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UpClose
Horace Mann Mutual Funds
Semi-annual Report
June 30, 2000
Remember to
diversify
Life's
lesson plan
begins
now
[GRAPHIC]
Allocation is
key to
investment
success
--------------------
HORACE MANN
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A new outlook on retirement
Contents
[GRAPHIC]
In this issue, we focus on Horace Mann's
new investment options. We'll also look at how several of our options can help
you diversify your portfolio.
FEATURES
Remember to diversify ........................................................3
Allocation is key to investment success ......................................5
Horace Mann to introduce many
new investment choices ....................................................6
Fund investment style descriptions ...........................................8
Life's lesson plan begins now ...............................................10
How the funds measure up ....................................................11
Take a closer look at your funds ............................................13
DEPARTMENTS
Investment adviser letter ...................................................14
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 prospectuses.
This report must be preceded or accompanied by a current prospectus.
<PAGE>
Horace Mann Mutual Funds
--------------------------------------------------------------------------------
P.O. Box 4657
Fellow Shareholders: Springfield, IL 62708-4657
217-789-2500
Thank you for your continued investment in the Horace Mann Mutual Funds. As you
seek to achieve excellence in educating our nation's children, Horace Mann's
agents and employees work tirelessly to provide you with the highest quality
investment retirement products and services available in the marketplace. We
remain committed to providing you with retirement solutions to help achieve your
long-term objectives, and we look forward to working closely with you in the new
millennium.
Market Review
Turbulence has ruled the markets thus far in 2000 as the stock market continued
to advance in the first quarter only to severely reverse course in April and
May. Internet stocks, garnering keen interest from institutional and individual
investors alike, provided the highest highs and lowest lows during the period.
At one point, Internet market averages suffered losses of over 40% while some
individual Internet companies were down significantly more. Some estimates
suggested the correction in Internet stocks represented a loss of shareholder
value equivalent to the losses of the 1987 market crash. Investors clearly
became reacquainted with risk this quarter.
International equity investors experienced a similar reversal of fortune as
global economic growth began to slow in response to central bank activity. In
the U.S., the Federal Reserve intervened several times to cool the U.S. economy
by raising short-term interest rates. Low-risk U.S. treasury bonds performed
extremely well as the government sought to repurchase securities to reduce the
national debt.
While there was some evidence of a reversal in style-related results between
March and May, the markets generally continued to reward growth stocks more than
value stocks thus far in 2000, leading the Equity Fund and the Socially
Responsible Fund to trail the S&P 500 Index during the period. The Small-Cap
Growth Fund continued to provide compelling relative and absolute results in
2000, while the International Fund gave up a little ground versus its index in a
tough market after a spectacular 1999. The Income Fund and Short-Term Fund
continued to provide positive results in excess of inflation.
Perspective
We are excited to announce Horace Mann has initiated relationships with many
well-respected investment management companies which will lead to new investment
options for you. Our partnerships with Alliance Capital, Fidelity Investments,
Putnam Investments, T. Rowe Price Associates and many other highly qualified
fund companies will provide you with further flexibility in investing your
retirement assets. Your Horace Mann agent has the necessary tools to work with
you to determine the strategies and funds that are appropriate for achieving
your retirement goals. [_]
Inspired by the energy and commitment of America's educators, Horace Mann is
focused on providing our customers with the investment opportunities, expertise
and support necessary to ensure long-term retirement security. We believe we're
on the right track and sincerely appreciate your continued confidence in the
Horace Mann Mutual Funds.
/s/ George Zock
Sincerely,
George Zock
Chairman & President
<PAGE>
Remember to diversify
International Equity and Small Cap Growth funds can provide diverse investment
opportunities
At the beginning of each school year, educators develop new lesson plans to help
guide students to academic achievement. Likewise, this may be the right time of
year to review your retirement savings and establish a plan to achieve your
long-term retirement goals.
[GRAPHIC]
"By diversifying your investments, you can gain access to more opportunities for
capital growth while moderating the magnitude of the ups and downs of
investing."
According to Wilshire Associates' Vice President Tom Goodrum, with the ups and
downs of the markets in recent years, your portfolio may have diverged from a
mix that's best for your long-term success. Your retirement savings may be
concentrated in one fund, or they may not give enough emphasis to opportunities
in certain areas of the market.
"By diversifying your investment options, you can gain access to more
opportunities for capital growth while moderating the magnitude of the ups and
downs of investing. As you wouldn't want to put all your eggs in one basket,
investing in only one area of the markets can limit the likelihood of your
long-term success," Goodrum says.
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Goodrum suggests two funds that may be used for diversifying your portfolio are
the Horace Mann International Fund and the Horace Mann Small-Cap Growth Fund.
"These stellar performers are managed by seasoned investment professionals and
are positioned for the long term. Of course, past performance is no guarantee of
future returns, and you may lose money by investing in these funds.
Nevertheless, they are poised to provide you with the results you want and
expect from investment in international and small-cap stocks," he states.
Horace Mann International Fund
Managed by Scudder Kemper Investments, the Horace Mann International Fund has
outperformed its benchmark handily over the last 18 months and since the
inception of the fund. Portfolio manager Irene Cheng, with lengthy experience in
managing international portfolios, seeks the best companies available for
investment outside the United States.
The fund's portfolio performance has benefited recently from Scudder's emphasis
on Japanese stocks while that market skyrocketed in 1999. Now the focus is on
continental Europe. Scudder's research into technology, media and
telecommunications stocks has added value in recent periods, and the firm
believes these areas of foreign markets will continue to provide solid results
for investors.
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Horace Mann Small-Cap Growth Fund
Posting the highest returns among all the Horace Mann Funds, the Small-Cap
Growth Fund is managed by Bill Wykle at BlackRock Financial Management. Wykle, a
veteran in the investment industry, has generated a great deal of value since
the inception of the fund and appears poised to continue. BlackRock looks for
fast-growing companies with high probabilities of sustainable expansion.
The fund has appreciated because of its technology and health care holdings.
Early in the year 2000, the fund capitalized on the frenzy for biotech stocks.
Although the fund was not immune to the recent fall in technology stocks, Wykle
believes opportunities for investing in small cap stocks for the long term are
terrific, and he looks forward to posting solid results.
As autumn approaches, it's time to get back on plan with your investments.
Contact your Horace Mann agent to discuss your portfolio's mix of funds and
opportunities to diversify your investments. Over the long term, a solid,
diversified investment plan can help you achieve your long-term financial
goals. [_]
4
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Allocation is key to investment success
According to Horace Mann Mutual Funds adviser Wilshire Associates, 90 percent of
investment return can be attributed to your asset allocation decisions.
Diversifying your allocations to different types of investments can be even more
important than the specific investment options you choose. Because allocation is
so important to long-term performance, it's important for you to carefully
evaluate the type of investment choices you make.
[GRAPHIC]
As Horace Mann introduced new investment options for its combination fixed and
variable annuities, we saw the need to provide our customers with information
they can use to make informed choices. That's why we developed asset allocation
software. Each Horace Mann agent will have this software available to assist you
as you determine the best allocation plan for your retirement program. If
clients have questions about an investment option, the software can provide
information for that option. The software will also help you determine your
tolerance for risk and which options are suitable for your personal investment
style. Of course, the final choice is up to you.
Agents will have the software by Sept. 1. If you're considering reallocating
your premium or cash value to some of the additional investment options, you
should make an appointment with your agent now. [_]
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5
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Horace Mann to introduce many new investment choices
[GRAPHIC]
Soon your annuity investment choices will almost triple! In early
September, clients participating in the Annuity Alternatives tax-deferred
combination fixed and variable annuity from Horace Mann will have over 30
investment options to select from.
You'll be able to select from some well-known investment options managed by some
of the most prestigious mutual fund companies in the world. And you'll find
choices in a wide range of investment styles, from large, mid, and small cap
growth and value funds to bond and international equity funds.
Horace Mann's investment options now give you even more choices and flexibility.
Your agent can help you determine an investment style that fits your needs and
which options fit that style. Then you can decide which options are right for
you.
Variable account investment portfolio
Here are the investment choices available in your Horace Mann tax-deferred
annuity (TDA). Please note -- some of these choices will not be available for
non-qualified annuity contracts or annuities contracts issued prior to 1984
(please contact your agent if you're unsure which contract you have):
Large Company Stock Funds
Large Blend
J. P. Morgan U.S. Disciplined Equity Portfolio
Fidelity VIP Growth & Income Portfolio
Wilshire 5000 Index Portfolio
Fidelity VIP Index 500 Portfolio
Large Growth
Fidelity VIP Growth Portfolio
Alliance Premier Growth Portfolio
Wilshire Large Company Growth Portfolio
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Large Value
Horace Mann Equity Fund
Horace Mann Socially Responsible Fund
Davis Value Portfolio
Wilshire Large Company Value Portfolio
Mid-Size Company Stock Funds
Mid Blend
Fidelity VIP Mid Cap Portfolio
Rainier Small/Mid Cap Equity Portfolio
Mid Growth
Putnam VT Vista Fund
Strong Mid-Cap Growth Fund II
Mid Value
Strong Opportunity Fund II
Small Company Stock Funds
Small Blend
T. Rowe Price Small Cap Stock Fund -- Advisor Class
Neuberger Berman Genesis Assets
Small Growth
Horace Mann Small Cap Growth Fund
Warburg Pincus Small Company Growth Portfolio
Wilshire Small Company Growth Portfolio
Small Value
T. Rowe Price Small-Cap Value Fund -- Advisor Class
Wilshire Small Company Value Portfolio
International Stock Funds
Horace Mann International Equity Fund
Fidelity VIP Overseas Portfolio
Balanced Fund
Horace Mann Balanced Fund
Bond Funds
Horace Mann Income Fund
Horace Mann Short-Term Investment Fund
Fidelity VIP High Income Portfolio
Fidelity VIP Investment Grade Bond Portfolio [_]
Horace Mann's investment options now give you even more choices and flexibility.
[GRAPHIC]
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7
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Fund investment style descriptions
The investment options which make up our variable account portfolio fall within
12 different investment style descriptions, plus our fixed account.
Large Company Stock Funds
Large companies generally have a market value in excess of $5 billion. Investing
only in large U.S. company stocks may be more volatile than investing in a broad
range of fund styles.
Large Blend
These funds invest in a variety of large U.S. companies. These funds have a
broadly diversified portfolio that does not emphasize a specific investment
style.
Large Growth
These funds invest in stocks of large U.S. companies that have above-average
earnings and sales growth histories. When growth stocks are viewed favorably in
the market, they typically have a higher price-to-earnings ratio than average
stocks.
Large Value
These funds invest in stocks of large U.S. companies that are selling at a
relatively low price compared to the economic value of the company, and they
often provide an above-average dividend yield. When these stocks are viewed
favorably in the market, they may increase in value as market prices approach
the companies' economic value.
Mid-Size Company Stock Funds
Mid-sized companies generally have a market value between $1 and $5 billion.
Mid-size company stocks may rise faster than large company stock, but they may
also decline more quickly in an unfavorable business or market climate.
Mid Blend
These funds invest in a variety of stocks of mid-sized U.S. companies. These
funds have a broadly diversified portfolio that does not emphasize a specific
investment style.
Mid Growth
These funds invest in stocks of mid-sized U.S. companies that have above-average
earnings and sales growth. When these stocks are viewed favorably in the market,
they typically have a higher price-to-earnings ratio than average stocks.
Mid Value
These funds invest in stocks of mid-size U.S. companies that are selling at a
relatively low price compared to the economic value of the company and typically
have an above-average dividend yield. When these stocks are viewed favorably in
the market, they may increase in value as market prices approach the companies'
economic value.
Small Company Stock Funds
These small companies generally have a market value less than $1 billion. Small
company stock prices may rise faster than large and mid-size company stocks, but
can also decline more quickly in an unfavorable business or market climate.
Small Blend
These funds invest in a variety of stocks of relatively small U.S. companies.
These funds have a broadly diversified portfolio that does not emphasize a
specific investment style.
8
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Small Growth
These funds invest in stocks of relatively small U.S. companies that have
above-average growth and sales. When growth stocks are viewed favorably in the
market, they typically have a higher price-to-earnings ratio than average
stocks.
Small Value
These funds invest in stocks of small U.S. companies that are selling at a
relatively low price compared to the economic value of the company, and they
often provide above-average dividend yield. When these stocks are viewed
favorably in the market, they may increase in value as market prices approach
the companies' economic value.
International Stock Funds
These funds invest in actively managed portfolios of large, well-managed,
non-U.S. companies. International investing may serve to reduce risk through
diversification when combined in a portfolio with domestic stocks and bonds.
Investing only in foreign stocks may involve a greater degree of risk than
investing in U.S. stocks due to the possibility of fluctuations in currency
value, more volatile markets, less security regulation and possible political
instability.
Balanced Fund
Assets of the Balanced Fund are invested in shares of the Horace Mann Equity
Fund and the Horace Mann Income Fund. The investment split is normally an
approximate 60 percent in the Horace Mann Equity Fund and 40 percent in the
Horace Mann Income Fund. This indirectly provides investments in a mix of common
stocks, bonds and money market securities.
Bond Funds
These funds invest in actively managed portfolios of interest-bearing
investments. A variety of funds are available in this asset class, ranging from
a low to moderate risk diversified portfolio of government, corporate and
mortgage bonds to a more aggressive and volatile high-yield/high-risk portfolio.
A conservative short-term fund investing in money market securities is also
available. Consider the different investment styles and risks for each fund.
Fixed Account
Deposits are invested in the general account of Horace Mann Life Insurance
Company and are guaranteed not to decline in value. The guarantees stated in the
policy contract are provided by Horace Mann Life Insurance Company and are not
dependent on the performance of the variable investment options. Horace Mann
typically credits a higher interest rate if investment results exceed the
guaranteed rate. Longer-term investments typically earn a premium interest rate
relative to investments of shorter length. For example, the 10-year fixed
investment option typically earns a higher interest rate than the five-year
fixed investment option. [_]
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9
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Life's lesson plan
begins now
[GRAPHIC]
School's in and classes begin. And one lesson plan to complete soon is to plan
ahead and consider retirement. It's never too late to prepare for retirement and
it's never too early to begin saving for your golden years.
And just as some of your lesson plans might have to be changed or reevaluated
from time-to-time, so might your retirement plan. For instance, you may receive
a raise, an inheritance or a reduction in expenses (such as paying off a car
loan or children's college tuition). Those are excellent opportunities to
increase your TDA contributions.
Your future is now. Call your Horace Mann agent today to discuss your retirement
plan. [_]
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FUND PERFORMANCE
How the funds measure up
For Annuity Alternatives Contract Owners
Average annual total returns for the six months ended June 30, 2000 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.
<TABLE>
<CAPTION>
Returns if money remained invested, based on a $1,000 investment.
Variable Account 1 Year 5 Years 10 Years Since inception
<S> <C> <C> <C> <C>
Equity Fund -16.34 10.11 10.61 10.38 1
Balanced Fund -9.27 8.68 9.18 8.95 1
Income Fund 0.86 3.98 5.49 5.35 1
Short-Term Investment Fund 3.91 3.67 3.38 3.58 1
Small Cap Growth Fund 68.12 -- -- 27.00 2
International Equity Fund 29.60 -- -- 16.71 2
Socially Responsible Fund -5.90 -- -- 10.35 2
<CAPTION>
Returns if money was withdrawn early, based on a $1,000 investment.
Variable Account 1 Year 5 Years 10 Years Since inception
<S> <C> <C> <C> <C>
Equity Fund -23.04 10.11 10.61 10.38 1
Balanced Fund -16.53 8.68 9.18 8.95 1
Income Fund -7.20 3.98 5.49 5.35 1
Short-Term Investment Fund -4.40 3.67 3.38 3.58 1
Small Cap Growth Fund 59.62 -- -- 25.52 2
International Equity Fund 21.10 -- -- 15.29 2
Socially Responsible Fund -13.43 -- -- 9.00 2
</TABLE>
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.
