<PAGE>
----------------------------
[LOGO]
EquiTrust Variable Insurance
Series Fund
ANNUAL REPORT
DECEMBER 31, 1998
INVESTMENT MANAGER AND
PRINCIPAL UNDERWRITER
EQUITRUST INVESTMENT
MANAGEMENT SERVICES, INC.
5400 UNIVERSITY AVENUE
WEST DES MOINES, IA 50266
1-800-247-4170 (OUTSIDE IOWA)
1-800-422-3175 (IN IOWA)
225-5586 (DES MOINES)
This report is not to be
distributed
unless preceded or accompanied
by a prospectus.
737-525(98)
<PAGE>
PRESIDENT'S LETTER
Dear Shareholder:
For the year ending December 31, 1998, the S&P 500 was up 28.59% on a total
return basis, and the Dow Jones Industrial Average (DJIA) was up 18.12%. During
the same twelve-month period, the Russell 2000 small cap index declined,
returning -2.55%. The total returns for the period were 13.78% for long-term
Treasury bonds and 10.47% for high-grade corporate bonds.
In response to spreading global financial turmoil and the absence of any
obvious domestic inflationary pressures, the Federal Reserve chose to ease in
three quarter-point increments during the second half of 1998. While consumer
prices rose at the slowest pace in 12 years in 1998, wage gains remained a
concern of Federal Reserve Chairman Greenspan. Thus far, corporations seem
unable to pass wage price increases on to consumers. Unemployment at a 28-year
low of 4.3% "has failed to ignite the inflationary pressures that many had
feared," according to Greenspan.
At the December Fed meeting, the Federal Funds rate was left unchanged at
4.75%. Given the strength demonstrated by the domestic economy, not to mention
the stock market indices, the Fed seems unlikely to resume easing anytime soon.
The consumer price index (CPI) rose only 1.6% during 1998, leading some to argue
that the Fed is still quite restrictive. The inflation-adjusted or "real" Fed
Funds rate was 4.75% minus 1.6% (CPI), or 3.15%. Moreover, core CPI (excluding
food and energy costs) rose 2.5% during 1998, implying a much lower real rate.
The dramatic decline in energy prices along with numerous other commodities is
unlikely to be sustained. If energy and food prices stabilize, the outlook for
overall consumer prices could deteriorate.
Demonstrating amazing resilience, the U.S. economy expanded at a 3.7% annual
rate in the third quarter of 1998, and probably grew at an even faster rate
during the fourth quarter. However, much will still depend on the outlook for
the global economy. Worldwide excess capacity in a number of industries is
likely to dampen capital spending in the U.S. In fact, domestic capacity
utilization has already begun to decline (80.9% as of December 1998 vs. 83.4% a
year earlier) and spending cuts are becoming evident. While the consumer is said
to be the source of our current economic strength, declining capital spending
will, over time, filter through.
As a result of the imbalances that exist between productive capacity and
global demand, monetary authorities worldwide have made stimulation of growth
the primary objective, rather than inflation fighting. The success of the
world's monetary authorities in this attempt at stimulating their respective
economies will play a significant role in the direction of the U.S. financial
markets. Demand growth outside the U.S. will be necessary, since the U.S. cannot
continue as the "consumer of last resort" forever. Our trade deficit, which from
January through November totaled $153.92 billion, surpasses the record yearly
amount achieved in 1987. Imports would have been even greater were it not for
the depressed energy prices U.S. consumers now enjoy. At some point, foreigners
may refuse to facilitate our consumption by holding more and more dollars.
The following paragraphs describe how the various EquiTrust Variable
Insurance Series Fund Portfolios are being positioned and where we see value
that has developed as a result of recent financial market volatility.
2
<PAGE>
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: The Value Growth Portfolio's performance suffered badly for
the year ending December 31, 1998. Our return of -24.43% is in stark contrast to
the S&P 500 return of +28.59%. Our recent performance has been distressing and
disappointing for all the shareholders and us as well. We had not envisioned an
environment with such a large divergence of optimism and pessimism relating to
different categories of stock: e.g. small companies vs. large, energy vs.
technology, internet vs. the rest of the market, top 10 S&P 500 stocks vs.
bottom 10 S&P 500 stocks and S&P top 20 vs. NYSE average.
We have had a long-standing emphasis on a fairly concentrated list of value
stocks, resulting in a portfolio that can behave very differently from the stock
market as a whole. In the past, the Value Growth Portfolio's returns have
diverged significantly--sometimes positively and other times negatively--from
those of the overall market. Although we try to be very careful and disciplined
about the prices we pay for shares of businesses, we understand that virtually
ANY company's share price may fall 20-30% at any time. However, it remains
highly unlikely that all companies' share prices will fall 20-30% or more at the
same time, without company-specific negative developments, except during world
crises. As investors, we are faced with an unprecedented increase in market
volatility, including a tremendous decline in smaller company stocks and energy
issues.
The past 2 1/2 years have been unprecedented, as big company stocks, selling
at extremely high valuations, have gone up, while small company stocks (selling
significantly below their true business value) continue to go down, or not
recover. As a value investor, I can't help but see the tremendous long-term
opportunities being borne out of this two-tier market.
Our stock selection strategy is geared to finding attractive companies at
reduced prices and that strategy simply got run over by the
"big-names-at-any-price" mentality that has seized the market this year. Similar
investment sentiment also prevailed in the early seventies when investors
flocked to large, well-known stocks. The stocks traded at very high multiples
while the rest of the market languished. Eventually those "Nifty-Fifty" stocks
were crushed in the bear market of 1973 - 1974.
We continue to believe that despite the overall market's current fascination
with the largest stocks, there are better buys (with price reductions of 30-80%)
to be found among small- to mid-sized companies. Despite a lack of current
investor support for these companies which may last for an indefinite period of
time, we believe that many of the current holdings are worth twice their current
market quote, if evaluated as to what a "rational" business owner would pay for
the entire business. Merger activity may accelerate for these companies because
of their attractive prices, although any acquisitions will probably not occur in
straight line fashion. Our relative performance, positive or negative, will not
either.
As Warren Buffett states in Berkshire Hathaway's 1990 annual report:
"Investors who expect to be ongoing buyers of investments throughout
their lifetimes should adopt a similar attitude toward market fluctuations;
instead many illogically become euphoric when stock prices rise and unhappy
when they fall. They show no such confusion in their reaction to food
prices. Knowing they are forever going to be buyers of food, they welcome
falling prices and deplore price increases."
3
<PAGE>
Although we strive to provide attractive risk-adjusted returns for our
shareholders, there will inevitably be periods of time when the portfolio will
not meet these expectations for all involved. It is during these periods when we
must remain committed to our goal of diligently looking for the best stock
values. Our strategy of taking significant positions in companies that are out
of favor with the "crowd" requires patience. Successful long-term investors
don't follow the crowd. And right now the "crowd" is making a mad dash to exit
energy and small-cap stocks while we have been shopping for bargains. We are
determined to stay the course and encourage shareholders to do the same. Over
the long-term, the benefits of this approach should become apparent.
By continuing to focus on "value" and "growth" at a reasonable price, we
hope to enhance the Portfolio's future returns. We derive comfort from the
empirical knowledge that the fundamental financial characteristics of the stocks
we own have in the past produced attractive returns over long periods of time.
The mettle of an investment strategy is not proven in a year or even a period of
years. We urge our fellow shareholders in the Value Growth Portfolio to maintain
a long-term focus. We believe that the Value Growth Portfolio can serve as a
valid option to a diversified portfolio of other stock funds, bond funds, and
cash reserves, chosen in proportions consistent with your goals, time horizon,
and tolerance for the increased volatility of the global financial markets. We
believe success is found in thoughtfully constructing an investment plan and
sticking with it.
HIGH GRADE BOND: U.S. Treasury yields were approximately 100 basis points
lower at year-end. For example, the 2-year, 10-year and 30-year Treasury issues
yielded 5.64%, 5.74% and 5.92%, respectively, as of December 31, 1997 and 4.53%,
4.65% and 5.09%, as of December 31, 1998.
During the latter part of the year, we saw a dramatic increase in the yield
spreads on corporate and mortgage-backed issues as investors became increasingly
risk averse. One asset class that we felt offered appealing value was current
coupon GNMA securities, which were trading at very attractive levels. As a
result, we have increased the portfolio's allocation in GNMA issues to around
35%, up from approximately 25% at this time last year.
Given the dramatic drop in interest rates, we do not plan to significantly
increase the duration of our portfolio at this time and accordingly, our
sensitivity to changes in interest rates will probably remain much lower than
more interest rate sensitive bond funds.
HIGH YIELD BOND: During the past year, the high yield bond market greatly
underperformed the high grade bond market. The High Yield Bond Portfolio had
very good relative performance during this difficult time due to its lower
exposure to high yield issues.
At the present time, the yield pick-up on high yield issues is at a level
that factors in a possible recession and much higher default rates. Since the
market is finally pricing in these risks, we will look to increase our exposure
to high yield issues.
