<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 33-12791
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 15 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 16 /X/
</TABLE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
(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:
STEPHEN E. ROTH
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
------------------------
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1998 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2) of Rule 485
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
------------------------
Title of Securities Being Registered: Shares of Beneficial Interest
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
<TABLE>
<CAPTION>
N-1A ITEM NO. CAPTION
- ------------------------------------------ -----------------------------------
<C> <S> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page......................... Cover Page
2. Synopsis........................... Not Applicable
3. Condensed Financial Information.... Financial Highlights
4. General Description of
Registrant........................ Investment Objectives and Policies
of the Portfolios; Organization of
the Fund
5. Management of the Fund............. Management of Fund
5.A. Management's Discussion of Fund
Performance....................... Not Applicable
6. Capital Stock and Other
Securities........................ General Information; Organization
of the Fund; Taxes and
Distributions
7. Purchase of Securities Being
Offered........................... Purchase of Shares
8. Redemption or Repurchase........... Redemption of Shares
9. Pending Legal Proceedings.......... General Information
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information and History.... Not Applicable
13. Investment Objectives and
Policies.......................... Investment Objectives, Policies and
Techniques
14. Management of the Registrant....... Officers and Trustees
15. Control Persons and Principal
Holders of Securities............. Control Persons
16. Investment Advisory and Other
Services.......................... Investment Adviser; Other
Information
17. Brokerage Allocation and Other
Practices......................... Portfolio Transactions and
Brokerage Commissions
18. Capital Stock and Other
Securities........................ Shareholder Voting Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered.......... Purchases and Redemption; Net Asset
Value
20. Tax Status......................... Taxes
21. Underwriters....................... Underwriting and Distribution
Expenses
22. Calculation of Yield Quotations of
Money Market Funds................ Performance Information
23. Financial Statements............... Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
i
<PAGE>
FARM BUREAU MUTUAL FUNDS
5400 University Avenue
West Des Moines, Iowa 50266
(515) 225-5586
- --------------------------------------------------------------------------------
EQUITRUST VARIABLE INSURANCE SERIES FUND
- --------------------------------------------------------------------------------
EquiTrust Variable Insurance Series Fund (formerly known as FBL Variable
Insurance Series Fund) (the "Fund") is an open-end, diversified management
investment company consisting of six Portfolios, each with its own investment
objectives and policies. For most purposes, each Portfolio operates like a
separate mutual fund issuing its own shares.
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Managed Portfolio
Money Market Portfolio
Blue Chip Portfolio
Shares of the Fund are sold only to certain life insurance companies' separate
accounts to fund the benefits under variable life insurance policies and
variable annuity contracts issued by such life insurance companies.
THE HIGH YIELD BOND PORTFOLIO INVESTS PRIMARILY IN LOWER-RATED BONDS, COMMONLY
REFERRED TO AS "JUNK BONDS," WHICH ENTAIL DEFAULT AND OTHER RISKS GREATER THAN
THOSE ASSOCIATED WITH HIGHER-RATED SECURITIES. PURCHASERS SHOULD CAREFULLY
ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PORTFOLIO. SEE
"INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS--HIGH YIELD BOND
PORTFOLIO," P. 13 AND "PRINCIPAL RISK FACTORS--SPECIAL CONSIDERATIONS--HIGH
YIELD BONDS," P. 16.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information about the Fund that a prospective applicant
should know before purchasing certain variable life insurance policies and
variable annuity contracts offered by Participating Insurance Companies. Please
read it carefully and retain it for future reference. A Statement of Additional
Information for the Fund, dated May 1, 1998, has been filed with Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available upon request and without charge from the
Fund by writing or calling the Fund at the address or telephone number set forth
above.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR A VARIABLE LIFE
INSURANCE POLICY OR VARIABLE ANNUITY CONTRACT ISSUED BY A PARTICIPATING
INSURANCE COMPANY. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
in connection with the offer contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Adviser or the Distributor. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, the securities of the Fund in any jurisdiction in which such sale, offer
to sell, or solicitation may not be lawfully made.
PROSPECTUS DATED MAY 1, 1998.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
SUMMARY.................................................................... 3
The Fund............................................................ 3
Investment Objectives............................................... 3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS....................................................... 5
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS....................... 11
Value Growth Portfolio.............................................. 11
High Grade Bond Portfolio........................................... 12
High Yield Bond Portfolio........................................... 13
Managed Portfolio................................................... 14
Money Market Portfolio.............................................. 14
Blue Chip Portfolio................................................. 15
- --------------------------------------------------------------------------------
PRINCIPAL RISK FACTORS..................................................... 15
Special Considerations--High Yield Bonds............................ 16
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN INVESTMENT TECHNIQUES............................... 19
Foreign Securities.................................................. 19
When-Issued and Delayed Delivery Transactions....................... 19
Loans of Portfolio Securities....................................... 20
Covered Call Options................................................ 20
Repurchase Agreements............................................... 20
Investments in Capital Securities................................... 21
- --------------------------------------------------------------------------------
PURCHASE OF SHARES......................................................... 21
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES....................................................... 22
- --------------------------------------------------------------------------------
NET ASSET VALUE INFORMATION................................................ 22
Money Market Portfolio.............................................. 22
Other Portfolios.................................................... 22
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION.................................................... 23
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND..................................................... 24
Board of Trustees................................................... 24
Investment Adviser.................................................. 24
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS..................................................... 26
- --------------------------------------------------------------------------------
TAXES AND DISTRIBUTIONS.................................................... 26
- --------------------------------------------------------------------------------
ORGANIZATION OF THE FUND................................................... 27
- --------------------------------------------------------------------------------
GENERAL INFORMATION........................................................ 28
Reports to Policyowners and Contract Holders........................ 28
Shareholder Inquiries............................................... 28
Shareholder Voting Rights........................................... 28
Distributor and Dividend Disbursing and Transfer Agent.............. 28
Accounting Services................................................. 28
Registration Statement.............................................. 28
Legal Matters....................................................... 29
- --------------------------------------------------------------------------------
APPENDIX A................................................................. A-1
- --------------------------------------------------------------------------------
APPENDIX B................................................................. B-1
- --------------------------------------------------------------------------------
APPENDIX C................................................................. C-1
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
THE FUND
EquiTrust Variable Insurance Series Fund (formerly known
as FBL Variable Insurance Series Fund) (the "Fund") was
established as a Massachusetts Business Trust under a
Declaration of Trust dated November 3, 1986. The Fund is
an open-end, diversified management investment company
registered under the Investment Company Act of 1940 (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 Trustees of the Fund (the
"Board of Trustees") may provide for additional
Portfolios at any time.
Other than shares sold to Farm Bureau Life Insurance
Company to seed the Fund, shares of the Fund are offered
only to separate accounts of certain life insurance
companies ("Participating Insurance Companies") to fund
variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies") issued by such
life insurance companies. The Fund currently does not
foresee any disadvantages to the holders of VA contracts
and VLI policies arising from the fact that the interests
of the holders of such contracts and policies may differ.
Nevertheless, the Board of Trustees intends to monitor
events in order to identify any material irreconcilable
conflicts that possibly may arise and to determine what
action, if any, should be taken in response to those
events or conflicts. Farm Bureau Life Insurance Company
will purchase shares of the Fund to serve as the
underlying investment for VLI policies and VA contracts.
The VA contracts and VLI policies are described in the
separate prospectuses for the contracts and policies
issued by the Participating Insurance Companies. The Fund
assumes no responsibility for such prospectuses.
Individual VA contract holders and VLI policyowners are
not "shareholders" of the Fund. Rather, the Participating
Insurance Companies and their separate accounts are the
shareholders (the "Shareholders"), although such
companies pass through voting rights to their VA contract
holders and VLI policyowners. The interest of a contract
holder or policyowner in the Fund is described in his or
her VA contract or VLI policy and in the current
prospectus for such contract or policy.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The Fund currently offers a choice of six investment
Portfolios, having the following investment objectives:
VALUE GROWTH PORTFOLIO. This Portfolio seeks long-term
capital appreciation. The Portfolio pursues this
objective by investing primarily in equity securities of
companies that the investment adviser believes have a
potential to earn a high return on capital and/or in
equity securities that the investment adviser believes
are undervalued by the market place. Such equity
securities may include common stock, preferred stock and
securities convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as high
a level of current income as is consistent with
investment in a high grade portfolio of debt securities.
The Portfolio pursues this objective by investing
primarily in debt securities rated AAA, AA or A by
Standard & Poor's or Aaa, Aa or A by Moody's Investors
Service, Inc. and in debt securities issued or guaranteed
by the U.S. Government or its agencies or
instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a
primary objective, as high a level of current income as
is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories of
established rating services. As a secondary objective,
the Portfolio seeks capital appreciation when consistent
with its primary objective. The Portfolio pursues these
objectives by investing primarily in fixed-income
securities rated Baa or lower by Moody's Investors
Service, Inc. and/or BBB or lower by Standard & Poor's,
or unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK.
3
<PAGE>
MANAGED PORTFOLIO. This Portfolio seeks the highest
total investment return of income and capital
appreciation. The Portfolio will pursue this objective
through a fully managed investment policy consisting of
investment in the following three market sectors: (i)
growth common stocks and securities convertible or
exchangeable into growth common stocks, including
warrants and rights; (ii) high grade debt securities and
preferred stocks of the type in which the High Grade Bond
Portfolio may invest; and (iii) high quality short-term
money market instruments of the type in which the Money
Market Portfolio may invest.
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and stability
of principal. The Portfolio will pursue this objective by
investing in high quality short-term money market
instruments. AN INVESTMENT IN THE MONEY MARKET PORTFOLIO
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this objective
by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular stocks or
industries, an investment in this Portfolio may entail
relatively greater risk of loss.
There can be no assurance that the objectives of any
Portfolio will be realized. During periods when the
Adviser believes that the equity market is overvalued, or
when warranted by other prevailing market or economic
conditions, the Value Growth Portfolio may hold
substantial amounts of non-equity investments. For
further information regarding the investment practices of
the Portfolios, see "Investment Objectives and Policies
of the Portfolios." For further information regarding the
principal risk factors associated with investment in any
of the Fund's Portfolios, see "Principal Risk Factors."
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The condensed financial information set forth below and
on the following pages has been derived from the
financial statements and financial highlights of the
Fund, of which the last five years have been audited by
Ernst & Young LLP, independent auditors, as set forth in
their report dated January 27, 1998. These tables should
be read in conjunction with the financial statements and
notes thereto included in the Annual Report of
Shareholders, which financial statements and notes are
incorporated herein by reference.
Selected data for a share of beneficial interest
outstanding throughout each year:
<TABLE>
<CAPTION>
VALUE GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 13.13 $ 12.31 $ 10.39 $ 11.52 $ 10.05 $ 9.55 $ 8.65 $ 8.76 $ 8.34 $ 7.66
Income from Investment
Operations
Net investment income..... 0.28 0.35 0.55 0.48 0.63 0.46 0.51 0.52 0.50 0.37
Net gains or losses on
securities (both realized
and unrealized).......... 0.55 1.82 2.13 (0.99) 2.10 0.54 0.75 (0.11) 0.42 0.68
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 0.83 2.17 2.68 (0.51) 2.73 1.00 1.26 0.41 0.92 1.05
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.28) (0.30) (0.50) (0.36) (0.57) (0.50) (0.36) (0.52) (0.50) (0.37)
Distributions (from
capital gains)........... (0.95) (1.05) (0.26) (0.11) (0.69)
Distributions in excess of
net realized gains....... (0.15) (0.15)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (1.38) (1.35) (0.76) (0.62) (1.26) (0.50) (0.36) (0.52) (0.50) (0.37)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 12.58 $ 13.13 $ 12.31 $ 10.39 $ 11.52 $ 10.05 $ 9.55 $ 8.65 $ 8.76 $ 8.34
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(1)........................ 6.30% 17.65% 25.87% -4.43% 27.20% 10.46% 14.53% 4.65% 11.13% 13.65%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $40,466 $27,188 $16,295 $10,603 $ 4,730 $ 3,017 $ 3,663 $ 2,166 $ 2,007 $ 1,805
Ratio of net expenses to
average net assets......... 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.58% 0.96% 1.09% 1.22%
Ratio of net income to
average net assets......... 2.43% 2.68% 4.78% 4.35% 5.41% 4.54% 5.23% 5.91% 5.69% 4.36%
Portfolio turnover rate..... 118% 72% 98% 78% 81% 88% 117% 115% 89% 109%
Average commission rate per
share (2).................. $0.0512 $0.0536
Information assuming no
voluntary reimbursement or
waiver by EquiTrust
Investment Management
Services, Inc. of excess
operating expenses:
Per share net investment
income..................... $ 0.27 $ 0.33 $ 0.53 $ 0.46 $ 0.59 $ 0.41 $ 0.46
Ratio of expenses to average
net assets................. 0.58% 0.69% 0.72% 0.77% 0.89% 1.09% 1.07%
Amount reimbursed........... $14,093 $29,686 $22,306 $16,706 $13,353 $17,373 $12,733
</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.
(2) Average commission rate per share disclosure is not required for fiscal
years prior to December 31, 1996.
5
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND PORTFOLIO
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 9.83 $ 9.98 $ 9.44 $ 10.23 $ 10.14 $ 10.15 $ 9.52 $ 9.56 $ 9.23 $ 9.41
Income from Investment
Operations
Net investment income..... 0.69 0.72 0.77 0.76 0.77 0.83 0.86 0.84 0.84 0.84
Net gains or losses on
securities (both realized
and
unrealized).............. 0.28 (0.15) 0.54 (0.79) 0.09 (0.01) 0.63 (0.04) 0.33 (0.18)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 0.97 0.57 1.31 (0.03) 0.86 0.82 1.49 0.80 1.17 0.66
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.69) (0.72) (0.77) (0.76) (0.77) (0.83) (0.86) (0.84) (0.84) (0.84)
Distributions (from
capital gains)...........
Distributions in excess of
net realized gains.......
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (0.69) (0.72) (0.77) (0.76) (0.77) (0.83) (0.86) (0.84) (0.84) (0.84)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 10.11 $ 9.83 $ 9.98 $ 9.44 $ 10.23 $ 10.14 $ 10.15 $ 9.52 $ 9.56 $ 9.23
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(1)........................ 10.24% 5.94% 14.26% -0.26% 8.74% 8.40% 16.42% 8.85% 12.74% 13.87%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $ 5,374 $ 3,535 $ 3,208 $ 2,452 $ 2,349 $ 3,704 $ 3,659 $ 3,287 $ 3,014 $ 2,672
Ratio of net expenses to
average net assets......... 0.52% 0.55% 0.55% 0.55% 0.55% 0.55% 0.43% 0.71% 0.71% 0.71%
Ratio of net income to
average net assets......... 6.94% 7.22% 7.81% 7.76% 7.58% 8.19% 8.82% 8.88% 8.56% 8.62%
Portfolio turnover rate..... 31% 32% 14% 15% 38% 16% 38% 69% 70% 12%
Information assuming no
voluntary reimbursement or
waiver by EquiTrust
Investment Management
Services, Inc. of excess
operating expenses:
Per share net investment
income..................... $ 0.68 $ 0.70 $ 0.74 $ 0.73 $ 0.76 $ 0.80 $ 0.83
Ratio of expenses to average
net assets................. 0.57% 0.80% 0.84% 0.80% 0.72% 0.79% 0.73%
Amount reimbursed........... $ 2,294 $ 8,233 $ 8,255 $ 6,207 $ 5,343 $ 9,004 $10,458
</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.
6
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD BOND PORTFOLIO
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 9.91 $ 9.69 $ 9.32 $ 10.44 $ 9.92 $ 9.65 $ 8.47 $ 9.44 $ 9.81 $ 9.76
Income from Investment
Operations
Net investment income..... 0.79 0.84 0.87 0.91 0.95 0.98 1.04 1.03 1.14 1.13
Net gains or losses on
securities (both realized
and
unrealized).............. 0.36 0.33 0.49 (1.01) 0.58 0.27 1.18 (0.97) (0.35) 0.03
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 1.15 1.17 1.36 (0.10) 1.53 1.25 2.22 0.06 0.79 1.16
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.79) (0.84) (0.87) (0.91) (0.95) (0.98) (1.04) (1.03) (1.16) (1.11)
Distributions (from
capital gains)........... (0.06) (0.11) (0.12) (0.11) (0.06)
Distributions in excess of
net realized gains.......
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (0.85) (0.95) (0.99) (1.02) (1.01) (0.98) (1.04) (1.03) (1.16) (1.11)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 10.21 $ 9.91 $ 9.69 $ 9.32 $ 10.44 $ 9.92 $ 9.65 $ 8.47 $ 9.44 $ 9.81
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(1)........................ 12.07% 12.65% 15.15% -1.01% 15.05% 13.39% 27.49% 0.67% 8.08% 11.93%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $ 8,623 $ 5,929 $ 4,810 $ 4,172 $ 4,536 $ 4,015 $ 3,965 $ 3,165 $ 3,134 $ 2,900
Ratio of net expenses to
average net assets......... 0.57% 0.55% 0.55% 0.55% 0.55% 0.55% 0.43% 0.91% 0.94% 0.96%
Ratio of net income to
average net assets......... 7.74% 8.47% 8.96% 9.17% 9.25% 9.88% 11.32% 11.40% 11.18% 10.89%
Portfolio turnover rate..... 35% 30% 32% 10% 58% 35% 76% 49% 98% 50%
Information assuming no
voluntary reimbursement or
waiver by EquiTrust
Investment Management
Services, Inc. of excess
operating expenses:
Per share net investment
income..................... $ 0.78 $ 0.81 $ 0.84 $ 0.88 $ 0.92 $ 0.88 $ 0.99
Ratio of expenses to average
net assets................. 0.65% 0.87% 0.88% 0.84% 0.85% 0.99% 0.93%
Amount reimbursed........... $ 5,819 $17,094 $15,105 $12,667 $12,872 $17,310 $18,111
</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.
7
<PAGE>
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 12.40 $ 11.71 $ 9.93 $ 11.33 $ 10.06 $ 9.27 $ 8.99 $ 8.97 $ 8.87 $ 8.83
Income from Investment
Operations
Net investment income..... 0.53 0.60 0.65 0.66 0.72 0.69 0.75 0.71 0.68 0.65
Net gains or losses on
securities (both realized
and unrealized).......... 0.79 1.44 1.90 (1.22) 1.57 0.77 0.39 0.02 0.10 0.05
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 1.32 2.04 2.55 (0.56) 2.29 1.46 1.14 0.73 0.78 0.70
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.52) (0.50) (0.59) (0.54) (0.63) (0.67) (0.86) (0.71) (0.68) (0.66)
Distributions (from
capital gains)........... (0.65) (0.85) (0.18) (0.23) (0.39)
Distributions in excess of
net realized gains....... (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (1.17) (1.35) (0.77) (0.84) (1.02) (0.67) (0.86) (0.71) (0.68) (0.66)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 12.55 $ 12.40 $ 11.71 $ 9.93 $ 11.33 $ 10.06 $ 9.27 $ 8.99 $ 8.97 $ 8.87
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(1)........................ 10.67% 17.39% 25.69% -4.96% 22.71% 15.72% 12.69% 8.15% 8.86% 7.94%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $44,949 $26,022 $14,487 $ 9,758 $ 4,951 $ 3,019 $ 2,633 $ 2,964 $ 2,728 $ 2,506
Ratio of net expenses to
average net assets......... 0.54% 0.55% 0.55% 0.55% 0.55% 0.55% 0.47% 0.97% 0.96% 1.03%
Ratio of net income to
average net assets......... 4.94% 4.73% 5.80% 6.23% 6.23% 7.00% 7.97% 7.68% 7.36% 7.02%
Portfolio turnover rate..... 52% 82% 48% 59% 59% 60% 40% 83% 44% 101%
Average commission rate per
share (2).................. $0.0557 $0.0534
Information assuming no
voluntary reimbursement or
waiver by EquiTrust
Investment Management
Services, Inc. of excess
operating expenses:
Per share net investment
income..................... $ 0.52 $ 0.57 $ 0.62 $ 0.63 $ 0.67 $ 0.64 $ 0.69
Ratio of expenses to average
net assets................. 0.60% 0.75% 0.77% 0.80% 0.91% 1.13% 1.03%
Amount reimbursed........... $17,771 $38,874 $26,008 $19,147 $15,076 $16,480 $17,024
</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.
(2) Average commission rate per share disclosure is not required for fiscal
years prior to December 31, 1996.
8
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
YEAR ENDED DECEMBER 31 (EXCEPT AS INDICATED),
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 (1)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations
Net investment income..... 0.05 0.05 0.05 0.04 0.03 0.03 0.05 0.06
Net gains or losses on
securities (both realized
and unrealized)..........
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 0.05 0.05 0.05 0.04 0.03 0.03 0.05 0.06
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.05) (0.05) (0.05) (0.04) (0.03) (0.03) (0.05) (0.06)
Distributions (from
capital gains)...........
Distributions in excess of
net realized gains.......
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (0.05) (0.05) (0.05) (0.04) (0.03) (0.03) (0.05) (0.06)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(2)........................ 5.07% 4.90% 5.47% 3.68% 2.68% 3.28% 5.77% 7.50%(3)
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $ 6,078 $ 3,819 $ 3,159 $ 2,658 $ 2,300 $ 2,530 $ 2,798 $ 2,665
Ratio of net expenses to
average net assets......... 0.48% 0.55% 0.55% 0.55% 0.55% 0.55% 0.48% 0.75%(3)
Ratio of net income to
average net assets......... 4.65% 4.58% 5.27% 3.63% 2.65% 3.30% 5.60% 7.22%(3)
Portfolio turnover rate..... 0% 0% 0% 0% 0% 0% 0% 0%(3)
Information assuming no
voluntary reimbursement or
waiver by
EquiTrust Investment
Management Services, Inc. of
excess
operating expenses:
Per share net investment
income..................... $ 0.05 $ 0.04 $ 0.05 $ 0.04 $ 0.02 $ 0.03 $ 0.05
Ratio of expenses to average
net assets................. 0.55% 0.82% 0.90% 0.82% 0.79% 0.93% 0.78%
Amount reimbursed........... $ 2,912 $ 9,569 $ 9,816 $ 7,157 $ 5,838 $10,168 $ 8,232
</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) Period from February 20, 1990, date shares first registered and operations
commenced, through December 31, 1990.
(2) 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.
(3) Computed on an annualized basis.
9
<PAGE>
<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
YEAR ENDED DECEMBER 31 (EXCEPT AS INDICATED),
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 (1)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 24.68 $ 20.70 $ 15.82 $ 15.67 $ 13.96 $ 12.91 $ 10.51 $ 9.64
Income from Investment
Operations
Net investment income..... 0.42 0.45 0.39 0.34 0.29 0.29 0.31 0.09
Net gains or losses on
securities (both realized
and unrealized).......... 6.34 3.99 4.80 0.07 1.72 1.05 2.65 0.88
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 6.76 4.44 5.19 0.41 2.01 1.34 2.96 0.97
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.42) (0.34) (0.31) (0.26) (0.30) (0.29) (0.31) (0.10)
Distributions (from
capital gains)........... (0.01) (0.12) (0.25)
Distributions in excess of
net realized gains.......
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (0.43) (0.46) (0.31) (0.26) (0.30) (0.29) (0.56) (0.10)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year......................... $ 31.01 $ 24.68 $ 20.70 $ 15.82 $ 15.67 $ 13.96 $ 12.91 $ 10.51
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Return:
Total investment return
based on net asset value
(2)........................ 27.41% 21.43% 32.81% 2.65% 14.36% 10.38% 28.20% 56.93%(4)
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted)............ $31,865 $14,493 $ 6,665 $ 3,262 $ 1,654 $ 1,502 $ 1,352 $ 1,061
Ratio of net expenses to
average net assets......... 0.33% 0.48% 0.55% 0.55% 0.55% 0.55% 0.71% 0.54%(4)
Ratio of net income to
average net assets......... 1.83% 1.92% 2.07% 2.19% 1.92% 2.13% 2.57% 4.22%(4)
Portfolio turnover rate..... 3% 2% 1% 0% 0% 0% 7% 0%(4)
Average commission rate per
share (3).................. $0.0353 $0.0825
Information assuming no
voluntary reimbursement or
waiver by
EquiTrust Investment
Management Services, Inc. of
excess
operating expenses:
Per share net investment
income..................... $ 0.38 $ 0.30 $ 0.24 $ 0.22 $ 0.29
Ratio of expenses to average
net assets................. 0.59% 0.81% 0.89% 1.06% 0.91%
Amount reimbursed........... $ 1,952 $ 6,360 $ 5,495 $ 7,320 $ 2,556
</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) Period from October 15, 1990, date shares first registered and operations
commenced, through December 31, 1990. Net investment income aggregating
$0.01 per share, for the period from the initial purchase of shares on
October 9, 1990 through October 14, 1990, was recognized, none of which was
distributed during the period. Additionally, the Portfolio incurred net
unrealized losses of $0.37 per share during this interim period. This
represented activities of the Portfolio prior to the initial registration of
the portfolio shares.
(2) 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.
(3) Average commission rate per share disclosure is not required for fiscal
years prior to December 31, 1996.
(4) Computed on an annualized basis.
10
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
Each Portfolio of the Fund has distinct investment
objectives which it pursues through separate investment
policies as described below. There can be no assurance
that the objectives of any Portfolio will be achieved.
The differences in objectives and policies among the
Portfolios can be expected to affect the return of each
Portfolio and the degree of market and financial risk to
which each Portfolio is subject.
The Statement of Additional Information contains specific
investment restrictions which govern the Portfolios'
investments. Those restrictions which are identified as
fundamental policies, as well as the investment
objectives and investment policies of each Portfolio
described below in the first paragraph for each Portfolio
are fundamental policies, may not be changed without a
majority vote of the outstanding shares of the affected
Portfolio. See "General Information--Shareholder Voting
Rights." All other investment policies and practices
described in this Prospectus and in the Statement of
Additional Information are not fundamental and may be
changed by the Board of Trustees without approval of the
Shareholders. Each of the Portfolios may engage in
certain of the portfolio strategies described in this
Prospectus under "Description of Certain Investment
Techniques" and in the Statement of Additional
Information. "Appendix C -- Description of Corporate Bond
Ratings" describes the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's that are
referred to herein.
The portfolio turnover rates for the Portfolios are set
forth under "Financial Highlights." 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 and Distributions."
Following is a description of the investment objectives
and certain of the investment practices of each of the
Fund's Portfolios. For a further description of the
investment practices of the various Portfolios, see
"Description of Certain Investment Techniques."
- --------------------------------------------------------------------------------
VALUE GROWTH
PORTFOLIO
The investment objective of the Value Growth Portfolio is
long-term capital appreciation. The Portfolio pursues its
investment objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
capital and/or in equity securities that the investment
adviser believes are undervalued by the market place.
Such equity securities may include common stock,
preferred stock and securities convertible or
exchangeable into common stock.
The Value Growth Portfolio may invest in securities of
companies in cyclical industries during periods when such
securities appear to the investment adviser to have
strong potential for capital appreciation. The Portfolio
may also invest in "special situation" companies. A
"special situation" company is one that, in the opinion
of the Fund's
11
<PAGE>
investment adviser, has potential for significant future
earnings growth but has not performed well in the recent
past. These situations may include companies with
management turnaround, corporate or asset restructuring
or significantly undervalued assets.
The investment adviser's strategy for the Value Growth
Portfolio is based upon a value-oriented analysis of
common stocks. Such an analysis focuses upon evaluations
of key financial ratios such as stock price-to-book
value, stock price-to-earnings, stock price-to-cash flow
and debt-to-total capital. The investment adviser
attempts to determine the fundamental value of an
enterprise using the foregoing ratios and by evaluating
an enterprise's balance sheet (e.g., comparing the
enterprise's assets with the purchase price of similar
recently acquired assets) as well as by using dividend
discounting models.
The investment adviser's emphasis on fundamental analysis
of each company's prospects and the inherent value of its
securities may result in a portion of the Portfolio being
invested in medium- or smaller-sized companies that are
less readily identifiable than larger, better-known
companies or in companies that are not perceived as being
popular investments at a given time. The Adviser believes
that opportunities can be found at all size levels and,
therefore, the Portfolio may invest in companies of all
sizes.
When warranted, in the opinion of the investment adviser,
by prevailing market or economic conditions, the
Portfolio, for temporary defensive purposes, may invest
up to 100% of its assets in other types of securities,
including investment-grade commercial paper, corporate
bonds, debentures, preferred stocks, obligations of banks
and savings institutions, U.S. Government securities,
government agency securities and repurchase agreements,
or it may retain funds in cash. "Investment-grade
commercial paper" is commercial paper rated A-2 or better
by Standard & Poor's or Prime-2 or better by Moody's.
Through careful selection of individual securities,
diversification of investments by industry and by type of
security and constant supervision of the investment
portfolio, the investment adviser strives to reduce risk
and thereby conserve principal. However, the Portfolio's
investments are subject to market fluctuations and the
risks inherent in all securities, and thus there can be
no assurance that its investment objectives will be
achieved.
- --------------------------------------------------------------------------------
HIGH GRADE BOND
PORTFOLIO
The investment objective of the High Grade Bond Portfolio
is to provide as high a level of current income as is
consistent with investment in a high grade portfolio of
debt securities. The Portfolio pursues its objective by
investing primarily in debt securities rated AAA, AA or A
by Standard & Poor's or Aaa, Aa or A by Moody's and in
U.S. Government securities and government agency
securities.
From time to time, up to 20% of the Portfolio's assets
may be invested in unrated debt securities or debt
securities which are not rated within the three highest
grades of Standard & Poor's or Moody's as described above
or in convertible debt securities, convertible preferred
stocks and nonconvertible preferred stocks rated within
the three highest grades of Standard & Poor's or Moody's
applicable to such securities. To the extent that the
Portfolio does invest in debt securities that are rated
lower than A by Moody's or Standard & Poor's (or are
unrated but equivalent in quality to such securities),
the Fund's investment portfolio will be subject to
relatively greater risk of loss of income and principal
as discussed under "Principal Risk Factors--Special
Considerations--High Yield Bonds." Securities rated Baa
or lower by Moody's and BBB or lower by Standard & Poor's
are considered by those rating agencies to have varying
degrees of speculative characteristics. Consequently,
although they can be expected to provide higher yields,
such securities may be subject to greater market
fluctuations and risk of loss of income and principal
than lower-yielding, higher-rated fixed-income
securities. It is intended that at least 65% of the
Portfolio's total assets will be invested in medium- and
long-term debt securities that are rated A or better or
that are unrated but of equivalent quality.
12
<PAGE>
The Portfolio will not directly purchase common stocks.
However, it may retain up to 10% of the value of its
assets in common stocks acquired either by conversion of
debt securities or by the exercise of warrants attached
to debt securities.
When warranted, in the opinion of the investment adviser,
by prevailing market or economic conditions, the
Portfolio for temporary defensive purposes may invest up
to 100% of its assets in other types of securities,
including investment-grade commercial paper, obligations
of banks and savings institutions, U.S. Government
securities, government agency securities and repurchase
agreements, or it may retain funds in cash.
Although in the opinion of the Fund's investment adviser,
the risk of loss of principal should be minimized by the
quality of the investments in which the Portfolio will
invest primarily, the long maturities that typically
provide the best yields may subject the Portfolio to
substantial price changes resulting from market yield
fluctuations. The market price of fixed-income securities
such as those purchased by the Portfolio is affected by
changes in interest rates; generally, the market value of
fixed income securities will fall as interest rates rise,
and will rise as interest rates fall. There can be no
assurance that the Portfolio will achieve its objective.
- --------------------------------------------------------------------------------
HIGH YIELD BOND
PORTFOLIO
The primary investment objective of the High Yield Bond
Portfolio is to obtain as high a level of current income
as is consistent with investment in a portfolio of fixed-
income securities rated in the lower categories of
established rating services. As a secondary objective,
the Portfolio seeks capital appreciation when consistent
with its primary objective. The Portfolio pursues its
investment objectives by investing primarily in
fixed-income securities, including corporate bonds and
notes, convertible debt securities and preferred stocks
that are rated in the lower categories of established
rating services (Ba or lower by Moody's and BB or lower
by Standard & Poor's), or in unrated securities of
comparable quality. Such securities are commonly known as
"junk bonds."
Securities rated Ba or lower by Moody's and BB or lower
by Standard & Poor's are considered by those rating
services to have varying degrees of speculative
characteristics. Consequently, although they can be
expected to provide higher yields, such securities may be
subject to greater market fluctuations and risk of loss
of income and principal than lower-yielding,
higher-rated, fixed-income securities. See "Principal
Risk Factors -- Special Considerations -- High Yield
Bonds" for a discussion of various risk factors relating
to high yield bonds. The investment adviser will not rely
solely on the ratings assigned by the rating services,
and the Portfolio may invest, without limit, in unrated
securities if such securities offer, in the opinion of
the investment adviser, a relatively high yield without
undue risk. Although the Portfolio will invest primarily
in lower-rated securities, it will not invest in
securities in the lowest rating categories (Ca or lower
for Moody's and CC or lower for Standard & Poor's) unless
the investment adviser believes that the financial
condition of the issuer or the protection afforded to the
particular securities is stronger than would otherwise be
indicated by such low ratings.
The Portfolio anticipates that under normal circumstances
more than 80% of its assets will be invested in
fixed-income securities, including convertible and
non-convertible debt securities and preferred stock, and
that at least 65% of its assets will be invested in debt
securities. The remaining assets of the Portfolio may be
held in cash or investment-grade commercial paper,
obligations of banks and savings institutions, U.S.
Government securities, government agency securities and
repurchase agreements. The Portfolio does not intend to
invest in common stocks, rights or other equity
securities, but it may acquire or hold such securities
(if consistent with its objectives) when they are
acquired in unit offerings with fixed-income securities
or in connection with an actual or proposed conversion or
exchange of fixed-income securities.
When changing economic conditions and other factors cause
the yield difference between lower-rated and higher-rated
securities to narrow, the Portfolio may
13
<PAGE>
purchase higher-rated securities if the investment
adviser believes that the risk of loss of income and
principal may be substantially reduced with only a
relatively small reduction in yield. In addition, when
warranted, in the opinion of the investment adviser, by
prevailing market or economic conditions, the Portfolio
for temporary defensive purposes may invest up to 100% of
its assets in other types of securities, including
investment-grade commercial paper, obligations of banks
and savings institutions, U.S. Government securities,
government agency securities and repurchase agreements,
or it may retain funds in cash. The yield on such
securities may be lower than the yield on lower-rated
fixed-income securities.
Because an investment in high-yield securities entails
relatively greater risk of loss of income and principal,
an investment in the Portfolio may not constitute a
complete investment program and may not be appropriate
for all investors. There can be no assurance that the
Portfolio will achieve its objectives.
- --------------------------------------------------------------------------------
MANAGED PORTFOLIO
This Portfolio seeks the highest total investment return
of income and capital appreciation. The Portfolio pursues
this objective through a fully managed investment policy
consisting of investment in the following three market
sectors: (i) growth common stocks and securities
convertible or exchangeable into growth common stocks,
including warrants and rights; (ii) high grade debt
securities and preferred stocks of the type in which the
High Grade Bond portfolio may invest; and (iii) high
quality short-term money market instruments of the type
in which the Money Market Portfolio may invest.
The Portfolio's investment policy for the stock market
sector is to invest in those securities that appear to
the investment adviser to possess above average potential
for appreciation in market value, usually as a result of
the issuer's relatively favorable prospects for
improvement in earnings, which generally include those of
companies with established records of growth in sales or
earnings, and companies with promising new products,
services or processes. The Portfolio's investment
policies for the debt and money market sectors are
substantially identical to those of the High Grade Bond
Portfolio and Money Market Portfolio, respectively. The
Managed Portfolio will, from time to time, adjust the mix
of investments among the three market sectors to
capitalize on perceived variations in return potential
produced by the interaction of changing financial markets
and economic conditions. There are no restrictions as to
the proportion of one or another type of security which
the Portfolio may hold. Accordingly, the Portfolio may,
at any given time, be substantially invested in equity
securities, in high grade debt securities or in high
quality short-term money market instruments. Major
changes in the investment mix may occur over several
years or during a single year or shorter period depending
upon market and economic conditions. The fact that the
investment mix may be adjusted from time to time may
result in high portfolio turnover and, consequently, high
brokerage charges to the Portfolio.
Achieving the Portfolio's objective depends on the
investment adviser's ability to assess the effect of
economic and market trends on different sectors of the
market. There can be no assurance that the investment
objective of the Portfolio will be achieved.
- --------------------------------------------------------------------------------
MONEY MARKET
PORTFOLIO
The investment objective of the Money Market Portfolio is
to obtain maximum current income consistent with
liquidity and stability of principal. The Portfolio
pursues its objective by investing in high quality
short-term debt obligations denominated in U.S. dollars
that have been determined to present minimal credit risk.
Money market instruments which the Money Market Portfolio
may purchase include U.S. Government securities,
government agency securities, obligations of banks and
savings institutions, commercial paper, short-term
corporate debt securities and repurchase agreements.
Appendix A contains a more detailed description of the
money market instruments in which the Money Market
Portfolio may invest. The Portfolio's investments will be
limited to money market instruments which mature in
thirteen months or less from the date of purchase;
however, the Portfolio may invest in repurchase
agreements in which the underlying securities have
maturities in excess
14
<PAGE>
of one year from the date of purchase. In addition, the
Portfolio limits its investments to securities that meet
the quality and diversification requirements of Rule 2a-7
under the Investment Company Act of 1940. See Appendix A.
The dollar weighted average portfolio maturity of the
Portfolio will not exceed 90 days. The Portfolio seeks to
maintain a constant net asset value of $1.00 per share,
and will use the amortized cost method of securities
valuation. See "Valuation of Portfolio Securities."
Because of the short-term nature of the investments of
this Portfolio, a portfolio turnover rate is not
applicable.
While the Money Market Portfolio strives to maintain a
stable net asset value, there can be no assurance that
the net asset value will remain stable at $1.00. An
investment in the Money Market Portfolio is neither
insured nor guaranteed by the U.S. Government.
- --------------------------------------------------------------------------------
BLUE CHIP PORTFOLIO
The investment objective of the Blue Chip Portfolio is
growth of capital and income. The Portfolio pursues its
objective by investing primarily in common stocks of
well-capitalized, established companies.
In pursuing its objective, the Portfolio will invest in
stocks of approximately 40 large, well-known companies
that the Fund's investment adviser believes to
collectively comprise a representative cross-section of
major industries. Companies of this type are commonly
referred to as "blue chip." Blue chip companies are
generally identified by their substantial capitalization,
established history of earnings and superior management
structure. The investment adviser will base its
determination of the companies to be included or retained
in the Portfolio, not on the basis of any analysis of the
companies' underlying economic or financial fundamentals
or of the relative value of the securities, but rather on
whether the companies in the Portfolio, taken together,
reasonably represent a cross-section of major industries.
The adviser anticipates that the Portfolio will purchase
approximately equal dollar amounts of shares of each
company. However, the Portfolio will not own positions of
equal value in the various companies, partly because of
price fluctuations after purchases by the Portfolio.
The Portfolio may, from time to time, have more than 5%
of the value of its total assets invested in each of one
or more particular companies. However, as to 75% of the
Portfolio's total assets, no more than 5% of the
Portfolio's total assets (at the time of purchase) will
be invested in securities of any one issuer (other than
the U.S. Government and its agencies and
instrumentalities). The concentration of a significant
portion of its assets in stocks of one or a few companies
(or in a relatively limited number of industries) may
subject the Portfolio to increased risk of loss if those
stocks (or stocks in those industries) were to decline in
value.