The average annual rates of return of each variable subaccount of the Annuity
Alternatives contracts were adjusted for a 1.35% mortality and expense fee until
March 1, 1999, when the fee was reduced to 1.25%. 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% for
the flexible premium contracts and 1 to 5% for single premium contracts. The
average annual total returns with redemption are calculated using flexible
premium redemption charges. Distributions from an annuity may be subject to
federal taxes and a 10% IRS penalty if withdrawn before age 59 1/2.
Wilshire Associates, Inc. has been the investment adviser for the Horace Mann
Mutual Funds since March 1, 1999. The Equity Fund employs a multi-manager
strategy using three subadvisers -- Sanford C. Bernstein & Co., Inc., Mellon
Equity Associates, and Wellington Management Co., LLP. Effective March 15, 2000,
Sanford C. Bernstein & Co. replaced Brinson Partners as one of the subadvisers
for the Equity Fund. On January 19, 2000, Balanced Fund began operating under a
"fund of funds" structure, investing in the Equity Fund and Income Fund.
Effective January 26, 2000, Income Fund employs a multi-manager strategy using
two subadvisers -- Wellington Management Co., LLP and Western Asset Management
Company.
Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. During the first six months of 2000, the funds received credits on
overnight cash balances resulting in a reduction of custody expenses. Commission
credits were used to pay certain expenses for the Equity and Balanced funds from
1994 through June 30, 2000. During the first six months of 2000, certain
expenses were assumed/waived for all funds. In addition, certain Balanced and
Income funds' expenses were assumed/waived through 1987 and 1996, respectively.
Certain Short-Term Investment Fund expenses have been assumed/waived since 1983.
Certain expenses for the Small Cap Growth, International Equity, and Socially
Responsible funds have been assumed/waived since their inception, March 10,
1997. Assumed expenses and the use of credits resulted in higher actual returns
and for some funds exceeded 1% depending on the expenses assumed. There is no
guarantee that certain expenses will be assumed/waived or the use of credits
will continue in the future.
1 Since inception for the Equity, Balanced, Income, and Short-Term Investment
funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment adviser. Effective May 1, 1997, Wellington Management Company,
LLP became the funds' subadviser.
2 Since inception for the Small Cap Growth, International Equity and Socially
Responsible funds refers to their beginning date, March 10, 1997. The investment
subadvisers are BlackRock Financial Management, Inc. for the Small Cap Growth
Fund and, Scudder Kemper Investments, Inc. for the International Equity and
Socially Responsible funds.
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For Equity Fund Public Shareholders and Participants in the Horace Mann Employee
401(k) Plan
Total average annualized returns for the six months ended June 30,
2000, for the Horace Mann Mutual Funds and their comparable benchmark indices
are shown in the following table:
1 Year 5 Years 10 Years Since inception
------ ------- -------- ---------------
Equity Fund -15.20 11.49 12.02 11.78 1
S&P 500 Stock Index 7.54 23.87 17.83 17.44
Balanced Fund -8.07 10.05 10.58 10.34 1
Stock/Bond Composite 4 6.68 16.79 13.80 13.50
Income Fund 2.14 5.31 6.85 6.71 1
Lehman Intermediate/Aggregate 5 4.56 6.28 7.53 7.66
Short-Term Investment Fund 5.20 5.01 4.72 4.93 1
90-day Treasury Bills 5.18 5.33 5.17 5.36
Small Cap Growth Fund 68.52 - - 28.08 2
Russell 2000 Growth 28.39 - - 17.23
International Equity Fund 30.66 - - 18.00 3
MSCI EAFE 17.18 - - 13.30 6
Socially Responsible Fund -4.68 - - 11.74 3
S&P 500 Stock Index 7.54 - - 21.45
Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. During the first six months of 2000, the funds received credits on
overnight cash balances resulting in a reduction of custody expense. Commission
credits were used to pay certain expenses for the Equity and Balanced funds from
1994 through June 30, 2000. During the first six months of 2000, certain
expenses were assumed/waived for all funds. In addition, certain Balanced and
Income funds' expenses were assumed/waived through 1987 and 1996, respectively.
Certain Short-Term Investment Fund expenses have been assumed/waived since 1983.
Certain expenses for the Small Cap Growth, Internationally Equity, and Socially
Responsible funds have been assumed/waived since their inception March 10, 1997.
Assumed expenses and the use of credits resulted in higher actual returns and
for some funds exceeded 1% depending on the expenses assumed. There is no
guarantee that certain expenses will be assumed/waived or the use of credits
will continue in the future.
Wilshire Associates, Inc. has been the investment adviser for the Horace Mann
Mutual Funds since March 1, 1999. The Equity Fund employs a multi-manager
strategy using three subadvisers -- Sanford C. Bernstein & Co., Inc., Mellon
Equity Associates, and Wellington Management Co., LLP. Effective March 15, 2000,
Sanford C. Bernstein & Co. replaced Brinson Partners as one of the subadvisers
for the Equity Fund. On January 19, 2000, Balanced Fund began operating under a
"fund of funds" structure, investing in the Equity Fund and Income Fund.
Effective January 26, 2000, Income Fund began employing a multi-manager strategy
using two subadvisers -- Wellington Management Co., LLP and Western Asset
Management Company.
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 Equity, Balanced, Income, and Short-Term Investment
funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment adviser. Effective May 1, 1997, Wellington became the
subadviser 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
subadviser.
3 Since inception for the International Equity and Socially Responsible funds
refers to their beginning date, March 10, 1997. Scudder Kemper Investments, Inc.
is the investment subadviser 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,
2000.
12
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Take a closer look at how your funds performed
[GRAPHIC]
The following pages give you an overview of how your funds performed.
By having a Horace Mann annuity, you've already taken the first step toward your
investment goals. If you've wondered what you're invested in, the following
pages detail the investments of each fund.
If you have questions about your retirement plan or other investment options,
you should talk to your Horace Mann agent. He or she can help you determine if
you're saving enough to meet your goals.
Customer service
If your agent is unavailable, contact Horace Mann's customer service area at
1-800-999-1030. Or visit our website at www.horacemann.com for more information
about our funds and fund prices and insurance products. We also offer special
information just for educators.
13
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[LOGO OF WILSHIRE] WILSHIRE ASSOCIATES
1299 Ocean Avenue, Suite 700 Santa Monica, CA 90401-1085
TEL 310.451.3051 FAX 310.458.0520 www.wilshire.com
Dear Shareholders:
As Funds Adviser, Wilshire Associates wishes to extend its appreciation for your
continued confidence and investment in the Horace Mann Funds. The new millennium
presents us with great opportunities to provide you with investment products
structured in a manner consistent with your long-term retirement goals. Every
day, we diligently apply our investment process to ensure you gain access to the
finest investment talent and portfolios available in the marketplace. We look
forward to continuing our work in that regard.
Market environment
The year 2000 has presented some of the most challenging markets for long-term
investors in years. The markets have seen extreme levels of volatility leading
to wide disparities of investor experience during the period. While U.S. stocks
are generally down a fraction in 2000, substantial positive results for certain
stocks early in the year were completely wiped out during the correction which
occurred between March and May.
Small company stocks benefited in the first half of the year, outpacing their
large company counterparts. Growth stocks have paced the advance year-to-date;
however, some signs of a recovery in value stocks became evident mid-way through
the period as the growth-oriented technology stocks lost altitude. This is
particularly evident in the energy sector which is the best performing sector
thus far in 2000.
The bond market enjoyed positive returns as low-risk Treasury bonds led the
market. Corporate and mortgage-related securities trailed the bond market as a
whole, although they did provide moderate positive results. High-yield bonds
lost ground. Two key developments for the bond market early in 2000 included: a
tightening trend in the Fed's administration of monetary policy; and, a
government-sponsored buyback of long-dated Treasury bonds to reduce the national
debt. These actions have led to an inverted yield curve in which interest rates
are higher for those who lend for shorter periods than those who lend for longer
ones. Market observers note such a phenomenon may foreshadow an economic
slowdown or recession.
International investors sustained a negative period so far this year as the
overseas markets generally retreated in early 2000. Laggards included the
markets in United Kingdom and the emerging markets, while the French markets
turned in a respectable positive performance thus far. Japan's markets generally
declined as well.
14
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Funds results
In the following paragraphs, we seek to provide you with insight into activity
and results for the various funds in the Horace Mann family for 2000 thus far.
Domestic equities
In an effort to improve the performance and risk characteristics of the Horace
Mann Equity Fund, Wilshire orchestrated a number of changes to the structure of
the fund this year. First half underperformance versus relevant indices was
attributable to value strategies generally being out of favor coupled with
specific company disappointments, particularly in the technology sector.
To address this, Wilshire elected to replace Brinson Partners with Sanford C.
Bernstein & Co. and re-tooled the allocations within the fund to renew the
appropriate balance of risk and expected reward. This was accomplished by
adjusting the fund's structural weighting to the following: 40% Sanford
Bernstein, 30% Mellon Equity Associates, LLP, and 30% Wellington Management Co.
Wilshire believes this new structural lineup is well positioned to provide
positive long-term investment results for investors in the Equity Fund.
While encountering a similar headwind as value strategies tended to underperform
the broad market in early 2000, the Socially Responsible Fund posted results
just modestly below the S&P 500 Index. Scudder's favorable decisions in consumer
staples and technology stocks allowed the fund to keep reasonable pace, while
healthcare stocks provided some resistance during the period.
Continuing its strong recent performance, Small-Cap Growth Fund sub-adviser
BlackRock posted solid results in the first half of 2000. The fund substantially
outpaced its benchmark, the Russell 2000 Growth Index, and the long-term
performance of the fund has likewise been extremely positive. Fund investors
benefited from BlackRock's excellent selection of healthcare stocks.
The Balanced Fund, now comprised of shares of the Horace Mann Equity and Income
Funds, performed in a manner consistent with the proportionate contribution of
those two funds.
15
<PAGE>
International equities
The International Equity Fund underperformed its index in a difficult
environment for international investors. The decline in international stocks
comes on the heels of a tremendously positive 1999 in which the fund
substantially outperformed the benchmark. Overall, a sell-off in the fund's
Japanese positions led to underperformance versus the benchmark, although good
results in German stock holdings constrained the difference in returns.
Domestic fixed income
Change was underway for the Income Fund as Western Asset Management was selected
to further diversify the fund's holdings. In concert with Wellington Management
Co., the incumbent investment manager, the fund seeks to provide returns in
excess of the Lehman Brothers Aggregate Index, which is a broad measure of bond
market performance. The fund's allocation to high-yield bonds, a sector which
encountered broad difficulty during the period, led to moderate underperformance
versus the benchmark. The Short-Term Investment Fund provided returns consistent
with expectations and in excess of inflation.
Conclusion
As we enter the latter part of the year 2000, Wilshire is energized by the
opportunity to serve you with products appropriately structured to achieve your
long-term goals of a comfortable retirement. Again, we appreciate your continued
confidence and look forward to working with you to achieve your long-term
financial objectives.
Sincerely,
/s/ Michael P. O'Keeffe /s/ Thomas M. Goodrum Jr.
Michael P. O'Keeffe, CFA Thomas M. Goodrum Jr., CFA
Managing Director Vice President
16
<PAGE>
Semi-Annual Report
June 30, 2000
Horace Mann Mutual Funds
Equity Fund
Balanced Fund
Income Fund
Short-Term Investment Fund
Small Cap Growth Fund
International Equity Fund
Socially Responsible Fund
Board of Trustees
A. Thomas Arisman
A.L. Gallop
Richard A. Holt
Richard D. Lang
Harriet A. Russell
George J. Zock
Officers of the Funds
George J. Zock William Kelly
President and Chairman Treasurer and Regulatory
Compliance Officer
A. Thomas Arisman
Vice President Linda L. Sacco
Assistant Secretary
Ann Caparros
Secretary and Diane M. Barnett
Ethics Compliance Officer Tax Compliance Officer
--------------------------------------- ---------------------------------------
Administrator Investment Subadvisers
Horace Mann Investors, Inc. BlackRock Financial Management, Inc.
#1 Horace Mann Plaza 345 Park Avenue
Springfield, IL 62715 New York, NY 10154-0010
Investment Adviser Mellon Equity Associates, LLP
Wilshire Associates Incorporated 500 Grant Street, Suite 4200
1299 Ocean Avenue Pittsburgh, PA 15258
Santa Monica, CA 90401-1085
Sanford C. Bernstein & Co., Inc.
Custodian 767 Fifth Avenue
State Street Bank and Trust Company New York, NY 10153
801 Pennsylvania Avenue
Kansas City, MO 64105 Scudder Kemper Investments, Inc.
345 Park Avenue
Independent Auditors New York, NY 10154-0010
KPMG LLP
303 East Wacker Drive Wellington Management Company, LLP
Chicago, IL 60601 75 State Street
Boston, MA 02109
Western Asset Management Company
117 E. Colorado Blvd., Suite 600
Pasadena, CA 91105
17
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Financial Highlights
June 30, 2000
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Value Net Net Realized (Loss) From Net Net
Period Beginning Investment and Unrealized Investments Investment Realized Total
Ended of Period Income/1/ Gain (Loss)/1/ Operations/1/ Income Gains Distributions
Equity FUND/6/
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6/30/2000 $21.92 $0.10 $(1.67) $(1.57) $ -- $ -- $ --
1999 24.34 0.26 (0.91) (0.65) 0.25 1.52 1.77
1998 25.66 0.41 1.51 1.92 0.41 2.83 3.24
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
<CAPTION>
BALANCED FUND/6/
------------------------------------------------------------------------------------------------------------------------------------
6/30/2000 $17.27 $0.03 $(0.59) $(0.56) $ -- $ -- $ --
1999 18.90 0.62 (0.84) (0.22) 0.63 0.78 1.41
1998 19.82 0.73 0.77 1.50 0.74 1.68 2.42
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
<CAPTION>
INCOME FUND/5/
------------------------------------------------------------------------------------------------------------------------------------
6/30/2000 $12.24 $0.38 $(0.13) $ 0.25 $ -- $ -- $ --
1999 13.24 0.76 (0.97) (0.21) 0.79 -- 0.79
1998 13.00 0.78 0.27 1.05 0.69 0.12 0.81
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
</TABLE>
/1/ The "Net Investment Income" per share and the "Net Realized and Unrealized
Gain (Loss)" 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 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
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>
$20.35 (7.16)% $734,219 0.42% 0.52% 86.41% 0.49% 0.45%
21.92 (2.54) 625,133 0.73 1.09 205.70 0.79 1.04
24.34 7.64 670,731 0.51 1.57 59.63 -- --
25.66 23.45 598,502 0.53 1.50 54.56 -- --
23.76 25.28 430,556 0.59 1.79 67.63 -- --
21.66 33.67 297,100 0.63 2.50 64.59 -- --
------------------------------------------------------------------------------------------------------------------------------------
$16.71 (3.24)% $345,263 0.04% 0.19% 111.48% 0.18% 0.05%
17.27 (1.11) 402,539 0.75 3.30 155.53 0.77 3.28
18.90 7.68 427,920 0.50 3.60 63.69 -- --
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 -- --
------------------------------------------------------------------------------------------------------------------------------------
$12.49 2.04% $152,140 0.45% 3.54% 218.07% 3.53% 0.46%
12.24 (1.57) 13,175 0.99 5.83 33.09 1.03 5.79
13.24 8.09 13,959 0.88 5.85 46.60 -- --
13.00 9.42 9,658 0.92 6.09 96.80 -- --
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
</TABLE>
/4/ Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits and earnings credits on cash balances.
/5/ Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996 and June 30, 2000.
/6/ Certain expenses for the Equity and Balanced funds were assumed or waived by
Horace Mann Investors, Inc. through June 30, 2000.