MANAGED: The Managed Portfolio emphasizes income with moderate growth
potential. Income continues to be of importance in most portfolios, but our goal
is to produce income at twice the rate of the dividend yield on the S&P 500,
which is currently a miniscule 1.3%, the lowest in history. Growth is a
secondary objective, but nevertheless an important component of total return
(income + price appreciation). We continue to find investments that should
easily equal or better our hurdle rate of 2.6% (1.3% S&P 500 rate X 2).
4
<PAGE>
We are disappointed in our short-term performance and attribute the bulk of
the decline to the energy convertible securities that the portfolio owned. The
convertible bond market suffered extensive declines due to the decimation of
small cap stocks, and the overall "flight to quality" for Treasury bonds.
Currently, we have added some excellent utility companies and non-convertible
preferreds at yields of 5-9%. We believe this is a generous yield in comparison
to 1.3% on the S&P 500 and 5.17% on a 30-year Treasury note and should generate
solid income returns in the future. The Managed Portfolio is uniquely positioned
for any investors desiring income and purchasing power protection. There are
attractive income and convertible issues as represented by some of our recent
purchases of: Healthsouth convertibles, Texaco common, Wendy's convertibles,
Sara Lee common, IdaCorp common, Campbell Soup common and Newell Co.
convertibles.
MONEY MARKET: Treasury bills yield 70 basis points less than a year ago,
reflecting the 0.75% Fed Funds rate cut by the FOMC. These cuts were effected to
calm the markets during a liquidity crisis brought on by hedge fund failures.
Currently, the targeted Fed funds rate is 4.75% and the discount rate is 4.50%,
while a 90-day Treasury bill yields 4.48%. Commercial paper spreads have widened
in conjunction with corporate bond spreads, which began sometime in July. We
have not increased our commercial paper exposure because government agency
spreads are also attractive, offering excellent credit quality and liquidity.
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
February 2, 1999
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 STOCK
VALUE GROWTH PORTFOLIO COMPOSITE INDEX
<S> <C> <C>
1988 $10,000 $10,000
1989 $11,113 $13,149
1990 $11,629 $12,732
1991 $13,319 $16,621
1992 $14,712 $17,897
1993 $18,713 $19,685
1994 $17,884 $19,943
1995 $22,512 $27,409
1996 $26,485 $33,732
1997 $28,153 $44,998
1998 $21,277 $57,862
AVERAGE ANNUAL TOTAL RETURN
1 Year -24.43%
5 Year 2.60%
10 Year 7.84%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
For the twelve-month period ending December 31, 1998, the total return for
the Value Growth Portfolio was -24.43%, compared to the 28.59% total return
(income and price appreciation) produced by the S&P 500 Stock Composite Index.
The wide difference in performance is due to two main factors: the huge
disparity in returns of large companies and small companies, and the severe
price decline of energy-related issues.
The selling in drilling stocks, which began in late 1997, was sparked by
fears (now a reality) of lower oil industry capital expenditures in 1998, due to
sharply lower oil prices. Although we believe that drilling activity will
increase over the long term, there has been a reduction in near-term capital
spending which has led to lower levels of drilling activity. However, we think
the price declines as represented by the S&P drilling and equipment index do not
reflect the companies' long-term prospects. These companies are selling at
bargain prices (approximately 40% of the cost of replacing their current rig
fleet), and we believe this temporary lull in drilling is not representative of
these companies' ongoing business value.
Smaller capitalization stocks also suffered disproportionately to their
large-cap brethren. Merrill Lynch calculated that over 50% of the S&P's return
for 1998 came from just 11 stocks. The Russell 2000 return for 1998 was -3.4%.
The smaller the company, the worse it performed.
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS
HIGH GRADE MUTUAL FUND
BOND PORTFOLIO AGGREGATE INDEX
<S> <C> <C>
1988 $10,000 $10,000
1989 $11,274 $11,453
1990 $12,272 $12,478
1991 $14,287 $14,475
1992 $15,487 $15,549
1993 $16,841 $17,065
1994 $16,798 $16,566
1995 $19,192 $19,626
1996 $20,332 $20,339
1997 $22,415 $22,301
1998 $24,099 $24,239
AVERAGE ANNUAL TOTAL RETURN
1 Year 7.51%
5 Year 7.43%
10 Year 9.19%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
During the twelve-month period ending December 31, 1998, the High Grade Bond
Portfolio underperformed the Lehman Brothers Mutual Fund Aggregate Index, as
reflected by the 7.51% total return produced by the Portfolio versus the 8.69%
total return produced by the Lehman Brothers Aggregate Index. The main factors
that caused this divergence in performance were Portfolio expenses and the
shorter effective duration of the High Grade Bond Portfolio relative to the
Lehman Aggregate Index.
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS
HIGH YIELD MUTUAL FUND
BOND PORTFOLIO CORPORATE/HIGH YIELD INDEX
<S> <C> <C>
1988 $10,000 $10,000
1989 $10,808 $11,252
1990 $10,881 $11,870
1991 $13,871 $14,321
1992 $15,729 $15,658
1993 $18,243 $17,669
1994 $18,059 $17,059
1995 $20,795 $20,766
1996 $23,426 $21,742
1997 $26,253 $24,077
1998 $28,058 $25,753
AVERAGE ANNUAL TOTAL RETURN
1 Year 6.88%
5 Year 8.99%
10 Year 10.87%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
During the twelve-month period ending December 31, 1998, the 6.88% total
return produced by the High Yield Bond Portfolio trailed the 6.96% total return
produced by the Lehman Brothers Mutual Fund Corporate/High Yield Index. The main
factor causing this disparity in performance returns was Portfolio expenses.
8
<PAGE>
MANAGED PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE MANAGED PORTFOLIO AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 STOCK
MANAGED PORTFOLIO COMPOSITE INDEX
<S> <C> <C>
1988 $10,000 $10,000
1989 $10,886 $13,149
1990 $11,773 $12,732
1991 $13,267 $16,621
1992 $15,352 $17,897
1993 $18,839 $19,685
1994 $17,905 $19,943
1995 $22,505 $27,409
1996 $26,418 $33,732
1997 $29,237 $44,998
1998 $26,690 $57,862
AVERAGE ANNUAL TOTAL RETURN
1 Year -8.71%
5 Year 7.22%
10 Year 10.32%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
The Managed Portfolio is an asset allocation portfolio with an emphasis on
securities producing income and moderate growth potential, and will not likely
mirror any particular index (equity or fixed-income) over time. It meets this
objective by maintaining a majority of its assets in convertible bonds and
preferred stocks. The Portfolio's recent performance has been hindered because
many of these convertible securities were in the energy sector. During the
twelve-month period ending December 31, 1998, the Portfolio produced a total
return of -8.71% compared to the +28.59% total return (income and price
appreciation) produced by the S&P 500 Stock Composite Index. The Managed
Portfolio will continue to seek out high income, concentrating on convertibles
and higher yielding common stocks. The dividend yield on the S&P 500 is only
1.3%, and we believe that from these market levels, income will take on a larger
role in producing attractive total returns. The Managed Portfolio is uniquely
positioned for this type of environment.
9
<PAGE>
BLUE CHIP PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE BLUE CHIP PORTFOLIO AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 STOCK
BLUE CHIP PORTFOLIO COMPOSITE INDEX
<S> <C> <C>
11/1/90 $10,000 $10,000
12/31/90 $10,902 $10,936
12/31/91 $13,976 $14,276
12/31/92 $15,427 $15,371
12/31/93 $17,643 $16,906
12/31/94 $18,110 $17,128
12/31/95 $24,052 $23,539
12/31/96 $29,206 $28,969
12/31/97 $37,211 $38,645
12/31/98 $44,247 $49,693
AVERAGE ANNUAL TOTAL RETURN
1 Year 18.91%
5 Year 20.19%
Life of Portfolio* 19.45%
*THE PORTFOLIO COMMENCED OPERATIONS OCTOBER 15, 1990.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
The Blue Chip Portfolio is designed to represent the large capitalization
sector of the domestic equity market and remains substantially invested in
approximately 50 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 for the twelve-month period ended December
31, 1998.
10
<PAGE>
(This page has been left blank intentionally.)
