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UP CLOSE
Harace Mann Mutual Funds
Semi-annual Report
June 30, 1998
[GRAPHIC APPEARS IN BACKGROUND HERE]
Protect your
retirement savings
Look at the long term
Think time, not timing
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Horace Mann
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retirement annuities
Contents [ARTWORK APPEARS HERE] Savings
- ------------------------------------
One-year performance ending 6/30/98
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Growth Fund 13.62%
Balanced Fund 12.12%
Income Fund 9.33%
Short-Term
Investment Fund 3.73%
Small Cap
Growth Fund 15.72%
International
Equity Fund 15.96%
Socially
Responsible Fund 22.96%
For further information, see page 6.
FEATURES
Protecting your retirement
savings from the ups and downs
of the stock market .................................. 3
Look at the long term ................................ 4
A secret to saving for your
retirement is time, not timing ....................... 5
How the Funds
measure up ........................................... 6
DEPARTMENTS
Portfolio manager letters ............................ 8
Financial statements ................................. 17
EDITOR'S NOTE: Nothing in these articles should be construed as a promise or
guarantee of future performance. Investment decisions are very personal and
should take into account many individual factors. More complete information on
the funds can be found in the current prospectus.
This report must be preceded or accompanied by a current prospectus.
LONG-TERM GOALS
investments
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Horace Mann Mutual Funds
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1 Horace Mann Plaza
Springfield, Illinois 62715
217-789-2500
Fellow Shareholders,
The first half of 1998 was a period of mixed investment returns for our
customers. Each of our seven funds achieved positive returns in excess of
inflation for the first half of the year and for the twelve months ended June
30, 1998. Three of our funds, the Income Fund, the Small Cap Growth Fund and the
International Equity Fund, outpaced their relevant benchmarks for the first half
of the year.
Although our two largest funds, the Growth Fund and the Balanced Fund, both
underperformed their relevant benchmarks for the first six months of this year,
both funds have produced performance in excess of their relevant Lipper averages
since their inception. The trustees and officers of the Funds maintain their
commitment to providing our customers with conservative products offering levels
of returns that are appropriate over the long-term.
MARKET REVIEW
The first six months of 1998 were good for both the broad stock and bond markets
in the United States. Domestic stock prices were mixed, however the large
capitalization stocks continued their very successful run and bonds continued to
benefit from an economy growing at moderate levels with low inflation.
International markets, especially those in Europe, experienced good returns
after a lackluster second half of 1997. Scudder Kemper Investments, manager of
the Horace Mann International Equity Fund, foresees continued steady growth in
most European countries, but the firm continues to have some concerns over the
possible effects of the "Asian contagion."
MARKET AND POLITICAL ISSUES
Wellington Management Company, LLP, one of the funds' investment advisors,
expects the U.S. economy for the remainder of 1998 to be characterized by
moderate growth, healthy consumer demand, and a widening trade gap. Due to weak
commodity prices and falling import prices, Wellington Management sees
inflationary pressures remaining at bay, allowing for a continuation of today's
very favorable interest rate levels.
PERSPECTIVE
At the Horace Mann Family of Funds, we recognize your commitment to long-term
investing as the means to accumulate assets for your retirement, and we take a
conservative approach to managing your money. We appreciate your continuing
confidence in the Horace Mann Family of Funds.
Sincerely,
/s/ George J. Zock
George J. Zock
President & Chairman
Horace Mann Mutual Funds
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Protecting your
retirement savings from the ups
and downs of the stock market
================================================================================
[ARTWORK APPEARS HERE]
One way to protect yourself
from the ups and downs of
the stock market is to spread
your money among investments
with different objectives.
Consistency is an important part of a retirement savings plan. In the long run,
sticking to your plan instead of reacting to the fluctuations of the stock
market can increase your retirement savings.
One way to protect yourself from the ups and downs of the stock market is to
spread your money among investments with different objectives. "Don't put all
your eggs in one basket" is a good rule for your retirement savings plan. In
most cases, it's not best to have all your retirement savings exclusively in
aggressive investments like international stocks or in conservative investments
like an account with a fixed interest rate.
Most of the time, it's better to consider a number of alternatives. Horace
Mann's Annuity Alternatives contract has nine different investment options
ranging from aggressive to conservative. You can use these different options to
diversify your retirement savings and match your investments to your needs.
Selecting the right mix of investments is a personal choice based on a number of
factors, including:
. your expected time until retirement
. your investment objectives
. your attitude toward investments
You may have questions about matching your investments to your retirement needs.
If so, call your Horace Mann agent at your convenience.
3
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Look
at the long term
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Horace Mann's Growth Fund
performance shows the importance
of staying invested even after a
down quarter.
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
93 94 95 96 97 98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.5 2.9 -2.6 1.9 4.1 -4.5 7.5 7.8 5.9 7.4 6.6 2.9 3.3 9.2 0.1 12.8 9.5 -1.4 11.4 -5.5
</TABLE>
Over the 20 quarters since June 1993, the Horace Mann Growth Fund has only
experienced four quarters of negative performance. But over that period, each
time the fund has had a negative quarter, the next quarter's performance has
rebounded favorably. If investors had reacted to the down quarter at the end of
1994 by withdrawing their investment, they would have missed the next eight
quarters of favorable returns. In fact, investors who have been in the fund
since June 1993, despite the down quarters, have experienced an average
annualized return of 17 percent.
Total return measures the past performance of the fund and does not guarantee
future results. The return does not represent the actual experience of
investments made by a particular contract owner. The total return and principal
value of an account will fluctuate and may be worth more or less than its
original cost when redeemed.
These quarterly returns are based on a $1,000 investment on the first business
day of each quarter shown. These returns are adjusted for a 1.35 percent
mortality and expense fee and do not reflect the $25 annual maintenance charge.
The annual maintenance charge reduces the total rates of return by 2.5 percent
on a $1,000 investment or .5 percent on a $5,000 investment after the first
contract year. Contracts with a value of $10,000 or more are not subject to the
annual maintenance charge.
Commission credits were used to pay certain expenses of the Growth Fund from
1994 through June 30, 1998. The use of credits resulted in higher actual
returns. There is no guarantee the use of credits will continue in the future.
During the first five contract years, redemption charges range from 2 to 8
percent for flexible premium contracts and 1 to 5 percent for single premium
contracts. Returns reflecting redemption are not provided in this illustration.
For information on the Growth Fund's annualized returns, see page 6.
[ARTWORK APPEARS HERE]
4
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A SECRET TO SAVING FOR YOUR RETIREMENT IS TIME, NOT TIMING
================================================================================
[GRAPHIC OF CLOCK APPEARS HERE]
As the chart to the right shows, investors who kept their investments in stock
funds between 1978 and 1997 had an average annualized return of 16.7 percent.
However, some investors believe they can easily improve their investment returns
by moving money out of stock funds during market downturns and back in during
market upturns. History has shown that "timing the market" is very difficult.
Investors who moved their money in and out of the stock market during this
20-year period and:
. missed the 10 best days of market performance had an average
annualized return of 14.0 percent
. missed the 20 best days of market performance had an average
annualized return of 12.2 percent
. missed the 30 best days of market performance had an average
annualized return of 10.7 percent
. missed the 40 best days of market performance had an average
annualized return of 9.3 percent.
The ups and downs of the stock market are normal. The best way to take advantage
of the stock market is to be a long-term investor. History and time are on your
side.
S & P 500 annualized total returns 1978-1997
[BAR GRAPH APPEARS HERE]
90-Day
All 5,218 Minus 10 Minus 20 Minus 30 Minus 40 treasury
trading days best days best days best days best days bill
16.7% 14.0% 12.2% 10.7% 9.3% 7.5%
Source: FactSet, WMC online Wellington Management Co., LLP
5
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FUND PERFORMANCE
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For Annuity Alternatives Contract Owners
Average annual total returns for the period ended June 30, 1998 for the Annuity
Alternatives contracts are shown in the following table. For contributions which
remained invested in an Annuity Alternatives contract, returns are shown first.
For contracts which were surrendered, returns are shown second. Redemption has
no affect on the variable account rates of return after the initial five-year
contract period.
Returns if money remained invested, based on a $1,000 investment.
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Since Inception
<S> <C> <C> <C> <C>
Variable subaccount
Growth Fund 13.62% 17.08% 14.86% 14.36%/1/
Balanced Fund 12.12 13.03 12.47 11.74/1/
Income Fund 9.33 4.98 7.08 6.47/1/
Short-Term Investment Fund 3.73 3.22 3.96 3.56/1/
Small Cap Growth Fund 15.72 -- -- 15.82/2/
International Equity Fund 15.96 -- -- 15.90/2/
Socially Responsible Fund 22.96 -- -- 24.81/2/
<CAPTION>
Returns if money was withdrawn early, based on a $1,000 investment.
<S> <C> <C> <C> <C>
Growth Fund 5.12 17.08 14.86 14.36/1/
Balanced Fund 3.62 13.03 12.47 11.74/1/
Income Fund 0.83 4.98 7.08 6.47/1/
Short-Term Investment Fund -4.57 3.22 3.96 3.56/1/
Small Cap Growth Fund 7.22 -- -- 7.32/2/
International Equity Fund 7.46 -- -- 7.40/2/
Socially Responsible Fund 14.46 -- -- 16.31/2/
</TABLE>
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The average annual total rates of return assume contributions were made on the
first business day of the period indicated.
Total return measures the past performance of each fund subaccount and does not
represent the actual experience of investments made by a particular contract
owner. The total return and principal value of an account will fluctuate. The
value of an account may be worth more or less than its original cost, when
redeemed, depending upon market fluctuations.
Past performance does not guarantee future results of the subaccounts.
Total returns for the variable portion of the Annuity Alternatives contracts
include a reduction for fund expenses and contract charges of 1.35% annually for
mortality and expense risk. Annuity contracts issued prior to January 1984 have
mortality and expense charges or sales fees that differ from those of the
Annuity Alternatives contracts. Such other charges and fees do not exceed those
reflected in the table above.
Annuity Alternatives contracts require a $25 annual maintenance charge on the
contract anniversary when the contract value is less than $10,000. This charge,
which is not reflected in the returns above, after the first contract year would
reduce the total rates of return by 2.5 percent on a $1,000 investment or .5
percent on a $5,000 investment.
During the first five contract years, redemption charges range from 2 to 8
percent for the flexible premium contracts and 1 to 5 percent for single premium
contracts. The average annual total returns with redemption are calculated using
flexible premium redemption charges.
Commission credits were used to pay certain expenses of the Growth and Balanced
Funds from 1994 through June 30, 1998. Certain Balanced and Income Fund expenses
were subsidized (assumed and/or waived) through 1987 and 1996, respectively.
Certain Short-Term Investment Fund expenses have been subsidized (assumed and/or
waived) since 1983. Certain fund expenses have been subsidized (assumed and/or
waived) for the Small Cap Growth, International Equity, and Socially Responsible
Funds since their inception, March 10, 1997. Subsidization and use of credits
resulted in higher actual returns as much as 1 percent, depending on the period
subsidized for each fund. There is no guarantee that subsidization and use of
credits will continue in the future.
/1/ Since inception for the Growth, Balanced, Income, and Short-Term Investment
Funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment advisor. Effective May 1, 1997, Wellington Management Company,
LLP became the Funds' subadvisor.
/2/ Since inception for the Small Cap Growth, International Equity and Socially
Responsible Funds refers to their beginning date, March 10, 1997. The investment
subadvisors are BlackRock Financial Management, Inc. for the Small Cap Growth
Fund and Scudder Kemper Investments, Inc. for the International Equity and
Socially Responsible Funds.
6
<PAGE>
For Growth Fund Public Shareholders and participants in the Horace Mann Employee
401(k) Plan
Average annual total return Horace Mann Mutual Funds
Total average annualized returns for the period ended June 30, 1998 for the
Horace Mann Mutual Funds and their comparable benchmark indices are shown in the
following table:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Growth Fund 15.11% 18.55% 16.32% 15.82%/1/
S&P 500 Stock Index 30.21 23.06 18.56 18.03
Balanced Fund 13.59 14.46 13.90 13.17/1/
Stock/Bond Composite/4/ 22.23 16.33 14.59 14.17
Income Fund 10.72 6.34 8.45 7.84/1/
Lehman Intermediate/Aggregate/5/ 10.54 6.58 8.49 8.22
Short-Term Investment Fund 5.10 4.58 5.32 4.93/1/
90-day Treasury Bills 5.29 4.80 5.51 5.06
Small Cap Growth Fund 17.16 - - 17.22/2/
Russell 2000 Growth 13.18 - - 17.26
International Equity Fund 17.44 - - 17.35/3/
MSCI EAFE 6.09 - - 14.87/6/
Socially Responsible Fund 24.53 - - 26.36/3/
S&P 500 Stock Index 30.21 - - 31.91
</TABLE>
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Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. Commission credits were used to pay certain expenses of the Growth and
Balanced Funds from 1994 through June 30, 1998. Certain Balanced and Income Fund
expenses were subsidized (assumed and/or waived) through 1987 and 1996,
respectively. Certain Short-Term Investment Fund expenses have been subsidized
(assumed and/or waived) since 1983. Certain fund expenses have been subsidized
(assumed and/or waived) for the Small Cap Growth, International Equity, and
Socially Responsible Funds since their beginning, March 10, 1997. Subsidization
and use of credits resulted in higher actual returns of as much as 1 percent,
depending on the period subsidized for each fund. There is no guarantee that
subsidization and use of credits will continue in the future.
The performance data quoted represents past performance, and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate, and when redeemed, may be worth more or less than its original cost.
The indices listed are unmanaged industry benchmarks, not funds, and as such
they have no expenses.
/1/ Since inception for the Growth, Balanced, Income, and Short-Term Investment
Funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment advisor. Effective May 1, 1997, Wellington became the
subadvisor for these funds.
/2/ Since inception for the Small Cap Growth Fund refers to its beginning date,
March 10, 1997. BlackRock Financial Management, Inc. is this fund's investment
subadvisor.
/3/ Since inception for the International Equity and Socially Responsible Funds
refers to their beginning date, March 10, 1997. Scudder Kemper Investments, Inc.
is investment subadvisor for these funds.
/4/ 60% S&P 500, 40% Lehman Brothers Intermediate Government/Corporate Bond
Index through April 30, 1997, Lehman Brothers Aggregate thereafter.
/5/ Lehman Brothers Intermediate Government/Corporate Bond Index through
April 30, 1997, Lehman Brothers Aggregate Bond Index thereafter.
/6/ The index reflects performance from February 28, 1997 through June 30, 1998.
7
<PAGE>
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Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
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Telephone: Fax:
(617) 951-5000 (617) 951-5250
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Growth Fund and Balanced Fund (equity portion)
June 30, 1998
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Performance The performance of the U.S. equity market in 1998 has
been impressive. Year-to-date, the Standard and Poor's
500 has returned 17.7 percent and is running at an annual
rate similar to last year's 34 percent gain. The stock
market's rise is especially noteworthy in the context of
the unfolding earnings slowdown. In addition, while
earnings disappointments may unsettle the market in the
quarters ahead, the low level of bond yields should act
as an important offset.
During the most recent six months ending June 30, the
Horace Mann Growth Fund returned 6.0 percent, but trailed
the lofty performance of the S&P 500 index. The Horace
Mann Balanced Fund, which is made up of between 50
percent and 75 percent equities (managed in the same
style as the Horace Mann Growth Fund) and the remainder
in fixed-income securities, returned 5.3 percent for the
first six months of 1998, also below its market index.
The Growth Fund also trailed the Lipper Growth & Income
Fund average return of 12.1 percent for the six months
ended June 30, 1998, while the Balanced Fund trailed the
Lipper Balanced Fund average return of 9.0 percent.
Portfolio Review During the first half of 1998, stocks with real or
perceived short-term earnings problems were treated
harshly by investors. The agricultural stocks in the
portfolio, including Deere, New Holland, and IMC Global,
were very weak, while Kennametal and Brunswick fell on
negative earnings developments largely connected to the
Asian crisis. In addition, Toys R Us reported little
earnings headway and was punished. GPU received a
negative rate decision in Pennsylvania, and Enron, USX
Marathon and Noble Drilling were hurt by diminished
outlooks in the energy sector. Finally, absence of the
market stalwarts, such as Coca-Cola, Wal-Mart, GE, Dell,
Microsoft, Lucent and Cisco, which simply do not meet our
valuation criteria, penalized comparisons to the S&P 500.
