affinityva.htm

PART B

STATEMENT OF ADDITIONAL INFORMATION

Kansas City Life Insurance Company

3520 Broadway

P.O. Box 219364

Kansas City, Missouri 64121-9364

(800) 616-3670

Statement of Additional Information

Kansas City Life Variable Annuity Separate Account

Individual Flexible Premium Deferred Variable Annuity Contract

This Statement of Additional Information contains information in addition to the information described in the Prospectus for an individual flexible premium deferred variable annuity contract (the "Contract") we offer. This Statement of Additional Information is not a Prospectus and you should read it only in conjunction with the Prospectus for the Contract and the prospectuses for the Funds. The Prospectus is dated the same as this Statement of Additional Information. Terms defined in the Prospectus have the same meaning in this Statement of Additional Information. You may obtain a copy of the Prospectus by writing or calling Kansas City Life at the address or phone number shown above.

The date of this Statement of Additional Information is May 1, 2008.

STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS

ADDITIONAL CONTRACT PROVISIONS	1
THE CONTRACT	1
INCONTESTABILITY	1
MISSTATEMENT OF AGE OR SEX	1
NON-PARTICIPATION	1
TAX STATUS OF THE CONTRACTS	1
CONTROL OF THE CONTRACT	2
OWNERSHIP	2
CHANGE OF OWNERSHIP	2
ASSIGNMENT	2
BENEFICIARY	2
SIMULTANEOUS DEATH OF BENEFICIARY AND ANNUITANT	3
SALE OF THE CONTRACTS	3
CALCULATION OF YIELDS AND TOTAL RETURNS	3
FEDERATED PRIME MONEY FUND II SUBACCOUNT YIELDS	3
OTHER SUBACCOUNT YIELDS	4
STANDARD SUBACCOUNT AVERAGE ANNUAL TOTAL RETURNS	5
OTHER TOTAL RETURNS	5
EFFECT OF THE ANNUAL ADMINISTRATION FEE ON PERFORMANCE DATA	6
SAFEKEEPING OF ACCOUNT ASSETS	6
STATE REGULATION	6
RECORDS AND REPORTS	6
LEGAL MATTERS	6
EXPERTS	6
OTHER INFORMATION	7
FINANCIAL STATEMENTS	7

ADDITIONAL CONTRACT PROVISIONS

THE CONTRACT

The entire Contract is made up of the contract and the application. The statements made in the application are deemed representations and not warranties. We cannot use any statement to deny a claim or to void the Contract unless it is in the application and we attach a copy of the application to the Contract at issue.

INCONTESTABILITY

We will not contest the Contract after it has been in force during the Annuitant's lifetime for two years from the Contract Date of the Contract.

MISSTATEMENT OF AGE OR SEX

If the age or sex of the Annuitant has been misstated, the amount that we will pay is the amount that the proceeds would have purchased at the correct age and sex.

If we make an overpayment because of an error in age or sex, the overpayment plus interest at 3% (compounded annually) will be a debt against the Contract. If you do not repay this amount, we will reduce future payments accordingly.

If an underpayment is made because of an error in age or sex, we will calculate any annuity payments at the correct age and sex and we will adjust future payments. We will pay the underpayment with interest at 3% (compounded annually) in a single sum.

NON-PARTICIPATION

The Contract is not eligible for any dividends and will not participate in our surplus earnings.

TAX STATUS OF THE CONTRACTS

Tax law imposes several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts.

Diversification Requirements. The Internal Revenue Code (“Code”) requires that the investments of each investment division of the separate account underlying the contracts be “adequately diversified” in order for the Contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that the Variable Account, through each Portfolio of the Funds, will satisfy these diversification requirements.

Owner Control. In certain circumstances, owners of variable annuity contracts have been considered for Federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of the Contract, such as the flexibility of an Owner to allocate premium payments and transfer amounts among the investment divisions of the separate account, have not been explicitly addressed in published rulings. While we believe that the Contract does not give an Owner investment control over separate account assets, we reserve the right to modify the Contract as necessary to prevent an Owner from being treated as the owner of the separate account assets supporting the Contract.

Required Distributions. In order to be treated as an annuity contract for Federal income tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of an Owner of the Contract. Specifically, section 72(s) requires that: (a) if any Owner dies on or after the annuity starting date, but prior to the time the entire interest in the Contract has been distributed, the entire interest in the Contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such Owner’s death; and (b) if any Owner dies prior to the annuity starting date, the entire interest in the Contract will be distributed within five years after the date of such Owner’s death. These requirements will be considered satisfied as to any portion of an Owner’s interest which is payable to or for the benefit of a designated Beneficiary and which is distributed over the life of such designated Beneficiary or over a period not extending beyond the life expectancy of that Beneficiary, provided that such distributions begin within one year of the Owner’s death. The

designated Beneficiary refers to a natural person designated by the Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated Beneficiary is the surviving spouse of the deceased Owner, the Contract may be continued with the surviving spouse as the new Owner.

The Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise.

Other rules may apply to Qualified Contracts.

CONTROL OF THE CONTRACT

OWNERSHIP

The Annuitant is the owner unless otherwise provided in the application. As owner, you may exercise every right provided by your contract. These rights and privileges end at the Annuitant’s death.

The consent of the beneficiary is required to exercise these rights if you have not reserved the right to change the beneficiary.

CHANGE OF OWNERSHIP

You may change the ownership of this contract by giving written notice to us. The change will be effective on the date your written notice was signed but will have no effect on any payment made or other action taken by us before we receive it. We may require that the contract be submitted for endorsement to show the change.

Certain federal income tax consequences may apply to a change of ownership on non-qualified contracts. You should consult with your tax advisor before requesting any changes of ownership on a non-qualified contract.

ASSIGNMENT

An assignment is a transfer of some or all of your rights under this contract. No assignment will be binding on us unless made in writing and filed at our Home Office. We assume no responsibility for the validity or effect of any assignment.

Certain federal income tax consequences may apply to an assignment. You should consult with your tax advisor before requesting an assignment.

BENEFICIARY

The beneficiary is shown on the application or in the last beneficiary designation filed with us. Death proceeds will be paid to the beneficiary except as provided in this Section.

If any beneficiary dies before the Annuitant, that beneficiary’s interest will pass to any other beneficiaries according to their respective interest.

If all beneficiaries die before the Annuitant, we will pay death proceeds to you, if living, otherwise to your estate or legal successors.

Unless you have waived the right to do so, you may change the beneficiary by filing a written notice in a form satisfactory to us. In order to be effective, the written notice for change of beneficiary must be signed while your contract is in force and the Annuitant is living. The change will be effective on the date your written notice was signed but will have no effect on any payment made or other action taken by us before we receive it.

The interest of any beneficiary will be subject to:

·	any assignment of this contract which is binding on us; and

·	any optional settlement agreement in effect at the Annuitant’s death.

SIMULTANEOUS DEATH OF BENEFICIARY AND ANNUITANT

We will pay death proceeds as though the beneficiary died before the Annuitant if:

·	the beneficiary dies at the same time as or within 15 days of the Annuitant’s death; and

·	we have not paid the proceeds to the beneficiary within this 15-day period.

SALE OF THE CONTRACTS

We offer the Contracts to the public on a continuous basis through Sunset Financial Services, Inc. (“Sunset Financial”). We anticipate continuing to offer the Contracts, but reserve the right to discontinue the offering.

Sunset Financial is responsible for distributing the Contracts pursuant to an Underwriting Agreement with us. Sunset Financial serves as principal underwriter for the Contracts. Sunset Financial, incorporated in the state of Washington on April 23, 1964, is a wholly owned subsidiary of Kansas City Life Insurance Company, and has its principal business address at P.O. Box 219365, Kansas City, Missouri 64121-9365. Sunset Financial is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “1934 Act”), and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Sunset Financial is a member of the Securities Investor Protection Corporation.

Sunset Financial offers the Contracts through its sales representatives. Sunset Financial may also enter into selling agreements with other broker-dealers for sales of the Contracts through their sales representatives. Sales representatives must be licensed as insurance agents and appointed by us.

We pay commissions to Sunset Financial for sales of the Contracts, which Sunset Financial shares with its sales representatives and also with broker-dealers who have entered into selling agreements.

Sunset Financial received sales compensation with respect to the Contracts in the following amounts during the periods indicated:

Fiscal Year	Aggregate Amount of Commissions Paid to Sunset Financial*	Aggregate Amount of Commissions Retained by Sunset Financial After Payments to its Registered Persons and Other Broker-Dealers
2005	$2,892,011.00	$163,737.00
2006	$2,476,131.00	$148,829.00
2007	$2,800,860.00	$90,469.00

* Includes sales compensation paid to registered persons of Sunset Financial.

Sunset Financial passes through commissions it receives and does not retain any override as principal underwriter for the Contracts.

CALCULATION OF YIELDS AND TOTAL RETURNS

From time to time, we may disclose yields, total returns, and other performance data pertaining to the Contracts for a Subaccount. Such performance data will be computed, or accompanied by performance data computed, in accordance with the standards defined by the Securities and Exchange Commission ("SEC").

Because of the charges and deductions imposed under a Contract, the yield for the Subaccounts will be lower than the yield for their respective Portfolios. The calculations of yields, total returns, and other performance data do not reflect the effect of any premium tax that may be applicable to a particular Contract. Premium taxes currently range from 0% to 3.5% of premium based on the state in which the Contract is sold.

FEDERATED PRIME MONEY FUND II SUBACCOUNT YIELDS

From time to time, advertisements and sales literature may quote the current annualized yield of the Federated Prime Money Fund II Subaccount for a seven-day period in a manner that does not take into consideration any realized or unrealized gains or losses, or income other than investment income, on shares of the Federated Prime Money Fund II or on its portfolio securities.

This current annualized yield is computed by determining the net change (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and exclusive of income other than investment income) at the end of the seven-day period in the value of a hypothetical account under a Contract having a balance of one unit of the Federated Prime Money Fund II Subaccount at the beginning of the period, dividing such net change in account value by the value of the hypothetical account at the beginning of the period to determine the base period return, and annualizing this quotient on a 365-day basis.

The net change in account value reflects:

·	net income from the Federated Prime Money Fund II attributable to the hypothetical account; and

·	charges and deductions imposed under the Contract which are attributable to the hypothetical account.

·	The charges and deductions include the per unit charges for the hypothetical account for:

·	the annual administration fee,

·	the asset-based administration charge, and

·	the mortality and expense risk charge.

For purposes of calculating current yields for a Contract, an average per unit administrative fee is used based on the $30 annual administration fee deducted at the beginning of each Contract Year and an assumed account size equal to the subaccount’s average account size.

Because of the charges and deductions imposed under the Contract, the yield for the Federated Prime Money Fund II Subaccount will be lower than the yield for the Federated Prime Money Fund II.

The current and effective yields on amounts held in the Federated Prime Money Fund II Subaccount normally will fluctuate on a daily basis. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. The Federated Prime Money Fund II Subaccount's actual yield is affected by:

·	changes in interest rates on money market securities;

·	average portfolio maturity of the Federated Prime Money Fund II;

·	the types and quality of portfolio securities held by the Federated Prime Money Fund II; and

·	the Federated Prime Money Fund II's operating expenses.

Yields on amounts held in the Federated Prime Money Fund II Subaccount may also be presented for periods other than a seven-day period.

OTHER SUBACCOUNT YIELDS

From time to time, sales literature or advertisements may quote the current annualized yield of one or more of the Subaccounts (except the Federated Prime Money Fund II Subaccount) for a Contract for 30-day or one-month periods. The annualized yield of a Subaccount refers to income generated by the Subaccount during a 30-day or one-month period that is assumed to be generated each period over a 12-month period.

The yield is computed by:

·	dividing the net investment income of the Portfolio attributable to the Subaccount units less Subaccount expenses for the period; by

·	the maximum offering price per unit on the last day of the period times the daily average number of units outstanding for the period; by

·	compounding that yield for a six-month period; and by

·	multiplying that result by two. Expenses attributable to the Subaccount include the annual administration fee, asset-based administration charge, and mortality and expense risk charge.

The yield calculation assumes an annual administration fee of $30 per year per Contract deducted at the beginning of each Contract Year. For purposes of calculating the 30-day or one-month yield, an average annual administration fee per dollar of Contract value in the Account is used to determine the amount of the charge attributable to the Subaccount for the 30-day or one-month period.

Because of the charges and deductions imposed under the Contracts, the yield for the Subaccount will be lower than the yield for the corresponding Funds' Portfolio.

The yield on the amounts held in the Subaccounts normally will fluctuate over time. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. A Subaccount's actual yield is affected by the types and quality of portfolio securities held by the corresponding Portfolio and its operating expenses.

Yield calculations do not take into account the surrender charge under the Contract. The surrender charge is calculated as a percentage of your premium payment being surrendered or withdrawn during the applicable Premium Year. The amount of the surrender charge decreases over time, measured from the date the premium payment is applied. The initial surrender charge is 8%, decreasing to 0 after the eight Premium Years. Subject to certain restrictions, a surrender charge will not be imposed upon surrender or on the first partial surrender in any Contract year on an amount up to 10% of the Contract Value as of the beginning of the Contract Year.

STANDARD SUBACCOUNT AVERAGE ANNUAL TOTAL RETURNS

From time to time, sales literature or advertisements may also quote standard subaccount average annual total returns for the Subaccounts for various periods of time.

When a Subaccount has been in operation for one, five and 10 years, respectively, the standard subaccount average annual total return for these periods will be provided. Standard subaccount average annual total returns for other periods of time may, from time to time, also be disclosed.

Standard subaccount average annual total returns represent the average annual compounded rates of return that would equate an initial investment of $10,000 under a Contract to the redemption value of that investment as of the last day of each of the periods. The ending date for each period for which total return quotations are provided will be for the most recent month-end practicable, considering the type and media of the communication that will be stated in the communication.

We will calculate standard subaccount average annual total returns using Subaccount unit values which we calculate on each valuation day based on:

·	the performance of the Subaccount's underlying Portfolio;

·	the deductions for the annual administration fee;

·	asset-based administration charge; and

·	mortality and expense risk charge.

The calculation assumes that the annual administration fee is $30 per year per Contract deducted at the beginning of each Contract year. For purposes of calculating average annual total return, an average per dollar annual administration fee attributable to the hypothetical account for the period is used based on an account size equal to the subaccount’s average account size. The calculation assumes the selection of the Base Guaranteed Minimum Death Benefit Option. The calculation also assumes surrender of the Contract at the end of the period for the return quotation. Standard subaccount average annual total returns will therefore reflect a deduction of the surrender charge for any period less than eight years. The calculation does not reflect either of the guaranteed bonuses.

OTHER TOTAL RETURNS

Adjusted Historic Portfolio Average Annual Total Return. From time to time, sales literature or advertisements may also quote total returns for periods prior to the date the Variable Account began operations. Such performance information will be calculated based on the performance of the Portfolios and the assumption that the Subaccounts were in existence for the same periods as those indicated for the Portfolios, with the level of Contract charges currently in effect.

From time to time, sales literature or advertisements may also quote Adjusted Historic Portfolio Average Annual Total Returns that do not reflect the surrender charge. These are calculated in exactly the same way as the Adjusted Historic Portfolio Average Annual Total Returns described above, except that the ending redeemable value of the hypothetical account for the period is replaced with an ending value for the period that does not take into account any charges on amounts surrendered.

We may disclose cumulative total returns in conjunction with the standard formats described above.

EFFECT OF THE ANNUAL ADMINISTRATION FEE ON PERFORMANCE DATA

The Contract provides for a $30 annual administration fee (waived for Contracts with a Contract Value of at least $50,000 at the beginning of the Contract Year) to be deducted annually at the beginning of each Contract Year, from the Subaccounts and the Fixed Account based on the proportion that the value of each such account bears to the total Contract Value. For purposes of reflecting the annual administration fee in yield and total return quotations, the annual charge is converted into a per-dollar per-day charge based on the average Contract Value in the Variable Account of all Contracts on the last day of the period for which quotations are provided. The per-dollar per-day average charge will then be adjusted to reflect the basis upon which the particular quotation is calculated.

SAFEKEEPING OF ACCOUNT ASSETS

We hold the title to the assets of the Variable Account. The assets are kept physically segregated and held separate and apart from our Account assets and from the assets in any other separate account.

Records are maintained of all purchases and redemption’s of Portfolio shares held by each of the Subaccounts.

Our officers and employees are covered by an insurance company blanket bond issued by Fidelity and Deposit Company of Maryland to Kansas City Life in the amount of $5,000,000. The bond insures against dishonest and fraudulent acts of officers and employees.

STATE REGULATION

We are subject to regulation and supervision by the Department of Insurance of the State of Missouri, which periodically examines our affairs. We are also subject to the insurance laws and regulations of all jurisdictions where we are authorized to do business. A copy of the Contract form has been filed with, and where required approved by, insurance officials in each jurisdiction where the Contracts are sold. We are required to submit annual statements of our operations, including financial statements, to the insurance departments of the various jurisdictions in which we do business for the purposes of determining solvency and compliance with local insurance laws and regulations.

RECORDS AND REPORTS

We will retain all records and accounts relating to the Variable Account. As presently required by the Investment Company Act of 1940 and regulations promulgated thereunder, reports containing such information as may be required under the Act or by any other applicable law or regulation will be sent to Contract Owners semi-annually at the Owner's last known address of record.

LEGAL MATTERS

All matters relating to Missouri law pertaining to the Contracts, including the validity of the Contracts and Kansas City Life's authority to issue the Contracts, have been passed upon by William A. Schalekamp, General Counsel of Kansas City Life. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided legal advice on certain matters relating to the federal securities laws.

EXPERTS

The consolidated financial statements of Kansas City Life Insurance Company as of December 31, 2007 and 2006 and for each of the years in the three-year period ended December 31, 2007; the statement of net assets of the Variable Account as of December 31, 2007 and the related statement of operations for the year ended December 31, 2007 and statements of changes in net assets for each of the years in the two-year period ended December 31, 2007, and financial highlights for each of the years in the five-year period ended December 31, 2007; have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. Their report on the consolidated financial statements contains explanatory paragraphs stating that as discussed in note 1 to the consolidated financial statements, the Company adopted American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 05-01, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges in Insurance

Contracts”, effective January 1, 2007 and Financial Accounting Standards Board Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB 109”, effective January 1 , 2007.

OTHER INFORMATION

A registration statement has been filed with the SEC under the Securities Act of 1933, as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all the information set forth in the registration statement, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC.

FINANCIAL STATEMENTS

The following financial statements for Kansas City Life Insurance Company are included in this Statement of Additional Information:

·	consolidated balance sheet as of December 31, 2007 and 2006; and

·	related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007.

The following financial statements for the Variable Account are included in this Statement of Additional Information:

·	statement of net assets as of December 31, 2007; and

·	related statement of operations for the year ended December 31, 2007, statements of changes in net assets for each of the years in the two-year period ended December 31, 2007, and financial highlights for each of the years in the five-year period ended December 31, 2007.

Kansas City Life’s financial statements 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.

KANSAS CITY LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

	December 31
	2007			2006
ASSETS
Investments:
Fixed maturity securities available for sale, at fair value
(amortized cost: 2007 - $2,619,109; 2006 - $2,718,960)	$	2,631,073		$	2,719,439
Equity securities available for sale, at fair value
(cost: 2007 - $57,906; 2006 - $50,180)		59,149			52,351
Mortgage loans		450,148			472,019
Real estate		96,049			109,525
Policy loans		92,803			96,218
Short-term investments		36,522			41,037
Other investments		-			3,182
Total investments		3,365,744			3,493,771

Cash		12,158			3,908
Accrued investment income		36,499			38,661
Deferred acquisition costs		217,512			220,595
Value of business acquired		73,517			82,769
Reinsurance receivables		162,340			158,231
Property and equipment		27,781			29,364
Other assets		36,164			29,747
Separate account assets		420,393			400,749
Total assets	$	4,352,108		$	4,457,795

LIABILITIES
Future policy benefits	$	851,277		$	853,102
Policyholder account balances		2,087,965			2,191,105
Policy and contract claims		31,742			32,188
Other policyholder funds		107,109			87,094
Notes payable		10,400			14,700
Income taxes		40,300			35,319
Other liabilities		118,521			159,234
Separate account liabilities		420,393			400,749
Total liabilities		3,667,707			3,773,491

STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share
Authorized 36,000,000 shares,
issued 18,496,680 shares		23,121			23,121
Additional paid in capital		30,244			25,852
Retained earnings		780,133			780,892
Accumulated other comprehensive loss		(19,811	)		(25,118	)
Treasury stock, at cost (2007 - 6,731,643 shares;
2006 - 6,641,183 shares)		(129,286	)		(120,443	)
Total stockholders' equity		684,401			684,304

Total liabilities and stockholders' equity	$	4,352,108		$	4,457,795

See accompanying Notes to Consolidated Financial Statements.

KANSAS CITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share data)

	Year Ended December 31
	2007			2006			2005
REVENUES
Insurance revenues:
Premiums	$	175,460		$	175,926		$	179,566
Contract charges		111,422			114,496			114,745
Reinsurance ceded		(54,988	)		(55,158	)		(55,808	)
Total insurance revenues		231,894			235,264			238,503
Investment revenues:
Net investment income		190,405			196,280			194,608
Realized investment gains		5,426			5,621			6,113
Other revenues		11,499			11,349			10,312
Total revenues		439,224			448,514			449,536

BENEFITS AND EXPENSES
Policyholder benefits		166,458			167,905			169,701
Interest credited to policyholder account balances		91,215			94,648			98,637
Amortization of deferred acquisition costs
and value of business acquired		40,333			42,311			43,058
Operating expenses		88,307			93,080			89,144
Total benefits and expenses		386,313			397,944			400,540

Income before income tax expense		52,911			50,570			48,996

Income tax expense		17,250			13,652			12,812

NET INCOME	$	35,661		$	36,918		$	36,184

Basic and diluted earnings per share:
Net income	$	3.01		$	3.11		$	3.03

See accompanying Notes to Consolidated Financial Statements.

KANSAS CITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)

	Year Ended December 31
	2007		2006		2005

COMMON STOCK, beginning and end of year	$	23,121	$	23,121	$	23,121

ADDITIONAL PAID IN CAPITAL
Beginning of year		25,852		25,063		24,279
Excess of proceeds over cost of treasury stock sold		4,392		789		784

End of year		30,244		25,852		25,063

RETAINED EARNINGS
Beginning of year		780,892		756,807		733,499
Net income		35,661		36,918		36,184
Stockholder dividends of $3.08 per share

(2006 - $1.08; 2005 - $1.08)

(36,420

)

(12,833

)

(12,876

)


End of year		780,133			780,892			756,807

ACCUMULATED OTHER COMPREHENSIVE
LOSS
Beginning of year		(25,118	)		(8,406	)		26,231
Other comprehensive income (loss)		5,307			(12,588	)		(34,637	)
Adjustment to adopt SFAS 158		-			(4,124	)		-

End of year		(19,811	)		(25,118	)		(8,406	)

TREASURY STOCK, at cost
Beginning of year		(120,443	)		(116,366	)		(114,234	)
Cost of 230,581 shares acquired
(2006 - 87,167 shares; 2005 - 50,689 shares)		(10,799	)		(4,418	)		(2,458	)
Cost of 140,121 shares sold
(2006 - 24,030 shares; 2005 - 22,930 shares)		1,956			341			326

End of year		(129,286	)		(120,443	)		(116,366	)

TOTAL STOCKHOLDERS' EQUITY	$	684,401		$	684,304		$	680,219

See accompanying Notes to Consolidated Financial Statements.

KANSAS CITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

	Year Ended December 31
	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	35,661		$	36,918		$	36,184
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of investment premium (discount)		6,279			7,908			10,493
Depreciation		3,323			4,223			4,247
Acquisition costs capitalized		(28,642	)		(26,554	)		(28,092	)
Amortization of deferred acquisition costs		31,073			34,919			35,608
Amortization of value of business acquired		9,260			7,392			6,821
Realized investment gains		(4,060	)		(5,621	)		(6,113	)
Changes in assets and liabilities:
Future policy benefits		(1,825	)		(5,650	)		(3,252	)
Policyholder account balances		(21,356	)		(28,061	)		(17,275	)
Income taxes payable and deferred		1,577			3,946			5,064
Other, net		1,607			(5,484	)		637
Net cash provided		32,897			23,936			44,322

INVESTING ACTIVITIES
Purchases of investments:
Fixed maturity securities		(313,080	)		(274,662	)		(541,305	)
Equity securities		(15,249	)		(10,761	)		(5,690	)
Mortgage loans		(54,816	)		(72,569	)		(109,561	)
Real estate		(4,507	)		(45,006	)		(17,804	)
Other investment assets		-			-			(98	)
Sales of investments:
Fixed maturity securities		168,259			94,717			175,317
Equity securities		4,583			5,078			6,296
Real estate		22,457			18,778			33,267
Other investment assets		7,930			9,213			29,055
Maturities and principal paydowns of investments:
Fixed maturity securities		198,224			279,010			394,366
Equity securities		2,806			7,175			9,026
Mortgage loans		58,405			59,120			82,414
Net additions to property and equipment		(969	)		(2,028	)		(1,019	)
Proceeds from sale of non insurance affiliate		10,104			-			-
Net cash provided		84,147			68,065			54,264

FINANCING ACTIVITIES
Proceeds from borrowings		359,680			67,001			45,315
Repayment of borrowings		(363,980	)		(79,583	)		(110,252	)
Deposits on policyholder account balances		205,767			202,950			242,613
Withdrawals from policyholder account balances		(294,799	)		(273,816	)		(245,927	)
Net transfers from separate accounts		11,706			16,451			5,213
Change in other deposits		13,703			(17,074	)		(14,565	)
Cash dividends to stockholders		(36,420	)		(12,833	)		(12,876	)
Net acquisition of treasury stock		(4,451	)		(3,288	)		(1,348	)
Net cash used		(108,794	)		(100,192	)		(91,827	)

Increase (decrease) in cash		8,250			(8,191	)		6,759
Cash at beginning of year		3,908			12,099			5,340

Cash at end of year	$	12,158		$	3,908		$	12,099

See accompanying Notes to Consolidated Financial Statements.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share data)

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Business

Kansas City Life Insurance Company (the Company) is a Missouri domiciled stock life insurance company which, with its subsidiaries, 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 through three life insurance companies: Kansas City Life Insurance Company (Kansas City Life) the parent company, and wholly owned subsidiaries Sunset Life Insurance Company of America (Sunset Life) and Old American Insurance Company (Old American).

