Farm Bureau
Financial Services
================================================================================
FBL VARIABLE INSURANCE
SERIES FUND
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1997
INVESTMENT MANAGER AND
PRINCIPAL UNDERWRITER
FBL INVESTMENT ADVISORY
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)
FARM BUREAU LIFE INSURANCE COMPANY [LOGO]
FARM BUREAU MUTUAL FUNDS FARM BUREAU
FINANCIAL SERVICES
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266 LIVING BESIDE YOU. WORKING FOR YOU.
737-525 (97)
This report is not to be distributed
unless preceded or accompanied by a
prospectus.
<PAGE>
PRESIDENT'S LETTER
Dear Shareholder:
For the recent year ended December 31, 1997, the total return of the S&P
500 was up 33.4%. This is a phenomenal amount by historic standards, given the
37.5% and 23.0% of the prior two years. The Dow Jones Industrial Average (DJIA)
has also followed a very similar path over the past three years, although most
of its 1997 gains were realized by just past mid-year. The DJIA hit a high of
8259 on August 6, and spent the duration of the year trading in a band from
roughly 7500 to 8000, finishing the year at 7908.
The year also saw the bond market producing substantial total returns as
the benchmark 30-year Treasury rallied from a year-end 1996 yield of 6.64% to
5.92% by the end of 1997. (A bond's yield moves in the opposite direction from
its price.) During the first quarter, yields rose over 7% as investors focused
on the rapid amount of employment growth. But as the year progressed, that same
employment growth failed to translate into visible signs of inflation. Later in
the year, growing concern over the collapse of several Asian currencies fueled
even larger gains in bond prices.
The Federal Reserve has been relatively inactive since its one-quarter of
1% rate hike in March, and accordingly, the overall yield curve has flattened
substantially. At the beginning of the year, the spread between 3-month bills
and 30-year bonds was 1.45%. By year-end, that spread had collapsed to 0.58%.
The seeming paradox of strong growth and benign inflation also continued
during 1997. Even without the disinflationary, or possibly even deflationary,
effects of the Asian crisis, domestic inflation has been very subdued. As
measured by the Consumer Price Index, inflation was just 1.83% for the 12 months
through November, 1997. This low level of inflation has surprised many
forecasters since capacity utilization and unemployment point towards
constraint. After all, the service sector comprises a much larger portion of our
economic growth compared to 20 years ago, and cheap Asian goods will have much
less impact on this portion of our economy.
The equity and fixed-income markets remain somewhat at odds. The bond
market appears to be priced for continued disinflation, yet the stock market is
priced for rapid profit growth. If the situation in Asia leads to further
disinflation, or deflation, in the U.S., corporate profits will likely be
impaired. While this may be good for bond prices, it may well be harmful to
stock prices. If the impact from Asia is more favorable and the U.S. economy
continues to do well, bond prices are vulnerable.
The fact is, either scenario is possible. If policy errors are made, the
Asian slowdown could become a global event. If handled properly, it may prove to
be a more localized phenomenon and less harmful to the U.S. Accordingly, we urge
investors to focus their asset allocation decisions on longer-term historic
norms and not on the shorter-term dynamics we have observed over the past few
years. The crisis in Asia is a reminder that risk is the constant companion of
return. Investors need to evaluate both their own tolerance for risk and the
fundamental risk characteristics of the asset classes in which they invest.
2
<PAGE>
For the actively managed FBL Variable Insurance Series Fund Portfolios
(those other than the passive Blue Chip Portfolio) we constantly assess the
securities held to ensure that valuations are reasonable. In so doing, we seek
to produce attractive risk-adjusted performance and create lasting value for our
shareholders. The following paragraphs describe how we are currently striking
balance between risk and potential return for the various Fund Portfolios:
VALUE GROWTH: The longest bull market in history roared on last year, and
to the surprise of stock market pundits, the year turned out to be much better
than almost anyone expected. Of course, even the most daring market
prognosticators did not stick their necks out and say, "Standard & Poor's
Composite Index of 500 stocks will rise 33.4% over the next twelve months."
Much of the rise in the overall stock market in the first half of the year
was driven by technology stocks, which the Portfolio did not own in a meaningful
way. The Value Growth Portfolio did not participate in the recent strength of
the S&P 500 and large capitalization stocks. A key reason that we did not fully
participate in the market's run-up is because of our long-stated strategy of
low-risk investing. When matched against other portfolios, our Portfolio has
historically turned in its best comparative performance when markets fall or are
flat. And according to SALOMON SMITH BARNEY RESEARCH, the large capitalization
stocks did much better than the smaller to mid-capitalization stocks.
Small cap stocks (largely what the Value Growth Portfolio owns) are
generally considered likely to provide higher returns than large cap stocks over
periods of time, because small growth companies can sometimes grow into mighty
WalMarts and provide spectacular returns. Our investments are almost evenly
divided between stocks with market capitalization above and below a billion
dollars. The range of our investments makes it difficult for those who track
portfolios to pigeon hole the Value Growth Portfolio. We continue to carry cash
reserves of approximately 30% and see our primary role as preserving the capital
you have entrusted to us.
We continue to believe that the growing disparity of performance between
the large cap and small cap market sectors will reverse and our patience will be
rewarded. Our equity holdings in the Value Growth Portfolio are still valued
well below both the market and their intrinsic business value. Many of our
smaller companies might prove to be attractive acquisitions in this
merger-dominated market. We do not think that is the case with the "over-valued"
and "over-owned" S&P 500. In fact, according to a recent report in BERNSTEIN
RESEARCH: "The risk of broad-based investor disappointments has rarely been
higher."
We are not economists, but inflation is low and the economy is growing at a
modest rate. We are comfortable with what we own as we have a mix of good
businesses at reasonable prices and out-of-favor stocks that will respond to any
favorable news. We know we cannot predict short-, or even medium-term market
movements, but we do know that if we are investing for our retirement or for our
children's education, and if we can ignore the daily reports of boom or bust, we
should be able to reach our goals over the long-term.
Our goal for 1998 is to continue to seek out under-valued securities and
increase the number of holdings from 25 to approximately 40. This should improve
our risk profile. We intend to be invested in stocks that sell at a significant
discount to their intrinsic business value. The FORBES February 9, 1998, issue
contains an article entitled "The Wallflower Strategy," in which the Value
Growth Portfolio of FBL Series Fund, Inc. (similar to the Variable Insurance
Series Value Growth Portfolio) was spotlighted as one of the eight best buys in
small-cap value funds as of December 30, 1997. Selections were based on expenses
and risk-adjusted performance of portfolios with at least five years' experience
and $50 million in assets.
3
<PAGE>
The article does a credible job of identifying the characteristics of
growth and value philosophies, including the statement, "When growth stocks
produce disappointment, they get hammered for both the disappointment and for
losing their growth aura. If they do well, it's only what you have already paid
for. With value stocks, most surprises are on the upside because nobody expects
much from them." We will continue to adhere to our value strategy in an
over-valued market.
HIGH GRADE BOND: U.S. Treasury yields were noticeably lower at year-end.
For example, the 2-year, 10-year and 30-year Treasury issues yielded 5.87%,
6.42% and 6.64%, respectively, as of December 31, 1996, and 5.64%, 5.74% and
5.92% as of December 31, 1997.
During the twelve-month period, the Portfolio slightly increased its
effective duration. This increase will make its total return more sensitive to
overall changes in interest rates. However, our effective duration and
sensitivity to overall changes in interest rates is still lower than more
aggressive high grade bond portfolios. Because of this, our future returns
should continue to lag those of more aggressive portfolios in both up and down
markets.
HIGH YIELD BOND: During the past twelve months, the high yield bond market
outperformed the high grade corporate bond market. Fundamental and technical
factors both contributed favorably to this market's performance during this
period. On the fundamental side, an overall healthy economy and improvement in
overall market credit quality resulted in a very low rate of actual defaults in
the high yield market. On the technical side, strong demand for high yield
issues allowed the market to easily absorb new issuance.
At the present time, the yield pick-up on high yield issues is near
historically low levels, which means there is little cushion to absorb any
potential negative surprises that may occur in this market. Because of this, we
feel a more aggressive stance is not prudent at this time, and the composition
of the Portfolio will probably not be dramatically altered going forward.
MANAGED: The Managed Portfolio continues to seek securities offering high
income with modest growth potential which is evidenced by its high ratio of net
income to average net assets, or yield, as compared to the S&P 500 for the last
six years:
MANAGED S&P 500
------- -------
1997 4.94% 2.11%
1996 4.73% 2.54%
1995 5.80% 2.91%
1994 6.23% 2.82%
1993 6.23% 2.83%
1992 7.00% 3.03%
This Portfolio uses a value philosophy, but concentrates on securities that
produce an income stream twice that of the S&P 500, which is currently yielding
a mere 1.6%. We continue to achieve higher income by investing in a mixture of
high dividend-paying stocks, preferreds, convertibles and corporate bonds.
