American United Life
Pooled Equity Fund B
Board of Managers
James W. Murphy, Chairman
Senior Vice President,
Corporate Finance, AUL
Ronald D. Anderson Professor,
Kelley School of Business,
Indiana University, Indianapolis, Indiana
Leslie Lenkowsky Professor,
Indiana University Center of Philanthropy,
Indianapolis, Indiana
R. Stephen Radcliffe
Executive Vice President, AUL
James P. Shanahan
Former Senior Vice President,
Pension Division, AUL
Richard A. Wacker
Secretary to the Board,
Associate General Counsel, AUL
Custodian
National City BankIndianapolis, 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 participants. The report is not to be distributed to
prospective investors as sales literature unless preceded or accompanied by an
effective Prospectus which contains further information concerning the sales
charge, expenses and other pertinent information.
American United Life Pooled Equity Fund B
Annual Report
as of December 31, 1998
<PAGE>
A Message From The Chairman of the Board of Managers
To All Participants in Fund B
The current economic expansion has been particularly impressive and is now
entering its eighth year, setting a new record as the longest period of
peacetime growth. This expansion has been unique in that it has been accompanied
by low inflation, low interest rates and low unemployment. At the same time,
positive consumer confidence has translated into greater consumer spending and
strong corporate profits have resulted in increased capital spending, both major
drivers to economic growth.
However, the playing field changed dramatically during the third quarter of 1998
when financial difficulties in Russia, Asia and Latin America and losses
incurred by several well-known hedge funds caused a great deal of concern. In
addition, the capital markets had to contend with a possible credit crunch,
increased antagonism with Iraq, and the threat of political instability here at
home.
The stock market experienced a marked downturn during the third quarter in
response to these concerns. To help alleviate market stress, the Federal Reserve
Board intervened on three occasions by cutting the federal funds rate a total of
75 basis points (0.75%). The Fed's actions, coupled with an easing of the global
concerns, provided renewed vigor for the stock market during the last three
months of the year.
At the present time, most economists are expecting U.S. economic growth to
decelerate in 1999. The slowdown in foreign economies has led to a decline in
demand for American-made products which results in a contraction in U.S.
exports. Generally, economists are also expecting consumer spending to ease and
the level of corporate fixed investments to decline. In such an environment, it
will be difficult for the stock market to achieve above average returns in the
coming year.
Investment performance for Fund B for calendar year 1998 was 7.6%. 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.
In closing, American United Life remains committed to serving your investment
needs. We appreciate your continued confidence and support.
/s/
James W. Murphy
Chairman of the Board of Managers
Indianapolis, Indiana
January 28, 1999
<PAGE>
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 to their own historic valuation levels.
Other important considerations include management ability, free cashflow,
insider ownership and industry dominance.
The 1990s can be characterized as the decade of the relentless bull market with
steady, noninflationary growth, low interest rates, and solid corporate profit
gains. The U.S. stock market continued its powerful advance during the first six
months of 1998. But investor psychology quickly deteriorated during the third
quarter of 1998 as economic turmoil overseas, rising political tensions at home,
and the decline in corporate profitability shook investor confidence.
In an attempt to bolster our economy and settle U.S. capital markets, the
Federal Reserve Board decided to lower the Federal Funds rate by 0.75%. Equity
investors reacted positively to the Fed's actions, driving the S&P 500 (a
commonly used capitalization weighted index) to new highs by the end of the
year.
Calendar 1998 marks an unprecedented fourth year in a row that the S&P 500 has
achieved gains in excess of 20%. Despite this phenomenal performance, not every
stock was selling at record prices by the end of the year. The U.S. stock market
experienced a "two-tiered" condition with a limited number of large growth
companies substantially outperforming the rest of the market. Although the S&P
500 achieved a 28.6% return during 1998, 43% of all the stocks listed in this
index actually reported negative returns for the year. This dramatic disparity
in returns among different types of stocks indicates how narrow 1998's advance
really was and why approximately 90% of equity fund managers were unable to beat
the S&P 500's 1998 investment return.
Fund B achieved a 7.6% investment return for calendar 1998. As this Portfolio
focuses on mid-sized value companies, it did not perform as well as the S&P 500.
However, Fund B performed much better than the broader Russell 2000 Index (a
stock index comprised of 2000 small to mid-sized companies) which ended 1998
with a twelve month return of -2.6%. Fund B benefitted from its technology and
health care holdings during the year. Sun Microsystems is a prime example, which
appreciated 115% during 1998. However, by being a value Portfolio, Fund B also
owned several names in the basic industry sector, which came under severe
pressure during the year in response to fears of a global economic slowdown. At
current levels, this sector is extremely undervalued compared to the rest of the
market and offers an opportunity for improvement for the long-term investor.
Lingering international problems suggest a slower rate of economic growth for
the United States during 1999. Equity investors will be closely watching the
level of interest rates and for any slowdown in corporate profit growth. Should
profit warnings become widespread, investors should expect increased volatility
and more modest returns for 1999.
