<PAGE>
[LOGO]
EquiTrust Variable Insurance
Series Fund
SEMI-ANNUAL REPORT
JUNE 30, 1999
INVESTMENT MANAGER AND
PRINCIPAL UNDERWRITER
EQUITRUST INVESTMENT
MANAGEMENT SERVICES, INC.
5400 UNIVERSITY AVENUE
WEST DES MOINES, IA 50266
1-800-247-4170 (OUTSIDE IOWA)
1-800-422-3175 (IN IOWA)
225-5586 (DES MOINES)
This report is not to be distributed
unless preceded or accompanied
by a prospectus.
<PAGE>
PRESIDENT'S LETTER
Dear Shareholder:
U.S. economic growth remains robust despite the effects of the 1998 global
financial crisis. The duration and strength of this expansion, combined with the
absence of the inflationary signals that normally develop in the later stages of
business cycles, have caused Federal Reserve Bank officials and others to ponder
whether old economic rules still apply to the U.S. economy.
The ability of our economy to demonstrate persistent rapid growth without
sparking inflation is likely being influenced by one of two sets of forces and
quite probably some combination of the two. Some have argued that we have
entered a "new era" of non-inflationary growth being driven by new,
productivity-enhancing technologies. Others suggest that the boom has been
motivated by consumers' increased willingness to spend, even in excess of
income.
While the exact magnitudes are subject to substantial debate, it seems clear
that consumption has increased and saving decreased, relative to income. This is
partially a reaction to increases in household net worth resulting from gains in
house prices and common stock prices.
The result of this wealth/spending effect is a record deficit between
private-sector saving and investment, which measures the extent to which U.S.
households and business firms are relying on the capital markets to finance
their spending. This imbalance has been financed by a decline in the federal
deficit and also by foreign capital inflows. With fiscal restraint set to reach
its limits and relative returns on U.S. financial assets diminishing as the
global economy recovers, the key question for the future is whether borrowers
may be forced to bid up interest rates in order to maintain the strong growth in
U.S. domestic spending. If so, a weaker dollar and concomitantly rising funding
costs could well be the forces that will have to intervene in order to rein in
U.S. growth.
The Federal Reserve, seeking to be pre-emptive, nudged the Fed Funds rate up
one quarter of one percent on June 30th. With the June unemployment rate at
4.3%, the Fed remains concerned that at some point the diminished labor supply
will lead to inflationary wage gains. Critics argue that productivity gains
driven by new technological developments will allow our economy to continue
generating non-inflationary growth even at relatively full employment.
Indeed, many of the normal inflation indicators continue to point toward
deflation or relative price stability. The Bridge CRB Commodity Index, which is
comprised of agricultural, energy and other commodities, is down 25% since the
last Fed tightening, which took place in March of 1997. The price of gold, which
has historically been an indicator of rising inflation, is down 28% over that
same period. Some argue that pending central bank gold sales have artificially
depressed gold prices, but even so, gold prices hardly seem to be flashing
inflation warning signals. Durable goods prices have fallen for three years in a
row and are down 2.3% at an annual rate so far in 1999. Increasing productivity
could help explain this phenomenon if an increase in the supply of goods soaks
up excess liquidity, driving prices down.
Has our ability to grow so rapidly with low levels of inflation simply been
driven by an unlikely-to-be-sustained decline in the federal deficit and the
ability to import cheap goods and cheap funds from abroad during a now abating
global financial crisis? Or, has it been influenced primarily by dramatic
productivity enhancements stemming from the implementation of new technology,
and as Bill Gates has suggested, this is just the beginning?
A Dow Jones Industrial Average above 11,000 seems priced for a very positive
answer to this question.
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The Value Growth and Managed comments are from Roger F. Grefe, CFA,
Investment Management Vice President. The High Grade Bond and High Yield Bond
comments are from Robert J. Rummelhart, CFA, Fixed Income Vice President.
VALUE GROWTH: Over the last year, our decision to underweight or avoid the
high-flying large-capitalization stocks, and to overweight the small- and
mid-cap stocks has worked against us. The market flocked toward the big
household-name stocks, turning its back on the small- to mid-size companies that
comprise the bulk of our Portfolio. In short, mid-cap, deep-value investing has
had a severe bout of underperformance. This can be illustrated by comparing the
last 12-month returns for the Standard & Poor's 500 Stock Index ("S&P 500")
versus the Russell 2000 Index ("Russell 2000"). For the 12 months ending June
30, 1999, the S&P 500 was up 22.72% versus a gain of 1.5% for the Russell 2000.
The ongoing contrast between the performance of the S&P 500 and the Russell
2000 is perhaps greater than we can ever recall. The S&P 500 is an index of
large cap stocks and the Russell 2000 is an index of mid- and small-cap stocks,
which excludes the 1000 largest stocks.
In calendar year 1998, 15 stocks, a mere 3% of the issues in the S&P 500,
accounted for 52% of the Index's performance. Of these 15 stocks, nine were
either technology or communications companies. If you owned these stocks, you
had a great 1998 and first six months of 1999. Most value investors did not own
those stocks. The trailing twelve-month price/earnings ratio at the end of 1998
for those stocks was 47.7 times, which is not a value-priced statistic. In
contrast, many of the stocks we own sell at price/ earnings ratios of 10 to 20
with excellent growth prospects.
Stock market commentators refer to this as narrowness. When market
performance is "narrow," a small number of stocks account for the performance of
an index and may not be representative of how stocks in general have performed.
Most of the time, a rising tide lifts all boats. This was not the case in 1998
or at the present time. Much of the effect stems from the fact that the popular
stock market indexes are capitalization weighted. The larger the market
capitalization of a company, the greater its contribution to the calculation of
the performance of an index. In the S&P 500, about 50 stocks, 10% of the number
of issues in the Index, generally account for approximately one-half of the
Index's weighting. While indexes in general are a reasonable barometer of stock
market performance, capitalization weighting can distort the picture and may not
be an accurate reflection of the average stock portfolio held by mutual funds,
individual investors, insurance companies, and banks, etc.
The skewing of the indexes to large companies is further compounded by a
concentration in large technology companies. The S&P 500 was historically an
index of industrial America. Today, it is increasingly concentrated in
technology stocks, which are currently measured by a different valuation model
than most stocks. Contrary to this valuation model, we agree instead with Marty
Whitman, a successful portfolio manager and analyst with MJ Whitman Advisers,
who stated in a recent article at his firm's website:
"The appreciation in market prices for the common stocks that make up
the leading indexes have, in recent years, so far outstripped the growth in
book value and earnings for the companies whose common stocks make up the
indexes that these market prices seem now to be grossly out of line with
corporate reality. Thus the possibilities for disaster. Here excellent past
performance seems likely to be a harbinger of future under-performance
insofar as one believes that over the long term, market prices for passively
owned common stocks will have a relationship to underlying corporate
fundamentals."
In contrast to the S&P 500, many common stocks, especially well-capitalized
small- to mid-size companies, currently seem to be priced at bargain prices
relative to long-term earnings prospects and current book values. This type of
pricing in markets for passive, minority investments seems to occur frequently
at times when the immediate earnings outlooks are unclear. Heartland Express,
Inc., based in Coralville, Iowa, is a leading short- to medium-haul truckload
carrier operating primarily east of the
3
<PAGE>
Rocky Mountains. Heartland has a very impressive track record of revenue and
earnings growth. Over the last ten years, Heartland has posted compound annual
growth in revenue and earnings of 22.6% and 21.3%, respectively. Limited driver
availability caused Heartland's revenue growth to stall in 1998. Consequently,
the share prices are 40% off their highs, with a forward price-earnings ratio of
14. Heartland has a strong balance sheet with no debt and approximately $155
million in cash ($5.16 per share) and the company's strong financial health
should be most valuable in the next industry downturn. The negative stock
returns for Heartland are not a result of the company doing badly. We believe
this stock and many like it are being ignored or sold as money flows to where
the gains are being made in technology and Internet stocks.
For value investors, such as ourselves, the focus is on investing in
companies at prices below the long-term value of the underlying businesses. For
a large and growing segment of investors, however, aligning price and value
simply is not relevant. Momentum investors, who continue to dominate today's
investing climate, concentrate on trends in earnings and stock prices; the value
of the company has little to do with their analysis. Index investors simply buy
whatever stocks inhabit their chosen index. These two types of investors give
merit to the theory that the stock market has become less efficient in recent
years because the nature and motives of investors have changed. This long bull
market has attracted millions of new investors who simply want a piece of the
action. Federal Reserve Chairman Alan Greenspan suggested the "lottery premium"
reason (i.e. the hope for the tiny chance of a large gain propels otherwise
sensible people to make irrational investment decisions).
History is full of examples of companies that never reached great
expectations such as those that are being placed on the technology companies
today. A portfolio of stocks with that much hype has never been a formula for
sound investing. Stocks today are being bought merely because they have gone up
in price and the approach has become self-fulfilling. Little or no consideration
is given to whether there is any investment value for a particular common stock.
"Value" has not been counting for much in the new paradigm. However, there is
likely to be a balancing of the scales in the future, with value demonstrating
its many fine investment attributes. We do not believe that efficiency in
pricing stocks has been destroyed for all time, only suspended for an
uncomfortably long period of time. We believe that the investments that we have
made in Allstate, American Water Works, Casey's General Stores, General Growth
Properties, Heartland Express, Manpower, Mony Group, 7-Eleven, Inc., Super Valu
and many others are under-appreciated by today's investor. These companies have
bright futures, with very strong earning power, capable management, and very
reasonable price to value ratios. We recommend that investors concentrate on
value investing and growth at a reasonable price. These are the types of
companies we own in the Value Growth Portfolio and that we believe will provide
attractive returns when the business value converges with the market value
through greater investor appreciation.
