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Horace Mann Mutual Funds
Annual Report
December 31, 1999
[GRAPHIC]
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retirement annuities
Contents [GRAPHIC]
Letter from the Chairman of
the Board and President ................................................... 2
Average Annual Total Return
Horace Mann Family of Funds ............................................... 3
Portfolio manager letter .................................................. 5
Financial statements ...................................................... 13
Fund performance graphs ................................................... 67
Savings
long-term goals
investments
This report must be preceded or accompanied by a current prospectus.
<PAGE>
[LETTERHEAD OF HORACE MANN FUNDS]
FELLOW SHAREHOLDERS:
As we enter a new century and millennium, the entire Horace Mann organization
looks forward to serving your retirement needs. We appreciate your business and
continued confidence in our funds, and we remain committed to providing you with
a range of products with appropriate characteristics to assist in funding your
retirement.
MARKET REVIEW
The past year has tested the resolve of long-term equity investors. Vast
disparities of investment results have been observed as growth stocks vastly
outperformed value stocks due to the leadership of a small number of stocks.
Small capitalization and international stocks revived in 1999, posting strong
returns. The Horace Mann Small Cap Growth Fund and Horace Mann International
Equity Fund benefited greatly from this resurgence.
Equity investors who adhere to a long-term, conservative, value style approach
generally did not perform well in a market driven by high-risk technology
companies. The Growth Fund, the equity portion of the Balanced Fund and the
Socially Responsible Fund all came under pressure as the markets ignored
undervalued stocks. Wilshire Associates, named Adviser to the Funds early in
1999, and the Horace Mann Funds Board have redoubled their efforts to ensure
that these portfolios are managed by the best organizations for the job, for the
long term. We firmly believe our patient, conservative approach to investing is
one that wins in the long run.
Bond investors encountered an environment of rising interest rates and excess
supply of bonds issued in advance of Y2K. The Income Fund and the Short-Term
Investment Fund posted reasonable results given this environment and their
investment strategies.
PERSPECTIVE
We look forward to providing you with additional investment options in 2000. We
plan to add new options to the annuity, including the Wilshire 5000 Index
Portfolio and the Wilshire Large Company Growth Portfolio. These funds will
provide you with additional options with which you can diversify your
investments. Your Horace Mann agent can work with you to determine the
appropriate investment options given your personal objectives and tolerance for
risk.
With best wishes for the new millennium and renewed commitment to providing you
with high quality products that serve your retirement needs well, everyone at
Horace Mann sincerely appreciates your continued confidence in our funds.
Sincerely,
/s/ George Zock
George Zock
Chairman & President
<PAGE>
For Annuity Alternatives Contract Owners
Average annual total returns for the year ended December 31, 1999 for the
Annuity Alternatives contracts are shown in the following table. For
contributions which remained invested in an Annuity Alternatives contract,
returns are shown first. For contracts which were surrendered, returns are shown
second. Redemption has no affect on the variable account rates of return after
the initial five-year contract period.
Returns if money remained invested, based on a $1,000 investment.
Variable Account 1 Year 5 Years 10 Years Since inception
Growth Fund -3.81 15.23 11.55 11.80/1/
Balanced Fund -2.38 12.29 9.64 9.83/1/
Income Fund -2.81 5.39 5.48 5.48/1/
Short-Term Investment Fund 3.49 3.65 3.49 3.55/1/
Small Cap Growth Fund 71.59 -- -- 29.45/2/
International Equity Fund 50.77 -- -- 23.39/2/
Socially Responsible Fund 7.05 -- -- 12.99/2/
Returns if money was withdrawn early, based on a $1,000 investment.
Variable Account 1 Year 5 Years 10 Years Since inception
Growth Fund -11.50 15.23 11.55 11.80/1/
Balanced Fund -10.19 12.29 9.64 9.83/1/
Income Fund -10.58 5.39 5.48 5.48/1/
Short-Term Investment Fund -4.79 3.65 3.49 3.55/1/
Small Cap Growth Fund 63.09 -- -- 27.56/2/
International Equity Fund 42.27 -- -- 21.32/2/
Socially Responsible Fund -1.45 -- -- 10.55/2/
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 percent mortality and expense
fee until March 1, 1999, when the fee was reduced to 1.25 percent. Annuity
contracts issued prior to January 1984 have mortality and expense charges or
sales fees that differ from those of the Annuity Alternatives contracts. Such
other charges and fees do not exceed those reflected in the table above.
Annuity Alternatives contracts require a $25 annual maintenance charge on the
contract anniversary when the contract value is less than $10,000. This charge,
which is not reflected in the returns above, after the first contract year would
reduce the total rates of return by 2.5 percent on a $1,000 investment or .5
percent on a $5,000 investment.
During the first five contract years, redemption charges range from 2 to 8
percent for the flexible premium contracts and 1 to 5 percent for single premium
contracts. The average annual total returns with redemption are calculated using
flexible premium redemption charges. Distributions from an annuity may be
subject to federal taxes and a 10 percent IRS penalty if withdrawn before age 59
1/2.
On March 1, 1999, Willshire Associates, Inc. became the investment adviser for
the Funds. The Growth Fund and equity portion of the Balanced Fund employ a
multi-manager strategy using three subadvisers -- Brinson Partners, Mellon
Equity Associates, and a new team of fund managers at Wellington Management Co.,
LLP.
Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. During 1999, 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 Growth and Balanced funds from 1994 through 1999.
During 1999, certain expenses were assumed/waived for all funds. In addition,
certain Balanced and Income funds' expenses were assumed/waived through 1987 and
1996, respectfully. 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 Growth, 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.
3
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For Growth Fund Public Shareholders and Participants in the Horace Mann Employee
401(k) Plan
Total average annualized returns for the year ended December 31, 1999, for the
Horace Mann Mutual Funds and their comparable benchmark indices are shown in the
following table:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Since inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Growth Fund -2.54 16.67 12.98 13.22/1/
S&P 500 Stock Index 20.99 28.56 18.21 18.40
Balanced Fund -1.11 13.71 11.05 11.24/1/
Stock/Bond Composite/4/ 12.00 19.88 13.97 14.07
Income Fund -1.57 6.75 6.84 6.84/1/
Lehman Intermediate/Aggregate/5/ -0.83 7.27 7.41 7.41
Short-Term Investment Fund 4.77 5.00 4.84 4.91/1/
90-day Treasury Bills 4.56 5.37 5.29 5.34
Small Cap Growth Fund 71.55 -- -- 30.45/2/
Russell 2000 Growth 43.10 -- -- 20.57
International Equity Fund 51.83 -- -- 24.71/3/
MSCI EAFE 26.97 -- -- 17.53/6/
Socially Responsible Fund 8.39 -- -- 14.42/3/
S&P 500 Stock Index 20.99 -- -- 25.69
</TABLE>
Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. During 1999, 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 Growth and Balanced funds from 1994 through 1999.
During 1999, 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.
On March 1, 1999, Wilshire Associates, Inc. became the investment adviser for
the Funds. The Growth Fund and equity portion of the Balanced Fund employ a
multi-manager strategy using three subadvisers -- Brinson Partners, Mellon
Equity Associates, and a new team of fund managers at Wellington Management Co.,
LLP.
The performance data quoted represents past performance and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate and when redeemed, may be worth more or less than its original cost.
The indices listed are unmanaged industry benchmarks, not funds, and as such
they have no expenses.
/1/ Since inception for the Growth, Balanced, Income, and Short-Term Investment
funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment 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 December 31,
1999.
4
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[LETTERHEAD OF WILSHIRE ASSOCIATES]
TO THE SHAREHOLDERS OF THE HORACE MANN FUNDS:
Thank you for this opportunity to write to you regarding the Horace Mann Funds
and their performance during 1999. We firmly believe by investing with Horace
Mann, you are on the right track for achieving your retirement goals.
Much has been accomplished in the funds over the last year. Per the Funds
Board's direction, and affirmation by the shareholders, Wilshire began its
service as Adviser to the Funds in March. Wilshire is honored to serve on your
behalf in this capacity, and we work diligently to ensure the Horace Mann Funds
are managed by the most capable investment subadvisers and structured to create
risk and return profiles suitable for your retirement investment needs.
DISCUSSION OF THE CAPITAL MARKETS IN 1999
Results for 1999 were varied, as a small number of stocks propelled the domestic
stock indices higher while many high-quality companies posted negative returns.
Bond investors generally lost ground during the year, as the Federal Reserve
raised rates to curb inflation. International investors enjoyed robust returns
in 1999 as Japan awoke from years of stagnation to pace the broad world indices
higher. European results were solid, while the emerging markets posted
substantial advances.
In 1999, the U.S. equity markets were dominated by a surge in the stocks of
purported "new economy" companies. This new economy dynamic foresees the
dominance of Internet-related business strategies over conventional businesses.
As a result, some high-risk companies and their investors have benefited greatly
in what many considered to be speculative markets.
Several of these Internet-related ("dot-com") companies are now valued by the
market at levels far in excess of many well-established companies like airlines
and consumer goods manufacturers. For instance, Internet company Yahoo was
recently valued by the market to be about nine times the size of cereal-maker
Kellogg, yet Kellogg has over ten times Yahoo's sales and profits! Further,
investors who purchase Yahoo at recent prices are paying approximately $600 for
each dollar of generated earnings.
In spite of such imbalances, Wilshire agrees the Internet is going to play a
tremendous role in the future of the global economy. The subadvisers of the
Horace Mann Funds perceive the power of the Internet as well, and each carefully
evaluates the Internet strategies of those companies that are appropriate for
investment within their respective mandates.
The popularity of the Internet companies and their impact on market indices led
many individuals to conclude the stock market of 1999 was yet another strong
bull year. However, respected market observers often comment the U.S. is
actually experiencing a "stealth bear" market, as many high quality companies
posted negative returns for the year. In fact, roughly half of the companies
that comprise the S&P 500 Index were actually down in 1999, while the overall
index was up over 20%. Obviously, not every stock investor enjoyed extremely
positive results.
5
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1999 FUNDS PERFORMANCE
The following paragraphs address the results of the Horace Mann Funds over the
past year:
DOMESTIC EQUITY
In 1999, the Growth Fund, Socially Responsible Fund and the equity portion of
the Balanced Fund underperformed, while the Small Cap Growth Fund posted
exceptional results.
GROWTH FUND AND THE EQUITY PORTION OF THE BALANCED FUND
With approval of the Board and shareholder affirmation, Wilshire completed
the implementation of a multiple-manager structure for the Growth Fund and
the equity portion of the Balanced Fund coincident with Wilshire's
assumption of advisory responsibilities. This transition took place late in
the first quarter. Brinson Partners, Inc. and Mellon Equity Associates, LLP
were introduced in this transition, and a new team at Wellington Management
Company, LLP was retained to manage a portion of the portfolio as well. On
a prospective basis, we believe the funds continue to be well positioned to
fulfill their mission as stated in the prospectus: to provide appropriate
long-term capital growth through a value-oriented approach.