<PAGE>
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Fund B S&P 500
Year Hypothetical Hypothetical
$10,000 $10,000
investment investment
- -----------------------------------------------------
1988 10,000 10,000
1989 10,521 10,709
1989 11,304 11,655
1989 12,206 12,903
1989 12,584 13,169
1990 12,400 12,772
1990 12,905 13,576
1990 11,129 11,710
1990 12,087 12,760
1991 14,146 14,614
1991 14,551 14,580
1991 14,743 15,360
1991 15,195 16,647
1992 15,677 16,226
1992 15,829 16,536
1992 15,752 17,057
1992 16,766 17,915
1993 17,909 18,698
1993 17,999 18,789
1993 18,829 19,274
1993 20,190 19,721
1994 20,224 18,974
1994 19,850 19,053
1994 20,988 19,985
1994 20,782 19,981
1995 21,520 21,927
1995 23,329 24,021
1995 24,722 25,931
1995 25,155 27,492
1996 26,174 28,968
1996 27,341 30,269
1996 28,569 31,204
1996 30,140 33,807
1997 30,740 34,713
1997 35,452 40,774
1997 39,540 43,828
1997 39,532 45,085
1998 43,465 51,375
1998 43,378 53,070
1998 37,670 47,790
1998 42,533 57,969
American United Life Pooled Equity Fund B
Fund B S&P 500
One Year 7.6% 28.6%
Five Years 16.1% 24.0%
Ten Years 15.6% 19.2%
Value of a hypothetical $10,000
investment made 12/31/88 $42,533 $57,969
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. Investors cannot directly invest in an index. 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.
<PAGE>
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<PAGE>
Report of Independent Accountants
Board of Managers and Contract Owners
American United Life Pooled Equity Fund B
In our opinion, the accompanying statement of net assets, including the schedule
of investments, and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of American United Life Pooled Equity Fund B (the "Fund")
at December 31, 1998, 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. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at De cember 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/
PriceWaterhouseCoopers
Indianapolis, Indiana
February 1, 1999
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<PAGE>
American United Life Pooled Equity Fund B
Statement of Net Assets
December 31, 1998
Assets:
Investments at value (cost: $9,745,937)
Common stock $ 12,802,622
Money market mutual funds 629,256
Short-term notes 297,420
13,729,298
Cash 41,328
Dividends and interest receivable 18,229
Total assets 13,788,855
Liabilities:
Payable for investments purchased 42,350
Due to AUL 13,599
Total liabilities 55,949
Net Assets $ 13,732,906
Units outstanding 841,122
Accumulation Unit Value $ 16.32
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, 1998
Net Investment Income:
Income
Dividends $ 273,460
Interest 23,697
297,157
Expense
Investment management services 42,515
Mortality and expense risks charges 127,546
170,061
Net investment income 127,096
Gain on Investments:
Net realized gain 2,519,736
Net change in unrealized appreciation (1,728,633)
Net gain 791,103
Increase in Net Assets from Operations $ 918,199
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, 1998 and 1997
1998 1997
Operations:
Net investment income $ 127,096 $ 120,442
Net realized gain 2,519,736 1,177,099
Net change in unrealized appreciation (1,728,633) 2,177,306
Increase in net assets from operations 918,199 3,474,847
Changes from Contract Owner Transactions:
Proceeds from units sold 273,438 262,150
Payments for units withdrawn (1,735,807) (2,025,646)
Payments for units redeemed (2,460) (3,204)
Decrease (1,464,829) (1,766,700)
Net (decrease) increase in net assets (546,630) 1,708,147
Net Assets at beginning year 14,279,536 12,571,389
Net Assets at end of year $ 13,732,906 $14,279,536
Units sold 17,400 18,716
Units withdrawn (108,807) (153,443)
Units redeemed (153) (233)
Net decrease in units outstanding (91,560) (134,960)
Units outstanding at beginning of year 932,682 1,067,642
Units outstanding at end of year 841,122 932,682
The accompanying notes are an integral part of the financial statements
<PAGE>
American United Life Pooled Equity Fund B
Schedule of Investments
December 31, 1998
Market
Description Shares Value
Common Stock (93.2%)
Aerospace (1.8%)
Boeing Co. 3,900 $ 127,238
Precision Castparts Corporation 2,700 119,475
246,713
Automotive & Auto Parts (8.5%)
Bandag, Inc. 8,300 331,481
Carlisle Companies 4,700 242,638
Ford Motor Co. 7,200 422,550
TBC Corporation* 23,300 166,012
1,162,681
Banks & Financial (12.8%)
American Express Company 2,700 276,075
Associates First Capital 4,498 190,603
Bank One Corporation 5,932 302,903
Citigroup, Inc. 8,644 428,959
Ohio Casualty Corporation 7,000 287,875
Washington Mutual 7,255 277,050
1,763,465
Broadcasting & Publishing (5.0%)
Chris-Craft Industries, Inc.* 4,356 209,904
Gibson Greetings, Inc.* 6,500 77,188