The Portfolio expects that it will remain substantially
invested in stocks at all times. However, at most times
the Portfolio will hold a small portion of its assets
(not to exceed 15% of its total assets) in cash or cash
equivalents to accommodate redemptions and so as to avoid
having to purchase stocks in small quantities and thereby
incur excessive brokerage costs. Any such cash balances
will be invested in high-quality short-term money market
instruments of the type in which the Money Market
Portfolio may invest, or retained in cash. The Portfolio
will not engage in the trading of securities for the
purpose of realizing short-term profits.
- --------------------------------------------------------------------------------
PRINCIPAL RISK FACTORS
- --------------------------------------------------------------------------------
In general, the risk associated with the investments of a
particular Portfolio can be described in terms of current
income volatility, financial risk and market risk.
Current income volatility refers to the degree and
rapidity with which changes in overall market interest
rates affect the level of current income. Financial risk
refers to the ability of an issuer of a debt security to
pay, on a timely basis, principal and interest on such
security. With respect to the issuer of an equity
security, financial risk refers to its earning stability
and overall financial soundness. Market risk refers to
the effect of
15
<PAGE>
changes in the overall level of interest rates on the
price of debt securities. Generally, the current value of
debt securities varies inversely with changes in
prevailing interest rates; if interest rates rise, the
value of a debt security will tend to fall. Market risk
for equity securities refers to overall stock market
valuation levels.
The VALUE GROWTH PORTFOLIO and BLUE CHIP PORTFOLIO most
likely will be subject to moderate levels of both market
and financial risk.
The HIGH GRADE BOND PORTFOLIO most likely will be subject
to moderate levels of market risk and relatively low
levels of financial risk and current income volatility.
The HIGH YIELD BOND PORTFOLIO most likely will be subject
to relatively high levels of financial risk, moderate
levels of market risk and relatively low levels of
current income volatility.
The market value of fixed-income securities is affected
by changes in general market interest rates. If interest
rates decline, the market value of fixed-income
securities tends to increase, while if interest rates
increase, the market value of fixed-income securities
tends to decrease. Higher-rated fixed-income securities
tend to have lower interest rates and yields, and less
market or financial risk, than do lower-rated fixed-
income securities. Lower-rated and unrated securities are
generally subject to a greater degree of market and
financial risk than higher-rated securities, for reasons
including the greater possibility that issuers of
lower-rated or unrated securities may not be able to pay
the principal and interest due on such securities,
especially during periods of adverse economic conditions.
The MANAGED PORTFOLIO most likely will be subject to
moderate levels of market and financial risk and
relatively low levels of current income volatility,
although current income volatility could be higher if the
Portfolio is heavily invested in short-term money market
instruments.
The MONEY MARKET PORTFOLIO should be subject to little
market or financial risk because it invests in high
quality short-term investments that reflect current
market interest rates. Although these types of securities
generally are considered to have low financial risk,
there is some possibility that issuers may fail to meet
their principal and interest obligations on a timely
basis. The Portfolio could experience a high level of
current income volatility because the level of its
current income directly reflects short-term interest
rates.
- --------------------------------------------------------------------------------
SPECIAL
CONSIDERATIONS-- HIGH
YIELD BONDS
As reflected above, the High Yield Bond Portfolio intends
to invest a substantial portion of its assets in
fixed-income securities offering high current income.
Additionally, subject to its specific investment
objectives and policies as described above, the High
Grade Bond Portfolio may invest a portion of its assets
in such securities. Such high yielding fixed-income
securities are ordinarily in the lower rating categories
of Moody's or Standard & Poor's or will be unrated
securities of comparable quality. Such securities are
commonly known as "junk bonds." These lower-rated,
fixed-income securities are considered, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms
of the obligation and will generally involve more credit
risk than securities in the higher rating categories. The
market values of such securities tend to reflect
individual corporate developments to a greater extent
than do higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Such
lower-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities.
Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, regarding lower-rated
bonds may depress prices and liquidity for such
securities. Factors adversely affecting the market value
of high yielding securities will adversely affect a
Portfolio's net asset value. In addition, a Portfolio may
incur additional expenses to the extent it were required
to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. Although
some risk is inherent in all securities ownership,
holders of
16
<PAGE>
fixed-income securities have a claim on the assets of the
issuer prior to the holders of common stock. Therefore,
an investment in fixed-income securities generally
entails less risk than an investment in common stock of
the same issuer.
The investment philosophy of the High Yield Bond
Portfolio with respect to high yield bonds is based on
the premise that over the long-term a broadly diversified
portfolio of high yield fixed-income securities should,
even taking into account possible losses, provide a
higher net return than that achievable on a portfolio of
higher-rated securities. The High Yield Bond Portfolio
seeks to achieve the highest yields possible while
reducing relative risks through:
(a) broad diversification;
(b) credit analysis by the investment adviser of the
issuers in which the Portfolio invests;
(c) monitoring and seeking to anticipate changes and
trends in the economy and financial markets that
might affect the prices of portfolio securities.
The investment adviser's judgment as to the
"reasonableness" of the risk involved in any particular
investment will be a function of its experience in
managing fixed-income investments and its evaluation of
general economic and financial conditions of a specific
issuer.
In some circumstances, defensive strategies may be
implemented to preserve or enhance capital even at the
sacrifice of current yield. Defensive strategies, which
may be used singly or in any combination, may include,
but are not limited to, investments in discount
securities or investments in money market instruments.
High yielding securities may be issued by corporations in
the growth stage of their development. They may also be
issued in connection with a corporate reorganization or
as part of a corporate takeover. Companies that issue
such high yielding securities are often highly leveraged
and may not have available to them more traditional
methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is
greater than is the case with higher-rated securities.
For example, during an economic downturn or a sustained
period of rising interest rates, highly leveraged issuers
of high yielding securities may experience financial
stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet
specific projected business forecasts, or the
unavailability of additional financing. The risk of loss
due to default by the issuer is significantly greater for
the holders of high yielding securities because such
securities are generally unsecured and are often
subordinated to other creditors of the issuer.
High yielding securities frequently have call or buy-back
features that would permit an issuer to call or
repurchase the security from the Portfolio. If a call
were exercised by the issuer during a period of declining
interest rates, a Portfolio would likely have to replace
such called security with a lower yielding security, thus
decreasing the net investment income to the Portfolio.
The premature disposition of a high yielding security
because of a call or buy-back feature, the deterioration
of the issuer's creditworthiness or a default may also
make it more difficult for a Portfolio to time its
receipt of income, which may have tax implications.
A Portfolio may have difficulty disposing of certain high
yielding securities for which there is a thin trading
market. Because not all dealers maintain markets in all
high yielding securities, there is no established retail
secondary market for many of these securities, and the
Fund anticipates that they could be sold only to a
limited number of dealers or institutional investors. To
the extent there is a secondary trading market for high
yielding securities, it is generally not so liquid as
that for higher-rated securities. The lack of a liquid
secondary market may have an adverse impact on market
price and a Portfolio's ability to dispose of particular
issues when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event such
17
<PAGE>
as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain
securities may also make it more difficult for the Fund
to obtain accurate market quotations for purposes of
valuing a Portfolio's assets. Market quotations are
generally available on many high yield issues only from a
limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual
sales.
It is likely that a major economic recession could
severely affect the market for and the values of high
yielding securities, as well as the ability of the
issuers of such securities to repay principal and pay
interest thereon.
A Portfolio may acquire high yielding securities that are
sold without registration under the federal securities
laws and therefore carry restrictions on resale. While
many recent high yielding securities have been sold with
registration rights, covenants and penalty provisions for
delayed registration, if a Portfolio is required to sell
such restricted securities before the securities have
been registered, it may be deemed an underwriter of such
securities as defined in the Securities Act of 1933,
which entails special responsibilities and liabilities. A
Portfolio may incur special costs in disposing of such
securities, but will generally incur no costs when the
issuer is responsible for registering the securities.
A Portfolio may acquire high yielding securities during
an initial underwriting. Such securities involve special
risks because they are new issues. The Fund has no
arrangement with any person concerning the acquisition of
such securities and the investment adviser will carefully
review the credit and other characteristics pertinent to
such new issues.
From time to time, there have been proposals for
legislation designed to limit the use of certain high
yielding securities in connection with leveraged
buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities.
Such proposals, if enacted into law, could reduce the
market for such securities generally, could negatively
affect the financial condition of issuers of high yield
securities by removing or reducing a source of future
financing and could negatively affect the value of
specific high yield issues. However, the likelihood of
any such legislation or the effect thereof is uncertain.
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
18
<PAGE>
income accrued with respect to these securities and may
have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash
to satisfy these distribution requirements.
Additional information concerning high yielding
securities appears under "Appendix C -- Description of
Corporate Bond Ratings."
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
Except as otherwise noted below, the following investment
strategies and techniques may be used by all Portfolios.
- --------------------------------------------------------------------------------
FOREIGN SECURITIES
The Value Growth Portfolio and Managed Portfolio each may
invest up to 25% of its net assets in equity and debt
securities of foreign issuers, and the High Grade Bond
Portfolio and High Yield Bond Portfolio each may invest
up to 25% of its net assets in debt securities of foreign
issuers, to the extent the purchase of such foreign
securities is otherwise consistent with the Portfolio's
investment objectives. Investments will be made only in
foreign securities which are publicly traded on U.S.
exchanges and payable in U.S. dollars. The investment
adviser will apply standards for evaluating quality and
risk of investments in foreign securities comparable to
those it applies to investments in domestic securities
while also taking into consideration the opportunities
and special risks in connection with foreign securities.
Investments in foreign securities can provide a Portfolio
with more opportunities for attractive returns, but they
may also involve some special risks such as exposure to
potentially adverse local political and economic
developments; nationalization and exchange controls;
potentially lower liquidity and high volatility; and
possible problems arising from accounting, disclosure,
settlement, and regulatory practices that differ from
U.S. standards. Fluctuations in exchange rates may affect
the earning power and asset value of the foreign entity
issuing the security and can either increase or decrease
the investment's value. Dividend and interest payments
may be repatriated based upon the exchange rate at the
time of disbursement or payments, and such restrictions
on capital flows may be imposed. The characteristics of
the securities in the Portfolios, such as the maturity
and the type of issuer, will affect yields and yield
differentials, which may vary over time.
- --------------------------------------------------------------------------------
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 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 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 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.
19
<PAGE>
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.
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO
SECURITIES
Each Portfolio may, from time to time, lend securities
(but not in excess of 20% of its assets) from its
portfolio to brokers, dealers and financial institutions,
provided that: (i) the loan is secured continuously by
collateral consisting of U.S. Government securities,
government agency securities, cash or cash equivalents
adjusted daily to have a market value at least equal to
the current market value of the securities loaned plus
accrued interest; (ii) the Portfolio may at any time call
the loan and regain the securities loaned; and (iii) the
investment adviser (under the review of the Board of
Trustees) has reviewed the creditworthiness of the
borrower and has found such creditworthiness
satisfactory. Any cash collateral will be invested in
short-term securities, the income from which will
increase the return to the Portfolio.
- --------------------------------------------------------------------------------
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 option will both be
listed on national securities exchanges, except for
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 which
constitutes additional income, which would serve 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 the
underlying security for the entire option period, and
would bear the risk of loss if the price of the security
were to decline.
- --------------------------------------------------------------------------------
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
20
<PAGE>
during the Portfolio's holding period. That yield is
determined by current short-term rates and may be more or
less than the interest rate on the underlying security.
The value of the underlying securities is marked to
market daily. 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 may
also enter into a special type of repurchase agreement
known as an "open repurchase agreement." An open
repurchase agreement varies from the typical repurchase
agreement 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 investment adviser (under the
review of the Board of Trustees) 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The Fund continuously offers shares of the various
Portfolios at the respective net asset values of the
Portfolios determined in the manner set forth below under
"Net Asset Value Information." The Fund offers its
shares, without sales charge, only to the separate
accounts of Participating Insurance Companies as the
investment medium for the VA contracts or VLI policies
issued by the Participating Insurance Companies.
21
<PAGE>
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund ordinarily will redeem full and fractional
shares of a Portfolio for cash at the net asset value
next determined after receipt of a proper notice of
redemption. No redemption fee is charged. Except as
described below, the Fund is required to pay redemption
proceeds within seven days after receipt of a proper
notice of redemption; however, the Fund intends to pay
redemption proceeds within one business day after receipt
of such notice. The Fund may suspend the right of
redemption or postpone the date of payment, with respect
to the shares of a Portfolio, during any period when (a)
trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or
such exchange is closed for trading other than customary
weekend and holiday closings; (b) an emergency exists, as
determined by the Securities and Exchange Commission, a
result of which would make disposal of such Portfolio's
securities or determination of the net asset value of
such Portfolio not reasonably practicable; or (c) the
Securities and Exchange Commission by order permits
postponement for the protection of Shareholders.
If a conflict between VA contract holders and VLI
policyowners arose that required a substantial amount of
assets be withdrawn from the Fund, orderly portfolio
management could be disrupted to the potential detriment
of such contract holders and policyowners.
- --------------------------------------------------------------------------------
NET ASSET VALUE INFORMATION
- --------------------------------------------------------------------------------
The net asset value per share of each Portfolio is
determined as of the earlier of 3:00 p.m. (Central Time)
or the close of the New York Stock Exchange, on each day
that (i) the New York Stock Exchange is open for business
(except the day after Thanksgiving, the day before
Christmas (in 1998) 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
net asset value per share of each Portfolio is computed
by dividing the total value of the Portfolio's securities
and other assets, less liabilities, by the total number
of outstanding shares of such Portfolio.
The Fund reserves the right to calculate or estimate the
net asset value of a Portfolio more frequently than once
daily if 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 net asset value
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 Statement of Additional Information
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, lacking any sales, at the mean between the
closing bid and asked prices. Securities, other than
money market instruments, traded in the over-the-counter
market are valued at the mean between the bid and asked
prices or 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 Trustees.
22
<PAGE>
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.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise several types
of performance information for a Portfolio. All
Portfolios, except the Money Market Portfolio, may
advertise "average annual total return" and "total
return." The High Grade Bond and High Yield Bond
Portfolios may also advertise "yield." The Money Market
Portfolio may advertise "yield" and "effective yield."
Each of these figures is based upon historical results
and is not necessarily representative of the future
performance of a Portfolio. The rate of return for a
Portfolio should be distinguished from the rate of return
of a corresponding Subaccount of a separate account of a
Participating Insurance Company, whose rate will reflect
the deduction of additional charges, including a
mortality and expense risk charge, and therefore will be
lower. Contract holders and policyowners should consult
the prospectus for such VA contract or VLI policy.
Average annual total return and total return figures
measure both the net income generated by, and the effect
of any realized and unrealized appreciation or
depreciation of, the underlying investments in the
Portfolio for the designated period, assuming the
reinvestment of all dividends and distributions during
the period. Thus, these figures reflect the change in
value of an investment in the Portfolio during a
specified period. Average annual total return will be
quoted for at least one-, five- and ten-year periods (or,
if such periods have not yet elapsed, at the end of a
shorter period corresponding to the life of the
Portfolio). Average annual total return figures represent
the average annual percentage change in the value of a
specific dollar amount invested in the Portfolio's shares
for the designated period. Total return figures are not
annualized and represent the aggregate percentage or
dollar value change over the period.
Yield is a measure of the net investment income per share
earned over a specific one-month or 30-day period
(seven-day period for the Money Market Portfolio)
expressed as a percentage of the Portfolio's net asset
value per share at the end of the period (except for the
Money Market Portfolio where the net asset value per
share at the beginning of the period is used). Yield is
an annualized figure which means that it is assumed that
the Portfolio generates the same level of investment
income over a one-year period. The effective yield for
the Money Market Portfolio is calculated similarly, but
the net investment income earned is assumed to be
compounded when annualized. The Money Market Portfolio's
effective yield will be slightly higher than its yield
due to this compounding. Semi-annual compounding is
assumed for Portfolios other than the Money Market
Portfolio.
From time to time, the Fund may include in its sales
literature and shareholder reports for the High Grade
Bond and High Yield Bond Portfolios a quotation of the
current "distribution rate" for the Portfolios. The
distribution rate is simply a measure of the level of
income and short-term capital gain dividends distributed
for a specified period. It differs from yield, which is a
measure of the income actually earned by the Portfolio's
investments and from total return, which is a measure of
the income actually earned by, plus the effect of any
realized or unrealized appreciation or depreciation of
such investments, during the period. Distribution rate,
therefore, is not intended to be a complete measure of
performance. Distribution rate may sometimes be greater
than yield since, for instance, it may include short-term
gains (which may be non-recurring) and may not reflect
the amortization of bond premiums.
Additionally, from time to time, in advertisements or
reports to shareholders, a Portfolio may compare its
performance to that of the Consumer Price Index or
various unmanaged indexes such as the Dow Jones
Industrial Average, the Standard & Poor's 500, the
Shearson/Lehman Government and Corporate Bond Index and
the Salomon
23
<PAGE>
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.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The Board of Trustees consists of seven individuals, four
of whom are not "interested persons" of the Fund as
defined in the Investment Company Act.
The Board of Trustees is responsible for the overall
supervision of the operations of the Fund and performs
the various duties imposed on the Trustees of investment
companies by the Investment Company Act. The Board of
Trustees elects officers of the Fund annually.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
EquiTrust Investment Management Services, Inc. (formerly
known as FBL Investment Advisory Services, Inc.)
("EquiTrust" or the "Adviser"), 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 1987.
The Adviser is an indirect subsidiary of FBL Financial
Group, Inc., an Iowa corporation. At December 31, 1997,
66.36% of the outstanding voting shares of FBL Financial
Group, Inc. is owned by Iowa Farm Bureau Federation. The
following individuals are officers and/or directors of
the Adviser and are officers and/or trustees 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 Series Fund, Inc. 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 Trustees.
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.
24
<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
$200 $200 $400
PORTFOLIO MILLION MILLION MILLION
- ---------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Value Growth............................ 0.45% 0.45 % 0.40%
High Grade Bond......................... 0.30% 0.275% 0.25%
High Yield Bond......................... 0.45% 0.45 % 0.40%
Managed................................. 0.45% 0.45 % 0.45%
Money Market............................ 0.25% 0.25 % 0.25%
Blue Chip............................... 0.20% 0.20 % 0.20%
</TABLE>
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. 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
Trustees who are not affiliated with the Adviser; and the
fees and expenses of independent public auditors, legal
counsel, custodian, transfer and dividend disbursing
agent and any registrar.
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. This reimbursement agreement will remain in
effect as long as the Investment Advisory Agreement
remains in effect and cannot be changed without
shareholder approval. Additionally, the Adviser has
voluntarily agreed to reimburse any Portfolio to the
extent that annual operating expenses, including the
investment advisory fee, exceed .65%. However, the
Adviser is not obligated to continue to reimburse the
Portfolios for such expenses beyond December 31, 1998.
PREPARING FOR YEAR 2000. Many data processing systems
were designed using only two digits to signify the year
(for example, "98" for "1998"). 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 "2,000", 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
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 contract holders and policyowners will
experience negative effects on investments in the
Portfolios, or on the services
25
<PAGE>
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.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
With respect to transactions in portfolio securities,
whether through a broker as agent or with a dealer as
principal, the Adviser endeavors to obtain for the Fund
the most favorable prices and efficient execution of
orders. Subject to this primary consideration, and while
there is no understanding or arrangement to do so, the
Adviser places substantially all the Fund's portfolio
transactions with brokerage firms which furnish research,
statistical and other services to the Fund. Certain
affiliates and other clients of the Adviser also place
portfolio transactions with these brokerage firms, and
such affiliates and clients share the benefits of the
research and other services obtained from these brokers.
The Adviser regards information which is customarily
available only in return for brokerage as among the many
elements to be considered in arriving at investment
decisions. No specific value can be determined for most
such information and services and they are deemed
supplemental to the Adviser's own efforts in the
performance of its duties under the Investment Advisory
and Management Services Agreement. Any research benefits
derived are available for all clients.
The investment decisions for the Fund are reached
independently from those for the other funds and accounts
managed by the Adviser. At certain times one or more
Portfolios of the Fund may purchase the same securities
at the same time as the other funds and accounts managed
by the Adviser. When multiple accounts and/or funds have
assets available for investment in the same securities,
available investments are allocated as to amount in a
manner considered equitable to each. In some cases, this
procedure may affect the size or price of the position
obtainable for the Fund. It is the opinion of the Board
of Trustees that the benefits to the Fund arising out of
simultaneous transactions outweigh any disadvantages.
- --------------------------------------------------------------------------------
TAXES AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
For federal income tax purposes, each Portfolio will be
treated as a separate entity. Each Portfolio intends to
qualify each year as a "regulated investment company"
under the Internal Revenue Code as amended ("Code"). By
so qualifying, a Portfolio will not be subject to federal
income taxes to the extent that its net investment income
and net realized capital gains are distributed to the
separate accounts of insurance companies.
Since the Shareholders of the Fund are the separate
accounts of Participating Insurance Companies, no
discussion is included herein as to the federal income
tax consequences at the shareholder level. For
information concerning the federal tax consequences to
the purchasers of the VA contracts and VLI policies, see
the attached prospectus for such contract or policy.
Federal tax law imposes a four-percent nondeductible
excise tax on each regulated investment company with
respect to an amount, if any, by which such company does
not meet distribution requirements specified in such tax
laws. Each Portfolio intends to comply with such
distribution requirements and thus does not expect to
incur the four-percent nondeductible excise tax.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
VALUE GROWTH, BLUE CHIP AND MANAGED 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, during the Fund's fiscal year.
26
<PAGE>
HIGH GRADE BOND AND HIGH YIELD BOND PORTFOLIO
DISTRIBUTIONS: On each day that a Portfolio's net asset
value per share is calculated, that Portfolio's net
investment income will be declared, as of the close of
the New York Stock Exchange, as a dividend to
Shareholders of record prior to the declaration. Any net
short-term and long-term gains will be declared and
distributed periodically, but in no event less frequently
than annually.
MONEY MARKET PORTFOLIO DISTRIBUTIONS: On each day that
the net asset value per share of the Money Market
Portfolio is determined, the Money Market Portfolio's net
investment income will be declared, as of the close of
the New York Stock Exchange, as a dividend to
Shareholders of record prior to the declaration.
It is the Fund's intention to distribute substantially
all its net investment income, if any, and any net
realized capital gains of each Portfolio. All
distributions are reinvested in additional shares of the
respective Portfolio at net asset value unless a
Shareholder elects to have such distributions paid in
cash.
- --------------------------------------------------------------------------------
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund was organized as a business trust under the laws
of the Commonwealth of Massachusetts on November 3, 1986.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of the
Portfolios and to divide or combine the shares of any
Portfolio into a greater or lesser number of shares of
that Portfolio without thereby changing the proportionate
beneficial interests in the Portfolio. The shares of the
Fund are divided into six separate series (i.e.,
Portfolios), and the shares of each Portfolio have equal
rights and privileges and represent an equal
proportionate interest with all other shares of that
Portfolio. Upon liquidation of the Fund or any Portfolio
of the Fund, Shareholders of each Portfolio are entitled
to share pro rata in the net assets of that Portfolio
available for distribution to Shareholders. Shares have
no preemptive or conversion rights. The right of
redemption is described elsewhere herein. Shares of each
Portfolio are fully paid and non-assessable by the Fund.
The Trustees are authorized to classify unissued shares
of the Fund by assigning them to a Portfolio for
issuance.
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.
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally
liable as partners for the obligations of the Fund. The
Declaration of Trust contains an express disclaimer of
Shareholder liability for acts or obligations of the Fund
and requires that notice of such disclaimer be given in
each instrument entered into or executed by the Fund. The
Declaration of Trust also provides for indemnification
out of Fund property of any Shareholder held personally
liable for the claims and liabilities to which a
Shareholder may become subject by reason of being or
having been a Shareholder. Thus, the risk of a
Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in
which the Fund itself would be unable to meet its
obligations.
As of the date of this prospectus, Farm Bureau Life
Insurance Company owned more than 25% of the Money Market
Portfolio and will be deemed to control the Portfolio.
Farm Bureau Life Insurance Company is a subsidiary of FBL
Financial Group, Inc. Such shares have been acquired for
investment and can only be disposed of by redemption or
transfer to an affiliate. The organizational expenses of
the Fund have been paid by Farm Bureau Life Insurance
Company.
27
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
REPORTS TO POLICY-
OWNERS AND
CONTRACT HOLDERS
Owners of VLI policies and VA contracts issued by
Participating Insurance Companies, for which shares of
one or more Portfolios are the investment vehicles, will
receive from the Participating Insurance Companies
unaudited semi-annual financial statements and audited
year-end financial statements of the Fund which are
certified by the Fund's independent auditors.
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
Participating Insurance Companies with inquiries
regarding the Fund may contact the Fund at (800) 247-4170
or at 5400 University Avenue, West Des Moines, Iowa
50266.
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING
RIGHTS
Shareholders have the right to vote on the election of
Trustees and on any and all matters which, by law or the
provisions of the Fund's by-laws, they may be entitled to
vote. Shareholders of all Portfolios vote for a single
set of Trustees; thereafter, the Trustees will serve for
terms of unlimited duration (subject to certain removal
procedures by the Trustees or the Shareholders). The Fund
does not intend to hold annual meetings of Shareholders.
The Board of Trustees has the power to alter the number
of Trustees and to appoint successor Trustees, provided
that immediately after the appointment of any successor
Trustee at least two-thirds of the Trustees have been
elected by the Shareholders of the Fund. However, if at
any time less than a majority of the Trustees holding
office has been elected by the Shareholders, the Trustees
are required to call a special meeting of Shareholders
for the purpose of electing Trustees to fill any existing
vacancies in the Board.
To the extent required by law, the Participating
Insurance Companies will vote Fund shares held in their
separate accounts in accordance with instructions
received from the VLI policyowners or VA contract holders
having voting interests in the separate accounts. In
addition, to the extent required by law, Farm Bureau Life
Insurance Company will vote Fund shares held in its
general account in proportion to voting instructions
received from its VLI policyowners and its VA contract
holders. Each share will have one vote and fractional
shares will be counted. On any matters affecting an
individual Portfolio, only the Shareholders of that
Portfolio will be entitled to vote. On matters relating
to all the Portfolios, but affecting the Portfolios
differently, separate votes by Portfolio will be
required. Shares for which no voting instructions are
received shall be voted by the Participating Insurance
Companies in proportion to the shares for which voting
instructions are received.
As used in this Prospectus and in the Statement of
Additional Information, the phrase "majority vote" of a
Portfolio (or of 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).
- --------------------------------------------------------------------------------
DISTRIBUTOR AND
DIVIDEND DISBURSING
AND TRANSFER AGENT
The Adviser also serves as the principal underwriter and
distributor of the Fund's shares and as the Fund's
dividend disbursing and transfer agent.
- --------------------------------------------------------------------------------
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 values in accordance with the Fund's
prospectus and prepare for Fund approval and use various
tax returns and other reports. For such services, each
Portfolio pays the Adviser an annual fee, payable
monthly, of 0.05% of the Portfolio's average daily net
assets, with the annual fee payable by a Portfolio not to
exceed $30,000.
- --------------------------------------------------------------------------------
REGISTRATION
STATEMENT
The Statement of Additional Information and this
Prospectus omit certain information contained in the
Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, 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 Securities
and Exchange Commission in Washington, D.C.
28
<PAGE>
- --------------------------------------------------------------------------------
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. is
counsel for the Fund. There are no material legal
proceedings to which the Fund is a party.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER,
DISTRIBUTOR, DIVIDEND
DISBURSING
AND TRANSFER AGENT
EquiTrust Investment Management Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
- --------------------------------------------------------------------------------
SPECIAL LEGAL COUNSEL
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
- --------------------------------------------------------------------------------
CUSTODIAN
Bankers Trust Company
Global Assets-Insurance Group
16 Wall Street
New York, New York 10005
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
Suite 3400
801 Grand Avenue
Des Moines, Iowa 50309
29
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A -- MONEY MARKET INSTRUMENTS
- --------------------------------------------------------------------------------
The Money Market Portfolio invests in money market
instruments maturing in thirteen months or less from the
time of investment, including the instruments described
below. In addition, the other Portfolios subject to their
respective investment objectives, may invest in certain
money market instruments.
U.S. GOVERNMENT SECURITIES: Bills, notes, bonds and
other debt securities issued by the U.S. Treasury.
These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. GOVERNMENT AGENCY OR INSTRUMENTALITY
SECURITIES: Debt securities issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
Although these securities are not direct obligations
of the U.S. Government, some are supported by the
full faith and credit of the U.S. Treasury; others
are supported only by the limited right of the issuer
to borrow from the U.S. Treasury; and others are
supported only by the credit of the instrumentality
and not the U.S. Treasury.
OBLIGATIONS OF BANKS OR SAVINGS
INSTITUTIONS: Certificates of deposit, bankers'
acceptances and other short-term debt obligations of
commercial banks or savings and loan associations.
None of the Portfolios will invest in any instruments
issued by a commercial bank unless it has total
assets of at least $100 million and has its deposits
insured by the Federal Deposit Insurance Corporation
("FDIC"). Similarly, the Portfolios will not invest
in any instrument issued by a savings and loan
association unless it has total assets of at least
$100 million, has been issued a charter by the Office
of Thrift Supervision ("OTS") or was formerly a
member of the Federal Home Loan Bank System and is
now subject to regulation by the OTS and is insured
by the FDIC. However, the Portfolios may invest in an
obligation of a bank or savings and loan association
with assets of less than $100 million if the
principal amount of such obligation is fully covered
by FDIC insurance. The limit of such coverage is
currently $100,000.
COMMERCIAL PAPER: Short-term unsecured promissory
notes issued by corporations, primarily to finance
short-term credit needs.
In addition, the Fund will invest in commercial paper
issued by major corporations in reliance on the
so-called "private placement" exemption from
registration by Section 4(2) of the Securities Act of
1933 ("Section 4(2) paper") subject to the below
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
institutional investors such as the Fund, who agree
that it is purchasing the paper for investment and
not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other
institutional investors through or with the
assistance of the issuer or investment dealers who
make a market in the Section 4(2) paper, thus
providing liquidity. The Fund's investment adviser
considers the legally restricted but readily saleable
Section 4(2) paper to be liquid; however, the paper
will be treated as illiquid unless, pursuant to
procedures approved by the Board of Trustees, a
particular investment in Section 4(2) paper is
determined to be liquid. The investment adviser
monitors the liquidity of the Fund's investments in
Section 4(2) paper on a continuing basis.
OTHER CORPORATE DEBT SECURITIES: Outstanding
nonconvertible corporate debt securities (e.g.,
bonds and debentures) which were not issued as
short-term obligations but which have thirteen months
or less remaining until maturity.
REPURCHASE AGREEMENTS: See "Description of Certain
Investment Techniques-- Repurchase Agreements."
A-1
<PAGE>
As to obligations of banks or savings institutions,
commercial paper, other corporate debt securities and
repurchase agreements, the Portfolio will only invest
in U.S. dollar-denominated instruments which the
Board of Trustees determines present minimal credit
risks and which, at the time of acquisition,
generally are either:
1. rated in one of the two highest rating categories
by at least two nationally recognized statistical
rating organizations ("NRSRO"); or
2. rated in one of the two highest rating categories
by only one NRSRO if that NRSRO is the only NRSRO
that has rated the instrument or issuer; or
3. in the case of an unrated instrument, determined
by the Board of Trustees 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.
FLOATING AND VARIABLE RATE SECURITIES: The Portfolio
may invest in instruments having rates of interest
that are adjusted periodically or that float
continuously or periodically according to formulas
intended to minimize fluctuation in the value of the
instruments ("Variable Rate Securities"). The
interest rate on a Variable Rate Security is
ordinarily determined by reference to, or is a
percentage of, a specified market rate such as a
bank's prime rate, the 90-day U.S. Treasury Bill
rate, or the rate of return on commercial paper or
bank certificates of deposit. Generally, the changes
in the interest rate on Variable Rate Securities
reduce the fluctuation in the market value of such
securities. Accordingly, as interest rates decrease
or increase, the potential for capital appreciation
or depreciation is less than for fixed-rate
obligations. Some Variable Rate Securities have a
demand feature ("Variable Rate Demand Securities")
entitling the purchaser to resell the securities at
an amount approximately equal to the principal amount
thereof plus accrued interest. As in the case for
other Variable Rate Securities, the interest rate on
Variable Rate Demand Securities varies according to
some specified market rate intended to minimize
fluctuation in the value of the instruments. Some of
these Variable Rate Demand Securities are unrated,
their transfer is restricted by the issuer and there
is little if any secondary market for the securities.
Thus, any inability of the issuers of such securities
to pay on demand could adversely affect the liquidity
of these securities. The Portfolio determines the
maturity of Variable Rate Securities in accordance
with Securities and Exchange Commission rules which
allow the Portfolio to consider certain of such
instruments as having maturities shorter than the
maturity date on the face of the instrument.
A-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B -- QUALITY COMPOSITION OF BOND PORTFOLIOS
- --------------------------------------------------------------------------------
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 December 31, 1997. 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 the 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, options and
cash.
The allocations reflected in the tables do not
necessarily reflect the view of the investment adviser as
to the quality of the bonds in the Portfolio on the date
shown; and they are not necessarily representative of the
composition of the Portfolio at other times. The
composition of the Portfolio will change over time.
HIGH YIELD BOND PORTFOLIO
COMPOSITION OF PORTFOLIO BY QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
PORTFOLIO BY PERCENTAGE OF
MOODY'S MOODY'S S&P PORTFOLIO BY
RATING CATEGORY RATINGS RATING CATEGORY S&P RATINGS
-------------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Aa.................. AA.................. 1.99%
A................... 15.48% A................... 21.46
Baa................. 23.25 BBB................. 18.46
Ba.................. 16.65 BB.................. 16.22
B................... 27.77 B................... 26.25
Caa................. 1.23 CCC.................
Cash and Other Cash and Other
Assets............. 15.62 Assets.............. 15.62
------------- -------------
100.00% 100.00%
------------- -------------
------------- -------------
</TABLE>
HIGH GRADE BOND PORTFOLIO
COMPOSITION OF PORTFOLIO BY QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
PORTFOLIO BY PERCENTAGE OF
MOODY'S MOODY'S S&P PORTFOLIO BY
RATING CATEGORY RATINGS RATING CATEGORY S&P RATINGS
-------------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Aaa................. 24.18% AAA................. 24.18%
Aa.................. 5.63 AA.................. 6.97
A................... 32.99 A................... 37.85
Baa................. 18.38 BBB................. 13.10
Ba.................. 3.54 BB.................. 2.62
Not rated........... 2.07 Not Rated........... 2.07
Cash and Other Cash and Other
Assets............. 13.21 Assets.............. 13.21
------------- -------------
100.00% 100.00%
------------- -------------
------------- -------------
</TABLE>
B-1
<PAGE>
The description of each bond quality category set forth
in the tables 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> <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 exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be
anticipated are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise
what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than with "Aaa" securities.
A: Bonds that are rated A possess many favorable investment
attributes and may be considered as upper medium-grade
obligations. This rating indicates an extremely strong
capacity to pay principal and interest which is considered
adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking
or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics
as well.
Ba: Bonds rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well-safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have
other market shortcomings.
</TABLE>
STANDARD & POOR'S
<TABLE>
<S> <C> <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.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C>
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
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 rating categories.
NR: Not rated by the indicated rating agency.
</TABLE>
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C> <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.
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> <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-2
<PAGE>
FARM BUREAU MUTUAL FUNDS
5400 University Avenue
West Des Moines, Iowa 50266
(515) 225-5586
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
EquiTrust Variable Insurance Series Fund (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 is not a prospectus and should be
read in conjunction with the Prospectus of the Fund dated May 1, 1998. A copy of
the Prospectus may be obtained without charge by calling the Participating
Insurance Companies or by writing or calling the Fund at the address and
telephone number shown above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES............................................................. 3
Loans of Portfolio Securities............................................................................ 3
Covered Call Options..................................................................................... 3
Ginnie Mae Certificates.................................................................................. 4
INVESTMENT RESTRICTIONS.................................................................................... 5
Fundamental Policies..................................................................................... 5
Non-Fundamental (Operating) Policies..................................................................... 6
OFFICERS AND TRUSTEES...................................................................................... 7
INVESTMENT ADVISER......................................................................................... 11
UNDERWRITING AND DISTRIBUTION EXPENSES..................................................................... 13
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS........................................................... 13
PURCHASES AND REDEMPTIONS.................................................................................. 14
NET ASSET VALUE............................................................................................ 15
Money Market Portfolio................................................................................... 15
Other Portfolios......................................................................................... 16
TAXES...................................................................................................... 16
DIVIDENDS AND DISTRIBUTIONS................................................................................ 17
Money Market Portfolio................................................................................... 17
High Grade Bond and High Yield Bond Portfolios........................................................... 17
Other Portfolios......................................................................................... 17
PERFORMANCE INFORMATION.................................................................................... 17
SHAREHOLDER VOTING RIGHTS.................................................................................. 20
CONTROL PERSONS............................................................................................ 21
OTHER INFORMATION.......................................................................................... 21
Custodian................................................................................................ 21
Independent Auditors..................................................................................... 21
Accounting Services...................................................................................... 21
Dividend Disbursing and Transfer Agent................................................................... 21
Legal Matters............................................................................................ 21
Registration Statement................................................................................... 22
FINANCIAL STATEMENTS....................................................................................... 22
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES
The investment objectives and policies of each of the six Portfolios are set
forth in the Prospectus under the heading "Investment Objectives and Policies of
the Portfolios." A description of certain investment strategies and techniques
applicable to some or all of the Portfolios is set forth in the Prospectus under
the heading "Description of Certain Investment Techniques." A description of the
money market instruments in which the Money Market Portfolio may invest is
contained in Appendix A to the Prospectus. A description of the corporate bond
and commercial paper ratings of Moody's Investors Services, Inc. ("Moody's") and
Standard Poor's is contained in Appendix C to the Prospectus.
The following is intended to augment the explanation in the Prospectus of
certain strategies and techniques which are applicable to one or more of the
Portfolios.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may from time to time lend securities (but not in excess of
20% of its assets) from its portfolio to brokers, dealers and financial
institutions, provided that: (i) the loan is secured continuously by collateral
consisting of U.S. Government securities, government agency securities, or cash
or cash equivalents adjusted daily to have a market value at least equal to the
current market value of the securities loaned plus accrued interest; (ii) the
Portfolio may at any time call the loan and regain the securities loaned; and
(iii) the Adviser (under the review of the Board of Trustees) 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
finders', administrative and custodial fees to persons unaffiliated with the
Fund in connection with the arranging of such loans. Unless certain requirements
contained in the Internal Revenue Code are satisfied, the dividends, interest
and other distributions received by the Portfolio on loaned securities may not
be treated, for tax purposes, as qualified income for the purposes of the 90%
test discussed under "Taxes." Each Portfolio intends to loan portfolio
securities only to the extent that such activity does not jeopardize such
Portfolio's qualification as a regulated investment company under Subchapter M
of the Internal Revenue Code.
COVERED CALL OPTIONS
Each Portfolio (other than the Money Market Portfolio) may write (sell)
covered call options on its portfolio securities in an attempt to enhance
investment performance. A call option is a short-term contract, ordinarily
having a duration of nine months or less which gives the purchaser of the
option, in return for a premium paid, the right to buy, and the writer of the
option the obligation to sell, the underlying security at the exercise price at
any time prior to the expiration of the option period. An option is covered when
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
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 forgo 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
3
<PAGE>
represents a profit. Moreover, in writing the option, the Portfolio will retain
the risk of loss should the price of the security decline, which loss the
premium is intended to offset 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 the option will be listed on national
securities exchanges, except that certain transactions in debt securities and
related options need not be so listed.
