As filed with the Securities and Exchange Commission on April 19, 1999.
Registration No. 33-95354
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5 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 pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to
paragraph (a)(1) of Rule 485 ___ on (date) pursuant to paragraph (a)(1) of Rule
485
Title of securities being registered: Individual Flexible Premium Variable Life
Insurance Contracts
PROSPECTUS
Individual Flexible Premium Variable Life Insurance Contracts
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT OF
Kansas City Life Insurance Company
Home Office: Correspondence to:
3520 Broadway Variable Administration
Kansas City, Missouri 64111-2565 P.O. Box 419364
Telephone (816) 753-7000 Kansas City, Missouri 64141-6364
Telephone (800) 616-3670
This Prospectus describes an individual flexible premium variable life insurance
contract ( "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 on the person named.
The Contract also provides you the opportunity to allocate your premiums to one
or more divisions ("Subaccounts") of the Kansas City Life Variable Life Separate
Account ( "Variable Account") or the Fixed Account. The assets of each
Subaccount are invested in a corresponding portfolio of a designated mutual fund
("Funds") as follows:
MFS(R)Variable Insurance TrustSM Manager
MFS Emerging Growth Series MFS Investment Management(R)
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS Global Governments Series
MFS Bond Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
American Century VP Income & Growth Management, Inc.
American Century VP International
American Century VP Value
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Investment
Federated High Income Bond Fund II Management Company
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Capital Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation
The Dreyfus Socially Responsible Growth Fund, Inc.Manager
The Dreyfus Corporation
J.P. Morgan Series Trust II Manager
J.P. Morgan Equity Portfolio J.P. Morgan Investment
J.P. Morgan Small Company Portfolio Management Inc.
Templeton Variable Products Series Fund Manager
Templeton International Fund Class 2 Templeton Investment
Counsel, Inc.
Calamos Insurance Trust Manager
Calamos Convertible Portfolio Calamos Asset Management, Inc.
The accompanying prospectuses for the Funds describe these portfolios. The value
of amounts allocated to the Variable Account (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 two Coverage Options available under the Contract:
o Option A: a level Death Benefit; and
o Option B: a Death Benefit that fluctuates with the value of the Contract.
We guarantee that the Death Benefit proceeds will never be less than a specified
amount of insurance (less any outstanding loans and past due charges) as long as
you pay sufficient premiums to keep the Contract in force.
The Contract provides for a value that you can receive by surrendering the
Contract. There is no guaranteed minimum value. 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 a special 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.
This Prospectus is Dated May 1, 1999
<PAGE>
PROSPECTUS CONTENTS
DEFINITION....................................................................
SUMMARY AND DIAGRAM OF THE CONTRACT...........................................
DIAGRAM OF THE 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..............................................
Free Look Right to Cancel Contract...................................
PREMIUM PAYMENTS AND ALLOCATIONS..............................................
Premiums.............................................................
Premium Payments to Prevent Lapse....................................
ALLOCATIONS AND TRANSFERS.....................................................
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 Charge...............................................
Monthly Deduction....................................................
Daily Mortality and Expense Risk Charge..............................
Transfer Processing Fee..............................................
Surrender Charge.....................................................
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 AND CHANGES IN SPECIFIED AMOUNT.................................
Amount of Death Benefit Proceeds.....................................
Coverage Options.....................................................
Initial Specified Amount and Coverage Option.........................
Changes in Coverage Option...........................................
Changes in Specified Amount..........................................
Selecting and Changing the Beneficiary...............................
CASH BENEFITS.................................................................
Contract Loans.......................................................
Surrendering the Contract for Cash Surrender Value...................
Partial Surrenders...................................................
Maturity Benefit.....................................................
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...........................................
Assignment...........................................................
Reinstatement........................................................
Supplemental and/or Rider Benefits...................................
TAX CONSIDERATIONS............................................................
Introduction.........................................................
Tax Status of the Contract...........................................
Tax Treatment of Contract Benefits...................................
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.................................................
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
<PAGE>
DEFINITIONS
Accumulation Unit An accounting unit used to measure the net investment results
of each of the Subaccounts.
Age The Insured's age on his/her last birthday as of or on each Contract
Anniversary. The Contract is issued at the Age shown in the Contract.
Allocation Date The date we apply your 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 designate to receive any proceeds payable at the
death of the Insured.
Cash Surrender Value The Contract Value less any applicable Surrender Charge and
any Contract Indebtedness.
Contract Anniversary The same day and month as the Contract Date each year that
the Contract remains in force.
Contract Date The date on which coverage 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.
Coverage Options Death Benefit options available which affect the calculation of
the Death Benefit. Option A provides a Death Benefit at least equal to the
Specified Amount. Option B provides a Death Benefit at least equal to the
Specified Amount plus the Contract Value.
Death Benefit Proceeds The amount of Proceeds payable upon the Insured's death.
Fixed Account Value Measure of value accumulating in the Fixed Account.
GracePeriod A 61-day period we provide when there is insufficient value in your
Contract and the Contract will terminate unless you pay additional
premiums. This period of time gives you the chance to pay enough premiums
to keep your Contract in force.
Guaranteed Monthly Premium A premium amount which when paid guarantees that your
Contract will not lapse during the Guaranteed Payment Period.
Guaranteed Payment Period The period of time during which we guarantee that your
Contract will not lapse if you pay the Guaranteed Monthly Premiums.
Home Office 3520 Broadway, P.O. Box 419364, Kansas City, Missouri
64141-6364.
Indebtedness The sum of all outstanding Contract loans plus accrued interest.
Insured The person whose life we insure under the Contract.
LapseTermination 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.
Maturity Date The date when Death Benefit coverage terminates and we pay you any
Cash Surrender Value.
Monthly Anniversary Day The day of each month on 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 increase
expense 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.
Calculation of the Net Investment Factor is described on page 26.
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/Premium Payment(s) The amount(s) 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 on which the Contract Value we 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 amount of insurance coverage on the Insured. The actual
Death Benefit will depend upon whether Option A or Option B is in effect at
the time of death.
Subaccounts The divisions of the Variable Account. The assets of each Subaccount
are invested in a portfolio of a designated mutual fund.
Subaccount Value Measure of the value in a particular Subaccount.
Unscheduled Premium Any premium other than a Planned Premium Payment.
Valuation Day Each day on which both the New York Stock Exchange and Kansas City
Life are open for business.
Valuation Period The interval of time 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 occurs at 3 p.m. Central Standard Time.
Variable Account Value The Variable Account Value is equal to the sum of all
Subaccount 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 more 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 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 an advantage to you 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 36.)
The Contract. The Contract is an individual flexible premium variable life
insurance contract. As long as it remains in force it provides lifetime
insurance protection on the Insured until the Maturity Date. 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 value of the Contract will increase or decrease to
reflect the investment performance of the Subaccounts to which you allocate
premiums. There is no guaranteed minimum value. We do guarantee to keep the
Contract in force during the first five years of the Contract and during the
five years following the effective date of an increase in the Specified Amount
as long as you meet a premium requirement. (See "Guaranteed Payment Period and
Guaranteed Monthly Premium," page 17.) If the value is not enough to pay charges
due, the Contract will lapse without value after a Grace Period. (See "Premium
Payments to Prevent Lapse," page 18.) The Contract also permits loans and
partial surrenders, within limits. If a Contract lapses while loans are
outstanding, adverse tax consequences may result. (See "Tax Considerations,"
page 46.)
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.) During this "free-look" period, we will allocate premiums to the
Federated Prime Money Fund II Subaccount for 30 days. (See "Premium Allocations
and Crediting," page 18.) For a limited time after requesting an increase in the
Contract's amount of insurance coverage, you may cancel the increase and you may
be entitled to a refund of certain charges.
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.) Illustrated Contract Values
in the illustrations based on current charges reflect a bonus that we may credit
beginning in the eleventh Contract Year. The bonus is not guaranteed and we pay
it at our sole discretion.
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 under this Contract. We will monitor Contracts and will
notify you on a timely basis if your Contract is in jeopardy of violating the
definition of life insurance or becoming a modified endowment contract. 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 419364, Kansas City, Missouri
64141-6364, 1-800-616-3670.
<PAGE>
DIAGRAM OF THE 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 of the planned premium payments and can skip planned
premium payments.
(See page 16 for rules and limits.)
o The Contract's minimum initial premium payment and planned premium payment
depend on the Insured's age, sex and risk class, initial Specified Amount
selected, and any supplemental and/or rider benefits.
o You may pay unplanned premium payments, within limits. (See page 17.)
o Under certain circumstances, which include taking excessive Contract loans,
you may have to make extra premium payments to prevent lapse. (See page
18.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS
o We deduct a premium expense charge of 2.25% of all premium payments to
cover any state or local premium taxes and administrative expenses. (See
page 21.)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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 premium expense charge. (See page 18 for rules
and limits on premium allocations.)
o Each Subaccount invests in a corresponding portfolio of the Funds. While
the 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 allocations.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEDUCTIONS FROM CONTRACT VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o There is a Monthly Deduction for cost of insurance, monthly expense charge,
and charges for any supplemental and/or rider benefits. The monthly expense
charge is currently $26.00 per month for the first Contract Year and $6.00
per month thereafter, plus $20.00 per month for the 12 Contract Months
following an increase in Specified Amount. (See page 21.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 at a guaranteed maximum annual rate of 0.90% from
the Subaccounts for mortality and expense risks. (See page 23.) 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. For a more complete description
of the various expenses see the prospectuses for the underlying Funds that
accompany this Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Leaders High Income Prime
Fund II Bond Money
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% 2.38%
----- -----
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%
Calamos
Convertible
Portfolio
Calamos Insurance 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 be .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.
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 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.
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CONTRACT VALUE
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o It is the starting point for calculating certain values under a Contract,
such as the Cash Surrender Value and the Death Benefit.
o Contract Value is equal to premiums (less the premium expense charge), 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 We may credit a "bonus" to the Contract Value on each Monthly Anniversary
Day beginning in the eleventh Contract Year. The monthly bonus equals
0.0375% (0.45% on an annualized basis) of the Variable Account Value. This
bonus is not guaranteed.
CASH BENEFITS
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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.)
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. We will assess a
surrender charge for any resulting reduction in the Specified Amount. 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. A sales load charge of up to 30% of actual premiums paid up to a
maximum premium amount shown in the Contract, as well as a declining
administrative charge, will apply during the first 15 Contract Years and
during the 15 years following the effective date of an increase in the
Specified Amount. (See page 23.) Surrenders may be subject to adverse tax
consequences.
o Under some circumstances the amount of the Surrender charge during the
first few Contract Years could result in a Cash Surrender Value of zero.
o Payment options are available. (See page 31.)
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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 Specified Amount is $100,000 for issue Ages 0-49 and $50,000
for issue Ages 50-80. We may allow these minimum limits to be reduced. (See
page 18.)
o There are two Coverage Options available:
Option A-- at least equal to the Specified Amount
o Option B-- at least equal to the Specified Amount plus Contract Value (See
page 27.)
o There is flexibility to change the Coverage Option and Specified Amount.
(See page 27 for rules and limits.)
o There are supplemental and/or rider benefits that may be available. (See
page 43.)
o We deduct any Indebtedness from the amount payable.
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<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.
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 TrustSM, which you should read
carefully before investing.
American Century Variable Portfolios, Inc.
(Manager: American Century Investment Management, Inc.)
American Century VP Capital Appreciation Portfolio. The investment
objective of American Century VP Capital Appreciation is capital growth. The
Portfolio will seek to achieve its investment objective by investing primarily
in common stocks that are considered by the investment adviser to have
better-than-average prospects for appreciation.
American Century VP 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
securities of foreign companies that meet certain fundamental and technical
standards of selection and that have, in the opinion of the investment manager,
potential for appreciation.
American Century VP Value. American Century VP Value seeks long-term
capital growth. Income is a secondary objective. The fund will seek to achieve
its investment objective by investing in securities that management believes to
be undervalued at the time of purchase.
Federated Insurance Series
(Manager: Federated Investment Management Company)
Federated American Leaders Fund II. The primary investment objective of the
Federated American Leaders Fund II is to achieve long-term growth of capital.
The Fund's secondary objective is to provide income. The Fund pursues its
investment objectives by investing, under normal circumstances, at least 65% of
its total assets in common stock of "blue-chip" companies, which are generally
top-quality, established growth companies.
Federated High Income Bond Fund II. The investment objective of the
Federated High Income Bond Fund II is to seek high current income. The Fund
endeavors to achieve its objective by investing primarily in lower-rated
corporate debt obligations commonly referred to as "junk bonds." 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 series will be particularly alert to companies that it
considers to be emerging smaller-sized companies which are believed to be
characterized by new or innovative products, services or processes which should
enhance prospects for growth in future earnings.
Dreyfus Stock Index Fund
(Manager: The Dreyfus Corporation)
The primary investment objective of the Stock Index Fund is to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index. In anticipation of taking a market
position, the Fund is permitted to purchase and sell stock index futures. The
Fund is neither sponsored by nor affiliated with Standard & Poor's.
The Dreyfus Socially Responsible Growth Fund, Inc.
(Manager: The Dreyfus Corporation)
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 capitalizations greater than
$110 million and less than $1.5 billion.
Templeton Variable Products Series Fund
(Manager: Franklin Resources, 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 through a flexible policy of investing in stocks and debt obligations
of companies and governments outside the United States. 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 Templeton International Fund Class 2,
which you should read carefully before investing.
Calamos Insurance 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 Insurance 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.
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 life
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 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 Guaranteed Monthly Premiums. Only one Guaranteed Monthly
Premium is required for Contracts when premium payments will be made under a
pre-authorized payment arrangement. (See "Premiums," page 20.) In general,
policies 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 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 approval is the 27th, 28th or 29th of the month in which case
the Contract Date would be the first of the next 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 1st of the
month after the Contract is approved or the date we receive the initial
premium. However, if approval occurs on or between the 1st and the 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 Contract
Date will be the 1st 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 1st 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.
Specified Amount Above $250,000
If you request a specified amount above $250,000 and provide an initial
premium with the application, the Contract Date will be the later of
the TIA date or the 1st of the month of approval.
The Contract Date is determined by these guidelines except you may be permitted
by state insurance law 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 the proposed Insured's insurability, which
may include a medical examination. The available issue ages are 0 through 80 on
a nonsmoker basis, 15 through 80 on a preferred nonsmoker basis, and 15 through
80 on a smoker basis. Age is determined on the Insured's age last birthday on
the Contract Date. The minimum Specified Amount is $100,000 for issue ages 0--49
and $50,000 for issue ages 50--80. Acceptance of an application depends on our
underwriting rules. We have the right to reject any application.
As the Owner of the Contract, you may exercise all rights provided. The Insured
is the Owner unless a different Owner is named in the application. While the
Insured is living, the Owner may by Written Notice name a contingent Owner or a
new Owner. If a contingent Owner has not been named , ownership of the Contract
passes to the estate of the last Owner to die. The Owner may also be changed
prior to the Insured's death by Written Notice satisfactory to us. A change in
Owner may have tax consequences. (See "Tax Considerations," page 49.)
Free Look Right to Cancel Contract
You may cancel your Contract for a refund during your "free-look" period. You
may also cancel an increase in Specified Amount that you have requested. The
free look period expires on the latest of: o 10 days after you receive your
Contract or for an increase, your adjusted Contract; o 45 days after your
application for either the Contract or the increase in Specified Amount is
signed; or o 10 days after we mail or deliver a cancellation notice.
If you decide to cancel the Contract or an increase in Specified Amount, you
must return the Contract to the Home Office or to the authorized Kansas City
Life agent who sold it. Immediately after mailing or delivery within the
"free-look" period, the Contract or the increase will be deemed void from the
beginning. If you cancel the Contract, we will refund premiums paid within seven
calendar days after we receive the returned Contract. (This means that the
amount we refund will not reflect either gains or losses resulting from
Subaccount performance.) If you cancel an increase in the Specified Amount, we
will return any charges attributable to the increase to your Contract Value.
PREMIUM PAYMENTS AND ALLOCATIONS
Premiums
The Contract is flexible with regard to the amount of premiums you pay. When we
issue the Contract we will set a Planned Premium amount. 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. There are requirements regarding the minimum and maximum
premium amounts that you can pay.
We deduct a premium expense charge from all premiums prior to allocating them to
your Contract. (See "Charges and Deductions," page 21.)
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 Insured, the initial Specified Amount, any
supplemental and/or rider benefits and the Planned Periodic Premium payments you
propose to make. (See "Planned Periodic Premiums," below.) Consult your Kansas
City Life agent for information about the initial premium required for the
coverage you desire.
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 modify
the Contract so it continues to qualify as a contract for life insurance.
Modifying the Contract may require evidence of insurability. (See "Tax
Considerations," page 46.)
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 46.)
We reserve the right to require satisfactory evidence of insurability prior to
accepting unscheduled premiums. (See "Premium Allocations and Crediting," page
18.)
General Premium Information. We will not accept premium payments after the
Maturity Date. 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. (See
"Loan Repayment," page 29.)
Planned Premium Payments. When applying for a Contract, you 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 premiums 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 18, and "Guaranteed Payment Period and
Guaranteed Monthly Premium," below.) Subject to the minimum and maximum limits
described above, you can change the amount and frequency of Planned Premiums
Payments at any time.
Guaranteed Payment Period and Guaranteed Monthly Premium. During the
Guaranteed Payment Period we guarantee that your Contract will not lapse if your
premium payments are in line with the Guaranteed Monthly Premium requirement.
For this guarantee to apply the total premiums paid must be at least equal to
the sum of:
1. the amount of accumulated Guaranteed Monthly Premiums in effect , and
2. additional premium amounts to cover the total amount of any partial
surrenders or Contract Loans you have made.
The Guaranteed Payment Period applies for five years after the Contract Date and
five years after the effective date of an increase in the Specified Amount. The
Contract shows the Guaranteed Monthly Premium.
The factors we use to determine the Guaranteed Monthly Premium vary by risk
class, issue Age, and sex. In calculating the Guaranteed Monthly Premium, we
include additional amounts for substandard ratings and supplemental and/or rider
benefits. If you make a change to your Contract, we will:
o recalculate the Guaranteed Monthly Premium;
o notify you of the new Guaranteed Monthly Premium; and
o amend your Contract to reflect the change.
Premium Payments Upon Increase in Specified Amount. A new Guaranteed
Payment Period begins on the effective date of an increase in Specified Amount.
We will notify you of the new Guaranteed Monthly Premium for this period.
Depending on 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 Periodic Premiums. (See "Changes in Specified Amount,"
page 28.)
Premium Payments to Prevent Lapse
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.
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 conditions to
prevent lapse will depend on whether a Guaranteed Payment Period is in effect as
follows:
After the Guaranteed Payment Period. The Contract lapses and a Grace Period
starts if the Cash Surrender Value is not enough to cover the Monthly Deduction.
To prevent the Contract from terminating you must pay enough premium to increase
the Cash Surrender Value to at least the amount of three Monthly Deductions. You
must make this payment before the end of the Grace Period.
During the Guaranteed Payment Period. The Contract lapses and a Grace
Period starts if:
o there is not enough Cash Surrender Value in your Contract to cover the
Monthly Deduction, and
o the premiums paid are less than required to guarantee lapse won't occur
during the Guaranteed Payment Period. (See "Guaranteed Payment Period and
Guaranteed Monthly Premium," page 17.)
If lapse occurs, the premium you must pay to keep the Contract in force will be
equal to the lesser of:
1. the amount to guarantee the Contract won't lapse during the Guaranteed
Payment Period less the accumulated premiums you have paid; and
2. enough premium to increase the Cash Surrender Value to at least the amount
of three Monthly Deductions.
Grace Period. The purpose of the Grace Period is to give you the chance to
pay enough premiums to keep your policy 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
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.)
ALLOCATIONS AND TRANSFERS
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 or within the 24 months following the effective date
of an increase to the Specified Amount.
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 Transfer Privilege, page
19.) 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. 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 Charge
We deduct a 2.25% premium expense charge from each premium payment. This charge
reimburses us for state and local premium taxes as well as related
administrative expenses associated with the Contracts. We apply premium payments
to your Contract net of the premium expense charge.
Monthly Deduction
We will make Monthly Deductions to collect various charges under your Contract.