As has been widely reported, value stocks substantially underperformed
growth stocks in 1999. Much of this underperformance was due to massive
advances in the prices of technology and dot-com companies. A short list of
companies provided a disproportionate contribution to the overall market
indices' advance. To make matters more difficult, low price-to-earnings
strategies performed worse. By virtue of the traditional value-oriented
strategies mandated by the prospectus, the Growth Fund and the equity
portion of the Balanced Fund fought this "value headwind" throughout the
year.
The strategic value orientation of the portfolio is only part of the story,
as a number of holdings declined more than expected on announcements of
negative earnings or revenue surprises. Among the worst performers in this
category were Xerox, Raytheon, and Mattel.
Good performance from a number of holdings, including fiber-optic cable
manufacturer Corning, offset these negative pressures. Citigroup, First
Data and EDS also contributed great results. The funds avoided poor
performers which helped to contain underperformance.
The subadvisers of the Growth Fund and equity portfolio of the Balanced
Fund are carefully making improvements to their portfolios to lessen the
"earnings surprise" risk but still take advantage of misvaluations in the
market. They do not believe the market conditions of 1999 can persist over
the long term. They maintain their resolve for value-oriented investing,
and look to a more favorable market environment in 2000.
SOCIALLY RESPONSIBLE FUND
As with the Growth Fund and the equity portion of the Balanced Fund, the
Socially Responsible Fund met resistance throughout the year as value
stocks and low price-to-earnings strategies lagged. Scudder Kemper
Investments, the subadviser for the fund, observes that while value as a
style was out of favor during the year, even the value benchmarks were
difficult to beat.
The second half of the year was particularly difficult for the Socially
Responsible Fund because a number of holdings declined more than expected
on announcements of negative earnings or revenue surprises. A handful of
names -- including Xerox, American Home Products, and First Union -- were
subject to this pressure, and their market values were impacted as a
result.
6
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The fund performed well, however, through its investments in
telecom-related companies such as Corning, Global Crossing and Sprint.
Paper companies Georgia-Pacific and Weyerhauser also performed well, while
finance-related stocks such as Lehman Brothers and Marsh & McLennan
advanced. For the year, social screening benefited portfolio performance,
as the fund avoided Philip Morris (down 57%) and Lockheed Martin (off 48%).
Scudder Kemper has repositioned the portfolio to avoid "torpedoes" like
Xerox and others in 2000, and is working diligently to discern the value
traps from the value opportunities. The firm is adding high-quality stocks
with better earnings visibility to the portfolio and weeding out those
names it believes are weaker and more likely to disappoint. At this time,
Scudder indicates it has never had more conviction about its portfolio, and
looks forward to good performance in an environment more favorable for
value investing.
SMALL CAP GROWTH FUND
Recognizing the need for shareholders in the Horace Mann Funds to have
access to investments in technology and other more aggressive market
segments, the Horace Mann Funds' Board launched the Small Cap Growth Fund
in March 1997. In 1999, this strategy paid off. The fund generated
tremendous returns in 1999, and it significantly outpaced its benchmark.
Significant exposure to Internet-related companies played a large role in
the 1999 results. For example, one of the best performers for the year was
VERITAS Software Corporation, which markets enterprise storage management
products for business-critical data transmitted on- and off-line. The fund
enjoyed a six-fold advance in that stock during the period. Advancing
nearly 500% was Emulex Corporation, a circuit-maker whose products permit
rapid access to electronic information.
Communications equipment companies that serve the Internet-related
marketplace also played a positive part in the 1999 success of the Small
Cap Growth Fund. Applied Micro Circuits Corporation -- which manufactures
high bandwidth communications equipment that helps the flow of data in
high-speed computing -- was up over 400% over the holding period.
Looking forward, subadviser BlackRock Financial Management continues to see
attractive opportunities for capital growth. The portfolio managers have
confidence in their holdings, but do express some concern about current
valuations in the marketplace, particularly in the technology sector. From
a risk control perspective, the subadviser is paring back some positions
that have graduated to mid-cap, and these companies are being replaced with
new small-cap ideas. BlackRock expects to increase its non-technology
exposure in the new year, notably in the healthcare and life sciences
sectors.
DOMESTIC FIXED INCOME
In 1999, the Income Fund, the fixed income portion of the Balanced Fund and the
Short-Term Investment Fund provided results that were reasonable given their
investment objectives as mandated in the prospectus.
The Income Fund and the Fixed Income Portion of the Balanced Fund
Wellington Management Company, LLP, the subadviser for the fixed income
portfolios, generated returns that underperformed the broad market index
but were reasonable given the funds' investment objectives. Wellington
emphasizes high-quality intermediate- and long-term investment grade
corporate, government and foreign sovereign bonds, combined with
allocations to U.S. high yield securities.
7
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The Income Fund's slight underperformance was largely the result of an
overweighting in corporate bonds, which performed poorly in an environment
of widening spreads and rising interest rates. As noted above, the Income
Fund generally takes on credit risk as a means to add value over time; in
1999, similar strategies were marginally unrewarded.
Over the course of the year, Wellington maintained a higher level of
sensitivity to changes in interest rates than its index, the Lehman
Brothers Aggregate Index, and was penalized as interest rates rose across
the board. The yield on the 10-year Treasury note rose approximately 1.8%
during the year; this and similar changes in yield at other maturities
depressed bond prices in the portfolio.
Wellington expects the growth of the U.S. economy to slow in the new year
because they believe the Federal Reserve is likely to tighten monetary
policy. While constructive on bonds in 2000, the subadviser is cautious, as
it believes there is a substantial level of negative momentum in the bond
market. Bond valuations are attractive at this time, but Wellington will
look for some moderation of the negative sentiment to signal buying
opportunities. While the firm prefers the yield advantage of corporates and
mortgages, it sees them as more fairly valued given the current interest
rate environment. Thus, the firm expects to add to governments in the new
year.
Short-Term Investment Fund
This fund generated reasonable returns in an environment of rising interest
rates. Throughout the year, subadviser Wellington Management Company, LLP
emphasized U.S. agency issues to take advantage of yield opportunities
relative to Treasuries while also maintaining a high level of liquidity.
Money market investors were impacted in 1999 by several factors: a strong
U.S. economy and tightening monetary policy actions by the Federal Reserve;
low levels of inflation; strong consumer demand; and "Y2K" anxiety and
preparedness. Spreads widened late in the year as issuers sought to obtain
financing ahead of "Y2K," and liquidity came at a premium.
Wellington's outlook calls for a market that focuses on the Federal
Reserve's management of the pace of the U.S. economy. Non-inflationary
growth targets set by the Fed are likely to be eclipsed by a tight labor
market and increased spending on technology. Wellington foresees the Fed
raising interest rates in a gradual manner in 2000.
INTERNATIONAL EQUITY
Results for 1999 were extremely favorable, as the Horace Mann International
Equity Fund provided returns well in excess of the MSCI EAFE Index.
International Equity Fund
In addition to providing good diversification, the International Equity
Fund supplied outstanding investment results for 1999. Scudder Kemper
Investments, the subadviser for the fund, observed that overseas markets
performed very well due to favorable liquidity conditions, robust corporate
growth and continuing benefits from corporate restructuring worldwide.
Companies with the strongest growth characteristics produced the most
impressive returns, as substantial returns were generated in the technology
and telecommunications sectors.
8
<PAGE>
Scudder Kemper managed these positive results largely through a timely
research-based decision to build its investments in Japan. The Japanese
market, along with other Asian markets, enjoyed strong returns during the
year, and these results were exceeded through good stock-specific
decisions. Holdings in Sony (up 306%) and NTT Docomo (up 227%), Japan's
leading cellular phone and Internet provider respectively, performed
extremely well, while industrial electronics producer Murata surpassed even
those returns, advancing more than four-fold during the year.
European markets were also fruitful for the International Equity Fund, as
the economies there started coming back into synch. Cyclical companies
benefited, as metal/mining stock Rio Tinto doubled and Total, a French oil
company, advanced 53%. As in Asia, technology and telecom played a major
role in European result. Sonera, a Finnish cellular provider, rose by 350%,
while cellular phone maker Nokia added 195% during the year. Italian
Internet companies also provided substantial returns.
Expecting higher volatility in the markets, Scudder Kemper foresees strong
stock market performance overseas. Key themes for 1999 such as stronger
economic growth, continued corporate restructuring and mergers will persist
in the new year. Overall, the portfolio managers believe the fund is well
positioned to continue to add value in 2000.
FINAL COMMENTS
Over short-term periods, investment styles come into and out of favor. In 1999,
technology stocks were dominant, and investors in growth stocks were rewarded.
In contrast, value stocks posted much lower returns, many posting negative
returns for the year.
Wilshire believes that patient investors will prevail in the long-term. Our
research shows that more often than not, investors who chase performance are
disappointed as they often make their new investments just prior to a period of
underperformance. Consistent with the way the Horace Mann Funds have been
managed in the past, the subadvisers and Wilshire maintain a long-term view to
allow the funds and their shareholders to achieve their long-term goals despite
the temporary ups and downs in the stock and bond markets.
Wilshire remains fully committed to providing the Horace Mann Funds with an
investment approach that is sensible and attractive for long-term investors.
While there may be bumps along the way, we fully expect sound results over the
long term. We echo Horace Mann's appreciation of your investment in the funds,
and your continued confidence in our long-term philosophy and process.
With best wishes for 2000,
/s/ Michael P. O'Keeffe
Michael P. O'Keeffe, CFA
Vice President Wilshire Associates Incorporated
/s/ Thomas M. Goodrum
Thomas M. Goodrum, Jr., CFA Vice President & Principal
Wilshire Associates Incorporated
9
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10
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Annual Report
December 31, 1999
Horace Mann Mutual Funds
Growth Fund
Balanced Fund
Income Fund
Short-Term Investment Fund
Small Cap Growth Fund
International Equity Fund
Socially Responsible Fund
Board of Trustees
A. Thomas Arisman
A.L. Gallop
Richard A. Holt
Richard D. Lang
Harriet A. Russell
George J. Zock
Officers of the Funds
George J. Zock
President and Chairman
A. Thomas Arisman
Vice President
Ann Caparros
Secretary and
Ethics Compliance Officer
William Kelly
Treasurer and Regulatory Compliance Officer
Linda L. Sacco
Assistant Secretary
Roger Fisher
Controller
Diane M. Barnett
Tax Compliance Officer
- --------------------------------------------------------------------------------
Administrator
Horace Mann Investors, Inc.
#1 Horace Mann Plaza Springfield, IL 62715
Investment Adviser
Wilshire Associates Incorporated
1299 Ocean Avenue
Santa Monica, CA 90401-1085
Custodian
State Street Bank and Trust Company
801 Pennsylvania Avenue Kansas City, MO 64105
Independent Auditors
KPMG LLP
303 East Wacker Drive Chicago, IL 60601
Investment Subadvisers
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154-0010
Brinson Partners, Inc.
209 South LaSalle Street Chicago, IL 60604
Mellon Equity Associates, LLP
500 Grant Street, Suite 4200 Pittsburgh, PA 15258
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
Wellington Management Company, LLP
75 State Street Boston, MA 02109
11
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HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Financial Highlights
December 31, 1999
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income (Loss)1 Gain (Loss)1 Operations1 Income Gains Distributions
GROWTH FUND 6
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
BALANCED FUND 6
- ------------------------------------------------------------------------------------------------------------------------------
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
INCOME FUND 5
- ------------------------------------------------------------------------------------------------------------------------------
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.