We have added to our convertible securities in the energy area. The recent
sell-off in energy stocks, due to the drop in the price of oil, does not
accurately reflect the world's long-term demand for oil and gas. We have taken
advantage of these depressed prices and purchased convertibles in the oil
service sector, notably Parker Drilling, EVI, Inc., Diamond Offshore Drilling
and Halter Marine. The income yields of 3 - 6% on these convertibles should
afford reasonable downside protection, while giving us an opportunity to
participate on the upside as the current negativism hanging over the industry
dissipates. We remain alert for opportunities.
4
<PAGE>
The February 2, 1998, BUSINESS WEEK article, entitled "The Best Mutual
Funds," lists the Managed Portfolio of FBL Series Fund, Inc. (similar to the
Variable Insurance Series Managed Portfolio) as one of the equity mutual funds
having made the "A" list for delivering the best risk-adjusted returns over the
past five years (as of December 31, 1997). The article:
* Recognizes that the market has become riskier and highlights those
funds that take management of volatility, as well as performance, into
consideration. This approach is preferred as compared to simply
considering returns.
* Contains a list featuring all equity funds grouped together to include
domestic hybrid (Managed is classified this way), as well as small-
and large-cap stocks. It is important to keep in mind that the
five-year time period reviewed was one from a very strong equity
market. We are pleased that the media and investing public are
embracing the concept of risk adjusted returns.
MONEY MARKET: Money market rates have remained stable due to the inactivity
by the Federal Open Market Committee (FOMC) on the Fed funds rate. In March, the
rate was raised .25% to 5.50% because the FOMC felt the U.S. economy was very
strong and tending toward inflationary. However, inflationary measures during
the year were low, despite low unemployment and strong capacity utilization.
Spreads between long-term rates and short-term rates declined as long-term
investors bought bonds. The Portfolio continues to invest in commercial paper
from high-grade corporations, discount notes from federal agencies and U.S.
Treasury obligations with an average days to maturity of 30-60 days.
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, at all times,
remain substantially invested in common stocks of large companies. This
Portfolio 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.
/s/ Edward M. Wiederstein
EDWARD M. WIEDERSTEIN
PRESIDENT
February 18, 1998
5
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
VALUE GROWTH PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE VALUE GROWTH PORTFOLIO AND S&P 500
[GRAPH OMITTED]
Portfolio: Stock Index:
Value Growth Portfolio S&P 500 Stock Composite Index
1987 - $10,000 1987 - $10,000
1988 - $11,365 1988 - $11,681
1989 - $12,630 1989 - $15,359
1990 - $13,217 1990 - $14,872
1991 - $15,138 1991 - $19,415
1992 - $16,720 1992 - $20,905
1993 - $21,268 1993 - $22,993
1994 - $20,326 1994 - $23,294
1995 - $25,585 1995 - $32,014
1996 - $30,101 1996 - $39,399
1997 - $31,997 1997 - $52,558
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
Average Annual Total Return
1 Year 5 Year 10 Year
6.30% 13.86% 12.33%
For the twelve-month period ended December 31, 1997, the total return for
the Value Growth Portfolio was 6.30% compared to the 33.40% total return (income
and price appreciation) produced by the S&P 500 Stock Composite Index. We are
disappointed in the relative and absolute performance of the Portfolio, as its
returns were diminished by the holding of cash reserves, which were 27.6% at
December 31, 1996, and remained relatively high during the year. Also, the
disappointing performance of Pall Corp, Reliance Acceptance, Citizens Utilities
and Agnico Eagle Mines, Ltd. restrained performance. The Value Growth Portfolio
remained heavily weighted in smaller capitalization stocks which have been
somewhat left behind by the recent market advance. We continue to believe that
both the fundamental financial characteristics of the Portfolio differ
significantly from the popular stock market indices, and patient investors who
own stocks which sell at a discount to their intrinsic business value will be
amply rewarded over time.
6
<PAGE>
HIGH GRADE BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
HIGH GRADE BOND PORTFOLIO AND LEHMAN BROTHERS MUTUAL FUND AGGREGATE INDEX
[GRAPH OMITTED]
Portfolio: Stock Index:
High Grade Bond Portfolio Lehman Brothers Mutual Fund Aggregate Index
1987 - $10,000 1987 - $10,000
1988 - $10,708 1988 - $10,788
1989 - $12,072 1989 - $12,355
1990 - $13,141 1990 - $13,461
1991 - $15,298 1991 - $15,615
1992 - $16,583 1992 - $16,774
1993 - $18,032 1993 - $18,409
1994 - $17,986 1994 - $17,871
1995 - $20,550 1995 - $21,172
1996 - $21,771 1996 - $21,941
1997 - $24,001 1997 - $24,058
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
Average Annual Total Return
1 Year 5 Year 10 Year
10.24% 7.68% 9.15%
During the twelve-month period ended December 31, 1997, the High Grade Bond
Portfolio outperformed the Lehman Brothers Mutual Fund Aggregate Index, as
reflected by the 10.24% total return produced by the Portfolio versus the 9.65%
return produced by the Index. The Portfolio maintains a larger percentage of its
investments in corporate bonds than the Index, and during the year, the high
grade corporate bond market tended to outperform the treasury and
mortgage-backed markets.
7
<PAGE>
HIGH YIELD BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO AND LEHMAN BROTHERS MUTUAL FUND CORPORATE/HIGH YIELD INDEX
[GRAPH OMITTED]
Portfolio: Stock Index:
High Yield Bond Portfolio Lehman Brothers Mutual Fund Corporate/High
Yield Index
1987 - $10,000 1987 - $10,000
1988 - $11,193 1988 - $10,955
1989 - $12,097 1989 - $12,327
1990 - $12,179 1990 - $13,004
1991 - $15,526 1991 - $15,689
1992 - $17,605 1992 - $17,154
1993 - $20,420 1993 - $19,357
1994 - $20,214 1994 - $18,689
1995 - $23,276 1995 - $22,750
1996 - $26,221 1996 - $23,819
1997 - $29,385 1997 - $26,377
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
Average Annual Total Return
1 Year 5 Year 10 Year
12.07% 10.79% 11.38%
For the twelve-month period ended December 31, 1997, the 12.07% total
return produced by the High Yield Bond Portfolio was greater than the 10.74%
return produced by the Lehman Brothers Mutual Fund Corporate/High Yield Index.
The Portfolio maintains a larger percentage of its investments in high yield
bonds than the Index, and during the year, the high yield market tended to
outperform the high grade corporate bond market.
8
<PAGE>
MANAGED PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
MANAGED PORTFOLIO AND S&P 500
[GRAPH OMITTED]
Portfolio: Stock Index:
Managed Portfolio S&P 500 Stock Composite Index
1987 - $10,000 1987 - $10,000
1988 - $10,794 1988 - $11,681
1989 - $11,750 1989 - $15,359
1990 - $12,707 1990 - $14,872
1991 - $14,320 1991 - $19,415
1992 - $16,570 1992 - $20,905
1993 - $20,334 1993 - $22,993
1994 - $19,326 1994 - $23,294
1995 - $24,291 1995 - $32,014
1996 - $28,514 1996 - $39,399
1997 - $31,557 1997 - $52,558
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
Average Annual Total Return
1 Year 5 Year 10 Year
10.67% 13.75% 12.18%
The Managed Portfolio is an asset allocation portfolio, with an emphasis on
income, and will not likely mirror any particular index (equity or fixed-income)
over time.
For the twelve-month period ended December 31, 1997, the total return for
the Managed Portfolio was 10.67% compared to the 33.40% total return (income and
price appreciation) produced by the S&P 500 Stock Composite Index. We are
disappointed with both the relative and absolute performance of the Portfolio,
as the Portfolio has emphasized securities producing current income and moderate
growth potential, maintaining a majority of its assets in convertible preferred
stocks.
The Managed Portfolio performance was held back by the disappointing
performance of the larger holdings: Citizen's Utilities, Pall Corp. and Agnico
Eagle. These companies all have attractive long-term outlooks, so we continue to
hold them as we believe we will be amply rewarded from their current levels. The
Portfolio's banking convertibles were exchanged into common stock that did not
produce income, so they were liquidated. The Kaman convertible preferred, Sea
Containers convertible preferred and Montana Power securities performed well in
addition to providing attractive income.
The Managed Portfolio will continue to seek out high income securities,
concentrating on convertibles in the energy and oil service sector. We believe
this is an attractive area for long term growth.
9
<PAGE>
BLUE CHIP PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
BLUE CHIP PORTFOLIO AND S&P 500
[GRAPH OMITTED]
Portfolio: Stock Index:
Blue Chip Portfolio S&P 500 Stock Composite Index
1990 - $10,000 1990 - $10,000
1990 - $10,902 1990 - $10,936
1991 - $13,976 1991 - $14,276
1992 - $15,427 1992 - $15,371
1993 - $17,643 1993 - $16,906
1994 - $18,110 1994 - $17,128
1995 - $24,052 1995 - $23,539
1996 - $29,206 1996 - $28,969
1997 - $37,211 1997 - $38,645
* THE PORTFOLIO COMMENCED OPERATIONS OCTOBER 15, 1990.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year *Life of Portfolio
27.41% 19.25% 19.53%
The Blue Chip Portfolio is designed to represent the large capitalization
sector of the domestic equity market and remains substantially invested in
approximately 40 such common stock issues at all times. Accordingly, the
performance of this Portfolio will roughly parallel that of the Dow Jones
Industrial Average and S&P 500 Stock Composite Index. As is apparent from the
line graph, the performance of the Blue Chip Portfolio, adjusted for expenses,
was similar to that of the S&P 500 Composite Index for the twelve-month period
ended December 31, 1997.
