<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1999
REGISTRATION NOS. 2-38512
811-2125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 36 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 36 /X/
------------------------
EQUITRUST SERIES FUND, INC.
(Exact name of Registrant as Specified in Charter)
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Address of Principal Executive Offices)(Zip Code)
(515) 225-5586
(Registrant's Telephone Number, Including Area Code)
STEPHEN M. MORAIN, ESQUIRE
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Name and Address of Agent for Service)
------------------------
COPY TO:
JAMES A. ARPAIA, ESQUIRE
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, IL 60601
------------------------
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/X/ on December 1, 1999 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
EQUITRUST SERIES FUND, INC.
-------------------------------------------
VALUE GROWTH PORTFOLIO
HIGH GRADE BOND PORTFOLIO
HIGH YIELD BOND PORTFOLIO
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO
BLUE CHIP PORTFOLIO
----------------------------------------------------------------------
SUPPLEMENT TO PROSPECTUS
Dated December 1, 1999
INSTITUTIONAL SHARES
EquiTrust 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 by this document.
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 differences between the classes of the Fund's shares are due to 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 for Traditional Shares.
The following information supplements the indicated sections of the prospectus.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE RECORD
- --------------------------------------------------------------------------------
The charts and tables contained in the accompanying prospectus provide some
indication of the risks of investing in the Portfolios by illustrating how the
Portfolios have performed from year to year, and comparing this information to a
broad measure of market performance. Of course, past performance is no
indication or guarantee of the results that the Portfolios may achieve in the
future. Additional information for the Portfolios' Institutional Shares is set
forth below. The performance rate of each Portfolio was calculated after
deducting all fees and charges incurred by the Portfolio. During certain periods
shown, the Adviser reimbursed the Money Market Portfolio for operating expenses
in excess of 1.5% of average daily net assets, thereby lowering expenses for the
Portfolio. The Index figures shown do not reflect any fees or expenses and you
cannot invest directly in any Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN LIFE OF CLASS
(FOR PERIODS ENDING DECEMBER 31, 1998) ONE YEAR (INCEPTION 12/1/97)
- -------------------------------------------------------------- -------- -------------------
<S> <C> <C>
Value Growth Portfolio........................................ (39.53)% (26.99)%
S&P 500 Index(1).............................................. 28.58% 12.82%
High Grade Bond Portfolio..................................... 6.45% 3.46%
Lehman Brothers Mutual Fund Aggregate Index(2)................ 8.69% 9.75%
High Yield Bond Portfolio..................................... 5.18% 2.78%
Lehman Brothers Mutual Fund Corporate/High Yield Index(3)..... 1.87% 8.00%
Managed Portfolio............................................. (13.92)% (6.85)%
S&P 500 Index(1).............................................. 28.58% 12.82%
Money Market Portfolio........................................ 3.71% 1.87%
90-day T-Bill Index(4)........................................ 4.85% 2.21%
Blue Chip Portfolio........................................... 16.81% 7.47%
S&P 500 Index(1).............................................. 28.58% 12.82%
</TABLE>
- ------------------------
(1) Standard & Poor's Corporation's Composite Index of 500 Common Stocks (the
"S&P 500 Index") is a widely recognized, unmanaged market
capitalization-weighted index of 500 widely held common stocks.
(2) The Lehman Brothers Aggregate Index is a widely recognized, unmanaged index
of fixed income performance.
(3) The Lehman Brothers High Yield Index is a widely recognized, unmanaged index
of corporate and high yield bond market performance.
(4) The 90-day T-Bill Index is a widely recognized index of three-month treasury
bills.
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENTS)
<S> <C>
Maximum Sales Load Imposed on Purchases........................................ None
Maximum Sales Load Imposed on Reinvested Dividends............................. None
Deferred Sales Load............................................................ None
Redemption Fee................................................................. None
Exchange Fee................................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)
<TABLE>
<CAPTION>
TOTAL ANNUAL FUND
MANAGEMENT OPERATING
PORTFOLIO FEES 12b-1 FEES OTHER EXPENSES EXPENSES
- ---------------------------------- ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Value Growth 0.50% None 0.69% 1.19%
High Grade Bond 0.40% None 0.86% 1.26%
High Yield Bond 0.55% None 0.95% 1.50%
Managed 0.60% None 0.87% 1.47%
Money Market 0.25% None 1.97% 2.22%
Blue Chip 0.25% None 0.69% 0.94%
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in each of the Portfolios for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolios'
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth $ 121 $ 378 $ 654 $ 1,443
High Grade Bond $ 128 $ 400 $ 692 $ 1,523
High Yield Bond $ 153 $ 474 $ 818 $ 1,791
Managed $ 150 $ 465 $ 803 $ 1,757
Money Market $ 225 $ 694 $ 1,190 $ 2,554
Blue Chip $ 96 $ 300 $ 520 $ 1,155
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Portfolios' financial performance through each year shown. Certain information
reflects financial results for a single Portfolio share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in each of the Portfolios (assuming reinvestment of all dividends and
distributions). This information has been derived from financial statements that
have been audited by Ernst & Young LLP, whose report, along with the Portfolios'
financial statements, is included in the Annual Report, which is available upon
request and incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
VALUE GROWTH HIGH GRADE BOND HIGH YIELD BOND MANAGED
---------------------- ---------------------- ---------------------- ----------------------
YEAR YEAR YEAR YEAR
ENDED (12/1/97 - ENDED (12/1/97 - ENDED (12/1/97 - ENDED (12/1/97 -
7/31/99 7/31/98) 7/31/99 7/31/98) 7/31/99 7/31/98) 7/31/99 7/31/98)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period... $ 11.08 $ 16.16 $ 10.57 $ 10.53 $ 10.47 $ 10.52 $ 12.13 $ 14.21
Income from Investment
Operations:
Net investment
income............ 0.19 0.19 0.60 0.42 0.65 0.45 0.49 0.34
Net realized and
unrealized gain
(loss) on
investments....... (1.01) (2.83) (0.44) 0.04 (0.50) 0.02 (1.21) (1.16)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Total from investment
operations.......... (0.82) (2.64) 0.16 0.46 0.15 0.47 (0.72) (0.82)
Less Distributions:
Dividends from net
investment
income............ (0.15) (0.18) (0.60) (0.42) (0.65) (0.45) (0.49) (0.36)
Distributions from
capital gains..... (2.26) (0.06) (0.02) (0.07) (0.90)
Distributions in
excess of net
realized gains.... (0.51) (0.08) (0.51)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Total distributions... (0.66) (2.44) (0.66) (0.42) (0.75) (0.52) (1.00) (1.26)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net asset value at end
of period............. $ 9.60 $ 11.08 $ 10.07 $ 10.57 $ 9.87 $ 10.47 $ 10.41 $ 12.13
-------- ---------- -------- ---------- -------- ---------- -------- ----------
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Total Return:
Total investment
return based on net
asset value (1)..... (6.83)% (18.97)%(2) 1.47% 4.40%(2) 1.43% 4.62%(2) (5.75)% (6.31)%(2)
Ratios/Supplemental
Data:
Net assets at end of
period in
thousands........... $ 5,399 $ 4,885 $ 1,521 $ 1,376 $ 1,635 $ 1,454 $ 2,931 $ 2,762
Ratio of total
expenses to average
net assets.......... 1.19% 0.73%(2) 1.26% 0.95%(2) 1.50% 1.05%(2) 1.47% 1.03%(2)
Ratio of net expenses
to average net
assets.............. 1.18% 0.73%(2) 1.25% 0.95%(2) 1.49% 1.05%(2) 1.47% 1.03%(2)
Ratio of net
investment income to
average net
assets.............. 1.48% 0.64%(2) 5.74% 3.89%(2) 6.38% 4.26%(2) 4.78% 2.30%(2)
Portfolio turnover
rate................ 220% 217%(2) 29% 38%(2) 44% 30%(2) 67% 66%(2)
<CAPTION>
MONEY MARKET BLUE CHIP
------------------------ --------------------
YEAR (12/1/97 YEAR (12/1/97
ENDED - ENDED -
7/31/99 7/31/98) 7/31/99 7/31/98)
---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period... $ 1.00 $ 1.00 $ 41.37 $ 36.77
Income from Investment
Operations:
Net investment
income............ 0.03 0.02 0.38 0.29
Net realized and
unrealized gain
(loss) on
investments....... 5.84 4.51
---------- --------- ------- ---------
Total from investment
operations.......... 0.03 0.02 6.22 4.80
Less Distributions:
Dividends from net
investment
income............ (0.03) (0.02) (0.29) (0.17)
Distributions from
capital gains..... (0.05) (0.03)
Distributions in
excess of net
realized gains.... (0.12)
---------- --------- ------- ---------
Total distributions... (0.03) (0.02) (0.46) (0.20)
---------- --------- ------- ---------
Net asset value at end
of period............. $ 1.00 $ 1.00 $ 47.13 $ 41.37
---------- --------- ------- ---------
---------- --------- ------- ---------
Total Return:
Total investment
return based on net
asset value (1)..... 3.16% 2.47%(2) 15.18% 13.14%(2)
Ratios/Supplemental
Data:
Net assets at end of
period in
thousands........... $ 735 $ 627 $ 5,601 $ 3,613
Ratio of total
expenses to average
net assets.......... 2.22%(3) 1.29%(2) 0.94% 0.76%(2)
Ratio of net expenses
to average net
assets.............. 1.97% 1.29%(2) 0.94% 0.76%(2)
Ratio of net
investment income to
average net
assets.............. 3.07% 2.37%(2) 0.88% 0.51%(2)
Portfolio turnover
rate................ % 0 0%(2) 7% 3%(2)
</TABLE>
- ---------
(1) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvest 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) Period from December 1, 1997 (date Class I operations commenced) through
July 31, 1998. Ratios presented have not been annualized.
(3) Without the Manager's voluntary reimbursement of $1,724 of its expenses for
the period indicated, the Money Market Portfolio would have had per share
net investment Income of $.03.
Supplement dated December 1, 1999
3
<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 (outside Iowa).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, have 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 (12/99)
<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 of the securities industry.
Information provided will be treated confidentially.
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 YOU WISH US TO CONSIDER:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
/ / I elect not to provide the information above.
___________________________________________________________________________
Signature of Customer
___________________________________________________________________________
Signature of Joint Customer
737-018AI
<PAGE>
- --------------------------------------------------------------------------------
EQUITRUST SERIES FUND, INC.
-------------------------------------------
VALUE GROWTH PORTFOLIO
HIGH GRADE BOND PORTFOLIO
HIGH YIELD BOND PORTFOLIO
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO
BLUE CHIP PORTFOLIO
----------------------------------------------------------------------
PROSPECTUS
dated December 1, 1999
EquiTrust Series Fund, Inc. (the "Fund") is an open-end, diversified management
investment company consisting of six Portfolios, each with its own investment
objective(s), investment policies, restrictions and attendant risks. This
prospectus describes each Portfolio in some detail -- please read it and retain
it for future reference.
An investment in a Portfolio of the Fund is not a bank deposit and is not
insured, guaranteed, or endorsed by the Federal Deposit Insurance Corporation,
or any other government agency. An investment in a Portfolio of the Fund
involves investment risks, including possible loss of principal.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED SHARES
OF THE FUND OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
EquiTrust Mutual Funds
5400 University Avenue
West Des Moines, Iowa 50266
800-247-4170
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GLOSSARY.......................................... 3
VALUE GROWTH PORTFOLIO............................ 4
HIGH GRADE BOND PORTFOLIO......................... 6
HIGH YIELD BOND PORTFOLIO......................... 8
MANAGED PORTFOLIO................................. 10
MONEY MARKET PORTFOLIO............................ 12
BLUE CHIP PORTFOLIO............................... 14
FEES AND EXPENSES................................. 16
HIGH YIELD BOND PORTFOLIO STRATEGY................ 17
PRINCIPAL RISK FACTORS............................ 18
General Discussion of Risks................. 18
Types of Investment Risk.................... 20
Higher Risk Securities and Practices........ 22
Higher Risk Securities and Practices
Table...................................... 24
HIGHER RISK SECURITIES AND INVESTMENT
STRATEGIES...................................... 25
Securities of Foreign Issuers............... 25
Lower-Rated Debt Securities................. 25
When-Issued and Delayed Delivery
Transactions............................... 27
Covered Call Options........................ 27
Capital Securities.......................... 28
HOW TO BUY SHARES................................. 28
HOW TO REDEEM SHARES.............................. 29
OTHER SHAREHOLDER SERVICES........................ 32
Periodic Withdrawal Plan.................... 32
Automatic Investment Plan................... 32
Exchange Privilege.......................... 33
Facsimile Requests.......................... 33
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Retirement Plans............................ 34
Education Plan.............................. 34
PORTFOLIO MANAGEMENT.............................. 34
OTHER INFORMATION................................. 35
Year 2000................................... 35
Distributor................................. 36
Net Asset Value............................. 37
DISTRIBUTIONS AND TAXES........................... 37
Distributions............................... 37
Taxes....................................... 38
CLASSES OF SHARES................................. 39
FINANCIAL HIGHLIGHTS.............................. 40
ADDITIONAL INFORMATION............................ 43
Shareholder Inquiries....................... 43
Annual/Semi-Annual Reports to
Shareholders............................... 43
Statement of Additional Information......... 43
</TABLE>
- -------------------
YIELD AND PURCHASE INFORMATION
U.S. Toll Free (800) 247-4170
Iowa Toll Free (800) 422-3175
Des Moines (515) 225-5586
2
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
ADVISER: The Fund's investment adviser, EquiTrust Investment Management
Services, Inc.
EQUITY SECURITIES: Common stock, preferred stock, and securities convertible
or exchangeable into common stock, including convertible debt securities,
convertible preferred stock, and warrants or rights to acquire common stock.
FOREIGN ISSUERS: Companies organized outside the United States whose
securities are traded on U.S. exchanges and payable or denominated in U.S.
dollars.
HIGH GRADE: Securities rated, at the time of purchase, in the three highest
categories by a nationally recognized statistical rating organization
("NRSRO") (E.G., A or higher by either Moody's Investors Service ("Moody's")
or Standard & Poor's ("S&P")) or unrated securities that the Adviser
determines are of comparable quality. (See Appendix A to the Statement of
Additional Information for an explanation of ratings.)
INVESTMENT GRADE: Securities rated, at the time of purchase, in the four
highest categories by an NRSRO (E.G., Baa or higher by Moody's or BBB or
higher by S&P) or unrated securities that the Adviser determines are of
comparable quality. (See Appendix A to the Statement of Additional
Information for an explanation of ratings.)
PRIMARILY: Where the description of a Portfolio indicates that it invests
primarily in certain types of securities, this means that, under normal
circumstances, it invests at least 65% of its total assets in such
securities.
SAI: The Fund's Statement of Additional Information, or SAI, contains
additional information about the Fund and the Portfolios. You may obtain a
free copy of the SAI by contacting the Fund at the toll-free number or
address shown on the back cover page of this prospectus.
3
<PAGE>
VALUE GROWTH PORTFOLIO
- --------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - have a longer investment time horizon
- - are willing to accept higher ongoing short-term risk in return for the
potential of higher long-term returns
- - want to diversify your investments
- - are seeking mutual funds for the growth portion of an asset allocation program
or
- - are investing for retirement or other goals that are many years in the future
You may want to invest less of your assets in this Portfolio if you:
- - are investing with a shorter investment time horizon in mind
or
- - are uncomfortable with an investment whose value may vary substantially
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The Portfolio seeks long-term capital appreciation.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
As with any mutual fund that invests in equity securities, this Portfolio is
subject to MARKET RISK, the risk that the value of your investment will
fluctuate in response to stock market movements. Loss of money upon redemption
is a risk of investing in this Portfolio. Due to its focus on equity securities
that may appreciate in value and lack of emphasis on those that provide income,
this Portfolio may experience greater volatility.
To the extent that the Portfolio may invest in securities with additional risks,
its performance could be adversely affected. For example, to the extent that the
Portfolio invests in SECURITIES OF FOREIGN ISSUERS, it will be subject to the
risks related to such securities.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this prospectus and in the SAI. Before you invest, please carefully read the
sections on "Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
The Portfolio pursues its investment objective by investing primarily in equity
securities of companies that the Adviser believes have a potential to earn a
high return on capital and/or are undervalued by the market. The Portfolio may
invest in securities of companies in cyclical industries during periods when
such securities appear to the Adviser to have strong potential for capital
appreciation. It also may invest in "special situation" companies. Special
situation companies are ones that, in the Adviser's opinion, have potential for
significant future earnings growth but have not performed well in the recent
past. These companies may include ones with management changes, corporate or
asset restructuring, or significantly undervalued assets.
The Adviser's strategy with the Portfolio is based on a value-oriented analysis
of equity securities. 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 Adviser attempts to determine
the fundamental value of an enterprise using the foregoing ratios and by
evaluating the company's balance sheet (E.G., comparing the company's assets
with the purchase price of similar recently acquired assets) as well as by using
dividend discounting models. The Adviser's use of a value-oriented analysis may
often result in the acquisition of equity securities of medium- and smaller-size
companies or of securities of companies that are out of favor in the market.