12
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HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
<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 Return2,3 (in thousands) Net Assets4 Net Assets4 Rate Expenses Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$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 -- --
- -----------------------------------------------------------------------------------------------------------------------------
$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 -- --
- -----------------------------------------------------------------------------------------------------------------------------
$12.24 (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 1999.
6 Certain expenses for the Growth and Balanced funds were assumed or waived
during 1999.
13
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Financial Highlights (concluded)
December 31, 1999
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income (Loss)1 Gain (Loss)1 Operations1 Income Gains Distributions
SHORT-TERM FUND4
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
SMALL CAP
GROWTH FUND5
- ----------------------------------------------------------------------------------------------------------------------------------
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 -- -- --
INTERNATIONAL
EQUITY FUND5
- ----------------------------------------------------------------------------------------------------------------------------------
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
SOCIALLY
RESPONSIBLE FUND5
- ----------------------------------------------------------------------------------------------------------------------------------
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" 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.
14
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of Ratio of
Net Asset Net Assets Expenses Net Income Portfolio Ratio of
Value End Total End of Period to Average to Average Turnover Ratio of Net Investment
of Period Return2,3 (in thousands) Net Assets Net Assets Rate Expenses Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
- -----------------------------------------------------------------------------------------------------------------------------
$ 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 17.016 16,525 0.78 (0.19) 91.49 1.44 (0.85)
- -----------------------------------------------------------------------------------------------------------------------------
$ 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 3.466 5,214 0.46 1.29 31.99 1.82 (0.07)
- -----------------------------------------------------------------------------------------------------------------------------
$ 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 23.046 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 December 31, 1999.
5 Certain expenses for the Small Cap Growth Fund, International Equity Fund
and Socially Responsible Fund were assumed or waived by Horace Mann
Investors since their inception, March 10, 1997.
6 The returns are not annualized.
15
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[PIE CHART]
Cash & Other Net Assets 1.3%
Common & Preferred Stock 98.7%
Statement of Investments Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
Aerospace 2.38%
Boeing Co. 57,000 $ 2,369
Lockheed Martin Corp. 183,600 4,016
Raytheon Co.- B 193,200 5,132
United Technologies Corp. 51,900 3,373
- --------------------------------------------------------------------------------
14,890
Air Transportation 3.07%
Alaska Air Group, Inc.* 25,800 906
AMR Corp.* 22,500 1,507
Delta Air Lines, Inc. 21,600 1,076
FDX Corp.* 383,000 15,679
- --------------------------------------------------------------------------------
19,168
Apparel 0.14%
VF Corp. 28,200 846
Automotive 1.10%
Cummins Engine Co., Inc. 19,200 928
Ford Motor Co. 111,400 5,953
- --------------------------------------------------------------------------------
6,881
Banks & Financial Services 15.23%
A.G. Edwards, Inc. 38,200 1,224
Associates First Capital Corp.- A 67,100 1,841
Bank of America Corp. 127,200 6,384
Bear Stearns Cos., Inc. 23,010 984
Chase Manhattan Corp. 183,400 14,248
Citigroup, Inc. 55,500 3,084
Comerica, Inc. 66,300 3,095
Federal National Mortgage Association 79,800 4,983
Firstar Corp. 44,200 934
First Union Corp. 39,000 1,280
FleetBoston Financial Group 335,954 11,695
Greenpoint Financial Corp. 63,700 1,517
Household Int'l, Inc. 167,900 6,254
KeyCorp 96,100 2,126
MBNA Corp. 89,000 2,425
Merrill Lynch & Co., Inc. 8,000 668
Morgan Stanley Dean Witter & Co. 45,700 6,524
PNC Bank Corp. 118,800 5,287
Providian Financial Corp. 39,800 3,624
Southtrust Corp. 92,400 3,488
US Bancorp 187,400 4,462
Wachovia Corp. 23,900 1,625
Wells Fargo & Co. 181,000 7,319
- --------------------------------------------------------------------------------
95,071
Business Machines 5.08%
Compaq Computer Corp. 321,700 8,706
Gateway, Inc.* 45,400 3,272
Hewlett-Packard Co. 50,200 5,720
International Business Machines Corp. 24,000 2,592
Lexmark Int'l Group, Inc.- A* 53,100 4,806
Xerox Corp. 294,000 6,670
- --------------------------------------------------------------------------------
31,766
See notes to the financial statements.
16
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Business Services 6.51%
America Online, Inc.* 12,700 $ 958
Automatic Data Processing, Inc. 33,400 1,799
Computer Sciences Corp.* 80,500 7,617
DST Systems, Inc.* 40,200 3,068
Electronic Data Systems Corp. 224,600 15,034
First Data Corp. 197,200 9,724
Tyco Int'l Ltd. 65,000 2,527
- --------------------------------------------------------------------------------
40,727
Chemicals 3.34%
Dow Chemical Co. 34,300 4,583
DuPont (E.I.) de Nemours & Co. 83,172 5,479
Monsanto Co. 118,800 4,232
PPG Industries, Inc. 57,000 3,566
Praxair, Inc. 46,800 2,355
Rohm & Haas Co. 17,200 700
- --------------------------------------------------------------------------------
20,915
Communication Services 6.92%
Alltel Corp. 44,700 3,696
AT&T Corp. 237,700 12,063
AT&T Corp. - Liberty Media Group - A* 23,500 1,334
Bell Atlantic Corp. 34,800 2,142
BellSouth Corp. 79,500 3,722
GTE Corp. 57,400 4,050
MCI WorldCom, Inc.* 117,000 6,201
SBC Communications, Inc. 164,400 8,015
Sprint FON Group 6,000 615
Telephone & Data Systems, Inc. 11,300 1,424
- --------------------------------------------------------------------------------
43,262
Computer Software Services 4.16%
Cisco Systems, Inc.* 37,600 4,026
Compuware Corp.* 320,800 11,930
EMC Corp.* 7,900 863
Microsoft Corp.* 68,900 8,040
Oracle Corp.* 10,300 1,154
- --------------------------------------------------------------------------------
26,013
Construction 1.51%
Lafarge Corp. 44,400 1,227
Masco Corp. 323,500 8,209
- --------------------------------------------------------------------------------
9,436
Consumer Products 2.78%
Colgate-Palmolive Co. 12,100 786
Fortune Brands, Inc. 26,900 889
Gillette Co. (The) 7,200 297
Minnesota Mining & Mfg. Co. 6,500 636
Newell Rubbermaid, Inc. 210,800 6,113
Phillip Morris Cos., Inc. 278,300 6,453
Procter & Gamble Co. (The) 20,300 2,224
- --------------------------------------------------------------------------------
17,398
See notes to the financial statements.
17
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued) Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Electronic Equipment & Services 3.55%
Analog Devices, Inc.* 13,500 $ 1,255
Cypress Semiconductor Corp.* 64,400 2,085
Intel Corp. 31,800 2,616
KLA-Tencor Corp.* 12,800 1,425
Lucent Technologies, Inc. 58,400 4,369
Micron Technology, Inc.* 12,500 972
Motorola, Inc. 40,400 5,949
Tellabs, Inc.* 35,300 2,264
Texas Instruments, Inc. 13,200 1,279
- --------------------------------------------------------------------------------
22,214
Energy 5.76%
Chevron Corp. 62,600 5,423
Coastal Corp. 66,600 2,360
Diamond Offshore Drilling, Inc. 39,000 1,192
Duke Energy Corp. 24,700 1,238
Exxon Corp. 192,348 15,496
Halliburton Co. 34,100 1,373
Royal Dutch Petroleum Co. 103,600 6,261
Tidewater, Inc. 38,800 1,397
USX-Marathon Group 50,800 1,254
- --------------------------------------------------------------------------------
35,994
Entertainment & Recreation 0.98%
Carnival Corp. 42,700 2,042
Mattel, Inc. 313,200 4,111
- --------------------------------------------------------------------------------
6,153
Food & Beverage 0.99%
Anheuser-Busch Cos., Inc. 11,300 801
Darden Restaurants, Inc. 55,200 1,001
IBP, Inc. 30,500 549
McDonald's Corp. 18,600 750
PepsiCo, Inc. 23,800 839
Ralston Purina Co. 33,500 934
Sara Lee Corp. 35,500 783
Tyson Foods, Inc.- A 33,400 543
- --------------------------------------------------------------------------------
6,200
Health Care & Pharmaceuticals 5.79%
Abbott Laboratories 35,800 1,300
American Home Products Corp. 44,400 1,751
Bausch & Lomb, Inc. 24,700 1,690
Baxter International, Inc. 142,500 8,951
Becton, Dickinson and Co. 66,500 1,779
Bristol-Myers Squibb Co. 23,000 1,476
Cardinal Health, Inc. 12,000 574
Columbia/HCA Healthcare Corp. 31,800 932
Covance, Inc.* 62,900 680
Johnson & Johnson 15,000 1,397
Lilly (Eli) & Co. 48,500 3,225
Merck & Co., Inc. 24,800 1,663
Pharmacia & Upjohn, Inc. 35,700 1,607
Schering-Plough Corp. 26,000 1,097
United Healthcare Corp. 127,200 6,758
Warner-Lambert Co. 16,100 1,319
- --------------------------------------------------------------------------------
36,199
See notes to the financial statements.
18
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Growth Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
<S> <C> <C>
Insurance 5.94%
ACE Ltd. 40,000 $ 667
Allstate Corp. 125,100 3,002
AMBAC Financial Group 33,000 1,722
American Int'l Group, Inc. 18,375 1,987
Aon Corp. 118,100 4,724
CIGNA Corp. 165,700 13,349
Financial Security Assurance Hldgs. Ltd. 41,600 2,168
Marsh & McLennan Cos., Inc. 44,200 4,229
MGIC Investment Corp. 35,000 2,107
Old Republic Int'l Corp. 119,900 1,634
XL Capital Ltd.- A 30,300 1,572
- --------------------------------------------------------------------------------
37,161
Manufacturing Diversified 4.95%
Caterpillar, Inc. 19,400 913
Cooper Industries, Inc. 29,000 1,173
Dover Corp. 33,800 1,534
Emerson Electric Co. 129,200 7,413
General Electric Co. 30,700 4,751
Honeywell International, Inc. 69,100 3,986
Illinois Tool Works, Inc. 147,000 9,932
Ingersoll-Rand Co. 22,800 1,255
- --------------------------------------------------------------------------------
30,957
Media 2.60%
Disney (Walt) Co. 42,500 1,243
Fox Entertainment Group* 109,300 2,726
Gannett, Inc. 64,300 5,244
Infinity Broadcasting Corp. - A* 69,700 2,522
Time Warner, Inc. 35,200 2,550
Tribune Co. 35,600 1,960
- --------------------------------------------------------------------------------
16,245
Metals & Mining 0.63%
AK Steel Holding Corp. 43,300 817
Aluminum Co. of America 37,400 3,104
- --------------------------------------------------------------------------------
3,921
Optical & Photo 1.22%
Corning, Inc. 40,700 5,248
Eastman Kodak Co. 36,200 2,398
- --------------------------------------------------------------------------------
7,646
Paper & Forest Product 2.64%
Champion Int'l Corp. 33,500 2,075
Georgia-Pacific Corp. 47,400 2,406
International Paper Co. 44,500 2,511
Kimberly-Clark Corp. 135,500 8,841
Louisiana-Pacific Corp. 49,300 703
- --------------------------------------------------------------------------------
16,536
Railroad & Shipping 2.99%
Burlington Northern Santa Fe 518,900 12,583
CSX Corp. 8,600 270
Norfolk Southern Corp. 183,700 3,766
Union Pacific Corp. 47,300 2,063
- --------------------------------------------------------------------------------
18,682
</TABLE>
See notes to the financial statements.