10
<PAGE>
(This page has been left blank intentionally.)
11
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------ -----------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost -- $43,379,666;
$5,057,603; $8,154,644; $43,695,695; $5,257,094;
and $23,742,642, respectively) ................................ $ 44,291,689 $ 5,274,612
Cash ........................................................... 29,578
Accrued dividends and interest receivable ...................... 90,356 78,178
Prepaid expense ................................................ 139 16
------------ -----------
Total Assets ................................................... $ 44,382,184 $ 5,382,384
============ ===========
LIABILITIES AND NET ASSETS
Liabilities:
Net outstanding redemptions in excess of bank balance ......... $ 475,766
Investment securities purchased ............................... 428,670
Accrued expenses .............................................. 11,827 $ 8,004
------------ -----------
Total Liabilities .............................................. 916,263 8,004
Net assets applicable to shares of beneficial interest ......... 43,465,921 5,374,380
------------ -----------
Total Liabilities and Net Assets ............................... $ 44,382,184 $ 5,382,384
============ ===========
Shares issued and outstanding as of December 31, 1997 .......... 3,455,865 531,552
NET ASSET VALUE PER SHARE ...................................... $ 12.58 $ 10.11
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
<TABLE>
<CAPTION>
HIGH
YIELD BOND MANAGED MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ------------
<S> <C> <C> <C>
$ 8,464,580 $ 45,192,582 $ 5,257,094 $ 31,909,417
6,174 820,068
160,640 215,197 10,181 46,195
27 130 17 77
----------- ------------ ----------- ------------
$ 8,631,421 $ 45,407,909 $ 6,087,360 $ 31,955,689
=========== ============ =========== ============
$ 339,853 $ 78,147
108,875
$ 8,175 10,420 $ 9,843 12,617
----------- ------------ ----------- ------------
8,175 459,148 9,843 90,764
8,623,246 44,948,761 6,077,517 31,864,925
----------- ------------ ----------- ------------
$ 8,631,421 $ 45,407,909 $ 6,087,360 $ 31,955,689
=========== ============ =========== ============
844,823 3,581,522 6,077,517 1,027,703
$ 10.21 $ 12.55 $ 1.00 $ 31.01
=========== ============ =========== ============
</TABLE>
13
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------ ----------
<S> <C> <C>
INVESTMENT INCOME
Dividends .................................................... $ 385,906 $ 7,150
Interest ..................................................... 686,921 308,141
---------- --------
Total Investment Income ...................................... 1,072,827 315,291
EXPENSES
Paid to FBL Investment Advisory Services, Inc.:
Investment advisory and management fees ..................... 168,315 12,594
Accounting fees ............................................. 18,143 2,099
Custodial fees ............................................... 6,187 3,023
Legal fees ................................................... 2,071 253
Audit fees. .................................................. 5,750 5,200
Reports to shareholders ...................................... 5,649 641
Trustees' fees and expenses .................................. 1,742 211
Insurance and bonds. ......................................... 1,271 152
Miscellaneous ................................................ 1,684 8
---------- --------
Total Expenses ............................................... 210,812 24,181
Expense reimbursement ........................................ (14,093) (2,294)
---------- --------
Net Expenses ................................................. 196,719 21,887
---------- --------
Net Investment Income ........................................ 876,108 293,404
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain from investment transactions ............... 2,628,392 9,918
Change in unrealized appreciation/depreciation of
investments ................................................. (1,441,898) 122,117
---------- --------
Net Gain on Investments ...................................... 1,186,494 132,035
---------- --------
Net Increase in Net Assets Resulting from Operations ......... $2,062,602 $425,439
========== ========
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
<TABLE>
<CAPTION>
HIGH
YIELD BOND MANAGED MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ------------ ---------
<S> <C> <C> <C>
$ 20,217 $ 805,108 $ 387,383
573,769 1,129,313 $218,543 117,093
-------- ---------- -------- ----------
593,986 1,934,421 218,543 504,476
32,916 168,689 10,533 47,121
3,548 17,701 1,988 11,780
3,359 4,703 4,655 6,576
301 2,052 195 410
5,200 5,750 5,200 5,250
1,116 5,489 601 3,828
357 1,687 210 1,047
285 1,195 157 700
5 24 8 42
-------- ---------- -------- ----------
47,087 207,290 23,547 76,754
(5,819) (17,771) (2,912)
-------- ---------- -------- ----------
41,268 189,519 20,635 76,754
-------- ---------- -------- ----------
552,718 1,744,902 197,908 427,722
64,050 1,646,469 17,242
208,688 106,045 4,627,295
-------- ---------- -------- ----------
272,738 1,752,514 0 4,644,537
-------- ---------- -------- ----------
$825,456 $3,497,416 $197,908 $5,072,259
======== ========== ======== ==========
</TABLE>
15
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
------------------------------
YEAR ENDED DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
OPERATIONS
Net investment income ........................................ $ 876,108 $ 561,144
Net realized gain from investment transactions ............... 2,628,392 1,943,065
Change in unrealized appreciation/depreciation
of investments .............................................. (1,441,898) 1,119,424
------------ ------------
Net Increase in Net Assets Resulting from Operations ......... 2,062,602 3,623,633
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income ........................................ (869,530) (562,374)
Net realized gain from investment transactions ............... (2,981,975) (1,972,997)
Distributions in excess of net realized gain from
investment transactions ..................................... (456,979)
------------ ------------
(4,308,484) (2,535,371)
CAPITAL SHARE TRANSACTIONS ................................... 18,523,352 9,804,958
------------ ------------
Total Increase in Net Assets ................................. 16,277,470 10,893,220
NET ASSETS
Beginning of year ............................................ 27,188,451 16,295,231
------------ ------------
End of year (including undistributed
net investment income as set forth below) ................... $43,465,921 $27,188,451
============ ============
Undistributed Net Investment Income .......................... $ 8,310 $ 1,732
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
-------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C>
$ 293,404 $ 240,646 $ 552,718 $ 452,108
9,918 10,639 64,050 61,503
122,117 (60,696) 208,688 127,569
---------- ---------- ---------- ----------
425,439 190,589 825,456 641,180
(293,404) (240,646) (552,718) (452,108)
(52,004) (67,895)
---------- ---------- ---------- ----------
(293,404) (240,646) (604,722) (520,003)
1,707,790 376,216 2,473,420 997,822
---------- ---------- ---------- ----------
1,839,825 326,159 2,694,154 1,118,999
3,534,555 3,208,396 5,929,092 4,810,093
---------- ---------- ---------- ----------
$5,374,380 $3,534,555 $8,623,246 $5,929,092
========== ========== ========== ==========
$ 0 $ 0 $ 0 $ 0
========== ========== ========== ==========
</TABLE>
17
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
-----------------------------
YEAR ENDED DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ........................................ $ 1,744,902 $ 948,652
Net realized gain from investment transactions ............... 1,646,469 1,834,462
Change in unrealized appreciation/depreciation
of investments .............................................. 106,045 488,900
------------ ------------
Net Increase in Net Assets Resulting from Operations ......... 3,497,416 3,272,014
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income ........................................ (1,727,782) (950,234)
Net realized gain from investment transactions ............... (2,130,931) (1,605,895)
Distributions in excess of net realized gain from
investment transactions .....................................
