<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
REGISTRATION NOS. 2-38512
811-2125
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
/ / THE SECURITIES ACT OF 1933
------------------------
/ / PRE-EFFECTIVE AMENDMENT NO.
/X/ POST-EFFECTIVE AMENDMENT NO. 35
AND/OR
REGISTRATION STATEMENT
/ / UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 35
EQUITRUST SERIES FUND, INC.
(FORMERLY FBL SERIES FUND, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
5400 UNIVERSITY AVENUE (515) 225-5586
WEST DES MOINES, IOWA 50266 (Registrant's Telephone Number,
(Address of Principal Executive including Area Code)
Offices) (Zip Code)
STEPHEN M. MORAIN, ESQUIRE COPY TO:
5400 UNIVERSITY AVENUE James A. Arpaia, Esquire
WEST DES MOINES, IOWA 50266 Vedder, Price, Kaufman & Kammholz
(Name and Address of Agent 222 North LaSalle Street
for Service) Chicago, IL 60601
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on December 1, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post- effective amendment
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<PAGE>
EQUITRUST SERIES FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
N-1A
ITEM NO. CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
PART A INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Summary; Summary of Expenses
3. Condensed Financial Information Financial Highlights; Performance Information
4. General Description of Registrant Organization of the Fund; Investment Objectives and
Policies of the Portfolios; Description of Certain
Investment Techniques; Principal Risk Factors
5. Management of the Fund Management of the Fund; General Information
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities General Information; Organization of the Fund;
Dividends and Taxes
7. Purchase of Securities Being Offered How to Buy Shares
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
PART B INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Organization of the Fund (Part A)
13. Investment Objectives and Policies Investment Objectives, Policies and Techniques;
Investment Restrictions
14. Management of the Fund Officers and Directors; Investment Adviser;
Underwriting and Distribution Expenses
15. Control Persons and Principal Holders of Securities Other Information
16. Investment Advisory and Other Services Investment Adviser; Other Information; Underwriting
and Distribution Expenses
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage Commissions
18. Capital Stock and Other Securities Shareholder Voting Rights
19. Purchase, Redemption and Pricing of Securities Being
Offered Purchase and Redemptions; Net Asset Value
20. Tax Status Taxes
21. Underwriters Underwriting and Distribution Expenses
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
EQUITRUST SERIES FUND, INC.
Supplement to Prospectus
Dated December 1, 1998
INSTITUTIONAL SHARES
EquiTrust Series Fund, Inc. (formerly known as FBL Series Fund, Inc.) (the
"Fund"), currently offers two classes of shares to provide investors with
different purchasing options. These are Traditional Shares, which are described
in the prospectus, and Institutional Shares, which are described in the
prospectus as supplemented hereby.
Institutional Shares are available for purchase exclusively by the following
investors: (a) retirement plans of FBL Financial Group, Inc. and its affiliates;
(b) the following investment advisory clients of EquiTrust Investment Management
Services, Inc. ("EquiTrust"): (1) affiliated and unaffiliated benefit plans,
such as qualified retirement plans, and (2) affiliated and unaffiliated banks
and insurance companies purchasing for their own accounts; (c) employees and
directors of FBL Financial Group, Inc., its affiliates, and affiliated state
Farm Bureau Federations; (d) directors and trustees of the EquiTrust Mutual
Funds; and (e) such other types of accounts as EquiTrust, the Fund's
distributor, deems appropriate. Institutional Shares currently are available for
purchase only from EquiTrust. Share certificates are not available for
Institutional Shares.
The primary distinctions between the classes of the Fund's shares lie in the
applicability of the contingent deferred sales charge and ongoing expenses,
including asset-based sales charges in the form of Rule 12b-1 distribution fees.
Institutional Shares are not subject to a contingent deferred sales charge or a
Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Institutional Shares. As a result of the relatively lower expenses
for Institutional Shares, the level of income dividends per share (as a
percentage of net asset value) and, therefore, the available investment return,
will be higher for Institutional Shares than Traditional Shares.
The following information supplements the indicated sections of the
prospectus.
- --------------------------------------------------------------------------------
SUMMARY OF
EXPENSES
---------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES--INSTITUTIONAL SHARES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................. None
Maximum Sales Load Imposed on Reinvested Dividends................... None
Deferred Sales Charge (as a percentage of redemption proceeds)....... None
Redemption Fee....................................................... None
Exchange Fee......................................................... None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
VALUE GRADE YIELD
GROWTH BOND BOND
------ ----- -----
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees.................................... 0.50% 0.40% 0.55%
12b-1 Fees......................................... 0.00 0.00 0.00
Other Expenses..................................... 0.23 0.55 0.50
------ ----- -----
Total Fund Operating Expenses.................. 0.73% 0.95% 1.05%
------ ----- -----
------ ----- -----
<CAPTION>
MONEY BLUE
MANAGED MARKET CHIP
------ ----- -----
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees.................................... 0.60% 0.25% 0.25%
12b-1 Fees......................................... 0.00 0.00 0.00
Other Expenses(1).................................. 0.43 1.04 0.51
------ ----- -----
Total Fund Operating Expenses.................. 1.03% 1.29% 0.76%
------ ----- -----
------ ----- -----
</TABLE>
- ------------------------
EXAMPLE--INSTITUTIONAL SHARES
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth.............................................................. $ 7 $ 23 $ 41 $ 91
High Grade Bond........................................................... $ 10 $ 30 $ 53 $ 117
High Yield Bond........................................................... $ 11 $ 33 $ 58 $ 128
Managed................................................................... $ 11 $ 33 $ 57 $ 126
Money Market.............................................................. $ 13 $ 41 $ 71 $ 156
Blue Chip................................................................. $ 8 $ 24 $ 42 $ 94
</TABLE>
The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in Institutional Shares of the
Fund will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED TO
BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESSER THAN THOSE SHOWN. The example assumes a 5% annual rate of return
pursuant to the requirements of the Securities and Exchange Commission and is
not intended to be representative of past or future performance of the
Portfolios.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS
---------------
The table below reflects the results of the operations of the Institutional
Shares of each Portfolio of the Fund. Information in the table was audited by
Ernst & Young LLP, independent auditors, as set forth in their report dated
August 28, 1998. This table should be read in conjunction with the financial
statements and notes thereto included in the Annual Report to Shareholders,
which financial statements and notes are incorporated herein by reference.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH HIGH
VALUE GRADE YIELD MONEY BLUE
GROWTH BOND BOND MANAGED MARKET CHIP
(12/1/97 (12/1/97 (12/1/97 (12/1/97 (12/1/97 (12/1/97
-- -- -- -- -- --
7/31/98) 7/31/98) 7/31/98) 7/31/98) 7/31/98) 7/31/98)
-------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period................... $ 16.16 $10.53 $10.52 $14.21 $1.00 $36.77
Income from Investment
Operations
Net investment income..... 0.19 0.42 0.45 0.34 0.02 0.29
Net realized and
unrealized gain (loss) on
investments.............. (2.83 ) 0.04 0.02 (1.16 ) 4.51
-------- ------- ------ ------ ------ ------
Total from investment
operations................. (2.64 ) 0.46 0.47 (0.82 ) 0.02 4.80
Less Distributions
Dividends from net
investment income........ (0.18 ) (0.42 ) (0.45 ) (0.36 ) (0.02 ) (0.17 )
Distributions from capital
gains.................... (2.26 ) (0.07 ) (0.90 ) (0.03 )
-------- ------- ------ ------ ------ ------
Total distributions......... (2.44 ) (0.42 ) (0.52 ) (1.26 ) (0.02 ) (0.20 )
-------- ------- ------ ------ ------ ------
Net asset value at end of
period...................... $ 11.08 $10.57 $10.47 $12.13 $1.00 $41.37
-------- ------- ------ ------ ------ ------
-------- ------- ------ ------ ------ ------
Total Return:
Total investment return
based on net asset value
(1)........................ (18.97 )% 4.40 % 4.62 % (6.31 )% 2.47 % 13.14 %
Ratios/Supplemental Data (2):
Net assets at end of period
($000's omitted)........... 4,885 1,376 1,454 2,762 627 3,613
Ratio of net expenses to
average net assets......... 0.73 % 0.95 % 1.05 % 1.03 % 1.29 % 0.76 %
Ratio of net income to
average net assets......... 0.64 % 3.89 % 4.26 % 2.30 % 2.37 % 0.51 %
Portfolio turnover rate..... 217 % 38 % 30 % 66 % 0 % 3 %
Average commission rate per
share...................... $0.0519 $0.0561 $0.0505
</TABLE>
- ---------
(1) Total return is not annualized. Total investment return is calculated
assuming an initial investment made at the net asset value at the beginning
of the period, reinvestment of all dividends and distributions at net asset
value during the period, and redemption on the last day of the period.
(2) Period from December 1, 1997 (date operations commenced) through July 31,
1998. Ratios presented have not been annualized.
Supplement dated December 1, 1998
<PAGE>
APPLICATION FOR SHARES -- INSTITUTIONAL
PLEASE COMPLETE AND MAIL TO:
EQUITRUST SERIES FUND, INC.
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266-5997
If you have any questions, please call toll-free at 1-800-422-3175 (in Iowa) or
1-800-247-4170 (National).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESIGNATE TYPE OF ACCOUNT & OWNER NAME(S)
/ / INDIVIDUAL OR JOINT ACCOUNT*
- --------------------------------------------------------------
Owner's Name
- ------------------------------------------------------------------------------
Joint Owner's Name
*Joint tenants with Right of Survivorship, The Fund does not accept accounts
registered tenants-in-common
/ / CUSTODIAL ACCOUNT
Uniform Gift or Transfer to Minors Act
/ / EDUCATION IRA ACCOUNT
- --------------------------------------------------------------
Custodian's or Responsible Individual's Name
- ------------------------------------------------------------------------------
Minor's Name
/ / TRUST, CORPORATION OR OTHER ENTITY ACCOUNT
- ------------------------------------------------------------------------------
Name of Trust, Corporation or Other Entity
- ------------------------------------------------------------------------------
Trustee(s') Name or Type of Entity
- ------------------------------------------------------------------------------
Date of Trust Agreement
PROVIDE YOUR TAX IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------
Social Security or Tax ID Number
(Use minor's Social Security number for gifts/transfers to minors and Education
IRAs)
- ------------------------------------------------------------------------------
Joint Owner's or Custodian's Social Security or Tax ID Number
PROVIDE YOUR ADDRESS
- ------------------------------------------------------------------------------
Street or PO Box
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
City, State, Zip Code
PROVIDE YOUR DATE(S) OF BIRTH
- --------------------------------------------------------------
PROVIDE YOUR FARM BUREAU MEMBERSHIP NUMBER
- --------------------------------------------------------------
- -------------------------------------------------------------------
PORTFOLIO SELECTION*
______ Value Growth $ ______________
______ High Grade Bond $ ______________
______ High Yield Bond $ ______________
______ Managed $ ______________
______ Money Market $ ______________
______ Blue Chip $ ______________
*If no Portfolio is designated, the Money Market Portfolio will be selected.
TO REINVEST YOUR DISTRIBUTIONS
Your dividends and capital gains will be reinvested unless you indicate
otherwise. (No cash payment will be made for dividends in an amount less than
$10.)
/ / Cash Dividends / / Cash Capital Gains
- -------------------------------------------------------------------
SPECIAL SHAREHOLDER PRIVILEGES
Exchange Between Funds / / Yes / / No
I authorize exchanges between Portfolios upon instruction from any person by
telephone. If neither box is checked, the telephone exchange privilege will be
provided.
/ / Please send information on the Automatic Investment Plan
/ / Please send information on the Telephone Redemption Plan
(non-qualified accounts only)
- -------------------------------------------------------------------
TAX QUALIFIED PLANS ONLY
A qualified application must be submitted in addition to this form.
/ / SIMPLE / / IRA / / Education IRA
/ / Tax Deferred 403(b) / / SEP / / Roth IRA
/ / Qualified Pension and
Profit Sharing
DESIGNATED BENEFICIARY
(required with tax qualified plans)
- ------------------------------------------------------------------------------
Primary Beneficiary
- ------------------------------------------------------------------------------
Social Security Number Date of Birth
- ------------------------------------------------------------------------------
Contingent Beneficiary
- ------------------------------------------------------------------------------
Social Security Number Date of Birth
- ------------------------------------------------------------------------------
Contingent Beneficiary
- ------------------------------------------------------------------------------
Social Security Number Date of Birth
- ------------------------------------------------------------------------------
Spousal Consent of Non-Spouse Beneficiary
- --------------------------------------------------------------------------------
SIGNATURES
I certify that I have received, read and agree to the terms of the prospectus
for EquiTrust Series Fund, Inc. I have the authority and legal capacity to
purchase mutual fund shares, am of legal age in my state and believe each
investment is suitable for me. Under penalties of perjury, I certify that the
number shown on this form is a true and correct social security or tax
identification number and, to the best of my knowledge, I am not subject to
backup withholding.
- ------------------------------------------------------------------------------
Signature of Applicant
- ------------------------------------------------------------------------------
Signature of Joint Applicant
- ------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Application must be accompanied or preceded by a current prospectus.
(Please Complete Reverse Side)
737-018AI (12/98)
<PAGE>
Distributed by EquiTrust Investment Management Services, Inc.
CONFIDENTIAL CUSTOMER RECORD
___________________________________ __________________________________
Name of Customer Date
These questions are for the purpose of determining the suitability of a Fund
investment for you and are asked pursuant to rules established by the Securites
and Exchange Commission. Furnishing the answers is voluntary on your part;
however, the information will be treated confidentially and is intended to
assist in determining an appropriate recommendation.
/ / Registered representative of broker/dealer _________________________________
/ / I elect not to provide the information below.
1. SEX: / / MALE / / FEMALE
2. DATE OF BIRTH: _________________________________________________
3. DEPENDENT CHILDREN: Number ____ Age of youngest ____ Age of oldest ____
4. PRINCIPAL OCCUPATION: ______________________________________________________
5. NAME AND ADDRESS OF EMPLOYER: ______________________________________________
______________________________________________
6. ANNUAL INCOME: / / Less than $10,000 / / $10,000 to $25,000
/ / $25,000 to $50,000 / / $50,000 to $100,000 / / $100,000 or over
7. MARGINAL FEDERAL INCOME TAX BRACKET: / / 15% / / 28% / / 31% / / 36%
/ / 39.6%
8. NET WORTH: / / Less than $25,000 / / $25,000 to $50,000 / / $50,000 to
$100,000 / / $100,000 or over
9. SAVINGS: / / Less than $5,000 / / $5,000 to $10,000 / / $10,000 to $25,000
/ / $25,000 or over
10. OTHER ASSETS:
Amount / / Less than $10,000 / / $10,000 to $50,000 / / $50,000 to $100,000
/ / $100,000 or over
Description ________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
11. INVESTMENT OBJECTIVE: / / Growth of income and capital / / Current income
/ / Long-term capital appreciation / / Liquidity and
stability of principal
/ / Other (Specify) __________________________________
12. VOLATILITY TOLERANCE: / / Low / / Medium / / High
13. INSURANCE ON LIFE OF CUSTOMER: / / Less than $50,000 / / $50,000 to $100,000
/ / $100,000 to $250,000 / / $250,000 or over
14. OTHER INFORMATION CONSIDERED IN MAKING AN INVESTMENT RECOMMENDATION:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
______________________________________________________________________________
Signature of Customer
737-018AI
<PAGE>
EQUITRUST SERIES FUND, INC.
Prospectus dated December 1, 1998
EquiTrust Series Fund, Inc. (formerly known as FBL Series Fund, Inc.) (the
"Fund") is an open-end, diversified series management investment company
consisting of six Portfolios, each with its own investment objectives and
policies. For most purposes, each Portfolio operates like a separate mutual fund
issuing its own shares.
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Managed Portfolio
Money Market Portfolio
Blue Chip Portfolio
The Fund is designed for long-term investors, including those funding
tax-qualified investment plans such as IRAs or other retirement plans. The
Fund's investment adviser is EquiTrust Investment Management Services, Inc.
THE HIGH YIELD BOND PORTFOLIO INVESTS PRIMARILY IN LOWER-RATED BONDS, COMMONLY
REFERRED TO AS "JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT
RISKS, THAN THOSE ASSOCIATED WITH HIGHER-RATED SECURITIES. PURCHASERS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PORTFOLIO. SEE
"INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS--HIGH YIELD BOND
PORTFOLIO," P. 13-14; "PRINCIPAL RISK FACTORS--SPECIAL CONSIDERATIONS--HIGH
YIELD BONDS," P. 17-19; "APPENDIX B--PORTFOLIO COMPOSITION FOR HIGH YIELD
BONDS," P. B-1-B-2 AND "APPENDIX C-- DESCRIPTION OF CORPORATE BOND RATINGS," P.
C-1-C-2.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information about the Fund that a prospective
investor should know before investing. Please read it carefully and retain it
for future reference. A Statement of Additional Information for the Fund, dated
December 1, 1998, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Statement of Additional Information is
available upon request and without charge from the Fund by writing or calling
the Fund at the address or telephone numbers set forth on the following page.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THE PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OF THE FUND IN ANY JURISDICTION IN WHICH SUCH SALE, OFFER
TO SELL OR SOLICITATION MAY NOT BE LAWFULLY MADE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Summary................................................................................................ 1
Summary of Expenses.................................................................................... 3
Financial Highlights................................................................................... 5
Investment Objectives and Policies of the Portfolios................................................... 11
Principal Risk Factors................................................................................. 16
Description of Certain Investment Techniques........................................................... 19
How to Buy Shares...................................................................................... 22
How to Redeem Shares................................................................................... 23
Other Shareholder Services............................................................................. 26
Net Asset Value Information............................................................................ 28
Performance Information................................................................................ 29
Management of the Fund................................................................................. 30
Portfolio Transactions................................................................................. 31
Dividends and Taxes.................................................................................... 32
Organization of the Fund............................................................................... 34
General Information.................................................................................... 34
Appendix A............................................................................................. A-1
Appendix B............................................................................................. B-1
Appendix C............................................................................................. C-1
</TABLE>
- --------------------------------------------------------------------------------
YIELD AND PURCHASE INFORMATION
U.S. Toll Free (800) 247-4170
Iowa Toll Free (800) 422-3175
Des Moines (515) 225-5586
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
-----------
THE FUND. EquiTrust Series Fund, Inc. (the "Fund") is an open-end,
diversified series management investment company. The Fund is designed to
provide an opportunity for investors to pool their money to achieve economies of
scale and diversification and to permit investors whose portfolios may not be
large enough to qualify for individual management services to take advantage of
the professional investment expertise of EquiTrust Investment Management
Services, Inc. ("EquiTrust" or the "Adviser"). The Fund currently issues shares
in six investment series (a "Portfolio" or the "Portfolios"), and the Board of
Directors of the Fund (the "Board of Directors") may establish additional
Portfolios at any time.
The Fund is designed for long-term investors, including those who wish to
use shares of one or more Portfolios as a funding vehicle for tax-deferred
retirement plans (including tax-qualified retirement plans and Individual
Retirement Account (IRA) plans), and not for investors who intend to liquidate
their investments after a short period of time. A contingent deferred sales
charge (described below) is generally imposed on redemptions of shares within
six years of the date of purchase.
INVESTMENT OBJECTIVES. The Fund currently offers a choice of six investment
Portfolios, having the following investment objectives:
VALUE GROWTH PORTFOLIO. This Portfolio seeks long-term capital
appreciation. The Portfolio pursues its objective by investing primarily in
equity securities of companies that the investment adviser believes have a
potential to earn a high return on capital and/or in equity securities that
the investment adviser believes are undervalued by the market place. Such
equity securities may include common stock, preferred stock and securities
convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as high a level of
current income as is consistent with investment in a portfolio of debt
securities deemed to be of high grade by the Fund's investment adviser. The
Portfolio pursues this objective by investing primarily in debt securities
rated AAA, AA or A by Standard & Poor's or Aaa, Aa or A by Moody's Investors
Service, Inc. and in U.S. Government securities and government agency
securities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a primary
objective, as high a level of current income as is consistent with
investment in a portfolio of fixed-income securities rated in the lower
categories of established rating services. As a secondary objective, the
Portfolio seeks capital appreciation when consistent with its primary
objective. The Portfolio pursues these objectives by investing primarily in
fixed-income securities rated Baa or lower by Moody's Investors Service,
Inc. and/or BBB or lower by Standard & Poor's, or unrated securities of
comparable quality. AN INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK.
MANAGED PORTFOLIO. This Portfolio seeks the highest total investment
return of income and capital appreciation. The Portfolio pursues this
objective through a fully managed investment policy consisting of investment
in the following three market sectors: (i) growth common stocks and
securities convertible or exchangeable into growth common stocks, including
warrants and rights; (ii) high grade debt securities (debt securities rated
AAA, AA or A by Standard & Poor's or Aaa, Aa or A by Moody's), U.S.
Government securities and government agency securities, and preferred stock;
and (iii) high quality short-term money market instruments of the type in
which the Money Market Portfolio may invest.
1
<PAGE>
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum current income
consistent with liquidity and stability of principal. The Portfolio pursues
this objective by investing in high quality short-term money market
instruments. In light of the distribution services fee (see "General
Information--Distributor") and the contingent deferred sales charge (see
"How to Redeem Shares"), the Money Market Portfolio should be viewed as part
of a long-term investment in the Fund to be used in conjunction with the
other Portfolios, rather than as a typical money market fund.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of capital and income.
The Portfolio pursues this objective by investing primarily in common stocks
of well-capitalized, established companies. Because this Portfolio may be
invested heavily in particular stocks or industries, an investment in this
Portfolio may entail relatively greater risk of loss.
There can be no assurance that the objectives of any Portfolio will be
realized. During periods when the investment adviser believes that the equity
market is overvalued, or, when warranted by other prevailing market or economic
conditions, the Value Growth Portfolio may hold substantial amounts of
non-equity investments. For further information regarding the investment
practices of the various Portfolios, see "Investment Objectives and Policies of
the Portfolios." For further information regarding the principal risk factors
associated with investment in any of the Fund's Portfolios, see "Principal Risk
Factors."
PURCHASES AND REDEMPTIONS. Shares of the Portfolios are available through
selected financial services firms such as broker/dealers, through registered
representatives of EquiTrust Marketing Services, Inc. or directly from the Fund.
The minimum initial investment is $250, and subsequent investments may be in any
amount. Shares of a Portfolio are redeemable at the net asset value per share of
the Portfolio next determined after the Fund's receipt of a request in proper
form. There may be a contingent deferred sales charge imposed upon the
redemption of shares during the first six years after purchase, ranging from 5%
the first year to 1% during the sixth year. There is no contingent deferred
sales charge once shares have been held six years. Shares of a Portfolio may be
exchanged for shares of another Portfolio for a $5.00 exchange fee without any
contingent deferred sales charge. There is a distribution services fee of .50%
of the average daily net assets of the Fund. See "How to Buy Shares" and "How to
Redeem Shares."
INVESTMENT ADVISER AND DISTRIBUTOR. EquiTrust Investment Management
Services, Inc. serves as the investment adviser for each of the Portfolios for
an annual fee that is based on the average daily net assets of each Portfolio
and varies among the Portfolios. The maximum annual fee rate is .25% of average
daily net assets for the Blue Chip and Money Market Portfolios, .40% of average
daily net assets for the High Grade Bond Portfolio, .50% of average daily net
assets for the Value Growth Portfolio, .55% of average daily net assets for the
High Yield Bond Portfolio and .60% of average daily net assets for the Managed
Portfolio. See "Management of the Fund--Investment Adviser." EquiTrust also
serves as distributor and principal underwriter for the Fund. EquiTrust pays
securities dealers a commission of up to 4.5% for sales of Portfolio shares and
a service fee, payable monthly, at the annual rate of .15% on assets maintained
and serviced in such Fund accounts. EquiTrust receives from the Fund a .50%
annual distribution services fee and a .25% annual administrative services fee,
and receives directly any contingent deferred sales charge paid on the
redemption of shares. Firms to which commissions and service fees may be paid
include EquiTrust Marketing Services, Inc., which is affiliated with EquiTrust.
See "General Information--Distributor."
2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF
EXPENSES
---------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases......................................... None
Maximum Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load (As a percentage of redemption proceeds):
Year 1...................................................................... 5%
Year 2...................................................................... 4%
Year 3...................................................................... 4%
Year 4...................................................................... 3%
Year 5...................................................................... 2%
Year 6...................................................................... 1%
Year 7 and following........................................................ 0%
Redemption Fee.................................................................. None
Exchange Fee.................................................................... $5.00
</TABLE>
<TABLE>
<CAPTION>
HIGH HIGH
VALUE GRADE YIELD
GROWTH BOND BOND
------- ------ -----
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees.................................... 0.50% 0.40% 0.55%
12b-1 Fees......................................... 0.50 0.50 0.50
Other Expenses..................................... 0.60 0.81 0.92
------- ------ -----
Total Fund Operating Expenses.................. 1.60% 1.71% 1.97%
------- ------ -----
------- ------ -----
<CAPTION>
MONEY BLUE
MANAGED MARKET CHIP
------- ------ -----
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees.................................... 0.60% 0.25% 0.25%
12b-1 Fees......................................... 0.50 0.50 0.50
Other Expenses..................................... 0.73 1.20 0.80
------- ------ -----
Total Fund Operating Expenses.................. 1.83% 1.95% 1.55%
------- ------ -----
------- ------ -----
</TABLE>
3
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth.............................................................. $ 66 $ 91 $ 107 $ 190
High Grade Bond........................................................... $ 67 $ 94 $ 113 $ 202
High Yield Bond........................................................... $ 70 $ 102 $ 126 $ 230
Managed................................................................... $ 69 $ 98 $ 119 $ 215
Money Market.............................................................. $ 70 $ 101 $ 125 $ 227
Blue Chip................................................................. $ 66 $ 89 $ 104 $ 185
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth.............................................................. $ 16 $ 51 $ 87 $ 190
High Grade Bond........................................................... $ 17 $ 54 $ 93 $ 202
High Yield Bond........................................................... $ 20 $ 62 $ 106 $ 230
Managed................................................................... $ 19 $ 58 $ 99 $ 215
Money Market.............................................................. $ 20 $ 61 $ 105 $ 227
Blue Chip................................................................. $ 16 $ 49 $ 84 $ 185
</TABLE>
The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Long-term shareholders may pay more in total sales charges than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc. THE EXAMPLE SHOULD NOT BE
CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN. The example assumes a 5% annual rate
of return pursuant to the requirements of the Securities and Exchange Commission
and is not intended to be representative of past or future performance of the
Portfolios.