19
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Financial Highlights (concluded)
June 30, 2000
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Value Net Net Realized (Loss) From Net Net
Period Beginning Investment and Unrealized Investments Investment Realized Total
Ended of Period Income (Loss)/1/ Gain (Loss)/1/ Operations/1/ Income Gains Distributions
SHORT-TERM FUND/4/
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6/30/2000 $ 9.89 $ 0.26 $ -- $ 0.26 $ -- $ -- $ --
1999 9.98 0.47 0.01 0.48 0.56 0.01 0.57
1998 9.99 0.49 0.01 0.50 0.51 -- 0.51
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
<CAPTION>
SMALL CAP
GROWTH FUND/5/
------------------------------------------------------------------------------------------------------------------------------------
6/30/2000 $19.76 $(0.06) $ 1.53 $ 1.47 $ -- $ -- $ --
1999 12.38 (0.15) 8.96 8.81 -- 1.43 1.43
1998 11.70 (0.07) 0.75 0.68 -- -- --
1997 10.00 (0.02) 1.72 1.70 -- -- --
<CAPTION>
INTERNATIONAL
EQUITY FUND/5/
------------------------------------------------------------------------------------------------------------------------------------
6/30/2000 $ 17.52 $ 0.07 $(1.32) $(1.25) $ -- $ -- $ --
1999 12.13 0.08 6.18 6.26 0.03 0.84 0.87
1998 10.27 0.11 1.84 1.95 0.09 -- 0.09
1997 10.00 0.08 0.27 0.35 0.08 -- 0.08
<CAPTION>
SOCIALLY
RESPONSIBLE FUND/5/
------------------------------------------------------------------------------------------------------------------------------------
6/30/2000 $13.81 $ 0.06 $(0.22) $(0.16) $ -- $ -- $ --
1999 12.99 0.17 0.91 1.08 0.14 0.12 0.26
1998 12.10 0.27 0.91 1.18 0.17 0.12 0.29
1997 10.00 0.10 2.20 2.30 0.10 0.10 0.20
</TABLE>
/1/ The "Net Investment Income (Loss)" per share and the "Net Realized and
Unrealized Gain (Loss)" 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 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
<S> 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 Net Assets Rate Expenses Income
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$10.15 2.63% $1,741 0.33% 2.75% 0.00% 1.98% 1.10%
9.89 4.77 1,743 0.32 4.71 0.00 1.90 3.13
9.98 4.97 1,331 0.69 4.78 0.00 2.59 2.88
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
------------------------------------------------------------------------------------------------------------------------------------
$21.23 7.44% $94,556 0.69% (0.27)% 104.79% (0.35)% 0.77%
19.76 71.55 60,497 1.50 (1.03) 172.20 1.64 (1.17)
12.38 5.81 28,655 1.11 (0.59) 168.31 1.75 (1.23)
11.70 17.01/6/ 16,525 0.78 (0.19) 91.49 1.44 (0.85)
------------------------------------------------------------------------------------------------------------------------------------
$16.27 (7.13)% $45,135 0.65% 0.42% 39.96% 0.40% 0.67%
17.52 51.83 26,403 1.30 0.53 77.74 1.69 0.14
12.13 18.95 10,311 1.03 0.99 57.71 2.06 (0.04)
10.27 3.46/6/ 5,214 0.46 1.29 31.99 1.82 (0.07)
------------------------------------------------------------------------------------------------------------------------------------
$13.65 (1.16)% $72,937 0.53% 0.44% 46.33% 0.38% 0.59%
13.81 8.39 59,533 1.00 1.28 60.46 1.12 1.16
12.99 9.80 35,564 0.64 2.10 41.63 1.12 1.62
12.10 23.04/6/ 9,213 0.49 1.65 20.85 1.16 0.98
</TABLE>
/4/ Certain expenses for the Short-Term Fund were assumed or waived by Horace
Mann Investors, Inc. through June 30, 2000.
/5/ Certain expenses for the Small Cap Growth, International Equity and Socially
Responsible Funds were assumed or waived by Horace Mann Investors since
their inception, March 10, 1997.
/6/ The returns are not annualized.
21
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments
Horace Mann Equity Fund
June 30, 2000
[GRAPH]
Cash & Other Net Assets 1.4%
Common & Preferred Stock 98.6%
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK
<TABLE>
<CAPTION>
<S> <C> <C>
Aerospace 1.57%
Boeing Co. 115,800 $ 4,842
Litton Industries, Inc.* 18,600 781
Northrop Grumman Corp. 28,600 1,895
United Technologies Corp. 68,200 4,015
--------------------------------------------------------------------------------
11,533
Air Transportation 0.48%
AMR Corp.* 93,600 2,475
Delta Air Lines, Inc. 21,000 1,062
--------------------------------------------------------------------------------
3,537
Apparel 0.16%
VF Corp. 48,400 1,153
Automotive 2.14%
Cooper Tire & Rubber Co. 31,800 354
Cummins Engine Co., Inc. 4,800 131
Dana Corp. 64,700 1,371
Delphi Automotive Systems Corp. 104,500 1,522
Ford Motor Co. 160,100 6,884
General Motors Corp. 13,700 795
General Motors Corp. - H* 18,800 1,650
Genuine Parts Co. 70,600 1,412
Goodyear Tire & Rubber Co. 65,600 1,312
Visteon Corp.* 20,962 254
--------------------------------------------------------------------------------
15,685
Banks & Financial Services 11.74%
American Express Co. 32,800 1,710
Associates First Capital Corp. - A 107,300 2,394
Bank of America Corp. 114,800 4,936
Bank One Corp. 81,800 2,173
Bear Stearns Cos., Inc. 79,500 3,309
Chase Manhattan Corp. 39,650 1,826
Citigroup, Inc. 230,520 13,889
Comerica, Inc. 33,300 1,494
Federal National Mortgage Association 55,100 2,875
Firstar Corp. 99,500 2,096
Fleet Boston Financial Corp. 208,025 7,073
Goldman Sachs Group, Inc. 6,800 645
Greenpoint Financial Corp. 61,600 1,155
KeyCorp 89,900 1,584
Lehman Brothers Holdings, Inc. 19,900 1,882
MBNA Corp. 86,000 2,333
Merrill Lynch & Co., Inc. 32,600 3,749
Morgan (J. P.) & Co., Inc. 35,500 3,909
Morgan Stanley Dean Witter & Co. 71,500 5,952
National City Corp. 86,300 1,472
PNC Bank Corp. 75,300 3,530
Providian Financial Corp. 10,900 981
Southtrust Corp. 60,300 1,364
Summit Bancorp 58,800 1,448
Union Planters corp. 100,700 2,813
US Bancorp 191,200 3,681
Wachovia Corp. 34,800 1,888
Wells Fargo & Co. 104,100 4,033
--------------------------------------------------------------------------------
86,194
</TABLE>
See notes to the financial statements.
22
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Horace Mann Equity Fund
June 30, 2000
<TABLE>
<CAPTION>
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
<S> <C> <C>
Business Machines 3.39%
Apple Computers, Inc.* 31,800 $ 1,664
Dell Computer Corp.* 80,500 3,970
Hewlett-Packard Co. 95,200 11,888
International Business Machines Corp. 67,100 7,352
--------------------------------------------------------------------------------
24,874
Business Services 2.80%
America Online, Inc.* 87,600 4,621
Automatic Data Processing, Inc. 46,400 2,485
Computer Sciences Corp.* 26,200 1,957
DST Systems, Inc.* 38,800 2,954
eBay, Inc.* 14,000 760
Electronic Data Systems Corp. 28,900 1,192
First Data Corp. 40,600 2,015
Tyco International Ltd. 91,100 4,316
Yahoo!, Inc.* 2,300 285
--------------------------------------------------------------------------------
20,585
Chemicals 2.50%
Air Products & Chemicals, Inc. 61,300 1,889
Cabot Corp. 27,500 749
Dow Chemical Co. 167,700 5,062
DuPont (E.I.) de Nemours & Co. 103,100 4,511
Eastman Chemical Co. 39,900 1,905
Great Lakes Chemical Corp. 19,400 611
Lubrizol Corp. 22,400 470
PPG Industries, Inc. 1,800 80
Praxair, Inc. 21,000 786
Sherwin-Williams Co. 67,300 1,426
Union Carbide Corp. 18,000 891
--------------------------------------------------------------------------------
18,380
Communication Equipment & Services 7.38%
Alltel Corp. 33,900 2,100
AT&T Corp. 291,500 9,219
AT&T Corp. - Liberty Media Group - A* 124,200 3,012
Bell Atlantic Corp. 68,200 3,465
BellSouth Corp. 90,700 3,866
Brocade Communications Systems, Inc.* 11,100 2,033
GTE Corp. 103,900 6,468
Nortel Networks Corp. 41,600 2,839
QUALCOMM, Inc.* 6,700 402
SBC Communications, Inc. 209,400 9,057
Sprint Corp.* 50,600 3,011
Telephone & Data Systems, Inc. 10,800 1,083
WorldCom, Inc.* 166,700 7,647
--------------------------------------------------------------------------------
54,202
Computer Software & Services 7.71%
Adaptec, Inc.* 34,600 787
Cisco Systems, Inc.* 286,800 18,230
Computer Associates International, Inc. 40,900 2,093
EMC Corp.* 57,600 4,432
Ingram Micro, Inc. - A* 58,000 1,011
Microsoft Corp.* 207,600 16,595
</TABLE>
See notes to the financial statements.
23
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Horace Mann Equity Fund
June 30, 2000
<TABLE>
<CAPTION>
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
<S> <C> <C>
NCR Corp.* 29,100 $ 1,133
Oracle Corp.* 82,800 6,955
Sun Guard Data Systems, Inc.* 18,800 583
Sun Microsystems, Inc.* 23,600 2,146
Tech Data Corp.* 21,400 931
VeriSign, Inc.* 9,568 1,687
--------------------------------------------------------------------------------
56,583
Construction 0.58%
Centex Corp. 25,000 587
Fluor Corp. 32,000 1,012
Lafarge Corp. 42,800 899
Masco Corp. 87,200 1,575
Owens Corning 22,400 207
--------------------------------------------------------------------------------
4,280
Consumer Products 3.91%
American Standard Cos., Inc.* 29,000 1,189
Archer Daniel Midland Co. 167,400 1,643
Avon Products, Inc. 25,000 1,112
Ball Corp. 12,600 405
ConAgra, Inc. 160,900 3,067
Crown Cork & Seal Co., Inc. 54,300 815
Fort James Corp. 76,200 1,762
Fortune Brands, Inc. 108,600 2,505
Gillette Co. (The) 40,700 1,422
Minnesota Mining & Manufacturing Co. 39,000 3,218
Newell Rubbermaid, Inc. 70,600 1,818
Owens-Illinois, Inc.* 61,500 719
Phillip Morris Cos., Inc. 129,900 3,450
Procter & Gamble Co. (The) 52,500 3,006
Staples, Inc.* 54,300 835
Whirlpool Corp. 37,500 1,748
--------------------------------------------------------------------------------
28,714
Electronic Equipment & Services 7.22%
Advanced Micro Devices, Inc.* 12,300 950
Agilent Technologies, Inc.* 11,500 848
Analog Devices, Inc.* 31,200 2,371
Applied Materials, Inc.* 4,300 390
Arrow Electronics, Inc.* 40,300 1,249
Avnet, Inc. 18,400 1,090
Eaton Corp. 21,400 1,434
Intel Corp. 123,600 16,516
ITT Industries, Inc. 36,000 1,094
KLA-Tencor Corp.* 24,700 1,446
Lucent Technologies, Inc. 119,600 7,086
Micron Technology, Inc.* 35,000 3,082
Motorola, Inc. 146,400 4,255
NVIDIA Corp.* 13,700 870
SDL, Inc.* 3,700 1,055
Solectron Corp.* 37,900 1,587
Teradyne, Inc.* 26,100 1,918
Texas Instruments, Inc. 65,000 4,465
</TABLE>
See notes to the financial statements.
24
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Horace Mann Equity Fund
June 30, 2000
<TABLE>
<CAPTION>
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
<S> <C> <C>
Thomas & Betts Corp. 23,700 $ 453
Vishay Intertechnology, Inc.* 23,400 888
--------------------------------------------------------------------------------
53,047
Energy 8.78%
Amerada Hess Corp. 29,000 1,791
Ashland, Inc. 29,800 1,045
BJ Services Co.* 25,600 1,600
Chevron Corp. 99,600 8,447
Conoco, Inc. - B 78,200 1,921
Duke Energy Corp. 38,700 2,182
Exxon Corp. 279,400 21,933
Halliburton Co. 55,300 2,609
Occidental Petroleum Corp. 90,700 1,910
Phillips Petroleum Co. 69,900 3,543
Royal Dutch Petroleum Co. 129,700 7,985
Sunoco, Inc. 36,800 1,083
Texaco, Inc. 84,675 4,509
Tosco Corp. 54,100 1,532
USX-Marathon Group 49,200 1,233
Valero Energy Corp. 36,500 1,159
--------------------------------------------------------------------------------
64,482
Entertainment & Recreation 0.99%
Brunswick Corp. 37,600 623
Carnival Corp. 41,400 807
Hasbro, Inc. 79,300 1,194
Starwood Hotels & Resorts - B 58,400 1,902
Viacom, Inc. - B* 40,007 2,728
--------------------------------------------------------------------------------
7,254
Food & Beverage 2.51%
Anheuser-Busch Cos., Inc. 19,900 1,486
Coca-Cola Co. 43,300 2,487
Darden Restaurants, Inc. 53,300 866
H.J. Heinz Co. 53,400 2,336
Hormel Foods Corp. 57,400 965
McDonald's Corp. 53,700 1,769
PepsiCo Bottling Group, Inc. 52,500 1,532
PepsiCo, Inc. 112,200 4,986
Sara Lee Corp. 105,000 2,028
--------------------------------------------------------------------------------
18,455
Health Care & Pharmaceuticals 8.53%
Abbott Laboratories 169,800 7,567
Allergan, Inc. 16,500 1,229
American Home Products Corp. 69,500 4,083
Baxter International, Inc. 37,900 2,665
Becton, Dickinson and Co. 63,800 1.830
Bergen Brunswig Corp. 56,400 310
Bristol-Myers Squibb Co. 117,600 6,850
Cardinal Health, Inc. 31,700 2,346
Eli Lilly & Co. 10,200 999
Foundation Health Systems, Inc.* 51,100 664
HCA - The Healthcare Co. 39,300 1,194
Johnson & Johnson 58,500 5,960
</TABLE>
See notes to the financial statements.
25
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Horace Mann Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
Mallinckrodt, Inc. 28,100 $ 1,221
Merck & Co., Inc. 90,900 6,965
Pfizer, Inc. 246,775 11,845
Pharmacia & Upjohn, Inc. 115,248 5,957
St. Jude Medical, Inc.* 20,100 922
--------------------------------------------------------------------------------
62,607
Insurance 6.63%
AMBAC Financial Group, Inc. 31,900 1,748
American General Corp. 35,300 2,153
American International Group, Inc. 135,750 15,951
Aon Corp. 66,300 2,059
Chubb Corp. 31,300 1,925
CIGNA Corp. 38,500 3,600
Hartford Financial Services Group 19,500 1,091
Lincoln National Corp. 57,700 2,084
Marsh & McLennan Cos., Inc. 66,200 6,914
MBIA, Inc. 32,400 1,561
MGIC Investment Corp. 73,800 3,358
Radian Group, Inc. 17,600 911
St. Paul Cos., Inc. 60,400 2,061
Torchmark Corp. 53,900 1,331
United Health Group, Inc. 22,700 1,947
--------------------------------------------------------------------------------
48,694
Manufacturing Diversified 4.92%
Briggs & Stratton Corp. 9,400 322
Caterpillar, Inc. 39,100 1,324
Cooper Industries, Inc. 67,200 2,188
Deere & Co. 29,400 1,088
Dover Corp. 32,800 1,330
Emerson Electric Co. 44,700 2,699
FMC Corp.* 13,100 760
General Electric Co. 375,000 19,875
Honeywell International, Inc. 66,200 2,230
Illinois Tool Works, Inc. 41,300 2,354
Leggett & Platt, Inc. 80,100 1,322
Snap-On, Inc. 24,000 639
--------------------------------------------------------------------------------
36,131
Media 2.02%
Disney (Walt) Co. 167,400 6,497
Fox Entertainment Group, Inc. - A* 35,500 1,078
Gannett, Inc. 78,900 4,719
Infinity Broadcasting Corp. - A* 49,400 1,800
Time Warner, Inc. 9,600 730
--------------------------------------------------------------------------------
14,824
Metals & Mining 0.46%
Alcan Aluminum Ltd. 52,400 1,624
Aluminum Co. of America 59,800 1,734
--------------------------------------------------------------------------------
3,358
Optical & Photo 0.59%
Corning, Inc. 8,300 2,240
Eastman Kodak Co. 35,000 2,083
--------------------------------------------------------------------------------
4,323
See notes to the financial statements.