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP) and include the accounts of Kansas City Life and its subsidiaries, principally Sunset Life and Old American. All material intercompany accounts and transactions have been eliminated in consolidation.

Certain amounts in prior years have been reclassified to conform with the current year presentation. Upon the adoption of SFAS 158, the Company recorded the related $4.1 million (net of tax) adjustment as a component of other comprehensive loss for the year ended December 31, 2006. The Company has since determined that this adjustment should have been presented as an adjustment of the ending balance of accumulated other comprehensive loss. The accompanying Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2006 and Note 12 – Comprehensive Income have been modified to reflect this presentation.

Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ from these estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are the fair value of certain invested assets, deferred acquisition costs, value of business acquired, future policy benefits, policy and contract claim liabilities and the valuation allowance on deferred income tax assets.

Business Changes

On January 23, 2006 the Company entered into a definitive agreement to sell its bank subsidiary, Generations Bank, for $10.1 million in cash to Brooke Corporation. On January 8, 2007, the Company completed the sale of Generations Bank after receiving regulatory approval from the Office of Thrift Supervision. The gain on the sale was $1.9 million and is included in realized investment gains. The bank subsidiary and the results of operations were not material to the financial statements of the Company and are not disclosed separately.

In 2006, the Company entered into a Master General Agent and Marketing Agreement with American Republic Insurance Company (American Republic) under which American Republic agents market Kansas City Life’s insurance products. Sales under this agreement are reflected in the Individual Insurance segment.

Investments

Investment income is recognized when earned. Realized gains and losses on the sale of investments are determined on the basis of specific security identification recorded on the trade date. Securities available for sale are stated at fair value. Unrealized gains and losses, net of adjustments to deferred acquisition costs (DAC), value of business acquired (VOBA), policyholder account balances and deferred income taxes, are reported as a separate component of accumulated other comprehensive loss in stockholders' equity. The adjustments to DAC and VOBA represent changes in the amortization of DAC and VOBA that would have been required as a charge or credit to income had such unrealized amounts been realized. The adjustment to policyholder account balances represents the increase from using a discount rate that would have been required if such unrealized gains had been realized and the proceeds reinvested at current market interest rates, which were lower than the then current effective portfolio rate.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s fair value of fixed maturity and equity securities are derived from external pricing sources, brokers, and internal matrices. Approximately 94% of these investments are from external pricing services while 6% are derived from brokers and internal matrices. The Company reviews and analyzes its securities on an ongoing basis to determine whether impairments exist that are other-than-temporary. Based upon these analyses, specific security values are written down to fair value through earnings as a realized investment loss if the security's value is considered to be an other-than-temporary impairment. Premiums and discounts on fixed maturity securities are amortized over the life of the related security as an adjustment to yield using the effective interest method. See Note 2 – Investments for further details.

Investment income on mortgage-backed securities is initially based upon yield, cash flow, and prepayment assumptions at the date of purchase. Subsequent revisions in those assumptions are recorded using the retrospective method, except for ARMs (adjustable rate mortgage-backed securities) where the prospective method is used. Under the retrospective method the amortized cost of the security is adjusted to the amount that would have existed had the revised assumptions been in place at the time of purchase. Under the prospective method, future cash flows are estimated and interest income is recognized going forward using the new internal rate of return. The adjustments to amortized cost under both methods are recorded as a charge or credit to net investment income.

Mortgage loans are stated at cost, adjusted for amortization of premium and accrual of discount, less a valuation reserve for probable losses. A loan is considered impaired if it is probable that contractual amounts due will not be collected. The valuation reserve is based upon historical impairment experience, including an estimate of probable impairment of any delinquent or defaulted loans. Such estimates are based upon the value of the expected cash flows and the underlying collateral on a net realizable basis. Loans in foreclosure and loans considered to be impaired are placed on a non-accrual status.

Real estate consists of directly owned investments and real estate joint ventures. Real estate that is directly owned is carried at depreciated cost. Real estate joint ventures consist primarily of office buildings, unimproved land for future development and low income housing tax credit (“LIHTC”) investments. Real estate joint ventures are consolidated where required or are valued at cost, adjusted for the Company’s equity in earnings.

Policy loans are carried at cost, less principal payments received. Short-term investments are stated at cost, adjusted for amortization of premium and accrual of discount.

Deferred Acquisition Costs

Deferred acquisition costs (DAC), principally agent commissions and other selling, selection and issue costs, which vary with and are directly related to the production of new business, are capitalized as incurred. These deferred costs are then amortized in proportion to future premium revenues or the expected future profits of the business, depending upon the type of product. Profit expectations are based upon assumptions of future interest spreads, mortality margins, expense margins and policy and premium persistency experience. These assumptions involve judgment and are compared to actual experience on an ongoing basis. If it is determined that the assumptions related to the profit expectations for interest sensitive and variable insurance products should be revised, the impact of the change is reported in the current period’s income as an unlocking adjustment. The DAC unlocking adjustment was $3.4 million for the year ended 2007 (2006 – $0.7 million; 2005 – $2.2 million) which reduced the amortization of DAC. During the fourth quarter of 2006, the Old American segment reduced its amortization of DAC by $1.2 million. This adjustment, which is a correction of an understatement of the capitalization of DAC in prior periods, was not material to 2006 or any prior period financial statements.

DAC is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are insufficient to amortize deferred acquisition costs, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period. No impairment adjustments have been recorded in the years presented. The DAC asset is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available for sale, as described in the Investments section of Note 1.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table provides information about DAC at December 31.

	2007			2006			2005

Balance at beginning of year	$	220,595		$	226,963		$	229,712
Capitalization of commissions, sales and issue expenses		28,643			26,554			28,092
Gross amortization		(43,341	)		(47,378	)		(48,699	)
Accrual of interest		12,268			12,459			13,091
Amortization due to realized investment (gains) losses		33			(58	)		78
Change in DAC due to unrealized investment (gains) losses		(686	)		2,055			4,689

Balance at end of year	$	217,512		$	220,595		$	226,963

Value of Business Acquired

When a new block of business is acquired, a portion of the purchase price is allocated to a separately identifiable intangible asset, called the value of business acquired (VOBA). VOBA is established as the actuarially determined present value of future gross profits of the business acquired and is amortized in proportion to future premium revenues or the expected future profits, depending on the type of business acquired. Amortization of VOBA occurs with interest over the anticipated lives of the underlying business to which it relates, initially 15 to 30 years. Similar to DAC, the assumptions regarding future experience can affect the carrying value of VOBA, including interest spreads, mortality, expense margins and policy and premium persistency experience. Significant changes in these assumptions can impact the carrying balance of VOBA and produce changes that are reflected in the current period’s income as an unlocking adjustment. A VOBA unlocking adjustment was made in the second quarter of 2007 which increased the amortization of VOBA in the amount of $1.1 million for mortality margins. There were no unlocking adjustments in 2006 and 2005.

VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are insufficient to support the value of VOBA, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period. No impairment adjustments have been recorded in the years presented. The VOBA asset is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available for sale, as described in the Investments section of Note 1.

The following table provides information about VOBA at December 31.

	2007			2006			2005

Balance at beginning of year	$	82,769		$	89,505		$	96,853
Gross amortization		(14,545	)		(13,868	)		(13,996	)
Accrual of interest		5,285			6,476			6,546
Amortization due to realized investment (gains) losses		(76	)		(195	)		7
Change in VOBA due to unrealized investment losses		84			851			95

Balance at end of year	$	73,517		$	82,769		$	89,505

The accrual of interest for Old American VOBA was calculated at a 13.0% interest rate for the life block and a 7.0% rate for the accident and health block. In 2007, interest accrued on the GuideOne acquisition VOBA at the rates of 4.58% on the interest sensitive life block, 4.05% on the deferred annuity block and 5.25% on the traditional life block. The VOBA on a separate acquired block of business used a 7.0% interest rate on the traditional life portion and a 5.4% interest rate on the interest sensitive portion. The interest rates used in the calculation of VOBA are based on rates appropriate at the time of acquisition. The expected amortization of VOBA each year over the next five years, 2008 through 2012, is $7,279, $7,156, $6,899, $6,352, and $4,284, respectively.

Separate Accounts

Separate account assets and liabilities arise from the sale of variable life insurance and annuity products. The separate account represents funds segregated for the benefit of certain policyholders who bear the investment risk. The assets are legally segregated and are not subject to claims which may arise from any other business of the Company. The separate

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

account assets and liabilities, which are equal, are recorded at fair value. Policyholder account deposits and withdrawals, investment income and realized investment gains and losses are excluded from the amounts reported in the Consolidated Statements of Income. Revenues to the Company from separate accounts consist principally of contract charges, which include maintenance charges, administrative fees and mortality and risk charges.

The following table provides a reconciliation of activity within separate account liabilities at December 31.

	2007			2006			2005

Balance at beginning of year	$	400,749		$	367,860		$	353,983

Deposits on variable policyholder contracts		57,767			46,771			49,360
Transfers to general account		(2,476	)		(2,686	)		(6,040	)
Investment performance		33,826			52,026			25,131
Policyholder benefits		(54,663	)		(49,135	)		(40,890	)
Contract charges		(14,810	)		(14,087	)		(13,684	)

Balance at end of year	$	420,393		$	400,749		$	367,860

The total separate account assets were $420.4 million as of December 31, 2007. Variable life and variable annuity assets comprised 30% and 70% of this amount, respectively. Two guarantees are offered under variable life and variable annuity contracts: a guaranteed minimum death benefit rider is available on certain variable universal life contracts, and guaranteed minimum death benefits are provided on variable annuities. The guaranteed minimum death benefit rider for variable universal life contracts guarantees the death benefit for specified periods of time, regardless of investment performance, provided cumulative premium requirements are met. Kansas City Life introduced a Guaranteed Minimum Withdrawal Benefit (GMWB) rider in 2007 that can be added to new or existing variable annuity contracts. The rider provides a minimum guarantee that the owner can make annual withdrawals equal to 5% of the initial annuity deposit for twenty years, or for life if withdrawals were started at age 65 or later, regardless of market returns. The value of variable annuity separate accounts with the GMWB rider was $9.6 million at the end of 2007. The liabilities associated with these guarantees are not material.

As of December 31, 2007, separate account balances for variable annuity contracts were $295.2 million. The total reserve held for variable annuity guaranteed minimum death benefits was $0.1 million. Additional information related to the guaranteed minimum death benefits and related separate account balances and net amount at risk (the amount by which the guaranteed minimum death benefit exceeds the account balance) as of December 31, 2007 is provided below:

Type of Guarantee	Separate		Net
(amounts in millions)	Account		Amount
	Balance		at Risk

Return of net deposits	$	267.4	$	2.5
Return of the greater of the highest anniverary
contract value or net deposits		12.1		0.2
Return of the greater of every fifth year highest
anniversary contract value or net deposits		8.3		0.1
Return of the greater of net deposits accumulated annually
at 5% or the highest anniversary contract value		7.4		0.1
Total	$	295.2	$	2.9

Recognition of Revenues

Premiums for traditional life insurance products are reported as revenue when due. Premiums on accident and health, disability and dental insurance are reported as earned ratably over the contract period in proportion to the amount of insurance protection provided. A reserve is provided for the portion of premiums written which relate to unexpired terms of coverage.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Deposits related to universal life, fixed deferred annuity contracts and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges, and are recognized in the period in which the services are provided.

Future Policy Benefits

Liabilities for future policy benefits of traditional life insurance 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. Mortality assumptions are based on Company experience expressed as a percentage of standard mortality tables. The 2001 VBT and the 1975-1980 Select and Ultimate Basic Table serve as the basis for mortality assumptions.

Liabilities for future policy benefits of immediate annuities and supplementary contracts with life contingencies are also computed by a net level premium method, based upon estimates at the time of issue for investment yields and mortality.

Liabilities for future policy benefits of accident and health insurance represent estimates of payments to be made on reported insurance claims, as well as claims incurred but not yet reported. These liabilities are estimated using actuarial analyses and case basis evaluations that are based upon past claims experience, claim trends and industry experience.

The following table provides detail about future policy benefits at December 31.

	2007		2006

Life insurance	$	623,079	$	625,359
Immediate annuities and
supplementary contracts
with life contingencies		186,268		186,782
Total		809,347		812,141

Accident and health insurance		41,930		40,961

Total future policy benefits	$	851,277	$	853,102

Policyholder Account Balances

Liabilities for universal life and fixed deferred annuity products are included in policyholder account balances, without reduction for potential surrender charges and deferred front-end contract charges. Front-end contract charges are amortized over the term of the policies. Policyholder benefits incurred in excess of related policyholder account balances are charged to policyholder benefits expense. Interest on policyholder account balances is credited as earned.

Crediting rates for universal life insurance and fixed deferred annuity products ranged from 3.00% to 5.50% (2006 – 3.00% to 5.75%; 2005 – 3.00% to 5.75%).

The following table provides detail about policyholder account balances at December 31.

	2007		2006

Universal life insurance	$	1,033,693	$	1,054,911
Fixed deferred annuities		987,014		1,068,286
Other		67,258		67,908

Policyholder account balances	$	2,087,965	$	2,191,105

Income Taxes

Deferred income taxes are recorded on the differences between the tax bases of assets and liabilities and the amounts at which they are reported in the consolidated financial statements. Recorded amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they become enacted. The Company and its subsidiaries file a consolidated federal income tax return that includes both life insurance companies and non-life insurance companies.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Deferred income tax assets are subject to ongoing evaluation of whether such assets will be realized. The ultimate realization of deferred income tax assets depends on generating future taxable income during the periods in which temporary differences become deductible. If future taxable income is not expected, a valuation allowance against deferred income tax assets may be required.

Participating Policies

The Company has some insurance contracts where the policyholder is entitled to share in the entity’s earnings through dividends that reflect the difference between the premium charged and the actual experience. Participating business at year-end 2007 approximated 5% of statutory premiums and 6% of the 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.

Reinsurance

In the normal course of business, the Company cedes risks to other insurers, primarily to protect the Company against adverse fluctuations in mortality experience. Reinsurance is effected on individual risks and through various quota share arrangements. Business is reinsured primarily through yearly renewable term and coinsurance agreements. Under yearly renewable term insurance, the Company pays annual premiums and the reinsurer reimburses claims paid related to this coverage. Under coinsurance, the reinsurer receives a proportionate share of the premiums less applicable commissions and is liable for a corresponding share of policy benefits. The Company remains contingently liable if the reinsurer should be unable to meet obligations assumed under the reinsurance contract. The Company also assumes risks ceded by other companies.

Reinsurance receivables include amounts related to paid benefits and estimated amounts related to unpaid policy and contract claims, future policy benefits and policyholder account balances. The cost of reinsurance is accounted for over the terms of the underlying reinsured policies using assumptions consistent with those used to account for the policies.

Income Per Share

Due to the Company's capital structure and the absence 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 11,836,213 shares (2006 – 11,883,830 shares; 2005 – 11,923,831 shares). The number of shares outstanding at year-end was 11,765,037 (2006 – 11,855,497).

Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes the unrealized investment gains or losses on securities available for sale (net of reclassification adjustments for realized investment gains or losses) net of adjustments to DAC, VOBA and policyholder account balances. In addition, other comprehensive income (loss) includes the change in the additional minimum pension liability, and the adjustment to adopt SFAS 158 – described below under New Accounting Pronouncements. The adjustment to adopt SFAS 158 consisted of pension and postretirement net losses and prior service costs. Other comprehensive income (loss) also includes deferred income taxes on these items.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" (“SFAS 123R”). This statement requires recognition in the financial statements of the fair-value-based measurement method of stock-based compensation issued to employees. SFAS 123R became effective January 1, 2006. Historically the Company had expensed all stock-based compensation using a fair-value-based measurement method. The Company adopted this standard on January 1, 2006 with no material impact to the consolidated financial statements. See Note 8 – Share-Based Payment in the Notes to Consolidated Financial Statements.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 “Accounting Changes and Error Corrections” (“SFAS 154”). The Statement replaces APB Opinion No. 20 and SFAS 3. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle. However, if it is impracticable to determine the effects of such changes, then other rules apply. SFAS 154 became effective January 1, 2006. The Company adopted this standard on January 1, 2006. SFAS 154 had no immediate impact on the Company’s

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

consolidated financial statements, though it will impact the presentation of future voluntary accounting changes, should such changes occur.

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AcSEC) issued Statement of Position 05-1 (SOP 05-1), “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts”. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance contracts other than those specifically described in Statement of Financial Accounting Standards (SFAS) No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 became effective for internal replacements occurring in fiscal years beginning after December 31, 2006. Retrospective application of SOP 05-1 to previously issued consolidated financial statements is not permitted. The Company adopted SOP 05-1 on January 1, 2007 with no material impact to the consolidated financial statements.

In June 2006, the FASB issued Interpretation 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 applies to all uncertain tax positions accounted for under SFAS 109 “Accounting for Income Taxes”. FIN 48 addresses whether tax positions taken or to be taken on tax returns should be reflected in the financial statements before they are resolved with the appropriate taxing authority. Previous statements provided no specific guidance related to such positions. FIN 48 was adopted on January 1, 2007, with no material impact to the consolidated financial statements.

In August 2006, the Securities and Exchange Commission (SEC) adopted SEC Release No. 33-8732A, “Executive Compensation and Related Person Disclosure” which amends the disclosure requirements for executive and director compensation, related person transactions, director independence and other corporate governance matters and security ownership of officers and directors. The release expands the currently required tabular disclosures and adds a narrative Compensation Discussion & Analysis (CD&A) which must describe the Company’s compensation policies and decisions. The amendments in the release apply to disclosures included in proxy and information statements, periodic and current reports, as well as other filings under the Securities Exchange Act of 1934 and to registration statements under the Exchange Act and the Securities Act of 1933. For financial statement purposes, this release is effective for years ending on or after December 15, 2006. The Company has adopted this release and includes the required disclosures in the appropriate filings.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS 158). SFAS 158 requires calendar year-end companies with publicly traded equity securities that sponsor postretirement benefit plans to fully recognize, as an asset or liability, the funded status of the benefit plans as of December 31, 2006. The funded status is to be measured as the difference between the fair value of the plan assets and the projected benefit obligation at year-end. The Company adopted this statement as of December 31, 2006. See Note 7 – Pensions and Other Postretirement Benefits in the Notes to Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and established a fair value hierarchy with the highest priority being the quoted price in active markets. This statement became effective for years beginning after November 15, 2007. The Company adopted SFAS 157 on January 1, 2008 with no material impact to the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of SFAS No. 115.” SFAS 159 permits an entity to measure certain financial assets and liabilities at fair value. Under SFAS 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. Once adopted, the fair value option election is irrevocable, unless a new election date occurs. This statement became effective for years beginning after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008 with no material impact to the consolidated financial statements.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

All other Standards and Interpretations of those Standards issued during 2007 did not relate to accounting policies and procedures pertinent to the Company at this time.

2. INVESTMENTS

Investment Revenues

The following tables provide investment revenues by major category for the years ended December 31. Realized gains and losses on the sale of investments are determined on the basis of specific security identification.

	2007			2006			2005
Net investment income:
Fixed maturity securities	$	149,951		$	153,885		$	155,726
Equity securities		4,159			4,644			3,699
Mortgage loans		31,292			31,774			32,923
Real estate		5,909			7,494			7,900
Policy loans		6,230			6,713			7,174
Short-term		3,716			1,863			1,544
Other		775			980			667
		202,032			207,353			209,633
Less investment expenses		(11,627	)		(11,073	)		(15,025	)

	$	190,405		$	196,280		$	194,608

Realized investment gains (losses):
Fixed maturity securities	$	(3,295	)	$	2,280		$	(1,576	)
Equity securities		1,645			(464	)		(37	)
Mortgage loans		-			(100	)		890
Real estate		7,118			4,159			6,751
Other		(42	)		(254	)		85

	$	5,426		$	5,621		$	6,113

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Unrealized Gains and Losses

The following table provides unrealized gains (losses) on the Company’s investments in securities, at December 31.

	2007			2006			2005
Available for sale:
End of year	$	13,208		$	2,650		$	35,182
Amounts allocable to:
DAC and VOBA		(898	)		(296	)		(3,203	)
Policyholder account balances		(548	)		(433	)		(5,036	)
Deferred income taxes		(4,117	)		(672	)		(9,454	)

	$	7,645		$	1,249		$	17,489

Increase (decrease) in
net unrealized gains
during the year:
Fixed maturity securities	$	6,958		$	(17,008	)	$	(34,280	)
Equity securities		(562	)		768			(353	)

	$	6,396		$	(16,240	)	$	(34,633	)

Analysis of Unrealized Losses on Securities

The Company has a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. This process involves monitoring market events that could impact issuers’ credit ratings, business climate, management changes, litigation and government actions, and other similar factors. This process also involves monitoring late payments, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.

At the end of each quarter, all securities are reviewed to determine whether impairments should be recorded. This quarterly process includes an assessment of the credit quality of each investment in the entire securities portfolio. Additional reporting and review procedures are conducted for those securities where fair value is less than 90% of amortized cost. Further, detailed analysis is performed for each issue or issues having experienced a formal restructuring or where the security has experienced material deterioration in fair value.

The Company considers relevant facts and circumstances in evaluating whether the impairment of a security is other-than-temporary. Relevant facts and circumstances considered include (1) the current fair value of the security as compared to cost, (2) the length of time the fair value has been below cost, (3) the financial position of the issuer, including the current and future impact of any specific events, and (4) the Company’s ability and intent to hold the security to maturity or until it recovers in value. To the extent the Company determines that a security is deemed to be other than temporarily impaired, the difference between amortized cost and fair value would be charged to income as a realized investment loss, resulting in a permanent reduction to the cost basis of the underlying investment.

There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other-than-temporary. These risks and uncertainties include (1) the risk that the Company’s assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer, (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated, (3) the risk that fraudulent information could be provided to the Company’s investment professionals who determine the fair value estimates, and (4) the risk that new information obtained by the Company or changes in other facts and circumstances lead the Company to change its intent to hold the security to maturity or until it recovers in value. Any of these situations could result in a charge to income in a future period.

The Company’s analysis of fixed maturity securities at year-end 2007 resulted in the determination that two securities had other-than-temporary declines which were written down by $4.0 million. One of the two securities was below cost by 20% or more for more than six consecutive months and was the subject of a recent leveraged buyout, that was finalized during the fourth quarter of 2007, which greatly increased the debt level of the company. The leveraged buyout

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

plan is highly dependent upon the timely sale of certain assets at what are perceived to be aggressive rates. In addition, this company is involved in several declining industries that are highly dependent on general economic activity. Accordingly, the Company wrote down this security $3.3 million at year-end 2007. The second security filed for Chapter 11 protection and indicated that it would not be able to fully meet all of its borrowings. The Company recognized an other-than-temporary impairment on this security at year-end 2006 of $1.1 million. As a result of this new action, the Company recognized an additional $0.7 million impairment in 2007. At December 31, 2006, this security was below cost by 20% or more for more than twelve consecutive months. It was in a highly competitive and cyclical industry that was experiencing weakened demand and overcapacity. Capital expenditures for equipment upgrades were exceeding cash generation. In 2005, the Company had no securities that it identified as other-than-temporarily impaired. At year-end 2005, there were no investment securities that were below cost by 20% or more for more than six consecutive months

The following table provides information regarding unrealized losses on investments available for sale, as of December 31, 2007.

	Investments with unrealized losses
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Bonds:	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities and
obligations of U.S. Government	$	100	$	-	$	19,487	$	409	$	19,587	$	409
Federal agencies 1		-		-		12,190		113		12,190		113
Federal agency issued
mortgage-backed securities 1		12,404		125		154,035		2,852		166,439		2,977
Corporate obligations		255,243		7,712		461,961		22,688		717,204		30,400
Corporate private-labeled
mortgage-backed securities		96,276		1,715		101,526		3,195		197,802		4,910
Other		60,656		4,228		84,804		2,008		145,460		6,236
Redeemable preferred stocks		4,927		124		-		-		4,927		124
Fixed maturity securities		429,606		13,904		834,003		31,265		1,263,609		45,169
Equity securities		4,576		688		5,800		1,157		10,376		1,845
Total	$	434,182	$	14,592	$	839,803	$	32,422	$	1,273,985	$	47,014

The following table provides information regarding unrealized losses on investments available for sale, as of December 31, 2006.