19
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail 3.46%
Albertson's Inc. 19,800 $ 638
Circuit City Stores 24,000 1,082
Dayton Hudson Corp. 26,600 1,953
Federated Department Stores, Inc.* 31,300 1,583
Kroger Co.* 86,600 1,635
Limited, Inc. (The) 32,500 1,408
Lowe's Companies, Inc. 38,900 2,324
May Department Stores Co. (The) 76,600 2,470
Safeway, Inc.* 18,500 658
Sears Roebuck & Co. 85,200 2,593
TJX Cos., Inc. 71,800 1,467
Wal-Mart Stores, Inc. 54,700 3,781
- --------------------------------------------------------------------------------
21,592
Utilities 4.66%
Central & South West Corp. 319,500 6,390
Consolidated Edison, Inc. 40,400 1,394
Dominion Resources, Inc. (Va) 142,400 5,589
DTE Energy Co. 39,200 1,230
El Paso Energy Corp. 17,600 683
Energy East Corp. 47,800 995
Entergy Corp. 147,100 3,788
FPL Group, Inc. 38,700 1,657
GPU, Inc. 62,400 1,868
National Fuel Gas Co. 30,000 1,395
Pinnacle West Capital Corp. 50,300 1,537
Southern Co. 86,800 2,040
Unicom Corp. 17,300 580
- --------------------------------------------------------------------------------
29,146
Waste Management 0.24%
Republic Services, Inc.* 105,600 1,518
Total Common Stock 98.62% 616,537
(Cost $610,507)
- --------------------------------------------------------------------------------
PREFERRED STOCK
Chemical 0.06%
Monsanto Co. 11,600 384
(Cost $384)
- --------------------------------------------------------------------------------
Total Common and Preferred Stock 98.68% $616,921
(Cost $610,891)
- --------------------------------------------------------------------------------
See notes to the financial statements.
20
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Growth Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
SHORT-TERM
INVESTMENTS
State Street Bank and Trust - Repurchase Agreement
2.50%, 01/03/00, (secured by $3,131
US Treasury Bond, 8.75%, 08/15/20) $ 3,064 $ 3,064
State Street Bank and Trust - Repurchase Agreement
2.50%, 01/03/00, (secured by $3,729
US Treasury Bond, 8.75%, 08/15/20) 3,650 3,650
Warburg Dillon Read LLC - Repurchase Agreement
2.40%, 01/03/00, (secured by $841
US Treasury Bond, 7.25%, 08/15/22) 824 824
- --------------------------------------------------------------------------------
Total Short-Term Investments 1.21% 7,538
(Cost $7,538)
================================================================================
Total Investments 99.89% 624,459
(Cost $618,429)
Cash and Other Assets in Excess of Liabilities 0.11% 674
- --------------------------------------------------------------------------------
Net Assets 100.00% $625,133
================================================================================
* Non-income producing for the year ended December 31, 1999, as this security
did not pay dividends.
See notes to the financial statements. 21
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[CHART]
Cash And Other Net Assets 2.2%
Municipal Bonds 1.6%
U.S. and Foreign Corporate Bonds/Notes 17.8%
U.S. & Foreign Government & Agency Obligations 18.2%
Common & Preferred Stock 60.2%
Statement of Investments
Balanced Fund
December 31, 1999
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
Aerospace 1.43%
Boeing Co. 22,300 $ 927
Lockheed Martin Corp. 69,600 1,523
Raytheon Co.- B 75,100 1,995
United Technologies Corp. 20,000 1,300
- -------------------------------------------------------------------------------
5,745
Air Transportation 1.85%
Alaska Air Group, Inc.* 10,200 358
AMR Corp.* 8,000 536
Delta Air Lines, Inc. 8,500 423
FDX Corp.* 149,100 6,104
- -------------------------------------------------------------------------------
7,421
Apparel 0.08%
VF Corp. 11,000 330
Automotive 0.67%
Cummins Engine Co., Inc. 7,500 362
Ford Motor Co. 43,700 2,335
- -------------------------------------------------------------------------------
2,697
Banks & Financial Services 9.20%
A.G. Edwards, Inc. 14,900 478
Associates First Capital Corp.- A 21,200 582
Bank of America Corp. 49,800 2,499
Bear Stearns Cos., Inc. 9,040 386
Chase Manhattan Corp. 71,400 5,547
Citigroup, Inc. 22,220 1,235
Comerica, Inc. 25,700 1,200
Federal National Mortgage Association 31,300 1,954
Firstar Corp. 17,300 365
First Union Corp. 15,500 509
FleetBoston Financial Group 131,071 4,563
Greenpoint Financial Corp. 24,900 593
Household Int'l, Inc. 65,300 2,432
KeyCorp 37,700 834
MBNA Corp. 34,800 948
Merrill Lynch & Co., Inc. 4,200 351
Morgan Stanley Dean Witter & Co. 18,000 2,569
PNC Bank Corp. 46,300 2,060
Providian Financial Corp. 15,600 1,420
Southtrust Corp. 36,100 1,363
US Bancorp 71,900 1,712
Wachovia Corp. 8,200 558
Wells Fargo & Co. 70,400 2,847
- -------------------------------------------------------------------------------
37,005
Business Machines 3.08%
Compaq Computer Corp. 125,100 3,386
Gateway, Inc.* 17,700 1,275
Hewlett-Packard Co. 19,600 2,233
International Business Machines Corp. 9,600 1,037
Lexmark Int'l Group, Inc.- A* 20,700 1,873
Xerox Corp. 113,900 2,584
- -------------------------------------------------------------------------------
12,388
See notes to the financial statements.
22
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued) Balanced Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Business Services 3.98%
America Online, Inc.* 5,100 $ 385
Automatic Data Processing, Inc. 12,700 684
Computer Sciences Corp.* 32,000 3,028
DST Systems, Inc.* 15,800 1,206
Electronic Data Systems Corp. 87,300 5,844
First Data Corp. 78,800 3,886
Tyco Int'l Ltd. 25,800 1,003
- -------------------------------------------------------------------------------
16,036
Chemicals 2.01%
Dow Chemical Co. 13,300 1,777
DuPont (E.I.) de Nemours & Co. 32,035 2,110
Monsanto Co. 45,900 1,635
PPG Industries, Inc. 22,300 1,395
Praxair, Inc. 18,200 916
Rohm & Haas Co. 6,600 269
- -------------------------------------------------------------------------------
8,102
Communication Services 4.28%
Alltel Corp. 17,600 1,455
AT&T Corp. 94,600 4,801
AT&T Corp. - Liberty Media Group - A* 8,600 488
American Mobile Satellite Corp. (warrants)* ** 25 1
Bell Atlantic Corp. 14,100 868
BellSouth Corp. 31,200 1,461
GTE Corp. 22,500 1,588
KMC Telecom Holdings, Inc. (warrants)* ** 475 1
MCI WorldCom, Inc.* 47,100 2,496
SBC Communications, Inc. 66,500 3,242
Sprint FON Group 2,400 246
Telephone & Data Systems, Inc. 4,400 554
- -------------------------------------------------------------------------------
17,201
Computer Software Services 2.57%
Cisco Systems, Inc.* 15,400 1,649
Compuware Corp.* 125,000 4,648
EMC Corp.* 3,400 371
Microsoft Corp.* 27,200 3,174
Oracle Corp.* 4,600 515
- -------------------------------------------------------------------------------
10,357
Construction 0.91%
Lafarge Corp. 17,100 472
Masco Corp. 125,800 3,192
- -------------------------------------------------------------------------------
3,664
Consumer Products 1.72%
Colgate-Palmolive Co. 5,600 364
Fortune Brands, Inc. 10,400 344
Gillette Co. (The) 2,800 115
Minnesota Mining & Mfg. Co. 3,000 294
Newell Rubbermaid, Inc. 82,000 2,378
Phillip Morris Cos., Inc. 111,200 2,578
Procter & Gamble Co. (The) 7,800 855
- -------------------------------------------------------------------------------
6,928
Electronic Equipment & Services 2.18%
Analog Devices, Inc.* 6,300 586
Cypress Semiconductor Corp.* 25,200 816
See notes to the financial statements.