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS
---------------
The condensed financial information set forth below has been derived from
the financial statements and financial highlights of the Fund, of which the last
five years have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report dated August 28, 1998. These tables should be read in
conjunction with the financial statements and notes thereto included in the
Annual Report to Shareholders, which financial statements and notes are
incorporated herein by reference.
Selected data for a share of capital stock outstanding throughout each year:
VALUE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period................... $ 15.63 $ 14.68 $ 13.04 $13.07 $15.13 $12.48 $11.64 $11.02 $11.01 $10.48
Income from Investment
Operations
Net investment income..... 0.13 0.18 0.27 0.43 0.60 0.51 0.48 0.58 0.58 0.57
Net realized and
unrealized gain (loss) on
investments.............. (2.26) 2.89 2.10 0.65 (0.49) 2.75 0.93 0.65 0.05 0.57
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................. (2.13) 3.07 2.37 1.08 0.11 3.26 1.41 1.23 0.63 1.14
Less Distributions
Dividends from net
investment income........ (0.17) (0.18) (0.46) (0.39) (0.60) (0.48) (0.57) (0.61) (0.62) (0.61)
Distributions from capital
gains.................... (2.26) (1.94) (0.27) (0.72) (1.57) (0.13)
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
Total distributions......... (2.43) (2.12) (0.73) (1.11) (2.17) (0.61) (0.57) (0.61) (0.62) (0.61)
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period...................... $ 11.07 $ 15.63 $ 14.68 $13.04 $13.07 $15.13 $12.48 $11.64 $11.02 $11.01
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
-------- -------- ------- ------ ------ ------ ------ ------ ------ ------
Total Return:
Total investment return
based on net asset value
(1)........................ (16.37)% 21.83% 18.41% 9.36% 0.34% 27.25% 12.51% 11.67% 5.90% 11.49%
Ratios/Supplemental Data:
Net assets at end of period
($000's omitted)........... 92,848 112,985 86,534 70,947 64,315 51,732 39,418 36,193 35,285 37,435
Ratio of net expenses to
average net assets......... 1.60% 1.65% 1.62% 1.62% 1.60% 1.61% 1.69% 1.59% 1.62% 1.56%
Ratio of net income to
average net assets......... 0.87% 1.18% 1.87% 3.43% 4.05% 3.80% 3.99% 5.19% 5.31% 5.34%
Portfolio turnover rate..... 217% 77% 92% 85% 93% 92% 87% 59% 109% 172%
Average commission rate per
share (2).................. $ 0.0519 $ 0.0520 $0.0529
</TABLE>
- ---------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(2) Average commission rate per share disclosure is not required for fiscal
years prior to July 31, 1996.
5
<PAGE>
HIGH GRADE BOND PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................ $10.50 $10.16 $10.26 $10.13 $10.69 $10.68 $10.15 $ 9.95 $10.11 $ 9.85
Income from Investment Operations
Net investment income.......... 0.60 0.60 0.64 0.63 0.64 0.70 0.73 0.78 0.75 0.74
Net realized and unrealized
gain (loss) on investments.... 0.07 0.34 (0.10) 0.16 (0.40) 0.13 0.62 0.20 (0.16) 0.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
Total from investment
operations...................... 0.67 0.94 0.54 0.79 0.24 0.83 1.35 0.98 0.59 1.00
Less Distributions
Dividends from net investment
income........................ (0.60) (0.60) (0.64) (0.63) (0.64) (0.70) (0.73) (0.78) (0.75) (0.74)
Distributions from capital
gains......................... (0.16) (0.12) (0.09)
Distributions in excess of net
realized gains................ (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
Total distributions.............. (0.60) (0.60) (0.64) (0.66) (0.80) (0.82) (0.82) (0.78) (0.75) (0.74)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
Net asset value at end of period... $10.57 $10.50 $10.16 $10.26 $10.13 $10.69 $10.68 $10.15 $ 9.95 $10.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
Total Return:
Total investment return based on
net asset value (1)............. 6.53% 9.56% 5.37% 8.23% 1.77% 8.10% 13.71% 10.29% 6.15% 10.68%
Ratios/Supplemental Data:
Net assets at end of period
($000's omitted)................ 11,510 10,250 9,122 8,345 7,596 8,047 7,676 4,276 3,635 3,317
Ratio of net expenses to average
net assets...................... 1.71% 1.82% 1.85% 1.99% 1.90% 1.79% 1.88% 1.62% 1.68% 1.84%
Ratio of net income to average
net assets...................... 5.67% 5.85% 6.19% 6.29% 6.12% 6.59% 6.94% 7.78% 7.57% 7.57%
Portfolio turnover rate.......... 38% 30% 34% 18% 42% 54% 45% 40% 66% 27%
</TABLE>
- ---------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
6
<PAGE>
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.. $ 10.48 $ 9.99 $ 10.03 $ 10.00 $10.76 $10.47 $ 9.82 $ 9.62 $ 9.95 $ 9.86
Income from Investment Operations
Net investment income............... 0.65 0.70 0.75 0.78 0.81 0.83 0.90 0.95 0.98 0.93
Net realized and unrealized gain
(loss) on investments.............. 0.07 0.61 (0.01) 0.13 (0.60) 0.46 0.65 0.19 (0.33) 0.09
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
Total from investment operations...... 0.72 1.31 0.74 0.91 0.21 1.29 1.55 1.14 0.65 1.02
Less Distributions
Dividends (from net investment
income)............................ (0.65) (0.70) (0.75) (0.78) (0.81) (0.83) (0.90) (0.94) (0.98) (0.93
Distributions (from capital gains).. (0.07) (0.12) (0.03) (0.09) (0.16) (0.17)
Distributions in excess of net
realized gains..................... (0.01)
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
Total distributions................... (0.72) (0.82) (0.78) (0.88) (0.97) (1.00) (0.90) (0.94) (0.98) (0.93)
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
Net asset value at end of period........ $ 10.48 $ 10.48 $ 9.99 $ 10.03 $10.00 $10.76 $10.47 $ 9.82 $ 9.62 $ 9.95
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
------- ------- ------- ------- ------ ------ ------ ------ ------ ----------
Total Return:
Total investment return based on net
asset value (1)...................... 7.10% 13.29% 7.67% 9.71% 1.88% 12.95% 16.44% 12.83% 6.92% 10.82%
Ratios/Supplemental Data:
Net assets at end of period ($000's
omitted)............................. 10,982 9,156 7,349 6,691 6,425 5,758 4,835 4,029 3,399 3,013
Ratio of net expenses to average net
assets............................... 1.97% 2.00% 2.00% 2.00% 2.00% 2.00% 1.98% 1.77% 1.83% 2.01%
Ratio of net income to average net
assets............................... 6.17% 6.82% 7.44% 7.83% 7.68% 7.84% 8.79% 9.98% 10.00% 9.41%
Portfolio turnover rate............... 30% 45% 30% 23% 26% 56% 56% 78% 89% 70%
Information assuming no voluntary
reimbursement by EquiTrust Investment
Management Services, Inc. of excess
operating expenses:
Per share net investment income....... $ 0.69 $ 0.73 $ 0.75 $ 0.79 $ 0.82
Ratio of expenses to average net
assets............................... 2.10% 2.22% 2.29% 2.17% 2.05%
Amount reimbursed..................... $ 8,681 $15,361 $18,810 $10,754 $3,147
</TABLE>
- ---------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
7
<PAGE>
MANAGED PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period.................... $ 14.05 $ 13.33 $ 11.85 $ 11.62 $12.51 $10.77 $ 9.95 $ 9.92 $ 9.93 $ 9.93
Income from Investment
Operations
Net investment income..... 0.44 0.48 0.46 0.56 0.55 0.54 0.61 0.66 0.68 0.65
Net realized and
unrealized gain (loss) on
investments.............. (1.00) 1.91 1.54 0.47 (0.62) 1.87 0.82 0.03 (0.01)
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
Total from investment
operations................. (0.56) 2.39 2.00 1.03 (0.07) 2.41 1.43 0.69 0.67 0.65
Less Distributions
Dividends (from net
investment income)....... (0.44) (0.46) (0.45) (0.56) (0.50) (0.52) (0.61) (0.66) (0.68) (0.65)
Distributions (from
capital
gains)................... (0.90) (1.21) (0.10) (0.14) (0.32) (0.15)
Distributions in excess of
net realized gains....... (0.10)
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
Total distributions......... (1.34) (1.67) (0.55) (0.80) (0.82) (0.67) (0.61) (0.66) (0.68) (0.65)
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
Capital contribution from
affiliate.................. 0.03
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
Net asset value at end of
period....................... $ 12.15 $ 14.05 $ 13.33 $ 11.85 $11.62 $12.51 $10.77 $ 9.95 $ 9.92 $ 9.93
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
------- -------- ------- ------- ------ ------ ------ ------ ------ -------
Total Return:
Total investment return
based on net asset value
(1)........................ (4.54)% 17.88% 17.30 (2) 9.40% (0.61)% 23.02% 14.79% 7.05% 6.96% 4.88%
Ratios/Supplemental Data:
Net assets at end of period
($000's omitted)........... 43,602 40,994 27,470 21,105 19,100 8,257 3,887 3,935 3,594 3,399
Ratio of net expenses to
average net assets......... 1.83% 1.95% 1.91% 1.94% 1.96% 1.96% 2.07% 1.84% 1.84% 2.05%
Ratio of net income to
average net assets......... 3.33% 3.48% 3.47% 4.86% 4.42% 4.54% 5.93% 6.51% 6.83% 6.42%
Portfolio turnover rate..... 66% 74% 81% 69% 29% 52% 77% 31% 73% 119%
Average commission rate per
share (3).................. $0.0561 $ 0.0449 $0.0549
Information assuming no
voluntary reimbursement by
EquiTrust Investment
Management Services, Inc. of
excess operating expenses:
Per share net investment
income..................... $ 0.53
Ratio of expenses to average
net assets................. 2.02%
Amount reimbursed........... $3,497
</TABLE>
- ---------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(2) During the year ended July 31, 1996, EquiTrust Investment voluntarily
reimbursed the Managed Portfolio for losses relating to the sale of a
restricted security in the amount of $44,982. The transaction was recorded
as a realized capital loss on an offsetting capital contribution from an
affiliate. The total investment return includes the effect of a capital
contribution of $0.03 per share. The return without the capital contribution
would have been 17.13%.
(3) Average commission rate per share disclosure is not required for fiscal
years prior to July 31, 1996.
8
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations
Net investment income.................. 0.04 0.03 0.04 0.04 0.02 0.01 0.03 0.05 0.07 0.07
Net realized and unrealized gain (loss)
on investments........................
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
Total from investment operations......... 0.04 0.03 0.04 0.04 0.02 0.01 0.03 0.05 0.07 0.07
Less Distributions
Dividends (from net investment
income)............................... (0.04) (0.03) (0.04) (0.04) (0.02) (0.01) (0.03) (0.05) (0.07) (0.07)
Distributions (from capital
gains)................................
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
Total distributions...................... (0.04) (0.03) (0.04) (0.04) (0.02) (0.01) (0.03) (0.05) (0.07) (0.07)
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
------ ------- ------ ------ ------ ------ ------ ------ ------ ----------
Total Return:
Total investment return based on net
asset value (1)......................... 3.65% 3.51% 3.64% 3.60% 1.47% 1.33% 2.82% 5.52% 6.93% 7.25%
Ratios/Supplemental Data:
Net assets at end of period ($000's
omitted)................................ 2,574 2,466 2,552 2,439 2,627 2,555 2,861 3,672 3,604 2,925
Ratio of net expenses to average
net assets.............................. 1.95% 2.00% 2.00% 2.00% 1.93% 1.94% 2.00% 1.70% 1.65% 1.88%
Ratio of net income to average net
assets.................................. 3.57% 3.46% 3.58% 3.51% 1.45% 1.33% 2.83% 5.42% 6.65% 7.08%
Portfolio turnover rate.................. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Information assuming no voluntary
reimbursement by EquiTrust Investment
Management Services, Inc. of excess
operating expenses:
Per share net investment income.......... $ 0.03 $ 0.03 $ 0.03
Ratio of expenses to average
net assets.............................. 2.28% 2.43% 2.20%
Amount reimbursed........................ $ 7,255 $10,718 $4,948
</TABLE>
- ---------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
9
<PAGE>
BLUE CHIP PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 37.20 $ 26.26 $ 22.85 $18.75 $17.69 $16.78 $15.38 $15.61 $14.56 $11.57
Income from Investment Operations
Net investment income................. 0.18 0.16 0.17 0.19 0.14 0.13 0.17 0.30 0.32 0.29
Net realized and unrealized gain
(loss) on investments................ 4.08 11.22 3.43 4.05 1.06 0.90 1.47 0.77 1.02 2.90
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
Total from investment operations........ 4.26 11.38 3.60 4.24 1.20 1.03 1.64 1.07 1.34 3.19
Less Distributions
Dividends (from net investment
income).............................. (0.16) (0.14) (0.19) (0.14) (0.14) (0.12) (0.24) (0.31) (0.28) (0.20)
Distributions (from capital gains).... (0.03) (0.30) (0.99) (0.01)
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
Total distributions..................... (0.19) (0.44) (0.19) (0.14) (0.14) (0.12) (0.24) (1.30) (0.29) (0.20)
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
Net asset value at end of period.......... $ 41.27 $ 37.20 $ 26.26 $22.85 $18.75 $17.69 $16.78 $15.38 $15.61 $14.56
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
Total Return:
Total investment return based on net
asset value (1)........................ 11.49% 43.77% 15.83% 22.77% 6.75% 6.21% 10.77% 8.36% 9.26% 27.94%
Ratios/Supplemental Data:
Net assets at end of period ($000's
omitted)............................... 43,418 29,863 14,641 9,657 6,745 5,415 4,405 3,883 3,166 2,001
Ratio of net expenses to average net
assets................................. 1.55% 1.74% 1.79% 1.78% 1.83% 1.90% 1.92% 1.63% 1.74% 2.02%
Ratio of net income to average net
assets................................. 0.49% 0.49% 0.66% 0.92% 0.75% 0.73% 1.09% 2.06% 2.14% 2.25%
Portfolio turnover rate................. 3% 0% 3% 1% 1% 0% 0% 5% 37% 0%
Average commission rate per share (2)... $0.0505 $0.0559 $0.0748
</TABLE>
- -------------
Note: Per share amounts have been calculated on the basis of monthly per share
amounts (using average monthly outstanding shares) accumulated for the
period.
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(2) Average commission rate per share disclosure is not required for fiscal
years prior to July 31, 1996.
10
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
AND POLICIES
OF THE PORTFOLIOS
----------------------------
Each Portfolio of the Fund has distinct investment objectives which it
pursues through separate investment policies as described below. There can be no
assurance that the objectives of any Portfolio will be achieved. The differences
in objectives and policies among the Portfolios can be expected to affect the
return of each Portfolio and the degree of market and financial risk to which
each Portfolio is subject.
The Statement of Additional Information contains specific investment
restrictions that govern the Portfolios' investments. Those restrictions
identified as fundamental policies, as well as the investment objectives and
investment policies described below in the first paragraph for each Portfolio
are fundamental policies, and may not be changed without a majority vote of the
outstanding shares of the affected Portfolio. See "General
Information--Shareholder Voting Rights." All other investment policies and
practices described in this Prospectus and in the Statement of Additional
Information are not fundamental and may be changed by the Board of Directors
without approval of the shareholders. Each Portfolio may engage in certain of
the portfolio strategies described in this Prospectus under "Description of
Certain Investment Techniques" and in the Statement of Additional Information.
"Appendix C-- Description of Corporate Bond Ratings" describes the ratings of
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's that are
referred to herein.
The portfolio turnover rates for the Portfolios are set forth under
"Condensed Financial Information." Portfolio turnover is calculated by dividing
the lesser of purchases or sales of a Portfolio's securities during a fiscal
year by the average monthly value of the Portfolio's securities during such
fiscal year. In determining the portfolio turnover rate, all securities whose
maturities or expiration dates at the time of acquisition were one year or less
are excluded. Turnover rates may be affected by factors such as purchase and
redemption requirements and market volatility, and may vary greatly from time to
time. Frequency of portfolio turnover will not be a limiting factor if the
investment adviser deems it desirable to purchase or sell securities. Increased
portfolio turnover may result in greater brokerage commissions and consequent
expense to the Portfolio. If any Portfolio were to derive 30% or more of its
gross income from the sale of securities held less than three months, it might
fail to qualify under the tax laws as a regulated investment company in
particular years and consequently would lose certain beneficial tax treatment of
its income; however, each Portfolio intends to continue to qualify as a
regulated investment company each year. See "Dividends and Taxes."
Following is a description of the investment objectives and certain of the
investment practices of each of the Fund's Portfolios. For a further description
of the investment practices of the various Portfolios, see "Description of
Certain Investment Techniques."
VALUE GROWTH PORTFOLIO
The Portfolio pursues its investment objective by investing primarily in
equity securities of companies that the investment adviser believes have a
potential to earn a high return on capital and/or in equity securities that the
investment adviser believes are undervalued by the market place. Such equity
securities may include common stock, preferred stock and securities convertible
or exchangeable into common stock.
The Value Growth Portfolio may invest in securities of companies in cyclical
industries during periods when such securities appear to the investment adviser
to have strong potential for capital
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appreciation. The Portfolio may also invest in "special situation" companies. A
"special situation" company is one that, in the opinion of the Fund's investment
adviser, has potential for significant future earnings growth but has not
performed well in the recent past. These situations may include companies with
management turnaround, corporate or asset restructuring or significantly
undervalued assets.
The investment adviser's strategy for the Value Growth Portfolio is based
upon a value-oriented analysis of common stocks. Such an analysis focuses upon
evaluations of key financial ratios such as stock price-to-book value, stock
price-to-earnings, stock price-to-cash flow and debt-to-total capital. The
investment adviser attempts to determine the fundamental value of an enterprise
using the foregoing ratios and by evaluating an enterprise's balance sheet
(e.g., comparing the enterprise's assets with the purchase price of similar
recently acquired assets) as well as by using dividend discounting models.
The investment adviser's emphasis on fundamental analysis of each company's
prospects and the inherent value of its securities may result in a portion of
the Portfolio being invested in medium- or smaller-sized companies that are less
identifiable than larger, better-known companies or in companies that are not
perceived as being popular investments at a given time. The Adviser believes
that opportunities can be found at all size levels and, therefore, the Portfolio
may invest in companies of all sizes.
When warranted, in the opinion of the investment adviser, by prevailing
market or economic conditions, the Portfolio, for temporary defensive purposes,
may invest up to 100% of its assets in other types of securities, including
investment-grade commercial paper, corporate bonds, debentures, preferred
stocks, obligations of banks and savings institutions, U.S. Government
securities, government agency securities and repurchase agreements; or it may
retain funds in cash. "Investment-grade commercial paper" is commercial paper
rated A-2 or better by Standard & Poor's or Prime-2 or better by Moody's.
Through careful selection of individual securities, diversification of
investments by industry and type of security and constant supervision of the
investment portfolio, the investment adviser strives to reduce risk and thereby
conserve principal. However, the Portfolio's investments are subject to market
fluctuations and the risks inherent in all securities.
HIGH GRADE BOND PORTFOLIO
The investment objective of the High Grade Bond Portfolio is to provide as
high a level of current income as is consistent with investment in a portfolio
of debt securities deemed to be of high quality by the Fund's investment
adviser. The Portfolio pursues its objective by investing primarily in debt
securities rated AAA, AA or A by Standard & Poor's or Aaa, Aa or A by Moody's
and in U.S. Government securities and government agency securities.
From time to time, up to 20% of the Portfolio's total assets may be invested
in unrated debt securities or debt securities rated lower than the three highest
grades of Standard & Poor's or Moody's as described above, or in convertible
debt securities, convertible preferred stocks, or non-convertible preferred
stocks rated within the three highest grades of Standard & Poor's or Moody's
applicable to such securities. To the extent that the Portfolio does invest in
debt securities that are rated lower than A by Moody's or Standard & Poor's (or
are unrated but equivalent in quality to such securities), the Fund's investment
portfolio will be subject to relatively greater risk of loss of income and
principal as discussed under "Principal Risk Factors--Special
Considerations--High Yield Bonds." Securities rated Baa or lower by Moody's and
BBB or lower by Standard & Poor's are considered by those rating agencies to
have varying degrees of speculative characteristics. Consequently, although they
can be expected to provide higher yields, such securities may be subject to
greater market fluctuations and risk of loss of
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<PAGE>
income and principal than lower-yielding, higher-rated fixed-income securities.
It is intended that at least 65% of the Portfolio's total assets will be
invested in medium- and long-term debt securities that are rated A or better or
that are unrated but of equivalent quality.
The Portfolio will not directly purchase common stocks. However, it may
retain up to 10% of the value of its assets in common stocks acquired either by
conversion of debt securities or by the exercise of warrants attached to debt
securities.
When warranted, in the opinion of the investment adviser, by prevailing
market or economic conditions, the Portfolio for temporary defensive purposes
may invest up to 100% of its assets in other types of securities, including
investment-grade commercial paper, obligations of banks and savings
institutions, U.S. Government securities, government agency securities and
repurchase agreements, or it may retain funds in cash.
Although in the opinion of the Fund's investment adviser, the risk of loss
of principal should be minimized by the quality of the investments in which the
Portfolio will invest primarily, the long maturities that typically provide the
best yields may subject the Portfolio to substantial price changes resulting
from market yield fluctuations. The market price of fixed-income securities such
as those purchased by the Portfolio is affected by changes in interest rates,
generally. The market value of fixed-income securities generally will fall as
interest rates rise, and rise as interest rates fall.
HIGH YIELD BOND PORTFOLIO
The primary investment objective of the High Yield Bond Portfolio is to
obtain as high a level of current income as is consistent with investment in a
portfolio of fixed-income securities rated in the lower categories of
established rating services. As a secondary objective, the Portfolio seeks
capital appreciation when consistent with its primary objective. The Portfolio
pursues its investment objectives by investing primarily in fixed-income
securities, including corporate bonds and notes, convertible debt securities and
preferred stocks that are rated in the lower categories of established rating
services (Ba or lower by Moody's and BB or lower by Standard & Poor's), or in
unrated securities of comparable quality. Such securities are commonly known as
"junk bonds."
Securities rated Ba or lower by Moody's and BB or lower by Standard & Poor's
are considered by those rating services to have varying degrees of speculative
characteristics. Consequently, although they can be expected to provide higher
yields, such securities may be subject to greater market fluctuations and risk
of loss of income and principal than lower-yielding, higher-rated fixed-income
securities. See "Principal Risk Factors--Special Considerations--High Yield
Bonds" for discussion of various risk factors relating to high yield bonds. The
investment adviser will not rely solely on the ratings assigned by the rating
services, and the Portfolio may invest, without limit, in unrated securities if
such securities offer, in the opinion of the investment adviser, a relatively
high yield without undue risk. Although the Portfolio will invest primarily in
lower-rated securities, it will not invest in securities in the lower rating
categories (Ca or lower for Moody's and CC or lower for Standard & Poor's)
unless the investment adviser believes that the financial condition of the
issuer or the protection afforded to the particular securities is stronger than
would otherwise be indicated by such low ratings.
The Portfolio anticipates that under normal circumstances more than 80% of
its assets will be invested in fixed-income securities, including convertible
and non-convertible debt securities and preferred stock, and that at least 65%
of its assets will be invested in debt securities. The remaining assets of the
Portfolio may be held in cash or investment-grade commercial paper, obligations
of banks and savings institutions, U.S. Government securities, government agency
securities and repurchase agreements. The Portfolio does not intend to invest in
common stocks, rights or other equity securities, but it
13
<PAGE>
may acquire or hold such securities (if consistent with its objectives) when
they are acquired in unit offerings with fixed-income securities or in
connection with an actual or proposed conversion or exchange of fixed-income
securities.
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the
Portfolio may purchase higher-rated securities if the investment adviser
believes that the risk of loss of income and principal may be substantially
reduced with only a relatively small reduction in yield. In addition, when
warranted, in the opinion of the investment adviser, by prevailing market or
economic conditions, the Portfolio for temporary defensive purposes may invest
up to 100% of its assets in investment-grade commercial paper, obligations of
banks and savings institutions, U.S. Government securities, government agency
securities and repurchase agreements, or it may retain funds in cash. The yield
on such securities may be lower than the yield on lower-rated fixed-income
securities.
Because an investment in high-yield securities entails relatively greater
risk of loss of income and principal, an investment in the Portfolio may not
constitute a complete investment program and may not be appropriate for all
investors.
MANAGED PORTFOLIO
The investment objective of the Managed Portfolio is to seek the highest
total investment return of income and capital appreciation. The Portfolio
pursues its objective through a fully managed investment policy consisting
primarily of investment in the following three market sectors: (i) growth common
stocks and securities convertible or exchangeable into growth common stocks,
including warrants and rights; (ii) high grade debt securities (debt securities
rated AAA, AA or A by Standard & Poor's or Aaa, Aa or A by Moody's), U.S.
Government securities and government agency securities, and preferred stocks;
and (iii) high quality short-term money market instruments of the type in which
the Money Market Portfolio may invest.