HIGH GRADE BOND: Treasury yields rose approximately 100 basis points during
the six-month period ended June 30, 1999. For example, the 2-, 10-, and 30-year
Treasury issues yielded 4.53%, 4.65%, and 5.09%, respectively, as of December
31, 1998 compared to 5.52%, 5.79% and 5.97% as of June 30, 1999.
The market has recently become concerned about the potential for future
inflation as the U.S. economy has continued to exhibit strong growth and the
world economy has started to show signs that it may start to grow at a higher
rate. While future inflation may be higher, the current rate of core inflation
is running at a very low rate of around 2%, which translates into relatively
high real yields (interest rate minus core inflation rate) of 3% (5% minus 2%)
on short-term Treasury issues and 4% (6% minus 2%) on long-term issues. Given
these higher Treasury yields and our ability to find attractive spreads on
corporate issues, we have increased the duration of the Portfolio so that it is
currently only slightly less than that of the Lehman Brothers Aggregate Index.
If we can continue to find what we view as attractively priced issues, our
duration will probably continue to increase so that it slightly exceeds that of
the
4
<PAGE>
Aggregate Index. As a result, our future investment returns will probably be
more similar to the Index and therefore, should tend to be more volatile than in
the past.
HIGH YIELD BOND: During the past six months, the high yield bond market
outperformed the high-grade bond market. The greater yield and dramatic spread
narrowing from the historically wide levels prevalent at the start of the year
aided the performance of the high yield sector. According to the DLJ High Yield
Index, the average high yield spread was 631 basis points as of December 29,
1998 compared to 486 basis points as of June 3, 1999.
We attempted to take advantage of these wider spreads by increasing our
exposure to pure high yield issues and away from investment-grade corporates.
While our exposure to high yield issues increased during this period, we
continued to be underweighted toward high yield issues relative to most funds
and indexes and thus underperformed relative to these benchmarks. Based on
current market conditions, we plan to continue to increase our exposure to pure
high yield issues as attractive opportunities continue to be available.
MANAGED: The Managed Portfolio emphasizes income with moderate growth
potential. Our goal is to produce income at twice the rate of the dividend yield
of the S&P 500 which continues to be a paltry 1.18%, the lowest in history. We
continue to find excellent investments that should easily equal or better our
hurdle rate of 2.4%. We have invested in some attractive convertible securities
(those exchangeable into common stock), hybrid securities with both bond and
equity characteristics. Convertibles provide more income and usually more
downside protection than the underlying common stock. We consider this to be an
attractive asset class for the Managed Portfolio as the income stream provides a
"paid to wait" investment strategy. Ultimately, we would like every underlying
common stock to perform well, thus enhancing the total return of the Managed
Portfolio.
Some very attractive convertible issues recently acquired are in the
healthcare area. Alza Corporation and Elan are specialty pharmaceutical firms
with excellent prospects. Both Alza and Elan were under selling pressure and the
stocks declined rapidly. The convertible bonds declined as well, providing an
excellent buying opportunity to own two high-quality healthcare firms. Alza is
now being acquired by Abbott Laboratories, another one of the Portfolio's
holdings that has a bright future at a reasonable price. Elan is a
pharmaceutical company offering other major pharmaceutical companies a full
range of drug delivery services. Elan is in the early stages of commercializing
about seven new drugs over the next 24 months, which is likely to transition
earnings toward higher-margined pharmaceutical products. The company is making
steady clinical progress in a range of new products centered on epilepsy, anti-
migraine, chronic pain management, multiple sclerosis and Alzheimer's disease.
We suspect the low price-earnings ratio of 17 could improve as the company makes
progress on these new compounds. We own the convertibles which provide a current
yield of over 4% and are convertible into 28.153 shares for each bond. We
believe the company is worth $50 a share, implying that the bonds could sell at
$140 as opposed to their current price of $105. The Managed Portfolio owns many
similarly attractive convertible positions where we are being "paid to wait."
MONEY MARKET: On June 30th, the Federal Reserve Bank raised the Federal
Funds rate by 25 basis points as expected, but did not change the discount rate
and also switched to a neutral bias. They explained their actions by saying that
the "full degree" of last year's easing was "no longer necessary." They also
said that despite tight labor markets, "productivity growth has contained
inflationary pressures."
During 1994, the Fed switched to a neutral bias after each of several
tightening moves. While real rates are currently much higher and the yield curve
much flatter compared to late 1993, the neutral bias alone provides little or no
indication as to the direction or timing of the Fed's next move. Currently, the
Fed Funds rate is 5.00% and a 90-day Treasury bill yields 4.62%.
5
<PAGE>
BLUE CHIP: True to its passive strategy, the performance of the Blue Chip
Portfolio over the past year has reflected that of the large capitalization
market sector which it represents. The Blue Chip Portfolio will remain
substantially invested in common stocks of large companies and is designed for
those investors who prefer substantial exposure to common stocks at all times or
who wish to make their own market value judgments.
[EDWARD M. WIEDERSTEIN SIGNATURE]
EDWARD M. WIEDERSTEIN
PRESIDENT
July 27, 1999
6
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(This page has been left blank intentionally.)
7
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------- ------------
<S> <C> <C>
ASSETS
Investments in
securities, at value
(cost -- $48,146,559;
$13,737,136;
$18,599,939;
$59,445,357; $6,056,984;
and $53,506,437,
respectively)........... $ 48,363,899 $ 13,487,124
Cash..................... 8,421
Accrued dividends and
interest receivable..... 130,454 155,048
Prepaid expense.......... 1,042 156
Investment securities
sold.................... 454,696
------------- ------------
Total Assets............. $ 48,950,091 $ 13,650,749
------------- ------------
------------- ------------
LIABILITIES AND NET
ASSETS
Liabilities:
Net outstanding
redemptions in excess
of bank balance....... $ 81,387
Investment securities
purchased............. $ 795,802
Accrued expenses....... 4,074 3,432
------------- ------------
Total Liabilities........ 85,461 799,234
Net assets applicable to
shares of beneficial
interest................ 48,864,630 12,851,515
------------- ------------
Total Liabilities and Net
Assets.................. $ 48,950,091 $ 13,650,749
------------- ------------
------------- ------------
Shares issued and
outstanding as of June
30, 1999................ 4,937,567 1,316,392
NET ASSET VALUE PER
SHARE................... $ 9.90 $ 9.76
------------- ------------
------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
<TABLE>
<CAPTION>
HIGH
YIELD BOND MANAGED MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in
securities, at value
(cost -- $48,146,559;
$13,737,136;
$18,599,939;
$59,445,357; $6,056,984;
and $53,506,437,
respectively)........... $ 18,096,768 $ 58,050,089 $6,056,984 $ 78,294,520
Cash..................... 178,755 37,520
Accrued dividends and
interest receivable..... 323,126 332,311 1,790 69,993
Prepaid expense.......... 257 1,154 126 1,006
Investment securities
sold.................... 44
------------ ------------ ------------- ------------
Total Assets............. $ 18,420,151 $ 58,383,598 $6,237,655 $ 78,403,039
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
LIABILITIES AND NET
ASSETS
Liabilities:
Net outstanding
redemptions in excess
of bank balance....... $ 20,987 $ 150,940
Investment securities
purchased.............
Accrued expenses....... 3,742 2,472 $ 5,175 $ 2,415
------------ ------------ ------------- ------------
Total Liabilities........ 24,729 153,412 5,175 2,415
Net assets applicable to
shares of beneficial
interest................ 18,395,422 58,230,186 6,232,480 78,400,624
------------ ------------ ------------- ------------
Total Liabilities and Net
Assets.................. $ 18,420,151 $ 58,383,598 $6,237,655 $ 78,403,039
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Shares issued and
outstanding as of June
30, 1999................ 1,881,055 5,140,116 6,232,480 1,857,989
NET ASSET VALUE PER
SHARE................... $ 9.78 $ 11.33 $ 1.00 $ 42.20
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
9
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C>
INVESTMENT INCOME
Dividends................ $ 446,257 $ 7,150
Interest................. 88,747 376,765
------------- -----------
Total Investment
Income.................. 535,004 383,915
EXPENSES
Paid to EquiTrust
Investment Management
Services, Inc.:
Investment advisory and
management fees........ 99,880 17,331
Accounting fees......... 11,098 2,888
Custodial fees........... 3,742 2,198
Professional fees........ 5,269 1,261
Reports to
shareholders............ 3,180 687
Trustees' fees and
expenses................ 581 144
Insurance and bonds...... 440 72
Miscellaneous............ (718) 1,783
------------- -----------
Total Expenses........... 123,472 26,364
Fees paid indirectly..... (311) (386)
------------- -----------
Net Expenses............. 123,161 25,978
------------- -----------
Net Investment Income.... 411,843 357,937
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss)
from investment
transactions............ 1,635,529 25,343
Change in unrealized
appreciation/depreciation
of investments.......... 964,725 (484,000)
------------- -----------
Net Gain (Loss) on
Investments............. 2,600,254 (458,657)
------------- -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $3,012,097 $(100,720)
------------- -----------
------------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
<TABLE>
<CAPTION>
HIGH
YIELD BOND MANAGED MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................ $ 57,436 $ 1,015,739 $ 458,991
Interest................. 603,035 593,205 $138,321 153,360
----------- ----------- ------------- -------------
Total Investment
Income.................. 660,471 1,608,944 138,321 612,351
EXPENSES
Paid to EquiTrust
Investment Management
Services, Inc.:
Investment advisory and
management fees........ 38,297 127,493 7,173 69,060
Accounting fees......... 4,255 14,166 1,435 15,173
Custodial fees........... 2,225 2,891 2,760 3,285
Professional fees........ 2,007 6,922 711 7,805
Reports to
shareholders............ 951 3,347 387 3,809
Trustees' fees and
expenses................ 217 744 83 863
Insurance and bonds...... 114 497 55 456
Miscellaneous............ 1,337 (1,424) 2,189 (1,802)
----------- ----------- ------------- -------------
Total Expenses........... 49,403 154,636 14,793 98,649
Fees paid indirectly..... (262) (573) (149) (213)
----------- ----------- ------------- -------------
Net Expenses............. 49,141 154,063 14,644 98,436
----------- ----------- ------------- -------------
Net Investment Income.... 611,330 1,454,881 123,677 513,915
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss)
from investment
transactions............ 107,135 (695,477) 67,486
Change in unrealized
appreciation/depreciation
of investments.......... (676,008) 1,396,575 9,717,105
----------- ----------- ------------- -------------
Net Gain (Loss) on
Investments............. (568,873) 701,098 9,784,591
----------- ----------- ------------- -------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $ 42,457 $ 2,155,979 $123,677 $ 10,298,506
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
</TABLE>
11
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income.... $ 411,843 $ 976,830
Net realized gain (loss)
from investment
transactions............ 1,635,529 (12,222,329)
Change in unrealized
appreciation/depreciation
of investments.......... 964,725 (1,659,408)
-------------- -------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 3,012,097 (12,904,907)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (976,831) (6,577)
Net realized gain from
investment
transactions............