GINNIE MAE CERTIFICATES
The Managed Portfolio, High Grade Bond Portfolio and High Yield Bond
Portfolio may each 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, are either 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 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 the guarantee of Ginnie Maes by GNMA,
foreclosures impose no risk to the principal invested.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates vary widely, it is not possible to accurately predict the
average life of a particular pool. However, statistics indicate that the average
life of the type of mortgages backing the majority of Ginnie Maes is
approximately 12 years. For this reason, it is standard practice to treat Ginnie
Maes as 30-year mortgage-backed securities that prepay fully in the twelfth
year. Pools of mortgages with other maturities or different characteristics will
have varying assumptions for average life. The assumed average life of pools of
mortgages having terms of less than 30 years is less than 12 years, but
typically not less than 5 years.
The coupon rate of interest on Ginnie Maes is lower than the interest rate
paid on the VA-guaranteed or FHA-insured mortgages underlying the certificates,
but only by the amount of the fees paid to GNMA and the issuer. Such fees in the
aggregate usually amount to approximately 1/2 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average-life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
rates, the rate of prepayment
4
<PAGE>
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.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
In seeking to achieve its investment objective(s), each Portfolio has
adopted the following investment restrictions. These are fundamental policies
and may not be changed without a majority vote of the outstanding shares of each
Portfolio affected. As used in this Statement of Additional Information and in
the Prospectus, the phrase "majority vote" of a Portfolio (or the Fund) means
the vote of the lesser of (i) 67% of the shares of the Portfolio (Fund) present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Portfolio (Fund). A change in policy affecting only one Portfolio may be
effected by a majority vote of the outstanding shares of such Portfolio.
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 the time of investment) would be
invested in securities of that issuer.
2. Purchase 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 total net 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
to instruments secured by these instruments, such as repurchase agreements for
U.S. Government securities (these instruments are described in Appendix A to the
Prospectus).
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 net
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 trustees 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.
5
<PAGE>
8. Issue senior securities, except as appropriate to evidence indebtedness
which a Portfolio is permitted to incur pursuant to (9) below.
9. Borrow money, except from banks for temporary or emergency purposes, and
in no event in excess of 5% of its total net assets, or pledge or mortgage more
than 15% of its gross assets.
10. Underwrite securities issued by others, except to the extent that it may
be deemed to be a statutory underwriter in the sale of restricted securities
that it holds in its portfolios which require registration under the Securities
Act of 1933 before resale.
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).
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).
14. Lend its portfolio securities in excess of 20% of its net assets or in a
manner inconsistent with the guidelines set forth under "Description of Certain
Investment Techniques" in the Prospectus and "Investment Objectives, Policies
and Techniques" in this Statement of Additional Information.
15. Invest in foreign securities, except as follows: the Value Growth and
Managed Portfolios may invest up to 25% of its net assets in foreign equity and
debt securities traded on U.S. exchanges and payable in U.S. dollars, and the
High Grade Bond and High Yield Bond Portfolios may each invest up to 25% of its
net assets in foreign debt securities traded on U.S. exchanges and payable in
U.S. dollars.
16. Write, purchase or sell puts, calls or combinations thereof, other than
writing covered call options.
NON-FUNDAMENTAL (OPERATING) POLICIES
The following are non-fundamental (operating) policies approved by the Board
of Trustees. Such policies may be changed by the Board of Trustees without
approval of the Shareholders. These non-fundamental policies are applicable to
each of the Portfolios.
1. Each Portfolio will not invest more than 15% of its total net assets in
"illiquid" securities (except 10% for the Money Market and Blue Chip
Portfolios).
2. Each Portfolio intends to meet either the diversification standards set
by Section 817(h)(2) of the Internal Revenue Code or the diversification
requirements prescribed by regulations promulgated under Section 817(h).
3. Each Portfolio intends to comply in all material respects with insurance
laws and regulations applicable to investments of separate accounts of
Participating Insurance Companies.
If a percentage limitation 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.
6
<PAGE>
OFFICERS AND TRUSTEES
The officers and trustees(1) of the Fund(2) and their principal
occupations(3) for the past five years are set forth below.
EDWARD M. WIEDERSTEIN*, PRESIDENT AND TRUSTEE (50)
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 and American Ag Insurance Company.
RICHARD D. HARRIS*, SENIOR VICE PRESIDENT, SECRETARY-TREASURER AND TRUSTEE (54)
5400 University Avenue
West Des Moines, Iowa 50266
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. He holds 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, ASSISTANT SECRETARY
AND TRUSTEE (52)
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, Inc.; Senior Vice President and General Counsel, Farm Bureau Life
Insurance Company, FBL Insurance Brokerage, Inc. and other affiliates of the
foregoing; Director, Computer Aided Design Software, Inc. and Iowa Business
Development Finance Corporation; Chairman, Edge Technologies, Inc.
- ------------------------
(1) The four Trustees listed with an asterisk are "interested persons" as
defined in the Investment Company Act of 1940.
(2) The officers and trustees of the Fund also serve in similar capacities as
officers and directors of EquiTrust Money Market Fund, Inc. and EquiTrust
Series Fund, Inc.
(3) The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during this period.
7
<PAGE>
THOMAS R. GIBSON, CHIEF EXECUTIVE OFFICER (53)
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, Inc.;
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 (47)
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, Inc.
WILLIAM J. ODDY, CHIEF OPERATING OFFICER (54)
5400 University Avenue
West Des Moines, Iowa 50266
Chief Operating Officer, FBL Financial Group, Inc. and FBL Financial
Services, Inc.; Executive Vice President and General Manager, Farm Bureau
Life Insurance Company, Western Farm Bureau Life Insurance Company and other
affiliates of the foregoing; Vice President, Farm Bureau Mutual Insurance
Company and other affiliates of the foregoing; President, Treasurer and
Director, Communications Providers, Inc.; Chief Operating Officer and
Director, EquiTrust Marketing Services, Inc. and EquiTrust Investment
Management Services, Inc.; President and Director, FBL Real Estate Ventures,
Ltd. and RIK, Inc.; Chief Executive Officer, Western Computer Services, Inc.
JAMES W. NOYCE, CHIEF FINANCIAL OFFICER (42)
5400 University Avenue
West Des Moines, Iowa 50266
Chief Financial Officer, Farm Bureau Life Insurance Company, FBL Financial
Group, Inc., Western 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, Inc.
He holds other positions with various affiliates of the foregoing.
LOU ANN SANDBURG, VICE PRESIDENT--INVESTMENTS AND ASSISTANT TREASURER (50)
5400 University Avenue
West Des Moines, Iowa 50266
Vice President--Investments and Assistant Treasurer, Farm Bureau Life
Insurance Company, FBL Financial Group, Inc., Western Farm Bureau Life
Insurance Company and other affiliates of the foregoing. Vice
President--Investments, EquiTrust Investment Management Services, Inc. and
EquiTrust Marketing Services, Inc. She holds other positions with various
affiliates of the foregoing.
8
<PAGE>
DENNIS M. MARKER, INVESTMENT VICE PRESIDENT, ADMINISTRATION AND ASSISTANT
SECRETARY (46)
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, Inc. He holds
other positions with various affiliates of the foregoing.
SUE A. CORNICK, MARKET CONDUCT AND MUTUAL FUNDS VICE PRESIDENT AND ASSISTANT
SECRETARY (37)
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, Inc.
KRISTI ROJOHN, ASSISTANT SECRETARY (35)
5400 University Avenue
West Des Moines, Iowa 50266
Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, Inc.
ELAINE A. FOLLOWWILL, ASSISTANT SECRETARY (27)
5400 University Avenue
West Des Moines, Iowa 50266
Compliance Assistant and Assistant Secretary, EquiTrust Investment
Management Services, Inc. and EquiTrust Marketing Services, Inc.
DONALD G. BARTLING, TRUSTEE (70)
Box 104
Herman, Nebraska 68029
Farmer; Partner, Bartling Brothers Partnership (farming business); Director,
Papio Missouri River Natural Resources District.
JOHN R. GRAHAM*, TRUSTEE (52)
1512 Country Club Place
Manhattan, Kansas 66502
Executive Vice President, Kansas Farm Bureau, Kansas Farm Bureau Services,
Kansas Agricultural Marketing Association, FB Services Insurance Agency,
Kansas Farm Bureau Life Insurance Company, The Farm Bureau Mutual Insurance
Company, Inc., Kansas Farm Bureau Reinsurance Company and KFB Insurance
Company, Inc.; Chairman, Chief Executive Officer and Director, FB Capital
Management, Inc. of Kansas; Director, National Association of Independent
Insurers, Didde Corporation and Farm Bureau Mutual Insurance Agency of
Kansas; Partner, Arthur-Graham Rental Properties, CM Brass and G&H Real
Estate Investments; Trustee, Master Teacher Employee Benefit Pension Trust.
9
<PAGE>
ERWIN H. JOHNSON, TRUSTEE (55)
1841 March Avenue
Charles City, Iowa 50616
Farmer; Owner and Manager, Center View Farms, Co.; Director, First Security
Bank and Trust Co., Charles City, Iowa; Farm Associate, Iowa State
University Cooperative Extension Service; Voting Delegate, former President
and Director, Floyd County Farm Bureau; Financial and Farm Management
Consultant; Iowa State University Overseas Projects.
KENNETH KAY, TRUSTEE (54)
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.
CURTIS C. PIETZ, TRUSTEE (66)
R.R. 3 Box 79
Lakefield, Minnesota 65150
Farmer; Director and Part Owner, Storden Seed and Chemical Service, Inc.;
Director, Minnesota Rural Finance Authority; former President, Jackson
County Farm Bureau; former Chairman and Director, Southwest Farm Management
Association; Director, F.C.S.; former Program Evaluator, Minnesota
Department of Vocational Education.
The officers and trustees of the Fund also serve in similar capacities as
officers and directors of EquiTrust Money Market Fund, Inc. and EquiTrust Series
Fund, Inc. Several of the officers and trustees are also officers and directors
of the Adviser. The Fund pays no direct remuneration to any officer of the Fund.
Each of the trustees who is not affiliated with the Adviser will be compensated
by the Fund. Each of these unaffiliated trustees will receive a fee of $115 plus
expenses for each trustees' meeting attended. For the fiscal year ended December
31, 1997, trustees fees paid by the Fund totaled $1,955.
TABLE OF TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE PENSION AND RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS PART FROM ALL FUNDS IN
NAME OF TRUSTEE FROM THE FUND OF FUND EXPENSES THE EQUITRUST FAMILY
- ------------------------ ----------------- ----------------------------- ---------------------
<S> <C> <C> <C>
Mr. Bartling $ 460 $ 0 $ 1,380
Mr. Graham 0 0 0
Mr. Johnson 460 0 1,380
Ms. Jorgensen* 115 0 345
Mr. Kay 460 0 1,380
Mr. Pietz 460 0 1,380
Mr. Wiederstein 0 0 0
Mr. Morain* 0 0 0
Mr. Harris 0 0 0
</TABLE>
- ------------------------
* Ms. Jorgensen and Mr. Morain resigned as trustees of the Fund on June 12, 1997
and July 9, 1997, respectively.
10
<PAGE>
Trustees 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.
INVESTMENT ADVISER
The following information supplements the information set forth in the
Prospectus under the heading "Management of the Fund -- Investment Adviser."
Pursuant to an Investment Advisory and Manage-
ment Services Agreement dated April 6, 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 Trustees. 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, 66% 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 Series Fund, Inc. 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 objectives and policies of each Portfolio, determining, for
each Portfolio, what securities shall be purchased and sold and what portion of
the Portfolio's assets shall be held uninvested, subject always to: (i) the
provisions of the Declaration of Trust, the Fund's by-laws, the Investment
Company Act of 1940 and applicable requirements of the Internal Revenue Code;
(ii) the Portfolio's investment objectives, policies and restrictions; and (iii)
such policies and instructions as the Board of Trustees 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 Trustees (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 trustees, officers or agents of the Fund
if duly elected to such positions.
The Adviser, at its expense, furnishes the Fund with office space and
facilities, simple business equipment, advisory, research and statistical
facilities and clerical services and personnel to administer the business
affairs of the Fund. As compensation for the Adviser's investment advisory,
management and clerical services, as well as the facilities it provides and the
expenses it assumes, the Agreement provides for the payment of a monthly fee as
described in the Prospectus.
The Adviser is not required to pay expenses of the Fund other than those set
forth above. Each Portfolio will pay all other expenses incurred in its
operation, including a portion of the Fund's general administrative expenses,
allocated on the basis of the Portfolio's net 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 trustees' 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 trustees 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
11
<PAGE>
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 March 13, 1987, by the Board of Trustees, and
on August 21, 1990, by Farm Bureau Life Insurance Company, pursuant to voting
instructions of policyowners, as sole Shareholder of the Value Growth Portfolio,
High Grade Bond Portfolio, High Yield Bond Portfolio, Managed Portfolio and the
Money Market Portfolio. An amendment to the Agreement to extend the Agreement to
the Blue Chip Portfolio was approved by the Board of Trustees on August 21,
1990, reapproved on August 15, 1991 and approved by Shareholders of that
Portfolio on November 13, 1991 pursuant to instructions from variable life
insurance policyowners indirectly invested in the Portfolio. Unless earlier
terminated as described below, the Agreement will continue in effect until
October 15, 1997. 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 Trustees 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 Trustees 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 any 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 December 31, 1997, 1996 and 1995, the advisory
and management fee expense was $168,315, $104,228 and $65,647, respectively, for
the Value Growth Portfolio; $12,594, $9,973 and $8,481, respectively, for the
High Grade Bond Portfolio; $32,916, $26,585 and $23,073, respectively, for the
High Yield Bond Portfolio; $168,689, $109,830 and $65,457, respectively for the
Managed Portfolio; $10,533, $9,579 and $8,050, respectively, for the Money
Market Portfolio; and $47,121, $20,647 and $9,533, respectively, for the Blue
Chip Portfolio.
The Adviser has also agreed to reimburse any Portfolio of the Fund 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. This
reimbursement agreement will remain in effect for as long as the Investment
Advisory Agreement remains in effect and cannot be changed without a shareholder
vote. In addition, the Adviser has agreed to reimburse any Portfolio to the
extent that annual operating expenses, including the investment advisory fee,
exceed .65%. There can be no assurance that the Adviser will continue to limit
expenses beyond December 31, 1998. The agreement to reimburse any Portfolio to
the extent any operating expenses exceed .65% also applied to the period May 1,
1997 through December 31, 1997. For the period January 1, 1997 through April 30,
1997 and for the fiscal year ended 1996 expenses were limited to .55%.
12
<PAGE>
UNDERWRITING AND DISTRIBUTION EXPENSES
Pursuant to an Underwriting Agreement ("Underwriting Agreement"), the
Adviser also serves, without compensation from the Fund, as the principal
underwriter and sole distributor of the Fund's shares. Under the terms of the
Underwriting Agreement, the Adviser is not obligated to sell any specific number
of shares. The Agreement was approved on August 12, 1987, by the Board of
Trustees, including a vote of a majority of the trustees who are not "interested
persons" of either party to the Underwriting Agreement. Unless terminated
earlier as described below, the Underwriting Agreement will continue in effect
from year to year so long as its continuance is approved annually by (a) the
vote of a majority of the trustees who are not parties to the Underwriting
Agreement or "interested persons" of either party to the Underwriting 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 Trustees or (ii) the vote of a
majority of the outstanding shares of the Fund. The Underwriting Agreement may
be terminated without penalty at any time upon six months' notice by either
party, and will terminate automatically upon assignment. The Adviser has
authority, pursuant to the Underwriting Agreement, to enter into similar
contracts with other investment companies.
Pursuant to the Underwriting Agreement, the Fund is responsible for the
payment of all fees and expenses of registering its shares under federal and
state securities laws. The Fund will also pay the fees and expenses incurred in
connection with: (i) the preparation, printing and mailing of annual
prospectuses to existing Shareholders; (ii) the preparation, printing and
mailing of any notice, proxy statement, report, supplemental prospectus or other
communications to Shareholders; and (iii) the printing and mailing of
confirmations of purchases of shares. The Fund will also pay for certain other
items, including, but not limited to, the following: any issue or initial
transfer taxes; the wiring of funds for share purchases and redemptions (unless
paid by the Shareholder who initiates the transaction); and the printing and
postage of business reply envelopes. The above-described expenses will be
allocated among the Portfolios on the basis of their respective net assets.
The Adviser is obligated to pay for the printing (but not the typesetting)
and distribution of prospectuses and statements of additional information to
prospective VA contract and VLI policyholders, and the preparation, printing and
distribution of any reports or other literature or advertising in connection
with the offering of the shares. The Adviser will pay all fees and expenses in
connection with its qualification and registration as a broker or dealer under
federal and state laws. The Adviser will also pay for any activity which is
primarily intended to result in the sale of shares of the Fund.
The Adviser intends to enter into agreements with Participating Insurance
Companies pursuant to which the Participating Insurance Companies will assume
the Adviser's obligation to pay for the printing and distribution of
prospectuses of the Fund in connection with the sale by the Participating
Insurance Companies of VA contracts and VLI policies. The Adviser continuously
offers shares of each Portfolio of the Fund to the separate accounts of
Participating Insurance Companies. Such shares will be sold at their respective
net asset values and therefore will involve no sales charge.
The Adviser also acts as principal underwriter and sole distributor of the
shares of EquiTrust Money Market Fund, Inc. and EquiTrust Series Fund, Inc.
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.
13
<PAGE>
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; 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
benefitted by such supplemental research services, the Adviser 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 December 31, 1997, 1996 and 1995 of $156,687, $74,514 and $45,472,
respectively.
The Portfolios may deal in some instances in securities which 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 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 other clients are made with a view to achieving their respective investment
objectives and after consideration of factors such as their current holdings,
availability of cash for investment and the size of their investments in
general. Frequently, a particular security may be bought or sold for only one
client, or in different amounts and at different times for more than one but
less than all clients. Likewise, a particular security may be bought for one or
more 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 on the same day. 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 Trustees 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 clients of the
Adviser in the interest of the most favorable net results to the Portfolio.
PURCHASES AND REDEMPTIONS
The following discussion supplements the discussion in the Prospectus under
the headings "Purchase of Shares" and "Redemption of Shares."
Shares of the Fund may be purchased only by the separate accounts of
Participating Insurance Companies. (Please refer to the prospectuses for the VA
contracts and the VLI policies for a description of how to purchase a contract
or policy.)
Shares of each Portfolio are sold at their respective net asset value next
determined after an order for purchase and payment in proper form are received.
Payment for shares is made in federal funds transmitted by wire on the next
business day following the order for purchase.
14
<PAGE>
Shares of each Portfolio are redeemed at their respective net asset value
next determined after a request for redemption is received in proper form. The
Fund may suspend the right of redemption or postpone the date of payment, with
respect to the shares of a Portfolio, during any period when (a) trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such exchange is closed for trading other than customary
weekend and holiday closings; (b) an emergency exists, as determined by the
Securities and Exchange Commission, as a result of which disposal of such
Portfolio's securities, or determination of the net asset value of such
Portfolio, is not reasonably practicable; or (c) the Securities and Exchange
Commission by order permits such suspension for the protection of Shareholders.
In such event, redemption will be effected at the net asset value next
determined after the suspension has been terminated unless the Shareholder has
withdrawn the redemption request in writing and the request has been received
prior to the day of such determination of net asset value.
NET ASSET VALUE
The following supplements the discussion in the Prospectus under the heading
"Net Asset Value Information."
MONEY MARKET PORTFOLIO
The net asset value per share of the Money Market Portfolio is computed by
dividing the total value of the Portfolio's securities and other assets, less
liabilities (including dividends payable), by the number of shares outstanding.
The assets are determined by valuing the portfolio securities at amortized cost,
pursuant to Rule 2a-7 under the Investment Company Act. The amortized cost
method of valuation involves valuing a security at cost at the time of purchase
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
The purpose of the amortized cost method of valuation is to attempt to
maintain a constant net asset value per share of $1.00. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold its portfolio securities. Under the direction of the
Board of Trustees, 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 based values. Market values
are obtained by using actual quotations provided by market makers, estimates of
market value (provided the Board of Trustees has reviewed and approved the
method of making such estimates), 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 based valuations were to occur, or
if there were other deviations which the Board of Trustees believed would result
in dilution or other unfair results material to Shareholders, the Board of
Trustees 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 fluctuation into
consideration.
15
<PAGE>
OTHER PORTFOLIOS
The net asset value per share of each Portfolio other than the Money Market
Portfolio is computed by dividing the total value of the Portfolio's securities
and other assets, less liabilities, by the number of Portfolio shares then
outstanding. Securities traded on a national exchange are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between closing bid and asked prices.
Securities other than money market instruments traded in the over-the-counter
market are valued at the mean between closing 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 Trustees. 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.
The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated specifically to such Portfolio, and
constitute the underlying assets of such Portfolio. The underlying assets of
each Portfolio are segregated on the Fund's books of account, and are charged
with the liabilities of such Portfolio and with a share of the general
liabilities of the Fund. Expenses with respect to any two or more Portfolios are
allocated in proportion to the net assets 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 qualify and elects 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 and the four percent deductible federal excise tax, on
the part of its net ordinary income and net realized capital gain which it
distributes to Shareholders. To qualify for treatment as a "regulated investment
company," each Portfolio must, among other things, derive in each taxable year
at least 90 percent of its gross income from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities or foreign currencies (subject to the authority of the
Secretary of the Treasury to exclude foreign currency gains that are not
ancillary to the Portfolio's principal business of investing in stock or
securities or options and futures with respect to such stock or securities), or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stocks, securities, or currencies.
Since the Shareholders of the Fund will be the separate accounts of the
Participating Insurance Companies, no discussion is included herein as to the
federal income tax consequences at the shareholder level. For information
concerning the federal income tax consequences to the holders of VA contracts or
VLI policies, see the prospectuses for such contracts or policies.
The discussion under "Taxes and Distributions" 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. The above discussion covers
only Federal tax considerations with respect to the Fund. State and local taxes
vary.
16
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The following supplements the discussion of dividends and distributions in
the Prospectus under the heading "Taxes and Distributions."
MONEY MARKET PORTFOLIO
The Portfolio declares dividends of all its daily net investment income on
each day the Portfolio's net asset value per share is determined. Dividends are
payable monthly and are automatically reinvested and distributed on the last
business day of each month in full and fractional shares of the Portfolio at the
then-current net asset value unless a Shareholder requests payment in cash.
Net investment income, for dividend purposes consists of (1) accrued
interest income, plus or minus (2) amortized purchase discount or premium, plus
or minus (3) all short-term realized gains or losses and unrealized appreciation
or depreciation on portfolio assets, minus (4) all accrued expenses of the
Portfolio. Expenses of the Portfolio are accrued daily. So long as the portfolio
securities are valued at amortized cost, there will be no unrealized
appreciation or depreciation on such securities.
HIGH GRADE BOND AND HIGH YIELD BOND PORTFOLIOS
The Portfolios declare dividends of all their investment income on each day
the Portfolio's Net Asset Value 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.
OTHER PORTFOLIOS
It is the policy of the Value Growth, Blue Chip and Managed Portfolios to
distribute at least annually substantially all their net investment income, if
any, and any net realized capital gains.
Both dividend and capital gain distributions will be made in shares of such
Portfolio unless a Shareholder requests payment in cash.
PERFORMANCE INFORMATION
As described in the Prospectus, a Portfolio's historical performance or
return may be shown in the form of "average annual total return" and "total
return" in the case of all Portfolios except the Money Market Portfolio; "yield"
in the case of the High Yield Bond and High Grade Bond Portfolios; and "yield"
and "effective yield" in the case of the Money Market Portfolio. These various
measures of performance are described below.
Average annual total return and total return measure both the net income
generated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of a Portfolio over the specified
period. Yield is a measure of the net investment income per share earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Portfolio) expressed as a percentage of the net asset value.
A Portfolio's standardized average annual total return quotation is computed
in accordance with a method prescribed by rules of the Securities and Exchange
Commission. The standardized average annual total return for a Portfolio for a
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 net
asset value per share ("initial investment"), and computing the ending
redeemable value ("redeemable value") of that investment at the end of the
period. The redeemable value 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
17
<PAGE>
income and capital gains dividends by the Portfolio have been reinvested at net
asset value on the reinvestment dates during the period. Standardized average
annual total return figures for various periods are set forth in the tables
below.
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 and
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 tables below.
The yield for a Portfolio other than the Money Market Portfolio is computed
in accordance with the formula set forth below, which is a standardized method
prescribed by rules of the Securities and Exchange Commission. Based upon the
30-day period ended December 31, 1997 the High Grade Bond Portfolio's yield was
6.55% and the High Yield Bond Portfolio's yield was 7.23%. A Portfolio's yield
is computed by dividing the net investment income per share earned during the
specific one-month or 30-day period by the offering price per share on the last
day of the period, according to the following formula:
<TABLE>
<S> <C> <C> <C>
[(a-b +1)to the power of 6 -1]
Yield = 2 -------------
cd
</TABLE>
<TABLE>
<C> <S>
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the offering price per share on the last day of the period.
</TABLE>
In computing yield, the Fund follows certain standardized accounting
practices specified by Securities and Exchange Commission rules. These practices
are not necessarily consistent with those that the Fund uses to prepare its
annual and interim financial statements in accordance with generally accepted
accounting principles.
The Money Market Portfolio's yield is computed in accordance with a standard
method prescribed by rules of the Securities and Exchange Commission. Under that
method, the yield quotation is based on a seven-day period and is computed as
follows. The net investment income per share (accrued interest on portfolio
securities, plus or minus amortized premium or discount, less accrued expenses)
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") and 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 December 31, 1997 were 5.44% and 5.59%, respectively.
18
<PAGE>
A Portfolio's performance quotations are based upon historical results and
are not necessarily representative of future performance. The Fund's shares are
sold at net asset value, and return and net asset value will fluctuate except
that the Money Market Portfolio seeks to maintain a $1.00 net asset value per
share. Factors affecting a Portfolio's performance include general market
conditions, operating expenses and investment management. Shares of a Portfolio
are redeemable at net asset value, which may be more or less than original cost.
The figures below show performance information for various periods ended
December 31, 1997. The rate of return for a Portfolio should be distinguished
from the rate of return of a corresponding subaccount of a separate account of a
Participating Insurance Company, whose rate will reflect the deduction of
additional charges, including a mortality and expense risk charge, and, if
calculated for corresponding periods, would be lower. VA contract and VLI
policyowners should consult the prospectus for such contract or policy.
AVERAGE ANNUAL TOTAL RETURN TABLE
FOR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
STANDARDIZED
AVERAGE ANNUAL
PORTFOLIO TOTAL RETURN
- --------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Value Growth
Life of Portfolio (1)............................................................................ 9.21%
Ten-Year......................................................................................... 12.33%
Five-Year........................................................................................ 13.86%
One-Year......................................................................................... 6.30%
High Grade Bond
Life of Portfolio (1)............................................................................ 9.61%
Ten-Year......................................................................................... 9.15%
Five-Year........................................................................................ 7.68%
One-Year......................................................................................... 10.24%
High Yield Bond
Life of Portfolio (1)............................................................................ 11.58%
Ten-Year......................................................................................... 11.38%
Five-Year........................................................................................ 10.79%
One-Year......................................................................................... 12.07%
Managed
Life of Portfolio (1)............................................................................ 11.59%
Ten-Year......................................................................................... 12.18%
Five-Year........................................................................................ 13.75%
One-Year......................................................................................... 10.67%
Blue Chip (2)
Life of Portfolio................................................................................ 19.53%
Five-Year........................................................................................ 19.25%
One-Year......................................................................................... 27.41%
</TABLE>
19
<PAGE>
TOTAL RETURN TABLE
FOR PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PORTFOLIO TOTAL RETURN
- ---------------------------------------------------------------------------------------------------- -------------
<S> <C>
Value Growth
Life of Portfolio (1)............................................................................. 145.75%
Ten-Year.......................................................................................... 219.97%
Five-Year......................................................................................... 91.37%
One-Year.......................................................................................... 6.30%
High Grade Bond
Life of Portfolio (1)............................................................................. 155.25%
Ten-Year.......................................................................................... 140.01%
Five-Year......................................................................................... 44.74%
One-Year.......................................................................................... 10.24%
High Yield Bond
Life of Portfolio (1)............................................................................. 206.13%
Ten-Year.......................................................................................... 193.85%
Five-Year......................................................................................... 66.91%
One-Year.......................................................................................... 12.07%
Managed
Life of Portfolio (1)............................................................................. 206.35%
Ten-Year.......................................................................................... 215.57%
Five-Year......................................................................................... 90.44%
One-Year.......................................................................................... 10.67%
Blue Chip (2)
Life of Portfolio................................................................................. 262.06%
Five-Year......................................................................................... 141.20%
One-Year.......................................................................................... 27.41%
</TABLE>
- ------------------------
(1) The Value Growth, High Grade Bond, High Yield Bond and Managed Portfolios
commenced operations on October 15, 1987.
(2) The Blue Chip Portfolio commenced operations on October 15, 1990.
SHAREHOLDER VOTING RIGHTS
All shares of the Fund have equal voting rights and may be voted in the
election of Trustees and on other matters submitted to the vote of Shareholders.
As permitted by Massachusetts law, there will normally be no meetings of
Shareholders for the purposes of electing trustees unless and until such time as
fewer than a majority of the trustees holding office have been elected by
Shareholders. At that time, the Trustees then in office will call a
Shareholders' meeting for the election of Trustees. The Trustees must call a
meeting of Shareholders for the purpose of voting upon the question of removal
of any Trustee when requested to do so by the record holders of 10 percent of
the outstanding shares of the Fund. At such a meeting, a Trustee may be removed
after the holders of record of not less than two-thirds of the outstanding
shares of the Fund have declared that the Trustee be removed either by
declaration in writing or by votes cast in person or by proxy. Except as set
forth above, the Trustees shall continue to hold office and may appoint
successor Trustees, provided that immediately after the appointment of any
successor Trustee, at least two-thirds of the Trustees have been elected by the
Shareholders. The shares do not have cumulative voting rights, which means that
the holders of a majority of the shares voting for the election of Trustees can
elect all the Trustees. No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
Fund, except that
20
<PAGE>
amendments to conform the Declaration to the requirements of applicable federal
laws or regulations, or to the regulated investment company provisions of the
Internal Revenue Code, or to designate and establish additional Portfolios, may
be made by the Trustees without the vote or consent of the Shareholders. If not
terminated by the vote or written consent of a majority of its outstanding
shares, the Fund will continue indefinitely.
In matters which only affect a particular Portfolio, the matter shall have
been effectively acted upon by a majority vote of that Portfolio even though:
(i) the matter has not been approved by a majority vote of any other Portfolio;
or (ii) the matter has not been approved by a majority vote of the Fund.
CONTROL PERSONS
Farm Bureau Life Insurance Company ("Farm Bureau"), an Iowa corporation,
through its Variable Accounts will own all of the Fund's outstanding shares,
other than the shares of the Fund purchased for investment by Farm Bureau
through its general account to get the Portfolios of the Fund started and any
additional shares acquired by Farm Bureau through reinvestment of dividends on
those shares.
Because Farm Bureau owns the shares of the Fund, the Fund is deemed to be
controlled by Farm Bureau by nature of the definitions contained in the
Investment Company Act of 1940. However, Farm Bureau will generally vote the
shares of the Fund held by the Variable Account in accordance with instructions
received from its VLI policyholders and VA contractholders. The shares held in
Farm Bureau's general account will generally be voted in proportion to voting
instructions received from Farm Bureau's VLI policyholders. Under certain
circumstances, however, Farm Bureau may disregard voting instructions received
from VLI policyholders.
OTHER INFORMATION
CUSTODIAN
Bankers Trust Company, Global Assets-Insurance Group, 16 Wall Street, New
York, N.Y., 10005, is the 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 for the current fiscal year are Ernst &
Young LLP, 801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309. The independent
auditors audit and report on the Fund's annual financial statements, review
certain regulatory reports and perform other professional accounting, auditing,
tax and advisory services when engaged to do so by the Fund.
ACCOUNTING SERVICES
The Fund has entered into an accounting services agreement with EquiTrust
Investment Management Services, Inc. ("EquiTrust"), pursuant to which EquiTrust
performs accounting services for the Fund. In addition, the agreement provides
that EquiTrust shall calculate the Fund's net asset value in accordance with the
Fund's current Prospectus and prepare for Fund approval and use various tax
returns and other reports. For such services, each Portfolio pays EquiTrust an
annual fee, payable monthly, of 0.05% 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 December 31, 1997, the aggregate amount of such fees paid
to EquiTrust was $55,259.
DIVIDEND DISBURSING AND TRANSFER AGENT
EquiTrust Investment Management Services, Inc., serves as the Fund's
dividend disbursing and transfer agent.
LEGAL MATTERS
The firm of Sutherland, Asbill & Brennan LLP, Washington, D.C., is counsel
for the Fund.
21
<PAGE>
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain
all the information set forth in the registration statement and exhibits
relating thereto which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
FINANCIAL STATEMENTS
The audited financial statements of the Fund, including the notes thereto,
contained in the Annual Report to Shareholders of EquiTrust Variable Insurance
Series Fund for the fiscal year ended December 31, 1997 were filed with the
Securities and Exchange Commission on February 26, 1998 and are incorporated by
reference. Additional copies of such Annual Report to Shareholders may be
obtained without charge by contacting the Fund.
22
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are filed as part of this
Registration Statement.
Included in Part A -- Prospectus:
Financial Highlights
Incorporated by reference in Part B -- Statement of Additional
Information:
Annual Report to Shareholders
Report of Independent Auditors
Statements of Assets and Liabilities as of December 31, 1997
Schedules of Investments as of December 31, 1997
Statements of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for the year ended December
31, 1997
Statements of Changes in Net Assets for the year ended December
31, 1996
Notes to Financial Statements, December 31, 1997
(b) Exhibits:
<TABLE>
<C> <S> <C>
1. *(a) Declaration of Trust.
*(b) Amendment to Declaration of Trust.
*(c) Amendment to Declaration of Trust.
*(d) Amendments to Declaration of Trust.
*(e) Amendment to Declaration of Trust.
*(f) Amendment to Declaration of Trust.
2. *By-Laws of Registrant.
3. None.
4. None.
5. *(a) Investment Advisory and Management Services Agreement.
*(b) Amendment to Investment Advisory Management Services Agreement.
*(c) Amendment to Investment Advisory Management Services Agreement.
6. *Underwriting Agreement between Registrant and EquiTrust Investment Management
Services, Inc.
7. None.
8. *Custodian Agreement between Registrant and Bankers Trust Company Des Moines, N.A.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
9. *(a) Dividend Disbursing and Transfer Agent Agreement between Registrant and
FBL Investment Advisory Services, Inc.
*(b) Fidelity Bond Joint Insureds Agreement.
*(c) Joint Insureds DO & EO Agreement.
(d) *(i) Subscription Agreement.
*(ii) Additional Subscription Agreement.
*(iii) Subscription Agreement for the Money Market Portfolio.
*(iv) Subscription Agreement for the Blue Chip Portfolio.
*(e) Participation Agreement.
*(f) Accounting Services Agreement.
*10. Consent of Sutherland, Asbill & Brennan LLP
*11. Consent of Ernst & Young LLP.
12. None.
*13. See Exhibits 9(d)(i) and 9(d)(ii).
14. None.
15. None.
*16. Schedule for Computation of Performance Calculations.
*27.1 Value Growth Portfolio Financial Data Schedule
*27.3 High Grade Bond Portfolio Financial Data Schedule
*27.4 High Yield Bond Portfolio Financial Data Schedule
*27.5 Managed Portfolio Financial Data Schedule
*27.6 Money Market Portfolio Financial Data Schedule
*27.7 Blue Chip Portfolio Financial Data Schedule
</TABLE>
- ------------------------
* Attached as an exhibit.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by the Registrant. All of the outstanding common
stock of the Registrant is, or will be, owned by Farm Bureau Life Insurance
Company ("Farm Bureau"), an Iowa life insurance corporation, Farm Bureau Life
Variable Account and Farm Bureau Life Annuity Account, separate accounts of Farm
Bureau which are registered as unit investment trusts under the Investment
Company Act of 1940 (File Nos. 811-5068/33-12789 and 811-7974/33-67538). Farm
Bureau is owned by FBL Financial Group, Inc., an Iowa corporation. 66.36% of the
outstanding voting shares of FBL Financial Group, Inc. is owned by Iowa Farm
Bureau Federation. Iowa Farm Bureau Federation is an Iowa not-for-profit
corporation, the members of which are county farm bureau organizations and their
individual members. Therefore, various companies controlled by Iowa Farm Bureau
Federation or otherwise affiliated with Farm Bureau, may be deemed to be under
common control with the Registrant. These companies, together with the identity
of the owners of their common stock, are set forth on a diagram incorporated
herein by reference to item 26 of post-effective amendment number 5 to the Form
N-4 registration statement filed with the Commission by Farm Bureau on May 1,
1998.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS
TITLE OF CLASS AS OF MAY 1, 1998
- -------------------------------------------------------- ---------------------
<S> <C>
Money Market Portfolio 2
Value Growth Portfolio 2
High Grade Bond Portfolio 2
Managed Portfolio 2
High Yield Bond Portfolio 2
Blue Chip Portfolio 2
</TABLE>
ITEM 27. INDEMNIFICATION.
See Article XI, Section 2 of the Registrant's Declaration of Trust, filed as
Exhibit 1 to this Registration Statement, which provision is incorporated herein
by reference to post-effective amendment No. 1 filed on August 28, 1987.
The Investment Advisory and Management Services Agreement between the
Registrant and the 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
trustees and officers are named insureds.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to trustees, 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 trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, 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 Registrant will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's investment adviser is EquiTrust Investment Management Services,
Inc. ("Adviser"). In addition to its services to Registrant as investment
adviser, underwriter and transfer and dividend disbursing agent, all as set
forth in parts A and B of this Registration Statement, the Adviser 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 Series Fund, Inc., a diversified open-end
series management investment company.
The principal occupations of the principal executive officers and directors
of the Adviser are their services as officers, directors and/or employees of FBL
Financial Group, Inc. and the Iowa Farm Bureau Federation and/or its affiliates
as disclosed below. The address of FBL Financial Group, Inc. and the Federation
and its affiliates is 5400 University Avenue, West Des Moines, Iowa 50266.
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION(S)
WITH ADVISER PRINCIPAL OCCUPATIONS
- --------------------------------- -----------------------------------------------------------------------------
<S> <C>
Stephen M. Morain Incorporated herein by reference to the Statement of Additional Information
Senior Vice President, (Part B) of this Registration Statement.
General Counsel and Director
William J. Oddy Incorporated herein by reference to the Statement of Additional Information
Chief Operating Officer and (Part B) of this Registration Statement.
Director
Dennis M. Marker Incorporated herein by reference to the Statement of Additional Information
Investment Vice President, (Part B) of this Registration Statement.
Administration, Secretary and
Director
Thomas R. Gibson Incorporated herein by reference to the Statement of Additional Information
Chief Executive Officer and (Part B) of this Registration Statement.
Director
Timothy J. Hoffman Incorporated herein by reference to the Statement of Additional Information
Vice President and Director (Part B) of this Registration Statement.
James W. Noyce Incorporated herein by reference to the Statement of Additional Information
Chief Financial Officer, (Part B) of this Registration Statement.
Treasurer and Director
Thomas E. Burlingame Incorporated herein by reference to the Statement of Additional Information
Vice President, Associate General (Part B) of this Registration Statement.