23
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Intel Corp. 12,400 $ 1,020
KLA-Tencor Corp.* 5,000 557
Lucent Technologies, Inc. 23,400 1,751
Micron Technology, Inc.* 5,000 389
Motorola, Inc. 15,300 2,253
Tellabs, Inc.* 14,000 898
Texas Instruments, Inc. 5,300 513
- --------------------------------------------------------------------------------
8,783
Energy 3.51%
Chevron Corp. 24,200 2,096
Coastal Corp. 26,000 921
Diamond Offshore Drilling, Inc. 15,300 468
Duke Energy Corp. 9,900 496
Exxon Corp. 76,101 6,131
Halliburton Co. 12,200 491
Royal Dutch Petroleum Co. 41,200 2,490
Tidewater, Inc. 15,200 547
USX-Marathon Group 19,900 491
- --------------------------------------------------------------------------------
14,131
Entertainment & Recreation 0.60%
Carnival Corp. 16,800 803
Mattel, Inc. 123,900 1,626
- --------------------------------------------------------------------------------
2,429
Food & Beverage 0.62%
Anheuser-Busch Cos., Inc. 4,800 341
Darden Restaurants, Inc. 21,600 391
IBP, Inc. 11,800 212
McDonald's Corp. 7,000 282
PepsiCo, Inc. 10,600 374
Ralston Purina Co. 13,100 365
Sara Lee Corp. 14,000 309
Tyson Foods, Inc.- A 13,100 213
- --------------------------------------------------------------------------------
2,487
Health Care & Pharmaceuticals 3.52%
Abbott Laboratories 14,100 512
American Home Products Corp. 18,100 714
Bausch & Lomb, Inc. 9,700 664
Baxter International, Inc. 55,600 3,492
Becton, Dickinson and Co. 25,600 685
Bristol-Myers Squibb Co. 8,300 533
Cardinal Health, Inc. 4,500 215
Columbia/HCA Healthcare Corp. 16,300 478
Covance, Inc.* 24,200 262
Johnson & Johnson 5,000 466
Lilly (Eli) & Co. 18,900 1,257
Merck & Co., Inc. 10,200 684
Pharmacia & Upjohn, Inc. 13,900 626
Schering-Plough Corp. 10,300 435
United Healthcare Corp. 49,500 2,630
Warner-Lambert Co. 6,500 533
- --------------------------------------------------------------------------------
14,186
See notes to the financial statements
24
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Insurance 3.61%
ACE Ltd. 16,100 $ 269
Allstate Corp. 49,000 1,176
AMBAC Financial Group 12,900 673
American Int'l Group, Inc. 8,875 960
Aon Corp. 43,450 1,738
CIGNA Corp. 64,600 5,204
Financial Security Assurance Hldgs. Ltd. 16,300 850
Marsh & McLennan Cos., Inc. 16,200 1,550
MGIC Investment Corp. 13,800 831
Old Republic Int'l Corp. 47,000 640
XL Capital Ltd.- A 12,000 623
- --------------------------------------------------------------------------------
14,514
Manufacturing (Diversified) 3.07%
Caterpillar, Inc. 8,800 414
Cooper Industries, Inc. 11,300 457
Dover Corp. 13,300 603
Emerson Electric Co. 50,500 2,897
General Electric Co. 12,400 1,919
Honeywell International, Inc. 27,400 1,581
Illinois Tool Works, Inc. 59,300 4,006
Ingersoll-Rand Co. 8,900 490
- --------------------------------------------------------------------------------
12,367
Media 1.57%
Disney (Walt) Co. 15,000 439
Fox Entertainment Group* 42,900 1,070
Gannett, Inc. 25,400 2,072
Infinity Broadcasting Corp. - A* 27,200 984
Time Warner, Inc. 13,800 1,000
Tribune Co. 13,700 754
- --------------------------------------------------------------------------------
6,319
Metals & Mining 0.39%
AK Steel Hldgs. Corp. 16,900 319
Aluminum Co. of America 15,000 1,245
- --------------------------------------------------------------------------------
1,564
Optical & Photo 0.74%
Corning, Inc. 15,800 2,037
Eastman Kodak Co. 14,200 941
- --------------------------------------------------------------------------------
2,978
Paper & Forest Products 1.62%
Champion Int'l Corp. 13,200 818
Georgia-Pacific Corp. 18,600 944
International Paper Co. 18,100 1,022
Kimberly-Clark Corp. 53,000 3,458
Louisiana-Pacific Corp. 19,300 275
- --------------------------------------------------------------------------------
6,517
Railroad & Shipping 1.82%
Burlington Northern Santa Fe 201,800 4,894
CSX Corp. 5,400 169
Norfolk Southern Corp. 71,500 1,466
Union Pacific Corp. 18,500 807
- --------------------------------------------------------------------------------
7,336
See notes to the financial statements.
25
<PAGE>
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail 2.13%
Albertson's Inc. 7,700 $ 248
Circuit City Stores 9,600 433
Dayton Hudson Corp. 11,300 830
Federated Department Stores, Inc.* 12,300 622
Kroger Co.* 33,700 636
Limited, Inc. (The) 12,800 554
Lowe's Companies, Inc. 15,200 908
May Department Stores Co. (The) 30,500 984
Safeway, Inc.* 7,200 256
Sears Roebuck & Co. 33,400 1,017
TJX Cos., Inc. 28,100 574
Wal-Mart Stores, Inc. 21,900 1,514
- --------------------------------------------------------------------------------
8,576
Utilities 2.81%
Central & South West Corp. 124,300 2,486
Consolidated Edison, Inc. 15,900 549
Dominion Resources, Inc. (Va) 55,400 2,174
DTE Energy Co. 15,400 483
El Paso Energy Corp. 6,800 264
Energy East Corp. 18,700 389
Entergy Corp. 56,000 1,442
FPL Group, Inc. 14,900 638
GPU, Inc. 24,500 733
National Fuel Gas Co. 11,600 539
Pinnacle West Capital Corp. 20,000 611
Southern Co. 34,000 799
Unicom Corp. 6,600 221
- --------------------------------------------------------------------------------
11,328
Waste Management 0.15%
Republic Services, Inc.* 41,300 594
- --------------------------------------------------------------------------------
Total Common Stock 60.12% $241,983
(Cost $238,999)
- --------------------------------------------------------------------------------
PREFERRED STOCK
Chemical 0.03%
Monsanto Co. 4,300 142
(Cost $203)
- --------------------------------------------------------------------------------
Total Common and Preferred Stock 60.15% 242,125
(Cost $239,202)
See notes to the financial statements.
26
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT AND
AGENCY OBLIGATIONS
Treasury Bonds/Notes
11.875%, 11/15/03 $3,000 $3,541
10.375%, 11/15/09 4,000 4,601
12.00%, 08/15/13 4,000 5,341
Federal Home Loan Banks
5.905%, 03/27/08 1,000 927
Federal National Mortgage Association
6.42%, 02/27/08 1,500 1,402
6.50%, 04/25/08 1,800 1,686
6.60%, 05/01/08 1,500 1,411
6.46%, 06/26/08 1,000 934
6.36%, 08/14/08 1,215 1,127
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 08/01/01 2 2
9.50%, 09/01/01 2 2
9.50%, 10/01/01 5 5
9.25%, 11/01/02 16 16
8.25%, 10/01/07 35 35
8.25%, 11/01/07 33 34
8.75%, 05/01/08 25 25
8.50%, 08/01/08 15 15
9.00%, 09/01/08 37 38
8.00%, 09/01/09 31 31
8.00%, 04/01/10 37 37
7.00%, 09/01/10 11 11
7.00%, 10/01/10 67 67
7.00%, 12/01/10 63 62
7.00%, 01/01/11 1,223 1,214
7.00%, 02/01/11 1,627 1,613
7.00%, 03/01/11 2,707 2,685
7.00%, 04/01/11 989 981
7.00%, 07/01/11 684 678
6.00%, 08/01/12 64 61
6.00%, 09/01/12 67 64
6.00%, 01/01/13 30 28
6.00%, 02/01/13 803 762
6.00%, 06/01/13 108 103
6.00%, 10/01/13 655 622
6.00%, 11/01/13 859 815
6.50%, 05/01/14 512 497
Federal National Mortgage Association
(Mortgage Backed Securities)
7.043%, 07/01/06 862 853
6.85%, 10/01/07 1,685 1,637
6.79%, 11/01/07 1,101 1,074
6.62%, 12/01/07 402 385
6.44%, 01/01/08 588 558
6.50%, 01/01/08 123 117
6.51%, 01/01/08 83 79
6.58%, 01/01/08 102 98
6.62%, 01/01/08 59 56
See notes to the financial statements.
27
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
U.S. AND FOREIGN
GOVERNMENT AND
AGENCY OBLIGATIONS
(continued)
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
6.47%, 02/01/08 $ 442 $ 420
6.265%, 06/01/08 197 185
6.34%, 06/01/08 236 222
6.42%, 06/01/08 295 279
6.23%, 07/01/08 197 184
6.25%, 07/01/08 985 922
6.31%, 07/01/08 138 130
6.21%, 08/01/08 954 892
5.845%, 01/01/09 401 365
5.98%, 01/01/09 335 308
6.23%, 01/01/09 373 347
8.75%, 02/01/10 190 195
6.50%, 11/01/12 1,276 1,241
10.25%, 07/01/13 6 6
8.00%, 08/01/14 656 664
8.50%, 09/01/14 282 291
8.50%, 01/01/15 168 173
8.50%, 03/01/15 233 240
6.00%, 06/01/18 1,822 1,692
6.00%, 12/01/18 291 270
6.00%, 01/01/19 285 265
7.50%, 10/01/22 474 471
7.50%, 07/01/23 217 215
Government National Mortgage Association
(Mortgage Backed Securities)
11.00%, 12/15/00 7 7
9.50%, 08/20/01 7 7
9.50%, 10/20/01 10 10
9.50%, 07/20/02 10 10
9.50%, 12/20/02 11 11
9.50%, 01/20/03 9 10
9.50%, 02/20/03 12 13
9.50%, 05/20/03 23 24
9.50%, 08/20/03 15 15
9.50%, 09/20/03 34 35
9.50%, 11/20/03 15 15
9.50%, 09/20/04 8 8
8.25%, 05/15/06 63 65
6.50%, 12/15/12 287 278
6.50%, 02/15/13 398 386
6.50%, 05/15/13 719 697
6.50%, 08/15/13 444 431
6.50%, 10/15/13 237 230
6.50%, 02/15/14 275 267
6.00%, 03/15/14 463 439
8.50%, 01/15/20 24 25
8.50%, 02/15/21 102 106
8.50%, 06/15/21 63 65
8.50%, 08/15/21 14 14
8.00%, 05/20/22 225 227
7.50%, 01/15/23 809 804
7.50%, 02/15/23 36 36
8.50%, 04/15/23 133 137
See notes to the financial statements.
28
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
================================================================================
U.S. AND FOREIGN
GOVERNMENT AND
AGENCY OBLIGATIONS
(continued)
7.50%, 05/15/23 $ 1,050 $ 1,043
7.50%, 06/15/23 1,111 1,104
7.50%, 08/15/23 572 568
7.50%, 09/15/23 215 214
7.50%, 11/15/23 776 771
7.50%, 12/15/23 3,242 3,225
6.50%, 03/15/28 64 60
6.50%, 04/15/28 1,085 1,019
6.50%, 06/15/28 493 462
6.50%, 07/15/28 288 270
6.50%, 08/15/28 703 661
6.50%, 10/15/28 658 617
6.50%, 01/15/29 2,282 2,159
6.50%, 02/15/29 300 282
7.00%, 03/15/29 188 181
7.00%, 04/15/29 846 818
7.00%, 06/15/29 448 433
7.00%, 07/15/29 1,429 1,379
7.00%, 08/15/29 325 314
7.00%, 09/15/29 727 702
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
Credit Suisse First Boston 1997-C2
6.55%, 11/17/07 1,200 1,133
GE Capital Mortgage Services, Inc.
6.00%, 04/25/09 1,000 953
FNMA 1993-182 Class H
5.00%, 09/25/23 1,709 1,583
FNMA 1994-19 Class B
5.00%, 01/25/24 1,538 1,436
Foreign (U.S. dollar denominated)
SCL Term Aereo Santiago**
6.95%, 07/01/12 1,500 1,363
- --------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 18.24% 73,429
(Cost $80,982)
================================================================================
MUNICIPAL BONDS
California Hsg Fin Agy Rev
8.16%, 02/01/28 1,065 1,076
Denver, CO City & County Sch. Dist
6.79%, 12/15/08 930 888
Horry Cnty, SC Airport Rev
7.38%, 07/01/12 1,450 1,392
Ohio State Taxable Dev Assistance
7.60%, 10/01/16 1,250 1,220
Oxnard, CA Un High Sch. Dist
7.78%, 08/01/17 1,000 980
San Bernardino County
7.09%, 08/01/11 1,000 954
- --------------------------------------------------------------------------------
Total Municipal Bonds 1.62%
(Cost $7,020) 6,510
See notes to the financial statements.
29
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
================================================================================
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
Accuride Corp.
9.25%, 02/01/08 $ 300 $ 273
Advanced Micro Devices, Inc.
11.00%, 08/01/03 290 286
AK Steel Corp.