We will make these Monthly Deductions on each Monthly Anniversary Day following
the Allocation Date. On the Allocation Date, we will deduct Monthly Deductions
for the Contract Date and each Monthly Anniversary that have occurred prior to
the Allocation Date. (See "Applying for Contract," page 15.) The Monthly
Deduction consists of :
(1) cost of insurance charges,
(2) Monthly Expense Charge, and
(3) any charges for supplemental and/or rider benefits, 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.
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 Insured 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 Insured's Age, sex, number of completed Contract Years, Specified Amount
and risk class. We currently place Insureds in one of the following classes,
based on underwriting: o Standard Smoker--available issue Ages 15-80 o Standard
Nonsmoker--available issue Ages 0-80 o Preferred Nonsmoker--available issue Ages
15-80 We may place an Insured in a substandard risk class, which involves a
higher mortality risk than the Standard Smoker or Standard Nonsmoker 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 the cost of insurance charge is deducted).
We guarantee that the cost of insurance rates will not exceed the maximum cost
of insurance rates set forth in the Contracts. The guaranteed rates for standard
and preferred classes are based on the 1980 Commissioners' Standard Ordinary
Mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Rates ("1980 CSO
Tables"). The guaranteed rates for substandard classes are based on multiples of
or additives to the 1980 CSO Tables.
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 for an Insured in a nonsmoker standard class are lower
than rates for an Insured of the same Age and sex in a smoker standard class.
Cost of insurance rates for an Insured in a nonsmoker or smoker standard class
are lower than guaranteed rates for an Insured of the same Age, sex and smoking
class in a substandard class.
Cost of Insurance Rates for Increases. We will determine the cost of
insurance rate for an increase in Specified Amount on each Monthly Anniversary
Day. It is based on the Insured's Age, sex, number of completed Contract Years
and risk class.
We place the Insured in a risk class when we approve the Contract, based on our
underwriting of the application. When you request an increase in Specified
Amount, we do additional underwriting before approving the increase (except as
noted below) to determine the risk class that will apply to the increase. If the
risk class for the increase has lower cost of insurance rates than the existing
risk class, we apply the lower rates to the entire Specified Amount. 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 Specified Amount and
the existing risk class will continue to apply to the existing Specified Amount.
We do not conduct underwriting for an increase in Specified Amount if you
request the increase as part of a conversion from a term contract or on
exercising the Option to Increase Specified Amount Rider. (See "Supplemental
and/or Rider Benefits," page 47.) In the case of a term conversion, the risk
class that applies to the increase is based on the provisions of the term
contract. In the case of an increase under the Option to Increase Specified
Amount Rider, the Insured's risk class for an increase is the class in effect on
the initial Specified Amount at the time that you elect the increase.
We determine the net amount at risk associated with a Specified Amount increase
by determining the percentage that the Specified Amount increase bears to the
Contract's total Specified Amount immediately following the increase. The
resulting percentage is the part of the Contract's total net amount at risk that
we attribute to the Specified Amount increase. We attribute the remaining
percentage of the Contract's total net amount at risk to the existing Specified
Amount. (For example, if the Contract's Specified Amount is increased by
$100,000 and the total Specified Amount is $250,000, then we attribute 40% of
the total net amount at risk to the Specified Amount increase.) On each Monthly
Anniversary Day, the net amount at risk we use to determine the cost of
insurance charge associated with the Specified Amount increase is the Contract's
total net amount of risk at that time, multiplied by the percentage calculated
as described above. This percentage remains fixed until the Specified Amount is
changed.
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 don't vary by sex.)
We also offer Contracts that don't distinguish between male 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.
Monthly Expense Charge. The Monthly Expense Charge is part of the Monthly
Deduction. We begin deducting the Monthly Expense Charge from the Contract Value
as of the Contract Date. (See "Applying for a Contract," page 18.) Thereafter,
we deduct a Monthly Expense Charge as of each Monthly Anniversary Day. The
Monthly Expense Charge is made up of two parts:
(1) a maintenance charge which is a level monthly charge that applies
in all years. We guarantee that the maintenance charge will not
exceed $6.00.
(2) an acquisition charge which is a charge of $20 per Contract Month.
This charge applies for the first Contract Year and for 12 months
following the effective date of an increase in Specified Amount.
The Monthly Expense Charge reimburses us for expenses incurred in the
administration of the Contracts and the Variable Account. Even if the guaranteed
charges prove to be insufficient, we will not increase the charges above such
guaranteed levels and we will incur the loss.
Supplemental and/or Rider Benefit Charges. These charges are part of the
Monthly Deduction and vary by the benefit. (See "Supplemental and/or Rider
Benefits," page 43.)
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 0.90% of net assets. We guarantee that this rate
will not increase for the duration of a Contract.
The mortality risk we assume is that the Insured 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. For the purpose of
assessing the fee, we will consider each written or telephone request for a
transfer to be one transfer, regardless of the number of accounts affected by
the transfer. We will deduct the Transfer Processing Fee from the amount being
transferred or from the remaining Contract Value, according to your
instructions.
Surrender Charge
During the first fifteen Contract Years, we will deduct a Surrender Charge from
the Contract Value if the Contract is completely surrendered, lapses, or the
Specified Amount is reduced (including when a partial surrender reduces the
Specified Amount). The Surrender Charge is the sum of two parts: o the Deferred
Sales Load; and
o the Deferred Administrative Expense.
The total Surrender Charge will not exceed the maximum Surrender Charge set
forth in your Contract. An additional Surrender Charge and Surrender Charge
period will apply to each portion of the Contract resulting from a Specified
Amount increase, starting with the effective date of the increase. We credit any
Surrender Charge deducted upon lapse back to the Contract Value upon
reinstatement. The Surrender Charge on the date of reinstatement will be the
same as it was on the date of lapse. For purposes of determining the Surrender
Charge on any date after reinstatement, the period during which the Contract was
lapsed will not count.
Under some circumstances the amount of the Surrender Charge during the first few
Contract Years could result in a Cash Surrender Value of zero. This will depend
upon a number of factors, but is more likely if: o premiums paid are equal to or
only a little higher than the Guaranteed Monthly Premium shown in your
Contract; or
o if investment performance of the Subaccounts is too low.
See Appendix A for a chart that shows the Maximum Surrender Charge Factors,
depending upon the Insured's Age, sex and underwriting classification.
Deferred Sales Load. The purpose of the Deferred Sales Load is to reimburse
us for some of the expenses we incur in the distribution of the Contracts. This
Deferred Sales Load is 30% of actual premiums paid up to a maximum premium
amount shown in the Contract. We base the maximum premium amount shown in the
Contract on the issue Age, sex, Specified Amount and smoking class applicable to
the Insured. If you increase the Contract's Specified Amount, a separate
Deferred Sales Load will apply to the Specified Amount increase, based on the
Insured's Age, sex and smoking class at the time of the increase.
The Deferred Sales Load in the first nine years of the Surrender Charge period
is 30% of actual premiums paid up to the maximum premium amount shown in the
Contract. After the ninth year of the Surrender Charge Period, the Deferred
Sales Load declines until it reaches 0% in the fifteenth year of the Surrender
Charge period.
Deferred Administrative Expense. The Deferred Administrative Expense
partially covers the administrative costs of the Contracts as well as other
overhead costs connected with our variable life insurance operations. The Table
below shows the Deferred Administrative Expense we deduct if the Contract is
completely surrendered, lapses or if the Specified Amount is reduced (including
when a partial surrender reduces the Specified Amount) during the first fifteen
years of the Contract or during the fifteen years following an increase in
Specified Amount. The Deferred Administrative Expense is an amount per $1,000 of
Specified Amount and grades down to zero at the end of fifteen years.
Table of Deferred Administrative Expenses per $1,000 of Specified Amount
End of Year* Deferred Administrative Expense
1-5 $5.00
6 4.50
7 4.00
8 3.50
9 3.00
10 2.50
11 2.00
12 1.50
13 1.00
14 0.50
15 0.00
* End of year means number of completed Contract Years or number of completed
years following an increase in Specified Amount.
After the fifth year, we will prorate the Deferred Administrative Expense
between years monthly. The charge for the first five years is level.
Partial Surrender Fee
We 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 requested to be surrendered and it
will be considered as part of the partial surrender amount.
Fund Expenses
The value of the net assets of each Subaccount already 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 incurred as a result of the operations of the Subaccounts. We
reserve 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. If the Cash Surrender Value on a
Monthly Anniversary Day is less than the amount of the Monthly Deduction to be
deducted on that date (see "Premium Payments To Prevent Lapse," page 21) and the
Guaranteed Payment Period is not then in effect, the Contract will be in default
and a Grace Period will begin. (See "Guaranteed Payment Period and Guaranteed
Monthly Premium," page 21, and "Grace Period," page 21.)
Bonus on Contract Value in the Variable Account
We may credit a bonus on amounts in the Variable Account beginning in the 11th
Contract Year. We will credit any bonus on each Monthly Anniversary Day. The
monthly bonus equals 0.0375% (0.45% on an annualized basis) of the Contract
Value in each Subaccount at the end of each Contract Month. We don't guarantee
that we will credit the bonus.
Determining the Contract Value
On the Allocation Date the Contract Value is equal to the initial premium less
the premium expense charge and the Monthly Deductions. 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. The Cash Surrender Value on a Valuation Day is equal to the
Contract Value less any applicable Surrender Charges and any Indebtedness. (See
"Premium Payments to Prevent Lapse," page 21 and "Surrendering the Contract for
Cash Surrender Value," page 30.)
DEATH BENEFIT AND CHANGES IN SPECIFIED AMOUNT
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 the Insured's death. We
may require return of the Contract. We will pay the Death Benefit proceeds in a
lump sum (See "Payment of Proceeds," page 43) or, if you prefer, under a payment
option (See "Payment Options," page 31). We will pay the Death Benefit proceeds
to the Beneficiary. (See "Selecting and Changing the Beneficiary," page 29.)
Amount of Death Benefit Proceeds
The Death Benefit proceeds are equal to the following:
o the Death Benefit under the Coverage Option selected calculated on the date of
the Insured's death; plus
o any supplemental and/or rider benefits; minus
o any Indebtedness on that date; minus
o any past due Monthly Deductions if the date of 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 42.)
If part or all of the Death Benefit is 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 Insured's death to the date of payment.
Coverage Options
You may choose one of two Coverage Options, which will be used to determine the
Death Benefit:
o Option A: Death Benefit is the Specified Amount. Option A generally
provides a level Death Benefit unless performance is very favorable and the
applicable percentage calculation (described below) becomes applicable. The
Death Benefit ordinarily will not change for several years to reflect any
favorable investment performance and may not change at all.
o Option B: Death Benefit is at least equal to the Specified Amount plus the
Contract Value on the date of death. Thus, the Death Benefit will vary
directly with the investment performance of the Contract Value.
To see how and when investment performance may begin to affect the Death
Benefit, see the illustrations beginning on page 38.
Under both Options A and B we perform another calculation to ensure that the
amount of insurance we provide meets the definition of life insurance under the
Internal Revenue Code. To apply this calculation, we multiply the applicable
percentage by the Contract Value on the date of death. If the resulting amount
is greater than the amount provided under the Coverage Option, the Death Benefit
is equal to this greater amount. The "applicable percentage" is 250% when the
Insured is Age 40 or less. The percentage decreases each year after age 40 to
100% when the Insured has attained Age 95.
Initial Specified Amount and Coverage Option
The initial Specified Amount is set at the time the Contract is issued. You
select the Coverage Option when you apply for the Contract. You may change the
Specified Amount and Coverage Option, as discussed below.
Changes in Coverage Option
We reserve the right to require that no change in Coverage Option occur during
the first Contract Year and that you make no more than one change in Coverage
Option in any 12-month period. After any change, we require the Specified Amount
to be at least $100,000 for issue Ages 0-49 and $50,000 for issue Ages 50-80.
The effective date of the change will be the Monthly Anniversary Day that
coincides with or next follows the day that we receive and accept the request.
We may require satisfactory evidence of insurability.
When you make a change from Option A to Option B, the Specified Amount after the
change is effective will be equal to the Specified Amount before the change. The
Death Benefit will increase by the amount of the Contract Value on the effective
date of the change. When you make a change from Option B to Option A, the
Specified Amount after the change will be equal to the Specified Amount before
the change is effected plus the Contract Value on the effective date of the
change. We may require satisfactory evidence of insurability.
A change in Coverage Option may have tax consequences. (See "Tax
Considerations," page 46.)
Changes in Specified Amount
You may increase or decrease the Specified Amount. We may require that the
Contract be in force for one Contract Year before a change in Specified Amount
and that you make only one change every twelve Contract Months. If a change in
the Specified Amount results in total premiums paid exceeding the premium
limitations set out under current tax law to qualify your Contract as a life
insurance contract, we will refund the amount of such premium in excess of the
limitations. We will make such a refund after the next Monthly Anniversary.
Decreases. We require that the Specified Amount after any decrease must be
at least $100,000 for Contracts that were issued at Ages 0-49 and $50,000 for
Contracts that were issued at Ages 50-80. A decrease in Specified Amount will be
effective on the Monthly Anniversary Day on or following the day we receive your
Written Notice.
Decreasing the Specified Amount may decrease monthly Cost of Insurance Charges.
However, a Surrender Charge will apply if the Specified Amount is decreased (See
"Surrender Charge," page 23.)
We reserve the right to decline a requested decrease in the Specified
Amount in the following circumstances:
o to help ensure compliance with the guideline premium limitations;
o if compliance with the guideline premium limitations under current tax
law resulting from this decrease would result in immediate termination of
the Contract;
o if we would have to make payments to you from the Contract Value for
compliance with the guideline premium limitations and the amount of such
payments would exceed the Cash Surrender Value of the Contract.
A decrease in the Specified Amount may have tax consequences. (See "Tax
Considerations," page 46.)
Increases. In order to be eligible for an increase you must submit an
application. We may require satisfactory evidence of insurability. We may
decline an application for an increase.
Any increase in the Specified Amount must be at least $25,000. (In Pennsylvania
and Texas, an increase in the Specified Amount must be at least $100,000 for
Ages 0-49 and $50,000 for Ages 50-80.) In addition, the Insured's Age must be
less than the current maximum issue Age for the Contracts. The increase in
Specified Amount is effective on the Monthly Anniversary Day on or after the
date we receive and approve the request for the increase.
An increase has the following affect on premium payments:
o a change in Planned Premiums may be advisable. (See "Premium Payments Upon
Increase in Specified Amount," page 17);
o a new Guaranteed Payment Period begins on the effective date of the
increase and will continue for five years (see "Guaranteed Payment Period
and Guaranteed Monthly Premium," page 21); and
o if a Guaranteed Payment Period is in effect, we will recalculate the
Contract's Guaranteed Monthly Premium to reflect the increase. (See
"Guaranteed Payment Period and Guaranteed Monthly Premium," page 21.)
A new Surrender Charge and Surrender Charge period apply to each portion of the
Contract resulting from an increase in Specified Amount, starting with the
effective date of the increase. (See "Surrender Charge," page 23). After an
increase, we (for purposes of calculating Surrender Charges) attribute a portion
of each premium payment you make to the Specified Amount increase, even if you
don't increase the amount or frequency of your premiums. We allocate premiums
based upon the proportion that the "coverage premium weighting factor" for the
initial Specified Amount and each increase bears to the total "coverage premium
weighting factor" for the Contract.
The "coverage premium weighting factor" is a hypothetical, level amount that
would be payable through the Maturity Date for the benefits provided under the
Contract. We calculate this amount using the following assumptions: o cost of
insurance rates based on the 1980 Commissioners Standard Ordinary Mortality
Tables; o net investment earnings under the Contract; o an effective annual rate
of 5%; and o sales and other charges imposed under the Contract.
For purposes of calculating Surrender Charges and cost of insurance charges, any
Specified Amount decrease is used to reduce any previous Specified Amount
increase then in effect, starting with the latest increase and continuing in the
reverse order in which the increases were made. If any portion of the decrease
is left after all Specified Amount increases have been reduced, it is used to
reduce the initial Specified Amount.
You may cancel an increase in Specified Amount in accordance with the Contract's
"free look" provisions. In such case, the amount refunded will be limited to
those charges that are attributable to the increase. (See "Free Look Right to
Cancel Contract," page 16.)
Selecting and Changing the Beneficiary
You select the Beneficiary in your application. You may change a Beneficiary
designation in accordance with the terms of the Contract. If you make an
irrevocable Beneficiary designation, 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 the Insured dies and there is no surviving
Beneficiary, the Owner will be the Beneficiary.
CASH BENEFITS
Contract Loans
You may borrow from your Contract while the Insured is living by submitting a
written request to us. You may also make loans by telephone if you made the
appropriate election at the time of application or provided proper authorization
to us. (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 your Written Request is received and approved. We
will send Loan proceeds to you, usually within seven calendar days. (See
"Payment of Proceeds," page 43.)
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 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 can 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 Contract Value in those accounts 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. It is 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 if you are considering taking out a preferred loan.
Loan Repayment. You may repay all or part of your Indebtedness at any time
while the Insured is living and the Contract is in force. Each loan repayment
must be at least $10.00. Loan repayments must be sent to the Home Office and we
will credit them as of the date received. You should clearly mark a loan
repayment as such or we will be credit it as a premium. (Premium expense 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 46, for a discussion of
the tax treatment of Contract 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 27.)
Your Contract will be in default if the Loan Account Value on any Valuation Day
exceeds the Contract Value less any applicable Surrender Charge. We will send
you notice of the default. You will have a 61-day Grace Period to submit a
sufficient payment to avoid termination. The notice will specify the amount that
must be repaid to prevent termination. (See "Premium Payments to Prevent Lapse,"
page 18.)
Surrendering the Contract for Cash Surrender Value
You may surrender your Contract at any time for its Cash Surrender Value by
submitting a Written Request to the Home Office. A Surrender Charge may apply.
(See "Surrender Charge," page 23.) 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 43.) You may receive the Cash Surrender
Value in one lump sum or you may apply it to a payment option. (See "Payment
Options," page 31.) Your Contract will terminate and cease to be in force if you
surrender it for one lump sum. You will not be to able to later reinstate it.
Surrenders may have adverse tax consequences.(See "Tax Considerations," page
46.)
(In Texas, if you request a surrender within 31 days after a Contract
Anniversary, the Cash Surrender Value applicable to the Fixed Account Value will
not be less than the Cash Surrender Value applicable to the Fixed Account on
that anniversary, less any Contract loans or partial surrenders made on or after
such Anniversary.)
Partial Surrenders
You may make partial surrenders under your Contract at any time subject to the
conditions below. You must submit a written request to the Home Office. Each
partial surrender must be at least $500 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 24.) 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"). We will reduce the Contract Value by the partial surrender amount as
of the date we receive a written request for a partial surrender.
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 20.) Partial
surrenders may have adverse tax consequences.
(See "Tax Considerations," page 46.)
If Coverage Option A is in effect, we will reduce the Specified Amount by an
amount equal to the partial surrender amount, less the excess (if any) of the
Death Benefit over the Specified Amount at the time the partial surrender is
made. If the partial surrender amount is less than the excess of the Death
Benefit over the Specified Amount, we will not reduce the Specified Amount. We
reserve the right to reject a partial surrender request if:
o the partial surrender would reduce the Specified Amount below the minimum
amount for which the Contract would be issued under our then-current rules;
or
o the partial surrender would cause the Contract to fail to qualify as a life
insurance contract under applicable tax laws as we interpret them. If a
partial surrender does result in a reduction of the Specified Amount, a
Surrender Charge will apply as described in "Changes in Specified Amount,"
page 28.
We will process partial surrender requests as of the date we receive your
written request and generally we will make payment within seven calendar days.
(See "Payment of Proceeds," page 43.)
Maturity Benefit
The Maturity Date is the date that we pay the maturity benefit to you if the
Contract is still in force. The Maturity Date is the Contract Anniversary next
following the Insured's 95th birthday. The Maturity Benefit is equal to the Cash
Surrender Value on the Maturity Date.
Payment Options
The Contract offers a variety of ways, in addition to a lump sum, for you to
receive proceeds payable under the Contract. Payment options are available for
use with various types of proceeds, such as surrender, death or maturity. We
summarize these payment options below. All of these options are forms of
fixed-benefit annuities which don't vary with the investment performance of a
separate account.