Distributions in excess
of net realized gain
from investment
transactions............ (26,956)
-------------- -------------
(976,831) (33,533)
CAPITAL SHARE
TRANSACTIONS............ 4,164,947 12,136,936
-------------- -------------
Total Increase (Decrease)
in Net Assets........... 6,200,213 (801,504)
NET ASSETS
Beginning of period...... 42,664,417 43,465,921
-------------- -------------
End of period (including
undistributed net
investment income as set
forth below)............ $ 48,864,630 $ 42,664,417
-------------- -------------
-------------- -------------
Undistributed Net
Investment Income....... $ 413,575 $ 978,563
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.... $ 357,937 $ 495,896 $ 611,330 $ 863,295
Net realized gain (loss)
from investment
transactions............ 25,343 42,339 107,135 92,105
Change in unrealized
appreciation/depreciation
of investments.......... (484,000) 16,979 (676,008) (137,099)
-------------- ------------- -------------- -------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... (100,720) 555,214 42,457 818,301
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (357,937) (495,896) (611,330) (863,295)
Net realized gain from
investment
transactions............ (35,445) (92,104) (12,471)
Distributions in excess
of net realized gain
from investment
transactions............
-------------- ------------- -------------- -------------
(393,382) (495,896) (703,434) (875,766)
CAPITAL SHARE
TRANSACTIONS............ 3,090,148 4,821,771 3,376,559 7,114,059
-------------- ------------- -------------- -------------
Total Increase (Decrease)
in Net Assets........... 2,596,046 4,881,089 2,715,582 7,056,594
NET ASSETS
Beginning of period...... 10,255,469 5,374,380 15,679,840 8,623,246
-------------- ------------- -------------- -------------
End of period (including
undistributed net
investment income as set
forth below)............ $ 12,851,515 $ 10,255,469 $ 18,395,422 $ 15,679,840
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
Undistributed Net
Investment Income....... $ 0 $ 0 $ 0 $ 0
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
</TABLE>
13
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income.... $ 1,454,881 $ 2,635,770
Net realized gain (loss)
from investment
transactions............ (695,477) (3,607,983)
Change in unrealized
appreciation/depreciation
of investments.......... 1,396,575 (4,288,730)
-------------- -------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 2,155,979 (5,260,943)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (2,634,990) (19,731)
Net realized gain from
investment
transactions............ (11,609)
Distributions in excess
of net realized gain
from investment
transactions............
-------------- -------------
(2,634,990) (31,340)
CAPITAL SHARE
TRANSACTIONS............ 2,275,043 16,777,676
-------------- -------------
Total Increase (Decrease)
in Net Assets........... 1,796,032 11,485,393
NET ASSETS
Beginning of period...... 56,434,154 44,948,761
-------------- -------------
End of period (including
undistributed net
investment income as set
forth below)............ $ 58,230,186 $ 56,434,154
-------------- -------------
-------------- -------------
Undistributed Net
Investment Income....... $ 1,454,881 $ 2,634,990
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO
------------------------ --------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER JUNE 30, DECEMBER
1999 31, 1999 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.... $ 123,677 $ 281,943 $ 513,915 $ 816,315
Net realized gain (loss)
from investment
transactions............ 67,486 (236,791)
Change in unrealized
appreciation/depreciation
of investments.......... 9,717,105 6,904,202
---------- ---------- ----------- -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 123,677 281,943 10,298,506 7,483,726
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (123,677 ) (281,943 ) (816,323) (2,137)
Net realized gain from
investment
transactions............ (3,441)
Distributions in excess
of net realized gain
from investment
transactions............
---------- ---------- ----------- -----------
(123,677 ) (281,943 ) (816,323) (5,578)
CAPITAL SHARE
TRANSACTIONS............ 190,306 (35,343 ) 8,068,366 21,507,002
---------- ---------- ----------- -----------
Total Increase (Decrease)
in Net Assets........... 190,306 (35,343 ) 17,550,549 28,985,150
NET ASSETS
Beginning of period...... 6,042,174 6,077,517 60,850,075 31,864,925
---------- ---------- ----------- -----------
End of period (including
undistributed net
investment income as set
forth below)............ $6,232,480 $6,042,174 $78,400,624 $60,850,075
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Undistributed Net
Investment Income....... $ 0 $ 0 $ 513,915 $ 816,323
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
15
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
<S> <C> <C>
COMMON STOCKS (76.52%)
- ---------------------------
AGRICULTURAL SERVICES (1.02%)
Rayonier, Inc......................... 10,000 $ 498,125
BUSINESS SERVICES (0.99%)
Manpower, Inc......................... 21,400 484,175
CHEMICALS AND ALLIED PRODUCTS (4.16%)
ELAN Corp............................. 20,000(1) 555,000
Procter & Gamble Co................... 10,000 892,500
RPM, Inc.............................. 41,370 586,937
------------
2,034,437
COMMUNICATIONS (2.75%)
GTE Corp.............................. 10,000 757,500
US West, Inc.......................... 10,000 587,500
------------
1,345,000
DEPOSITORY INSTITUTIONS (4.80%)
Glacier Bancorp, Inc.................. 4,396 102,756
Golden West Financial Corp............ 5,000 490,000
Household International, Inc.......... 10,000 473,750
U.S. Bancorp.......................... 25,000 850,000
Wells Fargo Co........................ 10,000 427,500
------------
2,344,006
ELECTRIC, GAS AND SANITARY SERVICES (2.11%)
California Water Service Group........ 7,900 206,388
Northern States Power Co.............. 34,050 823,584
------------
1,029,972
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT (1.02%)
ECI Telecom, Ltd...................... 15,000 497,813
FOOD AND KINDRED PRODUCTS (12.47%)
ConAgra, Inc.......................... 70,000 1,863,750
Heinz (H. J.) Co...................... 10,000 501,250
Hershey Foods......................... 10,000 593,750
Interstate Bakers..................... 30,000 673,125
McCormick & Co........................ 20,000 631,250
PepsiCo, Inc.......................... 20,000 773,750
Philip Morris Companies, Inc.......... 15,000 602,812
Sara Lee Corp......................... 20,000 453,750
------------
6,093,437
</TABLE>
16
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
FOOD STORES (6.79%)
<S> <C> <C>
Albertson's, Inc...................... 10,000 $ 515,625
Casey's General Stores, Inc........... 90,750 1,361,250
7-Eleven, Inc......................... 650,000(1) 1,442,220
------------
3,319,095
HEALTH SERVICES (3.98%)
Abbott Laboratories................... 10,000 455,000
Cardinal Health, Inc.................. 15,000 961,875
Watson Pharmaceuticals................ 15,000(1) 525,937
------------
1,942,812
HOLDING AND OTHER INVESTMENT OFFICES (2.07%)
MBIA, Inc............................. 10,000 647,500
Wintrust Financial Corp............... 20,550(1) 362,194
------------
1,009,694
INSTRUMENTS & RELATED PRODUCTS (1.23%)
Becton Dickinson & Co................. 20,000 600,000
INSURANCE CARRIERS (11.67%)
Allstate Corp......................... 34,600 1,241,275
American International Group, Inc..... 5,000 585,312
Jefferson Pilot Corp.................. 10,000 661,875
Mony Group, Inc....................... 25,000 815,625
Progressive Corp...................... 5,000 725,000
Reinsurance Group of America.......... 20,000 670,000
Transatlantic Holdings, Inc........... 9,150 685,678
United Fire & Casualty Co............. 12,250 318,500
------------
5,703,265
NONCLASSIFIABLE ESTABLISHMENTS (0.79%)
Service Corp International............ 20,000 385,000
NONDEPOSITORY INSTITUTIONS (3.77%)
Berkshire Hathaway, Inc............... 15(1) 1,033,500
Federal Home Loan Mortgage Corp....... 10,000 580,000
Student Loan Marketing Association.... 5,000 229,063
------------
1,842,563
OIL AND GAS EXTRACTION (0.68%)
Offshore Logistics.................... 30,000(1) 333,750
PETROLEUM AND COAL PRODUCTS (1.23%)
Ashland Oil Co........................ 15,000 601,875
</TABLE>
17
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
PRINTING & PUBLISHING (4.53%)
<S> <C> <C>
Belo (A.H.) Corp...................... 22,000 $ 433,125
Mail-Well, Inc........................ 27,300 441,919
New York Times........................ 10,000 368,125
Scripps Co., (E.W.), Class A.......... 8,000 380,500
Xerox Corp............................ 10,000 590,625
------------
2,214,294
TRANSPORTATION - BY AIR (1.93%)
Petroleum Helicopters, Inc.
(Non-Voting)......................... 66,900 819,525
Petroleum Helicopters, Inc.