	Investments with unrealized losses
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Bonds:	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities and
obligations of U.S. Government	$	12,636	$	41	$	32,340	$	873	$	44,976	$	914
Federal agencies 1		9,970		61		98,677		1,844		108,647		1,905
Federal agency issued
mortgage-backed securities 1		25,326		92		216,083		5,514		241,409		5,606
Corporate obligations		209,000		3,015		686,507		29,602		895,507		32,617
Corporate private-labeled
mortgage-backed securities		61,511		1,148		97,879		2,315		159,390		3,463
Other		32,225		289		111,701		2,577		143,926		2,866
Redeemable preferred stocks		520		10		-		-		520		10
Fixed maturity securities		351,188		4,656		1,243,187		42,725		1,594,375		47,381
Equity securities		4,636		3		9,141		634		13,777		637
Total	$	355,824	$	4,659	$	1,252,328	$	43,359	$	1,608,152	$	48,018

_________

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Securities with unrealized losses for less than twelve consecutive months included 132 issues with a carrying value of $434,182 and unrealized losses of $14,592. Of this portfolio, 93.5% were investment grade (rated AAA through BBB-) at December 31, 2007, with associated unrealized losses of $12,134. The unrealized losses on these securities were primarily due to changes in market interest rates and credit spreads since the securities were acquired.

Securities with unrealized losses for twelve consecutive months or longer included 326 issues with a carrying value of $839,803 and unrealized losses of $32,422. Of this portfolio, 94.5% were investment grade at December 31, 2007, with associated unrealized losses of $26,669. The unrealized losses on these securities were primarily due to changes in market interest rates and credit spreads since the securities were acquired.

Fixed maturities with a fair value to amortized cost ratio less than 80% for six consecutive months or longer are considered potentially distressed securities and are subject to rigorous ongoing review. As of December 31, 2007, there were six issues with a fair value to amortized cost ratio of less than 80% for less than six months. These securities had a carrying value of $13,935 and unrealized losses of $5,350. Additionally, the Company has a perpetual preferred security in this category with a carrying value of $764 and unrealized loss of $270. Based on the Company’s ability and intent to hold the investments for a reasonable period of time sufficient for recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2007.

The table below summarizes the fixed maturity securities with unrealized losses as of December 31, 2007.

Fair Value to
Amortized Cost	Amortized		Fair		Unrealized
Ratio	Cost		Value		Losses		%
90%-99%	$	1,221,745	$	1,191,230	$	30,515	67%
80%-89%		67,748		58,444		9,304	21%
Below 80%		19,285		13,935		5,350	12%
Total	$	1,308,778	$	1,263,609	$	45,169	100%

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Summary of Cost and Fair Value Information for Securities

The following table provides amortized cost and fair value securities at December 31, 2007.

			Gross
	Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value
Bonds:
U.S. Treasury securities & obligations of U.S. Government	$	71,211	$	1,638	$	409	$	72,440
Federal agencies 1		103,057		2,527		113		105,471
Federal agency issued mortgage-backed securities 1		230,771		1,047		2,977		228,841
Corporate obligations		1,771,376		50,170		30,400		1,791,146
Corporate private-labeled mortgage-backed securities		250,525		590		4,910		246,205
Other		187,118		1,161		6,236		182,043
Redeemable preferred stocks		5,051		-		124		4,927
Fixed maturity securities		2,619,109		57,133		45,169		2,631,073
Equity securities		57,906		3,088		1,845		59,149
Total	$	2,677,015	$	60,221	$	47,014	$	2,690,222

The following table provides amortized cost and fair value of securities at December 31, 2006.

			Gross
	Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value
Bonds:
U.S. Treasury securities & obligations of U.S. Government	$	82,957	$	1,025	$	914	$	83,068
Federal agencies 1		154,062		425		1,905		152,582
Federal agency issued mortgage-backed securities 1		278,919		696		5,606		274,009
Corporate obligations		1,784,393		43,974		32,617		1,795,750
Corporate private-labeled mortgage-backed securities		211,909		533		3,463		208,979
Other		196,222		788		2,866		194,144
Redeemable preferred stocks		10,498		419		10		10,907
Fixed maturity securities		2,718,960		47,860		47,381		2,719,439
Equity securities		50,180		2,808		637		52,351
Total	$	2,769,140	$	50,668	$	48,018	$	2,771,790

The Company held non-income producing securities with a carrying value of $483 at December 31, 2007 (2006 - $0).

_________

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The table below provides sales of investment securities available for sale, excluding maturities and calls, for the year ended December 31. Realized gains and losses on the sale of investments are determined on the basis of specific security identification.

	2007		2006		2005

Proceeds	$	209,605	$	99,795	$	181,613
Gross realized gains		964		3,550		3,991
Gross realized losses		1,240		1,151		6,009

The Company did not hold securities of any corporation and its affiliates that exceeded 10% of stockholders' equity.

No derivative financial instruments were or are currently employed.

The Company is exposed to risk that issuers of securities owned by the Company will default or that interest rates or credit spreads will change and cause a decrease in the value of its investments. With mortgage-backed securities, the Company is also exposed to prepayment and extension risks. As interest rates change, the rate at which these securities pay down principal may change. These risks are mitigated by investing in high-grade securities and managing the maturities and cash flows of investments and liabilities.

Subprime securities include all bonds or portion of bonds where the underlying collateral is made up of home equity loans or first mortgage loans to borrowers whose credit scores at the time of origination were lower than the level recognized in the market at prime. The Company’s classification of subprime does not include Alt-A or jumbo loans, unless the collateral otherwise meets the preceding definition. At December 31, 2007, the Company had investments with subprime residential mortgage exposure of $39.1 million and a related $1.8 million unrealized loss. This exposure amounted to 1% of the Company’s invested assets.

Contractual Maturities

The following table provides the distribution of maturities for fixed maturity investment securities available for sale as of December 31, 2007. Expected maturities may differ from these contractual maturities since borrowers may have the right to call or prepay obligations.

	Amortized		Fair
	Cost		Value

Due in one year or less	$	93,590	$	93,948
Due after one year through five years		582,316		583,958
Due after five years through ten years		742,514		745,325
Due after ten years		648,826		661,880
Mortgage-backed securities		551,863		545,962

	$	2,619,109	$	2,631,073

Mortgage Loans

Most of the Company’s mortgage loans are secured by commercial real estate and are carried net of a valuation reserve of $3,410 (2006 – $3,600). The valuation reserve for mortgage loans is maintained at a level believed adequate by management to absorb estimated credit losses. Management’s periodic evaluation and assessment of the adequacy of the valuation reserve is based on known and inherent risks in the portfolio, historical and industry data, current economic conditions and other relevant factors. No mortgage loans were foreclosed upon and transferred to real estate investments during the past two years. Also, there was one delinquent mortgage loan at December 31, 2007 (2006 – none). The Company does not hold mortgage loans of any borrower that exceeds 5% of stockholders’ equity.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table provides geographic and property type diversification of the mortgage portfolio at December 31.

	2007						2006
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Geographic region:
East north central	$	18,913		$	19,612		$	22,962		$	23,344
Mountain		60,497			62,336			68,203			68,041
Pacific		118,377			121,656			132,265			132,252
West south central		97,355			100,617			95,641			96,211
West north central		106,183			109,421			112,827			111,486
Other		52,233			53,979			43,721			43,946
Valuation reserve		(3,410	)		(3,410	)		(3,600	)		(3,600	)
	$	450,148		$	464,211		$	472,019		$	471,680
Property type:
Industrial	$	265,981		$	274,062		$	264,662		$	265,522
Retail		-			-			211			211
Office		184,753			190,687			191,030			189,827
Other		2,824			2,872			19,716			19,720
Valuation reserve		(3,410	)		(3,410	)		(3,600	)		(3,600	)
	$	450,148		$	464,211		$	472,019		$	471,680

The Company had commitments to originate mortgage loans of $1.7 million at December 31, 2007. These commitments expire in 2008.

Real Estate

The table below provides information concerning the Company's real estate investments as of December 31.

	2007			2006
Land	$	16,232		$	16,469
Buildings		39,645			53,637
Less accumulated depreciation		(22,626	)		(24,105	)
Real estate, commercial		33,251			46,001
Real estate, joint ventures		62,798			63,524
	$	96,049		$	109,525

Investment real estate, other than foreclosed properties, is depreciated on a straight-line basis over periods ranging from 10 to 60 years.

The Company had non-income producing real estate of $13,095, consisting of properties under development at December 31, 2007 (2006 – $17,386).

The Company had commitments to purchase real estate investments of $6.3 million at December 31, 2007. These commitments expire in 2008.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. UNPAID ACCIDENT and HEALTH CLAIMS LIABILITY

The liability for unpaid accident and health claims is included with "Policy and contract claims" on the Consolidated Balance Sheets. Claim adjustment expenditures are expensed as incurred and were not material in any year presented. Activity in the liability follows.

	2007			2006			2005
Gross liability at
beginning of year	$	7,391		$	6,986		$	8,605
Less reinsurance recoverable		(3,829	)		(3,999	)		(4,207	)
Net liability at beginning of year		3,562			2,987			4,398

Incurred benefits related to:
Current year		23,852			22,174			20,287
Prior years 1		180			766			(319	)

Total incurred benefits		24,032			22,940			19,968

Paid benefits related to:
Current year		20,824			18,939			17,767
Prior years		3,507			3,426			3,612

Total paid benefits		24,331			22,365			21,379

Net liability at end of year		3,263			3,562			2,987
Plus reinsurance recoverable		3,826			3,829			3,999

Gross liability at end of year	$	7,089		$	7,391		$	6,986

_________

1 The incurred benefits related to prior years’ unpaid accident and health claims reflect the (favorable) unfavorable development of these liabilities.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. NOTES PAYABLE

The following table provides information for Notes Payable as of December 31.

	2007		2006
Federal Home Loan Bank (FHLB) loans with various maturities and
a weighted average interest rate, currently 4.87%, secured by
mortgage-backed securities totaling $135,355.	$	10,400	$	14,700

	$	10,400	$	14,700

As a member of the FHLB with a capital investment of $9.2 million, the Company has the ability to borrow on a collateralized basis from the FHLB. The Company earned a 3.33% average rate on the capital investment in the FHLB for 2007.

The Company has unsecured revolving lines of credit of $60.0 million with two major commercial banks with no balances outstanding, and which are at variable interest rates - currently at 3.76%. Both lines of credit will expire during 2008, and it is expected that the Company will renew these facilities at then-current market conditions.

All borrowings are used to enhance liquidity and investment strategies. Interest paid on all borrowings equaled $1,618 (2006 – $1,016; 2005 – $2,129). The interest expense on all borrowings totaled $1,628 (2006 – $942; 2005 – $1,978).

Maturities on notes payable are $10.4 million, due in 2008.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. STATUTORY INFORMATION and STOCKHOLDER DIVIDENDS RESTRICTION

The table below provides the Company's net gain from operations, net income, unassigned surplus (retained earnings) and capital and surplus (stockholders' equity), on the statutory basis used to report to regulatory authorities for the years ended December 31.

	2007		2006		2005

Net gain from operations	$	59,601	$	46,801	$	49,500

Net income		57,178		49,353		48,668

Unassigned surplus at December 31		442,674		443,236		408,144

Capital and surplus at December 31		366,754		371,766		339,961

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 dividends in any consecutive twelve-month period exceeding the greater of statutory net gain from operations for the preceding year or 10% of statutory stockholders' equity at the end of the preceding year. The maximum stockholder dividends payable in 2008 without prior approval is $59.6 million, the statutory net gain from operations in 2007. 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 $13,000 at December 31, 2007 (2006 – $12,000; 2005 – $12,000).

6. INCOME TAXES

The following tables provide information about income taxes and a reconciliation of the federal income tax rate to the Company’s effective income tax rate for the years ended December 31.

	2007			2006			2005

Current income tax expense	$	20,649		$	8,842		$	6,353
Deferred income tax expense (benefit)		(3,399	)		4,810			6,459

Total income tax expense	$	17,250		$	13,652		$	12,812


	2007			2006			2005

Federal income tax rate		35	%		35	%		35	%
Tax credits		(4	)		(6	)		(6	)
Other permanent differences		2			(2	)		(3	)

Effective income tax rate		33	%		27	%		26	%

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Presented below are tax effects of temporary differences that result in significant deferred tax assets and liabilities at December 31.

	2007		2006
Deferred tax assets:
Future policy benefits	$	44,255	$	45,169
Employee retirement benefits		17,067		19,934
Tax carryovers		-		3,323
Other		-		1,213
Gross and net deferred tax assets		61,322		69,639

Deferred tax liabilities:
Basis differences between tax and
GAAP accounting for investments		11,314		9,152
Unrealized investment gains		4,083		776
Capitalization of deferred acquisition
costs, net of amortization		39,825		44,362
Value of business acquired		25,731		28,969
Property and equipment, net		8,018		8,380
Other		5,837		11,949
Gross deferred tax liabilities		94,808		103,588
Net deferred tax liability		33,486		33,949
Current tax liability		6,814		1,370
Income taxes payable	$	40,300	$	35,319

A valuation allowance must be established for any portion of the deferred tax asset which is believed not to be realizable. Based predominately upon review of our anticipated future earnings and reversal of future taxable differences, in management's opinion, it is more likely than not that the Company will realize the benefit of its deferred tax asset.

Federal income taxes paid this year were $14,572 (2006 – $8,121; 2005 – $6,054).

The Company and/or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. In general, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2004. The Company is not currently under examination by the Internal Revenue Service.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The Company did not change the liability for unrecognized tax benefits as of January 1, 2007 as a result of implementing Interpretation 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1, 2007	$	5,261

Additions based on tax positions related to the current year		112
Additions for tax positions of prior years		170
Reductions for tax positions of prior years		(24	)
Reductions for statute of limitations lapse		(87	)

Balance at December 31, 2007	$	5,432

The total amount of unrecognized tax benefits, if recognized, that would impact the effective tax rate was $0.8 million as of December 31, 2007.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2007, 2006, and 2005, the Company recognized expense of approximately $0.3 million, ($0.6) million, and $0.6 million in interest and penalties, respectively. The Company had approximately $0.8 million and $0.5 million for the payment of interest and penalties accrued at December 31, 2007 and 2006, respectively.

An adjustment was reflected in the fourth quarter of 2007 that related to deferred tax expense attributable to years 2004 and prior through 2006. The unrecorded deferred tax expense (benefit) in 2004 and prior, 2005 and 2006 was $1.1 million, ($0.3) million and ($0.3) million, respectively.

The income tax expense is recorded in various places in the Company's financial statements, as detailed below, for the years ended December 31.

	2007			2006			2005

Income tax expense	$	17,250		$	13,652		$	12,812
Stockholders' equity:
Related to:
Unrealized gains, net		3,444			(8,782	)		(18,612	)
Change in minimum
pension liability		(587	)		1,968			(2	)
Adjustment to adopt SFAS 158		-			(2,221	)		-
Total income tax expense (benefit)
included in financial statements	$	20,107		$	4,617		$	(5,802	)

7. PENSIONS and OTHER POSTRETIREMENT BENEFITS

The Company has pension and other postretirement benefit plans covering substantially all its employees for which the measurement date is December 31.

The Kansas City Life Pension Plan was amended and restated effective January 1, 1998 as the Kansas City Life Cash Balance Pension Plan. Plan benefits are based on a cash balance account consisting of credits to the account based upon an employee’s years of service, compensation and interest credits on account balances calculated using the greater of the average 30-year Treasury bond rate for November of each year or 5.5%. The benefits expected to be paid in each year from 2008 through 2012 are $8,700, $11,200, $9,100, $11,700, and $12,300, respectively. The aggregate benefits expected to be paid in the five years from 2013 through 2017 are $62,300. The expected benefits to be paid are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2007 and include estimated future employee service. The 2008 contribution for the plan cannot be reasonably estimated at this time. The asset allocation of the fair value of pension plan assets at December 31 was:

	Plan Assets		Target
	2007	2006	Allocation

Debt securities	30%	31%	26%	-	32%
Equity securities	68%	69%	56%	-	76%
Cash equivalents	2%	0%	0%	-	2%

This allocation of plan assets is within the targeted mix by asset class. The strategic goal is to achieve an optimal rate of return at an acceptable level of investment risk in order to provide for the payment of benefits. The Plan does not expect to return any plan assets to the Company during 2008.

The current assumption for the expected long-term rate of return on plan assets is 8.0%. This assumption is determined by analyzing: 1) historical average returns, 2) historical data on the volatility of returns, 3) current yields available in the marketplace, 4) actual returns on plan assets, and 5) current and anticipated future allocation among asset classes. The

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

asset classes used for this analysis are large cap equities, investment grade corporate bonds and cash. The overall rate is derived as a weighted average of the estimated long-term returns on the asset classes represented in the investment portfolio of the plan.

The assumed discount rate used to determine the benefit obligation for pension benefits is 5.50% and 5.75% for other postretirement benefits. The discount rates were determined by reference to the AA finance corporate bond index yield curve on December 31, 2007, as published by Bloomberg L.P. Specifically, the yield curve was converted to spot rates to determine the rates on zero coupon securities of the same quality at various maturities. By discounting benefit cash flows at these rates, a notional amount equal to the market value of a cash flow defeasing a portfolio of AA finance corporate bonds was determined. The discount rate for benefits was calculated as a single rate giving the same discounted value as the notional amount.

The postretirement medical plans for the employees, full-time agents, and their dependents are contributory with contributions adjusted annually. The benefits expected to be paid in each year from 2008 through 2012 are $990, $1,050, $1,120, $1,190, and $1,200, respectively. The aggregate benefits expected to be paid in the five years from 2013 through 2017 are $7,120. The expected benefits to be paid are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2007. The 2008 contribution for the plan is estimated to be $990. The Company pays these medical costs as they become due and the plan incorporates cost-sharing features.

The postretirement life insurance plan is non-contributory 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.

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 $78 (2006 - $98; 2005 - $106). Non-contributory deferred compensation plans for eligible agents based upon earned first year commissions are also offered. Contributions to these plans were $400 (2006 – $300; 2005 – $503).

Savings plans for eligible employees and agents match employee and agent contributions up to 6% of salary and 2.5% of agents’ prior year paid commissions, respectively. Contributions to the plan were $1,167 (2006 – $1,683; 2005 – $1,468). The Company may contribute an additional profit sharing amount up to 4% of salary for eligible employees, depending upon corporate profits. The Company made no profit sharing contribution in 2007 or in the prior two years.

A non-contributory trusteed employee stock ownership plan covers substantially all salaried employees. No contributions have been made to this plan since 1992.

In 2005, the Company amended the Kansas City Life Insurance Company Employee Benefits Plan and the Kansas City Life Insurance Company Agent and General Agent Health and Dental Plan (“the Plans”), to eliminate prescription drug coverage as of January 1, 2006. Since prescription drug coverage to retirees became available under the Act, participants of the Plans are able to obtain coverage under the Medicare Prescription Drug Plan. At the same time, the Company has elected to reduce required retiree premium payments to the Plans.

A re-measurement of the APBO was calculated for the amendment to the Plans and the reduced retiree premium payments. The change in the APBO resulted in a decrease of $0.9 million in the net periodic postretirement benefit cost for the year ended December 31, 2005.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” SFAS 158. SFAS 158 requires calendar year-end companies with publicly traded equity securities that sponsor postretirement benefit plans to fully recognize, as an asset or liability, the overfunded or underfunded status of the benefit plans as of December 31, 2006. The funded status is to be measured as the difference between the fair value of the plan’s assets and its benefit obligation. The Company adopted SFAS 158 as of December 31, 2006.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

	Pension Benefits						Other Benefits
	2007			2006			2007			2006

Change in projected benefit obligation:
Benefit obligation at beginning of year	$	140,052		$	136,513		$	24,475		$	25,056
Service cost		2,310			2,257			789			815
Interest cost		7,448			7,430			1,423			1,308
Actuarial (gain) loss		679			2,815			1,999			(1,644	)
Benefits paid		(8,114	)		(8,963	)		(962	)		(1,060	)
Benefit obligation at end of year	$	142,375		$	140,052		$	27,724		$	24,475

Change in plan assets:
Fair value of plan assets at beginning of year	$	120,426		$	109,170		$	964		$	984
Return on plan assets		9,007			14,139			50			50
Company contributions		6,076			6,080			-			-
Benefits paid		(8,114	)		(8,963	)		(93	)		(70	)
Fair value of plan assets at end of year	$	127,395		$	120,426		$	921		$	964

Funded status at end of year	$	(14,980	)	$	(19,626	)	$	(26,803	)	$	(23,511	)

Amounts recognized in accumulated other
comprehensive income:
Net loss	$	41,350		$	42,526		$	6,059		$	4,232
Prior service cost		(1,969	)		(2,616	)		(3,200	)		(3,578	)
Total accumulated other comprehensive income	$	39,381		$	39,910		$	2,859		$	654

Other changes in plan assets and benefit obligations	Pension					Other
recognized in other comprehensive income	2007			2006		2007			2006
Unrecognized actuarial loss	$	1,128			n/a	$	2,002			n/a
Amortization of net gain		(2,303	)		n/a		(176	)		n/a
Amortization of prior service cost		647			n/a		378			n/a
Total recognized in other comprehensive income	$	(528	)		n/a	$	2,204			n/a

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

		Pension Benefits						Other Benefits
			2007			2006			2007		2006
Plans with underfunded accumulated
	benefit obligation:
Projected benefit obligation		$	142,375		$	140,052			n/a		n/a
Accumulated benefit obligation			136,445			134,361			n/a		n/a
Fair value of plan assets			127,395			120,426			n/a		n/a

Weighted average assumptions used
	to determine benefit obligations
	at December 31:
Discount rate			5.50	%		5.50	%		5.75	%	5.75	%
Expected return on plan assets			8.00			8.00			5.50		5.50
Rate of compensation increase			3.75			3.75			-		-

Weighted average assumptions used
	to determine net periodic benefit
	cost for years ended December 31:
Discount rate			5.50	%		5.50	%		5.75	%	5.75	%
Expected return on plan assets			8.00			8.00			5.50		5.50
Rate of compensation increase			3.75			3.75			-		-

The assumed growth rate of health care costs has a significant effect on the benefit amounts reported, as the table below demonstrates.

	One Percentage Point
	Change in the Growth Rate
	Increase			Decrease

Service and interest cost components		$	433		$	(363	)
Postretirement benefit obligation			4,741			(3,933	)

For measurement purposes a 11.5% annual increase in the per capita cost of covered health care benefits was assumed to decrease gradually to 6% in 2018 and thereafter.

	Pension Benefits									Other Benefits
	2007			2006			2005			2007			2006			2005
The following table provides the
components of net periodic benefit
cost for the years ended December 31:
Service cost	$	2,310		$	2,257		$	2,246		$	789		$	815		$	598
Interest cost		7,448			7,430			7,341			1,423			1,308			1,099
Expected return on plan assets		(9,456	)		(8,537	)		(8,064	)		(53	)		(54	)		(57	)
Amortization of:
Unrecognized actuarial loss		2,303			3,000			2,731			176			115			6
Unrecognized prior service cost		(647	)		(647	)		(647	)		(378	)		(378	)		(204	)
Net periodic benefits cost		1,958			3,503			3,607			1,957			1,806			1,442
Total recognized in other comprehensive income		(528	)		-			-			2,204			-			-
Total recognized in net periodic benefit cost and
other comprehensive income	$	1,430		$	-		$	-		$	4,161		$	-		$	-

The estimated net loss and prior service cost for the pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $2,226 and ($647), respectively.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The estimated net loss and prior service cost for the other postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $240 and ($378), respectively.

8. SHARE-BASED PAYMENT

The Company has a long-term incentive plan for senior management that awards participants for the increase in the share price of the Company’s common stock through units (phantom shares) assigned by the Board of Directors. The awards are calculated over three-year intervals on a calendar year basis. At the conclusion of each three-year interval, participants will receive awards based on the increase in the share price during a defined measurement period, times the number of units. The increase in the share price will be determined based on the change in the share price from the beginning to the end of the three-year interval. Dividends are accrued and paid at the end of each three-year interval to the extent that they exceed negative stock price appreciation. Plan payments are contingent on the continued employment of the participant unless termination is due to a qualifying event such as death, disability or retirement.

Information about the outstanding three-year intervals as of December 31, 2007, were as follows:

Defined
Measurement	Number	Grant
Period	of Units	Price
2005-2007	98,860	$ 48.86
2006-2008	169,634	$ 50.21
2007-2009	179,488	$ 52.10
2008-2010	178,133	$ 44.33

During 2007, the plan made a payment of $1.0 million to plan participants for the three-year interval ended December 31, 2006. During 2006, the plan made a payment of $1.5 million to plan participants for the three-year interval ended December 31, 2005. No payments were made in 2005. The cost of compensation that reduced operating expense for 2007 was $564 and the associated tax benefit was $197. The cost of compensation charged as an operating expense was $1,145 for 2006 (2005-$1,157) and the associated tax benefit was $401 for 2006 (2005-$405).