The Portfolio's investment policy for the stock market sector is to invest
in those securities that appear to the investment adviser to possess above
average potential for appreciation in market value, usually as a result of the
issuer's relatively favorable prospects for improvement in earnings. Such
securities generally include those of companies with established records of
growth in sales or earnings, and companies with promising new products, services
or processes. The Portfolio's investment policies for the debt and money market
sectors are substantially identical to those of the High Grade Bond Portfolio
and Money Market Portfolio, respectively. The Managed Portfolio will, from time
to time, adjust the mix of investments among the three market sectors to
capitalize on perceived variations in return potential produced by the
interaction of changing financial markets and economic conditions. There are no
restrictions as to the proportion of one or another type of security which the
Portfolio may hold. Accordingly, the Portfolio may, at any given time, be
substantially invested in equity securities, in high grade debt securities, or
in high quality short-term money market instruments. Major changes in the
investment mix may occur over several years or during a single year or shorter
period depending upon market and economic conditions. The fact that the
investment mix may be adjusted from time to time may result in high portfolio
turnover (over 100%) and, consequently, high brokerage charges to the Portfolio.
Achievement of the Portfolio's objective depends on the investment adviser's
ability to assess the effect of economic and market trends on different sectors
of the market.
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<PAGE>
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to obtain maximum
current income consistent with liquidity and stability of principal. The
Portfolio pursues its objective by investing in high quality short-term debt
obligations denominated in U.S. dollars that are deemed to present minimal
credit risk.
Money market instruments which the Money Market Portfolio may purchase
include U.S. Government securities, government agency securities, obligations of
banks and savings institutions, commercial paper, short-term corporate debt
securities and repurchase agreements. Appendix A contains a more detailed
description of the money market instruments in which the Portfolio may invest.
The Portfolio's investments will be limited to money market instruments which
mature in thirteen months or less from the date of purchase; however, the
Portfolio may invest in repurchase agreements in which the underlying securities
have maturities in excess of one year from the date of purchase. In addition,
the Portfolio limits its investments to securities that meet the quality and
diversification requirements of Rule 2a-7 under the Investment Company Act of
1940 (the "Investment Company Act"). See Appendix A.
The dollar-weighted average maturity of the Portfolio will not exceed 90
days. The Portfolio seeks to maintain a constant net asset value of $1.00 per
share, and will use the amortized cost method of securities valuation. However,
there can be no guarantee that the Portfolio will be able to maintain a stable
net asset value of $1.00 per share. See "Net Asset Value Information." Because
of the short-term nature of the investments of this Portfolio, a portfolio
turnover rate is not applicable.
BLUE CHIP PORTFOLIO
The investment objective of the Blue Chip Portfolio is growth of capital and
income. The Portfolio pursues its objective by investing primarily in common
stocks of well-capitalized, established companies.
In pursuing its objective, the Portfolio will invest in stocks of
approximately 50 large, well-known companies that the Fund's investment adviser
believes to collectively comprise a representative cross-section of major
industries. Companies of this type are commonly referred to as "blue chip." Blue
chip companies are generally identified by their substantial capitalization,
established history of earnings and superior management structure. The
investment adviser will base its determination of the companies to be included
or retained in the Portfolio, not on the basis of any analysis of the companies'
underlying economic or financial fundamentals or of the relative value of the
securities, but rather on whether the companies in the Portfolio, taken
together, reasonably represent a cross-section of major industries. The Adviser
anticipates that the Portfolio will purchase approximately equal dollar amounts
of shares of each company. However, the Portfolio will not own positions of
equal value in the various companies, partly because of price fluctuations after
purchases by the Portfolio.
The Portfolio may, from time to time, have more than 5% of the value of its
total assets invested in each of one or more particular companies. However, as
to 75% of the Portfolio's total assets, no more than 5% of the Portfolio's total
assets (at the time of purchase) will be invested in securities of any one
issuer (other than the U.S. Government and its agencies and instrumentalities).
The concentration of a significant portion of its assets in stocks of one or a
few companies (or in a relatively limited number of industries) may subject the
Portfolio to increased risk of loss if those stocks (or stocks in those
industries) were to decline in value.
The Portfolio expects that it will remain substantially invested in stocks
at all times. However, at most times the Portfolio will hold a small portion of
its assets (not to exceed 15% of its total assets) in cash or cash equivalents
to accommodate redemptions and so as to avoid having to purchase stocks in small
quantities and thereby incur excessive brokerage costs. Any such cash balances
will be invested in high
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<PAGE>
quality short-term money market instruments of the type in which the Money
Market Portfolio may invest, or retained in cash. The Portfolio will not engage
in the trading of securities for the purpose of realizing short-term profits.
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PRINCIPAL RISK
FACTORS
- -----------------
GENERAL
In general, risk associated with the investments of a particular Portfolio
can be described in terms of current income volatility, financial risk and
market risk. Current income volatility refers to the degree and rapidity with
which changes in overall market interest rates affect the level of current
income. Financial risk refers to the ability of an issuer of a debt security to
pay, on a timely basis, principal and interest on such security. With respect to
the issuer of an equity security, financial risk refers to its earning stability
and overall financial soundness. Market risk for debt securities refers to the
fact that, as a general matter, the current value of debt securities varies
inversely with changes in prevailing interest rates; if interest rates rise, the
value of a debt security will tend to fall. Factors such as the maturity of the
securities and the type of issuer of the securities will affect yields and yield
differentials, which vary over time. Market risk for equity securities refers to
overall stock market valuation levels.
The VALUE GROWTH PORTFOLIO and BLUE CHIP PORTFOLIO are likely to be subject
to moderate levels of both market and financial risk.
The HIGH GRADE BOND PORTFOLIO is likely to be subject to moderate levels of
market risk and relatively low levels of financial risk and current income
volatility.
The HIGH YIELD BOND PORTFOLIO is likely to be subject to moderate levels of
market risk, relatively high levels of financial risk and relatively low levels
of current income volatility.
The market value of fixed-income securities is affected by changes in
general market interest rates. If interest rates decline, the market value of
fixed-income securities tends to increase; while if interest rates increase, the
market value of fixed-income securities tends to decrease. Highly rated
fixed-income securities tend to have lower interest rates and yields, and less
market or financial risk, than do lower-rated fixed-income securities.
Lower-rated and unrated securities generally have a greater degree of market and
financial risk than higher-rated securities, for reasons including the greater
possibility that issuers of lower-rated or unrated securities may not be able to
pay the principal and interest when due, especially during periods of adverse
economic conditions.
The MANAGED PORTFOLIO most likely will be subject to moderate levels of
market and financial risk and relatively low levels of current income
volatility, although current income volatility could be higher if the Portfolio
is heavily invested in short-term money market instruments.
The MONEY MARKET PORTFOLIO should be subject to little market or financial
risk because it invests in high quality short-term investments that reflect
current market interest rates. Although these types of securities generally are
considered to have low financial risk, there is some possibility that issuers
may fail to meet their principal and interest obligations on a timely basis. The
Portfolio could experience a high level of current income volatility because the
level of its current income directly reflects short-term interest rates.
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SPECIAL CONSIDERATIONS--HIGH YIELD BONDS
As reflected above, the High Yield Bond Portfolio intends to invest a
substantial portion of its assets in fixed-income securities offering high
current income. Additionally, subject to its specific investment objectives and
policies as described above, the High Grade Bond Portfolio may invest a portion
of its assets in such securities. Such high yielding fixed-income securities are
ordinarily in the lower rating categories of Moody's or Standard & Poor's (Ba/BB
or lower) or will be unrated securities of comparable quality. Such securities
are commonly known as "junk bonds." These lower-rated fixed-income securities
are considered, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher rating categories. The market values of such securities tend to reflect
individual corporate developments to a greater extent than do higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, regarding
lower-rated bonds may depress prices and liquidity for such securities. Factors
adversely affecting the market value of high yielding securities will adversely
affect a Portfolio's net asset value. In addition, a Portfolio may incur
additional expenses to the extent it were required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings.
Although some risk is inherent in all securities ownership, holders of
fixed-income securities have a claim on the assets of the issuer prior to the
holders of common stock. Therefore, an investment in fixed-income securities
generally entails less risk than an investment in common stock of the same
issuer.
The investment philosophy of the High Yield Bond Portfolio with respect to
high yield bonds is based on the premise that over the long-term a broadly
diversified portfolio of high yield fixed-income securities should, even taking
into account possible losses, provide a higher net return than that achievable
on a portfolio of higher-rated securities. The High Yield Bond Portfolio seeks
to achieve the highest yields possible while reducing relative risks through:
(a) broad diversification,
(b) credit analysis by the investment adviser of the issuers in which the
Portfolio invests,
(c) monitoring and seeking to anticipate changes and trends in the economy
and financial markets that might affect the prices of portfolio
securities.
The investment adviser's judgment as to the "reasonableness" of the risk
involved in any particular investment will be a function of its experience in
managing fixed-income investments and its evaluation of general economic and
financial conditions of a specific issuer.
In some circumstances, defensive strategies may be implemented to preserve
or enhance capital even at the sacrifice of current yield. Defensive strategies,
which may be used singly or in any combination, may include, but are not limited
to, investments in discount securities or investments in money market
instruments.
High yielding securities may be issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or as part of a corporate takeover. Companies that issue such
high yielding securities are often highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher-rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of high
yielding securities may experience financial stress. During such periods, such
issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability
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<PAGE>
to service its debt obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet specific projected
business forecasts or the unavailability of additional financing. The risk of
loss due to default by the issuer is significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
High yielding securities frequently have call or buy-back features that
would permit an issuer to call or repurchase the security from the Portfolio. If
a call were exercised by the issuer during a period of declining interest rates,
a Portfolio would likely have to replace such called security with a lower
yielding security, thus decreasing the net investment income to the Portfolio.
The premature disposition of a high yielding security because of a call or
buy-back feature, the deterioration of the issuer's creditworthiness or a
default may also make it more difficult for a Portfolio to time its receipt of
income, which may have tax implications.
A Portfolio may have difficulty disposing of certain high yielding
securities for which there is a thin trading market. Because not all dealers
maintain markets in all high yielding securities, there is no established retail
secondary market for many of these securities, and the Fund anticipates that
they could be sold only to a limited number of dealers or institutional
investors. To the extent there is a secondary trading market for high yielding
securities, it is generally not so liquid as that for higher-rated securities.
The lack of a liquid secondary market may have an adverse impact on market price
and a Portfolio's ability to dispose of particular issues when necessary to meet
the Portfolio's liquidity needs, or in response to a specific economic event
such as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities may also make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing a
Portfolio's assets. Market quotations are generally available on many high yield
issues only from a limited number of dealers and may not necessarily represent
firm bids of such dealers or prices for actual sales.
It is likely that a major economic recession could severely affect the
market for and the values of high yielding securities, as well as the ability of
the issuers of such securities to repay principal and pay interest thereon.
A Portfolio may acquire high yielding securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. While many recent high yielding securities have been sold with
registration rights, covenants and penalty provisions for delayed registration,
if a Portfolio is required to sell such restricted securities before the
securities have been registered, it may be deemed an underwriter of such
securities as defined in the Securities Act of 1933, which entails special
responsibilities and liabilities. A Portfolio may incur special costs in
disposing of such securities, but will generally incur no costs when the issuer
is responsible for registering the securities.
A Portfolio may acquire high yielding securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with any person concerning the acquisition of such
securities, and the investment adviser will carefully review the credit and
other characteristics pertinent to such new issues.
From time to time, there have been proposals for legislation designed to
limit the use of certain high yielding securities in connection with leveraged
buy-outs, mergers and acquisitions, or to limit the deductibility of interest
payments on such securities. Such proposals if enacted into law could reduce the
market for such securities generally, could negatively affect the financial
condition of issuers of high yield securities by removing or reducing a source
of future financing and could negatively affect the value of specific high yield
issues. However, the likelihood of any such legislation or the effect thereof is
uncertain.
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<PAGE>
Zero coupon securities and pay in-kind bonds involve additional special
obligations. Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payments of interest prior to maturity or to a specified
cash payment date when the securities begin paying current interest (the "cash
payment date"), and therefore are issued and traded at a discount from their
face amounts or par value. The discount varies depending upon the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, absent
financial difficulties of the issuer, decreases as the final maturity or cash
payment date of the security approaches. The market prices of zero coupon
securities are generally more volatile than those of securities that pay
interest periodically, and they are more likely to respond to changes in
interest rates than non-zero coupon securities having similar maturities and
credit quality. The credit risk factors pertaining to lower-rated securities
generally also apply to lower-rated zero coupon bonds and pay in-kind bonds.
Such zero coupon, pay in-kind or delayed interest bonds carry an additional risk
in that, unlike bonds that pay interest throughout the period to maturity, a
Portfolio will realize no cash until the cash payment date unless a portion of
such securities is sold and, if the issuer defaults, a Portfolio may obtain no
return at all on its investment.
Federal income tax law requires the holder of zero coupon securities or of
certain pay in-kind bonds (bonds that pay interest through the issuance of
additional bonds) to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, a
Portfolio will be required to distribute income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
Additional information concerning high yielding securities appears under
"Appendix C--Description of Corporate Bond Ratings."
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DESCRIPTION OF
CERTAIN INVESTMENT
TECHNIQUES
------------------------
Except as otherwise noted below, the following investment strategies and
techniques may be used by all Portfolios.
FOREIGN SECURITIES
The Value Growth Portfolio and Managed Portfolio each may invest up to 25%
of its net assets in equity and debt securities of foreign issuers, and the High
Grade Bond Portfolio and High Yield Bond Portfolio each may invest up to 25% of
its net assets in debt securities of foreign issuers, to the extent the purchase
of such foreign securities is otherwise consistent with the Portfolio's
investment objectives. Investments will be made only in foreign securities that
are publicly traded in the U.S. and payable in U.S. dollars. The investment
adviser will apply standards for evaluating the quality and risk of investments
in foreign securities comparable to those it applies to investments in domestic
securities while also taking into consideration the opportunities and special
risks in connection with foreign securities.
Investments in foreign securities can provide a Portfolio with more
opportunities for attractive returns, but they may also involve some special
risks such as exposure to potentially adverse local political and economic
developments; nationalization and exchange controls; potentially lower liquidity
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<PAGE>
and higher volatility; and possible problems arising from accounting,
disclosure, settlement, and regulatory practices that differ from U.S.
standards. Fluctuations in exchange rates may affect the earning power and asset
value of the foreign entity issuing the security and can either increase or
decrease the investment's value. Dividend and interest payments may be
repatriated based upon the exchange rate at the time of disbursement or payment,
and restrictions on capital flows may be imposed. The characteristics of the
securities in the Portfolios, such as the maturity and the type of issuer, will
affect yields and yield differentials, which vary over time.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS
From time to time, in the ordinary course of business, each of the
Portfolios may purchase newly-issued securities appropriate for the Portfolio on
a "when-issued" basis and may purchase or sell securities appropriate for the
Portfolio on a "delayed delivery" basis. When-issued or delayed delivery
transactions involve a commitment by a Portfolio to purchase or sell particular
securities with payment and delivery to take place at a future date. These
transactions allow the Portfolio to lock in an attractive purchase price or
yield on a security the Portfolio intends to purchase or an attractive sale
price on a security the Portfolio intends to sell. Normally, settlement occurs
within one month of the purchase or sale. During the period between purchase or
sale and settlement, no payment is made or received by a Portfolio and, for
delayed delivery purchases, no interest accrues to the Portfolio. A Portfolio
will only make commitments to purchase securities on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities, but it
reserves the right to sell such securities before the settlement date if deemed
advisable.
At the time a Portfolio makes the commitment to purchase a security on a
when-issued or delayed delivery basis, it will segregate the security on the
Fund's accounting records, record the transaction and reflect the amount due and
the value of the security in determining its net asset value. Likewise, at the
time a Portfolio makes the commitment to sell a security on a delayed delivery
basis, it will segregate the security on the Fund's accounting records, record
the transaction and include the proceeds to be received in determining its net
asset value; accordingly, any fluctuations in the value of the security sold
pursuant to a delayed delivery commitment are ignored in calculating net asset
value so long as the commitment remains in effect. The market value of the
when-issued or delayed delivery securities at any time may be more or less than
the purchase price to be paid or the sale price to be received at the settlement
date. To the extent that a Portfolio engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring or selling portfolio
securities consistent with the Portfolio's investment objectives and policies
and not for the purpose of investment leverage or to speculate on interest rate
changes.
The investment adviser does not believe that a Portfolio's net asset value
or income will be adversely affected overall by the purchase of securities on a
when-issued or delayed delivery basis. Each Portfolio will segregate on its
accounting records cash, U.S. government securities or other high-grade debt
obligations at least equal in value to commitments to purchase securities on a
when-issued or delayed delivery basis without limit. To the extent that assets
of a Portfolio are held in cash pending the settlement of a purchase of
securities, that Portfolio would earn no income. In the case of a commitment to
sell portfolio securities on a delayed delivery basis, each Portfolio will
segregate the securities on its accounting records while the commitment is
outstanding.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may, from time to time, lend securities (but not in excess of
20% of its assets) from its Portfolio to brokers, dealers and financial
institutions, provided that: (i) the loan is secured continuously by collateral
consisting of U.S. Government securities, government agency securities, cash or
cash equivalents adjusted daily to have a market value at least equal to the
current market value of the
20
<PAGE>
securities loaned plus accrued interest; (ii) the Portfolio may at any time call
the loan and regain the securities loaned; and (iii) the investment adviser
(under the review of the Board of Directors) has reviewed the creditworthiness
of the borrower and has found such creditworthiness satisfactory. The Portfolio
will receive from the borrower amounts equal to the dividends or interest paid
on the securities loaned, and will also earn income for having made the loan.
Any cash collateral will be invested in short-term securities, the income from
which will increase the return to the Portfolio.
WRITING COVERED CALL OPTIONS
Each Portfolio (other than the Money Market Portfolio) may write (sell)
covered call options on portfolio securities representing up to 100% of its net
assets in an attempt to enhance investment performance or to reduce the risks
associated with investments. A call option gives the purchaser the right to buy,
and the writer the obligation to sell, an underlying security at a particular
exercise price during the option period. A Portfolio will write call options
only on a covered basis, which means that the Portfolio will own the underlying
security subject to the call option at all times during the option period.
Options written by a Portfolio will normally have expiration dates between three
and nine months from the date written. Such options and the securities
underlying the options must both be listed on national securities exchanges,
except that debt securities and related options need not be so listed. The
advantage to a Portfolio of writing covered call options is that the Portfolio
receives a premium which constitutes additional income, which would serve both
to enhance investment performance and to offset in whole or in part any decline
in the value of the underlying security. However, the disadvantage is that
during the option period the Portfolio would give up the potential for capital
appreciation above the exercise price if the underlying security were to rise in
value; and that, unless a closing purchase transaction is effected, the
Portfolio will be required to continue to hold the underlying security for the
entire option period, and would bear the risk of loss if the price of the
securitiy were to decline.
INVESTMENT COMPANY SECURITIES
Each of the Portfolios may invest, subject to the investment limitations
described below, in shares of other investment companies which seek to maintain
a $1.00 net asset value per share ("Money Market Funds"). The Portfolios intend
to invest available cash balances in such Money Market Funds. In addition, the
Portfolios may invest in such Money Market Funds for temporary defensive
purposes (for example, when EquiTrust believes such a position is warranted by
uncertain or unusual market conditions, or when liquidity is required to meet
unusually high redemption requests) or for other purposes. No more than 5% of
the value of a Portfolio's total assets will be invested in securities of Money
Market Funds. In addition, a Portfolio may hold no more than 3% of the
outstanding voting stock of any Money Market Fund. As a shareholder of another
investment company, a Portfolio would bear, along with other shareholders, its
pro-rata portion of the Money Market Fund's expenses, including advisory fees.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements as a means of earning
income for periods as short as overnight. A repurchase agreement is an agreement
under which the Portfolio purchases a security and the seller agrees, at the
time of sale, to repurchase the security at a specified time and price, thereby
determining the yield during the Portfolio's holding period. That yield is
determined by current short-term rates and may be more or less than the interest
rate on the underlying security. The value of the underlying securities is
marked to market daily. If the value of the underlying securities declined, the
seller would be required to provide the Portfolio with additional securities so
that the aggregate value of the underlying securities was at least equal to the
repurchase price.
The Portfolios may also enter into a special type of repurchase agreement
known as an "open repurchase agreement." An open repurchase agreement varies
from the typical repurchase agreement
21
<PAGE>
in the following respects: (1) the agreement has no set maturity, but instead
matures upon 24 hours' notice to the seller; and (2) the repurchase price is not
determined at the time the agreement is entered into, but instead is based on a
variable interest rate and duration of the agreement.
The Portfolios may enter into repurchase agreements only with banks or
securities dealers, and the underlying securities will consist of securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. If a seller of a repurchase agreement were to default, the
Portfolio might experience losses, including delays and expenses in enforcing
its rights. To minimize this risk, the investment adviser (under the review of
the Board of Directors) will review the creditworthiness of the seller, and must
find such creditworthiness satisfactory before a Portfolio may enter into the
repurchase agreement.
A Portfolio may invest no more than 10% of its net assets in repurchase
agreements maturing in more than seven days, and no more than 25% of its net
assets in repurchase agreements in which the underlying securities have
maturities in excess of one year, although there is no limit on the percentage
of each Portfolio's assets that may be invested in repurchase agreements that
mature in less than seven days and have underlying securities with maturities of
less than one year. Net assets are taken at market value at the time of each
purchase for purposes of the foregoing limitations. Open repurchase agreements
are considered to mature in one day.
INVESTMENTS IN CAPITAL SECURITIES
Each Portfolio (other than the Blue Chip and Money Market Portfolios) may
invest in capital (trust-preferred) securities. These securities are issued by
trusts or other special purpose entities created for the purpose of investing in
junior subordinated debentures. Capital securities, which have no voting rights,
have a final stated maturity date and a fixed schedule for periodic payments. In
addition, capital securities have provisions which provide preference over
common and preferred senior debt. The issuers of these securities may defer
interest payments for a number of years (up to five years), although interest
continues to accrue cumulatively. In addition, the trust may be terminated and
the debentures distributed in liquidation. Because of the structure of these
securities, they have the characteristics, and involve the associated risks, of
both fixed income and preferred equity securities. At the present time, the
Internal Revenue Service treats capital securities as debt. Proposed tax
legislation may cause this tax treatment to be modified in the future. In the
event that the tax treatment of interest payments of these types of securities
is modified, the Portfolio will reconsider the appropriateness of continued
investment in these securities. For purposes of percentage limitations
applicable to the Portfolio, these securities will be treated as debt
securities.
- --------------------------------------------------------------------------------
HOW TO
BUY
SHARES
- ---------
Shares of the Fund's various Portfolios are sold on a continuing basis at
their net asset value next determined after a purchase order and payment are
received in proper form as described below. The
Fund is open for business on each day the New York Stock Exchange is open for
trading (except the Friday after Thanksgiving Day and the Thursday before
Christmas Day). The Fund reserves the right to reject any purchase order and to
change the minimum purchase requirements at any time.
22
<PAGE>
INITIAL PURCHASE
The minimum initial purchase is $250 per Portfolio, except there is no
minimum initial investment for retirement accounts (except as subject to
Automatic Investment Plan limitations) and accounts opened under bona fide
payroll deduction plans. There is no initial sales charge. An Application is
included in the back of this Prospectus.
Complete the Application and mail it with your check payable to the
appropriate Portfolio of the Fund to: EquiTrust Series Fund, Inc., 5400
University Avenue, West Des Moines, Iowa 50266-5997.
SUBSEQUENT PURCHASES
Send the Fund a check (no minimum) payable to the appropriate Portfolio of
the Fund accompanied by a letter indicating the dollar value of the shares to be
purchased and identifying the Portfolio, the account number and registered
owner(s).
PURCHASES BY WIRE (MONEY MARKET PORTFOLIO ONLY)
Purchases may be made in the Money Market Portfolio by wire transfer. If
making an initial purchase, call the toll free number (800) 247-4170 (in Iowa,
call toll free (800) 422-3175 or in the Des Moines metropolitan area call
225-5586) to obtain a Money Market Portfolio Account Number and provide the Fund
with your name, address and social security or tax identification number. Then,
simply instruct your bank to "wire transfer" funds to: BANKERS TRUST COMPANY,
ABA #021001033, DDA ACCOUNT #00220695 MONEY MARKET PORTFOLIO OF EQUITRUST SERIES
FUND, INC., FOR FURTHER CREDIT TO YOUR ACCOUNT REGISTRATION AND ACCOUNT NUMBER.
Finally, if making an initial purchase, complete an Application and mail it to
the Fund at the address listed under "Initial Purchase" above.
- --------------------------------------------------------------------------------
HOW TO
REDEEM
SHARES
---------
Upon receipt of an executed redemption request in proper form, as described
below, the Fund will redeem shares of a Portfolio at the next determined net
asset value. Proceeds payable upon redemption will be reduced by the amount of
any applicable contingent deferred sales charge. The Fund intends to pay
redemption proceeds within one business day after receipt of an executed
redemption request in proper form. If shares to be redeemed were purchased by
check, the Fund may delay transmittal of redemption proceeds until it has
determined that the check has cleared, which may take up to 15 days from the
purchase date.
Redemptions of either the number or dollar value of shares of a specified
Portfolio can be requested by writing to the Fund, 5400 University Avenue, West
Des Moines, Iowa 50266-5997. Any certificates for shares to be redeemed must be
included, duly endorsed. The letter (and certificates, if any) must be signed
exactly as the account is registered and shall be accompanied by such other
documentation of authority as the Fund deems necessary in the case of estates,
trusts, guardianships, corporations, unincorporated associations and pension and
profit sharing plans. On a jointly owned account, all owners must sign. FOR
REDEMPTIONS GREATER THAN $5,000, SIGNATURES OF ACCOUNT OWNERS MUST BE
23
<PAGE>
GUARANTEED. THE FOLLOWING INSTITUTIONS MAY PROVIDE SIGNATURE GUARANTEES:
PARTICIPATING COMMERCIAL BANKS, TRUST COMPANIES, MEMBERS OF A NATIONAL
SECURITIES EXCHANGE, SAVINGS AND LOAN ASSOCIATIONS OR CREDIT UNIONS, OR MAY BE
PROVIDED BY A REGISTERED REPRESENTATIVE OF EQUITRUST MARKETING SERVICES, INC. OR
EQUITRUST INVESTMENT MANAGEMENT SERVICES, INC. SIGNATURES MAY NOT BE GUARANTEED
BY A NOTARY PUBLIC.