(Voting)............................. 9,300 121,481
------------
941,006
TRUCKING AND WAREHOUSING (1.68%)
Heartland Express, Inc................ 50,000(1) 818,750
WATER TRANSPORTATION (2.20%)
American Water Works, Inc............. 35,000 1,076,250
WHOLESALE TRADE - DURABLE GOODS (1.08%)
TBC Corp.............................. 75,000(1) 529,688
WHOLESALE TRADE - NONDURABLE GOODS (3.57%)
McKesson HBOC, Inc.................... 15,000 481,875
Super Valu Stores, Inc................ 25,000 642,187
Unilever N V.......................... 8,928(1) 622,728
------------
1,746,790
------------
Total Common Stocks..................... 37,391,797
PREFERRED STOCKS (7.20%)
- -----------------------------
COMMUNICATIONS (3.93%)
Cellnet Funding, LLC.................. 98,500 1,920,750
HEALTH SERVICES (0.32%)
McKesson Financing Trust.............. 3,000 156,000
HOLDING AND OTHER INVESTMENT OFFICES (2.95%)
General Growth Properties, Inc........ 59,960 1,439,040
------------
Total Preferred Stocks................ 3,515,790
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CORPORATE BONDS (13.74%)
- -----------------------------
HEALTH SERVICES (5.12%)
Alza Corp............................. $ 600,000 820,974
Athena Neurosciences, Inc............. 1,600,000 1,682,912
------------
2,503,886
</TABLE>
18
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------
OIL AND GAS EXTRACTION (2.48%)
<S> <C> <C>
Pride International, Inc.............. $ 1,300,000 $ 1,212,991
PRIMARY METAL INDUSTRIES (2.25%)
Quanex Corp........................... 1,050,000 1,098,563
PRINTING AND PUBLISHING (3.89%)
Mail-Well, Inc........................ 1,790,000(1) 1,900,139
------------
Total Bonds........................... 6,715,579
<CAPTION>
SHARES
HELD
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.52%)
- -----------------------------------
MONEY MARKET MUTUAL FUND
Provident Treasury Fund, Class A...... 740,733 740,733
------------
Total Investments (98.98%).............. 48,363,899
OTHER ASSETS LESS LIABILITIES (1.02%)
- -----------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... 500,731
------------
Total Net Assets (100.00%).............. $48,864,630
------------
------------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
19
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
PREFERRED STOCK (1.41%)
- ---------------------------
HOLDING & OTHER INVESTMENT OFFICES
New Plan Realty....................... 4,000 $ 181,500
-----------
Total Preferred Stocks.................. 181,500
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
CORPORATE BONDS (49.14%)
- -----------------------------
DEPOSITORY INSTITUTIONS (1.14%)
J. P. Morgan & Co., 7.25%, due
10/01/10............................. $ 150,000 145,954
ELECTRIC, GAS AND SANITARY SERVICES (6.98%)
National Co-op Services Corp., 9.48%,
due 1/1/12........................... 344,000 365,221
Oglethorpe Power (OPC Scherer),
6.974%, due 6/30/11.................. 388,000 388,116
Western Penn Power, 7.875%, due
12/01/04............................. 140,000 143,325
-----------
896,662
GENERAL MERCHANDISE STORES (2.30%)
J.C. Penney & Co., 8.25%, due
8/15/22.............................. 300,000 296,211
HOLDING AND OTHER INVESTMENT OFFICES (6.06%)
Federal Realty Investment Trust,
8.875%, due 1/15/00.................. 100,000 101,367
Glenborough Properties, 7.625%, due
3/15/05.............................. 250,000 217,760
Meditrust, 7.60%, due 9/13/05......... 150,000 127,308
Washington REIT, 6.898%, due
2/15/18.............................. 350,000 332,049
-----------
778,484
INDUSTRIAL MACHINERY AND EQUIPMENT (3.95%)
Thermo Fibertek, 4.50%, due 7/15/04... 600,000 507,000
NONDEPOSITORY INSTITUTIONS (3.50%)
Household Finance Co., 7.30%, due
7/30/12.............................. 200,000 198,146
Security Capital Pacific, 7.20%, due
3/1/13............................... 275,000 251,295
-----------
449,441
PAPER AND ALLIED PRODUCTS (1.16%)
Union Camp Corp., 8.625%, due
4/15/16.............................. 144,000 149,538
PETROLEUM AND COAL PRODUCTS (2.94%)
Kerr McGee Corp., 7.50%, due
5/15/14.............................. 380,000 377,625
RAILROAD TRANSPORTATION (0.19%)
Union Pacific Corp., 8.50%, due
1/15/17.............................. 24,000 24,848
TEXTILE MILL PRODUCTS (2.10%)
Unifi, 6.50%, due 2/1/08.............. 280,000 270,337
TOBACCO PRODUCTS (5.71%)
UST, Inc., 7.25%, due 6/1/09.......... 750,000 734,400
</TABLE>
20
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
TRANSPORTATION EQUIPMENT (1.40%)
<S> <C> <C>
Ford Motor Credit Co., 9.215%, due
9/15/21.............................. $ 150,000 $ 179,468
TRANSPORTATION BY AIR (9.91%)
Continental Airlines, 6.545%, due
8/2/20............................... 500,000 468,050
Northwest Airlines, 7.575%, due
9/1/20............................... 800,000 805,400
-----------
1,273,450
TRUCKING AND WAREHOUSING (1.80%)
Federal Express, 7.50%, due 1/15/18... 228,566 231,453
-----------
Total Corporate Bonds................... 6,314,871
MORTGAGE-BACKED SECURITIES (26.33%)
- ------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
(0.20%)
Pool # 50276, 9.50%, due 2/01/20...... 23,427 25,008
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) (26.13%)
Pool # 1512, 7.50%, due 12/20/23...... 267,150 270,239
Pool # 22630, 6.50%, due 8/01/28...... 481,413 463,211
Pool # 2631, 7.00%, due 8/01/28....... 711,341 702,229
Pool # 2658, 6.50%, due 10/01/28...... 865,886 833,147
Pool # 2701, 6.50%, due 1/20/29....... 985,921 948,643
Pool # 236070, 10.00%, due 10/15/12... 80,643 88,127
Pool # 276337, 10.00%, due 8/15/19.... 48,102 52,717
-----------
3,358,313
-----------
Total Mortgage-Backed Securities........ 3,383,321
UNITED STATES TREASURY OBLIGATION (3.31%)
- ------------------------------------------------
U.S. Treasury Note, 7.25%, due
8/15/04.............................. 400,000 425,420
SHORT-TERM INVESTMENTS (24.76%)
- ------------------------------------
UNITED STATES GOVERNMENT AGENCIES (20.50%)
Federal National Mortgage Assoc., due
7/13/99.............................. 340,000 339,454
Federal Home Loan Mortgage Corp., due
8/12/99.............................. 950,000 944,599
Federal Home Loan Mortgage Corp., due
7/02/99.............................. 1,000,000 999,868
Federal National Mortgage Assoc., due
7/01/99.............................. 350,000 350,000
-----------
2,633,921
</TABLE>
21
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
MONEY MARKET MUTUAL FUND (4.26%)
<S> <C> <C>
Provident Treasury Fund, Class A...... 548,091 $ 548,091
-----------
Total Short-Term Investments............ 3,182,012
-----------
Total Investments (104.95%)............. 13,487,124
OTHER ASSETS LESS LIABILITIES (-4.95%)
- ------------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... (635,609)
-----------
Total Net Assets (100.00%).............. $12,851,515
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
----------- -----------
<S> <C> <C>
PREFERRED STOCK (7.15%)
- ---------------------------
DEPOSITORY INSTITUTIONS (0.69%)
CFB Capital I, 8.875%, Cumulative
Capital Securites.................... 5,000 $ 126,563
HOLDING AND OTHER INVESTMENT OFFICES (1.73%)
New Plan Realty Trust................. 7,000 317,625
METAL MINING (4.73%)
Cameco Corp........................... 36,000 870,750
-----------
Total Preferred Stocks.................. 1,314,938
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CORPORATE BONDS (89.00%)
- -----------------------------
AMUSEMENT AND RECREATION SERVICES (1.09%)
AMF Bowling Worldwide, Inc., 10.875%,
due 3/15/06.......................... $ 240,000 200,400
APPAREL AND OTHER TEXTILE PRODUCTS (1.11%)
Dan River, Inc., 10.125%, due
12/15/03............................. 200,000 205,000
AUTO REPAIR, SERVICES AND PARKING (3.56%)
Budget Group, Inc., 9.125%, due
4/1/06............................... 700,000 654,500
BUSINESS SERVICES (3.31%)
Cendant Corporation, 7.75%, due
12/1/03.............................. 600,000 608,460
CHEMICALS AND ALLIED PRODUCTS (11.70%)