You may apply proceeds of $2,000 ($2,000 minimum may not apply in some states)
or more which are payable under this Contract to any of the following options:
Option 1 - Interest Payments. We will make interest payments to the payee
annually or monthly as elected. 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. The present value of any unpaid
installments may be withdrawn 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 pay an income during the payee's lifetime. You
may choose a minimum guaranteed payment period. Another option available in this
category 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 reserve 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
sufficient premiums are not paid, the Contract may lapse or may not accumulate
enough 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 46.)
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 Periodic Premiums accumulated at
5% interest compounded annually.
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; and
o an annual premium is paid at the beginning of each Contract Year. Values
will be different if the premiums are paid 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 illustrations reflect the daily charge to the Variable Account
for assuming mortality and expense risks, which is equivalent to an annual
charge of 0.90%. After deduction of Portfolio expenses and the mortality and
expense risk charge, the illustrated gross annual investment rates of return of
0%, 6% and 12% corresponds to approximate net annual rates of -1.80%, 4.15% and
10.09%, respectively.
The illustrations also reflect the deduction of the Premium Expense Charge and
the Monthly Deduction. The Monthly Deduction includes the cost of insurance
charge. We have the contractual right to charge higher guaranteed maximum
charges than our current cost of insurance charges. In addition, the bonus,
which, if paid, would partially offset the Monthly Deduction beginning in the
eleventh Contract Year, is not guaranteed and will be paid at our sole
discretion. The current cost of insurance charges and payment of the bonus
beginning in the eleventh Contract Year and, alternatively, the guaranteed cost
of insurance charges and nonpayment of the bonus, are reflected in separate
illustrations on each of the following pages. All the illustrations reflect the
fact that no charges for Federal or state income taxes are currently made
against the Variable Account and assume no Indebtedness or charges for
supplemental and/or rider benefits.
The illustrations are based on Kansas City Life's sex distinct rates for
nonsmokers. Upon request, we will furnish you with a comparable illustration
based upon the proposed Insured's individual circumstances. Such illustrations
may assume different hypothetical rates of return than those illustrated in the
following tables.
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST OF INSURANCE RATES
BONUS PAID BEGINNING IN YEAR 11
Male, 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 1,050 481 0 100,000 524 0 100,000 567 0 100,000
2 2,153 1,184 265 100,000 1,307 388 100,000 1,436 517 100,000
3 3,310 1,864 464 100,000 2,113 713 100,000 2,383 983 100,000
4 4,526 2,520 820 100,000 2,940 1,240 100,000 3,413 1,713 100,000
5 5,802 3,153 1,153 100,000 3,790 1,790 100,000 4,536 2,536 100,000
6 7,142 3,759 1,797 100,000 4,661 2,699 100,000 5,759 3,797 100,000
7 8,549 4,339 2,427 100,000 5,552 3,640 100,000 7,090 5,178 100,000
8 10,027 4,892 3,030 100,000 6,465 4,603 100,000 8,541 6,679 100,000
9 11,578 5,417 3,605 100,000 7,398 5,586 100,000 10,123 8,311 100,000
10 13,207 5,913 4,403 100,000 8,352 6,842 100,000 11,848 10,338 100,000
15 22,657 8,202 8,202 100,000 13,827 13,827 100,000 23,830 23,830 100,000
20 34,719 9,682 9,682 100,000 20,088 20,088 100,000 43,345 43,345 100,000
25 50,113 9,864 9,864 100,000 26,941 26,941 100,000 75,746 75,746 100,000
30 69,761 7,862 7,862 100,000 33,982 33,982 100,000 129,365 129,365 155,237
- ------------ ------------------- --------- --------- ----------- -------- --------- -------- ------- --------- --------
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED COST OF INSURANCE RATES
NO BONUS PAID
Male, 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 1,050 481 0 100,000 524 0 100,000 567 0 100,000
2 2,153 1,184 265 100,000 1,307 388 100,000 1,436 517 100,000
3 3,310 1,864 464 100,000 2,113 713 100,000 2,383 983 100,000
4 4,526 2,520 820 100,000 2,940 1,240 100,000 3,413 1,713 100,000
5 5,802 3,153 1,153 100,000 3,790 1,790 100,000 4,536 2,536 100,000
6 7,142 3,759 1,797 100,000 4,661 2,699 100,000 5,759 3,797 100,000
7 8,549 4,339 2,427 100,000 5,552 3,640 100,000 7,090 5,178 100,000
8 10,027 4,892 3,030 100,000 6,465 4,603 100,000 8,541 6,679 100,000
9 11,578 5,417 3,605 100,000 7,398 5,586 100,000 10,123 8,311 100,000
10 13,207 5,913 4,403 100,000 8,352 6,842 100,000 11,848 10,338 100,000
15 22,657 7,895 7,895 100,000 13,387 13,387 100,000 23,163 23,163 100,000
20 34,719 8,794 8,794 100,000 18,688 18,688 100,000 40,907 40,907 100,000
25 50,113 7,951 7,951 100,000 23,718 23,718 100,000 69,394 69,394 100,000
30 69,761 4,202 4,202 100,000 27,538 27,538 100,000 115,842 115,842 139,010
- ------------ ------------------- --------- --------- ----------- -------- --------- -------- ------- --------- --------
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT COST OF INSURANCE RATES
BONUS PAID BEGINNING IN YEAR 11
Male, 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 1,050 480 0 100,480 523 0 100,523 566 0 100,566
2 2,153 1,181 81 101,181 1,303 203 101,303 1,432 332 101,432
3 3,310 1,857 457 101,857 2,104 704 102,104 2,373 973 102,373
4 4,526 2,507 807 102,507 2,925 1,225 102,925 3,395 1,695 103,395
5 5,802 3,133 1,133 103,133 3,766 1,766 103,766 4,506 2,506 104,506
6 7,142 3,730 1,768 103,730 4,624 2,662 104,624 5,711 3,749 105,711
7 8,549 4,299 2,387 104,299 5,499 3,587 105,499 7,019 5,107 107,019
8 10,027 4,839 2,977 104,839 6,392 4,530 106,392 8,439 6,577 108,439
9 11,578 5,349 3,537 105,349 7,300 5,488 107,300 9,981 8,169 109,981
10 13,207 5,826 4,316 105,826 8,222 6,712 108,222 11,653 10,143 111,653
15 22,657 7,982 7,982 107,982 13,424 13,424 113,424 23,084 23,084 123,084
20 34,719 9,231 9,231 109,231 19,065 19,065 119,065 40,985 40,985 140,985
25 50,113 9,033 9,033 109,033 24,568 24,568 124,568 68,802 68,802 168,802
30 69,761 6,491 6,491 106,491 28,756 28,756 128,756 111,713 111,713 211,713
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED COST OF INSURANCE RATES
NO BONUS PAID
Male, 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 1,050 480 0 100,480 523 0 100,523 566 0 100,566
2 2,153 1,181 81 101,181 1,303 203 101,303 1,432 332 101,432
3 3,310 1,857 457 101,857 2,104 704 102,104 2,373 973 102,373
4 4,526 2,507 807 102,507 2,925 1,225 102,925 3,395 1,695 103,395
5 5,802 3,133 1,133 103,133 3,766 1,766 103,766 4,506 2,506 104,506
6 7,142 3,730 1,768 103,730 4,624 2,662 104,624 5,711 3,749 105,711
7 8,549 4,299 2,387 104,299 5,499 3,587 105,499 7,019 5,107 107,019
8 10,027 4,839 2,977 104,839 6,392 4,530 106,392 8,439 6,577 108,439
9 11,578 5,349 3,537 105,349 7,300 5,488 107,300 9,981 8,169 109,981
10 13,207 5,826 4,316 105,826 8,222 6,712 108,222 11,653 10,143 111,653
15 22,657 7,670 7,670 107,670 12,973 12,973 112,973 22,399 22,399 122,399
20 34,719 8,322 8,322 108,322 17,613 17,613 117,613 38,426 38,426 138,426
25 50,113 7,088 7,088 107,088 21,196 21,196 121,196 61,935 61,935 161,935
30 69,761 2,890 2,890 102,890 22,063 22,063 122,063 95,924 95,924 195,924
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST OF INSURANCE RATES
BONUS PAID BEGINNING IN YEAR 11
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 1,050 503 0 100,000 546 0 100,000 590 0 100,000
2 2,153 1,226 337 100,000 1,352 463 100,000 1,483 595 100,000
3 3,310 1,925 525 100,000 2,180 780 100,000 2,456 1,056 100,000
4 4,526 2,601 901 100,000 3,031 1,331 100,000 3,516 1,816 100,000
5 5,802 3,252 1,456 100,000 3,906 2,110 100,000 4,670 2,874 100,000
6 7,142 3,877 2,131 100,000 4,802 3,056 100,000 5,927 4,181 100,000
7 8,549 4,474 2,778 100,000 5,720 4,024 100,000 7,297 5,601 100,000
8 10,027 5,046 3,400 100,000 6,661 5,015 100,000 8,790 7,144 100,000
9 11,578 5,592 3,996 100,000 7,627 6,031 100,000 10,422 8,826 100,000
10 13,207 6,113 4,783 100,000 8,618 7,288 100,000 12,207 10,877 100,000
15 22,657 8,706 8,706 100,000 14,511 14,511 100,000 24,796 24,796 100,000
20 34,719 10,813 10,813 100,000 21,638 21,638 100,000 45,600 45,600 100,000
25 50,113 12,299 12,299 100,000 30,243 30,243 100,000 80,367 80,367 104,478
30 69,761 12,763 12,763 100,000 40,499 40,499 100,000 137,873 137,873 165,448
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED COST OF INSURANCE RATES
NO BONUS PAID
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 1,050 503 0 100,000 546 0 100,000 590 0 100,000
2 2,153 1,226 337 100,000 1,352 463 100,000 1,483 595 100,000
3 3,310 1,925 525 100,000 2,180 780 100,000 2,456 1,056 100,000
4 4,526 2,601 901 100,000 3,031 1,331 100,000 3,516 1,816 100,000
5 5,802 3,252 1,456 100,000 3,906 2,110 100,000 4,670 2,874 100,000
6 7,142 3,877 2,131 100,000 4,802 3,056 100,000 5,927 4,181 100,000
7 8,549 4,474 2,778 100,000 5,720 4,024 100,000 7,297 5,601 100,000
8 10,027 5,046 3,400 100,000 6,661 5,015 100,000 8,790 7,144 100,000
9 11,578 5,592 3,996 100,000 7,627 6,031 100,000 10,422 8,826 100,000
10 13,207 6,113 4,783 100,000 8,618 7,288 100,000 12,207 10,877 100,000
15 22,657 8,309 8,309 100,000 13,969 13,969 100,000 24,017 24,017 100,000
20 34,719 9,681 9,681 100,000 19,939 19,939 100,000 42,808 42,808 100,000
25 50,113 10,016 10,016 100,000 26,506 26,506 100,000 73,363 73,363 100,000
30 69,761 8,844 8,844 100,000 33,543 33,543 100,000 123,101 123,101 147,721
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT COST OF INSURANCE RATES
BONUS PAID BEGINNING IN YEAR 11
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 1,050 502 0 100,502 545 0 100,545 589 0 100,589
2 2,153 1,223 137 101,223 1,348 263 101,348 1,479 394 101,479
3 3,310 1,919 519 101,919 2,172 772 102,172 2,447 1,047 102,447
4 4,526 2,589 889 102,589 3,017 1,317 103,017 3,499 1,799 103,499
5 5,802 3,234 1,438 103,234 3,883 2,087 103,883 4,643 2,847 104,643
6 7,142 3,850 2,104 103,850 4,768 3,022 104,768 5,884 4,138 105,884
7 8,549 4,438 2,742 104,438 5,670 3,974 105,670 7,231 5,535 107,231
8 10,027 4,997 3,351 104,997 6,592 4,946 106,592 8,696 7,050 108,696
9 11,578 5,528 3,932 105,528 7,534 5,938 107,534 10,289 8,693 110,289
10 13,207 6,032 4,702 106,032 8,497 7,167 108,497 12,025 10,695 112,025
15 22,657 8,513 8,513 108,513 14,155 14,155 114,155 24,140 24,140 124,140
20 34,719 10,440 10,440 110,440 20,797 20,797 120,797 43,663 43,663 143,663
25 50,113 11,653 11,653 111,653 28,444 28,444 128,444 75,184 75,184 175,184
30 69,761 11,694 11,694 111,694 36,782 36,782 136,782 125,905 125,905 225,905
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 averaged 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
$1,000 ANNUAL PREMIUM
$100,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED COST OF INSURANCE RATES
NO BONUS PAID
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 1,050 502 0 100,502 545 0 100,545 589 0 100,589
2 2,153 1,223 137 101,223 1,348 263 101,348 1,479 394 101,479
3 3,310 1,919 519 101,919 2,172 772 102,172 2,447 1,047 102,447
4 4,526 2,589 889 102,589 3,017 1,317 103,017 3,499 1,799 103,499
5 5,802 3,234 1,438 103,234 3,883 2,087 103,883 4,643 2,847 104,643
6 7,142 3,850 2,104 103,850 4,768 3,022 104,768 5,884 4,138 105,884
7 8,549 4,438 2,742 104,438 5,670 3,974 105,670 7,231 5,535 107,231
8 10,027 4,997 3,351 104,997 6,592 4,946 106,592 8,696 7,050 108,696
9 11,578 5,528 3,932 105,528 7,534 5,938 107,534 10,289 8,693 110,289
10 13,207 6,032 4,702 106,032 8,497 7,167 108,497 12,025 10,695 112,025
15 22,657 8,103 8,103 108,103 13,590 13,590 113,590 23,319 23,319 123,319
20 34,719 9,258 9,258 109,258 18,985 18,985 118,985 40,617 40,617 140,617
25 50,113 9,268 9,268 109,268 24,386 24,386 124,386 67,194 67,194 167,194
30 69,761 7,648 7,648 107,648 29,146 29,146 129,146 108,066 108,066 208,066
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 averaged 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.
</TABLE>
<PAGE>
OTHER CONTRACT BENEFITS AND PROVISIONS
Limits on Rights to Contest the Contract
Incontestability. After the Contract has been in force during the Insured's
lifetime for two years from the Contract Date (or less if required by state
law), we may not contest it unless it lapses.
We will not contest any increase in the Specified Amount after the increase has
been in force during the Insured's lifetime for two years following the
effective date of the increase (or less if required by state law) unless the
Contract lapses.
If a Contract lapses and is reinstated, we cannot contest the reinstated
Contract after it has been in force during the Insured's lifetime for two years
from the date of the reinstatement application (or less if required by state
law) unless the Contract lapses.
Suicide Exclusion. If the Insured dies by suicide, while sane or insane,
within two years of the Contract Date (or less if required by state law), the
amount payable will be equal to the Contract Value less any Indebtedness.
If the Insured dies by suicide, while sane or insane, within two years after the
effective date of any increase in the Specified Amount (or less if required by
state law), the amount payable 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 it is determined that the Age or sex of the
Insured as stated in the Contract is not correct, while the Contract is in force
and the Insured is alive, we will adjust the Contract Value. The adjustment will
be the difference between the following amounts accumulated at 4% interest
annually (unless otherwise required by state law). The two amounts are: (1) the
cost of insurance deductions that have been made; and (2) the cost of insurance
deductions that should have been made.
If after the death of the Insured while this Contract is in force, it is
determined the Age or sex of the Insured as stated in the Contract is not
correct, the Death Benefit will be the net amount at risk that the most recent
cost of insurance deductions at the correct Age and sex would have provided plus
the Contract Value on the date of death (unless otherwise required by state
law).
Other Changes. Upon notice 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 reserve 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 endorsement 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.
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.
Reinstatement
If your Contract lapses, you may reinstate it within two years (or longer period
if required by state law) after lapse and before the Maturity Date.
Reinstatement must meet certain conditions, including the payment of the
required premium and proof of insurability. See your Contract for further
information.
Supplemental and/or Rider Benefits
The following supplemental and/or rider benefits are available and may be added
to your Contract. We will deduct monthly charges for these benefits and/or
riders from your Contract Value as part of the Monthly Deduction. All of these
riders may not be available in all states.
Disability Continuance of Insurance (DCOI)
Issue Ages: 15-55, renewal through age 59
This rider covers the Contract's Monthly Deductions during the period of
total disability of the Insured. DCOI benefits become payable after the
Insured's total disability exists for six consecutive months and total
disability occurs before age 60. Benefits under this rider continue until
the Insured is no longer totally disabled.
Disability Premium Benefit Rider (DPB)
Issue Ages: 15-55, renewal through 59
This rider provides for the payment of the disability premium benefit
amount as premium to the Contract during a period of total disability of
the Insured. The DPB benefit amount is a monthly amount that you request.
DPB benefits become payable after the Insured's total disability exists for
six consecutive months and total disability occurs before age 60. Benefits
under this rider continue until the Insured is no longer totally disabled.
Accidental Death Benefit (ADB)
Issue Ages: 5-60
This rider provides for the payment of an additional amount of insurance in
the event of accidental death. The rider terminates when the Insured
attains age 70.
Option to Increase Specified Amount (Assured Insurability - AI)
Issue Ages: 0-38
This rider allows the Specified Amount of the Contract to increase by the
option amount or less, without evidence of insurability on the Insured.
These increases may occur on regular option dates or alternate option
dates. See the rider Contract for the specific dates.
Spouse's Term Insurance (STI)
Issue Ages: 15-50 (Spouse's age)
This rider provides decreasing term insurance on the Insured's spouse. The
amount of insurance coverage is expressed in units and a maximum number of
five units may be purchased. The amount of insurance per unit of coverage
is based on the Insured Spouse's attained age. A table specifying the
amount of insurance per unit of coverage is in the rider contract.
Children's Term Insurance (CTI)
Issue Ages: 14 Days - 17 Years (Children's ages)
This rider provides level term insurance on each Insured Child. This term
insurance continues until the Contract anniversary on which the Insured
Child's attained age is 25. The rider expires on the Contract Anniversary
on which the Insured is age 65.
Other Insured Term Insurance (OI)
Issue Ages: 0-65 (Other Insured's age)
This rider provides level yearly renewable term coverage on the Insured,
the Insured's spouse, and/or children. The coverage expires at the earlier
of the Contract Anniversary on which the Insured or the Other Insured is
age 95 unless an earlier date is requested. The term insurance provided by
this rider can be converted to a permanent contract at any time the rider
is in force without evidence of insurability.
Extra Protection (EXP)
Issue Ages: 0-80
This rider provides level yearly renewable term coverage on the Insured.
The coverage expires at the Contract Anniversary on which the Insured is
age 95 unless an earlier date is requested.
Maturity Extension Rider (MER)
Issue Ages: No restrictions
This rider provides the Contract Owner with the option to delay the
Maturity Date of the Contract by 20 years. The tax consequences of
extending the Maturity Date of the Contract beyond the 100th birthday of
the Insured are uncertain. You should consult a tax adviser as to such
consequences.
Accelerated Death Benefit/Living Benefits Rider (LBR)
Issue Ages: No restrictions
This rider provides you the opportunity to receive an accelerated payment
of all or part of the Contract's Death Benefit (adjusted to reflect current
value) when the Insured is either terminally ill or receives care in an
eligible nursing home. The rider provides for two accelerated payment
options:
o Terminal Illness Option: This option is available if the Insured is
diagnosed as terminally ill with a life expectancy of 12 months or
less. When satisfactory evidence is provided, we will provide an
accelerated payment of the portion of the death benefit you select as
an Accelerated Death Benefit. You may elect to receive the benefit in a
single sum or receive equal, monthly payments for 12 months.
o Nursing Home Option: This option is available after the Insured has
been confined to an eligible nursing home for six months or more. When
satisfactory evidence is provided, including certification by a
licensed physician, that the Insured is expected to remain in the
nursing home until death, we will provide an accelerated payment of the
portion of the Death Benefit you select as an Accelerated Death
Benefit. You may elect to receive the benefit in a single sum or
receive equal, monthly payments for a specified number of years (not
less than two) depending upon the age of the Insured.
We can furnish you details about the amount of accelerated death benefit
available to you if you are eligible and the adjusted premium payments that
would be in effect if less than the entire death benefit is accelerated.
You are not eligible for this benefit if you are required by law or a
government agency to: (1) exercise this option to satisfy the claims of
creditors, or (2) exercise this option in order to apply for, obtain, or retain
a government benefit or entitlement.
You should know that electing to use the Accelerated Death Benefit could
have adverse tax consequences. You should consult a tax adviser before
electing to receive this benefit.
