Personal Risk Profile and Asset Allocation: A Guide to Investing by Kansas City Life Insurance Company

Personal Risk Profile And Asset Allocation A Guide to Investing Variable Product Series Building your future with a secure partner Kansas City Life Insurance Company

Variable annuities are suitable for long-term investments, particularly for retirement savings. Withdrawals of tax-deferred accumulation are subject to ordinary income tax, and a 10 percent penalty may apply for withdrawals before age 591/2.

This brochure is authorized for distribution only when preceded or accompanied by product and fund prospectuses. The prospectuses contain more complete information about the product, including charges, limitations, expenses and investment options. As an investor, you should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. Read the prospectuses carefully before investing money.

Additional prospectuses can be obtained from your registered representative or by calling our toll-free number (800-616-3670). Kansas City Lifeâ&#x20AC;&#x2122;s Century II Variable Product Series is distributed by Sunset Financial Services Inc., Member FINRA and SIPC, a wholly owned subsidiary of Kansas City Life Insurance Company.

Investment basics Taking personal responsibility for providing your own financial security can be a daunting task. It means planning for an income you won’t outlive and providing cash for the extra things you want to do or buy after you retire. The earlier you start, the easier it will be.

• • •

Team up with a professional. Find one you trust and be honest with him or her about your financial goals. Be realistic about your expectations. Diversify. Spread your money over a variety of investments. Some investments perform better than others at certain times, and with a diversified portfolio you have a better chance of weathering the ups and downs of the market. However, diversification cannot guarantee gains or protect against loss. Get in and stay in. The earlier you start, the less you will have to put away to meet your goals for retirement.

And history shows us that long-term investors have been rewarded for holding onto their investments through periods of market decline and volatility. Of course, past performance cannot guarantee future results.

What is asset allocation? Asset allocation is the process of choosing investment options that match your personal risk profile and investment goals. Generally speaking, if you are younger, have a lot of assets, or don’t anticipate dipping into your nest egg for 10 years or more, you can afford to take more risk with your investments. But if you plan to use the money sooner rather than later, you need to protect your assets by allocating more of your savings to safer investments. The questionnaire in this brochure will help you determine your personal investment profile. The allocation models will help you choose appropriate investments for your profile.

Portfolio rebalancing Rebalancing involves staying on track with your investments after you’ve developed your initial asset allocation. Market fluctuations may change the initial mix of your investments. Rebalancing your portfolio, or adjusting the types of funds in which your money is invested, can ensure that your asset allocation stays as you intended instead of having too much of your money tied up in the same type of investment. It’s an easy way to keep your investment goals on track. Best of all, you may select it as an automatic feature on Kansas City Life Insurance Company’s variable products.

Ibbotson Associates – one of the most respected names in financial planning Rooted in the seminal academic research of Professor Roger Ibbotson, Ibbotson Associates is one of the leading authorities on asset allocation. With expertise in capital market expectations, asset allocation and portfolio implementation, Ibbotson bridges the gap between academic theory and real-world practice. Ibbotson Associates is a Morningstar company.

Ibbotson Associates’ Asset Allocation Service offered to Kansas City Life clients The way you divide your assets among different types of investments will have a large impact on your portfolio in the long term. Ibbotson understands these challenges and has developed the questionnaire included in this brochure in order to help you determine your personal risk profile. Ibbotson has also reviewed the investment choices offered in Kansas City Life’s Variable Products, taking into account each investment’s performance over a period of years and its volatility – or tendency to fluctuate in price. Based on that analysis, five different asset allocation model portfolios are offered by Kansas City Life through its variable products. Your score on the questionnaire will suggest an asset allocation model portfolio to consider when making your allocation choices. Remember, though, the final choice is yours.