Huntsman ICI Chemicals, 10.125%, due
7/1/09............................... 900,000 912,375
Lyondell Chemical Co., 9.625%, due
5/1/07............................... 900,000 940,500
Terra Industries, Inc., 10.50%, due
6/15/05.............................. 300,000 298,500
-----------
2,151,375
COMMUNICATIONS (5.09%)
Savoy Pictures, 7.00%, due 7/1/03..... 450,000 443,250
Telephone & Data Systems, Inc., 7.00%,
due 8/1/06........................... 500,000 492,710
-----------
935,960
DEPOSITORY INSTITUTIONS (1.35%)
First Bank N.A., 6.25%, due 8/15/05... 250,000 249,218
ELECTRIC, GAS AND SANITARY SERVICES (7.47%)
ESI Tractebel, 7.99%, due 12/30/11.... 340,000 324,351
Gulf States Utilities, 8.94%, due
1/1/22............................... 700,000 730,429
Waterford 3 Nuclear Power Plant,
8.09%, due 1/2/17.................... 321,282 319,409
-----------
1,374,189
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (1.32%)
Advanced Micro Devices, Inc., 11.00%,
due 8/01/03.......................... 240,000 242,700
</TABLE>
23
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
FOOD STORES (0.67%)
<S> <C> <C>
P&C Food Markets, Inc., 11.50%, due
10/15/01............................. $ 150,000 $ 53,250
Penn Traffic Co., 10.25%, due
2/15/02.............................. 200,000 71,000
-----------
124,250
GENERAL MERCHANDISE STORES (4.22%)
J.C. Penney & Co., 8.25%, due
8/15/22.............................. 300,000 296,211
Woolworth F.W., 7.00%, due 6/1/00..... 500,000 480,000
-----------
776,211
HEALTH SERVICES (2.55%)
Tenet Healthcare, 7.625%, due
6/1/08............................... 500,000 468,750
HOLDING AND OTHER INVESTMENT OFFICES (11.59%)
Bradley Operating LP, 7.20%, due
1/15/08.............................. 450,000 423,572
Federal Realty Investment Trust,
7.48%, due 8/15/26................... 600,000 614,070
Glenborough Properties, 7.625%, due
3/15/05.............................. 400,000 348,416
Price Development Company, 7.29%, due
3/11/08.............................. 450,000 430,996
SUSA Partnership LP, 8.20%, due
6/01/17.............................. 325,000 314,753
-----------
2,131,807
INDUSTRIAL MACHINERY AND EQUIPMENT (4.68%)
AGCO Corp., 8.50%, due 3/15/06........ 900,000 861,750
INSTRUMENTS AND RELATED PRODUCTS (4.38%)
Thermo Electron Corp., 4.25%, due
1/1/03............................... 900,000 805,779
LUMBER AND WOOD PRODUCTS (2.21%)
Georgia-Pacific Corp., 9.875%, due
11/01/21............................. 225,000 246,877
Georgia-Pacific Corp., 9.125%, due
7/1/22............................... 150,000 158,970
-----------
405,847
METAL MINING (2.63%)
INCO Ltd., 8.875%, due 6/15/19........ 500,000 483,045
NONDEPOSITORY INSTITUTIONS (0.93%)
Macsaver Financial, 7.40%, due
2/15/02.............................. 200,000 171,000
OIL AND GAS EXTRACTION (7.02%)
Occidental Petroleum Co., 7.375%, due
11/15/08............................. 400,000 395,720
Pool Energy Services, 8.625%, due
4/1/08............................... 900,000 895,500
-----------
1,291,220
PAPER AND ALLIED PRODUCTS (1.15%)
Container Corp. of America, 9.75%, due
4/01/03.............................. 200,000 210,750
PETROLEUM AND COAL PRODUCTS (5.07%)
Kerr McGee Corp., 7.50%, due
5/15/14.............................. 938,000 932,137
REAL ESTATE (3.29%)
United Dominion Realty Trust, 8.125%,
due 11/15/00......................... 600,000 605,838
</TABLE>
24
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
TRANSPORTATION SERVICES (2.61%)
<S> <C> <C>
Federal Mogul Co., 7.75%, due
7/1/06............................... $ 500,000 $ 480,865
-----------
Total Corporate Bonds................... 16,371,051
SHORT-TERM INVESTMENTS (2.23%)
- -----------------------------------
UNITED STATES GOVERNMENT AGENCIES (1.78%)
Federal Home Loan Mortgage Co., due
8/12/99.............................. 330,000 328,124
<CAPTION>
SHARES
HELD
-----------
<S> <C> <C>
MONEY MARKET MUTUAL FUND (0.45%)
Provident Treasury Fund, Class A...... 82,655 82,655
-----------
Total Short-Term Investments............ 410,779
-----------
Total Investments (98.38%).............. 18,096,768
OTHER ASSETS LESS LIABILITIES (1.62%)
- -----------------------------------------
Cash, receivables and prepaid expense
less liabilities..................... 298,654
-----------
Total Net Assets (100.00%).............. $18,395,422
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- -----------
<S> <C> <C>
COMMON STOCKS (16.67%)
- ---------------------------
CHEMICALS AND ALLIED PRODUCTS (1.22%)
RPM, Inc.............................. 50,000 $ 709,375
ELECTRIC, GAS AND SANITARY SERVICES (7.62%)
Idacorp, Inc.......................... 36,000 1,134,000
Northern States Power Co.............. 57,000 1,378,688
Otter Tail Power Co................... 50,000 1,928,125
-----------
4,440,813
FOOD AND KINDRED PRODUCTS (6.63%)
ConAgra, Inc.......................... 101,975 2,715,084
Philip Morris Companies, Inc.......... 20,000 803,750
Sara Lee Corp......................... 15,000 340,312
-----------
3,859,146
OIL AND GAS EXTRACTION (1.20%)
Offshore Logistics.................... 62,700(1) 697,538
-----------
Total Common Stocks..................... 9,706,872
PREFERRED STOCKS (46.15%)
- ------------------------------
COMMUNICATIONS (1.17%)
Cellnet Funding, LLP.................. 35,000 682,500
DEPOSITORY INSTITUTIONS (6.10%)
CFB Capital I, 8.875%, Cumulative
Capital Securities................... 57,500 1,455,469
CFB Capital II, 8.20%, Cumulative
Capital Securities................... 5,940 147,757
Harris Capital........................ 20,000 483,750
Taylor Capital Group, Inc............. 58,000 1,464,500
-----------
3,551,476
EATING AND DRINKING PLACES (1.49%)
Wendy's Financing..................... 14,300 865,150
ELECTRIC, GAS AND SANITARY SERVICES (8.00%)
Citizens Utilities Trust.............. 30,500 1,483,062
Equitable Resources................... 50,000 1,196,875
Nisource, Inc......................... 28,000 1,382,500
Northwestern Capital Finance, Inc..... 24,500 595,656
-----------
4,658,093
HEALTH SERVICES (2.05%)
McKesson Financing Trust.............. 23,000 1,196,000
HOLDING AND OTHER INVESTMENT OFFICES (5.74%)
General Growth Properties, Inc........ 100,000 2,400,000
Wintrust Capital Trust................ 37,500 942,188
-----------
3,342,188
</TABLE>
26
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- -----------
INDUSTRIAL MACHINERY AND EQUIPMENT (1.62%)
<S> <C> <C>
Coltec Capital Trust.................. 20,000 $ 945,000
INSURANCE CARRIERS (1.93%)
Equitable of Iowa Capital............. 43,747 1,121,017
MISCELLANEOUS MANUFACTURING INDUSTRIES (2.34%)
Cyprus Amax Minerals Co............... 30,000 1,365,000
NONDEPOSITORY INSTITUTIONS (3.84%)
Mediaone Finance Trust................ 25,000 668,750
Newell Financial Trust I.............. 28,000 1,568,000
-----------
2,236,750
OIL AND GAS EXTRACTION (4.00%)
EVI, Inc.............................. 40,000 1,585,000
El Paso Energy Capital Trust, Inc..... 15,000 742,500
-----------
2,327,500
PETROLEUM AND COAL PRODUCTS (4.09%)
Canadian Occidental Petroleum......... 56,000 1,414,000
Tosco Financial Trust................. 20,000 965,000
-----------
2,379,000
PIPELINES EXCEPT NATURAL GAS (2.02%)
Enron Capital......................... 47,200 1,177,050
RAILROAD TRANSPORTATION (0.36%)
Union Pacific Capital Trust........... 4,000 212,500
TRANSPORTATION EQUIPMENT (1.40%)
Fleetwood Capital Trust............... 20,000 812,500
-----------
Total Preferred Stocks.................. 26,871,724
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CORPORATE BONDS (35.72%)
- -----------------------------
AMUSEMENT AND RECREATION SERVICES (2.31%)
Acclaim Entertainment, Inc., 10.00%,
due 3/1/02........................... $1,000,000 1,345,000
CHEMICALS AND ALLIED PRODUCTS (1.70%)
Cetus Corp., 5.25%, due 5/21/02....... 1,000,000 990,000
COMMUNICATIONS (0.84%)
Telefonos de Mexico, 4.25%, due
6/15/04.............................. 500,000 490,315
ELECTRIC, GAS AND SANITARY SERVICES (0.15%)
National Co-op Services Corp.