Substantial winners were limited, but Wellpoint Health
Networks, Tommy Hilfiger, MCI and News Corp. were strong
contributors.
Portfolio Outlook Overall, the domestic economy seems to be tracking our
expectations, although the Asian economies seem to be in
worse shape than we had previously projected. In the
second quarter, the economy slowed from its robust 5.4
percent first-quarter pace. The slowdown reflects the
early impact of the weak Asian economies on the domestic
economy and the reduction of inventory growth. The Asian
impact on the domestic economy will exert greater force
in the second half of this year. We anticipate U.S. net
exports to Asia will continue to trend lower this year,
and the strong U.S. dollar will also result in a wider
foreign trade deficit. The momentum in the domestic
economy is supported by strong growth in consumer income
and sensational levels of consumer confidence. We expect
the economy will slow, but will still grow at a healthy
2-2.5 percent pace during the next 12 months.
On the inflation front, we believe the days of negligible
inflation are behind us, and the inflation rate could
rise to a level of approximately 2 percent for the year.
Unemployment remains at its lowest level in nearly 30
years, and wage inflation is the primary risk to low
inflation. The volatile global economic climate has
served to contain pricing initiatives in the
manufacturing sector.
8
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Growth Fund and Balanced Fund (continued)
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Portfolio Outlook Long-term interest rates are trending lower in recognition
(continued) of the unfolding recession in Asia and the expected U.S.
budget surplus. The Federal Reserve is poised to raise
short-term rates due to the strong growth in the domestic
economy, low unemployment and potential "bubble"
developments in the equity markets, but its hand is somewhat
restrained by events in Asia.
After having increased at double-digit rates for the past
several years, we expect corporate profits will grow at a 5
percent rate in 1998. We expect to see more stress on
earnings reports during the second half of the year as the
impact of Asia's weakness becomes more pronounced and the
strong U.S. dollar and wage pressures take their toll on
multinational companies. On this score, we differ from
consensus in that we do not expect to see a strong
acceleration in corporate profits in the second half of the
year.
We continue to believe equity valuations are stretched and
recent market performance is more a function of liquidity
than of fundamentals. The equity markets's focus is short
term, favoring growth-oriented stocks as safe havens from
Asia's economic malaise. In this environment, value-oriented
stocks have struggled as the market continues to punish
stocks with any near-term challenges. As a result, we see
many attractive stock values in companies which are clearly
under short-term business pressure but are priced for
long-term appreciation. We have added positions in energy
stocks because we believe oil prices have hit a bottom on
OPEC's newly found resolve to substantially reduce
production. We have also added positions in technology where
attractive valuations have arisen due to short-term earnings
pressures from PC inventory reductions. Recognizing the
higher yields and more stable-growing cash flows of the
telephone companies, we increased our positions in the
industry during the second quarter. We found opportunities
to reduce our holdings in financial services companies that
reached their target prices. We decreased several positions
in the economically-sensitive industrial and commercial
sectors.
Respectfully,
Wellington Management Company, LLP
/s/ John R. Ryan
John R. Ryan, CFA
Senior Vice President
Stock Portfolio Manager
9
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Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
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Telephone: Fax:
(617) 951-5000 (617) 951-5250
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Balanced Fund (bond portion), Income Fund, and Short-Term Investment Fund
June 30, 1998
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Performance The investment climate for fixed-income securities was
excellent in the first half of 1998 as reflected in the 4.5
percent (net of expenses) six-month total return for the
Income Fund. The fixed-income portion of the Balanced Fund,
which makes up about 40 percent of the fund, was not
materially different from the Income Fund. Both funds
outperformed the Lipper Corporate Debt A Rated funds average
return of 3.8 percent for the same period. In addition, the
funds significantly outperformed the Lehman Brothers
Aggregate index return of 3.9 percent.
Performance comparisons for the first six months of the year
were largely dependent on the duration of the funds relative
to the benchmark index. Our longer-than-market duration
stance was a positive contributor to performance over the
period as yields for longer maturity (5- to 30-year)
securities declined significantly more than did the yields
of the shorter maturity securities. Each fund's performance
was also bolstered by strong performance from holdings in
the non-investment grade corporate sector.
The Short-Term Investment Fund matched the 2.5 percent
return for the average of all of IBC/Donoghue's taxable
money market funds for the year and trailed slightly the
90-Day Treasury Bill Average return of 2.6 percent.
Portfolio Review Interest rates drifted lower during the first half of 1998
as investor concerns regarding interest rates stemming from
the continued strength in the U.S. domestic economy faded.
The Asian crisis, a strong U.S. dollar and heavy inventory
accumulation over the past three months combined to calm
investor anxiety about the high U.S. growth rate posted in
the first three months of the year and to focus investors on
the slow growth expected over the balance of the year, as
well as the probable absence of any upward interest rate
moves by the Fed.
Perhaps the most important event during the first half of
the year was the U.S. official exchange rate intervention to
stop a free-fall in the Japanese yen in mid-June. The
meltdown of the yen had raised investor concerns about the
prospect for debt defaults in non-Japanese Asian exporting
countries as they lost competitiveness. Social unrest,
political tensions, and capital flight in the region, as
well as nuclear missile testing in India and Pakistan,
heightened nervousness. Rising risk premiums spread to parts
of Latin America and Eastern Europe causing sharp declines
in equity values and currencies while pushing up interest
rates in these areas to punishing levels.
10
<PAGE>
Balanced Fund (bond portion), Income Fund, and Short-Term Investment Fund
(continued)
- --------------------------------------------------------------------------------
Portfolio Outlook We continue to expect the financial problems in Asia will
dampen U.S. exports and moderate the U.S. economic growth
rate. This anticipated slowdown in the U.S. economy,
together with excellent inflation performance (1.3 percent
CPI estimate for 1998) and a $65 billion U.S. federal budget
surplus in 1998 and $100 billion in 1999, should coalesce to
create a continued good environment for U.S. bonds. We
expect the Fed funds rate, as well as the 30-year Treasury
Bond rate, to move about 50 basis points lower than current
levels by the end of 1998.
Against this background, we maintain a long-duration stance
in the portfolio (5.4 versus 4.6 for the Lehman Aggregate
Bond Index). While the long duration will be the primary
determinant affecting relative investment performance over
the coming months, the impact of that decision is hedged
somewhat by our preference for the less volatile, but
higher-yielding, corporate and mortgage sectors.
In the Short-Term Investment Fund, we took advantage of the
occasions when investor concerns pushed market yields higher
in anticipation of a Fed tightening to invest in longer
maturity, higher-yielding securities to lock in these higher
yields. As a result, the average holding in the fund
currently matures in 48 days. We foresee a slowing domestic
economic activity that, coupled with low inflation, could
cause the Fed to lower short-term rates later this year. If
short-term rates do fall lower, we will keep the portfolio's
maturity on the long side and attempt to lock in high yields
on any market fear of Fed tightening. We continue to favor
agency securities for their yield.
Respectfully,
Wellington Management Company, LLP
/s/ Robert D. Payne
Robert D. Payne, CFA
Senior Vice President
Bond Portfolio Manager
11
<PAGE>
1600 Market Street
27th Floor
Philadelphia, PA 19103
phone 215-561-6000
BLACKROCK 215-585-7900
www.blackrock.com
Small Cap Growth Fund
June 30, 1998
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Performance Small cap growth stocks remained volatile during the first
half of 1998, posting substantial gains during the first
quarter of the year and declining during the second quarter.
The Horace Mann Small Cap Growth Fund generated a 5.6
percent return for the period while its benchmark, the
Russell 2000 Growth Index, posted a 5.5 percent return. U.S.
small cap growth stocks rebounded nicely during the first
three months of 1998, although their performance trailed the
broader market. For the first quarter, the Russell 2000
Growth Index gained 11.9 percent versus a 14.0 return for
the Standard & Poors' 500 Index. The fund gained 9.8
percent. The Russell 2000 Growth Index fell 5.7 percent
during the second quarter of 1998 while the S&P 500 gained
3.3 percent. Our fund declined 3.8 percent.
Portfolio Review During the first three months of the year, technology issues
led the pack with many investors believing declines
associated with the Asian crisis had been overdone. The
underperformance of small growth stocks relative to large
growth stocks can be attributed in part to small growth
stocks' low exposure to financial companies (which saw
strong performance due to continued low interest rates and
corporate activity).
Small cap growth stocks fell 5.7 percent as measured by the
Russell 2000 Growth Index during the second quarter of 1998.
Only three Russell sectors turned in positive performance
for the quarter -- technology, consumer services and retail.
Technology services were up 10.7 percent on an
index-weighted basis, led by demand for information
consulting services and internet mania. Consumer stocks in
general did well, buoyed by high levels of consumer
confidence, low unemployment and low interest rates.
The Small Cap Growth strategy during the quarter called for
significant overweights in technology services, health
services, industrial services, consumer services and retail
trade stocks where we have found above-average rates of
earning growth and relative price strength. The fund was
underweighted relative to the benchmark in the energy,
finance, utilities, producer manufacturing and electronic
technology sectors. There was no exposure to the mineral or
process industry sectors.
12
<PAGE>
Small Cap Growth Fund
June 30, 1998
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Portfolio Outlook U.S. market performance was mixed during the second quarter
of 1998 following the stellar returns seen during the first
three months of the year. While the U.S. economy remained
robust throughout the period, several factors contributed to
the market's slowdown. GDP growth, which reached 5.4 percent
during the first quarter, is expected to slow to 2.5-3
percent for the second quarter. The slower pace can be
attributed to the high levels of inventory currently in
place as well as the widening U.S. trade deficit. Reduced
demand for U.S. products brought about by the Asian crisis
and the strong dollar has led to negative export growth at a
time when import growth remains robust. The General Motors
strike will also likely lead to a decline in GDP for the
second quarter and beyond.
Despite these factors, consumer demand remains extremely
high. Gains in the stock market and income have led to
record levels of consumer confidence and strong spending and
retail sales. Low interest rates have also strengthened the
housing market. However, consumer confidence and spending
can be expected to decline in line with corporate profit
growth and manufacturing levels.
Against this environment, individual stock selection will be
the main driver of performance for the small cap growth
strategy. As always, our goal is to identify companies where
earnings and price momentum converge. We do not anticipate
any major structural changes to the fund and expect to
remain concentrated in the traditional growth sectors,
including technology, health care, commercial/business
services and consumer services.
Respectfully,
BlackRock Financial Management, Inc.
/s/ William J. Wykle
William J. Wykle
Managing Director/Senior Portfolio Manager
Small Cap Growth Fund
13
<PAGE>
SCUDDER KEMPER INVESTMENTS
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
212 326 6200 telephone
International Equity Fund
June 30, 1998
- --------------------------------------------------------------------------------
Performance For the six-month period which ended June 30, the Horace
Mann International Equity Fund has gained 19.6 percent while
the fund's benchmark EAFE index gained 15.9 percent. In the
quarter which ended June 30, the Horace Mann International
Fund clocked a total return of 5.5 percent, well-exceeding
the EAFE which gained only 1.1 percent. The comparable
Lipper averages (Lipper International Investment Objectives)
for the two time periods were 15.5 percent and 0.7 percent,
respectively.
Portfolio Review For the first half of 1998, your portfolio's outperformance
compared to the EAFE can be attributed mainly to its
positioning in Europe. A heavy exposure to the European
markets and solid individual stock picking contributed most
of the fund's outperformance. The top market returns were
from France, Germany, Italy and Finland.
The European currencies weakened only marginally against the
dollar and had little effect on fund performance. Top stock
picks during the last six months include Nokia (Finnish
cellular infrastructure), SAP (German business software),
Mannesmann (German telephony), Banca di Roma (Italian
banking), and Orange (UK cellular telephony). The
disappointments were in Japan, Hong Kong/China and the small
positions in the emerging markets.
Economic Outlook Over the next several quarters, we foresee continued steady
growth in most European countries, while we have some
concerns over the possible effects of the "Asian contagion."
We will continue to monitor events in Japan with the closest
scrutiny.
When emerging markets begin to offer not only compelling
valuations, but also greater economic and political
stability, we may consider increasing our weightings. We
will patiently await a more balanced risk/return profile
before shifting portfolio assets into these areas.
Respectfully,
Scudder Kemper Investments, Inc.
/s/ Irene T. Cheng
Irene T. Cheng
Lead Portfolio Manager
International Equity Fund
14
<PAGE>
SCUDDER KEMPER INVESTMENTS
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
212 326 6200 telephone
Socially Responsible Fund
June 30, 1998
- --------------------------------------------------------------------------------
Performance The Standard & Poors' 500 returned 17.7 percent for the
first half of 1998 and continued its spectacular run of the
past three years. Yet below the surface, the market was
anything but spectacular. During the period, the largest
capitalization growth stocks dramatically outperformed
virtually everything else, resulting in a two-tiered market
whose breadth was among the narrowest in fifty years. A
startling first half statistic which brings this into focus
is, within the S&P 500, 64 percent of the stocks actually
underperformed the index return, while 30 percent actually
declined in price. This backdrop has made it extremely
difficult for actively managed funds to outperform the index
return. For the first six months of the year, the Horace
Mann Socially Responsible Fund provided a total return of
11.0 percent.
Portfolio Review In addition to the headwind faced by the lack of breadth in
the market, the value and relative yield-based discipline
employed by the fund was out of favor in the first half of
the year. As with any investment discipline, a relative
yield approach to stock selection does not outperform in
every time period, but it has proven its success over time.
Our overweight in industrial cyclical stocks was the primary
source of weakness in the portfolio. Despite these stocks'
already low relative valuations, investors sold these stocks
indiscriminately when concerns over Asia resurfaced in the
second quarter. Stock selection in other sectors of the fund
was generally strong. Notable contributors were consumer
cyclical stocks -- Ford (which jumped 69 percent), Sears
(+36 percent), JCPenney (+22 percent), and Mercantile Stores
(+31 percent), which received a buyout offer from Dillards.
Pharmaceutical stocks continued their trend of
outperformance, with American Home Products, Bristol-Myers
Squibb, Smithkline Beecham and Zeneca all contributing
significantly. Our stock selection in the telecommunications
sector also added value, with outperformance from BellSouth,
Sprint and Frontier.
Portfolio Outlook The performance characteristics of the stock market cause us
to be both concerned and optimistic over the next few
quarters. We have increased the "defensiveness" of the
portfolio this year, but not by adding to the consumer
staples or pharmaceutical sectors where we feel the premium
valuations leave these groups vulnerable to even modest
disappointment. Rather, we have added to energy,
telecommunications, REITs and electric utilities, where
valuations are truly low.
When investors scramble to buy the largest capitalization
growth stocks like General Electric, Microsoft, and
Coca-Cola with little regard for valuations, we believe the
widening divergence of valuations in the market becomes
increasingly likely to correct itself. Consider this: GE,
one of the best-managed companies in America, sells at 37
times earnings. Fully 40 percent of those earnings come from
financial services. Chase Manhattan Bank, a large holding in
your fund, sells at 12 times earnings. Is GE's financial
services business worth three times Chase's? If not, then
the market is implicitly saying that all of GE's other
businesses are worth in excess of 40 times earnings! We
would rather own stocks like Chase, Xerox (20 times
earnings), Dana (12 times earnings) and Corning (20 times
earnings). This year, the market hasn't agreed with us, but
if valuations do begin to converge, either up to the GE
level or down to Chase's, the stocks in your fund should
benefit.
Respectfully,
Scudder Kemper Investments, Inc.
/s/ Lori Ensinger
Lori Ensinger
Lead Portfolio Manager
Socially Responsible Fund
15
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
16
<PAGE>
Semi-annual Report
June 30, 1998
Horace Mann Mutual Funds
Growth Fund
Balanced Fund
Income Fund
Short-Term Investment Fund
Small Cap Growth Fund
International Equity Fund
Socially Responsible Fund
Board of Trustees
A.L. Gallop
Donald G. Heth
Richard D. Lang
Harriet A. Russell
George J. Zock
Officers of the Funds
George J. Zock
President and Chairman
Ann Caparros
Secretary and
Ethics Compliance Officer
William Kelly
Treasurer and Regulatory
Compliance Officer
Linda L. Sacco
Assistant Secretary
Roger Fisher
Controller
Diane M. Barnett
Tax Compliance Officer
- --------------------------------------------------------------------------------
Investment Advisor and Manager
Horace Mann Investors, Inc.
