American United Life Pooled Equity Fund B
Board of Managers
James W. Murphy, Chairman
Senior Vice President, Corporate Finance, AUL
Ronald D. Anderson
Professor, School of Business,
Indiana University, Indianapolis, Indiana
Leslie Lenkowsky
Indiana University Center of Philanthropy,
Indianapolis, Indiana
R.Stephen Radcliffe
Executive Vice President, AUL
James P. Shanahan
Senior Vice President, Pension Division, AUL
Richard A. Aacker Secretary to the
Board, Associate General Counsel, AUL
Custodian
National City Bank
Indianapolis, Indiana
Legal Counsel
Ice Miller Donadio & Ryan
Indianapolis, Indiana
Investment Manager
American United Life Insurance Company Indianapolis, Indiana
G. David Sapp,
Senior Vice President, Investments
This Report and the financial statements contained herein are for the general
information of the partici-pants. The report is not to be distributed to
pro-spective investors as sales literature unless preceded or accompanied by an
effective Prospectus which contains further information concerning the sales
charge and other pertinent information.
American United Life Pooled Equity Fund B Annual Report
as of
December 31, 1997
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A Message From The Chairman of the Board of Managers
To All Participants in Fund B
The U.S. economy continued to surprise investors with its performance during
1997. The current seven year expansion has been unique in that economic growth
has remained moderate while inflationary pressures have been subdued. The
inflation rate actually declined during 1997, allowing the Federal Reserve to
hold monetary policy steady during the last nine months of the year. Other
positive economic factors during the year included lower interest rates, higher
productivity and improved corporate profit margins.
Equity investors were richly rewarded during the past year with the Dow Jones
Industrial Average and the S&P 500 (commonly quoted equity indices) both
achieving double digit returns. During 1997, equity investors reacted positively
to the combination of slow growth and moderate inflation. However, the
volatility of returns increased dramatically during the second half of the year
as investors became fearful that corporations would experience a decline in
profit growth during 1998. Severe weakness in Asia and Latin America was another
principal catalyst causing increased volatility.
At the present time, most economists are expecting economic growth to decelerate
in 1998 as a result of weaker domestic demand and momentum lost from foreign
trade. Slower growth does have some positive aspects. However, equity investors
remain focused on the possibility of weaker corporate profits.
Equity investors have now experienced three years of phenomenal equity returns,
returns which are substantially higher than the long-term averages. The major
stock indices could still post further gains during 1998, but the opportunity to
dramatically outperform the long-term averages becomes extremely limited.
Investment performance for Fund B for calendar year 1997 was 31.2%. This
performance is net of investment advisory fees but does not reflect mortality
and expense risk charges and other charges that may be incurred when investing
in a variable annuity contract. We suggest your careful review of the Portfolio
Manager comments found on the following pages comparing this return to other
indices.
James W. Murphy
Chairman of the Board of Managers
Indianapolis, Indiana
January 20, 1998
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A Message From Kathryn Hudspeth,
Portfolio Manager of Fund B
Fund B invests primarily in equity securities selected on the basis of
fundamental investment research for their long-term growth prospects. Using a
bottom-up approach, the Portfolio concentrates on companies which appear
undervalued compared to the market and their own historic valuation levels.
Other important considerations include management ability, free cashflow,
insider ownership and industry dominance.
The year 1997 was another impressive year for the stock market with domestic
equity returns easily outpacing bonds, cash and international market indices.
Although the Federal Reserve did intervene in March 1997, it remained on the
sidelines for the rest of the year. Sustainable economic growth continued,
inflation fears subsided, and corporate profits remained intact.
As a result, the Dow Jones Industrial Average (DJIA) advanced 24.9% during the
year. This represents a record seven consecutive year advance for the DJIA and
the first time in its history that this blue chip index has risen 20% or more
during three consecutive years. During 1997, the S&P 500 advanced 33.4% with a
majority of this performance occurring during the first seven months of the
year.