9. SEGMENT INFORMATION

The Company has three reportable business segments, which are defined based on the nature of the products and services offered: Individual Insurance, Group Insurance and Old American. The Individual Insurance segment consists of individual insurance products for both Kansas City Life and Sunset Life. The Individual Insurance segment is marketed through a nationwide sales force of independent general agents. The Group Insurance segment consists of sales of group life, dental, vision and disability products. This segment is marketed through a nationwide sales force of independent general agents, group brokers and third-party marketing arrangements. Old American consists of individual insurance products designed primarily as final expense products. These products are marketed through a nationwide general agency sales force with exclusive territories, using direct response marketing to supply agents with leads.

Insurance revenues, as shown in the Consolidated Statements of Income, consist of premiums and contract charges, less reinsurance ceded. Other revenues include other sources of customer revenue, such as supplemental contract considerations, accumulated policyholder dividend receipts and third-party administrative and service fees related to the Company’s Group Insurance Segment. It is preferable to consider the sum of both insurance revenues and other revenues in evaluating total revenues from all customer relationships and we define this as “customer revenues” for segment reporting purposes. Customer revenues are added to net investment income and realized investment gains (losses) to reconcile to the Company’s total revenues.

Separate investment portfolios are maintained for each of the three life insurance companies of the Company. However, investments are allocated to the Group Insurance segment based upon its cash flows. Its investment income is modeled using the year of investment method. Home office functions are fully integrated for the three companies in order to maximize economies of scale. Therefore, operating expenses are allocated to the segments based upon internal cost studies, which are consistent with industry cost methodologies.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Inter-segment revenues are not material. The Company operates solely in the United States and no individual customer accounts for 10% or more of the Company's revenue.

	Individual			Group			Old			Intercompany
	Insurance			Insurance			American			Eliminations			Total
2007:
Insurance revenues		$	124,190	$	45,776		$	62,479		$	(551	)	$	231,894
Other revenues			11,214		278			7			-			11,499
Customer revenues			135,404		46,054			62,486			(551	)		243,393
Net investment income			176,666		426			13,313			-			190,405
Realized investment gains (losses)			5,820		-			(394	)		-			5,426
Total revenues			317,890		46,480			75,405			(551	)		439,224

Policyholder benefits			93,200		30,061			43,197			-			166,458
Interest credited to policyholder account balances			91,215		-			-			-			91,215
Amortization of deferred acquisition costs
and value of business acquired			27,568		-			12,765			-			40,333
Operating expenses			55,283		19,309			14,266			(551	)		88,307
Total benefits and expenses			267,266		49,370			70,228			(551	)		386,313

Income (loss) before income tax expense (benefit)			50,624		(2,890	)		5,177			-			52,911
Income tax expense (benefit)			15,822		(867	)		2,295			-			17,250
Segment net income (loss)		$	34,802	$	(2,023	)	$	2,882		$	-		$	35,661

Segment assets		$	3,977,585	$	8,410		$	366,113		$	-		$	4,352,108
Interest expense		$	1,364	$	-		$	264		$	-		$	1,628


2006:
Insurance revenues		$	127,218	$	44,577		$	64,043		$	(574	)	$	235,264
Other revenues			10,717		608			24			-			11,349
Customer revenues			137,935		45,185			64,067			(574	)		246,613
Net investment income			182,766		272			13,242			-			196,280
Realized investment gains			5,300		-			321			-			5,621
Total revenues			326,001		45,457			77,630			(574	)		448,514

Policyholder benefits			95,603		28,596			43,706			-			167,905
Interest credited to policyholder account balances			94,648		-			-			-			94,648
Amortization of deferred acquisition costs
and value of business acquired			30,581		-			11,730			-			42,311
Operating expenses			59,952		19,114			14,588			(574	)		93,080
Total benefits and expenses			280,784		47,710			70,024			(574	)		397,944

Income (loss) before income tax expense (benefit)			45,217		(2,253	)		7,606						50,570
Income tax expense (benefit)			12,049		(676	)		2,279						13,652
Segment net income (loss)		$	33,168	$	(1,577	)	$	5,327		$	-		$	36,918

Segment assets		$	4,085,189	$	6,066		$	366,540		$	-		$	4,457,795
Interest expense		$	1,191	$	-		$	226		$	-		$	1,417

1 Elimination entries to remove intercompany transactions for life and accident and health insurance were as follows: insurance revenues from the Group Insurance segment, and operating expenses from the Individual Insurance segment, to arrive at Consolidated Statements of Income.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

	Individual			Group			Old			Intercompany
	Insurance			Insurance			American			Eliminations			Total
2005:
Insurance revenues		$	132,162	$	40,870		$	66,015		$	(544	)	$	238,503
Other revenues			9,641		661			10			-			10,312
Customer revenues			141,803		41,531			66,025			(544	)		248,815
Net investment income			181,311		233			13,064			-			194,608
Realized investment gains (losses)			6,488		-			(375	)		-			6,113
Total revenues			329,602		41,764			78,714			(544	)		449,536

Policyholder benefits			99,294		25,950			44,457			-			169,701
Interest credited to policyholder account balances			98,637		-			-			-			98,637
Amortization of deferred acquisition costs											-
and value of business acquired			29,640		-			13,418			-			43,058
Operating expenses			56,638		19,220			13,830			(544	)		89,144
Total benefits and expenses			284,209		45,170			71,705			(544	)		400,540

Income (loss) before income tax expense (benefit)			45,393		(3,406	)		7,009			-			48,996
Income tax expense (benefit)			11,754		(1,022	)		2,080			-			12,812
Segment net income (loss)		$	33,639	$	(2,384	)	$	4,929		$	-		$	36,184

Segment assets		$	4,170,536	$	6,671		$	378,172		$	-		$	4,555,379
Interest expense		$	1,824	$	-		$	593		$	-		$	2,417

Enterprise-Wide Disclosures
	2007		2006		2005
Customer revenues by line of business:
Traditional individual insurance products, net	$	74,696	$	76,191	$	82,888
Interest sensitive products		93,993		97,177		97,506
Variable life insurance and annuities		17,429		17,319		17,239
Group life and disability products, net		45,776		44,577		40,870
Insurance revenues		231,894		235,264		238,503
Other revenues		11,499		11,349		10,312
Customer revenues	$	243,393	$	246,613	$	248,815

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. PROPERTY and EQUIPMENT

Property and equipment are stated at cost and depreciated over estimated useful lives using the straight-line method. The home office is depreciated over 25 to 50 years and furniture and equipment is depreciated over 3 to 10 years. The table below provides information as of December 31.

	2007			2006

Land	$	766		$	766
Home office complex		20,375			20,427
Furniture and equipment		45,460			45,843
		66,601			67,036

Less accumulated depreciation		(38,820	)		(37,672	)

	$	27,781		$	29,364

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. REINSURANCE

The table below provides information about reinsurance for the years ended December 31.

	2007			2006			2005

Life insurance in force (in millions) :
Direct	$	29,406		$	29,398		$	28,943
Ceded		(14,315	)		(13,836	)		(13,354	)
Assumed		1,729			1,863			2,006

Net	$	16,820		$	17,425		$	17,595

Premiums:
Life insurance:
Direct	$	125,667		$	125,147		$	131,475
Ceded		(46,291	)		(45,406	)		(45,512	)
Assumed		3,616			4,031			4,144

Net	$	82,992		$	83,772		$	90,107

Accident and health:
Direct	$	46,177		$	46,748		$	43,947
Ceded		(8,697	)		(9,752	)		(10,296	)
Assumed		-			-			-

Net	$	37,480		$	36,996		$	33,651

Old American has a coinsurance agreement that reinsures certain whole life policies issued by Old American prior to December 1, 1986. These policies had a face value of $51.0 million as of December 31, 2007. The reserve for future policy benefits ceded under this agreement was $26.2 million (2006 – $28.4 million).

Kansas City Life acquired a block of traditional life and universal life products in 1997. As of December 31, 2007, the block had $1.7 billion of life insurance in force (2006 – $1.8 billion). The block generated life insurance premiums of $2.1 million net of reinsurance (2006 – $2.7 million).

Sunset Life entered into a yearly renewable term reinsurance agreement January 1, 2002, whereby it ceded 80% of its retained mortality risk on traditional and universal life policies. As of December 31, 2007, the insurance in force ceded approximates $2.0 billion (2006 – $2.1 billion) and premiums totaled $8.9 million.

Reinsurance receivables were $162.3 million at year end 2007, consisting of reserves ceded of $149.5 million and claims ceded of $12.8 million.

The maximum retention on any one life is $350 thousand for ordinary life plans and $100 thousand 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. Reinsurers' solvency is reviewed annually.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12. COMPREHENSIVE INCOME

Comprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes the unrealized investment gains or losses on securities available for sale (net of reclassification adjustments for realized investment gains or losses) net of adjustments to DAC, VOBA and policyholder account balances. In addition, other comprehensive income (loss) includes the change in the additional minimum pension liability, and the adjustment to adopt SFAS 158. The adjustment to adopt SFAS 158 consists of pension and postretirement net losses and prior service costs. Other comprehensive income (loss) also includes deferred income taxes on these items. The table below provides information about comprehensive income for the years ended December 31.

	Unrealized			Pension
	Gain (Loss)			and Other
	on Securities			Benefits			Total
2007:
Unrealized gains arising during the year	$	8,907		$	-		$	8,907
Less: Realized losses included in net income		(1,650	)		-			(1,650	)
Net unrealized gain		10,557			-			10,557
Increase in minimum pension liability		-			(1,676	)		(1,676	)
Effect on DAC		(687	)		-			(687	)
Effect on VOBA		85			-			85
Policyholder account balances		(115	)		-			(115	)
Deferred income taxes		(3,444	)		587			(2,857	)
Other comprehensive income (loss)	$	6,396		$	(1,089	)		5,307
Net income								35,661
Comprehensive income							$	40,968

	Unrealized			Minimum
	Gain (Loss)			Pension
	on Securities			Liability			Total
2006:
Unrealized losses arising during the year	$	(30,716	)	$	-		$	(30,716	)
Less: Realized gains included in net income		1,816			-			1,816
Net unrealized losses		(32,532	)		-			(32,532	)
Decrease in minimum pension liability		-			5,620			5,620
Effect on DAC		2,056			-			2,056
Effect on VOBA		851			-			851
Policyholder account balances		4,603			-			4,603
Deferred income taxes		8,782			(1,968	)		6,814
Other comprehensive loss	$	(16,240	)	$	3,652			(12,588	)
Net income								36,918
Comprehensive income							$	24,330

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

	Unrealized			Minimum
	Gain (Loss)			Pension
	on Securities			Liability			Total
2005:
Unrealized losses arising during the year	$	(66,050	)	$	-		$	(66,050	)
Less: Realized losses included in net income		(1,613	)		-			(1,613	)
Net unrealized losses		(64,437	)		-			(64,437	)
Increase in minimum pension liability		-			(6	)		(6	)
Effect on DAC		4,689			-			4,689
Effect on VOBA		95			-			95
Policyholder account balances		6,408			-			6,408
Deferred income taxes		18,612			2			18,614
Other comprehensive loss	$	(34,633	)	$	(4	)		(34,637	)
Net income								36,184
Comprehensive income							$	1,547

The following table provides accumulated balances related to each component of accumulated other comprehensive loss.

	Unrealized			Minimum
	Gain (Loss)			Pension
	on Securities			Liability			Total
2006:
Beginning of year	$	17,489		$	(25,895	)	$	(8,406	)
Other comprehensive income (loss)		(16,240	)		3,652			(12,588	)
Adjustment to adopt SFAS 158		-			(4,124	)		(4,124	)

End of year		1,249			(26,367	)		(25,118	)

2007:
Other comprehensive income (loss)		6,396			(1,089	)		5,307

End of year	$	7,645		$	(27,456	)	$	(19,811	)

13. 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 were based on quoted market prices, where available. For those securities not actively traded, fair values were estimated using values obtained from independent pricing services or, in the case of private placements, were 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 were based upon discounted cash flow analyses using an interest rate assumption above comparable U.S. Treasury rates. The fair value of bank deposits, checking, savings and money market accounts was the amount payable on demand.

Fair values for liabilities under investment-type insurance contracts, included with policyholder account balances for fixed deferred annuities and with other policyholder funds for supplementary contracts without life contingencies, were estimated to be their cash surrender values.

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Fair values for the Company's insurance contracts other than investment contracts were not required to be disclosed. However, the fair values of liabilities under all insurance contracts were taken into consideration in the Company's overall management of interest rate risk.

At year-end 2007, all of the Company’s notes payable had a carrying value which approximated their fair value. The Company’s other liabilities are generally short-term in nature and their carrying value approximates their fair value.

Following are the carrying amounts and fair values of financial instruments as of December 31.

	2007				2006
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Investments:
Securities available for sale	$	2,690,222	$	2,690,222	$	2,771,790	$	2,771,790
Mortgage loans		450,148		464,211		472,019		471,680
Liabilities:
Individual and group annuities	$	987,014	$	963,626	$	1,068,286	$	1,038,533
Notes payable		10,400		10,400		14,700		14,700
Bank deposits		-		-		37,799		37,799
Supplementary contracts
without life contingencies		67,258		67,296		67,908		67,927

14. QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)

The unaudited quarterly results of operations for the years ended December 31, 2007 and 2006 are summarized in the table below.

	First		Second		Third		Fourth
2007:
Total revenues	$	113,027	$	109,885	$	108,791	$	107,521

Net income		8,306		11,812		9,131		6,412

Per common share,
basic and diluted		0.70		1.00		0.77		0.54

2006:
Total revenues	$	111,092	$	112,521	$	111,227	$	113,674

Net income		7,189		10,109		9,526		10,094

Per common share,
basic and diluted		0.60		0.85		0.80		0.86

KANSAS CITY LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. COMMITMENTS

In the normal course of business, the Company has open purchase and sale commitments. At December 31, 2007, the Company had purchase commitments to fund mortgage loans and other investments of $10.5 million. Subsequent to December 31, 2007, the Company entered into commitments to fund additional mortgage loans of $7.9 million, purchase real estate investments of $4.4 million, sales of real estate investments for $1.1 million and construction of real estate investments of $2.8 million.

16. CONTINGENT LIABILITIES

The life insurance industry, including the Company, has been subject to an increase in litigation in recent years. Such litigation has been pursued on behalf of purported classes of policyholders and other claims and legal actions in jurisdictions where juries often award punitive damages, which are grossly disproportionate to actual damages.

Although no assurances can be given and no determinations can be made at this time, management believes that the ultimate liability, if any, with respect to these claims and actions, would have no material effect on the Company’s business, results of operations or financial position.

17. GUARANTEES AND INDEMNIFICATIONS

The Company is subject to various indemnification obligations issued in conjunction with certain transactions, primarily assumption reinsurance agreements, stock purchase agreements, mortgage servicing agreements, construction and lease guarantees and borrowing agreements whose terms range in duration and often are not explicitly defined. Generally, a maximum obligation is not explicitly stated; therefore, the overall maximum amount of the obligation under the indemnifications cannot be reasonably estimated. While we are unable to estimate with certainty the ultimate legal and financial liability with respect to these indemnifications, we believe the likelihood is remote that material payments would be required under such indemnifications, and therefore such indemnifications would not result in a material adverse effect on the Company’s business, financial position or results of operations.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Kansas City Life Insurance Company

We have audited the accompanying consolidated balance sheets of Kansas City Life Insurance Company and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2007. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I-V. We also have audited the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (Item 9A). Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules, and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kansas City Life Insurance Company and subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in note 1 to the consolidated financial statements, the Company adopted American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 05-01, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges in Insurance Contracts”, effective January 1, 2007 and Financial Accounting Standards Board Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109”, effective January 1, 2007.

Also in our opinion, Kansas City Life Insurance Company and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by COSO of the Treadway Commission,

/s/KPMG LLP

Kansas City, MO

February 29, 2008

STOCKHOLDER INFORMATION

CORPORATE HEADQUARTERS

Kansas City Life Insurance Company

3520 Broadway

Post Office Box 219139

Kansas City, Missouri 64121-9139

Telephone: (816) 753-7000

Fax: (816) 753-4902

Internet: http://www.kclife.com

E-mail: kclife@kclife.com

NOTICE OF ANNUAL MEETING

The annual meeting of stockholders will be held at 9 a.m. on Thursday, April 24, 2008 at Kansas City Life's corporate headquarters.

TRANSFER AGENT

Cheryl Keefer, Assistant Secretary

Kansas City Life Insurance Company

Post Office Box 219139

Kansas City, Missouri 64121-9139

10-K REQUEST

Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed with the Securities and Exchange Commission, by writing to Secretary, Kansas City Life Insurance Company.

SECURITY HOLDERS

As of January 31, 2008, Kansas City Life had approximately 2,500 security holders, including individual participants in security position listings.

STOCK AND DIVIDEND INFORMATION

Stock Quotation Symbol

NASDAQ—KCLI

The following table presents the high and low prices for the Company’s common stock for the periods indicated and the dividends declared per share during such periods.

	Bid				Dividend
	High		Low		Paid

2007:
First quarter	$	52.28	$	44.35	$	2.27
Second quarter		47.95		44.61		0.27
Third quarter		50.79		38.18		0.27
Fourth quarter		50.48		40.00		0.27
					$	3.08
2006:
First quarter	$	53.04	$	48.75	$	0.27
Second quarter		51.27		41.57		0.27
Third quarter		46.08		41.82		0.27
Fourth quarter		58.97		44.36		0.27
					$	1.08

A quarterly dividend of $0.27 per share was paid February 12, 2008.

NASDAQ market quotations are compiled according to Company records and may reflect inter-dealer prices, without markup, markdown or commission and may not necessarily represent actual transactions.

KANSAS CITY LIFE

VARIABLE ANNUITY

SEPARATE ACCOUNT

FINANCIAL STATEMENTS

Years ended December 31, 2007 and 2006

	TABLE OF CONTENTS

	Statement of Net Assets
	Statement of Operations
	Statements of Changes in Net Assets
	Notes to Financial Statements
	Report of Independent Registered Public Accounting Firm

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 2007

					Century II Variable Annuity		Freedom Variable Annuity
			Number		Number	Unit	Number	Unit	Fair
Net Assets			Shares	NAV	of Units	Value	of Units	Value	Value	Cost
									(in thousands)
	Federated Insurance Series
		American Leaders Fund II	552,107	$ 17.13	434,263	$ 21.595	5,375	$ 14.811	$ 9,458	$ 10,439
		High Income Bond Fund II	1,044,012	7.49	394,671	17.544	62,344	14.361	7,820	8,007
		Prime Money Fund II	9,433,862	1.00	678,008	13.137	50,119	10.519	9,434	9,434

	MFS Variable Insurance Trust
		Research Series	661,578	20.28	605,553	21.962	6,377	18.474	13,417	10,796
		Emerging Growth Series	567,251	25.01	622,108	22.675	4,142	19.494	14,187	11,212
		Total Return Series	754,618	21.68	630,832	24.485	62,663	14.588	16,360	14,737
		Research Bond Series	562,640	11.60	371,585	16.943	19,682	11.730	6,527	6,482
		Strategic Income Series	197,757	10.54	131,003	14.853	11,247	12.321	2,084	2,078
		Utilities Series	1,111,518	34.48	795,664	46.730	35,896	31.869	38,325	25,759

	American Century Variable Portfolios
		VP Capital Appreciation Fund	459,663	15.98	347,992	20.817	3,938	25.716	7,346	4,761
		VP International Fund	957,881	11.86	438,043	25.487	8,498	23.075	11,360	8,627
		VP Value Fund	1,588,573	7.47	1,060,538	10.704	31,001	16.616	11,867	12,437
		VP Income & Growth Fund	411,189	8.46	391,267	8.378	11,807	16.993	3,479	3,069
		VP Ultra Fund	202,943	12.15	167,063	14.377	4,495	14.212	2,466	2,099
		VP Mid Cap Value Fund	14,853	12.94	17,114	10.645	945	10.600	192	205

	American Century Variable Portfolios II
		VP Inflation Protection Fund (Class II)	206,731	10.55	171,412	11.383	20,412	11.253	2,181	2,125

	Dreyfus Variable Investment Fund
		Appreciation Portfolio	215,647	44.86	558,844	17.214	3,398	15.831	9,674	7,781
		Developing Leaders Portfolio	317,392	32.34	698,757	14.643	2,416	13.405	10,264	12,671

	Dreyfus Stock Index Fund, Inc.		645,182	37.40	1,363,084	17.312	31,057	17.116	24,130	20,417

	The Dreyfus Socially Responsible Growth Fund, Inc.		39,006	30.50	41,502	28.618	127	15.475	1,190	1,202

	JPMorgan Series Trust II
		U.S. Large Cap Core Equity Portfolio	175,773	15.79	166,788	16.415	2,364	15.943	2,775	2,565
		Small Company Portfolio	308,344	16.06	252,929	18.796	10,708	18.478	4,952	5,011
		Mid Cap Value Portfolio	230,196	30.67	378,020	17.960	15,255	17.753	7,060	6,597

	Franklin Templeton Variable Insurance Products Trust
		Franklin Global Real Estate Securities Fund (Class II)	280,747	24.97	333,630	20.655	6,481	18.358	7,010	7,954
		Franklin Small-Mid Cap Growth Securities Fund (Class II)	73,755	22.91	201,841	8.256	1,276	18.321	1,690	1,423
		Templeton Developing Markets Securities Fund (Class II)	594,859	16.00	322,369	27.742	15,336	37.461	9,518	7,256
		Templeton Foreign Securities Fund (Class II)	412,506	20.25	253,681	31.705	13,537	22.930	8,353	6,727

	Calamos Advisors Trust
		Calamos Growth and Income Portfolio	2,111,328	14.32	1,570,694	18.783	44,983	16.277	30,234	28,531

	AIM Variable Insurance Funds
		V.I. Capital Appreciation Fund (Series I)	56,634	29.37	284,300	5.832	301	17.643	1,663	1,494
		V.I. Technology Fund (Series I)	89,566	15.10	427,420	2.946	5,262	17.728	1,352	1,305
		V.I. Core Equity Fund (Series I)	67,995	29.11	244,534	8.019	1,122	16.434	1,980	1,727

	Seligman Portfolios, Inc.
		Communications and Information Portfolio (Class II)	274,353	19.27	578,384	8.932	5,249	22.957	5,287	3,850
		Capital Portfolio (Class II)	219,725	16.74	450,130	8.094	1,832	19.104	3,678	3,014
		Smaller-Cap Value Portfolio (Class II)	166,540	17.03	155,264	17.906	3,164	17.700	2,836	3,013

	Fidelity Variable Insurance Products
		VIP Contrafund Portfolio	76,041	27.46	145,674	11.055	43,275	11.037	2,088	2,462
		VIP Freedom Funds - Income	5,909	10.78	6,242	10.206	-	10.189	64	65
		VIP Freedom Funds - 2010	15,117	11.92	16,107	10.268	1,445	10.250	180	185
		VIP Freedom Funds - 2015	65,002	12.26	77,469	10.287	-	10.270	797	821
		VIP Freedom Funds - 2020	108,262	12.60	130,319	10.305	2,052	10.288	1,364	1,416
		VIP Freedom Funds - 2025	12,329	12.68	15,154	10.316	-	10.299	156	162
		VIP Freedom Funds - 2030	28,868	12.99	33,774	10.333	2,520	10.316	375	390

	Total Net Assets								$ 295,173	$ 260,306

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
(in thousands)

				Federated Insurance Series			MFS Variable Insurance Trust

					High
				American	Income	Prime		Emerging	Total	Research	Strategic
				Leaders	Bond	Money	Research	Growth	Return	Bond	Income	Utilities
				Fund II	Fund II	Fund II	Series	Series	Series	Series	Series	Series

Investment Income:
	Income:
	Dividend Distributions		$	168	565	366	92	-	446	174	71	344
	Expenses:
	Mortality and Expense Risk Fees and
	Administrative Charges			158	108	112	190	203	246	77	24	514
		Investment Income (Loss)		10	457	254	(98)	(203)	200	97	47	(170)
	Realized and Unrealized Gain (Loss) on Investments:
	Realized Gain (Loss)			46	(65)	-	549	577	541	(11)	(1)	2,846
	Capital Gains Distributions			1,263	-	-	-	-	427	-	-	2,491
	Unrealized Appreciation (Depreciation)			(2,502)	(253)	-	1,009	2,180	(686)	70	(9)	3,033
		Net Gain (Loss) on Investments		(1,193)	(318)	-	1,558	2,757	282	59	(10)	8,370

		Change in Net Assets from Operations	$	(1,183)	139	254	1,460	2,554	482	156	37	8,200


										American
										Century
										Variable	Dreyfus Variable
				American Century Variable Portfolios						Portfolios II	Investment Fund

							VP			VP Inflation
				VP Capital	VP	VP	Income &	VP	VP	Protection		Developing
				Appreciation	International	Value	Growth	Ultra	Mid-Cap	Fund	Appreciation	Leaders
				Fund	Fund	Fund	Fund	Fund	Value	(Class II)	Portfolio	Portfolio

Investment Income:
	Income:
	Dividend Distributions		$	-	66	184	75	-	1	67	170	101
	Expenses:
	Mortality and Expense Risk Fees and
	Administrative Charges			91	143	174	55	25	3	22	148	180
		Investment Income (Loss)		(91)	(77)	10	20	(25)	(2)	45	22	(79)
	Realized and Unrealized Gain (Loss) on Investments:
	Realized Gain (Loss)			523	770	151	257	60	2	(5)	681	(391)
	Capital Gains Distributions			-	-	956	-	-	2	-	-	1,766
	Unrealized Appreciation (Depreciation)			1,874	804	(1,947)	(306)	287	(15)	87	(126)	(2,763)
		Net Gain (Loss) on Investments		2,397	1,574	(840)	(49)	347	(11)	82	555	(1,388)