Pe r s o n a l R i s k P ro f i l e

Based on your asset allocation model, your investment choices are:

For

Fund Name

Time Horizon Score Risk Tolerance Score Check the box indicating the investor type and portfolio model that matches your Personal Risk Profile score Conservative — Portfolio 1 Moderate-Conservative — Portfolio 2 Moderate — Portfolio 3 Moderate-Aggressive — Portfolio 4 Aggressive — Portfolio 5

Percentage Invested

% % % % % % % % % % % % %

what is my investment profile? Client name:

Please answer the following questions and add the points allotted for each answer to arrive at your Time Horizon and Risk Tolerance Scores. Match your scores to the Summary Scoring Grid in order to determine the type of investment portfolio your answers suggest you are most suited for. You may then use the suggested investment allocations or choose your own. The decision is yours.

Personal Risk Profile Time Horizon 1. When do you expect to begin your investment account? a) Less than 1 year b) 1 to 2 years c) 3 to 4 years d) 5 to 7 years e) 8 to 10 years f) 11 years or more

withdrawing money from

0 points 1 points 3 points 7 points 9 points 11 points

2. Once you begin withdrawing money from your investment account, how long do you expect the withdrawals to last?

a) I plan to take a lump sum distribution b) 1 to 4 years c) 5 to 7 years d) 8 to 10 years e) 11 years or more

0 points 2 points 4 points 5 points 6 points

Time Horizon Score: Note: If you have a Time Horizon Score of zero, even the most conservative portfolio may not be an appropriate investment option. You should speak to your investment advisor before selecting a portfolio, and you may want to consider one of Kansas City Lifeâ&#x20AC;&#x2122;s non-variable products. Used with permission. ÂŠ 2010 Ibbotson Associates Inc. All rights reserved.

Risk Tolerance 3. Historically, investments with higher returns generally are associated with greater risk and higher chance for loss. Alternatively, conservative investments are associated with lower risk, producing lower returns.

Conservative investments Lower risk Lower returns

Risky investments Higher risk Higher returns

Which of the following statements best describes your attitude to risk?

a) I am most concerned with risk. I am willing to accept lower returns in order to limit my chance of loss. b) I am willing to accept moderate volatility in investment value in order to achieve moderate returns. c) I am concerned primarily with maximizing investment returns and I am willing to accept significant fluctuations in my investment proceeds.

0 points 6 points

15 points

4. Inflation, the rise in prices over time, can erode your investment return. Longterm investors should be aware that if portfolio returns are less than the inflation rate, their ability to purchase goods and services in the future might actually decline. However, portfolios with long-term returns that significantly exceed inflation are associated with a higher degree of risk. Which of the following portfolios is most consistent with your investment philosophy? a) Portfolio 1 will most likely exceed long-term inflation by a significant margin and has a high degree of risk. 14 points b) Portfolio 2 will most likely exceed long-term inflation by a moderate margin and has a high to moderate degree of risk. 9 points c) Portfolio 3 will most likely exceed long-term inflation by a small margin and has a moderate degree of risk. 5 points d) Portfolio 4 will most likely match long-term inflation and has a low degree of risk. 0 points

5. Portfolios with the highest average returns also tend to have the highest chance of experiencing short-term losses. Consider $50,000 invested in four hypothetical portfolios. The table below shows the average ending value as well as the possibility of losing money for each portfolio at the end of one year.* Please select the portfolio with which you are most comfortable. Chance of Losing Money at the End of One Year

Possible Average Ending Value at the End of One Year a) Portfolio A b) Portfolio B c) Portfolio C d) Portfolio D

$53,100 $53,900 $54,900 $55,800

17% 21% 25% 27%

0 points 5 points 9 points 15 points

6. Assume that after 10 years of strong performance, the value of your diversified portfolio declined by 20 percent over the past year. How would you react? a) I would not change my portfolio. b) I would wait at least a year before changing to more conservative options. c) I would wait at least 3 months before changing to more conservative options. d) I would immediately change to more conservative options.