There is no charge for this rider.
The Other Insured Term Insurance and Extra Protection riders permit you, by
purchasing term insurance, to increase insurance coverage without increasing the
Contract's Specified Amount. However, you should be aware that the cost of
insurance charges and Surrender Charges associated with purchasing insurance
coverage under these term riders may be different than would be associated with
increasing the Specified Amount under the Contract.
The Other Insured rider has one risk class for nonsmokers and one risk class for
smokers. The nonsmoker cost of insurance rates for this rider are generally
between the Contract's preferred and standard nonsmoker rates. The smoker cost
of insurance rates are near the Contract's smoker rates. The cost of insurance
rates for the Extra Protection Rider are generally lower than the Contract's
rates. In addition, since the term insurance riders don't have surrender
charges, a Contract providing insurance coverage with a combination of Specified
Amount and term insurance will have a lower maximum Surrender Charge than a
Contract with the same amount of insurance coverage provided solely by the
Specified Amount. In addition, sales representatives generally receive somewhat
lower compensation from a term insurance rider than if the insurance coverage
were part of the Contract's Specified Amount.
Your determination as to how to purchase a desired level of insurance coverage
should be based on your specific insurance needs. Consult your sales
representative for further information.
Additional rules and limits apply to these supplemental and/or rider benefits.
Not all such benefits may be available at any time, and supplemental and/or
rider benefits in addition to those listed above may be made available. Please
ask your Kansas City Life agent for further information or contact the Home
Office.
TAX CONSIDERATIONS
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 is limited. Nevertheless, we believe that Contracts issued on
a standard basis should satisfy the applicable requirements. There is less
guidance, however, with respect to Contracts issued on a substandard basis,
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.
- 61 -
Tax Treatment of Contract Benefits
In General. We believe that the Death Benefit under a Contract should be
excludible 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 59 1/2 or 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.
<PAGE>
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.
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 Insured's 100th year
are unclear. You should consult a tax adviser if you intend to keep the Contract
in force beyond the 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
We will offer the Contracts to the public on a continuous basis. We don't plan
to discontinue offering of the Contracts, but we have the right to do so.
Currently, the Contracts will be offered in all states except New Jersey, New
York and Vermont. Applications for Contracts are solicited by agents who are
licensed by 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 Underwriter, 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 419365, Kansas City, Missouri 64141-6365.
Sunset Financial may pay registered representatives commissions on Contracts
they sell based on premiums paid, in amounts up to 50% of premiums paid during
the first Contract Year and up to 3% on premiums paid after the first Contract
Year. In certain circumstances Sunset Financial may pay additional commissions,
other allowances and overrides.
When policies are sold through other broker-dealers that have entered into
selling agreements with Sunset Financial Services, the commission paid by such
broker-dealers to their representatives will be in accordance with their
established rules. The commission rates may be more or less than those set forth
above for Kansas City Life's representatives. In addition, their qualified
registered representatives may be reimbursed by the broker-dealers under expense
reimbursement allowance programs in any year for approved expenses. The
broker-dealers will be compensated as provided in the selling agreements and
Sunset Financial Services, Inc. will reimburse Kansas City Life for such amounts
and for certain other direct expenses in connection with marketing the Contracts
through other broker-dealers.
Telephone 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.
Daryl D. 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.
Larry Winn 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.
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 each of the three years in the period ended December 31, 1998,
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 December 31, 1997.
The Independent Auditor's Report 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 December 31, 1997.
<PAGE>
Appendix A
Maximum Surrender Charge Factors
(Per$1,000)
Male Female
Issue Age SM NS SM NS
0 24.48 23.76
1 24.48 23.76
2 24.48 23.76
3 24.48 23.76
4 24.48 23.76
5 24.48 23.76
6 25.20 23.76
7 25.20 23.76
8 25.92 24.48
9 25.92 24.48
10 26.64 24.48
11 28.08 25.20
12 28.80 25.20
13 30.24 25.92
14 30.96 25.92
15 36.72 32.40 29.52 26.64
16 37.44 32.40 30.24 26.64
17 37.44 32.40 30.24 27.36
18 38.16 33.12 30.96 27.36
19 38.16 33.12 30.96 28.08
20 38.88 33.12 31.68 28.08
21 39.60 33.12 32.40 28.08
22 40.32 33.12 32.40 28.08
23 41.04 33.12 33.12 28.80
24 41.76 33.12 33.12 28.80
25 42.48 33.12 33.84 28.80
26 44.64 34.56 35.28 30.24
27 46.08 36.00 36.72 30.96
28 48.24 37.44 38.16 32.40
29 50.40 38.88 39.60 33.84
30 52.56 40.32 41.04 35.28
31 54.72 42.48 43.20 36.72
32 57.60 43.92 44.64 38.16
33 59.76 46.08 46.80 39.60
34 62.64 48.24 48.96 41.76
35 65.52 50.40 51.12 43.20
36 68.40 52.56 53.28 45.36
37 72.00 54.72 55.44 47.52
38 75.60 57.60 58.32 49.68
39 79.20 60.48 60.48 51.84
40 82.80 62.64 63.36 54.00
41 87.12 66.24 66.24 56.16
42 90.72 69.12 69.12 59.04
43 95.76 72.72 72.00 61.20
44 100.08 75.60 75.60 64.08
45 105.12 79.92 79.20 66.96
46 110.16 83.52 82.08 70.56
47 115.92 87.84 86.40 73.44
48 121.68 92.16 90.00 77.04
49 128.16 97.20 94.32 80.64
50 134.64 102.24 98.64 84.96
51 141.12 107.28 102.96 88.56
52 148.32 113.04 108.00 92.88
53 156.24 118.80 113.04 97.92
54 164.88 125.28 118.80 102.96
55 173.52 132.48 123.84 108.00
56 182.16 139.68 130.32 113.04
57 191.52 146.88 136.80 119.52
58 202.32 155.52 143.28 125.28
59 213.12 164.16 150.48 132.48
60 224.64 173.52 158.40 139.68
61 236.88 183.60 167.04 147.60
62 249.84 194.40 176.40 155.52
63 263.52 205.92 185.76 164.88
64 277.92 218.16 196.56 174.24
65 293.04 231.12 207.36 184.32
66 308.88 245.52 218.88 195.84
67 326.16 260.64 231.84 207.36
68 344.16 276.48 244.80 220.32
69 363.60 293.76 259.92 234.72
70 383.76 312.48 275.76 249.84
71 405.36 332.64 293.04 266.40
72 429.12 354.24 312.48 284.40
73 452.88 376.56 332.64 303.84
74 478.80 401.04 354.96 325.44
75 505.44 426.96 378.72 348.48
76 532.80 454.32 403.20 372.96
77 561.60 483.12 430.56 399.60
78 591.84 514.80 459.36 429.12
79 624.24 547.92 491.04 460.80
80 658.80 584.64 525.60 495.36
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
Supplement Dated May 1, 1999,
to Prospectus Dated May 1, 1999
Kansas City Life Variable Life Separate Account
Variable Universal Life Contract
Connecticut
For contracts sold in the state of Connecticut, we change the prospectus as
follows to provide for the Right to Exchange provision.
Delete the "Special Transfer Right" shown on page 22 of the prospectus
and replace with the following:
Right to Exchange -- The Right to Exchange provision allows you to
exchange the Contract to one that provides benefits that don't vary
based on the performance of Funds. Once within the first 24 months of
the Contract or within 24 months following the effective date of an
increase to the Specified Amount, you may exercise a one-time Right to
Exchange by requesting that this Contract be exchanged for any flexible
premium fixed benefit policy we offer for exchange on the Contract
Date.
5630 5-99a
Supplement Dated May 1, 1999,
to Prospectus Dated May 1, 1999
Kansas City Life Variable Life Separate Account
Variable Universal Life Contract
Maryland
For contracts sold in the state of Maryland, we change the prospectus as
follows:
Add the definition for "No-Lapse monthly Premium" and "No-Lapse Payment
Period" to page 6 of the prospectus. These definitions are:
No-Lapse Monthly Premium -- An amount used to measure premium payments
paid for purpose of determining whether the guarantee that your
Contract will not lapse during the No-Lapse Payment Period is in
effect.
No-Lapse Payment Period -- The period of time during which we guarantee
that your Contract will not lapse if you pay the No-Lapse Monthly
Premiums.
Add the following wording after the "Guaranteed Payment Period and
Guaranteed Monthly Premium" section of the prospectus on page 19:
No-Lapse Monthly Premium and No-Lapse Payment Period -- In addition to
the Guaranteed Payment Period described above, there is a fifteen year
No-Lapse Payment Period. A No-Lapse Payment Period is the period during
which we guarantee that the Contract will not lapse if the amount of
total premiums you pay is greater than or equal to the sum of:
(1) the accumulated No-Lapse Monthly Premiums in effect on each period
Monthly Anniversary Date, and
(2) an amount equal to the sum of any partial surrenders taken and
Indebtedness under the Contract.
The No-Lapse Payment Period is fifteen years following the Contract
Date and fifteen years following the effective date of an increase in
the Specified Amount. The Contract shows the No-Lapse Monthly Premium.
The per $1,000 No-Lapse Monthly Premium factors for the Specified
Amount vary by risk class, issue age and sex. We include additional
premiums for substandard ratings and supplemental and/or rider benefits
in the No-Lapse Monthly Premium. However, upon a change to the
Contract, we will recalculate the No-Lapse Monthly Premium, will notify
you of the new No-Lapse Monthly Premium and amend your Contract to
reflect the change.
Add the following paragraph to the "Premium Payments Upon Increase in
Specified Amount" section on page 19 of the prospectus:
A new No-Lapse Payment Period begins on the effective date of an
increase in Specified Amount. You will be notified of the new No-Lapse
Monthly Premium for this period.
Delete the "After the Guaranteed Payment Period" section on page 20 of
the prospectus and replace it with the following:
After the Guaranteed Payment Period but during the No-Lapse Payment
Period -- A grace period starts if on any Monthly Anniversary Day the
Cash Surrender Value is less than he amount of the Monthly Deduction
and the accumulated premiums paid as of the Monthly Anniversary Date
are less than required to guarantee the Contract will not lapse during
the No-Lapse Payment Period.
After the No-Lapse Period -- A grace period starts if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction. You must pay a premium sufficient to provide a Cash
Surrender Value equal to three Monthly Deductions during the grace
period to keep the Contract is force.
Add the following paragraph to the "Changes in Specified Amount"
section on page 30 of the prospectus:
In addition, a new No-Lapse Payment Period begins on the effective date
of the increase and continues for fifteen years. We will recalculate
the Contract's No-Lapse Monthly Premium to reflect the increase. If a
No-Lapse Payment Period is in effect, the Contract's No-Lapse Monthly
Premium will also generally be increased. See "No-Lapse Monthly Premium
and No-Lapse Payment Period" above.
Delete the "Special Transfer Right" shown on page 21 of the prospectus
and replace it with the following:
Right to Exchange -- The Right to Exchange provision allows you to
exchange the Contract to one that provides benefits that don't vary
based on the performance of the Funds. Once within the first 24 months
following the Contract Date or within the first 24 months following the
effective date of an increase to the Specified Amount, you may exercise
a one-time Right to Exchange by requesting that this Contract be
exchanged for any flexible premium fixed benefit policy we offer for
exchange on the Contract Date.
5629 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 the post-effective amendment are, in
the aggregrate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by Kansas City Life
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 77 pages. Undertaking to file reports.
Rule 484 undertaking.
Representations relating to fees and charges.
The signatures.
Written consents of the following persons:
(a) C. John Malacarne, Esq.
(b) Mark A. Milton, Vice President and Associate Actuary (c) Sutherland,
Asbill & Brennan.
(d) Independent Auditors.
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1.A. (1) Resolutions of the Board of Directors of Kansas City Life Insurance
Company establishing the Kansas City Life Variable Life Separate Account.1
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Kansas City Life Insurance
Company and Sunset Financial Services, Inc.2
(b) Not applicable.
(c) Schedule of Sales Commissions.2
(4) Not applicable.
(5) (a) Specimen Contract Form.1
(b) Disability Continuance of Insurance Rider.2
(c) Accidental Death Rider.2
(d) Option to Increase Specified Amount Rider.2
(e) Spouse's Term Insurance Rider.2
(f) Children's Term Insurance Rider.2
(g) Other Insured Term Insurance Rider.2
(h) Extra Protection Rider.2
(i) Disability Premium Benefit Rider.2
(j) Temporary Life Insurance Agreement.2
(k) Limited Aviation Rider.2
(l) Unisex Contract Amendment.2
(m) Extended Maturity Rider.5
(n) Accelerated Death Benefit/Living Benefits Rider.6
(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 The Dreyfus Life
and Annuity Index Fund, Inc.4
(e) Agreement between Kansas City Life Insurance Company and
J.P. Morgan Series Trust II.
(f) Agreement between Kansas 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.
(h) Amendment to Participation Agreement between Kansas City
Life Insurance Company and each of Dreyfus Variable
Investment Fund, The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Life and Annuity Index Fund, Inc.
(d/b/a Dreyfus Stock Index Fund).
(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.
(c) Consent of C. John Malacarne. See Exhibit 2.
- ----------------------
1 Incorporated herein by reference to the Form S-6 Registration Statement
(File No. 33-95354) for Kansas City Life Variable Life Separate Account
filed on August 2, 1995.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement (File No. 33-89984) for Kansas City Life
Variable Annuity Separate Account filed on August 25, 1995.
3 Incorporated herein by reference to Pre-Effective Amendment No. 1. to the
Form S-6 Registration Statement (File No. 33-95354) for Kansas City
Variable Life Separate Account filed on December 19, 1995.
4 Incorporated herein by reference to the Form S-6 Registration Statement
(File No. 33-95354) filing for Kansas City Life Variable Life Separate
Account filed on April 18, 1997.
5 Incorporate herein by reference to Post-Effective Amendment No. 3 of the
S-6 Registration Statement (File No. 33-95354) filing for Kansas City Life
Variable Life Separate Account filed on April 30, 1998.
6 Incorporated herein by reference to the Form S-6 Registation Statement
(File No. 33-95354) filing for Kansas City Variable Life Separate Account
filed on January 29, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, 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. 5 to its
Registration Statement and has duly caused this Post-Effective Amendment No. 5
to be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Kansas City and the
State of Missouri, on the 16th day of April, 1999
[SEAL] Kansas City Life
Variable Life Separate Account
-----------------------------
Registrant
Kansas City Life Insurance Company
-----------------------------
Depositor
Attest /s/ C. John Malacarne By: /s/ R. Philip Bixby
C. John Malacarne R. Philip Bixby, President,CEO &
Director
Pursuant to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 5 to the Registraton Statement has been signed below by the
following persons in the capacities indicated on the date(s) set forth below.
Signature Title Date
/s/ R. Philip Bixby President, CEO and Director April 16, 1999
R. Philip Bixby
/s/ Richard L. Finn Senior Vice President, Finance April 16, 1999
Richard L. Finn Director
(Principal Financial Officer)
/s/ John K. Koetting Vice President and Controller April 16, 1999
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and April 16, 1999
J.R. Bixby Director
/s/ W. E. Bixby Vice Chairman of the Board April 16, 1999
W. E. Bixby and Director
/s/ W. E. Bixby III Director April 16, 1999
W. E. Bixby III
Director April 16, 1999
Daryl D. Jensen
/s/ Francis P. Lemery Director April 16, 1999
Francis P. Lemery
/s/ C. John Malacarne Director April 16, 1999
C. John Malacarne
/s/ Jack D. Hayes Director April 16, 1999
Jack D. Hayes
Director April 16, 1999
Webb R. Gilmore
Director April 16, 1999
Warren J. Hunzicker, M.D.
Director April 16, 1999
Michael J. Ross
Director April 16, 1999
Elizabeth T. Solberg
Director April 16, 1999
E. Larry Winn, Jr.
Director April 16, 1999
Nancy Bixby Hudson
Exhibit Index List
1.A.(8)(e) Agreement between Kansas City Life Insurance Company and
J.P. Morgan Series Trust II.
1.A.(8)(f) Agreement between Kansas City Life Insurance Company and
each of Calamos Insurance Trust, Calamos Asset Management,
Inc. and Calamos Financial Services, Inc.
1.A.(8)(g) Agreement between Kansas City Life Insurance Company and
each of Templeton Variable Products Series Fund and
Franklin Templeton Distributors, Inc.
1.A.(8)(h) Amendment to Participation Agreement between Kansas City
Life Insurance Company and each of Dreyfus Variable
Investment Fund, The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Life and Annuity Index Fund, Inc.
(d/b/a Dreyfus Stock Index Fund).
1.A.(11) Memorandum describing issuance, transfer and redemption procedures
2. Opinion and consent of C. John Malacarne as to the legality of the
securities being registered
6. Opinion and consent of Mark A. Milton, Vice President and Associate
Actuary, as to actuarial matters pertaining to the securities being
registered
7.(a) Consent of Ernst & Young LLP
7.(b) Consent of Sutherland, Asbill & Brennan
8. Undertaking
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of May, 1999, between Kansas
City Life Insurance Company ("Insurance Company"), a life insurance company
organized under the laws of the State of Missouri, and J.P. Morgan Series Trust
II ("Fund"), a business trust organized under the laws of Delaware, with respect
to the Fund's portfolio or portfolios set forth on Schedule 1 hereto, as such
Schedule may be revised from time to time (the "Series"; if there are more than
one Series to which this Agreement applies, the provisions herein shall apply
severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3. "Business Day" shall mean any day for which the Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4. "Commission" shall mean the Securities and Exchange Commission.
1.5. "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium. Individuals
who participate under a group Contract are "Participants".
1.6. "Contractholder" shall mean any entity that is a party to a Contract with a
Participating Company.
1.7. "Disinterested Board Members" shall mean those members of the Board that
are not deemed to be "interested persons" of the Fund, as defined by the
Act.
1.8. "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an agreement
with the Fund for the purpose of making Fund shares available to serve as
the underlying investment medium for the aforesaid Contracts.
1.9. "Plans" shall mean qualified pension and retirement benefit plans.
1.10."Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission, with
respect to the Series.
1.11."Separate Accounts" shall mean Kansas City Life Variable Annuity Separate
Account and Kansas City Life Variable Life Separate Account, separate
accounts established by Insurance Company in accordance with the laws of
the State of Missouri.
1.12."Software Program" shall mean the software program used by the Fund for
providing Fund and account balance information including net asset value
per share.
1.13."Insurance Company's General Account(s)" shall mean the general account(s)
of Insurance Company and its affiliates which invest in the Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Accounts pursuant to the
Missouri Insurance Code for the purpose of offering to the public certain
individual variable annuity and variable life contracts; (c) it has
registered the Separate Accounts as unit investment trusts under the Act to
serve as the segregated investment accounts for the Contracts; (d) each
Separate Account is eligible to invest in shares of the Fund without such
investment disqualifying the Fund as an investment medium for insurance
company separate accounts supporting variable annuity contracts or variable
life insurance contracts; and (e) each Separate Account shall comply with
all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state
laws; and (c) the sale of the Contracts shall comply in all material
respects with state insurance law requirements. Insurance Company agrees to
inform the Fund promptly of any investment restrictions imposed by state
insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited to
or charged against such Separate Account without regard to other income,
gains or losses from assets allocated to any other accounts of Insurance
Company. Insurance Company represents and warrants that the assets of the
Separate Account are and will be kept separate from Insurance Company's
General Account and any other separate accounts Insurance Company may have,
and will not be charged with liabilities from any business that Insurance
Company may conduct or the liabilities of any companies affiliated with
Insurance Company.
2.4 Fund represents and warrants that the Fund is registered with the
Commission under the Act as an open-end management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Fund to operate and
offer its shares as an underlying investment medium for Participating
Companies. The Fund has established five portfolios and may in the future
establish other portfolios. Fund represents that its investment policies,
fees, operations and expenses are, and at all times will be, in compliance
with applicable federal and state securities laws.
2.5 Fund represents and warrants that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar
provision) and that it will notify Insurance Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies or
annuity contracts, whichever is appropriate, under applicable provisions of
the Code, and that it will make every effort to maintain such treatment and
that it will notify the Fund and its investment adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future. Insurance
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,
will identify such Contract as a modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the
Code, as interpreted from time to time by regulations, revenue rulings,
revenue procedures, notices and other published announcements of the
Internal Revenue Service. Fund will notify Insurance Company
immediately upon having a reasonable basis to believe that any
portfolio has ceased to comply with this Section or might not so
comply, and in that event will take all reasonable steps to achieve
compliance within the grace period afforded by Reg. 1.817-5.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
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 that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal 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 in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce
any and all rights conferred by virtue of this Agreement.