------------ ------------
(3,858,713) (2,556,129)
CAPITAL SHARE TRANSACTIONS ................................... 19,287,783 10,819,073
------------ ------------
Total Increase in Net Assets ................................. 18,926,486 11,534,958
NET ASSETS
Beginning of year ............................................ 26,022,275 14,487,317
------------ ------------
End of year (including undistributed
net investment income as set forth below) ................... $44,948,761 $26,022,275
============ ============
Undistributed Net Investment Income . ........................ $ 18,951 $ 1,831
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO
-------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C>
$ 197,908 $ 151,720 $ 427,722 $ 198,794
17,242 69,879
4,627,295 1,709,516
---------- ---------- ----------- -----------
197,908 151,720 5,072,259 1,978,189
(197,908) (151,720) (426,904) (198,208)
(14,230) (69,445)
---------- ---------- ----------- -----------
(197,908) (151,720) (441,134) (267,653)
2,258,256 660,688 12,740,683 6,117,777
---------- ---------- ----------- -----------
2,258,256 660,688 17,371,808 7,828,313
3,819,261 3,158,573 14,493,117 6,664,804
---------- ---------- ----------- -----------
$6,077,517 $3,819,261 $31,864,925 $14,493,117
========== ========== =========== ===========
$ 0 $ 0 $ 2,145 $ 1,327
========== ========== =========== ===========
</TABLE>
19
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (58.10%)
- ----------------------
CHEMICALS AND ALLIED PRODUCTS (1.52%)
R.P. Scherer Corp. ................................. 10,850(1) $ 661,850
COMMUNICATIONS (2.15%)
DSC Communications ................................. 39,000(1) 936,000
ELECTRIC, GAS AND SANITARY SERVICES (8.22%)
Citizens Utilities Co., Class B .................... 88,711(1) 853,843
Matrix Service Co. ................................. 296,100(1) 2,720,419
-----------
3,574,262
ELECTRICAL AND OTHER ELECTRIC EQUIPMENT (6.75%)
Applied Materials, Inc. ............................ 60,000(1) 1,807,500
Novell Inc. ........................................ 150,000(1) 1,125,000
-----------
2,932,500
FURNITURE AND FIXTURES (0.43%)
Ladd Furniture, Inc. ............................... 12,346(1) 185,190
HEALTH SERVICES (3.34%)
Weyerhauser Co. .................................... 30,000 1,451,250
INSTRUMENTS & RELATED PRODUCTS (9.71%)
Allied Healthcare Products ......................... 126,790 982,623
Pall Corp. ......................................... 94,575 1,956,520
U.S. Surgical Corp. ................................ 43,920 1,281,915
-----------
4,221,058
INSURANCE CARRIERS (1.20%)
Acceptance Insurance Group Companies, Inc. ......... 21,650(1) 523,659
METAL MINING (1.20%)
Glamis Gold, Ltd. .................................. 142,100 523,993
MISCELLANEOUS MANUFACTURING INDUSTRIES (5.21%)
W.H. Brady Co., Class A ............................ 73,000 2,263,000
NONDEPOSITORY INSTITUTIONS (0.53%)
Berkshire Hathaway, Inc. ........................... 5(1) 230,000
OIL AND GAS EXTRACTION (7.25%)
Apache Corp. ....................................... 30,000 1,051,875
Burlington Resources Inc. .......................... 30,000 1,344,375
Pride International ................................ 30,000 757,500
-----------
3,153,750
</TABLE>
20
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
PAPER AND ALLIED PRODUCTS (5.30%)
Bemis Co. Inc. ...................................... 15,000 $ 660,938
Minnesota Mining and Manufacturing Co. .............. 20,000 1,641,250
-----------
2,302,188
PRINTING & PUBLISHING (1.81%)
Belo (A.H.) Corp. ................................... 14,000 785,750
WHOLESALE TRADE -- DURABLE GOODS (2.33%)
TBC Corp. ........................................... 106,000(1) 1,013,625
WHOLESALE TRADE -- NONDURABLE GOODS (1.15%)
Howell Corp. ........................................ 28,770 498,080
-----------
Total Common Stocks .................................. 25,256,155
PREFERRED STOCK (3.38%)
- -----------------------
WATER TRANSPORTATION
Sea Containers, Ltd., Convertible ................... 26,320 1,467,340
PRINCIPAL
AMOUNT
----------
CORPORATE BOND (1.36%)
- ----------------------
GOLD AND SILVER ORES
Agnico-Eagle Mines, Ltd., Convertible Sub. Deb.,
3.50%, due 1/27/04 ................................. $1,000,000 590,000
SHORT-TERM INVESTMENTS (39.06%)
- -------------------------------
COMMERCIAL PAPER (22.89%)
American General Finance Corp., due 1/30/98 ......... 725,000 725,000
American General Finance Corp., due 2/02/98 ......... 1,250,000 1,250,000
Ford Motor Credit Corp., due 1/09/98 ................ 1,550,000 1,550,000
General Electric Capital Corp., due 1/16/98 ......... 2,150,000 2,150,000
IBM Credit Corp., due 2/03/98 ....................... 2,100,000 2,100,000
John Deere Capital Corp., due 1/07/98 ............... 1,175,000 1,175,000
Norwest Financial, Inc., due 1/13/98 ................ 1,000,000 1,000,000
-----------
9,950,000
MONEY MARKET MUTUAL FUND (5.02%)
Dreyfus Treasury Cash Management, Class A ........... 2,181,430 2,181,430
</TABLE>
21
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C>
UNITED STATES GOVERNMENT AGENCIES (11.15%)
Federal Home Loan Mortgage Corp., due 1/23/98 ................... $ 600,000 $ 597,915
Federal National Mortgage Assoc., due 1/07/98 ................... 900,000 899,190
Federal National Mortgage Assoc., due 2/18/98 ................... 3,375,000 3,349,659
-----------
4,846,764
-----------
Total Short-Term Investments ..................................... 16,978,194
-----------
Total Investments (101.90%) ...................................... 44,291,689
OTHER ASSETS LESS LIABILITIES (-1.90%)
- --------------------------------------
Cash, receivables and prepaid expense, less liabilities ......... (825,768)
-----------
Total Net Assets (100.00%) ....................................... $43,465,921
===========
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
22
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
HELD VALUE
--------- -----------
<S> <C> <C>
PREFERRED STOCK (3.83%)
- -----------------------
New Plan Realty ................................................ 4,000 $ 206,080
PRINCIPAL
AMOUNT
---------
CORPORATE BONDS (59.14%)
- ------------------------
COMMUNICATIONS (6.09%)
Comcast Cable Communications, Inc., 8.50%, due 5/01/27 ......... $ 150,000 175,125
New York Telephone Co., 7.75%, due 12/15/06 .................... 150,000 152,214
-----------
327,339
DEPOSITORY INSTITUTIONS (5.83%)
J. P. Morgan & Co., 7.25%, due 10/01/10 ........................ 150,000 150,047
Midland America Capital Corp., 12.75%, due 11/15/03 ............ 155,000 163,567
-----------
313,614
ELECTRIC, GAS AND SANITARY SERVICES (19.74%)
Narragansett Electric Co., 9.125%, due 5/01/21 ................. 300,000 341,283
New England Power Co., 8.00%, due 8/01/22 ...................... 150,000 164,541
Oglethorpe Power., 6.974%, due 6/30/11 ......................... 400,000 406,008
Western Penn Power, 7.875%, due 12/01/04 ....................... 140,000 149,009
-----------
1,060,841
HOLDING AND OTHER INVESTMENT OFFICES (4.92%)
Federal Realty Investment Trust, 8.875%, due 1/15/00 ........... 100,000 105,049
Meditrust, 7.60%, due 9/13/05 .................................. 150,000 159,198
-----------
264,247
INSURANCE CARRIERS (2.19%)
Torchmark Corp., 8.625%, due 3/01/17 ........................... 113,000 117,712
NONDEPOSITORY INSTITUTIONS (3.80%)
Household Finance Co., 7.30%, due 7/30/12 ...................... 200,000 204,338
PRINTING AND PUBLISHING (2.09%)
Valassis Communications, Inc., 9.55%, due 12/01/03 ............. 100,000 112,153
RAILROAD TRANSPORTATION (2.91%)
Union Pacific Corp., 8.50%, due 1/15/17 ........................ 150,000 156,198
RETAIL SERVICES (6.12%)
J.C. Penney & Co., 8.25%, due 8/15/22 .......................... 300,000 328,833
SECURITY AND COMMODITY BROKERS (1.90%)
Lehman Brothers Holding, Inc., 8.875%, due 11/01/98 ............ 100,000 102,256
TRANSPORTATION EQUIPMENT (3.55%)
Ford Motor Credit Co., 9.50%, due 9/15/11 ...................... 150,000 190,980
-----------
Total Corporate Bonds ........................................... 3,178,511
</TABLE>
23
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (11.36%)
- -----------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) (0.87%)
Pool # 50276, 9.50%, due 2/01/20 ................................ $43,156 $ 46,540
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) (10.49%)
Pool # 1512, 7.50%, due 12/20/23 ................................ 381,366 390,664
Pool # 236070, 10.00%, due 10/15/12 ............................. 84,591 92,178
Pool # 276337, 10.00%, due 8/15/19 .............................. 73,146 81,078
-----------
563,920
-----------
Total Mortgage-Backed Securities ................................. 610,460
UNITED STATES TREASURY OBLIGATION (8.05%)
- -----------------------------------------
U.S. Treasury Note, 7.25%, due 8/15/04 .......................... 400,000 432,544
SHORT-TERM INVESTMENTS (15.76%)
- -------------------------------
UNITED STATES GOVERNMENT AGENCIES
Federal Home Loan Mortgage Corp., due 1/05/98 ................... 200,000 199,873
Federal Home Loan Mortgage Corp., due 2/20/98 ................... 250,000 248,040
Federal National Mortgage Assoc., due 1/15/98 ................... 400,000 399,104
-----------
Total Short-Term Investments ..................................... 847,017
-----------
Total Investments (98.14%) ....................................... 5,274,612
OTHER ASSETS LESS LIABILITIES (1.86%)
- -------------------------------------
Cash, receivables and prepaid expense, less liabilities ......... 99,768
-----------
Total Net Assets (100.00%) ....................................... $ 5,374,380
===========
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
CORPORATE BONDS (80.19%)
- ------------------------
AMUSEMENT AND RECREATION SERVICES (3.06%)
AMF Group, Inc., 10.875%, due 3/15/06 .......................... $240,000 $ 264,000
APPAREL AND ACCESSORY STORES (1.21%)
Genesco, Inc., 10.375%, due 2/01/03 . .......................... 100,000 104,500
APPAREL AND OTHER TEXTILE PRODUCTS (4.32%)
Dan River, Inc., 10.125%, due 12/15/03 ......................... 200,000 213,500