26
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Horace Mann Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
Paper & Forest Products 1.80%
Hercules, Inc. 43,500 $ 612
International Paper Co. 170,672 5,088
Kimberly-Clark Corp. 24,800 1,423
Mead Corp. 42,100 1,063
Smurfit-Stone Container Corp.* 89,100 1,142
Sonoco Products Co. 41,800 860
Temple-Inland, Inc. 22,900 962
Westvaco Corp. 84,200 2,089
--------------------------------------------------------------------------------
13,239
Railroad & Shipping 1.15%
Burlington Northern Santa Fe Corp. 83,300 1,911
CSX Corp. 69,700 1,477
Norfolk Southern Corp. 117,400 1,746
Union Pacific Corp. 89,300 3,321
--------------------------------------------------------------------------------
8,455
Retail 3.89%
Federated Department Stores, Inc.* 75,000 2,531
Home Depot, Inc. 25,200 1,258
Limited, Inc. (The) 62,800 1,358
Lowe's Companies, Inc. 37,500 1,540
May Department Stores Co. (The) 66,400 1,594
Sears Roebuck & Co. 140,300 4,577
Supervalu, Inc. 96,000 1,830
Target Corp. 48,700 2,825
TJX Cos., Inc. 69,400 1,301
Wal-Mart Stores, Inc. 168,700 9,721
--------------------------------------------------------------------------------
28,535
Transportation 0.13%
United Parcel Service, Inc. - B 16,200 956
Utilities 4.13%
Allegheny Energy, Inc. 46,300 1,267
Ameren Corp. 53,700 1,812
American Electric Power, Inc. 78,120 2,314
Cinergy Corp. 66,700 1,697
Consolidated Edison, Inc. 58,800 1,742
Energy East Corp. 46,300 883
First Energy Corp. 84,000 1,964
FPL Group, Inc. 37,300 1,846
KeySpan Corp. 25,600 787
National Fuel Gas Co. 29,100 1,419
New Century Energies, Inc. 27,000 810
Northern States Power Co. 40,000 808
PG & E Corp. 74,800 1,842
Pinnacle West Capital Corp. 31,400 1,064
PPL Corp. 59,900 1,314
Pugent Sound Energy, Inc. 34,600 737
Reliant Energy 51,900 1,534
Southern Co. 141,400 3,296
See notes to financial statements.
27
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Horace Mann Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (concluded)
TXU Corp. 60,600 $ 1,788
Unicom Corp. 10,800 418
Wisconsin Energy Corp. 48,300 957
--------------------------------------------------------------------------------
30,299
Waste Management 0.38%
Republic Services, Inc. - A* 102,100 1,634
Waste Management, Inc. 59,500 1,131
--------------------------------------------------------------------------------
2,765
Total Common Stock 98.49% 723,144
(Cost $716,527)
--------------------------------------------------------------------------------
PREFERRED STOCK
Chemical 0.10%
Monsanto Co. 15,900 719
(Cost $697)
--------------------------------------------------------------------------------
Total Common and Preferred Stock 98.59% 723,863
(Cost $717,224)
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
State Street Bank and Trust - Repurchase Agreement
5.50%, 07/03/00, (secured by $5,348
US Treasury Bond, 6.25%, 08/15/23) $ 5,241 $ 5,241
State Street Bank and Trust - Repurchase Agreement
5.50%, 07/03/00, (secured by $5,441
US Treasury Bond, 6.25%, 08/15/23) 5,330 5,330
Paine Webber - Repurchase Agreement
6.55%, 07/03/00 (Secured by $1,603
US Treasury Bond, 6.25%, 08/15/23) 1,602 1,602
--------------------------------------------------------------------------------
Total Short-Term Investments 1.66% 12,173 12,173
(Cost $12,173)
--------------------------------------------------------------------------------
Total Investments 100.25%
(Cost $729,397) 736,036
Liabilities in Excess of
Cash and Other Assets (0.25%) (1,817)
--------------------------------------------------------------------------------
Net Assets 100.00% $ 734,219
================================================================================
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay dividends.
See notes to the financial statements.
28
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[GRAPH]
Investments, Cash & Other Net Assets 100%
Statement of Investments
Balanced Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
INVESTMENTS
Horace Mann Equity Fund* 10,065,369 $204,830
Horace Mann Income Fund* 11,241,538 140,727
--------------------------------------------------------------------------------
Total Investments 100.09% 345,557
(Cost $352,040)
Liabilities in Excess of
Cash and Other Assets (0.09%) (294)
--------------------------------------------------------------------------------
Net Assets 100.00% $345,263
================================================================================
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay dividends.
See notes to the financial statements.
29
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
[GRAPH]
Muncipal Bonds, Cash & Other Net Assets 2.3%
U.S. & Foreign Corporate Bonds/Notes 37.4%
U.S. & Foreign Government & Agency Obligations 60.3%
Statement of Investments
Income Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK
Communication Services 0.00%
KMC Telecom Holdings, Inc. 475 $ 1
Computer Software & Services 0.00%
DecisionOne Corp. 466 --
DecisionOne Corp. (Warrants) Class A 274 --
DecisionOne Corp. (Warrants) Class B 472 --
DecisionOne Corp. (Warrants) Class C 280 --
Media 0.00%
Motient Corp. (Warrants) 25 1
--------------------------------------------------------------------------------
Total Common Stock 0.00% 2
(Cost $3)
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
Treasury Bonds/Notes
11.88%, 11/15/03 $ 1,600 $ 1,862
6.13%, 08/15/07 320 318
10.38%, 11/15/09 4,500 5,153
6.50%, 02/15/10 270 279
12.00%, 08/15/13 3,700 4,995
8.75%, 05/15/17 270 96
8.00%, 11/15/21 4,950 5,984
5.25%, 11/15/28 400 354
3.88%, 04/15/29 7,404 7,374
6.25%, 05/15/30 120 126
Agencies
Financing Corp.
0.00%, 04/05/19 130 36
Resolution Funding Corp.
0.00%, 04/15/30 310 50
Tennessee Valley Authority
7.13%, 05/01/30 850 850
Federal Home Loan Banks
5.91%, 03/27/08 1,000 927
5.93%, 04/09/08 100 93
Federal National Mortgage Association
6.56%, 02/05/08 100 94
6.42%, 02/27/08 750 686
6.50%, 04/25/08 1,900 1,780
6.60%, 05/01/08 1,600 1,505
6.59%, 05/21/08 120 113
6.29%, 06/20/08 100 93
6.46%, 06/26/08 1,000 934
See notes to the financial statements.
30
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT AND
AGENCY OBLIGATIONS
(continued)
6.36%, 08/14/08 $1,365 $1,268
6.32%, 03/16/09 150 139
7.25%, 01/15/10 500 505
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 03/01/01 3 3
9.50%, 06/01/01 2 2
9.50%, 08/01/01 3 3
9.50%, 09/01/01 1 1
9.50%, 10/01/01 3 3
9.25%, 11/01/02 14 14
7.00%, 11/01/03 6 6
8.25%, 10/01/07 15 15
8.25%, 11/01/07 15 15
8.75%, 05/01/08 18 18
8.50%, 08/01/08 6 6
9.00%, 09/01/08 33 33
8.00%, 09/01/09 14 14
8.00%, 04/01/10 16 16
7.00%, 09/01/10 5 5
7.00%, 10/01/10 30 30
7.00%, 12/01/10 29 28
7.00%, 01/01/11 675 665
7.00%, 02/01/11 764 753
7.00%, 03/01/11 1,420 1,399
7.00%, 04/01/11 626 618
7.00%, 07/01/11 329 324
8.00%, 12/01/11 3 3
6.00%, 08/01/12 31 30
6.00%, 09/01/12 33 31
6.00%, 01/01/13 14 13
6.00%, 02/01/13 376 356
6.00%, 06/01/13 50 47
6.00%, 10/01/13 318 301
6.00%, 11/01/13 416 394
6.00%, 01/01/14 52 49
6.50%, 05/01/14 247 238
Federal National Mortgage Association
(Mortgage Backed Securities)
7.04%, 07/01/06 523 516
6.85%, 10/01/07 948 923
6.79%, 11/01/07 547 533
6.62%, 12/01/07 200 192
6.44%, 01/01/08 336 320
6.50%, 01/01/08 61 58
6.51%, 01/01/08 41 40
6.58%, 01/01/08 51 49
6.62%, 01/01/08 68 66
6.47%, 02/01/08 254 242
6.27%, 06/01/08 98 92
6.34%, 06/01/08 118 111
6.42%, 06/01/08 147 139
See notes to the financial statements.
31
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS (continued)
6.23%, 07/01/08 $ 98 $ 92
6.25%, 07/01/08 558 525
6.31%, 07/01/08 69 65
6.21%, 08/01/08 541 508
5.85%, 01/01/09 199 182
5.98%, 01/01/09 167 154
6.23%, 01/01/09 186 173
7.10%, 10/01/09 68 67
8.00%, 11/01/09 1 1
8.75%, 02/01/10 163 167
6.50%, 11/01/12 631 610
10.25%, 07/01/13 5 5
8.00%, 08/01/14 283 287
8.50%, 09/01/14 138 141
8.00%, 10/01/14 14 14
8.50%, 01/01/15 40 41
8.50%, 03/01/15 115 117
8.00%, 01/01/17 32 32
7.75%, 04/01/17 82 83
6.00%, 06/01/18 921 859
6.00%, 12/01/18 143 134
6.00%, 01/01/19 137 128
7.50%, 10/01/22 223 221
7.50%, 07/01/23 107 106
6.50%, 06/01/29 995 939
6.50%, 07/01/29 2,963 2,796
6.50%, 08/01/29 998 941
8.00%, 08/01/29 940 943
6.50%, 02/01/30 481 454
6.50%, 03/01/30 997 941
8.00%, 03/01/30 3,950 3,966
8.50%, 03/01/30 732 746
7.00%, 04/01/30 700 676
7.50%, 04/01/30 4,190 4,129
7.00%, 05/01/30 900 869
Government National Mortgage Association
(Mortgage Backed Securities)
6.50%, 12/15/99 6,100 5,789
11.00%, 12/15/00 4 4
9.50%, 08/20/01 5 5
9.50%, 10/20/01 6 6
9.50%, 07/20/02 8 8
9.50%, 12/20/02 7 7
9.50%, 01/20/03 7 7
9.50%, 02/20/03 8 8
9.50%, 05/20/03 19 20
9.50%, 08/20/03 12 12
9.50%, 09/20/03 26 26
9.50%, 11/20/03 12 13
9.50%, 09/20/04 7 7
8.25%, 05/15/06 27 28
11.50%, 03/15/10 5 6
See notes to the financial statements.
32
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT
AND AGENCY
OBLIGATIONS
(continued)
6.50%, 12/15/12 $ 133 $ 129
6.50%, 02/15/13 191 185
6.50%, 05/15/13 349 339
6.50%, 08/15/13 217 211
6.50%, 10/15/13 110 107
6.00%, 02/15/14 49 46
6.50%, 02/15/14 134 130
6.00%, 03/15/14 212 202
12.00%, 03/15/14 1 1
12.00%, 04/15/14 1 1
12.00%, 03/15/15 5 6
12.00%, 04/15/15 2 2
12.50%, 04/15/15 1 1
12.00%, 06/15/15 4 5
12.00%, 07/15/15 2 2
12.00%, 11/15/15 14 15
9.50%, 08/15/17 19 20
8.50%, 01/15/20 12 12
8.50%, 02/15/21 50 52
8.50%, 06/15/21 26 27
8.50%, 08/15/21 7 7
8.00%, 05/20/22 107 107
7.50%, 01/15/23 448 446
7.50%, 02/15/23 18 18
8.50%, 04/15/23 66 68
7.50%, 05/15/23 493 491
7.50%, 06/15/23 522 520
7.50%, 08/15/23 256 255
7.50%, 09/15/23 257 255
7.50%, 11/15/23 358 356
7.50%, 12/15/23 1,512 1,507
6.50%, 03/15/28 180 171
6.50%, 04/15/28 539 512
6.50%, 06/15/28 236 224
6.50%, 07/15/28 233 222
6.50%, 08/15/28 543 516
7.00%, 08/15/28 69 67
6.50%, 09/15/28 184 175
6.50%, 10/15/28 316 299
7.50%, 10/15/29 878 871
7.50%, 11/15/29 122 121
7.50%, 06/15/30 200 199
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
Captial Lease Funding 1997 - CTLI A2
7.35%, 06/24/22 800 783
Commercial Mortgage Asset Trust 1999 C1 A 2
6.59%, 07/17/08 1,000 950
Credit Suisse First Boston 1997 C2
6.55%, 11/17/07 675 641
FHLMC 1737 E
6.00%, 12/15/17 108 107
See notes to the financial statements.
33
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS (concluded)
FNMA 1993-82 H
5.00%, 09/25/23 $ 1,709 $ 1,585
FNMA 1994-9 B
5.00%, 01/25/24 1,538 1,441
GE Cap Mortgage Services, Inc. 1994 I5 C-A 5
6.00%, 04/25/09 500 478
Morgan Stanley Capital, Inc. 1999 C-A2
7.11%, 07/15/09 647 631
Nomura Asset Sec. Corp. 1996 MD 5 A 1 B
7.12%, 04/13/36 1,000 984
Foreign (U.S. dollar denominated)
Argentina (Republic of)
11.38%, 03/15/10 450 409
Brazil (Republic of)
8.00%, 04/15/14 591 434
Bulgaria (Republic of)
7.06%, 07/28/11 200 160
Columbia (Republic of)
9.75%, 04/23/09 175 155
Columbia (Republic of)
11.75%, 02/25/20 90 74
Panama (Republic of)
7.06%, 07/17/16 191 157
Peru (Republic of)
3.75%, 03/07/17 125 75
Phillippines (Republic of)
9.88%, 01/15/19 425 345
Phillippines (Republic of)
9.50%, 10/21/24 175 167
Santiago Air**
6.95%, 07/01/12 825 760
Turkey (Republic of)
11.88%, 01/15/30 150 160
--------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 60.33% 91,782
(Cost $87,286)
--------------------------------------------------------------------------------
MUNICIPAL BONDS
Baltimore, MD Taxable Cons Public -B
7.25%, 10/15/17 63 60
California Housing Fin Agency Rev
8.16%, 02/01/28 575 583
Denver, CO City & County School District
6.79%, 12/15/08 465 448
Horry County, SC Airport Rev
7.38%, 07/01/12 785 778
Ohio State Taxable Dev Assistance
7.60%, 10/01/16 675 670
Oxnard, CA Union High School District
7.78%, 08/01/17 500 498
See notes to the financial statements.
34
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
MUNICIPAL BONDS (concluded)
San Bernardino, CA Taxable
7.09%, 08/01/11 $ 550 $ 534
San Diego Cnty, CA Pension Taxable Series A
6.59%, 08/15/07 63 61
--------------------------------------------------------------------------------
Total Municipal Bonds 2.39% 3,632
(Cost $3,519)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
AAG Holding, Inc.
6.88%, 06/01/08 75 66
Abbey National Capital pfd.
8.96%, 12/29/49 160 159
Accuride Corp.
9.25%, 02/01/08 150 127
Adelphia Communications Corp.
9.38%, 11/15/09 50 46
Advanced Micro Devices, Inc.