		Change in Net Assets from Operations	$	2,306	1,497	(830)	(29)	322	(13)	127	577	(1,467)

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2007
(in thousands)

						JPMorgan Series Trust II			Franklin Templeton Variable Insurance Products Trust
					The Dreyfus				Franklin	Franklin	Templeton
				Dreyfus	Socially	U.S. Large			Global	Small-Mid	Developing	Templeton
				Stock	Responsible	Cap Core	Small	Mid	Real Estate	Cap Growth	Markets	Foreign
				Index	Growth	Equity	Company	Cap Value	Securities	Securities	Securities	Securities
				Fund, Inc.	Fund, Inc.	Portfolio	Portfolio	Portfolio	Fund (Class II)	Fund (Class II)	Fund (Class II)	Fund (Class II)

Investment Income:
	Income:
	Dividend Distributions		$	423	7	31	-	61	244	-	190	148
	Expenses:
	Mortality and Expense Risk Fees and
	Administrative Charges			349	17	41	76	100	140	24	116	106
		Investment Income (Loss)		74	(10)	(10)	(76)	(39)	104	(24)	74	42
	Realized and Unrealized Gain (Loss) on Investments:
	Realized Gain (Loss)			1,326	(11)	87	169	305	245	93	622	472
	Capital Gains Distributions			-	-	-	251	308	755	124	621	337
	Unrealized Appreciation (Depreciation)			(484)	96	(77)	(718)	(540)	(3,448)	(40)	617	118
		Net Gain (Loss) on Investments		842	85	10	(298)	73	(2,448)	177	1,860	927

		Change in Net Assets from Operations	$	916	75	-	(374)	34	(2,344)	153	1,934	969


				Calamos
				Advisors
				Trust	AIM Variable Insurance Funds			Seligman Portfolios, Inc.
								Communications
					V.I. Capital	V.I.	V.I.	and		Smaller-Cap
				Growth &	Appreciation	Technology	Core Equity	Information	Capital	Value
				Income	Fund	Fund	Fund	Portfolio	Portfolio	Portfolio
				Portfolio	(Series I)	(Series I)	(Series I)	(Class II)	(Class II)	(Class II)

Investment Income:
	Income:
	Dividend Distributions		$	424	-	-	22	-	-	-
	Expenses:
	Mortality and Expense Risk Fees and
	Administrative Charges			447	25	18	26	73	49	41
		Investment Income (Loss)		(23)	(25)	(18)	(4)	(73)	(49)	(41)
	Realized and Unrealized Gain (Loss) on Investments:
	Realized Gain (Loss)			1,257	36	15	60	355	233	83
	Capital Gains Distributions			2,215	-	-	-	-	-	311
	Unrealized Appreciation (Depreciation)			(1,207)	166	75	58	372	275	(293)
		Net Gain (Loss) on Investments		2,265	202	90	118	727	508	101

		Change in Net Assets from Operations	$	2,242	177	72	114	654	459	60

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2007
(in thousands)

				Fidelity Variable Insurance Products

					VIP	VIP	VIP	VIP	VIP	VIP
				VIP	Freedom	Freedom	Freedom	Freedom	Freedom	Freedom
				Contrafund	Funds	Funds	Funds	Funds	Funds	Funds
				Portfolio	Income	2010	2015	2020	2025	2030	Total

Investment Income:
	Income:
	Dividend Distributions		$	14	2	4	18	26	3	7	4,514
	Expenses:
	Mortality and Expense Risk Fees and
	Administrative Charges			10	-	1	2	4	1	1	4,140
		Investment Income (Loss)		4	2	3	16	22	2	6	374
	Realized and Unrealized Gain (Loss) on Investments:
	Realized Gain (Loss)			5	-	-	-	(7)	-	-	11,875
	Capital Gains Distributions			468	-	3	16	29	3	10	12,356
	Unrealized Appreciation (Depreciation)			(374)	(2)	(5)	(24)	(52)	(6)	(15)	(4,771)
		Net Gain (Loss) on Investments		99	(2)	(2)	(8)	(30)	(3)	(5)	19,460

		Change in Net Assets from Operations	$	103	-	1	8	(8)	(1)	1	19,834

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2007
(in thousands)

				Federated Insurance Series			MFS Variable Insurance Trust

					High
				American	Income	Prime		Emerging	Total	Research	Strategic
				Leaders	Bond	Money	Research	Growth	Return	Bond	Income	Utilities
				Fund II	Fund II	Fund II	Series	Series	Series	Series	Series	Series

Change in Net Assets from Operations:
	Investment Income (Loss)		$	10	457	254	(98)	(203)	200	97	47	(170)
	Realized Gain (Loss)			1,309	(65)	-	549	577	968	(11)	(1)	5,337
	Unrealized Appreciation (Depreciation)			(2,502)	(253)	-	1,009	2,180	(686)	70	(9)	3,033
		Change in Net Assets from Operations		(1,183)	139	254	1,460	2,554	482	156	37	8,200

Deposits				537	532	20,851	717	709	757	588	188	2,543

Payments and Withdrawals:
	Death Benefits			42	29	42	106	135	172	29	-	94
	Withdrawals			1,809	870	2,930	1,728	2,252	2,897	827	168	5,574
	Administrative Fees			8	4	16	11	14	10	5	1	20
	Transfers (in) out			621	(984)	15,594	111	1,035	(658)	(1,649)	(505)	(1,687)
		Payments and Withdrawals		2,480	(81)	18,582	1,956	3,436	2,421	(788)	(336)	4,001

Net Assets:
	Net Increase (Decrease)			(3,126)	752	2,523	221	(173)	(1,182)	1,532	561	6,742
	Beginning of Year			12,584	7,068	6,911	13,196	14,360	17,542	4,995	1,523	31,583

		End of Year	$	9,458	7,820	9,434	13,417	14,187	16,360	6,527	2,084	38,325

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 2007
(in thousands)

										American
										Century
										Variable	Dreyfus Variable
				American Century Variable Portfolios						Portfolios II	Investment Fund

							VP			VP Inflation
				VP Capital	VP	VP	Income &	VP	VP	Protection		Developing
				Appreciation	International	Value	Growth	Ultra	Mid-Cap	Fund	Appreciation	Leaders
				Fund	Fund	Fund	Fund	Fund	Value	(Class II)	Portfolio	Portfolio

Change in Net Assets from Operations:
	Investment Income (Loss)		$	(91)	(77)	10	20	(25)	(2)	45	22	(79)
	Realized Gain (Loss)			523	770	1,107	257	60	4	(5)	681	1,375
	Unrealized Appreciation (Depreciation)			1,874	804	(1,947)	(306)	287	(15)	87	(126)	(2,763)
		Change in Net Assets from Operations		2,306	1,497	(830)	(29)	322	(13)	127	577	(1,467)

Deposits				383	827	858	247	211	50	268	515	594

Payments and Withdrawals:
	Death Benefits			18	43	20	13	-	-	5	212	185
	Withdrawals			984	1,616	1,563	839	221	10	212	2,207	2,004
	Administrative Fees			4	10	8	3	2	-	2	8	10
	Transfers (in) out			(220)	(1,697)	(1,924)	(230)	(581)	(102)	(566)	250	1,533
		Payments and Withdrawals		786	(28)	(333)	625	(358)	(92)	(347)	2,677	3,732

Net Assets:
	Net Increase (Decrease)			1,903	2,352	361	(407)	891	129	742	(1,585)	(4,605)
	Beginning of Year			5,443	9,008	11,506	3,886	1,575	63	1,439	11,259	14,869

		End of Year	$	7,346	11,360	11,867	3,479	2,466	192	2,181	9,674	10,264


						JPMorgan Series Trust II			Franklin Templeton Variable Insurance Products Trust
					The Dreyfus				Franklin	Franklin	Templeton
				Dreyfus	Socially	U.S. Large			Global	Small-Mid	Developing	Templeton
				Stock	Responsible	Cap Core	Small	Mid	Real Estate	Cap Growth	Markets	Foreign
				Index	Growth	Equity	Company	Cap Value	Securities	Securities	Securities	Securities
				Fund, Inc.	Fund, Inc.	Portfolio	Portfolio	Portfolio	Fund (Class II)	Fund (Class II)	Fund (Class II)	Fund (Class II)

Change in Net Assets from Operations:
	Investment Income (Loss)		$	74	(10)	(10)	(76)	(39)	104	(24)	74	42
	Realized Gain (Loss)			1,326	(11)	87	420	613	1,000	217	1,243	809
	Unrealized Appreciation (Depreciation)			(484)	96	(77)	(718)	(540)	(3,448)	(40)	617	118
		Change in Net Assets from Operations		916	75	-	(374)	34	(2,344)	153	1,934	969

Deposits				1,331	111	265	480	764	1,298	71	663	637

Payments and Withdrawals:
	Death Benefits			267	3	12	21	17	30	-	15	34
	Withdrawals			4,174	221	464	1,034	1,129	1,469	191	716	968
	Administrative Fees			22	1	3	5	5	6	1	7	6
	Transfers (in) out			(1,503)	24	(444)	(625)	(986)	2,068	30	(744)	(964)
		Payments and Withdrawals		2,960	249	35	435	165	3,573	222	(6)	44

Net Assets:
	Net Increase (Decrease)			(713)	(63)	230	(329)	633	(4,619)	2	2,603	1,562
	Beginning of Year			24,843	1,253	2,545	5,281	6,427	11,629	1,688	6,915	6,791

		End of Year	$	24,130	1,190	2,775	4,952	7,060	7,010	1,690	9,518	8,353

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 2007
(in thousands)

				Calamos
				Advisors
				Trust	AIM Variable Insurance Funds			Seligman Portfolios, Inc.
								Communications
					V.I. Capital	V.I.	V.I.	and		Smaller-Cap
				Growth &	Appreciation	Technology	Core Equity	Information	Capital	Value
				Income	Fund	Fund	Fund	Portfolio	Portfolio	Portfolio
				Portfolio	(Series I)	(Series I)	(Series I)	(Class II)	(Class II)	(Class II)

Change in Net Assets from Operations:
	Investment Income (Loss)		$	(23)	(25)	(18)	(4)	(73)	(49)	(41)
	Realized Gain (Loss)			3,472	36	15	60	355	233	394
	Unrealized Appreciation (Depreciation)			(1,207)	166	75	58	372	275	(293)
		Change in Net Assets from Operations		2,242	177	72	114	654	459	60

Deposits				1,336	74	86	184	390	323	264

Payments and Withdrawals:
	Death Benefits			185	4	4	-	18	10	11
	Withdrawals			5,079	167	125	244	586	575	405
	Administrative Fees			26	2	2	1	6	3	3
	Transfers (in) out			(35)	313	(146)	(266)	(18)	5	(235)
		Payments and Withdrawals		5,255	486	(15)	(21)	592	593	184

Net Assets:
	Net Increase (Decrease)			(1,677)	(235)	173	319	452	189	140
	Beginning of Year			31,911	1,898	1,179	1,661	4,835	3,489	2,696

		End of Year	$	30,234	1,663	1,352	1,980	5,287	3,678	2,836

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2007
(in thousands)

				Fidelity Variable Insurance Products

					VIP	VIP	VIP	VIP	VIP	VIP
				VIP	Freedom	Freedom	Freedom	Freedom	Freedom	Freedom
				Contrafund	Funds	Funds	Funds	Funds	Funds	Funds
				Portfolio	Income	2010	2015	2020	2025	2030	Total

Change in Net Assets from Operations:
	Investment Income (Loss)		$	4	2	3	16	22	2	6	374
	Realized Gain (Loss)			473	-	3	16	22	3	10	24,231
	Unrealized Appreciation (Depreciation)			(374)	(2)	(5)	(24)	(52)	(6)	(15)	(4,771)
		Change in Net Assets from Operations		103	-	1	8	(8)	(1)	1	19,834

Deposits				139	19	3	332	681	22	52	40,900

Payments and Withdrawals:
	Death Benefits			-	-	-	-	-	-	-	1,776
	Withdrawals			46	-	-	1	-	-	1	46,306
	Administrative Fees			-	-	-	1	1	-	1	238
	Transfers (in) out			(1,892)	(45)	(176)	(459)	(692)	(135)	(324)	1,092
		Payments and Withdrawals		(1,846)	(45)	(176)	(457)	(691)	(135)	(322)	49,412

Net Assets:
	Net Increase (Decrease)			2,088	64	180	797	1,364	156	375	11,322
	Beginning of Year			-	-	-	-	-	-	-	283,851

		End of Year	$	2,088	64	180	797	1,364	156	375	295,173

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2006
(in thousands)

				Federated Insurance Series			MFS Variable Insurance Trust

					High
				American	Income	Prime		Emerging	Total	Research	Strategic
				Leaders	Bond	Money	Research	Growth	Return	Bond	Income	Utilities
				Fund II	Fund II	Fund II	Series	Series	Series	Series	Series	Series

Change in Net Assets from Operations:
	Investment Income (Loss)		$	17	483	169	(116)	(202)	169	156	55	166
	Realized Gain (Loss)			1,747	(103)	-	193	10	990	(19)	3	2,524
	Unrealized Appreciation (Depreciation)			(30)	232	-	1,037	1,079	549	(15)	19	4,522
		Change in Net Assets from Operations		1,734	612	169	1,114	887	1,708	122	77	7,212

Deposits				473	441	15,815	600	687	818	249	172	1,290

Payments and Withdrawals:
	Death Benefits			48	50	48	100	62	153	3	-	266
	Withdrawals			1,757	1,232	2,287	1,702	1,689	2,463	996	258	3,669
	Administrative Fees			9	4	13	12	16	11	3	1	18
	Transfers (in) out			539	(342)	11,769	(213)	357	458	163	(46)	(2,002)
		Payments and Withdrawals		2,353	944	14,117	1,601	2,124	3,085	1,165	213	1,951

Net Assets:
	Net Increase (Decrease)			(146)	109	1,867	113	(550)	(559)	(794)	36	6,551
	Beginning of Year			12,730	6,959	5,044	13,083	14,910	18,101	5,789	1,487	25,032

		End of Year	$	12,584	7,068	6,911	13,196	14,360	17,542	4,995	1,523	31,583


										American
										Century
										Variable	Dreyfus Variable
				American Century Variable Portfolios						Portfolios II	Investment Fund

				VP			VP		VP	VP Inflation
				Capital	VP	VP	Income	VP	Mid Cap	Protection		Developing
				Appreciation	International	Value	& Growth	Ultra	Value	Fund	Appreciation	Leaders
				Fund	Fund	Fund	Fund	Fund	Fund	(Class II)	Portfolio	Portfolio

Change in Net Assets from Operations:
	Investment Income (Loss)		$	(69)	11	(7)	18	(27)	-	29	24	(159)
	Realized Gain (Loss)			68	282	942	136	48	1	(13)	343	1,446
	Unrealized Appreciation (Depreciation)			715	1,371	674	372	(123)	2	(17)	1,142	(909)
		Change in Net Assets from Operations		714	1,664	1,609	526	(102)	3	(1)	1,509	378

Deposits				302	525	702	166	104	6	64	384	696

Payments and Withdrawals:
	Death Benefits			18	67	37	6	67	-	-	36	90
	Withdrawals			488	994	1,283	858	239	1	364	1,892	2,465
	Administrative Fees			4	7	6	2	2	-	1	9	14
	Transfers (in) out			(665)	(800)	(1,156)	(316)	330	(55)	(24)	133	883
		Payments and Withdrawals		(155)	268	170	550	638	(54)	341	2,070	3,452

Net Assets:
	Net Increase (Decrease)			1,171	1,921	2,141	142	(636)	63	(278)	(177)	(2,378)
	Beginning of Year			4,272	7,087	9,365	3,744	2,211	-	1,717	11,436	17,247

		End of Year	$	5,443	9,008	11,506	3,886	1,575	63	1,439	11,259	14,869

See accompanying Notes to Financial Statements

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 2006
(in thousands)

						JPMorgan Series Trust II			Franklin Templeton Variable Insurance Products Trust
					The Dreyfus					Franklin	Templeton
				Dreyfus	Socially				Franklin	Small-Mid	Developing	Templeton
				Stock	Responsible	US Large Cap	Small	Mid	Real Estate	Cap Growth	Markets	Foreign
				Index	Growth	Core Equity	Company	Cap Value	Fund	Securities	Securities	Securities
				Fund, Inc.	Fund, Inc.	Portfolio	Portfolio	Portfolio	(Class II)	Fund (Class II)	Fund (Class II)	Fund (Class II)

Change in Net Assets from Operations:
	Investment Income (Loss)		$	60	(17)	(9)	(65)	(47)	62	(26)	(14)	(10)
	Realized Gain (Loss)			754	(73)	17	221	308	1,283	103	277	292
	Unrealized Appreciation (Depreciation)			2,372	180	308	420	533	508	49	912	801
		Change in Net Assets from Operations		3,186	90	316	576	794	1,853	126	1,175	1,083

Deposits				1,098	60	124	309	535	629	107	639	383

Payments and Withdrawals:
	Death Benefits			139	4	36	29	48	97	15	42	10
	Withdrawals			4,109	170	220	401	784	1,183	327	362	634
	Administrative Fees			22	2	2	4	4	5	2	4	4
	Transfers (in) out			782	159	(200)	(887)	(1,238)	(467)	194	(2,220)	(755)
		Payments and Withdrawals		5,052	335	58	(453)	(402)	818	538	(1,812)	(107)

Net Assets:
	Net Increase (Decrease)			(768)	(185)	382	1,338	1,731	1,664	(305)	3,626	1,573
	Beginning of Year			25,611	1,438	2,163	3,943	4,696	9,965	1,993	3,289	5,218

		End of Year	$	24,843	1,253	2,545	5,281	6,427	11,629	1,688	6,915	6,791


				Calamos
				Advisors
				Trust	AIM Variable Insurance Funds			Seligman Portfolios, Inc.
								Communications
					V.I. Capital	V.I.	V.I.	and		Smaller-Cap
				Growth and	Appreciation	Technology	Core Equity	Information	Capital	Value
				Income	Fund	Fund	Fund	Portfolio	Portfolio	Portfolio
				Portfolio	(Series I)	(Series I)	(Series I)	(Class II)	(Class II)	(Class II)	Total

Change in Net Assets from Operations:
	Investment Income (Loss)		$	193	(27)	(15)	4	(59)	(50)	(34)	663
	Realized Gain (Loss)			3,710	251	(31)	26	169	91	275	16,271
	Unrealized Appreciation (Depreciation)			(1,451)	(100)	140	158	671	114	222	16,457
		Change in Net Assets from Operations		2,452	124	94	188	781	155	463	33,391

Deposits				1,461	86	106	151	438	249	113	29,982

Payments and Withdrawals:
	Death Benefits			291	26	26	25	39	-	23	1,901
	Withdrawals			4,623	210	107	240	430	586	457	39,480
	Administrative Fees			23	2	2	1	5	4	2	220
	Transfers (in) out			(1,612)	108	(165)	(210)	(418)	26	(127)	1,983
		Payments and Withdrawals		3,325	346	(30)	56	56	616	355	43,584

Net Assets:
	Net Increase (Decrease)			588	(136)	230	283	1,163	(212)	221	19,789
	Beginning of Year			31,323	2,034	949	1,378	3,672	3,701	2,475	264,062

		End of Year	$	31,911	1,898	1,179	1,661	4,835	3,489	2,696	283,851

See accompanying Notes to Financial Statements

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements

1. Organization and Significant Accounting Policies

Organization

Kansas City Life Variable Annuity Separate Account (the Account), marketed as Century II Variable Annuity, Century II Affinity Variable Annuity and Century II Freedom Variable Annuity 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. Under applicable insurance law, the assets and liabilities of the Account are clearly identified and distinguished from KCL’s other assets and liabilities. The portion of the Account’s assets applicable to the variable annuity contracts is not available to service the organizations liabilities arising out of any other business KCL may be conducting.

All deposits received by the Account have been directed by the contract owners into subaccounts that invest in twelve series-type mutual funds, as listed below with each fund’s objective, or into KCL’s Fixed Account.

Series-Type Mutual Fund		Fund Objective

Federated Insurance Series
American Leaders Fund II		Long-term growth of capital and income by investing primarily in common stock of “blue-chip” companies, which are generally top-quality, established growth companies.

High Income Bond Fund II		High current income by investing in high-yield, lower-rated corporate bonds.

Prime Money Fund II		Current income with stability of principal and liquidity by investing in short-term, high-quality fixed income securities.

MFS Variable Insurance Trust
Research Series		Long-term growth of capital by investing in common stock within targeted industries.

Emerging Growth Series		Long-term growth of capital by investing in common stock and related securities of emerging growth companies.

Total Return Series		Income and opportunities for growth of capital and income by investing in a combination of equity and fixed income securities.

Research Bond Series		Total return with its primary emphasis on current income and secondary emphasis on capital appreciation.

Strategic Income Series		Income and capital appreciation by investing in U.S. and foreign fixed income securities.

Utilities Series		Capital growth and current income by investing in equity and debt securities of domestic and foreign companies in the utilities industry.

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

American Century Variable Portfolios
VP Capital Appreciation Fund		Capital growth by investing primarily in common stocks of growing companies.

VP International Fund		Capital growth by investing primarily in common stocks of foreign companies.

VP Value Fund		Long-term capital growth and income by investing primarily in stocks of companies believed to be undervalued.

VP Income & Growth Fund		Capital growth and income by investing primarily in common stocks.

VP Ultra Fund		Long-term capital growth by investing primarily in U.S. large-cap companies.

VP Mid Cap Value Fund		Long-term capital growth and income by investing primarily in stocks of companies believed to be undervalued.

American Century Variable Portfolios II
VP Inflation Protection (Class II)		Long-term total return and protection against U.S. inflation through a portfolio of inflation-indexed bonds primarily issued by the U.S. Treasury, as well as other investment grade bonds.

Dreyfus Variable Investment Fund
Appreciation Portfolio		Long-term capital growth and income by investing in common stocks of large “blue chip” companies.

Developing Leaders Portfolio		Capital growth by primarily investing in securities of small U.S. companies.

Dreyfus Stock Index Funds, Inc.		Match the total return of the Standard & Poor’s (S&P) 500 Composite Stock Price Index by investing in all 500 stocks in the S&P 500 in proportion to their weighting in the index.

The Dreyfus Socially Responsible Growth Fund, Inc.		Capital growth and current income by investing in common stocks of companies that meet traditional investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America.

JPMorgan Series Trust II
U.S. Large Cap Core Equity Portfolio		High total return by investing primarily in large U.S. companies.

Small Company Portfolio		High total return by investing in small companies.

Mid Cap Value Portfolio		Growth from capital appreciation by investing in equity securities of mid-cap companies.

Franklin Templeton Variable Insurance Products Trust
Franklin Global Real Estate Securities Fund (Class II)		Capital appreciation and current income by investing in securities of companies operating in the real estate industry.

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

Franklin Small-Mid Cap Growth Securities Fund (Class II)		Long-term capital growth by investing primarily in equity securities of small and mid-size U.S. companies.

Templeton Developing Markets Securities Fund (ClassII)		Long-term capital appreciation by investing primarily in equity securities of companies in emerging market countries.

Templeton Foreign Securities Fund (Class II)		Long-term capital growth by investing primarily in equity securities of foreign companies.

Calamos Advisors Trust
Growth and Income Portfolio		High long-term total return by investing primarily in convertible, equity and fixed-income securities.

AIM Variable Insurance Funds
V.I. Capital Appreciation Fund (Series I)		Long-term growth of capital by investing in securities of companies that are likely to benefit from changing demographic, economic and lifestyle trends.

V.I. Technology Fund (Series I)		Capital growth by investing broadly in equity securities across the technology universe.

V.I. Core Equity Fund (Series I)		Long-term growth of capital and income by investing in equity securities of companies believed to be undervalued.

Seligman Portfolios, Inc.
Communications and Information Portfolio (Class II)		Capital gain by investing in securities of companies operating in the communications, information and related industries.

Capital Portfolio (Class II)		Capital appreciation by investing primarily in common stocks of medium-sized U.S. companies.

Smaller-Cap Value Portfolio (Class II)		Long-term capital appreciation by investing generally in smaller companies believed to be undervalued.

Fidelity Variable Insurance Products
VIP Contrafund Portfolio		Long Term Capital Appreciation by investing in growth and value stocks.

VIP Freedom Funds – Income		High Total return with preservation of capital by investing fixed income and short term money market funds.

VIP Freedom Funds – 2010		High Total return with preservation of capital by in vesting in fixed income and short term money market funds.

VIP Freedom Funds – 2015		High Total return with preservation of capital by in vesting in fixed income and short term money market funds.

VIP Freedom Funds – 2020		High Total return with preservation of capital by in vesting in fixed income and short term money market funds.

VIP Freedom Funds – 2025		High Total return with preservation of capital by in vesting in fixed income and short term money market funds.

VIP Freedom Funds – 2030		High Total return with preservation of capital by in vesting in fixed income and short term money market funds.