9.125%, 12/15/06 250 254
AK Steel Corp.
7.875%, 02/15/09 80 76
Alaris Medical System, Inc.
9.75%, 12/01/06 50 43
Alaris Medical System, Inc.+
0.00%, 08/01/08 375 154
Alaska Communication Hldgs., Inc.
9.375%, 05/15/09 100 97
Allbritton Communication Co.
9.75%, 11/30/07 200 201
Allbritton Communication Co.
8.875%, 02/01/08 325 312
Allied Waste Industries
7.625%, 01/01/06 145 130
AMC Entertainment, Inc.
9.50%, 03/15/09 300 267
AMC Entertainment, Inc.
9.50%, 02/01/11 100 89
American Media Operations, Inc.
10.25%, 05/01/09 150 152
American Standard, Inc.
7.625%, 02/15/10 70 64
Amphenol Corp.
9.875%, 05/15/07 250 261
AMR Corp.
9.00%, 09/15/16 1,550 1,635
AMSC Acquistion, Inc.
12.25%, 03/31/08 75 59
Arcadia Financial Ltd.
11.50%, 03/15/07 25 26
ARCO Chemical Co.
9.80%, 02/01/20 200 200
Armco, Inc.
9.00%, 09/15/07 275 278
Aurora Foods, Inc.
9.875%, 02/15/07 100 101
Aurora Foods, Inc.
8.75%, 07/01/08 100 96
Aztar Corp.
8.875%, 05/15/07 275 264
B & G Foods Incications Corp.
9.625%, 08/01/07 275 244
Banponce Corp.
6.75%, 12/15/05 1,760 1,651
Bayou Steel Corp.
9.50%, 05/15/08 100 93
Bell Sports, Inc.
11.00%, 08/15/08 250 250
See notes to the financial statements.
30
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
================================================================================
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Benedek Communications Corp. +
0.00%, 05/15/06 $ 185 $ 165
Beverly Enterprises
9.00%, 02/15/06 170 160
Boise Cascade Office Products Co.
7.05%, 05/15/05 1,600 1,473
Bresnan Communications Group +
0.00%, 02/01/09 100 69
BTI Telecom Corp.
10.50%, 09/15/07 350 322
Century Communications Corp. +
0.00%, 01/15/08 950 409
Chancellor Media Corp.
9.375%, 10/01/04 170 175
Charter Communications Hldgs
8.625%, 04/01/09 400 369
Chevy Chase Bank F.S.B
9.25%, 12/01/08 140 132
Chiquita Brands Int'l, Inc.
10.00%, 06/15/09 135 98
Classic Cable, Inc.
9.875%, 08/01/08 175 173
Columbia/HCA Healthcare Corp.
7.25%, 05/20/08 175 157
Commercial Credit Group, Inc.
10.00%, 05/15/09 1,021 1,188
Computer Association Int'l, Inc.
6.50%, 04/15/08 2,000 1,805
Concentric Network Corp.
12.75%, 12/15/07 325 342
Container Corp. of America
9.75%, 04/01/03 170 173
Contour Energy Co.
14.00%, 04/15/03 184 180
Cross Timbers Oil Co.
9.25%, 04/01/07 150 148
Crown Castle Int'l Corp.* +
0.00%, 11/15/07 150 113
CSC Holdings, Inc.
9.25%, 11/01/05 150 156
Decision One Hldgs. Corp. ***
9.75%, 08/01/07 200 1
Del Monte Foods Co. * +
0.00%, 12/15/07 313 241
Delco Remy Int'l, Inc.
10.625%, 08/01/06 105 109
Delco Remy Int'l, Inc.
8.625%, 12/15/07 100 94
Delta Air Lines, Inc.
10.125%, 05/15/10 886 995
Delta Air Lines, Inc.
9.75%, 05/15/21 412 461
Dime Capital Trust
9.33%, 05/06/27 1,500 1,434
See notes to the financial statements.
31
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Doral Financial Corp.
8.50%, 07/08/04 $ 1,500 $ 1,481
Duane Reade, Inc.
9.25%, 12/15/08 500 489
Dura Operating Corp.
9.00%, 05/01/09 185 174
e. spire Communications, Inc. +
0.00%, 04/01/06 250 117
EchoStar DBS Corp.
9.375%, 02/01/09 725 727
El Paso Energy Corp.
6.75%, 05/15/09 1,500 1,400
Emmis Communications Corp.
8.125%, 03/15/09 135 128
Empresa Nacional de Electricid
8.50%, 04/01/09 650 644
Energy Corp of America
9.50%, 05/15/07 425 297
Engle Homes, Inc.
9.25%, 02/01/08 285 257
Exodus Communications, Inc.
11.25%, 07/01/08 250 258
Fairchild Semiconductor Corp.
10.125%, 03/15/07 450 459
Falcon Building Products, Inc. +
0.00%, 06/15/07 500 373
Falcon Holdings Group LP +
0.00%, 04/15/10 255 191
Falcon Holdings Group LP
8.375%, 04/15/10 250 252
Farmers Ins. Exch.**
8.625%, 05/01/24 1,500 1,497
Federal-Mogul Co.
8.80%, 04/15/07 200 194
First Republic Bank
7.75%, 09/15/12 1,500 1,270
Fisher Scientific Int'l, Inc.
9.00%, 02/01/08 250 240
Fonda Group, Inc.
9.50%, 03/01/07 250 209
Frontiervision Hldg. LP o
0.00%, 09/15/07 225 200
Gaylord Container Corp.
9.375%, 06/15/07 150 139
GCI, Inc.
9.75%, 08/01/07 600 551
General Electric Cap Corp.
8.85%, 04/01/05 1,000 1,058
Georgia Gulf Corp.**
10.375%, 11/01/07 45 47
Globalstar Capital Corp.
10.75%, 11/01/04 350 224
Granite Broadcasting Corp.
8.875%, 05/15/08 300 287
See notes to the financial statements.
32
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Grove Worldwide LLC
9.25%, 05/01/08 $ 210 $ 59
GST Networks FDG, Inc. +
0.00%, 05/01/08 250 121
GST Telecommunications, Inc. +
0.00%, 11/15/07 60 57
Hammon, John Q Hotels
8.875%, 02/15/04 250 228
Hayes Wheels Int'l, Inc.
9.125%, 07/15/07 150 145
Heller Financial, Inc.
5.625%, 03/15/00 730 729
Hollywood Casino Corp.
11.25%, 05/01/07 150 157
Hyperion Telecommunications, Inc. +
13.00%, 04/15/03 120 107
Hyperion Telecommunications, Inc.
12.25%, 09/01/04 200 214
ICO, Inc.
10.375%, 06/01/07 130 120
Insight Midwest LP**
9.75%, 10/01/09 70 72
Intermedia Communications, Inc.
8.875%, 11/01/07 200 186
Intermedia Communications, Inc.
8.50%, 01/15/08 350 318
Intermedia Communications, Inc.
8.60%, 06/01/08 150 138
International Wire Group, Inc.
11.75%, 06/01/05 100 103
Interpool, Inc.
7.35%, 08/01/07 1,800 1,484
Iridium Cap Corp. ***
11.25%, 07/15/05 400 20
Iron Mountain, Inc.
8.75%, 09/30/09 240 229
ITC Deltacom, Inc.
8.875%, 03/01/08 100 96
ITC Deltacom, Inc.
9.75%, 11/15/08 95 96
Johnstown America Inds., Inc.
11.75%, 08/15/05 235 239
K & F Industries, Inc.
9.25%, 10/15/07 425 408
Key Energy Services, Inc.
14.00%, 01/15/09 50 55
KMC Telecom Hldgs. Inc. +
0.00%, 02/15/08 475 271
L-3 Communications Corp.
8.50%, 05/15/08 50 47
L-3 Communications Corp.
8.00%, 08/01/08 90 82
LDM Technologies, Inc.
10.75%, 01/15/07 210 191
See notes to the financial statements.
33
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Level 3 Communications, Inc.
9.125%, 05/01/08 $ 175 $ 165
Liberty Financial Cos., Inc.
6.75%, 11/15/08 1,205 1,110
Life Point Hospital Hldgs., Inc.
10.75%, 05/15/09 125 122
Lin Hldgs. Corp. o
0.00%, 03/01/08 850 573
Loews Ciniplex Entertainment Corp.
8.875%, 08/01/08 230 203
LTV Corp.**
11.75%, 11/15/09 175 182
Lumberman's Mutual Casualty Co.**
9.15%, 07/01/26 1,000 957
Lyondell Chemical Co.
9.875%, 05/01/07 495 507
Mattress Discounters Corp.**
12.625%, 07/15/07 175 171
McLeodUSA, Inc.
9.25%, 07/15/07 150 150
McLeodUSA, Inc.
8.375%, 03/15/08 100 94
Mediq PRN Life Support Services
11.00%, 05/01/06 250 100
MGC Communications, Inc.
13.00%, 10/01/04 175 176
MJD Communications, Inc.
9.50%, 05/01/08 100 94
Morgan Stanley Group, Inc.
8.33%, 01/15/07 1,295 1,261
Nash Finch Corp.
8.50%, 05/01/08 250 207
NCNB Corp.
10.20%, 07/15/15 350 417
Neenah Corp.
11.125%, 05/01/07 220 204
New World Pasta Co.
9.250%, 02/15/09 40 37
Newfield Exploration Co.
7.45%, 10/15/07 1,550 1,410
Nextel Communications, Inc. +
0.00%, 10/31/07 1,100 787
NEXTLINK Communications, Inc. +
0.00%, 04/15/08 615 391
NEXTLINK Communications, Inc. +
0.00%, 06/01/09 185 114
Nortek, Inc.
9.125%, 09/01/07 250 242
Nortek, Inc.
8.875%, 08/01/08 55 52
NRG Energy, Inc.
7.50%, 06/15/07 1,550 1,455
Numatics, Inc.
9.625%, 04/01/08 200 150
See notes to the financial statements.
34
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Olympic Financial Ltd.
11.50%, 03/15/07 $ 90 $ 94
Olympic Financial Ltd.
11.50%, 03/15/07 100 102
Owens & Minor, Inc.
10.875%, 06/01/06 415 422
P & L Coal Hldgs. Corp.
9.625%, 05/15/08 650 640
PP & L Capital Funding, Inc.
6.79%, 11/22/04 1,510 1,467
Packaging Corp. of America
9.625%, 04/01/09 100 102
Pierce Leahy Corp.
9.125%, 07/15/07 130 127
Pioneer Americas Acquisition Corp.
9.25%, 06/15/07 110 87
Plains Resources, Inc.
10.25%, 03/15/06 250 244
Prestolite Electric, Inc.
9.625%, 02/01/08 125 98
Pride Petroleum Services, Inc.
9.375%, 05/01/07 100 100
Primedia, Inc.
7.625%, 04/01/08 200 187
PSINet, Inc.
10.00%, 02/15/05 310 307
PSINet, Inc.
11.50%, 11/01/08 125 131
Raytheon Co.
6.30%, 08/15/00 500 498
RBF Finance Co.
11.375%, 03/15/09 210 225
RCN Corp. +
0.00%, 07/01/09 300 196
Republic NY Corp.