EXPEDITED REDEMPTION PROCEDURES. Shareholders may redeem shares of any
Portfolio by telephone. The proceeds of shares so redeemed (less any contingent
deferred sales charge) will be sent by Federal wire transfer to a single
designated account maintained by the shareholder at a domestic commercial bank
that is a member of the Federal Reserve System or by check to the shareholder's
address of record. To effect a redemption, a shareholder should call the Fund at
the appropriate number shown on the cover of the Prospectus between the hours of
8:00 a.m. and 4:30 p.m. (Central Time) on any day when the Fund is open for
business. Requests received by the Fund prior to the earlier of the close of the
New York Stock Exchange or 3:00 p.m. (Central Time) will result in shares being
redeemed that day at the next determined net asset value, and the proceeds will
normally be sent to the designated bank account or shareholder's address the
following business day. The minimum amount that may be wired is $1,000, and the
minimum that may be sent by check is the lesser of $100 or the account balance.
The Fund reserves the right to change these minimums or to terminate the wire
redemption privilege. All applications for telephone redemption service must
have signatures guaranteed. The following institutions may provide signature
guarantees: participating commercial banks, trust companies, members of a
national securities exchange, savings and loan associations or credit unions, or
may be provided by a registered representative of EquiTrust Marketing Services,
Inc. or EquiTrust Investment Management Services, Inc. Applications shall
include such other documentation of authority as the Fund deems necessary in the
case of estates, trusts, guardianships, corporations, unincorporated
associations and pension and profit sharing plans. A shareholder wishing to use
this method of redemption must complete the appropriate Application and it must
be on file with the Fund. Once the form is on file, the Fund will honor
redemption requests by any person by telephone (using the toll free numbers
listed on the cover page), telegraph or other method without a signature
guarantee from the shareholder or any other person. The Fund is not responsible
for the efficiency of the federal wire system or the shareholder's bank. To
change the name of the single designated bank account to receive wire redemption
proceeds, it is necessary to send a written request with signatures guaranteed
to the Fund. The Fund does not currently charge for wiring funds, although the
shareholder will be responsible for any wire fees charged by the receiving bank.
THIS PRIVILEGE WILL BE INACTIVE FOR TEN BUSINESS DAYS FOLLOWING A CHANGE OF
ADDRESS. This procedure is not available for Retirement Accounts or shares for
which certificates have been issued.
Shareholders may not use expedited redemption procedures until the shares
being redeemed have been on the Fund's books for at least four business days.
There is no such delay in redeeming shares that were purchased by wiring Federal
Funds.
The Adviser employs procedures designed to confirm that instructions
communicated by telephone are genuine, including requiring certain identifying
information prior to acting upon instructions, recording all telephone
instructions and sending written confirmations of instructions. To the extent
such procedures are reasonably designed to prevent unauthorized or fraudulent
instructions neither the Adviser nor the Fund would be liable for any losses
from unauthorized or fraudulent instructions.
CONTINGENT DEFERRED SALES CHARGE. A contingent deferred sales charge is
imposed on that amount by which a redemption causes the current value of a
Portfolio account to fall below the total dollar
24
<PAGE>
amount of purchases of that Portfolio's shares made during the preceding six
years (reinvested dividends are not considered purchases for this purpose). The
charge is imposed upon redemptions of shares in accordance with the following
schedule:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
- --------------------------------------------------- -------------------
<S> <C>
First.......................................... 5%
Second......................................... 4%
Third.......................................... 4%
Fourth......................................... 3%
Fifth.......................................... 2%
Sixth.......................................... 1%
Seventh and following.......................... 0%
</TABLE>
The following example will illustrate the operation of the contingent
deferred sales charge. Assume that an investor purchases $10,000 of a
Portfolio's shares and that 30 months later the value of the account has grown
through investment performance and reinvestment of dividends to $14,000. The
investor then may redeem up to $4,000 ($14,000 minus $10,000) without incurring
a contingent deferred sales charge. If the investor should redeem $5,000, a
contingent deferred sales charge would be imposed on $1,000 of the redemption.
The charge would be imposed at the rate of 4% ($40) because the redemption
occurred in the third year after the purchase. In determining whether a
contingent deferred sales charge is payable, it is assumed that the redemption
is made from the earliest purchase of shares.
The contingent deferred sales charge will be waived in the event of the
death of the shareholder (including a registered joint owner), with respect to
redemptions in connection with distributions from 401(m), 401(k) or 457(k)
accounts sponsored by FBL Financial Group, Inc. or its affiliated companies, or
with respect to withdrawals under the Fund's periodic withdrawal plan. EquiTrust
Investment Management Services, Inc., the Fund's Distributor, receives any
contingent deferred sales charge directly.
INVOLUNTARY REDEMPTIONS. Due to the high cost of maintaining small
accounts, the Fund reserves the right to redeem a Portfolio account that falls
below $250 as a result of redemptions. Prior to effecting such an involuntary
redemption, shareholders will be notified in writing and will be allowed 60 days
to make additional purchases to bring the account up to the Portfolio's $250
minimum investment requirement. Any such involuntary redemption will not be
subject to a contingent deferred sales charge.
REDEMPTIONS IN-KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of a Portfolio
to make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by the distribution in-kind of securities held by the
applicable Portfolio in lieu of cash in conformity with applicable rules of the
Securities and Exchange Commission. Investors may incur brokerage charges on the
sale of securities so received in payment of redemption. A redemption paid
in-kind is treated as a sale for federal income tax purposes even though the
shareholder may have received no cash. The Fund has elected to be governed by
Rule 18f-1 under the Investment Company Act pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1
percent of the net asset value of a Portfolio during any 90-day period for any
one shareholder of record.
25
<PAGE>
- --------------------------------------------------------------------------------
OTHER
SHAREHOLDER
SERVICES
- ----------------
The Fund offers a number of shareholder services designed to facilitate the
purchase and redemption of shares of its Portfolios. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund.
PERIODIC WITHDRAWAL PLAN
A shareholder who owns in a single account $5,000 or more of a Portfolio's
shares may establish a Periodic Withdrawal Plan to provide for regular monthly,
quarterly or annual payments of a fixed dollar amount or fixed percent of the
account balance (with a minimum $100 annual payment and a maximum annual
withdrawable amount of 10% of the shareholder's declining account balance under
the plan) to be sent to the shareholder or a designated payee. (Account balance
and withdrawal limitations may be waived if the plan is established using life
expectancy factors to calculate a required minimum distribution.) Shares of a
Portfolio held in the shareholder's account having a net asset value of the
amount of the requested payment will be redeemed on or around the fifth business
day before the end of the applicable month and a check will be mailed to the
shareholder within seven days thereafter. Depending upon the size of the
payments requested and fluctuations in the net asset value of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account. EquiTrust will waive the contingent deferred sales charge
on redemptions made pursuant to a periodic withdrawal program. The right is
reserved to amend the periodic withdrawal program on thirty days' notice. The
program may be terminated at any time by the shareholder or the Fund.
AUTOMATIC INVESTMENT PLAN
A shareholder may elect to participate in the Fund's automatic investment
plan. This plan enables a shareholder to automatically purchase shares of the
Fund on a monthly basis. A minimum initial investment of $50 per Portfolio
account is required to establish an automatic investment plan. Minimum monthly
investments of $25 per Portfolio account are necessary to maintain the plan. The
Fund will debit the shareholder's financial institution account and subsequently
purchase shares of the Fund having a net asset value of the amount of the
requested deposit on or around the 16th day of the month. Shareholders
interested in this plan must complete an automatic investment form available
from the Fund. If a shareholder has elected to participate in the Automatic
Investment Plan, and all shares of an account with that option are exchanged for
shares of another portfolio, the Automatic Investment Plan will continue under
the account to which the shares were exchanged, until such time as the Fund is
notified in writing to discontinue the Plan.
EXCHANGE PRIVILEGE
A shareholder may exchange all or some shares of a Portfolio for shares of
any other Portfolio in the Fund, provided the accounts have like registrations,
if that Portfolio's shares are eligible for sale in the shareholder's state of
residence, on the basis of each Portfolio's relative net asset value per share
next determined following receipt of an exchange request in proper form. There
is no minimum amount required to exercise the exchange privilege between
Portfolios, except that shareholders wishing to open an account in a new
Portfolio must meet the minimum purchase requirements described under "How to
Buy Shares." If the exchange involves the establishment of a new account, an
application for that account must be completed and mailed to the Fund. Shares
may be exchanged without any contingent deferred sales charge but will be
subject to a $5.00 exchange fee. Amounts exchanged retain
26
<PAGE>
their original cost and purchase date for purposes of the contingent deferred
sales charge. If shares of the Portfolio being exchanged were acquired at
different times, the shares of the Portfolio acquired in the exchange will be
deemed to possess the same holding period (or exempt status) for contingent
deferred sales charge purposes as the shares being exchanged. Exercise of the
exchange privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a capital gain or loss may be realized by the
shareholder. Shareholders are automatically provided the exchange privilege upon
establishment of an account with the Fund. Shareholders not interested in the
exchange privilege must check the appropriate box on the Application. The
exchange privilege may be provided after an account has been established by
completing an exchange form (obtainable from the Fund). Once the privilege has
been afforded a shareholder, exchanges may be authorized by telephone by ANY
PERSON, not just the shareholder of record (by calling one of the numbers shown
on the front cover, from 8:00 a.m. to 4:30 p.m. (Central Time) on any day that
the Fund is open for business) or by letter (by writing the Fund at 5400
University Avenue, West Des Moines, Iowa 50266-5997). Telephone exchange
requests received prior to the close of the New York Stock Exchange (usually
3:00 p.m., Central Time) will be effected at that day's relative net asset
values.
Shares of EquiTrust Money Market Fund, Inc. may be exchanged for shares of
any Portfolio of the Fund without imposition of an exchange fee. The exchange
privilege may be modified or terminated by the Fund at any time. An exchange
application must be on file with EquiTrust Money Market Fund, Inc.
FACSIMILE REQUESTS
Facsimile requests (faxes) will be accepted for redemption of shares and for
changes to shareholder account information. Faxes must contain the appropriate
signature(s), signature guarantee(s) and necessary accompanying documents. The
transmission should also include account number(s) and a return fax number and
telephone number. The Application for Shares, Automatic Investment Form (ACH
Agreement), Application for Expedited Redemption, and any change or redemption
that requires the submission of a certified document must be delivered in
original form. Fax requests will be accepted at 515-226-6209.
RETIREMENT PLANS
Eligible shareholders of the Fund may participate in a variety of qualified
retirement plans which are available from the Distributor. Some of the plans
currently offered are: Individual Retirement Accounts (IRAs), Roth IRAs,
Simplified Employee Pension Plans (SEPs), Savings Incentive Match Plans for
Employees (SIMPLEs), Tax-Sheltered 403(b) Plans, Qualified Pension and Profit
Sharing Plans (Keogh Plans) and Public Employer Deferred Compensation Plans. The
initial investment to establish any such plan, and subsequent investments, may
be in any amount (subject to Automatic Investment Plan limitations). Investors
Fiduciary Trust Company ("IFTC") of Kansas City, Missouri serves as custodian
and provides the required services for IRAs, Roth IRAs, SEPs, SIMPLEs and
Qualified Pension and Profit Sharing Plans. A custodial fee, currently $10.00,
will be collected annually by liquidating shares, or fractions thereof, from
each participant's account(s). Information with respect to these plans is
available upon request from the Fund.
Trustees of qualified retirement plans and 403(b)(7) custodial accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from IRAs or any part of a distribution which is transferred
directly to another qualified retirement plan, 403(b)(7) account or IRA.
Shareholders should consult their tax advisers regarding this 20% withholding
requirement.
27
<PAGE>
EDUCATION PLAN
Eligible shareholders of the Fund may participate in Education IRAs, which
are available from the Distributor. The initial investment to establish this
plan, and subsequent investments, may be in any amount (subject to Automatic
Investment Plan limitations). IFTC serves as custodian and provides the required
services for Education IRAs. A custodial fee, currently $10.00, will be
collected annually by liquidating shares, or fractions thereof, from each
participant's account(s). Information with respect to this plan is available
upon request from the Fund.
- --------------------------------------------------------------------------------
NET ASSET
VALUE
INFORMATION
- ---------------
The net asset value per share of each Portfolio is determined as of the
earlier of 3:00 P.M. (Central Time) or the close of the New York Stock Exchange
on each day that the Exchange is open (except the Friday after Thanksgiving Day
and the Thursday before Christmas Day), and on each other day on which there is
sufficient trading in the Portfolio's investments that it might affect the net
asset value, except that the net asset value of a given Portfolio will not be
computed on a day when no orders for purchase or redemption of shares of the
Portfolio are received. If the Fund offices should be closed because of a
weather-related or comparable type of emergency, and the Fund is unable to
segregate orders and redemption requests received on the emergency closed day,
then the Fund will price those orders and redemptions at the net asset value
next determined. The net asset value per share of each Portfolio is computed by
dividing the total value of the Portfolio's securities and other assets, less
liabilities, by the total number of outstanding shares of such Portfolio. The
Fund reserves the right to calculate or estimate the net asset value of one or
more Portfolios more frequently than once daily if deemed desirable.
MONEY MARKET PORTFOLIO. The net asset value per share of the Money Market
Portfolio is ordinarily $1.00. The Money Market Portfolio's securities are
valued using the amortized cost method of valuation. This involves valuing a
security at cost on the date of acquisition and thereafter assuming a constant
accretion of a discount or amortization of a premium to maturity. For a further
discussion of the manner in which such values are determined, see the Statement
of Additional Information under the heading "Net Asset Value."
OTHER PORTFOLIOS. For all Portfolios other than the Money Market Portfolio,
Portfolio securities that are traded on a national exchange are valued at the
last sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between the closing bid and asked
prices. Securities other than money market instruments traded in the
over-the-counter market are valued at the mean between the bid and asked prices
or at the yield equivalent as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on a national exchange are valued according to the
broadest and most representative market; and it is expected that, for debt
securities, this ordinarily will be the over-the-counter market. Values of
securities and assets for which market quotations are not readily available are
determined in good faith by or under the direction of the Board of Directors.
Money market instruments are valued at market value, except that debt
instruments maturing in 60 days or less are valued using the amortized cost
method of valuation described above with respect to the Money Market Portfolio.
28
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE
INFORMATION
-----------------
From time to time, the Fund may advertise several types of performance
information for a Portfolio. All Portfolios, except the Money Market Portfolio,
may advertise "average annual total return" and "total return." The High Grade
Bond and High Yield Bond Portfolios may also advertise "yield." The Money Market
Portfolio may advertise "yield" and "effective yield." Each of these figures is
based upon historical results and is not necessarily representative of the
future performance of a Portfolio.
Average annual total return and total return figures measure both the net
income generated by, and the effect of any realized and unrealized appreciation
or depreciation of, the underlying investments in the Portfolio for the
designated period, assuming the reinvestment of all dividends and distributions
during the period. Thus, these figures reflect the change in value of an
investment in the Portfolio during a specified period. Average annual total
return will be quoted for at least one-, five- and ten-year periods (or, if such
periods have not yet elapsed, at the end of a shorter period corresponding to
the life of the Portfolio). Average annual total return figures represent the
average annual percentage change in the value of a specific dollar amount
invested in the Portfolio's shares for the designated period. Total return
figures are not annualized and represent the aggregate percentage or dollar
value change over the period.
Yield is a measure of the net investment income per share earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Portfolio) expressed as a percentage of the Portfolio's net asset value per
share at the end of the period (except for the Money Market Portfolio where the
net asset value per share at the beginning of the period is used). Yield is an
annualized figure which means that it is assumed that the Portfolio generates
the same level of investment income over a one-year period. The effective yield
for the Money Market Portfolio is calculated similarly, but the net investment
income earned is assumed to be compounded when annualized. The Money Market
Portfolio's effective yield will be slightly higher than its yield due to this
compounding. Semi-annual compounding is assumed for Portfolios other than the
Money Market Portfolio.
From time to time, the Fund may include in its sales literature and
shareholder reports for the High Grade Bond and High Yield Bond Portfolios a
quotation of the current "distribution rate" for the Portfolios. The
distribution rate is simply a measure of the level of income and short-term
capital gain dividends distributed for a specified period. It differs from
yield, which is a measure of the income actually earned by the Portfolio's
investments and from total return, which is a measure of the income actually
earned by, plus the effect of any realized or unrealized appreciation or
depreciation of, such investments during the period. Distribution rate,
therefore, is not intended to be a complete measure of performance. Distribution
rate may sometimes be greater than yield since, for instance, it may include
short-term gains (which may be non-recurring) and may not reflect the
amortization of bond premiums.
Additionally, from time to time, in advertisements or reports to
shareholders, a Portfolio may compare its performance to that of the Consumer
Price Index or various unmanaged indexes such as the Dow Jones Industrial
Average, the Standard & Poor's 500, the Shearson/Lehman Government and Corporate
Bond Index and the Salomon Brothers High Grade Bond Index. A Portfolio may also
use mutual fund quotation services such as Lipper Analytical Services, Inc., an
independent mutual fund reporting service, or similar industry services, for
purposes of comparing a Portfolio's rank or performance with that of other
mutual funds having similar investment objectives. Performance comparisons
should not be considered representative of the future performance of any
Portfolio.
29
<PAGE>
The Portfolio's shares are sold at net asset value, and return and net asset
value will fluctuate, except that the Money Market Portfolio seeks to maintain a
$1.00 net asset value per share. Shares of the Portfolio are redeemable by an
investor at the then current net asset value, which may be more or less than
original cost. Yield and effective yield figures do not include the effect of
any contingent deferred sales charge. The standardized average annual total
return figures, calculated in accordance with a formula prescribed by the
Securities and Exchange Commission, include the effect of the contingent
deferred sales charge that may be imposed at the end of the period indicated. In
addition, average annual total return figures, which do not include the effect
of any contingent deferred sales charge, may also be used. Total return figures
may or may not include the effect of the contingent deferred sales charge that
may be imposed at the end of the period in question. Performance figures not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included. More information about performance figures is
included in the Statement of Additional information.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND
- ---------------
BOARD OF DIRECTORS
The Board of Directors has seven members, four of whom are not "interested
persons" of the Fund as defined in the Investment Company Act. The Board of
Directors is responsible for the overall supervision of the operations of the
Fund and performs the various duties imposed on the directors of investment
companies by the Investment Company Act. The Board of Directors elects officers
of the Fund annually.
INVESTMENT ADVISER
EquiTrust Investment Management Services, Inc., 5400 University Avenue, West
Des Moines, Iowa 50266, serves as the Fund's investment adviser pursuant to an
Investment Advisory and Management Services Agreement. The Adviser is an
indirect subsidiary of FBL Financial Group, Inc., an Iowa corporation. The
following individuals are officers and/or directors of both the Adviser and the
Fund: Stephen M. Morain, Thomas R. Gibson, Timothy J. Hoffman, Dennis M. Marker,
James W. Noyce, William J. Oddy, Lou Ann Sandburg, Sue A. Cornick, Kristi Rojohn
and Elaine A. Followwill. EquiTrust has served as the Fund's investment adviser
since the Fund commenced operations in 1971. The Adviser also acts as an
investment adviser to individuals, institutions and two other investment
companies: EquiTrust Money Market Fund, Inc. and EquiTrust Variable Insurance
Series Fund. Personnel of the Adviser also manage investments for the portfolios
of insurance companies.
The Adviser handles the investment and reinvestment of the Fund's assets,
and is responsible for the overall management of the Fund's business affairs,
subject to the review of the Board of Directors. Roger F. Grefe and Robert J.
Rummelhart serve as managers for various portfolios of the Fund. Mr. Grefe
joined EquiTrust in 1986 and assumed responsibility for the management of Farm
Bureau Growth Fund, Inc., currently known as the Value Growth Portfolio.
Additionally, he assumed management of the Managed Portfolio at its inception in
1987. Mr. Grefe is a graduate of Coe College in Cedar Rapids, Iowa and is a
Chartered Financial Analyst and NASD Registered Principal.
Mr. Rummelhart has managed both the High Grade Bond and High Yield Bond
Portfolios since their inception in 1987. He received his BA and MBA degrees
from the University of Iowa and is a Chartered Financial Analyst and NASD
Registered Representative.
30
<PAGE>
The Adviser provides investment supervision to the Blue Chip Portfolio
through the use of a team approach. As cash accumulates for investment, trading
personnel are notified to execute the necessary transactions in order to
maintain the relative weights of the equity securities in this Portfolio.
As compensation for the advisory and management services provided by the
Adviser, the Fund has agreed to pay the Adviser an annual management fee,
accrued daily and payable monthly, based on an annual percentage of the average
daily net assets of each Portfolio, as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
-------------------------------------
FIRST SECOND OVER
$200 $200 $400
PORTFOLIO MILLION MILLION MILLION
- ----------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Value Growth..................................................... 0.50% 0.45% 0.40%
High Grade Bond.................................................. 0.40% 0.35% 0.30%
High Yield Bond.................................................. 0.55% 0.50% 0.45%
Managed.......................................................... 0.60% 0.55% 0.50%
Money Market..................................................... 0.25% 0.25% 0.25%
Blue Chip........................................................ 0.25% 0.25% 0.25%
</TABLE>
The Adviser, at its expense, furnishes the Fund with office space and
facilities, certain business equipment, advisory, research and statistical
facilities, and clerical services and personnel to administer the business
affairs of the Fund. The Fund pays its other expenses which include, but are not
limited to, the following: the cost of net asset value calculations; portfolio
transaction costs; interest on Fund obligations; miscellaneous reports;
membership dues; reports and notices to shareholders; all expenses of
registration of its shares under federal and state securities laws; investor
services (including allocable telephone and personnel expenses); all taxes and
fees payable to federal, state or other governmental authorities; and the fees
and expenses of independent auditors, legal counsel, custodian, shareholder
service, transfer and dividend disbursing agent. For its services as investment
adviser and manager and for facilities furnished to the Fund during the fiscal
year ending July 31, 1998 the Adviser received management fees of .50% of the
average daily net assets of the Value Growth Portfolio, .40% of the average
daily net assets of the High Grade Bond Portfolio, .55% of the average daily net
assets of the High Yield Bond Portfolio, .60% of the average daily net assets of
the Managed Portfolio, and .25% of the average daily net assets of the Money
Market and Blue Chip Portfolios.
The Adviser has agreed to reimburse any Portfolio to the extent that the
annual operating expenses (including the investment advisory fee but excluding
brokerage, interest, taxes, the distribution fee and extraordinary expenses) of
such Portfolio exceed 1 1/2% of average daily net assets. The amount reimbursed,
however, shall not exceed the amount of the advisory fee paid by the Portfolio
for such period.
- --------------------------------------------------------------------------------
PORTFOLIO
TRANSACTIONS
-----------------
With respect to transactions in portfolio securities, whether through a
broker as agent or with a dealer as principal, the Adviser endeavors to obtain
for the Fund the most favorable price and execution of orders. Subject to this
primary consideration, the Adviser places substantially all the Fund's portfolio
transactions with brokerage firms that furnish research and other services to
the Fund. These services include, but are not limited to, advice as to the
advisability of purchasing or selling specific securities,
31
<PAGE>
furnishing of analyses and reports on particular securities or industries,
providing information on economic factors and trends, providing computer
software used in security analyses and providing technical market analyses.
Certain affiliates and other clients of the Adviser also place portfolio
transactions with these brokerage firms, and such affiliates and clients share
the benefits of the research and other services obtained from these brokers. The
Adviser regards information that is customarily available only in return for
brokerage as among the many elements to be considered in arriving at investment
decisions. No specific value can be determined for most such information and
services and they are deemed supplemental to the Adviser's own efforts in the
performance of its duties under the Investment Advisory Agreement. Any research
benefits derived are available for all clients.
The investment decisions for the Fund are reached independently from those
for the other funds and accounts managed by the Adviser. At certain times, one
or more Portfolios of the Fund may purchase identical securities at the same
time as the other funds and accounts managed by the Adviser. When multiple
accounts and/or funds have assets available for investment in the same
securities, available investments are allocated as to amount in a manner
considered equitable to each. In some cases, this procedure may affect the size
or price of the position obtainable for the Fund. It is the opinion of the Board
of Directors that the benefits to the Fund arising out of simultaneous
transactions outweigh any disadvantages.
- --------------------------------------------------------------------------------
DIVIDENDS
AND TAXES
- ------------
DIVIDENDS
VALUE GROWTH AND BLUE CHIP PORTFOLIO DIVIDENDS. The Fund normally follows
the practice of distributing substantially all the net investment income and any
net short-term and long-term capital gains of these Portfolios after the close
of the Fund's fiscal year.
HIGH GRADE BOND AND HIGH YIELD BOND PORTFOLIO DIVIDENDS. The Fund normally
follows the practice of distributing substantially all the net investment income
and net short-term capital gains of these Portfolios monthly and distributing
any net long-term capital gains after the close of the Fund's fiscal year.
MANAGED PORTFOLIO DIVIDENDS. The Fund normally follows the practice of
distributing substantially all the net investment income of this Portfolio
quarterly and distributing any net short-term and long-term capital gains after
the close of the Fund's fiscal year.
MONEY MARKET PORTFOLIO DIVIDENDS. On each day that the net asset value per
share of the Money Market Portfolio is determined, the Money Market Portfolio's
net investment income will be declared, as of the earlier of 3:00 p.m. (Central
Time) or the close of the New York Stock Exchange, as a dividend to shareholders
of record prior to the declaration. Dividends will be distributed monthly. If a
shareholder withdraws his or her entire account, all dividends accrued to the
time of withdrawal will be paid at that time.
