N-30D 1 fundb.txt FUND B N30D American United Life Pooled Equity Fund B R. STEPHEN RADCLIFFE Chairman of the Board of Managers, Executive Vice President, AUL RONALD D. ANDERSON Professor, Kelley School of Business, Indiana University, Indianapolis, Indiana DONALD J. STUHLDREHER Retired President, Huntington Bancshares, Inc., Columbus, Ohio JAMES W. MURPHY, Former Senior Vice President, Corporate Finance, AUL JAMES P. SHANAHAN Former Senior Vice President, Retirement Services Division, AUL RICHARD A. WACKER Secretary to the Board, Associate General Counsel, AUL CUSTODIAN National City Bank Indianapolis, Indiana LEGAL COUNSEL Ice Miller 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, 2001 A Message From The Chairman of the Board of Managers To All Participants in American United Life Pooled Equity Fund B During the past two years, investors have been faced with a series of extraordinary events that have profoundly affected our society, economy, and investment markets. We have witnessed the demise of the dot-com era, experienced a controversial presidential election and suffered through deplorable terrorist attacks. We also have had to grapple with anthrax threats and a war in Afghanistan. It is not surprising that these events had a negative impact on our economy and the U.S. stock market. The Federal Reserve (the "Fed") initiated an aggressive stimulus policy at the beginning of 2001 indicating that it stood ready to provide the liquidity necessary to meet the economys needs. The Fed cut the Federal Funds rate on eleven occasions during 2001, lowering the rate from 6.50% to 1.75%, which represents the lowest level since 1961. Sadly though, the Feds stimulative efforts were not enough. Economists at the National Bureau of Economic Research officially announced that the longest expansion in U.S. history finally came to an end last year as the U.S. economy sank into a recession. These events also took their toll on the stock market. After experiencing negative equity returns in 2000, investors were hoping for a rebound in 2001. However, these hopes faded quickly as poor economic results, declining profitability, bankruptcies and terrorist attacks cast a dark cloud over the stock market. The S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite (three commonly used equity indices) posted negative returns during calendar 2001. These indices also posted negative returns in 2000, making this the first time we have had consecutive negative annual returns in these major stock indices since the 1970s. As we enter 2002, we are cautiously optimistic. It is hoped that the combination of a stimulative monetary policy, tax cuts, declining inventory levels, and a successful war on terrorism will provide the necessary stimulus for positive economic growth and a fresh wave of bullishness for the stock market. Investment performance for American United Life Pooled Equity Fund B (Fund B) during calendar 2001 was 11.0%, compared to negative returns for the major stock indices. 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 encourage your careful review of the comments of the Portfolio Manager on the following page. The tragic events of September 11 will remain forever etched in our memories. We at American United Life Insurance Company would like to express our heartfelt sympathy to everyone so personally affected. /s/R. Stephen Radcliffe R. Stephen Radcliffe Chairman of the Board of Managers Indianapolis, Indiana January 31, 2002 1 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. The Portfolio uses a value style in selecting securities, concentrating on companies that appear undervalued compared to the market and to their own historic valuation levels. As we close the books on the year 2001, most Americans will give a sigh of despair as they remember the tumultuous events that occurred last year. It was a year marked by terrorism, military action, the onset of global recession, and poor stock performance. Until September 11, stock market performance looked like an extension of 2000. Investors were bearish and continued to reduce shares that had benefited from the 1990s bull market. The equity markets were closed for four days following the terrorist attacks, the longest shutdown in trading activity since 1933. When the markets were finally opened, it was an emotional time. However, stocks staged a remarkable rally during the fourth quarter as investors looked past current woes in hopes that an economic recovery was imminent. Despite strong fourth quarter returns, it was not enough to lift the major equity indices out of negative territory for calendar 2001. The S&P 500, a broad equity index, posted a twelve month return of 11.9%, while the NASDAQ Composite declined 20.8%. Considering the S&P 500 also declined during calendar 2000, this marks the first time this index has experienced back-to-back negative annual returns since the 1973-1974 bear market. Stock market woes had an obvious negative impact