Fieldcrest Cannon, Inc., 11.25%, due 6/15/04 . ................. 150,000 159,375
-----------
372,875
AUTO REPAIR, SERVICES AND PARKING (1.04%)
Envirotest Systems Corp., 9.625%, due 4/01/03 . ................ 100,000 89,500
BUSINESS SERVICES (1.80%)
Borg-Warner Corp., 9.125%, due 5/01/03 ......................... 150,000 155,250
COMMUNICATIONS (4.06%)
Comcast Cable Communications, Inc., 8.50%, due 5/01/27 ......... 300,000 350,250
DEPOSITORY INSTITUTIONS (2.89%)
First Bank N.A., 6.25%, due 8/15/05 ............................ 250,000 248,983
ELECTRIC, GAS AND SANITARY SERVICES (23.99%)
Cleveland Electric, 8.37%, due 2/01/11 ......................... 400,000 411,500
Montana Power Co., 7.50%, due 1/01/98 .......................... 94,000 94,101
Narragansett Electric Co., 9.125%, due 5/01/21 ................. 500,000 568,805
New England Power Co., 8.00%, due 8/01/22 ...................... 200,000 219,388
Niagara Mohawk Power, 7.875%, due 4/01/24 ...................... 400,000 402,768
Waterford 3 Nuclear Power Plant (Entergy Louisiana, Inc.),
8.09%, due 1/02/17 ............................................ 350,000 372,169
-----------
2,068,731
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (2.99%)
Advanced Micro Devices, Inc., 11.00%, due 8/01/03 .............. 240,000 257,700
FOOD STORES (3.74%)
P&C Food Markets, Inc., 11.50%, due 10/15/01 ................... 150,000 140,250
Penn Traffic Co., 10.25%, due 2/15/02 .......................... 200,000 182,000
-----------
322,250
FURNITURE AND HOMEFURNISHINGS STORES (2.32%)
MacSaver Financial Services, Inc. (Guaranteed by Heilig-Meyers
Company), 7.40%, due 2/15/02 .................................. 200,000 199,616
</TABLE>
25
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
GENERAL MERCHANDISE STORES (2.56%)
Federated Department Stores, Inc., 10.00%, due 2/15/01 ................. $ 200,000 $ 220,354
HOLDING AND OTHER INVESTMENT OFFICES (4.12%)
SUSA Partnership, L.P., 8.20%, due 6/01/17 ............................. 325,000 355,358
INSURANCE CARRIERS (2.17%)
Torchmark Corp., 8.625%, due 3/01/17 ................................... 180,000 187,506
LUMBER AND WOOD PRODUCTS (5.37%)
Georgia-Pacific Corp., 9.875%, due 11/01/21 ............................ 225,000 256,010
Pacific Lumber Co., 10.50%, due 3/01/03 ................................ 200,000 207,000
-----------
463,010
MISCELLANEOUS RETAIL (2.56%)
Eckerd Corp., 9.25%, due 2/15/04 ....................................... 205,000 220,603
OIL AND GAS EXTRACTION (1.23%)
Dawson Production Services, Inc., 9.375%, due 2/01/07 .................. 100,000 105,875
PAPER AND ALLIED PRODUCTS (2.52%)
Container Corp. of America, 9.75%, due 4/01/03 ......................... 200,000 217,000
RETAIL SERVICE (3.81%)
J.C. Penney & Co, 8.25%, due 8/15/22 ................................... 300,000 328,833
RUBBER AND MISCELLANEOUS PLASTICS
PRODUCTS (2.53%)
Plastic Specialties & Technologies, Inc., 11.25%, due 12/01/03 ......... 200,000 218,250
STONE, CLAY AND GLASS PRODUCTS (1.90%)
USG Corp., 9.25%, due 9/15/01 .......................................... 150,000 164,062
-----------
Total Corporate Bonds ................................................... 6,914,506
SHARES
HELD
----------
COMMON STOCK (0.73%)
- --------------------
TEXTILE MILL PRODUCTS
Bibb Company (The) ..................................................... 7,490(1) 62,729
PREFERRED STOCKS (5.70%)
- ------------------------
DEPOSITORY INSTITUTIONS
CFB Capital I, 8.875% Cumulative Capital Securites ..................... 5,000 131,250
New Plan Realty Trust .................................................. 7,000 360,640
-----------
Total Preferred Stocks .................................................. 491,890
</TABLE>
26
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.54%)
- -------------------------------
UNITED STATES GOVERNMENT AGENCIES
Federal Home Loan Bank, due 2/11/98 ............................ $550,000 $ 546,466
Federal National Mortgage Assoc., due 1/15/98 .................. 450,000 448,989
-----------
Total Short-Term Investments .................................... 995,455
-----------
Total Investments (98.16%) ...................................... 8,464,580
OTHER ASSETS LESS LIABILITIES (1.84%)
- -------------------------------------
Cash, receivables and prepaid expense less liabilities ......... 158,666
-----------
Total Net Assets (100.00%) ...................................... $ 8,623,246
===========
</TABLE>
(1) Non-income producing security.
SEE ACCOMPANYING NOTES.
27
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------- ----------
<S> <C> <C>
COMMON STOCKS (24.14%)
- ----------------------
ELECTRIC, GAS AND SANITARY SERVICES (8.87%)
Citizens Utilities Co., Class B ............................. 174,227 $1,676,935
MidAmerican Energy .......................................... 50,000 1,100,000
Montana Power Co. ........................................... 38,000 1,208,875
----------
3,985,810
HEALTH SERVICES (3.28%)
Weyerhauser Co .............................................. 30,000 1,471,875
HOLDING AND OTHER INVESTMENT OFFICES (2.97%)
General Growth Properties, Inc. . ........................... 37,000 1,336,625
INSTRUMENTS AND RELATED PRODUCTS (2.99%)
Pall Corp. .................................................. 65,000 1,344,688
INSURANCE CARRIERS (2.38%)
EMC Insurance Group, Inc. ................................... 80,700 1,069,275
PAPER AND ALLIED PRODUCTS (3.65%)
Minnesota Mining & Manufacturing ............................ 20,000 1,641,250
----------
Total Common Stocks .......................................... 10,849,523
PREFERRED STOCKS (23.39%)
- -------------------------
DEPOSITORY INSTITUTIONS (6.15%)
CFB Capital I, 8.875% Cumulative Capital Securities ......... 50,000 1,312,500
Taylor Capital Group, Inc. .................................. 58,000 1,453,596
----------
2,766,096
HOLDING AND OTHER INVESTMENT OFFICES (1.36%)
Security Capital Group, Inc ................................. 1,133(1) 5,948
Security Capital Industrial Trust, Convertible .............. 19,000 605,625
----------
611,573
MISCELLANEOUS MANUFACTURING INDUSTRIES (3.20%)
Cyprus Amax Minerals Co., ................................... 30,000 1,440,000
OIL AND GAS EXTRACTION (4.84%)
Chieftain International, Inc., Convertible .................. 11,000 316,937
EVI Inc. .................................................... 40,000 1,860,000
----------
2,176,937
PAPER AND ALLIED PRODUCTS (3.10%)
James River Corp., Convertible .............................. 25,000 1,393,750
</TABLE>
28
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- ----------
<S> <C> <C>
WATER TRANSPORTATION (3.35%)
Sea-Containers, Ltd., Convertible .............................. 27,000 $1,505,250
WHOLESALE TRADE-NONDURABLE GOODS (1.39%)
Howell Corp. ................................................... 11,000 622,875
----------
Total Preferred Stocks .......................................... 10,516,481
PRINCIPAL
AMOUNT
----------
CORPORATE BONDS (20.07%)
- ------------------------
DEPOSITORY INSTITUTIONS (0.26%)
Midland America Capital Corp., 12.75%, due 11/15/03 ............ $ 110,000 116,080
ELECTRIC, GAS AND SANITARY SERVICES (0.22%)
National Co-op Services Corp. (Arkansas Electric), 9.48%,
due 1/01/12 ................................................... 90,000 96,322
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (1.99%)
California Microwave, Inc., Convertible Sub. Deb., 5.25%,
due 12/15/03 .................................................. 1,000,000 893,440
GENERAL MERCHANDISE STORES (2.10%)
DHC Trust -- Series 1996, 8.50%, due 12/01/22 .................. 1,350,000 945,000
INSURANCE CARRIERS (0.31%)
Torchmark Corp., 8.625%, due 3/01/17 ........................... 135,000 140,629
METAL MINING (1.97%)
Agnico-Eagle Mines, Ltd., Convertible Sub. Deb., 3.50%,
due 1/27/04 ................................................... 1,500,000 885,000
MISCELLANEOUS MANUFACTURING INDUSTRIES (1.54%)
Halter Marine Group, Inc., 4.00%, due 9/15/04 .................. 625,000 691,300
NONDEPOSITORY INSTITUTIONS (3.09%)
Consumer Portfolio Services, Inc., 10.50%, due 4/15/04 ......... 1,400,000 1,389,500
OIL AND GAS EXTRACTION (3.86%)
Offshore Logistics, 6.00%, due 12/15/03 ........................ 1,500,000 1,736,250
PETROLEUM AND COAL PRODUCTS (4.73%)
Pride Petroleum Services, Inc., Convertible Sub. Deb.,
6.25%, due 2/15/06 ............................................ 540,000 1,142,656
Trizec Hahn, Corp., 3.25%, due 12/10/18 ........................ 1,400,000 983,528
----------
2,126,184
----------
Total Corporate Bonds ........................................... 9,019,705
</TABLE>
29
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (32.94%)
- -------------------------------
COMMERCIAL PAPER (25.95%)
American General Finance., due 1/07/98 .......................... $1,725,000 $ 1,725,000
Ford Motor Credit Corp., due 1/12/99 ............................ 1,900,000 1,900,000
General Electric Capital Corp., due 1/16/98 ..................... 2,165,000 2,165,000
IBM Credit Corp., due 1/14/98 . ................................. 2,150,000 2,150,000
John Deere Capital Corp., due 1/09/98 ........................... 1,000,000 1,000,000
John Deere Capital Corp., due 1/29/98 ........................... 1,000,000 1,000,000
Norwest Financial, Inc., due 1/23/98 . .......................... 1,725,000 1,725,000
-----------
11,665,000
MONEY MARKET MUTUAL FUND (4.99%)
Dreyfus Treasury Cash Management, Class A ....................... 2,245,000 2,245,000
UNITED STATES GOVERNMENT AGENCIES (2.00%)
Federal Home Loan Mortgage Corp., due 1/23/98 ................... 900,000 896,873
-----------
Total Short-Term Investments ..................................... 14,806,873
-----------
Total Investments (100.54%) ...................................... 45,192,582
OTHER ASSETS LESS LIABILITIES (-0.54%)
- --------------------------------------
Cash, receivables and prepaid expense, less liabilities ......... (243,821)
-----------
Total Net Assets (100.00%) ....................................... $44,948,761
===========
</TABLE>
(1) Non-income producing security.