14 points 9 points 5 points 0 points

7. The following graph shows the hypothetical results of five portfolios, with an initial value of $50,000, over a one-year holding period. The best potential and worst potential gains and losses are presented.* Note that the portfolio with the best potential gain also has the largest potential loss. Which of these portfolios would you prefer to hold? a) Portfolio A 0 points b) Portfolio B 3 points c) Portfolio C 7 points d) Portfolio D 12 points e) Portfolio E 15 points

8. To prevent losses, I generally own (or would own) conservative investments as the bulk of my investments. I am willing to accept the lower expected returns associated with these investments. a) Strongly agree b) Agree c) Strongly disagree

0 points 6 points 12 points

9. The degree to which the value of a portfolio rises and falls is called volatility. Generally, assets that exhibit higher volatility also have higher returns. Investments are risky, however, because there is no guarantee that the upturns in your portfolio will be greater than the downturns. Which of the following best describes how you feel about the amount of volatility you are willing to accept? a) Little – I would rather have small returns than risk losing any money. b) Some – I would like to achieve higher returns over time and can withstand an occasional large downturn in the value of my portfolio. c) Considerable – My main goal is to achieve high returns over time and I can endure substantial losses in order to do so.

0 points

6 points

15 points

Risk Tolerance Score: Summary Scoring Grid Risk Tolerance Score

Time Horizon Score

1-2

3-5 6-7

8-10

0-12

Portfolio 1 Portfolio 1 Portfolio 1 Portfolio 1 Portfolio 1

13-33

Portfolio 1 Portfolio 2 Portfolio 2 Portfolio 2 Portfolio 2

34-54

Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 3 Portfolio 3

55-81

Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Portfolio 4

82-100

Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Portfolio 5

Client signature Date

11+

What investment allocation should I consider? The Kansas City Life Fixed Account has not been analyzed by Ibbotson Associates, nor is it included in the variable product asset allocation models. 5%

15%

Conservative

Large Cap Growth Large Cap Value Mid Cap Small Cap International Emerging Markets Global Real Estate (REITs) High Yield Bonds Bonds Cash

Conservative — Portfolio 1 ● Lower risk ● Shorter investment time horizon ● Some growth potential

This choice may be suitable for someone who may need some of the money within a few years and wants to take fewer risks with the majority of his or her investment. This category also may be suitable for individuals who want to minimize exposure to higher-risk investments, but don’t want to give up the opportunity for some growth.

61%

10%

Moderate Conservative 16%

5% 44% 11%

Large Cap Growth Large Cap Value Mid Cap Small Cap International Emerging Markets Global Real Estate (REITs) High Yield Bonds Bonds Cash

Moderate

12%

19%

32%

7% 3%

3% 3%

Large Cap Growth Large Cap Value Mid Cap Small Cap International Emerging Markets Global Real Estate (REITs) High Yield Bonds Bonds Cash

Moderate-Conservative — Portfolio 2 ● Moderate risk ● Medium investment time horizon ● Medium growth potential

This category may be appropriate for individuals in their prime earning years, who may also face significant expenditures in the not-too-distant future. They may be able to shoulder some risk to their capital and want to maximize returns on a portion of their investment. But, because they may need to draw upon their savings to meet major financial obligations, they may also need to moderate their exposure to market ups and downs by stressing investments with lower risks.

Moderate — Portfolio 3 ● Moderate to high risk ● Medium investment time horizon ● Medium to high growth potential

Individuals in this category may have a relatively long investment horizon. Growth of capital is important to such investors. But, because there’s a chance they might dip into their savings to meet a large financial obligation, they may want to take less risk with a portion of their money.

13%

Moderate Aggressive

15% 24%

20%

4% 4%

16%

Large Cap Growth Large Cap Value Mid Cap Small Cap International Emerging Markets Global Real Estate (REITs) High Yield Bonds Bonds Cash

Moderate-Aggressive — Portfolio 4 ● High risk ● Longer investment time horizon ● High growth potential

This allocation may be appropriate for an investor with the time to ride out market swings. An individual may also determine this allocation to be appropriate if he or she has significant other assets. Growth of capital is a prime consideration. But there’s also a desire to avoid some of the price swings of an all-stock portfolio.

10% 5%

Aggressive

17%

21% 19%

11%

12%

Large Cap Growth Large Cap Value Mid Cap Small Cap International Emerging Markets Global Real Estate (REITs) High Yield Bonds Bonds Cash

Aggressive — Portfolio 5 ● Higher risk over short intervals ● Long investment time horizon ● High growth potential

This allocation may be suitable for individuals with long investment time horizons and ambitious goals. It may also be appropriate for individuals with significant assets outside their savings plan. They understand that stocks have returned more than other investments over the long haul and are willing to ride out market swings. Growth of capital is the primary consideration. They understand past performance is not indicative of future results.