The Portfolio also may invest up to 25% of its net assets in securities of
foreign issuers.
4
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the Value
Growth Portfolio during each of the last ten years. The bar chart indicates the
degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the Value Growth Portfolio may achieve in the future. Future
annual returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 13.69%
90 5.20%
91 14.40%
92 10.15%
93 26.92%
94 -4.82%
95 27.50%
96 19.38%
97 7.92%
98 -27.59%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
First
Quarter
BEST QUARTER: 1993 10.60%
- ---------------------------------------
Third
Quarter
WORST QUARTER: 1998 (22.28)%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the Value
Growth Portfolio to those of the Standard & Poor's Corporation's Composite Index
of 500 Common Stocks (the "S&P 500 Index") over the periods shown. The S&P 500
Index is a widely recognized, unmanaged market capitalization-weighted index of
500 widely held common stocks. The S&P 500 Index figures do not reflect any fees
or expenses, and you cannot invest directly in the Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
VALUE GROWTH PORTFOLIO (27.59)% 2.53% 8.05%
--------- ----- -----
S&P 500 INDEX 28.58% 24.06% 19.21%
--------- ----- -----
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the Value Growth Portfolio.
5
<PAGE>
HIGH GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - are seeking an investment that generates a regular stream of income
- - are seeking higher potential returns than money market funds provide and are
willing to accept moderate risk of volatility
- - want to diversify your investments
- - are seeking a mutual fund for the income portion of an asset allocation
program
or
- - are retired or nearing retirement
You may want to invest less of your assets in this Portfolio if you:
- - are investing for maximum return over a long time horizon
or
- - require absolute stability of your principal
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The Portfolio seeks to generate as high a level of current income as is
consistent with investment in a diversified portfolio of high grade
income-bearing debt securities.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
As with most income mutual funds, the Portfolio is subject to INTEREST RATE
RISK, the risk that the value of an investment will fluctuate with changes in
interest rates. Typically, a rise in interest rates causes a decline in the
market value of income bearing securities. Other factors may affect the market
price and yield of the Portfolio's securities, including investor demand and
domestic and worldwide economic conditions. In addition, the Portfolio is
subject to CREDIT RISK, the risk that issuers of debt securities may not be able
to meet their interest or principal payment obligations when due. The ability of
the Portfolio to realize interest under repurchase agreements and pursuant to
loans of the Portfolio's securities is dependent on the ability of the seller or
borrower, as the case may be, to perform its obligation to the Portfolio. To the
extent that the Portfolio invests in NON-HIGH GRADE SECURITIES, it is also
subject to above-average credit, market and other risks. Loss of money is a risk
of investing in this Portfolio.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this prospectus and in the SAI. Before you invest, please carefully read the
sections, on "Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
To keep current income relatively stable and to limit share price volatility,
the Portfolio invests primarily in high grade securities and maintains an
intermediate (typically 2-7 year) average portfolio duration. Under normal
circumstances, the Portfolio invests at least 80% of its assets in high grade
securities. The Portfolio may invest the rest of its assets in securities that
are not high grade. The Portfolio may invest in the following instruments:
- - CORPORATE DEBT SECURITIES: securities issued by domestic and foreign
corporations;
- - U.S. GOVERNMENT DEBT SECURITIES: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
- - OTHER DEBT SECURITIES: securities issued or guaranteed by corporations,
financial institutions, and others which, although not rated by a national
rating service, are considered by the Adviser to have an investment quality
equivalent to the three highest categories; and
- - OTHER SECURITIES: convertible debt securities and convertible and
nonconvertible preferred stocks rated in the three highest categories by an
NRSRO.
A detailed description of the rating categories is contained in the SAI. To the
extent permitted by law and available in the market, the Portfolio may also
invest in mortgage-backed securities and up to 25% of its net assets in debt
securities of foreign issuers.
6
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the High
Grade Bond Portfolio during each of the last ten years. The bar chart indicates
the degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the High Grade Bond Portfolio may achieve in the future. Future
annual returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 11.00%
90 7.44%
91 16.16%
92 7.03%
93 7.10%
94 -0.45%
95 12.91%
96 5.42%
97 8.74%
98 6.21%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
Second
Quarter
BEST QUARTER: 1989 5.67%
- ---------------------------------------
Second
Quarter
WORST QUARTER: 1994 (1.33)%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the High Grade
Bond Portfolio to those of the Lehman Brothers Mutual Fund Aggregate Index
("Lehman Mutual Fund Index") over the periods shown. The Lehman Index is a
widely recognized, unmanaged index of fixed income performance. The Lehman Index
figures do not reflect any fees or expenses, and you cannot invest directly in
the Lehman Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
HIGH GRADE BOND PORTFOLIO 6.21% 6.47% 8.07%
--------- ----------- ----------
LEHMAN BROTHERS MUTUAL FUND
AGGREGATE INDEX 8.69% 7.27% 9.26%
--------- ----------- ----------
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the High Grade Bond Portfolio.
7
<PAGE>
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - are seeking higher potential returns than most bond mutual funds provide and
are willing to accept significant risk of volatility
- - want to diversify your investments
- - are seeking a mutual fund for the income portion of an asset allocation
program
or
- - are retired or nearing retirement
You may want to invest less of your assets in this Portfolio if you:
- - desire relative stability of your principal
or
- - are investing for maximum return over a long time horizon
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The Portfolio seeks as high a level of current income as is consistent with
investment in a diversified portfolio of lower-rated, higher-yielding income
bearing securities. The Portfolio also seeks capital appreciation, but only when
consistent with its primary goal.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
This Portfolio is subject to above-average INTEREST RATE and CREDIT RISKS. You
should expect greater fluctuations in share price, yield and total return
compared to mutual funds holding bonds and other income bearing securities with
higher credit ratings and/or shorter maturities. These fluctuations, whether
positive or negative, may be sharp and unanticipated. Loss of money upon
redemption is a significant risk of investing in this Portfolio.
Issuers of NON-INVESTMENT GRADE SECURITIES (I.E., "junk" bonds) are typically in
poor financial health, and their ability to pay interest and principal is
uncertain. Compared to issuers of investment-grade bonds, they are more likely
to encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them. "Junk" bond markets may react strongly
to adverse news about an issuer or the economy, or to the perception or
expectation of adverse news.
The Portfolio may also invest in MORTGAGE-BACKED SECURITIES that are subject to
extension and prepayment risks.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this prospectus and in the SAI. Before you invest, please carefully read the
sections on "Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
The Portfolio invests primarily in lower-rated, higher-yielding income bearing
debt securities, such as "junk" bonds. Under normal market conditions, the
Portfolio invests more than 80% of its assets in debt and other income-bearing
securities rated lower than investment grade (and their unrated equivalents) or
other high-yielding securities. The Portfolio generally does not invest in bonds
rated CC/Ca or lower by S&P or Moody's, respectively, unless the Adviser
believes that the financial condition of the issuer or the protection afforded
to the security is stronger than the rating would otherwise indicate. Types of
debt and other income-bearing securities include, but are not limited to,
domestic and foreign corporate bonds, debentures, notes, convertible securities,
preferred stocks, municipal obligations and government obligations. The
Portfolio may invest in mortgage-backed securities.
The Portfolio also may invest up to 25% of its net assets in debt securities of
foreign issuers.
8
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the High
Yield Bond Portfolio during each of the last ten years. The bar chart indicates
the degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the High Yield Bond Portfolio may achieve in the future. Future
annual returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 9.95%
90 2.13%
91 23.31%
92 11.33%
93 14.36%
94 -2.04%
95 12.17%
96 11.72%
97 10.80%
98 4.76%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
First
Quarter
BEST QUARTER: 1991 8.13%
- ---------------------------------------
First
Quarter
WORST QUARTER: 1994 (2.02)%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the High Yield
Bond Portfolio to those of the Lehman Brothers Mutual Fund Corporate/High Yield
Index ("Lehman Index") over the periods shown. The Lehman Index is a widely
recognized, unmanaged index of corporate and high yield bond market performance.
The Lehman Index figures do not reflect any fees or expenses, and you cannot
invest directly in the Lehman Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
HIGH YIELD BOND PORTFOLIO 4.76% 7.35% 9.65%
--------- ----- -----
LEHMAN BROTHERS MUTUAL FUND
CORPORATE/HIGH YIELD INDEX 1.87% 7.83% N/A*
--------- ----- -----
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the High Yield Bond Portfolio. During certain periods
shown, the Adviser reimbursed the Portfolio for operating expenses in excess of
1.50% of average daily net assets, which lowered expenses for the Portfolio.
* The Lehman Brothers Mutual Fund Corporate/High Yield Index commenced
operations November 30, 1992.
9
<PAGE>
MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - are looking for a more conservative alternative to a growth-oriented mutual
fund
- - want a well-diversified and relatively stable investment allocation
- - need a core investment
- - seek above-average total return over the long term irrespective of its source
or
- - are retired or nearing retirement
You may want to invest less of your assets in this Portfolio if you:
- - are investing for maximum return over a long time horizon
or
- - require a high degree of stability of your principal
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The Managed Portfolio seeks the highest level of total return through income and
capital appreciation.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
As with any mutual fund that invests in stocks and bonds, the Portfolio is
subject to MARKET and INTEREST RATE RISKS, the risks that the value of an
investment will fluctuate in response to stock and bond market movements and
changes in interest rates. Loss of money is a risk of investing in this
Portfolio.
To the extent that it invests in certain securities, the Portfolio may be
affected by additional risks relating to NON-INVESTMENT GRADE SECURITIES
(above-average credit, market and other risks), SECURITIES OF FOREIGN ISSUERS
(currency, information, natural event and political risks), and MORTGAGE-BACKED
SECURITIES (credit, extension, prepayment and interest rate risks). These risks,
and the risks associated with other higher-risk securities and practices that
the Portfolio may utilize, are described in more detail later in this prospectus
and in the SAI. Before you invest, please carefully read the sections on
"Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
The Managed Portfolio pursues its objective through a fully managed investment
policy consisting of investment in the following three market sectors: (1)
growth common stocks and other equity securities, (2) high grade debt securities
and preferred stocks of the types in which the High Grade Bond Portfolio may
invest, and (3) money market instruments of the types in which the Money Market
Portfolio may invest.
The Managed Portfolio's investment policy for the equity sector is to invest in
both value-oriented securities of the type in which the Value Growth Portfolio
invests and securities of those companies that display more traditional growth
characteristics such as established records of growth in sales and earnings. The
Portfolio's policies for the debt and money market sectors are substantially
identical to those of the High Grade Bond Portfolio and Money Market Portfolio,
respectively. There are no restrictions as to the proportion of one or another
type of security which the Portfolio may hold. Accordingly, the Portfolio may be
substantially invested in equity securities, debt securities or money market
instruments. The Portfolio may invest up to 25% of its net assets in securities
of foreign issuers.
10
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the
Managed Portfolio during each of the last ten years. The bar chart indicates the
degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the Managed Portfolio may achieve in the future. Future annual
returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 7.38%
90 8.04%
91 10.21%
92 13.31%
93 18.90%
94 -3.85%
95 23.93%
96 16.33%
97 10.44%
98 -14.25%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
First
Quarter
BEST QUARTER: 1993 9.62%
- ---------------------------------------
Third
Quarter
WORST QUARTER: 1998 (11.05)%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the Managed
Portfolio to those of the S&P 500 Index over the periods shown. The S&P 500
Index is a widely recognized, unmanaged market capitalization-weighted index of
500 widely held common stocks. The S&P 500 Index figures do not reflect any fees
or expenses, and you cannot invest directly in the Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
MANAGED PORTFOLIO (14.25)% 5.55% 8.45%
--------- ----- -----
S&P 500 INDEX 28.58% 24.06% 19.21%
--------- ----- -----
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the Managed Portfolio. During certain periods shown, the
Adviser reimbursed the Portfolio for operating expenses in excess of 1.5% of
average daily net assets, which lowered lowering expenses for the Portfolio.
11
<PAGE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - require stability of principal
- - are seeking a mutual fund for the cash portion of an asset allocation program
- - need to "park" your money temporarily
or
- - consider yourself a saver rather than an investor
You may want to invest less of your assets in this Portfolio if you:
- - are seeking an investment that is likely to outpace inflation
- - are investing for retirement or other goals that are many years in the future
or
- - are investing for growth or maximum current income
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The MONEY MARKET PORTFOLIO seeks maximum current income consistent with
liquidity and stability of principal. The Portfolio intends to maintain a stable
value of $1.00 per share.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
As with any money market fund, the yield paid by the Portfolio will vary with
changes in interest rates. Also, there is a possibility that the Portfolio's
share value could fall below $1.00, which could reduce the value of your
investment.
To the extent that it invests in certain securities, the Portfolio may be
affected by additional risks relating to REPURCHASE AGREEMENTS (credit risk),
SHORT-TERM TRADING (market risk, as well as potentially higher transaction
costs), and WHEN-ISSUED SECURITIES (market, opportunity and leverage risks).
However, these risks are lessened by the high quality of the securities in which
the Portfolio invests.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this prospectus and in the SAI. SHARES OF THIS PORTFOLIO ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK OR OTHER FINANCIAL
INSTITUTION AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER FINANCIAL INSTITUTION OR GOVERNMENT BODY. Before you
invest, please carefully read the sections on "Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
This Portfolio invests exclusively in U.S. dollar-denominated money market
securities maturing in 13 months or less from the date of purchase, including
those issued by U.S. financial institutions, corporate issuers, the U.S.
Government and its agencies, instrumentalities and municipalities. At least 95%
of the Portfolio's assets must be rated in the highest short-term category (or
its unrated equivalent), and 100% of the Portfolio's assets must be invested in
securities rated in the two highest rating categories. A more detailed
description of the rating categories and the types of permissible issuers is
contained in the SAI. The Portfolio maintains a dollar-weighted average
portfolio maturity of 90 days or less. The Portfolio may also:
- - Lend securities to financial institutions, enter into repurchase agreements,
engage in short-term trading and purchase securities on a when-issued or
forward commitment basis; and
- - Invest up to 10% of its assets in illiquid securities, although it will not
generally invest in such securities.
12
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the Money
Market Portfolio during each of the last ten years. The bar chart indicates the
degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the Money Market Portfolio may achieve in the future. Future
annual returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 7.62%
90 6.64%
91 4.34%
92 1.91%
93 1.27%
94 2.17%
95 3.95%
96 3.48%
97 3.70%
98 3.42%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
Second
Quarter
BEST QUARTER: 1989 2.00%
- ---------------------------------------
Second
Quarter
WORST QUARTER: 1993 0.30%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the Money
Market Portfolio to those of the 90-day T-Bill Index over the periods shown. The
90-day T-Bill Index is a widely recognized index of three-month Treasury bills.
The 90-day T-Bill Index figures do not reflect any fees or expenses, and you
cannot invest directly in the Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
MONEY MARKET PORTFOLIO 3.42% 3.34% 3.83%
--------- ----- -----
90-DAY T-BILL INDEX 4.85% 4.96% 5.29%
--------- ----- -----
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the Money Market Portfolio. During certain periods shown,
the Adviser reimbursed the Portfolio for operating expenses in excess of 1.5% of
average daily net assets, which lowered expenses for the Portfolio.
13
<PAGE>
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
(SIDEBAR)
INVESTOR PROFILE
WHO SHOULD CONSIDER INVESTING IN THIS PORTFOLIO?
You may want to invest more of your assets in this Portfolio if you:
- - are looking for a stock fund that has both growth and income components
- - are looking for a more conservative alternative to a growth-oriented fund
- - need a core investment
- - seek above-average long-term total return
- - are investing for a higher return over a long time horizon
or
- - are retired or nearing retirement
You may want to invest less of your assets in this Portfolio if you:
- - are investing with a shorter time horizon in mind
or
- - require a high degree of stability of your principal
(END SIDEBAR)
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
WHAT IS THIS PORTFOLIO'S GOAL?
The Portfolio seeks long-term growth of capital and income.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS PORTFOLIO?
As with any mutual fund that invests in stocks and also seeks income, this
Portfolio is subject to MARKET and INTEREST RATE RISKS; therefore, the value of
an investment will fluctuate in response to stock market and interest rate
movements. Loss of money is a risk of investing in this Portfolio.
To the extent that it invests in certain securities, the Portfolio may be
affected by additional risks relating to SECURITIES OF FOREIGN ISSUERS
(currency, information, natural event and political risks) and NON-INVESTMENT
GRADE SECURITIES (credit, market, interest rate, liquidity, valuation and
information risks).
The Portfolio may also be subject to NON-DIVERSIFICATION RISK, the risk that a
concentration of the Portfolio's investment in a limited number of companies
will expose the Portfolio, to a greater extent than if investments were less
concentrated, to losses arising from adverse developments affecting those
companies.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this prospectus and in the SAI. Before you invest, please carefully read the
sections on "Risks."
- --------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES
HOW DOES THIS PORTFOLIO PURSUE ITS OBJECTIVE?