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

Fund Changes

During the year ended December 31, 2007, the following portfolios changed their names as summarized, with the effective date of the change, in the following table:

Prior Portfolio Name	Current Portfolio Name	Effective Date

Franklin Real Estate Fund (Class II)	Franklin Global Real Estate Securities Fund (Class II)	May 1, 2007

During the year ended December 31, 2007, the following portfolios were added as summarized, with the effective date of the change:

Portfolio Name	Effective Date

Fidelity VIP Contrafund Portfolio	May 1, 2007

Fidelity VIP Freedom Funds - Income	May 1, 2007

Fidelity VIP Freedom Funds - 2010	May 1, 2007

Fidelity VIP Freedom Funds - 2015	May 1, 2007

Fidelity VIP Freedom Funds - 2020	May 1, 2007

Fidelity VIP Freedom Funds - 2025	May 1, 2007

Fidelity VIP Freedom Funds - 2030	May 1, 2007

Risks and Uncertainties

Certain risks and uncertainties are inherent to the Account’s day-to-day operations and to the process of preparing its financial statements. The more significant of those risks and uncertainties, as well as the Account’s method for attempting to mitigate the risks, are presented below and throughout the notes to the financial statements.

Financial Statements - The preparation of financial statements on the basis of generally accepted accounting principles in the United States of America (GAAP) requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ from these estimates.

Investments - The Account is exposed to risks that issuers of securities owned by the Series-Type Mutual Funds will default, or that interest rates will change and cause a decrease in the value of the investments. The market value of the investments and their investment performance, including the realization of gains or losses, may vary depending on economic and market conditions. Management attempts to mitigate these risks by offering the investor a variety of investment options, fund prospectuses, quarterly personal investment statements and annual financial statements.

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.

Federal Income Taxes

The Account is treated as part of KCL for federal income tax purposes. Under current interpretations of existing federal income tax law, no income taxes are payable on investment income or capital gains distributions received by the Account from the underlying funds. Any applicable taxes will be the responsibility of contract holders or beneficiaries upon termination or withdrawal.

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

Investment Valuation

Investments in mutual fund shares are carried in the statement of net assets at quoted market value (NAV of the underlying mutual fund). The average cost method is used to determine realized gains and losses. Transactions are recorded on a trade date basis. Income from dividends and gains from realized gains distributions are recorded on the ex-dividend date.

The aggregate cost of purchases and proceeds from sales were as follows:

2007	Cost of Purchases		Proceeds from Sales
	( in thousands)

Federated American Leaders Fund II	$	3,008	$	3,678
Federated High Income Bond Fund II		3,304		2,235
Federated Prime Money Fund II		46,342		43,818
MFS Research Series		1,919		3,256
MFS Emerging Growth Series		1,097		4,026
MFS Total Return Series		3,437		4,475
MFS Research Bond Series		2,859		1,386
MFS Strategic Income Series		1,025		454
MFS Utilities Series		10,816		9,953
American Century VP Capital Appreciation Fund		1,433		1,927
American Century VP International Fund		4,177		3,399
American Century VP Value Fund		5,833		3,677
American Century VP Income & Growth Fund		1,103		1,462
American Century VP Ultra Fund		1,131		588
American Century VP Mid Cap Value Fund		201		59
American Century VP Inflation Protection Fund (Class II)		1,127		467
Dreyfus Appreciation Portfolio		1,535		3,675
Dreyfus Developing Leaders Portfolio		3,334		4,785
Dreyfus Stock Index Fund, Inc.		5,705		7,260
The Dreyfus Socially Responsible Growth Fund, Inc.		161		309
JPMorgan U.S. Large Cap Core Equity Portfolio		999		778
JPMorgan Small Company Portfolio		2,163		1,943
JPMorgan Mid Cap Value Portfolio		3,486		2,617
Franklin Global Real Estate Securities Fund (Class II)		4,548		5,964
Franklin Small-Mid Cap Growth Securities Fund (Class II)		415		466
Templeton Developing Markets Securities Fund (Class II)		4,245		2,882
Templeton Foreign Securities Fund (Class II)		3,314		2,341
Calamos Growth and Income Portfolio		8,711		10,438
AIM V.I. Capital Appreciation Fund (Series I)		263		700
AIM V.I. Technology Fund (Series I)		374		291
AIM V.I. Core Equity Fund (Series I)		657		456

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

2007 (Continued)	Cost of Purchases		Proceeds from Sales
	( in thousands)

Seligman Communications and Information Portfolio (Class II)	$	1,088	$	1,363
Seligman Capital Portfolio (Class II)		989		1,307
Seligman Smaller-Cap Value Portfolio (Class II)		1,462		1,112
Fidelity VIP Contrafund Portfolio		2,752		294
Fidelity VIP Freedom Funds - Income		66		1
Fidelity VIP Freedom Funds - 2010		186		1
Fidelity VIP Freedom Funds - 2015		829		9
Fidelity VIP Freedom Funds - 2020		1,688		265
Fidelity VIP Freedom Funds - 2025		204		41
Fidelity VIP Freedom Funds - 2030		417		26

2006	Cost of Purchases		Proceeds from Sales
	( in thousands)

Federated American Leaders Fund II	$	3,304	$	3,601
Federated High Income Bond Fund II		2,368		2,388
Federated Prime Money Fund II		33,853		31,987
MFS Research Series		1,875		2,993
MFS Emerging Growth Series		1,901		3,541
MFS Total Return Series		3,258		4,798
MFS Research Bond Series		1,008		1,742
MFS Strategic Income Series		574		550
MFS Utilities Series		7,333		6,787
American Century VP Capital Appreciation Fund		1,349		962
American Century VP International Fund		2,324		2,055
American Century VP Value Fund		3,644		2,273
American Century VP Income & Growth Fund		876		1,243
American Century VP Ultra Fund		367		928
American Century Mid Cap Value Fund		64		4
American Century VP Inflation Protection Fund (Class II)		459		706
Dreyfus Capital Appreciation Portfolio		1,528		3,191
Dreyfus Developing Leaders Portfolio		3,351		4,912
Dreyfus Stock Index Fund, Inc.		3,137		7,031
The Dreyfus Socially Responsible Growth Fund, Inc.		120		412
JPMorgan U.S. Large Cap Core Equity Portfolio		560		504
JPMorgan Small Company Portfolio		1,782		962
JPMorgan Mid Cap Value Portfolio		2,514		1,499

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

2006 (Continued)	Cost of Purchases		Proceeds from Sales
	( in thousands)

Franklin Global Real Estate Securities Fund (Class II)	$	3,569	$	2,868
Franklin Small-Mid Cap Growth Securities Fund (Class II)		205		662
Templeton Developing Markets Securities Fund (Class II)		4,097		1,659
Templeton Foreign Securities Fund (Class II)		2,225		1,745
Calamos Growth and Income Portfolio		9,541		8,746
AIM V.I. Capital Appreciation Fund (Series I)		496		567
AIM V.I. Technology Fund (Series I)		418		296
AIM V.I. Core Equity Fund (Series I)		511		412
Seligman Communications and Information Portfolio (Class II)		1,321		998
Seligman Capital Portfolio (Class II)		639		1,057
Seligman Smaller-Cap Value (Class II)		862		908

2. Contract Charges

Century II Variable Annuity and Century II Affinity Variable Annuity

Mortality and expense risks assumed by KCL are compensated for by a fee equivalent to an annual rate of 1.25% of the asset value of the subaccounts of each contract of which 0.70% is for assuming mortality risks and 0.55% is for expense risk. Additionally, KCL is compensated for administrative expenses by a charge based on an annual rate of 0.15% of the asset value of each contract. These charges are assessed for each subaccount through the reduction of unit values.

KCL deducts an administrative fee of $30 per year for each contract under $50,000. Other fees are deducted from each contract when certain events occur, such as the seventh fund transfer in a contract year. These fees are assessed through the reduction of units from the contract.

When applicable, an amount for state premium taxes is deducted as provided by pertinent state law upon surrender.

For the Century II Variable Annuity, a contingent deferred sales charge is assessed against certain withdrawals during the first seven years of the contract, declining from 7% in the first three years to 2% in the seventh year. For the Century II Affinity Variable Annuity, a contingent deferred sales charge is assessed against certain withdrawals during the first eight years of the contract, declining from 8% in the first two years to 2% in the eighth year. During 2007, $456,000 (2006 - $596,000) was assessed in surrender charges and other contract charges, primarily annual administrative fees, totaled $4,247,000 (2006 - $3,890,000).

Century II Freedom Annuity

Mortality and expense risks assumed by KCL are compensated for by a fee equivalent to an annual rate of 1.40% of the asset value of the subaccounts of each contract. Additionally, KCL is compensated for administrative expenses by a charge based on an annual rate of 0.25% of the asset value of each contract. These charges are assessed for each subaccount through the reduction of unit values.

When applicable, an amount for state premium taxes is deducted as provided by pertinent state law upon surrender.

For the Century II Freedom Variable Annuity, no contingent deferred sales charge nor surrender charges are assessed. During 2007, $131,000 (2006 - $102,000) was assessed in other contract charges.

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

The Mortality and Expense Risk Fees and other Administrative Charges for the year are as follows:

2007:	Century II Variable Annuity		Freedom Variable Annuity		Total Variable Annuity
	(in thousands)

Federated American Leaders Fund II	$	157	$	1	$	158
Federated High Income Bond Fund II		100		8		108
Federated Prime Money Fund II		103		9		112
MFS Research Series		188		2		190
MFS Emerging Growth Series		201		2		203
MFS Total Return Series		231		15		246
MFS Research Bond Series		75		2		77
MFS Strategic Income Series		23		1		24
MFS Utilities Series		496		18		514
American Century VP Capital Appreciation Fund		89		2		91
American Century VP International Fund		140		3		143
American Century VP Value Fund		165		9		174
American Century VP Income & Growth Fund		51		4		55
American Century VP Ultra Fund		25		-		25
American Century VP Mid Cap Value Fund		2		1		3
American Century VP Inflation Protection Fund (Class II)		19		3		22
Dreyfus Appreciation Portfolio		147		1		148
Dreyfus Developing Leaders Portfolio		179		1		180
Dreyfus Stock Index Fund, Inc.		342		7		349
The Dreyfus Socially Responsible Growth Fund, Inc.		17		-		17
JPMorgan U.S. Large Cap Core Equity Portfolio		40		1		41
JPMorgan Small Company Portfolio		73		3		76
JPMorgan Mid Cap Value Portfolio		95		5		100
Franklin Global Real Estate Securities Fund (Class II)		133		7		140
Franklin Small-Mid Cap Growth Securities Fund (Class II)		24		-		24
Templeton Developing Markets Securities Fund (Class II)		111		5		116
Templeton Foreign Securities Fund (Class II)		102		4		106
Calamos Growth and Income Portfolio		435		12		447
AIM V.I. Capital Appreciation Fund (Series I)		25		-		25
AIM V.I. Technology Fund (Series I)		17		1		18
AIM V.I. Core Equity Fund (Series I)		26		-		26
Seligman Communications and Information Portfolio (Class II)		71		2		73
Seligman Capital Portfolio (Class II)		49		-		49
Seligman Smaller-Cap Value Portfolio (Class II)		40		1		41
Fidelity VIP Contrafund Portfolio		7		3		10
Fidelity VIP Freedom Funds - Income		-		-		-
Fidelity VIP Freedom Funds - 2010		1		-		1
Fidelity VIP Freedom Funds - 2015		2		-		2
Fidelity VIP Freedom Funds - 2020		4		-		4
Fidelity VIP Freedom Funds - 2025		1		-		1
Fidelity VIP Freedom Funds - 2030		1		-		1

	$	4,007	$	133	$	4,140

Kansas City Life Variable Annuity Separate Account

Notes to Financial Statements (continued)

3. Change in Units Outstanding

The changes in units outstanding for the year were as follows:

2007:	Units Purchased		Units Redeemed		Net Increase (Decrease)
			(in thousands)

Federated American Leaders Fund II		70		151		(81	)
Federated High Income Bond Fund II		167		123		44
Federated Prime Money Fund II		3,668		3,485		183
MFS Research Series		87		147		(60	)
MFS Emerging Growth Series		52		183		(131	)
MFS Total Return Series		106		175		(69	)
MFS Research Bond Series		165		79		86
MFS Strategic Income Series		66		29		37
MFS Utilities Series		206		235		(29	)
American Century VP Capital Appreciation Fund		80		103		(23	)
American Century VP International Fund		173		138		35
American Century VP Value Fund		391		291		100
American Century VP Income & Growth Fund		115		154		(39	)
American Century VP Ultra Fund		84		43		41
American Century VP Mid Cap Value Fund		17		5		12
American Century VP Inflation Protection Fund (Class II)		97		42		55
Dreyfus Appreciation Portfolio		81		210		(129	)
Dreyfus Developing Leaders Portfolio		90		280		(190	)
Dreyfus Stock Index Fund, Inc.		303		398		(95	)
The Dreyfus Socially Responsible Growth Fund, Inc.		5		10		(5	)
JPMorgan U.S. Large Cap Core Equity Portfolio		57		43		14
JPMorgan Small Company Portfolio		93		90		3
JPMorgan Mid Cap Value Portfolio		168		137		31
Franklin Global Real Estate Securities Fund (Class II)		145		249		(104	)
Franklin Small-Mid Cap Growth Securities Fund (Class II)		35		52		(17	)
Templeton Developing Markets Securities Fund (Class II)		132		106		26
Templeton Foreign Securities Fund (Class II)		98		78		20
Calamos Growth and Income Portfolio		334		548		(214	)
AIM V.I. Capital Appreciation Fund (Series I)		48		119		(71	)
AIM V.I. Technology Fund (Series I)		99		78		21
AIM V.I. Core Equity Fund (Series I)		79		53		26
Seligman Communications and Information Portfolio (Class II)		122		142		(20	)
Seligman Capital Portfolio (Class II)		122		162		(40	)
Seligman Smaller-Cap Value Portfolio (Class II)		62		58		4
Fidelity VIP Contrafund Portfolio		216		27		189
Fidelity VIP Freedom Funds - Income		6		-		6
Fidelity VIP Freedom Funds - 2010		18		-		18
Fidelity VIP Freedom Funds - 2015		78		1		77
Fidelity VIP Freedom Funds - 2020		156		24		132
Fidelity VIP Freedom Funds - 2025		19		4		15
Fidelity VIP Freedom Funds - 2030		39		3		36

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. Financial Highlights

A summary of unit values and units outstanding for variable annuity contracts, net assets, net investment income ratios, total return ratios, and the expense ratios, excluding expenses of the underlying funds and expenses charged through the redemption of units, for each of the five years in the period ended December 31, 2007, follows.

						For the Year Ended
	At December 31, 2007					December 31, 2007

		Unit Fair Value			Net	Investment a	Expense Ratio b			Total Return c
	Units	Lowest to			Assets	Income	Lowest to			Lowest to
	(000's)	Highest			(000's)	Ratio	Highest			Highest

Federated American Leaders Fund II	440	$ 14.811	to	$ 21.595	$ 9,458	1.51%	1.40%	to	1.65%	-11.15%	to	-10.93%
Federated High Income Bond Fund II	457	14.361	to	17.544	7,820	7.41	1.40	to	1.65	1.73%	to	1.99%
Federated Prime Money Fund II	728	10.519	to	13.137	9,434	4.65	1.40	to	1.65	3.09%	to	3.34%
MFS Research Series	612	18.474	to	21.962	13,417	0.68	1.40	to	1.65	11.34%	to	11.62%
MFS Emerging Growth Series	626	19.494	to	22.675	14,187	0.00	1.40	to	1.65	19.18%	to	19.48%
MFS Total Return Series	693	14.588	to	24.485	16,360	2.58	1.40	to	1.65	2.50%	to	2.76%
MFS Research Bond Series	391	11.730	to	16.943	6,527	3.17	1.40	to	1.65	2.50%	to	2.75%
MFS Strategic Income Series	142	12.321	to	14.853	2,084	4.25	1.40	to	1.65	1.99%	to	2.24%
MFS Utilities Series	832	31.869	to	46.730	38,325	0.94	1.40	to	1.65	25.79%	to	26.11%
American Century VP Capital Appreciation Fund	352	20.817	to	25.716	7,346	0.00	1.40	to	1.65	43.41%	to	43.76%
American Century VP International Fund	447	23.075	to	25.487	11,360	0.65	1.40	to	1.65	16.12%	to	16.41%
American Century VP Value Fund	1,092	10.704	to	16.616	11,867	1.50	1.40	to	1.65	-6.70%	to	-6.46%
American Century VP Income & Growth Fund	403	8.378	to	16.993	3,479	1.95	1.40	to	1.65	-1.71%	to	-1.46%
American Century VP Ultra Fund	172	14.212	to	14.377	2,466	0.00	1.40	to	1.65	19.02%	to	19.32%
American Century VP Mid Cap Value Fund	18	10.600	to	10.645	192	0.77	1.40	to	1.65	-3.91%	to	-3.67%
American Century VP Inflation Protection Fund (Class II)	192	11.253	to	11.383	2,181	4.41	1.40	to	1.65	7.72%	to	8.00%
Dreyfus Appreciation Portfolio	562	15.831	to	17.214	9,674	1.62	1.40	to	1.65	5.37%	to	5.64%
Dreyfus Developing Leaders Portfolio	701	13.405	to	14.643	10,264	0.79	1.40	to	1.65	-12.52%	to	-12.30%
Dreyfus Stock Index Fund, Inc.	1,394	17.116	to	17.312	24,130	1.71	1.40	to	1.65	3.52%	to	3.79%
The Dreyfus Socially Responsible Growth Fund, Inc.	42	15.475	to	28.618	1,190	0.53	1.40	to	1.65	6.01%	to	6.28%
JPMorgan U.S. Large Cap Core Equity Portfolio	169	15.943	to	16.415	2,775	1.07	1.40	to	1.65	-0.01%	to	0.24%
JPMorgan Small Company Portfolio	264	18.478	to	18.796	4,952	0.01	1.40	to	1.65	-7.22%	to	-6.99%
JPMorgan Mid Cap Value Portfolio	393	17.753	to	17.960	7,060	0.86	1.40	to	1.65	0.77%	to	1.02%
Franklin Global Real Estate Securities Fund (Class II)	340	18.358	to	20.655	7,010	2.47	1.40	to	1.65	-22.16%	to	-21.97%
Franklin Small-Mid Cap Growth Securities Fund (Class II)	203	8.256	to	18.321	1,690	0.00	1.40	to	1.65	9.41%	to	9.68%
Templeton Developing Markets Securities Fund (Class II)	338	27.742	to	37.461	9,518	2.32	1.40	to	1.65	26.67%	to	26.98%
Templeton Foreign Securities Fund (Class II)	267	22.930	to	31.705	8,353	1.97	1.40	to	1.65	13.56%	to	13.84%
Calamos Growth and Income Portfolio	1,616	16.277	to	18.783	30,234	1.34	1.40	to	1.65	7.08%	to	7.35%
AIM V.I. Capital Appreciation Fund (Series I)	285	5.832	to	17.643	1,663	0.00	1.40	to	1.65	10.17%	to	10.45%
AIM V.I. Technology Fund (Series I)	433	2.946	to	17.728	1,352	0.00	1.40	to	1.65	5.93%	to	6.20%
AIM V.I. Core Equity Fund (Series I)	246	8.019	to	16.434	1,980	1.20	1.40	to	1.65	6.34%	to	6.61%
Seligman Communications and Information Portfolio (Class II)	584	8.932	to	22.957	5,287	0.00	1.40	to	1.65	13.22%	to	13.51%
Seligman Capital Portfolio (Class II)	452	8.094	to	19.104	3,678	0.00	1.40	to	1.65	14.34%	to	14.62%
Seligman Smaller-Cap Value Portfolio (Class II)	158	17.700	to	17.906	2,836	0.00	1.40	to	1.65	2.25%	to	2.50%
Fidelity VIP Contrafund Portfolio d	189	11.037	to	11.055	2,088	1.34	1.40	to	1.65	10.37%	to	10.55%
Fidelity VIP Freedom Funds - Income d	6	10.189	to	10.206	64	8.32	1.40	to	1.65	1.89%	to	2.06%
Fidelity VIP Freedom Funds - 2010 d	18	10.250	to	10.268	180	8.25	1.40	to	1.65	2.50%	to	2.68%
Fidelity VIP Freedom Funds - 2015 d	77	10.270	to	10.287	797	7.16	1.40	to	1.65	2.70%	to	2.87%
Fidelity VIP Freedom Funds - 2020 d	132	10.288	to	10.305	1,364	6.80	1.40	to	1.65	2.88%	to	3.05%
Fidelity VIP Freedom Funds - 2025 d	15	10.299	to	10.316	156	3.38	1.40	to	1.65	2.99%	to	3.16%
Fidelity VIP Freedom Funds - 2030 d	36	10.316	to	10.333	375	6.72	1.40	to	1.65	3.16%	to	3.33%

a The investment income ratio represents the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average daily net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

b These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.

c These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented.

d This fund was added effective May 1, 2007.


KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

						For the Year Ended
	At December 31, 2006					December 31, 2006

		Unit Fair Value			Net	Investment a	Expense Ratio b			Total Return c
	Units	Lowest to			Assets	Income	Lowest to			Lowest to
	(000's)	Highest			(000's)	Ratio	Highest			Highest

Federated American Leaders Fund II	521	$ 16.670	to	$ 24.244	$ 12,584	1.54%	1.40%	to	1.65%	14.90%	to	15.19%
Federated High Income Bond Fund II	413	14.117	to	17.203	7,068	8.54	1.40	to	1.65	9.00%	to	9.27%
Federated Prime Money Fund II	545	10.204	to	12.712	6,911	4.45	1.40	to	1.65	2.80%	to	3.06%
MFS Research Series	672	16.592	to	19.675	13,196	0.51	1.40	to	1.65	8.67%	to	8.95%
MFS Emerging Growth Series	757	16.357	to	18.978	14,360	0.00	1.40	to	1.65	6.13%	to	6.40%
MFS Total Return Series	762	14.232	to	23.828	17,542	2.37	1.40	to	1.65	10.07%	to	10.34%
MFS Research Bond Series	305	11.444	to	16.489	4,995	4.37	1.40	to	1.65	2.35%	to	2.60%
MFS Strategic Income Series	105	12.081	to	14.528	1,523	5.12	1.40	to	1.65	4.93%	to	5.19%
MFS Utilities Series	861	25.335	to	37.055	31,583	2.01	1.40	to	1.65	29.12%	to	29.44%
American Century VP Capital Appreciation Fund	375	14.480	to	17.932	5,443	0.00	1.40	to	1.65	15.31%	to	15.59%
American Century VP International Fund	412	19.872	to	21.895	9,008	1.54	1.40	to	1.65	22.99%	to	23.29%
American Century VP Value Fund	992	11.443	to	17.809	11,506	1.33	1.40	to	1.65	16.72%	to	17.01%
American Century VP Income & Growth Fund	442	8.502	to	17.289	3,886	1.89	1.40	to	1.65	15.18%	to	15.46%
American Century VP Ultra Fund	131	11.940	to	12.049	1,575	0.00	1.40	to	1.65	-4.85%	to	-4.62%
American Century VP Mid Cap Value Fund d	6	11.032	to	11.050	63	1.57	1.40	to	1.65	10.32%	to	10.50%
American Century VP Inflation Protection (Class II)	137	10.447	to	10.540	1,439	3.32	1.40	to	1.65	-0.05%	to	0.20%
Dreyfus Appreciation Portfolio	691	15.024	to	16.296	11,259	1.61	1.40	to	1.65	14.58%	to	14.86%
Dreyfus Developing Leaders Portfolio	891	15.324	to	16.697	14,869	0.41	1.40	to	1.65	2.08%	to	2.33%
Dreyfus Stock Index Fund, Inc.	1,489	16.534	to	16.681	24,843	1.65	1.40	to	1.65	13.61%	to	13.90%
The Dreyfus Socially Responsible Growth Fund, Inc.	47	14.598	to	26.927	1,253	0.11	1.40	to	1.65	7.42%	to	7.69%
JPMorgan U.S. Large Cap Core Equity Portfolio	155	15.945	to	16.375	2,545	0.98	1.40	to	1.65	14.67%	to	14.96%
JPMorgan Small Company Portfolio	261	19.917	to	20.208	5,281	0.00	1.40	to	1.65	13.13%	to	13.41%
JPMorgan Mid Cap Value Portfolio	362	17.618	to	17.779	6,427	0.56	1.40	to	1.65	14.93%	to	15.22%
Franklin Real Estate Fund (Class II)	444	23.585	to	26.471	11,629	2.01	1.40	to	1.65	18.62%	to	18.91%
Franklin Small-Mid Cap Growth Securities Fund (Class II)	220	7.527	to	16.745	1,688	0.00	1.40	to	1.65	6.92%	to	7.19%
Templeton Developing Markets Securities Fund (Class II)	312	21.847	to	29.575	6,915	1.12	1.40	to	1.65	26.00%	to	26.31%
Templeton Foreign Securities Fund (Class II)	247	20.192	to	27.849	6,791	1.24	1.40	to	1.65	19.46%	to	19.76%
Calamos Growth and Income Portfolio	1,830	15.201	to	17.497	31,911	2.01	1.40	to	1.65	7.66%	to	7.93%
AIM V. I. Capital Appreciation Fund (Series I)	356	5.280	to	16.014	1,898	0.06	1.40	to	1.65	6.04%	to	6.30%
AIM V. I. Technology Fund (Series I)	412	2.774	to	16.735	1,179	0.00	1.40	to	1.65	8.68%	to	8.95%
AIM V. I. Core Equity Fund (Series I)	220	7.522	to	15.455	1,661	1.63	1.40	to	1.65	13.36%	to	13.65%
Seligman Communications and Information Portfolio (Class II)	604	7.869	to	20.276	4,835	0.00	1.40	to	1.65	20.02%	to	20.32%
Seligman Capital Portfolio (Class II)	492	7.061	to	16.708	3,489	0.00	1.40	to	1.65	4.08%	to	4.34%
Seligman Smaller-Cap Value Portfolio (Class II)	154	17.311	to	17.469	2,696	0.00	1.40	to	1.65	19.01%	to	19.31%

a The investment income ratio represents the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average daily net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

b These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.

c These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented.

d This fund was added effective May 1, 2006.