(Arkansas Electric), 9.48%, due
1/01/12.............................. 84,000 89,182
</TABLE>
27
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- -----------
HEALTH SERVICES (10.33%)
<S> <C> <C>
Alza Corp., 5.00%, due 5/1/06......... $1,000,000 $1,368,290
Athena Neurosciences, Inc., 4.75%, due
11/15/04............................. 1,400,000 1,472,548
Dura Pharmaceuticals, 3.50%, due
7/15/02.............................. 2,000,000 1,515,000
Healthsouth Corp., 3.25%, due
4/1/03............................... 750,000 633,285
Quantum Healthcare Resources, 4.75%,
due 10/1/00.......................... 1,125,000 1,028,734
-----------
6,017,857
METAL MINING (1.86%)
Teck Corp., 3.75%, due 7/15/06........ 1,500,000 1,085,625
MISCELLANEOUS RETAIL (1.73%)
Rite Aid Corp., 5.25%, due 9/15/02.... 1,000,000 1,006,550
NONDEPOSITORY INSTITUTIONS (0.92%)
Consumer Portfolio Services, Inc.,
10.50%, due 4/15/04.................. 1,400,000 535,500
OIL AND GAS EXTRACTION (10.54%)
Diamond Offshore Drilling, 3.75%, due
2/15/07.............................. 1,700,000 1,683,799
Nabors Industries, Inc., 5.00%, due
5/15/06.............................. 1,700,000 2,253,673
Offshore Logistics, 6.00%, due
12/15/03............................. 1,500,000 1,263,885
Pride International, Inc., 6.25%, due
2/15/06.............................. 1,000,000 933,070
-----------
6,134,427
PRIMARY METAL INDUSTRIES (3.99%)
Quanex Corp., 6.88%, due 6/30/07...... 2,220,000 2,322,675
PRINTING AND PUBLISHING (1.35%)
Mail Well, Inc., 5.00%, due 11/1/02... 740,000 785,532
-----------
Total Corporate Bonds................... 20,802,663
<CAPTION>
SHARES
HELD
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.15%)
- -----------------------------------
MONEY MARKET MUTUAL FUND
Provident Treasury Fund, Class A...... 668,830 668,830
-----------
Total Investments (99.69%).............. 58,050,089
OTHER ASSETS LESS LIABILITIES (0.31%)
- -----------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... 180,097
-----------
Total Net Assets (100.00%).............. $58,230,186
-----------
-----------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
28
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ANNUALIZED
YIELD ON
PURCHASE PRINCIPAL
DATE AMOUNT VALUE
---------- ---------- -----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (97.18%)
- ------------------------------------
COMMERCIAL PAPER (19.81%)
NONDEPOSITORY INSTITUTIONS
American General Finance Co.,
4.72%, due 7/2/99............. 4.717% $ 235,000 $ 235,000
Ford Motor Credit Corp., 5.15%,
due 7/21/99................... 5.147 175,000 175,000
General Electric Capital,
5.09%, due 8/10/99............ 5.094 290,000 290,000
IBM Credit Corp., 4.71%, due
7/1/99........................ 4.713 250,000 250,000
John Deere Capital Corp.,
5.10%, due 8/18/99............ 5.099 285,000 285,000
-----------
Total Commercial Paper........... 1,235,000
UNITED STATES GOVERNMENT AGENCIES (77.37%)
Federal Farm Credit Bank, due
7/6/99........................ 4.827 495,000 494,673
Federal Farm Credit Bank, due
7/13/99....................... 4.817 205,000 204,676
Federal Home Loan Bank, due
7/9/99........................ 4.923 450,000 449,514
Federal Home Loan Bank, due
7/23/99....................... 5.046 240,000 239,272
Federal Home Loan Mortgage
Corp., due 7/15/99............ 4.877 810,000 808,488
Federal Home Loan Mortgage
Corp., due 7/16/99............ 4.830 880,000 878,257
Federal Home Loan Mortgage
Corp., due 7/26/99............ 5.067 320,000 318,893
Federal Home Loan Mortgage
Corp., due 7/29/99............ 5.081 180,000 179,301
Federal Home Loan Mortgage
Corp., due 8/12/99............ 4.969 445,000 442,470
Federal Home Loan Mortgage
Corp., due 8/23/99............ 5.040 325,000 322,639
Federal National Mortgage
Assoc., due 7/19/99........... 4.928 300,000 299,273
Federal National Mortgage
Assoc., due 7/20/99........... 4.918 185,000 184,528
-----------
Total United States Government
Agencies........................ 4,821,984
-----------
Total Short-Term Investments....... 6,056,984
OTHER ASSETS LESS LIABILITIES (2.82%)
- -----------------------------------------
Cash, receivables and prepaid
expense, less liabilities....... 175,496
-----------
Total Net Assets (100.00%)......... $ 6,232,480
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (94.28%)
- ---------------------------
CHEMICALS AND ALLIED PRODUCTS (11.51%)
Bristol-Myers Squibb Co............... 27,105 $ 1,909,208
DuPont (EI) de Nemours & Co........... 18,211 1,244,039
Lilly & Company....................... 11,358 813,517
Merck & Co., Inc...................... 22,248 1,646,352
Pfizer, Inc........................... 8,423 924,424
Procter & Gamble Co................... 15,655 1,397,209
Union Carbide Corp.................... 22,347 1,089,416
-----------
9,024,165
COMMUNICATIONS (7.85%)
AT & T Corp........................... 28,766 1,605,502
Bell Atlantic Corp.................... 24,555 1,605,283
CBS Corp.............................. 38,792 1,685,028
MCI Worldcom, Inc..................... 14,585(1) 1,257,956
-----------
6,153,769
COMPUTER PROGRAMMING & SOFTWARE (1.66%)
Microsoft Corp........................ 14,434(1) 1,301,766
DEPOSITORY INSTITUTIONS (3.13%)
BankAmerica Corp...................... 15,324 1,123,441
J. P. Morgan & Co..................... 9,449 1,327,584
-----------
2,451,025
EATING AND DRINKING PLACES (2.04%)
McDonald's Corp....................... 38,767 1,601,562
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (10.33%)
Cisco Systems, Inc.................... 23,062(1) 1,487,499
General Electric Co................... 16,968 1,917,384
Intel Corporation..................... 16,286 969,017
Lucent Technologies, Inc.............. 37,525 2,530,592
Raytheon Company...................... 17,318 1,192,777
-----------
8,097,269
FOOD AND KINDRED PRODUCTS (4.32%)
Coca-Cola Co. (The)................... 18,486 1,155,375
PepsiCo, Inc.......................... 30,377 1,175,210
Philip Morris Companies, Inc.......... 26,219 1,053,676
-----------
3,384,261
GENERAL MERCHANDISE STORES (4.32%)
Sears, Roebuck & Co................... 19,762 880,644
Wal-Mart Stores, Inc.................. 51,917 2,504,995
-----------
3,385,639
</TABLE>
30
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
HEALTH SERVICES (2.14%)
<S> <C> <C>
Johnson & Johnson..................... 17,157 $ 1,681,386
INDUSTRIAL MACHINERY AND EQUIPMENT (7.20%)
Caterpillar, Inc...................... 22,886 1,373,160
Hewlett-Packard Co.................... 13,680 1,374,840
International Business Machines
Corp................................. 22,429 2,898,948
-----------
5,646,948
INSTRUMENTS AND RELATED PRODUCTS (1.23%)
Eastman Kodak Co...................... 14,218 963,270
INSURANCE CARRIERS (3.83%)
Allstate Corp......................... 28,937 1,038,115
American International Group, Inc..... 16,793 1,965,831
-----------
3,003,946
MOTION PICTURES (1.45%)
Disney (Walt) Co...................... 36,848 1,135,379
NONDEPOSITORY INSTITUTIONS (1.75%)
Citigroup, Inc........................ 28,865 1,371,088
PAPER AND ALLIED PRODUCTS (2.77%)
International Paper Co................ 21,808 1,101,304
Minnesota Mining & Manufacturing
Co................................... 12,353 1,073,939
-----------
2,175,243
PETROLEUM AND COAL PRODUCTS (10.34%)
BP Amoco Corp......................... 14,977 1,625,005
Chevron Corp.......................... 13,590 1,293,598
Exxon Corp............................ 17,357 1,338,659
Mobil Corp............................ 14,327 1,418,373
Royal Dutch Petroleum Co.............. 21,176 1,275,854
Texaco, Inc........................... 18,535 1,158,438
-----------
8,109,927
PRIMARY METAL INDUSTRIES (2.28%)
Aluminum Company of America........... 28,879 1,786,888
RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (1.47%)
Goodyear Tire & Rubber Co............. 19,544 1,149,432
SECURITY AND COMMODITY BROKERS (5.11%)
American Express Co................... 14,326 1,864,171
Morgan Stanley, Dean Witter, Discover
& Co................................. 20,884 2,140,610
-----------
4,004,781
</TABLE>
31
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
TRANSPORTATION EQUIPMENT (9.55%)
<S> <C> <C>
Allied-Signal, Inc.................... 28,778 $ 1,813,014
Boeing Co. (The)...................... 22,645 1,000,626
Ford Motor Co......................... 26,379 1,488,765
General Motors Corp................... 18,456 1,218,096
United Technologies Corp.............. 27,457 1,968,323
-----------
7,488,824
-----------
Total Common Stocks..................... 73,916,568
SHORT-TERM INVESTMENTS (5.58%)
- -----------------------------------
MONEY MARKET MUTUAL FUND (0.63%)
Provident Treasury Fund, Class A...... 496,920 496,920
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
UNITED STATES GOVERNMENT AGENCIES (4.95%)
Federal Home Loan Mortgage Corp., due
7/29/99.............................. $1,170,000 1,165,457
Federal Home Loan Mortgage Corp., due
7/26/99.............................. 2,725,000 2,715,575
-----------
3,881,032
-----------
Total Short-Term Investments............ 4,377,952
-----------
Total Investments (99.86%).............. 78,294,520
OTHER ASSETS LESS LIABILITIES (0.14%)
- -----------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... 106,104
-----------
Total Net Assets (100.00%).............. $78,400,624
-----------
-----------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
32
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
EquiTrust Variable Insurance Series Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a no-load, open-end
diversified management investment company and operates in the mutual fund
industry. Prior to May 1, 1998, the Fund was named FBL Variable Insurance Series
Fund. The Fund currently consists of six portfolios (known as the Value Growth,
High Grade Bond, High Yield Bond, Managed, Money Market and Blue Chip
Portfolios). Shares of the Fund are sold only to certain life insurance
companies' separate accounts to fund the benefits under variable insurance
contracts issued by such life insurance companies, including Farm Bureau Life
Insurance Company (see NOTE 3).
All portfolios, other than the Money Market Portfolio, value their common
stocks, preferred stocks, corporate bonds, United States Treasury obligations
and mortgage-backed securities that are traded on any national exchange at the
last sale price on the day of valuation or, lacking any sales, at the mean
between the closing bid and asked prices. Investments 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. Investments for which market quotations are not readily
available are valued at fair value as determined in good faith by the Fund's
Board of Trustees. Short-term investments (including repurchase agreements) are
valued at market value, except that obligations maturing in 60 days or less are
valued using the amortized cost method of valuation described below.
The Money Market Portfolio values investments at amortized cost, which
approximates market value. Under the amortized cost method, a security is valued
at its cost on the date of purchase and thereafter is adjusted to reflect a
constant amortization to maturity of the difference between the principal amount
due at maturity and the cost of the investment to the portfolio.