The Portfolio pursues its objective by investing primarily in equity securities
of well-capitalized, established companies. The Portfolio focuses on common
stocks of approximately 50 large, well-known companies that the 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 Adviser
selects particular issuers on the basis of whether they, taken together,
reasonably represent a cross-section of major industries, and not on the basis
of any analysis of their economic or financial strength or the relative value of
the securities. Within the limits of its investment restrictions (found in the
SAI), the Portfolio may, from time to time, hold more than 5% of its assets in
one or more such companies.
The Portfolio also may invest in other equity securities and debt or other
income-bearing securities.
14
<PAGE>
PERFORMANCE RECORD
- --------------------------------------------------
The following bar chart provides an illustration of the performance of the Blue
Chip Portfolio during each of the last ten years. The bar chart indicates the
degree of variability that the Portfolio experienced in its performance from
year to year. This reflects the degree of risk of an investment in the
Portfolio. Please remember that past performance is no indicator or guarantee of
the results that the Blue Chip Portfolio may achieve in the future. Future
annual returns may be greater or less than the returns shown in the chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL RETURNS
LAST TEN YEARS*
<S> <C>
89 29.22%
90 -3.56%
91 23.68%
92 6.92%
93 11.97%
94 0.96%
95 32.41%
96 20.30%
97 25.03%
98 16.33%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
<S> <C> <C>
Fourth
Quarter
BEST QUARTER: 1998 17.40%
- ---------------------------------------
Third
Quarter
WORST QUARTER: 1998 (14.35)%
- ---------------------------------------
</TABLE>
*The year-to-date return as of September 30, 1999 was __%.
The following table compares the average annual total returns of the Blue Chip
Portfolio to those of the S&P 500 Index over the periods shown. The S&P 500
Index is a widely recognized, unmanaged market capitalization-weighted index of
500 widely held common stocks. The S&P 500 Index figures do not reflect any fees
or expenses, and you cannot invest directly in the Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS
--------- ----------- ----------
(for periods ending
December 31, 1998)
<S> <C> <C> <C>
BLUE CHIP PORTFOLIO 16.33% 18.50% 15.73%
--------- ----- -----
S&P 500 INDEX 28.58% 24.06% 19.21%
--------- ----- -----
</TABLE>
The performance data was calculated after deducting all fees and charges
actually incurred by the Blue Chip Portfolio.
15
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENTS)
<TABLE>
<CAPTION>
<S> <C>
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>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER FUND OPERATING
PORTFOLIO FEES 12b-1 FEES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Growth 0.50% 0.50% 0.74% 1.74%
High Grade Bond 0.40% 0.50% 0.77% 1.67%
High Yield Bond 0.55% 0.50% 0.90% 1.95%
Managed 0.60% 0.50% 0.85% 1.95%
Money Market 0.25% 0.50% 1.16% 1.91%
Blue Chip 0.25% 0.50% 0.77% 1.52%
</TABLE>
16
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing the
Portfolios with the cost of investing in other mutual funds. This example
assumes that you invest $10,000 in each of the Portfolios for the time periods
indicated and then redeem all of your shares at the end of these periods.
This example also assumes that your investment has a 5% return each year and the
Portfolio's operating expense remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth $ 677 $ 948 $ 1,144 $ 2,052
High Grade Bond $ 670 $ 926 $ 1,107 $ 1,976
High Yield Bond $ 698 $ 1,012 $ 1,252 $ 2,275
Managed $ 698 $ 1,012 $ 1,252 $ 2,275
Money Market $ 694 $ 1,000 $ 1,232 $ 2,233
Blue Chip $ 655 $ 880 $ 1,029 $ 1,813
</TABLE>
Assuming no redemption, your costs would be:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Growth $ 177 $ 548 $ 944 $ 2,052
High Grade Bond $ 170 $ 526 $ 907 $ 1,976
High Yield Bond $ 198 $ 612 $ 1,052 $ 2,275
Managed $ 198 $ 612 $ 1,052 $ 2,275
Money Market $ 194 $ 600 $ 1,032 $ 2,233
Blue Chip $ 155 $ 480 $ 829 $ 1,813
</TABLE>
- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO STRATEGY
- --------------------------------------------------------------------------------
The premise of the High Yield Bond Portfolio is that over long periods of
time, a broadly diversified portfolio of lower-rated, higher-yielding debt
securities should, net of capital losses, provide a higher net return than a
similarly diversified portfolio of higher-rated, lower-yielding debt
securities. The Adviser attempts to minimize the risks of lower-rated debt
securities by:
- constructing a portfolio of such securities diversified by industry,
geography, maturity, duration and credit quality;
- performing credit analysis independent of rating agencies and
attempting to acquire securities of issuers whose financial position
is more sound than ratings would indicate; and
17
<PAGE>
- acquiring or disposing of particular securities to take advantage of
anticipated changes and trends in the economy and financial markets.
The Adviser's judgment of the risk of any particular security is a function
of its experience with lower-rated debt securities, its evaluation of
general economic and securities market conditions, and the financial
position of a security's issuer. Under certain market conditions, the
Adviser may sacrifice yield in order to adopt a defensive posture designed
to preserve capital. A defensive posture could include, among other
strategies, acquiring discount securities.
- --------------------------------------------------------------------------------
PRINCIPAL RISK FACTORS
- --------------------------------------------------------------------------------
GENERAL DISCUSSION OF RISKS
EQUITY SECURITIES. To the extent that a Portfolio invests in equity
securities, it is subject to market risk. In general, stock values fluctuate
in response to the fortunes of individual companies and in response to
general market and economic conditions. Accordingly, the value of the equity
securities that a Portfolio holds may decline over short or extended
periods. The risk of such a decline is known as market risk. The U.S. equity
markets tend to be cyclical, with periods when prices generally rise and
periods when prices generally decline. Therefore, the value of an investment
in those Portfolios that hold equity securities may increase or decrease.
Equity securities are also subject to financial risk, which is the risk that
the issuer's earnings prospects and overall financial position will
deteriorate, causing a decline in the security's value.
INCOME-BEARING SECURITIES. To the extent that a Portfolio invests in
income-bearing securities, it is subject to the risk of income volatility,
market risk (interest rate risk), financial risk (credit risk) and, as to
some Portfolio holdings, prepayment/extension risk. Income volatility refers
to the degree and rapidity with which changes in overall market interest
rates diminish the level of current income from a portfolio of
income-bearing securities. In general, market risk is the risk that when
prevailing interest rates decline, the market value of income-bearing
securities (particularly fixed-income securities) tends to increase.
Conversely, when interest rates increase, the market value of income-bearing
securities (particularly fixed-income securities) tends to decline.
Financial risk relates to the ability of an issuer of a debt security to pay
principal and interest on such security on a timely basis and is the risk
that the issuer could default on its obligations and a Portfolio will lose
its investment. Prepayment risk and extension risk are normally present in
adjustable rate mortgage loans, mortgage-backed securities and other
asset-backed securities. For example, homeowners have the option to prepay
their mortgages. Therefore, the duration of a security backed by home
mortgages can either shorten (prepayment risk) or lengthen (extension risk).
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment can be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment can be expected to decrease. In
either case, a change in the prepayment rate can result in losses to
investors.
The risk/return curve below demonstrates that, for diversified portfolios of
securities of various types, as short-term risk increases, the potential for
long-term gains also increases. "Short-term risk" refers to the likely
volatility of a portfolio's total return and its potential for gain or loss
over a relatively short time period. "Long-term potential gains" means the
expected average annual total return over a relatively long time period,
such as 20 years.
18
<PAGE>
[CHART]
THIS CURVE DOES NOT INDICATE FUTURE VOLATILITY OR PERFORMANCE. It merely
demonstrates the relationship between the ongoing short-term risk and the
long-term potential for gain of each Portfolio relative to the other
Portfolios and other types of investments.
Each Portfolio has its own investment objective, investment policies,
restrictions and attendant risks. An investor should consider each Portfolio
separately to determine if it is an appropriate investment. NO ONE CAN
ASSURE THAT A PORTFOLIO WILL ACHIEVE ITS INVESTMENT OBJECTIVE(S), AND YOU
SHOULD NOT CONSIDER ANY ONE PORTFOLIO ALONE TO BE A COMPLETE INVESTMENT
PROGRAM. AS WITH ALL MUTUAL FUNDS, THERE IS A RISK THAT YOU COULD LOSE MONEY
BY INVESTING IN A PORTFOLIO. The investment objective(s) of each Portfolio
and those investment restrictions of a Portfolio that are designated as
fundamental cannot be changed without approval of a majority of the
outstanding shares of that Portfolio as defined in the SAI. However, each
Portfolio's investment policies and the strategies by which it pursues its
objective(s), and those investment restrictions not specifically designated
as fundamental, are nonfundamental and may be changed by the Fund's Board of
Directors without shareholder approval.
Notwithstanding its investment objective(s), each Portfolio may, for
temporary defensive purposes, invest all (15% for the Blue Chip Portfolio)
of its assets in cash and/or money market instruments of the type in which
the Money Market Portfolio invests.
The VALUE GROWTH PORTFOLIO and BLUE CHIP PORTFOLIO are subject to moderate
levels of both market and financial risk.
19
<PAGE>
The HIGH GRADE BOND PORTFOLIO is subject to moderate levels of market risk
and relatively low levels of financial risk and current income volatility.
The HIGH YIELD BOND PORTFOLIO is subject to relatively high levels of
financial risk, moderate levels of market risk and relatively low levels of
current income volatility.
The MANAGED PORTFOLIO is 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 is subject to little market or financial risk
because it invests in high quality, short-term investments that reflect
current market interest rates. The Portfolio could experience a high level
of current income volatility because the level of its current income
directly reflects short-term interest rates.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK. The risk that changes in the value of a hedging instrument
or hedging technique will not match those of the asset being hedged (hedging
is the use of one investment to offset the possible adverse effects of
another investment).
CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise not honor a financial obligation.
CURRENCY RISK. The risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect the U.S. dollar
value of an investment.
EXTENSION RISK. The risk that a rise in prevailing interest rates will
extend the life of an outstanding mortgage-backed security by reducing the
expected number of mortgage prepayments, typically reducing the security's
value.
FINANCIAL RISK. For income bearing securities, credit risk. For equity
securities, the risk that the issuer's earning prospects and overall
financial position will deteriorate, causing a decline in the security's
value.
INFORMATION RISK. The risk that key information about a security or market
is inaccurate or unavailable.
INTEREST RATE RISK. The risk of declines in market value of an income
bearing investment due to changes in prevailing interest rates. With
fixed-rate securities, a rise in interest rates typically causes a decline
in market values, while a fall in interest rates typically causes an
increase in market values.
LEVERAGE RISK. The risks associated with securities or investment practices
that enhance return (or loss) without increasing the amount of investment,
such as buying securities on margin or using certain derivative contracts or
derivative securities. A Portfolio's gain or loss on a leveraged position
may be greater than the actual market gain or loss in the underlying
security or instrument. A Portfolio may also incur additional costs in
taking a leveraged position (such as interest on borrowings) that may not be
incurred in taking a nonleveraged position.
20
<PAGE>
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the Portfolio would like to sell
them or at the price the Portfolio values them.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably, due to factors that have nothing
to do with the issuer. This risk is common to all income bearing and equity
securities and mutual funds that invest in them.
NATURAL EVENT RISK. The risk of losses attributable to natural disasters,
crop failures and similar events.
OPPORTUNITY RISK. The risk of missing out on an investment opportunity
because the assets necessary to take advantage of it are tied up in less
advantageous investments.
POLITICAL RISK. The risk of losses directly attributable to government
actions or political events of any sort.
PREPAYMENT RISK. The risk that a decline in prevailing interest rates will
shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments, thereby reducing the security's
return.
VALUATION RISK. The risk that the market value of an investment falls
substantially below the Portfolio's valuation of the investment.
21
<PAGE>
- --------------------------------------------------------------------------------
HIGHER RISK SECURITIES AND PRACTICES
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
<S> <C> <C>
American Depository ADRs are receipts typically issued by a Market, currency,
Receipts (ADRs) U.S. financial institution which information, natural
evidence ownership of underlying event and political
securities of foreign corporate risks (I.E., the risks
issuers. Generally, ADRs are in of foreign securities).
registered form and are designed for
trading in U.S. markets.
Capital Securities Securities issued by trusts or other Credit, liquidity and
special purpose entities created to interest rate risks.
invest in junior subordinated debt
securities. Junior subordinated debt
ranks before equity securities, but
after more senior debt in the event of
the issuer's liquidation, and usually
pays a fixed rate of interest.
Illiquid Securities Any investment that may be difficult or Liquidity, valuation and
impossible to sell at the time the market risks.
Portfolio would like to sell it for the
price at which the Portfolio values it.
Mortgage-Backed Securities backed by pools of Credit, extension,
Securities mortgages, including pass-through prepayment and interest
certificates, PACs, TACs, rate risks.
collateralized mortgage obligations
(CMOs), and, when available, pools of
mortgage loans generated by credit
unions.
Non-Investment Grade Investing in debt securities rated Credit, market, interest
Securities below BBB/Baa by S&P/Moody's (I.E., rate, liquidity,
"junk" bonds). valuation and
information risks.
Repurchase Agreements The purchase of a security that the Credit risk.
issuer agrees to buy back later at the
same price plus interest.
Restricted Securities Securities originally issued in a Liquidity, valuation and
private placement rather than a public market risks.
offering. These securities often cannot
be freely traded on the open market.
Reverse Repurchase The lending of short-term debt Leverage and credit
Agreements securities; often used to facilitate risks.
borrowing.
Securities Lending The lending of securities to financial Credit risk.
institutions, which provide cash or
government securities as collateral.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
<S> <C> <C>
Shares of Other The purchase of shares issued by other Market risk and the
Investment Companies investment companies. These investments layering of fees and
are subject to the fees and expenses of expenses.
both the Portfolio and the other
investment company.
Short-Term Trading Selling a security soon after purchase Market risk.
or purchasing it soon after it was sold
(a Portfolio engaging in short-term
trading will have higher turnover and
transaction expenses).
Smaller Capitalization The purchase of securities issued by a Market risk.
Companies company with a market capitalization
(I.E., the price per share of its
common stock multiplied by the number
of shares of common stock outstanding)
of less than $1 billion.
When-Issued and Delayed The purchase or sale of securities for Market, opportunity and
Delivery Securities delivery at a future date; market value leverage risks.
may change before delivery.
Writing Covered Call A call option is the right to purchase Interest rate, market,
Option Contracts on a security for an agreed-upon price at correlation, liquidity,
Securities any time prior to an expiration date. credit and opportunity
By writing (selling) a call option, a risks.
Portfolio gives this right to a buyer
for a fee. A "covered" call option
contract is one where the Portfolio
owns the security subject to the option
for as long as the option remains
outstanding.
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
HIGHER RISK SECURITIES AND PRACTICES TABLE
The following table shows each Portfolio's investment limitations with
respect to certain higher risk securities and practices as a percentage of
Portfolio assets.
<TABLE>
<CAPTION>
HIGH HIGH
VALUE GRADE YIELD MONEY
GROWTH BOND BOND MANAGED MARKET BLUE CHIP
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
Reverse Repurchase Agreements [C] [C] [C] [C] [C] [C]
Repurchase Agreements [C] [C] [C] [C] [C] [C]
Securities Lending(2) 20 20 20 20 20 20
Short-Term Trading [C] [C] [C] [C] [C] [C]
When-Issued and Delayed Delivery
Securities X X X X X X
CONVENTIONAL SECURITIES
Shares of Other Investment
Companies 5 5 5 5 5 5
Non-Investment Grade Securities x [C] X [C] x x
Securities of Foreign
Issuers(1)(2) 25 25 25 25 x x
Illiquid Securities 15(2) 15(2) 15(2) 15(2) 10(3) 10(3)
Restricted Securities X X X X 10(3) 10(3)
Capital Securities X X X X x x
Mortgage-Backed Securities x X X X x x
OPTION CONTRACTS
Writing Covered Call Options on
Securities [C] [C] [C] [C] x [C]
</TABLE>
(1) U.S. dollar-denominated securities only.
(2) Percentages refer to net, rather than total, assets.
(3) The Money Market Portfolio and the Blue Chip Portfolio can 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.
LEGEND
Numbers A number indicates the maximum percentage of total assets that the
Portfolio is permitted to invest in that practice or type of
security. Numbers in this table show allowable usage only; for
actual usage, consult the Portfolio's annual and semi-annual
reports.
X A solid check mark means that there is no policy limitation on the
Portfolio's usage of that practice or type of security, and that
the Portfolio may be currently using that practice or investing in
that type of security.
[C] A hollow check mark means that the Portfolio is permitted to use
that practice or invest in that type of security, but is not
expected to do so on a regular basis.
x An "x" mark means that the Portfolio is not permitted to use that
practice or invest in that type of security.
24
<PAGE>
- --------------------------------------------------------------------------------
HIGHER RISK SECURITIES AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
SECURITIES OF FOREIGN ISSUERS
The Value Growth Portfolio and Managed Portfolio each may invest up to 25%
of their 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 their 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 are made only in
securities of foreign issuers that are traded on U.S. exchanges and payable
or denominated in U.S. dollars.