Investor sentiment changed frequently throughout the year. As we began 1997,
investors focused on large global growth companies that could provide consistent
earnings either from domestic markets or abroad. As a result, smaller
capitalization companies lagged the overall market by a wide margin. Because of
the noticeable disparity in returns, many investors shifted their interest to
smaller companies during May. However, this interest was short lived. Investors
panicked in October in response to the Asian crisis, at which time market
leadership changed again with performance favoring large defensive growth
companies with limited exposure to developing countries.
Fund B achieved a 31.2% investment return for calendar 1997 which is higher than
the long-term average return for stocks. Fund B also outperformed the average
diversified U.S. stock fund which returned 24.4%, according to Lipper Analytical
Services Inc. The Portfolio benefitted from its holdings in technology,
pharmaceutical, and financial industries. The return of the Portfolio was also
propelled by several merger situations and share repurchase programs.
U.S. fundamentals remain solid, but the economy is expected to slow down in
1998. The present bull market has narrowed its focus considerably to those
stocks perceived as "safe havens". At current levels, the U.S. stock market
could be vulnerable to any disruption in corporate profits or fallout from the
weakness in Asia.
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American United Life Pooled Equity Fund B Fund B S&P 500
One Year 31.2% 33.4%
Five Years 18.7% 20.2%
Ten Years 16.1% 18.0%
Value of a hypothetical $10,000
investment made 12/31/87 $44,348 $52,524
The charts above show the Fund B Portfolio's total returns, which include
reinvestment of dividends and capital gains. Figures for the S&P 500, an
unmanaged index of common stocks, include reinvestment of dividends and capital
gains. S&P 500 is a registered trademark of Standard & Poor's Corporation.
Performance numbers are net of all portfolio operating expenses, but do not
include any separate account or contract charges. If performance data included
the effect of these charges, returns would be lower. Past performance is no
guarantee of future results. Principal and investment return will vary so units
may be worth more or less than their original cost when redeemed.
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Report of Independent Accountants
Board of Managers and Contract Owners
American United Life Pooled Equity Fund B
Indianapolis, Indiana
We have audited the accompanying statement of net assets of American United Life
Pooled Equity Fund B, including the schedule of investments, as of December 31,
1997, and the related statement 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 investments and cash held by
the custodian as of December 31, 1997 and confirmation by correspondence with
brokers as to securities purchased but not received at that date or other
auditing procedures where confirmations from brokers were not received. 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
American United Life Pooled Equity Fund B as of December 31, 1997, the results
of its operations for the year then ended, the changes in its 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.
Indianapolis, Indiana
February 2, 1998
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American United Life Pooled Equity Fund B
statement of net assets
December 31, 1997 Assets:
Investments at value (cost: $8,538,883)
Common stock $ 13,004,303
Money market mutual funds 751,324
Short-term notes 495,250
14,250,877
Cash 26,273
Dividends and interest receivable 25,032
Due from AUL 400
Total assets 14,302,582
Liabilities 23,046
Net Assets $14,279,536
Units outstanding 932,682
Accumulation Unit Value $ 15.31
The accompanying notes are an integral part of the financial statements.
<PAGE>
American United Life Pooled Equity Fund B
statement of operations
for the year ended December 31, 1997
Net Investment Income:
Income
Dividends $ 260,943
Interest 20,774
281,717
Expense
Investment management services 40,319
Mortality and expense risks charges 120,956
161,275
Net investment income 120,442
Gain on Investments:
Net realized gain 1,177,099
Net change in unrealized gain 2,177,306
Net gain 3,354,405
Increase in Net Assets from Operations $ 3,474,847
The accompanying notes are an integral part of the financial statements.
<PAGE>
American United Life Pooled Equity Fund B
StatementS of Changes In Net Assets
For the years ended December 31, 1997 and 1996
1997 1996
Operations:
Net investment income $ 120,442 $ 157,883
Net realized gain 1,177,099 370,506
Net change in unrealized gain 2,177,306 1,637,717
Increase in net assets from operations 3,474,847 2,166,106
Changes from Contract Owner Transactions:
Proceeds from units sold 262,150 604,294
Payments for units withdrawn (2,025,646) (2,723,610)
Payments for units redeemed (3,204) (1,684)
Decrease (1,766,700) (2,121,000)
Net increase in net assets 1,708,147 45,106
Net Assets at beginning year 12,571,389 12,526,283
Net Assets at end of year $ 14,279,536 $ 12,571,389
Units sold 18,716 57,351
Units withdrawn (153,443) (253,596)
Units redeemed (233) (156)
Net decrease in units outstanding (134,960) (196,401)
Units outstanding at beginning of year 1,067,642 1,264,043
Units outstanding at end of year 932,682 1,067,642
The accompanying notes are an integral part of the financial statements.