#1 Horace Mann Plaza
Springfield, IL 62715
Investment Subadvisors
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
BlackRock Financial Management, Inc.
1600 Market Street, 27th Floor
Philadelphia, PA 19103
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Financial Highlights
June 30, 1998
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income/1/ Gains (Losses)/1/ Operations/1/ Income Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND/7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $25.66 $0.20 $1.33 $1.53 $ -- $ -- $ --
1997 23.76 0.40 5.09 5.49 0.39 3.20 3.59
1996 21.66 0.43 5.08 5.51 0.40 3.01 3.41
1995 17.64 0.52 5.41 5.93 0.49 1.42 1.91
1994 19.85 0.49 (0.57) (0.08) 0.45 1.68 2.13
1993 19.49 0.54 3.32 3.86 0.52 2.98 3.50
BALANCED FUND/6,7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $19.82 $0.36 $0.70 $1.06 $ -- $ -- $ --
1997 18.94 0.65 2.92 3.57 0.62 2.07 2.69
1996 18.00 0.60 2.70 3.30 0.57 1.79 2.36
1995 15.26 0.67 3.46 4.13 0.61 0.78 1.39
1994 16.72 0.62 (0.81) (0.19) 0.55 0.72 1.27
1993 16.22 0.65 1.87 2.52 0.56 1.46 2.02
INCOME FUND/5,7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $13.00 $0.40 $0.18 $0.58 $ -- $ -- $ --
1997 12.69 0.81 0.39 1.20 0.85 0.04 0.89
1996 13.03 0.76 (0.31) 0.45 0.79 -- 0.79
1995 12.02 0.80 0.99 1.79 0.78 -- 0.78
1994 13.06 0.75 (1.04) (0.29) 0.75 -- 0.75
1993 12.95 0.82 0.23 1.05 0.75 0.19 0.94
</TABLE>
/1/ The "Net Investment Income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations.
/2/ The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
/3/ If you are an annuity contract owner, the above total return does not
reflect expenses that apply to the separate account or related policies.
The inclusion of these charges would reduce the total return figures for
all periods shown.
See notes to the financial statements.
18
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of Ratio of
Net Asset Net Assets Expenses Net Income Portfolio Ratio of
Value End Total End of Period to Average to Average Turnover Ratio of Net Investment
of Period Return/2,3/ (in thousands) Net Assets/4/ Net Assets/4/ Rate Expenses Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$27.19 5.98% $664,331 0.25% 0.74% 27.18% -- --
25.66 23.45 598,502 0.52 1.51 53.96 -- --
23.76 25.28 430,556 0.59 1.79 67.63 -- --
21.66 33.67 297,100 0.63 2.50 64.59 -- --
17.64 (0.35) 202,103 0.69 2.36 69.42 -- --
19.85 19.74 178,379 0.69 2.48 47.39 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$20.88 5.33% $421,782 0.24% 1.75% 29.99% -- --
19.82 19.04 387,110 0.51 3.12 77.54 -- --
18.94 18.27 300,551 0.56 3.12 72.10 -- --
18.00 27.12 228,193 0.59 3.79 64.80 -- --
15.26 (1.12) 160,815 0.63 3.59 121.82 -- --
16.72 15.46 132,376 0.66 3.54 52.43 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$13.58 4.45% $ 10,495 0.45% 2.98% 25.78% -- --
13.00 9.42 9,658 0.92 6.09 96.78 -- --
12.69 3.50 10,848 0.70 5.88 112.60 0.91% 5.67%
13.03 14.93 10,532 0.62 6.16 74.53 0.88 5.89
12.02 (2.21) 9,259 0.61 5.85 205.35 0.92 5.54
13.06 8.07 9,409 0.41 5.92 74.16 0.87 5.46
</TABLE>
4 Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
5 Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996. The investment advisory expenses
for the Income Fund were waived by CIGNA Investments from January 1, 1984
through October 31, 1989.
6 Expenses for the Balanced Fund were assumed or waived by Horace Mann
Investors, Inc. and CIGNA Investments through 1987.
7 The Growth, Balanced and Income Funds' investment advisor was changed
effective November 1, 1989.
19
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Financial Highlights (concluded)
June 30, 1998
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income/1/ Gains (Losses)/1/ Operations/1/ Income Gains Distributions
SHORT-TERM FUND/5,6/
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
06/30/98 $ 9.99 $0.25 $ -- $0.25 $ -- $ -- $ --
1997 10.03 0.51 -- 0.51 0.55 -- 0.55
1996 10.00 0.50 (0.01) 0.49 0.46 -- 0.46
1995 10.08 0.53 -- 0.53 0.61 -- 0.61
1994 10.07 0.39 -- 0.39 0.38 -- 0.38
1993 10.09 0.26 -- 0.26 0.28 -- 0.28
SMALL CAP
GROWTH FUND/7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $11.70 $(0.03) $0.69 $0.66 $ -- $ -- $ --
1997 10.00 (0.02) 1.72 1.70 -- -- --
INTERNATIONAL
EQUITY FUND/7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $10.27 $0.12 $1.89 $2.01 $ -- $ -- $ --
1997 10.00 0.08 0.27 0.35 0.08 -- 0.08
SOCIALLY
RESPONSIBLE FUND/7/
- ------------------------------------------------------------------------------------------------------------------------------
06/30/98 $12.10 $0.14 $1.19 $1.33 $ -- $ -- $ --
1997 10.00 0.10 2.20 2.30 0.10 0.10 0.20
</TABLE>
1 The "Net Investment Income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations.
2 The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
3 If you are an annuity contract owner, the above total return does not
reflect expenses that apply to the separate account or related policies.
The inclusion of these charges would reduce the total return figures for
all periods shown.
See notes to the financial statements.
20
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of Ratio of
Net Asset Net Assets Expenses Net Income Portfolio Ratio of
Value End Total End of Period to Average to Average Turnover Ratio of Net Investment
of Period Return/2,3/ (in thousands) Net Assets/4/ Net Assets/4/ Rate Expenses Income
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.24 2.50% $1,685 0.29% 2.43% 0.00% 1.22% 1.50%
9.99 5.09 1,151 0.50 4.98 0.00 2.52 2.96
10.03 5.02 1,229 0.53 4.93 0.00 2.44 3.02
10.00 5.25 1,006 0.84 5.11 0.00 2.35 3.60
10.08 3.89 1,114 0.49 3.78 0.00 2.36 1.91
10.07 2.53 1,110 0.61 2.56 0.00 2.42 0.75
- -------------------------------------------------------------------------------------------------------------------------------
$12.36 5.63% $23,460 0.51% (0.22)% 67.39% 0.84% (0.55)%
11.70 17.01/8/ 16,525 0.78 (0.19) 91.49 1.44 (0.85)
- -------------------------------------------------------------------------------------------------------------------------------
$12.28 19.62% $8,075 0.44% 1.00% 20.15% 1.02% 0.42%
10.27 3.46/8/ 5,214 0.46 1.29 31.99 1.82 (0.07)
- -------------------------------------------------------------------------------------------------------------------------------
$13.43 11.03% $20,558 0.30% 1.03% 25.38% 0.60% 0.73%
12.10 23.04/8/ 9,213 0.49 1.65 20.85 1.16 0.98
</TABLE>
4 Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
5 Certain expenses for the Short-Term Fund were assumed or waived by Horace
Mann Investors, Inc. through June 30, 1998. The investment advisory
expenses for the Short-Term Fund were waived by CIGNA Investments from
January 1, 1984 through October 31, 1989.
6 The Short-Term Fund's investment advisor was changed effective November
1, 1989.
7 Certain expenses for the Small Cap Growth, International Equity and
Socially Responsible Funds were assumed and/or waived by Horace Mann
Investors since their beginning, March 10, 1997.
8 The returns are not annualized.
21
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
Cash & Other Net Assets 3%
Common & Preferred Stock 97%
Statement of Investments
Growth Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Aerospace/Defense 3.37%
Boeing Co. 148,100 $ 6,600
Northrop Grumman Corp. 109,400 11,282
Precision Castparts Corp. 84,800 4,526
- ------------------------------------------------------------------------------------
22,408
Auto/Accessories 4.27%
Goodyear Tire and Rubber Co. (The) 325,800 20,994
General Motors Corp. 110,300 7,369
- ------------------------------------------------------------------------------------
28,363
Banks/Financial Services 13.46%
Ahmanson (H.F.) & Co. 72,253 5,130
Associates First Capital Corp. - A 77,700 5,973
BankAmerica Corp. 102,700 8,877
Bear Stearns Companies Inc. 81,200 4,618
Citicorp 65,565 9,786
Coast Federal Litigation Trust* 89,400 1,352
Federal National Mortgage Association 163,400 9,927
First Chicago NBD Corp. 100,400 8,898
First Union Corp. 346,726 20,197
Heller Financial, Inc.* 40,400 1,212
National City Corp. 189,100 13,426
- ------------------------------------------------------------------------------------
89,396
Business Services 0.42%
Foster Wheeler Corp. 130,400 2,795
Chemicals 1.93%
Ferro Corp. 79,450 2,011
IMC Global Inc. 358,400 10,796
- ------------------------------------------------------------------------------------
12,807
Consumer Products 2.19%
Archer Daniels Midland Co. 162,665 3,152
Corn Products International, Inc.* 118,900 4,028
Flowers Industries, Inc. 359,950 7,356
- ------------------------------------------------------------------------------------
14,536
Energy 9.14%
Amoco Corp. 24,500 1,041
Ashland Inc. 50,000 2,581
Chevron Corp. 42,100 3,497
Enron Oil & Gas Co. 243,300 4,927
Equitable Resources, Inc. 187,700 5,725
Noble Drilling Corp.* 199,100 4,791
Royal Dutch Petroleum Co. 59,200 3,245
Texaco Inc. 162,800 9,717
Union Pacific Resources Group Inc. 291,300 5,116
USX-Marathon Group 584,900 20,069
- ------------------------------------------------------------------------------------
60,709
</TABLE>
See notes to the financial statements.
22
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Growth Fund
June 30, 1998
Number of Market
Shares (000)
- ---------------------------------------------------------------------------
COMMON STOCK
(continued)
Entertainment Products 2.72%
Brunswick Corp. 284,500 $ 7,041
Eastman Kodak Co. 151,200 11,047
- ---------------------------------------------------------------------------
18,088
Food Services 0.55%
Tricon Global Restaurants, Inc.* 115,400 3,657
Health Care/Pharmaceuticals 7.79%
Baxter International Inc. 169,700 9,132
Columbia/HCA Healthcare Corp. 187,500 5,461
DePuy, Inc. 146,900 4,150
Mallinckrodt, Inc. 194,200 5,765
Pharmacia & Upjohn Inc. 261,700 12,071
Wellpoint Health Networks, Inc. - A* 205,700 15,222
- ---------------------------------------------------------------------------
51,801
Information Technology/Equipment 4.82%
Advanced Micro Devices, Inc.* 164,600 2,808
Compaq Computer Corp. 248,000 7,037
Harris Corp. 139,200 6,221
Hewlett-Packard Co. 26,500 1,587
International Business Machines Corp. 90,600 10,402
Xilinx, Inc.* 116,100 3,947
- ---------------------------------------------------------------------------
32,002
Insurance 6.28%
Aetna Inc. 92,500 7,042
CIGNA Corp. 145,200 10,019
NAC Re Corp. 115,300 6,154
Provident Companies, Inc. 189,000 6,521
Travelers Group, Inc. 197,550 11,976
- ---------------------------------------------------------------------------
41,712
Manufacturing (Diversified) 6.82%
Chart Industries Inc. 90,400 2,158
Cincinnati Milacron Inc. 186,100 4,525
Cooper Industries Inc. 33,300 1,829
Deere & Co. 324,800 17,174
Eaton Corp. 75,200 5,847
Kennametal Inc. 140,600 5,870
New Holland N.V. 402,300 7,895
- ---------------------------------------------------------------------------
45,298
Metals & Mining 2.82%
Aluminum Co. of America 284,200 18,739
Paper & Forest Products 2.22%
Georgia Pacific Corp. (Timber Group) 257,500 5,939
Sonoco Products Co. 114,730 3,471
Temple-Inland, Inc. 98,500 5,307
- ---------------------------------------------------------------------------
14,717
See notes to the financial statements.
23
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Growth Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
(concluded)
Retail/Apparel 4.81%
May Department Stores Co. (The) 151,900 $ 9,949
Penney (J.C.) Co., Inc. 146,000 10,558
Rite Aid Corp. 21,500 808
Sports Authority, Inc. (The)* 310,700 4,641
Toys "R" Us, Inc.* 253,600 5,975
- ------------------------------------------------------------------------------------
31,931
Telecommunications 8.37%
Ameritech Corp. 151,500 6,799
AT&T Corp. 73,800 4,216
Bell Atlantic Corp. 418,792 19,107
GTE Corp. 85,200 4,739
MCI Communications Corp. 133,300 7,740
SBC Communications Inc. 325,200 13,008
- ------------------------------------------------------------------------------------
55,609
Transportation/Travel 4.96%
Canadian National Railway Co. 143,700 7,634
CSX Corp. 105,300 4,791
Delta Air Lines, Inc. 112,900 14,592
Pittston Burlington Group 28,050 437
Ryder Systems, Inc. 173,500 5,476
- ------------------------------------------------------------------------------------
32,930
Utilities 7.67%
American Electric Power Company, Inc. 121,500 5,513
Central & South West Corp. 204,000 5,483
Consolidated Edison Co. 29,700 1,368
Duke Energy Co. 196,900 11,666
GPU, Inc. 358,000 13,537
New England Electric System 164,700 7,123
Pinnacle West Capital Corp. 139,600 6,282
- ------------------------------------------------------------------------------------
50,972
Waste Services 0.98%
USA Waste Services, Inc.* 132,500 6,542
- ------------------------------------------------------------------------------------
Total Common Stock 95.59% 635,012
(Cost $ 548,257)
- ------------------------------------------------------------------------------------
PREFERRED STOCK
Printing/Publishing 1.42%
News Corp. Ltd. (The) (ADR) 333,800 9,430
(Cost $5,736)
- ------------------------------------------------------------------------------------
Total Common and Preferred Stock 97.01% 644,442
(Cost $553,993)
</TABLE>
See notes to the financial statements.
24
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Growth Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM
INVESTMENT
Repurchase Agreement
Paribas Corp.
5.75%, 07/01/98, (secured
by $20,367,000, US Treasury
Bond, 5.875%, 09/30/02) $ 19,952 $ 19,952
- --------------------------------------------------------------------------------------
Total Short-Term Investment 3.00% 19,952 19,952
(Cost $19,952)
- --------------------------------------------------------------------------------------
Total Investments 100.01% 664,394
(Cost $573,945)
Liabilities in Excess of
Cash and Other Liabilities (.01%) (63)
- --------------------------------------------------------------------------------------
Net Assets 100.00% $ 664,331
- --------------------------------------------------------------------------------------
</TABLE>
* Non-income producing during the six months ended June 30, 1998 as this
security did not pay dividends.
See notes to the financial statements.