Counsel and Director
F. Walter Tomenga Incorporated herein by reference to the Statement of Additional Information
Vice President and Director (Part B) of this Registration Statement.
Lynn E. Wilson Incorporated herein by reference to the Statement of Additional Information
Vice President and Director (Part B) of this Registration Statement.
Lou Ann Sandburg, Incorporated herein by reference to the Statement of Additional Information
Vice President--Investments (Part B) of this Registration Statement.
Sue A. Cornick Incorporated herein by reference to the Statement of Additional Information
Market Conduct and Mutual Funds (Part B) of this Registration Statement.
Vice President and Assistant
Secretary
Kristi Rojohn Incorporated herein by reference to the Statement of Additional Information
Assistant Mutual Funds Manager (Part B) of this Registration Statement.
and Assistant Secretary
Elaine A. Followwill Incorporated herein by reference to the Statement of Additional Information
Compliance Assistant and (Part B) of this Registration Statement.
Assistant Secretary
Roger F. Grefe, Investment Management Vice President, FBL Financial Group, Inc.
Investment Management Vice
President
Robert Rummelhart, Fixed-Income Vice President, FBL Financial Group, Inc.
Fixed-Income Vice President
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION(S)
WITH ADVISER PRINCIPAL OCCUPATIONS
- --------------------------------- -----------------------------------------------------------------------------
<S> <C>
Roger PJ Soener Investment Vice President, Real Estate, FBL Financial Group, Inc. He holds
Investment Vice President, Real other positions with various affiliates of the foregoing.
Estate
James P. Brannen Tax and Investment Accounting Vice President, FBL Financial Group, Inc. and
Tax and Investment Accounting various affiliates of the foregoing.
Vice President
Kathleen E. Kruidenier Manager, Private Investor Services, EquiTrust Investment Management Services,
Manager, Private Investor Inc.
Services
Sharon M. Jerdee Investment Accounting Manager, EquiTrust Investment Management Services, Inc.
Investment Accounting Manager
Charles T. Happel Portfolio Manager, EquiTrust Marketing Services, Inc.
Portfolio Manager
Laura Kellen Beebe Portfolio Manager, EquiTrust Marketing Services, Inc.
Portfolio Manager
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) EquiTrust Investment Management Services, Inc., the principal
underwriter for Registrant, also acts as the investment adviser, principal
underwriter and transfer and dividend disbursing agent for EquiTrust Money
Market Fund, Inc. and EquiTrust Series Fund, Inc., both diversified open-end
management investment companies.
(b) The principal business address of each director and officer of the
principal underwriter is 5400 University Avenue, West Des Moines, Iowa 50266.
See Item 28 for information on the officers of EquiTrust Investment Management
Services, Inc.
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the offices of the Registrant and the offices of the Adviser,
EquiTrust Investment Management Services, Inc., 5400 University Avenue, West Des
Moines, Iowa 50266.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
The Registrant undertakes to furnish, upon request and without charge, to
each person to whom a prospectus is delivered a copy of the Registrant's latest
annual report to shareholders.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of West Des Moines and
State of Iowa, on the 27th day of April, 1998.
FBL VARIABLE INSURANCE SERIES FUND
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
capacities and on the dates indicated.
/s/ EDWARD M. WIEDERSTEIN President and Trustee April 27, 1998
- ------------------------------ (Principal Executive ------------
Edward M. Wiederstein Officer) (dated)
Senior Vice President
/s/ RICHARD D. HARRIS Secretary-Treasurer and April 27, 1998
- ------------------------------ Trustee (Principal ------------
Richard D. Harris Financial and Accounting (dated)
Officer)
April 27, 1998
- ------------------------------ Trustee ------------
Donald G. Bartling* (dated)
April 27, 1998
- ------------------------------ Trustee ------------
John R. Graham* (dated)
April 27, 1998
- ------------------------------ Trustee ------------
Erwin H. Johnson* (dated)
April 27, 1998
- ------------------------------ Trustee ------------
Kenneth Kay* (dated)
April 27, 1998
- ------------------------------ Trustee ------------
Curtis C. Pietz* (dated)
*By: /s/ STEPHEN M. MORAIN
------------------------- Attorney-in-Fact, pursuant to Power of
Stephen M. Morain Attorney.
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EX-1(a) Declaration of Trust
EX-1(b) Amendment to Declaration of Trust
EX-1(c) Amendment to Declaration of Trust
EX-1(d) Amendment to Declaration of Trust
EX-1(e) Amendment to Declaration of Trust
EX-1(f) Amendment to Declaration of Trust
EX-2 By-Laws of Registrant
EX-5(a) Investment Advisory and Management Services Agreement
EX-5(b) Amendment to Investment Advisory and Management Services Agreement
EX-5(c) Amendment to Investment Advisory and Management Services Agreement
EX-6 Underwriting Agreement
EX-8 Custodian Agreement
EX-9(a) Dividend Disbursing and Transfer Agent Agreement
EX-9(b) Fidelity Bond Joint Insureds Agreement
EX-9(c) Joint Insured DO & EO Agreement
EX-9(d)(i) Subscription Agreement
EX-9(d)(ii) Additional Subscription Agreement
EX-9(d)(iii) Subscription Agreement for Money Market Portfolio
EX-9(d)(iv) Subscription Agreement for Blue Chip Portfolio
EX-9(e) Participation Agreement
EX-9(f) Accounting Services Agreement
EX-10 Consent of Sutherland, Asbill & Brennan
EX-11 Consent of Ernst & Young LLP
EX-16 Schedule for Computation of Performance Data
EX-27.1 Financial Data Schedule -- Value Growth Portfolio
EX-27.3 Financial Data Schedule -- High Grade Bond Portfolio
EX-27.4 Financial Data Schedule -- High Yield Bond Portfolio
EX-27.5 Financial Data Schedule -- Managed Portfolio
EX-27.6 Financial Data Schedule -- Money Market Portfolio
EX-27.7 Financial Data Schedule -- Blue Chip Portfolio
</TABLE>
<PAGE>
DECLARATION OF TRUST
OF
FBL VARIABLE INSURANCE SERIES FUND
DECLARATION OF TRUST, made this 3rd day of November, 1986 by Robert
R. Joslin, Gerald Snethen and Stephen M. Morain (the "Trustees").
WHEREAS, the Trustees desire to establish an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that such trust be a registered open-end
investment company under the Investment Company Act of 1940.
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held in trust and managed under
this Declaration of Trust as herein set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. NAME. This Trust shall be known as FBL Variable
Insurance Series Fund (the "Trust").
Section 2. DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Majority Shareholder Vote" (the 67% or 50%
requirement of the third sentence of Section 3(a)(42) of the 1940 Act,
whichever may be applicable) and "Principal Underwriter" shall have the
meanings given them in the 1940 Act, as amended from time to time;
(b) "Net Asset Value" means the net asset value of the Trust
determined in the manner provided in Article X, Section 3;
(c) "Shareholder" means a record owner of Shares of the Trust;
<PAGE>
- 2 -
(d) The "Trustees" refers to the individual Trustees in their
capacity as Trustees hereunder of the Trust and their respective successor
or successors for the time being in office as such Trustees;
(e) "Shares" includes each class of Shares which may be issued
by the Trust and means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time and
includes a fraction of Shares as well as whole Shares;
(f) "Securities" shall mean any stock, shares, voting trust
certificates, bonds, debentures, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise or, in
general, any instruments commonly known as "securities" or any certificates
of interest, shares or participations in temporary or interim certificates
for, guarantees of, or any right to subscribe to, purchase or acquire any
of the foregoing; and
(g) The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
(h) "Bylaws" means the Bylaws of the Trust, if any.
(i) "Commission" means the Securities and Exchange
Commission or any succeeding governmental authority.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source
of managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. SHARES OF BENEFICIAL INTEREST. There may be one or more
series of Shares of the Trust as the Trustees may from time to time determine.
The beneficial interest of each series shall at all times be divided into an
unlimited number of transferable Shares, without par value, each of which shall
represent an equal proportionate interest in the series with each other Share of
the series outstanding, none having priority or
<PAGE>
- 3 -
preference over another. The Trustees may from time to time divide or combine
the Shares of any series into a greater or lesser number without thereby
changing the proportionate beneficial interest in the series. Subject to the
provisions of Section 5 of this Article III, each share shall have voting rights
as provided in Article VIII hereof, and holders of Shares shall be entitled to
receive dividends when and as declared with respect thereto in the manner
provided in Article X, Section 1. All dividends and distributions shall be made
ratably among all Shareholders of a particular series from the assets belonging
to such series, according to the number of Shares of such series held of record
by such Shareholders. Contributions to the Trust may be accepted for, and Shares
shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or multiples
thereof.
Section 2. OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded in the books of the Trust. The Trustees may make such rules as they
consider appropriate for the transfer of Shares and similar matters. The record
books of the Trust shall be conclusive as to who are the holders of Shares and
as to the number of Shares held from time to time by each.
Section 3. INVESTMENT IN THE TRUST. The Trustees shall accept
investments in the Trust from such persons and on such terms as they may from
time to time authorize. Such investments may be in the form of cash or
securities in which the Trust is authorized to invest, valued as provided in
Article X, Section 3. After the date of the initial contribution for capital,
the number of Shares to represent the initial contribution may in the Trustees'
discretion be considered as outstanding and the amount received by the Trustees
on account of the contribution shall be treated as an asset of the Trust.
Subsequent investments in the Trust shall be credited to the Shareholder's
account in the form of full and fractional shares of the Trust at the Net Asset
Value per Share next determined after the investment is received; provided,
however, that the Trustees may, in their sole discretion, impose a sales charge
upon investments in the Trust to the extent permitted by applicable law.
Section 4. PREEMPTIVE RIGHTS. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust or the Trustees.
Section 5. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder, by virtue of having become a Shareholder,
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for
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the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
Section 6. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO
SHARES. Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Trustees to amend the Declaration of Trust as
provided elsewhere herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such manner as the
Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for the
purpose of (i) responding to or complying with any regulations, orders, rulings
or interpretations of any governmental agency or any laws, now or hereafter
applicable to the Trust, or (ii) designating and establishing series in addition
to those established in Section 7 of this Article III; provided that before
adopting any such amendment without Shareholder approval the Trustees shall
determine that it is consistent with the fair and equitable treatment of all
Shareholders. The establishment and designation of any series of Shares in
addition to those series established and designated pursuant to Section 7 of
this Article III shall be effective upon the execution by a majority of the then
Trustees of an amendment to this Declaration of Trust, taking the form of
complete restatement or otherwise, setting forth such establishment and
designation and the relative rights and preferences of such series, or as
otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Trustees may,
for the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more series of Shares (in addition to any series
already existing or otherwise) with such rights and preferences and such
eligibility requirements for investment therein as the Trustees shall
determine and reclassify any or all outstanding Shares as shares of
particular series in accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through
(i) of Section 7 of this Article III;
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(c) combine one or more series of Shares into a single series on such
terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment
in Shares of any series, including without limitation the power to provide
for the issue of Shares of any series in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition
by the Trust of part or all of the assets of another trust or company;
(e) change the designation of any series of Shares;
(f) change the method of allocating dividends among the various
series of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more series of
Shares;
(h) specifically allocate assets to any or all series of Shares or
create one or more additional series of Shares which are preferred over all
other series of Shares in respect of assets specifically allocated thereto
or any dividends paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any such special voting or other
rights with respect to such series.
Section 7. ESTABLISHMENT AND DESIGNATION OF SERIES. Without
limiting the authority of the Trustees set forth in Section 6, INTER ALIA, to
establish and designate any further series or to modify the rights and
preferences of any series, the Money Market Portfolio, Growth Common Stock
Portfolio, Maximum Capital Gain Portfolio, High Yield Bond Portfolio, High Grade
Bond Portfolio, and Balanced Portfolio shall be, and each is hereby, established
and designated. Shares of a series shall be preferred over shares of all other
series in respect of the assets of that series.
Shares of each series established in this Section 7 shall have the
following relative rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the
Trust for the issue or sale of Shares of a particular series, together with
all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such
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proceeds in whatever form the same may be, shall irrevocably belong to that
series for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such consideration, assets,
income, earnings, profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds or payments
which are not readily identifiable as belonging to any particular series
(collectively "General Assets"), the Trustees shall allocate such General Assets
to, between or among any one or more of the series established and designated
from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Asset so allocated to a
particular series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes.
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each
particular series shall be charged solely with the liabilities of the Trust in
respect to that series, expenses, costs, charges and reserves attributable to
that series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular series but which are allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in a manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a series are herein referred to as
"liabilities belonging to" that series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all series for all purposes.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND REPURCHASES.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article X, no dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
series) with respect to, nor any redemption or repurchase of, the Shares of any
series shall be effected by the Trust other than from the assets belonging to
such series, nor shall any Shareholder of any particular series otherwise have
any right or claim against the assets belonging to any
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other series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other series.
(d) VOTING. Notwithstanding any of the other provisions of this
Declaration of Trust, including, without limitation, Section 1 of Article VIII,
the Shareholders of any particular series shall not be entitled to vote on any
matters as to which such series is not affected. on any matter submitted to a
vote of Shareholders, all Shares of the Trust then entitled to vote shall be
voted by individual series, unless otherwise required by the 1940 Act or other
applicable law.
(e) EQUALITY. All the Shares of each particular series shall represent an
equal proportionate interest in the assets belonging to that series (subject to
the liabilities belonging to that series), and each Share of any particular
series shall be equal to each other Share of that series.
(f) FRACTIONS. Any fractional Share of a series shall carry
proportionately all the rights and obligations of a whole share of that series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any series shall have the right to exchange said
Shares for Shares of one or more other series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two or
more series into assets and liabilities belonging to a single series or class.
(i) ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of any particular series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that series and to
rescind the establishment and designation thereof, such amendment to be effected
in the manner provided in Section 6 of this Article III.
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ARTICLE IV
TRUSTEES
Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all powers necessary
and desirable to carry out that responsibility.
Section 2. ELECTION - INITIAL TRUSTEES. On or before December 31,
1987, or a date fixed by the initial Trustees, the Shareholders shall elect not
less than three (3) Trustees. A Trustee shall not be required to be a
Shareholder of the Trust. The initial Trustees shall be Robert R. Joslin, Gerald
Snethen, and Stephen M. Morain, and such other individuals as the Board of
Trustees shall appoint pursuant to Section 4 of this Article IV.
Section 3. TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as hereinafter provided;
except that (a) any Trustee may resign by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) any Trustee may be removed at
any time by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date when such removal shall
become effective; (c) any Trustee who requests in writing to be retired or who
has become incapacitated by illness or injury may be retired by written
instrument signed by a majority of the other Trustees, specifying the date of
his retirement; and (d) a Trustee may be removed at any Special Meeting of the
Trust by a vote of two-thirds of the outstanding Shares.
Section 4. VACANCIES. In case of the declination, death,
resignation, retirement, removal or inability of any Trustee, or in case a
vacancy shall, by reason of an increase in the number of Trustees, or for any
other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by recording in the records of the Trust, whereupon
the appointment shall take effect. Within three (3) months of such appointment,
the Trustees shall cause notice of such appointment to be mailed to each
Shareholder at his address as recorded in the records of the Trust. An
appointment of a Trustee may be made by the Trustees then in office and notice
thereof mailed to Shareholders as aforesaid in anticipation of a vacancy to
occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall
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become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this Trust, the trust estate shall vest in the new
Trustee, together with the continuing Trustees, without any further act or
conveyance, and he shall be deemed a Trustee hereunder. The power of appointment
is subject to the provisions of Section 16(a) of the 1940 Act.
Section 5. TEMPORARY ABSENCE. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six (6) months at any one time to
any other Trustee or Trustees, provided that in no case shall less than two (2)
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 6. NUMBER OF TRUSTEES. The number of Trustees, not less than
three (3) nor more than fifteen (15), serving hereunder at any time shall be
determined by the Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur and such
vacancy remains unfilled, or while any Trustee is absent from the Commonwealth
of Massachusetts or, if not a domiciliary of Massachusetts, is absent from his
state of domicile, or is physically or mentally incapacitated by reason of
disease or otherwise, the other Trustees shall have all the powers hereunder and
the certificate of the other Trustees of such vacancy, absence or incapacity
shall be conclusive; provided, however, that no vacancy shall remain unfilled
for a period longer than six (6) calendar months.
Section 7. EFFECT OF VACANCY. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Trust.
Section 8. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. Title to all of the assets of the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or any right of
partition or possession thereof, but each Shareholder shall have a proportionate
undivided beneficial interest in the Trust.
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ARTICLE V
POWERS OF THE TRUSTEES
Section 1. POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their uncontrolled discretion,
shall deem proper to accomplish the purpose of this Trust. Subject to any
applicable limitation in this Declaration of Trust or the Bylaws, the Trustees
shall have power and authority to do any act they are permitted by law to do,
including, but not limited to:
(a) To buy, and invest funds in their hands in, securities
including, but not limited to, common stock, preferred stock, bonds,
debentures, warrants and rights to purchase or sell securities,
certificates of beneficial interest, notes or other evidences of
indebtedness issued by corporations, trusts or associations, domestic or
foreign, or issued and guaranteed by the United States of America or any
agency or instrumentality thereof, by the government of any foreign
country, or obligations issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or by any political
subdivision, agency or instrumentality of any foreign country, in
"when-issued" contracts for any such securities, or purchase and
simultaneously resell for later delivery any obligation, or retain such
proceeds in cash, and from time to time change the investments of its
funds.
(b) To adopt Bylaws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend
and repeal such Bylaws to the extent that they do not reserve that right to
the Shareholders.
(c) To elect and remove such officers and appoint and terminate
such agents as they consider appropriate.
(d) To employ a bank or trust company as custodian of any assets
of the Trust subject to any conditions set forth in this Declaration of
Trust or in the Bylaws.
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(e) To retain a transfer agent and shareholder servicing agent,
or both.
(f) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter provided
for or by the Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any
committee of Trustees, officers of the Trust and to any agent, custodian or
underwriter.
(i) To sell, lend, pledge, mortgage, hypothecate, lease, write
options on or exchange any or all of the assets of the Trust, subject to
the provisions of Article XII, Section 4(b) hereof.
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion
with relation to securities or property as the Trustees shall deem proper.
(k) To exercise all powers and rights, including rights of
subscription, which in any manner arise out of ownership of securities.
(l) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of trust companies or investment companies.
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or concern, and
to pay calls or subscriptions with respect to any security held in the
Trust.
(n) To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes.
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(o) To make distributions to Shareholders in the manner
hereinafter provided for.
(p) To borrow funds or property, to the extent permitted by
applicable law.
(q) To establish, from time to time, a minimum total investment
for Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving notice
to such Shareholder.
(r) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper.
(s) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof.
(t) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, Principal
Underwriters, or independent contractors of the Trust individually against
all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as Trustee,
officer, employee, agent, investment adviser, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have
the power to indemnify such person against liability.
(u) To pay pensions as deemed appropriate by the Trustees and to
adopt, establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and
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provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 2. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares of
the Trust to the same extent as if he were not a Trustee, officer or agent; and
the Trustees may issue and sell or cause to be issued and sold Shares of the
Trust to and buy such Shares from any such person of any firm or company in
which he is interested, subject only to the general limitations herein contained
as to the sale and purchase of such Shares; and all subject to any restrictions
which may be contained in the Bylaws.
Section 3. ACTION BY THE TRUSTEES. The Trustees shall act by
majority vote at a meeting duly called, or by unanimous written consent without
a meeting, or by telephone consent provided a quorum of Trustees participate in
any such telephonic meeting, unless the 1940 Act requires that a particular
action be taken only at a meeting of the Trustees. At any meeting of the
Trustees, a majority of the Trustees shall constitute a quorum. Meetings of the
Trustees may be called orally or in writing by the Chairman of the Trustees or
by any two (2) other Trustees. Notice of the time, date and place of all
meetings of the Trustees shall be given by the party calling the meeting to each
Trustee by telephone or telegram sent to his home or business address at least
twenty-four (24) hours in advance of the meeting or by written notice mailed to
his home or business address at least seventy-two (72) hours in advance of the
meeting. Notice need not be given to any Trustee who attends the meeting without
objecting to the lack of notice or who executes a written waiver of notice with
respect to the meeting. Subject to the requirements of the 1940 Act, the
Trustees by majority vote may delegate to any one of their number their
authority to approve particular matters or take particular actions on behalf of
the Trust.
Section 4. CHAIRMAN. The Trustees may appoint one of their number to
be Chairman of the Board of Trustees. The Chairman shall preside at all meetings
of the Trustees, shall be responsible for the execution of policies established
by the Trustees and the administration of the Trust, and may also be any officer
of the Trust.
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ARTICLE VI
EXPENSES OF THE TRUST
Section 1. TRUSTEE REIMBURSEMENT. The Trustees shall be reimbursed
from the Trust estate for their expenses and disbursements, including, without
limitation, fees and expenses of Trustees who are not Interested Persons of the
Trust or its investment adviser or Principal Underwriter; interest expense;
taxes; fees and commissions of every kind; expenses of pricing Trust portfolio
securities; expenses of issue, repurchase, redemption and distribution of
Shares, including expenses attributable to a program of periodic repurchases or
redemptions; expenses of registering and qualifying the Trust and its Shares
under Federal and State laws and regulations; charges of custodians, transfer
agents and registrars; expenses of preparing and setting up in type
prospectuses; expenses of printing and distributing prospectuses sent to
existing Shareholders; auditing and legal expenses; reports to Shareholders;
expenses or meetings of Shareholders and proxy solicitations therefor; insurance
expense; association membership dues; and such nonrecurring items as may arise,
including litigation to which the Trust is a party and for all losses and
liabilities by them incurred in administering the Trust. Reimbursement for
expenses directly attributable to a series shall be made from such series. The
Trustees shall have a lien on the Trust estate prior to any rights or interests
of the Shareholders thereto for the payment of such expenses, disbursements,
losses and liabilities. This section shall not preclude the Trust from directly
paying any of the aforementioned fees and expenses.
ARTICLE VII
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER
AND TRANSFER AGENT
Section 1. INVESTMENT ADVISER. Subject to a Majority Shareholder
Vote of all affected series, the Trustees in their discretion from time to time
may enter into an investment advisory or management contract whereby the other
party to such contract shall undertake to furnish the Trustees such management,
investment advisory, statistical and research facilities and services and such
other facilities and services, if any, and all upon such terms and conditions as
the Trustees may in their discretion determine. Notwithstanding any provisions
of this Declaration of Trust, the Trustees may authorize the investment adviser
(subject to such general or specific instructions as the
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Trustees may from time to time adopt) to effect purchases, sales or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer, agent or Trustee to effect such purchases, sales or exchanges pursuant
to recommendations of the investment adviser (and all without further action by
the Trustees). Any such purchases, sales and exchanges shall be deemed to have
been authorized by all of the Trustees.
Section 2. PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into a contract providing for the sale of the
Shares of the Trust, whereby the Trust may either agree to sell the Shares to
the other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and conditions
as may be prescribed in the Bylaws, and such further terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Article VII, or of the Bylaws; and such contract may also provide for
the repurchase or sale of Shares of the Trust by such other party as principal
or as agent of the Trust.
Section 3. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party shall undertake to furnish the Trustees transfer agency
and shareholder services including clerical and accounting services. The
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Declaration of
Trust or of the Bylaws, and may provide for the computation of the Trust's Net
Asset Value in accordance herewith. Such services may be provided by one or
more entities.
Section 4. PARTIES TO CONTRACT. Any contract of the character
described in Sections 1, 2 and 3 of this Article VII or in Article IX hereof may
be entered into with any corporation, firm, partnership, trust or association,
notwithstanding the fact that one or more of the Trustees or officers of the
Trust may be an officer, director, trustee, shareholder or member of such other
party to the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any relationship, nor shall any person
holding such relationship be liable merely by reason of such relationship for
any loss or expense to the Trust under or by reason of said contract or
accountable for any profit realized directly or indirectly therefrom. The same
person (including a firm, corporation, partnership, trust or association) may be
the other party to contracts entered into pursuant to Sections 1, 2 and 3 above
or Article IX, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 4.
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Section 5. PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Sections 1 and 2 of this Article VII shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act (including any
amendments thereof or other applicable Act of Congress hereafter enacted) with
respect to its continuance in effect, its termination, and the method of
authorization and approval of such contract or renewal thereof, and no amendment
to any contract, entered into pursuant to Section 1 of this Article VII, shall
be effective unless approved by a Majority Shareholder Vote.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV, Section 2; (ii)
for the removal of Trustees as provided in Article IV, Section 3(d); (iii) with
respect to any investment adviser as provided in Article VII, Section 1; (iv)
with respect to the amendment of this Declaration of Trust as provided in
Article XII, Section 7; (v) to the same extent as the shareholders of a
Massachusetts business corporation, as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders; (vi) with respect to the
termination of the Trust or any series, to the extent and as provided in Article
XII, Section 4; and (vii) with respect to such additional matters relating to
the Trust as may be required or authorized by law, by this Declaration of Trust,
or the Bylaws or any registration of the Trust or its Shares with the Commission
or any state, or as the Trustees may consider desirable. Each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required or permitted by law,
this Declaration of Trust or the Bylaws, to be taken by Shareholders.
Section 2. MEETINGS. The first Shareholders meeting shall be held as
specified in Section 2 of Article IV at the principal office of the Trust or
such other place as the Trustees may designate. Special meetings of the
Shareholders may be called by the Trustees and shall be called by the Trustees
upon the written request of Shareholders owning at least one-tenth
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(1/10) of the outstanding Shares entitled to vote. Shareholders shall be
entitled to at least fifteen (15) days' notice of any meeting.
Section 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by law, by the Bylaws or by this Declaration of Trust, a majority of
the Shares entitled to vote shall constitute a quorum at a Shareholders'
meeting. When any one or more series is to vote as a single class separate from
the Shares of any other series which are to vote on the same matters as a
separate class or classes, a majority of the Shares of each such series entitled
to vote shall constitute a quorum at a Shareholders meeting of that series. Any
meeting of Shareholders may be adjourned from time to time by a majority of the
votes properly cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time after the date set
for the original meeting without further notice. When a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust, the Bylaws or by law. If any question on
which the Shareholders are entitled to vote would adversely affect the rights of
any series of Shares, the vote of a majority (or such larger vote as is required
as aforesaid) of the Shares of such series which are entitled to vote, voting
separately, shall also be required to decide such question.
ARTICLE IX
CUSTODIAN
Section 1. AMENDMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having capital, surplus and undivided profits of
at least two million dollars ($2,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements, if
any, as may be contained in the Bylaws of the Trust:
(1) to hold the securities owned by the Trust and deliver
the same upon written order;
(2) to receive and account for any funds due to the Trust
and deposit the same in its own banking department or elsewhere
as the Trustees may direct; and
(3) to disburse such funds upon orders or vouchers. The
Trust may also employ such custodian as its agent:
<PAGE>
- 18 -
(i) to keep the books and accounts of the Trust and furnish
clerical and accounting services; and
(ii) to compute, if authorized to do so by the Trustees, the
Net Asset Value of the Trust in accordance with the provisions
hereof;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000).
Section 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, as from time to time amended, pursuant to which system all securities of
any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. DISTRIBUTIONS. (a) The Trustees shall have power, to the
fullest extent permitted by the laws of Massachusetts, at any time, or from time
to time, to declare and cause to be paid to the Shareholders of each series,
from the assets of their respective series, dividends or distributions in such
amounts as the Trustees may determine, which dividends or distributions, at the
election of the Trustees, may be payable in Shares of such series, in cash, or
in cash or Shares at the election of each Shareholder.
<PAGE>
- 19 -
(b) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute pro rata among the Shareholders
of each series a "stock dividend".
(c) The record date for the determination of Shareholders entitled to
dividends or distributions declared pursuant to (a) and (b) above shall be fixed
by the Trustees as provided in Article XII, Section 3 hereof.
Section 2. REDEMPTIONS. In case any Shareholder of record of the
Trust desires to dispose of his Shares, he may deposit at the office of the
transfer agent or other authorized agent of the Trust a written request or such
other form of request as the Trustees may from time to time authorize,
requesting that the Trust purchase his Shares in accordance with this Section 2;
and the Shareholder so requesting shall be entitled to require the Trust to
purchase, and the Trust or the principal underwriter of the Trust shall purchase
his said Shares, but only at the Net Asset Value thereof (as described in
Section 3 hereof) next determined after the request is deemed to be received by
the Trust. Payment for such Shares shall be made by the Trust or the principal
underwriter of the Trust in accordance with the instructions of such Shareholder
within seven (7) days after the date upon which the request is received in
proper form, unless otherwise delayed as permitted by law or order of the
Commission. In connection with such purchases of Shares by the Trust, the
Trustees may from time to time determine to charge shareholders a fee in an
amount not to exceed two percent (2%) of the Net Asset Value of the Shares so
purchased.
Section 3. DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of a series of the Trust shall
mean that amount by which the assets of the series, at fair market values,
exceed its liabilities, all as determined by or under the direction of the
Trustees. Net Asset Value per Share shall be determined for each series as
frequently as required under the 1940 Act or other applicable law and at such
time or times during said day as the Trustees may determine, and the value so
determined shall become effective at such time. Such determination shall be made
(i) by appraising securities in the portfolio of the series at market value, or
in the absence of readily available market quotations, at fair value, both as
determined by and pursuant to methods presented or approved by the Trustees;
(ii) by appraising all other assets at their fair value in the best judgment of
the Trustees; (iii) by deducting any actual and accrued liabilities determined
in accordance with good accounting practice; and (iv) by dividing the sum by the
number of Shares of the series then outstanding; provided, however, that the
Trustees, without Shareholder approval, may
<PAGE>
- 20 -
alter the method of appraising portfolio securities insofar as permitted under
the 1940 Act and the rules, regulations and interpretations thereof promulgated
or issued by the Commission or insofar as permitted by any order of the
Commission applicable to the Trust. The Trustees may delegate any of their
powers and duties under this Section 3 with respect to appraisal of assets and
liabilities.
Section 4. SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
for the whole or any part of any period (i) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of the net assets of one
or more series, or (iv) during any other period when the Commission may for the
protection of security holders of the Trust by order permit suspension of the
right of redemption or postponement of the date of payment on redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in (ii), (iii) or (iv) exist. Such
suspension shall take effect at such time as the Trustees shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment until the Trustees shall declare the suspension at an end, except
that the suspension shall terminate in any event on the first business day of
the Trust on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which in the absence of an
official ruling by said Commission, the determination of the Trustees shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value next existing after the termination of the
suspension.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. LIMITATION OF LIABILITY. Provided they have exercised
reasonable care and have acted under the reasonable belief that their actions
are in the best interest of the Trust, the Trustees shall not be responsible for
or liable in any event for neglect or wrongdoing of them or any officer, agent,
employee or investment adviser of the Trust, but nothing
<PAGE>
- 21 -
contained herein shall protect any Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. INDEMNIFICATION. (a) Subject to the exceptions and
limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (a "Covered Person") shall be indemnified by the Trust to the fullest
extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action,
suit or proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened, and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought
(A) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office;
(B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office,
(A) by the court or other body approving the settlement; or
<PAGE>
- 22 -
(B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full
trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder may, by appropriate
legal proceedings, challenge any such determination by the Trustees,
or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
subsection (a) of this Section 2 may be paid by the Trust from time to time
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust if it is ultimately determined that he is not entitled to indemnification
under this Section 2; provided, however, that either
(i) such Covered Person shall have provided appropriate security for
such undertaking;
(ii) the Trust is insured against losses arising out of any such
advance payments; or
(iii) either a majority of the Trustees who are neither interested
persons of the Trust nor are parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that such Covered Person will be found entitled
to indemnification under this Section 2.
<PAGE>
- 23 -
Section 3. SHAREHOLDERS. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust shall, upon
request by the Shareholder, assume the defense of any claim made against the
Shareholder for any act or obligation of the Trust and satisfy any judgment
thereon.
ARTICLE XII
MISCELLANEOUS
Section 1. TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust's officers or any
Shareholder. All persons extending credit to, contracting with or having any
claim against the Trust or the Trustees shall look only to the assets of the
Trust for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect the Trustee against any liability to which the Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article XII and to Article XI, the Trustees shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and, subject to the provisions of Section 1 of this
Article XII and to Article XI, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is obtained.
<PAGE>
- 24 -
Section 3. ESTABLISHMENT OF RECORD DATES. The Trustees may close the
stock transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or distributions, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
distributions, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or distributions, or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of Shares, and in such
case such Shareholders and only such Shareholders as shall be Shareholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend, or to receive such
allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after any
such record date fixed as aforesaid.
Section 4. TERMINATION OF TRUST OR SERIES. (a) This Trust shall
continue without limitation of time but subject to the provisions of subsections
(b), (c) and (d) of this Section 4.
(b) The Trustees, with the approval of the Shareholders by Majority
Shareholder Vote and in accordance with all applicable law, may cause the Trust
to be merged or consolidated with another trust, partnership, association or
corporation organized under the laws of any state of the United States, or
political subdivision thereof, for an adequate consideration which may include
the assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust; and which may include shares of beneficial
interest or stock of such trust, partnership, association or corporation. Upon
making provision for the payment of all such liabilities, by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds ratably among
the holders of the Shares of the Trust then outstanding.
(c) The Trust may be terminated at any time by a Majority Shareholder
Vote of the Shares of each series entitled to vote and voting separately by
series or by the Trustees by written notice to the Shareholders. Any series may
be terminated at any time by a Majority Shareholder Vote of the Shares of that
series or by the Trustees by written notice to the Shareholders of that series.
<PAGE>
- 25 -
Upon termination of the Trust (or any series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each series (or the applicable series, as
the case may be), whether due or accrued or anticipated as may be determined by
the Trustees, the Trust shall, in accordance with such procedures as the
Trustees consider appropriate, reduce the remaining assets belonging, severally,
to each series (or the applicable series, as the case may be), to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds belonging to each series (or the applicable series, as
the case may be), to the Shareholders of that series, as a series, ratably
according to the number of Shares of that series held by the several
Shareholders on the date of termination.
(d) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in subsections (b) and (c), the Trust shall
terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties shall be cancelled and discharged.
Section 5. FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto
shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each Supplemental Declaration of
Trust shall be filed by the Trustees with the Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such Supplemental Declarations of Trust have been made and as
to any matters in connection with the Trust hereunder, and with the same effect
as if it were the original, may rely on a copy certified by an officer or
Trustee of the Trust to be a copy of this instrument or of any such Supplemental
Declaration of Trust. In this instrument or in any such Supplemental Declaration
of Trust, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder," shall be deemed to refer to this instrument, as
amended or affected by any such Supplemental Declaration of Trust. Headings are
placed herein for convenience of reference only and in case of any conflict, the
text of this instrument, rather than the headings, shall control. This
instrument may be executed in any number of counterparts, each of which shall be
deemed an original.
Section 6. APPLICABLE LAW. The Trust set forth in this instrument is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type
<PAGE>
- 26 -
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7. AMENDMENTS. If authorized by votes of the Trustees and a
Majority Shareholder Vote, or by any larger vote which may be required by
applicable law or this Declaration of Trust in any particular case, the Trustees
shall amend or otherwise supplement this instrument, by making a Declaration of
Trust supplemental hereto, which thereafter shall form a part hereof. Copies of
the Supplemental Declaration of Trust shall be filed as specified in Section 5
of this Article XII.
Section 8. REGISTERED AGENT. The Registered Agent of the Trust
within the Commonwealth of Massachusetts for service of process, and the
principal place of business of the Trust within the Commonwealth of
Massachusetts, shall be CT Corporation System, 2 Oliver Street, Boston,
Massachusetts 02109.
Section 9. FISCAL YEAR. The fiscal year of the Trust shall be the
calendar year, provided, however, that the Trustees may, without Shareholder
approval, change the fiscal year of the Trust.
IN WITNESS WHEREOF, the undersigned, being all of the initial
Trustees of the Trust, have executed this instrument this 3rd day of November,
1986.
/s/ Robert R. Joslin
----------------------------------
Robert R. Joslin
/s/ Gerald Snethen
----------------------------------
Gerald Snethen
/s/ Stephen M. Morain
----------------------------------
Stephen M. Morain
<PAGE>
STATE OF IOWA, POLK COUNTY, ss:
on this 3rd day of November, A.D. 1986, before me, the undersigned, a
Notary Public in and for the State of Iowa, personally appeared Robert R.
Joslin, Gerald Snethen and Stephen M. Morain, to me known to be the persons
named in and who executed the foregoing instrument, and acknowledged that they
executed the same as their voluntary act and deed.
/s/ Bradley R. Peyton
-------------------------------------------------------
Bradley R. Peyton, Notary Public in and for said State.
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
DECLARATION OF TRUST AMENDMENT
AMENDMENT, dated as of April 1, 1987, to the Declaration of Trust (the
"Declaration") of FBL Variable Insurance Series Fund (the "Trust"), dated
November 3, 1986.
WHEREAS, the Trust was established by Declaration of Trust on the date
hereinabove set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Declaration was executed by the three Trustees named in the
Declaration who, at the first meeting of the Board of Trustees held on March 13,
1987, fixed the number of Trustees to constitute the initial Board of Trustees
at eight, and, to fill the five vacancies created thereby, appointed five
additional individuals to serve as Trustees; and
WHEREAS, the Declaration provides for the establishment of six series of
shares, to wit: the Money Market Portfolio, Growth Common Stock Portfolio,
Maximum Capital Gain Portfolio, High Yield Bond Portfolio, High Grade Bond
Portfolio and Balanced Portfolio; and
WHEREAS, pursuant to a resolution adopted March 13, 1987, the Trustees of
the Trust desire to rename three of the six series of shares; and
WHEREAS, no shares of the Trust have been issued as of the date hereof.
NOW, THEREFORE, pursuant to Section 7 of Article XII of the Declaration,
the Trustees of the Trust hereby amend the Declaration as set forth below:
1. Section 7 of Article III of the Declaration is hereby amended by
deleting the first paragraph thereof and substituting in its place the
following:
"Section 7. ESTABLISHMENT AND DESIGNATION OF SERIES. Without limiting
the authority of the Trustees as set forth in Section 6, INTER ALIA, to
establish and designate any further series or to modify the rights and
preferences of any series, the Money Market Portfolio, Growth Common Stock
Portfolio, Aggressive Growth Common Stock Portfolio, High Yield Bond
Portfolio, High Quality Bond Portfolio and Managed Portfolio shall be, and
each is, hereby established and designated. Shares of a series shall be
preferred over shares of all other series in respect of the assets of that
series.
2. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
<PAGE>
3. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument as of the date and year first above written.
/s/ Robert R. Joslin /s/ Ben C. Buckingham
- ------------------------------- -------------------------------
Robert R. Joslin, as Trustee Ben C. Buckingham, as Trustee
and not individually and not individually
/s/ Gerald Snethen /s/ John R. Graham
- ------------------------------- -------------------------------
Gerald Snethen, as Trustee John R. Graham, as Trustee
and not individually and not individually
/s/ Stephen M. Morain /s/ Alice V. Murray
- ------------------------------- -------------------------------
Stephen M. Morain, as Trustee Alice V. Murray, as Trustee
and not individually and not individually
/s/ Donald G. Bartling /s/ Curtis C. Pietz
- ------------------------------- -------------------------------
Donald G. Bartling, as Trustee Curtis C. Pietz, as Trustee
and not individually and not individually
2
<PAGE>
'I
State of Iowa )
---------
) ss:
County of Polk )
---------
On this 15th day of April, 1987, before me, the undersigned, a Notary
Public in and for the State of Iowa, personally appeared Robert R. Joslin, to me
known to be one of the persons who executed the foregoing instrument, and he
acknowledged that he executed the same as his voluntary act and deed.