11
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------- ------------
<S> <C> <C>
ASSETS
Investments in
securities, at value
(cost -- $44,322,372;
$10,863,856;
$15,277,705;
$58,831,808; $5,686,406;
and $45,880,475,
respectively)........... $ 43,574,987 $ 11,097,844
Cash..................... 34,815
Receivables:
Accrued dividends and
interest receivable... 58,866 138,685
Investment securities
sold.................. 728,062 188
Prepaid expense........ 1,140 140
------------- ------------
Total Assets............. $ 44,363,055 $ 11,271,672
------------- ------------
------------- ------------
LIABILITIES AND NET
ASSETS
Liabilities:
Net outstanding
redemptions in excess
of bank balance....... $ 104,340
Investment securities
purchased............. 1,583,721 $ 1,008,377
Accrued expenses....... 10,577 7,826
------------- ------------
Total Liabilities........ 1,698,638 1,016,203
Net assets applicable to
shares of beneficial
interest................ 42,664,417 10,255,469
------------- ------------
Total Liabilities and Net
Assets.................. $ 44,363,055 $ 11,271,672
------------- ------------
------------- ------------
Shares issued and
outstanding as of
December 31, 1998....... 4,489,541 1,006,339
NET ASSET VALUE PER
SHARE................... $ 9.50 $ 10.19
------------- ------------
------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
12
<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 -- $44,322,372;
$10,863,856;
$15,277,705;
$58,831,808; $5,686,406;
and $45,880,475,
respectively)........... $ 15,450,542 $ 56,039,965 $5,686,406 $ 60,951,453
Cash..................... 359,892
Receivables:
Accrued dividends and
interest receivable... 279,603 236,604 2,864 65,516
Investment securities
sold.................. 318,539
Prepaid expense........ 237 1,189 139 927
------------ ------------ ------------- ------------
Total Assets............. $ 15,730,382 $ 56,596,297 $6,049,301 $ 61,017,896
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
LIABILITIES AND NET
ASSETS
Liabilities:
Net outstanding
redemptions in excess
of bank balance....... $ 42,041 $ 147,756 $ 157,615
Investment securities
purchased............. 2,524
Accrued expenses....... 8,501 11,863 $ 7,127 10,206
------------ ------------ ------------- ------------
Total Liabilities........ 50,542 162,143 7,127 167,821
Net assets applicable to
shares of beneficial
interest................ 15,679,840 56,434,154 6,042,174 60,850,075
------------ ------------ ------------- ------------
Total Liabilities and Net
Assets.................. $ 15,730,382 $ 56,596,297 $6,049,301 $ 61,017,896
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Shares issued and
outstanding as of
December 31, 1998....... 1,541,790 4,930,446 6,042,174 1,650,255
NET ASSET VALUE PER
SHARE................... $ 10.17 $ 11.45 $ 1.00 $ 36.87
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
13
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
HIGH
VALUE GROWTH GRADE BOND
PORTFOLIO PORTFOLIO
------------ -----------
<S> <C> <C>
INVESTMENT INCOME
Dividends................ $ 390,116 $ 14,300
Interest................. 834,738 517,292
------------ -----------
Total Investment
Income.................. 1,224,854 531,592
EXPENSES
Paid to EquiTrust
Investment Management
Services, Inc.:
Investment advisory and
management fees........ 203,671 22,977
Accounting fees......... 22,630 3,829
Custodial fees........... 8,896 4,095
Professional fees........ 8,975 5,960
Reports to
shareholders............ 4,124 1,185
Trustees' fees and
expenses................ 1,542 230
Insurance and bonds...... 1,011 125
Miscellaneous............ 702 149
------------ -----------
Total Expenses........... 251,551 38,550
Fees paid indirectly..... (3,527) (2,854)
------------ -----------
Net Expenses............. 248,024 35,696
------------ -----------
Net Investment Income.... 976,830 495,896
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss)
from investment
transactions............ (12,222,329) 42,339
Change in unrealized
appreciation/depreciation
of investments.......... (1,659,408) 16,979
------------ -----------
Net gain (loss) on
investments............. (13,881,737) 59,318
------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $(12,904,907) $555,214
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
<TABLE>
<CAPTION>
HIGH
YIELD BOND MANAGED MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................ $ 50,680 $ 1,234,534 $ 711,635
Interest................. 885,419 1,686,343 $309,136 242,474
----------- ------------ ------------- ------------
Total Investment
Income.................. 936,099 2,920,877 309,136 954,109
EXPENSES
Paid to EquiTrust
Investment Management
Services, Inc.:
Investment advisory and
management fees........ 55,831 239,288 14,320 95,465
Accounting fees......... 6,203 26,588 2,864 23,866
Custodial fees........... 5,447 5,402 7,112 7,436
Professional fees........ 6,327 7,143 5,633 3,497
Reports to
shareholders............ 1,570 4,667 1,136 4,176
Trustees' fees and
expenses................ 424 1,833 201 1,533
Insurance and bonds...... 208 1,033 124 781
Miscellaneous............ 254 3,609 155 6,741
----------- ------------ ------------- ------------
Total Expenses........... 76,264 289,563 31,545 143,495
Fees paid indirectly..... (3,460) (4,456) (4,352) (5,701)
----------- ------------ ------------- ------------
Net Expenses............. 72,804 285,107 27,193 137,794
----------- ------------ ------------- ------------
Net Investment Income.... 863,295 2,635,770 281,943 816,315
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss)
from investment
transactions............ 92,105 (3,607,983) (236,791)
Change in unrealized
appreciation/depreciation
of investments.......... (137,099) (4,288,730) 6,904,202
----------- ------------ ------------- ------------
Net gain (loss) on
investments............. (44,994) (7,896,713) 6,667,411
----------- ------------ ------------- ------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $ 818,301 $ (5,260,943) $281,943 $ 7,483,726
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
</TABLE>
15
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
-------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------ -----------
<S> <C> <C>
OPERATIONS
Net investment income.... $ 976,830 $ 876,108
Net realized gain (loss)
from investment
transactions............ (12,222,329) 2,628,392
Change in unrealized
appreciation/depreciation
of investments.......... (1,659,408) (1,441,898)
------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... (12,904,907) 2,062,602
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (6,577) (869,530)
Net realized gain from
investment
transactions............ (2,981,975)
Distributions in excess
of net realized gain
from investment
transactions............ (26,956) (456,979)
------------ -----------
(33,533) (4,308,484)
CAPITAL SHARE
TRANSACTIONS............ 12,136,936 18,523,352
------------ -----------
Total Increase (Decrease)
in Net Assets........... (801,504) 16,277,470
NET ASSETS
Beginning of year........ 43,465,921 27,188,451
------------ -----------
End of year (including
undistributed net
investment income as set
forth below)............ $ 42,664,417 $43,465,921
------------ -----------
------------ -----------
Undistributed Net
Investment Income....... $ 978,563 $ 8,310
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.... $ 495,896 $ 293,404 $ 863,295 $ 552,718
Net realized gain (loss)
from investment
transactions............ 42,339 9,918 92,105 64,050
Change in unrealized
appreciation/depreciation
of investments.......... 16,979 122,117 (137,099) 208,688
----------- ---------- ----------- ----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 555,214 425,439 818,301 825,456
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (495,896) (293,404) (863,295) (552,718)
Net realized gain from
investment
transactions............ (12,471) (52,004)
Distributions in excess
of net realized gain
from investment
transactions............
----------- ---------- ----------- ----------
(495,896) (293,404) (875,766) (604,722)
CAPITAL SHARE
TRANSACTIONS............ 4,821,771 1,707,790 7,114,059 2,473,420
----------- ---------- ----------- ----------
Total Increase (Decrease)
in Net Assets........... 4,881,089 1,839,825 7,056,594 2,694,154
NET ASSETS
Beginning of year........ 5,374,380 3,534,555 8,623,246 5,929,092
----------- ---------- ----------- ----------
End of year (including
undistributed net
investment income as set
forth below)............ $10,255,469 $5,374,380 $15,679,840 $8,623,246
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Undistributed Net
Investment Income....... $ 0 $ 0 $ 0 $ 0
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
17
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
------------------------
YEAR ENDED DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income.... $ 2,635,770 $ 1,744,902
Net realized gain (loss)
from investment
transactions............ (3,607,983) 1,646,469
Change in unrealized
appreciation/depreciation
of investments.......... (4,288,730) 106,045
----------- -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... (5,260,943) 3,497,416
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (19,731) (1,727,782)
Net realized gain from
investment
transactions............ (11,609) (2,130,931)
Distributions in excess
of net realized gain
from investment
transactions............
----------- -----------
(31,340) (3,858,713)
CAPITAL SHARE
TRANSACTIONS............ 16,777,676 19,287,783
----------- -----------
Total Increase (Decrease)
in Net Assets........... 11,485,393 18,926,486
NET ASSETS
Beginning of year........ 44,948,761 26,022,275
----------- -----------
End of year (including
undistributed net
investment income as set
forth below)............ $56,434,154 $44,948,761
----------- -----------
----------- -----------
Undistributed Net
Investment Income....... $ 2,634,990 $ 18,951
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO
------------------------ --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.... $ 281,943 $ 197,908 $ 816,315 $ 427,722
Net realized gain (loss)
from investment
transactions............ (236,791) 17,242
Change in unrealized
appreciation/depreciation
of investments.......... 6,904,202 4,627,295
---------- ---------- ----------- -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 281,943 197,908 7,483,726 5,072,259
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... (281,943) (197,908) (2,137) (426,904)
Net realized gain from
investment
transactions............ (3,441) (14,230)
Distributions in excess
of net realized gain
from investment
transactions............