9.30%, 06/01/21 1,700 1,879
Resource America, Inc.
12.00%, 08/01/04 120 99
Royster Clark, Inc.**
10.25%, 04/01/09 175 158
SCG Hldgs. Corp.**
12.00%, 08/01/09 215 229
Scotts Co.**
8.625%, 01/15/09 50 48
Seagram Joseph E & Sons, Inc.
8.875%, 09/15/11 1,500 1,590
Silgan Corp.
9.00%, 06/01/09 200 192
Sovereign Specialty Chemicals
9.50%, 08/01/07 430 435
Standard PAC Corp.
8.50%, 06/15/07 450 432
Staples, Inc.
7.125%, 08/15/07 1,000 940
See notes to the financial statements.
35
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(continued)
Stater Brothers Holdings, Inc.
10.75%, 08/15/06 $ 265 $ 268
Station Casinos, Inc.
8.875%, 12/01/08 300 286
Sullivan Graphics, Inc.
12.75%, 08/01/05 295 305
Sunoco, Inc.
7.75%, 09/01/09 1,300 1,267
Telecommunications Tech. Co.
9.75%, 05/15/08 280 255
Tenet Healthcare Corp.
8.125%, 12/01/08 150 140
Texas Petrochemicals Corp.
11.125%, 07/01/06 275 242
Time Warner Telecom LLC
9.75%, 07/15/08 125 129
Toll Corp.
7.75%, 09/15/07 100 92
Triad Hospitals Hldgs., Inc.
11.00%, 05/15/09 225 232
Tricon Global Restraurants, Inc.
7.65%, 05/15/08 150 142
True Temper Sports, Inc.
10.875%, 12/01/08 400 382
Tuboscope Vetco Int'l, Inc.
7.50%, 02/15/08 250 207
TV Guide, Inc.
8.125%, 03/01/09 150 150
United Air Lines, Inc.
10.67%, 05/01/04 672 736
United Air Lines, Inc.
9.125%, 01/15/12 843 867
Universal Hospital Services
10.25%, 03/01/08 150 102
USA Networks, Inc.
6.75%, 11/15/05 1,500 1,433
USX Marathon Group
6.65%, 02/01/06 1,500 1,420
Verio, Inc.
11.25%, 12/01/08 150 157
Viatel, Inc.
11.25%, 04/15/08 231 229
Vlasic Foods Int'l, Inc.
10.25%, 07/01/09 175 167
Webb Del Corp.
10.25%, 02/15/10 100 97
Weirton Steel Corp.
11.375%, 07/01/04 240 232
WESCO Distribution, Inc.
9.125%, 06/01/08 350 330
Western Financial BK-FSB
8.875%, 08/01/07 425 376
Westpoint Stevens, Inc.
7.875%, 06/15/08 110 100
WMX Technologies, Inc.
7.00%, 10/15/06 250 219
See notes to the financial statements.
36
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Balanced Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(concluded)
Asset Backed
AESOP Funding II LLC**
6.14%, 05/20/06 $ 1,000 $ 952
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 97 97
- --------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 17.84% 71,804
(Cost $72,250)
================================================================================
SHORT-TERM
INVESTMENTS
State Street Bank and Trust - Repurchase Agreement
2.50%, 01/03/00, (secured by $1,276
US Treasury Note, 7.50%, 02/15/05) 1,251 1,251
State Street Bank and Trust - Repurchase Agreement
2.50%, 01/03/00, (secured by $403
US Treasury Bond, 6.875%, 08/15/25) 392 392
Warburg Dillon Read LLC - Repurchase Agreement
2.40%, 01/03/00, (secured by $4,813
US Treasury Bond, 10.375%, 11/15/12) 4,718 4,718
- --------------------------------------------------------------------------------
Total Short-Term Investments 1.58% 6,361
(Cost $6,361)
- --------------------------------------------------------------------------------
Total Investments 99.43% 400,229
(Cost $405,815)
- --------------------------------------------------------------------------------
Cash and Other Assets in
Excess of Liabilities 0.57% 2,310
- --------------------------------------------------------------------------------
Net Assets 100.00% $402,539
================================================================================
* Non-income producing for the year ended December 31, 1999, 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 December 31, 1999, these
securities amounted to $5,678 or 1.4 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 financial statements
37
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[PIE CHART]
Cash & Other Net Assets 2.2%
Municipal Bonds 5.8%
U.S. & Foreign Corporate Bonds/Notes 47.0%
U.S. & Foreign Government & Agency Obligations 45.0%
Statement of Investments
Income Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT
AND AGENCY
OBLIGATIONS
Treasury Bonds/Notes
11.875%, 11/15/03 $400 $472
12.00%, 08/15/13 300 401
Federal Home Loan Bank
5.925%, 04/09/08 100 93
Federal National Mortgage Association
6.56%, 02/05/08 100 94
6.50%, 04/25/08 100 94
6.60%, 05/01/08 100 94
6.59%, 05/21/08 120 113
6.29%, 06/20/08 100 93
6.36%, 08/14/08 150 139
6.32%, 03/16/09 150 139
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 03/01/01 6 6
9.50%, 06/01/01 4 4
9.50%, 08/01/01 3 3
9.50%, 10/01/01 2 2
7.00%, 11/01/03 17 16
7.00%, 01/01/11 221 220
7.00%, 03/01/11 394 391
7.00%, 04/01/11 392 389
7.00%, 07/01/11 23 23
8.00%, 12/01/11 6 6
6.00%, 01/01/14 111 104
Federal National Mortgage Association
(Mortgage Backed Securities)
7.043%, 07/01/06 192 190
6.85%, 10/01/07 220 214
6.44%, 01/01/08 88 84
6.47%, 02/01/08 69 65
6.25%, 07/01/08 138 129
6.21%, 08/01/08 137 128
7.097%, 10/01/09 68 67
8.00%, 11/01/09 4 4
6.50%, 11/01/12 85 83
8.00%, 10/01/14 28 28
8.00%, 01/01/17 65 66
7.75%, 04/01/17 168 169
6.00%, 06/01/18 91 85
Government National Mortgage Association
(Mortgage Backed Securities)
11.50%, 03/15/10 6 6
6.00%, 02/15/14 100 94
12.00%, 03/15/14 1 1
12.00%, 04/15/14 1 1
See notes to the financial statements.
38
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Income Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
GOVERNMENT
AND AGENCY
OBLIGATIONS
(concluded)
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 16
9.50%, 08/15/17 40 42
7.50%, 09/15/23 347 345
7.50%, 01/15/23 162 161
6.50%, 03/15/28 307 288
6.50%, 07/15/28 194 183
7.00%, 08/15/28 149 144
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
Credit Suisse First Boston 1997-C2
6.55%, 11/17/07 150 142
FHLMC 1737-Class E
6.00%, 12/15/17 150 149
Foreign (U.S. dollar denominated)
SCL Term Aereo Santiago**
6.95%, 07/01/12 150 136
- --------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 45.02% 5,932
(Cost $6,065)
================================================================================
MUNICIPAL BONDS
Baltimore MD Taxable Cons Public Series B
7.25%, 10/15/17 125 118
California Hsg Fin Agy Rev
8.16%, 02/01/28 120 121
Horry Cnty SC Airport Rev
7.38%, 07/01/12 120 115
Ohio State Taxable Dev Assistance
7.60%,10/01/16 100 98
Orange Cnty CA Pension Oblg Taxable Ref-A
7.16%, 09/01/06 100 98
San Bernardino County
7.09%, 08/01/11 100 95
San Diego Cnty CA Pension Taxable Series A
6.59%,08/15/07 125 119
- --------------------------------------------------------------------------------
Total Municipal Bonds 5.80% 764
(Cost $823)
See notes to the financial statements.
39
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Income Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
AAG Hldgs., Inc.
6.875%, 06/01/08 $150 $135
AK Steel Corp.
7.875%, 02/15/09 150 141
AMR Corp.
9.00%, 09/15/16 126 133
Associates Corp. North America
7.95%, 02/15/10 110 113
Banc One Corp.
9.875%, 03/01/09 150 171
Banponce Corp.
6.75%, 12/15/05 200 188
Beckman Industries, Inc.
7.45%, 03/04/08 100 92
Boise Cascade Office Products Co.
7.05%, 05/15/05 100 92
Calphine Corp.
7.875%, 04/01/08 150 144
Citicorp
8.625%, 12/01/02 119 124
Coltec Industries, Inc.
7.50%, 04/15/08 100 96
Commercial Credit Group
10.00%, 05/15/09 100 116
Computer Association Int'l, Inc.
6.50%, 04/15/08 100 90
CSC Hldgs., Inc.
7.25%, 07/15/08 150 142
Delta Air Lines, Inc.
9.75%, 05/15/21 150 168
Dime Capital Trust
9.33%, 05/06/27 160 153
Doral Financial Corp.
8.50%, 07/08/04 150 148
Du Pont E I De Nemours & Co.
8.125%, 03/15/04 150 156
El Paso Energy Corp.
6.75%, 05/15/09 150 140
Farmers Ins. Exch.**
8.625%, 05/01/24 150 150
First Republic Bank
7.75%, 09/15/12 150 127
First Union Corp.
8.125%, 06/24/02 150 153
Ford Capital
9.375%, 05/15/01 147 151
Freemont General Corp.
7.70%, 03/17/04 150 136
General Electric Capital Corp.
8.70%, 05/21/07 100 107
Interpool, Inc.
7.35%, 08/01/07 150 124
See notes to the financial statements.
40
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Income Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(concluded)
Lyondell Chemical Co.
9.875%, 05/01/07 $ 150 $ 154
Morgan Stanley Group, Inc.
6.375%, 08/01/02 150 147
NCNB Corp.
10.20%, 07/15/15 135 162
Newfield Exploration Co.
7.45%, 10/15/07 150 136
News America Hldgs., Inc.
8.00%, 10/17/16 200 196
NRG Energy, Inc.
7.50%, 06/15/07 150 141
PP & L Capital Funding, Inc.
6.79%, 11/22/04 150 146
Pitney Bowes Credit Corp.
8.55%, 09/15/09 91 98
Praxair, Inc.
6.75%, 03/01/03 150 147
Quaker Oats Co.
7.51%, 05/02/05 160 160
Republic NY Corp.
9.30%, 06/01/21 165 182
Seagram Joseph E & Sons, Inc.
8.875%, 09/15/11 147 156
Staples, Inc.
7.125%, 08/15/07 100 94
Tenet Healthcare Corp.
8.125%, 12/01/08 150 140
Transamerica Financial Corp.
6.125%, 11/01/01 150 147
United Air Lines, Inc.
10.67%, 05/01/04 100 110
USX Marathon Group
6.65%, 02/01/06 150 142
USA Networks, Inc.
6.75%, 11/15/05 150 143
Westpoint Stevens, Inc.
7.875%, 06/15/08 100 90
Asset Backed
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 13 13
- --------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 47.01% 6,194
(Cost $6,620)
See notes to the financial statements.