/s/ Jean A. Peters
------------------
Notary Public
[Seal]
3
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
DECLARATION OF TRUST AMENDMENT
AMENDMENT, dated as of August 21, 1990, to the Declaration of Trust. (the
"Declaration of Trust") of FBL Variable Insurance Series Fund (the "Trust"),
dated November 3, 1986 and amended April 1, 1987.
WHEREAS, the Trust was established by Declaration of Trust on November 3,
1986 under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Declaration of Trust was executed by the three Trustees named
in the Declaration of Trust who, at the first meeting of the Board of Trustees
held on March 3, 1987, fixed the number of Trustees to constitute the initial
Board of Trustees at eight, and, to fill the five vacancies created thereby,
appointed five additional individuals to serve as Trustees, and the Trustees
later fixed the number of Trustees at nine pursuant to Section 6 of the Trust,
and, to fill the vacancy created thereby, appointed an additional individual to
serve as Trustee; and
WHEREAS, the Declaration of Trust as amended April 1, 1987 provides for the
establishment of six series of shares, to wit: the Money Market Portfolio,
Growth Common Stock Portfolio, Aggressive Common Stock Portfolio, High Quality
Bond Portfolio, High Yield Bond Portfolio and Managed Portfolio; and
WHEREAS, pursuant to a resolution adopted August 21, 1990, the Trustees of
the Trust desire to create and designate a new series of shares;
NOW, THEREFORE, pursuant to Section 6 of Article III of the Declaration of
Trust, the Trustees of the Trust hereby amend the Declaration of Trust as set
forth below:
1. Pursuant to Section 6 of Article III of the Declaration of Trust, the
Trustees of the Trust hereby establish a new series of the Trust to be
designated the Blue Chip Portfolio, in addition to the existing six series of
the Trust. As provided in Section 7 of said Article III, shares of the Blue Chip
series shall be preferred over shares of all other series in respect of the
assets of that series.
2. The Trustees of the Trust hereby reaffirm the Declaration of Trust, as
amended, in all respects.
3. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument as of the date and year first above written.
/s/ Merlin D. Plagge
- ------------------------------
Merlin D Plagge, as Trustee
and not individually
/s/ Eugene R. Maahs /s/ Erwin H. Johnson
- ------------------------------ ------------------------------
Eugene R. Maahs, as Trustee Erwin H. Johnson, as Trustee
and not individually, and not individually
/s/ Stephen M. Morain /s/ Ann Jorgensen
- ------------------------------ ------------------------------
Stephen M. Morain, as Trustee Ann Jorgensen, as Trustee
and not individually and not individually
/s/ Donald G. Bartling /s/ Dale W. Nelson
- ------------------------------ ------------------------------
Donald G. Bartling, as Trustee Dale W. Nelson, as Trustee
and not individually and not individually
/s/ John R. Graham /s/ Curtis C. Pietz
- ------------------------------ ------------------------------
John R. Graham, as Trustee Curtis C. Pietz, as Trustee
and not individually and not individually .
- 2 -
<PAGE>
State of IOWA )
) ss:
County of POLK )
On this 21st day of August, 1990, before me, the undersigned, a Notary
Public in and for the State of Iowa personally appeared Merlin D. Plagge, to me
known to be one of the persons who executed the foregoing instrument, and he
acknowledged that he executed the same as his voluntary act and deed.
/s/ Sue A. Roxberg
------------------------------
Notary Public
[Seal]
-3-
<PAGE>
FBL VARIABLE INSURANCE
SERIES FUND
DECLARATION OF TRUST AMENDMENT
AMENDMENT, dated as of November 25, 1991, to the Declaration of Trust (the
"Declaration of Trust") of FBL Variable Insurance Series Fund (the "Trust"),
dated November 3, 1986 and amended April 1, 1987 and August 21, 1990.
WHEREAS, the Trust was established by Declaration of Trust on November 3,
1986 under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Declaration of Trust was executed by the three Trustees named
in the Declaration of Trust who, at the first meeting of the Board of Trustees
held on March 3, 1987, fixed the number of Trustees to constitute the initial
Board of Trustees at eight, and, to fill the five vacancies created thereby,
appointed five additional individuals to serve as Trustees, and the Trustees
later fixed the number of Trustees at nine, and, to fill the vacancy created
thereby, appointed an additional individual to serve as Trustee; and
WHEREAS, the Declaration of Trust as amended April 1, 1987 provides for the
establishment of six series of shares, to wit: the Money Market Portfolio,
Growth Common Stock Portfolio, Aggressive Common Stock Portfolio, High Quality
Bond Portfolio, High Yield Bond Portfolio and Managed Portfolio; and
WHEREAS, the Declaration of Trust as amended August 21, 1990, established a
new seventh series of shares designated Blue Chip Portfolio; and
WHEREAS, at a meeting held on November 13, 1991, the shareholders of
Aggressive Growth Common Stock Portfolio, by Majority Shareholder Vote pursuant
to Section 1 of Article VIII and Section 4 of Article XII of the Declaration of
Trust, approved a plan of reorganization (unanimously approved by the Board of
Trustees of the Trust at a meeting held on August 15, 1991 and more fully
described in a proxy statement distributed to shareholders of that Portfolio on
or about September 30, 1991) whereby all the assets of the Aggressive Growth
Common Stock Portfolio of the Trust were to be transferred to the Growth Common
Stock Portfolio of the Trust in exchange for shares of the Growth Common Stock
Portfolio and all liabilities of the Aggressive Growth Common Stock Portfolio
were to be assumed by the Growth Common Stock Portfolio, and
WHEREAS, the Plan of Reorganization also provided for the amendment of
Section 7 of Article III of the Declaration of Trust as of the Closing Date of
the Reorganization as defined in the Plan; and
WHEREAS, at this same meeting, the shareholders of Aggressive Growth Common
Stock Portfolio, by Majority Shareholder Vote pursuant to the authorities cited
above, also approved an amendment to the Declaration of Trust to reflect the
elimination of the Aggressive Growth Common Stock Portfolio; and
<PAGE>
WHEREAS, the Closing Date of the Plan was November 25, 1991;
NOW, THEREFORE, pursuant to Section 7 of Article MI of the Declaration of
Trust, the Trustees of the Trust hereby amend the Declaration of Trust as set
forth below
1. Section 7 of Article III of the Declaration of Trust is hereby amended
by deleting the first paragraph thereof and substituting in its place, the
following:
Section 7. ESTABLISHMENT AND DESIGNATION OF SERIES, Without limiting
the authority of the Trustees as set forth in Section 6, INTER ALIA, to
establish and designate any further series or to modify the rights and
preferences of any series, the Money Market Portfolio, Growth Common Stock
Portfolio, High Yield Bond Portfolio, High Quality Bond Portfolio, Managed
Portfolio and Blue Chip Portfolio shall be, and each is, hereby established and
designated. Shares of a series shall be preferred over shares of all other
series in respect of the assets of that series.
2. The Trustees of the Trust hereby reaffirm the Declaration of Trust, as
amended, in all respects.
3. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument as of the date and year first above written.
/s/ Merlin D. Plagge
- ---------------------------------
Merlin D. Plagge*, as Trustee
and not individually
/s/ Eugene R. Maahs /s/ Erwin H. Johnson
- --------------------------------- ---------------------------------
Eugene R. Maahs*, as Trustee Erwin H. Johnson*, as Trustee
and not individually and not individually
/s/ Stephen M. Morain /s/ Ann Jorgensen
- --------------------------------- ---------------------------------
Stephen M. Morain, as Trustee Ann Jorgensen*, as Trustee
and not individually and not individually
<PAGE>
Donald G. Bartling Dale W. Nelson
- --------------------------------- ---------------------------------
Donald G. Bartling*, as Trustee Dale W. Nelson*, as Trustee
and not individually and not individually
/s/ John R. Graham /s/ Curtis C. Pietz
- --------------------------------- ---------------------------------
John R. Graham*, as Trustee Curtis C Pietz*, as Trustee
and not individually and not individually
* By /s/ Stephen M. Morain, Attorney-in-Fact, pursuant to Power of Attorney
Stephen M. Morain
State of Iowa
County of Polk
On this 3rd day of December, 1991, before me, the undersigned, a Notary
Public in and for the State of Iowa, personally appeared Stephen M. Morain,
to me known to be one of the persons who executed the foregoing instrument,
and he acknowledged that he executed the same as his voluntary act and deed.
/s/ Sue A. Roxberg
Notary Public
[Seal]
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
DECLARATION OF TRUST AMENDMENT
WHEREAS, the Trust was established by Declaration of Trust on November 3,
1986 under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Declaration of Trust was executed by the three Trustees named
in the Declaration of Trust who, at the first meeting of the Board of Trustees
held on March 3, 1987, fixed the number of Trustees to constitute the initial
Board of Trustees at eight, and, to fill the five vacancies created thereby,
appointed five additional individuals to serve as Trustees, and the Trustees
later fixed the number of Trustees at nine, and, to fill the vacancy created
thereby, appointed an additional individual to serve as Trustee; and
WHEREAS, the Declaration of Trust as amended April 1, 1987 provides for the
establishment of six series of shares, to wit: the Money Market Portfolio,
Growth Common Stock Portfolio, Aggressive Growth Common Stock Portfolio, High
Quality Bond Portfolio, High Yield Bond Portfolio and Managed Portfolio; and
WHEREAS, the Declaration of Trust as amended August 21, 1990, established a
new seventh series of shares designated Blue Chip Portfolio; and
WHEREAS, the Declaration of Trust as amended November 25, 1991, eliminated
the Aggressive Growth Common Stock Portfolio;
NOW, THEREFORE, pursuant to Section 7 of Article XII of the Declaration of
Trust, the Trustees of the Trust hereby amended the Declaration of Trust,
effective May 1, 1992, as set forth below:
1. Section 7 of Article III of the Declaration of Trust is hereby amended
by deleting the first paragraph thereof and substituting in its place, the
following:
Section 7. ESTABLISHMENT AND DESIGNATION OF Series. Without
limiting the authority of the Trustees as set forth in Section 6,
INTER ALIA, to establish and designate any further series or to modify
the rights and preferences of any series, the Money Market Portfolio,
Growth Common Stock Portfolio, High Yield Bond Portfolio, High Grade
Bond Portfolio, Managed Portfolio and Blue Chip Portfolio shall be,
and each is, hereby established and designated. Shares of a series
shall be preferred over shares of all other series in respect of the
assets of that series.
2. The Trustees of the Trust hereby reaffirm the Declaration of Trust, as
amended, in all respects.
3. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument as of May 1, 1992.
/s/ Merlin D. Plagge
- --------------------------------
Merlin D. Plagge*, as Trustee
and not individually
/s/ Eugene R. Maahs /s/ Erwin H. Johnson
- -------------------------------- -----------------------------------
Eugene R. Maahs*, as Trustee Erwin H. Johnson*, as Trustee
and not individually and not individually
/s/ Stephen M. Morain /s/ Ann Jorgensen
- -------------------------------- -----------------------------------
Stephen M. Morain, as Trustee Ann Jorgensen*, as Trustee
and not individually and not individually
/s/ Donald G. Bartling /s/ Dale W. Nelson
- -------------------------------- -----------------------------------
Donald G. Bartling*, as Trustee Dale W. Nelson*, as Trustee
and not individually and not individually
* BY /s/ Stephen M Morain Attorney-in-fact, pursuant to Power of Attorney.
---------------------------
Stephen M Morain
State of Iowa
--------
County of Polk
--------
On this 8th day of April 1992, before me, the undersigned, a Notary Public
in and for the State of Iowa, personally appeared Stephen M. Morain, to me known
to be one of the persons who executed the foregoing instrument and he
acknowledged that he executed the same as his voluntary act and deed.
/s/ Sue A. Roxberg
- --------------------------------
Notary Public
[ Seal ]
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
AMENDMENT TO DECLARATION OF TRUST
WHEREAS, the Trust was established by Declaration of Trust on
November 3, 1986 under the laws of the Commonwealth of Massachusetts;
and
WHEREAS, the Declaration of Trust was executed by the three
Trustees named in the Declaration of Trust who, at the first meeting
of the Board of Trustees held on March 3, 1987, fixed the number of
Trustees to constitute the initial Board of Trustees at eight, and, to
fill the five vacancies created thereby, appointed five additional
individuals to serve as Trustees, and the Trustees later fixed the
number of Trustees at nine, and, to fill the vacancy created thereby,
appointed an additional individual to serve as Trustee; and
WHEREAS, the Declaration of Trust as amended April 1, 1987
provided for the establishment of six series of shares, to wit: the
Money Market Portfolio, Growth Common Stock Portfolio, Aggressive
Growth Common Stock Portfolio, High Quality Bond Portfolio,
High Yield Bond Portfolio, and Managed Portfolio; and
WHEREAS, the Declaration of Trust as amended August 21, 1990,
established a new seventh series of shares designated Blue Chip
Portfolio; and
WHEREAS, the Declaration of Trust as amended November 25, 1991,
eliminated the Aggressive Growth Common Stock Portfolio; and
WHEREAS, the Declaration of Trust as amended May 1, 1992, changed
the designation of a series of shares to High Grade Bond Portfolio;
and
WHEREAS, the Trustees now want to change the designation of a
series of shares to Value Growth Portfolio, effective December 1,
1996;
NOW, THEREFORE, pursuant to Section 7 of Article XII of the
Declaration of Trust, the Trustees of the Trust hereby amend the
Declaration of Trust, effective December 1, 1996, as set forth below:
1. Section 7 of Article III of the Declaration of Trust is
hereby amended by deleting the first paragraph thereof and
substituting in its place, the following:
Section 7. ESTABLISHMENT AND DESIGNATION OF SERIES. Without
limiting the authority of the Trustees as set forth in Section 6,
INTER ALIA, to establish and designate any further series or to modify
the rights and preferences of any series, the Money Market Portfolio,
Value Growth Portfolio, High Yield Bond Portfolio, High Grade Bond
Portfolio, Managed Portfolio and Blue Chip Portfolio shall be, and
each is, hereby
<PAGE>
established and designated. Shares of a series shall be preferred
over shares of all other series in respect of the assets of that
series.
2. The Trustees of the Trust hereby reaffirm the Declaration of
Trust, as amended, in all respects.
3. This Amendment may be executed in more than on counterpart,
each of which shall be deemed an original, but all of which together
shall constitute one and the same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust,
have executed this instrument as of December 1, 1996.
/s/Edward M. Wiederstein /s/John R. Graham
---------------------------------- -------------------------------
Edward M. Wiederstein, as Trustee John R. Graham, as Trustee
and not individually and not individually
/s/Richard D. Harris /s/Erwin H. Johnson
---------------------------------- -------------------------------
Richard D. Harris, as Trustee Erwin H. Johnson, as Trustee
and not individually and not individually
/s/Stephen M. Morain /s/Ann Jorgensen
---------------------------------- -------------------------------
Stephen M. Morain, as Trustee Ann Jorgensen, as Trustee
and not individually and not individually
/s/Donald G. Bartling /s/Kenneth Kay
---------------------------------- -------------------------------
Donald G. Bartling, as Trustee Kenneth Kay, as Trustee
and not individually and not individually
/s/Curtis C. Pietz
----------------------------------
Curtis C. Pietz, as Trustee
and not individually
State of Iowa )
)
County of Polk )
On this 7th day of November, 1996, before me, the undersigned, a
Notary Public in and for the State of Iowa, personally appeared the
persons to me known to be the persons who executed the foregoing
instrument and they acknowledged that they executed the same as their
voluntary act and deed.
/s/Sue A. Cornick
---------------------------
Notary Public
<PAGE>
BY-LAWS
OF
FBL VARIABLE INSURANCE SERIES FUND
These By-Laws are made and adopted pursuant to the Declaration of Trust
establishing FBL VARIABLE INSURANCE SERIES FUND (the "Trust"), as from time to
time amended, restated or modified (the "Declaration") and at all times subject
thereto.
ARTICLE I
SHAREHOLDERS MEETINGS
1. All meetings of the shareholders shall be held at such place within,
or without, the Commonwealth of Massachusetts as may be determined by the Board
of Trustees and designated in the notice of said meeting.
2. Special meetings of shareholders may be called by the Trustees upon
the written request of shareholders owning at least one-tenth (1/10) of the
outstanding shares entitled to vote. Shareholders shall be entitled to at least
fifteen (15) days' notice of any meeting.
3. Written notice of every meeting of the shareholders, stating the time,
place and purpose or purposes for which the meeting is called, shall be given by
the Secretary to each shareholder entitled to vote thereat and to any
shareholder entitled by law to such notice. Such notice shall be given to each
shareholder by mailing the same, postage prepaid, to the address of the
shareholder as it appears on the books of the Trust not less than fifteen (15)
nor more than ninety (90) days before the time fixed for such meeting. A
certificate or affidavit by the Secretary or an Assistant Secretary or a
transfer agent shall be prima facie evidence of the giving of any notice
required by the Declaration.
4. When a quorum, as stated in the Declaration, is present at any
meeting, the vote of holders of a majority of the shares having the right to
vote thereat, present in person or represented by proxy, shall determine any
question brought before such meeting unless, the question is one upon which by
express provision of the statutes, the Declaration or these By-Laws, a different
vote is required in which case such express provision shall control.
5. At any meeting of the shareholders every shareholder having the right
to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing, subscribed by such shareholder and bearing a date not
more than eleven (11) months prior to said meeting, which instrument shall be
filed with the
<PAGE>
Secretary of the meeting before being voted. Each shareholder shall have one
vote or fraction thereof for each share or fraction thereof held.
6. The Board of Trustees may fix a record date not more than sixty (60)
nor less than fifteen (15) days prior to the date for which a meeting is called,
as of which the shareholders entitled to vote at such meeting or any adjournment
thereof, shall be determined, notwithstanding any transfer or the issuer of any
share occurring after such record date.
ARTICLE II
TRUSTEES MEETINGS
1. The Trustees shall act by majority vote at a meeting duly called at
which a quorum is present, or by unanimous written consent without a meeting, or
by telephone consent provided a quorum of Trustees participate in any such
telephonic meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting in person of the Trustees.
2. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum.
3. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Trustees or by any two (2) other Trustees.
4. Notice of the time, date and place of all meetings of the Trustees
shall be given by the party calling the meeting to each address at least
twenty-four (24) hours in advance of the meeting or by written notice mailed to
his home or business address at least seventy-two (72) hours in advance of the
meeting. Notice of the meeting need not be given to any Trustee if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him.
5. Subject to the requirements of the 1940 Act, the Trustees by majority
vote may delegate to any one of their number their authority to approve
particular matters or take particular actions on behalf of the Trust.
ARTICLE III
COMMITTEES
The Board of Trustees may, by resolution or resolutions passed by a
majority of the entire Board, elect from their own number an executive
committee to consist of not less than three (3) nor more than five (5)
members, which shall have the power to conduct the current and ordinary
business of the Trust while the Board of Trustees is not in session. The
Board of Trustees may also in the same manner elect from their own number
from time to time other committees, the number composing such committees and
the powers conferred thereon to be determined from the resolution creating
the same. The committees shall keep regular minutes of their proceedings and
report the same to the Board of Trustees when required.
<PAGE>
ARTICLE IV
OFFICERS
1. The officers of the Trust shall be elected by the Board of Trustees at
the first meeting of each newly elected Board. The Board of Trustees may elect
one of its own members as Chairman of the Board, and shall elect a President,
Secretary and Treasurer. The Board of Trustees may also elect one or more Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. Two or more offices, when consistent, may be held by the same
person, except that any person holding the office of President shall not hold
the office of Vice President. The President of the Trust shall be a Trustee. All
other officers may be, but need not be, Trustees of the Trust.
2. The Board of Trustees may elect other officers and appoint agents and
representatives of the Trust as shall be deemed necessary, with such powers for
such term and to perform such acts and duties on behalf of the Trust as the
Board of Trustees may see fit to the extent authorized or permitted by law, the
Declaration and these By-Laws.
3. The Chairman of the Board, if one shall be elected, shall preside at
all meetings of the shareholders and Board of Trustees, and shall perform such
other duties as the Board of Trustees may from time to time prescribe.
4. The President shall be the chief executive officer of the Trust and,
in the absence of the Chairman of the Board, or if a Chairman is not elected,
shall preside at all meetings of the Shareholders and Board of Trustees. The
President shall have power to sign all certificates for shares of stock. The
President shall perform such other duties as the Board of Trustees shall from
time to time prescribe.
5. The Vice President(s), in the order of their seniority or as
designated by the Board of Trustees, shall in the absence or disability of the
President, perform the duties and exercise the powers of the President, and
shall perform such other duties as the Board of Trustees may from time to time
prescribe.
6. The Secretary shall record all votes and proceedings of meetings of
the shareholders and of the Board of Trustees in the Trust records. He shall
give, or cause to be given, notice of all meetings of the shareholders and
meetings of the Board of Trustees when notice thereof is required. The Secretary
shall have custody of the seal of the Trust and may affix the same to any
instrument requiring the seal of the Trust and attest to the same with his
signature. He shall have power to sign all certificates for shares of stock and
shall perform such other duties as the Board of Trustees may from time to time
prescribe.
7. The Assistant Secretary(s) in order of their seniority or as directed
by the Board of Trustees shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Board of Trustees may prescribe.
<PAGE>
8. The Treasurer shall deliver all funds and securities of the Trust
which may come into his hands to such bank or trust company as the Board of
Trustees may designate as custodian. He shall keep such record of the financial
transaction of the Trust as the Board of Trustees shall prescribe. The Treasurer
shall have power to sign all certificates for shares of stock and shall perform
such other duties as the Board of Trustees may from time to time prescribe.
9. The Assistant Treasurer(s) in order of their seniority or as directed
by the Board of Trustees, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties as the Board of Trustees may prescribe.
10. The officers of the Trust shall hold office until their successors are
chosen and qualified. Any officer may resign at any time by written instrument
signed by him and delivered to the President or the Secretary or to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless specified
to be effective at some other time. Any officer elected or appointed by the
Board of Trustees may be removed at any time with or without cause by the Board
of Trustees. If the office of any officer shall become vacant for any reason,
the vacancy shall be filled by the Board of Trustees.
11. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
<PAGE>
ARTICLE V
STOCK CERTIFICATE
1. The certificates of stock of the Trust shall be in the form prescribed
by the Board of Trustees and shall be signed by the President, or a Vice
President and the Secretary or Treasurer or an Assistant Secretary or an
Assistant Treasurer. If the Board of Trustees shall require all certificates for
shares of stock to be signed (1) by a transfer agent or an assistant transfer
agent, or (2) by a transfer clerk, acting on behalf of the Trust, the signature
of any officer of the Trust thereon and the seal of the Trust thereon may be
facsimiles.
2. In the event any officer of the Trust authorized to sign certificates
for shares of stock of the Trust shall die or cease to hold office, the Board of
Trustees may, by resolution, adopt and permit to be issued, when duly
counter-signed, certificates bearing the signature, either real or facsimile, of
such officers.
3. The Board of Trustees may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Trust alleged to have been lost, mutilated or destroyed upon such terms and upon
such conditions as it may prescribe.
ARTICLE VI
INSURANCE
The Trust may purchase and maintain insurance on behalf of any person who
is or was a Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a Trustee, officer, employee or agent of
another corporation, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him, in any such capacity or
arising out of his status as such, whether or not the Trust would have the power
to indemnify him against such liability.
ARTICLE VII
UNDERWRITING ARRANGEMENTS
Any contract entered into for the sale of shares of the Trust pursuant to
Article VII, Section 2 of the Declaration of Trust, shall require the other
party thereto (hereinafter called the "underwriter"), whether acting as
principal or as agent, to use all reasonable efforts, consistent with the other
business of the underwriter, to secure purchasers for the shares of the Trust.
Such contract shall require the underwriter to bear all expenses (a) of printing
and distributing any Prospectus or reports
<PAGE>
prepared for its use in connection with the offering of the shares of the Trust
for sale to the public, other than the expenses of preparing, setting up in
type, printing and distributing (i) Prospectuses used in connection with the
registration and qualification of shares under the Securities Act of 1933 or
various state laws, (ii) any report or other communication to shareholders of
the Trust in their capacity as such, and (iii) Prospectuses sent to existing
shareholders, (b) of any other literature used by it in connection with such
offering, and (c) advertising in connection with such offering.
ARTICLE VIII
REPORTS TO SHAREHOLDERS
The Trustees shall at least semiannually submit to the shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE IX
MISCELLANEOUS
1. AUDITOR. An auditor shall be selected annually, pursuant to the
Investment Company Act of 1940.
2. FISCAL YEAR. The fiscal year of the Trust shall be the calendar year,
provided, however, that the Board of Trustees may, without Shareholder approval,
change the fiscal year of the Trust.
3. SEAL. The seal of the Trust shall, subject to alteration by the Board
of Trustees, consist of a flat-faced circular die, upon which shall be engraved
or cut the word "Massachusetts", together with the name of the Trust and the
year of its organization.
4. DEPOSITORIES. The Portfolios of the Trust shall be deposited in such
depositories as the Trustees shall designate in accordance with the provisions
of the Declaration, and shall be drawn out on checks, drafts or other orders
signed by such officer(s) or agent(s) (including the Adviser), as the Trustees
may from time to time authorize.
5. EXECUTION OF PAPERS. All contracts and other instruments shall be
executed on behalf of the Trust by such officer(s) or agent(s), as provided in
the Declaration or these ByLaws or as the Trustees may from time to time by
resolution provide.
<PAGE>
6. REPORTS. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers shall render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
ARTICLE X
AMENDMENTS
In accordance with the Declaration, the Trustees have the power to alter,
amend or repeal the ByLaws or adopt new ByLaws at any time. Action by the
Trustees with respect to the ByLaws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt ByLaws which are
in conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
Attest: /s/ Gerald Snethen
------------------------------
Dated: March 13, 1987 Secretary
<PAGE>
INVESTMENT ADVISORY AND
MANAGEMENT SERVICES
AGREEMENT
This Agreement made this 6th day of April, 1987, by and between FBL
VARIABLE INSURANCE SERIES FUND, a Massachusetts business trust (the "Fund"), and
FBL INVESTMENT ADVISORY SERVICES, INC., a Delaware corporation ("Adviser");
WITNESSETH:
In consideration of the mutual covenants herein contained, it is agreed as
follows:
1. ADVISORY SERVICES. Adviser shall furnish investment research and
advice to the Fund and shall manage the investment and reinvestment of the
assets of the portfolios currently offered by the Fund (the "Portfolios") and
its business affairs and matters incidental thereto, all subject to the
supervision of the Board of Trustees of the Fund, and the provisions of the
Declaration of Trust and By-Laws of the Fund and any resolutions, rules or
regulations adopted by the Board of Trustees of the Fund. Adviser shall for all
purposes herein provided be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized herein, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent for the
Fund. The Fund shall also be free to retain, at its own expense, other persons
to provide it with any services whatsoever including, but not limited to
statistical, factual or technical information or advice. The services of Adviser
herein provided are not to be deemed exclusive and Adviser shall be free to
render similar services or other services to others as long as its services
hereunder shall not be impaired thereby.
2. LIMITATIONS ON ADVISORY SERVICES. The Adviser shall perform the
services under this Agreement subject to the supervision and review of the Board
of Trustees and in a manner consistent with the objectives, policies, and
restrictions of each Portfolio of the Fund as stated in its Registration
Statement, as amended from time to time, the provisions of the Investment
Company Act and the applicable requirements of the Internal Revenue Code of
1986.
3. DUTIES OF ADVISER. In carrying out its obligations to manage the
investment and reinvestment of the assets of the Fund, the Adviser shall, as
appropriate and consistent with the limitations set forth in Paragraph 2 hereof:
(a) perform research and obtain and evaluate pertinent economic,
statistical, and financial data relevant to the investment
polices of each Portfolio of the Fund as set forth in the
prospectus for the Fund, as amended from time to time;
(b) consult with the Board and furnish to the Board
<PAGE>
recommendations with respect to an overall investment strategy
for each Portfolio of the Fund for approval, modification, or
rejection by the Board;
(c) seek out specific investment opportunities and take such steps as
are necessary to implement any overall investment strategies
approved by the Board, including making and carrying out
day-to-day decisions to acquire or dispose of permissible
investments, management of investments and any other property of
the Fund, and providing or obtaining such services as may be
necessary in managing, acquiring or disposing of investments;
(d) regularly report to the Board with respect to the implementation
of any approved overall investment strategy and any other
activities in connection with management of the assets of the
Fund: and
(e) determine the composition of the assets of each of the
Portolios, including the purchase, retention or sale of the
securities and cash contained in those Portfolios.
4. REPORT TO BOARD. The Adviser, either through persons employed by it
or at its expense, shall furnish to the Board at least once every quarter a
schedule of investments and other assets held in the Portfolios and a statement
of all purchases and sales for the Portfolios, except short term money market
instruments, made during the period since the last report.
5. RECORDS. The Adviser agrees to preserve for the period prescribed by
the rules and regulations of the Securities and Exchange Commission all records
the Adviser maintains for the Fund as are required to be maintained pursuant to
said rules. The Adviser agrees that all such records shall be the property of
the Fund and shall be made available, within five (5) business days of the
request, to the Fund's accountants or auditors during regular business hours at
the Adviser's offices upon such prior written notice. In the event of
termination for any reason, all such records shall be returned promptly to the
Fund, free from any claim or retention of rights by the Adviser. In addition,
the Adviser will provide any materials, reasonably related to the investment
advisory services provided hereunder, as may be reasonably requested in writing
by the Trustees or officers of the Fund or as may be required by any
governmental agency having jurisdiction.
6. EXPENSES. Adviser shall at its expense furnish the Fund with office
space (in the offices of Adviser, or other such place or places as may be agreed
upon by the parties) and such office facilities, simple business equipment,
advisory, research and statistical facilities and clerical services and
personnel as
2
<PAGE>
may be necessary to administer the investment business of the Fund. Adviser
shall arrange, if desired by the Fund, for officers or employees of Adviser to
serve without salary from the Fund as Trustees, officers or agents of the Fund
if duly elected or appointed to such positions by the shareholders of the Fund
or by the Board of Trustees thereof and subject to their individual consent and
to any limitations imposed by law. Adviser will not be required to pay any other
expenses of the Fund other than those expressly enumerated herein; and in
particular, but without limiting the generality of the foregoing, Adviser will
not be required to pay any of the following Fund expenses: (1) expenses for
services rendered by a custodian including those for the safekeeping of the
Fund's securities or other property and for keeping its books of account, (2)
charges and expenses of independent auditors, of legal counsel, of any transfer
or dividend disbursing agent, or any registrar of the Fund, (3) costs of
acquiring and disposing of portfolio securities, (4) interest, if any, on the
obligations incurred by the Fund, (5) the cost of calculating the net asset
value of the Fund as provided in the Declaration of Trust and By-Laws of the
Fund, of stock certificates and of Trust reports, (6) membership dues in the
Investment Company Institute or any similar organization, (7) the cost of
reports, notices to shareholders and other shareholder communications and other
like miscellaneous expenses, (8) expenses of any registration and qualification
of shares of the Fund for sale under Federal Securities laws and the securities
laws of any state or other jurisdiction, (9) telephone and personnel costs
incurred by Adviser and allocable to the above, (10) taxes and fees payable to
Federal, State or other Governmental agencies or otherwise, and (11) expenses of
underwriting and selling shares of stock issued by the Fund. The Board shall
determine how expenses are to be allocated among the existing Portfolios, and
the determination of the Board shall be final and binding. The Fund shall not
pay or incur any obligation for any management or administrative expenses for
which the Fund intends to seek reimbursement from Adviser as herein provided
without first obtaining the written approval of Adviser.
7. COMPENSATION. For the services to be rendered and the charges and
expenses assumed and to be paid by the Adviser as provided herein, the Fund
shall pay the Adviser compensation based on an annual percentage of the average
daily net assets of each Portfolio as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets
First Second Over
$200 $200 $400
Portfolio Million Million Million
- --------- ------- ------- -------
<S> <C> <C> <C>
Managed . . . . . . . . . . . . . 0.55% 0.50% 0.45%
Aggressive Growth Common Stock . . 0.55% 0.50% 0.45%
Growth Common Stock . . . . . . . 0.50% 0.45% 0.40%
High Yield Bond . . . . . . . . . 0.50% 0.45% 0.40%
High Quality Bond. . . . . . . . . 0.30% 0.275% 0.25%
Money Market . . . . . . . . . . . 0.30% 0.275% 0.25%
</TABLE>
<PAGE>
Compensation under this Agreement shall be calculated and accrued for each
business day by applying the appropriate annual rates to the net assets of the
Portfolio in accordance with the formula set forth above as of the close of the
last business day preceding the day for which the fee is being calculated, and
dividing the sum so computed by the number of business days in the fiscal year.
The fees thus accrued shall be payable monthly, provided that such compensation
shall be paid proportionately for any other period ending with the termination
of this Agreement.
8. LIMITATION OF EXPENSES. In the event that expenses of any Portfolio
chargeable to its income account (including amounts payable hereunder but
exclusive of brokerage fees, interest, taxes and extraordinary expenses for any
fiscal year ending on a date at which this Agreement is in effect) shall exceed
1.50% of the average daily net assets of the Portfolio for said fiscal year,
calculated on the basis of the average of all of the daily valuations of the net
assets of the Fund in effect as of the close of each business day during said
fiscal year, Adviser shall pay to the Fund the amount by which such expenses
exceed the applicable limitation, within three days after the determination of
the amount thereof. In no event shall Adviser be required to reimburse the Fund
in an amount exceeding its compensation for such period under this Agreement.
9. FUND TRANSACTIONS AND BROKERAGE. The Adviser agrees to determine the
securities to be purchased or sold by each Portfolio of the Fund, subject to the
provisions of Paragraph 2 and 3 above, and to place orders pursuant to its
determinations either directly with the issuer, with any broker-dealer or
underwriter that specializes in the securities for which the order is made, or
with any other broker or dealer selected by the Adviser, subject to the
following limitations.
The Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for each Portfolio of
the Fund and will use its best efforts to obtain the most favorable price and
efficient execution of the Fund's orders, taking into account all appropriate
factors, including: price; dealer spread or commission, if any; size and
difficulty of the transaction; the nature of the market for the security; the
reliability, financial condition and general execution and operational
capabilities of the broker-dealer; and the research, statistical, and economic
data furnished by the broker-dealer to the Fund.
If, in the judgment of the Adviser, the Fund would be benefited by
supplemental investment research, the Adviser is authorized to pay a reasonable
fee for such information. The expenses of the Adviser may not necessarily be
reduced as a result of receipt of such supplemental information. The Adviser or
any of its affiliates may also use any investment research obtained for the
benefit of the Fund in providing investment advice to its other investment
advisory accounts.
<PAGE>
10. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither Adviser nor
any officer, director or shareholder of Adviser shall act as principal or
receive any commission other than its compensation provided for in this
Agreement. Such limitation, however, shall not prohibit the payment of the usual
and customary brokerage commissions to any of such parties in the proper case.
It is understood and agreed that Adviser, by virtue of a separate agreement with
the Fund, may also act as underwriter for the Fund.
Securities held by the Fund may also be held by separate investment
accounts or other investment companies for which the Adviser may act as an
adviser or by the Adviser or its affiliates. Because of different investment
objectives or other factors, a particular security may be bought by the Adviser
or its affiliates or for one or more clients when one or more clients are
selling the same security. If purchases or sales of securities for the Fund or
other entities for which the Adviser or its affiliates act as investment adviser
or for their advisory clients arise for consideration at or about the same time,
the Fund agrees that the Adviser may make transactions in such securities,
insofar as deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Adviser during the same period may increase demand
for securities being purchased or the supply of securities being sold, the Fund
recognizes that there may be an adverse effect on price.
It is agreed that, on occasions when the Adviser deems the purchase or sale
of a security to be in the best interests of the Fund as well as other accounts
or companies, it may, to the extent permitted by applicable laws and
regulations, but not be obligated to, aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other accounts or
companies in order to obtain favorable execution and lower brokerage
commissions. In that event, allocation of the securities purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Adviser in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to the Fund and to such other accounts or companies. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for a Portfolio of the Fund.
11. LIMITATION OF LIABILITY OF ADVISER. Adviser shall not be liable for
any error ot judgment or mistake of law, or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Adviser in the performance of its obligations and duties or by reasons of its
reckless disregard of its obligations and duties under this Agreement. It is
understood that the officers, Trustees, agents and shareholders of the Fund are
or may become interested in
<PAGE>
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of Adviser may become similarly
interested in the Fund; and that the existence of any such dual interest shall
not affect the validity of this Agreement or any transaction hereunder except as
provided in the Declaration of Trust or By-Laws of the Fund or Articles of
Incorporation of the Adviser, or by the specific provisions of applicable law.
Any person, even though also employed by Adviser, who may be or become an
employee of and paid by the Fund shall be deemed, when acting within the scope
of his employment by the Fund, to be acting in such employment solely for the
Fund and not as an employee or agent of Adviser.
12. EFFECTIVE DATE AND TERM. This Agreement shall not become effective
unless and until it is approved by the Fund's Board of Trustees, including a
majority of Trustees who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act) of any such party to this
Agreement. This Agreement shall come into full force and effect on the date
which it is so approved, provided that it shall not become effective as to any
subsequently created Portfolio until it has been approved by the Board of
Trustees specifically for such Portfolio.
As to each Portfolio of the Fund, the Agreement shall continue in effect
until the date of the first annual or special meeting of shareholders of the
Portfolio subsequent to its creation, but not later than one year after the
effective date of the Securities Act of 1933 Registration Statement for the
class of shares representing interests in that Portfolio, and shall thereafter
continue in effect from year to year so long as its continuance is approved
annually by a majority of the votes cast by those persons having voting rights
in respect of the Portfolio or by a vote by a majority of the Trustees, but in
either event by the vote of a majority of the Board who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act) of
any party to this Agreement, cast in person at a meeting called for such purpose
of voting such approval. In connection with such approvals, the Trustees shall
request, and the Adviser shall furnish, such information as may be necessary to
evaluate this Agreement.
As to each Portfolio of the Fund, this Agreement:
A. may be terminated without the payment of any penalty upon 60 days'
written notice to the Adviser either by the Board of Trustees or by a
majority vote of those persons having voting rights in respect of the
affected Portfolio(s) of the Fund;
6
<PAGE>
B. shall automatically terminate if it is assigned (within the meaning of
the Investment Company Act) by the Adviser;
C. may be terminated by the Adviser without payment of any penalty upon
60 days' written notice to the Secretary of the Board of Trustees of
the Fund; and
D. may be amended, changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. An amendment of this
Agreement shall not be effective until approved by (i) vote of the holders of a
majority of the outstanding voting securities of the Portfolio; and (ii) a
majority of those Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Investment Company Act) of any party to
this Agreement, cast in person at a meeting called for the purpose of voting on
such approval.
13. NOTICES. Any notices under this Agreement shall be in writing
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience or reference only and in no way define or limit any of the
provisions hereof or otherwise effect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
The Declaration of Trust establishing the Fund, a copy of which (together
with any and all amendments thereto) is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that all persons extending credit
to, contracting with or having any claim against the Fund or the Trustees shall
look only to the assets of the Fund for payment under such credit, contract or
claim, and that neither the shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally liable therefor.
The obligations of the Fund hereunder may be satisfied only by resort to Fund
assets.