on the average equity mutual fund. According to Lipper, Inc., 83% of all U.S. stock funds posted negative returns last year. And the average stock mutual fund fell 10.89% during 2001. Fund B achieved a positive investment return of 11.0% last year, well in excess of the returns provided by the broad equity indices and the average stock fund. This Portfolio benefited from its focus on value investing which continued to outperform growth and the general market during 2001. Fund B did not have a heavy concentration in technology names that performed poorly during the first nine months of the year. However, the Portfolio increased this exposure as the year progressed, selecting companies with low valuations and positive growth potential. This helped fourth quarter performance during the stock market rally. Fund B also benefited from its holdings in cyclical industries, such as apparel, basic materials, and auto parts. Overall, the outlook for equities is reasonably good for 2002. The economy is finally expected to rebound sometime during the year as a result of a stimulus package from Congress, Fed rate cuts and lower energy prices. This should bode well for the stock market. And although investors should not expect to return to the twenty percent returns achieved in the late 1990s, a year of positive returns (even in the single digit range) would be applauded. 2 American United Life Pooled Equity Fund B Fund B S&P 500 One Year 11.0% -11.9% Five Years 12.6% 10.7% Ten Years 13.6% 12.9% Value of a hypothetical $10,000 investment made 12/31/91 $35,924 $33,725 The charts above show total returns for Fund B, 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 & Poors 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. 3 Report of Independent Accountants Board of Managers and Contract Owners American United Life Pooled Equity Fund B In our opinion, the accompanying statement of assets and liabilities, 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, 2001, 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 accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Funds 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 auditing standards generally accepted in the United States of America 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 December 31, 2001 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/PricewaterhouseCoopers LLP Indianapolis, Indiana February 15, 2002 4 American United Life Pooled Equity Fund B STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Assets: Investments at value (cost: $4,095,041) Common stock $ 4,674,225 Money market mutual funds 261,168 Dividends and interest receivable 5,147 Total assets 4,940,540 Liabilities: 0 Net assets: $ 4,940,540 Units outstanding 242,257 Accumulation unit value $ 20.39 The accompanying notes are an integral part of the financial statements. 5 American United Life Pooled Equity Fund B STATEMENT OF OPERATIONS for the year ended December 31, 2001 Net investment income: Income Dividends and interest $ 97,995 97,995 Expenses Investment management services 16,876 Mortality and expense charges 50,630 67,506 Net investment income 30,489 Gains on investments: Net realized gains 486,813 Net change in unrealized appreciation (depreciation) 23,908 Net Gain 510,721 Increase in net assets from operations $ 541,210 The accompanying notes are an integral part of the financial statements. 6 American United Life Pooled Equity Fund B STATEMENTS OF CHANGES IN NET ASSETS Year ended Year ended Dec. 31, 2001 Dec. 31, 2000 Operations: Net investment income $ 30,489 $ 98,629 Net realized gain 486,813 770,497 Net change in unrealized appreciation (depreciation) 23,908 (57,122) Increase in net assets from operations 541,210 812,004 Changes from contract owner transactions: Proceeds from units sold - 36,292 Payments for units withdrawn (2,274,115) (4,644,113) Payments for units redeemed - (1,537) Decrease (2,274,115) (4,609,358) Net decrease in net assets (1,732,905) (3,797,354) Net assets at beginning year 6,673,445 10,470,799 Net assets at end of year $ 4,940,540 $ 6,673,445 Units sold - 2,629 Units withdrawn (117,558) (295,340) Units redeemed - (58) Net decrease in units outstanding (117,558) (292,769) Units outstanding at beginning of year 359,815 652,584 Units outstanding at end of year 242,257 359,815 The accompanying notes are an integral part of the financial statements. 7 American United Life Pooled Equity Fund B SCHEDULE OF INVESTMENTS December 31, 2001 Market Description Shares Value Common Stock (94.7%) Aerospace (2.5%) Boeing Co. 1,900 $ 73,682 Precision Castparts Corp. 1,600 45,200 118,882 Apparel (11.0%) Kellwood Co. 4,800 115,248 Liz Claiborne, Inc. 3,300 164,175 Reebok International* 9,800 259,700 539,123 Automotive & Auto Parts (11.4%) Bandag Inc. 3,100 107,756 Carlisle Companies, Inc. 3,700 136,826 Ford Motor Co. 5,600 88,032 TBC Corp.* 16,900 226,291 558,905 Banks & Financial (8.9%) Bank One Corp. 3,632 141,830 Citigroup, Inc. 2,736 138,113 Ohio Casualty Corp.