Cost
of Insurance Charges. However, a decrease will not decrease the Target Premium
or Guaranteed Minimum Death Benefit Option Premium.
G. 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. 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. 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 may
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 requested. 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. Kansas
City Life reserves the right to require that each loan repayment 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.
H. 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. You also may choose a minimum guaranteed payment period or an
installment refund option as part of your life income payment option. The
minimum guaranteed payment period guarantees that life income payments will
continue after death until payments have been paid for the full guaranteed
payment period selected. The installment refund option guarantees that life
income payments will continue after death until the total income payments
received equal the amount of proceeds applied when the option was initially
selected.
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.
I. 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.
J. Telephone Transfer, Premium Allocation Changes and Loan Privileges
1. Election of the Program. Transfers, changes in premium allocation, changes in
dollar cost averaging, changes in portfolio rebalancing, 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.
APPENDIX A
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that has occurred prior to or on 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
Monthly Anniversary Day. The Monthly Deduction consists of (1) monthly expense
charges, (2) cost of insurance charges, and (3) any optional benefit charges, 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.
Monthly Expense Charge. The Monthly Expense Charge is made up of two parts:
(1) a charge of $12.50 per month for the first five Contract Years.
(2) a monthly expense charge of $7.50 plus $.02 per $1,000 of Total Sum Insured
per month for all Contract Years.
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. The Monthly Expense
Charge is guaranteed not to increase.
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 Insureds 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 30), 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 Insureds' Age, sex, number of completed Contract Years, Total Sum Insured
and risk class, and therefore varies from time to time. Kansas City Life
currently places Insureds in the following classes, based on underwriting:
Standard Tobacco User, Standard Nontobacco User, Preferred Nontobacco User and
Preferred Tobacco User. The Insureds may be placed in a substandard risk class,
which involves a higher mortality risk than the Standard Tobacco User or
Standard Nontobacco User classes.
Kansas City Life places the Insureds 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 Additional Insurance Amount is requested,
Kansas City Life conducts underwriting before approving the increase 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 Additional
Insurance Amount, and the existing risk class will continue to apply to the
existing Additional Insurance Amount.
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 Contract. The guaranteed rates for standard and
preferred risk 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 one or both Insureds
in a nontobacco user standard class are lower than rates for one or both
Insureds of the same age and sex in a tobacco user standard class. Cost of
insurance rates (whether guaranteed or current) for one or both Insureds in a
nontobacco user or tobacco user standard risk class are lower than rates for one
or both Insureds of the same age, sex and tobacco user class in a substandard
risk class.
Guaranteed Minimum Death Benefit Option Charge. There is no charge for the
Guaranteed Minimum Death Benefit Option in the first ten Contract Years.
Beginning in Contract Year 11, the charge will be $.01 per $1,000 on a current
basis and $.03 per $1,000 on a guaranteed basis. This charge will be based on
the Specified Amount and will be deducted monthly.
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 Kansas City Life 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 optional benefits are available and may be added to the Contract.
Monthly charges for these optional benefits will be deducted from Contract Value
as part of the Monthly Deduction. All of these benefits may not be available in
all states.
Contract Split Option Rider
Issue Ages: 20-75
This rider allows the Owner to split the Contract equally into two
individual policies, one on the life of each Insured. This split option
will be offered without evidence of insurability under the conditions that
the request is made as the result of either (1) the divorce of the two
Insureds; or (2) as a result of a change in the Unlimited Federal Estate
Tax marital deduction or a reduction in the maximum Federal Estate Tax
bracket rate to a rate below 25%. Specific other conditions must also be
met in order to qualify. When this option is exercised, the existing
Contract will be terminated. The new contracts will be based on the
Insureds' Age, sex, and risk class at the time of issue of the original
Contract. This rider will terminate at the older Insured's age 80. The
rider will also terminate if the Owner elects to keep the Guaranteed
Minimum Death Benefit Option in effect after it is determined that funding
is not adequate to cover these rider charges.
Joint First to Die Term Life Insurance Rider
Issue Ages: 20-85
This rider covers the Insureds under the Contract and provides yearly
renewable term coverage on the first Insured to die on or before the older
Insured's age 100 and while this rider is in force. The coverage under this
rider may be increased (subject to insurability) or decreased. The Owner
may also choose at issue a schedule for the coverage to decrease annually.
The scheduled decreases may be based on the percentage of the coverage
amount or may be a flat dollar amount. If this rider is elected, the
Guaranteed Minimum Death Benefit Option is not available on the Contract.
Joint Survivorship Four-Year Term Life Insurance Rider
Issue Ages: 20-85
This rider provides four-year level term insurance and expires four years
after the effective date of the rider. The term insurance provides a death
benefit payable at the death of the last surviving Insured. The minimum
coverage is $100,000 and the maximum coverage is equal to the Total Sum
Insured.
The rider will also terminate if the Owner elects to keep the Guaranteed
Minimum Death Benefit Option in effect after it is determined that funding
is not adequate to cover these rider charges.
Bonus on Contract Value in the Variable Account
A bonus may be credited to the Contract on each Monthly Anniversary Day
following the Contract Date. The monthly bonus applies to Contracts with a Total
Sum Insured of $5,000,000 and above and equals an annual rate of .125% of the
Contract Value in each Subaccount of the Variable Account. The bonus is not
guaranteed and will be paid at Kansas City Life's sole discretion.
April 26, 1999
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 option, and I advise yo u 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 respec tive 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
Exhibit 6
April 26, 1999
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. 2 to the registration statement
of Form S-6, filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to flexible premium
survivorship variable universal life insurance contract (the "Registration
Statement") and the preparation of contract forms for the flexible premium
survivorship variable universal 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 25, 1999, with respect to the consolidated financial
statements of Kansas City Life Insurance Company and to the use of our report
dated April 19, 1999 with respect to the financial statements of Kansas City
Life Variable Life Separate Account, included in the Post-Effective Amendment
No. 2 to the Registration Statement (Form S-6 No. 333-25443) and the related
Prospectus.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 28, 1999
Exhibit 7(b)
April 28, 1998
Board of Directors Kansas City Life Insurance Company 3520 Broadway Kansas
City, Missouri 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. 2 to
the registration statement on Form S-6 for Kansas City Life Variable Life
Separate Account(File No. 333-25443). 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 2,004,516<F1>
<DEBT-CARRYING-VALUE> 115,504<F2>
<DEBT-MARKET-VALUE> 123,515<F2>
<EQUITIES> 100,749<F3>
<MORTGAGE> 315,705
<REAL-ESTATE> 83,228<F4>
<TOTAL-INVEST> 2,832,408
<CASH> 75,923
<RECOVER-REINSURE> 117,772
<DEFERRED-ACQUISITION> 218,957
<TOTAL-ASSETS> 3,577,414
<POLICY-LOSSES> 822,342
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 34,347
<POLICY-HOLDER-FUNDS> 1,869,021<F5>
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,121
<OTHER-SE> 554,812
<TOTAL-LIABILITY-AND-EQUITY> 3,577,414
150,951
<INVESTMENT-INCOME> 198,181
<INVESTMENT-GAINS> 11,426
<OTHER-INCOME> 123,279
<BENEFITS> 283,340
<UNDERWRITING-AMORTIZATION> 36,201
<UNDERWRITING-OTHER> 7,585<F6>
<INCOME-PRETAX> 67,949
<INCOME-TAX> 19,437
<INCOME-CONTINUING> 48,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,512
<EPS-PRIMARY> 7.83
<EPS-DILUTED> 7.83
<RESERVE-OPEN> 0
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<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>