25
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
Cash & Other Net Assets 2.7%
Municipal Bonds 1.4%
U.S. & Foreign Corporate Bonds/Notes 16.0%
U.S. & Foreign Government & Agency Obligations 20.7%
Common & Preferred Stock 59.2%
Statement of Investments
Balanced Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Aerospace/Defense 1.99%
Boeing Co. 54,200 $ 2,415
Northrop Grunman Corp. 42,200 4,352
Precision Castparts Corp. 30,100 1,607
- ------------------------------------------------------------------------------------
8,374
Auto/Accessories 2.66%
Goodyear Tire & Rubber Co. (The) 130,000 $ 8,377
General Motors Corp. 42,600 2,846
- ------------------------------------------------------------------------------------
11,223
Banks/Financial Services 8.29%
Ahmanson (H.F.) & Co. 30,954 2,198
Associates First Capital Corp. 29,900 2,299
BankAmerica Corp. 36,700 3,172
Bear Stearns Companies Inc. 31,600 1,797
Citicorp 24,959 3,725
Coast Federal Litigation Trust* 38,300 579
Federal National Mortgage Asso. 69,800 4,240
First Chicago NBD Corp. 39,700 3,518
First Union Corp. 140,982 8,212
Heller Financial Inc.* 15,600 468
National City Corp. 67,100 4,764
- ------------------------------------------------------------------------------------
34,972
Business Services 0.23%
Foster Wheeler Corp. 46,100 988
Chemicals 1.34%
Ferro Corp. 30,800 780
IMC Global Inc. 192,000 4,856
- ------------------------------------------------------------------------------------
5,636
Consumer Products 1.42%
Archer Daniels Midland Co. 64,845 1,256
Corn Products International, Inc.* 45,100 1,528
Flowers Industries, Inc. 156,400 3,196
- ------------------------------------------------------------------------------------
5,980
Energy 5.35%
Amoco Corp. 9,500 403
Chevron Corp. 17,300 1,437
Enron Oil & Gas Co. 98,700 1,999
Equitable Resources, Inc. 76,600 2,336
Noble Drilling Corp.* 70,400 1,694
Royal Dutch Petroleum Co. 22,800 1,250
Texaco Inc. 63,300 3,778
Union Pacific Resources Group Inc. 112,500 1,976
USX-Marathon Group 224,200 7,693
- ------------------------------------------------------------------------------------
22,566
</TABLE>
See notes to the financial statements.
26
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Number of Market
Shares (000)
- ----------------------------------------------------------------------------
COMMON STOCK
(continued)
Entertainment Products 1.39%
Brunswick Corp. 114,100 $ 2,824
Eastman Kodak Co. 41,700 3,047
- ----------------------------------------------------------------------------
5,871
Food Services 0.18%
Tricon Global Restaurants, Inc.* 23,900 757
Health Care/Pharmaceuticals 4.81%
Baxter International Inc. 66,500 3,578
Columbia/HCA Healthcare Corp. 88,400 2,575
DePuy, Inc.* 48,800 1,379
Mallinckrodt, Inc. 70,900 2,105
Pharmacia & Upjohn Inc. 103,600 4,779
Wellpoint Health Networks, Inc. - A* 79,400 5,876
- ----------------------------------------------------------------------------
20,292
Information Technology/Equipment 2.69%
Advanced Micro Devices, Inc.* 65,400 1,116
Compaq Computer Corp. 95,400 2,707
Harris Corp. 26,400 1,180
Hewlett-Packard Co. 10,200 611
International Business Machines Corp. 36,500 4,191
Xilinx, Inc.* 44,700 1,520
- ----------------------------------------------------------------------------
11,325
Insurance 3.77%
Aetna Inc. 39,800 3,030
CIGNA Corp. 42,600 2,939
NAC Re Corp. 57,200 3,053
Provident Companies, Inc. 73,400 2,532
Travelers Group, Inc. 71,650 4,344
- ----------------------------------------------------------------------------
15,898
Manufacturing (Diversified) 4.27%
Chart Industries Inc. 39,300 938
Cincinnati Milacron Inc. 68,200 1,658
Cooper Industries Inc. 16,300 895
Deere & Co. 128,700 6,805
Eaton Corp. 31,500 2,449
Kennametal Inc. 49,100 2,050
New Holland NV 163,300 3,205
- ----------------------------------------------------------------------------
18,000
Metals & Mining 1.90%
Aluminum Co. of America 121,500 8,011
Paper & Forest Products 1.38%
Georgia-Pacific Corp. (Timber Group)* 100,500 2,318
Sonoco Products Co. 47,300 1,431
Temple-Inland, Inc. 38,600 2,080
- ----------------------------------------------------------------------------
5,829
See notes to the financial statements.
27
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Number of Market
Shares (000)
- --------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail/Apparel 3.16%
May Department Stores Co. (The) 65,300 $ 4,277
Penney (J.C.) Co., Inc. 58,800 4,252
Rite Aid Corp. 8,300 312
Sports Authority, Inc. (The)* 128,000 1,912
Toys "R" Us, Inc.* 109,700 2,585
- --------------------------------------------------------------------------
13,338
Telecommunications 5.14%
Ameritech Corp. 59,300 2,661
AT&T Corp. 28,500 1,628
Bell Atlantic Corp. 163,148 7,444
GTE Corp. 33,100 1,841
MCI Communications Corp. 50,100 2,909
SBC Communications Inc. 129,600 5,184
- --------------------------------------------------------------------------
21,667
Transportation/Travel 3.14%
Canadian National Railway Co. 58,400 3,102
CSX Corp. 42,100 1,916
Delta Air Lines, Inc. 43,800 5,661
Pittston Burlington Group 8,900 139
Ryder Systems, Inc. 77,600 2,449
- --------------------------------------------------------------------------
13,267
Utilities 4.61%
American Electric Power Company, Inc. 34,500 1,565
Central & South West Corp. 89,000 2,392
Consolidated Edison Co. 12,500 576
Duke Energy Corp. 76,600 4,539
GPU, Inc. 136,400 5,158
New England Electric System 71,900 3,109
Pinnacle West Capital Corp. 46,900 2,110
- --------------------------------------------------------------------------
19,449
Waste Services 0.60%
USA Waste Services, Inc.* 51,300 2,533
- --------------------------------------------------------------------------
Total Common Stock 58.32% 245,976
(Cost $210,397)
- --------------------------------------------------------------------------
PREFERRED STOCK
Printing/Publishing 0.87%
News Corp. Ltd.(The) (ADR) 129,700 3,664
(Cost $2,170)
- --------------------------------------------------------------------------
Total Common and Preferred Stock 59.19% 249,640
(Cost $212,567)
==========================================================================
See notes to the financial statements.
28
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT
AND AGENCY
OBLIGATIONS
Treasury Bonds/Notes
10.375%, 11/15/09 $ 6,000 $ 7,497
10.375%, 11/15/12 12,000 16,069
12.00%, 08/15/13 15,000 22,240
- -----------------------------------------------------------------------------
AGENCIES
Federal National Mortgage Association
6.46%, 06/26/08 1,000 1,000
7.85%, 09/10/04 1,000 1,023
7.84%, 06/09/06 300 305
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 08/01/01 4 4
9.50%, 09/01/01 4 4
9.50%, 10/01/01 17 17
8.50%, 06/01/02 1 1
9.25%, 11/01/02 23 23
8.25%, 10/01/07 51 53
8.25%, 11/01/07 53 55
8.75%, 05/01/08 55 58
8.50%, 08/01/08 65 68
9.00%, 09/01/08 56 59
8.00%, 09/01/09 43 44
8.00%, 04/01/10 54 56
7.00%, 09/01/10 18 18
7.00%, 10/01/10 107 110
7.00%, 12/01/10 103 105
7.00%, 01/01/11 1,957 2,003
7.00%, 02/01/11 2,628 2,685
6.50%, 03/01/11 3,886 3,930
7.00%, 03/01/11 4,561 4,660
7.00%, 04/01/11 1,500 1,533
7.00%, 07/01/11 1,132 1,156
Federal National Mortgage Association
(Mortgage Backed Securities)
8.00%, 07/01/98 91 91
8.75%, 02/01/10 284 297
10.25%, 07/01/13 8 8
6.50%, 02/01/14 793 796
8.00%, 08/01/14 1,182 1,228
8.50%, 09/01/14 555 583
8.50%, 01/01/15 295 310
8.50%, 03/01/15 364 381
6.00%, 06/01/18 1,995 1,957
6.50%, 08/01/15 499 501
7.50%, 10/01/22 802 824
7.50%, 07/01/23 261 268
See notes to the financial statements.
29
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------
AGENCIES
(continued)
Government National Mortgage Association
(Mortgage Backed Securities)
11.00%, 12/15/00 $ 20 $ 21
9.50%, 08/20/01 28 29
9.50%, 10/20/01 26 27
9.50%, 07/20/02 39 41
9.50%, 12/20/02 29 31
9.50%, 01/20/03 20 21
9.50%, 02/20/03 26 27
9.50%, 05/20/03 48 50
9.50%, 08/20/03 49 51
9.50%, 09/20/03 69 72
9.50%, 11/20/03 27 28
9.50%, 09/20/04 19 20
8.25%, 05/15/06 95 99
8.50%, 01/15/20 28 30
8.50%, 02/15/21 161 170
8.50%, 06/15/21 110 116
8.50%, 08/15/21 20 21
8.00%, 05/20/22 380 396
8.50%, 04/15/23 204 215
7.50%, 12/15/23 4,382 4,482
Collateralized Mortgage Obligation
(Planned Amortization Class) (Note 3)
GE Cap Mortgage Services Inc.
6.00%, 04/25/09 1,000 991
FNMA 1993-182 Class H
5.00%, 09/25/23 1,709 1,630
FNMA 1994-19 Class B
5.00%, 01/25/24 1,538 1,468
Foreign (U.S. dollar denominated)
Australia Commonwealth
10.00%, 10/15/07 6,400 5,240
- ---------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 20.70% 75,174 87,296
(Cost $85,814)
- ---------------------------------------------------------------------------
MUNICIPAL BONDS
California Hsg Fin Agy Rev
8.16%, 02/01/28 1,125 1,194
Denver CO City & County Sch. Dist.
6.79%, 12/15/08 930 966
Horry Cnty SC Arpt Rev
7.38%, 07/01/12 1,450 1,558
Ohio State Taxable Dev Assistance
7.60%, 10/01/16 1,250 1,352
Oxnard CA Un High Sch Dist
7.78%, 08/01/17 1,000 1,076
- ---------------------------------------------------------------------------
Total Municipal Bonds 1.45% 5,755 6,146
(Cost $5,955)
See notes to the financial statements.
30
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
Advanced Micro Devices Inc.
11.00%, 08/01/03 $ 440 $ 464
Abraxas Petroleum Corp.
11.50%, 11/01/04 200 207
Accuride Corp.
9.25%, 02/01/08 300 300
AK Steel Corp.
9.125%, 12/15/06 250 261
Allbritton Communiation Co.
8.875%, 02/01/08 225 243
American Mobile Satellite Corp.
12.25%, 04/01/08 25 23
American Pad & Paper--Del.
13.00%, 11/15/05 315 317
Ameristeel Corp.
8.75%, 04/15/08 50 50
Amphenol Corp.
9.875%, 05/15/07 250 266
AMR Corp.
9.00%, 09/15/16 1,550 1,871
Amresco Comm Mtg.
7.19%, 06/17/29 300 303
Amtrol Inc.
10.625%, 12/31/06 60 60
Argo-Tech Corp.
8.625%, 10/01/07 250 250
Argosy Gaming Co.
13.25%, 06/01/04 175 196
Armco Inc.
9.00%, 09/15/07 125 122
Associates Corp. North America
7.95%, 02/15/10 1,500 1,702
Aurora Foods Inc.
8.75%, 07/01/08 100 102
Bankers Trust NY Corp.
8.25%, 05/01/05 1,500 1,650
Banponce Corp.
6.75%, 12/15/05 1,760 1,802
Bayou Steel Corp.
7.45%, 05/15/08 335 332
Beckman Industries Inc.
7.45%, 03/04/08 1,500 1,528
Beneficial Corp.
12.875%, 08/01/13 261 276
Big Flower Press Holding Inc.
8.875%, 07/01/07 300 308
Boise Cascade Office Products Co.
7.05%, 05/15/05 1,500 1,515
BTI Telecom Corp.
10.15%, 09/15/07 300 301
Buckeye Technologies Inc.
8.50%, 12/15/05 150 152
BWay Corp.
10.25%, 04/15/07 85 93
Calmar Inc.
11.50%, 08/15/05 110 127
Capstar Hotel Co.
8.75%, 08/15/07 200 207
See notes to the financial statements.
31
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Century Communications Corp.
0.00%, 01/15/08 $ 500 $ 227
Chancellor Media Corp.
9.375%, 10/01/04 170 179
Chevy Chase Bank F.S.B.
9.25%, 12/01/08 150 152
Clark Schwebel Inc.
10.50%, 04/15/06 230 256
Collins & Aikman Products Co.
11.50%, 04/15/06 250 277
Columbia/HCA Healthcare Corp.
7.25%, 05/20/08 100 97
Comcast Corp.
9.375%, 05/15/05 100 107
Computer Association IntOl Inc
6.50%, 04/15/08 2,000 2,005
Concentric Network Corp.
12.75%, 12/15/07 150 159
Container Corp of America
9.75%, 04/01/03 170 183
Container Corp of America
10.75%, 05/01/02 80 87
Contifinancial Corp.
8.125%, 04/01/08 160 163
Costilla Energy Inc.
10.25%, 10/01/06 350 355
Cross Timbers Oil Co.
9.25%, 04/01/07 300 309
CSC Holdings Inc.
9.25%, 11/01/05 150 160
CSC Holdings Inc.
8.125%, 08/15/09 100 107
Dailey International Inc.
9.50%, 02/15/08 200 195
Decision Holdings Corp.
0.00%, 08/01/08 200 193
Del Monte Foods Co.
0.00%, 12/15/07 100 65
Delta Air Lines Inc.
10.125%, 05/15/10 340 436
Dime Cap Trust
9.33%, 05/06/27 1,500 1,757
Duane Reade Inc.
9.25%, 12/15/08 250 253
E. Spire Communications
0.00%, 04/01/06 250 196
Echostar DBS Corp.
12.50%, 07/01/02 175 196
Echostar Statelite Broadcast Corp.
0.00%, 03/15/04 100 92
Energy Corp of America
9.50%, 05/15/07 150 147
Engle Homes Inc.
9.25%, 02/01/08 300 294
Facilicom International
10.50%, 01/15/08 70 69
See notes to the financial statements.
32
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. AND FOREIGN Fairchild Semiconductor Corp.
CORPORATE 10.125%, 03/15/07 $ 250 $ 258
BONDS/NOTES Falcon Building Products Inc.
(continued) 9.50%, 06/15/07 150 147
Falcon Holdings Group LP
0.00%, 04/15/10 255 161
Falcon Holdings Group LP
8.375%, 04/15/10 170 168
Farmers Ins. Exch.
8.625%, 05/01/24 1,500 1,787
Federal-Mogul Co.
8.80%, 04/15/07 200 222
First Financial Caribbean
7.84%, 10/10/06 665 702
First Nationwide Hldgs
12.50%, 04/15/03 100 113
First Republic Bancorp
7.75%, 09/15/12 1,500 1,568
Fisher Scientific Int'l Inc.
9.00%, 02/01/08 110 109
Flores & Rucks Inc.
9.75%, 10/01/06 250 272
Fonda Group Inc.
9.50%, 03/01/07 250 238
Frontiervision Holding LP
0.00%, 09/15/07 150 119
Gaylord Container Corp.
9.375%, 06/15/07 150 144
GCI Inc.
9.75%, 08/01/07 500 523
Globalstar Capital Corp.
10.75%, 11/01/04 250 237
Granite Broadcasting Corp.
10.375%, 05/15/05 150 158
Granite Boradcasting Corp.
8.875%, 05/15/08 300 303
Great Lakes Carbon Corp.
10.25%, 05/15/08 135 138
Grove Worldwide LLC
9.25%, 05/01/08 160 157
GS Technologies Inc.
12.25%, 10/01/05 200 228
GST Networks FDG Inc.
0.00%, 05/01/08 250 150
GST Telecommunications Inc.
12.75%, 11/15/07 60 70
Hammon, John Q Hotels
8.875%, 02/15/04 250 252
Hayes Wheels Int'l Inc.
9.125%, 07/15/07 150 157
Hollywood Casino Inc.
12.75%, 11/01/03 125 137
Hyperion Telecommunications Inc.
12.25%, 09/01/04 70 76
</TABLE>
See notes to the financial statements.
33
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(contined)
Intermedia Communications Inc.
8.875%, 11/01/07 $ 150 $ 153
Intermedia Communications Inc.
8.50%, 01/15/08 350 351
Intermedia Communications Inc.
8.60%, 06/01/08 150 151
International Wire Group Inc.