<PAGE>
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Accounts will provide for the
investment of certain amounts in the Series' shares
3.2 Fund agrees to make the shares of its Series available for purchase at the
then applicable net asset value per share by Insurance Company and the
Separate Account on each Business Day pursuant to rules of the Commission.
Notwithstanding the foregoing, the Fund may refuse to sell the shares of
any Series to any person, or suspend or terminate the offering of the
shares of any Series 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 and in the best interests of the
shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of those
Participating Companies and their affiliates and to Plans. No shares of any
Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern Time
on each Business Day. Any material errors in the calculation of net asset
value, dividend and capital gain information shall be reported immediately
upon discovery to Insurance Company. Non-material errors will be corrected
in the next Business Day's net asset value per share for the Series in
question.
3.5 At the end of each Business Day, Insurance Company will use the information
described in Sections 3.2 and 3.4 to calculate the Separate Account unit
values for the day. Using this unit value, Insurance Company will process
the day's Separate Account transactions received by it by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) to determine the net dollar amount of Series shares which
will be purchased or redeemed at that day's closing net asset value per
share for such Series. The net purchase or redemption orders will be
transmitted to the Fund by Insurance Company by 10:00 a.m. Eastern Time on
the Business Day next following Insurance Company's receipt of that
information. Subject to Sections 3.6 and 3.8, all purchase and redemption
orders for Insurance Company's General Accounts shall be effected at the
net asset value per share of the relevant Series next calculated after
receipt of the order by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each Series
for the Separate Account. Fund will execute orders for any Series at the
applicable net asset value per share determined as of the close of trading
on the day of receipt of such orders by Insurance Company acting as agent
("effective trade date"), provided that the Fund receives notice of such
orders by 10:00 a.m. Eastern Time on the next following Business Day and,
if such orders request the purchase of Series shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request for any Series that does not satisfy the conditions
specified above and in Section 3.8, as applicable, will be effected at the
net asset value computed for such Series on the Business Day immediately
preceding the next following Business Day upon which such conditions have
been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance of
any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds to
Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall transmit to the Fund payment in
Federal Funds before the close of the Federal Reserve wire system on the
Business Day the Fund receives the notice of the order pursuant to Section
3.5. Fund will execute such orders at the applicable net asset value per
share determined as of the close of trading on the effective trade date if
Fund receives payment in Federal Funds before the close of the Federal
Reserve wire system on the Business Day the Fund receives the notice of the
order pursuant to Section 3.5. If payment in Federal Funds for any purchase
is not received on such Business Day, Insurance 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 borrowings 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.
If Insurance Company's order requests the redemption of Series shares, Fund
will pay the redemption proceeds by wiring Federal Funds to Insurance
Company's designated account on the day the order is transmitted. Fund
shall transmit to Insurance Company payment in Federal Funds before the
close of the Federal Reserve wire system on the Business Day the Fund
receives the notice of the order pursuant to Section 3.5. If Insurance
Company's order requests the redemption of Series shares valued at or
greater than $1 million dollars, the Fund may wire such amount to Insurance
Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered with
applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company will
record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance Company
the amount of dividend and capital gain, if any, per share of each Series.
All dividends and capital gains of any Series shall be automatically
reinvested in additional shares of the relevant Series at the applicable
net asset value per share of such Series on the payable date. Fund shall,
on the day after the payable date or, if not a Business Day, on the first
Business Day thereafter, notify Insurance Company of the number of shares
so issued. Insurance Company reserves the right to revoke this election and
to receive payments in cash.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses (in hard copy, camera ready form or on diskette, as
specified by Insurance Company), proxy materials, notices, periodic
reports and other printed materials (which the Fund customarily
provides to its shareholders) for the Series in quantities as Insurance
Company may reasonably request for distribution to each Contractholder
and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as the Fund's investment adviser
and Insurance Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders and
Participants.
c. Distribution expenses of Fund materials or marketing materials
for Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 1996
of the Securities and Exchange Commission under Section 6(c) of the Act
and, in particular, has reviewed the conditions to the relief set forth
in the related Notice. As set forth therein, Insurance Company agrees
to report any potential or existing conflicts promptly to the Board,
and in particular whenever contract voting instructions are
disregarded, and recognizes that it will be responsible for assisting
the Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict.
Such necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from
the Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote or all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund within 6 months after
notice by the Fund, during which time Fund shall continue to accept and
implement orders by the Company for purchases and redemptions.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants on a
timely basis and in accordance with applicable law;
(b) vote the Series shares in accordance with instructions received from
Contractholders or Participants; and
(c) vote Series shares for which no instructions have been received in the same
proportion as Series shares for which instructions have been received.
Insurance Company agrees at all times to votes its General Account shares
in the same proportion as Series shares for which instructions have been
received from Contractholders or Participants so long as and to the extent
that the SEC interprets the 1940 Act to require pass-through voting
privileges to variable contract owners. Insurance Company further agrees to
be responsible for assuring that voting Series shares for the Separate
Account is conducted in a manner consistent with other Participating
Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to or
delete the Fund from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall comply with all applicable federal and state laws in connection
with the marketing and sale of its contracts.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or an affiliate of the
investment adviser is named, at least ten Business Days prior to its
use. No such material shall be used if the Fund objects to its use
within ten Business Days after receipt of such material.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least ten Business Days prior to its use. No such material shall be
used if the Insurance Company objects to its use within ten Business
Days after receipt of such material.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
and each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, 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;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund or
sales literature approved by the Fund) of Insurance Company or its
agents, with respect to the sale and distribution of Contracts for
which Series shares are an underlying investment; (iii) arise out of
the wrongful conduct of Insurance Company or persons under its control
with respect to the sale or distribution of the Contracts or Series
shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that with
respect to clauses (i) and (ii) above Insurance Company will not be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or
omission or alleged omission made in such registration statement,
prospectus, sales literature, or advertisement in conformity with
written information furnished to Insurance Company by the Fund
specifically for use therein; and provided, further, that Insurance
Company shall not be liable for special, consequential or incidental
damages. This indemnity agreement will be in addition to any liability
which Insurance Company may otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, Insurance Company's
subsidiary broker-dealer and each person, if any, who controls
Insurance Company within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which Insurance Company or
any such director, officer, employee, agent or controlling person may
become subject, under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or Prospectus or sales literature or advertisements of the
Fund; (2) arise out of or are based upon the omission to state in the
registration statement or Prospectus or sales literature or
advertisements of the Fund any material fact required to be stated
therein or necessary to make the statements therein not misleading; or
(3) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or Prospectus or sales literature or advertisements with
respect to the Separate Account or the Contracts and such statements
were based on information provided to Insurance Company by the Fund; or
(4) arise out of any breach by Fund of a material term of this
Agreement (including without limitation the obligation to diversify
pursuant to Section 2.7) or as a result of any failure by Fund to
provide the services and furnish the materials or to make any payments
provided for in this Agreement; and the Fund will reimburse any legal
or other expenses reasonably incurred by Insurance Company or any such
director, officer, employee, agent or controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the Fund will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the Fund by Insurance Company specifically for use
therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate
or capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the result
of incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and to the extent
that the indemnifying party has given notice to such effect to the
indemnified party and is performing its obligations under this Article,
the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates but only if the Fund provides
prior notice to Insurance Company that any such purchase or redemption
might cause the Fund to incur tax liability under Section 851.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty as to one or more Series at
the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time from the
date hereof upon 180 days' notice, unless a shorter time is agreed to
by the parties; b. At the option of Insurance Company, if shares of
any Series are not reasonably available to meet the requirements of
the Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company, said
termination to be effective ten days after receipt of notice unless
the Fund makes available a sufficient number of shares to meet the
requirements of the Contracts within said ten-day period;
c. At the option of Insurance Company, upon the institution of formal
proceedings against the Fund by the Commission, National Association
of Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in Insurance
Company's reasonable judgment, materially impair the Fund's ability to
meet and perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt of notice;
d. At the option of the Fund, upon the institution of formal proceedings
against Insurance Company by the Commission, National Association of
Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the Fund's
reasonable judgment, materially impair Insurance Company's ability to
meet and perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by the Fund
with said termination to be effective upon receipt of notice;
e. At the option of the Fund, if the Fund shall determine, in its sole
judgment reasonably exercised in good faith, that Insurance Company
has suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to
have a material adverse impact upon the business and operation of the
Fund or its investment adviser, the Fund shall notify Insurance
Company in writing of such determination and its intent to terminate
this Agreement, and after considering the actions taken by Insurance
Company and any other changes in circumstances since the giving of
such notice, such determination of the Fund shall continue to apply on
the sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement between the Fund
and its investment adviser or its successors unless Insurance Company
specifically approves the selection of a new Fund investment adviser
after having been given a reasonable opportunity to do so. The Fund
shall promptly furnish notice of such termination to Insurance
Company;
g. In the event the Fund's shares are not registered, issued or sold in
accordance with applicable federal law, or such law precludes the use
of such shares as the underlying investment medium of Contracts issued
or to be issued by Insurance Company. Termination shall be effective
immediately upon such occurrence without notice;
h. At the option of the Fund upon a determination by the Board in good
faith that it is no longer advisable and in the best interests of
shareholders for the Fund to continue to operate pursuant to this
Agreement. Termination pursuant to this Subsection (h) shall be
effective upon notice by the Fund to Insurance Company of such
termination;
i. At the option of the Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies, as applicable, under the Code,
or if the Fund reasonably believes that the Contracts may fail to so
qualify;
j. At the option of either party to this Agreement, upon the other
party's failure to cure a breach of any material provision within 30
days after written notice thereof. However, the right to cure a
material breach shall not apply with respect to a second breach of the
same type occurring within any six-month period after notice of the
first breach;
k. At the option of the Fund, if the Contracts are not registered, issued
or sold in accordance with applicable federal and/or state law;
l. Upon assignment of this Agreement, unless made with the written
consent of the non-assigning party;
m. At the option of Insurance Company, if Insurance Company shall
determine, in its sole judgment reasonably exercised in good faith,
that the Fund has suffered a material adverse change in its business
or financial condition or is the subject of material adverse publicity
and such material adverse change or material adverse publicity is
likely to have a material adverse impact upon the business and
operation of Insurance Company, Insurance Company shall notify the
Fund in writing of such determination and its intent to terminate this
Agreement, and after considering the actions taken by the Fund and any
other changes in circumstances since the giving of such notice, such
determination of Insurance Company shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination; or
n. In the event that the Fund fails to qualify as a regulated investment
company under Subchapter M of the Code or fails to comply with the
requirements of Section 817(h) of the Code.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser shall, at the option
of Insurance Company , continue to make available additional Series
shares as provided in this Section 10.3 and pursuant to the terms of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Under such circumstances, either the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the
Series, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing
Contracts. If Series shares continue to be made available pursuant to
this Section 10.3, the provisions of this Agreement shall remain in
effect and thereafter either the Fund or Insurance Company may
terminate the Agreement, as so continued, upon prior written notice to
the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be the
longer of (i) six months, ot (ii) the period needed by the Insurance
Company, making a good faith effort, to obtain any necessary
approval(s) from the Commission or any state regulatory authority.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by agreement
in writing between Insurance Company and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company:
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64111
Attn: C. John Malacarne, General Counsel
Fund:
J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
13.2 Each party shall cooperate with the other with respect to inquiries and
investigations made by governmental regulatory authorities, including
but not limited to the Commission, the NASD and state securities and
insurance departments, and shall keep the other party informed as to
the progress and results of inquiries and investigations which relate
to the Series, this Agreement or the transactions contemplated by this
Agreement.
13.3 The Fund will treat as confidential the names and addresses of Contract
owners. The parties shall treat as confidential all other information
reasonably designated as such by the other party, subject to the
requirements of legal process and the authority of governmental
agencies to require disclosure of such information.
13.4 The provisions of this Agreement are severable. If any provision is
held invalid by a court, statute, rule or otherwise, the remaining
provisions of the Agreement shall continue in force.
13.5 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 either party.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
KANSAS CITY LIFE INSURANCE COMPANY
By:/s/Dick Finn
Its:SVP
J.P.MORGAN SERIES TRUST II
By: /s/Stephanie Pierce
Its: Vice President
<PAGE>
SCHEDULE 1
Name of Series
J.P. Morgan Equity Portfolio
J.P. Morgan Small Company Portfolio
PARTICIPATION AGREEMENT
AMONG
CALAMOS(R) INSURANCE 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 Insurance 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 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;
(ii) 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 Insurance 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__________4/15/99_____
Title: SVP______________________________________
FUND: Calamos Insurance Trust
By: __/s/James S. Hamman __________4/15/99_____
Title: __Initial Trustee________________________
ADVISER Calamos Asset Management, Inc.
By: __/s/John P. Calamos ___________4/15/99____
Title: __President______________________________
UNDERWRITER Calamos Financial Services, Inc.
By: __/s/James W. Falkner___________4/15/99____
Title: __CFO____________________________________
<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.
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ITEM FUNCTION RESPONSIBLE
PARTY
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PROSPECTUS
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Update Typesetting Fund
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New Sales: Printing Company
Distribution Company
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Printing
Existing Fund
Owners Distribution
Fund
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STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
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PROXY MATERIALS OF Typesetting Fund
THE FUND
Printing Fund
Distribution Fund
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<PAGE>
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ANNUAL REPORTS &
OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
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All Typesetting Fund
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Marketing: Printing Company
Distribution Company
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Printing Fund
Existing Owners:
Distribution Fund
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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.
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Exhibit 1.A.(8)(g)
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
KANSAS CITY LIFE INSURANCE COMPANY
THIS AGREEMENT made as of May 1, 1999, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Kansas City Life Insurance Company, a life insurance
company organized as a corporation under Missouri law (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November
16, 1993 (File No. 812-8546), granting Participating Insurance Companies and
their separate accounts exemptions from the provisions of Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised; and has
registered or will register certain variable annuity contracts and variable life
insurance policies, listed on Schedule C attached hereto, under which the
portfolios are to be made available as investment vehicles (the "Contracts")
under the 1933 Act unless such interests under the Contracts in the Accounts are
exempt from registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset 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 one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended ("Advisers Act") and any applicable state
securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1 For purposes of this Article I, the Company shall be the Trust's
agent for receipt of purchase orders and requests for redemption relating to
each Portfolio from each Account, provided that the Company notifies the Trust
of such purchase orders and requests for redemption by 10:00 a.m. Eastern time
on the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio. Without limiting the foregoing, the Trustees have determined
that there is a significant risk that the Trust and its shareholders may be
adversely affected by investors whose purchase and redemption activity follows a
market timing pattern, and have authorized the Trust, the Underwriter and the
Trust's transfer agent to adopt procedures and take other action (including
without limitation rejecting specific purchase orders) as they deem necessary to
reduce, discourage or eliminate market timing activity.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account. The Trust will use its best efforts to provide statements of account no
less frequently than monthly (if possible the Trust will provide statements of
account weekly on a rolling-monthly basis) for all of the Company's accounts by
the 15th day of the following month.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice
to the Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Company reserves
the right to revoke this election and receive all such income dividends and
capital gains distributions in cash. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day in a manner suitable to the Company and the
Trust.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.10 and
Article IV of this Agreement.
1.11 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
2.1 The Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with information on disk or in camera ready
copy of such documents in a form suitable for printing and from which
information relating to series of the Trust other than the Portfolios has been
deleted to the extent practicable. The Trust or the Underwriter shall provide
the Company with a copy of its current statement of additional information,
including any amendments or supplements, in a form requested by the Company.
Expenses of furnishing such documents for marketing purposes shall be borne by
the Company and expenses of furnishing such documents for current contract
owners invested in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of
any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners. The Company shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions), prospectuses and statements of additional
information to Contract owners. The Company assumes sole responsibility for
ensuring that such materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i)
solicit voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such 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. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable except to the extent necessary to service existing Contracts.
2.6 The Company shall furnish, or cause to be furnished to the Trust or
its designee, at least one complete copy of each registration statement,
prospectus, statement of additional information, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "disclosure documents"), as well as any report, solicitation for
voting instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 10
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make
any representations or statements on behalf of the Trust or concerning the
Trust, the Underwriter or an Adviser in connection with the sale of the
Contracts other than information or representations contained in and accurately
derived from the registration statement or prospectus for the Trust shares (as
such registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust, Trust-sponsored
proxy statements, or in sales literature or other promotional material approved
by the Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee. The
Trust will promptly respond to requests for permission.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from disclosure documents for the Contracts
(as such disclosure documents may be amended or supplemented from time to time),
or in materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal process
or regulatory authorities or with the written permission of the Company. The
Company will promptly respond to requests for permission.
2.10 So long as, and to the extent that, the SEC interprets the 1940
Act to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose Contract
values are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation
to the Company under this Agreement except as provided on Schedule E, if
attached. Nevertheless, the Trust or the Underwriter or an affiliate may make
payments (other than pursuant to a Rule 12b-1 Plan) to the Company or its
affiliates or to the Contracts' underwriter in amounts agreed to by the
Underwriter in writing and such payments may be made out of fees otherwise
payable to the Underwriter or its affiliates, profits of the Underwriter or its
affiliates, or other resources available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each
Account, (1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under
the `40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) each Account and sub-account thereof has a principal
underwriter which is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with
regard to the voting of all proxies with respect to
Trust shares and vote such proxies only in accordance
with such instructions or vote such shares held by it
in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security
for such shares unless the SEC has approved such
substitution in the manner provided in Section 26 of
the `40 Act.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement 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 Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as
a "regulated investment company" under Subchapter M of the Code, that it will
make every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to
make any payments to finance distribution expenses pursuant to Rule 12b-1 under
the 1940 Act, the Trustees, including a majority who are not "interested
persons" of the Trust under the 1940 Act ( "disinterested Trustees" ), will
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than the Trust is required to maintain. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Trust and the Underwriter in the
event that such coverage no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more classes of shares
(each, a "Class") to make payments to finance its distribution expenses,
including service fees, pursuant to a Plan adopted under Rule 12b-1 under the
1940 Act ("Rule 12b-1"), although it may determine to discontinue such practice
in the future. To the extent that any Class of the Trust finances its
distribution expenses pursuant to a Plan adopted under Rule 12b-1, the Trust
undertakes to comply with any then current SEC and SEC staff interpretations
concerning Rule 12b-1 or any successor provisions.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (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 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 an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e. , annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, 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.
4.4 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 Trust's election, to withdraw the affected Account's
investment in the Trust 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 Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform 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 Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
In the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform 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 Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 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 Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Trust 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.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless
the Underwriter, the Trust and each of its Trustees, officers,
employees and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Article V) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such
Losses are related to the sale or acquisition of Trust Shares
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 a disclosure document for
the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company
on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes
of this Article V), 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 indemnity 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 was accurately derived from
written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or result from statements
or representations (other than statements or
representations contained in and accurately derived
from Trust Documents as defined in Section 5.2
(a)(i)) or wrongful conduct of the Company or persons
under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue
statement or alleged untrue statement of a material
fact contained in Trust Documents as defined in
Section 5.2(a)(i) 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 statement or omission
was made in reliance upon and accurately derived from
written information furnished to the Trust by or on
behalf of the Company; or
(iv) arise out of or result from any failure
by the Company to provide the services or furnish the
materials required under the terms of this Agreement;
or
(v) 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.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses 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 Trust or Underwriter, whichever is
applicable.
(c) The Company shall also 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 which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, 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. 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
Trust shares or the Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the
Company, its affiliated broker-dealer, the underwriter of the Contracts
and each of its directors and officers, employees and each person, if
any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Underwriter, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law
or otherwise, insofar as such Losses are related to the sale or
acquisition of the Trust's Shares 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 sales
literature of the Trust (or any amendment or supplement to any
of the foregoing) (collectively, the "Trust Documents") 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 of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Underwriter or Trust by or on behalf of the Company for
use in the Registration Statement or prospectus for the Trust
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the disclosure documents or sales literature for
the Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Trust, Adviser or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a disclosure
document or sales literature covering 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 Trust; or
(iv) arise as a result of any failure by the Trust 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 representation specified in Section 3.7 of this
Agreement and the diversification requirements specified in
Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Underwriter
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
5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any Losses 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 each Company or the Account, whichever is
applicable.