SEE ACCOMPANYING NOTES.
30
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ANNUALIZED
YIELD ON
PURCHASE PRINCIPAL
DATE AMOUNT VALUE
---------- ---------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (86.50%)
- -------------------------------
COMMERCIAL PAPER (24.60%)
NONDEPOSITORY INSTITUTIONS
American General Finance, 5.75%, due 2/13/98 ............... 5.751% $200,000 $ 200,000
Ford Motor Credit Corp., 5.88%, due 1/23/98. ............... 5.883 300,000 300,000
General Electric Capital Corp., 5.79%, due 1/29/98 ......... 5.795 300,000 300,000
IBM Credit Corp., 5.79%, due 1/26/98 ....................... 5.789 200,000 200,000
John Deere Capital Corp., 5.81%, due 1/16/98 ............... 5.814 250,000 250,000
Norwest Financial, Inc., 5.79%, due 1/21/98 . .............. 5.791 245,000 245,000
----------
Total Commercial Paper ....................................... 1,495,000
UNITED STATES GOVERNMENT AGENCIES (61.90%)
Federal Farm Credit Bank, due 1/05/98. ..................... 5.716 124,922 124,922
Federal Home Loan Bank, due 1/07/98 ........................ 5.698 199,813 199,813
Federal Home Loan Bank, due 1/08/98 ........................ 5.798 99,889 99,889
Federal Home Loan Bank, due 1/09/98 ........................ 5.756 169,786 169,786
Federal Home Loan Bank, due 1/13/98 ........................ 5.723 274,484 274,484
Federal Home Loan Bank, due 2/06/98 ........................ 5.748 149,154 149,154
Federal Home Loan Mortgage Corp., due 1/16/98 .............. 5.782 174,585 174,585
Federal Home Loan Mortgage Corp., due 2/02/98 .............. 5.745 216,908 216,908
Federal Home Loan Mortgage Corp., due 2/10/98 .............. 5.747 149,061 149,061
Federal Home Loan Mortgage Corp., due 2/12/98 .............. 5.754 149,013 149,013
Federal Home Loan Mortgage Corp., due 2/20/98 .............. 5.768 744,121 744,121
Federal National Mortgage Assoc., due 1/12/98 .............. 5.779 199,652 199,652
Federal National Mortgage Assoc., due 2/05/98 .............. 5.745 696,165 696,164
Federal National Mortgage Assoc., due 2/20/98 .............. 5.761 148,826 148,826
Federal National Mortgage Assoc., due 2/24/98 .............. 5.765 148,732 148,732
Federal National Mortgage Assoc., due 2/25/98 .............. 5.761 116,984 116,984
----------
Total United States Government Agencies ...................... 3,762,094
----------
Total Short-Term Investments .................................. 5,257,094
OTHER ASSETS LESS LIABILITIES (13.50%)
- --------------------------------------
Cash, receivables and prepaid expense, less liabilities 820,423
----------
Total Net Assets (100.00%) .................................... $6,077,517
==========
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
HELD VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (89.24%)
- ----------------------
CHEMICALS AND ALLIED PRODUCTS (16.28%)
Bristol-Myers Squibb Co. .................... 8,904 $ 842,541
DuPont (EI) de Nemours & Co. ................ 10,631 638,524
Eastman Chemical Co. ........................ 7,532 448,625
Johnson & Johnson ........................... 10,375 683,453
Merck & Co., Inc. ........................... 7,036 747,575
Praxair, Inc. ............................... 12,558 565,110
Procter & Gamble Co. ........................ 9,551 762,289
Union Carbide Corp. ......................... 11,628 499,277
-----------
5,187,394
COMMUNICATIONS (3.97%)
American Telephone & Telegraph Co. .......... 10,312 631,610
Bell Atlantic Corp. ......................... 6,958 633,178
-----------
1,264,788
DEPOSITORY INSTITUTIONS (1.84%)
J. P. Morgan & Co., Inc. .................... 5,182 584,918
EATING AND DRINKING PLACES (1.69%)
McDonald's Corp. ............................ 11,283 538,763
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (3.93%)
General Electric Co. ........................ 11,080 812,995
Lucent Technologies, Inc. ................... 5,171 413,034
Raytheon Co. ................................ 531 26,185
-----------
1,252,214
FOOD AND KINDRED PRODUCTS (6.18%)
Coca-Cola Co. (The) ......................... 11,415 760,524
PepsiCo, Inc. ............................... 15,996 582,854
Philip Morris Companies, Inc. ............... 13,841 627,170
-----------
1,970,548
GENERAL MERCHANDISE STORES (4.92%)
Sears, Roebuck & Co. ........................ 9,628 435,667
Wal-Mart Stores, Inc. ....................... 17,061 672,843
Woolworth (F.W.) Co., Ltd. .................. 22,590(1) 460,271
-----------
1,568,781
</TABLE>
32
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
-------- -----------
<S> <C> <C>
INDUSTRIAL MACHINERY AND EQUIPMENT (4.36%)
Caterpillar, Inc. ................................... 13,287 $ 645,250
International Business Machines Corp. ............... 7,101 742,498
-----------
1,387,748
INSTRUMENTS AND RELATED PRODUCTS (1.28%)
Eastman Kodak Co. ................................... 6,684 406,471
INSURANCE CARRIERS (4.86%)
Allstate Corp. ...................................... 8,303 754,535
American International Group, Inc. .................. 7,305 794,419
-----------
1,548,954
MOTION PICTURES (2.25%)
Disney (Walt) Co. ................................... 7,249 718,104
PAPER AND ALLIED PRODUCTS (3.07%)
International Paper Co. ............................. 10,865 468,553
Minnesota Mining & Manufacturing Co. ................ 6,207 509,362
-----------
977,915
PETROLEUM AND COAL PRODUCTS (10.69%)
Amoco Corp. ......................................... 5,862 499,003
Chevron Corp. ....................................... 7,418 571,187
Exxon Corp. ......................................... 10,043 614,506
Mobil Corp. ......................................... 7,875 568,477
Texaco, Inc. ........................................ 9,936 540,270
USX Corp. -- Marathon Group. ........................ 18,129 611,854
-----------
3,405,297
PRIMARY METAL INDUSTRIES (2.78%)
Aluminum Company of America . ....................... 7,635 537,313
Bethlehem Steel Corp. ............................... 40,499(1) 349,304
-----------
886,617
RUBBER AND MISCELLANEOUS PLASTICS
PRODUCTS (2.27%)
Goodyear Tire & Rubber Co. .......................... 11,365 723,098
SECURITY AND COMMODITY BROKERS (7.43%)
American Express Co. ................................ 9,206 821,636
Lehman Brothers Holding, Inc. ....................... 14,424 735,624
Morgan Stanley, Dean Witter, Discover & Co. ......... 13,722 811,313
-----------
2,368,573
</TABLE>
33
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
TRANSPORTATION EQUIPMENT (9.30%)
Allied-Signal, Inc. ............................................. 16,726 $ 651,269
Boeing Co. (The) ................................................ 11,076 542,032
Ford Motor Co. .................................................. 13,760 669,940
General Motors Corp. ............................................ 8,333 505,188
United Technologies Corp. ....................................... 8,186 596,043
-----------
2,964,472
WHOLESALE TRADE -- DURABLE GOODS (2.14%)
CBS Corp. ....................................................... 23,207 683,156
-----------
Total Common Stocks .............................................. 28,437,811
PRINCIPAL
AMOUNT
----------
SHORT-TERM INVESTMENTS (10.90%)
- -------------------------------
MONEY MARKET MUTUAL FUND (1.57%)
Dreyfus Treasury Cash Management, Class A ....................... $ 500,000 500,000
UNITED STATES GOVERNMENT AGENCIES (9.33%)
Federal Home Loan Bank, due 1/09/98 ............................. 2,200,000 2,197,209
Federal National Mortgage Assoc., due 1/05/98 ................... 600,000 599,623
Federal National Mortgage Assoc., due 1/09/98 ................... 175,000 174,774
-----------
2,971,606
-----------
Total Short-Term Investments ..................................... 3,471,606
-----------
Total Investments (100.14%) ...................................... 31,909,417
OTHER ASSETS LESS LIABILITIES (-0.14%)
- --------------------------------------
Cash, receivables and prepaid expense, less liabilities ......... (44,492)
-----------
Total Net Assets (100.00%) ....................................... $31,864,925
===========
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
34
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
FBL 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. On
January 11, 1998, the Board of Trustees approved a change to rename the Fund to
EquiTrust Variable Insurance Series Fund, effective May 1, 1998. 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 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 with respect to the
Money Market Portfolio.