Your choice of investments Kansas City Life’s Variable Products offer a variety of investment choices for your cash accumulations. You can invest in Kansas City Life’s Fixed Account and/or choose from the investment choices offered through the Variable Account. All are professionally managed by some of today’s top investment advisors. And you can vary your choices from time to time to best meet your goals. Refer to the Variable Product Funds Prospectus for detailed information about the investment opportunities available. Emerging Markets

Templeton Developing Markets Securities Fund (Class 2)

Non-Style Specific

Invesco V.I. Technology Fund*** Calamos® Growth & Income Franklin Small-Mid Cap Growth Securities Fund (Class 2)

MFS® Total Return Series MFS® Utilities Series Seligman Communications & Information Portfolio (Class 2)

International

American Century VP International Fund

Templeton Foreign Securities Fund (Class 2)

Global Real Estate (REITS)

Franklin Global Real Estate Securities Fund (Class 2)

Small Cap

JPMorgan Insurance Trust Small Cap Core Portfolio Seligman Smaller-Cap Value Portfolio (Class 2) Dreyfus Opportunistic Small Cap Portfolio**

Mid Cap

Seligman Capital Portfolio (Class 2) JPMorgan Insurance Trust Mid Cap Value Portfolio

American Century VP Capital Appreciation Fund American Century VP Mid Cap Value Fund

Invesco V.I. Capital Appreciation Fund*** American Century VP Ultra® Fund Invesco V.I. Core Equity Fund*** Dreyfus VIF Appreciation Portfolio Dreyfus Stock Index Fund Federated Capital Appreciation Fund II American Century VP Value Fund American Century VP Income & Growth Fund

Dreyfus Socially Responsible Growth Fund MFS® Growth Series JPMorgan Insurance Trust U.S. Equity Portfolio MFS® Research Series Fidelity VIP Contrafund Portfolio

Growth Large Cap

Core Value

High Yield Bonds

Federated High Income Bond Fund II

Aggregate Bonds

MFS® Research Bond Series MFS® Strategic Income Series

TIPs

American Century VP Inflation Protection Fund (Class II)

Cash

Federated Prime Money Fund II

Kansas City Life The Kansas City Life Fixed Account has not been analyzed by Ibbotson Associates, nor is it included in the variable product asset allocation models. Please see the variable product prospectus for details. Fixed Account

t 4Targe Date Funds

Fidelity VIP Freedom Income Portfolio Fidelity VIP 2015 Portfolio Fidelity VIP 2025 Portfolio Fidelity VIP 2035 Portfolio Fidelity VIP 2045 Portfolio

Fidelity VIP 2010 Portfolio Fidelity VIP 2020 Portfolio Fidelity VIP 2030 Portfolio Fidelity VIP 2040 Portfolio Fidelity VIP 2050 Portfolio

*The Federated American Leaders Fund changed name to Federated Clover Value in May 2009. In February 2010 the fund will merge into the Federated Capital Appreciation Fund, which is classified in the Large Cap Core classification. **The Dreyfus Developing Leaders fund changed name to the Dreyfus Opportunistic Small Cap fund in February 2010. ***The AIM funds changed names to Invesco due to the merger.