GENERAL. Among other factors, the requirements of the Internal Revenue Code
may make it necessary or desirable to vary from the dividend practices as set
forth above. Dividends with respect to any Portfolio will be reinvested in
shares of that same Portfolio unless a shareholder indicates in writing a
32
<PAGE>
desire to receive them in cash; provided, however, that no cash payment will be
made for dividends in an amount under $10. Any such dividend amount under $10
will be reinvested in shares of that same Portfolio.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, from an account that remains open, and the postal or
other delivery service is unable to deliver those monies to the shareholder's
address of record, or the check remains uncashed for over one year, such
shareholder's distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares, and the
outstanding check will be voided and reinvested in the account. If a shareholder
has elected to receive dividends and/or capital gain distributions in cash, from
an account that is subsequently closed, and the postal or other delivery service
is unable to deliver checks to the shareholder's address of record, such check
will remain outstanding until it is turned over to the appropriate state agency
for escheat purposes. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
TAXES
It is the policy of each Portfolio to distribute annually substantially all
its net investment income and any net realized capital gains from the preceding
fiscal year. By doing so, each Portfolio intends to continue to qualify each
year as a regulated investment company under the Internal Revenue Code. By so
qualifying, a Portfolio will not be subject to federal income taxes to the
extent that its net investment income and net realized capital gains are
distributed.
Dividends will not be taxable to tax-exempt entities such as qualified
retirement plans (e.g., IRAs or qualified pension or profit sharing plans).
Dividends (whether paid in cash or in additional shares) derived from net
investment income or net short-term capital gains will be taxable to other
shareholders as ordinary income while net long-term capital gain dividends to
such shareholders will be treated as long-term capital gains regardless of the
length of time the shareholder held the Portfolio shares. For corporate
taxpayers, long-term capital gains are taxed at the same rates as ordinary
income, but for individual taxpayers, the maximum federal income tax rate on
long-term capital gains is 28%. The Fund will inform shareholders of the amount
and nature of such dividends as well as the amount of dividends eligible for the
"dividends received deduction" available to corporate shareholders. For
shareholders other than tax-exempt entities, an exchange of shares of one
Portfolio for shares of another Portfolio is ordinarily a taxable transaction.
Each Portfolio's dividends are paid on a per-share basis. At the time of
such payment, therefore, the value of each share will be reduced by the amount
of the payment. If a shareholder purchases shares shortly before the payment of
a dividend or distribution, that shareholder pays the full price for the shares
but receives some portion of the price back as a taxable dividend or
distribution. Shareholders will receive information annually as to the tax
status of distributions made by the Fund in each calendar year.
Dividends which a Portfolio declares in October, November or December to
shareholders of record as of a specified date in one of those months will be
treated for federal income tax purposes as received by such shareholders on
December 31 of the year declared, if paid during January of the following
calendar year.
The Fund is required by law to withhold 31% of taxable distributions to
shareholders who do not furnish their correct social security or taxpayer
identification number and in certain other circumstances.
33
<PAGE>
- --------------------------------------------------------------------------------
ORGANIZATION
OF THE FUND
- ----------------
The Fund is an open-end, diversified series management investment company
registered under the Investment Company Act. The Fund was organized as a
corporation under the laws of Maryland on August 14, 1970 and has authorized
capital of 5,000,000,000 shares of common stock, $.001 par value.
Currently, the Fund offers two classes of shares--Traditional Shares and
Institutional Shares, which have different expenses that will affect
performance. Institutional Shares are available for purchase exclusively by the
following investors: (a) retirement plans of FBL Financial Group, Inc. and its
affiliates; (b) the following investment advisory clients of EquiTrust: (1)
affiliated and unaffiliated benefit plans such as qualified retirement plans,
and (2) affiliated and unaffiliated banks and insurance companies purchasing for
their own accounts; (c) employees and directors of FBL Financial Group, its
affiliates, and affiliated state Farm Bureau Federations; (d) directors and
trustees of the EquiTrust Mutual Funds; and (e) such other types of accounts as
EquiTrust as distributor of the Fund deems appropriate.
The shares of each Portfolio have equal rights and privileges with all other
shares of that Portfolio except that Traditional Shares have separate and
exclusive voting rights with respect to the Fund's Rule 12b-1 Plan and each
share of a Portfolio represents an equal proportionate interest in that
Portfolio with each other share subject to any preferences (such as resulting
from Rule 12b-1 distribution fees with respect to the Traditional Shares). Upon
liquidation of the Fund or any Portfolio, shareholders of a Portfolio are
entitled to share pro-rata in the net assets of that Portfolio available for
distribution. Shares have no preemptive or conversion rights and are fully paid
and nonassessable by the Fund. The Board of Directors may establish additional
Portfolios at any time. The assets received by the Fund on the sale of shares of
each Portfolio and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are allocated to each Portfolio, and constitute
the assets of such Portfolio. The assets of each Portfolio are required to be
segregated on the Fund's books of account.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION
- ---------------
REPORTS TO SHAREHOLDERS
Shareholders will receive unaudited semi-annual financial statements and
fiscal year-end financial statements audited by the Fund's independent auditors.
SHAREHOLDER INQUIRIES
Shareholders may make inquiries either by contacting their registered
representative or by writing or calling the Fund at the address or telephone
numbers as shown on the front cover.
Copies of year-end account statements may be obtained by calling the Fund at
our toll-free number (800) 247-4170 (in Iowa call toll-free (800) 422-3175, or
in the Des Moines metropolitan area call 225-5586), or by writing a letter to
the Fund. The prior year statement for regular accounts, and prior two year
statements for fiduciary accounts, will be provided at no charge to the
shareholder; thereafter, there will be a charge of $3 per copy. The cost of the
copies will be collected by redemption of shares, or fractions thereof, from the
shareholder's account. If the shareholder's account has been closed, the
applicable fees must be remitted with the request.
34
<PAGE>
SHAREHOLDER VOTING RIGHTS
Under the Fund's corporate charter, the Fund is not required to hold, and
does not expect to hold, annual shareholders' meetings. However, it will hold
special meetings of shareholders as required or deemed desirable for such
purposes as electing Directors, changing fundamental policies or approving an
investment management agreement. Shareholders will vote by Portfolio and not in
the aggregate, except when voting in the aggregate is permitted under the laws
of the State of Maryland and the Investment Company Act, such as for the
election of Directors, or when voting by class is appropriate.
Each member of the Board of Directors serves for a term of unlimited
duration, subject to the right of the Board of Directors or the shareholders to
remove such Director. The Board of Directors has the power to alter the number
of Directors and to appoint successor Directors provided that, immediately after
the appointment of any successor Director, at least two-thirds of the Directors
have been elected by the shareholders of the Fund. However, if at any time less
than a majority of the Directors holding office has been elected by the
shareholders, the Directors are required to call a special meeting of
shareholders for the purpose of electing Directors to fill any existing
vacancies in the Board.
As used in this Prospectus and in the Statement of Additional Information,
the phrase "majority vote" of a Portfolio (or of the Fund, as appropriate) means
the vote of the lesser of (i) 67% of the shares of the Portfolio (Fund) present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Portfolio (Fund).
SHAREHOLDER SERVICE, DIVIDEND DISBURSING AND TRANSFER AGENT
EquiTrust serves as the Fund's Shareholder Service, Dividend Disbursing and
Transfer Agent for a separate fee. EquiTrust in turn has contracted with DST
Systems, Inc., an unrelated party, to perform certain services incidental to the
maintenance of shareholder accounts for a portion of the fee.
ACCOUNTING SERVICES
The Fund has entered into an accounting services agreement with EquiTrust
pursuant to which EquiTrust performs accounting services for the Fund. In
addition, the agreement provides that EquiTrust shall calculate the Fund's net
asset value in accordance with the Fund's prospectus and prepare for Fund
approval and use various tax returns and other reports. For such services, each
Portfolio pays EquiTrust an annual fee, payable monthly, of .05% of the
Portfolio's average daily net assets, with the annual fee payable by a Portfolio
not to exceed $30,000.
DISTRIBUTOR
EquiTrust Investment Management Services, Inc. (the "Distributor") also
serves as distributor and principal underwriter for the Fund pursuant to a
distribution agreement dated December 1, 1987, as amended December 1, 1997.
Since the distribution agreement provides for payment by the Fund of fees that
are used by the Distributor to pay for distribution services, the agreement,
along with the related dealer agreements (collectively, the "Plan"), is approved
and reviewed in accordance with Rule 12b-1 under the Investment Company Act,
which regulates the manner in which an investment company may, directly or
indirectly, bear the expenses of distributing its shares. Since the Plan applies
to all Portfolios, the fees paid by one portfolio may be used to finance
distribution of the shares of another portfolio and the distribution fee payable
to the Distributor is allocated among the Portfolios based on relative net asset
size. The Distributor bears all its expenses of providing services pursuant to
the distribution agreement, including the payment of any commissions and the
preparation and distribution of advertising or sales literature and bears the
cost of printing and mailing prospectuses to persons other than shareholders.
For its services under the distribution agreement, the Fund pays the Distributor
a fee, payable monthly, at the annual rate of .50% of average daily net assets
of the Traditional Shares of the
35
<PAGE>
Fund. This fee is accrued daily as an expense of the Fund. The Distributor
compensates firms for sales of Portfolio shares at a commission rate of up to
4.5%. The Distributor may from time to time pay additional commissions, service
fees or promotional incentives to firms that sell shares of the Fund. In some
instances, such additional commissions, fees or other incentives may be offered
only to certain firms who sell or are expected to sell during specified time
periods certain minimum amounts of shares of the Fund, or of other funds
underwritten by the Distributor. The Distributor receives any contingent
deferred sales charges. See "How to Redeem Shares." Firms to which service fees
and commissions may be paid include affiliated broker-dealers.
As a result of the commissions and other payments made by the Distributor,
the expenses incurred by the Distributor during the early years of the Plan,
which may include interest and overhead expenses, will exceed the fees received
by the Distributor under the Plan; however, it is possible that, during the
later years of the Plan, the fees paid by the Fund to the Distributor under the
Plan may exceed the Distributor's expenses. If the Plan is terminated in
accordance with its terms, the obligation of the Fund to make payments to the
Distributor pursuant to the Plan will cease and the Fund will not be required to
make any payments past the termination date. Thus, there is no legal obligation
for the Fund to pay any expenses incurred by the Distributor in excess of its
fees under the Plan, if for any reason the Plan is terminated in accordance with
its terms. Future fees under the Plan may or may not be sufficient to reimburse
the Distributor for its expenses incurred.
During the fiscal year ended July 31, 1998, a total of $1,085,208 was paid
pursuant to the Plan. Of this amount, $324,893 was paid to EquiTrust Marketing
Services, Inc., the principal dealer for Fund shares, and the balance was
retained by the Distributor. EquiTrust Marketing Services, Inc. is an affiliate
of the Distributor.
The Distributor provides information and administrative services for Fund
shareholders of Traditional Shares pursuant to an administrative services
agreement ("Administrative Agreement"). For such services, the Fund pays the
Distributor a fee, payable monthly, at an annual rate of .25% of average daily
net assets of the Traditional Shares of the Fund. The Distributor may enter into
related agreements with various financial services firms, such as broker-dealer
firms or banks ("firms"), to provide services and facilities for their customers
or clients who are shareholders of the Fund. The services and assistance that
may be provided by the Distributor or such firms may include, but are not
limited to, assisting in the establishment and maintenance of shareholder
accounts and records, furnishing information as to the status of shareholder
accounts, processing shareholder service requests, forwarding purchase and
redemption requests, responding to telephone inquiries, assisting shareholders
with tax information and such other services as may be agreed upon from time to
time and as may be permitted by applicable statute, rule or regulation. The
Distributor pays each firm a service fee, payable monthly, at the annual rate of
.15 of 1% on assets attributable to the firm that have been maintained and
serviced in Fund accounts.
YEAR 2000 ISSUE
Like other mutual funds, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process date-related information on or after January 1, 2000 ("Year 2000
Issue"). The Year 2000 Issue could affect portfolio and operational areas
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions,
and others. While there can be no assurance that the Fund will not be adversely
affected, the Adviser and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the Fund's other major service providers.
36
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
-------------
MONEY MARKET INSTRUMENTS
The Money Market Portfolio invests in money market instruments maturing in
thirteen months or less from the time of investment, including the instruments
described below. In addition, the other Portfolios, subject to their respective
investment objectives, may invest in certain money market instruments.
U.S. GOVERNMENT SECURITIES: Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. GOVERNMENT AGENCY OR INSTRUMENTALITY SECURITIES: Debt securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government.
Although these securities are not direct obligations of the U.S. Government,
some are supported by the full faith and credit of the U.S. Treasury; others are
supported only by the limited right of the issuer to borrow from the U.S.
Treasury; and others depend solely upon the credit of the agency or
instrumentality and not the U.S. Treasury.
OBLIGATIONS OF BANKS OR SAVINGS INSTITUTIONS: Certificates of deposit,
bankers' acceptances and other short-term debt obligations of commercial banks
or savings and loan associations. None of the Portfolios will invest in any
instruments issued by a commercial bank unless it has total assets of at least
$100 million and has its deposits insured by the Federal Deposit Insurance
Corporation ("FDIC"). Similarly, the Portfolios will not invest in any
instrument issued by a savings and loan association unless it has total assets
of at least $100 million, has been issued a charter by the Office of Thrift
Supervision ("OTS") or was formerly a member of the Federal Home Loan Bank
System and is now subject to regulation by the OTS, and is insured by the FDIC.
However, the Portfolios may invest in an obligation of a bank or savings and
loan association with assets of less than $100 million if the principal amount
of such obligation is fully covered by FDIC insurance. The limit of such
coverage is currently $100,000.
COMMERCIAL PAPER: Short-term unsecured promissory notes issued by
corporations, primarily to finance short-term credit needs. The Portfolio will
only invest in U.S. dollar-denominated instruments which the Board of Directors
determines present minimal credit risks and which, at the time of acquisition,
generally are either:
1. rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSRO"); or
2. rated in one of the two highest rating categories by only one NRSRO if
that NRSRO is the only NRSRO that has rated the instrument or issuer; or
3. in the case of an unrated instrument, determined by the Board of
Directors to be of comparable quality to either of the above; or
4. issued by an issuer that has received a rating of the type described in 1
or 2 above on other securities that are comparable in priority and
security to the instrument.
In addition, the Fund will invest in commercial paper issued by major
corporations in reliance on the so-called "private placement" exemption from
registration by Section 4(2) of the Securities Act of 1933 ("Section 4(2)
paper") subject to the above noted requirements with respect to ratings. Section
4(2)
A-1
<PAGE>
paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Fund, who agree that it
is purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of the issuer or investment dealers who make a market in
the Section 4(2) paper, thus providing liquidity. The Fund's investment adviser
considers the legally restricted but readily saleable Section 4(2) paper to be
liquid; however, the paper will be treated as illiquid unless, pursuant to
procedures approved by the Board of Directors, a particular investment in
Section 4(2) paper is determined to be liquid. The investment adviser monitors
the liquidity of the Fund's investments in Section 4(2) paper on a continuing
basis.
OTHER CORPORATE DEBT SECURITIES: Outstanding nonconvertible corporate debt
securities (e.g., bonds and debentures) which were not issued as short-term
obligations but which have thirteen months or less remaining until maturity. The
Portfolio will only invest in such obligations if the Board of Directors
determines that they present minimal credit risk and are, at the time of
acquisition, rated AA/Aa or better by Standard & Poor's or Moody's and:
1. determined by the Board of Directors to be of comparable quality to
either 1 or 2 above; or
2. issued by an issuer that has received a rating of the type described in 1
or 2 above on other short-term securities that are comparable in priority
and security to the obligation.
REPURCHASE AGREEMENTS: See "Description of Certain Investment
Techniques--Repurchase Agreements."
FLOATING AND VARIABLE RATE SECURITIES: The Portfolio may invest in
instruments having rates of interest that are adjusted periodically or that
float continuously or periodically according to formulas intended to minimize
fluctuation in the value of the instruments ("Variable Rate Securities"). The
interest rate on a Variable Rate Security is ordinarily determined by reference
to, or is a percentage of, a specified market rate such as a bank's prime rate,
the 90-day U.S. Treasury Bill rate, or the rate of return on commercial paper or
bank certificates of deposit. Generally, the changes in the interest rate on
Variable Rate Securities reduce the fluctuation in the market value of such
securities. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less than for fixed rate
obligations. Some Variable Rate Securities have a demand feature ("Variable Rate
Demand Securities") entitling the purchaser to resell the securities at an
amount approximately equal to the principal amount thereof plus accrued
interest. As in the case for other Variable Rate Securities, the interest rate
on Variable Rate Demand Securities varies according to some specified market
rate intended to minimize fluctuation in the value of the instruments. Some of
these Variable Rate Demand Securities are unrated, their transfer is restricted
by the issuer and there is little if any secondary market for the securities.
Thus, any inability of the issuers of such securities to pay on demand could
adversely affect the liquidity of these securities. The Portfolio determines the
maturity of Variable Rate Securities in accordance with Securities and Exchange
Commission rules which allow the Portfolio to consider certain of such
instruments as having maturities shorter than the maturity date on the face of
the instrument.
A-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
-------------
COMPOSITION OF BOND PORTFOLIOS BY QUALITY
The tables below reflect the average composition by quality rating of the
investment securities of the High Yield Bond Portfolio and the High Grade Bond
Portfolio for the fiscal year ended July 31, 1998. Percentages are weighted
averages based upon the portfolio composition at the end of each month during
the year. The percentage of total assets represented by bonds rated by Moody's
and Standard & Poor's ("S&P") is shown. The percentage of total assets
represented by unrated bonds is also shown. Although not specifically rated by
Moody's or Standard & Poor's, U.S. Government securities are reflected as Aaa
and AAA (highest quality) for purposes of these tables. The category noted as
"Cash and Other Assets" includes all assets other than the rated and unrated
bonds reflected in the table including, without limitation, equity securities,
preferred stocks, money market instruments, repurchase agreements and cash.
The allocations reflected in the tables do not necessarily reflect the view
of the investment adviser as to the quality of the bonds in the Portfolios on
the date shown; and they are not necessarily representative of the composition
of the Portfolios at other times. The composition of each Portfolio will change
over time.
HIGH YIELD BOND PORTFOLIO
COMPOSITION OF PORTFOLIO BY QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
PORTFOLIO BY PERCENTAGE OF
MOODY'S PORTFOLIO BY
MOODY'S RATING CATEGORY RATINGS S&P RATING CATEGORY S&P RATINGS GENERAL DEFINITION OF BOND
- ------------------------------ -------------- ------------------------------ ------------- ------------------------------
<S> <C> <C> <C> <C>
Aa............................ AA............................ 3.54% High quality
A............................. 10.10% A............................. 12.21 Upper medium grade
Baa........................... 29.27 BBB........................... 27.74 Medium grade
Ba............................ 23.86 BB............................ 16.78 Lower medium grade
B............................. 23.02 B............................. 26.42 Speculative
Caa........................... 1.34 CCC........................... More speculative
Ca............................ D............................. Highly speculative
Not Rated..................... .09 Not Rated..................... .99 Not rated by Moody's or S&P
Cash and Other Assets......... 12.32 Cash and Other Assets......... 12.32
-------------- -------------
100.00% 100.00%
</TABLE>
B-1
<PAGE>
HIGH GRADE BOND PORTFOLIO
COMPOSITION OF PORTFOLIO BY QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
PORTFOLIO BY PERCENTAGE OF
MOODY'S PORTFOLIO BY
MOODY'S RATING CATEGORY RATINGS S&P RATING CATEGORY S&P RATINGS GENERAL DEFINITION OF BOND
- ------------------------------ -------------- ------------------------------ ------------- ------------------------------
<S> <C> <C> <C> <C>
Aaa........................... 21.73% AAA........................... 21.73% Highest quality
Aa............................ 3.88 AA............................ 7.04 High quality
A............................. 35.28 A............................. 43.72 Upper medium grade
Baa........................... 24.49 BBB........................... 12.89 Medium grade
Ba............................ 2.99 BB............................ 2.99 Lower medium grade
Not rated..................... .31 Not rated..................... .31 Not rated by Moody's or S&P
Cash and Other Assets......... 11.32 Cash and Other Assets......... 11.32
-------------- -------------
100.00% 100.00%
</TABLE>
The description of each bond quality category set forth in the tables above
is intended to be a general guide and not a definitive statement as to how
Moody's and Standard & Poor's define such rating category. A more complete
description of the rating categories is set forth under "Appendix C--
Description of Corporate Bond Ratings." The ratings of Moody's and Standard &
Poor's represent their opinions as to the capacity to pay interest and principal
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and do not evaluate market value risk.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced. Neither event would require a Portfolio to eliminate the
obligation from its portfolio. An issue may be unrated simply because the issuer
chose not to have it rated, and not necessarily because it is of lower quality.
Unrated issues may be less marketable.
B-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
-------------
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
anticipated are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than with Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and
may be considered as upper medium-grade obligations. This rating
indicates an extremely strong capacity to pay principal and interest
which is considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not
well-safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other market
shortcomings.
STANDARD & POOR'S
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in a small degree.
C-1
<PAGE>
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest
for bonds in this category, than for bonds in the A category.
BB-B-CCC-CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D: Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
NR: Not rated by the indicated rating agency.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
P-1: The rating P-1 is the highest commercial paper rating assigned by
Moody's and indicates that, in Moody's opinion, the issuer or supporting
institution has a superior ability for repayment of senior short-term
debt obligations. P-1 repayment ability will often be evidenced by many
of the following characteristics: (1) leading market positions in
well-established industries, (2) high rates of return on funds employed,
(3) conservative capitalization structures with moderate reliance on
debt and ample asset protection, (4) broad margins in earnings coverage
of fixed financial charges and high internal cash generation and (5)
well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2: The rating P-2 indicates that, in Moody's opinion, the issuer or
supporting institution has a strong ability for repayment of senior
short-term debt obligations. Strong ability for repayment will normally
be evidenced by many of the characteristics listed under the description
of "P-1." Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
STANDARD & POOR'S
A-1: This designation indicates that the degree of safety regarding timely
payment of debt having an original maturity of no more than 365 days is
either overwhelming or very strong.
A-2: This designation indicates that capacity for timely payment of debt
having an original maturity of no more than 365 days is strong; however,
the relative degree of safety is not as high as for issues designated
"A-1."
C-2
<PAGE>
APPLICATION FOR SHARES -- TRADITIONAL
PLEASE COMPLETE AND MAIL TO:
EQUITRUST SERIES FUND, INC.
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266-5997
If you have any questions, please call toll-free at 1-800-422-3175 (in Iowa) or
1-800-247-4170 (National).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESIGNATE TYPE OF ACCOUNT & OWNER NAME(S)
/ / INDIVIDUAL OR JOINT ACCOUNT*
- ------------------------------------------------------
Owner's Name
- -------------------------------------------------------------------
Joint Owner's Name
*Joint tenants with Right of Survivorship. The Fund does not accept accounts
registered tenants-in-common.
/ / CUSTODIAL ACCOUNT
Uniform Gift or Transfer to Minors Act
/ / EDUCATION IRA ACCOUNT
- ------------------------------------------------------
Custodian's or Responsible Individual's Name
- -------------------------------------------------------------------
Minor's Name
/ / TRUST, CORPORATION OR OTHER ENTITY ACCOUNT
- -------------------------------------------------------------------
Name of Trust, Corporation or Other Entity
- -------------------------------------------------------------------
Trustee(s') Name or Type of Entity
- -------------------------------------------------------------------
Date of Trust Agreement
PROVIDE YOUR TAX IDENTIFICATION NUMBER
- -------------------------------------------------------------------
Social Security or Tax ID Number
(Use minor's Social Security number for gifts/transfers to minors and Education
IRAs)
- -------------------------------------------------------------------
Joint Owner's or Custodian's Social Security or Tax ID Number
PROVIDE YOUR ADDRESS
- -------------------------------------------------------------------
Street or PO Box
- -------------------------------------------------------------------
- -------------------------------------------------------------------
City, State, Zip Code
PROVIDE YOUR DATE(S) OF BIRTH
- ------------------------------------------------------
PROVIDE YOUR FARM BUREAU MEMBERSHIP NUMBER
- ------------------------------------------------------
- ----------------------------------------------------------
PORTFOLIO SELECTION*
Minimum Initial Investment $250 per Portfolio
______ Value Growth $ ______________
______ High Grade Bond $ ______________
______ High Yield Bond $ ______________
______ Managed $ ______________
______ Money Market $ ______________
______ Blue Chip $ ______________
*If no Portfolio is designated, the Money Market Portfolio will be selected.
TO REINVEST YOUR DISTRIBUTIONS
Your dividends and capital gains will be reinvested unless you indicate
otherwise. (No cash payment will be made for dividends in an amount less than
$10.)
/ / Cash Dividends / / Cash Capital Gains
- ----------------------------------------------------------
SPECIAL SHAREHOLDER PRIVILEGES
Exchange Between Funds* / / Yes / / No
I authorize exchanges between Portfolios upon instruction from any person by
telephone. If neither box is checked, the telephone exchange privilege will be
provided. Shares held in certificated form may not be exchanged.
/ / Please send information on the Automatic Investment Plan
/ /Please send information on the Telephone Redemption Plan (non-qualified
accounts only)
*Subject to a $5.00 exchange fee.
- -------------------------------------------------------------------------
TAX QUALIFIED PLANS ONLY
A qualified application must be submitted in addition to this form.
<TABLE>
<S> <C> <C> <C> <C> <C>
/ / SIMPLE / / IRA / / Education IRA
/ / Tax Deferred 403(b) / / SEP / / Roth IRA
/ / Qualified Pension and
Profit Sharing
</TABLE>
DESIGNATED BENEFICIARY
(for use with tax qualified plans only)
- -------------------------------------------------------------------
Primary Beneficiary
- -------------------------------------------------------------------
Social Security Number Date of Birth
- -------------------------------------------------------------------
Contingent Beneficiary
- -------------------------------------------------------------------
Social Security Number Date of Birth
- -------------------------------------------------------------------
Contingent Beneficiary
- -------------------------------------------------------------------
Social Security Number Date of Birth
- -------------------------------------------------------------------
Spousal Consent of Non-Spouse Beneficiary
- -------------------------------------------------------------------------
SIGNATURES
I certify that I have received, read and agree to the terms of the prospectus
for EquiTrust Series Fund, Inc. I have the authority and legal capacity to
purchase mutual fund shares, am of legal age in my state and believe each
investment is suitable for me. Under penalties of perjury, I certify that the
number shown on this form is a true and correct social security or tax
identification number and, to the best of my knowledge, I am not subject to
backup withholding.