---------- ---------- ----------- -----------
(281,943) (197,908) (5,578) (441,134)
CAPITAL SHARE
TRANSACTIONS............ (35,343) 2,258,256 21,507,002 12,740,683
---------- ---------- ----------- -----------
Total Increase (Decrease)
in Net Assets........... (35,343) 2,258,256 28,985,150 17,371,808
NET ASSETS
Beginning of year........ 6,077,517 3,819,261 31,864,925 14,493,117
---------- ---------- ----------- -----------
End of year (including
undistributed net
investment income as set
forth below)............ $6,042,174 $6,077,517 $60,850,075 $31,864,925
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Undistributed Net
Investment Income....... $ 0 $ 0 $ 816,323 $ 2,145
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
19
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
<S> <C> <C>
COMMON STOCKS (76.63%)
- ---------------------------
BUSINESS SERVICES (1.26%)
ManPower, Inc......................... 21,400 $ 539,013
CHEMICALS AND ALLIED PRODUCTS (6.01%)
Johnson & Johnson..................... 15,000 1,258,125
Proctor & Gamble Co................... 10,000 913,125
Twinlab Corp.......................... 30,000(1) 393,750
------------
2,565,000
COMMUNICATIONS (2.36%)
Commonwealth Telephone Enterprise..... 30,000(1) 1,005,000
DEPOSITORY INSTITUTIONS (3.94%)
Household International, Inc.......... 20,000 792,500
U.S. Bancorp.......................... 25,000 887,500
------------
1,680,000
ELECTRIC, GAS AND SANITARY SERVICES (7.54%)
Helmerich & Payne..................... 20,000 387,500
Matrix Service Co..................... 162,900(1) 773,775
Northern States Power Co.............. 74,050 2,054,888
------------
3,216,163
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (1.10%)
Rohn Industries, Inc.................. 136,800(1) 470,250
FOOD & KINDRED PRODUCTS (4.74%)
Interstate Bakers..................... 30,000 793,125
PepsiCo, Inc.......................... 30,000 1,228,125
------------
2,021,250
FOOD STORES (1.74%)
Casey's General Store................. 57,000 742,784
HOLDING AND OTHER INVESTMENT OFFICES (0.94%)
Wintrust Financial Corp............... 20,550(1) 403,294
INDUSTRIAL MACHINES & EQUIPMENT (0.96%)
Oceaneering International, Inc........ 11,400(1) 171,000
Petroleum Geo - SVCS ADR.............. 15,000(1) 236,250
------------
407,250
INSTRUMENTS & RELATED PRODUCTS (2.62%)
Allied Healthcare Products............ 21,900(1) 35,588
Eastman Kodak Company................. 15,000 1,080,000
------------
1,115,588
</TABLE>
20
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
INSURANCE CARRIERS (3.27%)
<S> <C> <C>
Danielson Holding Corp................ 71,700(1) $ 255,431
NAC RE Corp........................... 12,000 563,250
Transatlantic Holdings, Inc........... 7,650 578,053
------------
1,396,734
LUMBER & WOOD PRODUCTS (5.69%)
Hon Industries........................ 101,350 2,426,066
METAL MINING (10.62%)
Barrick Gold Corp..................... 130,000 2,535,000
Freeport-McMoran Copper............... 7,800 75,563
Glamis Gold, Ltd...................... 69,700(1) 130,688
Newmont Mining Corp................... 99,000 1,788,188
------------
4,529,439
MISCELLANEOUS MANUFACTURING INDUSTRIES (2.92%)
Emerson Electric...................... 10,000 625,625
Newell Company........................ 15,000 618,750
------------
1,244,375
MISCELLANEOUS RETAIL (3.37%)
Mattel, Inc........................... 30,000 684,375
Southland Corp........................ 396,000(1) 754,895
------------
1,439,270
NONDEPOSITORY INSTITUTIONS (4.92%)
Berkshire Hathaway, Inc............... 30(1) 2,100,000
NONMETALLIC MINERALS EXCLUDING FUELS (0.40%)
De Beers Cons Mines................... 13,500 172,125
OIL AND GAS EXTRACTION (2.42%)
Diamond Offshore Drilling............. 5,000 118,438
Santa Fe International Corp........... 50,000 725,000
Transocean Offshore, Inc.............. 7,000 187,688
------------
1,031,126
PERSONAL SERVICES (3.69%)
Block (H & R), Inc.................... 35,000 1,575,000
PETROLEUM & COAL PRODUCTS (3.00%)
Phillips Petroleum.................... 30,000 1,278,750
</TABLE>
21
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
------------- ------------
TRANSPORTATION BY AIR (0.31%)
<S> <C> <C>
Petroleum Helicopters-Voting.......... 2,250 $ 36,280
Petroleum Helicopters-Non Voting...... 5,400 97,200
------------
133,480
TRUCKING & WAREHOUSING (1.23%)
Heartland Express, Inc................ 30,000(1) 525,000
WATER TRANSPORTATION (1.58%)
American Water Works, Inc............. 20,000 675,000
------------
Total Common Stocks..................... 32,691,957
PREFERRED STOCKS (12.44%)
- ------------------------------
COMMUNICATIONS (2.34%)
Mediaone Group, Inc................... 15,000 997,500
EATING & DRINKING PLACES (1.46%)
Wendy's Financing..................... 12,000 624,000
ELECTRIC, GAS & SANITARY SERVICES (3.17%)
Citizens Utilities Trust.............. 14,600 622,325
Northwestern Capital Finance.......... 28,750 729,530
------------
1,351,855
HOLDING AND OTHER INVESTMENT OFFICES (3.62%)
General Growth Properties, Inc........ 59,960 1,543,970
INSURANCE CARRIERS (0.18%)
Equitable of Iowa Capital............. 3,000 79,500
MISC. MANUFACTURING INDUSTRIES (1.67%)
Cyprus Amax Minerals Company.......... 20,000 712,500
------------
Total Preferred Stocks.................. 5,309,325
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CORPORATE BONDS (1.00%)
- ----------------------------
HEALTH SERVICES (1.00%)
Dura Pharmaceuticals, 3.5%, due
7/15/02.............................. $ 600,000 427,860
SHORT-TERM INVESTMENTS (12.06%)
- ------------------------------------
COMMERCIAL PAPER (2.61%)
Ford Motor Credit Corp., 5.62%, due
1/12/99.............................. 1,115,000 1,115,000
</TABLE>
22
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
VALUE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------
UNITED STATES GOVERNMENT AGENCIES (8.50%)
<S> <C> <C>
Federal Home Loan Bank, due 1/8/99.... $ 1,030,000 $ 1,028,982
Federal National Mortgage Assoc., due
1/21/99.............................. 1,110,000 1,106,840
Federal Home Loan Mortgage Corp., due
1/4/99............................... 1,490,000 1,489,373
------------
3,625,195
<CAPTION>
SHARES
HELD
-------------
<S> <C> <C>
MONEY MARKET MUTUAL FUND (0.95%)
Provident Treasury Cash Management.... 405,650 405,650
------------
Total Short-Term Investments............ 5,145,845
------------
Total Investments (102.13%)............. 43,574,987
OTHER ASSETS LESS LIABILITIES (-2.13%)
- ------------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... (910,570)
------------
Total Net Assets (100.00%).............. $42,664,417
------------
------------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
23
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
PREFERRED STOCK (2.11%)
- ---------------------------
HOLDING & OTHER INVESTMENT OFFICES
New Plan Realty Trust................. 4,000 $ 216,750
-----------
Total Preferred Stocks.................. 216,750
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
CORPORATE BONDS (44.83%)
- -----------------------------
COMMUNICATIONS (4.24%)
Comcast Cable Communications, 8.50%,
due 5/01/27.......................... $ 150,000 188,241
New England Tel & Tel, 7.375%, due
10/15/07............................. 244,000 246,901
-----------
435,142
DEPOSITORY INSTITUTIONS (1.49%)
J. P. Morgan & Co., 7.25%, due
10/01/10............................. 150,000 153,094
ELECTRIC, GAS AND SANITARY SERVICES (8.99%)
National Co-op Services Corp.,
(Arkansas Electric), 9.48%, due
1/01/12.............................. 350,000 373,093
Oglethorpe Power (OPC Scherer),
6.974%, due 6/30/11.................. 388,000 405,099
Western Penn Power Co., 7.875%, due
12/01/04............................. 140,000 143,342
-----------
921,534
GENERAL MERCHANDISE STORES (3.22%)
J.C. Penney & Co., 8.25%, due
8/15/22.............................. 300,000 330,741
HOLDING AND OTHER INVESTMENT OFFICES (8.20%)
Federal Realty Investment Trust,
8.875%, due 1/15/00.................. 100,000 102,150
Glenborough Properties, 7.625%, due
3/15/05.............................. 250,000 249,750
Meditrust, 7.60%, due 9/13/05......... 150,000 142,382
Washington REIT, 6.898%, due
2/25/08.............................. 350,000 347,022
-----------
841,304
INDUSTRIAL MACHINES & EQUIPMENT (5.00%)
Thermo Fibertek, 4.5%, due 7/15/04.... 600,000 512,814
NONDEPOSITORY INSTITUTIONS (4.68%)
Household Finance Co., 7.30%, due
7/30/12.............................. 200,000 210,302
Security Capital Pacific, 7.20%, due
3/01/13.............................. 275,000 269,767
-----------
480,069
PAPER AND ALLIED PRODUCTS (2.94%)
Union Camp Corp., 8.625%, due
4/15/16.............................. 290,000 301,278
</TABLE>
24
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
RAILROAD TRANSPORTATION (1.27%)
<S> <C> <C>
Union Pacific Corp., 8.50%, due
1/15/17.............................. $ 125,000 $ 129,938
TEXTILE MILL PRODUCTS (2.85%)
Unifi, 6.50%, due 2/01/08............. 280,000 291,945
TRANSPORTATION EQUIPMENT (1.95%)
Ford Motor Co., 9.215%, due 9/15/21... 150,000 199,658
-----------
Total Corporate Bonds................... 4,597,517
MORTGAGE-BACKED SECURITIES (36.03%)