<PAGE>
American United Life Pooled Equity Fund B
Schedule of Investments
December 31, 1997
Market
Description Shares Value
Common Stock (91.2%)
Aerospace (1.9%)
Boeing 2,800 $ 137,025
Precision Castparts 2,200 132,688
269,713
Automotive & Auto Parts (4.9%)
Bandag, Inc. 5,600 299,250
Ford Motor Co 8,200 398,725
697,975
Banks & Financial (12.0%)
American Express Company 4,000 357,000
Banc One Corporation 6,120 332,393
Ohio Casualty Corporation 4,500 200,813
Travelers Group, Inc. 8,644 465,695
Washington Mutual 5,470 349,054
1,704,955
Broadcasting & Publishing (8.1%)
Chris-Craft Industries, Inc.* 4,821 252,199
Deluxe Corporation 6,400 220,800
Gibson Greetings, Inc. 8,000 175,000
Harland (John H.) Company 7,300 153,300
Meredith Corporation 5,900 210,556
Moore Corporation, Ltd. 9,200 139,150
1,151,005
Electrical Equipment & Electronics (7.6%)
Baldor Electric Company 16,840 365,217
Dynatech Corporation* 11,600 543,750
General Electric Company 2,400 176,100
1,085,067
Entertainment & Leisure (5.1%)
CPI Corporation 10,600 239,825
Fleetwood Enterprises, Inc. 11,500 488,031
727,856
Furniture & Apparel (10.3%)
Hillenbrand Industries, Inc. 6,600 337,838
Kellwood Corporation 9,300 279,000
La Z Boy Chair Company 9,800 422,625
Liz Claiborne, Inc. 6,100 255,055
Reebok International 5,800 167,113
1,461,631
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
American United Life Pooled Equity Fund B
Schedule of Investments (continued)
December 31, 1997 Market
Description Shares Value
Common Stock (91.2%), continued
Health Care (7.2%)
Acuson Corporation* 7,400 $ 122,563
Guidant Corp. 1,400 87,150
Lilly (Eli) and Company 2,572 179,075
McKesson Corporation 4,000 433,500
Merck & Company, Inc. 1,900 201,875
1,024,163
Information Processing & Telecommunications (10.5%)
AT&T Communications 6,400 392,400
International Business Machines Corporation 2,900 303,230
Novell* 14,600 109,500
Sun Microsystems, Inc.* 9,100 362,863
Telxon Corporation 13,500 322,313
1,490,306
Merchandising (5.5%)
Longs Drug Stores Corporation 12,100 388,712
Mercantile Stores Co. 3,800 231,325
Stanhome, Inc. 6,500 166,969
787,006
Metals & Mining (5.2%)
AK Steel Holding Corp. 5,100 90,207
Aluminum Company of America 4,000 281,500
Cleveland Cliffs, Inc. 4,900 224,481
Oregon Steel Mills, Inc. 7,300 155,581
751,769
Oil & Oil Services (4.1%)
Royal Dutch Petroleum Company 5,200 281,775
Valero Energy Corporation 9,700 304,944
586,719
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
American United Life Pooled Equity Fund B
Schedule of Investments (continued)
December 31, 1997 Market
Description Shares Value
Common Stock (91.2%), continued
Transportation (3.4%)
Alexander & Baldwin, Inc. 10,500 $ 286,781
Norfolk Southern Corporation 6,600 203,363
490,144
Miscellaneous (5.4%)
Carlisle Companies 3,500 149,625
Kelly Services 9,600 288,000
Michael Foods, Inc. 7,200 175,500
PG&E Corp. 5,373 162,869
775,994
Total common stock (cost: $7,292,309) 13,004,303
Money Market Mutual Funds (5.3%)
Dreyfus Cash Management 450,131 450,131
Merrill Lynch Institutional Fund 301,193 301,193
Total money market mutual funds (cost: $751,324) 751,324
Interest Maturity Principal
Rate Date Amount
Short-term Notes (3.5%)
G.E. Capital (cost: $495,250) 5.70% 1/13/1998 500,000 495,250
Total Investments (cost: $8,538,883) $ 14,250,877
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
American United Life Pooled Equity Fund B (Fund B) is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. Fund B was established by and is managed by American United Life
Insurance Company (AUL) for the purpose of issuing group and individual variable
annuities.