* 2,300 36,915 Washington Mutual, Inc. 3,732 122,036 438,894 Cement & Aggregates (3.0%) Lafarge North America, Inc. 3,950 148,402 148,402 Chemicals (1.4%) Dow Chemical 2,100 70,938 70,938 Computer Hardware & Software (4.6%) Autodesk, Inc. 3,600 134,172 Compaq Computer Corp. 3,200 31,232 International Business Machines Corp. 500 60,480 225,884 *does not pay cash dividends The accompanying notes are an integral part of the financial statements. 8 American United Life Pooled Equity Fund B SCHEDULE OF INVESTMENTS (continued) December 31, 2001 Market Description Shares Value Common Stock (94.7%), continued Electrical Equipment & Electronics (5.9%) American Power Conversion* 1,600 $ 23,136 Baldor Electric Co. 8,240 172,216 Kemet Corp.* 5,400 95,850 291,202 Furniture (4.2%) Kimball International, Inc. Class B 3,700 56,055 La Z Boy, Inc. 7,000 152,740 208,795 Health Care (2.3%) McKesson Corp. 3,100 115,940 115,940 Housing (3.2%) Fleetwood Enterprises, Inc.* 5,000 56,650 Toll Brothers, Inc.* 2,300 100,970 157,620 Manufacturing (4.2%) Crane Co. 2,600 66,664 Trinity Industries 5,200 141,284 207,948 Metals & Mining (6.3%) AK Steel Holding Corp. 5,700 64,866 ALCOA, Inc. 3,200 113,760 Cleveland Cliffs, Inc. 3,600 65,880 Phelps Dodge Corp.* 2,050 66,420 310,926 Oil & Oil Services (6.6%) Royal Dutch Petroleum Co. 2,200 107,844 Tidewater, Inc. 3,000 101,700 Valero Energy Corp. 3,100 118,172 327,716 Paper and Forest Products (1.5%) Wausau-Mosinee Paper Corp. 6,100 73,810 73,810 *does not pay cash dividends The accompanying notes are an integral part of the financial statements. 9 American United Life Pooled Equity Fund B SCHEDULE OF INVESTMENTS (continued) December 31, 2001 Market Description Shares Value Common Stock (94.7%), continued Retail (5.7%) Lands End, Inc.* 3,300 $ 165,528 Longs Drug Stores, Inc. 5,000 116,900 282,428 Telecommunication Services & Equipment (3.2%) Scientific-Atlanta, Inc. 2,700 64,638 Sprint Corp. (FON Group) 2,500 50,200 Telefonos de Mexico Class L Sponsored ADR 1,300 45,526 160,364 Transportation (4.2%) Alexander & Baldwin, Inc. 4,700 125,490 Norfolk Southern Corp. 4,500 82,485 207,975 Miscellaneous (4.6%) Brunswick Corp. 5,800 126,208 Kelly Services, Inc. Class A 300 6,567 News Corp., LTD. Sponsored ADR Preferred 769 20,348 Outback Steakhouse, Inc.* 2,200 75,350 228,473 Total common stock (cost: $3,833,874) 4,674,225 Money Market Mutual Funds (5.3%) Armada Money Market Fund 25,256 25,256 Dreyfus Cash Management 118,827 118,827 Merrill Lynch Institutional Fund 117,085 117,085 Total money market mutual funds (cost: $261,168) 261,168 Total Investments (cost: $4,095,041) $ 4,935,393 *does not pay cash dividends Percentages shown are based on total investments at market value. The accompanying notes are an integral part of the financial statements. 10 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. As of May 1, 2000, AUL stopped accepting contributions or transfers into Fund B. Investments are valued at closing prices for those securities traded on organized exchanges or listed on the NASDAQ National Market System, 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 Fund B, 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of 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. Investment Transactions Purchases and sales of investment securities (excluding short-term securities and U.S. government obligations) for the year ended December 31, 2001 were $640,352 and $2,708,118, respectively. 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 charges. The expense incurred during the year ended December 31, 2001 was $67,506. 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, 2001 and 2000 were $0 and $731, respectively. 4. Net Assets Net assets as of December 31, 2001: Proceeds from units sold less payments for units withdrawn and redeemed $ (19,431,957) Net investment income 4,478,880 Net realized gains 19,053,265 Unrealized appreciation 840,352 $ 4,940,540 The unrealized appreciation of $840,352 consists of common stock appreciation and depreciation of $1,119,939 and $279,587, respectively. 11 FINANCIAL HIGHLIGHTS Per Unit Operating Performance (for a unit outstanding for the entire year) Year Ended December 31 2001 2000 1999 1998 1997 Net investment income $ 0.10 $ 0.23 $ 0.16 $ 0.14 $ 0.12 Net realized and unrealized gain (loss) on investments 1.74 2.28 (0.44) 0.87 3.42 Net increase (decrease) 1.84 2.51 (0.28) 1.01 3.54 Accumulation unit value: Beginning of year 18.55 16.04 16.32 15.31 11.77 End of year $ 20.39 $ 18.55 $ 16.04 $ 16.32 $ 15.31 Total Return 11.0% 16.6% (0.8%) 7.6% 31.2% Supplemental Data: Net assets, end of period (000) $ 4,941 $ 6,673 $ 10,471 $ 13,733 $14,280 Ratio to Average Net Assets: Expenses 1.20% 1.20% 1.20% 1.20% 1.20% Net investment income 0.54% 1.34% 0.97% 0.90% 0.90% Portfolio Turnover Rate 12% 19% 37% 29% 28% Units outstanding 242 360 653 841 933 (in 000s) The accompanying notes are an integral part of the financial statements. 12