- ------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
(0.31%)
Pool # 50276, 9.50%, due 2/01/20...... 29,610 31,700
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) (35.72%)
Pool # 1512, 7.50%, due 12/20/23...... 309,249 318,527
Pool # 002701, 6.50%, due 12/01/28.... 1,000,000 1,005,000
Pool # 22630, 6.50%, due 8/01/28...... 495,250 499,271
Pool # 2631, 7.00%, due 8/01/28....... 773,997 790,205
Pool # 2658, 6.50%, due 10/01/28...... 887,489 894,695
Pool # 236070, 10.00%, due 10/15/12... 82,026 88,409
Pool # 276337, 10.00%, due 8/15/19.... 61,674 67,668
-----------
3,663,775
-----------
Total Mortgage-Backed Securities........ 3,695,475
UNITED STATES TREASURY OBLIGATION (4.39%)
- ------------------------------------------------
U.S. Treasury Note, 7.25%, due
8/15/04.............................. 400,000 449,848
SHORT-TERM INVESTMENTS (20.85%)
- ------------------------------------
COMMERCIAL PAPER (2.44%)
General Electric Capital, 6.06%, due
1/07/99.............................. 250,000 250,000
UNITED STATES GOVERNMENT AGENCIES (15.47%)
Federal National Mortgage Assoc., due
1/21/99.............................. 680,000 678,096
Federal Home Loan Mortgage Corp., due
1/4/99............................... 300,000 299,874
Federal Home Loan Mortgage Corp., due
1/11/99.............................. 260,000 259,633
Federal Home Loan Mortgage Corp., due
1/14/99.............................. 350,000 349,364
-----------
1,586,967
</TABLE>
25
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH GRADE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
MONEY MARKET MUTUAL FUND (2.94%)
<S> <C> <C>
Provident Treasury Cash Management.... 301,287 $ 301,287
-----------
Total Short-Term Investments............ 2,138,254
-----------
Total Investments (108.21%)............. 11,097,844
OTHER ASSETS LESS LIABILITIES (-8.21%)
- ------------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... (842,375)
-----------
Total Net Assets (100.00%).............. $10,255,469
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
PREFERRED STOCK (8.93%)
- ---------------------------
DEPOSITORY INSTITUTIONS (0.83%)
CFB Capital........................... 5,000 $ 129,375
HOLDING & OTHER INVESTMENT OFFICES (2.42%)
New Plan Realty Trust................. 7,000 379,313
METAL MINING (5.68%)
Cameco Corp........................... 36,000 891,000
-----------
Total Preferred Stocks.................. 1,399,688
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
CORPORATE BONDS (75.85%)
- -----------------------------
AMUSEMENT & RECREATION SERVICES (1.26%)
AMF Bowling Worldwide, Inc., 10.875%,
due 3/15/06.......................... $ 240,000 198,000
APPAREL AND OTHER TEXTILE PRODUCTS (1.33%)
Dan River, Inc., 10.125%, due
12/15/03............................. 200,000 208,000
BUSINESS SERVICES (3.87%)
Cendant Corporation, 7.75%, due
12/01/03............................. 600,000 607,296
COMMUNICATIONS (8.53%)
Comcast Cable Communications, 8.50%,
due 5/01/27.......................... 300,000 376,482
Savoy Pictures, 7.00%, due 7/01/03.... 450,000 434,250
Telephone & Data Systems, Inc., 7.00%,
due 8/01/06.......................... 500,000 526,355
------------
1,337,087
DEPOSITORY INSTITUTIONS (1.61%)
First Bank NA, 6.25%, due 8/15/05..... 250,000 252,783
EATING AND DRINKING PLACES (3.37%)
Tricon Global Restaurants, Inc.,
7.65%, due 5/15/08................... 500,000 527,565
ELECTRIC, GAS & SANITARY SERVICES (12.00%)
ESI Tractebel, 7.99%, due 12/30/11.... 340,000 338,300
Gulf States Utilities, 8.94%, due
1/01/22.............................. 700,000 740,292
Niagara Mohawk Power, 7.875%, due
4/01/24.............................. 400,000 414,180
Waterford 3 Nuclear Power Plant,
8.09%, due 1/02/17................... 350,000 388,689
------------
1,881,461
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (1.64%)
Advanced Micro Devices, Inc., 11.00%,
due 8/01/03.......................... 240,000 257,700
</TABLE>
27
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ------------
FOOD STORES (1.06%)
<S> <C> <C>
P & C Food Markets, 11.50%, due
10/15/01............................. $ 150,000 $ 71,250
Penn Traffic Co., 10.25%, due
2/15/02.............................. 200,000 95,000
------------
166,250
GENERAL MERCHANDISE STORES (2.11%)
J.C. Penney & Co., 8.25%, due
8/15/22.............................. 300,000 330,741
HEALTH SERVICES (3.24%)
Tenet Healthcare, 7.625%, due
6/01/08.............................. 500,000 508,190
HOLDING AND OTHER INVESTMENT OFFICES (14.54%)
Bradley Operating LP, 7.20%, due
1/15/08.............................. 450,000 427,955
Federal Realty Investment Trust,
7.48%, due 8/15/26................... 600,000 665,468
Glenborough Properties, 7.625%, due
3/15/05.............................. 400,000 399,600
Price Development Company, 7.29%, due
3/11/08.............................. 450,000 462,488
Susa Partnership LP, 8.20%, due
6/01/17.............................. 325,000 323,456
------------
2,278,967
INSTRUMENTS & RELATED PRODUCTS (5.16%)
Thermo Electron Corp., 4.25%, due
1/01/03.............................. 900,000 809,441
LUMBER & WOOD PRODUCTS (2.65%)
Georgia Pacific, 9.875%, due
11/01/21............................. 225,000 253,298
Georgia Pacific, 9.125%, due
7/01/22.............................. 150,000 162,615
------------
415,913
MISCELLANEOUS RETAIL (1.38%)
Eckerd, 9.25%, due 2/15/04............ 205,000 215,414
NONDEPOSITORY INSTITUTIONS (1.10%)
Macsaver Financial, 7.40%, due
2/15/02.............................. 200,000 173,458
OIL AND GAS EXTRACTION (2.61%)
Occidental Petroleum Co., 7.375%, due
11/15/08............................. 400,000 408,328
PAPER AND ALLIED PRODUCTS (1.31%)
Container Corp. of America, 9.75%, due
4/01/03.............................. 200,000 206,000
REAL ESTATE (3.83%)
United Dominion Realty Trust, 8.125%,
due 11/15/00......................... 600,000 600,570
TRANSPORTATION EQUIPMENT (3.25%)
Federal Mogul Co., 7.75%, due
7/01/06.............................. 500,000 509,890
------------
Total Corporate Bonds................... 11,893,054
</TABLE>
28
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ------------
SHORT-TERM INVESTMENTS (13.76%)
- ------------------------------------
<S> <C> <C>
UNITED STATES GOVERNMENT AGENCIES (5.50%)
Federal Home Loan Bank, due 1/13/99... $ 305,000 $ 304,512
Federal Home Loan Mortgage Co., due
1/28/99.............................. 300,000 298,852
Federal Home Loan Mortgage Co., due
2/01/99.............................. 260,000 258,873
------------
862,237
COMMERCIAL PAPER (5.10%)
General Electric Capital, 6.11%, due
1/04/99.............................. 300,000 300,000
General Electric Capital, 5.75%, due
1/04/99.............................. 500,000 500,000
------------
800,000
<CAPTION>
SHARES
HELD
----------
<S> <C> <C>
MONEY MARKET MUTUAL FUND (3.16%)
Provident Treasury Cash Management.... 495,563 495,563
------------
Total Short-Term Investments............ 2,157,800
------------
Total Investments (98.54%).............. 15,450,542
OTHER ASSETS LESS LIABILITIES (1.46%)
- -----------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... 229,298
------------
Total Net Assets (100.00%).............. $ 15,679,840
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (3.68%)
- --------------------------
ELECTRIC, GAS AND SANITARY SERVICES (3.68%)
Citizens Utilities Co., Class B....... 10,070 $ 81,819
Otter Tail Power Co................... 50,000 1,993,750
-----------
Total Common Stocks..................... 2,075,569
PREFERRED STOCKS (27.28%)
- ------------------------------
DEPOSITORY INSTITUTIONS (6.48%)
CFB Capital I, Inc.................... 57,500 1,487,813
CFB Capital II, Inc................... 5,940 150,728
Harris Preferred Capital.............. 20,000 512,500
Taylor Capital Group, Inc............. 58,000 1,504,375
-----------
3,655,416
EATING & DRINKING PLACES (1.32%)
Wendy's Financing..................... 14,300 743,600
ELECTRIC, GAS AND SANITARY SERVICES (5.64%)
Citizens Utilities Trust.............. 30,500 1,300,063
Equitable Resources................... 50,000 1,262,500
Northwestern Capital Finance, Inc..... 24,500 621,688
-----------
3,184,251
HOLDING AND OTHER INVESTMENT OFFICES (6.28%)
General Growth Properties, Inc........ 100,000 2,575,000
Wintrust Capital Trust................ 37,500(1) 967,969
-----------
3,542,969
INSURANCE CARRIERS (2.05%)
Equitable of Iowa Capital............. 43,747 1,159,295
MISCELLANEOUS MANUFACTURING INDUSTRY (1.89%)
Cyprus Amax Minerals Co............... 30,000 1,068,750
NONDEPOSITORY INSTITUTIONS (1.14%)
Mediaone Finance Trust................ 25,000 640,625
OIL AND GAS EXTRACTION (1.27%)
El Paso Energy Capital Trust, Inc..... 15,000 718,125
PIPELINES EXCEPT NATURAL GAS (0.88%)
Enron Capital......................... 19,750 493,750
RAILROAD TRANSPORTATION (0.33%)
Union Pacific Capital Trust........... 4,000 186,000
-----------
Total Preferred Stocks.................. 15,392,781
</TABLE>
30
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
CORPORATE BONDS (19.88%)
- -----------------------------
<S> <C> <C>
ELECTRIC, GAS AND SANITARY SERVICES (0.16%)
National Co-op Services Corp.