11.75%, 06/01/05 100 110
Interpool Inc.
7.35%, 08/01/07 1,800 1,814
Iridium Cap Corp.
10.875%, 07/15/05 170 169
Iridium Cap Corp.
11.25%, 07/15/05 250 251
ITC Deltacom Inc.
8.875%, 03/01/08 200 197
IXC Communications Inc.
9.00%, 04/15/08 260 261
Jacor Communications Co.
9.75%, 12/15/06 160 171
Jacor Communications Co.
8.00%, 02/15/10 70 71
JCAC Inc.
10.125%, 06/15/06 100 109
Johnstown America Inds Inc.
11.75%, 08/15/05 100 111
K & F Industries Inc.
9.25%, 10/15/07 250 252
Kaufman & Broad Home Corp.
9.625%, 11/15/06 250 265
Key Plastics Inc.
10.25%, 03/15/07 150 158
KMC Telecom Holdings Inc.
0.00%, 02/15/08 475 276
KN Energy Inc.
6.65%, 03/01/05 1,500 1,504
L-3 Communications Corp.
8.50%, 05/15/08 115 116
Laroche Industries Inc.
9.50%, 09/15/07 150 146
LDM Technologies Inc.
10.75%, 01/15/07 100 104
Leiner Health Products Inc.
9.625%, 07/01/07 250 266
Level 3 Comm Inc.
9.125%, 05/01/08 455 442
Lin Holdings Corp.
0.00%, 03/01/08 445 298
Lumbermans Mutual Casualty Co.
9.15%, 07/01/26 2,000 2,410
McLeodUSA Inc.
9.25%, 07/15/07 50 52
McLeodUSA Inc.
8.375%, 03/15/08 200 201
Moog Inc.
10.00%, 05/01/16 120 128
See notes to the financial statements.
34
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
MTL Inc.
10.00%, 06/15/06 $ 200 $ 198
Muzak LP/Muzak Capital
10.00%, 10/01/03 250 259
Neenah Corp.
11.125%, 05/01/07 180 196
Newfield Exploration Co.
7.45%, 10/15/07 1,550 1,576
News America Holdings Inc.
8.00%, 10/17/16 2,000 2,204
Nextel Communications Inc.
0.00%, 10/31/07 895 584
Nextlink Communications Inc.
9.45%, 04/15/08 415 255
Nortek Inc.
9.125%, 09/01/07 250 256
NRG Energy Inc.
7.50%, 06/15/07 1,550 1,634
Numatics Inc.
9.625%, 04/01/08 200 202
Olympic Financial LTD
11.50%, 03/15/07 100 100
Olympic Financial LTD (WT)
11.50%, 03/15/07 100 99
Owens & Minor Inc.
10.875%, 06/01/06 250 272
Paging Network Inc.
10.125%, 08/01/07 175 181
Pierce Leahy Corp.
9.125%, 07/15/07 250 258
Pioneer Americas Acquisition Corp.
9.25%, 06/15/07 120 119
Plains Resources Inc.
10.25%, 03/15/06 300 320
P & L Coal Holdings Corp.
9.625%, 05/15/08 650 668
Playtex Products Inc.
8.875%, 07/15/04 110 113
Pride Petroleum Services Inc.
9.375%, 05/01/07 100 106
PsiNet Inc.
10.00%, 02/15/05 275 280
Republic NY Corp.
9.30%, 06/01/21 1,700 2,232
Resource America Inc.
12.00%, 08/01/04 150 160
Revlon Worldwide Parent
10.75%, 03/15/01 375 292
Rifkin ACQ Partners LP
11.125%, 01/15/06 50 55
Scotsman Group Inc.
8.625%, 12/15/07 110 112
Silgan Corp.
9.00%, 06/01/09 300 311
See notes to the financial statements.
35
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Balanced Fund
June 30, 1998
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Sovereign Specialty Chemicals
9.50%, 08/01/07 $ 350 $ 359
Standard PAC Corp.
8.50%, 06/15/07 450 457
Staples Inc.
7.125%, 08/15/07 1,500 1,554
Sullivan Graphics Inc.
12.75%, 08/01/05 200 210
TCI Communications Inc.
8.00%, 08/01/05 2,000 2,184
Telecommunications Tech. Co.
9.75%, 05/15/08 280 285
Terra Industries
10.50%, 06/15/05 150 162
Tesoro Petroleum Corp.
9.00%, 07/01/08 275 273
Texas Petrochemicals Corp.
11.125%, 07/01/06 100 109
Toll Corp.
7.75%, 09/15/07 150 149
Tracor Inc.
8.50%, 03/01/07 250 271
Trico Marine Services Inc.
8.50%, 08/01/05 125 122
Unicco Services Corp.
9.875%, 10/15/07 250 252
Unisys Corp.
11.75%, 10/15/04 100 115
United Air Lines Inc.
10.67%, 05/01/04 672 803
United Air Lines Inc.
9.125%, 01/15/12 393 469
Universal Hospital Services
10.25%, 03/01/08 150 150
Verio Inc.
10.375%, 04/01/05 100 103
Viatel Inc.
11.25%, 04/15/08 176 185
Weirton Steel Corp.
11.375%, 07/01/04 250 266
Wesco Distribution Inc.
9.125%, 06/01/08 350 347
Western Financial BK-FSB
8.875%, 08/01/07 350 334
World Color Press Inc.
9.125%, 03/15/03 50 52
Young Broadcasting Inc.
9.00%, 01/15/06 50 53
Young Broadcasting Inc.
8.75%, 06/15/07 250 261
See notes to financial statements.
36
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Balanced Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------
<S> <C> <C>
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Asset Backed
AESOP Funding II LLC
6.14%, 05/20/06 $ 825 $ 825
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 388 390
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 481 481
IBM Credit Rec. Lease Asset Trust
4.55%, 11/15/00 121 120
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 48 47
Total U.S. and Foreign Corporate
Bonds/Notes 15.96% 64,820 67,305
(Cost $65,075)
- -----------------------------------------------------------------------------------
SHORT-TERM
INVESTMENT
Repurchase Agreement
Paribas Corp.
5.75%, 07/01/98, (secured by
$11,578,153, US Treasury
Bond, 6.00%, 06/30/99) 11,012 11,012
- -----------------------------------------------------------------------------------
Total Short-Term Investment 2.61% 11,012 11,012
(Cost $11,012)
- -----------------------------------------------------------------------------------
Total Investments 99.91% 421,399
(Cost $380,423)
Cash and Other Assets in
Excess of Liabilities 0.09% 383
- -----------------------------------------------------------------------------------
Net Assets 100.00% $421,782
===================================================================================
</TABLE>
* Non-income producing during the six months ended June 30, 1998 as this
security did not pay dividends.
See notes to financial statements.
37
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
Statement of Investments
U.S. & Foreign Income Fund
Government & Agency June 30, 1998
Obligations 49.1%
U.S. & Foreign
Corporate
Bonds/Notes 40.1%
Municipal Bonds 7.0%
Cash & Other
Net Assets 3.8%
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
======================================================================================
U.S. AND FOREIGN
GOVERNEMENT
AND AGENCY
OBLIGATIONS
<S> <C> <C>
Treasury Bonds/Notes
10.375%, 11/15/12 $ 600 $ 803
12.00%, 08/15/13 700 1,038
Federal National Mortgage Association
6.56%, 02/05/08 100 100
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 03/01/01 19 19
9.50%, 06/01/01 7 8
9.50%, 08/01/01 8 9
9.50%, 10/01/01 7 7
7.00%, 11/01/03 32 32
7.00%, 01/01/11 332 339
7.00%, 03/01/11 595 608
7.00%, 04/01/11 659 674
7.00%, 07/01/11 110 113
8.00%, 12/01/11 10 11
Federal National Mortgage Association
(Mortgage Backed Securities)
8.00%, 11/01/09 14 15
8.00%, 10/01/14 58 60
8.00%, 01/01/17 95 99
7.75%, 04/01/17 177 183
6.00%, 06/01/18 100 98
Government National Mortgage Association
(Mortgage Backed Securities)
11.50%, 03/15/10 9 10
12.00%, 03/15/14 2 2
12.00%, 04/15/14 2 2
12.00%, 12/15/14 11 12
12.00%, 02/15/15 1 2
12.00%, 03/15/15 8 10
12.00%, 04/15/15 5 6
12.50%, 04/15/15 3 3
12.00%, 06/15/15 8 9
12.00%, 07/15/15 6 7
12.00%, 11/15/15 14 16
9.50%, 08/15/17 99 108
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
FHLMC 1737-Class E
6.00%, 12/15/17 220 221
FNMA 1993 119-Class H
6.50%, 07/25/23 145 147
Foreign (U.S. dollar denominated)
Australia Commonwealth
10.00%, 10/15/07 465 381
- --------------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 49.09% 4,621 5,152
(Cost $5,031)
</TABLE>
See notes to the financial statements.
38
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS
Baltimore MD Taxable Cons Public Series B
7.25%, 10/15/17 $ 125 $ 132
California Hsg Fin Agy Rev
8.16%, 02/01/28 125 133
Horry Cnty SC Arpt Rev
7.38%, 07/01/12 120 129
Ohio State Taxable Dev Assistance
7.60%, 10/01/16 100 108
Orange Cnty CA Pension Oblg Taxable Ref-A
7.16%, 09/01/06 100 106
San Diego Cnty CA Pension Taxable Series A
6.59%, 08/15/07 125 128
- --------------------------------------------------------------------------------------
Total Municipal Bonds 7.01% 695 736
(Cost $721)
======================================================================================
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
AMR Corp.
9.00%, 09/15/16 126 152
Associates Corp. North America
7.95%, 02/15/10 110 125
Banc One Corp.
9.875%, 03/01/09 150 189
Banponce Corp.
6.75%, 12/15/05 200 205
Beckman Industries Inc.
7.45%, 03/04/08 100 102
Boise Cascade Office Products Co.
7.05%, 05/15/05 100 101
Coltec Industries Inc.
7.50%, 04/15/08 100 99
Computer Association Int'l Inc.
6.50%, 04/15/08 100 100
Delta Air Lines Inc.
9.75%, 05/15/21 150 196
Dime Capital Trust
9.33%, 05/06/27 160 187
Donaldson Lufkin and Jenrette
6.90%, 10/01/07 130 135
Farmers Ins. Exch.
8.625%, 05/01/24 150 179
First Financial Caribbean Corp.
7.84%, 10/10/06 100 106
First Republic BanCorp.
7.75%, 09/15/12 150 157
General Electric Cap Corp.
8.70%, 05/21/07 100 119
Interpool Inc.
7.35%, 08/01/07 150 152
KN Energy Inc.
6.65%, 03/01/05 100 100
Lumbermens Mutual Casualty Co.
9.15%, 07/01/26 200 241
NCNB Corp.
10.20%, 07/15/15 135 185
NRG Energy Inc.
7.50%, 06/15/07 150 158
</TABLE>
See notes to the financial statements.
39
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Income Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(concluded)
Newfield Exploration Co.
7.45%, 10/15/07 $ 150 $ 152
News America Holdings Inc.
8.00%, 10/17/16 200 220
Pitney Bowes Cr. Corp.
8.55%, 09/15/09 91 108
Republic NY Corp.
9.30%, 06/01/21 165 217
Staples Inc.
7.125%, 08/15/07 100 104
TCI Communications Inc.
8.00%, 08/01/05 150 164
United Air Lines Inc.
10.67%, 05/01/04 100 119
Asset Backed
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 52 52
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 60 60
IBM Credit Trust 93-1 A
4.55%, 11/15/00 18 18
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 10 9
- ------------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 40.13% 3,757 4,211
(Cost $3,987)
- ------------------------------------------------------------------------------------
SHORT-TERM
INVESTMENT
Repurchase Agreement
Paribas Corp.
5.75%, 07/01/98, (secured
by $354,667, US Treasury Bond,
6.50%, 10/15/06) 340 340
- ------------------------------------------------------------------------------------
Total Short-Term Investment 3.24% 340 340
(Cost $340)
- ------------------------------------------------------------------------------------
Total Investments 99.47% 10,439
(Cost $10,079)
Cash and Other Assets in
Excess of Liabilities 0.53% 56
- ------------------------------------------------------------------------------------
Net Assets 100.00% $10,495
====================================================================================
</TABLE>
See notes to the financial statements.
40
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
U.S. Agency Obligations 99%
Cash & Other Net Assets 1%
Statement of Investments
Short-Term Investment Fund
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
U.S. AGENCY
OBLIGATIONS
Federal Farm Credit Bank Discount Notes
5.40%, 08/24/98 $ 35 $ 35
5.40%, 09/14/98 165 163
5.37%, 10/26/98 80 79
Federal Home Loan Bank Discount Notes
5.50%, 07/01/98 190 190
5.40%, 08/26/98 125 124
5.42%, 09/03/98 125 124
Federal Home Loan Mortgage Corp. Discount Notes
5.41%, 08/24/98 345 342
Federal National Mortgage Association Discount Notes
5.34%, 09/14/98 210 208
5.38%, 07/06/98 130 130
Tennessee Valley Authority Discount Note
5.41%, 07/24/98 125 124
5.42%, 07/24/98 150 149
- -------------------------------------------------------------------------------------
Total Investments 98.99% 1,680 1,668
(Cost $1,668)
Cash and Other Assets in
Excess of Liabilities 1.01% 17
- -------------------------------------------------------------------------------------
Net Assets 100.00% $ 1,685
=====================================================================================
</TABLE>
See notes to the financial statements.
41
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
Cash & Other Net Assets 5.8%
Common Stock 94.2%
Statement of Investments
Small Cap Growth Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Aerospace/Defense 0.59%
Kellstrom Industries, Inc.* 4,700 $ 138
Alcohol/Beverages 1.01%
Beringer Wine Estates Holdings, Inc. - B* 5,400 238
Auto/Accessories 0.95%
Keystone Automotive Industries, Inc.* 9,700 223
Banks/Financial Services 0.29%
NCO Group, Inc.* 3,050 67
Biotechnology/Pharmaceuticals 4.31%
Biomatrix, Inc.* 2,500 102
Coulter Pharmaceutical, Inc.* 3,600 109
Quintiles Transnational Corp.* 5,900 290
Roberts Pharmaceutical Corp.* 5,700 131
Serologicals Corp.* 5,300 171
Shire Pharmaceuticals Group PLC (ADR)* 9,700 207
- ------------------------------------------------------------------------------------
1,010
Broadcasting 0.49%
CD Radio Inc.* 3,000 115
Business Services 8.27%
Abacus Direct Corp.* 3,300 171
AccuStaff, Inc.* 3,200 100
Billing Concepts Corp.* 1,700 26
Catalytica, Inc.* 6,900 135
Hagler Bailly, Inc.* 4,100 106
Nova Corp.* 4,100 147
Pre-Paid Legal Services, Inc.* 9,000 284
Rental Services Corp.* 4,200 141
Robert Half International, Inc.* 8,100 453
Whittman-Hart, Inc.* 7,800 377
- ------------------------------------------------------------------------------------
1,940
Chemicals 0.97%
AgriBioTech, Inc.* 4,100 113
Lason, Inc.* 2,100 114
- ------------------------------------------------------------------------------------
227
Educational Services 4.49%
Advantage Learning Systems, Inc.* 2,000 55
Apollo Group, Inc.* 7,500 248
Bright Horizons, Inc.* 4,900 137
Devry, Inc.* 8,600 189
Strayer Education, Inc. 4,750 171
Sylvan Learning Systems, Inc.* 7,750 254
- ------------------------------------------------------------------------------------
1,054
</TABLE>
See notes to financial statements.