- -------------------------------------------------------------------
Signature of Applicant
- -------------------------------------------------------------------
Signature of Joint Applicant
- -------------------------------------------------------------------
Rep's Signature Number
- -------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Application must be accompanied or preceded by a current prospectus.
(Please Complete Reverse Side)
737-018AT (12/98)
<PAGE>
Distributed by EquiTrust Investment Management Services, Inc.
CONFIDENTIAL CUSTOMER RECORD
___________________________________ __________________________________
Name of
Customer Date
These questions are for the purpose of determining the suitability of a Fund
investment for you and are asked pursuant to rules established by the Securites
and Exchange Commission. Furnishing the answers is voluntary on your part;
however, the information will be treated confidentially and is intended to
assist in determining an appropriate recommendation.
/ / Registered representative of broker/dealer _________________________________
/ / I elect not to provide the information below.
1. SEX: / / MALE / / FEMALE
2. DATE OF BIRTH: _________________________________________________
3. DEPENDENT CHILDREN: Number _______ Age of youngest _______ Age of oldest
_______
4. PRINCIPAL OCCUPATION: ______________________________________________________
5. NAME AND ADDRESS OF EMPLOYER: ______________________________________________
______________________________________________
6. ANNUAL INCOME: / / Less than $10,000 / / $10,000 to $25,000
/ / $25,000 to $50,000 / / $50,000 to $100,000 / / $100,000 or
over
7. NET WORTH: / / Less than $25,000 / / $25,000 to $50,000 / / $50,000 to
$100,000 / / $100,000 or over
8. SAVINGS: / / Less than $5,000 / / $5,000 to $10,000 / / $10,000 to $25,000
/ / $25,000 or over
9. OTHER ASSETS:
Amount / / Less than $10,000 / / $10,000 to $50,000 / / $50,000 to $100,000
/ / $100,000 or over
Description ________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
10. INVESTMENT OBJECTIVE: / / Growth of income and capital / / Current income
/ / Long-term capital appreciation / / Liquidity and
stability of principal
/ / Other (Specify) __________________________________
11. VOLATILITY TOLERANCE: / / Low / / Medium / / High
12. INSURANCE ON LIFE OF CUSTOMER: / / Less than $50,000 / / $50,000 to $100,000
/ / $100,000 to $250,000 / / $250,000 or over
13. OTHER INFORMATION CONSIDERED IN MAKING AN INVESTMENT RECOMMENDATION:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
_____________________________________ ____________________________________
Signature of Customer Signature of Representative
737-018AT
<PAGE>
<TABLE>
<S> <C>
INVESTMENT ADVISER, DISTRIBUTOR, CUSTODIAN
SHAREHOLDER SERVICE, DIVIDEND Bankers Trust Company
DISBURSING AND TRANSFER AGENT Global Assets -- Insurance Group
EquiTrust Investment Management 16 Wall Street
Services, Inc. New York, New York 10005
5400 University Avenue
West Des Moines, Iowa 50266
LEGAL COUNSEL INDEPENDENT AUDITORS
Vedder, Price, Kaufman & Kammholz Ernst & Young LLP
Suite 2600 Suite 3400
222 North LaSalle Street 801 Grand Avenue
Chicago, Illinois 60601 Des Moines, Iowa 50309
</TABLE>
<PAGE>
----------------------------
[LOGO]
EquiTrust Series Fund, Inc.
PROSPECTUS
DECEMBER 1, 1998
INVESTMENT MANAGER AND
PRINCIPAL UNDERWRITER
EQUITRUST INVESTMENT
MANAGEMENT SERVICES, INC.
5400 UNIVERSITY AVENUE
WEST DES MOINES, IA 50266
1-800-247-4170 (OUTSIDE IOWA)
1-800-422-3175 (IN IOWA)
225-5586 (DES MOINES)
737-018(12/98)
<PAGE>
PART B
EQUITRUST SERIES FUND, INC.
5400 University Avenue
West Des Moines, Iowa 50266
(515) 225-5586
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1998
EquiTrust Series Fund, Inc. (the "Fund") is an open-end, diversified
management investment company that consists of six Portfolios: the Value Growth
Portfolio, High Grade Bond Portfolio, High Yield Bond Portfolio, Managed
Portfolio, Money Market Portfolio and Blue Chip Portfolio. Each Portfolio has
distinct investment objectives and policies and each is in effect a separate
fund issuing its own shares.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund dated December 1, 1998. A
copy of the Prospectus may be obtained without charge by writing or calling the
Fund at the address and telephone number shown above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES............................................................ B-1
Loans of Portfolio Securities........................................................................... B-1
Covered Call Options.................................................................................... B-1
Ginnie Mae Certificates................................................................................. B-2
INVESTMENT RESTRICTIONS................................................................................... B-3
Fundamental Policies.................................................................................... B-3
Non-Fundamental (Operating) Policies.................................................................... B-5
OFFICERS AND DIRECTORS.................................................................................... B-5
INVESTMENT ADVISER........................................................................................ B-9
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.......................................................... B-11
UNDERWRITING AND DISTRIBUTION EXPENSES.................................................................... B-12
PURCHASES AND REDEMPTIONS................................................................................. B-13
NET ASSET VALUE........................................................................................... B-13
Money Market Portfolio.................................................................................. B-13
Other Portfolios........................................................................................ B-14
TAXES..................................................................................................... B-14
DIVIDENDS AND DISTRIBUTIONS............................................................................... B-15
Money Market Portfolio.................................................................................. B-16
PERFORMANCE INFORMATION................................................................................... B-16
SHAREHOLDER VOTING RIGHTS................................................................................. B-20
RETIREMENT PLANS.......................................................................................... B-20
OTHER INFORMATION......................................................................................... B-20
Principal Holders of Securities......................................................................... B-20
Custodian............................................................................................... B-20
Independent Auditors.................................................................................... B-21
Accounting Services..................................................................................... B-21
Shareholder Service, Dividend Disbursing and Transfer Agent............................................. B-21
Legal Matters........................................................................................... B-21
FINANCIAL STATEMENTS...................................................................................... B-21
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES
The investment objectives and policies of each of the Fund's six Portfolios
are set forth in the Prospectus under the heading "Investment Objectives and
Policies of the Portfolios." A description of certain investment strategies and
techniques applicable to some or all of the Portfolios is set forth in the
Prospectus under the heading "Description of Certain Investment Techniques." A
description of the money market instruments in which the Money Market Portfolio
may invest is contained in Appendix A to the Prospectus. A description of the
corporate bond and commercial paper ratings of Moody's Investors Services, Inc.
("Moody's") and Standard & Poor's Corporation ("Standard & Poor's") is contained
in the Prospectus.
The following is intended to augment the explanation in the Prospectus of
certain investment strategies and techniques applicable to one or more of the
Portfolios.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may from time to time lend securities (but not in excess of
20% of its assets) from its portfolio to brokers, dealers and financial
institutions, provided that: (i) the loan is secured continuously by collateral
consisting of U.S. Government securities, government agency securities, or cash
or cash equivalents adjusted daily to have a market value at least equal to the
current market value of the securities loaned plus accrued interest; (ii) the
Portfolio may at any time call the loan and regain the securities loaned; and
(iii) the Adviser (under the review of the Board of Directors) has reviewed the
creditworthiness of the borrower and found such creditworthiness satisfactory.
The collateral will be invested in short-term securities, the income from which
will increase the return to the Portfolio.
The Portfolio will retain all rights of beneficial ownership in the loaned
securities, including voting rights and rights to interest or other
distributions, and will have the right to regain record ownership of loaned
securities to exercise such beneficial rights. The Portfolio may pay reasonable
administrative, custodial and finders' fees to persons unaffiliated with the
Fund in connection with the arranging of such loans. Unless certain requirements
contained in the Internal Revenue Code are satisfied, the dividends, interest
and other distributions received by the Portfolio on loaned securities may not
be treated for tax purposes as qualified income for the purposes of the 90% test
discussed under "Taxes." Each Portfolio intends to loan portfolio securities
only to the extent that such activity does not jeopardize the Portfolio's
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code.
COVERED CALL OPTIONS
Each Portfolio (other than the Money Market Portfolio) may write (sell)
covered call options on its portfolio securities in seeking to enhance
investment performance. A call option is a short-term contract, ordinarily
having a duration of nine months or less, which gives the purchaser of the
option, in return for a premium paid, the right to buy, and the writer of the
option the obligation to sell, the underlying security at the exercise price at
any time prior to the expiration of the option period. An option is "covered" if
the writer owns the optioned security.
A Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return. In return for the premium income, the Portfolio will forego the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price so long as its obligations under the contract
continue, except insofar as the premium represents a profit. Moreover, in
writing the option, the Portfolio will retain the risk of loss if the price of
the security declines, and the premium is intended to offset any such loss in
whole or in part. A Portfolio, in writing call options, must assume that the
call may be exercised at any time prior to the expiration of its obligations as
a writer and that in such circumstances, the net proceeds realized from the sale
of the underlying securities pursuant to the call may be substantially below the
prevailing market price.
B-1
<PAGE>
A Portfolio may write covered call options on debt securities that are
traded over-the-counter. When a Portfolio writes an over-the-counter option,
there is no assurance that the Portfolio will be able to enter into a closing
purchase transaction. It may not always be possible for the Portfolio to
negotiate a closing purchase transaction with the same dealer for the same
exercise price and expiration date as the option which the Portfolio previously
had written. Although the Portfolio may choose to purchase an option from a
different dealer, the Portfolio would then be subject to the additional credit
risk of such dealer. If the Portfolio is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or until it delivers the underlying security upon exercise.
GINNIE MAE CERTIFICATES
The High Grade Bond Portfolio, High Yield Bond Portfolio and Managed
Portfolio may each invest in Ginnie Mae certificates ("Ginnie Maes"). Ginnie
Maes are debt securities issued by a mortgage banker or other mortgagee and
represent an interest in pools of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration, or guaranteed by the Veterans
Administration. Scheduled payments of principal and interest are made to the
registered holders of the Ginnie Maes. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of monthly installments of
principal and interest on Ginnie Maes at the time such payments are due, whether
or not such amounts are collected on the underlying mortgages by the issuer of
the Ginnie Maes. The National Housing Act provides that the full faith and
credit of the United States is pledged to the timely payment of principal and
interest by GNMA of amounts due on these Ginnie Maes, and an assistant attorney
general of the United States has rendered an opinion that this guarantee by GNMA
is a general obligation of the United States backed by its full faith and
credit.
The Ginnie Maes in which these Portfolios may invest are of the "modified
pass-through" type, which means that GNMA guarantees the timely payment of
principal and interest installments (whether or not the amounts are collected by
the issuer of the Ginnie Maes). Under the other general type of Ginnie Maes,
referred to as "straight pass-through" Ginnie Maes, the payment of principal and
interest on a timely basis is not guaranteed.
The average life of Ginnie Maes varies with the maturities of the underlying
mortgage instruments with maximum maturities of 30 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments or refinancing of such
mortgages or foreclosure. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest, and have the
effect of reducing future payments. Due to the guarantee of Ginnie Maes by GNMA,
foreclosures impose no risk to the principal invested.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates vary widely, it is not possible to accurately predict the
average life of a particular pool. However, statistics indicate that the average
life of the type of mortgages backing the majority of Ginnie Maes is
approximately 12 years. For this reason, it is standard practice to treat Ginnie
Maes as 30-year mortgage-backed securities that prepay fully in the twelfth
year. Pools of mortgages with other maturities or different characteristics will
have varying assumptions for average life. The assumed average life of pools of
mortgages having terms of less than 30 years is less than 12 years, but
typically not less than 5 years.
B-2
<PAGE>
The coupon rate of interest on Ginnie Maes is lower than the interest rate
paid on the VA-guaranteed or FHA-insured mortgages underlying the certificates,
but only by the amount of the fees paid to GNMA and the issuer. Such fees in the
aggregate usually amount to approximately 1/2 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average-life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Prepayments generally occur when interest rates have
fallen. Reinvestments of prepayments at such times will be at lower rates, which
would lower the return of the Portfolios. The actual yield of each Ginnie Mae is
influenced by the prepayment experience of the mortgage pool underlying the
certificates and may differ from the yield based on the assumed average life.
Interest on Ginnie Maes is paid monthly rather than semi-annually as for
traditional bonds.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
In seeking to achieve its investment objective(s), each Portfolio has
adopted the following investment restrictions. These are fundamental policies
and may not be changed without a majority vote of the outstanding shares of each
Portfolio affected. As used in this Statement of Additional Information and in
the Prospectus, the phrase "majority vote" of a Portfolio (or the Fund) means
the vote of the lesser of (i) 67% of the shares of the Portfolio (Fund) present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Portfolio (Fund). A change in policy by only one Portfolio may be
effected by a majority vote of the outstanding shares of that Portfolio.
Except as noted below, each Portfolio may not:
1. As to 75% of the value of each Portfolio's total assets (except 100% for
the Money Market Portfolio), purchase securities of any issuer (other than U.S.
Government securities or government agency securities) if, as a result, more
than 5% of the value of the Portfolio's assets (taken at value at the time of
investment) would be invested in securities of that issuer.
2. Purchase more than 10% of the voting securities or more than 10% of any
class of securities of any issuer. (For this purpose all outstanding debt
securities of an issuer are considered as one class and all preferred stocks of
an issuer are considered as one class.)
3. Concentrate its investments in any one industry; however, it may invest
up to 25% of the value of its assets in any one industry. This restriction does
not apply to U.S. Government securities or government agency securities (or,
with respect to the Money Market Portfolio, obligations of banks or savings
institutions), or to instruments, such as repurchase agreements, secured by
these instruments.
4. Purchase securities of other investment companies except by purchase in
the open market involving only customary brokers' commissions (and in no event
to the extent of more than 5% of the value of the Portfolio's total assets), or
as part of a merger, consolidation or acquisition of assets.
5. Purchase or sell (although it may purchase securities of issuers which
invest or deal in) interests in oil, gas or other mineral exploration or
development programs, real estate, commodities or commodity contracts.
B-3
<PAGE>
6. Purchase any securities on margin (except that the Portfolio may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities) or make short sales unless, by virtue of its
ownership of other securities, it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional, the
sale is made upon the same condition.
7. Purchase or retain the securities of any issuer if any of the officers
or directors of the Fund or of its investment adviser own individually more than
one-half of 1% of the securities of such issuer and together own more than 5% of
the securities of such issuer.
8. Issue senior securities, except as appropriate to evidence indebtedness
which a Portfolio is permitted to incur pursuant to (9) below.
9. Borrow money, except from banks for temporary or emergency purposes, and
in no event in excess of 5% of its total net assets, or pledge or mortgage more
than 15% of its gross assets.
10. Underwrite securities issued by others, except that it may be deemed to
be a statutory underwriter in the sale of any so-called restricted securities
which require registration under the Securities Act of 1933. In this connection,
the Money Market Portfolio or the Blue Chip Portfolio will not invest more than
10% of the value of its total assets in securities that are subject to legal or
contractual restrictions on resale, or are not readily marketable.
11. Participate on a joint (or a joint and several) basis in any trading
account in securities (but this does not include the "bunching" of orders for
the sale or purchase of portfolio securities with the other Portfolios or with
other investment company and client accounts managed by the Fund's investment
adviser or its affiliates to reduce brokerage commissions or otherwise to
achieve best overall execution, or to obtain securities on more favorable
terms).
12. Alone, or together with any other Portfolios, make investments for the
purpose of exercising control over, or management of, any issuer.
13. Lend money or securities, except as provided in (14) below (the making
of demand deposits with banks, and the purchase of securities such as bonds,
debentures, commercial paper and short-term obligations in accordance with the
Portfolio's investment objectives and policies, shall not be considered the
making of a loan). In addition, each Portfolio may not invest more than 10% of
its total assets (taken at market value at the time of each purchase) in
repurchase agreements maturing in more than seven days.
14. Lend its portfolio securities in excess of 20% of its net assets.
15. Invest in foreign securities, except as follows: the Value Growth and
Managed Portfolios may each invest up to 25% of its net assets in foreign equity
and debt securities traded on U.S. exchanges and payable in U.S. dollars, and
the High Grade Bond and High Yield Bond Portfolios may each invest up to 25% of
its net assets in foreign debt securities traded on U.S. exchanges and payable
in U.S. dollars.
16. Write, purchase or sell puts, calls or combinations thereof, other than
writing covered call options.
B-4
<PAGE>
17. Invest more than 5% of the value of its total assets in securities of
companies which have a record of less than three years continuous operation,
including in such three years the operation of any predecessor company or
companies, partnership or individual proprietorship if the company whose
securities are to be purchased by the Fund has come into existence as a result
of a merger, consolidation or reorganization or the purchase of substantially
all of the assets of such predecessor.
NON-FUNDAMENTAL (OPERATING) POLICIES
The following are non-fundamental (operating) policies approved by the Board
of Directors. Such policies may be changed by the Board of Directors without
approval of the Shareholders.
The Value Growth, High Grade Bond, High Yield Bond and Managed Portfolios
shall not:
(a) invest more than 15% of its total net assets in illiquid securities,
except to purchase certain restricted securities that are eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, provided that such 144A
Security is, in each case, determined by the investment adviser to be a liquid
investment in accordance with appropriate procedures.
The Value Growth Portfolio shall not:
(b) purchase warrants, valued at the lower of cost or market, in excess of
5% of the value of the Portfolio's net assets. Included within that amount, but
not to exceed 2% of the value of the Portfolio's net assets, may be warrants
that are not listed on the New York or American Stock Exchange. Warrants
acquired by the Portfolio at any time in units or attached to securities are not
subject to this restriction.
The term "government agency securities" for purposes of investment
restriction 3 has the same meaning as that set forth in Appendix A to the
Prospectus. The term "commodities or commodity contracts" as used in investment
restriction 5 includes futures contracts.
If a percentage increase is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
OFFICERS AND DIRECTORS
The officers and directors of the Fund, their age and their principal
occupations for the past five years are set forth below, though corporate
positions may, in some instances, have changed during this period. The address
of the officers of the Fund is 5400 University Avenue, West Des Moines, Iowa
50266. The directors listed with an asterisk are "interested persons" of the
Fund as defined in the Investment Company Act of 1940.
EDWARD M. WIEDERSTEIN*, PRESIDENT AND DIRECTOR (50)
Farmer; Chairman and Director, FBL Financial Group, Inc.; President and
Director, Iowa Farm Bureau Federation, Farm Bureau Life Insurance Company,
FBL Insurance Brokerage, Inc., Farm Bureau Mutual Insurance Company and
other affiliates of the foregoing; Director, Western Ag Insurance Agency,
Inc., Western Farm Bureau Life Insurance Company, Western Agricultural
Insurance Company, American Agricultural Insurance Company, Multi-Pig
Corporation and Well Mark Blue Cross Blue Shield of Iowa.
RICHARD D. HARRIS*, SENIOR VICE PRESIDENT, SECRETARY-TREASURER AND DIRECTOR (54)
Senior Vice President, Secretary-Treasurer and Director, FBL Financial
Group, Inc., Senior Vice President and Secretary-Treasurer, Farm Bureau Life
Insurance Company, Farm Bureau Mutual
B-5
<PAGE>
Insurance Company and other affiliates of the foregoing; Executive Director
and Secretary-Treasurer, Iowa Farm Bureau Federation; Senior Vice President
and Assistant Secretary-Treasurer, South Dakota Farm Bureau Mutual Insurance
Company; Vice President and Treasurer, Farm Bureau Management Corporation;
Former Director, Public Policy Division, Iowa Farm Bureau Federation;
Director, Iowa FFA Foundation and Iowa Make-A-Wish Foundation.
THOMAS R. GIBSON, CHIEF EXECUTIVE OFFICER (54)
Chief Executive Officer and Director, FBL Financial Group, Inc. EquiTrust
Investment Management Services, Inc. and EquiTrust Marketing Services, Inc.;
Chief Executive Officer, Farm Bureau Life Insurance Company, Western Farm
Bureau Life Insurance Company, EquiTrust Life Insurance Company, Farm Bureau
Mutual Insurance Company and other affiliates of the foregoing.
STEPHEN M. MORAIN, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND ASSISTANT
SECRETARY (53)
General Counsel and Assistant Secretary, Iowa Farm Bureau Federation;
General Counsel, Secretary and Director, Farm Bureau Management Corporation;
Senior Vice President, General Counsel and Director, FBL Financial Group,
Inc., EquiTrust Investment Management Services, Inc. and EquiTrust Marketing
Services, Inc.; Senior Vice President and General Counsel, Farm Bureau Life
Insurance Company, Western Farm Bureau Life Insurance Company, EquiTrust
Life Insurance Company and other affiliates of the foregoing; Director, Iowa
Agricultural Finance Corporation and Iowa Business Development Finance
Corporation; Chairman, Edge Technologies, Inc.
TIMOTHY J. HOFFMAN, VICE PRESIDENT (48)
Chief Property/Casualty Officer, FBL Financial Group, Inc., Vice President
Farm Bureau Life Insurance Company, Western Farm Bureau Life Insurance
Company, EquiTrust Life Insurance Company and other affiliates of the
foregoing; Executive Vice President and General Manager, Farm Bureau Mutual
Insurance Company and other affiliates of the foregoing; Vice President and
Director, EquiTrust Marketing Services, Inc. and EquiTrust Investment
Management Services, Inc.
WILLIAM J. ODDY, CHIEF OPERATING OFFICER (54)
Chief Operating Officer, FBL Financial Group, Inc.; Executive Vice President
and General Manager, Farm Bureau Life Insurance Company, Western Farm Bureau
Life Insurance Company, EquiTrust Life Insurance Company and other
affiliates of the foregoing; Vice President, Farm Bureau Mutual Insurance
Company and other affiliates of the foregoing; President, Treasurer and
Director, Communications Providers, Inc.; Chief Operating Officer and
Director, EquiTrust Marketing Services, Inc.; President and Director,
EquiTrust Investment Management Services, Inc. and FBL Real Estate Ventures,
Ltd. and RIK, Inc.; Chief Executive Officer, Western Computer Services, Inc.
JAMES W. NOYCE, VICE PRESIDENT, CHIEF FINANCIAL OFFICER (42)
Chief Financial Officer, FBL Financial Group, Inc., Farm Bureau Life
Insurance Company, Western Farm Bureau Life Insurance Company, EquiTrust
Life Insurance Company and other affiliates of the foregoing; President,
Treasurer and Director; FBL Leasing Services, Inc.; Chief Financial Officer,
Treasurer and Director, EquiTrust Investment Management Services, Inc. and
EquiTrust Marketing Services, Inc.; Treasurer and Director, FBL Real Estate
Ventures, Ltd.
B-6
<PAGE>
LOU ANN SANDBURG, VICE PRESIDENT, INVESTMENTS AND ASSISTANT TREASURER (51)
Vice President-Investments and Assistant Treasurer, FBL Financial Group,
Inc., Farm Bureau Life Insurance Company, Western Farm Bureau Life Insurance
Company and other affiliates of the foregoing; Vice President, FBL Financial
Services, Inc. and Western Computer Services, Inc.; Vice
President-Investments, Assistant Treasurer and Director, EquiTrust
Investment Management Services, Inc. and EquiTrust Marketing Services, Inc.
DENNIS M. MARKER, INVESTMENT VICE PRESIDENT, ADMINISTRATION AND ASSISTANT
SECRETARY (47)
Investment Vice President, Administration, FBL Financial Group, Inc. and
Farm Bureau Life Insurance Company; Vice President and Director, FBL Leasing
Services, Inc.; Investment Vice President, Administration, Secretary and
Director, EquiTrust Investment Management Services, Inc. and EquiTrust
Marketing Services, Inc.
SUE A. CORNICK, MARKET CONDUCT AND MUTUAL FUNDS VICE PRESIDENT AND ASSISTANT
SECRETARY (38)
Market Conduct and Mutual Funds Vice President and Assistant Secretary,
EquiTrust Investment Management Services, Inc. and EquiTrust Marketing
Services, Inc.
KRISTI ROJOHN, ASSISTANT SECRETARY (35)
Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, Inc.
ELAINE A. FOLLOWWILL, ASSISTANT SECRETARY (28)
Operations Compliance Supervisor and Assistant Secretary, EquiTrust
Investment Management Services, Inc. and EquiTrust Marketing Services, Inc.
DONALD G. BARTLING, DIRECTOR (71)
Box 104
Herman, Nebraska 68029
Farmer; Partner, Bartling Brothers Partnership (farming business).
JOHN R. GRAHAM*, DIRECTOR (53)
1512 Country Club Place
Manhattan, Kansas 66502
Executive Vice President, Kansas Farm Bureau, Kansas Farm Bureau Services,
Kansas Agricultural Marketing Association, FB Services Insurance Agency,
Kansas Farm Bureau Life Insurance Company, The Farm Bureau Mutual Insurance
Company, Inc. and KFB Insurance Company, Inc.; Chairman, Chief Executive
Officer and Director, FB Capital Management of Kansas, Inc. and Graham
Capital Management, Inc.; Director, National Association of Independent
Insurers, Didde Corporation, and Farm Bureau Mutual Insurance Agency of
Kansas; Partner, Arthur-Graham Rental Properties, CM Brass and G&H Real
Estate Investments; Trustee, Master Teacher Employee Benefit Pension Trust.
B-7
<PAGE>
ERWIN H. JOHNSON, DIRECTOR (55)
1841 March Avenue
Charles City, Iowa 50616
Farmer; Owner and Manager, Center View Farms Co.; Director, First Security
Bank and Trust Co., Charles City, Iowa; Farm Financial Planner, Iowa State
University Cooperative Extension Service; Financial and Farm Management
Consultant; Iowa State University Overseas Projects.