Investments in securities of foreign issuers (including ADRs) may offer
potential benefits not available from investments solely in securities of
domestic issuers. Investing in securities of foreign issuers involves
significant risks that are not typically associated with investing in
domestic securities. Such investments may be affected by changes in currency
rates and changes in foreign or U.S. laws, in restrictions applicable to
such investments and in exchange control regulations.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies, and there may be less publicly available information about a
foreign issuer than about a domestic one. In addition, there is generally
less government regulation of stock exchanges, brokers, and listed and
unlisted issuers in foreign countries than in the U.S. Furthermore, with
respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, limitations on the removal of cash or other
assets of a Portfolio, or political or social instability or diplomatic
developments which could affect investments in those countries. Individual
foreign economies also may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Although ADRs acquired by the Portfolios are traded on domestic exchanges,
their values largely reflect the values of the underlying securities on
foreign securities markets. The values of such underlying securities are a
function of a number of factors. Some foreign stock markets (and other
securities markets) may have substantially less volume than, for example,
the New York Stock Exchange (or other domestic markets) and securities of
some foreign issuers may be less liquid than securities of comparable
domestic issuers. Commissions and dealer mark-ups on transactions in foreign
investments may be higher than for similar transactions in the U.S. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, on certain occasions, such procedures
have been unable to keep pace with the volume of securities transactions,
thus making it difficult to conduct such transactions.
- --------------------------------------------------------------------------------
LOWER-RATED DEBT SECURITIES
The High Yield Bond Portfolio invests a substantial portion of its assets in
income bearing securities offering high current income. Additionally, the
High Grade Bond Portfolio may invest a portion of its assets in such
securities. Such high yielding income bearing securities often do not meet
the high grade or investment grade quality level. Securities falling short
of investment grade are commonly known as "junk bonds." These lower-rated
securities are, on balance, predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with their terms
and generally entail more credit risk than higher-rated securities. The
market values of such
25
<PAGE>
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
higher-rated securities. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, regarding lower-rated securities may
depress prices and diminish liquidity for such securities. Factors adversely
affecting the market value of lower-rated securities adversely affects a
Portfolio's net asset value. In addition, a Portfolio may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its income bearing securities. Although
some risk is inherent in all securities, holders of income bearing debt
securities have a claim on the assets of the issuer prior to the holders of
common stock. Therefore, an investment in such securities generally entails
less financial risk than an investment in equity securities of the same
issuer.
Lower-rated securities may be issued by corporations in the early stages 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 lower-rated 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 investment grade securities. For example,
during an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of lower-rated securities may experience financial
stress. During such periods, such issuers may not have sufficient revenues
to meet their interest payment obligations. An issuer's ability 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
lower-rated income bearing securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
Lower-rated income bearing 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
lower-rated 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 lower-rated securities
for which there is a thin trading market. Because not all dealers maintain
markets in all lower-rated securities, there is no established retail
secondary market for many of these securities, and the Adviser 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 lower-rated
securities, it is generally not so liquid as that for investment grade
securities. The lack of a liquid secondary market may have an adverse impact
on market value of such securities and a Portfolio's ability to dispose of
them 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 Adviser 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 lower-rated securities, as well as the ability
of the issuers of such securities to repay principal and pay interest on
them.
26
<PAGE>
A Portfolio may acquire lower-rated securities that are sold without
registration under the federal securities laws and therefore carry
restrictions on resale. The SAI contains more information about the risks of
restricted securities. A Portfolio may acquire lower-rated securities during
an initial offering. Such securities involve special risks because they are
new issues.
Additional information regarding the rating categories for income bearing
debt securities appears in the appendices of the SAI.
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Any of the Portfolios may purchase newly issued securities on a
"when-issued" basis and may purchase or sell securities 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 each Portfolio reserves the right to sell such securities
before the settlement date if this is 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 market 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 not reflected in the net asset value so long as the commitment remains
in effect.
- --------------------------------------------------------------------------------
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 will both be listed on
national securities exchanges, except that certain transactions in 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 that constitutes additional income, which
serves both to enhance investment performance and to offset in whole or in
part any decline in 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
27
<PAGE>
the underlying security for the entire option period, and would bear the
risk of loss if the price of the security were to decline.
- --------------------------------------------------------------------------------
CAPITAL SECURITIES
Each Portfolio (other than the Money Market and Blue Chip Portfolios) may
invest in capital (trust-preferred) securities. Capital securities are
issued by trusts or other special purpose entities created to invest in (or
pool) junior subordinated debentures. Capital securities pay interest on a
fixed schedule (although issuers often may defer interest payments for up to
five years) and have a maturity date. Capital securities have no voting
rights and have a preference over common and preferred stock, but stand
behind senior debt securities in the event of the issuer's liquidation. The
trust or other special purpose entity may terminate and distribute the
debentures to holders of the capital securities. Generally, capital
securities exhibit characteristics, and entail associated risks, of both
debt securities and preferred stock. For purposes of investment limits
applicable to a Portfolio, the Fund treats capital securities as debt. For
tax purposes, the Internal Revenue Service currently treats them as debt
securities as well. In the past, legislation has been proposed that would
have changed the tax treatment of capital securities and if this treatment
changes in the future, the Adviser would reconsider the appropriateness of
continued investment in them.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Shares of the Fund's Portfolios are offered and sold on a continuous basis.
The offering price per share will be set at the NAV next determined after a
purchase order and payment is received in proper form as described below.
The Fund is open for business on each day the NYSE is open for trading
(except the Friday after Thanksgiving Day and the weekdays before and after
Christmas Day (in 1999) and the weekday after New Year's Day (in 2000)). The
Fund reserves the right to reject any purchase order and to change the
minimum purchase requirements at any time.
INITIAL PURCHASE
The minimum initial purchase for each Portfolio account is $250 (which is
waived 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).
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<PAGE>
PURCHASES BY WIRE (MONEY MARKET PORTFOLIO ONLY)
Purchases may be made in the Money Market Portfolio by wire transfer. If you
are 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:
DEUTSCHE BANK, 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 you are making an initial
purchase, complete an Application and mail it to the Fund at the address
listed under "Initial Purchase" above.
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Upon receipt of an executed redemption request in proper form, as described
below, the Fund will redeem shares in your Portfolio account at the next
determined NAV. 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. However, if you sell shares
which were recently purchased with a check, the Fund may delay sending you
the redemption proceeds until this check has cleared, which may take up to
15 days.
You can request redemptions of either a number or dollar value of shares of
a specified Portfolio account 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 must 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, OR FOR REDEMPTIONS IN ANY AMOUNT BEING DIRECTED TO A DESTINATION
OTHER THAN THE ADDRESS OF RECORD, SIGNATURES OF ACCOUNT OWNERS MUST BE
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 A
REGISTERED REPRESENTATIVE OF EQUITRUST MARKETING SERVICES, LLC OR EQUITRUST
INVESTMENT MANAGEMENT SERVICES, INC. SIGNATURES MAY NOT BE GUARANTEED BY A
NOTARY PUBLIC.
EXPEDITED REDEMPTION PROCEDURES
You may redeem shares of any Portfolio account by telephone. The proceeds of
shares redeemed (less any contingent deferred sales charge) will be sent by
Federal wire transfer to a single designated account maintained by you at a
domestic commercial bank that is a member of the Federal Reserve System or
by check to your address of record. To effect a redemption, you 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 NYSE or 3:00 p.m. (Central Time) will result in
shares being redeemed that day at the next determined NAV, and the proceeds
will normally be sent to the designated bank account or your address of
record the following
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<PAGE>
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 a
registered representative of EquiTrust Marketing Services, LLC or EquiTrust
Investment Management Services, Inc. Applications must 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. If you wish to use this method of
redemption, you must complete the appropriate Application and file it 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 you or
any other person. The Fund is not responsible for the efficiency of the
federal wire system or your bank. To change the name of the single
designated bank account to receive wire redemption proceeds, you must 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.
You 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 amount of purchases of that Portfolio's shares made during the
preceding six years (reinvested dividends are not considered
30
<PAGE>
purchases for this purpose). The charge is imposed upon redemptions of
shares in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
YEAR OF REDEMPTION 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 illustrates the operation of the contingent deferred
sales charge. Assume that you purchase $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. You then may redeem up
to $4,000 ($14,000 minus $10,000) without incurring a contingent deferred
sales charge. If you 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. Before the Fund effects such an involuntary redemption, you
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
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<PAGE>
applicable Portfolio in lieu of cash. 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.
- --------------------------------------------------------------------------------
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 of these
services and copies of the various plans described below can be obtained
from the Fund.
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN
If you own in a single account $5,000 or more of a Portfolio's shares,
you 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 your declining account
balance under the plan) to be sent to you 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 your account having an NAV
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 you within seven days thereafter. Depending upon the
size of the payments requested and fluctuations in the NAV 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 Fund reserves the right to amend the periodic withdrawal
program on 30 days' notice. The program may be terminated at any time by
you or the Fund.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
You may elect to participate in the Fund's Automatic Investment Plan.
This plan enables you 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 your financial institution account and
subsequently purchase shares of the Fund having an NAV of the amount of
the requested deposit on or around the 16th day of the month. If you are
interested in this plan, you must complete an automatic investment form
available from the Fund. If you elect to participate in the Automatic
Investment Plan, and all shares of an account with that option are
exchanged for shares of another portfolio account, the Automatic
Investment Plan will continue under the account with which the shares
were exchanged, until such time as the Fund is notified in writing to
discontinue the Plan.
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<PAGE>
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EXCHANGE PRIVILEGE
You may exchange all or some shares of a Portfolio for shares of any
other Portfolio in the Fund on the basis of each Portfolio's relative NAV
per share next determined following receipt of an exchange request in
proper form, provided your accounts have like registrations and the
Portfolio's shares are eligible for sale in your state of residence.
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 their original cost and purchase date for
purposes of the contingent deferred sales charge. If shares of the
Portfolio account being exchanged were acquired at different times, the
shares of the Portfolio account 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, you may realize a capital
gain or loss. You are automatically provided the exchange privilege upon
establishment of an account with the Fund. If you are not interested in
the Exchange Privilege you 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 you, exchanges may be authorized by
telephone by ANY PERSON, not just you (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 NYSE
(usually 3:00 p.m., Central Time) will be effected at that day's relative
NAV.
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.
33
<PAGE>
- --------------------------------------------------------------------------------
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. You should consult your tax adviser regarding this 20% withholding
requirement.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
EquiTrust Investment Management Services, Inc., 5400 University Avenue, West Des
Moines, Iowa 50266, serves as the Fund's investment adviser and manager pursuant
to an Investment Advisory and Management Services Agreement. This relationship
has existed since the Fund commenced operations in 1971.
The Adviser is an indirect subsidiary of FBL Financial Group, Inc., an Iowa
corporation. The following individuals are officers and/or directors of the
Adviser and are officers and/or directors of the Fund: Stephen M. Morain, Thomas
R. Gibson, William J. Oddy, Timothy J. Hoffman, Dennis M. Marker, James W.
Noyce, Lou Ann Sandburg, Sue A. Cornick, Kristi Rojohn and Elaine A. Followwill.
The Adviser also acts as the 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.
34
<PAGE>
Roger F. Grefe and Robert J. Rummelhart serve as managers for various portfolios
of the Fund. Mr. Grefe joined EquiTrust in 1986 and has managed the Value Growth
and Managed Portfolios since their 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.
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 the average daily net assets of each
Portfolio as follows: .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, .25%
of the average daily net assets of the Money Market Portfolio and Blue Chip
Portfolio, respectively.
The Adviser, at its expense, furnishes the Fund with office space and
facilities, 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: 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; fees of Directors who are not affiliated with the
Adviser; and the fees and expenses of independent public auditors, legal
counsel, custodian, and transfer and dividend disbursing agents.
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 and extraordinary expenses) of that Portfolio exceed
1.50% of the average daily net assets of that Portfolio for any fiscal year of
the Portfolio. However, the amount reimbursed shall not exceed the amount of the
advisory fee paid by the Portfolio for such period.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000
Many data processing systems were designed using only two digits to signify the
year (for example, "99" for "1999"). On January 1, 2000, if these data
processing systems are not corrected, they may incorrectly interpret "00" as the
year 1900 rather than the year 2000, leading to computer shutdowns and errors
(commonly known as "year 2000 problems"). To the extent that these systems
conduct forward-looking calculations, such problems may occur prior to January
1, 2000. In providing investment advisory services to the Portfolios and other
services to the Fund, the Adviser utilizes data processing systems that may be
affected by year 2000 problems. The Adviser and the Fund also rely on
35
<PAGE>
service providers, including banks, custodians and transfer agents that also may
be affected. Like other mutual funds and financial and business organizations,
the Adviser and other service providers could be adversely affected in their
ability to process securities trades, price securities, provide shareholder
account services and otherwise conduct the Fund's normal business operations if
data processing systems that they use experience year 2000 problems. The Adviser
has developed, and is in the process of implementing, a year 2000 transition
plan with respect to systems that it operates, and is confirming that the Fund's
other service providers are also so engaged. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on the Adviser and the Fund. As of
the date of this prospectus, the Adviser does not anticipate that shareholders
will experience negative effects on investments in the Portfolios, or on the
services provided to them on behalf of the Fund, as a result of year 2000
problems. However, there can be no assurance that the Adviser will be
successful, or that interaction with other service providers will not impair the
Adviser's and the Fund's services on or before January 1, 2000.
- --------------------------------------------------------------------------------
DISTRIBUTOR
The Adviser also serves as the distributor and principal underwriter of the
Fund's shares ("Distributor"). The Fund pays the Distributor for distribution
services pursuant to a Distribution Plan and Agreement under Rule 12b-1. Under
the 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
Fund. Because the fee is continually paid out of the Portfolios' assets, over
time it will increase the cost of your investment and could potentially cost you
more than paying other types of sales charges.
Pursuant to the Agreement, the Distributor may appoint various broker-dealer
firms to assist in providing distribution services for 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 addtional commissions, fees or
other 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.
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 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.
36
<PAGE>
- --------------------------------------------------------------------------------
NET ASSET VALUE
The net asset value ("NAV") 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
(the "NYSE"), on each day that (i) the NYSE is open for business (except the day
after Thanksgiving, the weekdays before and after Christmas (in 1999), the
weekday after New Year's Day (in 2000) and any day on which the Fund offices are
closed because of a weather-related or comparable type of emergency); and (ii)
an order for purchase or redemption of shares of the Portfolio is received. The
NAV 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 NAV of a Portfolio more
frequently than once daily if it is deemed desirable. 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 that day,
the Fund will price those orders and redemptions at the NAV next determined for
each Portfolio.
MONEY MARKET PORTFOLIO. 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 SAI under the heading
"Net Asset Value."
OTHER PORTFOLIOS. 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, if there are no 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 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.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
VALUE GROWTH AND BLUE CHIP PORTFOLIO DISTRIBUTIONS: Each Portfolio normally
follows the practice of distributing substantially all net investment income
and substantially all net short-term and long-term capital gains, if any,
after the close of the Fund's fiscal year.
HIGH GRADE BOND AND HIGH YIELD BOND PORTFOLIO DISTRIBUTIONS: Each Portfolio
normally follows the practice of distributing substantially all net
investment income and net short-term gains
37
<PAGE>
monthly, and distributing substantially all net long-term capital gains
after the close of the Fund's fiscal year.
MANAGED PORTFOLIO DISTRIBUTIONS: The Portfolio normally follows the practice
of distributing substantially all net investment income quarterly, and
distributing substantially all net short-term and long-term capital gains
after the close of the Fund's fiscal year.
MONEY MARKET PORTFOLIO DISTRIBUTIONS: On each day that the NAV per share of
the Money Market Portfolio is determined, the Money Market Portfolio's net
investment income will be declared, as of the close of the NYSE, as a
dividend to shareholders of record prior to the declaration. Distributions
will be distributed monthly. If you withdraw your entire account, all
dividends accrued to the time of withdrawal will be paid at that time.
Dividends and capital gains distributions are automatically reinvested in
shares of the Portfolio unless you indicate in writing to receive them in
cash; however, 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 you elect to receive dividends and/or capital gains distributions in
cash, from an account that remains open, and the postal or other delivery
service is unable to deliver those monies to your address of record, or the
check remains uncashed for over one year, your distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares, and the outstanding check will be voided
and reinvested in your account. If you have elected to receive dividends
and/or capital gains distributions in cash, from an account that is
subsequently closed, and the postal or other delivery service is unable to
deliver checks to your 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 accounts represented by uncashed
distribution or redemption checks.
HOW DISTRIBUTIONS AFFECT A PORTFOLIO'S NAV. Distributions are paid to
shareholders as of the record date of a distribution from a Portfolio,
regardless of how long the shares have been held. Dividends and capital
gains awaiting distribution are included in each Portfolio's daily NAV. The
share price of a Portfolio drops by the amount of the distribution, net of
any subsequent market fluctuations. You should be aware that distributions
from a taxable mutual fund are not value-enhancing and may create income tax
obligations.