42
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Small Cap Growth Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
(continued)
Electrical Equipment/Electronics 4.69%
Advanced Lighting Technologies, Inc.* 3,500 $ 81
Genesys Telecommunications Laboratories, Inc.* 1,700 56
Geotel Communications Corp.* 3,200 129
QLogic Corp.* 2,300 82
Micros Systems, Inc.* 7,000 232
Mips Technologies, Inc.* 900 12
Tekelec* 4,900 219
Vitesse Semiconductor Corp.* 9,400 290
- ------------------------------------------------------------------------------------
1,101
Energy 1.95%
Core Laboratories N.V.* 6,700 144
Global Industries Ltd.* 4,800 81
Petroleum Geo-Services ASA (ADR)* 7,600 232
- ------------------------------------------------------------------------------------
457
Food Services 6.42%
American Italian Pasta Co. - A* 6,100 227
Buffets, Inc.* 11,500 181
Cheesecake Factory (The)* 4,750 107
Gardenburger, Inc.* 2,600 30
Papa John's International, Inc.* 9,600 379
Showbiz Pizza Time Inc. 2,700 108
Sonic Corp.* 4,500 100
Whole Foods Market, Inc.* 4,700 284
Wild Oats, Inc.* 3,050 91
- ------------------------------------------------------------------------------------
1,507
Health Care/Services 11.63%
ATL Ultrasound, Inc.* 2,500 113
Brookdale Living Communities, Inc.* 1,100 28
Dendrite International Inc.* 1,900 71
Envoy Corp.* 4,300 204
First Consulting Group, Inc.* 4,100 107
Hanger Orthopedic Group, Inc.* 4,600 94
IDX Systems Corp.* 4,800 221
Medical Manager Corp.* 7,000 193
MedQuist Inc.* 8,200 235
Orthodontic Centers of America, Inc.* 12,300 258
Patterson Dental Co.* 8,250 302
Province Healthcare Co.* 3,000 80
Renal Care Group, Inc.* 6,850 302
Res-Care, Inc.* 3,450 63
Safeskin Corp.* 5,100 210
Theragenics Corp.* 7,300 190
Ventana Medical Systems, Inc.* 2,100 59
- ------------------------------------------------------------------------------------
2,730
</TABLE>
See notes to the financial statements.
43
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Small Cap Growth Fund
June 30, 1998
Number of Market
Shares (000)
- ----------------------------------------------------------------------------
COMMON STOCK
(continued)
Information Technology/Services 24.10%
Affiliated Computer Services, Inc. - A* 1,800 $ 69
Aspect Development, Inc.* 6,000 453
BroadVision, Inc.* 5,900 140
Cambridge Technology Partners, Inc.* 4,100 224
Ciber, Inc.* 6,900 262
Computer Management Sciences, Inc.* 700 17
Concord Communications, Inc.* 2,300 59
Datastream Systems, Inc.* 6,500 124
Documentum, Inc.* 4,600 221
DoubleClick, Inc.* 3,000 149
Engineering Animation, Inc.* 4,000 244
FileNet Corp.* 7,200 206
Henry Jack & Assoc., Inc. 2,900 100
Infoseek Corp.* 3,500 126
INSpire Insurance Solutions, Inc.* 4,800 158
International Network Services * 9,700 392
JDA Software Group, Inc.* 5,200 228
Legato Systems, Inc.* 7,700 300
Lycos, Inc.* 1,800 136
Macromedia, Inc.* 1,400 26
Mastech Corp.* 3,000 84
Mercury Interactive Corp.* 4,400 196
Micromuse Inc.* 2,200 90
MicroStrategy Inc. - A* 1,500 42
MindSpring Enterprises, Inc.* 1,000 103
New Era of Networks, Inc.* 3,600 110
Peregrine Systems, Inc.* 3,200 91
Platinum Software Corp.* 1,900 46
Progress Software Corp.* 3,900 160
RealNetworks, Inc.* 2,200 82
Sapient Corp.* 3,400 178
Saville Systems Ireland PLC (ADR)* 7,600 379
Veritas Software Corp.* 7,050 291
Visio Corp.* 3,500 167
- ----------------------------------------------------------------------------
5,653
Leisure Time 3.70%
Action Performance Companies, Inc.* 3,100 100
Championship Auto Racing Teams, Inc.* 1,700 31
Cinar Films, Inc. - B* 11,600 215
Dover Downs Entertainment, Inc. 2,100 65
Family Golf Centers, Inc.* 8,150 206
Speedway Motorsports, Inc.* 5,900 151
Steiner Leisure Ltd.* 3,300 100
- ----------------------------------------------------------------------------
868
Manufacturing 0.93%
Windmere Durable Holdings, Inc.* 6,100 218
Printing 0.25%
Consolidated Graphics, Inc.* 1,000 59
Publishing 1.98%
CBT Group PLC (ADR)* 8,700 465
See notes to the financial statements.
44
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Small Cap Growth Fund
June 30, 1998
Number of Market
Shares (000)
- ----------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail/Apparel 8.98%
American Eagle Outfitters, Inc.* 3,350 $ 129
Columbia Sportswear Co.* 4,400 83
Finish Line, Inc. (The) - A* 8,000 224
Fossil, Inc.* 5,800 144
Goody's Family Clothing, Inc.* 1,700 93
Just For Feet, Inc.* 8,900 253
Linens 'N Things, Inc.* 13,800 422
Movado Group, Inc. 2,600 78
North Face, Inc.* 4,900 118
Pacific Sunwear of California* 5,600 196
Stride Rite Corp. (The) 7,000 105
Trans World Entertainment Corp.* 6,100 261
- ----------------------------------------------------------------------------
2,106
Telecommunication/Services 2.74%
E Spire Communications, Inc.* 10,300 232
International Telecommunication Sys., Inc.* 4,550 132
Pacific Gateway Exchange, Inc.* 2,900 116
STAR Telecommunications, Inc.* 7,280 162
- ----------------------------------------------------------------------------
642
Transportation 1.01%
Coach USA, Inc.* 5,200 237
Waste Services 4.46%
American Disposal Services, Inc.* 9,800 459
Eastern Environmental Services, Inc.* 12,300 416
Superior Services, Inc.* 5,700 171
- ----------------------------------------------------------------------------
1,046
Total Common Stock 94.21% 22,101
(Cost $19,255)
============================================================================
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM
INVESTMENT
Federal Home Loan Mortgage Discount Note
5.85%, 07/01/98 $ 2,387 $ 2,387
- ----------------------------------------------------------------------------
Total Short-Term Investment 10.17% 2,387 2,387
(Cost $2,387)
- ----------------------------------------------------------------------------
Total Investments 104.38% 24,488
(Cost $21,642)
Liabilities in Excess of
Cash and Other Assets (4.38%) (1,028)
- ----------------------------------------------------------------------------
Net Assets 100.00% $ 23,460
============================================================================
* Non-income producing during the six months ended June 30, 1998 as this
security did not pay divdends.
See notes to the financial statements.
45
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE]
North America 1.1%
Latin America 0.9%
Cash & Other Net Assets 10.2%
Pacific 11.2%
Europe 76.6%
Statement of Investments
International Equity Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND
PREFERRED STOCK
Argentina 0.51%
YPF Associadad-D Spons (ADR) (Oil Companies) 1,353 $ 41
Australia 0.19%
AMP Limited (Insurance)* 1,300 15
Brazil 0.36%
Vale Do Rio Doce - PNA (Steel & Metals) 1,482 29
Canada 1.11%
Canadian National Railway Co. (Railroads) 1,695 90
China 0.47%
Anhui Expressway Co Ltd. - H (Trucking)* 44,000 4
China Telecom - Local (Telephone Communications)* 4,000 7
GZI Transport Limited (Trucking) 11,000 2
Jiangsu Expressway (Industrial Specialty) 38,000 7
Shenzhen Expressway (Consumer Service) 36,000 7
Sichuan Expressway (Trucking) 41,000 4
Zhejiang Expressway (Financial) 40,000 7
- ------------------------------------------------------------------------------------
38
Finland 2.46%
Nokia AB - A (Telecom Equipment) 1,780 131
PohJola Insurance Co., Ltd. - B (Insurance) 1,366 68
- ------------------------------------------------------------------------------------
199
France 18.20%
ACCOR SA (Hotels & Casinos) 366 102
Alcatel Alsthom CGE (Telecom Equipment) 775 158
AXA UAP (Insurance) 802 90
Bouygues SA (Building & Construction) 280 51
Canal Plus SA (Cable Television) 322 60
Carrefour Supermarche SA (Food & Beverage) 140 89
Christian Dior (Apparel) 208 26
Cie De St Gobain (Building Materials) 413 77
Credit Coml De France CCF (Banking) 529 45
CSF(Thomson) (Aerospace) 1,333 51
France Telecom SA (Telecommunications) 1,048 72
Groupe Danone (Food & Beverage) 199 55
Lagardere Groupe (Diversified Manufacturer) 1,121 47
Louis Vuitton Moet-Hennessy (Retail) 278 56
Rhodia SA (Chemicals)* 608 17
Rhone-Poulenc SA - A (Chemicals) 1,674 94
Schneider SA(Electronic Components/Distribution) 958 76
Societe Elf Aquitane SA (Oil Companies) 748 105
Suez Lyonnaise Des Eaux (Water Supply) 633 104
TV Francaise (TFI) (Broadcasting & Ent.) 315 49
Usinor Sacilor (Steel & Metals) 2,964 46
- ------------------------------------------------------------------------------------
1,470
Germany 20.03%
Allianz AG (Insurance) 348 116
BASF AG (Chemicals) 1,959 93
Bayer AG (Chemicals) 682 35
Bayerische Vereinsbank AG (Banking) 1,775 151
</TABLE>
See notes to the financial statements.
46
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
International Equity Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND
PREFERRED STOCK
(continued)
Germany (continued)
BHF- Bank AG (Banking) 1,267 $ 48
Dresdner Bank AG (Banking) 1,649 89
Duetsche Telekom ADR (Telecommunications) 3,546 97
Heidelberger Druckmaschinen (Printing/Publishing) 235 19
Hoechst AG (Chemicals) 3,144 158
Mannesmann AG (Diversified Manufacturer) 1,450 149
Munich Reinsurance (Insurance) 245 122
RWE AG (Natural Gas) 121 5
RWE AG pfd. (Natural Gas) 1,586 94
SAP AG pfd. (Computer Software) 202 137
Schering AG (Pharmaceuticals) 701 83
Siemens AG (Electrical Products) 588 36
VEBA AG (Electric Utilities) 1,001 67
Viag AG (Diversified Manufacturer) 172 118
- ------------------------------------------------------------------------------------
1,617
Hong Kong 3.01%
Cheung Kong Hlds Ltd. (Real Estate) 7,000 34
Citic Pacific (Financial) 15,000 27
Cosco Pacific Ltd. (Investment) 17,000 6
HSBC Holdings Ltd. (Banking) 3,087 76
Hutchison Whampoa, Ltd. (Diversified Manufacturer) 6,000 32
Kerry Properties (Real Estate) 15,500 11
New World Development (Real Estate) 14,434 28
New World Infrastructure (Diversified Manufacturer)* 10,600 12
Sun Hung Kai Properties (Diversified Manufacturer) 4,000 17
- ------------------------------------------------------------------------------------
243
Italy 4.79%
Banca Commerciale Italiana (Banking) 6,300 38
Banca Di Roma (Banking)* 18,900 39
Banca Intesa SPA (Banking) 4,200 24
Credito Italiano SPA (Banking) 6,000 31
Gucci Group (Textiles) 315 17
Istituto Banc San Paolo Tori (Banking) 1,700 25
Istituto Nazionale (Insurance) 31,000 88
Telecom Italia Mobile (Telephone Communications) 6,800 42
Telecom Italia SPA (Telephone Communications) 8,200 60
Telecom Italia SPA Di Risp
(Telephone Communications) 4,800 23
- ------------------------------------------------------------------------------------
387
Japan 7.38%
Bridgestone Corp. (Automobiles) 2,000 47
Canon Inc. (Office Equipment & Supplies) 2,000 46
Daiwa Securities Co Ltd. (Financial) 8,000 35
Fujitsu Ltd. (Electronic Components) 4,000 42
Keyence Corp. (Precision Instruments) 200 22
Minebea Company Ltd. (Electronic Components) 3,000 30
Nichiei Co. (Banking) 600 41
Nintendo Co. Ltd. Kyoto (Recreational Products) 600 56
Nippon Telephone & Telegraph
(Telephone Communications) 5 42
Nomura Securities (Financial) 3,000 35
SMC Corp. (Machinery/Components) 400 31
Sony Corp. (Consumer Electronic) 600 52
</TABLE>
See notes to the financial statements.
47
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
International Equity Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
===================================================================================
COMMON AND
PREFERRED STOCK
(continued)
<S> <C> <C>
Japan (continued)
Sumitomo Electric Inds. (Electronic Components) 2,000 $ 20
Teijin Limited (Textiles) 8,000 24
Tokyo Electron (Semiconductors) 1,000 31
Yamanouchi Pharmacy Co. LTD (Pharmaceuticals) 2,000 42
- -----------------------------------------------------------------------------------
596
Malaysia 0.00%
Malaysian Resources Corp. (Real Estate) 1 --
Netherlands 5.00%
AEGON NV (Insurance) 1,770 154
Akzo-Nobel NV (Chemicals) 250 56
Elsevier (Print Media) 3,640 55
Heineken Hldgs - A (Alcohol & Tobacco) 2,313 76
Royal Dutch Petrol (Oil Companies) 590 33
Unilever NV (Food & Beverage) 380 30
- -----------------------------------------------------------------------------------
404
Portugal 1.34%
Portugal Telecom (Telecommunications) 1,000 53
Jeronimo Martins SGPS, SA (Food & Beverage) 1,150 55
- -----------------------------------------------------------------------------------
108
Singapore 0.17%
City Development (Real Estate) 5,000 14
Sweden 3.49%
AGA AB - B (Chemicals) 2,275 35
L.M. Ericsson Telephone Co. - B (ADR)
(Telecom Equipment) 4,060 116
Skandia Group Foersaekrings AB (Insurance) 9,190 131
- -----------------------------------------------------------------------------------
282
Switzerland 7.46%
Ciba Specialty Chemicals (Chemicals) 562 72
Clariant AG (Chemicals) 182 120
Credit Suisse Group (Banking) 622 139
Nestle SA (Food & Beverage) 55 118
Novartis AG (Pharmaceuticals) 48 80
UBS AG-Registered (Banking)* 195 73
- -----------------------------------------------------------------------------------
602
</TABLE>
See notes to the financial statements.
48
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
International Equity Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
===================================================================================
COMMON AND
PREFERRED STOCK
(concluded)
<S> <C> <C>
United Kingdom 13.81%
BOC Group PLC (Chemicals) 4,052 $ 55
British Airways PLC (ADR) (Airlines) 3,556 39
Carlton Communications PLC (Broadcasting & Ent) 5,100 46
General Electric Co., PLC (Electrical Products) 11,154 96
Glaxo Wellcome PLC (Pharmaceuticals) 2,558 77
Granada Group PLC (Consumer Services) 1,735 32
Imperial Chemical Inds PLC (Chemicals) 1,954 31
Orange PLC (Telecommunications)* 10,816 115
Pearson PLC (Print Media) 4,736 87
Pilkington PLC (Home Furnishings) 16,053 30
PowerGen PLC (Electric Utilities) 2,962 41
Reuters Hldg PLC (Printing/Publishing) 8,078 92
Rio Tinto - Zinc Corp. PLC (Steel & Metals) 2,328 26
Shell Transportation & Trading Co. PLC
(Steel & Metals) 6,540 46
SmithKline Beecham PLC (Pharmaceuticals) 5,084 62
WPP Group PLC (Advertising) 20,764 136
Zeneca Group PLC (Pharmaceuticals) 2,429 104
- -----------------------------------------------------------------------------------
1,115
- -----------------------------------------------------------------------------------
Total Common and Preferred Stock 89.78% 7,250
(Cost $6,120)
===================================================================================
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------
SHORT-TERM
INVESTMENT
<S> <C> <C>
Federal National Mortgage Association Discount Note
5.85%, 07/01/98 $ 754 $ 754
- -----------------------------------------------------------------------------------
Total Short-Term Investment 9.34% 754 754
(Cost $754)
- -----------------------------------------------------------------------------------
Total Investments 99.12% 8,004
(Cost $6,874)
Foreign Currency 0.26% (Various Denominations) 21
(Cost $21)
Cash and Other Assets in
Excess of Liabilities 0.62% 50
- -----------------------------------------------------------------------------------
Net Assets 100.00% $ 8,075
===================================================================================
</TABLE>
* Non-income producing during the six months ended June 30,
1998 as this security did not pay dividends.
See notes to the financial statements.