(c) The Underwriter 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 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 of any such
claim shall not relieve the Underwriter 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. In case
any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the expenses of any additional counsel retained by it,
and the Underwriter 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 agrees promptly to notify the Underwriter 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 each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 5.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and arise out of
or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Section 5.3(b) and
5.3(c) hereof. It is understood and expressly stipulated that neither
the holders of shares of the Trust nor any Trustee, officer, agent or
employee of the Trust shall be personally liable hereunder, nor shall
any resort be had to other private property for the satisfaction of any
claim or obligation hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any Indemnified Party as such
may arise from 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
Trust, the Underwriter or each Account, whichever is applicable.
(c) The Trust 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 Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claims 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 Trust of any such claim shall not relieve the Trust 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. In case any such action is brought against
the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be
entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such
party of the Trust'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 Trust 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 the Underwriter agree promptly to notify
the Trust of the commencement of any litigation or proceedings against
it or any of its respective officers or directors in connection with
this Agreement, the issuance or sale of the Contracts, with respect to
the operation of either the Account, or the sale or acquisition of
share of the Trust.
ARTICLE VI.
Termination
6.1 This Agreement may be terminated by any party in its entirety, for
any reason by six months advance written notice, or with respect to one, some or
all Portfolios for any reason by sixty (60) days advance written notice
delivered to the other parties, and shall terminate immediately in the event of
its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or
the Underwriter following consultation with the Trustees upon written notice to
the Company if :
(a) the Company notifies the Trust or the Underwriter that
the exemption from registration under Section 3(c) of the 1940 Act no
longer applies, or might not apply in the future, to the unregistered
Accounts, or that the exemption from registration under Section 4(2) or
Regulation D promulgated under the 1933 Act no longer applies or might
not apply in the future, to interests under the unregistered Contracts;
or
(b) either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company 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; or
(c) upon the Company's failure to cure any material breach
of this Agreement within thirty days' written notice thereof.
6.3 This Agreement may be terminated at the option of the Company under
the following circumstances:
(a) by written notice to the other parties with
respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(b) in the event that formal administrative
proceedings are instituted against the Trust or the
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, if the
Company reasonably 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 Trust
or the Underwriter to perform their obligations under this
Agreement; or
(c) in the event of formal substitution of shares of
any Portfolio with the shares of any other investment company
(giving the Trust at least 30 days' notice of any vote
therefor); or
(d) upon failure by the Trust or the Underwriter to
cure any material breach of this Agreement within thirty days'
written notice thereof.
6.4 If this Agreement is terminated for any reason, except under
Article IV (Potential Conflicts) above, the Trust shall, at the option of the
Company, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
6.5 The provisions of Articles II (Representations and Warranties) and
V (Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.6 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
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 Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention:Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri, 64111
Attention: C. John Malacarne, General Counsel
ARTICLE VIII.
Miscellaneous
8.1 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.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 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.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Florida. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders. Copies of any such orders
shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party 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.
8.7 The Trust and the Underwriter shall treat as confidential the names
and addresses of the Contract owners. The parties shall treat as confidential
such other information reasonably identified as confidential in writing by any
other party hereto, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or
utilize such names and addresses and other confidential information until such
time as they may come into the public domain, without the express written
consent of the affected party. Without limiting the foregoing, no party hereto
shall disclose any information that such party has been advised is proprietary,
except such information that such party is required to disclose by any
appropriate governmental authority (including, without limitation, the SEC, the
NASD, and state securities and insurance regulators).
8.8 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.
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.10 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
Kansas City Life Insurance Company
By its authorized officer
By: /s/Richard L. Finn
Name:Richard L. Finn
Title:Senior Vice President
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By:/s/Karen L. Skidmore
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By: /s/Deborah R. Gatzek
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
<PAGE>
SCHEDULE A
Separate Accounts of
Kansas City Life Insurance Company
1. Kansas City Life Variable Life Separate Account
Date Established:
SEC Registration Number: 033-95354
2. Kansas City Life Variable Annuity Separate Account
Date Established:
SEC Registration Number: 033-89984
<PAGE>
SCHEDULE B
Trust Portfolios and Classes Available
Templeton Variable Products Series Adviser
Templeton International Fund Templeton Investment Counsel, Inc.
-Class 2
<PAGE>
SCHEDULE C
Variable Annuity Contracts
Issued by Kansas City Life Insurance Company
- ------------------- ------------------- ------------------- -----------------
Contract 1 Contract 2 Contract 3
- ------------------- -------------------- ------------------- -----------------
- ------------------- -------------------- ------------------- -----------------
Contract/Product Kansas City Life Kansas City Life Century II Variable
Name Variable Life Survivorship VUL Annuity
- -------------------- ------------------- ------------------- -----------------
- -------------------- ------------------- ------------------- -----------------
Registered (Y/N) Yes Yes Yes
- -------------------- ------------------- ------------------- -----------------
- -------------------- ------------------- ------------------- -----------------
SEC
Registration
Number
- -------------------- ------------------- ------------------- -----------------
- -------------------- ------------------- ------------------- -----------------
Representative J146 J150 J147
Form Numbers
- -------------------- ------------------- ------------------- -----------------
- -------------------- ------------------- ------------------- -----------------
Separate Kansas City Life Kansas City Life Kansas City Life
Account Name Variable Life Separate Variable Life Variable Annuity
Account Separate Account Separate Account
- --------------------- ------------------- ------------------ -----------------
- --------------------- ------------------- ------------------ -----------------
SEC 333-25443 333-25443 33-89984
Registration 33-95354 33-95354
Number
- -------------------- --------------------- ----------------- -----------------
- -------------------- --------------------- ----------------- -----------------
Templeton Templeton Templeton Templeton
Variable Internationa Fund- International Fund- International
Products Series Class 2 Shares Class 2 Shares Fund-Class 2
Portfolios and (Templeton (Templeton Shares
Classes Investment Counsel, Investment Counsel, (Templeton
(Adviser) Inc.) Inc.) Investment
Counsel, Inc.)
- -------------------- --------------------- ----------------- -----------------
SCHEDULE D
Other Portfolios Available under the Contracts
MFS Variable Insurance Trust
MFS Emerging Growth
MFS Research
MFS Total Return
MFS Utilities
MFS World Government
MFS Bond
American Century Variable Portfolios
VP International
Federated Insurance Series
Federated American Leaders Fund II
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund
Capital Appreciation
Small Capitalization
Dreyfus Stock Index Fund
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
Compensation Schedule
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
TEMPLETON INTERNATIONAL FUND 0.25%
Agreement Provisions
If the Company, on behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under
the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide administrative services for Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative services" may
include furnishing personal services to owners of Contracts which may invest in
Eligible Shares ("Contract Owners"), answering routine inquiries regarding a
Portfolio, coordinating responses to Contract Owner inquiries regarding the
Portfolios, maintaining such accounts or providing such other enhanced services
as a Trust Portfolio or Contract may require, maintaining customer accounts and
records, or providing other services eligible for service fees as defined under
NASD rules. Your acceptance of such compensation is your acknowledgment that
eligible services have been rendered. All Rule 12b-1 fees, shall be based on the
value of Eligible Shares owned by the Company on behalf of its Accounts, and
shall be calculated on the basis and at the rates set forth in the Compensation
Schedule stated above. The aggregate annual fees paid pursuant to each Plan
shall not exceed the amounts stated as the "annual maximums" in the Portfolio's
prospectus, unless an increase is approved by shareholders as provided in the
Plan. These maximums shall be a specified percent of the value of a Portfolio's
net assets attributable to Eligible Shares owned by the Company on behalf of its
Accounts (determined in the same manner as the Portfolio uses to compute its net
assets as set forth in its effective Prospectus).
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the amounts
expended under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must
be approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested Trustees,
or by a vote of a majority of the outstanding shares as provided in the Plan, on
sixty (60) days' written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting Agreement between
the Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
Exhibit 1.A.(8)(h)
AMENDMENT TO PARTICIPATION AGREEMENT
The Fund Participation Agreement dated as of March 24, 1997
among Kansas City Life Insurance Company, Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life and Annuity
Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund) (the "Agreement") is hereby
amended as follows:
Exhibit A is amended to read in its entirety as follows:
"EXHIBIT A
List of Participating Funds
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund:
Small Cap Portfolio
Capital Appreciation Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc."
All other terms and provisions of the Agreement not amended
hereby shall remain in full force and effect.
Effective Date: February 25, 1999
KANSAS CITY LIFE INSURANCE COMPANY
By: /s/Richard L. Finn
Its: SVP
DREYFUS LIFE AND ANNUITY INDEX FUND,
INC. (d/b/a Dreyfus Stock Index Fund)
By: /s/M. Petrucelli
Its: Vice President
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
By: /s/M. Petrucelli
Its: Vice President
DREYFUS VARIABLE INVESTMENT FUND
By: /s/M. Petrucelli
Its: Vice President
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 LIFE INSURANCE CONTRACTS
ISSUED BY
KANSAS CITY LIFE INSURANCE COMPANY
This document sets forth the current administrative procedures that will be
followed by Kansas City Life Insurance Company ("Kansas City Life") in
connection with its issuance of individual flexible premium variable life
insurance contracts (the "Contracts"), the transfer of assets held thereunder,
and the redemption by Contract owners (the "Owners") of their interests in those
Contracts. Capitalized terms used herein have the same meaning as in the
prospectus for the Contract that is included in the current registration
statement on Form S-6 for the Contract as filed with the Securities and Exchange
Commission ("Commission" or "SEC").
I. Procedures Relating to Purchase and Issuance of the Contracts and
Acceptance of Premiums
A. Offer of the Contracts, Applications, Initial Net Premiums, and Issuance of
the Contracts
1. Offer of the Contracts. The Contracts will be offered and sold for premiums
pursuant to established premium schedules and underwriting standards in
accordance with state insurance laws. Premiums for the Contracts and related
insurance charges will not be the same for all Owners selecting the same
Specified Amount. Insurance is based on the principle of pooling and
distribution of mortality risks, which assumes that each Owner pays a premium
and related insurance charges commensurate with the Insured's mortality risk as
actuarially determined utilizing factors such as age, sex, level of specified
amount, health and occupation. A uniform premium and insurance charges for all
Insureds would discriminate unfairly in favor of those Insureds representing
greater risk. Although there will be no uniform insurance charges for all
Insureds, there will be a uniform insurance rate for all Insureds of the same
risk class and same band for cost of insurance rates. A description of the
Monthly Deduction under the Contract, which includes charges for cost of
insurance and for supplemental benefits, is in Appendix A to this memorandum.
2. Application. To purchase a Contract, the Owner must complete an application
and submit it through an authorized Kansas City Life agent. An application will
not be deemed to be complete unless all required information, including without
limitation age, sex, and medical and other background information, has been
provided in the application.
If the applicant is eligible for temporary insurance coverage, a temporary
insurance agreement "TIA") should also accompany the application. The TIA
provides temporary insurance coverage prior to the date when all underwriting
and other requirements have been met and the application has been approved, with
certain limitations, as long as an initial premium payment accompanies the TIA.
In accordance with Kansas City Life's underwriting rules, temporary life
insurance coverage may not exceed $250,000. The TIA may not be in effect for
more than 60 days. At the end of the 60 days, the TIA coverage terminates and
the initial premium will be returned to the applicant.
3. Payment of Minimum Initial Premium and Determination of Contract Date. With
the TIA, the applicant must pay an initial premium payment at the time of
application that is at least equal to two Guaranteed Monthly Premiums (one
Guaranteed Monthly Premium is required for Contracts when premium payments will
be made under a pre-authorized payment arrangement). The minimum initial premium
payment required depends on a number of factors, such as the age, sex and risk
class of the proposed Insured, the Initial Specified Amount, any supplemental
and/or rider benefits and the Planned Periodic Premium payments the Owner
proposes to make. (See "Planned Periodic Premiums," below.)
In general, policies that are submitted with the required premium payment (and
the premium payment is submitted in "good order") will have a Contract Date
which will be the date of the TIA. However, if the Contract Date is calculated
to be the 29th, 30th or 31st of the month then the date will be set 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 approval is the 27th, 28th or 29th of the month in which
case then the Contract Date would be the first of the next month. There are
several exceptions to these rules based on the type of billing, whether the
contract involves a conversion and/or whether the specified amount exceeds
$250,000.
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB) -- Premium with
Application If PAC or CB is requested and the initial premium is taken with the
application, the Contract Date will be the later of the TIA date or the first of
the month of approval. Combined Billing is a billing where more than one Kansas
City Life contract is billed together.
Combined Billing (CB)--No Premium With Application
If CB is requested and the initial premium is not taken with the application,
the Contract Date will be the earlier of the 1st month after the Contract is
approved or the date the initial premium is received. However, if approval
occurs on the 1st, 2nd, 3rd, 4th or 5th of the month the Contract Date will be
the first of the same month that the Contract is approved. In addition, if the
Contract Date is calculated to be the 29th, 30th or 31st of the month then the
date will be set to the 1st of the following month.
Government Allotment (GA) and Federal Allotment (FA)
If GA or FA is requested on the application and an initial premium is taken with
the application, the Contract Date will be the 1st of the month of approval. If
GA or FA is requested and no initial premium is received the Contract Date will
be the first of the month for which a full monthly allotment is received.
Conversions
If a Kansas City Life term insurance product is converted to a new Contract the
Contract Date will be the date that the previous contract was paid to. If there
is more than one term policy being converted, the Contract Date will be
determined by the contract with the earliest date that premiums were paid to.
Specified Amount Exceeds $250,000
If the specified amount requested exceeds $250,000 and an initial premium is
taken with the application, the Contract Date will be the later of the TIA date
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 Insured's insurability, which may include a medical examination of
the proposed Insured. The available issue ages are 0 through 80 on a standard
nonsmoker basis, 15 through 80 on a preferred nonsmoker basis, and 15 through 80
on a smoker basis. Age is determined on the Insured's age last birthday on the
Contract Date. The minimum Specified Amount is $100,000 for issue ages 0 through
49. The minimum Specified Amount is $50,000 for issue ages 50 through 80.
Acceptance of an application depends on Kansas City Life's underwriting rules,
and Kansas City Life reserves the right to reject an application.
5. Determination of Owner of the Contract. The Owner of the Contract may
exercise all rights provided under the Contract. The Insured is the Owner,
unless a different Owner is named in the application. The Owner may by Written
Notice name a contingent Owner or a new Owner while the Insured is living.
Unless a contingent Owner has been named, on the death of the last surviving
Owner, ownership of the Contract passes to the estate of the last surviving
Owner, who will become the Owner if the Owner dies. The Owner may also be
changed prior to the Insured's death by Written Notice satisfactory to Kansas
City Life.
B. Payment and Acceptance of Additional Premiums
1. Generally. Additional unscheduled premium payments can be made at any time
while the Contract is in force. Kansas City Life has the right to limit the
number and amount of such premium payments and to require satisfactory evidence
of insurability prior to accepting unscheduled premiums. A loan repayment must
be clearly marked as such or it will be credited as a premium. No premium
payment will be accepted after the Maturity Date.
2. Procedures for Accepting Additional Premium Payments. Premium payments must
be made by check payable to Kansas City Life Insurance Company or by any other
method that Kansas City Life deems acceptable. Kansas City Life may specify the
form in which a premium payment must be made in order for the premium to be in
"good order." Ordinarily, a check will be deemed to be in good order upon
receipt, although Kansas City Life may require that the check first be converted
into federal funds. In addition, for a premium to be received in "good order,"
it must be accompanied by all required supporting documentation, in whatever
form required.
Total premiums paid may not exceed premium limitations for life insurance set
forth in the Internal Revenue Code. Kansas City Life will monitor Contracts and
will notify the Owner if a premium payment exceeds this limit and will cause the
Contract to violate the definition of insurance. The owner may choose to take a
refund of the portion of the premium payment that is determined to be in excess
of applicable limitations, or the Owner may submit an application to modify the
Contract so it continues to qualify as a contract for life insurance. Modifying
the Contract may require evidence of insurability. (See "Underwriting
Requirements" above.) Kansas City Life will monitor Contracts and will attempt
to notify the Owner on a timely basis if premiums paid under a Contract exceed
the "7-Pay Test" as set forth in the Internal Revenue Code and, therefore, the
Contract is in jeopardy of becoming a modified endowment contract.
3. Planned Periodic Premiums. When applying for a Contract, the Owner selects a
plan for paying level premium payments at specified intervals, e.g., monthly,
quarterly, semi-annually or annually. If the Owner elects, Kansas City Life will
also arrange for payment of Planned Periodic Premiums on a 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 Periodic Premium entirely. Each
premium after the initial premium must be at least $25. Kansas City Life may
increase this minimum limit 90 days after sending the Owner a Written Notice of
such increase. Subject to the limits described above, the Owner can change the
amount and frequency of Planned Periodic Premiums by sending Written Notice to
the Home Office. Kansas City Life, however, reserves the right to limit the
amount of a premium payment or the total premium payments paid, as discussed
above.
4. Guaranteed Payment Period and Guaranteed Monthly Premium. A Guaranteed
Payment Period is the period during which Kansas City Life guarantees that the
Contract will not lapse if the amount of total premiums paid is greater than or
equal to the sum of: (1) the accumulated Guaranteed Monthly Premiums in effect
on each prior Monthly Anniversary Day, and (2) an amount equal to the sum of any
partial surrenders taken and Indebtedness under the Contract. The Guaranteed
Payment Periods are five years following the Contract Date and five years
following the effective date of an increase in the Specified Amount.
The Guaranteed Monthly Premium is shown in the Contract. The per $1,000
Guaranteed Monthly Premium factors for the Specified Amount vary by risk class,
issue age, and sex. Additional premiums for substandard ratings and supplemental
and/or rider benefits are included in the Guaranteed Monthly Premium. However,
upon a change to the Contract, Kansas City Life will recalculate the Guaranteed
Monthly Premium and will notify the Owner of the new Guaranteed Monthly Premium
and amend the Owner's Contract to reflect the change.
5. Premium Payments Upon Increase in Specified Amount. A new Guaranteed Payment
Period begins on the effective date of an increase in Specified Amount. The
Owner will be notified of the new Guaranteed Monthly Premium for this period.
Depending on the Contract Value at the time of an increase in the Specified
Amount and the amount of the increase requested, an additional premium payment
may be necessary or a change in the amount of Planned Periodic Premiums may be
advisable.
6. Premium Payments to Prevent Lapse. Failure to pay Planned Periodic Premiums
will not necessarily cause a Contract to lapse. Conversely, paying all Planned
Periodic Premiums will not guarantee that a Contract will not lapse. The
conditions that will result in the Owner's Contract lapsing will vary, as
follows, depending on whether a Guaranteed Payment Period is in effect.
a. During the Guaranteed Payment Period. A grace period starts if on any Monthly
Anniversary Day the Cash Surrender Value is less than the amount of the Monthly
Deduction and the accumulated premiums paid as of the Monthly Anniversary Day
are less than required to guarantee the Contract will not lapse during the
Guaranteed Payment Period. The premium required to keep the Contract in force
will be an amount equal to the lesser of: (1) the amount to guarantee the
Contract will not lapse during the Guaranteed Payment Period less the
accumulated premiums paid; and (2) an amount sufficient to provide a cash
surrender value equal to three Monthly Deductions.
b. After the Guaranteed Payment Period. A grace period starts if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction. A premium sufficient to provide a cash surrender value equal to three
Monthly Deductions must be paid during the grace period to keep the Contract in
force.
7. Grace Period. The grace period is a 61-day period to make a premium payment
sufficient to prevent lapse. Kansas City Life will send notice of the amount
required to be paid during the grace period to the Owner's last known address
and the address of any assignee of record. The grace period will begin when the
notice is sent. The Owner's Contract will remain in force during the grace
period. If the Insured should die during the grace period, the Death Benefit
proceeds will still be payable to the Beneficiary, although the amount paid will
reflect a reduction for the Monthly Deductions due on or before the date of the
Insured's death (and for any Indebtedness). If the grace period premium payment
has not been paid before the grace period ends, the Owner's Contract will lapse.
It will have no value and no benefits will be payable. A grace period also may
begin if Indebtedness becomes excessive.