Meredith Corporation 6,200 234,825
Moore Corporation, Ltd. 15,300 168,300
690,217
Electrical Equipment & Electronics (3.3%)
Baldor Electric Company 14,640 296,460
General Electric Company 1,500 153,000
449,460
Entertainment & Leisure (4.4%)
CPI Corporation 8,900 235,850
Fleetwood Enterprises, Inc. 10,700 371,825
607,675
Furniture & Apparel (10.8%)
Hillenbrand Industries, Inc. 5,200 295,750
Kellwood Corporation 7,500 187,500
La-Z-Boy Chair Company 25,800 459,563
Liz Claiborne, Inc. 8,500 268,281
Reebok International* 18,300 272,212
1,483,306
*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, 1998
Market
Description Shares Value
Common Stock (93.2%), continued
Health Care (2.9%)
Acuson Corporation* 9,700 $ 143,681
McKesson Corporation 1,400 110,688
Merck & Company, Inc. 1,000 147,500
401,869
Information Processing & Telecommunications (9.4%)
A T & T Corp. 2,100 158,025
Ascend Communications, Inc.* 2,625 172,594
International Business Machines Corporation 800 147,500
Sun Microsystems, Inc.* 7,900 676,438
Telxon Corporation 9,500 131,812
1,286,369
Merchandising (7.0%)
Enesco Group, Inc. 5,500 127,875
Gymboree Corporation* 21,600 137,700
Land's End, Inc.* 8,900 239,744
Longs Drug Stores Corporation 12,100 453,750
959,069
Metals & Mining (11.2%)
AK Steel Holding Corporation 17,000 399,500
Aluminum Company of America 5,400 402,638
Cleveland Cliffs, Inc. 7,200 290,250
Oregon Steel Mills, Inc. 17,100 203,063
Phelps Dodge Corporation 4,900 249,287
1,544,738
Oil & Oil Services (5.1%)
Royal Dutch Petroleum Company 6,200 296,825
Tidewater, Inc. 8,300 192,456
Valero Energy 9,700 206,125
695,406
*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, 1998
Market
Description Shares Value
Common Stock (93.2%), continued
Transportation (4.6%)
Alexander & Baldwin, Inc. 12,300 $ 285,975
Norfolk Southern Corporation 10,900 345,392
631,367
Miscellaneous (6.4%)
Kelly Services, Inc. 10,300 327,025
Michael Foods, Inc. 5,700 171,000
PG&E Corporation 8,773 76,350
Park Electrochemical Corp. 3,700 105,912
880,287
Total common stock (cost: $8,819,261) 12,802,622
Money Market Mutual Funds (4.6%)
Dreyfus Cash Management 293,336 293,336
Merrill Lynch Institutional Fund 335,920 335,920
Total money market mutual funds (cost: $629,256) 629,256
Interest Maturity Principal
Rate Date Amount
Short-term Notes (2.2%)
John Deere & Co. (cost: $297,420) 5.16% 1/22/99 300,000 297,420
Total Investments (cost: $9,745,937) $13,729,298
*does not pay cash dividends
All investments are in United States enterprises.
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 Fund B 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. Fund B 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 gain and unrealized appreciation on investments is summarized
below.
Common
Stock
Net Realized Gain:
Proceeds from securities sold $ 4,903,607
Cost of securities sold 2,383,871
$ 2,519,736
Net change in Unrealized Appreciation:
Market value at end of period $ 12,802,622
Less: investments purchased (3,910,823)
Add: investments sold at cost 2,383,871
Less: market value at beginning of year (13,004,303)
$(1,728,633)
<PAGE>
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, 1998 and 1997
was $170,061 and $161,275, 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, 1998 and 1997 was $8,980 and $10,654,
respectively.
4. Net Assets
Net Assets as of December 31, 1998:
Proceeds from units sold less payments $(9,407,267)
for units withdrawn and redeemed
Net investment income 4,226,527
Net realized gains 14,930,285
Unrealized appreciation 3,983,361
$ 13,732,906
The unrealized appreciation of $3,983,361 consists of common stock appreciation
and depreciation of $4,707,260 and $723,899, respectively.
<PAGE>
Financial Highlights
The per unit amounts are based on average units outstanding throughout the year.
Year Ended December 31
1998 1997 1996 1995 1994
Investment income $ 0.33 $ 0.28 $ 0.26 $ 0.24 $ 0.19
Expenses 0.19 0.16 0.13 0.11 0.10
Net investment income 0.14 0.12 0.13 0.13 0.09
Net realized gain and
unrealized appreciation
on investments 0.87 3.42 1.73 1.52 0.07
Net increase 1.01 3.54 1.86 1.65 0.16
Value per unit:
Beginning of year 15.31 11.77 9.91 8.26 8.10
End of year $16.32 $15.31 $11.77 $ 9.91 $ 8.26
Ratio to Average Net Assets:
Expenses 1.20% 1.20% 1.20% 1.20% 1.20%
Net investment income 0.90% 0.90% 1.25% 1.39% 1.16%
Total Return 7.6% 31.2% 19.8% 21.1% 2.94%
Portfolio Turnover Rate 29% 28% 18% 20% 23%
Units outstanding 841 933 1,068 1,264 1,417
(in 000's)
The accompanying notes are an integral part of the financial statements.
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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-9964A (1/99)