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

						For the Year Ended
	At December 31, 2005					December 31, 2005

		Unit Fair Value			Net	Investment a	Expense Ratio b			Total Return c
	Units	Lowest to			Assets	Income	Lowest to			Lowest to
	(000's)	Highest			(000's)	Ratio	Highest			Highest

Federated American Leaders Fund II	606	$ 14.508	to	$ 21.048	$ 12,730	1.53%	1.40%	to	1.65%	3.31%	to	3.57%
Federated High Income Bond Fund II	444	12.952	to	15.744	6,959	8.16	1.40	to	1.65	0.98%	to	1.23%
Federated Prime Money Fund II	410	9.926	to	12.334	5,044	2.63	1.40	to	1.65	1.01%	to	1.27%
MFS Research Series	725	15.268	to	18.060	13,083	0.47	1.40	to	1.65	6.04%	to	6.31%
MFS Emerging Growth Series	837	15.412	to	17.837	14,910	0.00	1.40	to	1.65	7.41%	to	7.68%
MFS Total Return Series	860	12.930	to	21.594	18,101	2.03	1.40	to	1.65	1.14%	to	1.39%
MFS Research Bond Series	362	11.182	to	16.071	5,789	4.99	1.40	to	1.65	-0.14%	to	0.11%
MFS Strategic Income Series	109	11.514	to	13.811	1,487	6.91	1.40	to	1.65	0.22%	to	0.47%
MFS Utilities Series	881	19.621	to	28.626	25,032	0.61	1.40	to	1.65	14.93%	to	15.22%
American Century VP Capital Appreciation Fund	340	12.526	to	15.552	4,272	0.00	1.40	to	1.65	20.07%	to	20.37%
American Century VP International Fund	399	16.158	to	17.758	7,087	1.18	1.40	to	1.65	11.41%	to	11.68%
American Century VP Value Fund	945	9.780	to	15.258	9,365	0.81	1.40	to	1.65	3.32%	to	3.58%
American Century VP Income & Growth Fund	499	7.364	to	15.011	3,744	1.81	1.40	to	1.65	2.92%	to	3.18%
American Century VP Ultra Fund	175	12.549	to	12.632	2,211	0.00	1.40	to	1.65	0.50%	to	0.75%
American Century VP Inflation Protection (Class II)	163	10.452	to	10.520	1,717	4.28	1.40	to	1.65	-0.09%	to	0.16%
Dreyfus Appreciation Portfolio	806	13.113	to	14.187	11,436	0.02	1.40	to	1.65	2.67%	to	2.93%
Dreyfus Developing Leaders Portfolio	1,058	15.012	to	16.317	17,247	0.00	1.40	to	1.65	4.07%	to	4.33%
Dreyfus Stock Index Fund, Inc.	1,749	14.552	to	14.646	25,611	1.60	1.40	to	1.65	2.98%	to	3.24%
The Dreyfus Socially Responsible Growth Fund, Inc.	58	13.590	to	25.005	1,438	0.00	1.40	to	1.65	1.92%	to	2.18%
JPMorgan U.S. Large Cap Core Equity Portfolio	152	13.905	to	14.245	2,163	1.24	1.40	to	1.65	-0.30%	to	-0.06%
JPMorgan Small Company Portfolio	221	17.605	to	17.819	3,943	0.00	1.40	to	1.65	1.73%	to	1.98%
JPMorgan Mid Cap Value Portfolio	304	15.329	to	15.430	4,696	0.17	1.40	to	1.65	7.43%	to	7.70%
Franklin Real Estate Fund (Class II)	454	19.884	to	22.261	9,965	1.36	1.40	to	1.65	11.62%	to	11.90%
Franklin Small-Mid Cap Growth Securities Fund (Class II)	274	7.022	to	15.661	1,993	0.00	1.40	to	1.65	3.08%	to	3.33%
Templeton Developing Markets Securities Fund (Class II)	188	17.296	to	23.472	3,289	1.30	1.40	to	1.65	25.35%	to	25.66%
Templeton Foreign Securities Fund (Class II)	226	16.903	to	23.254	5,218	1.16	1.40	to	1.65	8.37%	to	8.64%
Calamos Growth and Income Portfolio	1,938	14.119	to	16.211	31,323	2.36	1.40	to	1.65	5.40%	to	5.66%
AIM V. I. Capital Appreciation Fund (Series I)	407	4.967	to	15.103	2,034	0.00	1.40	to	1.65	4.47%	to	4.73%
AIM V. I. Technology Fund (Series I)	364	2.546	to	15.399	949	0.00	1.40	to	1.65	0.51%	to	0.76%
AIM V. I. Core Equity Fund (Series I)	208	6.619	to	13.633	1,378	0.75	1.40	to	1.65	3.93%	to	4.19%
Seligman Communications and Information Portfolio (Class II)	552	6.540	to	16.894	3,672	0.00	1.40	to	1.65	5.77%	to	6.03%
Seligman Capital Portfolio (Class II)	545	6.767	to	16.053	3,701	0.00	1.40	to	1.65	10.37%	to	10.65%
Seligman Smaller-Cap Value Portfolio (Class II)	169	14.545	to	14.641	2,475	0.17	1.40	to	1.65	-5.69%	to	-5.46%

a The investment income ratio represents the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average daily net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

b These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.

c These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented.

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

						For the Year Ended
	At December 31, 2004					December 31, 2004

		Unit Fair Value			Net	Investment a	Expense Ratio b			Total Return c
	Units	Lowest to			Assets	Income	Lowest to			Lowest to
	(000's)	Highest			(000's)	Ratio	Highest			Highest

Federated American Leaders Fund II	672	$ 14.043	to	$ 20.323	$ 13,632	1.41%	1.40%	to	1.65%	7.98%	to	8.25%
Federated High Income Bond Fund II	478	12.826	to	15.552	7,413	7.36	1.40	to	1.65	8.65%	to	8.92%
Federated Prime Money Fund II	497	9.826	to	12.180	6,050	0.79	1.40	to	1.65	-0.84%	to	-0.59%
MFS Research Series	798	14.398	to	16.988	13,537	1.07	1.40	to	1.65	13.95%	to	14.24%
MFS Emerging Growth Series	998	14.349	to	16.565	16,515	0.00	1.40	to	1.65	11.11%	to	11.39%
MFS Total Return Series	848	12.785	to	21.297	17,681	1.67	1.40	to	1.65	9.49%	to	9.77%
MFS Bond Series	397	11.198	to	16.054	6,306	5.63	1.40	to	1.65	4.32%	to	4.59%
MFS Strategic Income Series	101	11.488	to	13.746	1,381	5.17	1.40	to	1.65	5.96%	to	6.23%
MFS Utilities Series	845	17.072	to	24.845	20,919	1.46	1.40	to	1.65	28.06%	to	28.38%
American Century VP Capital Appreciation Fund	371	10.406	to	12.952	3,869	0.00	1.40	to	1.65	5.82%	to	6.08%
American Century VP International Fund	447	14.504	to	15.900	7,102	0.54	1.40	to	1.65	13.04%	to	13.32%
American Century VP Value Fund	738	9.442	to	14.768	7,070	0.94	1.40	to	1.65	12.46%	to	12.74%
American Century VP Income and Growth Fund	403	7.137	to	14.585	2,956	1.38	1.40	to	1.65	11.14%	to	11.42%
American Century VP Inflation Protection Fund (Class II)	146	10.462	to	10.503	1,529	3.35	1.40	to	1.65	4.08%	to	4.34%
American Century VP Ultra Fund	124	12.487	to	12.538	1,552	0.00	1.40	to	1.65	8.86%	to	9.13%
Dreyfus Appreciation Portfolio	905	12.771	to	13.784	12,477	1.68	1.40	to	1.65	3.32%	to	3.58%
Dreyfus Developing Leaders Portfolio	1,208	14.424	to	15.639	18,880	0.20	1.40	to	1.65	9.51%	to	9.79%
Dreyfus Stock Index Fund, Inc.	1,996	14.131	to	14.186	28,310	1.83	1.40	to	1.65	8.83%	to	9.10%
The Dreyfus Socially Responsible Growth Fund, Inc	74	13.333	to	24.472	1,815	0.37	1.40	to	1.65	4.47%	to	4.73%
JPMorgan Large Cap Core Equity Portfolio	168	13.947	to	14.253	2,393	0.76	1.40	to	1.65	7.69%	to	7.96%
JPMorgan Small Company Portfolio	170	17.306	to	17.472	2,961	0.00	1.40	to	1.65	25.08%	to	25.40%
JPMorgan Mid Cap Value Portfolio	154	14.269	to	14.327	2,213	0.22	1.40	to	1.65	19.07%	to	19.37%
Franklin Real Estate Fund (Class II)	385	17.813	to	19.893	7,592	1.89	1.40	to	1.65	29.64%	to	29.97%
Franklin Small Cap Fund (Class II)	346	6.796	to	15.194	2,445	0.00	1.40	to	1.65	9.65%	to	9.92%
Templeton Developing Markets Securities Fund (Class II)	90	13.764	to	18.725	1,292	1.72	1.40	to	1.65	22.67%	to	22.97%
Templeton Foreign Securities Fund (Class II)	175	15.597	to	21.404	3,717	1.02	1.40	to	1.65	16.58%	to	16.88%
Calamos Growth and Income Portfolio	1,941	13.395	to	15.342	29,705	1.28	1.40	to	1.65	9.28%	to	9.55%
AIM V. I. Dent Demographic Trends Fund (Series I)	447	4.743	to	14.456	2,133	0.00	1.40	to	1.65	6.48%	to	6.74%
AIM V. I. Technology Fund (Series I)	401	2.527	to	15.321	1,087	0.00	1.40	to	1.65	2.96%	to	3.22%
AIM V. I. Premier Equity Fund (Series I)	270	6.353	to	13.117	1,714	0.45	1.40	to	1.65	4.04%	to	4.30%
Seligman Small Cap Value Portfolio (Class II)	145	15.423	to	15.487	2,240	0.10	1.40	to	1.65	17.64%	to	17.94%
Seligman Communications and Information Portfolio (Class II)	570	6.168	to	15.973	3,604	0.00	1.40	to	1.65	9.04%	to	9.31%
Seligman Capital Portfolio (Class II)	613	6.116	to	14.545	3,762	0.00	1.40	to	1.65	6.53%	to	6.79%

a The investment income ratio represents the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average daily net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

b These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.

c These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented.

KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

						For the Year Ended
	At December 31, 2003					December 31, 2003

		Unit Fair Value			Net	Investment a	Expense Ratio b			Total Return e f
	Units	Lowest to			Assets	Income	Lowest to			Lowest to
	(000's)	Highest			(000's)	Ratio	Highest			Highest

Federated American Leaders Fund II	705	$ 13.006	to	$ 18.774	$ 13,218	1.53%	1.40%	to	1.65%	25.92%	to	30.06%
Federated High Income Bond Fund II	508	11.805	to	14.278	7,249	7.13	1.40	to	1.65	18.05%	to	20.52%
Federated International Small Company Fund II c	-	6.354	to	13.980	-	0.00	1.40	to	1.65	37.48%	to	39.80%
Federated Prime Money Fund II	623	9.909	to	12.252	7,628	0.70	1.40	to	1.65	-0.91%	to	-0.71%
MFS Research Series	961	12.635	to	14.871	14,289	0.67	1.40	to	1.65	22.97%	to	26.35%
MFS Emerging Growth Series	1,066	12.914	to	14.872	15,837	0.00	1.40	to	1.65	28.42%	to	29.14%
MFS Total Return Series	820	11.676	to	19.402	15,859	1.73	1.40	to	1.65	14.71%	to	16.76%
MFS Bond Series	418	10.734	to	15.350	6,389	5.71	1.40	to	1.65	7.34%	to	7.82%
MFS Strategic Income Series	115	10.842	to	12.940	1,480	5.33	1.40	to	1.65	8.42%	to	8.85%
MFS Utilities Series	861	13.331	to	19.352	16,642	2.32	1.40	to	1.65	33.31%	to	34.01%
American Century VP Capital Appreciation Fund	392	9.809	to	12.240	3,851	0.00	1.40	to	1.65	18.80%	to	22.40%
American Century VP International Fund	505	12.831	to	14.031	7,087	0.74	1.40	to	1.65	22.78%	to	28.31%
American Century VP Value Fund	572	8.375	to	13.132	4,840	1.01	1.40	to	1.65	27.17%	to	31.32%
American Century VP Income & Growth Fund	390	6.405	to	13.123	2,518	1.25	1.40	to	1.65	27.56%	to	31.23%
American Century VP Inflation Protection Fund (Class II) d	50	10.052	to	10.066	508	1.92	1.40	to	1.65	0.52%	to	0.66%
American Century VP Ultra Fund d	54	11.471	to	11.489	620	0.00	1.40	to	1.65	14.71%	to	14.89%
Dreyfus Appreciation Portfolio	907	12.361	to	13.307	12,069	1.46	1.40	to	1.65	19.49%	to	23.61%
Dreyfus Developing Leaders Portfolio	1,215	13.171	to	14.245	17,295	0.03	1.40	to	1.65	29.86%	to	31.71%
Dreyfus Stock Index Fund, Inc.	1,942	12.985	to	13.003	25,247	1.51	1.40	to	1.65	26.58%	to	29.85%
The Dreyfus Socially Responsible Growth Fund, Inc	91	12.763	to	23.367	2,129	0.11	1.40	to	1.65	24.25%	to	27.63%
JPMorgan Large Cap Core Equity Portfolio	184	12.951	to	13.202	2,427	0.73	1.40	to	1.65	26.36%	to	29.51%
JPMorgan Small Company Portfolio	139	13.836	to	13.934	1,938	0.00	1.40	to	1.65	34.09%	to	38.36%
JPMorgan Mid Cap Value Portfolio d	49	11.983	to	12.002	588	0.00	1.40	to	1.65	19.83%	to	20.02%
Franklin Real Estate Fund (Class II)	251	13.740	to	15.306	3,812	2.46	1.40	to	1.65	33.86%	to	37.40%
Franklin Small Cap Fund (Class II)	202	6.182	to	13.857	1,329	0.00	1.40	to	1.65	35.34%	to	38.57%
Templeton Developing Markets Securities Fund (Class II)	62	11.192	to	15.265	728	0.90	1.40	to	1.65	50.87%	to	52.65%
Templeton Foreign Securities Fund (Class II)	134	13.378	to	18.314	2,451	1.72	1.40	to	1.65	30.38%	to	33.78%
Calamos Growth and Income Portfolio	1,416	12.258	to	14.005	19,799	3.32	1.40	to	1.65	22.58%	to	24.01%
AIM V. I. Dent Demographic Trends Fund (Series I)	419	4.443	to	13.577	1,863	0.00	1.40	to	1.65	35.56%	to	35.77%
AIM V. I. New Technology Fund (Series I)	346	2.448	to	14.881	901	0.00	1.40	to	1.65	48.81%	to	50.27%
AIM V. I. Premier Equity Fund (Series I)	312	6.091	to	12.608	1,899	0.32	1.40	to	1.65	23.34%	to	26.08%
Seligman Small Cap Value Portfolio (Class II) d	29	13.110	to	13.131	384	1.82	1.40	to	1.65	31.10%	to	31.31%
Seligman Communications and Information Portfolio (Class II)	451	5.643	to	14.648	2,586	0.00	1.40	to	1.65	42.05%	to	46.48%
Seligman Capital Portfolio (Class II)	553	5.727	to	13.654	3,172	0.00	1.40	to	1.65	33.87%	to	36.54%

a The investment income ratio represents the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average daily net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

b These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.

c Unit value and total return as of 11/21/2003, fund liquidated on 11/21/2003.

d Fund inception date May 14, 2003.

e These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented.

f Total returns represent a period of less than one year as a new product was added.

Report of Independent Registered Public Accounting Firm

The Contract Owners

Kansas City Life Variable Annuity Separate Account

and

The Board of Directors and Stockholders

Kansas City Life Insurance Company:

We have audited the accompanying statement of net assets of Kansas City Life Variable Annuity Separate Account (the Account) (comprised of individual subaccounts as listed in note 1 to the financial statements) as of December 31, 2007, and the related statement of operations for the period or year then ended; the statements of changes in net assets for each of the periods or years in the two-year period then ended, and financial highlights for each of the periods or years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Account’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the subaccounts of Kansas City Life Variable Annuity Separate Account as of December 31, 2007, the results of its operations for the period or year then ended; the changes in its net assets for each of the periods or years in the two-year period then ended, and financial highlights for each of the periods or years in the five-year period then ended in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Kansas City, Missouri

April 7, 2008

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements included in the SAI.

(b) Exhibits:

(1)	Resolutions of the board of directors of Kansas City Life Insurance Company ("Kansas City Life") establishing Kansas City Life Variable Annuity Separate Account (the "Variable Account"). (1)

(2)	Not Applicable.

(3)	Underwriting Agreement between Kansas City Life and Sunset Financial Services, Inc. ("Sunset Financial"). (2)

(4)	(a) Contract Form. (8)

(b) Bonus Endorsement M465. (8)

(d) Form of GMWB Rider and Schedule Pages (10)

(5)	Contract Application. (8)

(6)	(a) Restated Articles of Incorporation of Kansas City Life. (1)

(b) By-Laws of Kansas City Life. (6)

(7)	Not Applicable.

(8)	(a) Form of Participation Agreement with MFS Variable Insurance Trust. (2)

(b) Form of Participation Agreement with TCI Portfolios, Inc. (2)

(d) Agreement between Kansas City Life Insurance Company and each of Dreyfus Variable Investment Fund, The Dreyfus Socially Responsible Growth Fund, Inc., and Dreyfus Life and Annuity Index Fund, Inc. (5)

(e) Agreement between Kansas City Life Insurance Company and J. P. Morgan Series Trust II. (3)

(f) Amended and Restated agreement between Kansas City Life Insurance Company and each of Calamos Advisors Trust, Calamos Asset management, Inc. and Calamos Financial Services, Inc. (4)

(g) Form of Participation Agreement between Kansas City Life Insurance Company and each of Franklin Templeton Variable Insurance Products Trust and Franklin Templeton Distributors, Inc. (3)

(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). (3)

(i) Revised Exhibit B to Fund Participation Agreement between Kansas City Life Insurance Company, Insurance Management Series, and Federated Securities Corp, Federated American Leaders Fund II, Federated High Income Fund II, Federated Prime Money Fund II and Federated International Small Company Fund II. (7)

(j) Form of Participation Agreement by and among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., and Kansas City Life Insurance Company. (7)

(k) Form of Fund Participation Agreement between Kansas City Life Insurance Company and Seligman Portfolios, Inc. and Seligman Advisors, Inc. (7)

(l) Form of Fund Participation Agreement between Kansas City Life Insurance Company, Fidelity Distributors Corporation, and each of Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable Insurance Products Fund III and Variable Insurance Products Fund IV. (9)

(m) Rule 22c-2 Agreement between AIM Investment Services, Inc. and Kansas City Life Insurance Company dated June 2, 2006. (9)

(n) Rule 22c-2 Agreement between American Century Investment Services, Inc. and Kansas City Life Insurance Company dated June 28, 2006. (9)

(o) Rule 22c-2 Agreement between Calamos Financial Services, LLC. and Kansas City Life Insurance Company dated April 16, 2007. (9)

(p) Rule 22c-2 Agreement between Dreyfus Service Corporation and Kansas City Life Insurance Company dated September 19, 2006. (9)

(q) Rule 22c-2 Agreement between Federated Securities Corp.,("FSC") and Kansas City Life Insurance Company dated March 7, 2007. (9)

(r) Rule 22c-2 Agreement between Franklin Templeton Variable Insurance Products Trust and Kansas City Life Insurance Company dated April 16, 2007. (9)

(s) Rule 22c-2 Agreement between J.P. Morgan Series Trust II and Kansas City Life Insurance Company dated March 5, 2007. (9)

(t) Rule 22c-2 Agreement between MFS Fund Distributors, Inc. ("MFD") and Kansas City Life Insurance Company dated September 19, 2006. (9)

(u) Rule 22c-2 Agreement between Seligman Group of Funds and Kansas City Life Insurance Company dated April 3, 2007. (9)

(9)	Opinion and Consent of Counsel. (11)

(10)	(a) Consent of Sutherland Asbill & Brennan LLP. (11)

(b) Consent of KPMG LLP. (11)

(11)	Not Applicable.

(12)	Not Applicable.

----------------

(1) Incorporated by reference to the Registrant's registration statement filed with the Securities and Exchange Commission on March 3, 1995 (File No. 33-89984).

(2) Incorporated by reference to the Registrant's Pre-Effective Amendment No.1 to its Registration statement filed with the Securities and Exchange Commission on August 25, 1995 (File No. 33-89984).

(3) Incorporated by reference to the Form S-6 Registration Statement (File No. 033-95354) for Kansas City Life Variable Life Separate Account filed on April 19, 1999.

(4) Incorporated by reference to the Form S-6 Registration Statement (File No. 333-25443) for Kansas City Life Variable Life Separate Account filed on April 30, 1999.

(5) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement (File No. 333-25443) for Kansas City Variable Life Separate Account filed on July 15, 1997.

(6) Incorporated herein by reference to the Form S-6 Registration Statement filed with the Securities and Exchange Commission on October 31, 2000 (File No. 333-49000).

(7) Incorporated herein by reference to the Registrant's Post-Effective Amendment No. 7 to its Registration Statement filed with the Securities and Exchange Commission on August 28, 2000 (File No. 33-89984).

(8) Incorporated herein by reference to the Form N-4 Registration Statement (File No. 333-52290) for Kansas City Life Variable Separate Account filed on December 20, 2000.

(9) Incorporated herein by reference to the Post-Effective Amendment No. 17 to the Registration Statement on Form N-6 for Kansas City Life Variable Life Separate Account filed with the Securities and Exchange Commission on April 30, 2007 (File No. 033-95354).

(10) Incorporated herein by reference to Registrant’s Post-Effective Amendment No. 15 to the Registration Statement on Form N-4 (File No. 33-89984) filed on May 22, 2007.

(11) Filed herewith.

Item 25. Directors and Officers of the Depositor

Name and Principal Business Address*	Position and Offices with Depositor
R. Philip Bixby	President, CEO, Chairman of the Board and Director
Walter E. Bixby	Vice Chairman of the Board and Director
William R. Blessing	Director
Michael Braude	Director
Charles R. Duffy, Jr.	Senior Vice President, Operations
Richard L. Finn	Director
Webb R. Gilmore	Director
Nancy Bixby Hudson	Director
Kathleen A. Hunzicker, M.D	Vice President and Medical Director
Daryl D. Jensen	Director
Tracy W. Knapp	Senior Vice President, Finance and Director
David A. Laird	Vice President and Controller
Mary M. McCalla	Treasurer
Cecil R. Miller	Director
Robert J. Milroy	Vice President, Underwriting and New Business
Mark A. Milton	Senior Vice President and Actuary
Bradford T. Nordholm	Director
William A. Schalekamp	Senior Vice President, General Counsel, Secretary and Director
Larry Winn, Jr.	Director

* The principal business address of all the persons listed above is 3520 Broadway, Kansas City, Missouri 64111-2565.

Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant

Name	Jurisdiction	Percent of Voting Securities Owned
Sunset Life Insurance Company of America	Washington	Ownership of all voting securities by depositor
Sunset Financial Services, Inc.	Washington	Ownership of all voting securities by Sunset Insurance Company of America
KCL Service Company	Missouri	Ownership of all voting securities by depositor
Old American Insurance Company	Missouri	Ownership of all voting securities by depositor
Kansas City Life Financial Group, Inc.	Missouri	Ownership of all voting securities by depositor

Item 27. Number of Contractowners

472 Owners as of March 26, 2008.

Item 28. Indemnification

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, partner ship, 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 contend ere 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.

3. To the extent that a Director, Officer or employee of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the action, suit or proceeding.

4. Any indemnification under Sections 1 and 2 of this Article, unless ordered by a court, shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, Officer or employee is proper in the circumstances because he or she has met the applicable standard of conduct set forth in this Article. The determination shall be made by the Board of Directors of the Company by a majority vote of a quorum consisting of Directors who were not parties to the action, suit or proceeding, or, if such a quorum is not obtainable, or, even if

obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or by the Stockholders of the Company.

5. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of the action, suit or proceeding as authorized by the Board of Directors in the specific case up on receipt of an undertaking by or on behalf of the Director, Officer or employee to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the Company as authorized in this Article.

6. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the Articles of Incorporation or Bylaws, or any agreement, vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person.

7. The Company shall have the power to give any further indemnity, in addition to the indemnity authorized or contemplated under this Article, including subsection 6, to any person who is or was a Director, Officer, employee or agent of the Company, or to any person who is or was serving at the request of the Company as a Director, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, provided such further indemnity is either (i) authorized, directed, or provided for in the Articles of Incorporation of the Company or any duly adopted amendment thereof or (ii) is authorized, directed, or provided for in any bylaw or agreement of the Company which has been adopted by a vote of the Stockholders of the Company, and provided further that no such indemnity shall indemnify any person from or on account of such person's conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest, or willful misconduct . Nothing in this paragraph shall be deemed to limit the power of the Company under subsection 6 of this Bylaw to enact Bylaws or to enter into agreement without Stockholder adoption of the same.

8. The Company may purchase and maintain insurance on behalf of any person who is or was a Director, Officer, employee or agent of the Company, or is or was serving at the request of the Company as a Director, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of this Article.

9. For the purpose of this Article, references to "the Company" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a Director, Officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a Director, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity.

10. For purposes of this Article, the term "other enterprise" shall include employee benefit plans; the term "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and the term "serving at the request of the Company" shall include any service as a Director, Officer or employee of the Company which imposes duties on, or involves services by, such Director, Officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonable believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Article.

11. Any Director, Officer or employee of the Company shall be indemnified under this Article for any act taken in good faith and upon reliance upon the books and records of the Company, upon financial statements or other reports prepared by the Officers of the Company, or on financial statements prepared by the Company's independent accountants, or on information or documents prepared or provided by legal counsel to the Company.

12. To the extent that the indemnification of Officers, Directors or employees as permitted under Section 351.355 (as amended or superseded) of The General and Business Corporation Law of Missouri, as in effect from time to time, provides for greater indemnification of those individuals than the provisions of this Article XII, then the Company shall indemnify its Directors, Officers, employees as provided in and to the full extent allowed by Section 351.355.

13. The indemnification provided by this Article shall continue as to a person who has ceased to be a Director or Officer of the Company and shall inure to the benefit of the heirs, executors, and administrators of such a person. All rights to

indemnification under this Article shall be deemed to be provided by a contract between the Company and the person who serves in such capacity at any time while these Bylaws and other relevant provisions of the applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing.

14. If this Article or any portion or provision hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each person entitled to indemnification pursuant too this Article to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or to the fullest extent provided by any other applicable law.

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 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.

Item 29. Principal Underwriter

(a) Sunset Financial Services, Inc. is the registrant's principal underwriter.

(b) Officers and Directors of Sunset Financial:

Name and Principal Business Address*	Positions and Offices with Sunset Financial Services, Inc.
R. Philip Bixby	Chairman of the Board and Director
Walter E. Bixby	Director
Janice L. Brandt	Assistant Vice President
Susanna J. Denney	Vice President
Charles R. Duffy, Jr.	Director
Gary K. Hoffman	Assistant Secretary and Director
Kim Kirkman	Assistant Vice President
Donald E. Krebs	Vice President and Director
David A. Laird	Treasurer
A. Craig Mason	Secretary
Dustin S. Meza	Assistant Vice President
Bruce Oberdling	President and Director
Kristen Peil	Assistant Vice President
Kelly T. Ullom	Vice President

* The principal business address of all of the persons listed above is P.O. Box 219365, Kansas City, Missouri, 64121-9365.

(c) Compensation from the Registrant. The following commissions and other compensation were received by each principal underwriter, directly or indirectly, from the Registrant during the Registrant's last fiscal year:

(1) Name of Principal Underwriter	(2) Net Underwriting Discounts and Commissions	(3) Compensation on Redemption	(4) Brokerage Commissions	(5) Other Compensation
Sunset Financial Services, Inc.	$2,800,860.00	None	N/A	N/A

Item 30. Location of Accounts and Records

All of the accounts, books, records or other documents required to be kept by Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are maintained by Kansas City Life at 3520 Broadway, Kansas City, Missouri 64111-2565.

Item 31. Management Services

All management contracts are discussed in Part A or Part B of this registration statement.

Item 32. Undertakings and Representations

(a) The registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for as long as purchase payments under the policies offered herein are being accepted.

(b) The registrant undertakes that it will include either (1) as part of any application to purchase a policy offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove and send to Kansas City Life for a Statement of Additional Information.

(c) The registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request to Kansas City Life at the address or phone number listed in the prospectus.

(d) Kansas City Life represents that in connection with its offering of the policies as funding vehicles for retirement plans meeting the requirements of Section 403(b) of the Internal Revenue Code of 1986, it is relying on a no-action letter dated November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, and that paragraphs numbered (1) through (4) of that letter will be complied with.

(e) Kansas City Life Insurance Company hereby represents that the fees and charges deducted under the Contracts described in this post-effective amendment are, in the aggregate, reasonable in relationship to the services rendered, the expenses expected to be incurred, and the risks assumed by Kansas City Life Insurance Company.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Kansas City Life Variable Annuity Separate Account, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has duly caused this Post-Effective Amendment No. 11 to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be here unto affixed and attested, all in the City of Kansas City and the State of Missouri on the 30th day of April, 2008.

	Kansas City Life Variable Annuity Separate Account
	(Registrant)


(SEAL)	By: /s/ R. Philip Bixby R. Philip Bixby, President, CEO, Chairman of the Board and Director


	Kansas City Life Insurance Company
	(Depositor)


Attest: /s/ William A. Schalekamp William A. Schalekamp	By: /s/ R. Philip Bixby R. Philip Bixby, President, CEO, Chairman of the Board and Director

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 11 to the Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated.

Signature	Title	Date

/s/ R. Philip Bixby R. Philip Bixby	President, CEO, Chairman of the Board and Director (Principal Executive Officer)	April 30, 2008

/s/ Tracy W. Knapp Tracy W. Knapp	Senior Vice President, Finance and Director (Principal Financial Officer)	April 30, 2008

/s/ David A. Laird David A. Laird	Vice President and Controller (Principal Accounting Officer)	April 30, 2008

/s/ Walter E. Bixby Walter E. Bixby	Vice Chairman of the Board and Director	April 30, 2008

/s/ William R. Blessing William R. Blessing	Director	April 30, 2008

/s/ Michael Braude Michael Braude	Director	April 30, 2008

______________________________ Richard L. Finn	Director	April 30, 2008

______________________________ Webb R. Gilmore	Director	April 30, 2008

______________________________ Nancy Bixby Hudson	Director	April 30, 2008

______________________________ Daryl D. Jensen	Director	April 30, 2008

/s/ Cecil R. Miller Cecil R. Miller	Director	April 30, 2008

______________________________ Bradford T. Nordholm	Director	April 30, 2008

/s/ William A. Schalekamp William A. Schalekamp	Director	April 30, 2008

/s/ E. Larry Winn, Jr. E. Larry Winn, Jr.	Director	April 30, 2008

EXHIBIT INDEX

Exhibit 9

Opinion and Consent of Counsel.

Exhibit 10(a)

Consent of Sutherland Asbill & Brennan LLP.

Exhibit 10(b)

Consent of KPMG LLP.

Street Address:	Send correspondence to:
3520 Broadway	Variable Administration
Kansas City, Missouri 64111-2565	P.O. Box 219364
Telephone (816) 753-7000	Kansas City, Missouri 64121-9364
	Telephone (800) 616-3670

DEFINITIONS	1
HIGHLIGHTS	3
THE CONTRACT	3
CHARGES AND DEDUCTIONS	5
ANNUITY PROVISIONS	6
FEDERAL TAX STATUS	6
FEE TABLE	7
OWNER TRANSACTION EXPENSES	7
PERIODIC CHARGES OTHER THAN PORTFOLIO EXPENSES	7
RANGE OF PORTFOLIO OPERATING EXPENSES	8
ANNUAL PORTFOLIO OPERATING EXPENSES	8
EXAMPLE OF CHARGES	13
CONDENSED FINANCIAL INFORMATION	14
KANSAS CITY LIFE, THE VARIABLE ACCOUNT AND THE FUNDS	14
KANSAS CITY LIFE INSURANCE COMPANY	14
KANSAS CITY LIFE VARIABLE ANNUITY SEPARATE ACCOUNT	14
THE FUNDS	15
RESOLVING MATERIAL CONFLICTS	19
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS	20
VOTING RIGHTS	20
DESCRIPTION OF THE CONTRACT	20
PURCHASING A CONTRACT	21
REPLACEMENT OF CONTRACTS	21
FREE-LOOK PERIOD	21
ALLOCATION OF PREMIUMS	22
DETERMINATION OF CONTRACT VALUE	22
VARIABLE ACCOUNT VALUE	22
TRANSFER PRIVILEGE	24
DOLLAR COST AVERAGING PLAN	26
PORTFOLIO REBALANCING PLAN	26
PARTIAL AND FULL CASH SURRENDERS	27
CONTRACT TERMINATION	28
CONTRACT LOANS	28
DEATH BENEFIT BEFORE MATURITY DATE	29
PROCEEDS ON MATURITY DATE	31
PAYMENTS	32
MODIFICATIONS	32
REPORTS TO CONTRACT OWNER	33
TELEPHONE, FACSIMILE ELECTRONIC MAIL AND INTERNET AUTHORIZATIONS	33
OPTIONAL RIDERS	34
FIVE PLUSSM GUARANTEED MINIMUM WITHDRAWAL BENEFIT	34
THE FIXED ACCOUNT	46
MINIMUM GUARANTEED AND CURRENT INTEREST RATES	47
CALCULATION OF FIXED ACCOUNT VALUE	47
TRANSFERS FROM FIXED ACCOUNT	47
DELAY OF PAYMENT	47
CHARGES AND DEDUCTIONS	47
SURRENDER CHARGE	47
TRANSFER PROCESSING FEE	49

Annuitant	The person on whose life the Contract’s annuity benefit is based.

Beneficiary	The person you designate to receive any Proceeds payable under the Contract at your death or the death of the Annuitant.

Cash Surrender Value	The Contract Value less any applicable surrender charge, loan balance and premium taxes payable.

Contract Date	The date from which Contract Months, Years, and Anniversaries are measured.

Contract Value	The sum of the Variable Account Value and the Fixed Account Value.

Contract Year	Any period of twelve months starting with the Contract Date or any contract anniversary.

Fixed Account	An account that is one option we offer for allocation of your premiums. It is part of our general account and is not part of, or dependent on, the investment performance of the Variable Account.

Fixed Account Value	Measure of value accumulating in the Fixed Account.

Guaranteed Minimum Death Benefit Option	This Contract provides for a Base Guaranteed Minimum Death Benefit. In addition, there are two enhanced death benefit options available under the Contract. The two options provide different levels of death benefit guarantees. The two options have different issue requirements and expense charges associated with them. These Guaranteed Minimum Death Benefit options are available only in the states where we have received regulatory approval.

Home Office	When the term "Home Office" is used in this Prospectus in connection with transactions under the Contract, it means our Variable Administration office. Transaction requests and other types of Written Notices should be sent to P.O. Box 219364, Kansas City, Missouri 64121-9364. The telephone number at our Variable Administration office is 800-616-3670.

Issue Age	The Annuitant's age on his/her last birthday as of or on the Contract Date.

Life Payment Option	A payment option based upon the life of the Annuitant.

Maturity Date	The date when the Contract terminates and we either pay the Proceeds under a payment option or pay you the Cash Surrender Value in a lump sum. The latest Maturity Date is the later of the contract anniversary following the Annuitant's 85th birthday and the tenth contract anniversary. (Certain states and Qualified Contracts may place additional restrictions on the maximum Maturity Date.)

Monthly Anniversary Day	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.

Non-Life Payment Option	A payment option that is not based upon the life of the Annuitant.

Non-Qualified Contract	A Contract that is not a "Qualified Contract."

Owner	The person entitled to exercise all rights and privileges provided in the Contract. The terms "you" and "your" refer to the Owner.

Premium Year	Refers to the 12-month period following the date we credit a particular premium to your Contract. This measure of time is important in calculating the surrender charge applicable to the Contract.

Proceeds	The total amount we are obligated to pay under the terms of the Contract.

Qualified Contract	A Contract issued in connection with plans that qualify for special federal income tax treatment under sections 401, 403, 408 or 408A of the Internal Revenue Code of 1986, as amended.

Subaccount	The divisions of the Variable Account. The assets of each Subaccount are invested in a Portfolio of a designated Fund.

Valuation Day	Each day the New York Stock Exchange is open for business.

Valuation Period	The interval of time beginning at the close of normal trading on the New York Stock Exchange on one Valuation Day and ending at the close of normal trading on the New York Stock Exchange on the next Valuation Day. Currently, the close of normal trading is 3:00 P.M. Central Time. The term "Valuation Period" is used in this Prospectus to specify, among other things, when a transaction order or request is deemed to be received by us at our Variable Administration office.

Variable Account Value	The Variable Account Value is equal to the sum of all Subaccount Values of a Contract.

Written Notice/Written Request	A Written Notice or Written Request in a form satisfactory to us that is signed by the Owner and received at the Home Office.

Sales Load on Premium Payments	None
Maximum Surrender Charge (as a % of each premium payment withdrawn or Annuitized under a Non-Life Payment Option1)	8%
Transfer Processing Fee	No fee for the first 6 transfers in a Contract Year; $25 for each additional transfer during a Contract Year

ADMINISTRATIVE CHARGES	49
MORTALITY AND EXPENSE RISK CHARGE	49
MONTHLY GUARANTEED MINIMUM DEATH BENEFIT EXPENSE CHARGE	49
PREMIUM TAXES	50
REDUCED CHARGES FOR ELIGIBLE GROUPS	50
OTHER TAXES	50
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE FUNDS	50
PAYMENT OPTIONS	50
ELECTION OF OPTIONS	51
DESCRIPTION OF OPTIONS	51
YIELDS AND TOTAL RETURNS	52
YIELDS	52
TOTAL RETURNS	52
FEDERAL TAX STATUS	53
INTRODUCTION	53
TAXATION OF NON-QUALIFIED CONTRACTS	53
TAXATION OF QUALIFIED CONTRACTS	54
POSSIBLE TAX LAW CHANGES	55
FEDERAL ESTATE TAXES	55
GENERATION-SKIPPING TRANSFER TAX	55
ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS	56
FOREIGN TAX CREDITS	56
SALE OF THE CONTRACTS	56
LEGAL PROCEEDINGS	57
COMPANY HOLIDAYS	57
CHANGE OF ADDRESS NOTIFICATION	57
FINANCIAL STATEMENTS	57
APPENDIX A - CONDENSED FINANCIAL INFORMATION	58
APPENDIX B - GMWB RIDER EXAMPLES	66
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS	73

Premium Years since payment of the Premium	1	2	3	4	5	6	7	8	9+
Charge (%)	8	8	7	6	5	4	3	2	0

Premium Years Since Payment of Premium	1	2	3	4	5	6	7	8	9+
Charge (%)	8	8	7	6	5	4	3	2	0

Annual Administration Fee	$30 per Contract Year2
Loan Interest Charge	5.00%3
Variable Account Annual Expenses (as a % of average annual Variable Account Value)
Under Standard Death Benefit: Mortality and Expense Risk Charge Asset-Based Administration Charge Total Variable Account Annual Expenses	1.25% 0.15% 1.40%
Optional Rider Charges
Guaranteed Minimum Death Benefit Expense Charge (as a percentage of average annual Variable Account Value)
Base Guaranteed Minimum Death Benefit Option	0.00%
Annual Ratchet Guaranteed Minimum Death Benefit Option (optional)	0.20%
Enhanced Combination Guaranteed Minimum Death Benefit Option (optional)	0.35%
FIVE PlusSM Guaranteed Minimum Withdrawal Benefit	0.10% Multiplied by Guaranteed Withdrawal Balance4

	Minimum		Maximum
Total Annual Portfolio Operating Expenses (total of all expenses that are deducted from Portfolio assets, including management fees, distribution or service fees (12b-1 fees), and other expenses-before any contractual waiver of fees and expenses)	0.27%		1.73%6

Portfolio	Management Fees	12b-1/ Service Fees	Other Expenses	Acquired Fund Fees and Expenses	Total Portfolio Annual Operating Expenses	Contractual Fee Waiver or Expense Reimbursement	Total Portfolio Annual Operation Expenses After Reimbursement
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund (Series I Shares)	0.61%	NA	0.27%	0.00%8	0.88%9	NA10	NA
AIM V.I. Core Equity Fund (Series I Shares)	0.60%	NA	0.28%	0.02%8	0.90%9	0.01%10	0.89%
AIM V.I Technology Fund (Series I Shares)	0.75%	NA	0.35%	0.01%8	1.11%9	NA10	NA

1 year	3 years	5 years	10 years
$1,144.88	$1,911.61	$2,594.57	$4,333.93

Moderate Aggressive
Allocation	Subaccount
14%	American Century VP Value Fund
14%	MFS Research Bond Series (Service Class)
12%	Dreyfus Stock Index Fund
11%	American Century VP International Fund
8%	Templeton Foreign Securities Fund (Class 2)
7%	American Century VP Inflation Protection Fund (Class II)
7%	JPMorgan Mid Cap Value Portfolio
7%	JPMorgan Small Company Portfolio
6%	Seligman Capital Portfolio (Class 2)
4%	Fidelity VIP Contrafund Portfolio
4%	Franklin Global Real Estate Fund (Class 2)
3%	American Century VP Ultra® Fund
3%	Templeton Developing Markets Securities Fund (Class 2)

Moderate
Allocation	Subaccount
17%	MFS Research Bond Series (Service Class)
13%	American Century VP Value Fund
12%	Dreyfus Stock Index Fund
10%	American Century VP Inflation Protection Fund (Class II)
8%	American Century VP International Fund
8%	MFS Strategic Income Series (Service Class)
7%	Templeton Foreign Securities Fund (Class 2)
5%	JPMorgan Mid Cap Value Portfolio
4%	Fidelity VIP Contrafund Portfolio
4%	Seligman Capital Portfolio (Class 2)
3%	Federated Prime Money Fund II
3%	Franklin Global Real Estate Fund (Class 2)
3%	JPMorgan Small Company Portfolio
3%	Templeton Developing Markets Securities (Class 2)

Moderate Conservative
Allocation	Subaccount
23%	MFS Research Bond Series (Service Class)
14%	MFS Strategic Income Series (Service Class)
13%	American Century VP Inflation Protection Fund (Class II)
13%	American Century VP Value Fund
8%	Dreyfus Stock Index Fund
7%	American Century VP International Fund
6%	Federated Prime Money Fund II
5%	Templeton Foreign Securities Fund (Class 2)
4%	Fidelity VIP Contrafund Portfolio
4%	Seligman Capital Portfolio (Class 2)
3%	JPMorgan Mid Cap Value Portfolio

Conservative
Allocation	Subaccount
33%	MFS Research Bond Series (Service Class)
21%	MFS Strategic Income Series (Service Class)
17%	American Century VP Inflation Protection Fund (Class II)
9%	American Century VP Value Fund
9%	Federated Prime Money Fund II
5%	American Century VP International Fund
3%	Dreyfus Stock Index Fund
3%	Fidelity VIP Contrafund Portfolio

Indexed Strategy
Allocation	Subaccount
65%	Dreyfus Stock Index Fund
35%	MFS Research Bond Series (Service Class)

If:	Then the GMWB Rider:
the Covered Person is no longer alive	· Does not continue with respect to the Lifetime Income Amount, but continues with respect to the Guaranteed Withdrawal Amount if the death benefit or the Guaranteed Withdrawal Balance is greater than zero. We will automatically step-up the Guaranteed Withdrawal Balance to equal the death benefit on the date it is determined, if the death benefit on that date is greater than the Guaranteed Withdrawal Balance. · Enters the settlement phase if a withdrawal would reduce the Contract Value to zero, and the Guaranteed Withdrawal Balance is still greater than zero. · Continues to impose the GMWB Rider charge. · Continues to be eligible for any remaining bonuses and step-ups. We will permit the spouse to opt out of the initial death benefit step-up, if any, and any future step-ups if we would increase the rate of the GMWB Rider charge at that time.
the Covered Person is alive (e.g. if the Beneficiary is the Covered Person)	· Continues with respect to the Lifetime Income Amount for the Beneficiary. If the Lifetime Income Amount has not been determined prior to the payment of the death benefit, we will determine the initial Lifetime Income Amount on the first anniversary after the Covered Person has reached age 65. · Continues with respect to the Guaranteed Withdrawal Amount if the death benefit or the Guaranteed Withdrawal Balance is greater than zero. We will automatically step-up the Guaranteed Withdrawal Balance to equal the death benefit on the date it is determined, if the death benefit on that date is greater than the Guaranteed Withdrawal Balance. · Enters the settlement phase if a withdrawal would reduce the Contract Value to zero, and either the Lifetime Income Amount or the Guaranteed Withdrawal Balance is still greater than zero. · Continues to impose the GMWB Rider charge. · Continues to be eligible for any remaining bonuses and step-ups. We will permit the spouse to opt out of the initial death benefit step-up, if any, and any future step-ups if we would increase the rate of the GMWB Rider charge at that time.

During Premium Year*
Year	1	2	3	4	5	6	7	8	9+
Percentage	8%	8%	7%	6%	5%	4%	3%	2%	0%

	No. of Units as of	Unit Value as of		No. of Units as of	Unit Value as of		No. of Units as of	Unit Value as of		No. of Units as of	Unit Value as of
	12-31-07	12-31-07	1-1-07	12-31-06	12-31-06	1-1-06	12-31-05	12-31-05	1-1-05	12-31-04	12-31-04	1-1-04
AIM Variable Insurance Funds
V.I. Capital Appreciation Fund (Series I Shares)	284,300	5.83	5.27	354,234	5.28	5.06	405,102	4.96	4.70	445,418	4.74	4.43
V.I. Core Equity Fund (Series I Shares)	244,534	8.02	7.52	218,697	7.52	6.73	208,170	6.61	6.28	269,776	6.35	6.07
V.I. Technology Fund (Series I Shares)	427,420	2.95	2.79	409,396	2.77	2.60	362,068	2.55	2.50	395,445	2.53	2.44
American Century Variable Portfolios, Inc.
VP Capital Appreciation Fund	347,993	20.82	14.45	370,692	14.48	12.82	336,991	12.53	10.25	367,882	10.40	9.78
VP Income & Growth Fund	391,267	8.38	8.46	427,071	8.50	7.49	489,495	7.36	7.06	393,185	7.13	6.39
VP International Fund	438,043	25.49	22.09	405,253	21.89	18.34	395,745	17.75	15.90	444,884	15.90	14.20
VP Mid Cap Value Fund	17,114	10.65	11.07	5,668	11.05	NA	NA	NA	NA	NA	NA	NA
VP Ultra Fund	167,063	14.38	12.06	129,797	12.05	12.78	172,910	12.63	12.40	121,995	12.53	11.46
VP Value Fund	1,060,538	10.70	11.47	966,387	11.44	9.89	923,129	9.78	9.35	717,567	9.44	8.35
American Century Variable Portfolios II, Inc.
VP Inflation Protection Fund (Class II)	171,412	11.38	10.57	119,508	10.54	10.54	123,617	10.51	10.49	96,325	10.50	10.02
Calamos Advisors Trust
Growth and Income Portfolio	1,570,694	18.78	17.51	1,782,879	17.50	16.44	1,891,453	16.21	15.16	1,899,592	15.34	14.01
Dreyfus Variable Investment Fund
Appreciation Portfolio - Initial Shares	558,844	17.21	16.24	688,824	16.30	14.43	802,286	14.18	13.69	901,300	13.78	13.28
Developing Leaders Portfolio - Initial Shares	698,757	14.64	16.71	885,851	16.70	16.57	1,049,610	16.31	15.39	1,198,446	15.64	14.30

Contract Year	Premiums	Guaranteed Withdrawal Amount	Lifetime Income Amount	Withdrawal Taken	Bonus	Guaranteed Withdrawal Balance
1	$100,000	$5,000A	N/A	$0	$5,000B	$100,000A
2	0	5,250	N/A	0	5,000	105,000C
3	0	5,500	N/A	0	5,000	110,000
4	0	5,750	N/A	0	5,000	115,000
5	0	6,000	N/A	0	5,000	120,000
6	0	6,250	N/A	0	5,000	125,000
7	0	6,500	N/A	0	5,000	130,000
8	0	6,750	N/A	0	5,000	135,000
9	0	7,000	N/A	0	5,000	140,000
10	0	7,250	N/A	0	5,000	145,000
11	0	7,500	$7,500D	7,500	0	150,000
12	0	7,500	7,500	7,500	0	142,500
13	0	7,500	7,500	7,500	0	135,000
14	0	7,500	7,500	7,500	0	127,500
15	0	7,500	7,500	7,500	0	120,000
20	0	7,500	7,500	7,500	0	82,500
25	0	7,500	7,500	7,500	0	45,000
30	0	7,500	7,500	7,500	0	7,500
31	0	0	7,500	7,500	0	0

To:	Kansas City Life Insurance Company
	Variable Administration Department
	P.O. Box 219364
	Kansas City, Missouri 64121-9364

Name:___________________________________________________________________________________________

Address:_________________________________________________________________________________________

City:_________________________________________	State:_________________________		Zip:_____________

Signature of Requestor:__________________________________________________________		Date:____________