11.00%, 08/01/03 75 77
AES Corp.
9.50%, 06/01/09 43 42
AK Steel Corp.
9.13%, 12/15/06 125 120
AK Steel Corp.
7.88%, 02/15/09 115 102
Alaris Medical System, Inc.
9.75%, 12/01/06 25 16
Alaris Medical System, Inc.+
0.00%, 08/01/08 187 29
Alaska Communication Holdings, Inc.
9.38%, 05/15/09 50 46
Allbritton Communications Co.
9.75%, 11/30/07 100 95
Allbritton Communications Co.
8.88%, 02/01/08 163 149
Allied Waste North America, Inc.
7.63%, 01/01/06 72 63
AMC Entertainment, Inc.
9.50%, 03/15/09 150 72
AMC Entertainment, Inc.
9.50%, 02/01/11 50 22
American Media Operations, Inc.
10.25%, 05/01/09 75 73
American Standard, Inc.
7.63%, 02/15/10 70 64
Amphenol Corp.
9.88%, 05/15/07 75 76
AMR Corp.
9.00%, 09/15/16 1,676 1,692
See notes to the financial statements.
35
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
AMSC Acquistion, Inc.
12.25%, 03/31/08 $ 38 $ 30
ARCO Chemical Co.
9.80%, 02/01/20 200 178
ARMCO, Inc.
9.00%, 09/15/07 275 264
Associates Corp. North America
7.95%, 02/15/10 55 55
Aurora Foods, Inc.
9.88%, 02/15/07 50 29
Aurora Foods, Inc.
8.75%, 07/01/08 50 28
Aztar Corp.
8.88%, 05/15/07 33 31
Azurix Corp.**
10.75%, 02/15/10 75 72
B & G Foods Incications Corp.
9.63%, 08/01/07 137 96
Banc One Corp.
9.88%, 03/01/09 75 84
Banponce Corp.
6.75%, 12/15/05 980 943
Bear Stearns Companies, Inc.
6.60%, 03/28/03 190 190
Beckman Industries, Inc.
7.45%, 03/04/08 50 46
Bell Sports, Inc.
11.00%, 08/15/08 125 124
Benedek Communications Corp.+
0.00%, 05/15/06 167 130
Beverly Enterprises
9.00%, 02/15/06 85 70
Bio Rad Laboratories, Inc.**
11.63%, 02/15/07 40 41
Boise Cascade Office Products Co.
7.05%, 05/15/05 850 807
BTI Telecom Corp.
10.50%, 09/15/07 140 107
BWAY Corp.
10.25%, 04/15/07 100 95
Calpine Corp.
7.88%, 04/01/08 75 72
Century Communications Corp.+
0.00%, 01/15/08 700 283
Charter Communications Holdings, LLC
8.63%, 04/01/09 400 353
Chevy Chase Bank FSB
9.25%, 12/01/08 70 63
Chiquita Brands International, Inc.
10.00%, 06/15/09 118 90
Classic Cable, Inc.**
9.88%, 08/01/08 245 226
See notes to the financial statements
36
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Coltec Industries, Inc.
7.50%, 04/15/08 $ 50 $ 47
Columbia/HCA Healthcare Corp.
7.25%, 05/20/08 87 77
Commercial Credit Group, Inc.
10.00%, 05/15/09 1,121 1,278
Computer Association International, Inc.
6.50%, 04/15/08 1,050 947
Concentric Network Corp.
12.75%, 12/15/07 162 171
Conmed Corp.
9.00%, 03/15/08 95 87
Container Corp. of America
9.75%, 04/01/03 85 85
Covad Communications Group, Inc.
12.00%, 02/15/10 75 58
Crown Castle International Corp.+
0.00%, 11/15/07 75 55
CSC Holdings, Inc.
9.25%, 11/01/05 75 75
CSC Holdings, Inc.
7.25%, 07/15/08 150 139
Del Monte Foods Co.+
0.00%, 12/15/07 157 117
Delco Remy International, Inc.
10.63%, 08/01/06 105 104
Delco Remy International, Inc.
8.63%, 12/15/07 100 92
Delta Air Lines, Inc.
10.13%, 05/15/10 886 949
Delta Air Lines, Inc.
9.75%, 05/15/21 562 560
Dime Capital Trust
9.33%, 05/06/27 830 758
Doral Financial Corp.
8.50%, 07/08/04 825 813
Duane Reade, Inc.
9.25%, 12/15/08 250 226
Du Pont E I De Nemours & Co.
8.13%, 03/15/04 75 77
Dura Operating Corp.
9.00%, 05/01/09 93 82
EchoStar DBS Corp.
9.38%, 02/01/09 475 458
El Paso Energy Corp.
6.75%, 05/15/09 1,650 1,535
Electronic Data System Corp.
7.45%, 10/15/29 650 620
Empresa Nacional de Electricid
8.50%, 04/01/09 325 317
Energy Corp of America
9.50%, 05/15/07 212 143
See notes to the financial statements
37
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Engle Homes, Inc.
9.25%, 02/01/08 $ 143 $ 120
Exodus Communications, Inc.**
11.63%, 07/15/10 125 125
Fairchild Semiconductor Corp.
10.13%, 03/15/07 225 227
Farmers Insurance Exchange.**
8.63%, 05/01/24 825 792
Federal-Mogul Corp.
8.80%, 04/15/07 200 153
Federal-Mogul Corp.
7.50%, 01/15/09 325 227
First Republic Bank
7.75%, 09/15/12 325 272
Fisher Scientific International, Inc.
9.00%, 02/01/08 175 160
Fonda Group, Inc.
9.50%, 03/01/07 125 99
Frontiervision Holding LP+
0.00%, 09/15/07 113 97
Fuji JGB Investment, LLC
9.87%, 12/31/49 400 386
Gaylord Container Corp.
9.38%, 06/15/07 100 78
GCI, Inc.
9.75%, 08/01/07 300 276
General Electric Capital Corp.
8.85%, 04/01/05 500 533
General Electric Capital Corp.
8.70%, 05/21/07 50 54
Georgia Gulf Corp.
10.38%, 11/01/07 45 47
Globalstar Capital Corp.
10.75%, 11/01/04 175 52
Granite Broadcasting Corp.
8.88%, 05/15/08 150 127
Grove Worldwide, LLC
9.25%, 05/01/08 105 41
GST Telecommunications, Inc.+ ***
0.00%, 11/15/07 30 4
Hammon, John Q Hotels
8.88%, 02/15/04 175 152
Hayes Wheels International, Inc.
9.13%, 07/15/07 75 67
HMH Properties, Inc.
8.45%, 12/01/08 7 6
Hollywood Casino Corp.
11.25%, 05/01/07 75 76
Huntsman ICI Holdings
13.38%, 12/31/09 180 59
Hyperion Telecommunications, Inc.+
0.00%, 04/15/03 60 55
See notes to the financial statements
38
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Hyperion Telecommunications, Inc.
12.25%, 09/01/04 $ 100 $ 101
Hyperion Telecommunications, Inc.
12.00%, 11/01/07 50 47
IBJ Preferred Capital Co., LLC pfd.
8.79%, 12/29/49 400 363
ICO, Inc.
10.38%, 06/01/07 65 63
Insight Midwest LP
9.75%, 10/01/09 85 83
Intermedia Communications, Inc.
8.88%, 11/01/07 100 94
Intermedia Communications, Inc.
8.50%, 01/15/08 50 46
Intermedia Communications, Inc.
8.60%, 06/01/08 25 23
International Wire Group, Inc.
11.75%, 06/01/05 50 50
Interpool, Inc.
7.35%, 08/01/07 1,950 1,589
Iron Mountain, Inc.
8.75%, 09/30/09 120 110
ITC Deltacom, Inc.
8.88%, 03/01/08 50 46
ITC Deltacom, Inc.
9.75%, 11/15/08 48 46
K & F Industries, Inc.
9.25%, 10/15/07 213 201
Key Energy Services, Inc.
14.00%, 01/15/09 25 28
KMC Telecom Holdings, Inc.+
0.00%, 02/15/08 237 111
L-3 Communications Corp.
8.50%, 05/15/08 25 23
L-3 Communications Corp.
8.00%, 08/01/08 45 40
LDM Technologies, Inc.
10.75%, 01/15/07 105 83
Lear Corp.
7.96%, 05/15/05 40 38
Lear Corp.
8.11%, 05/15/09 175 158
Lehman Brothers Holdings, Inc.
6.98%, 07/08/02 700 700
Level 3 Communications, Inc.
9.13%, 05/01/08 175 157
Level 3 Communications, Inc.**
11.25%, 03/15/10 125 123
Liberty Financial Co., Inc.
6.75%, 11/15/08 602 532
Lin Holdings Corp.+
0.00%, 03/01/08 425 276
See notes to the financial statements
39
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Loews Ciniplex Entertainment Corp.
8.88%, 08/01/08 $ 130 $ 61
LTV Corp.**
11.75%, 11/15/09 187 157
Lumberman's Mutual Casualty Co.**
9.15%, 07/01/26 500 429
Lyondell Chemical Co.
9.88%, 05/01/07 395 391
Mattress Discounters Corp.**
12.63%, 07/15/07 88 80
McLeodUSA, Inc.
9.25%, 07/15/07 75 72
McLeodUSA, Inc.
8.38%, 03/15/08 225 205
McLeodUSA, Inc.
9.50%, 11/01/08 25 24
McLeodUSA, Inc.
8.13%, 02/15/09 60 54
Mediq PRN Life Support Services***
11.00%, 05/01/06 125 12
MJD Communications, Inc.
9.50%, 05/01/08 50 44
Nash Finch Corp.
8.50%, 05/01/08 125 81
NCNB Corp.
10.20%, 07/15/15 774 914
Neenah Corp.
11.13%, 05/01/07 180 132
Neenah Foundry Co.
11.13%, 05/01/07 40 29
News America Holdings, Inc.
8.00%, 10/17/16 600 569
Nextel Communications, Inc.+
0.00%, 10/31/07 550 412
NEXTLINK Communications, Inc.+
0.00%, 04/15/08 308 193
NEXTLINK Communications, Inc.+
0.00%, 06/01/09 92 57
Norfolk Southern Corp.
7.80%, 05/15/27 650 621
Nortek, Inc.
9.13%, 09/01/07 100 93
Nortek, Inc.
8.88%, 08/01/08 55 50
NRG Energy, Inc.
7.50%, 06/15/07 1,700 1,621
NTL Communications Corp.+
0.00%, 10/01/08 150 98
Orion Power Holdings, Inc.
7.80%, 05/01/10 53 55
Owens & Minor, Inc.
10.88%, 06/01/06 157 162
P & L Coal Holdings Corp.
9.63%, 05/15/08 450 417
See notes to the financial statements
40
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Packaging Corp. of America
9.63%, 04/01/09 $ 50 $ 50
Park Place Entertainment Corp.
9.38%, 02/15/07 37 37
Phillip Morris Capital Co.
7.20%, 02/01/07 500 463
Phillip Morris Capital Co.
7.50%, 07/16/09 500 450
Pierce Leahy Corp.
9.13%, 07/15/07 85 80
Pioneer Americas Acquisition Corp.
9.25%, 06/15/07 55 36
Pioneer Natural Resource Co.
9.63%, 04/01/10 46 48
Pitney Bowes Credit Corp.
8.55%, 09/15/09 46 49
Plains Resources, Inc.
10.25%, 03/15/06 350 349
PP & L Capital Funding, Inc.
6.79%, 11/22/04 830 812
Praxair, Inc.
6.75%, 03/01/03 75 73
Prestolite Electric, Inc.
9.63%, 02/01/08 162 104
Pride Petroleum Services, Inc.
9.38%, 05/01/07 50 50
Primedia, Inc.
7.63%, 04/01/08 100 91
PSINet, Inc.
10.00%, 02/15/05 115 143
PSINet, Inc.
11.50%, 11/01/08 125 118
PSI Net, Inc.
11.00%, 08/01/09 50 47
Raytheon Co.
6.30%, 08/15/00 500 499
RBF Finance Co.
11.38%, 03/15/09 105 114
RCN Corp.+
10.00%, 10/15/07 50 43
RCN Corp.+
0.00%, 07/01/09 150 84
Reliastar Financial Corp.
6.50%, 11/15/08 211 193
Republic NY Corp.
9.30%, 06/01/21 1,865 2,061
Reynolds (R J) Tobacco Holdings, Inc.
7.75%, 05/15/06 800 713
SB Treasury Co. pfd.
9.40%, 12/29/49 800 769
SCG Holdings Corp.**
12.00%, 08/01/09 70 75
See notes to the financial statements
41
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Scotts Co.**
8.63%, 01/15/09 $ 25 $ 24
Seagram Joseph E & Sons, Inc.
8.88%, 09/15/11 1,647 1,749
Sealy Mattress Co.+
0.00%, 12/15/07 45 32
Sierra Pacific Resource
8.75%, 05/15/05 500 507
Sovereign Specialty Chemicals**
11.88%, 03/15/10 60 62
Standard Pacific Corp.
8.50%, 06/15/07 225 200
Staples, Inc.
7.13%, 08/15/07 550 496
Stater Brothers Holdings, Inc.
10.75%, 08/15/06 133 106
Station Casinos, Inc.
8.88%, 12/01/08 150 143
Sullivan Graphics, Inc.
12.75%, 08/01/05 147 149
Sunoco, Inc.
7.75%, 09/01/09 650 630
Telecommunications Techniques Co.
9.75%, 05/15/08 140 126
Tenet Healthcare Corp.
8.13%, 12/01/08 150 137
Texas Petrochemicals Corp.
11.13%, 07/01/06 138 117
Textron Financial Corp.
6.51%, 03/18/02 200 200
360Networks, Inc.
13.00%, 05/01/08 45 45
Time Warner Telecom, LLC
9.75%, 07/15/08 112 109
Toll Corp.
7.75%, 09/15/07 50 45
Triad Hospitals Holdings, Inc.
11.00%, 05/15/09 113 116
Tricon Global Restraurants, Inc.
7.65%, 05/15/08 75 67
True Temper Sports, Inc.
10.88%, 12/01/08 100 95
TRW, Inc.
6.68%, 03/25/02 700 699
Tuboscope Vetco International, Inc.
7.50%, 02/15/08 125 110
TV Guide, Inc.
8.13%, 03/01/09 75 74
United Air Lines, Inc.
10.67%, 05/01/04 386 393
United Air Lines, Inc.
9.13%, 01/15/12 422 403
See notes to the financial statements
42
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Universal Hospital Services
10.25%, 03/01/08 $ 75 $ 40
USA Networks, Inc.
6.75%, 11/15/05 825 783
USX Marathon Group
6.65%, 02/01/06 1,554 1,568
Verio, Inc.
11.25%, 12/01/08 150 168
Viatel, Inc.
11.25%, 04/15/08 116 86
Warner Chilicott, Inc.**
12.63%, 02/15/08 100 102
Waste Management, Inc.
6.88%, 05/15/09 100 88
Waste Management, Inc.
7.38%, 05/15/28 500 410
Webb Del Corp.
10.25%, 02/15/10 50 43
Weirton Steel Corp.
11.38%, 07/01/04 112 118
Wells Fargo Bank NA
6.78%, 05/02/05 400 399
WESCO Distribution, Inc.
9.13%, 06/01/08 175 160
Western Financial BK-FSB
8.88%, 08/01/07 213 190
Western Resources, Inc.
6.88%, 08/01/04 15 13
Westpoint Stevens, Inc.
7.88%, 06/15/08 155 123
Williams Communications Group
10.88%, 10/01/09 40 39
Winstar Communications, Inc.
0.00%, 04/15/10 125 57
Winstar Communications, Inc.
12.75%, 04/15/10 23 21
WMX Technologies, Inc.
7.00%, 10/15/06 125 114
Young Broadcasting, Inc.
8.75%, 06/15/07 125 115
Zurich Capital Trust Co.