<PAGE>
IN WITNESS WHEREOF, the Fund and Adviser have caused this Agreement to be
executed in their names and on their behalf and under their trust and corporate
seals by and through their duly authorized officers all on the day and year
first above written.
ATTEST: FBL VARIABLE INSURANCE SERIES FUND
/s/ Gerald Snethen /s/ Robert R. Joslin
- --------------------------- ----------------------------
By: Its Secretary By: Its President
ATTEST: FBL INVESTMENT ADVISORY SERVICES, INC.
/s/ Dennis M. Marker /s/ W.L. Bishop
- --------------------------- ----------------------------
By: Its Secretary By: Its President
<PAGE>
Appendix A-1
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
Amendment made this 21st day of August 1990, among FBL VARIABLE INSURANCE
SERIES FUND (the "Fund") and FBL INVESTMENT ADVISORY SERVICES, INC., ("FBL") to
the Investment Advisory Agreement dated April 6, 1987, between the Fund and FBL
(the "Agreement").
WHEREAS, the Fund, is an open-end, diversified, management investment
company, organized as a Series Fund, registered under the Investment Company Act
of 1940, as amended ("1940 Act");
AND WHEREAS, the Fund wishes to retain FBL to render management and
investment advisory services to the one (1) additional Series of the said Fund,
namely, the Blue Chip Portfolio recently authorized by the Fund and FBL is
willing to furnish such services to the Fund.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. The Agreement is hereby amended to apply to the Blue Chip Series in
all respects, except as amended hereby.
2. FBL agrees to perform all duties for the Series set forth in the
Agreement for a consideration at an annual rate of .20% of the average
daily value of the net assets of the Series.
3. The Agreement as amended hereby is ratified and continued in all
respects.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed and delivered by the persons designated below as of the day and year
first above written.
FBL INVESTMENT ADVISORY FBL VARIABLE INSURANCE
SERVICES, INC. SERIES FUND
By:/s/Wiliam J. Oddy By:/s/ Merlin D. Plagge
------------------ --------------------
By:/s/ Timothy J. Hoffman By:/s/ Eugene R. Maahs
----------------------- --------------------
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT
SERVICES AGREEMENT
FBL VARIABLE INSURANCE SERIES FUND
Amendment to Management Fee Schedule
Effective May 1, 1997
Amendment effective May 1, 1997 to the Investment Advisory and Management Fee
Services Agreement dated April 6, 1987 between FBL Variable Insurance Series
Fund and FBL Investment Advisory Services, Inc. ("FBLIAS"). Pursuant to a
resolution adopted by the Board of Trustees on November 7, 1996, FBLIAS wished
to reduce the management fee rate for the Value Growth, High Yield Bond, Managed
and Money Market Portfolios of the Fund.
The fee schedule in paragraph 7 is hereby amended to reflect the reduction in
management fees as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
FIRST SECOND OVER
$200 $200 $200
PORTFOLIO MILLION MILLION MILLION
--------- ------- ------- -------
<S> <C> <C> <C>
Managed 0.45% 0.45% 0.45%
Value Growth 0.45% 0.45% 0.40%
High Yield Bond 0.45% 0.45% 0.40%
High Grade Bond 0.30% 0.275% 0.25%
Money Market 0.25% 0.25% 0.25%
Blue Chip 0.20% 0.20% 0.20%
</TABLE>
The parties hereto have caused this amendment to be executed and delivered by
the persons designated below on November 7, 1996 to become effective as of the
day and year first written above.
FBL INVESTMENT ADVISORY FBL VARIABLE INSURANCE
SERVICES, INC. SERIES FUND
By: /s/ Richard D. Warming By: /s/ Edward M. Wiederstein
--------------------------- -----------------------------
President President
Attest: /s/ Dennis M. Marker Attest: /s/ Richard D. Harris
--------------------------- ----------------------------
Secretary Secretary
<PAGE>
UNDERWRITING AGREEMENT
AGREEMENT made this 12th day of August, 1987, by and between FBL VARIABLE
INSURANCE SERIES FUND, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (the "Fund"), and FBL INVESTMENT ADVISORY
SERVICES, INC., a Delaware corporation (the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a diversified open-end investment company and
proposes to offer its shares continuously, pursuant to a prospectus (as now
constituted or hereafter amended or supplemented, the "Prospectus"), to the
separate accounts ("Accounts") of Farm Bureau Life Insurance Company and Utah
Farm Bureau Life Insurance Company, and of other affiliated and non-affiliated
insurance companies (collectively, the "Participating Insurance Companies"), to
fund the benefits under Variable Life Insurance Policies and Variable Annuity
Contracts issued by the Participating Insurance Companies; and
WHEREAS, the Fund currently is comprised of six separate portfolios
(together with and additional portfolios which may from time to time be
established by the Fund, herein referred to as the "Portfolios"), each of which
pursues its investment objectives through separate investment policies; and
WHEREAS, the Underwriter is a broker-dealer registered under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.; and
<PAGE>
WHEREAS, the Fund and the Underwriter wish to enter into an agreement with
each other with respect to the continuous offering to the Accounts of the Fund's
transferable shares of beneficial interest, without par value ("Shares"), in
order to promote the growth of the Fund and to facilitate the distribution of
the Shares.
NOW, THEREFORE, is consideration of the premises and mutual covenants herein
continued the parties hereto agree as follows:
1. APPOINTMENT OF THE UNDERWRITER
The Fund hereby appoints the Underwriter as the principal underwriter and
distributor of the Fund to sell its shares to the Accounts, and the Underwriter
hereby accepts such appointment. The Fund during, the term of this Agreement
shall sell its Shares to the Accounts pursuant to orders obtained by the
Underwriter, at the net asset value for each Portfolio determined in the manner
set forth in the Prospectus, and upon the terms and conditions set forth below.
No commission or other fee shall be charged or paid to any person or entity in
connection with the sale of the Shares hereunder,
2. EXCLUSIVE NATURE OF DUTIES
The Underwriter shall be the exclusive representative of the Fund to act as
principal underwriter and distributor.
3. SALE AND REDEMPTION OF SHARES OF THE FUND
(a) Orders for the purchase and redemption of Shares (and payment for
Shares, in the case of a purchase) shall be transmitted directly from the
Accounts to the Fund or its agent.
(b) The Fund shall sell and redeem Shares of each Portfolio at the net asset
value per share of such Portfolio, determined in accordance with the method set
forth in the Prospectus.
(c) The Fund shall have the right to suspend the redemption of Shares of any
of its Portfolios pursuant to the conditions set forth in the prospectus. The
Fund shall also have the right to suspend the sale of Shares of any or all of
its Portfolios at any time when it is authorized to suspend redemption of such
Shares, or at any other time when there shall have occurred an extraordinary
event or circumstance which, in the reasonable judgment of the Fund, makes it
impracticable or inadvisable to continue to sell any such shares.
(d) The Fund shall give the Underwriter prompt notice of any such suspension
and shall promptly furnish such other information in connection with the sale
and redemption of Shares as the Underwriter may reasonably request.
(e) The Fund (or its agent) will make appropriate book entries upon receipt
by the Fund (or its Agent) of orders and payments for Shares or requests for
redemption thereof, and will issue and redeem Shares and confirm such
transactions in accordance with applicable laws and regulations.
<PAGE>
4. INTERESTS IN AND OF THE UNDERWRITER
It is understood that any of the shareholders, trustees, officers,
employees, and agents of the Fund may be a shareholder, director, trustee,
officer, employee, or agent of, or be otherwise interested in, the Underwriter,
any affiliated person of the Underwriter, any organization in which the
Underwriter may have an interest or any organization which may have an interest
in the Underwriter; that the Underwriter, any such affiliated person, or any
such organization may have an interest in the Fund; and that the existence of
any such dual interest shall not affect the validity hereof or any transaction
hereunder except as otherwise provided in the Declaration of Trust or By-laws of
the Fund, or in the Articles of Incorporation or By-laws of the Underwriter, or
by specific provisions of applicable law.
5. DUTIES OF THE FUND
(a) The Fund shall furnish to the Underwriter copies of all information,
financial statements, and other papers which the Underwriter may reasonably
request for use in connection with the distribution of the Shares.
(b) The Fund shall take, from time to time, subject to the necessary
approval of its shareholders, all necessary action to register Shares under the
Securities Act of 1933 in order that there will be available for sale such
number of Shares of each Portfolio as may reasonably be expected to be sold and
issued.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares of each of its Portfolios for
sale under the securities laws of such states as the Underwriter and the Fund
may approve, if such qualification is required by such securities laws. Any such
qualification may be withheld, terminated, or withdrawn by the Fund at any time
in its discretion.
(d) The Fund will furnish to the Underwriter, in reasonable quantities upon
request by the Underwriter, copies of annual and interim reports of the Fund.
(e) The Fund shall promptly notify the Underwriter if the registration or
qualification of any Shares under any state or federal securities laws, or the
Fund's registration under the 1940 Act, is suspended or terminated, or if any
governmental body or agency institutes proceedings to terminate the offer and
sale of any Shares in any jurisdiction.
6. DUTIES OF THE UNDERWRITER
(a) The Underwriter shall be subject to the direction and control of the
Fund in the sale of the Shares and shall not be obligated to sell any specific
number of Shares of any Portfolios. In selling the Shares of the Fund, the
Underwriter shall use its best efforts in all respects to conform with the
requirements of all federal and state laws and regulations, and the regulations
of the National Association of Securities Dealers, Inc., relating to the sale of
such securities. The Underwriter is not authorized by the Fund to give any
information
<PAGE>
or make any representations, other than those contained in the Registration
Statement for the Fund and its Shares, the Prospectus, and any sales literature
specifically approved by the Fund.
(b) The Underwriter shall act as an independent contractor and nothing
herein shall constitute the Underwriter, its agents or representatives, or
employees thereof, as employees of the Fund in connection with the sale of
Shares. The Underwriter is responsible for its own conduct and the employment,
control, and conduct of its agents and employees and for injury to such agents
or employees or to others through its agents or employees. The Underwriter
assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder. Nothing contained in
this Agreement shall prevent the Underwriter from entering into underwriting
arrangements with other investment companies.
(c) The Underwriter will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter.
(d) The Underwriter will observe and be bound by all the provisions of the
Declaration of Trust and By-Laws of the Fund, the Prospectus, and any
fundamental policies adopted by the Fund pursuant to the 1940 Act, notice of
which shall have been given by the Fund to the Underwriter, which at the time in
any way require, limit, restrict, or prohibit, or otherwise regulate, any action
on the part of the Underwriter.
7. PAYMENT OF EXPENSES
(a) The Fund shall bear all costs and expenses of the Fund incurred in
connection with (i) the registration of the Shares under federal and state
securities laws; (ii) the preparation (including typesetting), printing, and
mailing of annual Prospectuses to existing shareholders; (iii) the preparation,
printing, and mailing of any notice, proxy statement, report, supplemental
Prospectus, or other communications to shareholders; and (iv) the printing and
mailing of confirmations of purchases of Shares. The Fund will also pay all
expenses incident to the issuance of the Shares.
(b) The Underwriter will pay all expenses incident to the sale and
distribution of the Shares issued or sold hereunder, including, without limiting
the generality of the foregoing, all expenses incurred in connection with: (i)
the printing (but not typesetting) and distribution of Prospectuses and
Statements of Additional Information to other than existing shareholders; and
(ii) the preparation, printing, and distribution or dissemination of any reports
or other literature, advertising, and selling aids in connection with the
offering of the Shares for sale (except that such expenses do not include
expenses incurred by the Fund in connection with the preparation, printing, and
distribution of any report or other communication to shareholders in their
capacity as such).
<PAGE>
8. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first written above
and, unless terminated earlier as described in the following paragraph, shall
remain in force thereafter so long as its continuance is approved at least
annually by (a) the vote of a majority of the Trustees who are not parties to
this Agreement or "interested persons" of any such party 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 Trustees, or (ii) the vote of a majority of the
outstanding voting securities of the Fund.
This Agreement may be terminated by either party upon six months' advance
written notice to the other party. This Agreement shall terminate automatically
in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested person," when used in the Agreement, shall have
the respective meanings specified in the 1940 Act.
9. NOTICES
Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
10. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Iowa and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of Iowa, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
11. PERSONAL LIABILITY
The Underwriter understands that the obligations of the Fund under this
Agreement are not binding upon any shareholders or trustees of the Fund
personally, but bind only the Fund and the Fund's property. The Underwriter
represents that it has notice of the provisions of the Declaration of Trust of
the Fund disclaiming shareholder and trustee liability for acts or obligations
of the Fund.
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this
Agreement to be executed on its behalf by an officer thereunto duly authorized
and its corporate and trust seals to be affixed on the day and year first above
written.
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
By: /s/ William J. Oddy
---------------------
By: /s/ Dennis M. Marker
---------------------
FBL INVESTMENT ADVISORY SERVICES, INC.
By: /s/ William J. Oddy
--------------------
<PAGE>
CUSTODIAN ACCOUNT AGREEMENT
THIS CUSTODIAN ACCOUNT AGREEMENT, dated December 15, 1992, is entered into
by and between FARM BUREAU LIFE INSURANCE COMPANY, an insurance company
organized under the laws of Iowa, and its affiliated companies ("Company"), and
BANKERS TRUST COMPANY, a New York banking corporation ("Custodian");
WITNESSETH:
In consideration of the mutual covenants herein contained and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINITIONS
Whenever used in this Agreement, or in any appendices, schedules or
exhibits hereto or amendments hereof, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
(a) "Account Securities" means the Securities, other property and cash held
by Custodian in the Custodian Account, and shall include all income generated by
or the proceeds of any sale of such Securities.
(b) "Authorized Person" means any Person or Persons jointly or severally
authorized from time to time, in a writing in substantially the form of Exhibit
A attached hereto and made a part hereof, delivered to Custodian, to act on
behalf of Investment Adviser or Company with respect to any action required or
permitted to be taken by the Investment Adviser or Company under this Agreement.
Such writing shall clearly indicate the scope of authority of each Authorized
Person.
(c) "Custodian Account" means the one or more custodianship, safekeeping
and cash accounts established and maintained by Custodian or any subcustodian
for Company pursuant to this Agreement, as listed in Exhibit B attached hereto
and made a part hereof.
(d) "Depository" means any centralized securities depository system,
domestic or foreign, whether presently or hereafter organized, in which
Custodian participates, and shall include (i) the Depository Trust Company, (ii)
the Participant's Trust Company, or (iii) any other centralized securities
depository system selected by Custodian, but subject to the approval of Company
and any required approval by regulatory authorities applicable to Custodian in
the conduct of its business as Custodian.
(e) The term "hold" shall include Custodian's authority to deposit part or
all of the Account Securities with a Depository.
(f) "Instructions" means a communication received by Custodian from one or
more
1
<PAGE>
Authorized Persons directing action or delivering information pursuant thereto.
Instructions may be oral or written and may be delivered (i) by telephone, (ii)
in hard copy, or (iii) by computer, electronic instruction system or
telecommunications terminals, which shall include but not be limited to, a
telex, a TWXS, a facsimile transmission, a bank wire or Custodian's proprietary
POL*ARIS Service; PROVIDED, HOWEVER, THAT the Parties hereto or Custodian and
Investment Adviser, as the case may be, shall have agreed to the form, the means
of transmission and the means of identification of such Instructions; FURTHER
PROVIDED THAT Instructions initially given orally shall be confirmed within the
thirty (30) minute period immediately following the initial receipt of the
Instructions by Custodian in a manner consistent with clauses (ii) or (iii)
above. Instructions shall conform to operating procedures communicated from time
to time by Custodian to Company.
(g) "Paragraph" means a paragraph of this Agreement.
(h) "Person" means a natural person, trust, estate, corporation,
association, partnership, joint venture, employee organization, committee,
board, participant, beneficiary, trustee, partner, or venturer, including but
not limited to Company and Investment Advisers, as the context may require.
(i) "Security" or "Securities" includes bonds, debentures, notes, stocks,
evidences of indebtedness and other securities and property.
(j) "INVESTMENT ADVISER" means an entity duly appointed by Company as an
investment manager as further described in paragraph 7.
The plural of any term shall have a meaning corresponding to the singular
thereof as so defined and any neuter pronoun used herein shall include the
masculine or feminine as the context may require.
Any references in this Agreement to any provision of any statute, code or
regulation shall be deemed to incorporate any amended, substitute or successor
provisions, whenever adopted.
2. APPOINTMENT OF CUSTODIAN
(a) APPOINTMENT. Subject to the provisions hereof Company hereby employs,
appoints and authorizes Custodian to act as custodian of all the Securities and
monies at the time owned by or in the possession of Company during the period of
this Agreement which have been delivered to, or Custodian has otherwise
expressly been given authority to hold in the Custodian Account.
(b) ESTABLISHMENT OF CUSTODIAN ACCOUNT. Custodian hereby agrees to
establish the Custodian Account in the name of Company, or such other name or
names as Company and Custodian may agree upon from time to time, and to hold in
the Custodian Account
2
<PAGE>
all Securities or other property and cash deposited with, delivered to or
received by Custodian for deposit in the Custodian Account in accordance with
Instructions; PROVIDED that Custodian shall have the right to refuse to accept
any Securities or other property that are not in proper form for deposit, but
Custodian may refuse to accept any Security or other property only after it
discloses to Company the inadequacy or deficiency in the Security or other
property and it grants Company a commercially reasonable time to correct such
inadequacy or deficiency. Custodian shall have no responsibility or liability
for or on account of Securities or other assets not delivered to Custodian or
not accepted by Custodian as hereinabove provided.
(c) CUSTODIAN'S PERSONNEL. The individual personnel of Custodian duly
authorized to have access to Account Securities, to receive Instructions and to
act thereon are listed in the certification annexed hereto as Exhibit C and, as
amended from time to time, made a part hereof. Custodian shall advise Company of
any change in the individuals so authorized by written notice to Company.
(d) Scope of Duties. Custodian's duties and responsibilities shall be
limited to those expressly set forth in this Agreement, and in any appendices,
schedules or exhibits hereto.
3. FORM OF CUSTODY AND SAFEKEEPING
(a) FORM OF CUSTODY. Custodian shall be responsible for safekeeping Account
Securities. Custodian is authorized to (i) retain physical possession of Account
Securities, and/or (ii) deposit Account Securities with a Depository or
Sub-Custodian (hereinafter defined) selected by Custodian pursuant to paragraph
8(b) and which is approved by the Company-, provided, however that if the
Company shall deliver to Custodian foreign securities to be treated as Account
Securities, then Custodian is authorized to (i) retain physical possession of
such foreign securities, and/or ii) deposit such foreign securities with a
Depository or Sub-Custodian selected by Custodian pursuant to paragraph 8(b).
For purposes of this section a foreign security means a security that is issued
by an entity that is not domiciled in the United States or a United States
territory.
(b) PHYSICAL CUSTODY. Custodian shall ensure that Account Securities are at
all times properly identified as belonging solely to Company. In this regard,
Custodian shall physically segregate Account Securities from any property owned
by Custodian. Custodian shall not be required to physically segregate Account
Securities (other than bearer securities which shall be so segregated) from
other securities or property held by Custodian for third parties, but Custodian
shall maintain adequate records showing the true ownership of Account
Securities.
(c) DEPOSITORY CUSTODY. If Custodian deposits Account Securities with a
Depository, Custodian shall maintain adequate records showing the location and
true ownership of such property.
(d) REGISTRATION IN NOMINEE NAME. Custodian is authorized to reregister
securities
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received in registered form in the name of its nominee, or the nominee of a
Depository, unless alternate registration Instructions are furnished. In
consideration of Custodian's registration of Account Securities in the name of
its nominee, Company agrees to pay on demand to Custodian or its nominee the
amount of any loss or liability for stockholders' assessments, or otherwise,
claimed or asserted against Custodian, such nominee or Depository's nominee by
reason of such registration. Securities may also be held in the Custodian
Account in coupon bearer form, where, in the judgment of Custodian, it is not
practicable or possible to register such securities.
4. LIABILITY FOR SAFEKEEPING
(a) LIMITATION OF LIABILITY. Custodian's safekeeping responsibility under
paragraph 3 shall be limited to exercising the care and diligence usually
accorded by Custodian to the safekeeping of its own property; PROVIDED, HOWEVER,
Custodian's responsibility under paragraph 3 is limited to losses occasioned by
the negligence, willful misconduct or bad faith of its employees or by robbery,
burglary, theft or destruction while the securities are in Custodian's physical
possession. With respect to deliveries of securities to a third party, Custodian
shall be deemed no more than an "intermediary" as defined in Section 8-306(3) of
the New York Uniform Commercial Code. Custodian shall not be under any
obligation to any Person to insure Custodian or the Custodian Account against
loss. Provided that Custodian shall maintain an off-premises, back-up
information storage site for its custodial books and records which i) shall
include books and records documenting the contents of Company's Custodian
Account; ii) shall enable Custodian to continue to do business in a COMMERCIALLY
reasonable manner; and iii) shall enable Custodian, through the normal course of
business, to physically replace all of the Account Securities controlled by
Custodian on behalf of Company. Custodian shall not be liable under any
circumstances for loss or damage due to war, insurrection, terrorist act, civil
disobedience, hurricane, cyclone, tornado, earthquake, volcanic eruption, other
similar natural disaster, nuclear fusion or fission or radioactivity. Custodian
shall not be liable for loss or damage due to equipment failure, except such as
is due to its own negligence, willful misconduct, or bad faith.
(b) LIABILITY FOR LOSS. In the event of loss or damage to Account
Securities for which Custodian is liable under the foregoing provisions of this
paragraph 4, Custodian shall replace such Account Securities with securities of
the same class and issue, together with all rights and privileges pertaining
thereto; PROVIDED THAT, if the Account Securities so lost are subject to a
contract of sale and Custodian is unable to deliver the Account Securities or
replacements therefor for settlement on the date specified in Instructions,
Custodian shall be liable to Company for the contract price of the Account
Securities so sold plus simple interest thereon at the prime rate as reported in
the Wall Street Journal computed from the specified settlement date to the date
of payment to Company.
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5. TRANSACTIONS.
(a) INSTRUCTIONS. Company may from time to time give Custodian, or appoint
an Investment Adviser to give Custodian, Instructions concerning purchases and
sales and other transactions with respect to Account Securities and Custodian
shall effect such transactions subject to the provisions and undertakings of
this paragraph 5. No person shall have access to Account Securities or the right
to order or effect transactions in Account Securities except as set forth in
this Agreement or in Instructions.
(i) AUTHORIZATION TO ACT ON INSTRUCTIONS. Custodian is authorized to
accept, act upon and rely upon Instructions that Custodian believes in good
faith to have been given by an Authorized Person, or that are transmitted
with proper testing or authentication in accordance with procedures
specified by Custodian, or that are transmitted electronically through
Custodian's POL*ARIS communications system or any similar electronic
instruction system acceptable to Custodian.
(ii) RELIANCE ON INSTRUCTIONS. Custodian shall incur no liability to
Company or otherwise and shall be fully protected in acting in compliance
with and reliance on Instructions that Custodian reasonably believes in
good faith to be genuine and to be signed, sent or made by an Authorized
Person, including oral Instructions which are promptly confirmed in
accordance with Section 1(f) hereof. If Instructions are required to be
given before the Custodian may act and such Instructions have not been
given, Custodian shall contact Company to inform it of the absence of
required Instructions and shall allow Company a commercially reasonable
time to provide Custodian with Instructions.
(iii) ERRORS IN INSTRUCTIONS. Custodian shall not be responsible for any
errors or inaccuracies contained in Instructions, which are properly
confirmed, except where such errors or inaccuracies are due to its own
negligence, willful misconduct or bad faith.
(b) DELIVERIES AND RECEIPTS. - In accordance with Instructions, Custodian
shall deliver specified Account Securities (including cash in the Custodian
Account) to the Person designated in such Instructions and shall receive in
exchange therefor the Securities and/or cash and/or other property specified
therein. Account Securities may be delivered "free" if the Instructions so
specify and the Instructions are authorized by two, separate, Authorized
Persons. If cash is to be delivered by Custodian, the Custodian Account shall be
charged by Custodian on the actual settlement date. Receipts of cash by
Custodian shall be effected in accordance with paragraph 5(c). Custodian shall
exercise customary care and diligence in examining and verifying the
certificates or other indicia of ownership of the securities or other property
received before accepting or paying for same. If Instructions direct Custodian
to deliver certificates or other physical evidence of ownership of Account
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Securities to any Person other than a Depository, Custodian's sole
responsibility shall be to exercise customary care and diligence in effecting
the delivery as instructed and collecting payment therefor. Notwithstanding the
foregoing, if the delivery and/or receipt is effected through the facilities of
a Depository, Custodian's responsibilities shall be limited to using customary
care and diligence in verifying proper consummation of the transaction by the
Depository. Upon completion of a delivery, Custodian shall be discharged
completely of any liability or responsibility from claims with respect to the
safekeeping and custody of Account Securities which may occur at a time
subsequent to the period in which Custodian had control over the Account
Securities. Nothing herein shall relieve the Custodian of responsibility for any
act or omission to act of Custodian which occurred prior to the completion of
such a delivery.
(c) DELIVERY AGAINST PAYMENT. In accordance with Instructions, Custodian
Will deliver or cause to be delivered the Account Securities thus designated as
sold for the Custodian Account of Company to the broker or other person
specified in the Instructions relating to such sale, such delivery to be made
only upon receipt of payment therefor in such form as shall be satisfactory to
Custodian and Company, with the understanding that Custodian may deliver or
cause to be delivered Account Securities for payment in accordance with the
reasonable customs prevailing among dealers in securities.
(d) TIMELY INSTRUCTIONS. Company, or its Investment Adviser, as the case
may be, shall be responsible for ensuring that Custodian receives timely,
correct and complete Instructions to enable Custodian to effect settlement of
any purchase of Securities or sale of Account Securities on the contract
settlement date. If Custodian does not receive such Instructions within a
reasonable time prior to the contract settlement date and Custodian notifies
Company of the absence of such Instructions, Custodian shall have no liability
of any kind to any Person for failing to effect settlement on the contract
settlement date.
(e) LIMIT OF RESPONSIBILITY. Custodian, in its capacity as such, shall have
no responsibility to manage or recommend investments of Account Securities or to
initiate or effect any purchase, sale, or other investment transaction in the
absence of Instructions from Company or the Investment Adviser. Custodian shall
hold cash in the Custodian Account, subject to receipt of such instructions,
without liability for interest thereon; provided, however, that should any cash
remain in the Custodian Account said cash shall be swept, daily, into an
investment vehicle chosen by Company, subject to the terms and conditions
applicable to such investment vehicle. Custodian shall in no event be
responsible or liable for:
(i) the validity of the issue of any Securities purchased by Company, the
legality of the purchase thereof, or the propriety of the amount paid
therefor;
(ii) the legality of the sale of any Securities by Company, or the
propriety of the amount for which the same are sold;
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(iii) the legality or propriety of any borrowing or loan by Company; or
(iv) any money, whether or not represented by any check, draft or other
instrument for the payment of money, received by it on behalf of Company
until Custodian actually receives and collects such money directly by the
final crediting of the Custodian Account or the Account representing
Company's interest in the Depository.
(f) CORPORATE ACTIONS. In no event shall Custodian be responsible to
ascertain or to take any action concerning, any maturities, puts, calls,
conversions, exchanges, reorganizations, voting of proxies, offers, tenders or
similar matters relating to Account Securities, whether physically held by
Custodian or on deposit with a Depository, other than to deliver to Company and,
if directed by Company, to its Investment Adviser, notices and information
relating to any such corporate action received by Custodian from any issuers,
offerors, or otherwise. Custodian's sole responsibility in this regard shall be
to deliver promptly to Company or its Investment Advisor, as the case may be,
such notices proxies, offers tenders or similar matters and properly signed
proxies after Custodian receives them, and Custodian shall not otherwise act
with respect to any such notice unless and until Custodian has received
appropriate Instructions from Company or the Investment Adviser, as the case may
be. Company agrees and will instruct its Investment Adviser that any
Instructions to Custodian with respect to any such corporate actions must be
delivered to Custodian within sufficient time for Custodian to act thereon if
any action by Custodian is required. As used herein, "sufficient time" shall
mean at any time up to the last permissible hour on the date for action
specified by Custodian in Custodian's written notice hereunder and Custodian
shall have no liability to any person for Custodian's failure to act upon any
such Instructions for the Custodian Account received by Custodian at any time
after such hour and date.
(g) ALLOCATION OF PARTIAL REDEMPTION. Should any Account Securities held in
a Depository be called for a partial redemption by the issuer of such
securities, Custodian is authorized to accept allocation as determined pursuant
to the program therefor then in effect at such Depository or, in the absence of
any such program, Custodian's sole discretion to allot the called portion to the
respective holders in any manner deemed to be fair and equitable in its
judgment.
(h) FOREIGN SECURITIES. With respect to Account Securities issued by
foreign entities or other Account Securities for which adequate corporate
information is not readily available, Custodian's responsibility is expressly
limited to safekeeping. With respect to such Account Securities, Custodian
assumes no responsibility for following such Account Securities or their issuers
for coupon payments, redemptions, exchanges or similar matters affecting such
Account Securities. Collections of monies in foreign currency, to the extent
possible, will be converted into U.S. dollars at customary rates in accordance
with Custodian's normal procedures. All risks and expenses incident to such
foreign collections and conversions are assumed by the Custodian Account, and
Custodian shall have no
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responsibility for fluctuations in exchange rates affecting such collections or
conversions.
(i) PROCEEDS. Unless Company is informed otherwise in writing by Custodian,
the proceeds of sales, redemptions, collections, and other receipts, and
dividend and interest income will be credited, subject to collection, by
Custodian to the Custodian Account promptly upon receipt and in no event later
than the availability schedule attached hereto, marked Exhibit D and by this
reference incorporated herein.
(j) Exchanges. Custodian is authorized, without Instructions, to exchange
temporary for definitive certificates and old certificates for new or
overstamped certificates evidencing a change therein.
(k) DEPOSITORY DELIVERIES. In complying with Instructions for delivery of
eligible transactions, Custodian will make deliveries through (i) the Federal
Reserve System, pursuant to Subpart 0 of the Treasury Department Circular #300
(31 Code of Federal Regulations Part 306), and operating circulares of the
Federal Reserve Bank of New York, or (ii) the facilities of any other Depository
pursuant to Section 8-320 of the New York Uniform Commercial Code and the Rules
and Procedures of such Depository.
(l) AVAILABLE FUNDS. Custodian is not obligated to effect any transaction
or make any payment in connection therewith unless there are sufficient
available funds on deposit in the Custodian Account or funds have otherwise been
made available to Custodian therefor to its satisfaction. Should Custodian not
effect a transaction or make a payment it shall immediately notify Company of
such fact so that Company may make appropriate alternate arrangements to
effectuate the transaction or make the payment. The amount by which payments
made by Custodian with respect to property in, or to be received for, the
Custodian Account, or with respect to other transactions pursuant to this
Agreement, exceed available funds and result in an account overdraft shall be
deemed a loan from Custodian to Company, payable on demand and bearing interest
at the then current rate customarily charged by Custodian on similar loans. All
such loans shall be based on Custodian's sole determination to make the
underlying advance in each case.
(m) MANDATORY EXCHANGE. Anything in paragraph 5(f) to the contrary
notwithstanding, Custodian will, without Instructions, surrender and exchange
Account Securities for other Securities in connection with any maturity,
reorganization, recapitalization, or similar transaction in which the owner of
the Account Securities is not given an option; provided, however, Custodian
shall be responsible to effect any such exchange only upon receiving actual
notice of the event permitting or requiring such exchange. For purposes of this
subparagraph, actual notice shall mean notice that is received by Custodian from
the issuer of the Security, the agent of the issuer of the Security, a
nationally recognized subscription service, the Company, or from any other
source which would enable Custodian to act in a commercially reasonable manner.
To facilitate any such exchange, Custodian is authorized to surrender against
payment maturing Obligations and Obligations called for redemption; provided,
however, that Custodian
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deliver to Company notice of such exchange five (5) business days prior to the
actual exchange taking place.
(n) RECEIPT OF PAYMENTS. Subject to the provisions of this Agreement, and
unless and until it receives Instructions to the contrary, Custodian is
authorized to:
(i) present for payment all coupons and other income items held in the
Custodian Account;
(ii) receive payments of interest and principal, dividends, warrants,
and other things of value in connection with Account Securities and
hold such payments in the Custodian Account, with notice thereof to
Company;
(iii) sign for Company all declarations, affidavits, certificates or other
documents that may be required to collect or receive payments or
distributions with respect to Account Securities and disclose, without
further consent of Company, Company's identity to issuers of Account
Securities, or the agents of such issuers, who may request such disclosure.
Recapitalization and stock distributions will be credited upon receipt to the
Custodian Account.
(o) LENDING OF ACCOUNT SECURITIES. Custodian shall have the power and
authority to lend Account Securities only in accordance with the terms of a
separate securities lending agreement, if any, entered into between Custodian
and Company.
6. REPORTS, BOOKS AND RECORDS
(a) RECORDS. On behalf of the Company, Custodian shall keep all original
books and records concerning the Account Securities held in the Custodian
Account and the security transactions directed by Company or its Investment
Advisor. The books and records pertaining to Company that are in the possession
of Custodian shall be the property of Company. Upon the reasonable request of
Company, copies of any such books and records shall be provided by Custodian to
Company or Company's authorized representative.
(b) REPORTS AND STATEMENTS. Books and records prepared and maintained by
Custodian pursuant to this Agreement shall promptly post each transaction to the
appropriate Custodian Account, as specified in Instructions. Custodian shall
make available to Company, by POL*ARIS or in the manner otherwise agreed upon,
transaction reports and a SUMMARY of the transfers to or from the Custodian
Account during said business day. Custodian shall make available to Company, by
POL*ARIS or in the manner otherwise agreed upon, a statement of transactions and
holdings in the Custodian Account on a monthly basis or at such other intervals
as Custodian and Company shall mutually agree.
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Said monthly reports shall be delivered to Company prior to the fifth (5th)
business day of each calendar month.
(c) ADDITIONAL BOOKS AND RECORDS. In addition to its internal record
requirements, Custodian shall create and maintain such books and records and
provide such reports with respect to the Custodian Account as Custodian and
Company shall agree upon from time to time.
(d) INSPECTION. The books and records of Custodian pertaining to the
Custodian Account shall be open to inspection and audit at reasonable times by
duly authorized officers, employees and auditors employed by Company. The costs
incurred by Custodian in connection with routine periodic inspections and audits
shall be borne by Custodian. Any such costs incurred in connection with
extraordinary inspections and audits shall be charged to and paid by Company.
(e) OPINION OF COMPANY'S INDEPENDENT ACCOUNTANT. Custodian shall take all
reasonable actions, as Company may from time to time request, to enable the
Company to obtain from year to year favorable opinions from Company's
independent accountants with respect to Custodian's activities hereunder.
(f) REPORTS BY CUSTODIAN'S INDEPENDENT PUBLIC ACCOUNTANTS. Custodian shall
provide Company no less frequently than once per year with reports by
independent public accountants on Custodian's system of internal accounting
control relating to the services provided by Custodian under this Agreement.
Such reports shall state that such system is sufficient to meet the objective of
providing management with reasonable, but not absolute, assurance that assets
for which custodian has responsibility are safeguarded against loss from
unauthorized use or disposition, and that transactions are executed in
accordance with appropriate authorizations and in conformity with the governing
instruments and are recorded properly to permit the preparation of the required
financial reports.
(g) OTHER REPORTS. Custodian shall provide Company with any report received
by Custodian on the system of internal accounting control of any Depository and
with any such reports on its own systems of internal or other accounting control
as Company may reasonably request from time to time.
(h) POL*ARIS. Company has the option to elect to participate in Custodian's
POL*ARIS Service, an electronic communications service that provides, on a daily
basis, the ability to view on-line or to print out hard copy of an transactions
involving the delivery in and out of Account Securities on a free or payment
basis, payments of principal and interest or dividends, pending transactions and
fails, and schedules of Custodian Account holdings.
(i) SECURITY OF TERMINAL. In the event that Company subscribes to the
POL*ARIS Service, Company shall be fully responsible for the security of
its
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Connecting terminal(s), access thereto and the proper and authorized
use thereof, and Company's initiation and application of continuing
effective safeguards. In this connection, except for any instance
involving Custodian's own negligence, willful misconduct or bad faith,
and in addition to any other undertakings by Company in this
Agreement, Company agrees to defend and indemnify Custodian and to
hold Custodian harmless from and against any and all suits, actions,
proceedings at law or in equity, claims (groundless or otherwise),
liabilities, losses, damages, payments, settlements, penalties, fines,
costs (including fees and disbursements of counsel selected by
Custodian) and every other expense of every nature asserted against or
incurred by Custodian as a result of any improper or unauthorized use
of such terminal(s) whether on the premises of Company, an Investment
Advisor, or the agent of either; but not including Custodian or any
agent thereof.
(ii) PRICING SERVICES. To the extent that the POL*ARIS Service
provided hereunder shall include market values of the Custodian Account
holdings, Custodian may, at its discretion, obtain such information from
outside sources that Custodian reasonably deems to be reliable. Custodian
does not verify, represent or warrant either the accuracy or the
completeness of any such information transmitted through the POL*ARIS
Service.
7. DIVESTMENT ADVISERS AND INVESTMENTS
(a) APPOINTMENT OF INVESTMENT ADVISERS. Company may appoint one or more
Investment Advisers to manage the assets held in the Custodian Account. The
terms and conditions of appointment and authority of any Investment Adviser
shall be the sole responsibility of Company. Company shall promptly notify
Custodian by means of Instructions of the appointment and removal of an
Investment Adviser, the portion of the Custodian Accounts that are subject to
the investment control of such Investment Adviser and all other facts pertinent
to such Investment Adviser's authority to give Instructions, including a
designation of the Authorized Persons of such Investment Adviser.
(b) INVESTMENT REVIEW. Custodian shall be under no duty or obligation to
review any investment or reinvestment made or received upon the Instructions of
Company or any Investment Adviser. Without limiting the generality of the
foregoing, with respect to each transaction, the Authorized Person giving the
Instructions shall have the entire responsibility for assuring that the
transaction does not violate the prohibitions of any applicable state or federal
law, applicable Investment Adviser agreement, any restrictions or guidelines
applicable to the Investment Adviser in an Investment Adviser agreement, or
court order or judgment affecting the administration of the Custodian Account or
adversely affect the tax treatment of the Custodian Account.
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8. AGENTS, DEPOSITORIES AND SUB-CUSTODIANS
(a) AGENTS. Custodian may at any time or from time to time, appoint at its
own expense, (and may at any time remove) any other bank, trust company or
responsible commercial agent as its agent to carry out such of the provisions of
this Agreement as Custodian may from time to time direct, PROVIDED THAT the
appointment of any such agent shall not relieve Custodian of any of its
responsibilities and liabilities under this Agreement.
(b) SUB-CUSTODIANS AND DEPOSITORIES. Custodian may appoint at its own
expense and risk one or more banking institutions or Depositories, domestic or
foreign, to act as Sub-Custodian or as Depository of Account Securities,
PROVIDED THAT Company shall have informed Custodian by means of Instructions
that such entity has been approved by an requisite action as a Sub-Custodian or
Depository for Account Securities and Custodian shall have received no
subsequent Instructions rescinding such approval, and FURTHER PROVIDED that the
appointment of any Sub-Custodian or Depository shall not relieve Custodian of
any of its responsibilities or liabilities under this Agreement.
9. LEGAL PROCEEDINGS
Other than legal proceedings which are initiated in response to Custodian's
willful misconduct, negligence or bad faith, Custodian shall not be required to
initiate, appear in or defend any legal proceedings or take any other similar
action with respect to the Custodian Account or Account Securities unless
Custodian has been indemnified to its satisfaction against any loss and expense
(including attorneys' fees) likely to be suffered or incurred thereby.