The Money Market Portfolio values investments at amortized cost, which
approximates market. 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.
35
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 December 31, 1997, the High Grade Bond Portfolio had a net capital loss
carryforward of approximately $7,000, which will expire from 2002 through 2003.
3. MANAGEMENT CONTRACT AND TRANSACTIONS WITH AFFILIATES
The Fund has entered into agreements with FBL Investment Advisory Services,
Inc. ("FBL Investment") relating to the management of the portfolios and the
investment of their assets. Pursuant to these agreements, fees paid to FBL
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% (0.50% prior to May 1, 1997); High Grade Bond Portfolio --
0.30%; High Yield Bond Portfolio -- 0.45% (0.50% prior to May 1, 1997); Managed
Portfolio -- 0.45% (0.55% prior to May 1, 1997); Money Market Portfolio -- 0.25%
(0.30% prior to May 1, 1997); 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 FBL Investment whereby FBL
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.
FBL 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,
FBL Investment further agreed to reimburse any portfolio, to the extent that
annual operating expenses, including the investment advisory fee, exceed 0.55%
for the period January 1, 1997, through April 30, 1997, and 0.65% for the period
May 1, 1997, through December 31, 1997.
Certain officers and trustees of the Fund are also officers of FBL
Investment and its indirect parent, Farm Bureau Life Insurance Company. At
December 31, 1997, all of the shares of each portfolio are owned by Farm Bureau
Life Insurance Company, Farm Bureau Life Variable Account and Farm Bureau Life
Annuity Account.
36
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest
authorized with no par value. Net assets as of December 31, 1997, 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 ........................ $43,002,567 $5,164,265 $8,300,840 $43,421,313 $6,077,517 $23,692,567
Accumulated undistributed net
investment income ..................... 8,310 18,951 2,145
Accumulated undistributed net
realized gain (loss) from
investment transactions ............... (456,979) (6,894) 12,470 11,610 3,438
Net unrealized appreciation
(depreciation) of investments ......... 912,023 217,009 309,936 1,496,887 8,166,775
----------- ---------- ---------- ----------- ---------- -----------
Net Assets ............................. $43,465,921 $5,374,380 $8,623,246 $44,948,761 $6,077,517 $31,864,925
=========== ========== ========== =========== ========== ===========
</TABLE>
Transactions in shares of beneficial interest for each portfolio were as
follows:
<TABLE>
<CAPTION>
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS AND
SHARES SOLD DISTRIBUTIONS SHARES REDEEMED NET INCREASE
------------------------ -------------------- ----------------------- -----------------------
PORTFOLIO SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------- --------- ----------- ------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,1997:
Value Growth ............ 1,168,439 $15,889,865 341,131 $4,308,483 124,474 $1,674,996 1,385,096 $18,523,352
High Grade Bond ......... 184,783 1,833,550 29,647 293,404 42,480 419,164 171,950 1,707,790
High Yield Bond ......... 332,510 3,281,504 53,490 588,602 139,590 1,396,686 246,410 2,473,420
Managed ................. 1,303,761 17,145,342 307,712 3,858,714 129,178 1,716,273 1,482,295 19,287,783
Money Market ............ 22,643,257 22,643,257 110,337 110,337 20,495,338 20,495,338 2,258,256 2,258,256
Blue Chip ............... 501,000 14,545,654 14,235 441,134 74,838 2,246,105 440,397 12,740,683
Year ended December 31, 1996:
Value Growth ............ 630,601 $ 8,257,518 193,097 $2,535,371 76,748 $ 987,931 746,950 $ 9,804,958
High Grade Bond ......... 118,456 1,161,045 22,255 218,638 102,472 1,003,467 38,239 376,216
High Yield Bond ......... 175,655 1,721,491 49,648 488,516 123,493 1,212,185 101,810 997,822
Managed ................. 707,222 8,908,422 206,306 2,556,129 51,812 645,478 861,716 10,819,073
Money Market ............ 10,259,993 10,259,993 56,274 56,274 9,655,579 9,655,579 660,688 660,688
Blue Chip ............... 275,107 6,334,955 10,689 267,652 20,476 484,830 265,320 6,117,777
</TABLE>
37
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
For the year ended December 31, 1997, the cost of investment securities
purchased and proceeds from investment securities sold (not including short-term
investments and U.S. Government securities) by portfolio, were as follows:
PORTFOLIO PURCHASES SALES
--------- ----------- -----------
Value Growth ............................ $36,148,828 $29,549,851
High Grade Bond ......................... 1,950,359 1,033,269
High Yield Bond ......................... 3,949,806 2,221,129
Managed ................................. 28,673,764 11,832,427
Blue Chip ............................... 11,265,312 574,537
At December 31, 1997, net unrealized appreciation of investments by
portfolio was composed of the following:
GROSS UNREALIZED NET UNREALIZED
--------------------------- APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION OF INVESTMENTS
--------- ------------ ------------ --------------
Value Growth ............... $2,393,570 $(1,481,547) $ 912,023
High Grade Bond ............ 227,216 (10,207) 217,009
High Yield Bond ............ 408,531 (98,595) 309,936
Managed .................... 2,679,473 (1,182,586) 1,496,887
Blue Chip .................. 8,302,847 (136,072) 8,166,775
6. 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:
PORTFOLIO
----------------------------------
HIGH HIGH
GRADE YIELD MONEY
PAYABLE DATE BOND BOND MARKET
------------ -------- -------- --------
January 31, 1997 ................. $ .0579 $ .0708 $ .0041
February 28, 1997 ................ .0567 .0672 .0037
March 31, 1997. .................. .0573 .0675 .0041
April 30, 1997 ................... .0585 .0702 .0040
May 30, 1997 ..................... .0548 .0610 .0040
June 30, 1997 .................... .0597 .0692 .0040
July 31, 1997 .................... .0546 .0603 .0042
August 29, 1997. ................. .0572 .0637 .0039
September 30, 1997 ............... .0573 .0638 .0040
October 31, 1997 ................. .0533 .0626 .0041
November 26, 1997 ................ .0498 .0516 .0038
December 31, 1997 ................ .0711 .0783 .0053
-------- -------- --------
Total dividends per share ........ $ .6882 $ .7862 $ .0492
======== ======== ========
38
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS (CONTINUED)
In addition, dividends and distributions to shareholders from net
investment income and net realized gain on investment transactions were paid
during the year ended December 31, 1997, for the following portfolios:
ORDINARY INCOME DIVIDENDS:
<TABLE>
<CAPTION>
DIVIDEND PERCENT
AMOUNT QUALIFYING FOR
DECLARATION RECORD PAYABLE PER DEDUCTION BY
PORTFOLIO DATE DATE DATE SHARE CORPORATIONS
- --------- ----------- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Value Growth ........... 12/30/97 12/30/97 12/30/97 $ 0.2775 36%
Managed ................ 12/30/97 12/30/97 12/30/97 0.5250 42
Blue Chip .............. 12/30/97 12/30/97 12/30/97 0.4200 77
</TABLE>
CAPITAL GAINS DISTRIBUTIONS:
<TABLE>
<CAPTION>
DIVIDEND
DECLARATION RECORD PAYABLE AMOUNT
PORTFOLIO DATE DATE DATE PER SHARE
- --------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Value Growth ....................... 12/30/97 12/30/97 12/30/97 $ 1.0975
High Yield Bond .................... 12/30/97 12/30/97 12/30/97 0.0620
Managed ............................ 12/30/97 12/30/97 12/30/97 0.6475
Blue Chip .......................... 12/30/97 12/30/97 12/30/97 0.0140
</TABLE>
The capital gains distributions related to the Value Growth, High Yield
Bond and Managed Portfolios include net short-term realized gains of $1,018,369
($0.3250 per share), $19,292 ($0.0230 per share) and $649,975 ($0.1975 per
share), respectively, that are taxable to shareholders as ordinary income
dividends.