8.38%, 06/01/37 600 557
Asset Backed
AESOP Funding II LLC**
6.14%, 05/20/06 500 474
Yankee
Bank of Tokyo Mitsubishi Ltd.
8.40%, 04/15/10 370 373
Deutsche Telekom International
8.25%, 06/15/30 340 344
Ford Capital BV
9.375%, 05/15/01 147 149
See notes to the financial statements
43
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Income Fund
June 30, 2000
<TABLE>
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------------
<S> <C> <C>
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(concluded)
Mexican Global Corp.
10.375%, 02/17/09 $ 210 $ 224
Mexican Global Corp.
11.50%, 05/15/26 1,215 1,458
Royal Bank Scotland Group, PLC pfd.
8.817%, 03/31/05 300 309
RSL Communications, PLC
12.875%, 03/01/10 45 33
--------------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 37.40% 56,905
(Cost $61,669)
SHORT-TERM INVESTMENTS
State Street Bank and Trust - Repurchase Agreement
5.50%, 07/03/00, (secured by $3,567
US Treasury Note, 6.25%, 08/15/23) 3,493 3,493
Paine Webber - Repurchase Agreement
6.55%, 07/03/00, (secured by $1,097
US Treasury Bond, 14.00%, 11/15/11) 1,086 1,086
--------------------------------------------------------------------------------------
Total Short-Term Investments 3.01% 4,579
(Cost $4,579)
--------------------------------------------------------------------------------------
Total Investments 103.13% 156,900
(Cost $157,056)
Liabilities in Excess of
Cash and Other Assets (3.13%) (4,760)
--------------------------------------------------------------------------------------
Net Assets 100.00% $152,140
--------------------------------------------------------------------------------------
</TABLE>
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay dividends.
** Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold, in transactions exempt from
registration to qualified institutional buyers. At June 30, 2000 these
securities amounted to $3,501 or 2.3 percent of net assets.
*** Defaulted
+ Denotes a step bond: A zero coupon bond that converts to a fixed or
variable rate at a future date.
See notes to the financial statements.
44
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments
Short-Term Investment Fund
June 30, 2000
[GRAPH]
Short-term Investments, Cash & Other Net Assets 100%
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
Federal Agriculture Mortgage Corp.
Discount Note
6.42%, 07/05/00 $ 150 $ 150
Federal Farm Credit Bank Discount Note
6.44%, 08/17/00 340 337
Federal Home Loan Bank Discount Note
6.42%, 07/07/00 325 325
Federal Home Loan Mortgage Corp.
Discount Notes
6.44%, 08/03/00 259 257
6.45%, 08/03/00 119 118
Federal National Mortgage Association
Discount Note
6.45%, 08/24/00 215 213
Paine Webber - Repurchase Agreement
6.55%, 07/03/00, (secured by $342
US Treasury Bill, 5.25%, 02/15/29) 342 342
--------------------------------------------------------------------------------
Total Investments 100.05% 1,742
(Cost $1,742)
Liabilities in Excess of
Cash and Other Assets (0.05%) (1)
--------------------------------------------------------------------------------
Net Assets 100.00% $ 1,741
================================================================================
See notes to the financial statements.
45
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments
Small Cap Growth Fund
June 30, 2000
[GRAPH]
Cash & Other Net Assets 9.0%
Common Stock 91.0%
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK
Business Services 1.09%
Getty Images, Inc.* 27,700 $ 1,027
Communication Equipment & Services 11.38%
Accelerated Networks, Inc.* 1,300 55
Ditech Communications Corp.* 6,600 624
Microcell Telecommunications, Inc. - B* 17,400 626
Natural Microsystems Corp.* 16,000 1,799
Pinnacle Holdings, Inc.* 37,600 2,030
Polycom, Inc.* 13,500 1,270
Powerwave Technologies, Inc.* 17,776 782
Proxim, Inc.* 4,600 453
REMEC, Inc.* 6,300 263
SBA Communications Corp.* 41,100 2,135
Sonus Networks, Inc.* 4,600 726
--------------------------------------------------------------------------------
10,763
Computer Software & Services 14.94%
I2 Technologies, Inc.* 10,780 1,124
Actuate Corp.* 700 37
Aether Systems, Inc.* 5,600 1,148
Art Technology Group, Inc.* 9,500 959
Aspen Technology, Inc.* 4,800 185
Broadbase Software, Inc.* 2,300 71
Business Objects SA (ADR)* 2,800 246
Cognizant Technology Solutions Corp. - A* 4,900 162
Jack Henry & Associates, Inc. 3,400 170
M-Systems, Inc.* 15,600 1,214
Macromedia, Inc.* 6,300 609
Mercury Interactive Corp.* 10,400 1,006
Micromuse, Inc.* 7,200 1,191
NetIQ Corp.* 2,400 143
Nuance Communications, Inc.* 3,400 283
Remedy Corp.* 32,000 1,784
RSA Security, Inc.* 11,600 806
SmartForce PLC* 27,600 1,321
Titan Corp.* 30,900 1,383
WatchGuard Technologies, Inc.* 5,200 286
--------------------------------------------------------------------------------
14,128
Construction 1.96%
Insituform Technologies, Inc.* 10,500 287
MasTec Inc.* 17,350 663
SpectraSite Holdings, Inc.* 31,700 899
--------------------------------------------------------------------------------
1,849
Electronic Equipment & Services 15.88%
Actel Corp.* 17,300 788
Alpha Industries, Inc.* 15,000 661
Applied Micro Circuits Corp.* 6,337 626
Capstone Turbine Corp.* 1,200 54
Elantec Semiconductor, Inc.* 8,500 592
EXFO Electro-Optical Engineering, Inc.* 1,100 48
Flextronics International Ltd.* 15,730 1,081
GSI Lumonics, Inc.* 3,100 109
See notes to the financial statements.
46
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Small Cap Growth Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (continued)
Kemet Corp.* 11,842 $ 297
Kent Electronics Corp.* 29,000 865
Kopin Corp.* 20,700 1,432
Littelfuse, Inc.* 5,700 279
Manufacturers Services Ltd.* 4,200 86
Marvell Technology Group Ltd.* 800 46
Mattson Technology, Inc.* 6,500 211
New Focus, Inc.* 2,900 238
Plexus Corp.* 13,700 1,548
Power-One, Inc.* 9,700 1,105
Sanmina Corp.* 4,760 407
SDL, Inc.* 8,600 2,453
Stratos Lightwave, Inc.* 800 22
TranSwitch Corp.* 9,385 724
Trimble Navigation Ltd.* 16,100 786
Varian Semiconductor Equipment, Inc.* 8,900 559
--------------------------------------------------------------------------------
15,017
Energy 5.51%
Atwood Oceanics, Inc.* 6,900 306
Cal Dive International, Inc.* 12,800 694
Core Laboratories N.V.* 22,600 655
Grant Prideco, Inc.* 7,800 195
Hanover Compresso Co.* 7,800 296
Marine Drilling Co., Inc.* 56,300 1,576
Rowan Companies, Inc.* 42,600 1,294
Superior Energy Services, Inc.* 18,400 191
--------------------------------------------------------------------------------
5,207
Entertainment & Recreation 2.65%
International Game Technology, Inc. 22,000 583
MGM Grand, Inc.* 22,300 716
Park Place Entertainment Corp.* 43,300 528
Station Casinos, Inc.* 27,100 677
--------------------------------------------------------------------------------
2,504
Financial Services 1.70%
Investors Financial Services Corp. 40,600 1,611
Food and Beverage 1.90%
Brinker International, Inc.* 25,300 740
Cheesecake Factory, Inc.* 9,600 263
Jack in the Box, Inc.* 32,200 793
--------------------------------------------------------------------------------
1,796
Health Care & Pharmaceuticals 27.62%
Aclara Biosciences, Inc.* 18,665 950
Alkermes, Inc.* 10,600 499
Aurora Biosciences Corp.* 8,400 573
Barr Laboratories, Inc.* 7,800 350
Celgene Corp.* 33,500 1,972
Cephalon, Inc.* 13,900 851
See notes to the financial statements.
47
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Small Cap Growth Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (concluded)
Charles River Laboratories International, Inc.* 1,600 $ 36
Digene Corporation* 16,900 682
Emisphere Technologies, Inc.* 19,500 830
Genzyme Transgenics Corp.* 9,500 257
Inhale Therapeutics Systems, Inc.* 19,100 1,937
IntraBiotics Pharmaceuticals, Inc.* 20,100 535
Lexicon Genetics, Inc.* 2,600 90
Maxim Pharmaceuticals, Inc.* 5,700 293
Medicis Pharmaceutical Corp.* 9,000 513
Millennium Pharmaceuticals, Inc.* 16,300 1,823
Noven Pharmaceuticals, Inc.* 22,471 676
Pharmacopeia, Inc.* 27,300 1,266
Pharmacyclics, Inc.* 15,200 925
PolyMedica Corp.* 9,200 398
QLT, Inc.* 8,700 675
Shire Pharmaceuticals Group PLC (ADR)* 34,621 1,796
Techne Corp.* 14,500 1,914
Titan Pharmaceuticals, Inc.* 33,700 1,449
United Therapeutics Corp.* 12,200 1,321
Varian, Inc.* 21,400 986
Vertex Pharmaceuticals, Inc.* 23,900 2,517
--------------------------------------------------------------------------------
26,114
Manufacturing (Diversified) 1.20%
Lone Star Technologies, Inc.* 3,100 143
MSC Industrial Direct Co.* 13,300 278
Shaw Group, Inc.* 8,900 419
Trex Company, Inc.* 5,800 290
--------------------------------------------------------------------------------
1,130
Retail 1.93%
99 Cents Only Stores* 9,800 391
Pier 1 Imports, Inc 48,700 475
Talbots, Inc. 17,452 959
--------------------------------------------------------------------------------
1,825
Trucking 0.10%
American Freightways Corp.* 6,800 99
Utility 3.18%
Calpine Corp.* 45,800 3,011
--------------------------------------------------------------------------------
Total Common Stock 91.04% $ 86,081
(Cost $70,523)
================================================================================
See notes to the financial statements.
48
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Small Cap Growth Fund
June 30, 2000
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Federal Home Loan Bank Discount Note
6.570%, 07/03/00 10,220 $ 10,216
--------------------------------------------------------------------------------
Total Short-Term Investment 10.80% 10,220 10,216
(Cost $10,216)
--------------------------------------------------------------------------------
Total Investments 101.84%
(Cost $80,739) 96,297
Liabilities in Excess of
Cash and Other Assets (1.84%) (1,741)
--------------------------------------------------------------------------------
Net Assets 100.00% $94,556
================================================================================
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay divdends.
See notes to the financial statements.
49
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments
International Equity Fund
June 30, 2000
[GRAPH]
North America 1.7%
Cash & Other Net Assets 6.4%
Pacific 31.5%
Europe 60.4%
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
Australia 1.48%
Broken Hill Proprietary Co. Ltd. (Steel & Metals) 28,139 $ 332
WMC Ltd. (Steel & Metals) 46,300 207
Woodside Petro Ltd. (Oil Companies) 16,300 127
--------------------------------------------------------------------------------
666
Canada 1.66%
Canadian National Railway Co. (Railroads) 13,089 381
Nortel Networks Corp. (Telecommunications) 5,300 368
--------------------------------------------------------------------------------
749
China 0.62%
China Mobile (HK) (Telecommunications)* 32,000 282
Finland 1.46%
Nokia AB - A (Telecom Equipment) 12,880 657
France 18.24%
Alcatel Alasthom Cge (Telecom Equipment) 11,733 770
Aventis SA (Chemicals) 12,672 920
AXA UAP (Insurance) 2,820 444
Bic SA (Consumer Products) 5410 265
Bnp Paribas (Banking) 5,434 523
Bouygues (Real Estate) 481 321
Casino Guichardo Perrach pfd. (Retail) 3,765 231
Christian Dior (Apparel) 1,721 390
Credit Lyonnais (Banking) 8,596 409
Dassault Systems (Business Services) 1,768 165
Eurotunnel EPLC (Construction)* 194,932 177
Lagardere S.C.A. (Diversified Manufacture) 2,514 192
Louis Vuitton Moet-Hennessy (Retail) 136 56
Pinault Printemps (Retail) 1,990 442
Rhodia SA (Chemicals) 20,141 338
Schneider Electric SA (Industrial Specialty) 2,667 186
Stmicroelectronics (Electronic Components) 12,263 773
Suez Lyonnaise Des Eaux (Water Supply) 3,271 573
Total Fina SA-B (Oil & Gas Production) 6,769 1,038
Vivendi (Water Supply) 233 20
--------------------------------------------------------------------------------
8,233
Germany 10.74%
Allianz AG (Insurance) 1,381 496
Bayer AG (Chemicals) 10,006 391
Bayer Hypo Vereins (Banking) 7,188 464
Celanese AG (Chemicals) 458 9
CommerzBank AG (Banking) 5,186 186
Deutsche Telekom (Telecommunications) 3,288 188
Dresdner Bank AG (Banking) 5,439 224
E.On AG Corporation (Electric Utilities) 18,513 893
Epcos (Electronic Components & Distribution)* 4,407 440
Ergo Versicherungs Gruppe Ag (Insurance) 1,962 223
Heidelberger Druckmaschinen (Printing & Publishing) 282 17
See notes to the financial statements.
50
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
International Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK (continued)
Munchener Ruckvers (Insurance) 1,500 $ 471
SAP AG pfd. (Computer Software) 1,020 188
Siemens AG (Electrical Products) 4,372 658
--------------------------------------------------------------------------------
4,848
Hong Kong 0.73%
Hutchison Whampoa Ltd-ORD
(Diversified Manufacture) 15,400 194
Legend Holdings Limited (EDP Peripherals) 88,000 85
Li & Fung Ltd. (Wholesale Distribution) 10,000 50
--------------------------------------------------------------------------------
329
Italy 6.62%
Alleanza Assicuraz (Insurance) 12,100 161
Assicurazioni Generali Spa (Insurance) 15,000 514
BCA Intesa Spa (Banking) 86,371 387
Gucci Group (Retail) 3,635 344
Holding DI Partecipazioni Industrial (Miscellaneous)* 85,600 114
Mediobanca Spa (Banking)* 47,600 491
Ras (Insurance) 16,000 176
Sao Paolo Imi Spa (Banking) 20,000 355
Seat-Pagine Gialle Spa (Printing & Publishing) 129,600 448
--------------------------------------------------------------------------------
2,990
Japan 23.04%
Advantest Corp. (Electronic Components) 1,000 223
Benesse Corp. (Computer Software) 1,600 111
Chugai Pharmaceutical Ltd. (Parmaceuticals) 22,000 416
Daiwa Securities Co. Ltd. (Financial) 21,000 277
DDI Corp. (Telecommunications) 17 163
East Japan Railway (Railroads) 74 430
Fuji Bank (Banking)* 49,000 372
Fujisawa Pharmaceutical (Pharmaceuticals) 3,000 121
Fujitsu Ltd. (Electronic Components) 18,000 623
Kyocera Corp. (Electronic Componets) 3,000 509
Matsushita Electric Ind. Co. (Electronic Components) 17,000 441
Mitsubishi Estate (Real Estate) 22,000 259
Mitsui Fudosan (Real Estate) 26,000 282
Murata Mfg. Co. (Electronic Components) 3,000 430
NEC Corp. (Electronic Components) 19,000 596
Nikko Securites (Financial) 27,000 267
Nintendo Co. Ltd. Kyoto (Recreational Products) 1,900 332
Nippon Telephone & Telegraph Corp.
(Telecommunications) 21 279
Nissan Motor Co. Ltd. (Automobilies)* 43,000 253
Nomura Securities (Financial) 21,000 514
NTT Mobile Communications Network, Inc.
(Telecommunications) 17 460
Ricoh Co. (Office Equipment/Supply) 11,000 233
Sakura Bank (Banking) 59,000 408
Sankyo Co. Ltd. (Pharmaceutical) 17,000 384
Sanyo Electric Co. (Electronic Components) 26,000 234
Softbank Corporation (Computer Software) 600 81
Sony Corp. (Consumer Electronics) 2,800 261
See notes to the financial statements.