(Arkansas Electric), 9.48%,
due 1/01/12.......................... $ 85,000 $ 90,608
HEALTH SERVICES (4.32%)
Dura Pharmaceuticals, 3.50%, due
7/15/02.............................. 2,000,000 1,426,200
Quantum Healthcare Resources, 4.75%,
due 10/01/00......................... 1,125,000 1,012,500
-----------
2,438,700
INSURANCE CARRIERS (1.81%)
NAC Re Corp., 5.25%, due 12/15/02..... 1,000,000 1,021,680
METAL MINING (1.73%)
Teck Corp., 3.75%, due 7/15/06........ 1,500,000 978,750
NONDEPOSITORY INSTITUTIONS (1.69%)
Consumer Portfolio Services, Inc.,
10.50%, due 4/15/04.................. 1,400,000 955,500
OIL AND GAS EXTRACTION (8.43%)
Diamond Offshore Drilling, 3.75%, due
2/15/07.............................. 1,700,000 1,591,098
Nabors Industries, Inc., 5.00%, due
5/15/06.............................. 1,700,000 1,666,000
Offshore Logistics, 6.00%, due
12/15/03............................. 1,500,000 1,301,775
Pride International, Inc., 6.25%, due
2/15/06.............................. 240,000 195,226
-----------
4,754,099
PETROLEUM AND COAL PRODUCTS (1.74%)
Trizec Hahn Corp., 3.25%, due
12/10/18............................. 1,400,000 983,500
-----------
Total Corporate Bonds................... 11,222,837
SHORT-TERM INVESTMENTS (48.46%)
- ------------------------------------
COMMERCIAL PAPER (7.84%)
Ford Motor Credit Corp., 5.35%, due
1/08/99.............................. 2,400,000 2,400,000
General Electric Capital Corp., 5.61%,
due 1/11/99.......................... 2,025,000 2,025,000
-----------
4,425,000
</TABLE>
31
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
UNITED STATES GOVERNMENT AGENCIES (38.21%)
<S> <C> <C>
Federal Home Loan Bank, due 1/13/99... $1,185,000 $ 1,183,007
Federal Home Loan Bank, due 1/29/99... 3,420,000 3,406,644
Federal National Mortgage Association,
due 1/07/99.......................... 1,300,000 1,298,932
Federal National Mortgage Association,
due 1/19/99.......................... 1,810,000 1,805,354
Federal National Mortgage Association,
due 2/04/99.......................... 1,500,000 1,492,901
Federal Home Loan Mortgage Corp., due
1/04/99.............................. 1,500,000 1,499,360
Federal Home Loan Mortgage Corp., due
1/06/99.............................. 1,050,000 1,049,267
Federal Home Loan Mortgage Corp., due
1/08/99.............................. 3,425,000 3,421,627
Federal Home Loan Mortgage Corp., due
1/14/99.............................. 1,840,000 1,836,656
Federal Home Loan Mortgage Corp., due
1/22/99.............................. 2,135,000 2,128,639
Federal Home Loan Mortgage Corp., due
1/27/99.............................. 1,427,000 1,421,804
Federal Home Loan Mortgage Corp., due
1/29/99.............................. 1,025,000 1,020,916
-----------
21,565,107
<CAPTION>
SHARES
HELD
----------
<S> <C> <C>
MONEY MARKET MUTUAL FUND (2.41%)
Provident Treasury Cash Management.... 1,358,671 1,358,671
-----------
Total Short-Term Investments............ 27,348,778
-----------
Total Investments (99.30%).............. 56,039,965
OTHER ASSETS LESS LIABILITIES (0.70%)
- -----------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... 394,189
-----------
Total Net Assets (100.00%).............. $56,434,154
-----------
-----------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
32
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
ANNUALIZED
YIELD ON
PURCHASE PRINCIPAL
DATE AMOUNT VALUE
---------- ------------ ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (94.11%)
- ------------------------------------
COMMERCIAL PAPER (21.76%)
NONDEPOSITORY INSTITUTIONS
American General Finance Co.,
4.89%, due 1/25/99............ 4.887% $ 275,000 $ 275,000
Ford Motor Credit Corp., 5.21%,
due 1/11/99................... 5.213 200,000 200,000
General Electric Capital,
5.67%, due 1/12/99............ 5.669 190,000 190,000
IBM Credit Corp., 4.80%, due
1/04/99....................... 4.803 250,000 250,000
John Deere Capital Corp.,
5.18%, due 1/20/99............ 5.175 225,000 225,000
Texaco, Inc., 5.99%, due
1/5/99........................ 5.988 175,000 175,000
------------
Total Commercial Paper........... 1,315,000
UNITED STATES GOVERNMENT AGENCIES (72.35%)
Federal Farm Credit Bank, due
1/19/99....................... 5.111 1,040,000 1,037,385
Federal Home Loan Bank, due
1/04/99....................... 5.148 730,000 729,691
Federal Home Loan Bank, due
1/08/99....................... 5.155 130,000 129,872
Federal Home Loan Mortgage
Corp., due 1/06/99............ 5.181 100,000 99,929
Federal Home Loan Mortgage
Corp., due 1/11/99............ 5.077 150,000 149,792
Federal Home Loan Mortgage
Corp., due 1/13/99............ 5.151 215,000 214,636
Federal Home Loan Mortgage
Corp., due 1/14/99............ 5.112 290,000 289,473
Federal Home Loan Mortgage
Corp., due 1/22/99............ 5.230 100,000 99,700
Federal Home Loan Mortgage
Corp., due 2/01/99............ 5.145 135,000 134,413
Federal Home Loan Mortgage
Corp., due 2/03/99............ 5.130 260,000 258,800
Federal National Mortgage
Assoc., due 1/07/99........... 5.167 550,000 549,533
Federal National Mortgage
Assoc., due 1/15/99........... 5.053 100,000 99,806
Federal National Mortgage
Assoc., due 1/21/99........... 5.125 580,000 578,376
------------
Total United States Government
Agencies........................ 4,371,406
------------
Total Short-Term Investments....... 5,686,406
OTHER ASSETS LESS LIABILITIES (5.89%)
- -----------------------------------------
Cash, receivables and prepaid
expense, less liabilities....... 355,768
------------
Total Net Assets (100.00%)......... $ 6,042,174
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
33
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (89.17%)
- ---------------------------
CHEMICALS AND ALLIED PRODUCTS (14.31%)
Bristol-Myers Squibb Co............... 12,790 $ 1,711,461
DuPont (EI) de Nemours & Co........... 16,830 893,042
Johnson & Johnson..................... 16,097 1,350,136
Lilly & Company....................... 5,612 498,767
Merck & Co., Inc...................... 10,383 1,533,439
Pfizer, Inc........................... 4,323 542,266
Procter & Gamble Co................... 14,463 1,320,653
Union Carbide Corp.................... 20,210 858,925
-----------
8,708,689
COMMUNICATIONS (7.24%)
AT & T Corp........................... 17,270 1,299,568
Bell Atlantic Corp.................... 22,899 1,300,949
CBS Corp.............................. 36,352 1,190,528
MCI Worldcom, Inc..................... 8,549(1) 613,391
-----------
4,404,436
COMPUTER PROGRAMMING & SOFTWARE (0.98%)
Microsoft Corp........................ 4,320(1) 599,130
DEPOSITORY INSTITUTIONS (2.28%)
BankAmerica Corp...................... 7,870 473,184
J. P. Morgan & Co..................... 8,703 914,359
-----------
1,387,543
EATING AND DRINKING PLACES (2.29%)
McDonald's Corp....................... 18,184 1,393,349
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (8.35%)
Cisco Systems, Inc.................... 7,025(1) 652,008
General Electric Co................... 16,043 1,637,389
Intel Corporation..................... 4,401 521,794
Lucent Technologies, Inc.............. 16,675 1,834,250
Raytheon Company...................... 8,377 432,986
-----------
5,078,427
FOOD AND KINDRED PRODUCTS (5.77%)
Coca-Cola Co. (The)................... 16,958 1,134,066
PepsiCo, Inc.......................... 26,805 1,097,330
Philip Morris Companies, Inc.......... 23,942 1,280,897
-----------
3,512,293
</TABLE>
34
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
GENERAL MERCHANDISE STORES (4.53%)
<S> <C> <C>
Sears, Roebuck & Co................... 17,184 $ 730,320
Wal-Mart Stores, Inc.................. 24,849 2,023,640
-----------
2,753,960
INDUSTRIAL MACHINERY AND EQUIPMENT (5.69%)
Caterpillar, Inc...................... 21,322 980,812
Hewlett-Packard Co.................... 7,072 483,106
International Business Machines
Corp................................. 10,808 1,996,778
-----------
3,460,696
INSTRUMENTS AND RELATED PRODUCTS (1.50%)
Eastman Kodak Co...................... 12,660 911,520
INSURANCE CARRIERS (4.12%)
Allstate Corp......................... 25,042 967,247
American International Group, Inc..... 15,937 1,539,913