C. Allocation and Crediting of Initial and Additional Premiums
1. The Separate Account, Subaccounts, and Fixed Account. The variable benefits
under the Contracts are supported by the Kansas City Life Variable Life Separate
Account (the "Variable Account"). The Variable Account currently consists of 21
Subaccounts, the assets of which are used to purchase shares of a designated
corresponding mutual fund Portfolio that is part of one of the following Funds:
MFS Variable Insurance Trust ("MFS Trust"), American Century Variable Portfolios
Inc. ("American Century Variable Portfolios"), Federated Insurance Series,
Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund, Dreyfus Socially
Responsible Growth Fund, Inc., J.P. Morgan Series Trust II, Templeton Variable
Products Series Fund and Calamos Insurance 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, Dreyfus Socially Responsible Growth Fund, Inc, J.P. Morgan Series
Trust II, Templeton Variable Products Series Fund and Calamos Insurance Trust or
any other investment company. Not all funds may be available in California.
Kansas City Life may limit the number of Subaccounts to which premiums may be
allocated. We will never limit the number to less than 12.
2. Allocations Among the Accounts. Net Premiums and Contract Value are allocated
to the Subaccounts and the Fixed Account in accordance with the following
procedures.
a. General. In the Contract application, the Owner specifies the percentage of a
Net Premium to be allocated to each Subaccount and to the Fixed Account. The sum
of the allocations must equal 100%, and Kansas City Life reserves the right to
limit the number of Subaccounts to which premiums may be allocated. The Owner
can change the allocation percentages at any time, subject to these rules, by
sending Written Notice to the Home Office. The change will apply to premium
payments received with or after receipt of that Written Notice.
b. Allocation of Initial Premium. On the Allocation Date, the initial Net
Premium will be allocated to the Money Market Subaccount. The Allocation Date is
the later of the date when all underwriting and other requirements have been met
and an application has been approved, or the date the initial premium is
received in good order at the Home Office. Kansas City Life may specify the form
in which a premium payment must be made in order for the premium to be in "good
order." Ordinarily, a check will be deemed to be in good order upon receipt,
although Kansas City Life may require that the check first be converted into
federal funds. In addition, for a premium to be received in "good order," it
must be accompanied by all required supporting documentation, in whatever form
required. If any additional premiums are received in good order before the
Reallocation Date (as defined below), the corresponding Net Premiums also will
be allocated to the Money Market Subaccount. The "free-look" period under the
Contract is assumed to end on the Reallocation Date, and on that date, Contract
Value in the Money Market Subaccount will be allocated to the Subaccounts and to
the Fixed Account based on the Net Premium allocation percentages specified in
the application. The Reallocation Date is 30 days after the Allocation Date.
c. Allocation of Additional Premiums. Premiums received on or after the
Reallocation Date will be credited to the Contract and the Net Premiums will be
invested as requested on the Valuation Day they are received at Kansas City
Life's Home Office, except if additional underwriting is required. Premium
payments requiring additional underwriting will not be credited to the Contract
until underwriting has been completed and the premium payment has been accepted.
(See "Underwriting Requirements" above). If the additional premium payment is
rejected, Kansas City Life will return the premium payment immediately, without
any adjustment for investment experience.
II. Transfers Among Accounts
A. Transfer Privilege
1. General. After the Reallocation Date and prior to the Maturity Date, the
Owner may transfer all or part of an amount in the Subaccount(s) to another
Subaccount(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the Subaccount(s), subject to the restrictions described below.
Kansas City Life will make the transfer on the date that it receives Written
Notice requesting such transfer.
2. General Restrictions on Transfer Privilege. The minimum transfer amount is
the lesser of $250 or the entire amount in that Subaccount or the Fixed Account.
A transfer request that would reduce the amount in a Subaccount or the Fixed
Account below $250 will be treated as a transfer request for the entire amount
in that Subaccount or the Fixed Account. There is no limit on the number of
transfers that can be made among Subaccounts or to the Fixed Account. However,
only one transfer may be made from the Fixed Account each Contract Year. (For a
description of those restrictions, see "Restrictions on Transfers from Fixed
Account," below.) The first six transfers during each Contract Year are free.
Any unused free transfers do not carry over to the next Contract Year. Kansas
City Life will assess a $25 Transfer Processing Fee for the seventh and each
subsequent transfer during a Contract Year. For the purpose of assessing the
fee, each Written Request (or telephone request described below) is considered
to be one transfer, regardless of the number of Subaccounts or the Fixed Account
affected by the transfer. The processing fee will be deducted from the amount
being transferred or from the remaining Contract Value, according to the Owner's
instructions.
3. Restrictions on Transfers from Fixed Account. One transfer each Contract Year
is allowed from the Fixed Account to any or all of the Subaccounts. The amount
transferred from the Fixed Account may not exceed 25% of the unloaned Fixed
Account Value on the date of transfer, unless the balance after the transfer is
less than $250, in which case Kansas City Life will transfer the entire amount.
B. Telephone Authorizations
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.
C. Dollar Cost Averaging Plan
1. General. The Dollar Cost Averaging Plan, if elected, enables the Owner to
transfer systematically and automatically, on a monthly basis for a period of 3
to 36 months, specified dollar amounts from the Money Market Subaccount to other
Subaccounts. At least $250 must be transferred from the Money Market Subaccount
each month. The required amounts may be allocated to the Money Market Subaccount
through initial or subsequent premium payments or by transferring amounts into
the Money Market Subaccount from the other Subaccounts or from the Fixed Account
(which may be subject to certain restrictions).
2. Election and Operation of the Program. The Owner may elect this plan at the
time of application by completing the authorization on the application or at any
time after the Contract is issued by properly completing the election form and
returning it to Kansas City Life. The election form allows the Owner to specify
the number of months for the Dollar Cost Averaging Plan to be in effect. 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 rocessing Fee.
D. Portfolio Rebalancing Plan
1. General. The Owner may elect to have the accumulated balance of each
Subaccount redistributed to equal a specified percentage of the Variable Account
Value. This will be done on a quarterly basis at three-month intervals from the
Monthly Anniversary Day on which the Portfolio Rebalancing Plan commences.
2. Election and Operation of the Plan. If elected, this plan automatically
adjusts the Owner's Portfolio mix to be consistent with the allocation most
recently requested. The redistribution will not count toward the six transfers
permitted each Contract Year without imposing the Transfer Processing Fee.
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. 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, 45 days after
the application for the Contract is signed, or 10 days after Kansas City Life
mails or delivers a Notice of Withdrawal Right (described below), whichever is
latest. If the Owner decides to cancel the Contract, the Owner must return it by
mail or other delivery method to the Home Office or to the authorized Kansas
City Life agent who sold it. Immediately after mailing or delivery, the Contract
will be deemed void from the beginning. Within seven calendar days after Kansas
City Life receives the returned Contract, Kansas City Life will refund premiums
paid. In some states we may be required to refund the greater of Contract Value
and premiums paid.
In addition, the Owner may cancel an increase in Specified Amount that the Owner
has requested within 10 days after the Owner receives the adjusted Contract,
within 45 days after the date the application for the increased coverage is
signed, or within 10 days after Kansas City Life mails the Notice of Withdrawal
Right for the Specified Amount increase, whichever is latest. The Specified
Amount increase will be canceled from its beginning and any charges attributable
to the increase will be returned to Contract Value.
B. Notice of Withdrawal Right Required by Rule 6e-3(T)(b)(13)(viii) Upon
issuance of a Contract, Kansas City Life will send by first class mail or
personal delivery to the Contract Owner a written document containing (i) a
notice of the right to return the Contract to Kansas City Life or to one of its
authorized agents before the latest of: (a) 10 days after the Owner receives the
Contract; (b) 45 days after the application for the Contract is signed; and (c)
10 days after Kansas City Life mails or delivers such notice of the right to
return the Contract to the Owner; (ii) a statement of Contract fees and other
charges and an illustration of guideline annual premiums, death benefits, and
cash surrender values applicable to the age, sex, and risk class of the Insured;
and (iii) a form of request for refund of gross premiums paid on the Contract
setting forth (a) instructions as to the manner in which a refund may be
obtained, including the address to which the request form should be mailed; and
(b) spaces necessary to indicate the date of such request, the Contract number,
and the signature of the Contract Owner.
C. Surrendering the Contract for Cash Surrender Value
The Owner may surrender the Contract at any time for its Cash Surrender Value by
submitting a written request to the Home Office. Kansas City Life may require
return of the Contract. A Surrender Charge may apply. A surrender request will
be processed as of the date the Owner's written request and all required
documents are received. Payment will generally be made within seven calendar
days. The Cash Surrender Value may be taken in one lump sum or it may be applied
to a payment option. The Owner's Contract will terminate and cease to be in
force if it is surrendered for one lump sum. It cannot later be reinstated.
D. Partial Surrenders
1. General. The Owner may make partial surrenders under the contract at any
time, subject to the conditions below. The Owner must submit a Written Request
to the Home Office. Each partial surrender must be at least $500. The partial
surrender amount may not exceed the Cash Surrender Value, less $300. A Partial
Surrender Fee will be assessed on a partial surrender. This charge will be
deducted from the Owner's Contract Value along with the amount requested to be
surrendered and will be considered part of the surrender (together, "partial
surrender amount"). As of the date Kansas City Life receives a Written Request
for a partial surrender, the Contract Value will be reduced by the partial
surrender amount.
2. Allocation of Partial Surrender Among the Accounts. When the Owner requests a
partial surrender, the Owner can direct how the partial surrender amount will be
deducted from Contract Value in the Subaccounts and Fixed Account. If the Owner
provides no directions, the partial surrender amount will be deducted from
Contract Value in the Subaccounts and Fixed Account on a pro-rata basis.
3. Effect of Partial Surrender on Death Benefit. If Coverage Option A is in
effect, Kansas City Life will reduce the Specified Amount by an amount equal to
the partial surrender amount, less the excess, if any, of the Death Benefit over
the Specified Amount at the time the partial surrender is made. If the partial
surrender amount is less than the excess of the Death Benefit over the Specified
Amount, the Specified Amount will not be reduced. Kansas City Life reserves the
right to reject a partial surrender request if the partial surrender would
reduce the Specified Amount below the minimum amount for which the Contract
would be issued under Kansas City Life's then-current rules, or if the partial
surrender would cause the Contract to fail to qualify as a life insurance
contract under applicable tax laws, as interpreted by Kansas City Life.
4. Date Partial Surrender Requests Are Processed. Partial surrender requests
will be processed as of the date the Owner's written request is received in good
order, and generally will be paid within seven calendar days. A written request
for a partial surrender will be deemed to be good order when, among other
things, all required supporting documentation has been received.
E. Surrender Charge
During the first fifteen Contact Years, a Surrender Charge will be deducted from
the Contract Value if the Contract is completely surrendered or lapses or the
Specified Amount is reduced (including when a partial surrender reduces the
Specified Amount). The Surrender Charge is the sum of two parts, the Deferred
Sales Load and the Deferred Administrative Expense. The total Surrender Charge
will not exceed the maximum Surrender Charge set forth in the Contract. An
additional Surrender Charge and Surrender Charge period will apply to each
portion of the Contract resulting from a Specified Amount increase, starting
with the effective date of the increase.
Any Surrender Charge deducted upon lapse is credited back to the Contract Value
upon reinstatement. The Surrender Charge on the date of reinstatement will be
the same as it was on the date of lapse. For purposes of determining the
Surrender Charge on any date after reinstatement, the period the Contract was
lapsed will not count.
1. Deferred Sales Load. The Deferred Sales Load is 30% of actual premiums paid
up to a maximum premium amount shown in the Contract. The maximum premium amount
shown in the Contract is based on the issue Age, sex, Specified Amount, and
smoking class applicable to the Insured. If the Owner increases the Contract's
Specified Amount, a separate Deferred Sales Load will apply to the Specified
Amount increase, based on the Insured's Age, sex, and smoking class at the time
of the increase.
The Deferred Sales Load in the first nine years of the Surrender Charge period
is 30% of actual premiums paid up to the maximum premium amount shown in the
Contract. After the ninth year of the Surrender Charge Period, the Deferred
Sales Load declines until it reaches 0% in the fifteenth year of the Surrender
Charge period.
2. Deferred Administrative Expense. The Table below shows the Deferred
Administrative Expense deducted if the Owner surrenders, lapses, reduces the
Specified Amount, or takes a partial surrender during the first fifteen Contract
Years or during the fifteen years following an increase in Specified Amount. The
Deferred Administrative Expense is an amount per $1,000 of Specified Amount and
will grade down to zero at the end of fifteen years.
Table of Deferred Administrative Expenses per $1,000 of Specified Amount
End of Year* Deferred Administrative Expense
1-5 5.00
6 4.50
7 4.00
8 3.50
9 3.00
10 2.50
11 2.00
12 1.50
13 1.00
14 0.50
15 0.00
* End of year means number of completed Contract years or number
of completed years following an increase in Specified Amount.
After the fifth year, the Deferred Administrative Expense
between years will be pro-rated monthly. The charge for the first five years
will be level.
F. Partial Surrender Fee
Kansas City Life will deduct an administrative charge upon a partial surrender.
This charge is the lesser of 2% of the amount surrendered or $25. This charge
will be deducted from the Contract Value in addition to the amount requested to
be surrendered and will be considered to be part of the partial surrender
amount.
G. Redemptions for Monthly Deduction
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that have occurred prior to the
Allocation Date. (The Monthly Deduction is described in Appendix A.) Subsequent
Monthly Deductions will be made as of each Monthly Anniversary Day thereafter.
The Owner's Contract Date is the date used to determine the Owner's Monthly
Anniversary Day. The Monthly Deduction consists of (1) cost of insurance
charges, (2) administration fees, and (3) any charges for supplemental and/or
rider benefits. The Monthly Deduction is deducted from the Variable Accounts and
Fixed Account pro rata on the basis of the portion of Contract Value in each
account on the Monthly Anniversary Day.
H. Death Benefits
As long as the Contract remains in force, Kansas City Life will pay the Death
Benefit proceeds upon receipt at the Home Office of proof of the Insured's death
that Kansas City Life deems satisfactory. Kansas City Life may require return of
the Contract. The Death Benefit will be paid in a lump sum generally within
seven calendar days of receipt of satisfactory proof or, if elected, under a
payment option. The Death Benefit will be paid to the Beneficiary.
Under certain circumstances and in accordance with established administrative
procedures, we will pay death benefit proceeds through Kansas City Life's
Personal Growth Account, an interest bearing account. Proceeds paid through the
Personal Growth Account are placed in our general account. Check-writing
privileges are provided in the Personal Growth Account under which the bank that
pays the check will be reimbursed by Kansas City Life out of the proceeds held
in our general account. The Personal Growth Account is not a bank account and is
not insured nor guaranteed by the FDIC or any other government agency. A
Contract Owner or beneficiary (whichever applicable) will have immediate access
to the proceeds by writing a check on the account. We pay interest from the date
of death to the date the Personal Growth Account is closed.
1. Amount of Death Benefit Proceeds. The Death Benefit proceeds are equal to the
sum of the Death Benefit under the Coverage Option selected calculated on the
date of the Insured's death, plus any supplemental and/or rider benefits, minus
any Indebtedness on that date and, if the date of death occurred during a grace
period, minus any past due Monthly Deductions. Under certain circumstances,
including without limitation when the age or sex of the Insured has been
misstated or when the Insured dies by suicide within two years of the Contract
Date or within two years after the effective date of any increase in the
Specified Amount, the amount of the Death Benefit may be further adjusted. If
part or all of the Death Benefit is paid in one sum, Kansas City Life will pay
interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
2. Coverage Options. The Contract Owner may choose one of two Coverage Options,
which will be used to determine the Death Benefit. Under Option A, the Death
Benefit is the greater of the Specified Amount or the Applicable Percentage (as
described below) of Contract Value on the date of the Insured's death. Under
Option B, the Death Benefit is the greater of the Specified Amount plus the
Contract Value on the date of death, or the Applicable Percentage of the
Contract Value on the date of the Insured's death.
If investment performance is favorable, the amount of the Death Benefit may
increase. However, under Option A, the Death Benefit ordinarily will not change
for several years to reflect any favorable investment performance and may not
change at all. Under Option B, the Death Benefit will vary directly with the
investment performance of the Contract Value.
The "Applicable Percentage" is 250% when the Insured has attained Age 40 or
less, and decreases each year thereafter to 100% when the Insured has attained
Age 95.
3. Initial Specified Amount and Coverage Option. The Initial Specified Amount is
set at the time the Contract is issued. The Owner may change the Specified
Amount from time to time, as discussed below. The Owner selects the Coverage
Option when the Owner applies for the Contract. The Owner also may change the
Coverage Option, as discussed below.
4. Changes in Coverage Option. We reserve the right to require that the Contract
be in force for one Contract Year before any change in Coverage Option and that
no more than one change in Coverage Option be made in any 12-month period. On or
after the first Contract Anniversary, the Owner may change the Coverage Option
on the Contract subject to the following rules. After the Coverage Option has
been changed, it cannot be changed again for the next twelve Contract Months.
After any change, the Specified Amount must be at least $100,000 for issue Ages
0-49 and $50,000 for issue Ages 50-80. The effective date of the change will be
the Monthly Anniversary Day that coincides with or next follows the day that
Kansas City Life receives and accepts the request. Kansas City Life may require
satisfactory evidence of insurability. (See "Underwriting requirements," above.)
When a change from Option A to Option B is made, the Specified Amount after the
change is effective will be equal to the Specified Amount before the change. The
Death Benefit will increase by the Contract Value on the effective date of the
change. When a change from Option B to Option A is made, the Specified Amount
after the change will be equal to the Specified Amount before the change is
effected plus the Contract Value on the effective date of the change.
5. Ability to Adjust Specified Amount. We reserve the right to require that the
Contract be in force for one Contract Year before a change in Specified Amount
and we reserve the right to only allow one change in Specified Amount every
twelve Contract months. If a change in the Specified Amount would result in
total premiums paid exceeding the premium limitations prescribed under current
tax law to qualify the Contract as a life insurance contract, Kansas City Life
will refund, after the next Monthly Anniversary, to the Owner the amount of such
excess above the premium limitations.
Kansas City Life reserves the right to decline a requested decrease in the
Specified Amount if compliance with the guideline premium limitations under
current tax law resulting from this decrease would result in immediate
termination of the Contract, or if to effect the requested decrease, payments to
the Owner would have to be made from the Contract Value for compliance with the
guideline premium limitations, and the amount of such payments would exceed the
Cash Surrender Value under the Contract.
The Specified Amount after any decrease must be at least $100,000 for Contracts
that were issued at issue Ages 0-49 and $50,000 for Contracts that were issued
at issue Ages 50-80. A decrease in Specified Amount will become effective on the
Monthly Anniversary Day that coincides with or next follows receipt and
acceptance of a request at the Home Office.
Any increase in the Specified Amount must be at least $25,000 and an application
must be submitted. Kansas City Life reserves the right to require satisfactory
evidence of insurability. In addition, the Insured's attained Age must be less
than the current maximum issue Age for the Contracts, as determined by Kansas
City Life from time to time.
The increase in Specified Amount will become effective on the Monthly
Anniversary Day on or next following the date the request for the increase is
received and approved. A new Guaranteed Payment Period will begin on the
effective date of the increase and will continue for five years. The Contract's
Guaranteed Monthly Premium will be recalculated to reflect the increase. If a
Guaranteed Payment Period is in effect, the Contract's Guaranteed Monthly
Premium amount will also generally be increased. An increase in Specified Amount
may be cancelled by the Owner in accordance with the Contract's "free look"
provisions. In such case, the amount refunded will be limited to those charges
that are attributable to the increase.
A new Surrender Charge and Surrender Charge period will apply to each portion of
the Contract resulting from an increase in Specified Amount, starting with the
effective date of the increase. After an increase, Kansas City Life will, for
purposes of calculating Surrender Charges, attribute a portion of each premium
payment the Owner makes to the Specified Amount increase, even if the Owner does
not increase the amount or frequency of the Owner's premiums. Premiums will be
allocated based upon the proportion that the "coverage premium weighting factor"
for the initial Specified Amount and each increase bears to the total "coverage
premium weighting factor" for the Contract.
The "coverage premium weighting factor" is a hypothetical, level amount that
would be payable through the Maturity Date for the benefits provided under the
Contract. Kansas City Life will calculate this amount using the following
assumptions: o Cost of insurance rates based on the 1980 Commissioners Standard
Ordinary Mortality Tables; o Net investment earnings under the Contract; o An
effective annual rate of 5%; and o Sales and other charges imposed under the
Contract.