51
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
International Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK (continued)
Sony Corp. (ADR) (Consumer Electronics) 600 $ 57
Sumitomo Electric Inds (Electrical Products) 17,000 291
Tokyo Electron (Electronic Components) 1,000 137
Toshiba Corp. (Electronic Components) 46,000 519
Yamanouchi Pharmacy Co. LTD (Pharmaceuticals) 8,000 437
--------------------------------------------------------------------------------
10,400
Netherlands 3.41%
Abn Amro Hldgs. NV (Banking) 18,380 450
Akzo-Nobel NV (Chemicals) 4,350 185
Asm Lithography Holdings NV (Computers)* 6,020 259
Kon KPN NV (Telecommunications) 8,540 382
Laurus NV (Retail) 4,340 52
Vnu NV (Print Media) 4,090 211
--------------------------------------------------------------------------------
1,539
Singapore 0.38%
Chartered Semiconductors Mfg. (ADR)
(Electronic Components)* 1,900 172
South Korea 3.67%
Samsung Electronics Ltd. (Electronic Components) 5,400 1,056
SK Telecom Ltd. (ADR) (Telecommunications) 16,600 602
--------------------------------------------------------------------------------
1,658
Spain 0.86%
Telefonica SA (Telecommunications)* 18,030 387
Sweden 1.46%
L.M. Ericsson Telephone Co. - B (ADR)
(Telecom Equipment) 33,200 657
Switzerland 3.08%
Nestle SA (Food & Beverage) 284 568
Roche Holdings Basel AG (Pharmaceuticals) 28 273
Swiss Ruckversicher (Insurance) 104 212
UBS AG (Banking) 2,315 339
--------------------------------------------------------------------------------
1,392
Taiwan 1.56%
Gigamedia Ltd. (Computer Software)* 2,600 31
Taiwan Semiconductor-SP ADR
(Electronic Components)* 17,375 673
--------------------------------------------------------------------------------
704
United Kingdom 14.56%
Arm Holdings Plc (Electronic Conductors)* 9,435 101
Bae Systems (Aerospace) 56,033 349
Billiton (Steel & Metals) 30,540 124
BOC Group PLC (Chemicals) 21,139 304
BP Amoco PLC (Oil Companies) 69,099 663
British Airways (Aerospace) 35,668 205
Cable & Wireless PLC (Telecommunications) 21,529 364
Glaxo Wellcome PLC (Pharmaceuticals) 8,090 236
See notes to the financial statements.
52
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
International Equity Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK (concluded)
Prudential Corp. PLC (Insurance) 25,124 $ 368
Reed International (Print Media) 58,186 506
Rentokil Group (Busniess Services) 34,305 78
Reuters Group PLC (Printing & Publishing) 32,977 562
Rio Tinto-Zinc Corp. PLC (Steel & Metals) 34,451 563
Shell Transportation & Trading Co. PLC
(Oil Companies) 75,879 633
SmithKline Beecham PLC (Pharmaceuticals) 17,093 224
Standard Chartered (Banking) 22,453 280
Vodafona Airtouch Public Ltd. (Cellular Telephones) 249,971 1,010
--------------------------------------------------------------------------------
6,570
Total Common and Preferred Stock 93.57% 42,233
(Cost $39,601)
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
CORPORATE NOTES
France 0.27%
Eurotunnel (Construction)*
variable rate, 04/30/40 $ 100 $ 121
United Kingdom 0.01%
British Aerospace (Aerospace)
7.45%, 11/30/03 2 4
--------------------------------------------------------------------------------
Total Corporate Notes 0.28% 102 125
(Cost $151)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Federal Home Loan Mortgage Discount Note 2,943 2,942
6.57%, 07/03/00
--------------------------------------------------------------------------------
Total Short-Term Investment 6.52% 2,942
(Cost $2,942)
--------------------------------------------------------------------------------
Total Investments 100.37% 45,300
(Cost $42,694)
Foreign Currency 0.10% (Various Denominations) 46
(Cost $46)
Liabilities in Excess of
Cash and Other Assets (0.47%) (211)
--------------------------------------------------------------------------------
Net Assets 100.00% $45,135
================================================================================
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay dividends.
See notes to the financial statements.
53
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments
Socially Responsible Fund
June 30, 2000
[GRAPH]
Cash & Other Net Assets 1.3%
Common & Preferred Stock 98.7%
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK
Aerospace 1.00%
Rockwell International Corp. 23,250 $ 732
Banks & Financial Services 12.64%
Bank of America Corp. 21,850 940
Bank One Corp. 26,000 691
Chase Manhattan Corp. 13,800 636
Citigroup, Inc. 29,400 1,771
Federal National Mortgage Association 19,750 1,031
Fleet Boston Financial Corp. 23,200 789
Lehman Brothers Holdings, Inc. 14,400 1,362
PNC Bank Corp. 28,500 1,336
US Bancorp 34,700 667
--------------------------------------------------------------------------------
9,223
Business Machines 3.39%
Compaq Computer Corp. 68,000 1,738
Hewlett-Packard Co. 5,900 736
--------------------------------------------------------------------------------
2,474
Business Services 2.92%
Computer Associates International, Inc. 41,600 2,129
Chemicals 2.33%
DuPont (E.I.) de Nemours & Co. 20,400 893
Rohm & Haas Co. 23,400 807
--------------------------------------------------------------------------------
1,700
Communication Equipment & Services 8.25%
AT&T Corp. 23,400 740
BellSouth Corp. 24,800 1,057
SBC Communications, Inc. 27,422 1,186
Sprint Corp. 20,500 1,046
Verizon Communications 39,122 1,988
--------------------------------------------------------------------------------
6,017
Computer Software & Services 2.21%
Cadence Design Systems, Inc. 45,000 917
Unisys Corp. 47,900 698
--------------------------------------------------------------------------------
1,615
Consumer Products 5.34%
Avon Products, Inc. 26,700 1,188
Clorox Co. 24,500 1,098
Colgate-Palmolive Co. 14,200 850
H. J. Heinz Co. 17,400 761
--------------------------------------------------------------------------------
3,897
Electrical Equipment & Services 4.24%
Agilent Technologies, Inc. 4,347 321
Eaton Corp. 10,600 710
Micron Technology, Inc. 17,700 1,559
Tektronix, Inc. 6,800 503
--------------------------------------------------------------------------------
3,093
Energy 8.67%
Burlington Resources, Inc. 21,500 822
See notes to the financial statements.
54
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (continued)
Socially Responsible Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
COMMON STOCK (concluded)
Conoco, Inc. - B 16,100 $ 354
Royal Dutch Petroleum Co. 41,900 2,579
Schlumberger Ltd. 14,900 1,112
Texaco, Inc. 19,300 1,028
Williams Companies, Inc. (The) 10,300 429
--------------------------------------------------------------------------------
6,324
Food & Beverage 4.12%
PepsiCo, Inc. 67,600 3,004
Health Care & Pharmaceuticals 8.58%
Abbott Laboratories 27,200 1,212
Becton, Dickinson and Co. 35,200 1,010
Bristol-Myers Squibb Co. 18,000 1,049
Merck & Co., Inc. 23,400 1,793
Pharmacia & Upjohn, Inc. 23,101 1,194
--------------------------------------------------------------------------------
6,258
Insurance 7.66%
American International Group, Inc. 14,400 1,692
Lincoln National Corp. 37,000 1,337
Marsh & McLennan Cos., Inc. 12,100 1,264
St. Paul Cos., Inc. 37,900 1,293
--------------------------------------------------------------------------------
5,586
Manufacturing (Diversified) 5.54%
Diebold, Inc. 12,200 340
Emerson Electric Co. 19,600 1,183
Koninklijke Philips Electronics NV (ADR) 29,600 1,406
Parker Hannafin Corp. 32,500 1,113
--------------------------------------------------------------------------------
4,042
Media 4.27%
Disney (Walt) Co. 39,400 1,529
McGraw Hill Cos., Inc. 29,400 1,588
--------------------------------------------------------------------------------
3,117
Other 3.63%
Standard & Poor's Depository Receipts 18,200 2,644
Railroad & Shipping 1.38%
Canadian National Railway Co. 34,400 1,004
Real Estate 0.66%
Boston Properties, Inc. 12,400 479
Retail 3.84%
Albertson's, Inc. 31,463 1,046
Target Corp. 30,200 1,752
--------------------------------------------------------------------------------
2,798
Utilities 4.09%
FPL Group, Inc 22,600 1,119
PECO Energy Co. 20,700 834
Unicom Corp. 26,550 1,027
--------------------------------------------------------------------------------
2,980
Total Common Stock 94.76% 69,116
(Cost $69,021)
================================================================================
See notes to the financial statements.
55
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Statement of Investments (concluded)
Socially Responsible Fund
June 30, 2000
Number of Market
Shares (000)
--------------------------------------------------------------------------------
PREFERRED STOCKS
Business Services 2.30%
News Corp Ltd. 35,300 $ 1,677
Chemicals 0.47%
Monsanto Co.* 7,600 344
Media 1.18%
MediaOne Group, Inc. 21,200 859
Total Preferred Stock 3.95% 2,880
(Cost $2,893)
--------------------------------------------------------------------------------
Total Common and Preferred Stock 98.71% 71,996
(Cost $71,914)
================================================================================
Principal
Amount Market
(000) (000)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Federal Home Loan Bank Discount Note
6.57%, 07/03/00 $ 2,104 $ 2,104
--------------------------------------------------------------------------------
Total Short-Term Investment 2.88% 2,104
(Cost $2,103)
--------------------------------------------------------------------------------
Total Investments 101.59% 74,100
(Cost $74,017)
--------------------------------------------------------------------------------
Liabilities In Excess of
Cash and Other Assets (1.59%) (1,163)
--------------------------------------------------------------------------------
Net Assets 100.00% $72,937
================================================================================
* Non-income producing during the six months ended June 30, 2000 as this
security did not pay dividends.
See notes to the financial statements.
56
<PAGE>
(This page intentionally left blank)
57
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
June 30, 2000 SMALL CAP INTERNATIONAL SOCIALLY
EQUITY BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE
FUND FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 2,635 $ 8,085 $ 1,333 $ 431 $ 105,063 $ 2,310 $ 1,672
Investments at market value* 736,036,546 345,556,961 156,899,886 1,742,374 96,297,355 45,300,412 74,099,233
Foreign currency at value* -- -- -- -- -- 46,329 --
Foward currency contracts -- -- -- -- -- 4,477 --
Dividends and interest receivable 982,590 13 2,151,126 34 -- 30,934 75,683
Receivable-foreign taxes 3 1 -- -- -- 42,610 525
Receivable-fund shares sold 196,697 121,596 5,006 1,117 204,749 88,474 116,639
Receivable-investments sold 11,348,237 -- 430,438 -- 698,810 353,597 --
Other assets -- 25,162 -- -- 8,162 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Assets 748,566,708 345,711,818 159,487,789 1,743,956 97,314,139 45,869,143 74,293,752
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Foward currency contracts -- -- -- -- -- 3,005 --
Payable-fund
shares redeemed 351,707 441,486 342,011 137 22,213 5,220 13,915
Payable-investments
purchased 13,188,545 -- 6,840,025 -- 2,624,439 675,696 1,247,878
Payable-advisory
and related fees 743,536 7,500 132,767 -- 111,879 50,161 83,608
Accrued expenses 63,430 -- 32,999 2,383 -- -- 11,390
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 14,347,218 448,986 7,347,802 2,520 2,758,531 734,082 1,356,791
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 734,219,490 $345,262,832 $152,139,987 $ 1,741,436 $ 94,555,608 $ 45,135,061 $ 72,936,961
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Par value of common shares 36,082,471 2,066,485 1,218,247 17,153 -- -- --
Paid in surplus 748,803,978 362,301,759 146,903,318 1,675,575 69,852,112 40,070,009 69,455,182
Accumulated undistributed
net investment income (loss) 4,316,727 1,036,575 4,775,858 48,685 (242,158) 168,979 335,675
Accumulated distributions in
excess of net realized gain (loss)
from investments and foreign
currency transactions (61,622,774) (13,658,632) (601,143) 23 9,387,345 2,287,990 3,064,158
Net unrealized appreciation
(depreciation) on
investments and translation
of assets and liabilities
in foreign currency 6,639,088 (6,483,355) (156,293) -- 15,558,309 2,608,083 81,946
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 734,219,490 $345,262,832 $152,139,987 $ 1,741,436 $ 94,555,608 $ 45,135,061 $ 72,936,961
------------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding: 36,082,471 20,664,849 12,182,473 171,531 4,453,550 2,774,580 5,344,915
(Authorized 50,000,000
shares each)
Par Value 1.00 0.10 0.10 0.10 0.00 0.00 0.00
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE $ 20.35 $ 16.71 $ 12.49 $ 10.15 $ 21.23 $ 16.27 $ 13.65
------------------------------------------------------------------------------------------------------------------------------------
* Cost of Securities:
Investments $ 729,397,458 $352,040,316 $157,056,179 $ 1,742,374 $ 80,739,045 $ 39,751,864 $ 74,017,287
Foreign Currency -- -- -- -- -- 46,392 --
</TABLE>
See notes to the financial statements.