Volatility Ranking for Kansas City Life Sub Accounts More Volatile

Less Volatile

Templeton Developing Markets Securities Fund (Class 2) JPMorgan Insurance Trust Small Cap Core Portfolio Seligman Smaller-Cap Value Portfolio (Class 2) American Century VP Capital Appreciation Fund Franklin Global Real Estate Securities Fund (Class 2) Seligman Capital Portfolio (Class 2) Invesco V.I. Technology Fund American Century VP International Fund Seligman Communications & Information Portfolio (Class 2) Dreyfus Opportunistic Small Cap Portfolio Fidelity VIP Freedom 2050 Portfolio* Templeton Foreign Securities Fund (Class 2) Franklin Small-Mid Cap Growth Securities Fund (Class 2) Fidelity VIP Freedom 2045 Portfolio* Fidelity VIP Contrafund Portfolio Fidelity VIP Freedom 2040 Portfolio* MFS® Utilities Series Fidelity VIP Freedom 2035 Portfolio* JPMorgan Insurance Trust Mid Cap Value Portfolio MFS® Growth Series American Century VP Mid Cap Value Fund Fidelity VIP Freedom 2030 Portfolio* MFS® Research Series Invesco V.I. Capital Appreciation Fund American Century VP Ultra® Fund JPMorgan Insurance Trust U.S. Equity Portfolio Dreyfus Socially Responsible Growth Fund American Century VP Income & Growth Fund Dreyfus Stock Index Fund Invesco V.I. Core Equity Fund Fidelity VIP Freedom 2025 Portfolio* Calamos® Growth & Income American Century VP Value Fund Fidelity VIP Freedom 2020 Portfolio* Federated Capital Appreciation Fund II Dreyfus VIF Appreciation Portfolio Federated High Income Bond Fund II Fidelity VIP Freedom 2015 Portfolio* Fidelity VIP Freedom 2010 Portfolio* MFS® Total Return Series MFS® Strategic Income Series American Century VP Inflation Protection Fund (Class II) Fidelity VIP Freedom Income Portfolio* MFS® Research Bond Series Federated Prime Money Fund II

Used with permission. © 2010 Ibbotson Associates Inc. All rights reserved. Ibbotson Associates weighs the historical volatility against the historical annual returns of each fund in their analysis of the Kansas City Life variable product funds. This illustration lists the funds with the most volatile at the top of the pyramid and the least volatile at the bottom, ranked by annualized standard deviation based on 60 months (or since inception) of data through December 2008. Past behavior and performance is no guarantee of future behavior and performance.

Kansas City Life Fixed Account Money in the Kansas City Life Fixed Account is part of Kansas City Life’s General Account and is managed by our own investment professionals. Funds earn a current interest rate but never less than the guaranteed crediting rate stated in the policy contract. This guarantee is backed by the claims-paying ability of Kansas City Life. One transfer each contract year is allowed from the fixed account* to any of the product’s other investment options. The amount transferred may not exceed 25 percent of the unloaned fixed account value on the date of transfer, unless the balance after the transfer is less than $250. In that case, we transfer the entire amount. * This restriction does not apply to the Kansas City Life Freedom Variable Annuity. And, there will be no limit on the maximum transfer amount from the Fixed Account of the Variable Annuity or Affinity Variable Annuity after the completion of seven contract years.

Federated Prime Money Fund II The Federated Prime Money Fund II is a money market mutual fund that seeks to provide stability of principal and daily liquidity. An investment in this fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the net asset value of your investment at $1.00 per share, it is possible to lose money by investing in this fund.

Ranked by annualized standard deviation based on 60 months (or since inception) of data through December 2008. *Indicates less than 60 months of performance.

Actual allocations may vary from target allocations. Asset allocation does not guarantee future results. Investment in an individual fund or funds in a single asset class may outperform or underperform an asset allocation fund. Bond investments will fluctuate with interest rate changes. As interest rates rise, bond prices will fall. High yield bonds have greater credit risk than higher quality bonds. Small-cap, mid-cap and emerging-growth company stocks may be riskier and more volatile than larger, more established company stocks. International investing is subject to currency fluctuations and political changes. The risks of international investments can be accentuated when investing in emerging markets. Real estate investments involve risks such as refinancing, interest rate fluctuations, economic impact on industry, changes in property values, dependency on management skills and risks similar to small company investing. Sector portfolios and concentrated portfolios with fewer securities may be subject to greater price volatility. Although some portfolios may have names or investment objectives that resemble retail mutual funds managed by the same money manager, these portfolios will not have the same underlying holdings or performance as the retail mutual funds. Investment results may be higher or lower.

3520 Broadway Kansas City, MO 64111 800.616.3670 www.kclife.com

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