I. Loans
1. When Loans are Permitted. Prior to the death of the Insured, the Owner may
borrow against the Contract at any time by submitting a written request to the
Home Office, provided that the Cash Surrender Value of the Contract is greater
than zero. The maximum loan amount is equal to the Contract's Cash Surrender
Value on the effective date of the loan less loan interest to the next Contract
Anniversary. Contract loans will be processed as of the date the Owner's written
request is received and approved. Loan proceeds generally will be sent to the
Owner within seven calendar days.
2. Interest. Kansas City Life will charge interest on any Indebtedness at an
annual rate of 6.0%. Interest is due and payable at the end of each Contract
Year while a loan is outstanding. If interest is not paid when due, the amount
of the interest is added to the loan and becomes part of the Indebtedness.
3. Loan Collateral. When a Contract loan is made, an amount sufficient to secure
the loan is transferred out of the Subaccounts and the unloaned value in the
Fixed Account and into the Contract's Loan Account. Thus, a loan will have no
immediate effect on the Contract Value, but the Cash Surrender Value will be
reduced immediately by the amount transferred to the Loan Account. The Owner can
specify the Variable Accounts and/or Fixed Account from which collateral will be
transferred. If no allocation is specified, collateral will be transferred from
each Subaccount and from the unloaned value in the Fixed Account in the same
proportion that the Contract Value in each Subaccount and the unloaned value in
the Fixed Account bears to the total Contract Value in those accounts on the
date that the loan is made. An amount of Cash Surrender Value equal to any due
and unpaid loan interest will also be transferred to the Loan Account on each
Contract Anniversary. Due and unpaid interest will be transferred from each
Subaccount and the unloaned value in the Fixed Account in the same proportion
that each Subaccount Value and the unloaned value in the Fixed Account Value
bears to the total unloaned Contract Value.
The Loan Account will be credited with interest at an effective annual rate of
not less than 4%. Interest earned on the Loan Account will be added to the Fixed
Account.
4. Preferred Loan Provision. Beginning in the eleventh Contract Year, a
preferred loan may be made. The maximum amount available for a preferred loan is
the Contract Value less premiums paid and may not exceed the maximum loan
amount. The amount in the Loan Account securing the preferred loan will be
credited with interest at an effective annual rate of 6.0%. The preferred loan
provision is not guaranteed.
5. Loan Repayment;. The Owner may repay all or part of the Owner's Indebtedness
at any time while the Insured is living and the Contract is in force. Each loan
repayment must be at least $50.00. Loan repayments must be sent to the Home
Office and will be credited as of the date received. A loan repayment must be
clearly marked as "loan repayment" or it will be credited as a premium. When a
loan repayment is made, Contract Value in the Loan Account in an amount equal to
the repayment is transferred from the Loan Account to the Subaccounts and the
unloaned value in the Fixed Account. Unless specified otherwise by the Owner,
loan repayment amounts will be transferred to the Subaccounts and the unloaned
value in the Fixed Account according to the premium allocation instructions in
effect at that time.
6. Reduction in Death Benefit. If the Death Benefit becomes payable while a loan
is outstanding, the Indebtedness will be deducted in calculating the Death
Benefit proceeds.
7. Default. If the Loan Account Value exceeds the Contract Value less any
applicable Surrender Charge on any Valuation Day, the Contract will be in
default. The Owner, and any assignee of record, will be sent notice of the
default. The Owner will have a 61-day grace period to submit a sufficient
payment to avoid termination of coverage under the Contract. The notice will
specify the amount that must be repaid to prevent termination.
J. Payment Options
The Contract offers a variety of ways of receiving proceeds payable under the
Contract, such as on surrender, death or maturity, other than in a lump sum.
These payment options are summarized below. The Owner may apply proceeds of
$2,000 or more which are payable under this Contract to any of the following
options:
1. Option 1 - Interest Payments. Kansas City Life will make interest payments to
the payee annually or monthly as elected. Interest on the proceeds will be paid
at the guaranteed rate of 3.0% per year and may be increased by additional
interest paid annually. The proceeds and any unpaid interest may be withdrawn in
full at any time.
2. Option 2 - Installments of a Specified Amount. Kansas City Life will make
annual or monthly payments until the proceeds plus interest are fully paid.
Interest on the proceeds will be paid at the guaranteed rate of 3.0% per year
and may be increased by additional interest. The present value of any unpaid
installments may be withdrawn at any time.
3. Option 3 - Installments For a Specified Period. Payment of the proceeds may
be made in equal annual or monthly payments for a specified number of years.
Interest on the proceeds will be paid at the guaranteed rate of 3.0% per year
and may be increased by additional interest. The present value of any unpaid
installments may be withdrawn at any time.
4. Option 4 - Life Income. Kansas City Life will pay an income during the
payee's lifetime. A minimum guaranteed payment period may be chosen. Payments
received under the Installment Refund Option will continue until the total
income payments received equal the proceeds applied.
5. Option 5 - Joint and Survivor Income. Kansas City Life will pay an income
during the lifetime of two persons and will continue to pay the same income as
long as either person is living. The minimum guaranteed payment period will be
ten years.
6. Minimum Amounts. Kansas City Life reserves the right to pay the total amount
of the Contract in one lump sum, if less than $2000. If payments are less than
$50, payments may be made less frequently at Kansas City Life's option. If
Kansas City Life has available at the time a payment option is elected options
or rates on a more favorable basis than those guaranteed, the more favorable
benefits will apply.
K. Delay in Redemptions or Transfers
Kansas City Life will ordinarily pay any Death Benefit proceeds, loan proceeds,
partial surrender proceeds, or full surrender proceeds within seven calendar
days after receipt at the Home Office of all the documents required for such a
payment. Other than the Death Benefit, which is determined as of the date of
death, the amount will be determined as of the date of receipt of required
documents. However, Kansas City Life may delay making a payment or processing a
transfer request if (1) the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists as a result of which the disposal or valuation
of Variable Account assets is not reasonably practicable; or (2) the SEC by
order permits postponement of payment to protect Kansas City Life's Contract
Owners.
L. Additional 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 that 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 Specified Amount.
M. Maturity Benefit
The Maturity Date is the Contract Anniversary an or next following the Insured's
95th birthday. If the Contract is still in force on the Maturity Date, the
Maturity Benefit will be paid to you. The Maturity Benefit is equal to the Cash
Surrender Value on the Maturity Date.
APPENDIX A
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary Day that have occurred prior to the
Allocation Date. Subsequent Monthly Deductions will be made as of each Monthly
Anniversary Day thereafter. The Contract Date is the date used to determine the
Monthly Anniversary Day. The Monthly Deduction consists of (1) cost of insurance
charges, (2) administration fees (the "Monthly Expense Charge"), and (3) any
charges for supplemental and/or rider benefits. The Monthly Deduction is
deducted from the Variable Accounts and Fixed Account pro rata on the basis of
the portion of Contract Value in each account on the Monthly Anniversary Day.
Cost of Insurance Charge. This charge compensates Kansas City Life for the
expense of providing insurance coverage. The charge depends on a number of
variables and therefore will vary from Contract to Contract and from Monthly
Anniversary Day to Monthly Anniversary Day. For any Contract, the cost of
insurance on a Monthly Anniversary Day is calculated by multiplying the current
cost of insurance rate for the Insured by the net amount at risk on that Monthly
Anniversary Day.
The net amount at risk on a Monthly Anniversary Day is the difference between
the Death Benefit, discounted with one month of interest and the Contract Value,
as calculated on that Monthly Anniversary Day before the cost of insurance
charge is taken. The interest rate used to discount the Death Benefit is the
current interest rate that is being credited on portions of any Net Premiums
that are allocated to the Fixed Account as of that Monthly Anniversary Day.
The cost of insurance rate for a Contract on a Monthly Anniversary Day is based
on the Insured's Age, sex, level of specified amount, number of completed
Contract Years, and risk class, and therefore varies from time to time. Kansas
City Life currently places Insureds in the following classes, based on
underwriting: Standard Smoker, Standard Nonsmoker, or Preferred Nonsmoker. An
Insured may be placed in a substandard risk class, which involves a higher
mortality risk than the Standard Smoker or Standard Nonsmoker classes. Standard
Nonsmoker rates are available for Issue Ages 0-80. Standard Smoker and Preferred
Nonsmoker rates are available for Issue Ages 15-80. Contracts with a specified
amount of $500,000 and above currently are subject to a lower level of cost of
insurance charges.
The cost of insurance rate for an increase in Specified Amount will be
determined on each Monthly Anniversary Day and is based on the Insured's Age,
sex, number of completed Contract Years, and risk class.
Kansas City Life places the Insured in a risk class when the Contract is given
underwriting approval, based on Kansas City Life's underwriting of the
application. When an increase in Specified Amount is requested, Kansas City Life
conducts underwriting before approving the increase (except as noted below) to
determine the risk class that will apply to the increase. If the risk class for
the increase has lower cost of insurance rates than the existing risk class, the
lower rates will apply to the entire Specified Amount. If the risk class for the
increase has higher cost of insurance rates than the existing class, the higher
rates will apply only to the increase in Specified Amount, and the existing risk
class will continue to apply to the existing Specified Amount.
Kansas City Life does not conduct underwriting for an increase in Specified
Amount if the increase is requested as part of a conversion from a term contract
or on exercise of the Option to Increase the Specified Amount Rider. In the case
of a term conversion, the risk class that applies to the increase will be based
on the provisions of the term contract. In the case of an increase under the
Option to Increase Specified Amount Rider, the Insured's risk class for an
increase will be the class in effect on the initial Specified Amount at the time
that the increase is elected.
The net amount at risk associated with a Specified Amount increase is determined
by the percentage that the Specified Amount increase bears to the Contract's
total Specified Amount immediately following the increase. The resulting
percentage is the part of the Contract's total net amount at risk that is
attributed to the Specified Amount increase. The remaining percentage of the
Contract's total net amount at risk is attributed to the existing Specified
Amount. (For example, if the Contract's Specified Amount is increased by
$100,000 and the total Specified Amount is $250,000, then 40% of the total net
amount at risk is attributed to the Specified Amount increase.) On each Monthly
Anniversary Day, the net amount at risk used to determine the cost of insurance
charge associated with the Specified Amount increase is the Contract's total net
amount of risk at that time, multiplied by the percentage calculated as
described above. This percentage remains fixed until the Specified Amount is
changed.
Kansas City Life guarantees that the cost of insurance rates used to calculate
the monthly cost of insurance charge will not exceed the maximum cost of
insurance rates set forth in the contracts. The guaranteed rates for standard
and preferred classes are based on the 1980 Commissioners' Standard Ordinary
Mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Rates ("1980 CSO
Tables"). The guaranteed rates for substandard classes are based on multiples of
or additives to the 1980 CSO Tables.
Kansas City Life's current cost of insurance rates may be less than the
guaranteed rates that are set forth in the Contract. Current cost of insurance
rates will be determined based on Kansas City Life's expectations as to future
mortality experience. These rates may change from time to time.
Monthly Expense Charge. Kansas City Life will begin deducting the Monthly
Expense Charge from the Contract Value as of the Contract Date. Thereafter,
Kansas City Life will deduct a Monthly Expense Charge from the Contract Value as
of each Monthly Anniversary Day. The Monthly Expense Charge is made up of two
parts:
(1) a maintenance charge which is a level monthly charge which applies in all
years. The maintenance charge is guaranteed not to exceed $6.00.
(2) An acquisition charge which is a charge of $20 per Contract Month for the
first Contract Year and $20 per Contract Month for 12 months following the
effective date of an increase in Specified Amount.
The Monthly Expense Charge reimburses Kansas City Life for expenses incurred in
the administration of the Contracts and the Variable Account. Such expenses
include but are not limited to: underwriting and issuing the Contract,
confirmations, annual reports and account statements, maintenance of Contract
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract Owner servicing and all
accounting, valuation, regulatory and updating requirements.
Reduced Charges for Eligible Groups
The charges otherwise applicable may be reduced with respect to Contracts issued
to a class of associated individuals or to a trustee, employer or similar entity
where Kansas City Life anticipates that the sales to the members of the class
will result in lower than normal sales or administrative expenses. These
reductions will be made in accordance with our rules in effect at the time of
the application for a Contract. The factors we will consider in determining the
eligibility of a particular group for reduced charges and the level of the
reduction are as follows: the nature of the association and it organizational
framework, the method by which sales will be made to the members of the class,
the facility with which premiums will be collected from the associated
individuals and the association capabilities with respect to administrative
tasks, the anticipated persistency of the Contract, the size of the class of
associated individuals and the number of years it has been in existence and any
other such circumstances which justify a reduction in sales or administrative
expenses. Any reduction will be reasonable and will apply uniformly to all
prospective Contract purchases in the class and will not be unfairly
discriminatory to the interest of any Contract holder.
Supplemental and/or Rider Benefits
The following supplemental and/or rider benefits are available and may be added
to the Owner's Contract. Monthly charges for these benefits and/or riders will
be deducted from the Owner's Contract Value as part of the Monthly Deduction.
All of these riders may not be available in all states.
Disability Continuance of Insurance (DCOI)
Issue Ages: 15-55, renewal through age 59 This rider covers the
Contract's Monthly Deductions during the period of total disability of
the Insured. DCOI benefits become payable after the Insured's total
disability exists for six consecutive months and total disability
occurs before age 60. Benefits under this rider continue until the
Insured is no longer totally disabled.
Accidental Death Benefit (ADB)
Issue Ages: 0-60
This rider provides for the payment of an additional amount of
insurance in the event of accidental death. The rider terminates when
the Insured attains age 70.
Option to Increase Specified Amount (Assured Insurability - AI) Issue
Ages: 0-38 This rider allows the Specified Amount of the Contract to
increase bythe option amount or less, without evidence of insurability
on the Insured. These increases may occur on regular option dates or
alternate option dates. See the rider contract for the specific dates.
Spouse's Term insurance (STI)
Issue Ages: 15-50 (Spouse's age)
This rider provides decreasing term insurance on the Insured's spouse.
The amount of insurance coverage is expressed in units and a maximum
number of five units may be purchased. The amount of insurance per unit
of coverage is based on the Insured Spouse's attained age. A table
specifying the amount of insurance per unit of coverage is in the rider
contract.
Children's Term Insurance (CTI)
Issue Ages: 14 Days - 17 Years (Children's ages)
This rider provides level term insurance on each Insured Child. This
term insurance continues until the Contract anniversary on which the
Insured Child's attained age is 25. The rider expires on the Contract
Anniversary on which the Insured is age 65.
Other Insured Term Insurance (OI)
Issue Ages: 0-65 (Other Insured's age)
This rider provides level yearly renewable term coverage on the
Insured, the Insured's spouse, and/or children. The coverage expires at
the earlier of the Contract Anniversary on which the Insured or the
Other Insured is age 95 unless an earlier date is requested. The term
insurance provided by this rider can be converted to a permanent
contract at any time the rider is in force without evidence of
insurability.
Extra Protection (EXP)
Issue Ages: 0-80
This rider provides level yearly renewable term coverage on the
Insured. The coverage expires at the Contract Anniversary on which the
Insured is age 95 unless an earlier date is requested.
Disability Premium Benefit Rider (DPB)
Issue Ages: 15-55, renewal through 59
This rider provides for the payment of the disability premium benefit
amount as premium to the Contract during a period of total disability
of the Insured. The DPB benefit amount is a monthly amount that is
requested by the Owner. DPB benefits become payable after the Insured's
total disability exists for six consecutive months and total disability
occurs before age 60. Benefits under this rider continue until the
Insured is no longer totally disabled.
Accelerated Death Benefit/Living Benefits Rider (LBR) Issue Ages: No
age limitations This rider provides you the opportunity to receive an
accelerated payment of all or part of of the Contract's Death Benefit
(adjusted to reflect current value) when the Insured is either
terminally ill or receives care in an eligible nursing home. The rider
provides for two accelerated payment options:
o Terminal Illness Option: This option is available if the
Insured is diagnosed as terminally ill with a life expectancy
of 12 months or less. When satisfactory evidence is provided,
we will provide an accelerated payment of the portion of the
death benefit you select as an Accelerated Death Benefit. You
may elect to receive the benefit in a single sum or receive
equal, monthly payments for 12 months.
o Nursing Home Option: This option is available after the
Insured has been confined to an eligible nursing home for six
months or more. When satisfactory evidence is provided,
including certification by a licensed physician, that the
Insured is expected to remain in the nursing home until death,
we will provide an accelerated payment of the portion of the
Death Benefit you select as an Accelerated Death Benefit. You
may elect to receive the benefit in a single sum or receive
equal, monthly payments for a specified number of years (not
less than two) depending upon the age of the Insured.
We can furnish you details about the amount of accelerated death
benefit available to you if you are eligible and the adjusted premium
payments that would be in effect if less than the entire death benefit
is accelerated.
You are not eligible for this benefit if you are required by law or a
government agency to: (1) exercise this option to satisfy the claims
of creditors, or (2) exercise this option in order to apply for,
obtain, or retain a government benefit or entitlement.
You should know that electing to use the Accelerated Death Benefit
could have adverse tax consequences. You should consult a tax advisor
before electing to receive this benefit.
There is no charge for this rider.
Bonus on Contract Value in the Variable Account
A bonus may be credited to the Contract on each Monthly Anniversary Day
beginning in the eleventh Contract Year. The monthly bonus equals 0.0375% (0.45%
on an annualized basis) of the Contract Value in each Subaccount of the Variable
Account at the end of each Contract Month. This bonus is not guaranteed, and
Kansas City Life may decide not to pay the bonus.
Exhibit 2
April 16, 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 opinion, and I advise you that in my opinion: 1. The Separate
Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Missouri.
2. The Contracts, when issued in accordance with the Prospectus constituting a
part of the Registration Statement and upon compliance with applicable local
law, will be legal and binding obligations of the Company in accordance with
their respective terms.
3. The portion of the assets held in the Separate Account equal to reserves and
other contract liabilities with respect to the Separate Account are not
chargeable with liabilities arising out of any other business the Company
may conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and the use of my name under the heading "Legal Matters" in the
Prospectus constituting a part of the Registration Statement and to the
references to me wherever appearing herein.
Yours very truly,
/s/C. John Malacarne
C. John Malacarne
CJM/jp
Exhibit 6
Actuarial Opinion
In my capacity as Vice President and Associate Actuary of Kansas City Life
Insurance Company, I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 5 to the registration statement
on Form S-6, filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to flexible premium variable
life insurance contract (the "Registration Statement") and
The preparation on contract forms for the flexible premium variable life
insurance contracts described in the Registration Statement (the "Contract").
It is my professional opinion that:
The illustrations of death benefits, account values, net cash surrender values
and accumulated premiums in the Prospectus, based on the assumptions stated in
the illustrations, are consistent with the provisions of the Contracts. The rate
structure of the Contracts has not been designed as to make the relationship
between premiums and benefits, as shown in the illustrations, appear to be
correspondingly more favorable to prospective purchasers of Contracts age 35 in
the underwriting classes illustrated than to prospective purchasers of Contracts
at other ages or underwriting classes.
I hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the use of my name under the heading "Experts" in the
Prospectus.
Sincerely,
/s/ Mark A. Milton
Mark A. Milton, FSA, MAAA
Vice President and Associate Actuary
Kansas City Life Insurance Company
Exhibit 7(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts," to the use
of our report dated January 22, 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. 5 to the Registration Statement (Form S-6 No. 33-95354) and the related
Prospectus.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 19, 1999
Exhibit 7 (b)
Consent of Sutherland, Asbill & Brennan
April 19, 1999
Board of Directors
Kansas City Life Insurance Company
3520 Broadway
Kansas City, MO 64141-6139
Re: Kansas City Life Variable Life Separate Account
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 5 to
the registration statement on Form S-6 for Kansas City Life Variable Life
Separate Account (File No. 33-95354). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
Stephen E. Roth
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000948972
<NAME> Kansas City Life Insurance Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<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
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
Footnotes:
<F1> Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2> Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3> Equity securities include equity securities that are available for sale
under FASB 115.
<F4> Real Estate includes real estate joint ventures.
<F5> Policyholder funds include accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6> Underwriting expenses - other represent amortization of the value of
purchased insurance in force.
</FN>
</TABLE>