"BUYING A DIVIDEND." If you purchase shares of a Portfolio just before the
distribution, you will pay the full price for the shares and receive a
portion of the purchase price back as a taxable distribution. This is
referred to as "buying a dividend." Unless your account is set up as a tax-
deferred account, dividends paid to you will be included in your gross
income for tax purposes, even though you may not have participated in the
increase in NAV of the Fund, whether or not you reinvested the dividends.
TAXES
TAXATION OF THE PORTFOLIOS. Because the Fund is a regulated investment
company, the Fund's Portfolios generally pay no federal income tax on the
income and gains that they distribute to you.
TAXATION OF SHAREHOLDERS. To avoid taxation, the Internal Revenue Code
requires each Portfolio to distribute net income and any net capital gains
realized on its investments annually. A Portfolio's income from dividends
and interest and any net realized short-term gains are paid to shareholders
as ordinary income dividends. Net realized long-term gains are paid to
shareholders as capital gains distributions.
38
<PAGE>
Except for those shareholders exempt from federal income taxes, dividends
and capital gain distributions will be taxable to shareholders, whether paid
in cash or reinvested in additional shares of the Portfolio. You will be
notified annually as to the federal income tax status of dividends and
capital gains distributions. Such dividends and distributions may also be
subject to state and local taxes.
Long-term capital gain distributions are taxable as long-term capital gain
regardless of how long you have held shares of the Portfolio. Long-term
capital gain distributions (relating to assets held by the Portfolio for
more than 12 months) made to individual shareholders are currently taxed at
the maximum rate of 20%. Dividends representing net investment income and
net realized short-term capital gains are taxed as ordinary income at rates
up to a maximum marginal rate of 39.6% for individuals. Any dividends and
distributions declared in October, November or December to shareholders of
record as of a date in one of those months and paid during the following
January are treated for federal income tax purposes as paid on December 31
of the calendar year in which they are declared.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a 401(k) Plan or IRA, are generally tax
deferred. This means that you are not required to report Portfolio
distributions on your income tax return, but, rather, when your plan makes
payments to you. Special rules apply to payments from Roth and Education
IRAs.
BACKUP WITHHOLDING. When you open an account, Internal Revenue Service
("IRS") regulations require that you provide your taxpayer identification
number ("TIN"), certify that it is correct, and certify that you are not
subject to backup withholding under IRS rules. If you fail to provide a
correct TIN or the proper tax certifications, each Portfolio is required to
withhold 31% of all the distributions (including dividends and capital
distributions) and redemption proceeds paid to you. Each Portfolio is also
required to begin backup withholding on your account if the IRS instructs it
to do so. Amounts withheld are applied to your federal income tax liability
and you may obtain a refund from the IRS if withholding results in
overpayment of taxes.
You are advised to consult your own tax adviser as to the tax consequences
of owning shares of each Portfolio with respect to your circumstances.
For more information about the tax status of the Portfolios, see "Taxes" in
the SAI.
- --------------------------------------------------------------------------------
CLASSES OF SHARES
- --------------------------------------------------------------------------------
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 the Adviser:
(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 the Adviser of the Fund deems appropriate.
39
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years through July 31st
of each fiscal year shown. Certain information reflects financial results
for a single Portfolio share. The total returns in the tables represent the
rate that an investor would have earned (or lost) on an investment in each
of the Portfolios (assuming reinvestment of all dividends and
distributions). This information has been derived from financial statements
that have been audited by Ernst & Young LLP, whose report, along with the
Portfolios' financial statements, is included in the Annual Report, which is
available upon request and incorporated by reference into the SAI.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------------------
VALUE GROWTH PORTFOLIO HIGH GRADE BOND PORTFOLIO
------------------------------------------------------ ----------------------------------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of
period............. $ 11.07 $ 15.63 $ 14.68 $ 13.04 $ 13.07 $ 10.57 $ 10.50 $ 10.16 $10.26 $10.13
Income from
Investment
Operations:
Net investment
income........ 0.09 0.13 0.18 0.27 0.43 0.56 0.60 0.60 0.64 0.63
Net realized and
unrealized
gain (loss) on
investments... (0.97) (2.26) 2.89 2.10 0.65 (0.44) 0.07 0.34 (0.10) 0.16
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
Total from
investment
operations...... (0.88) (2.13) 3.07 2.37 1.08 0.12 0.67 0.94 0.54 0.79
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
Less
Distributions:
Dividends from
net investment
income........ (0.11) (0.17) (0.18) (0.46) (0.39) (0.56) (0.60) (0.60) (0.64) (0.63)
Distributions
from capital
gains......... (2.26) (1.94) (0.27) (0.72) (0.06)
Distributions in
excess of net
realized
gains......... (0.51) (0.03)
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
Total
distributions... (0.62) (2.43) (2.12) (0.73) (1.11) (0.62) (0.60) (0.60) (0.64) (0.66)
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
Net asset value at
end of period...... $ 9.57 $ 11.07 $ 15.63 $ 14.68 $ 13.04 $ 10.07 $ 10.57 $ 10.50 $10.16 $10.26
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
--------- --------- --------- -------- -------- -------- -------- -------- ------- -------
Total Return:
Total investment
return based on
net asset value
(1)............. (7.46)% (16.37)% 21.83% 18.41% 9.36% 1.07% 6.53% 9.56% 5.37% 8.23%
Ratios/Supplemental
Data:
Net assets at end
of period in
thousands....... $ 82,902 $ 92,848 $112,985 $86,534 $70,947 $13,110 $11,510 $10,250 $9,122 $8,345
Ratio of total
expenses to
average net
assets.......... 1.74% 1.60% 1.65% 1.62% 1.62% 1.67% 1.71% 1.82% 1.85% 1.99%
Ratio of net
expenses to
average
net assets...... 1.74% 1.60% 1.65% 1.62% 1.62% 1.66% 1.71% 1.82% 1.85% 1.99%
Ratio of net
investment
income to
average net
assets.......... 0.92% 0.87% 1.18% 1.87% 3.43% 5.33% 5.67% 5.85% 6.19% 6.29%
Portfolio turnover
rate............ 220% 217% 77% 92% 85% 29% 38% 30% 34% 18%
</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.
40
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO MANAGED PORTFOLIO
----------------------------------------------- -----------------------------------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of
period............. $10.48 $10.48 $ 9.99 $10.03 $10.00 $12.15 $14.05 $13.33 $11.85 $11.62
Income from
Investment
Operations:
Net investment
income........ 0.60 0.65 0.70 0.75 0.78 0.47 0.44 0.48 0.46 0.56
Net realized and
unrealized
gain (loss) on
investments... (0.51) 0.07 0.61 (0.01) 0.13 (1.25) (1.00) 1.91 1.54 0.47
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations...... 0.09 0.72 1.31 0.74 0.91 (0.78) (0.56) 2.39 2.00 1.03
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less
Distributions:
Dividends from
net investment
income........ (0.60) (0.65) (0.70) (0.75) (0.78) (0.47) (0.44) (0.46) (0.45) (0.56)
Distributions
from capital
gains......... (0.02) (0.07) (0.12) (0.03) (0.09) (0.90) (1.21) (0.10) (0.14)
Distributions in
excess of net
realized
gains......... (0.08) (0.01) (0.51) (0.10)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions... (0.70) (0.72) (0.82) (0.78) (0.88) (0.98) (1.34) (1.67) (0.55) (0.80)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Capital contribution
from affiliate...... 0.03(2)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at
end of period...... $ 9.87 $10.48 $10.48 $ 9.99 $10.03 $10.39 $12.15 $14.05 $13.33 $11.85
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Return:
Total investment
return based on
net asset value
(1)............. 0.87% 7.10% 13.29% 7.67% 9.71% (6.26)% (4.54)% 17.88% 17.30%(2) 9.40%
Ratios/Supplemental
Data:
Net assets at end
of period in
thousands....... $11,734 $10,982 $9,156 $7,349 $6,691 $38,012 $43,602 $40,994 $27,470 $21,105
Ratio of total
expenses to
average
net assets...... 1.95% 1.97% 2.10%(3) 2.22%(3) 2.29%(3) 1.95% 1.83% 1.95% 1.91% 1.94%
Ratio of net
expenses to
average
net assets...... 1.94% 1.97% 2.00% 2.00% 2.00% 1.95% 1.83% 1.95% 1.91% 1.94%
Ratio of net
investment
income to
average net
assets.......... 5.93% 6.17% 6.82% 7.44% 7.83% 4.30% 3.33% 3.48% 3.47% 4.86%
Portfolio turnover
rate............ 44% 30% 45% 30% 23% 67% 66% 74% 81% 69%
</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 and an offsetting capital contribution from an
affiliate. The total investment return includes the effect of the capital
contribution of $0.02 per share. The return without the capital contribution
would have been 17.13%.
(3) Without the Manager's voluntary reimbursement of a portion of certain of its
expenses for the periods indicated, the High Yield Bond Portfolio would have
had per share net investment income as shown:
<TABLE>
<CAPTION>
PER SHARE
NET INVESTMENT AMOUNT
YEAR INCOME REIMBURSED
--------- ----------------- -----------
<S> <C> <C> <C>
1997 $ 0.69 $ 8,681
1996 0.73 15,361
1995 0.75 18,810
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO BLUE CHIP PORTFOLIO
------------------------------------------------------ ------------------------------------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
<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 $ 41.27 $ 37.20 $ 26.26 $ 22.85 $ 18.75
Income from
Investment
Operations:
Net investment
income........ 0.03 0.04 0.03 0.04 0.04 0.13 0.18 0.16 0.17 0.19
Net realized and
unrealized
gain (loss) on
investments... 5.82 4.08 11.22 3.43 4.05
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total from
investment
operations...... 0.03 0.04 0.03 0.04 0.04 5.95 4.26 11.38 3.60 4.24
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Less
Distributions:
Dividends from
net investment
income........ (0.03) (0.04) (0.03) (0.04) (0.04) (0.16) (0.16) (0.14) (0.19) (0.14)
Distributions
from capital
gains......... (0.05) (0.03) (0.30)
Distributions in
excess of net
realized
gains......... (0.12)
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total
distributions... (0.03) (0.04) (0.03) (0.04) (0.04) (0.33) (0.19) (0.44) (0.19) (0.14)
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net asset value at
end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 46.89 $ 41.27 $ 37.20 $ 26.26 $ 22.85
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
-------- -------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total Return:
Total investment
return based on
net asset value
(1)............. 3.19% 3.65% 3.51% 3.64% 3.60% 14.51% 11.49% 43.77% 15.83% 22.77%
Ratios/Supplemental
Data:
Net assets at end
of period in
thousands....... $ 3,467 $ 2,574 $ 2,466 $ 2,552 $ 2,439 $$55,045 $43,418 $29,863 $14,641 $ 9,657
Ratio of total
expenses to
average net
assets.......... 1.91% 1.95% 2.28%(2) 2.43%(2) 2.20%(2) 1.52% 1.55% 1.74% 1.79% 1.78%
Ratio of net
expenses to
average net
assets.......... 1.89% 1.95% 2.00% 2.00% 2.00% 1.52% 1.55% 1.74% 1.79% 1.78%
Ratio of net
investment
income to
average net
assets.......... 3.13% 3.57% 3.46% 3.58% 3.51% 0.30% 0.49% 0.49% 0.66% 0.92%
Portfolio turnover
rate............ 0% 0% 0% 0% 0% 7% 3% 0% 3% 1%
</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) Without the Manager's voluntary reimbursement of a portion of certain of its
expenses for the periods indicated, the Money Market Portfolio would have
had per share net investment income as shown:
<TABLE>
<CAPTION>
PER SHARE
NET INVESTMENT AMOUNT
YEAR INCOME REIMBURSED
--------- ----------------- -----------
<S> <C> <C> <C>
1997 $ 0.03 $ 8,681
1996 0.03 10,718
1995 0.03 4,948
</TABLE>
42
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
You may make inquiries either by contacting your registered representative
or by writing or calling the Fund at the address or telephone numbers as
shown on the front cover.
You may obtain copies of year-end account statements 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
you; 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
your account. If your account has been closed, the applicable fees must be
remitted with the request.
- --------------------------------------------------------------------------------
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Additional information about each Portfolio's investments is available in
the Fund's annual and semi-annual reports to shareholders. The Fund's annual
report to shareholders contains a discussion of the market conditions and
investment strategies that significantly affected each Portfolio's
performance during the fiscal year covered by the report.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
The SAI, which contains additional information about the Fund, has been
filed with the SEC and is incorporated herein by reference. Information
about the Fund (including the SAI) can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information about the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports
and other information about the Fund are available on the SEC's Internet
site at http://www.sec.gov. and copies of this information are available,
upon paying a duplication fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.
You may obtain a free copy of the Fund's SAI and annual and semi-annual
reports and you may make further inquiries by calling the Fund at
1-800-247-4170 or by writing the Fund at 5400 University Avenue, West Des
Moines, Iowa 50266.
Investment Company Act of 1940, File Number 811-2125
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ADVISER, DISTRIBUTOR, CUSTODIAN
SHAREHOLDER SERVICE, DIVIDEND Deutsche Bank
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
222 North LaSalle Street 801 Grand Avenue
Suite 2600 Suite 3400
Chicago, Illinois 60601 Des Moines, Iowa 50309
</TABLE>
43
<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 (outside Iowa).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, have 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 (12/99)
<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 of the Securities Industry.
The information provided will be treated confidentially.
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 YOU WISH US TO CONSIDER:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
/ / I elect not to provide the information above.
______________________________________________________________________________
Signature of Customer
______________________________________________________________________________
Signature of Joint Customer
______________________________________________________________________________
Signature of Representative
737-018AT
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[LOGO]
EquiTrust Series Fund, Inc.
PROSPECTUS
DECEMBER 1, 1999
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)
1-515-225-5586 (DES MOINES)
737-018(12/99)
<PAGE>
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EQUITRUST SERIES FUND, INC.
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STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
EquiTrust Series Fund, Inc. (the "Fund") is an open-end diversified management
investment company which consists of six Portfolios: 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 ("SAI") is not a prospectus and should
be read in conjunction with the Prospectus of the Fund dated December 1, 1999.
The audited financial statements of the Fund, including the notes thereto,
contained in the Annual Report to Shareholders of EquiTrust Series Fund for the
fiscal year ended July 31, 1999 were filed with the Securities and Exchange
Commission (the "Commission") on September 22, 1999 and are incorporated by
reference.
A copy of the Prospectus or Annual Report may be obtained without charge by
writing or calling the Fund at the address and telephone number shown below.
Terms not defined herein shall have the meanings given them in the Prospectus.
EquiTrust Mutual Funds
5400 University Avenue
West Des Moines, Iowa 50266
800-247-4170
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES.... 1
The Fund.................................... 1
Investment Objectives....................... 1
Investment Strategies and Techniques........ 2
INVESTMENT RESTRICTIONS........................... 10
Fundamental Policies........................ 10
Non-Fundamental (Operating) Policies........ 13
OFFICERS AND DIRECTORS............................ 13
INVESTMENT ADVISER................................ 18
PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS..................................... 21
UNDERWRITING AND DISTRIBUTION EXPENSES............ 22
PORTFOLIO TURNOVER................................ 23
PURCHASES AND REDEMPTIONS......................... 23
NET ASSET VALUE................................... 24
Money Market Portfolio...................... 24
Other Portfolios............................ 25
TAXES............................................. 26
DIVIDENDS AND DISTRIBUTIONS....................... 27
Money Market Portfolio...................... 27
High Grade Bond and High Yield Bond
Portfolios................................. 27
Value Growth, Blue Chip and Managed
Portfolios................................. 27
PERFORMANCE INFORMATION........................... 27
Performance Calculation..................... 29
ORGANIZATION OF THE FUND.......................... 32
SHAREHOLDER VOTING RIGHTS......................... 33
RETIREMENT PLANS.................................. 34
OTHER INFORMATION................................. 34
Principal Holders of Securities............. 34
Custodian................................... 34
Independent Auditors........................ 34
Accounting Services......................... 35
Shareholder Service Dividend Disbursing and
Transfer Agent............................. 35
Legal Matters............................... 35
Registration Statement...................... 35
FINANCIAL STATEMENTS.............................. 35
APPENDIX A........................................ A-1
APPENDIX B........................................ B-1
APPENDIX C........................................ C-1
</TABLE>
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INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES
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THE FUND
EquiTrust Series Fund, Inc. (the "Fund") was established as a Maryland
corporation under Articles of Incorporation dated August 14, 1970. The Fund
is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company
Act"). It is a series-type investment company consisting of the Value Growth
Portfolio, High Grade Bond Portfolio, High Yield Bond Portfolio, Managed
Portfolio, Money Market Portfolio and Blue Chip Portfolio (individually, a
"Portfolio"; collectively, the "Portfolios"). The Board of Directors of the
Fund (the "Board of Directors") may provide for additional portfolios at any
time.
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INVESTMENT OBJECTIVES
<TABLE>
<CAPTION>
The investment objective(s) of each Portfolio is set forth below.