39
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...................... $ 13.13 $ 12.31 $ 10.39 $ 11.52 $ 10.05
Income From Investment Operations
Net investment income ................................. 0.28 0.35 0.55 0.48 0.63
Net gains or losses on securities
(both realized and unrealized) ....................... 0.55 1.82 2.13 (0.99) 2.10
-------- -------- -------- -------- --------
Total from investment operations ....................... 0.83 2.17 2.68 (0.51) 2.73
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net investment income) ................ (0.28) (0.30) (0.50) (0.36) (0.57)
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)
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 12.58 $ 13.13 $ 12.31 $ 10.39 $ 11.52
======== ======== ======== ======== ========
Total Return:
Total investment return based on
net asset value (1) ................................... 6.30% 17.65% 25.87% -4.43% 27.20%
Ratios/Supplemental Data:
Net assets, end of year (000's omitted) ................ $ 43,466 $ 27,188 $ 16,295 $ 10,603 $ 4,730
Ratio of net expenses to average net assets ............ 0.55% 0.55% 0.55% 0.55% 0.55%
Ratio of net income to average net assets .............. 2.43% 2.68% 4.78% 4.35% 5.41%
Portfolio turnover rate ................................ 118% 72% 98% 78% 81%
Average commission rate per share (2) .................. $ 0.0512 $ 0.0536
Information assuming no voluntary reimbursement
or waiver by FBL Investment of excess operating
expenses (see NOTE 3):
Per share net investment income ........................ $ 0.27 $ 0.33 $ 0.53 $ 0.46 $ 0.59
Ratio of expenses to average net assets ................ 0.58% 0.69% 0.72% 0.77% 0.89%
Amount reimbursed ...................................... $ 14,093 $ 29,686 $ 22,306 $ 16,706 $ 13,353
</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.
SEE ACCOMPANYING NOTES.
40
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
- ------------------------------------------------------- --------------------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.83 $ 9.98 $ 9.44 $ 10.23 $ 10.14 $ 9.91 $ 9.69 $ 9.32 $ 10.44 $ 9.92
0.69 0.72 0.77 0.76 0.77 0.79 0.84 0.87 0.91 0.95
0.28 (0.15) 0.54 (0.79) 0.09 0.36 0.33 0.49 (1.01) 0.58
- ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
0.97 0.57 1.31 (0.03) 0.86 1.15 1.17 1.36 (0.10) 1.53
- ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
(0.69) (0.72) (0.77) (0.76) (0.77) (0.79) (0.84) (0.87) (0.91) (0.95)
(0.06) (0.11) (0.12) (0.11) (0.06)
- ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
(0.69) (0.72) (0.77) (0.76) (0.77) (0.85) (0.95) (0.99) (1.02) (1.01)
- ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
$ 10.11 $ 9.83 $ 9.98 $ 9.44 $ 10.23 $ 10.21 $ 9.91 $ 9.69 $ 9.32 $ 10.44
======= ======= ======= ======== ======= ======= ======= ======= ======= =======
10.24% 5.94% 14.26% -0.26% 8.74% 12.07% 12.65% 15.15% -1.01% 15.05%
$ 5,374 $ 3,535 $ 3,208 $ 2,452 $ 2,349 $ 8,623 $ 5,929 $ 4,810 $ 4,172 $ 4,536
0.52% 0.55% 0.55% 0.55% 0.55% 0.57% 0.55% 0.55% 0.55% 0.55%
6.94% 7.22% 7.81% 7.76% 7.58% 7.74% 8.47% 8.96% 9.17% 9.25%
31% 32% 14% 15% 38% 35% 30% 32% 10% 58%
$ 0.68 $ 0.70 $ 0.74 $ 0.73 $ 0.76 $ 0.78 $ 0.81 $ 0.84 $ 0.88 $ 0.92
0.57% 0.80% 0.84% 0.80% 0.72% 0.65% 0.87% 0.88% 0.84% 0.85%
$ 2,294 $ 8,233 $ 8,255 $ 6,207 $ 5,343 $ 5,819 $17,094 $15,105 $ 12,667 $12,872
</TABLE>
41
<PAGE>
FBL VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...................... $ 12.40 $ 11.71 $ 9.93 $ 11.33 $ 10.06
Income From Investment Operations
Net investment income ................................. 0.53 0.60 0.65 0.66 0.72
Net gains or losses on securities
(both realized and unrealized) ........................ 0.79 1.44 1.90 (1.22) 1.57
-------- -------- -------- -------- --------
Total from investment operations ....................... 1.32 2.04 2.55 (0.56) 2.29
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net investment income) ................ (0.52) (0.50) (0.59) (0.54) (0.63)
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)
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 12.55 $ 12.40 $ 11.71 $ 9.93 $ 11.33
======== ======== ======== ======== ========
Total Return:
Total investment return based on
net asset value (1) ................................... 10.67% 17.39% 25.69% -4.96% 22.71%
Ratios/Supplemental Data:
Net assets, end of year (000's omitted) ................ $ 44,949 $ 26,022 $ 14,487 $ 9,758 $ 4,951
Ratio of net expenses to average net assets ............ 0.54% 0.55% 0.55% 0.55% 0.55%
Ratio of net income to average net assets .............. 4.94% 4.73% 5.80% 6.23% 6.23%
Portfolio turnover rate ................................ 52% 82% 48% 59% 59%
Average commission rate per share (2) .................. $ 0.0557 $ 0.0534
Information assuming no voluntary reimbursement
or waiver by FBL Investment of excess operating
expenses (see NOTE 3):
Per share net investment income ........................ $ 0.52 $ 0.57 $ 0.62 $ 0.63 $ 0.67
Ratio of expenses to average net assets ................ 0.60% 0.75% 0.77% 0.80% 0.91%
Amount reimbursed ...................................... $ 17,771 $ 38,874 $ 26,008 $ 19,147 $ 15,076
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO
- --------------------------------------------------------- -----------------------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 24.68 $ 20.70 $ 15.82 $ 15.67 $ 13.96
0.05 0.05 0.05 0.04 0.03 0.42 0.45 0.39 0.34 0.29
6.34 3.99 4.80 0.07 1.72
- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
0.05 0.05 0.05 0.04 0.03 6.76 4.44 5.19 0.41 2.01
- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
(0.05) (0.05) (0.05) (0.04) (0.03) ( 0.42) (0.34) (0.31) ( 0.26) ( 0.30)
(0.01) (0.12)
- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
(0.05) (0.05) (0.05) (0.04) (0.03) (0.43) (0.46) (0.31) ( 0.26) ( 0.30)
- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 31.01 $ 24.68 $ 20.70 $ 15.82 $ 15.67
======= ======= ======= ======= ======= ======= ======== ======== ======== =======
5.07% 4.90% 5.47% 3.68% 2.68% 27.41% 21.43% 32.81% 2.65% 14.36%
$ 6,078 $ 3,819 $ 3,159 $ 2,658 $ 2,300 $ 31,865 $ 4,493 $ 6,665 $ 3,262 $ 1,654
0.48% 0.55% 0.55% 0.55% 0.55% 0.33% 0.48% 0.55% 0.55% 0.55%
4.65% 4.58% 5.27% 3.63% 2.65% 1.83% 1.92% 2.07% 2.19% 1.92%
0% 0% 0% 0% 0% 3% 2% 1% 0% 0%
$ 0.0353 $ 0.0825
$ 0.05 $ 0.04 $ 0.05 $ 0.04 $ 0.02 $ 0.38 $ 0.30 $ 0.24
0.55% 0.82% 0.90% 0.82% 0.79% 0.59% 0.81% 0.89%
$ 2,912 $ 9,569 $ 9,816 $ 7,157 $ 5,838 $ 1,952 $ 6,360 $ 5,495
</TABLE>
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
FBL Variable Insurance Series Fund
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of FBL Variable Insurance Series Fund
(comprising, respectively, the Value Growth, High Grade Bond, High Yield Bond,
Managed, Money Market and Blue Chip Portfolios) as of December 31, 1997, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the FBL Variable Insurance Series
Fund at December 31, 1997, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 27, 1998
44