-----------
2,507,160
MOTION PICTURES (1.66%)
Disney (Walt) Co...................... 33,738 1,012,140
NONDEPOSITORY INSTITUTION (0.86%)
Citigroup, Inc........................ 10,593 524,354
PAPER AND ALLIED PRODUCTS (2.78%)
International Paper Co................ 20,002 896,340
Minnesota Mining & Manufacturing
Co................................... 11,173 794,680
-----------
1,691,020
PETROLEUM AND COAL PRODUCTS (9.89%)
Amoco Corp............................ 21,292 1,266,873
Chevron Corp.......................... 12,561 1,041,778
Exxon Corp............................ 16,157 1,181,481
Mobil Corp............................ 13,382 1,165,907
Royal Dutch Petroleum Co.............. 9,681 463,478
Texaco, Inc........................... 16,952 896,337
-----------
6,015,854
PRIMARY METAL INDUSTRIES (1.67%)
Aluminum Company of America........... 13,666 1,018,971
RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (1.49%)
Goodyear Tire & Rubber Co............. 17,950 905,353
</TABLE>
35
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
SCHEDULE OF INVESTMENTS
BLUE CHIP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHARES
HELD VALUE
---------- -----------
SECURITY AND COMMODITY BROKERS (4.55%)
<S> <C> <C>
American Express Co................... 13,504 $ 1,380,784
Morgan Stanley, Dean Witter, Discover
& Co................................. 19,532 1,386,772
-----------
2,767,556
TRANSPORTATION EQUIPMENT (9.21%)
Allied-Signal, Inc.................... 26,779 1,186,643
Boeing Co. (The)...................... 20,371 664,604
Ford Motor Co......................... 22,152 1,300,046
General Motors Corp................... 14,620 1,046,244
United Technologies Corp.............. 12,946 1,407,878
-----------
5,605,415
-----------
Total Common Stocks..................... 54,257,866
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.00%)
- ------------------------------------
COMMERCIAL PAPER (3.70%)
Ford Motor Credit Corp., 5.53%, due
1/12/99.............................. $1,500,000 1,500,000
Texaco Inc., 5.70%, due 1/04/99....... 750,000 750,000
-----------
2,250,000
UNITED STATES GOVERNMENT AGENCIES (4.31%)
Federal Home Loan Bank, due 1/07/99... 1,625,000 1,623,627
Federal Home Loan Mortgage Corp., due
1/08/99.............................. 1,000,000 999,016
-----------
2,622,643
<CAPTION>
SHARES
HELD
----------
<S> <C> <C>
MONEY MARKET MUTUAL FUND (2.99%)
Provident Treasury Cash Management.... 1,820,944 1,820,944
-----------
Total Short-Term Investments............ 6,693,587
-----------
Total Investments (100.17%)............. 60,951,453
OTHER ASSETS LESS LIABILITIES (-0.17%)
- ------------------------------------------
Cash, receivables and prepaid expense,
less liabilities..................... (101,378)
-----------
Total Net Assets (100.00%).............. $60,850,075
-----------
-----------
</TABLE>
(1) Non-income producing securities.
SEE ACCOMPANYING NOTES.
36
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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.
37
<PAGE>
EQUITRUST 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, 1998, the Value Growth and the Managed Portfolios had net
capital loss carryforwards of $11,863,000 and $3,188,000, respectively, which
expire in 2006.
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 year ended December 31, 1998. For the year ended December 31,
1998, 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 December
31, 1998, all of the shares of each portfolio are
38
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. MANAGEMENT CONTRACT AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 5,016 shares of the High
Grade Bond Portfolio, 4,994 shares of the High Yield Bond Portfolio, and 49,596
shares of the Money Market 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.
5. 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, 1998, 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.......... $55,139,503 $ 9,986,036 $15,414,899 $60,198,989 $6,042,174 $45,199,568
Accumulated undistributed
net Investment income... 978,563 2,634,990 816,323
Accumulated undistributed
net realized gain (loss)
from investment
transactions............ (12,706,264) 35,445 92,104 (3,607,982) (236,794)
Net unrealized
appreciation
(depreciation) of
investments............. (747,385) 233,988 172,837 (2,791,843) 15,070,978
----------- ----------- ----------- ----------- ---------- -----------
Net Assets........... $42,664,417 $10,255,469 $15,679,840 $56,434,154 $6,042,174 $60,850,075
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
39
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARE TRANSACTIONS (CONTINUED)
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>
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
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
</TABLE>
6. INVESTMENT TRANSACTIONS
For the year ended December 31, 1998, 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:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Value Growth............................ $96,057,028 $71,060,342
High Grade Bond......................... 4,205,826 2,808,462
High Yield Bond......................... 10,305,189 4,446,179
Managed................................. 32,550,930 26,331,485
Blue Chip............................... 24,322,847 5,170,268
</TABLE>
40
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS (CONTINUED)
At December 31, 1998, 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....................... $ 1,917,174 $ (2,664,559) $ (747,385)
High Grade Bond.................... 249,977 (15,989) 233,988
High Yield Bond.................... 451,831 (278,994) 172,837
Managed............................ 598,694 (3,390,537) (2,791,843)
Blue Chip.......................... 15,448,255 (377,277) 15,070,978
</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, 1998................... $.0541 $.0620 $ .0044
February 27, 1998.................. .0592 .0648 .0039
March 31, 1998..................... .0547 .0602 .0043
April 30, 1998..................... .0530 .0586 .0041
May 29, 1998....................... .0610 .0581 .0040
June 30, 1998...................... .0620 .0596 .0044
July 31, 1998...................... .0510 .0579 .0044
August 31, 1998.................... .0536 .0554 .0043
September 30, 1998................. .0583 .0598 .0040
October 30, 1998................... .0509 .0547 .0038
November 30, 1998.................. .0577 .0565 .0036
December 30, 1998.................. .0491 .0641 .0037
----------- ----------- --------
Total dividends per share.......... $.6646 $.7117 $ .0489
----------- ----------- --------
----------- ----------- --------
</TABLE>
41
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. 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, 1998, for the following portfolios:
ORDINARY INCOME DIVIDENDS:
<TABLE>
<CAPTION>
PERCENT
DIVIDEND QUALIFYING
AMOUNT FOR
DECLARATION RECORD PAYABLE PER DEDUCTIONS BY
PORTFOLIO DATE DATE DATE SHARE CORPORATIONS
- ------------------------- ----------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Value Growth............. 08/07/98 08/07/98 08/07/98 $ 0.0016 1%
Managed.................. 08/07/98 08/07/98 08/07/98 0.0043 1%
Blue Chip................ 08/07/98 08/07/98 08/07/98 0.0014 0%
</TABLE>
CAPITAL GAINS DISTRIBUTIONS:
<TABLE>
<CAPTION>
DIVIDEND
DECLARATION RECORD PAYABLE AMOUNT
PORTFOLIO DATE DATE DATE PER SHARE
- ------------------------------ ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Value Growth.................. 08/07/98 08/07/98 08/07/98 $0.0064
High Yield Bond............... 08/07/98 08/07/98 08/07/98 0.0078
Managed....................... 08/07/98 08/07/98 08/07/98 0.0025
Blue Chip..................... 08/07/98 08/07/98 08/07/98 0.0014
High Yield Bond............... 12/30/98 12/30/98 12/30/98 0.0013
Blue Chip..................... 12/30/98 12/30/98 12/30/98 0.0008
</TABLE>
The capital gains distributions related to the Managed and Blue Chip
Portfolios include net short-term realized gains of $1,579 ($0.0003 per share)
and $636 ($0.0004 per share), respectively, that are taxable to shareholders as
ordinary income dividends.