KENNETH KAY, DIRECTOR (55)
RR 2, Box 45
Atlantic, Iowa 50022
Farmer; Salesman, Pioneer Seed Corn; Voting Delegate, Vice President and
former President, Cass County Farm Bureau; Director, First Whitney Bank and
Trust; Board Member, Transportation Committee Member, Cass Atlantic
Development Corporation.
CURTIS C. PIETZ, DIRECTOR (67)
1375 S. Crailsheim Road
Worthington, Minnesota 56187
Retired Farmer, Investor and Co-owner of Storden Seed & Chemical Service,
Inc.; Director, Minnesota Rural Finance Authority and Minnesota Farm Bureau
Foundation; previous Farm Bureau leadership; active in Farm Management.
The officers and directors of the Fund also serve in similar capacities as
officers and directors of EquiTrust Money Market Fund, Inc., and as officers and
trustees of EquiTrust Variable Insurance Series Fund. Several of the officers
and directors of the Fund are also officers and directors of the Adviser. The
Fund pays no direct remuneration to any officer of the Fund. Each of the
directors who is not affiliated with the Adviser receives a fee of $115 plus
expenses for each directors' meeting attended. For the fiscal year ended July
31, 1998, directors fees paid by the Fund totalled $1,840.
The following table sets forth the compensation received by all Directors of
the Fund, for the fiscal year ended July 31, 1998. The information in the last
column of the table sets forth the total compensation received by all Directors
for calendar year 1997 for services as a Director of the Fund and other funds in
the EquiTrust Family.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION AND RETIREMENT BENEFITS FROM ALL FUNDS IN
COMPENSATION FROM ACCRUED AS PART OF FUND THE EQUITRUST
NAME OF DIRECTOR THE FUND EXPENSES FAMILY
- --------------------------- ----------------- ------------------------------- -------------------
<S> <C> <C> <C>
Donald G. Bartling $ 460 0 $ 1,380
John R. Graham 0 0 0
Richard D. Harris 0 0 0
Erwin H. Johnson 460 0 1,380
Kenneth Kay 460 0 1,380
Curtis C. Pietz 460 0 1,380
Edward M. Wiederstein 0 0 0
</TABLE>
B-8
<PAGE>
As of November 18, 1998, the officers and directors as a group owned less
than 1% of the then outstanding shares of the Fund.
INVESTMENT ADVISER
The following information supplements the information set forth in the
Prospectus under "Management of the Fund -- Investment Adviser." Pursuant to an
Investment Advisory and Management Services Agreement dated November 11, 1987
("Agreement"), EquiTrust Investment Management Services, Inc. ("EquiTrust" or
the "Adviser") acts as the Fund's investment adviser and manager subject to the
review of the Fund's Board of Directors. The Adviser is a wholly-owned
subsidiary of FBL Financial Services, Inc., which is a wholly-owned subsidiary
of FBL Financial Group, Inc., an Iowa corporation, 65% of whose outstanding
voting shares are in turn owned by Iowa Farm Bureau Federation, an Iowa not-for-
profit corporation. The Adviser also acts as an investment adviser to
individuals, institutions and two other mutual funds: EquiTrust Money Market
Fund, Inc. and EquiTrust Variable Insurance Series Fund. Personnel of the
Adviser also manage investments for the portfolios of insurance companies.
The Adviser subscribes to leading bond information services and receives
published reports and statistical compilations from the issuers directly, as
well as analyses from brokers and dealers who may execute portfolio transactions
for the Fund or the Adviser's other clients. The Adviser regards this
information and material, however, as an adjunct to its own research activities.
Under the Agreement, the Adviser regularly provides the Fund with investment
research, advice and supervision, and furnishes an investment program consistent
with the investment objectives and policies of each Portfolio, determining for
each Portfolio, what securities shall be purchased and sold and what portion of
the Portfolio's assets shall be held uninvested, subject always to: (i) the
provisions of the articles of incorporation, the Fund's by-laws, the Investment
Company Act of 1940 and applicable requirements of the Internal Revenue Code;
(ii) the Portfolio's investment objectives, policies and restrictions; and (iii)
such policies and instructions as the Board of Directors may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
the Board of Directors (and any committees thereof) regarding the conduct of the
business of the Fund. The Adviser has agreed to arrange for any of its officers
or directors to serve without salary as directors, officers or agents of the
Fund if duly elected to such positions.
The Adviser, at its expense, furnishes the Fund with office space and
facilities, simple business equipment, advisory, research and statistical
facilities, and clerical services and personnel to administer the business
affairs of the Fund. As compensation for the Adviser's investment advisory,
management and clerical services, as well as the facilities it provides and the
expenses it assumes, the Agreement provides for the payment of a monthly fee as
described in the Prospectus.
The Adviser is not required to pay expenses of the Fund other than those set
forth above. Each Portfolio will pay all other expenses incurred in its
operation, including a portion of the Fund's general administrative expenses,
allocated on the basis of the Portfolio's net asset value. Expenses that will be
borne directly by the Portfolios include, but are not limited to, the following:
net asset value calculations; portfolio transaction costs; interest on Fund
obligations; miscellaneous reports; membership dues; all expenses of
shareholders' and directors' meetings and of preparing, printing and mailing
proxy statements, reports and notices to shareholders; all expenses of
registering the Fund's shares under federal and state securities laws; the
typesetting costs of printing Fund prospectuses and supplements thereto;
investor services (including allocable telephone and personnel expenses); all
taxes and fees payable to federal, state or other governmental authorities; the
fees and expenses of independent public auditors,
B-9
<PAGE>
legal counsel, custodian, dividend disbursing and transfer agent; fees of
directors who are not affiliated with the Adviser; insurance premiums for
fidelity bond and other coverage of the Fund's operations; and such
non-recurring expenses as may arise including actions, suits or proceedings
affecting the Fund and the legal obligation the Fund may have to indemnify its
officers and directors with respect thereto. See "Underwriting and Distribution
Expenses" and "Other Information -- Accounting Services" for a description of
certain other Fund expenses.
The Agreement was approved on November 11, 1987 by a vote of the
shareholders of Farm Bureau Growth Fund, Inc.(1) and on December 1, 1987 by Farm
Bureau Life Insurance Company as the then sole shareholder of each of the other
seven Portfolios of the Fund, and was most recently approved for continuance on
August 17, 1995, by the Board of Directors, including a vote of a majority of
the Directors who are not "interested persons" of either party to the Agreement.
Unless earlier terminated as described below, the Agreement will remain in
effect until November 30, 1998. Thereafter, the Agreement will continue in
effect, with respect to a Portfolio, from year to year so long as its
continuation is approved at least annually by (a) the vote of a majority of
those Directors who are not parties to the Agreement or "interested persons" of
either party to the Agreement cast in person at a meeting called for the purpose
of voting on such approval, and (b) either (i) the vote of a majority of the
Directors or (ii) the vote of a majority of the outstanding shares of such
Portfolio.
The Agreement will be deemed to have been approved (or amended) by the
shareholders of any Portfolio if a majority of the outstanding shares of that
Portfolio vote for approval (or amendment) of the Agreement, notwithstanding (a)
that the Agreement has not been approved (or amended) by a majority of the
outstanding shares of any other Portfolio, and (b) that the Agreement has not
been approved (or amended) by a vote of a majority of the outstanding shares of
the Fund. The Agreement may be terminated without penalty at any time upon 60
days' notice by either party, and will terminate automatically upon assignment.
The Agreement provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties, or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of such transactions will not be
influenced by existing or potential custodial or other Fund relationships.
The investment advisory and management fee expense for the fiscal years
ended July 31, 1998, 1997 and 1996 was $589,203, $505,350 and $404,117,
respectively, for the Value Growth Portfolio; $45,457, $38,467 and $34,843,
respectively, for the High Grade Bond Portfolio; $58,998, $45,477 and
- ------------------------
(1) The Fund, which was incorporated in Maryland on August 14, 1970, was
known as Farm Bureau Growth Fund, Inc. prior to the effectiveness of Articles of
Amendment to its charter on December 1, 1987 which, among other things, changed
its name to FBL Series Fund, Inc. and established eight Portfolios of the Fund
and designated the then current assets, liabilities and shareholders of Farm
Bureau Growth Fund, Inc. as the assets, liabilities and shareholders of the
Growth Common Stock Portfolio (which has since been renamed Value Growth
Portfolio) of FBL Series Fund, Inc. The meaning of the term "Value Growth
Portfolio" as used herein includes, where appropriate, Farm Bureau Growth Fund,
Inc. prior to December 1, 1987. On May 1, 1998, the Fund changed its name to
EquiTrust Series Fund, Inc.
B-10
<PAGE>
$37,339, respectively, for the High Yield Bond Portfolio; $276,527, $202,879 and
$148,741, respectively, for the Managed Portfolio; $7,315, $7,912 and $10,012,
respectively, for the Money Market Portfolio; and $93,182, $51,719 and $30,418,
respectively, for the Blue Chip Portfolio.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
With respect to transactions in portfolio securities, whether through a
broker as agent or with a dealer as principal, the Adviser endeavors to obtain
for the Fund the most favorable prices and efficient execution of orders.
Subject to this primary consideration, the Adviser may place a Portfolio's
transactions with firms that furnish research, statistical and other services.
In particular, the Adviser may direct brokerage transactions to a specific
broker in return for certain data and research-oriented software. Certain
affiliates of the Adviser also place portfolio transactions with these brokerage
firms, and such affiliates share the benefits of the research and other services
obtained from these brokers.
Brokerage research services, as provided in Section 28(e) of the Securities
Exchange Act of 1934, include: advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
analyses and reports concerning issues, industries, securities, economic factors
and trends; portfolio strategy and performance of accounts; and the execution of
securities transactions and performance of functions incidental thereto (such as
clearance and settlement).
The Fund paid brokerage commissions during the fiscal years ended July 31,
1998, 1997 and 1996 of $686,081, $306,430 and $262,465, respectively. The
Adviser regards information that is customarily available only in return for
brokerage as among the many elements to be considered in arriving at investment
decisions. No specific value can be determined for most such information and
services and they are deemed supplemental to the Adviser's own efforts in the
performance of its duties under the investment advisory agreement. Neither the
Adviser nor any of its affiliates will receive any brokerage business arising
out of the portfolio transactions of the Fund.
If, in the judgment of the Adviser, the Fund or any Portfolio will be
benefited by such supplemental research services, the Fund or such Portfolio is
authorized to pay greater spreads or commissions than another broker or dealer
may charge for the same transaction. Accordingly, while the Adviser generally
seeks reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available in every case.
The expenses of the Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information.
The Portfolios may deal in some instances in securities that are not listed
on a national securities exchange but rather are traded in the over-the-counter
market. The Portfolios may also purchase listed securities through the "third
market." Where transactions are executed in the over-the-counter market or third
market, the Adviser will seek to deal with primary market makers but, when
necessary, will utilize the services of brokers. In all such cases, the Adviser
will attempt to negotiate the best price and execution. Money market instruments
are generally traded directly with the issuer. On occasion, other securities may
be purchased directly from the issuer. The cost of a Portfolio's securities
transactions will consist primarily of brokerage commissions or dealer or
underwriter spreads.
Certain investments may be appropriate for certain of the Portfolios and for
other clients advised by the Adviser. Investment decisions for the Portfolios
and such other clients are made with a view to achieving their respective
investment objectives and after consideration of factors such as their current
holdings, availability of cash for investment and the size of their investments
in general. Frequently, a particular security may be bought or sold for only one
client, or in different amounts and at different times for more than one but
less than all clients. Likewise, a particular security may be bought for one or
more
B-11
<PAGE>
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more Portfolios
or other clients at the same time. In such event, such transactions will be
allocated among the Portfolios or other clients in a manner believed by the
Adviser to be equitable to each. In some cases, this procedure could have an
adverse effect on the price or amount of the securities purchased or sold by a
Portfolio. It is the opinion of the Board of Directors that the benefits
available because of the Adviser's organization outweigh any disadvantages that
may arise from exposure to simultaneous transactions. Purchase and sale orders
for a Portfolio may be combined with those of other Portfolios or other clients
of the Adviser in the interest of the most favorable net results to the
Portfolio.
UNDERWRITING AND DISTRIBUTION EXPENSES
EquiTrust Investment Management Services, Inc. (the "Distributor") also
serves as principal underwriter for the Fund under an Underwriting Agreement
dated December 31, 1983, and as distributor of the Fund's shares under a
Distribution Plan and Agreement dated December 1, 1987, as amended December 1,
1997 ("Distribution Agreement"). See "General Information--Distributor" in the
Prospectus. The Distributor bears all its expenses of providing services
pursuant to the Distribution Agreement, including the payment of any
commissions, the preparation and distribution of advertising or sales
literature, and bears the cost of printing and mailing prospectuses to persons
other than shareholders. The Fund bears the cost of qualifying and maintaining
the qualification of its shares for sale under the securities laws of the
various states and the expense of registering its shares with the Securities and
Exchange Commission.
The Distribution Agreement continues in effect from year to year so long as
such continuance is approved at least annually by a vote of the Board of
Directors of the Fund, including the Directors who are not "interested persons"
of the Fund and who have no direct or indirect financial interest in the
agreement. The Distribution Agreement automatically terminates in the event of
its assignment and may be terminated at any time without penalty by the Fund or
by the Distributor upon six months' notice. Termination by the Fund may be by
vote of a majority of the Board of Directors, or a majority of the Directors who
are not "interested persons" of the Fund and who have no direct or indirect
financial interest in the Distribution Agreement, or a "majority of the
outstanding voting securities" of the Fund as defined under the Investment
Company Act of 1940. The Distribution Agreement may not be amended to increase
the fee to be paid by the Fund without approval by a majority of the outstanding
voting securities of the Fund and all material amendments must in any event be
approved by the Board of Directors in the manner described above with respect to
the continuation of the Agreement. Shareholders vote in the aggregate and not by
Portfolio with respect to the Distribution Agreement.
For its services under the Distribution Agreement, the Fund pays the
Distributor a fee, payable monthly, at the annual rate of .50% of the average
daily net assets of the Traditional Shares of the Fund. The Distributor also
provides information and administrative services for Fund shareholders of
Traditional Shares pursuant to an administrative services agreement. For such
services, the Fund pays the Distributor a fee, payable monthly, at an annual
rate of .25% of average daily net assets of the Traditional Shares of the Fund.
The Fund paid annual distribution fees to the Distributor during the fiscal
years ended July 31, 1998, 1997 and 1996 of $1,085,208, $880,476 and $678,920,
respectively. During the fiscal year ended July 31, 1998, of the aggregate
amount of distribution fees paid to the Distributor, $324,893, was paid to
EquiTrust Marketing Services, Inc., an affiliate of the Distributor, and the
balance of $760,315, was retained by the Distributor. During the fiscal year
ended July 31, 1998, the Distributor incurred expenses
B-12
<PAGE>
in the approximate amounts noted: $918,657 for commissions paid to Dealers for
Fund sales, $841,392 for management services, $71,372 for rent, $24,935 for
telephone, $19,471 for postage, $70,408 for printing and office supplies, and
$73,936 for furniture and equipment.
During the fiscal years ended July 31, 1998, 1997 and 1996 the Distributor
received $195,609, $117,087 and $155,049, respectively, in contingent deferred
sales charges.
The Distributor also acts as principal underwriter and sole distributor of
the shares of EquiTrust Money Market Fund, Inc. and EquiTrust Variable Insurance
Series Fund.
PURCHASES AND REDEMPTIONS
The following supplements the discussion in the Prospectus under the
headings "How to Buy Shares" and "How to Redeem Shares."
Shares of each Portfolio are sold at their respective net asset value next
determined after an order for purchase and payment are received in proper form.
Shares of each Portfolio are redeemed at their respective net asset value
next determined after a request for redemption is received in proper form. The
Fund may suspend the right of redemption or postpone the date of payment, with
respect to the shares of a Portfolio, during any period when (a) trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such exchange is closed for trading (other than customary
weekend and holiday closing); (b) an emergency exists, as determined by the
Securities and Exchange Commission, as a result of which disposal of such
Portfolio's securities, or determination of the net asset value of such
Portfolio, is not reasonably practicable; or (c) the Securities and Exchange
Commission by order permits such suspension for the protection of Shareholders.
In such event, redemption will be effected at the net asset value next
determined after the suspension has been terminated unless the Shareholder has
withdrawn the redemption request in writing and the request has been received by
EquiTrust Investment Management Services, Inc., 5400 University Avenue, West Des
Moines, Iowa 50266-5997, prior to the day of such determination of net asset
value.
NET ASSET VALUE
The following supplements the discussion in the Prospectus under the heading
"Net Asset Value Information."
MONEY MARKET PORTFOLIO
The net asset value per share of the Money Market Portfolio is computed by
dividing the total value of the Portfolio's securities and other assets, less
liabilities (including dividends payable), by the number of shares outstanding.
The assets are determined by valuing the portfolio securities at amortized cost,
pursuant to Rule 2a-7 under the Investment Company Act. The amortized cost
method of valuation involves valuing a security at cost at the time of purchase
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
The purpose of the amortized cost method of valuation is to attempt to
maintain a constant net asset value per share of $1.00. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold its portfolio securities. Under the direction of the
Board of Directors, certain procedures have been adopted to monitor and
stabilize the price per share. Calculations are made to compare the value of the
portfolio securities, valued at amortized cost, with market values. Market
valuations are
B-13
<PAGE>
obtained by using actual quotations provided by market makers, estimates of
market value, or values obtained from yield data relating to classes of money
market instruments published by reputable sources at the mean between the bid
and asked prices for those instruments. If a deviation of 1/2 of 1% or more
between the Portfolio's $1.00 per share net asset value and the net asset value
calculated by reference to market valuations were to occur, or if there were any
other deviations which the Board of Directors believes would result in dilution
or other unfair results material to Shareholders, the Board of Directors would
consider what action, if any, should be initiated.
The market value of debt securities usually reflects yields generally
available on securities of similar quality. When yields decline, the market
value of a Portfolio holding higher yielding securities can be expected to
increase; when yields increase, the market value of a Portfolio invested at
lower yields can be expected to decline. In addition, if the Portfolio has net
redemptions at a time when interest rates have increased, the Portfolio may be
forced to sell portfolio securities prior to maturity at a price below the
Portfolio's carrying value. Also, because the Portfolio generally will be valued
at amortized cost rather than market value, any yield quoted may be different
from the yield that would result if the entire Portfolio were valued at market
value, since the amortized cost method does not take market fluctuations into
consideration.
OTHER PORTFOLIOS
The net asset value per share of each Portfolio other than the Money Market
Portfolio is computed by dividing the total value of the Portfolio's securities
and other assets, less liabilities, by the number of Portfolio shares then
outstanding. Securities traded on a national exchange are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between closing bid and asked prices.
Securities, other than money market instruments, traded in the over-the-counter
market are valued at the mean between the bid and asked prices or at yield
equivalent as obtained from one or more dealers that make markets in the
securities. Securities traded both in the over-the-counter market and on a
national exchange are valued according to the broadest and most representative
market, and it is expected that for debt securities this ordinarily will be the
over-the-counter market. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors. Money market instruments are
valued at market value, except that instruments maturing in 60 days or less are
valued using the amortized cost method of valuation.
The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated specifically to such Portfolio, and
constitute the underlying assets of such Portfolio. The underlying assets of
each Portfolio are segregated on the Fund's books of account and are charged
with the liabilities of such Portfolio and with a share of the general
liabilities of the Fund. Expenses with respect to any two or more Portfolios are
allocated in proportion to the net asset values of the respective Portfolios
except where allocations of direct expenses can otherwise be fairly made.
TAXES
For federal income tax purposes, each Portfolio is treated as a separate
entity. Each Portfolio intends to continue to qualify to be taxed as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended ("Code"). If a Portfolio qualifies as a regulated investment
company and complies with the provisions of the Code, such Portfolio will be
relieved from federal income tax on the part of its net ordinary income and net
realized capital gain that it distributes to its shareholders. To qualify for
treatment as a "regulated investment company," a Portfolio must, among other
things, derive in each taxable year at least 90% of its gross income from
dividends, interest,
B-14
<PAGE>
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury to exclude foreign currency gains
that are not ancillary to the Portfolio's principal business of investing in
stock or securities or options and futures with respect to such stock or
securities), or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stocks, securities, or currencies. In addition, to qualify for treatment
as a "regulated investment company," a Portfolio must derive less than 30% of
its gross income in each taxable year from gains (without deduction for losses)
from the sale or other disposition of securities held for less than three
months. This rule may limit a Portfolio's ability to engage in futures and
options transactions.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is generally the sum of 98% of a Portfolio's net ordinary income
for the calendar year plus 98% of its capital gain net income for the one year
period ending October 31. The Fund intends to declare or distribute dividends
from each Portfolio during the calendar year of an amount sufficient to prevent
imposition of the 4% excise tax.
A portion of the ordinary income distributions from a Portfolio may be
eligible for the "dividends received deduction" available to corporate
shareholders. The aggregate amount eligible for the "dividends received
deduction" may not exceed the aggregate qualifying dividends received by such
Portfolio for the fiscal year. The portion of the income dividends paid during
the fiscal year ended July 31, 1998 that qualified for the "dividends received
deduction" available to corporate shareholders was as follows: 49% of the income
dividend paid December 30, 1997 by the Value Growth Portfolio; 44%, 49%, 45% and
45% of the income dividends paid November 7, 1997, December 30, 1997, May 7,
1998 and August 7, 1998, respectively, by the Managed Portfolio; and 77% of the
income dividend paid December 30, 1997 by the Blue Chip Portfolio.
If a shareholder exchanges shares of a Portfolio for shares of another
Portfolio of the Fund, the shareholder will recognize a gain or loss for federal
income tax purposes measured by the difference between the value of the shares
acquired and the basis of the shares exchanged. Such gain or loss will generally
be a capital gain or loss and will be a long-term gain or loss if the
shareholder has held his or her shares for more than one year. If a shareholder
realizes a loss on the redemption of shares of a Portfolio and invests in shares
of the same Portfolio within 30 days before or after the redemption, the
transactions may be subject to the wash sale rules resulting in a postponement
of the recognition of such loss for federal income tax purposes. Any loss
recognized on the disposition of shares of a Portfolio held six months or less
will be treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares.
The discussion under "Dividends and Taxes" in the Prospectus, in conjunction
with the foregoing, is a general summary of applicable provisions of the Code
and Treasury Regulations now in effect as currently interpreted by the courts
and the Internal Revenue Service. The Code and these Regulations, as well as the
current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.
DIVIDENDS AND DISTRIBUTIONS
Reference is made to the discussion in the Prospectus under the heading
"Dividends and Taxes" for a more complete discussion of dividends and
distributions.
B-15
<PAGE>
MONEY MARKET PORTFOLIO
The Portfolio declares dividends of all its daily net investment income on
each day the Portfolio's net asset value per share is determined. Dividends are
distributed monthly, on the last business day of each month, in full and
fractional shares of the Portfolio at the then-current net asset value. Each
Shareholder will receive a monthly summary of the Portfolio's activity,
including information on dividends paid or reinvested.
Net investment income, for dividend purposes, consists of (1) accrued
interest income, plus or minus (2) amortized purchase discount or premium, plus
or minus (3) all short-term realized gains or losses and unrealized appreciation
or depreciation on portfolio assets, minus (4) all accrued expenses of the
Portfolio. Expenses of the Portfolio are accrued daily. So long as the portfolio
securities are valued at amortized cost, there will be no unrealized
appreciation or depreciation on such securities.
PERFORMANCE INFORMATION
As described in the Prospectus, a Portfolio's historical performance or
return may be shown in the form of "average annual total return" and "total
return" in the case of all Portfolios except the Money Market Portfolio; "yield"
in the case of the High Grade Bond and High Yield Bond Portfolios; and "yield"
and "effective yield" in the case of the Money Market Portfolio. These various
measures of performance are described below.
Average annual total return and total return measure both the net income
generated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of a Portfolio over the specified
period. Yield is a measure of the net investment income per share earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Portfolio) expressed as a percentage of the net asset value.
A Portfolio's standardized average annual total return quotation is computed
in accordance with a method prescribed by rules of the Securities and Exchange
Commission. The standardized average annual total return for a Portfolio for a
specific period is determined by assuming a hypothetical $1,000 investment in
the Fund's shares on the first day of the period at the then effective net asset
value per share ("initial investment"), and computing the ending redeemable
value ("redeemable value") of that investment at the end of the period. The
redeemable value includes the effect of the applicable contingent deferred sales
charge that may be imposed at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted from
the result, which is then expressed as a percentage. The calculation assumes
that all income and capital gains dividends by the Portfolio have been
reinvested at net asset value on the reinvestment dates during the period.
Standardized average annual total return figures for various periods are set
forth in the tables below. In addition, included in the table below are figures
for the average annual total return without the deduction of the contingent
deferred sales charge. Thus, the same formula as set forth above is used except
that the redeemable value has not been reduced by the applicable sales charge
for that period.
Calculation of a Portfolio's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed to be $1,000) in the Fund's shares on the first
day of the period at the then effective net asset value per share ("initial
investment") and computing the ending value ("ending value") of that investment
at the end of the period. The ending value may or may not include the effect of
the applicable contingent deferred sales charge that may be imposed at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the value and dividing the difference by the initial
investment and expressing the result
B-16
<PAGE>
as a percentage. This calculation assumes that all income and capital gains
dividends by the Portfolio have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return figures for various periods are set forth in the tables below.
The yield for a Portfolio, other than the Money Market Portfolio, is
computed in accordance with the formula set forth below, which is a standardized
method prescribed by rules of the Securities and Exchange Commission. The High
Grade Bond Portfolio's yield based upon the 30-day period ended July 31, 1998
was 5.03% and the High Yield Bond Portfolio's was 5.25%. A Portfolio's yield is
computed by dividing the net investment income per share earned during the
specific one-month or 30-day period by the offering price per share on the last
day of the period, according to the following formula:
<TABLE>
<S> <C> <C> <C>
[(a-b +1)(6) -1]
Yield = 2 -------------
cd
</TABLE>
<TABLE>
<C> <S>
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the offering price per share on the last day of the period.