Investments are valued at closing prices for those securities traded on
organized exchanges and at bid prices for securities traded over-the-counter.
Gains and losses on the sale of investments are determined on a first-in,
first-out (FIFO) basis. Investment transactions are accounted for on a trade
date basis.
Dividends are included in income as of the ex-dividend date. Interest income is
accrued daily.
Operations of the Variable Account are part of, and are taxed with, the
operations of AUL, which is taxed as a "life insurance company" under the
Internal Revenue Code. Under current law, investment income, including realized
and unrealized capital gains of the investment accounts, is not taxed to AUL to
the extent it is applied to increase reserves under the contracts. The Variable
Account has not been charged for federal and state income taxes since none have
been imposed.
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 increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
2. Investments
Net realized and unrealized gain on investments is summarized below.
Common
Stock
Net Realized Gain:
Proceeds from securities sold $ 6,133,659
Cost of securities sold 4,956,560
$ 1,177,099
Net change in Unrealized Gain:
Market value at end of period $ 13,004,303
Less: investments purchased (3,886,270)
Add: investments sold at cost 4,956,560
Less: market value at beginning of year (11,897,287)
$ 2,177,306
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Notes to Financial Statements (continued)
3. Transactions With AUL
Fund B pays AUL an annual fee of 1.2% of its average daily net assets for
providing investment management services and for mortality and expense risk
charges. The expense incurred during the years ended December 31, 1997 and 1996
was $161,275 and $151,416, respectively.
AUL withholds a portion of the proceeds obtained from contract owners to pay
commissions and certain expenses under a sales and administrative services
agreement with Fund B. The amount AUL retained during the years ended December
31, 1997 and 1996 was $10,654 and $23,406, respectively.
4. Net Assets
Net Assets as of December 31, 1997:
Proceeds from units sold less payments $(7,942,438)
for units withdrawn and redeemed
Net investment income 4,099,431
Net realized gains 12,410,549
Unrealized gain 5,711,994
$ 14,279,536
The unrealized gain of $5,711,994 consists of common stock appreciation and
depreciation of $5,838,350 and $126,356, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS
The per unit amounts are based on average units outstanding throughout the year.
Year Ended December 31
1997 1996 1995 1994 1993
Investment income $ 0.28 $ 0.26 $0.24 $ 0.19 $ 0.16
Expenses 0.16 0.13 0.11 0.10 0.09
Net investment income 0.12 0.13 0.13 0.09 0.07
Net gain 3.42 1.73 1.52 0.07 1.24
Net increase 3.54 1.86 1.65 0.16 1.31
Value per unit:
Beginning of year 11.77 9.91 8.26 8.10 6.79
End of year $ 15.31 $ 11.77 $ 9.91 $ 8.26 $ 8.10
Ratio to Average Net
Assets:
Expenses 1.20% 1.20% 1.20% 1.20% 1.19%
Net investment income 0.90% 1.25% 1.39% 1.16% 1.01%
Total Return 31.2% 19.8% 21.1% 2.94% 20.4%
Portfolio Turnover Rate 28% 18% 20% 23% 25%
Average Commission Rate Paid* $ 0.0718 $ 0.0669 N/A N/A N/A
Units outstanding 933 1,068 1,264 1,417 1,518
(in 000's)
*Computed by dividing the total amount of commission paid by the total number of
shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
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American United Life Insurance Company
Pooled Equity Fund B
P.O. Box 1995
Indianapolis, IN 46206-9101
first class mail
P-9964 (1/98)