Notwithstanding anything herein to the contrary, Custodian shall be required to
affirmatively assist Company in any legal proceeding or similar action with
respect to the Custodian Account Securities.
10. INDEMNIFICATION OF CUSTODIAN
(a) INDEMNIFICATION. In its capacity as Custodian, Custodian shall not be
liable for any act or failure to act of Company or Company's Investment Adviser.
Custodian shall not be liable for any error of judgment or mistake of law or,
except as expressly provided to the contrary in paragraph 4, for any loss
suffered by the Custodian Account unless resulting from willful misconduct, bad
faith or negligence on the part of Custodian in the performance of its duties or
from the disregard by Custodian of its obligations and duties under this
Agreement. Except as otherwise expressly provided to the contrary in the
preceding sentence, Custodian shall be indemnified against and held harmless
from any and all suits, actions, proceedings at law or in equity, claims
(groundless or otherwise), liabilities, losses, damages, payments, settlements,
penalties, fines, costs (including fees and disbursements of counsel selected by
Custodian and approved by Company, which approval shall not be unreasonably
withheld) and every other reasonable expense of every nature asserted against or
incurred by Custodian in any way arising from Custodian's appointment hereunder.
If amounts due Custodian pursuant to this paragraph 10 are not paid out of
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the Custodian Account for any reason, they. shall be paid by Company. Custodian
agrees to inform Company in writing of any event which comes to its notice as a
result of which the Custodian Account or Company might become liable to
indemnify Custodian under these provisions, provided that any reasonable delay
in so doing shall not in any way affect the Custodian Account's or Company's
obligation to Custodian hereunder. Custodian's right to indemnification shall
survive the termination of this Agreement.
(b) PARTICIPATION IN LITIGATION. In the event any action or proceeding
shall be brought against Custodian, in its capacity as such, it shall notify
Company of the commencement thereof, and, subject to all provisions hereof and
to the extent that it shall wish, Company shall be entitled to participate
therein or to assume the defense thereof. After notice from Company to
Custodian of its election so to assume the defense of such action or proceeding
and to pay all fees and expenses of such counsel, Company shall not be liable to
Custodian for any legal expenses of other counsel or any other expenses, in each
case subsequently incurred by Custodian, in connection with the defense thereof
other than reasonable costs of investigation, unless either Company or Custodian
shall have been advised at any time by counsel, agreeable to both Company and
Custodian, that the assumption or continuation of such defense by Company would
be inappropriate under applicable standards of professional conduct on account
of actual or potential differing interests between Company and Custodian or
under fiduciary principles applicable to the Custodian Account. Custodian may,
at any time, waive its right to indemnification hereunder and assume its own
defense.
(c) BREACH OF REPRESENTATION OR WARRANTY. Company's liability under the
foregoing indemnification shall cover, without limitation, all loss, liability,
claims, damages and expenses resulting from a breach of any representation or
warranty delivered herein by Company.
11. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents, warrants and covenants to Custodian that:
(a) the employment of Custodian and the allocation of fees, expenses and
other charges to the Custodian Account as herein provided, is not prohibited by
law or any governing documents or contracts relating to the Custodian Account or
the maintenance of custodian accounts for Company as contemplated herein;
(b) the terms of this Agreement do not violate any obligation by which
Company is bound, whether arising by contract, operation of law or otherwise;
(c) this Agreement has been duly authorized by appropriate action and when
executed and delivered will be binding upon Company in accordance with its
terms;
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(d) Company will deliver to Custodian such evidence of such authorization
as Custodian may reasonably require, whether by way of a certified resolution,
opinion of counsel or otherwise;
(e) Custodian, in its capacity as such, is not required to maintain any
fidelity bond insurance with respect to Account Securities pursuant to the
requirements of any law applicable to Company;
(f) Company has furnished Custodian the names and original or facsimile
signatures of all Authorized Persons currently authorized to act on behalf of
Company pursuant to this Agreement; and
(g) with respect to matters covered by this Agreement, Custodian shall be
entitled to assume any document delivered herewith remains in effect and any
Authorized Person or Investment Adviser named herein or pursuant hereto
continues to be authorized to act hereunder until Custodian is notified by means
of Instructions as to any amendment, change or substitute.
12. REPRESENTATIONS AND WARRANTIES OF CUSTODIAN
Custodian hereby represents, warrants and covenants to Company that:
(a) the terms of this Agreement do not violate any obligation by which
Custodian is bound, whether arising by contract, operation of law or otherwise;
(b) this Agreement has been duly authorized by appropriate action and when
executed and delivered will be binding upon Custodian in accordance with its
terms;
(c) Custodian will deliver to Company such evidence of such authorization
as Company may reasonably require, whether by way of a certified resolution,
opinion of counsel or otherwise;
(d) Custodian, in its capacity as such, is not required to maintain any
fidelity bond insurance with respect to Account Securities pursuant to the
requirements of any law applicable to Custodian;
(e) Custodian has furnished Company the names of all Persons currently
authorized to act on behalf of Custodian hereunder; and
(f) with respect to any matters covered by this Agreement, Company shall be
entitled to assume any document delivered herewith remains in effect and any
Person named herein or pursuant hereto continues to be authorized to act
hereunder until it is notified of any amendment, change or substitute.
14
<PAGE>
13. FEES, EXPENSES AND OTHER CHARGES
(a) FEE SCHEDULES. For the services provided hereunder, Company shall pay
Custodian monthly in arrears a fee calculated and accrued in accordance with
Custodian's applicable fee schedule set forth in Exhibit E, attached hereto and
as amended from time to time made a part hereof. Such fee schedule does not
include reasonable out-of-pocket disbursements of Custodian for which Custodian
shall be entitled to be reimbursed by Company. Except for fees and expenses
which are the result of Custodian's negligence, willful misconduct or bad faith,
Custodian shall be entitled to reimbursement for all reasonable out-of-pocket
fees and expenses of counsel arising from the performance of Custodian's duties
hereunder, such reasonable out-of-pocket disbursements, fees and expenses shall
include but shall not be limited to the items specified in Exhibit F, attached
hereto. Exhibit F may be modified by Custodian upon not less than sixty (60)
days prior written notice to Company.
(b) PAYMENT. Custodian will invoice Company as soon as practicable after
the end of each calendar month and said invoices will be detailed in accordance
with the applicable fee schedule(s) and will include reimbursable out-of-pocket
disbursements.
14. TERM AND TERMINATION
(a) TERM. This Agreement shall become effective on the date first set forth
above.
(b) NOTICE OF TERMINATION. Company may terminate this Agreement and the
Custodian Account upon thirty (30) days written notice to the Custodian.
The Custodian may terminate this Agreement and the Custodian Account upon ninety
(90) days written notice to the Company.
(c) DELIVERY OF ACCOUNT SECURITIES AND OTHER PROPERTY. Upon termination,
Custodian shall deliver in proper form for transfer all Account Securities
specified in the notice of termination, or cause such to be delivered, to a
successor custodian designated by Company or, if a successor custodian has not
accepted an appointment by the effective date of termination of the Custodian
Account, to Company if the Board of Directors or Board of Trustees of the
Company has authorized the Company to maintain the custody of its own assets in
accordance with Rule 17f-2 under the 1940 Act, and if not, then to a custodian
appointed by a court of competent jurisdiction. Custodian shall be entitled to
be reimbursed for any reasonable expenses incurred in connection with such
delivery unless such termination is at Custodian's request. Custodian agrees to
cooperate with Company and any substitute or successor custodian appointed by
Company during a reasonable transition period.
(d) In the event a notice of termination is given by Custodian, Company
shall, on or before the specified termination date, deliver to Custodian a
resolution of the Board of Directors Company designating a successor custodian
or custodians. In the absence of such
15
<PAGE>
designation by Company, Custodian shall deliver all of the effected Account
Securities to the designee of Company which will, upon delivery, be deemed to be
the successor custodian.
15. TAXES
(a) FILINGS. Custodian shall have no responsibility to file any tax returns
regarding the Custodian Account or the Account Securities. Custodian is
authorized and empowered to execute any certificates of ownership or other
reports, declarations or affidavits that it is or may hereafter be required to
execute and furnish under any regulation of the Internal Revenue Service, or by
or under any other authority of the United States or any jurisdiction, which are
required in connection with any property that is now or may hereafter be held in
the Custodian Account. The authority granted to Custodian in this section 15 is
conditioned upon Company's prior exhaustion of all its rights of challenge and
appeal regarding said regulations or United States authority. Company agrees to
notify Custodian immediately in writing of any material change in status that
may affect any such certificates, reports or other required documents or the
contents thereof.
(b) INDEMNIFICATION. Company agrees to indemnify the Subcustodian and any
nominee in whose name Account Securities or other property of Company is
registered against any liability Custodian or such nominee may incur by reason
of taxes assessed to Custodian or such nominee resulting directly or indirectly
from the fact that Account Securities or other property of Company are
registered in the name of Custodian or such nominee; PROVIDED, HOWEVER, said
indemnity obligation is subject to Company's prior exhaustion of all lawful or
legal challenge or appeal rights regarding any tax or related liability.
Custodian's right to indemnification as aforesaid shall survive the termination
of this Agreement.
16. ADVICE
Custodian may from time to time consult with counsel to Company or with an
Authorized Person in connection with its obligations arising hereunder and shall
be fully protected in acting upon the written advice or instructions of such
counsel or Authorized Person, as the case may be.
17. ADDRESSES
Except as provided to the contrary with respect to Instructions and until
further notice from either party, any notices delivered pursuant to this
Agreement, and all other COMMUNICATIONS shall be in writing and shall be
delivered or sent to the following addresses or such other addresses as from
time to time may be specified hereunder:
16
<PAGE>
If to Company:
Farm Bureau Insurance Companies
5400 University Avenue
West Des Moines, IA 50266
Attn: Investment Accounting
If to Custodian:
Banker's Trust
16 Wall Street
New York, N.Y. 10005
Attn: David F. Hoyt
All notices and other communications shall be effective when received. The party
seeking to rely on notice having been given under this paragraph 16 shall be
responsible for ascertaining the facts thereof.
18. MISCELLANEOUS
(a) INFORMATION TO AND CONSENT OF CUSTODIAN. During the term of this
Agreement, Company shall furnish to Custodian at its office, prior to any
distribution thereof, copies of any materials prepared for distribution to any
Persons who are not parties hereto that refer in a material way to Custodian.
Company shall not distribute or permit the distribution of such materials if
Custodian reasonably objects in writing within five (5) business days (or such
other time as may be mutually agreed) after receipt thereof. Company shall
furnish or otherwise make available to Custodian such other information relating
to the business affairs of Company as Custodian at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
(b) SCOPE OF THE AGREEMENT. This Agreement contains the whole of the
understanding between the parties with respect to the subject matter hereof.
(c) AMENDMENT. This Agreement may be amended at any time by a written
instrument signed by an Authorized Person of Company and by a duly authorized
officer of Custodian.
(d) SEVERABILITY. If any provision of this Agreement is determined to be
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provisions of this Agreement.
(e) NO WAIVER. No term or provision hereof shall be deemed waived and no
breach excused unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. No waiver of any term or
provision hereof shall be deemed
17
<PAGE>
a continuing waiver unless it is so designated. Any consent by any party to a
breach by the other, whether express or implied, shall not constitute a consent
to or excuse for any other breach.
(f) CAPTIONS. The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(g) ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, successors, and assigns;
PROVIDED HOWEVER this Agreement shall not be assignable by Company without the
written consent of Custodian, or by Custodian without the written consent of
Company, and any attempted assignment without such written consent shall be null
and void.
(h) GOVERNING LAW. This Agreement 'shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
FARM BUREAU LIFE INSURANCE BANKERS TRUST COMPANY
COMPANY
BY: /s/ Richard D. Warming BY: /s/ David F. Hoyt
--------------------------------- ---------------------------
RICHARD D. WARMING DAVID F. HOYT
Its: VICE PRESIDENT - INVESTMENTS Its: VICE PRESIDENT
18
<PAGE>
APPENDIX C:
MUTUAL FUND CUSTODY ACCOUNT -
FBL VARIABLE INSURANCE SERIES FUND
THIS MUTUAL FUND CUSTODY ACCOUNT AGREEMENT (hereinafter the "Appendix"),
dated January 12, 1993, is entered into by and between FBL VARIABLE INSURANCE
SERIES FUND, a Massachusetts Business Trust ("Company") and BANKERS TRUST
COMPANY, a New York banking corporation ("Bankers Trust").
WHEREAS, both Bankers Trust and Company desire to have the Mutual Fund
Custody Account- FBL Variable Insurance Series Fund governed by the terms and
provisions of the Custodian Account Agreement dated December 15, 1992 (the
"Agreement"), as hereby amended;
NOW, THEREFORE, in consideration of the mutual covenants contained in the
Agreement and this Appendix and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. Section I entitled DEFINITIONS is amended as follows:
(d) "Depository" means any centralized securities depository system,
domestic or foreign, whether presently or hereafter organized, in which
Custodian participates, and shall include (i) the Depository Trust Company, (ii)
the Federal Reserve Book-Entry System, (iii) the Participant's Trust Company, or
(iv) any other centralized securities depository system selected by Custodian,
but subject to the approval of Company's Board of Directors or Trustees and any
required approval by regulatory authorities applicable to Custodian in the
conduct of its business as Custodian. The term "Depository" shall further mean
and include any other person to be named in a certificate issued by Custodian
and approved by Company's Board of Directors or Company's Board of Trustees and
authorized to act as a depository under the 1940 Act, including its successor or
successors and its nominee or nominees.
(f) "INSTRUCTIONS" means a communication received by Custodian from one or
more Authorized Persons directing action or delivering information pursuant
thereto in regard to Company's Account Securities, Securities or Portfolios.
Instructions may be oral or written and may be delivered (i) by telephone, (ii)
in hard copy, or (iii) by computer, electronic instruction system or
telecommunications terminals, which shall include but not
1
<PAGE>
be limited to, a telex, a TWXS, a facsimile transmission, a bank wire or
Custodian's proprietary POL*ARIS Service; PROVIDED, HOWEVER, THAT the Parties
hereto or Custodian and Investment Adviser, as the case may be, shall have
agreed herein to the form, the means of transmission and the means of
identification of such Instructions; FURTHER PROVIDED that Instructions
initially given orally shall be confirmed within the thirty (30) minute period
immediately following the initial receipt of the Instructions by Custodian in a
manner consistent with clauses (ii) or (iii) above. Instructions shall conform
to operating procedures communicated from time to time by Custodian to Company.
(k) "1940 Act" refers to the Investment Company Act of 1940, and the Rules
and Regulations thereunder, all as amended from time to time.
(1) "Portfolio" means Account Securities grouped together in a separate
investment Portfolio of Company. Company shall provide Custodian with a listing
of Company's Portfolios.
2. Section 6 entitled REPORTS, BOOKS AND RECORDS is amended as follows:
(a) Records. On behalf of Company, Custodian shall keep all original books
and records concerning the Account Securities held in the Custodian Account and
the Security transactions directed by Company or its Investment Advisor. The
books and records pertaining to Company that are in the possession of Custodian
shall be the property of Company. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws and
rules and regulations. Upon the reasonable request of Company, copies of any
such books and records shall be provided by Custodian to Company or Company's
authorized representative.
(b) REPORTS AND STATEMENTS. Books and records prepared and maintained by
Custodian pursuant to this Agreement shall reflect the prompt posting of each
transaction to the appropriate Custodian Account and Portfolio, as specified in
Instructions. Custodian shall make available to Company, by POL*ARIS or in the
manner otherwise agreed upon, transaction reports and a summary of the transfers
to or from the Custodian Account during said business day. Custodian shall make
available to Company, by POL*ARIS or in the manner otherwise agreed upon, a
statement of transactions and holdings in the Custodian Account on a monthly
basis or at such other intervals as Custodian and Company shall mutually agree.
Said monthly reports shall be delivered to Company prior to the fifth (5th)
business day of each calendar month.
(c) ADDITIONAL BOOKS AND RECORDS. In addition to its internal record
requirements, Custodian shall create and maintain such books and records and
provide such reports with respect to the Custodian Account as Custodian and
Company shall agree upon from time to time. Custodian is not the fund accountant
for Company. Custodian shall cooperate with the fund accountant and shall make
available to the fund accountant the transaction
2
<PAGE>
reports and statements referred to in paragraph 6(b) above, but Custodian shall
not be responsible for reconciling books and records with those of the fund
accountant or for keeping books and records normally kept by the fund
accountant.
(d) INSPECTION. The books and records of Custodian pertaining to the
Custodian Account shall be open to inspection and audit at reasonable times by
duly authorized officers, employees and auditors employed by Company and by
employees and agents of the Securities and Exchange Commission. The costs
incurred by Custodian in connection with routine periodic inspections and audits
shall be borne by Custodian. Any such reasonable costs incurred in connection
with extraordinary inspections and audits shall be charged to and paid in
accordance with paragraph 13.
3. Section 8 entitled AGENTS, DEPOSITORIES AND SUB - CUSTODIANS is amended as
follows:
(a) Agents. Custodian may at any time or from time to time, appoint at its
own expense, (and may at any time remove) any other bank, trust company or
responsible commercial agent as its agent to carry out such of the provisions of
this Agreement as Custodian may from time to time direct, PROVIDED THAT such
agent agrees with custodian to comply with all relevant provisions of the 1940
Act and applicable rules and regulations thereunder; and FURTHER PROVIDED THAT
the appointment of any such agent shall not relieve Custodian of any of its
responsibilities and liabilities under this Agreement.
(b) SUB-CUSTODIANS AND DEPOSITORIES. Custodian may appoint at its own
expense and risk one or more banking institutions or Depositories, domestic or
foreign, to act as Sub-Custodian or as Depository of Account Securities,
PROVIDED THAT such entity agrees with Custodian to comply with all provisions of
the 1940 Act and applicable rules and regulations thereunder; and FURTHER
PROVIDED THAT Company shall have informed Custodian by means of Instructions
that such entity has been approved by all requisite action as a Sub-Custodian or
Depository for Account Securities and Custodian shall have received no
subsequent Instructions rescinding such approval; and FURTHER PROVIDED THAT the
appointment of any Sub-Custodian or Depository shall not relieve Custodian of
any of its responsibilities or liabilities under this Agreement.
4. Section 12 entitled REPRESENTATIONS AND WARRANTIES OF CUSTODIAN
is amended as follows:
(g) Custodian is qualified as a custodian under Section 26(a) of the 1940
Act and covenants that it will remain so qualified or upon ceasing to be so
qualified shall promptly notify Company in writing.
3
<PAGE>
5. Section 13 entitled FEES, EXPENSES AND OTHER CHARGES is amended as follows:
(a) FEE SCHEDULES. For the services provided hereunder, Company shall pay
Custodian monthly in arrears a fee calculated and accrued in accordance with
Custodian's applicable fee schedule set forth in Exhibit E, attached hereto and
as amended from time to time made a part hereof. Such fee schedule does not
include reasonable out-of-pocket disbursements of Custodian for which Custodian
shall be entitled to be reimbursed by Company. Except for fees and expenses
which are the result of Custodian's negligence, willful misconduct or bad faith,
Custodian shall be entitled to reimbursement for all reasonable out-of-pocket
fees and expenses of counsel arising from the performance of Custodian's duties
hereunder, such disbursements, feeds and expenses shall include but shall not be
limited to the items specified in Exhibit F, attached hereto. Exhibit F may be
modified by Custodian upon not less than sixty (60) days prior written notice to
Company.
(i) Should Company designate additional Portfolios after the date of this
Appendix, the parties hereto shall mutually agree upon the fee due
Custodian for the additional responsibilities assumed by Custodian as a
result of administering such newly created Portfolios. Such mutually agreed
upon fee shall be reflected in a written fee schedule designated for that
Portfolio which shall be dated, signed by an officer of each party hereto,
and attached to this Appendix as an exhibit.
6. Section 14 entitled TERM AND TERMINATION is amended as follows:
(b) NOTICE OF TERMINATION. Company may terminate this Agreement and the
Custodian Account upon thirty (30) days written notice to the Custodian,
PROVIDED THAT Company may terminate this Agreement and the Custodian Account
upon less notice if it receives notice from Custodian that it is no longer
qualified as a Custodian under Section 26(a) of the 1940 Act. The Custodian may
terminate this Agreement and the Custodian Account upon ninety (90) days written
notice to the Company.
(d) In the event that a notice of termination is given by Company, it shall
be accompanied by a certified resolution of the Company's Board of Directors or
Trustees electing to terminate this Agreement with respect to any custodian
account and designating a successor custodian or custodians, which the Company
shall deem to be an entity qualified to so act under the 1940 Act.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Appendix to be
executed as of the day and year first above written.
FARM BUREAU LIFE INSURANCE BANKERS TRUST COMPANY
COMPANY
BY: /s/ Richard D. Warming BY: /s/ David F. Hoyt
--------------------------------- --------------------------
RICHARD D. WARMING DAVID F. HOYT
ITS: VICE PRESIDENT - INVESTMENTS ITS: VICE PRESIDENT
BY: /s/Dennis M. Marker BY: /s/ Diane I. Wiley
--------------------------------- --------------------------
DENNIS M. MARKER DIANE WILEY
ITS: INVESTMENT ADMIN. V.P. ITS: VICE PRESIDENT
5
<PAGE>
SHAREHOLDER SERVICE, DIVIDEND DISBURSING
AND TRANSFER AGENT AGREEMENT
BETWEEN
FBL VARIABLE INSURANCE SERIES FUND
AND
FBL INVESTMENT ADVISORY SERVICES, INC.
This Shareholder Service, Dividend Disbursing and Transfer Agent Agreement
made this 12th day of August, 1987, between FBL VARIABLE INSURANCE SERIES FUND a
Massachusetts business trust (the "Fund"), and FBL INVESTMENT ADVISORY SERVICES,
INC., a Delaware corporation (the "Agent");
WITNESSETH:
WHEREAS, the Fund desires to enter into a Shareholder Service, Dividend
Disbursing and Transfer Agent agreement with Agent under which Agent will
provide the services as set forth in detail in this Agreement, and Agent is
desirous of providing such services upon the terms and conditions hereinafter
provided,
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed as follows:
1. The Agent shall perform all the usual and ordinary services of stock
transfer agent and dividend disbursing agent for the Fund, including
those hereinabove set forth. The Agent shall:
(a) keep the stock transfer books or records of the Fund and
addresses of all shareholders, the number and date of issuance of
full and fractional shares held by each, the number and date of
certificates for the shares and the number and date of
cancellation of each share certificate and each certificate
surrendered for cancellation;
(b) handle the issuance and redemption of the Fund shares;
(c) effect and record shareholder transfers of ownership and changes
in forms of registration;
(d) cause all shareholder reports and proxies to be properly
addressed and mailed in connection with shareholders meetings;
<PAGE>
(e) tabulate all proxies; and
(f) prepare and mail all required shareholder federal and state and
other income tax information forms.
2. The Agent shall also act as the Fund's dividend agent in allocating
and causing ordinary income dividend and capital gains distributions
to be disbursed to shareholders.
3. For its services specified above, the Fund shall pay to the Agent fees
as provided in Exhibit A which is attached hereto and made a part
hereof. Such fees shall be paid by the Fund monthly.
4. The Agent agrees to act in good faith in furnishing the services
provided for herein. At the Agent's option it may furnish all
necessary facilities and personnel directly or it may retain a
separate organization for the purpose of performing all or any portion
of the Agent's obligations under this Agreement. The Agent assumes no
responsibility under this Agreement other than to render in good faith
the services called for hereunder.
5. The Agent agrees that in all matters relating to the services to be
performed by it hereunder, it will use its best efforts to act in
conformity with the terms of the Declaration of Trust, ByLaws,
Registration Statement and current Prospectus of the Fund. Each of
the parties agrees that in all matters relating to the performance of
this Agreement, it will use its best efforts to conform to and comply
with the requirements of the Investment Company Act of 1940 and all
other applicable federal, state or other laws and regulations.
6. To the extent required by Section 31 of the Investment Company Act of
1940 and the rules and regulations thereunder, Agent agrees that all
records maintained by it (or its sub-agent) relating to the services
to be performed by Agent under this Agreement are the property of the
Fund and will be preserved and surrendered promptly to the Fund on
request.
7. The services of the Agent as provided herein are not to be deemed to
be exclusive, and it shall be free to render services of any kind to
any other group, firm, individual or association, including other
investment companies, and to engage in any other business or activity.
8. This Agreement, including Exhibit A hereto, may be amended at any time
by mutual written consent of the parties.
9. This Agreement shall be effective as of the date of execution, and may
be terminated by either party hereto upon sixty (60) days' written
notice given by one to the other, provided that no such notice of
termination given by the Agent to the Fund shall be effective unless
and until a substitute person or entity has been engaged by the Fund
to perform the services required hereunder for the Fund, or the Fund
has certified to the Agent that other arrangements have been made by
it to provide such services.
10. The Agent understands that the obligations of the Fund under this
Agreement are not binding upon any shareholders or trustees of the
Fund personally, but bind only the Fund and the Fund property. The
Agent represents that it has notice of the provisions of the
Declaration of Trust of the Fund disclaiming shareholder and trustee
liability for acts or obligations of the Fund.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective seals
to be hereunto affixed, as of the day and year first above written.
ATTEST: FBL VARIABLE INSURANCE SERIES FUND
Dennis M. Marker Timothy J. Hoffman
- ---------------- ------------------
By: Its Assistant Secretary By: Its Vice President
ATTEST: FBL INVESTMENT ADVISORY SERVICES, INC.
Dennis M. Marker Timothy J. Hoffman
- ---------------- ------------------
By: Its Assistant Secrdtary By: Its Vice President
3
<PAGE>
EXHIBIT A
TO
SHAREHOLDER SERVICE, DIVIDEND DISBURSING
AND TRANSFER AGENT AGREEMENT
BETWEEN
FBL VARIABLE INSURNCE SERIES FUND
AND
FBL INVESTMENT ADVISORY SERVICES, INC.
Fees:
$0.00 per Equity Portfolio account per year.
$00.00 per Fixed-Income Portfolio account per year.
$00.00 per Money Market Portfolio account per year.
The fee is payable each month at the rate of 1/12th of the annual fee per Fund
Portfolio account.
In addition, the Fund will pay each month out-of-pocket expenses incurred or
advances made by FBL Investment Advisory Services, Inc. under the Dividend
Disbursing and Transfer Agent Agreement. These items include, but are not
limited to, postage, envelopes, checks, continuous forms, reports and
statements, telephone, telegraph, stationary, supplies, costs of outside mailing
firms, record storage costs and media for storage of records (e.g., microfilm,
computer tapes).
4
<PAGE>
FIDELITY BOND
JOINT INSUREDS AGREEMENT
THIS AGREEMENT is made as of September 26, 1996, by and among FBL Money Market
Fund, Inc. ("Money Fund"), FBL Series Fund, Inc. ("Series Fund") both Maryland
corporations; and FBL Variable Insurance Series Fund ("Insurance Series Fund"),
a Massachusetts business trust (collectively the "Funds").
The Funds, all of which are managed by FBL Investment Advisory Services, Inc.,
have acquired a joint insured brokers blanket bond issued by the Chubb Group of
insurance companies effective September 26, 1996 ("Bond"). The aggregate
amount of the Bond ("Bond Amount") is equal to the sum of the basic coverage for
each Fund, as indicated in Exhibit A attached hereto. The Funds desire to
provide herein for an allocation of the premium for the Bond and a manner of
allocating any proceeds received from the Bond.
The Funds hereto therefore agree that:
1. ALLOCATION OF PREMIUM. Each Fund shall pay a portion of the annual
joint bond premium as agreed to in writing no less often than
annually by the Funds and attached hereto as Exhibit A. These amounts
have been determined on the basis of the relative costs to each Fund
of a single insured bond in the amount of that Fund's Basic Coverage
as indicated in Exhibit A.
2. LOSS TO ONE FUND. In the event of an insured loss to only one Fund,
the entire proceeds for that loss shall be allocated to the Fund
incurring such loss.
3. LOSS TO MORE THAN ONE FUND.
(a) LOSS PERCENTAGES. For purposes of allocating the proceeds of
coverage of the Bond, each Fund shall have the loss percentage
as indicated in exhibit A, which percentages are based upon the
percentage of the total Bond coverage represented by the amount
of each Fund's basic coverage.
(b) INITIAL ALLOCATION. Each Fund involved in an insured loss which
involves another Fund shall receive a portion of the proceeds
from the Bond equal to the lesser of (i) the amount of that
Fund's loss or (ii) an amount equal to the product of the Bond
Amount multiplied by that Fund's Loss Percentage, which initial
allocation assures that each Fund shall receive the full amount
of its loss up to the amount of its Basic Coverage.
(c) SUBSEQUENT ALLOCATION. Any Bond proceeds unallocated after the
initial allocation shall be allocated to the Funds for which the
loss was not covered by the initial allocation.
<PAGE>
4. AGENT. Series Fund is hereby appointed as the agent for the Funds
for the purpose of making, adjusting, receiving and enforcing payment
of all claims and otherwise dealing with the Bond. Any expenses
incurred by Series Fund in its capacity as agent in connection with a
claim shall be shared by the Funds in proportion to the proceeds
received by the Funds for the loss. All other expenses incurred by
Series Fund in its capacity as agent shall be shared by the Funds in
the same proportion as their Loss Percentages.
6. MODIFICATION AND TERMINATION. This Agreement may be modified or
amended from time to time by mutual written agreement among the Funds.
It may be terminated with respect to any one Fund by not less than 75
days' written notice to the other Funds. It shall terminate as of the
date that any Fund ceases to be an insured under the Bond; provided
that such termination shall not affect such Fund's rights and
obligations hereunder with respect to any claims on behalf of such
Fund which are paid under the Bond after the date such Fund ceases to
be an insured under the Bond.
7. FURTHER ASSURANCES. Each Fund agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
IN WITNESS WHEREOF, the Funds have caused this Agreement to be executed as of
the day and year first above written.
Attest: FBL Series Fund, Inc.
/s/ Elaine A. Followwill By: /s/ Edward M. Wiederstein
- --------------------------------------------- ----------------------------
Its Assistant Secretary, Elaine A. Followwill
Attest: FBL Money Market Fund, Inc.
/s/ Elaine A. Followwill By: /s/ Edward M. Wiederstein
- --------------------------------------------- ----------------------------
Its Assistant Secretary, Elaine A. Followwill
Attest: FBL Variable Insurance Series Fund
/s/ Elaine A. Followwill By: /s/ Edward M. Wiederstein
- --------------------------------------------- ----------------------------
Its Assistant Secretary, Elaine A. Followwill
<PAGE>
EXHIBIT A
FIDELITY BOND
JOINT INSUREDS AGREEMENT
2/15/98
For Bond Period February 15, 1998 through February 15, 1999.
1. Basic Coverage
<TABLE>
<CAPTION>
Fund Basic Coverage
---- --------------
<S> <C>
Series Fund 750,000
Money Fund 300,000
Insurance Series Fund 600,000
---------
Total 1,650,000
</TABLE>
2. Allocation of Premium
<TABLE>
<CAPTION>
Premium for Premium
Separate Allocation Bond
Fund Insured Bond Percentage Premium
- ---- ------------ ---------- -------
<S> <C> <C> <C>
Series Fund 2,464.00 46.01% 2,053.10
Money Fund 964.00 18.00% 803.24
Ins. Series Fund 1,927.00 35.99% 1,605.66
-------- ------- --------
Total 5,355.00 100.00% 4,462.00
</TABLE>
2. Allocation of Bond Proceeds (Primary Coverage)
<TABLE>
<CAPTION>
Fund Loss Percentage
---- ---------------
<S> <C>
Series Fund 45.46%
Money Fund 18.18%
Insurance Series Fund 36.36%
-------
Total 100.00%
</TABLE>
FBL SERIES FUND, INC.
Attest: /s/ Dennis M. Marker By: /s/ Richard D. Harris
---------------------------- ---------------------------
Its Assistant Secretary Its Vice President
FBL MONEY MARKET FUND, INC.
Attest: /s/ Dennis M. Marker By: /s/ Richard D. Harris
---------------------------- ---------------------------
Its Assistant Secretary Its Vice President
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
Attest: /s/ Dennis M. Marker By: /s/ Richard D. Harris
---------------------------- ---------------------------
Its Assistant Secretary Its Vice President
<PAGE>
INVESTMENT COMPANY ASSET PROTECTION PROFESSIONAL LIABILITY
INSURANCE POLICY
JOINT INSUREDS AGREEMENT
THIS AGREEMENT is made as of December 31, 1995, by and among FBL Investment
Advisory Services, Inc., FBL Marketing Services, Inc., FBL Money Market Fund,
Inc., FBL Series Fund, Inc. and FBL Variable Insurance Series Fund (each
sometimes referred to individually as the "Party" and all sometimes referred to
collectively as the "Parties").
The Parties have acquired a joint Investment Company Asset Protection
Professional Liability Insurance Policy issued by one of the Chubb Group of
Insurance Companies (the "Policy"). This Policy provides coverage exclusively
for the Parties.
The Parties want to provide for the allocation of the premium and a manner of
allocating any proceeds received under this coverage.
The Parties therefore agree that:
1. ALLOCATION OF PREMIUM. Each Party shall pay a portion of the annual
Policy premium as agreed to in writing no less often than annually by
all Parties and attached hereto as Exhibit A. These amounts have been
determined by the broker based upon each Party's proportionate share
of the premiums that would have been paid if such insurance coverage
were purchased separately by the Parties.
2. ALLOCATION OF PROCEEDS, ADDITIONAL COVERAGE.
(a) COMPUTATION OF PROCEEDS ON AN ANNUAL BASIS. In computing any
allocation of proceeds under 4 and 5 hereunder, all losses
during the Policy year (12:01 a.m. December 31st, through 12:01
a.m. the next succeeding December 31st) must be taken into
consideration and any recovery received prior to the end of such
Policy year will be subject to reallocation in the event there
are later losses during such Policy year.
(b) POSSIBLE PURCHASE OF ADDITIONAL COVERAGE. Any party that has
been allocated proceeds during the Policy year may be requested
to obtain and pay for additional coverage under the Policy for
the protection of all the Parties against further losses during
the Policy year. Such a request would be made by the Agent (see
5 hereunder) in its sole discretion. Relevant factors would
include the amount of proceeds that was allocated to the Party,
the amount of proceeds that was allocated to all Parties, the
time remaining in the Policy year, and the amount of unallocated
coverage remaining under the Policy.
3. LOSS TO ONE PARTY. In the event of an insured loss to only one Party
during a Policy year, the entire proceeds for that loss shall be
allocated to the Party incurring such
<PAGE>
loss.
4. LOSS TO MORE THAN ONE PARTY.
(a) INITIAL ALLOCATION. For purposes of allocating the proceeds of
coverage among the Parties, the following procedures shall be
followed: Each Party involved in an insured loss during a
Policy year shall receive a portion of the proceeds equal to the
lesser of (i) the amount of that Party's loss, or (ii) an amount
equal to the product of the limits multiplied by a fraction, the
numerator of which is that Party's portion of the premium paid
for the Policy year in question, and the denominator of which is
the sum of the premiums paid for the Policy year in question by
all the Parties involved in any insured loss during such Policy
year.
(b) SUBSEQUENT ALLOCATION. Any proceeds unallocated after the
initial allocation shall be allocated by repeating the following
procedure until all the proceeds are allocated. To each Party
for which the loss was not covered by the prior allocation, there
shall be allocated a portion of the unallocated proceeds equal to
the lesser of (i) the amount of that Party's loss not covered by
the prior allocation, or (ii) an amount equal to the unallocated
proceeds multiplied by a fraction, the numerator of which is that
Party's portion of the premium paid for the Policy year in
question, and the denominator of which is the sum of the premium
paid for the Policy year in question by all Parties for which the
loss was not covered by the prior allocation.
5. AGENT. FBL Investment Advisory Services, Inc. ("Adviser") is hereby
appointed as the agent for all the Parties for the purpose of making,
adjusting, receiving and enforcing payment of all claims and otherwise
dealing with the Policy. Any expenses incurred by Adviser in its
capacity as agent in connection with a claim shall be shared by the
Parties in proportion to the proceeds received by the Parties for the
loss. All other expenses incurred by Adviser in its capacity as agent
shall be shared by the Parties in the same proportion as their portion
of the total premium paid.
6. MODIFICATION AND TERMINATION. This Agreement may be modified or
amended from time to time by mutual written agreement among all
Parties. It may be terminated with respect to any one Party by not
less than 60 days' written notice to the other Parties which are still
Parties to the agreement. It shall terminate with respect to any
Party as of the date that Party ceases to be insured under the Policy;
provided that such termination shall not affect that Party's rights
and obligations hereunder with respect to any claims on behalf of that
Party which are paid under the Policy after the date the Party ceases
to be an insured under the Policy.
7. FURTHER ASSURANCES. Each Party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the day and year first above written.
Attest: FBL INVESTMENT ADVISORY SERVICES, INC.
/s/ Dennis M. Marker By: /s/ Richard D. Warming
- ----------------------------------------- --------------------------------
Its Secretary, Dennis M. Marker Richard D. Warming
Attest: FBL MARKETING SERVICES, INC.
/s/ Dennis M. Marker By: /s/ Timothy J. Hoffman
- ----------------------------------------- --------------------------------
Its Secretary, Dennis M. Marker Timothy J. Hoffman
Attest: FBL MONEY MARKET FUND, INC.
/s/ Dennis M. Marker By: /s/ Edward M. Wiederstein
- ----------------------------------------- --------------------------------
Its Assistant Secretary, Dennis M. Marker Edward M. Wiederstein
Attest: FBL SERIES FUND, INC.
/s/ Dennis M. Marker By: /s/ Edward M. Wiederstein
- ----------------------------------------- --------------------------------
Its Assistant Secretary, Dennis M. Marker Edward M. Wiederstein
Attest: FBL VARIABLE INSURANCE SERIES FUND
/S/ Dennis M. Marker By: /S/ Edward M. Wiederstein
- ----------------------------------------- --------------------------------
Its Assistant Secretary, Dennis M. Marker Edward M. Wiederstein
<PAGE>
February 15, 1998 EXHIBIT A
to the
DO&EO Joint Insureds Agreement dated December 31, 1995
For Policy Period, 12:01 a.m., February 15, 1998, through 12:01 a.m., February
15, 2001.
<TABLE>
<CAPTION>
Party Premium %
- ----- ------- ------
<S> <S> <C>
FBL Investment Advisory Services, Inc. 21,182.00 50.62
FBL Marketing Services, Inc. 7063.00 16.88
FBL Variable Insurance Series Fund 5043.00 12.05
FBL Series Fund, Inc. 7674.00 18.34
FBL Money Market Fund, Inc. 884.00 2.11
--------- ------
41,846.00 100.00
</TABLE>
Attest: FBL INVESTMENT ADVISORY SERVICES, INC.
/s/ Dennis M. Marker By: /s/ William J. Oddy
- --------------------------------- --------------------------------
Secretary: Dennis M. Marker William J. Oddy
Attest: FBL MARKETING SERVICES, INC.
/s/ Dennis M. Marker By: /s/ Lynn E. Wilson
- --------------------------------- --------------------------------
Secretary: Dennis M. Marker Lynn E. Wilson
Attest: FBL VARIABLE INSURANCE FUND
/s/ Richard D. Harris By: /s/ Edward M. Wiederstein
- --------------------------------- --------------------------------
Secretary: Richard D. Harris Edward M. Wiederstein
Attest: FBL SERIES FUND, INC.