</TABLE>
In computing yield, the Fund follows certain standardized accounting
practices specified by Securities and Exchange Commission rules. These practices
are not necessarily consistent with those that the Fund uses to prepare its
annual and interim financial statements in accordance with generally accepted
accounting principles.
The Money Market Portfolio's yield is computed in accordance with a standard
method prescribed by rules of the Securities and Exchange Commission. Under that
method, the yield quotation is based on a seven-day period and is computed as
follows. The net investment income per share (accrued interest on portfolio
securities, plus or minus amortized premium or discount, less accrued expenses)
is divided by the price per share (expected to remain constant at $1.00) at the
beginning of the period ("base period return") and the result is divided by
seven and multiplied by 365. The resulting yield figure is carried to the
nearest one hundredth of one percent. Realized capital gains or losses and
unrealized appreciation or depreciation of investments are not included in the
calculation. The Money Market Portfolio's yield for the seven day period ended
July 31, 1998 was 3.08%.
The Money Market Portfolio's effective yield is determined by taking the
base period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is [(base period return
+1) raised to the 365/7] -1. The Money Market Portfolio's effective yield for
the seven day period ended July 31, 1998 was 3.13%.
A Portfolio's performance quotations are based upon historical results and
are not necessarily representative of future performance. The Fund's shares are
sold at net asset value, and return and net asset value will fluctuate except
that the Money Market Portfolio seeks to maintain a $1.00 net asset value per
share. Factors affecting a Portfolio's performance include general market
conditions, operating expenses and investment management. Shares of a Portfolio
are redeemable at net asset value, which may be more or less than original cost.
Redemptions within the first six years after purchase may be subject to a
contingent deferred sales charge that ranges from 5% the first year to 0% after
six years.
B-17
<PAGE>
Yield and effective yield do not include the effect of the contingent deferred
sales charge. The standardized average annual total return does include the
effect of the contingent deferred sales charge. Average annual total return does
not, and total return may or may not include the effect of the contingent
deferred sales charge that may be imposed at the end of the designated period.
Performance figures not including the effect of the contingent deferred sales
charge would be reduced if the charge were included. No adjustments are made for
taxes payable on dividends. The figures below show performance information for
various periods ended July 31, 1998.
AVERAGE ANNUAL TOTAL RETURN TABLE
FOR PERIOD ENDED JULY 31, 1998
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL
AVERAGE ANNUAL TOTAL RETURN
PORTFOLIO TOTAL RETURN (1) UNADJUSTED (2)
- ------------------------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Value Growth
10 years.................................................................... 9.59 % 9.59 %
5 years..................................................................... 5.54 % 5.77 %
1 year...................................................................... (19.91)% (16.37)%
High Grade Bond
10 years.................................................................... 7.98 % 7.98 %
5 years..................................................................... 5.92 % 6.23 %
1 year...................................................................... 1.39 % 6.53 %
High Yield Bond
10 years.................................................................... 9.93 % 9.93 %
5 years..................................................................... 7.65 % 7.95 %
1 year...................................................................... 2.14 % 7.10 %
Managed
10 years.................................................................... 9.58 % 9.58 %
5 years..................................................................... 7.39 % 7.68 %
1 year...................................................................... (8.86)% (4.54)%
Blue Chip
10 years.................................................................... 15.80 % 15.80 %
5 years..................................................................... 19.27 % 19.47 %
1 year...................................................................... 6.49 % 11.49 %
</TABLE>
- ------------------------
(1) The adjusted value represents the percentage change in the ending value
after the deduction of the contingent deferred sales charge.
(2) The unadjusted value represents the percentage change in the ending value
without the deduction of the contingent deferred sales charge.
B-18
<PAGE>
TOTAL RETURN TABLE
FOR PERIOD ENDED JULY 31, 1998
<TABLE>
<CAPTION>
STANDARDIZED
TOTAL RETURN TOTAL RETURN
PORTFOLIO (1) UNADJUSTED (2)
- -------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Value Growth
10 years...................................................................... 149.90 % 149.90 %
5 years....................................................................... 30.93 % 32.39 %
1 year........................................................................ (19.91)% (16.37) %
High Grade Bond
10 years...................................................................... 15.50 % 115.80 %
5 years....................................................................... 33.30 % 35.48 %
1 year........................................................................ 1.39 % 6.53 %
High Yield Bond
10 years...................................................................... 157.67 % 157.58 %
5 years....................................................................... 44.56 % 45.49 %
1 year........................................................................ 2.14 % 7.10 %
Managed
10 years...................................................................... 149.73 % 149.73 %
5 years....................................................................... 42.83 % 46.51 %
1 year........................................................................ (8.86)% (4.54) %
Blue Chip
10 years...................................................................... 333.68 % 333.68 %
5 years....................................................................... 141.36 % 143.36 %
1 year........................................................................ 6.49 % 11.49 %
</TABLE>
- ------------------------
(1) The adjusted value represents the percentage change in the ending value
after the deduction of the contingent deferred sales charge.
(2) The unadjusted value represents the percentage change in the ending value
without the deduction of the contingent deferred sales charge.
B-19
<PAGE>
SHAREHOLDER VOTING RIGHTS
All shares of the Fund have equal voting rights (except that Traditional
Shares have separate and exclusive voting rights with respect to the Fund's Rule
12b-1 Plan) and may be voted in the election of Directors and on other matters
submitted to the vote of shareholders. As permitted by Maryland law and the
Fund's corporate charter, there will normally be no meetings of shareholders for
the purpose of electing directors unless and until such time as fewer than a
majority of the directors holding office have been elected by shareholders. At
that time, the directors then in office will call a shareholders' meeting for
the election of directors. The directors shall normally continue to hold office
and may appoint successor directors, provided that immediately after the
appointment of any successor director, at least two-thirds of the directors have
been elected by the shareholders. The shares do not have cumulative voting
rights, which means that the holders of a majority of the shares voting for the
election of directors can elect all the directors. No amendment may be made to
the Fund's corporate charter without the affirmative vote of a majority of the
outstanding shares of the Fund.
In matters which only affect a particular Portfolio or class, the matter
shall have been effectively acted upon by a majority vote of that Portfolio or
class, even though: (i) the matter has not been approved by a majority vote of
any other Portfolio or class; or (ii) the matter has not been approved by a
majority vote of the Fund.
RETIREMENT PLANS
Investors Fiduciary Trust Company of Kansas City, Missouri, serves as
custodian and provides the services required for Individual Retirement Plans
(IRAs), Roth IRAs, Simplified Employee Pension Plans (SEPs), Savings Incentive
Match Plans for Employees (SIMPLEs), Section 403(b) Plans and Qualified Pension
and Profit Sharing Plans ("Keogh's"). An annual maintenance fee, currently $10,
will be collected annually by redemption of shares or fractions thereof from
each participant's account(s). EquiTrust Investment Management Services, Inc.
performs plan services for a portion of the fee and during the fiscal year ended
July 31, 1998 received $147,895 for its services of which $46,791 was remitted
to Investors Fiduciary Trust Company. Unusual administrative responsibilities
will be subject to such additional charges as will reasonably compensate the
custodian for the service involved.
Since a retirement investment program involves a commitment covering future
years, it is important that the investor consider his or her needs and whether
the investment objective of the Fund as described in the Prospectus is likely to
fulfill them. Premature termination or curtailment of the plan may result in
adverse tax consequences. Consultation with an attorney or other tax adviser
regarding these plans is recommended. For further information regarding these
plans, contact the Fund.
OTHER INFORMATION
PRINCIPAL HOLDERS OF SECURITIES
As of November 17, 1998, Farm Bureau Life Insurance Company (a wholly-owned
subsidiary of FBL Financial Group, Inc., an Iowa corporation), owned 61% of the
Money Market Portfolio and owned 14% of the outstanding voting securities of the
High Yield Bond Portfolio.
CUSTODIAN
Bankers Trust Company, 16 Wall Street, New York, New York 10005, currently
serves as custodian of all cash and securities owned by the Fund. The custodian
performs no managerial or policy-making functions for the Fund.
B-20
<PAGE>
INDEPENDENT AUDITORS
The Fund's independent auditors are Ernst & Young LLP, 801 Grand Avenue,
Suite 3400, Des Moines, Iowa 50309. The independent auditors audit and report on
the Fund's annual financial statements, review certain regulatory reports and
perform other professional accounting, auditing, tax and advisory services when
engaged to do so by the Fund.
ACCOUNTING SERVICES
The Fund has entered into an accounting services agreement with EquiTrust
Investment Management Services, Inc. ("EquiTrust") pursuant to which EquiTrust
performs accounting services for the Fund. In addition, the agreement provides
that EquiTrust shall calculate the Fund's net asset value in accordance with the
Fund's current Prospectus and to prepare, for Fund approval and use, various tax
returns and other reports. For such services, each Portfolio pays EquiTrust an
annual fee, payable monthly, of .05% of the Portfolio's average daily net
assets, with the annual fee payable by a Portfolio not to exceed $30,000. During
the fiscal year ended July 31, 1998, the aggregate amount of such fees paid to
EquiTrust was $84,189.
SHAREHOLDER SERVICE, DIVIDEND DISBURSING AND TRANSFER AGENT
EquiTrust Investment Management Services, Inc. serves as the Fund's
shareholder service, transfer and dividend disbursing agent. EquiTrust in turn
has contracted with DST Systems, Inc. ("DST"), an unrelated party, to perform
certain services incident to the maintenance of shareholder accounts. The Fund
pays EquiTrust an annual fee of $7.00 to $9.00 per account and miscellaneous
activity fees plus out of pocket expenses, a portion of which is paid to DST.
During the fiscal year ended July 31, 1998, the aggregate amount of such fees
paid to EquiTrust was $605,383, of which $341,775 was paid to DST.
LEGAL MATTERS
The firm of Vedder, Price, Kaufman & Kammholz, Chicago, Illinois, is counsel
for the Fund.
FINANCIAL STATEMENTS
The audited financial statements of the Fund, including the notes thereto,
contained in the Annual Report to Shareholders of EquiTrust Series Fund, Inc.
for the fiscal year ended July 31, 1998, were filed with the Securities and
Exchange Commission on September 28, 1998 and are incorporated herein by
reference. Additional copies of such Annual Report to Shareholders may be
obtained without charge by contacting the Fund.
B-21
<PAGE>
EQUITRUST SERIES FUND, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(i) Financial Statements included in Part A of Registration Statement:
Condensed Financial Information at July 31, 1998
(ii) Financial Statements incorporated by reference in Part B of
Registration Statement:
Report of Independent Auditors
Statements of Assets and Liabilities at July 31, 1998
Statements of Operations for the year ended July 31, 1998
Statements of Changes in Net Assets for the years ended July 31,
1998 and 1997
Schedules of Investments at July 31, 1998
Notes to Financial Statements
(b) Exhibits:
<TABLE>
<C> <S>
1. (a) Articles of Incorporation (1)
(b) Articles of Amendment which became effective in 1977 and 1978 (1)
(c) Articles of Amendment which became effective on November 30, 1987 (1)
(d) Articles of Amendment which became effective on November 22, 1991 (1)
(e) Articles Supplementary to the Charter which became effective on
November 25, 1991 (1)
(f) Articles Supplementary to the Charter which became effective on
December 1, 1996 (2)
(g) Articles of Amendment which became effective on December 1, 1997 (4)
(h) Articles Supplementary to the Charter which became effective on
December 1, 1997 (4)
*(i) Articles of Amendment which became effective on May 1, 1998
2. (a) By-laws, as amended (1)
(b) By-laws, as amended August 15, 1997 (2)
3. Inapplicable
4. Specimen copy of uniform common stock certificate (1)
5. (a) Investment Advisory and Management Services Agreement dated November
11, 1987 (1)
(b) Amendment to Management Fee Schedule dated December 1, 1996 (2)
6. (a) Underwriting Agreement dated December 31, 1983 (1)
(b) Form of Dealer Agreement (4)
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
(c) Administrative Services Agreement dated November 25, 1991 (1)
(d) Administrative Services Agreement, as amended and restated as of
December 1, 1997 (4)
7. Inapplicable
8. Custodian Agreement dated January 12, 1993 (1)
9. (a) Fidelity Bond Joint Insureds Agreement (2)
(b) Joint Insureds D&O and E&O Agreement (1)
(c) Accounting Services Agreement (1)
(d) Shareholder Service, Dividend Distributing and Transfer Agent
Agreement dated September 1, 1995 (1)
10. Inapplicable
*11. Consent of Ernst & Young LLP
12. Inapplicable
13. Inapplicable
14. (a)(1) Form of Prototype Money Purchase Pension and Profit Sharing Plan,
as amended (1)
(a)(2) Form of Adoption Agreements (1)
(a)(3) Application Form for Keogh Plan (1)
(b)(1) Model Individual Retirement Account, Form 5305-A (1)
(b)(2) Model IRA Disclosure Statement (2)
15. (a) Distribution and Shareholder Servicing Plan and Agreement dated as of
December 1, 1987 (1)
(b) Distribution and Shareholder Servicing Plan and Agreement dated
December 1, 1987, as amended November 25, 1991 (1)
*(c) Distribution Plan and Agreement, amended as of December 1, 1997 (4)
16. Schedule for Computation of Performance Data (3)
18. Multiple Class Plan adopted pursuant to Rule 18f-3. (4)
*27. Financial Data Schedules
</TABLE>
- ------------------------
* Filed herewith
(1) Incorporated by reference from Post-Effective Amendment No. 30 to the
Registration Statement on Form N-1A, filed on or about December 1, 1995.
(2) Incorporated by reference from Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A, filed on November 27, 1996.
(3) Incorporated by reference from Post-Effective Amendment No. 33 to the
Registration Statement on Form N-1A, filed on September 29, 1997.
(4) Incorporated by reference from Post-Effective Amendment No. 34 to the
Registration Statement under the Securities Act of 1933 on Form N-1A filed
on November 25, 1997.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 31, 1998, the number of record holders of each class of common
stock of the Registrant were as follows:
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
- -------------------------------------------------------- ----------------
<S> <C>
Value Growth Portfolio 15,217
High Grade Bond Portfolio 1,710
High Yield Bond Portfolio 2,088
Managed Portfolio 8,667
Money Market Portfolio 480
Blue Chip Portfolio 9,938
</TABLE>
ITEM 27. INDEMNIFICATION.
The Maryland Code, Corporations and Associations, Section 2-418, provides
for indemnification of directors, officers, employees and agents. Article XVI of
the Registrant's Articles of Incorporation restricts indemnification for any
officer or director in cases of willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of their offices.
Article XV of the Registrant's By-Laws provides for indemnification of officers
under certain circumstances.
The Investment Advisory and Management Services Agreement between the
Registrant and EquiTrust Investment Management Services, Inc. ("Adviser")
provides that, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties thereunder on the part
of the Adviser, the Adviser shall not be liable for any error of judgment or
mistake of law, or for any loss suffered by the Fund in connection with the
matters to which such Agreement relates.
In addition, the Registrant maintains a directors and officers "errors" and
"omissions" liability insurance policy under which the Registrant and its
directors and officers are named insureds.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's investment adviser is EquiTrust Investment Management Services,
Inc. ("EquiTrust"). In addition to its services to Registrant as investment
adviser, underwriter, shareholder service, transfer and dividend disbursing
agent, all as set forth in parts A and B of this Registration Statement on Form
N-1A, EquiTrust acts as adviser, underwriter, shareholder service, transfer and
dividend disbursing agent for EquiTrust Money Market Fund, Inc., a diversified
open-end management investment company, and EquiTrust Variable Insurance Series
Fund , a diversified open-end series management investment company.
C-3
<PAGE>
The principal executive officers and directors of EquiTrust are Stephen M.
Morain, Senior Vice President, General Counsel and Director; William J. Oddy,
President and Director; Dennis M. Marker, Investment Vice President,
Administration, Secretary and Director; Thomas R. Gibson, Chief Executive
Officer and Director; Timothy J. Hoffman, Vice President and Director; James W.
Noyce, Chief Financial Officer, Treasurer and Director, and Lou Ann Sandburg,
Vice President-Investments, Assistant Treasurer and Director. A description of
their services as officers and employees of FBL Financial Group, Inc. and its
affiliates is incorporated herein by reference to Part B--Statement of
Additional Information of this Registration Statement on Form N-1A.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) EquiTrust Investment Management Services, Inc., the principal
underwriter for Registrant, also acts as the principal investment adviser,
underwriter, shareholder service, transfer and dividend disbursing agent for
EquiTrust Money Market Fund, Inc., a diversified open-end management investment
company and EquiTrust Variable Insurance Series Fund, a diversified, open-end
series management investment company.
(b) The principal business address of each director and principal officer of
the principal underwriter is 5400 University Avenue, West Des Moines, Iowa
50266. See Item 28 for information on the principal officers of EquiTrust
Investment Management Services, Inc., investment adviser and principal
underwriter for the Registrant.
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the offices of the Registrant and the offices of the Adviser,
EquiTrust Investment Management Services, Inc., 5400 University Avenue, West Des
Moines, Iowa 50266.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable
(b) Not applicable
(c) Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of West Des Moines and State of Iowa, on the 24th
day of November, 1998.
EQUITRUST SERIES FUND, INC.
By: /s/ EDWARD M. WIEDERSTEIN
--------------------------------------------
Edward M. Wiederstein, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacity and on the date indicated.
/s/ EDWARD M. WIEDERSTEIN President and Director November 24, 1998
- ------------------------------ (Principal Executive -----------------
Edward M. Wiederstein Officer) (dated)
Senior Vice President,
/s/ RICHARD D. HARRIS Secretary-Treasurer and November 24, 1998
- ------------------------------ Director (Principal -----------------
Richard D. Harris Financial and Accounting (dated)
Officer)
/s/ DONALD G. BARTLING November 24, 1998
- ------------------------------ Director -----------------
Donald G. Bartling* (dated)
/s/ JOHN R. GRAHAM November 24, 1998
- ------------------------------ Director -----------------
John R. Graham* (dated)
/s/ ERWIN H. JOHNSON November 24, 1998
- ------------------------------ Director -----------------
Erwin H. Johnson* (dated)
/s/ KENNETH KAY November 24, 1998
- ------------------------------ Director -----------------
Kenneth Kay* (dated)
/s/ CURTIS C. PIETZ November 24, 1998
- ------------------------------ Director -----------------
Curtis C. Pietz* (dated)
*By: /s/ STEPHEN M. MORAIN
------------------------- Attorney-in-Fact, pursuant to Power of
Stephen M. Morain Attorney.
C-5
<PAGE>
FBL SERIES FUND, INC.
ARTICLES OF AMENDMENT
FBL Series Fund, Inc., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 (hereinafter
called the "Corporation"), whose principal office in the State of Maryland is
c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202, hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST: ARTICLE I of the Corporation's charter (the "Charter") is hereby
amended as follows:
Article I: The name of the Corporation is EquiTrust Series Fund, Inc.
SECOND: The Board of Directors of the Corporation has duly adopted a
resolution on January 11, 1998, approving the foregoing amendment to the
Charter.
THIRD: Article FIRST of these Articles of Amendment are limited to changes
expressly permitted by section 2-604(a)(4) of the Maryland General Corporation
Law to be made without action by stockholders, and the Corporation is an
open-end company under the Investment Company Act of 1940.
The undersigned President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts set forth in these
Articles with respect to authorization and approval are true in all material
respects and that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, FBL SERIES FUND, INC. has caused these Articles of
Amendment to be executed in its name and on its behalf by its President and
witnessed by its Secretary on April 23, 1998.
[SEAL] FBL SERIES FUNDS, INC.
Attest: /s/ Richard D. Harris By: /s/ Edward M. Wiederstein
---------------------------- ----------------------------
Richard D. Harris Edward M. Wiederstein
Secretary President
<PAGE>
EXHIBIT 11
[LOGO]
[LETTERHEAD]
Consent of Independent Auditors
The Board of Directors and Shareholders
EquiTrust Series Fund, Inc.
We consent to the reference to our firm under the captions "Financial
Highlights" and "General Information - Report to Shareholders" in the
Prospectus for EquiTrust Series Fund, Inc. in Part A and "Other Information
- - Independent Auditors" in Part B and to the incorporation by reference of our
report dated August 28, 1998 on the financial statements of EquiTrust Series
Fund, Inc. in Post Effective Amendment No. 35 to Form N-1A Registration
Statement under the Securities Act of 1933 (No. 2-38512) and related Prospectus
of EquiTrust Series Fund, Inc.
/s/ Ernst & Young LLP
Des Moines, Iowa
November 24, 1998
<PAGE>
EXHIBIT 15(c)
FBL SERIES FUND, INC.
AMENDED DISTRIBUTION PLAN AND AGREEMENT
PLAN AND AGREEMENT amended as of the 1st day of December, 1997, by and
between FBL SERIES FUND, INC., a Maryland corporation (the "Fund"), and FBL
INVESTMENT ADVISORY SERVICES, INC., a Delaware corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
provides that a registered open-end management investment company may act as a
distributor of securities of which it is the issuer, provided that any payments
made by such company in connection with such distribution are made pursuant to
a written plan describing all material aspects of the proposed financing of
distribution;
WHEREAS, the Fund is a registered open-end investment company authorized to
issue shares of common stock in separate series, with the shares representing
interests in separate portfolios of securities and other assets (the Fund's
series together with all the series subsequently established by the Fund being
referred to herein individually as a "Series" and collectively, the "Series");
and the Fund is authorized to and has divided the shares of each Series into two
classes designated as Traditional Shares and Institutional Shares;
WHEREAS, the Underwriter acts as the underwriter in selling shares of the
Fund, and the Underwriter and various securities dealers (the "Dealers") sell
shares of the Fund and provide services to existing shareholders;
WHEREAS, the Board of Directors of the Fund has determined that the Fund
should make direct payments to the Underwriter to compensate the Underwriter and
to permit it to compensate Dealers in connection with the selling of the Fund's
Traditional Shares only, and that such payments should be separate from the
administrative service fee paid to FBL Investment Advisory Services, Inc.
pursuant to a separate agreement;
WHEREAS, the original Plan and Agreement between the Fund and the
Underwriter, was approved by the vote of at least a majority (as defined in the
Act) of the outstanding shares of the Fund and became effective on December 1,
1987 and was amended on November 25, 1991, and is further amended hereby;
WHEREAS, the Fund wants to enter into this FBL Series Fund, Inc. Amended
Distribution Plan and Agreement (the "Plan") in the manner and on the terms and
conditions hereinafter set forth pursuant to Rule 12b-1 under the Act;
WHEREAS, the Underwriter wants to enter into the Plan on said terms and
conditions; and
<PAGE>
WHEREAS, the Board of Directors of the Fund has determined that there is a
reasonable likelihood that the Plan will benefit the Fund and the Traditional
shareholders;
NOW, THEREFORE, the following shall constitute the written Plan:
SECTION 1. The Fund is hereby authorized to make payments from its
assets to the Underwriter pursuant to this Plan to compensate the Underwriter
and to permit it to compensate Dealers for rendering assistance in the
distribution and promotion of the sale of the Fund's Traditional Shares to the
public with respect to the Series presently established and to such other Series
as may hereafter be established by the Board of Directors.
In consideration of the activities described above, the Fund shall pay the
Underwriter a fee after the end of each month at the annual rate of 0.50% of the
average daily net assets of the Traditional Shares of the Fund. The Underwriter
may compensate Dealers for sales of the Fund's Traditional Shares in amounts up
to 4.5% of the amount invested. The Underwriter shall be entitled to retain any
contingent deferred sales charges imposed pursuant to the Fund's prospectus on
the Traditional Shares.
SECTION 2. This Plan, which is to continue in effect in this amended
form until November 30, 1998 and shall thereafter continue in effect so long as
such continuance is specifically approved at least annually by votes of the
majority of both (a) the Board of Directors of the Fund, and (b) those Directors
of the Fund who, except for their positions as Directors of the Fund, are not
"interested persons" (as defined in the Act) of the Fund and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to this Plan (the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on this Plan or such agreements.
SECTION 3. The President of the Underwriter, or such other person as he
may designate, shall provide to the Board and the Board shall review at least
quarterly a written report of the amounts so expended and purposes for which
such expenditures were made.
SECTION 4. This Plan may be terminated at any time by vote of a
majority of the Disinterested Directors, or by vote of a majority (as defined in
the Act) of the Fund's outstanding Traditional Shares.
SECTION 5. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan or by a vote of a
majority (as defined in the Act) of the Fund's outstanding Traditional
Shares on not more than sixty days' written notice to any other party
to the agreement; and
-2-
<PAGE>
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 6. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Fund Directors who are not
interested persons.
SECTION 7. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Section 3, for a period of not less
than six years from the date of the Plan, or the agreements or such reports, as
the case may be, the first two years in an easily accessible place.
SECTION 8. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 1 hereof unless such
amendment is approved in the manner provided for in Section 2 as well as being
approved by a vote of at least a majority (as defined in the Act) of the
outstanding Traditional Shares of the Fund and no other material amendment to
this Plan shall be made unless approved in the manner provided for in Section 2
hereof.
SECTION 9. This Plan supersedes all prior distribution plans and
agreements between the Fund and the Underwriter.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the day first written above.
ATTEST: FBL SERIES FUND, INC.
/s/ Dennis M. Marker By: /s/ Edward M. Wiederstein
- ------------------------------------- ----------------------------------
By: Its Assistant Secretary
Title: President
-------------------------------
ATTEST: FBL INVESTMENT ADVISORY
SERVICES, INC.
/s/ Kristi Rojohn
- -------------------------------------
By: Its Assistant Secretary By: /s/ William J. Oddy
----------------------------------
Title: President
-------------------------------
-3-
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> HIGH YIELD BOND CLI
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> MANAGED CLA
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> MANAGED CLI
<S> <C>
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<PERIOD-END> JUL-31-1998
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> BLUE CHIP CLA
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 30603429
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> BLUE CHIP CLI
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> MONEY MARKET CLA
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 3190075
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> MONEY MARKET CLI
<S> <C>
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</TABLE>