49
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[PIE CHART APPEARS HERE] Statement of Investments
Socially Responsible Fund
Cash & Other
Net assets 1.3% June 30, 1998
Common &
Preferred Stock 98.7%
<TABLE>
<CAPTION>
Number of Market
Shares (000)
=====================================================================================
<S> <C> <C>
COMMON STOCK
Aerospace/Defense 1.16%
Rockwell International Corp. 4,950 $ 238
Auto/Accessories 8.15%
Dana Corp. 7,650 409
Ford Motor Co. 11,100 655
Goodyear Tire and Rubber Co. (The) 5,400 348
Meritor Automotive, Inc. 5,316 128
PACCAR Inc. 2,600 135
-----------------------------------------------------------------------------------
1,675
Banks/Financial Services 15.88%
Associates First Capital Corp. 20 2
Banc One Corp. 3,990 223
Bankers Trust New York Corp. 2,250 261
Chase Manhattan Corp. 7,300 551
Federal National Mortgage Association 3,150 191
First Union Corp. 9,211 537
Firststar Corp. 4,600 175
Fleet Financial Group, Inc. 3,550 296
J.P. Morgan & Co. Inc. 2,950 346
NationsBank Corp. 4,850 371
Old Kent Financial Corp. 1,370 49
U.S. Bancorp 6,100 262
-----------------------------------------------------------------------------------
3,264
Chemicals 6.60%
Akzo Nobel N.V. (ADR) 1,300 144
Betzdearborn, Inc. 2,500 103
Dow Chemical Co. 2,350 227
Eastman Chemical Co. 3,600 224
Imperial Chemical Industries PLC (ADR) 4,450 287
Lyondell Petrochemical Co. 9,196 280
Olin Corp. 2,200 92
-----------------------------------------------------------------------------------
1,357
Consumer Staples 5.50%
Avon Products, Inc. 3,800 294
Heinz (H.J.) Co. 10,400 584
Unilever N.V. PLC 3,200 253
-----------------------------------------------------------------------------------
1,131
Energy 8.77%
British Petroleum Co. PLC (ADR) 2,800 247
Elf Aquitaine (ADR) 5,250 373
Mobil Corp. 4,200 322
Texaco Inc. 6,300 376
Williams Companies, Inc. (The) 7,800 263
YPF SA Sociedad Anonima (ADR) 7,400 222
-----------------------------------------------------------------------------------
1,803
</TABLE>
See notes to the financial statements.
50
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Socially Responsible Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
===================================================================================
COMMON STOCK
(continued)
<S> <C> <C>
Health Care/Pharmaceuticals 6.03%
American Home Products Corp. 8,100 $ 419
Bristol-Myers Squibb Co. 3,500 402
SmithKline Beecham PLC - A (ADR) 3,200 194
Zeneca Group PLC (ADR) 5,100 224
- -----------------------------------------------------------------------------------
1,239
Index Security 4.41%
Standard & Poor's Depositary Receipts 8,000 907
Information Technology/Equipment 2.40%
Xerox Corp. 4,850 493
Insurance 6.31%
American General Corp. 5,700 406
Exel Limited 3,300 257
Lincoln National Corp. 3,400 311
Mid Ocean Ltd. 1,950 153
SAFECO Corp. 3,750 170
- -----------------------------------------------------------------------------------
1,297
Manufacturing (Diversified) 3.19%
Boise Cascade Corp. 4,320 141
Corning Inc. 9,600 334
Thomas & Betts Corp. 2,000 98
Witco Corp. 2,800 82
- -----------------------------------------------------------------------------------
655
Metals & Mining 0.60%
Oregon Steel Mills, Inc. 6,600 123
Paper & Forest Products 3.91%
Georgia Pacific Corp. 4,100 242
Georgia Pacific Corp. (Timber Group) 3,100 71
Temple-Inland, Inc. 3,000 162
Westvaco Corp. 3,300 93
Weyerhaeuser Co. 5,100 236
- -----------------------------------------------------------------------------------
804
Real Estate 3.54%
Arden Realty, Inc. 2,000 52
Boston Properties, Inc. 3,900 135
Equity Office Properties Trust 3,900 111
Equity Residential Properties Trust 1,800 85
Health Care Property Investors, Inc. 3,250 117
Nationwide Health Properties, Inc. 4,700 112
Security Capital Industrial Trust 4,754 117
Security Capital Group - B (warrants) 30 --
- -----------------------------------------------------------------------------------
729
</TABLE>
See notes to the financial statements.
51
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Socially Responsible Fund
June 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares (000)
===================================================================================
<S> <C> <C>
COMMON STOCK
(concluded)
Retail/Apparel 4.30%
May Department Stores Co. 3,100 $ 203
Penney (J.C.) Co., Inc. 4,100 296
Rite Aid Corp. 2,200 83
Sears, Roebuck and Co. 4,950 302
- -----------------------------------------------------------------------------------
884
Telecommunications 8.59%
Alltel Corp. 5,100 237
Bell Atlantic Corp. 9,922 453
BellSouth Corp. 5,050 339
Frontier Corp. 10,900 343
Sprint Corp. 5,600 395
- -----------------------------------------------------------------------------------
1,767
Transportation/Travel 0.94%
CSX Corp. 4,250 193
Utilities 7.02%
BEC Energy 200 8
CINergy Corp. 8,500 297
Duke Energy Corp. 6,025 357
Pacificorp 6,900 156
PG & E Corp. 650 21
PowerGen PLC (ADR) 200 11
Southern Co. 8,400 233
Unicom Corp. 7,950 279
Wisconsin Energy Corp. 2,700 82
- -----------------------------------------------------------------------------------
1,444
Waste Services 1.42%
Browning Ferris Industries, Inc. 8,400 292
- -----------------------------------------------------------------------------------
Total Common Stock 98.72% 20,295
(Cost $18,959)
- -----------------------------------------------------------------------------------
Principal
SHORT-TERM Amount Market
INVESTMENT (000) (000)
Federal National Mortgage Association Discount Note
5.85%, 07/01/98 $ 500 $ 500
- -----------------------------------------------------------------------------------
Total Short-Term Investment 2.43% 500 500
(Cost $500)
- -----------------------------------------------------------------------------------
Total Investments 101.15% 20,795
(Cost $19,459)
Cash and Other Assets in
Excess of Liabilities (1.15%) (237)
- -----------------------------------------------------------------------------------
Net Assets 100.00% $ 20,558
===================================================================================
</TABLE>
See notes to the financial statements.
52
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
53
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statements of Assets and Liabilities
June 30, 1998
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
GROWTH BALANCED INCOME SHORT-TERM GROWTH EQUITY
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 636 $ 685 $ 212 $ 2,639 $ 51 $ 392
Investments at market value* 664,393,877 421,398,892 10,438,776 1,667,982 24,487,532 8,003,721
Foreign currency at value* -- -- -- -- -- 21,568
Dividends and interest receivable 559,749 2,903,656 165,256 -- -- 8,094
Receivable-foreign taxes 21,885 8,888 -- -- -- 12,499
Receivable-fund shares sold 696,163 407,804 32,575 16,075 92,878 38,962
Receivable-investments sold 4,727,307 1,924,975 -- -- -- 13,195
Prepaid expenses 9,893 4,170 -- -- 231,164 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 670,409,510 426,649,070 10,636,819 1,686,696 24,812,088 8,098,431
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Forward currency contract -- 109,541 7,963 -- -- --
Payable-fund
shares redeemed 194,204 65,565 6,547 -- 38,931 --
Payable-investments
purchased 5,603,178 4,491,329 98,042 -- 1,292,967 14,141
Payable-management, advisor
and related fees 261,470 163,756 4,049 7 17,299 4,527
Accrued expenses 19,880 36,726 25,090 2,158 2,751 4,652
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 6,078,732 4,866,917 141,691 2,165 1,351,948 23,320
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $664,330,778 $421,782,153 $ 10,495,128 $ 1,684,531 $ 23,460,140 $ 8,075,111
==================================================================================================================================
NET ASSETS CONSIST OF:
Par value of common shares 24,433,683 2,019,891 77,273 16,449 -- --
Paid in surplus 501,494,176 349,956,073 9,651,549 1,633,082 21,820,975 6,992,030
Accumulated undistributed
net investment income 4,814,772 7,595,837 327,734 35,024 (45,254) 67,824
Accumulated undistributed
net realized gain (loss)
from investments and foreign
currency transactions 43,139,634 21,344,590 86,608 19 (1,161,169) (114,298)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities in foreign currency 90,448,513 40,865,762 351,964 (43) 2,845,588 1,129,555
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $664,330,778 $421,782,153 $ 10,495,128 $ 1,684,531 $ 23,460,140 $ 8,075,111
==================================================================================================================================
Number of shares outstanding: 24,433,683 20,198,914 772,733 164,497 1,898,204 657,678
(Authorized 50,000,000
shares each)
Par Value $ 1.00 $ 0.10 $ 0.10 $ 0.10 $ 0.00 $ 0.00
==================================================================================================================================
NET ASSET VALUE
PER SHARE $ 27.19 $ 20.88 $ 13.58 $ 10.24 $ 12.36 $ 12.28
==================================================================================================================================
*Cost of Securities:
Investments $573,945,364 $380,423,179 $ 10,078,818 $ 1,668,025 $ 21,641,944 $ 6,874,139
Foreign Currency -- -- -- -- -- 21,536
<CAPTION>
SOCIALLY
RESPONSIBLE
FUND
- --------------------------------------------------
<S> <C>
ASSETS
Cash $ 703
Investments at market value* 20,794,977
Foreign currency at value* --
Dividends and interest receivable 39,011
Receivable-foreign taxes 1,728
Receivable-fund shares sold 212,843
Receivable-investments sold 166,854
Prepaid expenses --
- --------------------------------------------------
Total Assets 21,216,116
- --------------------------------------------------
LIABILITIES
Forward currency contract --
Payable-fund
shares redeemed 17,132
Payable-investments
purchased 630,183
Payable-management, advisor
and related fees 8,265
Accrued expenses 2,751
- --------------------------------------------------
Total Liabilities 658,331
- --------------------------------------------------
NET ASSETS $ 20,557,785
==================================================
NET ASSETS CONSIST OF:
Par value of common shares --
Paid in surplus 18,869,528
Accumulated undistributed
net investment income 152,624
Accumulated undistributed
net realized gain (loss)
from investments and foreign
currency transactions 199,967
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities in foreign currency 1,335,666
- --------------------------------------------------
NET ASSETS $ 20,557,785
==================================================
Number of shares outstanding: 1,530,209
(Authorized 50,000,000
shares each)
Par Value $ 0.00
- --------------------------------------------------
NET ASSET VALUE
PER SHARE $ 13.43
==================================================
*Cost of Securities:
Investments $ 19,459,309
Foreign Currency --
==================================================
</TABLE>
See notes to the financial statements.
54
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statements of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1998
SMALL CAP INTERNATIONAL SOCIALLY
GROWTH BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 6,002,732 $ 2,320,082 $ -- $ -- $ 1,866 $ 90,015 $ 187,693
Interest & amortization 479,918 5,873,110 346,339 38,639 56,843 18,914 10,471
- ------------------------------------------------------------------------------------------------------------------------------------
6,482,650 8,193,192 346,339 38,639 58,709 108,929 198,164
Foreign taxes withheld (47,403) (23,648) (281) -- -- (11,417) (1,699)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 6,435,247 8,169,544 346,058 38,639 58,709 97,512 196,465
EXPENSES:
Management, advisor and
related fees (Note 5) 1,568,780 956,081 22,668 2,285 136,426 34,132 65,238
Fund pricing fees 5,951 5,951 5,951 6,000 2,386 4,772 2,386
Professional fees 11,360 11,360 7,061 4,375 3,552 4,056 3,552
Custodian fees 11,901 15,868 5,455 1,715 26,906 23,564 14,825
Transfer agent fee (Note 5) 17,386 24 24 24 24 24 24
Trustees' fees and expenses 2,383 2,383 2,383 2,383 2,383 2,383 2,383
Insurance expenses 12,864 10,165 908 573 66 66 66
Other expenses 18,499 9,787 1,143 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,649,124 1,011,619 45,593 17,355 171,743 68,997 88,474
Less management and related
fees waived (Note 5) -- -- -- (1,448) (39,026) (12,987) (27,540)
Less expenses paid by Horace Mann
Investors, Inc. (Note 5) -- -- -- (11,785) (28,754) (26,322) (16,672)
Less expenses paid by commission
credits (Note 3) (17,852) (21,820) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses $ 1,631,272 $ 989,799 $ 45,593 $ 4,122 $ 103,963 $ 29,688 $ 44,262
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4,803,975 7,179,745 300,465 34,517 (45,254) 67,824 152,203
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain (loss) from:
Investments 42,750,147 20,800,424 55,845 20 (650,174) (45,537) 206,875
Foreign currency transactions 16 418,720 30,778 -- -- (242) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments and foreign
currency transactions 42,750,163 21,219,144 86,623 20 (650,174) (45,779) 206,875
Change in unrealized
appreciation or (depreciation)
on:
Investments (12,089,299) (7,476,191) 68,287 (43) 1,730,522 1,104,651 753,884
Translation of assets
and liabilities in
foreign currencies -- (195,029) (15,197) -- -- 432 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currency
transactions 30,660,864 13,547,924 139,713 (23) 1,080,348 1,059,304 960,759
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE
IN NET ASSETS
FROM OPERATIONS $35,464,839 $ 20,727,669 $ 440,178 $34,494 $1,035,094 $1,127,128 $1,112,962
====================================================================================================================================
</TABLE>
See notes to the financial statements.
55
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
GROWTH FUND BALANCED FUND INCOME FUND
06/30/98 12/31/97 06/30/98 12/31/97 06/30/98 12/31/97
6 months 12 months 6 months 12 months 6 months 12 months
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 4,803,975 $ 7,876,390 $ 7,179,745 $ 10,897,731 $ 300,465 $ 610,405
Net realized short-term gain
(loss) on investments and
foreign currency transactions 9,173,825 21,364,681 5,725,310 10,725,081 86,623 67,503
Net realized long-term gain
(loss) on investments and
foreign currency transactions 33,576,338 44,841,048 15,493,834 25,302,862 -- (35,919)
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currency (12,089,299) 32,693,552 (7,671,220) 12,890,553 53,090 251,848
- -----------------------------------------------------------------------------------------------------------------------------------
Change in net assets
from operations 35,464,839 106,775,671 20,727,669 59,816,227 440,178 893,837
- -----------------------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income -- (7,988,420) -- (10,749,508) -- (598,770)
Net realized short-term gain
from investments and
foreign currency transactions -- (21,154,178) -- (10,548,453) -- (23,198)
Net realized long-term gain
from investments and
foreign currency transactions -- (44,781,697) -- (25,268,797) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders -- (73,924,295) -- (46,566,758) -- (621,968)
- -----------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares sold 63,267,702 117,493,277 37,105,131 66,288,140 2,011,276 2,109,144
Net asset value of shares issued
in reinvestment of dividends and
capital gains distributions -- 68,291,933 -- 42,410,448 -- 516,971
- -----------------------------------------------------------------------------------------------------------------------------------
63,267,702 185,785,210 37,105,131 108,698,588 2,011,276 2,626,115
Cost of shares redeemed (32,904,084) (50,690,435) (23,160,201) (35,389,537) (1,614,657) (4,087,751)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from fund
share transactions 30,363,618 135,094,775 13,944,930 73,309,051 396,619 (1,461,636)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET ASSETS 65,828,457 167,946,151 34,672,599 86,558,520 836,797 (1,189,767)
NET ASSETS:
Beginning of period 598,502,321 430,556,170 387,109,554 300,551,034 9,658,331 10,848,098
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $664,330,778 $598,502,321 $421,782,153 $387,109,554 $10,495,128 $9,658,331
===================================================================================================================================
Undistributed net
investment income $ 4,814,772 $ 10,797 $ 7,595,837 $ 416,092 $ 327,734 $ 27,269
===================================================================================================================================
</TABLE>
See notes to the financial statements.