<S> <C>
Value Growth Portfolio Seeks long-term capital appreciation.
High Grade Bond Portfolio Seeks to generate as high a level of current income as
is consistent with investment in a diversified portfolio
of high grade income bearing debt securities.
High Yield Bond Portfolio Seeks as high a level of current income as is consistent
with investment in a diversified portfolio of
lower-rated, higher-yielding income bearing securities.
The Portfolio also seeks capital appreciation, but only
when consistent with its primary goal.
Managed Portfolio Seeks the highest total return through income and
capital appreciation.
Money Market Portfolio Seeks maximum current income consistent with liquidity
and stability of principal.
Blue Chip Portfolio Seeks growth of capital and income.
</TABLE>
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INVESTMENT STRATEGIES AND TECHNIQUES
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 "Principal Risk Factors" and "Higher Risk Securities and Investment
Strategies." A description of the money market instruments in which the
Money Market Portfolio may invest is contained in Appendix A to this SAI. 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 Appendix C to this SAI.
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 net 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) EquiTrust Investment Management
Services, Inc., (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 of 1986,
as amended (the "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 Code.
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 offering to enhance investment performance or to reduce
risks associated with investments. 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 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
2
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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.
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.
Covered call options and the securities underlying options will be listed on
national securities exchanges, except that certain transactions in debt
securities and related options need not be so listed.
A Portfolio may write options that are traded on U.S. and foreign exchanges
and options traded over the counter with broker-dealers who make markets in
these options. The ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. Until such time as the staff of the Commission changes its
position, the Portfolios will treat purchased over-the-counter options and
all assets used to cover written over-the-counter options as illiquid
securities, except that with respect to options written with primary dealers
in U.S. Government securities pursuant to an agreement requiring a closing
purchase transaction at a formula price, the amount of illiquid securities
may be calculated with reference to the formula.
Transactions by a Portfolio in options on securities is subject to
limitations established by each of the exchanges, boards of trade or other
trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Portfolio may write
may be affected by options written or purchased by other investment advisory
clients of the investment adviser. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in
excess of these limits, and it may impose certain other sanctions.
The writing of options is a highly specialized activity which involves
investment techniques and risks different from those associated with
ordinary portfolio securities transactions.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
From time to time, in the ordinary course of business, any 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
3
<PAGE>
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 each Portfolio 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 market 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 by the purchase of securities on a when-issued or
delayed delivery basis or the sale of securities on a delayed delivery
basis.
Each Portfolio will establish a segregated account with the Fund's custodian
bank in which it will maintain cash or 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; subject to
this requirement, a Portfolio may 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; however, it is the
investment adviser's intention that each Portfolio will be fully invested to
the extent practicable and subject to the policies stated above. In the case
of a commitment to sell portfolio securities on a delayed delivery basis,
each Portfolio will instruct the custodian to hold the portfolio securities
themselves in a segregated account while the commitment is outstanding.
GINNIE MAE CERTIFICATES
The Managed Portfolio, High Grade Bond Portfolio and High Yield Bond
Portfolio each may invest in debt securities ("Ginnie Maes") of the
Government National Mortgage Association ("GNMA"), a government corporation
within the U.S. Department of Housing and Urban Development. Ginnie Mae
certificates are securities representing part ownership in a pool of
mortgage loans. These loans, which are issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations, either are
insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. A pool of these
mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers.
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). The National
4
<PAGE>
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. 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 GNMA's guarantee of Ginnie Maes, 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.
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 typically are 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. Reinvestment of prepayments at such times
will be at lower rates, which would lower the return to 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.
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.
5
<PAGE>
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. Should the value of the
underlying securities decline, 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 also may enter into a special type of repurchase agreement known
as an "open repurchase agreement." An open repurchase agreement varies from
the typical repurchase agreement in the following respects: (i) the
agreement has no set maturity, but instead matures upon 24 hours' notice to
the seller; and (ii) the repurchase price is not determined at the time the
agreement is entered into, but instead is based on a variable interest rate
and the 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 Adviser (under the review
of the Board of Directors) will review the creditworthiness of the seller of
the repurchase agreement 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 assets in repurchase
agreements maturing in more than seven days, and no more than 25% of its
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 which may be invested in repurchase
agreements which mature in less than seven days and which have underlying
securities with maturities of less than one year. Open repurchase agreements
are considered to mature in one day.
REVERSE REPURCHASE AGREEMENTS
Each Portfolio may enter into reverse repurchase agreements with banks and
broker-dealers. These agreements have the characteristics of borrowing and
involve the sale of securities held by a Portfolio with an agreement to
repurchase the securities at an agreed upon price that reflects a rate of
interest paid for the use of the funds for the period. Such transactions are
advantageous only if the Portfolios have the opportunity to earn a greater
rate of interest on the cash derived from the transaction than the interest
cost of obtaining that cash. The Portfolios may be unable to realize a rate
of return from the use of the proceeds equal to or greater than the interest
expense of the repurchase agreement. Thus, the Portfolios only enter into
such agreements when it appears advantageous to do so. The use of reverse
repurchase agreements may magnify any increase or decrease in the value of a
Portfolio's investments. The Fund's custodian maintains, in a segregated
account, liquid securities of each Portfolio that have a value equal to or
greater than the respective Portfolio's commitments under reverse repurchase
agreements. The value of securities subject to reverse repurchase agreements
will not exceed 30% of a Portfolio's total assets.
OTHER INVESTMENT COMPANIES
Each Portfolio 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 the Adviser believes such a position
is warranted by uncertain or unusual market conditions, or when liquidity is
required to meet unusually high redemption requests) or
6
<PAGE>
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.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES
No Portfolio may invest more than 15% of its net assets (10% of total assets
for the Money Market and Blue Chip Portfolios) in illiquid investments.
Illiquid investments are those that cannot be sold within seven days at
approximately the price at which a Portfolio values the investment. Illiquid
investments include most repurchase agreements maturing in more than seven
days, time deposits with a notice or demand period of more than seven days,
certain mortgage-backed securities, certain over-the-counter options
contracts (and segregated assets used to cover such options), and many
restricted securities. Restricted securities have a contractual restriction
on resale or otherwise cannot be resold publicly until registered under the
Securities Act of 1933 (the "1933 Act").
Each of the Portfolios may invest in restricted securities (but not in
excess of 10% of total assets for the Money Market Portfolio and Blue Chip
Portfolio). If restricted securities are illiquid, they are subject to the
liquidity limitations described above. Restricted securities are not,
however, considered illiquid if they are eligible for sale to qualified
institutional purchasers in reliance upon Rule 144A under the 1933 Act and
they are determined to be liquid by the Board of Directors or by the Adviser
pursuant to board approved procedures. Such procedures take into account
trading activity for such securities and the availability of reliable
pricing information, among other factors. To the extent that qualified
institutional purchasers become for a time uninterested in purchasing
certain restricted securities, a Portfolio's holding of such securities may
become illiquid. Even when determined to be liquid, restricted securities
are less liquid than they would be if they were not restricted. Therefore
the purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which they would trade if they
were not restricted.
EURO CONVERSION
On January 1, 1999, eleven participating countries in the European Economic
Monetary Union (Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, and Spain) adopted the EURO as their
official currency. On January 1, 1999, governments of these countries began
issuing new debt and redenominating existing debt in EUROS, although
corporations may choose to issue securities in either EUROS or in the
national currency of a participating country. Also, on January 1, 1999, the
new European Central Bank (the "ECB") assumed responsibility for monetary
policy in participating countries. Currency conversion is occurring through
a "triangulation" process whereby an amount denominated in one national
currency is converted to EUROS, which then is converted to the second
national currency. For investors, such as several of the Portfolios, in
securities of issuers located or doing substantial business in the
participating countries, the EURO conversion presents unique risks arising
from various uncertainties, including: (1) the readiness of EURO payment,
clearing, and other operating systems, (2) the legal treatment of debt
instruments and financial contracts denominated in or referring to existing
national currencies rather than the EURO, (3) exchange rate fluctuations
between the EURO and other currencies during the transition period of
January 1, 1999 through December 31, 2000 and beyond, (4) potential U.S. tax
issues with respect to securities held by the
7
<PAGE>
Portfolios, and (5) the ECB's ability to manage monetary policy for the
participating countries. Three other European Community countries (Denmark,
Greece and the United Kingdom) may convert to the EURO at a later date.
These and other uncertainties may adversely affect the general economy
and/or financial systems in Europe as well as the fortunes of individual
issuers located or doing business there.
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 stock upon liquidation,
although the securities are subordinated to other, more 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.
LOWER RATED DEBT SECURITIES
The High Yield Bond Portfolio invests a substantial portion of its assets in
income-bearing securities offering high current income. Additionally, the
High Grade Bond Portfolio may invest a portion of its assets in such
securities. Such high yielding income-bearing securities often do not meet
the high grade or investment grade quality level. Securities falling short
of investment grade are commonly known as "junk bonds." These lower rated
securities are, on balance, predominantly speculative with respect to their
capacity to pay interest and repay principal in accordance with their terms
and generally entail more credit risk than higher rated securities. 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 higher rated securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, regarding lower rated
securities may depress prices and diminish liquidity for such securities.
Factors adversely affecting the market value of lower rated securities
adversely affect a Portfolio's net asset value. In addition, a Portfolio may
incur additional expenses to the extent it is required to seek recovery upon
a default in the payment of principal or interest on its income bearing
securities. Although some risk is inherent in all securities, holders of
income bearing debt securities have a claim on the assets of the issuer
prior to the holders of common stock. Therefore, an investment in such
securities generally entails less financial risk than an investment in
equity securities of the same issuer.
Lower rated securities may be issued by corporations in the early stages 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 lower rated securities are often highly leveraged
8
<PAGE>
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 investment grade securities. For
example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower rated securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. An issuer's
ability 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 lower rated income bearing securities because such securities
are generally unsecured and are often subordinated to other creditors of the
issuer.
Lower rated income bearing 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 lower
rated 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 lower rated securities
for which there is a thin trading market. Because not all dealers maintain
markets in all lower rated securities, there is no established retail
secondary market for many of these securities, and the Adviser 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 lower rated
securities, it is generally not so liquid as that for investment grade
securities. The lack of a liquid secondary market may have an adverse impact
on market value of such securities and a Portfolio's ability to dispose of
them 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 Adviser 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, lower rated securities, as well as the
ability of the issuers of such securities to repay principal and pay
interest thereon.
A Portfolio may acquire lower rated securities that are sold without
registration under the federal securities laws and therefore carry
restrictions on resale. A Portfolio may acquire lower rated securities
during an initial offering. Such securities involve special risks because
they are 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.
9
<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 amount 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.
Current 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 registered 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.
TEMPORARY DEFENSIVE POSITIONS
Notwithstanding their investment objective(s), each Portfolio may, for
temporary defensive purposes, invest all (15% for the Blue Chip Portfolio)
of its assets in cash and/or money market instruments of the type in which
the Money Market Portfolio invests.
- --------------------------------------------------------------------------------
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 SAI 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 affecting
only one Portfolio may be effected by a majority vote of the outstanding
shares of such Portfolio.
10
<PAGE>
Except as noted below, each Portfolio may not:
1. As to 75% of the value of each Portfolio's total assets (with the
exception of the Money Market Portfolio, which is subject to 100% of the
value of its total assets), 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 (other than U.S. Government securities
or government agency securities). For the purpose of this restriction, all
outstanding debt securities of an issuer shall be deemed a single class of
security and all preferred stocks of an issuer shall be deemed a single
class of security.
3. Purchase any security if, immediately after such purchase, more than
25% of the Portfolio's assets would be invested in issuers in the same
industry. This restriction does not apply to U.S. Government securities,
government agency securities, obligations of banks or savings institutions,
or instruments secured by these instruments, such as repurchase agreements
for U.S. Government securities (these instruments are described in Appendix
A).
4. Purchase securities of other investment companies, except (i) by
purchase in the open market involving only customary brokers' commissions
and only if immediately thereafter not more than 5% of such Portfolio's
total assets would be invested in such securities, or (ii) 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.
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 any officers or directors of the Fund's
investment adviser own individually more than .50% 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 total assets.
11
<PAGE>
10. Underwrite securities issued by others, except to the extent that it
may be deemed to be a statutory underwriter in the sale of restricted
securities which require registration under the 1933 Act before resale. 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 invest up to 25% of their respective 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 their respective 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.
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.
The term "government agency securities" for purposes of fundamental policy 3
has the same meaning as that set forth in Appendix A. The term "commodities
or commodity contracts" as used in fundamental policy 5 includes futures
contracts.
12
<PAGE>
- --------------------------------------------------------------------------------
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 invest more than 15% of their respective total net assets in
illiquid securities, except to purchase certain restricted securities that
are eligible for resale pursuant to Rule 144A under the 1933 Act, provided
that such 144A security is, in each case, determined by the Adviser to be a
liquid investment in accordance with appropriate procedures.
The Value Growth Portfolio shall not 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.
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 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. The officers and
directors of the Fund and their principal occupations for the past five
years are set forth below. Corporate positions may, in some instances, have
changed during this period. The three directors listed with an asterisk are
"interested persons" as defined in the Investment Company Act.
EDWARD M. WIEDERSTEIN*, PRESIDENT AND DIRECTOR (51)
5400 University Avenue
West Des Moines, Iowa 50266
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, Multi-Pig Corporation, Western
Agricultural Insurance Company, Western Ag Insurance Agency, Inc., Western
Farm Bureau Life Insurance Company, American Ag Insurance Company, and
WellMark Blue Cross/Blue Shield of Iowa.
RICHARD D. HARRIS*, SENIOR VICE PRESIDENT, SECRETARY-TREASURER AND DIRECTOR (55)
5400 University Avenue
West Des Moines, Iowa 50266
13
<PAGE>
Senior Vice President, Secretary-Treasurer and Director, FBL Financial
Group, Inc.; Senior Vice President and Secretary-Treasurer, Farm Bureau Life
Insurance Company and other affiliates of the foregoing; other positions
with various affiliates of the foregoing. Former Director, Public Policy
Division, Iowa Farm Bureau Federation; Director, Iowa FFA Foundation and
Iowa Make-A-Wish Foundation.
STEPHEN M. MORAIN, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND ASSISTANT
SECRETARY (54)
5400 University Avenue
West Des Moines, Iowa 50266
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, LLC; Senior Vice President and General Counsel, Farm Bureau Life
Insurance Company, FBL Insurance Brokerage, Inc. and other affiliates of the
foregoing; Director, Iowa Agricultural Finance Corporation and Iowa Business
Development Finance Corporation; Chairman, Edge Technologies, Inc.
THOMAS R. GIBSON, CHIEF EXECUTIVE OFFICER (55)
5400 University Avenue
West Des Moines, Iowa 50266
Chief Executive Officer and Director, FBL Financial Group, Inc., EquiTrust
Investment Management Services, Inc. and EquiTrust Marketing Services, LLC;
Chief Executive Officer, Farm Bureau Life Insurance Company, Western Farm
Bureau Life Insurance Company, FBL Insurance Brokerage, Inc. and other
affiliates of the foregoing.
TIMOTHY J. HOFFMAN, VICE PRESIDENT (49)
5400 University Avenue
West Des Monies, Iowa 50266
Chief Property/Casualty Officer, FBL Financial Group, Inc.; Executive Vice
President and General Manager, Farm Bureau Mutual Insurance Company and
other affiliates of the foregoing; Vice President, Farm Bureau Life
Insurance Company, Western Farm Bureau Life Insurance Company and other
affiliates of the foregoing; Vice President and Director, EquiTrust
Investment Management Services, Inc. and EquiTrust Marketing Services, LLC.
WILLIAM J. ODDY, CHIEF OPERATING OFFICER (55)
5400 University Avenue
West Des Moines, Iowa 50266
Chief Operating Officer, FBL Financial Group, Inc.; Executive Vice President
and General Manager, Farm Bureau Life Insurance Company, and other
affiliates of the foregoing; Vice President, Farm Bureau Mutual Insurance
Company and other affiliates of the foregoing; Chief Operating Officer and
Director, EquiTrust Marketing Services, LLC; President and Director,
EquiTrust Investment Management Services, Inc., FBL Real Estate Ventures,
Ltd. and RIK, Inc.;
14
<PAGE>
Chief Executive Officer, Western Computer Services, Inc., Director, American
Equity Investment Life Insurance Company, Berthel Fisher & Company, Inc. and
Berthel Fisher & Company Financial Services, Inc.
JAMES W. NOYCE, CHIEF FINANCIAL OFFICER (44)
5400 University Avenue
West Des Moines, Iowa 50266
Chief Financial Officer, FBL Financial Group, Inc., Farm Bureau Life
Insurance Company, and other affiliates of the foregoing. Chief Financial
Officer, Treasurer and Director, EquiTrust Investment Management Services,
Inc. and EquiTrust Marketing Services, LLC. He holds other positions with
various affiliates of the foregoing.