58
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
Statements of Operations
For the Six Months Ended June 30, 2000
SMALL CAP INTERNATIONAL SOCIALLY
EQUITY 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 $ 6,758,505 $ 84,489 $ -- $ -- $ 7,239 $ 357,158 $ 591,853
Interest 290,403 769,432 5,373,799 53,300 367,041 127,091 77,727
------------------------------------------------------------------------------------------------------------------------------------
7,048,908 853,921 5,373,799 53,300 374,280 484,249 669,580
Foreign taxes withheld (1,447) -- (13,910) -- -- (56,227) (7,907)
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 7,047,461 853,921 5,359,889 53,300 374,280 428,022 661,673
EXPENSES:
Advisory and related fees 3,205,664 153,948 588,755 4,401 658,963 242,122 382,188
Fund pricing fees 6,144 1,863 3,660 2,000 1,789 3,579 1,716
Professional fees 35,563 13,409 7,913 6,400 4,058 4,374 4,059
Custodian fees 90,379 10,097 17,014 1,784 11,570 12,681 7,957
Transfer agent fees 23,834 24 24 24 24 24 24
Shareholder reports 14,100 1,460 893 555 2,382 1,706 2,382
Trustees' fees and expenses 3,886 3,886 3,886 3,886 3,886 3,886 3,886
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,379,570 184,687 622,145 19,050 682,672 268,372 402,212
------------------------------------------------------------------------------------------------------------------------------------
Less advisory and related
fees waived (164,100) (32,531) (19,589) (3,489) (63,579) (1,269) (39,359)
Less expenses paid by Horace Mann
Investors, Inc. -- -- -- (9,313) -- (7,600) --
Less earnings credits on
cash balances (2,389) (4,384) (2,814) (466) (2,655) (460) (988)
Less expenses paid by commission
credits (72,974) (4,559) -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,140,107 143,213 599,742 5,782 616,438 259,043 361,865
------------------------------------------------------------------------------------------------------------------------------------
Net investment
income (loss) 3,907,354 710,708 4,760,147 47,518 (242,158) 168,979 299,808
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain (loss) from:
Investments (60,545,036) (13,220,030) (555,328) 25 9,444,010 2,323,759 3,129,210
Foreign currency transactions -- -- -- -- -- (35,509) (51)
------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments and foreign
currency transactions (60,545,036) (13,220,030) (555,328) 25 9,444,010 2,288,250 3,129,159
Change in unrealized
appreciation
(depreciation) on:
Investments 609,821 (899,929) 461,158 -- (6,298,350) (5,110,734) (3,919,177)
Translation of assets
and liabilities in
foreign currencies -- -- -- -- -- 2,914 --
Net realized and unrealized
gain (loss) from investments
and foreign currency
transactions (59,935,215) (14,119,959) (94,170) 25 3,145,660 (2,819,570) (790,018)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS $(56,027,861) $(13,409,251) $ 4,665,977 $ 47,543 $ 2,903,502 $(2,650,591) $ (490,210)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
59
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Periods Ended June 30, 2000 and December 31, 1999
EQUITY FUND BALANCED FUND INCOME FUND
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 3,907,354 $ 7,194,167 $ 710,708 $ 14,074,710 $ 4,760,147 $ 817,879
Net realized short-term gain (loss)
on investments and
foreign currency transactions (36,395,525) 21,084,618 (11,358,573) 10,118,367 (333,357) (60,131)
Net realized long-term gain
(loss) on investments and
foreign currency transactions (24,149,511) 18,209,988 (1,861,457) 6,351,720 (221,971) 16,747
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currency 609,821 (63,032,326) (899,929) (35,403,517) 461,158 (1,004,956)
------------------------------------------------------------------------------------------------------------------------------------
Change in net assets
from operations (56,027,861) (16,543,553) (13,409,251) (4,858,720) 4,665,977 (230,461)
------------------------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income -- (6,784,785) -- (13,824,667) -- (809,484)
Net realized short-term gain (loss)
from investments and
foreign currency transactions -- (22,394,051) -- (11,439,972) -- --
Net realized long-term gain (loss)
from investments and
foreign currency transactions -- (18,035,067) -- (5,491,362) -- --
------------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders -- (47,213,903) -- (30,756,001) -- (809,484)
------------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares sold 276,939,864 87,663,401 20,223,171 54,172,750 154,353,454 5,904,109
Net asset value of shares issued
in reinvestment of dividends and
capital gains distributions -- 40,836,339 -- 26,157,173 -- 677,102
------------------------------------------------------------------------------------------------------------------------------------
128,499,740 -- 80,329,923 -- 6,581,211
Cost of shares redeemed (111,825,104) (110,340,201) (64,089,604) (70,096,336) (20,054,115) (6,325,480)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from fund
share transactions 165,114,760 18,159,539 (43,866,433) 10,233,587 134,299,339 255,731
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 109,086,899 (45,597,917) (57,275,684) (25,381,134) 138,965,316 (784,214)
NET ASSETS:
Beginning of period 625,132,591 670,730,508 402,538,516 427,919,650 13,174,671 13,958,885
------------------------------------------------------------------------------------------------------------------------------------
End of period $ 734,219,490 $ 625,132,591 $ 345,262,832 $ 402,538,516 $ 152,139,987 $ 13,174,671
------------------------------------------------------------------------------------------------------------------------------------
Undistributed
net investment income $ 4,316,727 $ 409,373 $ 1,036,575 $ 325,867 $ 4,775,858 $ 15,711
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
60
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL SOCIALLY
SHORT-TERM FUND GROWTH FUND EQUITY FUND RESPONSIBLE FUND
2000 1999 2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 47,518 $ 88,641 $ (242,158) $ (378,113) $ 168,979 $ 85,524 $ 299,808 $ 624,038
25 566 3,923,859 6,491,975 404,832 162,747 2,169,781 (1,312,194)
-- -- 5,520,151 1,773,685 1,883,418 1,019,297 959,378 1,823,749
0 (318) (6,298,350) 15,565,211 (5,107,820) 6,619,170 (3,919,177) 2,587,979
----------------------------------------------------------------------------------------------------------------------------------
47,543 88,889 2,903,502 23,452,758 (2,650,591) 7,886,738 (490,210) 3,723,572
----------------------------------------------------------------------------------------------------------------------------------
-- (88,097) -- -- -- (35,937) -- (595,585)
-- (566) -- (2,351,737) -- (198,226) -- --
-- -- -- (1,751,269) -- (1,015,137) -- (525,965)
---------------------------------------------------------------------------------------------------------------------------------
-- (88,663) -- (4,103,006) -- (1,249,300) -- (1,121,550)
---------------------------------------------------------------------------------------------------------------------------------
4,381,637 5,024,777 42,261,099 16,140,492 24,913,855 11,068,737 22,343,592 29,403,215
-- 70,018 -- 3,415,007 -- 1,003,619 -- 606,069
---------------------------------------------------------------------------------------------------------------------------------
-- 5,094,795 -- 19,555,499 -- 12,072,356 -- 30,009,284
(4,430,451) (4,683,329) (11,106,440) (7,062,340) (3,531,584) (2,617,563) (8,449,099) (8,642,459)
---------------------------------------------------------------------------------------------------------------------------------
(48,814) 411,466 31,154,659 12,493,159 21,382,271 9,454,793 13,894,493 21,366,825
---------------------------------------------------------------------------------------------------------------------------------
(1,271) 411,692 34,058,161 31,842,911 18,731,680 16,092,231 13,404,283 23,968,847
1,742,707 1,331,015 60,497,447 28,654,536 26,403,381 10,311,150 59,532,678 35,563,831
---------------------------------------------------------------------------------------------------------------------------------
$ 1,741,436 $ 1,742,707 $ 94,555,608 $ 60,497,447 $ 45,135,061 $ 26,403,381 $ 72,936,961 $ 59,532,678
---------------------------------------------------------------------------------------------------------------------------------
$ 48,685 $ 1,167 $ (242,158) $ -- $ 168,979 $ -- $ 335,675 $ 35,867
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements
June 30, 2000
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: Equity Fund (formally 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 Equity Fund shares also may be purchased under the
dividend reinvestment plans by certain shareholders.
FUND INVESTMENT OBJECTIVES:
A. Equity 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 Investment 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, 2000.
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 -- 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 Income Fund intends 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, 1999, the
Income Fund had an accumulated capital loss carry forward for tax
purposes of $45,805 which will expire on December 31, 2007.
62
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 2000
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.
Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for
tax purposes.
For federal income tax, $378,113 of net operating loss generated by
Small Cap Growth Fund has been reclassified from accumulated net
investment loss to accumulated realized gain.
For the year ended December 31, 1999, the Equity Fund, the Balanced
Fund, the Income Fund, the Small Cap Fund, the International Equity
Fund and Socially Responsible fund paid long-term capital gains of
$18,035,067, $5,491,362, $54, $1,751,269, $1,016,065 and $525,965,
respectively.
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.
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 -- Sanford C. Bernstein & Co., Inc., Mellon Equity
Associates, LLP and Wellington Management Company, LLP, subadvisers
for the Equity and Balanced funds, seek 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. Earnings Credits on Cash Balances -- During the first six months of
2000, the Funds' custody fee was reduced as a result of credits earned
on overnight cash balances.
G. 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.
63
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 2000
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.
H. Forward Currency Contracts -- The 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.
At June 30, 2000 the Funds have the following open forward currency contracts:
Current Unrealized
Foreign Value Appreciation
Currency U.S. Dollar (Depreciation)
--------------------------------------------------------------------------------
INTERNATIONALnt EQUITY FUND
Long Contracts:
Euro dollar,
501,356 expiring 7/03/00 - 07/31/00 $478,645 $ 4,371
Short Contracts:
British Pound,
3,644 expiring 07/06/00 $ 5,514 $ 14
Euro Dollar,
20,394 expiring 07/31/00 $ 19,470 $ 92
----------
$ 4,477
==========
Long Contracts:
Euro dollar,
47,283 expiring 07/31/00 $ 47,283 $ (118)
Hong Kong Dollar,
1,023,380 expiring 07/03/00 $131,278 $ (13)
Short Contracts:
British Pound,
77,368 expiring 07/03/00 - 07/05/00 $117,065 $ (891)
Euro dollar,
199,437 expiring 07/03/00 - 07/06/00 $190,403 $ (1,983)
----------
$ 3,005
==========
64
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 2000
4. FUND SHARE TRANSACTIONS -- The Trust is an open-end, diversified 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 Equity Fund shares also may be purchased under the dividend
reinvestment plan by certain shareholders.
Transactions in capital stock for the six months ended June 30, 2000 and year
ended December 31, 1999:
<TABLE>
<CAPTION>
Shares issued
to shareholders
in reinvestment
of dividends Net increase
Shares sold and distributions Shares redeemed (decrease)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Fund
06/30/2000 13,001,565 -- (5,441,410) 7,560,155
12/31/1999 3,611,627 1,894,078 (4,540,277) 965,428
Balanced Fund
06/30/2000 1,213,922 -- (3,859,039) (2,645,117)
12/31/1999 2,862,259 1,529,659 (3,717,525) 674,393
Income Fund
06/30/2000 12,743,772 -- (1,637,627) 11,106,145
12/31/1999 449,741 55,319 (482,758) 22,302
Short-Term Fund
06/30/2000 437,087 -- (441,809) (4,722)
12/31/1999 497,191 7,087 (461,455) 42,823
Small Cap Growth Fund
06/30/2000 1,905,068 -- (513,125) 1,391,943
12/31/1999 1,082,285 178,329 (513,865) 746,749
International Equity Fund
06/30/2000 1,479,127 -- (211,694) 1,267,433
12/31/1999 789,300 59,176 (191,589) 656,887
Socially Responsible Fund
06/30/2000 1,660,704 -- (625,572) 1,035,132
12/31/1999 2,157,301 44,827 (630,771) 1,571,357
</TABLE>
65
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 2000
5. MANAGEMENT AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. 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.
From May 1, 1997 to March 1, 1999, Investors acted as the Trust's
adviser, managing its investments, and administering its business
affairs pursuant to a management agreement. Also on May 1, 1997,
Wellington Management Company, LLP, became the subadviser to the
Equity, Balanced, Income and Short-Term funds. Effective March 10,
1997, BlackRock Financial Management, Inc. (formerly PNC Equity
Advisors Company) became the subadviser to the Small Cap Growth Fund,
and Scudder Kemper Investments, Inc. became the subadviser to the
International Equity and Socially Responsible funds. Each subadviser
was compensated by Investors (not the Trust) and bore all of its own
expenses in providing subadvisory services.
For the period January 1, 1999 to March 1, 1999 Investors received a
separate management and advisory fee for the Equity, Balanced, Income
and Short-Term Investment funds. For management services, the fee
accrued daily and paid monthly, was calculated on a pro rata basis by
applying the following annual percentage rates to the aggregate of all
four funds' daily net assets for the respective month.
Net Assets Rate
On initial $100 million .250%
Over $100 million .200%
For advisory services, the fee was 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>
Equity 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, International
Equity and Socially Responsible funds each paid Investors a combined
monthly management and advisory fee. The contractual fees were 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
For the period January 1, 1999 to March 1, 1999, Investors voluntarily
reduced these management fees by 0.40%.
On March 1, 1999, Wilshire Associates, Inc. became the investment adviser for
the Horace Mann Mutual Funds. The Equity Fund employs a multi-manager strategy
using three subadvisers -- Sanford C. Bernstein & Co., Inc., Melton Equity
Associates, and Wellington Management Co., LLP. Effective March 15, 2000,
Sanford C. bernstein & Co. replaced Brinson Partners as one of the subadvisers
for the Equity Fund. On January 19, 2000, Balanced Fund began operating under a
"fund of funds" structure, investing in the Equity Fund and Income Fund.
Effective January 26, 2000, Income Fund employs a multi-manager strategy using
two subadvisers -- Wellington Management Co., LLP and Western Asset Management
Company.
66
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (continued)
June 30, 2000
Each subadviser's fees are paid by the adviser out of the advisory fees
that it receives from each of the funds. Fees paid to a subadviser of a
fund with multiple subadvisers depends upon the fee rate negotiated with
the adviser and upon the percentage of the fund's assets allocated to that
subadviser by the adviser, which may vary from time to time. Thus, the
basis for fees paid to any such subadviser is not constant, and the
relative amounts of fees paid to the various subadvisers of a fund will
fluctuate. These internal fluctuations, however, will not affect the total
advisory fees paid by a fund, which will remain fixed on the terms
described below. The adviser may, however, determine in its discretion to
waive a portion of its fee if internal fluctuations in the fee to be paid
to the subadvisers results in excess profit to the adviser. Because the
adviser will pay each subadviser's fees out of its own fees from the Funds,
there will not be any "duplication" of advisory fees paid by the Funds.
For the period January 1, 2000 to June 30, 2000, services provided and
expenses assumed pursuant to the Investment Advisory Agreement, the Adviser
received a fee based on each fund's average daily net assets, computed
daily and payable monthly, at the following annual rates. For the same
period, the adviser waived fees in the amounts listed below.
Effective January 19, 2000, the Balanced Fund began operating under a "fund
of funds" structure. The Balanced Fund invests substantially all of its
assets in shares of the Equity Fund and Income Fund. On this date the
Investment advisory fees for the Balanced were reduced from 0.400% to
0.000%.
Fund Rate Fees waived
Equity Fund 0.400% $164,100
Balanced Fund 0.000% 32,531
Income Fund 0.400% 19,589
Short-Term Investment Fund 0.125% --
Small Cap Growth Fund 1.150% 63,579
International Equity Fund 0.850% 1,269
Socially Responsible Fund 0.700% 39,359
B. Pursuant to an Administration Agreement with the Funds, Investors provides
for the management of the business affairs of each fund, including, but not
limited to, office space, clerical services, bookkeeping and other similar
services. For the period January 1, 2000 to June 30, 2000, Investors
received a fee, accrued daily and paid monthly, based upon the combined
assets for the Funds as follows:
Net Assets Rate
On initial $1 billion 0.250%
Over $1 billion 0.200%
C. Pursuant to a Support Services Agreement, HMLIC provides certain services
to the Funds necessary to coordinate the Funds' activities with those of
the Separate Account of HMLIC other than the administrative agreement. For
the period January 1, 2000 to June 30, 2000, HMLIC received a fee, accrued
daily and paid monthly, based upon the combined assets for the Funds as
follows:
Net Assets Rate
On initial $1 billion 0.150%
Over $1 billion 0.100%
D. 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, 2000 were $23,834 for the Equity Fund, $24 each for the Balanced,
Income, Short-Term, Small Cap Growth, International Equity and Socially
Responsible funds.
E. 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. For the six months ended June 30, 2000, the fees,
excluding travel expenses, for independent trustees totaled $17,600. There
were 3 meetings held during this period. The Trust does not compensate
interested officers and trustees (those who are also officers and/or
directors of Horace Mann).
67
<PAGE>
HORACE MANN MUTUAL FUNDS 2000 FUNDS SEMI-ANNUAL REPORT
(UNAUDITED)
Notes to the Financial Statements (concluded)
June 30, 2000
6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term
investments, for the six months ended June 30, 2000 were:
Purchases Proceeds from sales
--------- -------------------
Equity Fund $802,322,812 $635,444,786
Balanced Fund 406,442,252 439,978,194
Income Fund 425,652,674 284,547,410
Short-Term Fund -- --
Small Cap Growth Fund 105,821,034 78,820,008
International Equity Fund 34,692,128 13,824,278
Socially Responsible Fund 45,393,200 30,008,529
The following table shows investments, excluding foreign currency, at cost and
unrealized appreciation (depreciation) for federal income tax purposes by fund
at June 30, 2000.
Aggregate gross Aggregate gross Net unrealized
unrealized unrealized appreciation
appreciation (depreciation) (depreciation)
------------ -------------- --------------
Equity Fund $ 63,439,192 $(56,800,104) $ 6,639,088
Balanced Fund 4,274,030 (10,757,385) (6,483,355)
Income Fund 1,737,717 (1,894,010) (156,293)
Short-Term Fund -- -- --
Small Cap Growth Fund 18,084,500 (2,526,191) 15,558,309
International Equity Fund 4,675,692 (2,067,609) 2,608,083
Socially Responsible Fund 5,442,905 (5,360,959) 81,946
68
<PAGE>
--------------------
Horace Mann Mutual Funds PRSRT STD
P.O. Box 4657 U.S. POSTAGE PAID
Springfield, IL 62708-4657 LANCASTER, PA
800-999-1030 (Toll free) PERMIT NO. 1910
ZIP CODE 17601
--------------------
Horace Mann(R)
----------------------------
Insuring America's Educational Community
www.horacemann.com
www.reacheverychild.com