/s/ Richard D. Harris By: /s/ Edward M. Wiederstein
- --------------------------------- --------------------------------
Secretary: Richard D. Harris Edward M. Wiederstein
Attest: FBL MONEY MARKET FUND, INC.
/s/ Richard D. Harris By: /s/ Edward M. Wiederstein
- --------------------------------- --------------------------------
Secretary: Richard D. Harris Edward M. Wiederstein
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
Subscription Agreement
1. SHARE SUBSCRIPTION. The undersigned, hereby agrees to purchase from
FBL Variable Insurance Series Fund ("Fund"), a series type mutual fund with six
series ("Portfolios"), 200,000 shares (no par value) of each of the below-named
Portfolios at a purchase price of $10.00 per share, on the terms and conditions
set forth herein and in the Preliminary Prospectus described below:
Growth Common Stock Portfolio
Aggressive Growth Common Stock Portfolio
High Quality Bond Portfolio
High Yield Bond Portfolio
Managed Portfolio.
The undersigned hereby tenders $2,000,000 per Portfolio for an aggregate
purchase price of $10,000,000.
The undersigned understands that the Fund filed a Registration Statement
(No. 33-12791) on Form N-lA, which contains the Preliminary Prospectus
describing the Fund and the Shares. By its signature hereto, the undersigned
hereby acknowledges receipt of a copy of the Preliminary Prospectus.
The undersigned recognizes that the Fund will not be fully operational
until such time as it commences the offering of its shares. Accordingly, a
number of features of the Fund described in the Preliminary Prospectus,
including, without limitation, the declaration and payment of dividends and
redemption of shares upon request of shareholders, are not, in fact, in
existence at the present time and will not be instituted until the Fund's
Registration Statement on Form N-lA is declared effective.
2. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any findings
or determination as to the fairness for investment, nor any recommendations
or endorsement, of the Shares;
(b) It has such knowledge and experience of financial and business
matters as will enable it to utilize the information made available to it
in connection with the offering of the Shares, to evaluate the merits and
risks of the prospective investment and to make an informed investment
decision;
(c) It recognizes that the Fund has only recently been organized and
has no financial or operating history and, further, that investment in the
Fund involves certain risks, and it has taken full cognizance of and
understands all of the risks related to the purchase of the Shares, and it
acknowledges that it has suitable
<PAGE>
financial resources and anticipated income to bear the economic risk of
such an investment;
(d) It is purchasing the Shares for its own account, for investment,
and not with any intention of redemption, distribution, or resale of the
Shares, either in whole or in part;
(e) It will not sell the Shares purchased by it without registration
of the Shares under the Securities Act of 1933 or exemption therefrom;
(f) It has been furnished with, and has carefully read, this
Agreement and the Preliminary Prospectus and such material documents
relating to the Fund as it has requested and as have been provided to it by
the Fund; and
(g) It has also had the opportunity to ask questions of, and receive
answers from, the Fund concerning the Fund and the terms of the offering.
IN WITNESS WHEREOF, the undersigned has executed this instrument on April
6, 1987.
FARM BUREAU LIFE INSURANCE COMPANY
By: Robert R. Joslin
----------------
President
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
Subscription Agreement
1. SHARE SUBSCRIPTION. The undersigned, hereby agrees to purchase from
FBL Variable Insurance Series Fund ("Fund"), a series type mutual fund with six
series ("Portfolios"), the following shares (no par value) of each of the
below-named Portfolios at a per share purchase price indicated below, on the
terms and conditions set forth herein and in the Preliminary Prospectus
described below:
<TABLE>
<CAPTION>
Amount Price Shares
Portfolio Purchased Share Purchased
<S> <C> <C> <C>
High Quality Bond Portfolio $500,000 $ 9.76 51,229.508
High Yield Bond Portfolio $500,000 $10.00 50,000.000
Managed Portfolio $500,000 $ 9.65 51,813.472
</TABLE>
The undersigned hereby tenders $500,000 per Portfolio shown above for an
aggregate purchase price of $1,500,000.
The undersigned understands that the Fund filed a Registration Statement
(No. 33-12791) on Form N-lA, which contains the Preliminary Prospectus
describing the Fund and the Shares. By its signature hereto, the undersigned
hereby acknowledges receipt of a copy of the Preliminary Prospectus.
The undersigned recognizes that the Fund will not be fully operational
until such time as it commences the offering of its shares. Accordingly, a
number of features of the Fund described in the Preliminary Prospectus,
including, without limitation, the declaration and payment of dividends and
redemption of shares upon request of shareholders, are not, in fact, in
existence at the present time and will not be instituted until the Fund's
Registration Statement on Form N-lA is declared effective.
2. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any findings
or determination as to the fairness for investment, nor any recommendations
or endorsement, of the Shares;
(b) It has such knowledge and experience of financial and business
matters as will enable it to utilize the information made available to it
in connection with the offering of the Shares, to evaluate the merits and
risks of the prospective investment and to make an informed investment
decision;
(c) It recognizes that the Fund has only recently been organized and
has no financial or operating history and, further, that investment in the
Fund involves certain risks, and it has taken full cognizance of and
understands all of the risks related to the purchase of the Shares, and it
acknowledges that it has suitable financial resources and anticipated
income to bear the economic risk of such an investment;
<PAGE>
(d) It is purchasing the Shares for its own account, for investment,
and not with any intention of redemption, distribution, or resale of the
Shares, either in whole or in part;
(e) It will not sell the Shares purchased by it without registration
of the Shares under the Securities Act of 1933 or exemption therefrom;
(f) It has been furnished with, and has carefully read, this
Agreement and the Preliminary Prospectus and such material documents
relating to the Fund as it has requested and as have been provided to it by
the Fund; and
(g) It has also had the opportunity to ask questions of, and receive
answers from, the Fund concerning the Fund and the terms of the offering.
IN WITNESS WHEREOF, the undersigned has executed this instrument on April
20, 1987.
FARM BUREAU LIFE INSURANCE COMPANY
By: Robert R. Joslin
----------------
President
-2
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SUBSCRIPTION AGREEMENT
1. SHARE SUBSCRIPTION. The undersigned, hereby agrees to purchase from FBL
Variable Insurance Series Fund ("Fund"), a series type mutual fund, 2,500,000
shares (no par value) ("Shares") at a purchase price of $1.00 per share of the
below-named portfolio, on the terms and conditions set forth herein and in the
Prospectus described below:
Money Market Portfolio
The undersigned hereby tenders $2,500,000.
The undersigned understands that the Fund filed a Registration Statement (No.
33-12791) on Form N-1A, which contains the Prospectus describing the Fund and
the Shares. By its signature hereto, the undersigned hereby acknowledges
receipt of a copy of the Prospectus.
2. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any findings or
determination as to the fairness for investment, nor any recommendations or
endorsement, of the Shares;
(b) It has such knowledge and experience of financial and business matters as
will enable it to utilize the information made available to it in connection
with the offering of the Shares, to evaluate the merits and risks of the
prospective investment and to make an informed investment decision;
(c) It recognizes that investment in the Fund involves certain risks, and it
has taken full cognizance of and understands all of the risks related to the
purchase of the Shares, and it acknowledges that it has suitable financial
resources and anticipated income to bear the economic risk of such an
investment;
(d) It is purchasing the Shares for its own account, for investment, and not
with any intention of redemption, distribution, or resale of the Shares, either
in whole or in part;
(e) It has been furnished with, and has carefully read, this Agreement and the
Prospectus and such material documents relating to the Fund as it has requested
and as have been provided to it by the Fund; and
(f) It has also had the opportunity to ask questions of, and receive answers
from, the Fund concerning the Fund and the terms of the offering.
IN WITNESS WHEREOF, the undersigned has executed this instrument on February
20, 1990.
FARM BUREAU LIFE INSURANCE COMPANY
By: Merlin D. Plogge
----------------
President
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SUBSCRIPTION AGREEMENT
1. SHARE SUBSCRIPTION. The undersigned, hereby agrees to purchase from FBL
Variable Insurance Series Fund ("Fund"), a series type mutual fund, 100,000
shares (no par value) ("Shares") at a purchase price of $10.00 per share of the
below-named portfolio, on the terms and conditions set forth herein and in the
Prospectus described below:
Blue Chip Portfolio
The undersigned hereby tenders $1,000,000.
The undersigned understands that the Fund filed a Registration Statement (No.
33-12791) on Form N-1A, which contains the Prospectus describing the Fund and
the Shares. By its signature hereto, the undersigned hereby acknowledges
receipt of a copy of the Prospectus.
2. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any findings or
determination as to the fairness for investment, nor any recommendations or
endorsement, of the Shares;
(b) It has such knowledge and experience of financial and business matters as
will enable it to utilize the information made available to it in connection
with the offering of the Shares, to evaluate the merits and risks of the
prospective investment and to make an informed investment decision;
(c) It recognizes that investment in the Fund involves certain risks, and it
has taken full cognizance of and understands all of the risks related to the
purchase of the Shares, and it acknowledges that it has suitable financial
resources and anticipated income to bear the economic risk of such an
investment;
(d) It is purchasing the Shares for its own account, for investment, and not
with any intention of redemption, distribution, or resale of the Shares, either
in whole or in part;
(e) It has been furnished with, and has carefully read, this Agreement and the
Prospectus and such material documents relating to the Fund as it has requested
and as have been provided to it by the Fund; and
(f) It has also had the opportunity to ask questions of, and receive answers
from, the Fund concerning the Fund and the terms of the offering.
IN WITNESS WHEREOF, the undersigned has executed this instrument on October 9,
1990.
FARM BUREAU LIFE INSURANCE COMPANY
By: Merlin D. Plagge
------------------
President
<PAGE>
PARTICIPATION AGREEMENT
AMONG
FBL VARIABLE INSURANCE SERIES FUND,
FBL INVESTMENT ADVISORY SERVICES, INC.,
AND
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 1st day of March, 1990, by and
between FARM BUREAU LIFE INSURANCE COMPANY, (hereinafter the "Company") on its
own-behalf and on behalf of FARM BUREAU LIFE VARIABLE ACCOUNT (hereinafter the
"Account"), a segregated asset account of the Company, and the FBL VARIABLE
INSURANCE SERIES FUND, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Fund") and FBL INVESTMENT
ADVISORY SERVICES, INC. (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively referred to herein as "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated November 2, 1987 (File No. 812-6855), granting Participating
Insurance Companies and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and/or variable annuity contracts with
the form number(s) which are listed on Schedule A attached hereto and
incorporated herein by this reference, as such Schedule A may be amended from
time to time hereafter by mutual written agreement of all the parties hereto
(hereinafter the "Contracts"); and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company on
March 3, 1987, to set aside and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission (hereinafter the "Commission") under the
Securities Exchange Act
<PAGE>
of 1934, as amended (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, the Underwriter is also registered as an investment adviser with
the Securities and Exchange Commission under the Investment Advisers Act of 1940
and serves as an investment adviser to the Fund pursuant to an agreement dated
as of April 6, 1987 (the Underwriter when serving in such capacity is referred
to herein as the "Adviser");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Account to fund the Contracts and the Underwriter is authorized to sell
such shares at net asset value to unit investment trusts such as the Account;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the Company, the Fund, and the Underwriter
agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which the Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from the Account and
receipt by such designee shall constitute receipt by the Fund, provided that the
Fund receives notice of such order from the Company by 10:30 a.m. central time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Commission.
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Account on
those days on which the Fund calculates its net asset value pursuant to rules of
the Commission; provided, however, that the Board of Trustees of the Fund
(hereinafter the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under Federal and any applicable state laws, necessary in
the best interests of the shareholders of any Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement is in
effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from the Account and receipt by such designee shall constitute
receipt by the Fund, provided that the Fund receives notice of such request for
redemption from the Company by 10:30 a.m. central time on the next following
Business Day.
<PAGE>
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus. The Company agrees that all net amounts
available under the Contracts shall be invested in the Fund, in such other Funds
advised by the Adviser as may be mutually agreed to in writing by the parties
hereto, or in the Company's general account, provided that such amounts may also
be invested in an investment company other than the Fund or such other Funds
advised by the Adviser as may be mutually agreed to in writing by the parties
hereto if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days' written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement; or (d)
the Fund or Underwriter consents to the use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. The Fund shall pay redemption proceeds on the next Business
Day after a request to redeem shares is made in accordance with the provisions
of Section 1.5 hereof. Payment shall be in federal funds transmitted by wire.
1.8. Issuance and transfer of the Funds' shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Fund will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
<PAGE>
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such dividends and distributions as are payable on the Portfolio shares in
additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated and shall use
its best efforts to make such net asset value per share available by 4:30
p.m. central time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. he Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that each Contract owner shall be duly qualified and suitable under
applicable state insurance laws to purchase such Contract. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Section 508A.1 of
the Iowa Code (1985) and has registered the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a segregated asset
account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in
<PAGE>
accordance with applicable law and that the Fund is and shall remain registered
under the 1940 Act. The Fund shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Fund shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it believes, in good faith, that it is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986 (hereinafter the "Code"), and that it will make
every effort to maintain such qualification (under Subchapter M or any successor
or similar provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or that
it might not so qualify in the future.
2.4. The Company represents that it believes, in good faith, that the
Contracts are currently treated as annuity contracts or life insurance policies,
whichever is appropriate, under applicable provisions of the Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Underwriter immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
<PAGE>
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the insurance laws
of the State of Iowa and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the insurance laws of the State of Iowa to the extent required to perform
this Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the Commission.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
respective directors, trustees, officers, employees, investment advisers, and
other individuals/entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the
<PAGE>
Fund in an amount not less than $500,000. The aforesaid Bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the new prospectus for the Contracts and the
Fund's new prospectus printed together in one document (such printing to be at
the Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or, in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall provide such
Statement free of charge to the Company and to any owner of or participant under
a Contract or prospective owner or participant who requests such Statement.
3.3. The Fund shall provide the Company with one copy of its proxy
material, reports to shareholders and other communications to shareholders.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners or
participants;
(ii) vote the Fund shares in accordance with instructions
eceived from Contract owners or participants; and
<PAGE>
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received;
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account or in its general account in its own right, to the extent permitted by
law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, Adviser, or the Underwriter is named, at least
fifteen business days prior to its use. No such material shall be used if
the Fund or its designee object to such use within fifteen business days
after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of
<PAGE>
the Contracts other than the information or representations contained in the
registration statement or prospectus for the Fund shares, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its separate account(s) is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company or its designee object to such use within fifteen
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for the Account which are in the public domain
or approved by the Company for distribution to Contract owners or participants,
or in sales literature or other promotional material approved by the Company or
its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
<PAGE>
its shares, promptly after the filing of such document with the Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or the Account, promptly after the filing of any such document with
the Commission.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make
<PAGE>
payments to the Company or to the underwriter for the Contracts if and in
amounts agreed to by the Underwriter in writing. Currently, no such payments
are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares, and any expenses permitted to be paid or assumed
by the Fund pursuant to a plan, if any, under Rule 12b-1.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners and participants of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners or participants.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund at all times will invest its assets in such a manner as
to ensure that the Contracts will be treated as variable contracts under the
Code and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund will comply with Section 817(h) of the Code and the
regulations issued thereunder (Temporary Reg. Section 1.817-5T, September 12,
1986) relating to the diversification requirements for variable annuity,
<PAGE>
endowment, and life insurance contracts, and with any amendments or other
modifications to such Section or regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other
<PAGE>
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (a) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. A
majority of the disinterested members of the Board shall determine whether any
action proposed by the Participating Insurance Companies adequately remedies any
irreconcilable material conflict, but in no event will the Fund be required to
establish a new funding medium for the Contracts. The Company shall not be
required by this Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination may, at
the Company's option, be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
<PAGE>
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however, that such withdrawal
and termination may, at the Company's election, be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six months after the Fund gives written
notice that this provision is being implemented, and, until the end of that
six-month period, the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board gives written notice to the Company that it has determined that
such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination may, at the Company's option, be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until
the end of that six-month period, the Underwriter and Fund shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940
Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding Exemptive Order) on
terms and conditions materially different from those
<PAGE>
contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to such Sections
are contained in such rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each of its Trustees and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the Registration Statement or prospectus for the
Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or
<PAGE>
otherwise for use in connection with the sale of the
Contracts or Fund Shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have
<PAGE>
notified the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including legal and other
<PAGE>
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund Shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for
the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI hereof or the
representations of the Fund set forth in Section 2.3
hereof);
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this Indemnification Provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained
<PAGE>
by it, and the Underwriter will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Iowa.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year's advance
written notice to the other parties; provided, however, that such notice
shall not be given earlier than one year following the date that the Company
first purchases shares of the Fund pursuant to this Agreement; or
(b) at the option of the Company to the extent that shares of
one or more Portfolios are not reasonably available to meet the requirements of
the Contracts as determined by the Company; provided, however, that such
termination shall apply only to the Portfolio(s)
<PAGE>
the shares of which are not reasonably available. Prompt notice of the election
to terminate for such cause shall be furnished by the Company; or
(c) at the option of the Fund upon 90 days' advance written
notice to the Company in the event that formal administrative proceedings are
instituted against the Company by the NASD, the Commission, any insurance
department or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of the
Account, or the purchase of the Fund shares, but only if the Fund determines,
in its sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Company to perform its obligations under this Agreement; or
(d) at the option of the Company upon 90 days' advance written
notice to the Fund in the event formal administrative proceedings are instituted
against the Fund or the Underwriter by the NASD, the Commission, or any state
securities or insurance department or any other regulatory body, but only if the
Company determines, in its sole judgment exercised in good faith, that any such
administration proceedings will have a material adverse effect upon the ability
of the Fund or the Underwriter to perform its obligations under this Agreement;
or
(e) upon requisite vote of the Contract owners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days' prior written notice to the Fund of the date of any proposed vote
to replace the Fund's shares; or
(f) at the option of the Company upon written notice to the
Fund in the event any of the Fund's shares are not registered, issued or sold
in accordance with applicable
<PAGE>
state and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by the
Company; or
(g) by either the Fund or the Company pursuant to the
termination provisions set forth in Article VII hereto; or
(h) at the option of the Company upon written notice to the
Fund if the Fund ceas++es to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any successor or similar provision, or if
the Company reasonably believes that the Fund may fail to so qualify; or
(i) at the option of the Company upon written notice to the
Fund if the Fund fails to meet the diversification requirements specified in
Article VI hereof; or
(j) at the option of either the Fund or the Underwriter if
(1) the Fund or the Underwriter, respectively, shall determine, in its sole
judgment reasonably exercised in good faith, that the Company shall have
suffered a material adverse change in its business or financial condition or
is the subject of material adverse publicity and such material adverse
publicity will have a material adverse impact upon the business and
operations of either the Fund or the Underwriter, (2) the Fund or the
Underwriter shall notify the Company in writing of such determination and its
intent to terminate this Agreement, and (3) after considering the actions
taken by the Company and any other changes in circumstances since the giving
of such notice, such determination of the Fund or the Underwriter shall
continue to apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of termination; or
(k) at the option of the Company, if (1) the Company shall
determine, in its sole judgment reasonably exercised in good faith, that
either the Fund or the Underwriter has suffered a material adverse change in
its business or financial condition or is the subject of
<PAGE>
material adverse publicity and such material adverse change or material
adverse publicity will have a material adverse impact upon the business and
operations of the Company, (2) the Company shall notify the Fund and the
Underwriter in writing of such determination and its intent to terminate this
Agreement, and (3) after considering the actions taken by the Fund and/or the
Underwriter and any other changes in circumstances since the giving of such
notice such determination shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination; or
(l) at the option of either the Fund or the Underwriter upon
60 days' written notice to the Company if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b) hereof.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1(a) may be exercised for
any reason or for no reason. In particular, and without limiting the
generality of the foregoing, it is further specifically understood and agreed
that, while the Company is not required to sell any particular number of
Contracts and while a specific number or dollar value of Fund shares need not
be purchased pursuant to this Agreement, the Fund may terminate this
Agreement pursuant to Section 10.1(a) if the Company does not purchase a
dollar value of shares satisfactory to the Fund and the Underwriter.
10.3. Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent Contract owners from allocating
payments to a Portfolio that was otherwise available under the Contracts,
until 90 days after the Company shall have notified the Fund or the
Underwriter of its intention to do so.
<PAGE>
10.4. NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives the
prior written notice of its intent to terminate specified in the applicable
subsection of Section 10.1 or Section of Article VII, which notice shall set
forth the subsection of Section 10.1 or the Section of Article VII,
respectively, which is the basis for such termination.
10.5. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement pursuant to Section 10.1 hereof, the Fund and the Underwriter
shall, at the option of the Company, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted
to reallocate investments in the Fund, redeem investments in the Fund, and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The effect of any termination pursuant to Article VII
hereof shall be governed by such Article. The agreements with respect to
indemnification set forth in Article VIII hereof shall survive the
termination of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other parties at the addresses of such parties set
forth below or at such other addresses as such parties may from time to time
specify in writing to the other parties.
If to the Fund:
FBL Variable Insurance Series Fund
5400 University Avenue
West Des Moines, Iowa 50265
If to the Company:
<PAGE>
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50265
If to the Underwriter:
FBL Investment Advisory Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50265
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
<PAGE>
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
Company:
FARM BUREAU LIFE INSURANCE COMPANY
SEAL By: Merlin D. Plogge
----------------
Title: President
Date: March 1, 1990
Fund:
FBL VARIABLE INSURANCE SERIES FUND
SEAL By: Dennis M. Marker
----------------
Title: Variable Products Vice President
Date: March 1, 1990
Underwriter:
FBL INVESTMENT ADVISORY SERVICES, INC.
SEAL By: Dennis M. Marker
----------------
Title: Variable Products Vice President
Date: March 1, 1990
<PAGE>
SCHEDULE A
Contracts
Flexible Premium Variable Life Insurance Policy
<PAGE>
ACCOUNTING SERVICES AGREEMENT
BETWEEN
FBL INVESTMENT ADVISORY SERVICES, INC.
AND
FBL VARIABLE INSURANCE SERIES FUND
THIS AGREEMENT, entered into this 1st day of January, 1988, by and between
FBL Investment Advisory Services, Inc., a Delaware corporation, hereinafter
referred to as "FBL", and FBL Variable Insurance Series Fund, a Massachusetts
business trust, hereinafter referred to as "Fund".
WITNESSETH:
WHEREAS, the fund currently issues shares in six portfolios, which,
together with any subsequently created portfolios, shall hereinafter be referred
to as the "Portfolios";
WHEREAS, the Fund desires to obtain certain accounting and other services
from FBL; and
WHEREAS, FBL desires to provide such services for the Fund;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties agree as follows:
I. FBL agrees to:
A. Maintain all books, accounts, ledgers, journals, supporting
documents and supplementary records pertaining to the business of the Fund
which constitute the record forming the basis for financial statements
required of the Fund by law or required by resolution of the Fund Board of
Trustees.
B. Calculate the net asset value of each of the Portfolios of the
Fund in accordance with the Fund's current prospectus and communicate same
to the Fund's transfer agent on each day that the net asset value per share
is calculated for the Portfolios.
C. Provide the personnel and facilities necessary to process payment
of all Fund expenditures, as authorized by the Fund.
D. Maintain all records of a financial nature pertaining to Fund
portfolio transactions as are required by law or resolution of the Fund
Board of Trustees.
1
<PAGE>
E. Prepare monthly financial statements, any statistical reports
requested by the Fund Board of Trustees and supporting accounting work
papers.
F. Provide the Fund Board of Trustees the monthly financial
statements and statistical reports.
G. Prepare such other reports and analyses as requested by the Fund
Board of Trustees to be presented at their quarterly meetings.
H. Prepare financial statements and any other related per share data
required for inclusion in the annual and semi-annual reports to
shareholders and amendments to the Fund's registration statement.
I. Prepare for timely filing all the Fund's required governmental
(state and federal) reports, tax returns and other filings, which FBL is
not otherwise required to prepare pursuant to the terms of other agreements
in effect between the Fund and FBL.
J. Prepare recommendations to the Fund Board of Trustees regarding
the payment of income dividends and capital gains distributions.
K. Maintain or cause to be maintained all other books, accounts and
other documents that are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 that are not required to be maintained for
the Fund pursuant to some other agreement between the Fund and FBL or
another party.
L. Preserve or cause to be preserved for the periods required in
Rule 31a-2 under the Investment Company Act of 1940 all records covered by
this Agreement that are required to be maintained by Rule 31a-1.
II. The Fund agrees to:
Pay FBL an annual fee aggregating 0.05% of the average daily net
assets of each Portfolio, accrued daily and payable monthly, with such
payments not to exceed $30,000 per Portfolio per annum.
III. The parties hereto mutually agree:
A. That this Agreement shall become effective on the 1st day of
January 1988, shall remain in effect until December 31, 1988, and shall
continue in effect from year to year thereafter, unless sooner terminated
as hereinafter provided, so long as the continuance of the Agreement is
approved at least annually by a majority of the Trustees who are not
parties to the Agreement or "interested persons" as that term is defined in
the Investment Company Act of 1940.
2
<PAGE>
B. That either party may terminate this Agreement at any time by
giving 60 days' written notice of such termination to the other party.
C. That any amendment to this Agreement must be in writing, executed
by both parties hereto.
D. That notices and other writings delivered or mailed postage
prepaid to the Fund or to FBL at 5400 University Avenue, West Des Moines,
Iowa 50265 shall be deemed to have been properly delivered or given
hereunder to the respective parties.
E. That neither the Fund shareholders nor Fund trustees, officers or
employees shall be personally liable hereunder. FBL represents that it has
notice of the provisions of the Declaration of Trust of the Fund
disclaiming shareholder and trustee liability for acts or obligations of
the Fund.
F. That this Agreement is executed and delivered in the State of
Iowa and is subject to and shall be construed according to the laws of that
State, except as to provision III.E. above, which shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and on its behalf and under its corporate or trust
seal by and through its duly authorized officers on the day and year above
stated.
ATTEST: FBL VARIABLE INSURANCE SERIES FUND
Dennis M. Marker William J. Oddy
---------------- ----------------
By: Its Assistant Secretary By: Its Vice President
ATTEST: FBL INVESTMENT ADVISORY SERVICES, INC.
Dennis M. Marker William J. Oddy
---------------- ---------------
By: Its Assistant Secretary By: Its Vice President
3
<PAGE>
Sutherland, Asbill & Brennan LLP
ATLANTA - AUSTIN - NEW YORK - TALLAHASSEE - WASHINGTON
1275 Pennsylvania Avenue, NW Tel: (202) 383-0100
Washington, DC 20004-2415 Fax: (202) 637-3593
STEPHEN E. ROTH
DIRECT LINE: (202)383-0158
INTERNET: [email protected]
April 27, 1998
Board of Directors
FBL Variable Insurance Series Fund
5400 University Avenue
West Des Moines, Iowa 50266
Re: FBL Variable Insurance Series Fund
File No. 33-12791
----------------------------------
Gentlemen:
We hereby consent to the reference to our name as legal counsel in the
Prospectus and the Statement of Additional Information, filed as part of the
Post-Effective Amendment No. 15 to the N-1A Registration Statement for the FBL
Variable Insurance Series Fund. In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
------------------------------
Stephen E. Roth
<PAGE>
Ernst & Young LLP Suite 3400 Phone: 515 243 2727
801 Grand Avenue
Des Moines, Iowa 50309-2764
Consent of Independent Auditors
The Board of Directors and Participants
EquiTrust Variable Insurance Series Fund
(formerly FBL Variable Insurance Series Fund)
We consent to the references to our firm under the captions "Financial
Highlights" and "General Information - Independent Auditors" in the Prospectus
for EquiTrust Variable Insurance Series Fund in Part A and "Other Information -
Independent Auditors" in Part B and to the incorporation by reference of our
report dated January 27, 1998 on the financial statements of FBL Variable
Insurance Series Fund, in this Post-Effective Amendment No. 15 to Form N1-A
Registration Statement under the Securities Act of 1933 (No. 33-12791) and in
this Amendment No. 16 to the Registration Statement under the Investment Company
Act of 1940 (No. 811-5069)
/s/ Ernst & Young LLP
Des Moines, Iowa
April 28, 1998
<PAGE>
EXHIBIT 16
EXHIBIT OF PERFORMANCE CALCULATIONS
This exhibit reflects the calculation of certain performance figures that appear
under "Performance" in the Part B Statement of Additional Information ("Part B")
of FBL Variable Insurance Series Fund (the "Fund").
A. TOTAL RETURN.
1. Formula. The total return performance of a Portfolio for a specified
period equals the change in the value of a hypothetical $10,000 investment
("Initial Investment") from the beginning of the period to the end of the
period. It is assumed that all dividends are reinvested. Total Return may be
expressed either as a dollar value change or as a percentage change. Total
Return information is set forth in the Total Return Table that appears under
"Performance" in the Part B.
2. Performance Reflected. The representative total return calculations
reflected in this Section A are for the Growth Common Stock, Aggressive Growth
Common Stock, High Quality Bond, High Yield Bond and the Managed Portfolios for
the year ended December 31, 1989.
3. Total Return. The column labeled "Percentage Increase" in the Total Return
Table for each Portfolio shows the total return of that Portfolio as a
percentage change. The percentage change in value of the initial investment for
the period is calculated by determining the percentage increase in the net asset
value per share ("NAV") of the portfolio over the period and adjusting that for
the dividends reinvested over the period. The percentage change is then
calculated as follows:
Percentage change = (Shares X Ending NAV) / Beginning NAV - 1
Where:
Ending NAV = Net Asset Value on December 31, 1989
Beginning NAV = Net Asset Value on January 1, 1989
Shares = Number of shares at the end of the period assuming a one share
investment at the beginning of the period and reinvestment of dividend. Shares
is computed as follows:
Shares = (1 + DIV1/RNAV1) X (1 + DIV2/RNAV2)...X (1 + DIVn/RNAVn)...X (1 +
DIV12/RNAV12)
DIVn = Dollar amount distributed for the nth dividend of the period.
RNAVn = NAV on the date that the nth dividend in the period was reinvested.
<PAGE>
<TABLE>
<CAPTION>
N DIV RNAV SHARES
- --- ---- ------
<S> <C> <C> <C> <C> <C>
Growth Common
Stock 12/14/89 1 0.505 8.71 1.058
Aggressive Growth
Common Stock 12/14/89 1 0.610 8.17 1.075
High Quality
Bond 12/14/89 1 0.845 9.55 1.088
High Yield
Bond 12/14/89 1 1.16 9.42 1.123
Managed 12/14/89 1 0.685 8.96 1.076
</TABLE>
<TABLE>
<CAPTION>
ENDING BEGINNING PERCENTAGE
SHARES NAV NAV CHANGE x 100
------ ------ --------- -----------
<S> <C> <C> <C> <C>
Growth Common
Stock 1.058 8.76 8.34 11.13%
Aggressive Growth
Common Stock 1.075 8.27 8.17 8.82%
High Quality
Bond 1.088 9.56 9.23 12.69%
High Yield
Bond 1.123 9.44 9.81 8.06%
Managed 1.076 8.97 8.87 8.81%
</TABLE>
B. AVERAGE ANNUAL TOTAL RETURN.
1. Formula. The average annual total return of a Portfolio for a specific
period is found by taking a hypothetical $10,000 investment ("Initial
Investment") at the beginning of the period and computing the redeemable
value at the end of the period ("Redeemable Value"). The Redeemable Value is
then divided by the initial investment and this quote 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. Thus, the
following formula applies:
1/N
Average Annual Total Return = Redeemable Value/Initial Investment) - 1
<PAGE>
Where:
Redeemable Value = Initial Investment + (Percentage Change x Initial Investment)
N = number of years in the period
2. Performance Reflected. The representative average annual total return
calculation reflected in this Section B are for the Growth Common Stock,
Aggressive Growth Common Stock, High Quality Bond, High Yield Bond and Managed
Portfolios for the life of each Portfolio (October 15, 1987 through December 31,
1989).
3. Calculation. The redeemable value is equal to the initial investment plus
the percentage change in the value of such investment over the period. The
percentage change for the period is calculated in the same manner as in
sub-section 3 of section A above. First, the percentage change in the value of
the initial investment of a Portfolio is applied to the initial investment.
This result is the same as ending value for the period.
The period covered is from October 15, 1987 through December 31, 1989, actual
life of the Fund.
Using the formula provided above, average annual total return for the period may
then be computed.
<TABLE>
<CAPTION>
N DIV RNAV SHARES
- --- ---- ------
<S> <C> <C> <C> <C> <C>
Growth Common
Stock 12/15/87 1 0.280 7.62
12/13/88 2 0.365 8.32
12/14/89 3 0.505 8.76 1.145
Aggressive Growth
Common Stock 12/15/87 1 0.010 7.11
12/13/88 2 0.320 8.13
12/14/89 3 0.610 8.17 1.118
High Quality
Bond 12/15/87 1 0.530 9.35
12/13/88 2 0.840 9.22
12/14/89 3 0.845 9.55 1.255
High Yield
Bond 12/15/87 1 0.600 9.67
12/13/88 2 1.110 9.77
12/14/89 3 1.160 9.42 1.329
Managed 12/15/87 1 0.390 8.78
12/13/88 2 0.660 8.86
12/14/89 3 0.685 8.96 1.206
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENDING BEGINNING PERCENTAGE
SHARES NAV NAV CHANGE X 100
------ ------ --------- ------------
<S> <C> <C> <C> <C>
Growth Common
Stock 1.145 8.76 10.34 -3.00%
Aggressive Growth
Common Stock 1.118 8.27 9.52 -2.88%
High Quality Bond 1.255 9.56 9.35 28.32%
High Yield Bond 1.329 9.44 9.95 26.09%
Managed 1.206 8.97 9.50 13.87%
</TABLE>
<TABLE>
<CAPTION>
REDEEMABLE INITIAL AVERAGE ANNUAL
N VALUE INVESTMENT TOTAL RETURN x 100
- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Growth Common
Stock 2.21 $ 9,700 $10,000 -1.37%
Aggressive Growth
Common Stock 2.21 $ 9,712 $10,000 -1.31%
High Quality
Bond 2.21 $12,832 $10,000 11.94%
High Yield
Bond 2.21 $12,609 $10,000 11.06%
Managed 2.21 $11,387 $10,000 6.05%
</TABLE>
C. YIELD (NON MONEY MARKET)
1. Formula. The yield for a Portfolio is computed by dividing the net
investment income per share earned during a specified 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 = 2[((a - b)/cd + 1) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (not 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.
<PAGE>
2. Performance Reflected. The representative yield calculation reflected in
this Section is for the High Quality Bond Portfolio and the High Yield Bond
Portfolios for the 30 day period ended December 31, 1989.
3. Calculation. For the period reflected, the following figures are provided
for use in the formula provided in sub-section 1 above:
<TABLE>
<CAPTION>
High Quality Bond Portfolio High Yield Bond Portfolio
- --------------------------- -------------------------
<S> <C>
a = $22,813 a = $33,584
b = $689 b = $1,115
c = 293,074 c = 300,532
d = $9.56 d = $9.44
</TABLE>
Thus, yield is calculated as follows:
HIGH QUALITY BOND PORTFOLIO
6
YIELD = 2[((22,813 - 689)/293,074 X 9.56 + 1) - 1]
6
= 2[(22,124/2,801,787 + 1) - 1]
6
= 2[(1.007896) - 1]
= 2[1.048321 - 1]
= .0966
The decimal return is converted to a percentage by multiplying by 100.
.0966 X 100 = 9.66%
HIGH YIELD BOND PORTFOLIO
6
YIELD = 2[((33,584 - 1,115/300,532 X 9.44 + 1) - 1]
6
= 2[(32,469/2,837,022 + 1) - 1]
6
= 2[(1.011445) - 1]
= 2[1.070665 - 1]
= .1413
The decimal return is converted to a percentage by multiplying by 100.
<PAGE>
.1413 X 100 = 14.13%
D. YIELD (MONEY MARKET).
1. Formula. The Money Market Portfolio's current yield quotation is based
on a seven-day period and is computed as follows. The first calculation is
net investment income per share; which is accrued interest on portfolio
securities, plus or minus amortized discount or premium, less accrued
expenses. This number is then 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 then multiplied by 365 and divided by 7 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:
365/7
[(base period return + 1) ] - 1.
3. Calculation of Yield. First, net investment income per share for the
last day of the seven-day period is calculated as follows:
Accrued Interest - Accrued Expenses / Record Date Shares
Net investment income for the other six days in the seven-day period is
calculated in the same manner. The resulting figures for each of the seven
days in the period are added together to obtain the net investment income per
share for the period.
The base period return is then calculated as follows:
Base Period Return = Net Investment Income Per Share / Price Per Share
Then, yield is calculated as follows:
Yield = Base Period Return x 365/7
4. Calculation of Effective Yield. The base period return in the formula
for effective yield is the same as calculated in sub-section 3 of section D
above. The formula for Effective Yield is as follows:
365/7
Effective Yield = (Base Period Return + 1) - 1
The decimal is converted to a percent by multiplying by 100.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> VUL VALUE GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 43,379,666
<INVESTMENTS-AT-VALUE> 44,291,689
<RECEIVABLES> 90,356
<ASSETS-OTHER> 139
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,382,184
<PAYABLE-FOR-SECURITIES> 428,670
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 487,593
<TOTAL-LIABILITIES> 916,263
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,002,567
<SHARES-COMMON-STOCK> 3,455,865
<SHARES-COMMON-PRIOR> 2,070,769
<ACCUMULATED-NII-CURRENT> 8,310
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (456,979)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 912,023
<NET-ASSETS> 43,465,921
<DIVIDEND-INCOME> 385,906
<INTEREST-INCOME> 686,921
<OTHER-INCOME> 0
<EXPENSES-NET> 196,719
<NET-INVESTMENT-INCOME> 876,108
<REALIZED-GAINS-CURRENT> 2,628,392
<APPREC-INCREASE-CURRENT> (1,441,898)
<NET-CHANGE-FROM-OPS> 2,062,602
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 869,530
<DISTRIBUTIONS-OF-GAINS> 3,438,954
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,168,439
<NUMBER-OF-SHARES-REDEEMED> 124,474
<SHARES-REINVESTED> 341,131
<NET-CHANGE-IN-ASSETS> 16,277,470
<ACCUMULATED-NII-PRIOR> 1,732
<ACCUMULATED-GAINS-PRIOR> 353,583
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 168,315
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 210,812
<AVERAGE-NET-ASSETS> 36,063,355
<PER-SHARE-NAV-BEGIN> 13.13
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 1.10
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.58
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> VUL HIGH GRADE BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,057,603
<INVESTMENTS-AT-VALUE> 5,274,612
<RECEIVABLES> 78,178
<ASSETS-OTHER> 29,594
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,382,384
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,004
<TOTAL-LIABILITIES> 8,004
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,164,265
<SHARES-COMMON-STOCK> 531,552
<SHARES-COMMON-PRIOR> 359,602
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2
<ACCUMULATED-NET-GAINS> (6,894)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 217,009
<NET-ASSETS> 5,374,380
<DIVIDEND-INCOME> 7,150
<INTEREST-INCOME> 308,141
<OTHER-INCOME> 0
<EXPENSES-NET> 21,887
<NET-INVESTMENT-INCOME> 293,404
<REALIZED-GAINS-CURRENT> 9,918
<APPREC-INCREASE-CURRENT> 122,117
<NET-CHANGE-FROM-OPS> 425,439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 293,404
<DISTRIBUTIONS-OF-GAINS> 0
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<NAME> VUL HIGH YIELD BOND
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<NAME> VUL MANAGED
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<NAME> VUL MONEY MARKET
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<NAME> VUL BLUE CHIP
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