56
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
SHORT-TERM FUND GROWTH FUND EQUITY FUND
06/30/98 12/31/97 06/30/98 12/31/97 06/30/98 12/31/97
6 months 12 months 6 months Since inception/1/ 6 months Since inception/1/
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 34,517 $ 62,980 $ (45,254) $ (15,134) $ 67,824 $ 43,515
20 127 (754,601) (495,861) (84,979) (70,944)
-- -- 104,427 -- 39,200 --
(43) 485 1,730,522 1,115,066 1,105,083 24,472
- -------------------------------------------------------------------------------------------------------
34,494 63,592 1,035,094 604,071 1,127,128 (2,957)
- -------------------------------------------------------------------------------------------------------
-- (63,479) -- -- -- (41,091)
-- (127) -- -- -- --
-- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
-- (63,606) -- -- -- (41,091)
- -------------------------------------------------------------------------------------------------------
2,703,522 3,660,289 8,157,608 17,210,060 2,291,223 5,781,865
-- 48,626 -- -- -- 14,368
- -------------------------------------------------------------------------------------------------------
2,703,522 3,708,915 8,157,608 17,210,060 2,291,223 5,796,233
(2,204,478) (3,786,735) (2,257,454) (1,329,239) (557,150) (578,275)
- -------------------------------------------------------------------------------------------------------
499,044 (77,820) 5,900,154 15,880,821 1,734,073 5,217,958
- -------------------------------------------------------------------------------------------------------
533,538 (77,834) 6,935,248 16,484,892 2,861,201 5,173,910
1,150,993 1,228,827 16,524,892 40,000 5,213,910 40,000
- -------------------------------------------------------------------------------------------------------
$ 1,684,531 $ 1,150,993 $ 23,460,140 $ 16,524,892 $ 8,075,111 $ 5,213,910
=======================================================================================================
$ 35,024 $ 507 (45,254) $ -- $ 67,824 $ --
=======================================================================================================
<CAPTION>
SOCIALLY
RESPONSIBLE FUND
06/30/98 12/31/97
6 months Since inception/1/
- ------------------------------
<S> <C>
$ 152,203 $ 73,696
182,727 72,720
24,148 --
753,884 581,783
- ------------------------------
1,112,962 728,199
- ------------------------------
-- (73,275)
-- (79,630)
-- --
- ------------------------------
-- (152,905)
- ------------------------------
11,082,712 8,945,404
-- 101,875
- ------------------------------
11,082,712 9,047,279
(850,761) (449,701)
- ------------------------------
10,231,951 8,597,578
- ------------------------------
11,344,913 9,172,872
9,212,872 40,000
- ------------------------------
$ 20,557,785 $ 9,212,872
==============================
$ 152,624 $ 421
==============================
</TABLE>
/1/ Since inception refers to March 10, 1997, the day investment operations
began.
57
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements
June 30, 1998
1. BUSINESS ORGANIZATION -- The Horace Mann Mutual Funds (the "Trust") is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, which offers units of beneficial ownership
("shares") in seven separate investment portfolios: Growth Fund, Balanced Fund,
Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund. These funds collectively are referred
to as the "Funds." Shares are presently offered to Horace Mann Life Insurance
Company (HMLIC)Separate Account and the HMLIC 401(k) Separate Account. The
Growth Fund shares also may be purchased under the dividend reinvestment plans
by certain shareholders.
FUND INVESTMENT OBJECTIVES:
A. Growth Fund -- primary, long-term capital growth; secondary,
conservation of principal and production of income.
B. Balanced Fund -- realization of high long-term total rate of return
consistent with prudent investment risks.
C. Income Fund -- long-term total rate of return in excess of the U.S.
bond market over a full market cycle.
D. Short-Term Fund -- primary, realize maximum current income to the
extent consistent with liquidity; secondary, preservation of
principal.
E. Small Cap Growth Fund -- long-term capital appreciation through
investing primarily in equity securities of small cap companies with
earnings growth potential.
F. International Equity Fund -- long-term growth of capital through a
diversified portfolio of marketable foreign equity securities.
G. Socially Responsible Fund -- long-term growth of capital, current
income and growth of income through investing primarily in a
diversified portfolio of equity securities of United States-based
companies which are determined to be socially responsible.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. Security valuation -- A security listed or traded on U.S. or foreign
stock exchanges is valued at its last sales price on the exchange
where it is principally traded. In the absence of a current quotation,
the security is valued at the mean between the last bid and asked
prices on that exchange. If there are no such bid and ask quotations
the most recent bid quotation is used. Securities quoted on the
National Association of Securities Dealers Automatic Quotation
("NASDAQ") System, for which there have been sales, are valued at the
most recent sale price reported on such system. If there are no such
sales, the value is the high or "inside" bid quotation. Securities
traded over-the-counter are valued at the last current bid price. Debt
securities that have a remaining maturity of 60 days or less are
valued at cost, plus or minus any unamortized premium or discount.
Foreign securities are converted to United States dollars using
exchange rates at the close of the New York Stock Exchange. In the
event market quotations would not be available, securities would be
valued at fair value as determined in good faith by the Board of
Trustees; no such securities were owned by the Funds at June 30, 1998.
58
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 1998
B. Security transactions and investment income -- Security transactions
are recorded on the trade date. Dividend income is recorded on the
ex-dividend date or, for certain foreign dividends, as soon as they
become available. Interest income including level yield, premium and
discount amortization is recorded on the accrual basis. Securities
gains and losses are determined on the basis of identified cost.
C. Federal income taxes -- Since it is the Funds' policy to comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders, no provision has been made for federal income or excise
taxes. Dividends and distributions payable to shareholders are
recorded by the Funds on the record date. Net investment income for
federal income tax purposes includes paydown gains and losses on
mortgage backed securities and gains and losses realized on foreign
currency transactions. These gains and losses are included as net
realized gains and losses for financial reporting purposes.
The International Equity Fund and Small Cap Growth Fund intend to
utilize provisions of the federal income tax laws which allow them to
carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized
capital gains. At December 31, 1997, the International Equity Fund and
Small Cap Growth Fund had an accumulated capital loss carryforward for
tax purposes of $65,857, and $459,937, respectively, which will expire
in fiscal year ending December 31, 2005.
Net realized gains or losses differ for financial reporting and tax
purposes as a result of losses from wash sales.
D. Dividends and distributions -- Dividends and distributions from net
investment income and net realized gains are paid out annually and are
recorded on the ex-dividend date.
E. Use of estimates -- 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 revenue and expenses during the period. Actual
results could differ from those estimates.
3. OPERATING POLICIES:
A. Repurchase Agreements -- Securities pledged as collateral for
repurchase agreements are held by State Street Bank and Trust Company
and are designated as being held on each fund's behalf by its
custodian under a book-entry system. Each fund monitors the adequacy
of the collateral on a daily basis and can require the seller to
provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase
agreement, including accrued interest. Each fund will only enter into
repurchase agreements with banks and other financial institutions
which are deemed by the investment adviser to be credit worthy
pursuant to guidelines established by the Trustees.
B. Asset Backed Securities -- These securities are secured by installment
loans or leases or by revolving lines of credit. They often include
credit enhancements that help limit investors exposure to the
underlying credit. These securities are valued on the basis of the
timing and certainty of the cash flows compared to investments with
similar durations.
C. Collateralized Mortgage Obligations -- Planned Amortization Class
(PAC) - These securities have a pre-determined schedule for principal
repayment coupled with an enhanced degree of cash-flow certainty. A
PAC security is a specific class of mortgages which usually carry the
most stable cash flows and the lowest amount of prepayment risk. These
securities are valued on the basis of the timing and certainty of the
cash flows compared to investments with similar durations.
59
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 1998
D. American Depository Receipts -- (ADR) - A certificate issued by an American
bank to evidence ownership of original foreign shares. The certificate is
transferable and can be traded. The original foreign stock certificate is
deposited with a foreign branch or correspondent bank of the issuing
American bank.
E. Commission Credits -- Wellington Management Company, LLP, subadvisor for
the Growth Fund and Balanced Fund, seeks the best price and execution on
each transaction and negotiates commission rates solely on the execution
requirements of each trade. Occasionally, they place, under a directed
brokerage arrangement, common stock trades with a broker/dealer who credits
to the Funds part of the commissions paid.
F. Foreign Currency Transactions -- The books and records of the Funds are
maintained in U.S. dollars. Foreign currency transactions are translated
into U.S. dollars on the following basis:
. market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and
. purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates
on securities transactions, gains and losses arising from the sales of
foreign currency, and gains and losses between the ex-dividend and payment
dates on dividends, interest and foreign withholding taxes. The effect of
changes in foreign exchange rates on realized and unrealized gains or
losses is reflected as a component of such gains or losses.
G. Forward Currency Contracts -- The Balanced Fund, Income Fund and
International Equity Fund may enter into forward currency contracts in
order to reduce their exposure to changes in foreign currency exchange
rates on their foreign portfolio holdings and to lock in the U.S. dollar
cost of assets and liabilities denominated in foreign currencies. A forward
currency exchange contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. The gain or loss
arising from the differences between the U.S. dollar cost of the original
contract and the value of the foreign currency in U.S. dollars upon closing
of such contract is included in net realized gain or loss from foreign
currency transactions.
60
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 1998
At June 30, 1998 the Funds have the following open forward currency contracts:
<TABLE>
<CAPTION>
Current Unrealized
Foreign Value Appreciation
Currency U.S. Dollar (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C>
Balanced Fund
Short Contracts:
Australian Dollar,
8,419,000 expiring 07/29/98 $ 5,228,377 $ (109,541)
Income Fund
Short Contracts:
Australian Dollar,
612,000 expiring 07/29/98 $ 380,065 $ (7,963)
</TABLE>
61
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 1998
4. FUND SHARE TRANSACTIONS -- The Funds are each a series of a diversified,
open-end management investment company registered under the Investment
Company Act of 1940. Shares are presently offered to HMLIC Separate Account
and the HMLIC 401K Separate Account. The Growth Fund shares also may be
purchased under the dividend reinvestment plans by certain shareholders.
Transactions in capital stock for the six months ended June 30, 1998 and
the year ended December 31, 1997 were:
<TABLE>
<CAPTION>
Shares issued
to shareholders
in reinvestment
of dividends and Net increase
Shares sold distribution Shares redeemed (decrease)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund
06/30/98 $2,312,866 $ -- $(1,206,840) $1,106,026
12/31/97 4,363,953 2,722,964 (1,877,395) 5,209,522
Balanced Fund
06/30/98 1,782,907 -- (1,112,560) 670,347
12/31/97 3,173,556 2,170,443 (1,685,163) 3,658,836
Income Fund
06/30/98 151,000 -- (121,143) 29,857
12/31/97 160,116 39,736 (312,085) (112,233)
Short-Term Fund
06/30/98 267,313 -- (217,980) 49,333
12/31/97 356,190 4,867 (368,415) (7,358)
Small Cap Growth Fund
06/30/98 673,638 -- (187,671) 485,967
12/31/97 1,527,761 -- (115,524) 1,412,237
International Equity Fund
06/30/98 199,110 -- (49,334) 149,776
12/31/97 561,643 1,402 (55,142) 507,903
Socially Responsible Fund
06/30/98 833,511 -- (64,970) 768,541
12/31/97 791,585 8,575 (38,492) 761,668
</TABLE>
62
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 1998
5. MANAGEMENT AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES -- Horace Mann
Educators Corporation ("HMEC") is the parent company of Horace Mann Investors,
Inc. ("Investors") and Horace Mann Service Corporation ("HMSC") and indirectly
owns HMLIC. Collectively these companies are referred to as Horace Mann.
As of May 1, 1997, Investors acts as the Trust's advisor, manages its
investments, and administers its business affairs pursuant to an investment
advisory and management agreement. Also on this date Wellington Management
Company, LLP, became the subadvisor to the Growth, Balanced, Income and
Short-Term Funds. Effective March 10, 1997, BlackRock Financial Management, Inc.
(formerly PNC Equity Advisors Company) became the subadvisor to the Small Cap
Growth Fund, and Scudder Kemper Investments, Inc. became the subadvisor to the
International Equity and Socially Responsible Funds. Each subadvisor is
compensated by Investors (not the Trust) and bears all of its own expenses in
providing subadvisory services.
For the Growth, Balanced, Income and Short-Term Funds, Investors receives
separate management and advisory fees. The management agreement, the fee which
is accrued daily and paid monthly, is calculated on a pro-rata basis by applying
the following annual percentage rates to the aggregate of all four Fund's daily
net assets for the respective month.
Net Assets Rate
On initial $100 million .250%
Over $100 million .200%
Under the advisory agreement, the fee is accrued daily and calculated by
applying the following annual percentage rates to the average daily net assets
of each fund for the respective month:
<TABLE>
<CAPTION>
Growth Fund Balanced Fund Income Fund Short-Term Fund Average Net Assets
<S> <C> <C> <C> <C>
0.400% 0.325% 0.250% 0.125% initial $100 million
0.300% 0.275% 0.200% 0.100% next $100 million
0.250% 0.225% 0.150% 0.075% next $300 million
0.250% 0.200% 0.150% 0.075% over $500 million
</TABLE>
As compensation for its services, the Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund each pay Investors a combined monthly
management and advisory fee. The contractual fees are as follows:
Small Cap Growth Fund 1.40% of Net Assets
International Equity Fund 1.10% of Net Assets
Socially Responsible Fund 0.95% of Net Assets
During 1998, Investors is voluntarily reducing these management fees by 0.40%.
The actual management fees are accrued daily and paid monthly based on the
following annual percentage rate to the Funds' average daily net assets for the
respective month. The fees net of waivers are:
Small Cap Growth Fund
1.00% on the first $25 million
0.75% on all assets over $25 million
International Equity Fund
0.70% on the first $40 million
0.50% on the next $60 million
0.45% on all assets over $100 million
Socially Responsible Fund
0.55% on the first $20 million
0.45% on the next $20 million
0.30% on the next $60 million
0.275% on all assets over $100 million
63
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (Concluded)
June 30, 1998
Transfer and dividend disbursing agent services are provided by HMSC on a per
account basis. The transfer agent fees for the six months ended June 30, 1998
were $17,386 for the Growth Fund, $24 each for the Balanced Fund, Income Fund,
Short-Term Fund, Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund.
The Trust pays each independent trustee a $1,000 annual retainer, $1,000 per
Board meeting attended, $200 for each committee meeting and $500 for each
telephonic meeting. Two meetings were held in 1998. For the six months ended
June 30, 1998, the fees, excluding travel expenses, for independent trustees
totaled $11,000. The Trust does not compensate interested officers and trustees
(those who are also officers and/or directors of Horace Mann).
6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term
investments, for the six months ended June 30, 1998 were:
Purchases Proceeds from sales
--------- -------------------
Growth Fund $202,489,331 $171,145,730
Balanced Fund 138,692,817 120,643,445
Income Fund 3,534,908 2,513,859
Short-Term Fund -- 1,882,184
Small Cap Growth Fund 18,274,814 12,188,711
International Equity Fund 2,692,994 1,192,764
Socially Responsible Fund 13,785,101 3,492,168
The following table shows investments, excluding foreign curency, at cost and
unrealized appreciation (depreciation) for federal income tax purposes by fund
at June 30, 1998.
<TABLE>
<CAPTION>
Cost for federal Aggregate gross Aggregate gross
income tax unrealized unrealized Net unrealized
purposes appreciation (depreciation) appreciation
-------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Growth Fund $573,945,364 $108,818,247 $(18,369,734) $90,448,513
Balanced Fund 380,423,179 49,046,945 (8,071,232) 40,975,713
Income Fund 10,078,818 385,928 (25,970) 359,958
Short-Term Fund 1,668,025 11 (54) (43)
Small Cap Growth Fund 21,641,944 3,091,717 (246,129) 2,845,588
International Equity Fund 6,874,139 1,440,946 (311,364) 1,129,582
Socially Responsible Fund 19,459,309 1,778,185 (442,517) 1,335,668
</TABLE>
64
<PAGE>
Horace Mann Mutual Funds --------------------
P.O. Box 4657 BULK RATE
Springfield, IL 62708-4657 U.S. POSTAGE
PAID
PERMIT No. 102
HAMBURG, PA
--------------------
[LOGO OF HORACE MANN APPEARS HERE]
- ----------------------------------------
Insuring America's Educational Community
Underwritten by
Horace Mann Life Insurance Company
www.horacemann.com