LOU ANN SANDBURG, VICE PRESIDENT-INVESTMENTS AND ASSISTANT TREASURER (52)
5400 University Avenue
West Des Moines, Iowa 50266
Vice President-Investments and Assistant Treasurer, FBL Financial Group,
Inc., Farm Bureau Life Insurance Company, and other affiliates of the
foregoing. Vice President-Investments, EquiTrust Investment Management
Services, Inc. and EquiTrust Marketing Services, LLC. She holds other
positions with various affiliates of the foregoing.
DENNIS M. MARKER, INVESTMENT VICE PRESIDENT, ADMINISTRATION AND ASSISTANT
SECRETARY (48)
5400 University Avenue
West Des Moines, Iowa 50266
Investment Vice President, Administration, FBL Financial Group, Inc. and
Farm Bureau Life Insurance Company; Investment Vice
President-Administration, Secretary and Director, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, LLC. He holds
other positions with various affiliates of the foregoing.
SUE A. CORNICK, MARKET CONDUCT AND MUTUAL FUNDS VICE PRESIDENT AND ASSISTANT
SECRETARY (39)
5400 University Avenue
West Des Moines, Iowa 50266
Market Conduct and Mutual Funds Vice President and Assistant Secretary,
EquiTrust Investment Management Services, Inc. and EquiTrust Marketing
Services, LLC.
KRISTI ROJOHN, ASSISTANT SECRETARY (36)
5400 University Avenue
West Des Moines, Iowa 50266
Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, LLC.
15
<PAGE>
ELAINE A. FOLLOWWILL, ASSISTANT SECRETARY (29)
5400 University Avenue
West Des Moines, Iowa 50266
Compliance Assistant and Assistant Secretary, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, LLC.
DONALD G. BARTLING, DIRECTOR (72)
25718 CR 6
Herman, Nebraska 68029
Farmer; Partner, Bartling Brothers Partnership (farming business).
JOHN R. GRAHAM*, DIRECTOR (54)
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, Farm Bureau Mutual Insurance
Company 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, Graham Enterprises Inc., Fannar 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.
ERWIN H. JOHNSON, DIRECTOR (56)
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 (56)
R.R. 2, Box 75
Atlantic, Iowa 50022
Farmer; Salesman, Pioneer Seed Corn; Voting Delegate, Vice President and
former President, Cass County Farm Bureau; Director, First Whitney Bank &
Trust; Board Member, Transportation Committee Chairman, Cass Atlantic
Development Corporation.
16
<PAGE>
CURTIS C. PIETZ, DIRECTOR (66)
R.R. 3 Box 79
Lakefield, Minnesota 56150
Retired Farmer; Investor and Co-Owner, Storden Seed and Chemical Service,
Inc.; Director, Minnesota Rural Finance Authority and Minnesota Farm Bureau
Federation; 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 also are officers and directors of the Adviser. The
Fund pays no direct remuneration to any officer of the Fund. Each of the
directors not affiliated with the Adviser will be compensated by the Fund.
Each of these unaffiliated directors will receive a fee of $115 plus
expenses for each directors' meeting attended. For the fiscal year ended
July 31, 1999, the Fund paid directors' fees totaling $5,455.
The following table sets forth compensation received by all directors of the
Fund for the fiscal year ended July 31, 1999. The information in the last
column of the table sets forth the total compensation received by all
directors for calendar year 1998 for services as a director of the Fund and
other funds in the EquiTrust family.
TABLE OF DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE PENSION AND RETIREMENT TOTAL COMPENSATION FROM
NAME OF COMPENSATION FROM BENEFITS ACCRUED AS PART ALL FUNDS IN THE
DIRECTOR THE FUND OF FUND EXPENSES EQUITRUST FAMILY
<S> <C> <C> <C>
Mr. Bartling $ 460 $ 0 $ 1380
Mr. Graham 0 0 0
Mr. Harris 0 0 0
Mr. Johnson 460 0 1380
Mr. Kay 460 0 1380
Mr. Pietz 460 0 1380
Mr. Wiederstein 0 0 0
</TABLE>
Directors and officers of the Fund do not receive any benefits from the Fund
upon retirement nor does the Fund accrue any expenses for pension or
retirement benefits.
As of September 15, 1999, the officers and directors as a group owned less
than 1% of the then outstanding shares of the Fund.
COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee. The Audit
Committee of the Fund recommends the selection of independent auditors for
the Fund, reviews with such independent
17
<PAGE>
public accountants the planning, scope and results of their audit of the
Fund's financial statements and the fees for service performed, reviews the
financial statements of the Fund and receives audit reports. The Audit
Committee consists of four members, Messrs. Bartling, Johnson, Kay and
Pietz. The Audit Committee met two times during the Fund's fiscal year ended
July 31, 1999.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The following information supplements the information set forth in the
Prospectus under the heading "Portfolio Management." Pursuant to an
Investment Advisory and Management Services Agreement dated November 11,
1987 ("Agreement"), EquiTrust Investment Management Services, Inc.
("Adviser") acts as the Fund's investment adviser and manager, subject to
the review of the 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, 67% of whose
outstanding voting stock is owned by Iowa Farm Bureau Federation, an Iowa
not-for-profit corporation. The Adviser also acts as the 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 themselves,
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 objective(s) 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 and applicable requirements of the Code;
(ii) the Portfolio's investment objective(s), 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 below.
18
<PAGE>
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 the average daily net assets of
each Portfolio as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
FIRST SECOND OVER
PORTFOLIO $200 MILLION $200 MILLION $400 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 0.60% 0.55% 0.50%
Managed 0.45% 0.45% 0.40%
Money Market 0.25% 0.25% 0.25%
Blue Chip 0.25% 0.25% 0.25%
</TABLE>
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 assets. 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, legal counsel, custodian, transfer and dividend disbursing agent
and any registrar; 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 trustees 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
-----------------
(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., 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.
19
<PAGE>
as the then sole shareholder of each of the other seven Portfolios of the
Fund, and was most recently approved for continuance on November 11, 1999,
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, 2000. 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 disapproved by the
Shareholders of a Portfolio if a majority of the outstanding shares of such
Portfolio vote for or against approval of the Agreement, notwithstanding (a)
that the Agreement has not been approved or disapproved by a majority of the
outstanding shares of any other Portfolio, and (b) that the Agreement has
not been approved or disapproved 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 is not 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.
For the fiscal years ended July 31, 1999, 1998, and 1997, the advisory and
management fee expense was as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1999 1998 1997
<S> <C> <C> <C>
Value Growth $ 431,802 $ 589,203 $ 505,350
High Grade Bond $ 56,910 $ 45,457 $ 38,467
High Yield Bond $ 71,230 $ 58,998 $ 45,477
Managed $ 254,437 $ 276,527 $ 202,879
Money Market $ 9,918 $ 7,315 $ 7,912
Blue Chip $ 131,256 $ 93,182 $ 51,719
</TABLE>
The Adviser has also agreed to reimburse any Portfolio of the Fund annually
to the extent that the annual operating expenses (including the investment
advisory fee but excluding brokerage, interest, taxes and extraordinary
expenses) of that Portfolio exceed 1.50% of its average daily net assets for
any fiscal year of the Portfolio. However, the amount reimbursed shall not
exceed the amount of the advisory fee paid by the Portfolio for such period.
20
<PAGE>
- --------------------------------------------------------------------------------
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. The
Adviser regards information which is customarily available only in return
for brokerage elements 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 Agreement.
Any research benefits derived are available for all clients.
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).
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. Information received from brokerage research will
be in addition to and not in lieu of the services required to be performed
by the Adviser under the Agreement. The expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Neither the Adviser nor any of its affiliates will receive any
brokerage business arising out of Portfolio transactions for the Fund. The
Fund paid brokerage commissions during the fiscal years ended July 31, 1999,
1998, and 1997 of $674,036, $686,081 and $306,430, respectively.
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.
21
<PAGE>
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 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 "Other 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 and 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 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. 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
Distribution Agreement is a "compensation type" plan, which means that the
Distributor may receive compensation that is more or less than the actual
expenditures made. Since the Distribution Agreement 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
22
<PAGE>
the Distributor is allocated among the Portfolios based on reflective net
asset size. 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, 1999, 1998 and 1997 of $983,702, $1,085,208, and
$880,476, respectively. During the fiscal year ended July 31, 1999, of the
aggregate amount of distribution fees paid to the Distributor, $293,153, was
paid to EquiTrust Marketing Services, LLC, an affiliate of the Distributor,
and the balance of $690,549, was retained by the Distributor. During the
fiscal year ended July 31, 1999, the Distributor incurred expenses in the
approximate amounts noted: $1,182,188 for commissions paid to Dealers for
Fund sales, $1,200,901 for management services, $125,421 for rent, $29,649
for telephone, $22,519 for postage, $43,745 for printing and office
supplies, and $73,544 for furniture and equipment.
During the fiscal years ended July 31, 1999, 1998 and 1997 the Distributor
received $296,670, $195,009, and $117,087, 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.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The portfolio turnover rates for the Portfolios are set forth under
"Financial Highlights" in the Prospectus. 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. Thus, the portfolio turnover
rate measures only that portion of the Portfolio that is considered to be
long-term. Portfolio 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 more than 30% 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 for that year 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 "Taxes."
- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
The following supplements the discussion in the Prospectus under the
headings "How to Buy Shares" and "How to Redeem Shares."
23
<PAGE>
Shares of each Portfolio are sold at their respective net asset value
("NAV") next determined after an order for purchase and payment are received
in proper form.
Shares of each Portfolio are redeemed at their respective NAV 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 (the "NYSE") is restricted as
determined by the Commission or such exchange is closed for trading (other
than customary weekend and holiday closing); (b) an emergency exists, as
determined by the Commission, as a result of which disposal of such
Portfolio's securities, or determination of the NAV 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 NAV 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 NAV.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The NAV per share of each Portfolio is determined as of the earlier of 3:00
p.m. (Central Time) or the close of the NYSE, on each day that (i) the NYSE
is open for business (except the day after Thanksgiving, the weekdays before
and after Christmas (in 1999), the weekday after New Year's Day (in 2000)
and any day on which the Fund's offices are closed because of a weather-
related or comparable type of emergency); and (ii) an order for purchase or
redemption of shares of the Portfolio is received. The NAV 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 NAV of a Portfolio
more frequently than once daily if deemed desirable. If the Fund's 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 that day, the Fund will price those orders and redemptions at
the NAV next determined for each Portfolio.
The following supplements the discussion in the Prospectus under the heading
"Other Information -- Net Asset Value."
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
The NAV 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.
24
<PAGE>
The purpose of the amortized cost method of valuation is to attempt to
maintain a constant NAV 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 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 believed 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 NAV 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
25
<PAGE>
respect to any two or more Portfolios are allocated in proportion to the
NAVs 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, payments with respect to
securities loans, and gains from the sale or other disposition of stock,
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
in 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, 1999 that qualified for the "dividends
received deduction" available to corporate shareholders was as follows:
100%, 5%, 32%, and 100% of the income dividends paid by the Value Growth,
High Yield Bond, Managed and Blue Chip Portfolios, respectively.
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
26
<PAGE>
long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares.
The discussion under "Distributions 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
- --------------------------------------------------------------------------------
The following supplements the discussion of dividends and distributions in
the Prospectus under the headings Distributions and Taxes -- Distributions."
MONEY MARKET PORTFOLIO
The Money Market Portfolio declares dividends of all its daily net
investment income on each day the Portfolio's NAV per share is determined.
Dividends are payable monthly and are automatically reinvested and
distributed on the last business day of each month.
Net investment income, for dividend purposes, consists of (i) accrued
interest income, plus or minus (ii) amortized purchase discount or premium,
plus or minus (iii) all short-term realized gains or losses and unrealized
appreciation or depreciation on portfolio assets, minus (iv) all accrued
expenses of the Portfolio. Expenses of the Portfolio are accrued daily. So
long as portfolio securities are valued at amortized cost, there will be no
unrealized appreciation or depreciation on such securities.
HIGH GRADE BOND AND HIGH YIELD BOND PORTFOLIOS
Each of these Portfolios declares dividends of all its investment income on
each day the Portfolio's NAV is determined. Dividends are automatically
reinvested and distributed on the last business day of each month. Any
short-term and long-term gains will be declared and distributed
periodically, but in no event less frequently than annually.
VALUE GROWTH, BLUE CHIP AND MANAGED PORTFOLIOS
It is the policy of the Value Growth and Blue Chip Portfolios to distribute
at least annually substantially all its net investment income, if any, and
any net realized capital gains. It is the policy of the Managed Portfolio to
distribute quarterly substantially all its net investment income, if any,
and to distribute substantially all net short-term and long-term gains at
least annually.
Both dividend and capital gain distributions will be made in shares of a
Portfolio unless a shareholder requests payment in cash.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise several types of performance
information for a Portfolio. Each Portfolio, except the Money Market
Portfolio, may advertise "average annual total
27
<PAGE>
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 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
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 NAV per share at the
end of the period (except for the Money Market Portfolio where the NAV per
share at the beginning of the period is used). Yield is an annualized
figure, meaning 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.
28
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE CALCULATION
A Portfolio's standardized average annual total return quotation is computed
in accordance with a method prescribed by rules of the Commission. The
standardized average annual total return for a Portfolio for a specified
period is determined by assuming a hypothetical $10,000 investment in the
Portfolio's shares on the first day of the period at the then effective NAV
per share ("initial investment"), and computing the ending redeemable value
("redeemable value") of that investment 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 table on page 31.
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 $10,000) in the Portfolio'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 total return percentage is
then determined by subtracting the initial investment from the ending value,
dividing the difference by the initial investment and expressing the result
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 table on page 32.
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 Commission. Based upon the 30-day period
ended July 31, 1999 the High Grade Bond Portfolio's yield was 5.38% and the
High Yield Bond Portfolio's yield was 5.50%. 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:
6
Yield = [(a-b +1) -1]
2 ----------------
cd
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
In computing yield, the Fund follows certain standardized accounting
practices specified by 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.
29
<PAGE>
The Money Market Portfolio's yield is computed in accordance with a standard
method prescribed by rules of the 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) for the
period is divided by the price per share (expected to remain constant at
$1.00) at the beginning of the period ("base period return"), the result is
divided by seven and multiplied by 365, and 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 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 power of 365/7] -1.
The Money Market Portfolio's yield and effective yield for the seven-day
period ending July 31, 1999 were 3.29% and 3.34%, respectively.
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 NAV, and return and NAV will fluctuate except that the Money
Market Portfolio seeks to maintain a $1.00 NAV per share. Factors affecting
a Portfolio's performance include general market conditions, operating
expenses and investment management. Shares of a Portfolio are redeemable at
NAV, 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.
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.
30
<PAGE>
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, 1999.
AVERAGE ANNUAL TOTAL RETURN TABLE FOR PERIOD ENDED JULY 31, 1999 - CLASS A
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL
AVERAGE ANNUAL TOTAL RETURN
PORTFOLIO TOTAL RETURN (1) UNADJUSTED (2)
<S> <C> <C>
Value Growth
10 years 7.57% 7.57%
5 years 3.84% 4.07%
1 year (10.58)% (7.46)%
High Grade Bond
10 years 7.02% 7.02%
5 years 5.80% 6.11%
1 year (3.93)% 1.07%
High Yield Bond
10 years 8.89% 8.89%
5 years 7.42% 7.72%
1 year (4.13)% 0.87%
Managed
10 years 8.18% 8.18%
5 years 6.16% 6.43%
1 year (10.05)% (6.26)%
Blue Chip
10 years 14.52% 14.52%
5 years 20.97% 21.15%
1 year 9.51% 14.51%
</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.
31
<PAGE>
TOTAL RETURN TABLE FOR PERIOD ENDED JULY 31, 1999 - CLASS A
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
PORTFOLIO TOTAL RETURN (1) UNADJUSTED (2)
<S> <C> <C>
Value Growth
10 years 107.02 % 107.02%
5 years 19.96 % 21.96%
1 year (10.58)% (7.46)%
High Grade Bond
10 years 97.02 % 97.02%
5 years 32.54 % 34.54%
1 year (3.93)% 1.07%
High Yield Bond
10 years 134.34 % 134.34%
5 years 43.01 % 45.01%
1 year (4.13)% 0.87%
Managed
10 years 120.29 % 120.29%
5 years 34.62 % 36.62%
1 year (10.05)% (6.26)%
Blue Chip
10 years 288.72 % 288.72%
5 years 159.28 % 161.28%
1 year 9.51 % 14.51%
</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.
- --------------------------------------------------------------------------------
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 per share.
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, Inc., its affiliates, and affiliated state Farm Bureau
Federations; (d) directors
32
<PAGE>
and trustees of the EquiTrust Mutual Funds; and (e) such other types of
accounts as EquiTrust 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.
- --------------------------------------------------------------------------------
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. 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. 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. 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. 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.
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.
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.
33
<PAGE>
As used in the Prospectus and in this SAI, 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).