The value of the underlying securities serving to collateralize repurchase
agreements is marked to market daily. Should the value of the underlying
securities decline, the seller would be required to provide the applicable
portfolio with additional securities, so that the aggregate value of the
underlying securities was at least equal to the repurchase price. If a seller of
a repurchase agreement were to default, the affected portfolio might experience
losses in enforcing its rights. To minimize this risk, the investment adviser
(under the supervision of the Board of Trustees) will monitor the
creditworthiness of the seller of the repurchase agreement and must find such
creditworthiness satisfactory before a portfolio may enter into the repurchase
agreement.
The Fund records investment transactions generally one day after the trade
date. The identified cost basis has been used in determining the net realized
gain or loss from investment transactions and unrealized appreciation or
depreciation on investments. Dividend income is recorded on the ex-dividend date
and interest is recognized on an accrual basis. Discounts and premiums on
investments purchased are amortized over the life of the respective investments.
Dividends and distributions to shareholders are recorded on the record date.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
33
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FEDERAL INCOME TAXES
No provision for federal income taxes is considered necessary because the
Fund is qualified as a "regulated investment company" under the Internal Revenue
Code and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments is
the same for both federal income tax and financial reporting purposes.
At June 30, 1999, the Value Growth and the Managed Portfolios had net
capital loss carryforwards of $11,071,000 and $4,303,000, respectively, which
expire in 2006. In addition, the Blue Chip Portfolio had a net capital loss
carryforward of $169,000, which expires in 2007.
3. MANAGEMENT CONTRACT AND TRANSACTIONS WITH AFFILIATES
The Fund has entered into agreements with EquiTrust Investment Management
Services, Inc. ("EquiTrust Investment") relating to the management of the
portfolios and the investment of their assets. Pursuant to these agreements,
fees paid to EquiTrust Investment are as follows: (1) annual investment advisory
and management fees, which are based on each portfolio's daily net assets as
follows: Value Growth Portfolio -- 0.45%; High Grade Bond Portfolio -- 0.30%;
High Yield Bond Portfolio -- 0.45%; Managed Portfolio -- 0.45%; Money Market
Portfolio -- 0.25% ; and Blue Chip Portfolio -- 0.20%, and (2) accounting fees,
which are based on each portfolio's daily net assets at an annual rate of 0.05%,
with a maximum per portfolio annual expense of $30,000.
The Fund has entered into an agreement with EquiTrust Investment whereby
EquiTrust Investment also serves as the principal underwriter and distributor of
the Fund's shares and as the Fund's shareholder service, transfer and dividend
disbursing agent. There are no additional fees associated with these services.
EquiTrust Investment has agreed to reimburse the portfolios annually for
total expenses, excluding brokerage, interest, taxes and extraordinary expenses
in excess of 1.50% of each portfolio's average daily net assets. The amount
reimbursed, however, shall not exceed the amount of the investment advisory and
management fee paid by the portfolio for such period. During the current period,
EquiTrust Investment further agreed to reimburse any portfolio, to the extent
that annual operating expenses, including the investment advisory fee, exceed
0.65% for the period ended June 30, 1999. For the period ended June 30, 1999,
the Fund's net expenses did not exceed the reimbursement thresholds and
accordingly, no expenses were reimbursed by EquiTrust Investment.
Certain officers and trustees of the Fund are also officers of EquiTrust
Investment and its affiliate, Farm Bureau Life Insurance Company. At June 30,
1999, all of the shares of each portfolio are owned by affiliates of Farm Bureau
Life Insurance Company, the Farm Bureau Life Variable Account, Farm Bureau Life
Annuity Account, EquiTrust Life Variable Account and EquiTrust Life Annuity
Account except for 5,340 shares of the High Grade Bond Portfolio, 5,205 shares
of the High Yield Bond Portfolio, 14 shares of the Money Market Portfolio, and
12 shares of the Blue Chip Portfolio, owned by American Equity Investment Life
Insurance Company, and its separate account, American Equity Variable Annuity.
4. EXPENSE OFFSET ARRANGEMENTS
The Fund and other Funds managed by EquiTrust Investment have an agreement
with the custodian bank to indirectly pay a portion of the custodian's fees
through credits earned by the Funds' cash on deposit with the bank. Such deposit
agreement is an alternative to overnight investments.
34
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest authorized
with no par value. Net assets as of June 30, 1999, consisted of:
<TABLE>
<CAPTION>
PORTFOLIO
---------------------------------------------------------------------------
VALUE HIGH GRADE HIGH YIELD MONEY BLUE
GROWTH BOND BOND MANAGED MARKET CHIP
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paid-in capital.......... $59,304,450 $13,076,184 $18,791,458 $62,474,032 $6,232,480 $53,267,934
Accumulated undistributed
net investment income... 413,575 1,454,881 513,915
Accumulated undistributed
net realized gain (loss)
from investment
transactions............ (11,070,735) 25,343 107,135 (4,303,459) (169,308)
Net unrealized
appreciation
(depreciation) of
investments............. 217,340 (250,012) (503,171) (1,395,268) 24,788,083
----------- ----------- ----------- ----------- ---------- -----------
Net Assets........... $48,864,630 $12,851,515 $18,395,422 $58,230,186 $6,232,480 $78,400,624
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
Transactions in shares of beneficial interest for each portfolio were as
follows:
<TABLE>
<CAPTION>
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS AND NET INCREASE
SHARES SOLD DISTRIBUTIONS SHARES REDEEMED (DECREASE)
----------------------- ------------------- ----------------------- ----------------------
PORTFOLIO SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------- ---------- ----------- ------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period ended June 30, 1999:
Value Growth............. 479,934 $ 4,497,306 108,176 $ 976,830 140,084 $ 1,309,189 448,026 $ 4,164,947
High Grade Bond.......... 309,907 3,073,995 38,153 393,196 38,007 377,043 310,053 3,090,148
High Yield Bond.......... 340,947 3,390,406 70,168 699,095 71,850 712,942 339,265 3,376,559
Managed.................. 237,934 2,632,450 241,742 2,634,990 270,006 2,992,397 209,670 2,275,043
Money Market............. 10,512,995 10,512,995 85,888 85,888 10,408,577 10,408,577 190,306 190,306
Blue Chip................ 242,173 9,492,932 21,903 816,323 56,342 2,240,889 207,734 8,068,366
Year ended December 31, 1998:
Value Growth............. 1,248,568 $14,421,953 3,209 $ 33,533 218,101 $ 2,318,550 1,033,676 $12,136,936
High Grade Bond.......... 481,508 4,946,472 48,672 494,606 55,393 619,307 474,787 4,821,771
High Yield Bond.......... 705,166 7,191,220 83,377 863,126 91,576 940,287 696,967 7,114,059
Managed.................. 1,561,330 19,307,046 2,618 31,340 215,024 2,560,710 1,348,924 16,777,676
Money Market............. 25,209,142 25,209,142 195,767 195,767 25,440,252 25,440,252 (35,343) (35,343)
Blue Chip................ 667,935 23,052,633 160 5,578 45,543 1,551,209 622,552 21,507,002
</TABLE>
6. INVESTMENT TRANSACTIONS
For the period ended June 30, 1999, the cost of investment securities
purchased and proceeds from investment securities sold (not including short-term
investments and U.S. Government securities) by portfolio, was as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Value Growth............................ $50,978,255 $44,382,493
High Grade Bond......................... 3,076,078 1,099,182
High Yield Bond......................... 6,607,575 2,340,438
Managed................................. 35,777,392 8,829,590
Blue Chip............................... 10,066,786 192,653
</TABLE>
35
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS (CONTINUED)
At June 30, 1999, net unrealized appreciation (depreciation) of investments
by portfolio was composed of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
----------------------------- APPRECIATION (DEPRECIATION)
PORTFOLIO APPRECIATION DEPRECIATION OF INVESTMENTS
- ----------------------------------- ------------- ------------- ----------------------------
<S> <C> <C> <C>
Value Growth....................... $ 1,698,666 $ (1,481,326) $ 217,340
High Grade Bond.................... 74,431 (324,443) (250,012)
High Yield Bond.................... 140,884 (644,055) (503,171)
Managed............................ 1,990,670 (3,385,938) (1,395,268)
Blue Chip.......................... 25,059,710 (271,627) 24,788,083
</TABLE>
7. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income for the following portfolios are
declared daily and were payable on the last business day of the month as
follows:
<TABLE>
<CAPTION>
PORTFOLIO
-------------------------------------
HIGH HIGH
GRADE YIELD MONEY
PAYABLE DATE BOND BOND MARKET
- ----------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
January 30, 1999................... $0.0506 $0.0516 $ 0.0038
February 27, 1999.................. 0.0470 0.0471 0.0029
March 31, 1999..................... 0.0603 0.0745 0.0037
April 30, 1999..................... 0.0499 0.0562 0.0035
May 29, 1999....................... 0.0425 0.0509 0.0033
June 30, 1999...................... 0.0541 0.0722 0.0035
----------- ----------- ---------
Total dividends per share.......... $0.3044 $0.3525 $ 0.0207
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
In addition, dividends and distributions to shareholders from net investment
income and net realized gain on investment transactions were paid during the
period ended June 30, 1999, for the following portfolios:
ORDINARY INCOME DIVIDENDS:
<TABLE>
<CAPTION>
DIVIDEND
DECLARATION RECORD PAYABLE AMOUNT
PORTFOLIO DATE DATE DATE PER SHARE
- ------------------------------ ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Value Growth.................. 01/20/99 01/20/99 01/20/99 $0.2154
Managed....................... 01/20/99 01/20/99 01/20/99 0.5329
Blue Chip..................... 01/20/99 01/20/99 01/20/99 0.4902
</TABLE>
36
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS (CONTINUED)
CAPITAL GAINS DISTRIBUTIONS:
<TABLE>
<CAPTION>
DIVIDEND
DECLARATION RECORD PAYABLE AMOUNT
PORTFOLIO DATE DATE DATE PER SHARE
- ------------------------------ ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
High Grade Bond............... 01/20/99 01/20/99 01/20/99 $0.0343
High Yield Bond............... 01/20/99 01/20/99 01/20/99 0.0589
</TABLE>
The capital gains distributions related to the High Yield Portfolio include
net short-term realized gains of $3,729 ($0.0024 per share) that are taxable to
shareholders as ordinary income dividends.