On January 20, 1999 the Value Growth, Managed, and Blue Chip Portfolios
declared and paid dividends to shareholders from net investment income of
$976,830, $2,634,990, and $816,323, respectively.
42
<PAGE>
(This page has been left blank intentionally.)
43
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
VALUE GROWTH
PORTFOLIO
---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 12.58 $ 13.13 $ 12.31 $ 10.39 $ 11.52
Income From Investment Operations
Net investment income.......... 0.22 0.28 0.35 0.55 0.48
Net gains (losses) on
securities
(both realized and
unrealized)................... (3.29) 0.55 1.82 2.13 (0.99)
------- ------- ------- ------- -------
Total from investment
operations...................... (3.07) 0.83 2.17 2.68 (0.51)
------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.01) (0.28) (0.30) (0.50) (0.36)
Distributions (from capital
gains)........................ (0.95) (1.05) (0.26) (0.11)
Distributions in excess of net
realized gains................ (0.15) (0.15)
------- ------- ------- ------- -------
Total distributions.............. (0.01) (1.38) (1.35) (0.76) (0.62)
------- ------- ------- ------- -------
Net asset value, end of period..... $ 9.50 $ 12.58 $ 13.13 $ 12.31 $ 10.39
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. (24.43)% 6.30% 17.65% 25.87% (4.43)%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $42,664 $43,466 $27,188 $16,295 $10,603
Ratio of total expenses to
average net assets.............. 0.56% 0.55% 0.55% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.55%
Ratio of net investment income to
average net assets.............. 2.17% 2.43% 2.68% 4.78% 4.35%
Portfolio turnover rate.......... 230% 118% 72% 98% 78%
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 $ 0.46
Ratio of expenses to average net
assets.......................... 0.58% 0.69% 0.72% 0.77%
Amount reimbursed................ $14,093 $29,686 $22,306 $16,706
</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.
SEE ACCOMPANYING NOTES.
44
<PAGE>
<TABLE>
<CAPTION>
HIGH HIGH
GRADE BOND YIELD BOND
PORTFOLIO PORTFOLIO
--------------------------------------- ------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.11 $ 9.83 $ 9.98 $ 9.44 $10.23 $ 10.21 $ 9.91 $ 9.69 $ 9.32 $ 10.44
Income From Investment Operations
Net investment income.......... 0.66 0.69 0.72 0.77 0.76 0.71 0.79 0.84 0.87 0.91
Net gains (losses) on
securities
(both realized and
unrealized)................... 0.08 0.28 (0.15) 0.54 (0.79) (0.03) 0.36 0.33 0.49 (1.01)
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
Total from investment
operations...................... 0.74 0.97 0.57 1.31 (0.03) 0.68 1.15 1.17 1.36 (0.10)
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.66) (0.69) (0.72) (0.77) (0.76) (0.71) (0.79) (0.84) (0.87) (0.91)
Distributions (from capital
gains)........................ (0.01) (0.06) (0.11) (0.12) (0.11)
Distributions in excess of net
realized gains................
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
Total distributions.............. (0.66) (0.69) (0.72) (0.77) (0.76) (0.72) (0.85) (0.95) (0.99) (1.02)
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
Net asset value, end of period..... $ 10.19 $10.11 $ 9.83 $ 9.98 $ 9.44 $ 10.17 $10.21 $ 9.91 $ 9.69 $ 9.32
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
------- ------ ------ ------ ------ ------- ------ ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. 7.51% 10.24% 5.94% 14.26% (0.26)% 6.88% 12.07% 12.65% 15.15% (1.01)%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $10,255 $5,374 $3,535 $3,208 $2,452 $15,680 $8,623 $ 5,929 $ 4,810 $ 4,172
Ratio of total expenses to
average net assets.............. 0.50% 0.52% 0.55% 0.55% 0.55% 0.61% 0.57% 0.55% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.46% 0.58%
Ratio of net investment income to
average net assets.............. 6.44% 6.94% 7.22% 7.81% 7.76% 6.92% 7.74% 8.47% 8.96% 9.17%
Portfolio turnover rate.......... 46% 31% 32% 14% 15% 43% 35% 30% 32% 10%
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 $ 0.73 $ 0.78 $ 0.81 $ 0.84 $ 0.88
Ratio of expenses to average net
assets.......................... 0.57% 0.80% 0.84% 0.80% 0.65% 0.87% 0.88% 0.84%
Amount reimbursed................ $2,294 $8,233 $8,255 $6,207 $5,819 $17,094 $15,105 $12,667
</TABLE>
45
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 12.55 $ 12.40 $ 11.71 $ 9.93 $ 11.33
Income From Investment Operations
Net investment income.......... 0.53 0.53 0.60 0.65 0.66
Net gains (losses) on
securities
(both realized and
unrealized)................... (1.63) 0.79 1.44 1.90 (1.22)
------- ------- ------- ------- -------
Total from investment
operations...................... (1.10) 1.32 2.04 2.55 (0.56)
------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)....................... (0.52) (0.50) (0.59) (0.54)
Distributions (from capital
gains)........................ (0.65) (0.85) (0.18) (0.23)
Distributions in excess of net
realized gains................ (0.07)
------- ------- ------- ------- -------
Total distributions.............. (1.17) (1.35) (0.77) (0.84)
------- ------- ------- ------- -------
Net asset value, end of period..... $ 11.45 $ 12.55 $ 12.40 $ 11.71 $ 9.93
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return:
Total investment return based on
net asset value (1)............. (8.71)% 10.67% 17.39% 25.69% (4.96)%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $56,434 $44,949 $26,022 $14,487 $ 9,758
Ratio of total expenses to
average net assets.............. 0.55% 0.54% 0.55% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.54%
Ratio of net investment income to
average net assets.............. 4.97% 4.94% 4.73% 5.80% 6.23%
Portfolio turnover rate.......... 74% 52% 82% 48% 59%
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 $ 0.63
Ratio of expenses to average net
assets.......................... 0.60% 0.75% 0.77% 0.80%
Amount reimbursed................ $17,771 $38,874 $26,008 $19,147
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET BLUE CHIP
PORTFOLIO PORTFOLIO
-------------------------------------- -----------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 31.01 $ 24.68 $ 20.70 $15.82 $15.67
Income From Investment Operations
Net investment income.......... 0.05 0.05 0.05 0.05 0.04 0.49 0.42 0.45 0.39 0.34
Net gains (losses) on
securities
(both realized and
unrealized)................... 5.37 6.34 3.99 4.80 0.07
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Total from investment
operations...................... 0.05 0.05 0.05 0.05 0.04 5.86 6.76 4.44 5.19 0.41
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Less Distributions
Dividends (from net investment
income)....................... (0.05) (0.05) (0.05) (0.05) (0.04) (0.42) (0.34) (0.31) (0.26)
Distributions (from capital
gains)........................ (0.01) (0.12)
Distributions in excess of net
realized gains................
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Total distributions.............. (0.05) (0.05) (0.05) (0.05) (0.04) (0.43) (0.46) (0.31) (0.26)
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 36.87 $ 31.01 $ 24.68 $20.70 $15.82
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Total Return:
Total investment return based on
net asset value (1)............. 5.00% 5.07% 4.90% 5.47% 3.68% 18.91% 27.41% 21.43% 32.81% 2.65%
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)........................ $6,042 $6,078 $3,819 $3,159 $2,658 $60,850 $31,865 $14,493 $6,665 $3,262
Ratio of total expenses to
average net assets.............. 0.52% 0.48% 0.55% 0.55% 0.55% 0.30% 0.33% 0.48% 0.55% 0.55%
Ratio of net expenses to average
net assets...................... 0.45% 0.29%
Ratio of net investment income to
average net assets.............. 4.67% 4.65% 4.58% 5.27% 3.63% 1.72% 1.83% 1.92% 2.07% 2.19%
Portfolio turnover rate.......... 0% 0% 0% 0% 0% 12% 3% 2% 1% 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 $ 0.04 $ 0.38 $ 0.30
Ratio of expenses to average net
assets.......................... 0.55% 0.82% 0.90% 0.82% 0.59% 0.81%
Amount reimbursed................ $2,912 $9,569 $9,816 $7,157 $1,952 $6,360
</TABLE>
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
EquiTrust Variable Insurance Series Fund
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of EquiTrust Variable Insurance Series
Fund, formerly known as FBL Variable Insurance Series Fund, (comprised of the
Value Growth, High Grade Bond, High Yield Bond, Managed, Money Market and Blue
Chip Portfolios) as of December 31, 1998, 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. Our procedures included confirmation of securities owned as of
December 31, 1998, 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 EquiTrust Variable Insurance
Series Fund at December 31, 1998, and 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.
[SIGNATURE]
Des Moines, Iowa
January 25, 1999
48