- --------------------------------------------------------------------------------
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 ("Keoghs"). 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, 1999 received $199,835 for its
services, of which $60,064 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 September 15, 1999, Farm Bureau Life Insurance Company (a wholly owned
subsidiary of FBL Financial Group, Inc., an Iowa corporation) owned 54.45%
of the Money Market Portfolio, 12.52% of the High Yield Bond Portfolio, and
6.57% of the outstanding voting securities of the High Grade Bond Portfolio.
- --------------------------------------------------------------------------------
CUSTODIAN
Deutsche Bank, 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.
- --------------------------------------------------------------------------------
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
34
<PAGE>
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 the Adviser
pursuant to which the Adviser performs accounting services for the Fund. In
addition, the agreement provides that the Adviser shall calculate the Fund's
net asset value in accordance with the Fund's current Prospectus and shall
prepare, for Fund approval and use, various tax returns and other reports.
For such services, each Portfolio pays the Adviser 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, 1999, the aggregate amount of such fees paid to the
Adviser was $ .
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE, DIVIDEND DISBURSING AND TRANSFER AGENT
The Adviser 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 the Adviser 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, 1999, the aggregate amount of such fees paid to the
Adviser was $725,887, of which $379,379 was paid to DST.
- --------------------------------------------------------------------------------
LEGAL MATTERS
The firm of Vedder, Price, Kaufman & Kammholz, Chicago, Illinois, is counsel
for the Fund.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
The Fund's Prospectus and this SAI omit certain information contained in the
Registration Statement, which the Fund has filed with the Commission under the
1933 Act, and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. The
Registration Statement is available for inspection by the public at the
Commission in Washington, D.C.
- --------------------------------------------------------------------------------
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, 1999, were filed with the Commission
on September 22, 1999 and are incorporated by reference.
Shareholders will receive the Fund's audited annual report and the unaudited
semi-annual report. Additional copies of such reports may be obtained
without charge by contacting the Fund.
35
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A -- MONEY MARKET INSTRUMENTS
- --------------------------------------------------------------------------------
The Money Market Portfolio invests in money market instruments maturing in
13 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 the bank 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 the
savings and loan association 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:
1. rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs"); 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.
A-1
<PAGE>
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 1933 Act ("Section 4(2) paper") subject
to the above noted requirements with respect to ratings. Section 4(2) paper
is restricted as to disposition under the federal securities laws, and
generally is sold to an institutional investor such as the Fund, who agrees
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 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 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, are, at the time of
acquisition, rated AA/Aa or better by Standard & Poor's or Moody's and are:
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 "Investment Objectives, Policies and Techniques
-- Investment Strategies and Techniques -- Repurchase Agreements" in the
SAI.
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 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, 1999. 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 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 S&P PORTFOLIO BY GENERAL DEFINITION
MOODY'S RATING CATEGORY RATINGS RATING CATEGORY S&P RATINGS OF BOND
<S> <C> <C> <C> <C>
Aa............................ AA............................ High quality
A............................. 2.63% A............................. 7.27% Upper medium grade
Baa........................... 34.34 BBB........................... 29.70 Medium grade
Ba............................ 25.44 BB............................ 26.46 Lower medium grade
B............................. 24.22 B............................. 19.60 Speculative
Caa........................... CCC........................... 1.65 More speculative
Ca............................ D............................. Highly speculative
Not Rated..................... 0.68 Not Rated..................... 2.63 Not rated by Moody's or S&P
Cash and Other Assets......... 12.69 Cash and Other Assets......... 12.69
-------------- -------------
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 S&P PORTFOLIO BY GENERAL DEFINITION
MOODY'S RATING CATEGORY RATINGS RATING CATEGORY S&P RATINGS OF BOND
<S> <C> <C> <C> <C>
Aaa........................... 31.28% AAA........................... 31.28% Highest quality
Aa............................ 9.28 AA............................ 11.61 High quality
A............................. 32.74 A............................. 38.94 Upper medium grade
Baa........................... 15.65 BBB........................... 7.12 Medium grade
Ba............................ 2.04 BB............................ 2.04 Lower medium grade
Not rated..................... Not rated..................... Not rated by Moody's or S&P
Cash and Other Assets......... 9.01 Cash and Other Assets......... 9.01
-------------- -------------
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.
<TABLE>
<S> <C>
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 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, 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 only 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.
</TABLE>
C-1
<PAGE>
- --------------------------------------------------------------------------------
STANDARD & POOR'S
<TABLE>
<S> <C>
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.
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.
</TABLE>
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
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.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
- --------------------------------------------------------------------------------
STANDARD & POOR'S
<TABLE>
<S> <C>
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."
</TABLE>
C-3
<PAGE>
EQUITRUST SERIES FUND, INC.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S>
(a) (1) Articles of Incorporation (1)
(2) Articles of Amendment which became effective in 1977 and 1978 (1)
(3) Articles of Amendment which became effective on November 30, 1987 (1)
*(4) Articles Supplementary to the Charter which became effective on December 1, 1987
(5) Articles of Amendment which became effective on November 22, 1991 (1)
(6) Articles Supplementary to the Charter which became effective on November 25, 1991
(1)
(7) Articles Supplementary to the Charter which became effective on December 1, 1996
(2)
(8) Articles of Amendment which became effective on December 1, 1997 (3)
(9) Articles Supplementary to the Charter which became effective on December 1, 1997
(3)
(10) Articles of Amendment which became effective on May 1, 1998 (4)
(b) (1) By-laws, as amended (1)
(2) By-laws, as amended August 15, 1996 (2)
(c) Inapplicable
(d) (1) Investment Advisory and Management Services Agreement dated November 11, 1987 (1)
(2) Amendment to Management Fee Schedule dated December 1, 1996 (2)
(e) (1) Underwriting Agreement dated December 31, 1983 (1)
(2) Form of Dealer Agreement (3)
(3) Administrative Services Agreement dated November 25, 1991 (1)
(4) Administrative Services Agreement, as amended and restated as of December 1, 1997
(3)
(f) Inapplicable
(g) Custodian Agreement dated January 12, 1993 (1)
(h) (1) Fidelity Bond Joint Insureds Agreement (2)
(2) Joint Insureds D&O and E&O Agreement (1)
(3) Accounting Services Agreement (1)
(4) Shareholder Service, Dividend Distributing and Transfer Agent Agreement dated
September 1, 1995 (1)
*(i) Opinion of Vedder, Price, Kaufman & Kammholz
*(j) Consent of Ernst & Young LLP
(k) Inapplicable
(l) Inapplicable
(m) (1) Distribution and Shareholder Servicing Plan and Agreement dated as of December 1,
1987 (1)
(2) Distribution and Shareholder Servicing Plan and Agreement dated December 1, 1987,
as amended November 25, 1991 (1)
(3) Distribution Plan and Agreement, amended as of December 1, 1997 (3)
(n) Financial Data Schedules
(o) Multiple Class Plan adopted pursuant to Rule 18f-3. (3)
</TABLE>
- ------------------------
* Filed herewith
C-1
<PAGE>
(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. 34 to the
Registration Statement under the Securities Act of 1933 on Form N-1A filed
on November 25, 1997.
(4) Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement under the Securities Act of 1933 on Form N-1A filed
on November 25, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 25. 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 26. 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, and 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 and 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.
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
C-2
<PAGE>
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 27. PRINCIPAL UNDERWRITERS.
(a) EquiTrust Investment Management Services, Inc., the principal
underwriter for Registrant, also acts as the principal investment adviser,
underwriter and 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 28. 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 29. MANAGEMENT SERVICES.
Inapplicable.
ITEM 30. 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of West Des Moines and State of Iowa, on the 27th day of September 1999.
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
- ------------------------------ September 27, 1999
Edward M. Wiederstein President and Director (dated)
(Principal Executive
Officer)
/s/ RICHARD D. HARRIS
- ------------------------------ September 27, 1999
Richard D. Harris Senior Vice President, (dated)
Secretary-Treasurer and
Director (Principal
Financial and Accounting
Officer)
/s/ DONALD G. BARTLING
- ------------------------------ September 27, 1999
Donald G. Bartling* Director (dated)
/s/ JOHN R. GRAHAM
- ------------------------------ September 27, 1999
John R. Graham* Director (dated)
/s/ ERWIN H. JOHNSON
- ------------------------------ September 27, 1999
Erwin H. Johnson* Director (dated)
/s/ KENNETH KAY
- ------------------------------ September 27, 1999
Kenneth Kay* Director (dated)
/s/ CURTIS C. PIETZ
- ------------------------------ September 27, 1999
Curtis C. Pietz* Director (dated)
*By: /s/ STEPHEN M. MORAIN
-------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
PURSUANT TO
POWER OF ATTORNEY
C-4
<PAGE>
ARTICLES SUPPLEMENTARY TO THE
CHARTER OF
FBL SERIES FUND, INC.
FBL SERIES FUND, INC., a Maryland Corporation having its principal office in
Baltimore City, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland,
that:
FIRST: The name of the "Blue Chip Index Portfolio" one of eight classes
of shares, par value $.001 per share, of the Corporation, has been changed to
the "Blue Chip Portfolio," with the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption.
SECOND: The shares aforesaid have been duly reclassified by the board
of directors pursuant to authority and power contained in the charter of the
Corporation.
<PAGE>
IN WITNESS WHEREOF, FBL SERIES FIND, INC. has caused these presents to
be signed in its name and on its behalf by its President (or Vice-President)
and attested by its Secretary (or Assistant Secretary) this 1st day of
December, 1987.
FBL SERIES FUND, INC.
By: /s/ Walter L. Bishop, Jr.
------------------------
Walter L. Bishop, Jr.
Vice President, Chief Operating
Officer and Assistant General
Manager
ATTEST:
By: /s/ Dennis M. Marker
---------------------
Dennis M. Marker
Assistant Secretary
THE UNDERSIGNED, President (or Vice-President) of FBL SERIES FUND, INC.,
who executed on behalf of said corporation the foregoing Article Supplementary
to the Articles of Incorporation, as heretofore amended, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
By: /s/ Walter L. Bishop, Jr.
------------------------
Walter L. Bishop, Jr.
Vice President, Chief Operating
Officer and Assistant General
Manager
<PAGE>
September 29, 1999
EquiTrust Series Fund, Inc.
5400 University Avenue
West Des Moines, Iowa 50266-5997
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 36 to the Registration
Statement on Form N-1A under the Securities Act of 1933 being filed by
EquiTrust Series Fund, Inc., a Maryland Corporation (the "Fund") in connection
with the public offering from time to time of any or all of those five billion
authorized shares of common stock, par value $.001 per share ("Shares"), that
have been classified and designated as the Value Growth Portfolio, the Money
Market Portfolio, the High Grade Bond Portfolio, the High Yield Bond
Portfolio, the Blue Chip Portfolio, and the Managed Portfolio (each, a
"Portfolio" and collectively, the "Portfolios"). The Shares have been further
classified and designated as Traditional Shares and Institutional Shares
(each, a "Class" and collectively, the "Classes"), as follows: 625,000,000
have been further classified and designated as Value Growth Portfolio
Traditional Shares and 625,000,000 as Value Growth Portfolio Institutional
Shares; 312,500,000 as Money Market Portfolio Traditional Shares and
312,500,000 as Money Market Portfolio Institutional Shares; 625,000,000 as
High Grade Bond Portfolio Traditional Shares and 625,000,000 as High Grade
Bond Portfolio Institutional Shares; 312,500,000 as High Yield Bond Portfolio
Traditional Shares and 312,500,000 as High Yield Bond Portfolio Institutional
Shares; 312,500,000 as Blue Chip Portfolio Traditional Shares and 312,500,000
as Blue Chip Portfolio Institutional Shares; and 312,500,000 as Managed
Portfolio Traditional Shares and 312,500,000 as Managed Portfolio
Institutional Shares.
We are counsel to the Fund, and in such capacity are familiar with the
Fund's organization and have counseled the Fund regarding various legal matters.
We have examined such Fund records and other documents and certificates as we
have considered necessary or appropriate for the purposes of this opinion. In
our examination of such materials, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us.
Based upon the foregoing, and assuming that the Fund's, Articles of
Incorporation filed August 14, 1970, as amended by the Articles of Amendment
filed August 1, 1977, the Articles
<PAGE>
EquiTrust Series Fund, Inc.
September 29, 1999
Page 2
of Amendment filed July 24, 1978, the Articles of Amendment filed November 25,
1987, the Articles Supplementary filed December 1, 1987, the Articles of
Amendment filed November 25, 1991, the Articles Supplementary filed November
25, 1991, the Articles Supplementary filed November 22, 1996, the Articles
Supplementary filed December 1, 1997, the Articles of Amendment filed December
1, 1997, and the Articles of Amendment filed May 1, 1998 (collectively, the
"Articles"), were duly authorized by the Board of Directors of the Fund; that
the Fund's Bylaws, as amended June 1973, September 1974, January 1977, April
1978, April 1979, April 1980, November 1980, August 13, 1986, August 12, 1987,
November 11, 1987, and August 15, 1996 (the "Bylaws") were duly authorized by
the Board of Directors of the Fund; that the Articles of Transfer filed on
April 28, 1977 between Farm Bureau Mutual Fund, Inc. and Challenger Investment
Fund, Inc. were duly authorized by the Board of Directors of each party
thereto (the "Articles of Transfer"); that the Articles, Bylaws and Articles
of Transfer are presently in full force and effect and have not been amended
in any respect except as provided above; and that the resolutions adopted by
the Board of Directors of the Fund on the dates set forth on the attached
list, relating to organizational matters, securities matters, and the issuance
of shares are presently in full force and effect and have not been amended in
any respect, we advise you and opine that (a) the Fund is a corporation
validly existing under the laws of the State of Maryland and is authorized to
issue Shares in the Portfolios and Classes; and (b) presently and upon such
further issuance of the Shares in accordance with the Fund's Articles and the
receipt by the Fund of a purchase price not less than the net asset value per
Share, and when the pertinent provisions of the Securities Act of 1933 and
such "blue-sky" and securities laws as may be applicable have been complied
with, assuming that the Fund continues to validly exist as provided in (a)
above and assuming that the number of Shares issued by the Fund does not
exceed the number of Shares authorized for each Portfolio and each Class, the
Shares are and will be legally issued and outstanding, fully paid and
nonassessable.
This opinion is solely for the benefit of the Fund, the Fund's Board of
Directors and the Fund's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this opinion
in connection with said Post-Effective Amendment.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
COK/RJM/CAS
<PAGE>
EQUITRUST SERIES FUND, INC.
BOARD RESOLUTIONS REGARDING ORGANIZATIONAL AND SECURITIES MATTERS AND ISSUANCE
OF SHARES
DATE BOARD ACTION
---- ------------
8/12/99 Annual Blue Sky resolution; approve annual PEA
8/13/98 Annual Blue Sky resolution; approve annual PEA; authorize
issuance of Institutional Shares
8/14/97 Annual Blue Sky resolution; approve annual PEA
8/15/96 Annual Blue Sky resolution; approve annual PEA
8/17/95 Annual Blue Sky resolution; approve annual PEA
8/9/94 Annual Blue Sky resolution; approve annual PEA
8/12/93 Annual Blue Sky resolution; approve annual PEA
8/6/92 Annual Blue Sky resolution; approve annual PEA
8/15/91 Annual Blue Sky resolution; approve annual PEA; approve
Plan of Reorganization (eight portfolios reorganized into
6)
8/21/90 Annual Blue Sky resolution; approve annual PEA
8/16/89 Annual Blue Sky resolution; approve annual PEA
8/10/88 Annual Blue Sky resolution; approve annual PEA
8/12/87 Annual Blue Sky resolution; approve annual PEA
8/13/86 Annual Blue Sky resolution; approve annual PEA
8/7/85 Annual Blue Sky resolution; approve annual PEA
8/9/84 Annual Blue Sky resolution; approve annual PEA
8/11/83 Annual Blue Sky resolution; approve annual PEA
1/9/83 Ratify PEA No.16
8/12/82 Annual Blue Sky resolution; approve annual PEA
11/10/81 Authorize Blue Sky filings
<PAGE>
8/13/81 Annual Blue Sky resolution; approve annual PEA
8/5/80 Annual Blue Sky resolution; approve annual PEA
4/12/79 Annual Blue Sky resolution; approve annual PEA
4/6/78 Annual Blue Sky resolution; approve annual PEA
4/7/77 Annual Blue Sky resolution; approve annual PEA
4/8/76 Annual Blue Sky resolution; approve annual PEA
4/10/75 Annual Blue Sky resolution; approve annual PEA
4/4/74 Annual Blue Sky resolution; approve annual PEA
4/3/73 Annual Blue Sky resolution; approve annual PEA
3/9/72 Annual Blue Sky resolution; approve annual PEA
8/26/70 Organizational meeting
<PAGE>
[LOGO]
[LETTERHEAD]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" and "Additional Information" in the Prospectus, and "Financial
Highlights" in the Supplement to Prospectus, for EquiTrust Series Fund, Inc.
both in Part A, and "Other Information - Independent Auditors" in Part B and
to the incorporation by reference of our report dated August 27, 1999 on the
financial statements and financial highlights of EquiTrust Series Fund, Inc.
in Post Effective Amendment No. 36 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
September 27, 1999