37
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS
PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
---------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 9.50 $ 12.58 $ 13.13 $ 12.31 $ 10.39
Income From Investment Operations
Net investment income.......... 0.08 0.22 0.28 0.35 0.55
Net gains (losses) on
securities
(both realized and
unrealized)................... 0.54 (3.29) 0.55 1.82 2.13
------- ------- ------- ------- -------
Total from investment
operations...................... 0.62 (3.07) 0.83 2.17 2.68
------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.22) (0.01) (0.28) (0.30) (0.50)
Distributions (from capital
gains)........................ (0.95) (1.05) (0.26)
Distributions in excess of net
realized gains................ (0.15)
------- ------- ------- ------- -------
Total distributions.............. (0.22) (0.01) (1.38) (1.35) (0.76)
------- ------- ------- ------- -------
Net asset value, end of period..... $ 9.90 $ 9.50 $ 12.58 $ 13.13 $ 12.31
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. 6.70% (24.43)% 6.30% 17.65% 25.87%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $48,865 $42,664 $43,466 $27,188 $16,295
Ratio of total expenses to
average net assets.............. 0.56%(2) 0.56% 0.55% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.56%(2) 0.55%
Ratio of net investment income to
average net assets.............. 1.86%(2) 2.17% 2.43% 2.68% 4.78%
Portfolio turnover rate.......... 210%(2) 230% 118% 72% 98%
Information assuming no voluntary
reimbursement or waiver by
EquiTrust Investment of excess
operating
expenses (see NOTE 3):
Per share net investment
income.......................... $ 0.27 $ 0.33 $ 0.53
Ratio of expenses to average net
assets.......................... 0.58% 0.69% 0.72%
Amount reimbursed................ $14,093 $29,686 $22,306
</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 and is not annualized for periods
less than one year.
(2) Computed on an annualized basis.
SEE ACCOMPANYING NOTES.
38
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ------------------------------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.19 $ 10.11 $ 9.83 $ 9.98 $ 9.44 $ 10.17 $ 10.21 $ 9.91 $ 9.69 $ 9.32
Income From Investment Operations
Net investment income.......... 0.30 0.66 0.69 0.72 0.77 0.35 0.71 0.79 0.84 0.87
Net gains (losses) on
securities
(both realized and
unrealized)................... (0.40) 0.08 0.28 (0.15) 0.54 (0.33) (0.03) 0.36 0.33 0.49
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
Total from investment
operations...................... (0.10) 0.74 0.97 0.57 1.31 0.02 0.68 1.15 1.17 1.36
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.30) (0.66) (0.69) (0.72) (0.77) (0.35) (0.71) (0.79) (0.84) (0.87)
Distributions (from capital
gains)........................ (0.03) (0.06) (0.01) (0.06) (0.11) (0.12)
Distributions in excess of net
realized gains................
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
Total distributions.............. (0.33) (0.66) (0.69) (0.72) (0.77) (0.41) (0.72) (0.85) (0.95) (0.99)
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
Net asset value, end of period..... $ 9.76 $ 10.19 $10.11 $ 9.83 $ 9.98 $ 9.78 $ 10.17 $10.21 $ 9.91 $ 9.69
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
------- ------- ------ ------ ------ ------- ------- ------ ------- -------
Total Return:
Total investment return based on
net asset value (1)............. (0.91)% 7.51% 10.24% 5.94% 14.26% 0.22% 6.88% 12.07% 12.65% 15.15%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $12,852 $10,255 $5,374 $3,535 $3,208 $18,395 $15,680 $8,623 $ 5,929 $ 4,810
Ratio of total expenses to
average net assets.............. 0.46%(2) 0.50% 0.52% 0.55% 0.55% 0.58%(2) 0.61% 0.57% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.45%(2) 0.46% 0.58%(2) 0.58%
Ratio of net investment income to
average net assets.............. 6.18%(2) 6.44% 6.94% 7.22% 7.81% 7.17%(2) 6.92% 7.74% 8.47% 8.96%
Portfolio turnover rate.......... 27%(2) 46% 31% 32% 14% 30%(2) 43% 35% 30% 32%
Information assuming no voluntary
reimbursement or waiver by
EquiTrust Investment of excess
operating
expenses (see NOTE 3):
Per share net investment
income.......................... $ 0.68 $ 0.70 $ 0.74 $ 0.78 $ 0.81 $ 0.84
Ratio of expenses to average net
assets.......................... 0.57% 0.80% 0.84% 0.65% 0.87% 0.88%
Amount reimbursed................ $2,294 $8,233 $8,255 $5,819 $17,094 $15,105
</TABLE>
39
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
---------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 11.45 $ 12.55 $ 12.40 $ 11.71 $ 9.93
Income From Investment Operations
Net investment income.......... 0.28 0.53 0.53 0.60 0.65
Net gains (losses) on
securities
(both realized and
unrealized)................... 0.13 (1.63) 0.79 1.44 1.90
------- ------- ------- ------- -------
Total from investment
operations...................... 0.41 (1.10) 1.32 2.04 2.55
------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.53) (0.52) (0.50) (0.59)
Distributions (from capital
gains)........................ (0.65) (0.85) (0.18)
Distributions in excess of net
realized gains................
------- ------- ------- ------- -------
Total distributions.............. (0.53) (1.17) (1.35) (0.77)
------- ------- ------- ------- -------
Net asset value, end of period..... $ 11.33 $ 11.45 $ 12.55 $ 12.40 $ 11.71
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. 3.79% (8.71)% 10.67% 17.39% 25.69%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $58,230 $56,434 $44,949 $26,022 $14,487
Ratio of total expenses to
average net assets.............. 0.55%(2) 0.55% 0.54% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.55%(2) 0.54%
Ratio of net investment income to
average net assets.............. 5.15%(2) 4.97% 4.94% 4.73% 5.80%
Portfolio turnover rate.......... 38%(2) 74% 52% 82% 48%
Information assuming no voluntary
reimbursement
or waiver by EquiTrust Investment
of excess operating
expenses (see NOTE 3):
Per share net investment
income.......................... $ 0.52 $ 0.57 $ 0.62
Ratio of expenses to average net
assets.......................... 0.60% 0.75% 0.77%
Amount reimbursed................ $17,771 $38,874 $26,008
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations
Net investment income.......... 0.02 0.05 0.05 0.05 0.05
Net gains (losses) on
securities
(both realized and
unrealized)...................
----- ------ ------ ------ ------
Total from investment
operations...................... 0.02 0.05 0.05 0.05 0.05
----- ------ ------ ------ ------
Less Distributions
Dividends (from net investment
income)....................... (0.02) (0.05) (0.05) (0.05) (0.05)
Distributions (from capital
gains)........................
Distributions in excess of net
realized gains................
----- ------ ------ ------ ------
Total distributions.............. (0.02) (0.05) (0.05) (0.05) (0.05)
----- ------ ------ ------ ------
Net asset value, end of period..... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ------ ------ ------ ------
----- ------ ------ ------ ------
Total Return:
Total investment return based on
net asset value (1)............. 2.15% 5.00% 5.07% 4.90% 5.47%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $6,232 $6,042 $6,078 $3,819 $3,159
Ratio of total expenses to
average net assets.............. 0.50%(2) 0.52% 0.48% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.49%(2) 0.45%
Ratio of net investment income to
average net assets.............. 4.15%(2) 4.67% 4.65% 4.58% 5.27%
Portfolio turnover rate.......... 0%(2) 0% 0% 0% 0%
Information assuming no voluntary
reimbursement
or waiver by EquiTrust Investment
of excess operating
expenses (see NOTE 3):
Per share net investment
income.......................... $ 0.05 $ 0.04 $ 0.05
Ratio of expenses to average net
assets.......................... 0.55% 0.82% 0.90%
Amount reimbursed................ $2,912 $9,569 $9,816
<CAPTION>
BLUE CHIP
PORTFOLIO
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $36.87 $ 31.01 $ 24.68 $ 20.70 $ 15.82
Income From Investment Operations
Net investment income.......... 0.27 0.49 0.42 0.45 0.39
Net gains (losses) on
securities
(both realized and
unrealized)................... 5.55 5.37 6.34 3.99 4.80
------ ------- ------- ------- -------
Total from investment
operations...................... 5.82 5.86 6.76 4.44 5.19
------ ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.49) (0.42) (0.34) (0.31)
Distributions (from capital
gains)........................ (0.01) (0.12)
Distributions in excess of net
realized gains................
------ ------- ------- ------- -------
Total distributions.............. (0.49) (0.43) (0.46) (0.31)
------ ------- ------- ------- -------
Net asset value, end of period..... $42.20 $ 36.87 $ 31.01 $ 24.68 $ 20.70
------ ------- ------- ------- -------
------ ------- ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. 15.96% 18.91% 27.41% 21.43% 32.81%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $78,401 $60,850 $31,865 $14,493 $ 6,665
Ratio of total expenses to
average net assets.............. 0.29%(2) 0.30% 0.33% 0.48% 0.55%
Ratio of net expenses to average
net assets...................... 0.29%(2) 0.29%
Ratio of net investment income to
average net assets.............. 1.50%(2) 1.72% 1.83% 1.92% 2.07%
Portfolio turnover rate.......... 1%(2) 12% 3% 2% 1%
Information assuming no voluntary
reimbursement
or waiver by EquiTrust Investment
of excess operating
expenses (see NOTE 3):
Per share net investment
income.......................... $ 0.38
Ratio of expenses to average net
assets.......................... 0.59%
Amount reimbursed................ $ 1,952
</TABLE>
41
<PAGE>
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