41
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Income Fund
December 31, 1999
Principal
Amount Market
(000) (000)
================================================================================
SHORT-TERM
INVESTMENT
Warburg Dillon Read LLC - Repurchase Agreement
2.40%, 01/03/00, (secured by $120
US Treasury Bond, 7.875%, 02/15/21) $ 117 $ 117
- --------------------------------------------------------------------------------
Total Short-Term Investment 0.89% 117
(Cost $117)
- --------------------------------------------------------------------------------
Total Investments 98.72% 13,007
(Cost $13,625)
Cash and Other Assets in
Excess of Liabilities 1.28% 168
- --------------------------------------------------------------------------------
Net Assets 100.00% $13,175
================================================================================
** Securities 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 December 31, 1999, these
securities amounted to $286 or 2.2 percent of net assets.
See notes to the financial statements.
42
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[PIE CHART]
U.S. Agency Obligations, Cash
& Other Net assets 100%
Statement of Investments
Short-Term Investment Fund
December 31, 1999
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. Treasury Bill
4.55%, 01/27/00 $ 365 $ 364
Federal Agriculture Mortgage Corp.
Discount Note
5.50%, 02/02/00 91 90
Federal Farm Credit Bank Discount Note
5.74%, 01/21/00 400 399
Federal Home Loan Bank Discount Note
5.59%, 02/02/00 240 239
Federal Home Loan Mortgage Corp.
Discount Notes
4.77%, 01/12/00 230 230
5.05%, 01/21/00 120 119
Federal National Mortgage Association
Discount Note
5.50%, 02/02/00 300 299
- --------------------------------------------------------------------------------
Total Investments 99.83% 1,740
(Cost $1,740)
Cash and Other Assets in
Excess of Liabilities 0.17% 3
- --------------------------------------------------------------------------------
Net Assets 100.00% $1,743
================================================================================
See notes to financial statements.
43
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[PIE CHART]
Common Stock 92.5%
Cash & Other Net Assets 7.5%
Statement of Investments
Small Cap Growth Fund
December 31, 1999
COMMON STOCK
Number of Market
Shares (000)
================================================================================
Air Transporation & Delivery Services 1.02%
Circle Int'l Group, Inc. 4,200 $ 92
Eagle USA Airfreight, Inc.* 12,239 529
- --------------------------------------------------------------------------------
621
Apparel 1.28%
Guess, Inc.* 2,500 54
Pacific Sunwear of California, Inc.* 22,650 721
- --------------------------------------------------------------------------------
775
Business Services 6.92%
24/7 Media, Inc.* 1,600 90
Chemdex Corp.* 6,835 752
Cognizant Technology Solutions - A* 1,000 109
Diamond Technology Partner, Inc.- A* 3,500 301
Digital Impact, Inc.* 2,700 135
eBenX, Inc.* 200 9
E-Stamp Corp.* 4,500 99
Factset Research Systems, Inc.* 3,850 307
Getty Images, Inc.* 9,300 455
Harris Interactive, Inc.* 800 10
HotJobs.com, Ltd.* 5,800 254
Mediaplex, Inc.* 7,200 448
Multex System, Inc.* 4,800 181
MyPoints.com, Inc.* 1,600 118
Netratings, Inc.* 1,600 77
QRS Corp.* 3,200 336
Technology Solutions Co.* 5,000 163
Viant Corp.* 3,500 340
- --------------------------------------------------------------------------------
4,184
Communication Equipment & Services 14.70%
Adaptive Broadband Corp.* 2,300 166
AerialCommunications, Inc.* 10,900 663
AirNet Communications Corp.* 1,200 44
Allegiance Telecom, Inc.* 3,900 357
AudioCodes Ltd.* 1,000 91
C-Cor.net Corp.* 4,900 375
DSP Group, Inc.* 3,600 334
Ditech Communications Corp.* 2,200 205
Emulex Corp.* 6,600 745
Finisar Corp.* 1,000 89
Focal Communications Corp.* 3,500 84
Foundry Networks, Inc.* 700 211
Harmonic, Inc.* 9,000 853
Metricom, Inc.* 7,000 550
Microcell Telecommunications Inc.- B* 5,800 191
Pinnacle Hldgs., Inc.* 26,500 1,130
Polycom, Inc.* 11,300 720
Powertel, Inc.* 8,600 860
Powerwave Technologies, Inc.* 1,500 87
Price Communications Corp.* 14,340 399
SBA Communications Corp.* 7,800 142
Terayon Communication System* 3,900 245
Triton PCS Hldgs., Inc.* 2,000 91
See notes to financial statements.
44
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Westell Technologies, Inc.- A* 12,400 $ 132
Z Tel Technologies, Inc.* 3,200 129
- --------------------------------------------------------------------------------
8,893
Computer Software & Services 20.95%
Actuate Corp.* 8,000 343
Aspect Development, Inc.* 5,000 342
BindView Development Corp.* 4,200 208
Bluestone Software, Inc.* 1,400 160
Bottomline Technologies * 1,300 47
Brio Technology, Inc.* 4,600 192
Business Objects SA (ADR)* 7,200 951
CBT Group PLC (ADR)* 3,900 129
Clarify, Inc.* 4,730 599
Dendrite Int'l, Inc.* 3,200 108
Digital River, Inc.* 3,200 107
Great Plains Software, Inc.* 3,000 224
Informatica Corp.* 2,300 242
Keynote Systems, Inc.* 1,500 108
Liquid Audio, Inc.* 3,600 94
Macromedia, Inc.* 7,800 570
Manugistics Group, Inc.* 9,000 292
Mercury Interactive Corp.* 8,200 885
Micromuse, Inc.* 3,800 646
Netegrity, Inc.* 1,600 91
Ondisplay, Inc.* 900 81
Peregrine Systems, Inc.* 7,400 622
Preview System, Inc.* 700 45
Proxicom, Inc.* 5,994 744
Quintus Corp.* 800 37
RadiSys Corp.* 4,812 243
Razorfish, Inc.- A* 5,600 532
Remedy Corp.* 7,700 366
Retek, Inc.* 1,600 121
RSA Security, Inc.* 8,700 674
Sagent Technology, Inc.* 1,300 39
Tanning Technology Corp.* 4,200 245
Titan Corp.* 13,800 650
TSI Int'l Software Ltd.* 7,600 429
VA Linux Systems, Inc.* 500 103
Vertias Software Corp.* 5,400 773
Visual Networks, Inc.* 8,000 632
- --------------------------------------------------------------------------------
12,674
Construction 0.57%
MasTec, Inc.* 7,800 347
Electronic Equipment & Services 16.23%
Advanced Digital Information Corp.* 11,900 579
Advanced Energy Inds., Inc.* 4,400 216
Alpha Inds., Inc.* 3,300 187
ANADIGICS, Inc.* 3,700 175
Ancor Communications, Inc.* 7,600 516
Applied Micro Circuits Corp.* 5,700 724
Caliper Technologies Corp.* 2,600 173
See notes to the financial statements.
45
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
DII Group, Inc.* 8,800 $ 624
Flextronics Int'l.* 3,400 156
Helix Technology Corp. 6,180 277
Kemet Corp.* 8,500 383
Kent Electronics Corp.* 12,500 284
Kopin Corp.* 13,200 556
LTX Corp.* 5,300 119
Maker Communications, Inc.* 1,600 68
Micrel, Inc.* 7,600 433
MRV Communications, Inc.* 6,000 377
Plexus Corp.* 8,900 392
Power Integrations, Inc.* 4,000 188
Qlogic Corp.* 5,600 895
RF Micro Devices, Inc.* 4,500 307
SDL, Inc.* 4,300 937
Semtech Corp.* 4,400 229
Silicon Image, Inc.* 4,300 300
TranSwitch Corp.* 1,550 112
Varian, Inc.* 4,600 104
Varian Semiconductor Equipment, Inc.* 9,000 305
Vitesse Semiconductor Corp.* 1,594 83
Xircom, Inc.* 1,600 120
- --------------------------------------------------------------------------------
9,819
Energy 2.41%
Atwood Oceanics, Inc.* 11,600 448
Cal Dive Int'l, Inc.* 10,300 335
Louis Dreyfuss Natural Gas Corp.* 800 15
Marine Drilling Co., Inc.* 22,100 496
Spinnaker Exploration Co.* 2,900 41
Stone Energy Corp.* 2,700 96
Superior Energy Services, Inc.* 4,300 28
- --------------------------------------------------------------------------------
1,459
Entertainment & Recreation 0.80%
Championship Auto Racing Teams, Inc.* 1,300 30
Hollywood Park, Inc.* 4,800 108
Speedway Motorsports, Inc.* 12,500 348
- --------------------------------------------------------------------------------
486
Financial Services 1.40%
Aether Systems, Inc.* 1,900 136
eSpeed, Inc.- A* 6,600 236
Investors Financial Services Corp. 10,300 473
- --------------------------------------------------------------------------------
845
Health Care & Pharmaceuticals 10.03%
Alkermes, Inc.* 12,500 612
Catalytica, Inc.* 9,600 130
Celgene Corp.* 5,400 378
Enzon, Inc.* 3,600 155
Incyte Pharmceuticals, Inc.* 2,600 154
Inhale Therapeutics System* 3,500 149
King Pharmaceuticals, Inc.* 10,200 571
Maxygen, Inc.* 800 57
See notes to the financial statements.
46
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Medicalogic, Inc.* 1,300 $ 27
Millennium Pharmaceuticals, Inc.* 10,400 1,268
Pharmacyclics, Inc.* 3,900 159
Protein Design Labs, Inc.* 12,630 884
QLT Phototherapeutics* 8,900 521
SciQuest.com, Inc.* 3,500 278
Shire Pharmaceuticals Group PLC (ADR)* 17,721 512
Techne Corp.* 2,600 143
Viropharama, Inc.* 1,900 70
- --------------------------------------------------------------------------------
6,068
Internet Services 5.22%
About.com, Inc.* 1,800 161
AGENCY.COM, Inc.* 1,600 82
Allaire Corp.* 2,600 380
CacheFlow, Inc.* 600 78
China.com Corp.- A* 5,400 427
CyberSource Corp.* 5,300 275
Digital Island, Inc.* 5,400 512
Engage Technologies, Inc.* 3,100 186
InterTrust Technologies Corp.* 1,200 141
Interwoven, Inc.* 1,100 134
Luminant Worldwide Corp.* 4,900 222
NaviSite, Inc.* 1,200 120
Proxim, Inc.* 2,300 253
WebTrends Corp.* 2,300 185
- --------------------------------------------------------------------------------
3,156
Media 6.45%
ACME Communications, Inc.* 900 30
Classic Communications, Inc.- A* 3,200 118
Cumulus Media, Inc.- A* 6,600 334
Emmis Communications Corp.- A* 9,900 1,234
Entercom Communications Corp.* 10,900 719
Pegasus Communications Corp.- A* 9,900 950
Radio One, Inc.- A* 3,500 322
Spanish Broadcasting System, Inc.- A* 4,900 195
- --------------------------------------------------------------------------------
3,902
Optical & Photo 1.02%
Optical Coating Lab, Inc.* 2,100 616
Retail 1.68%
Cost Plus, Inc.* 13,342 474
Electronics Boutique Hldgs. Corp.* 7,453 134
Talbots, Inc. 9,100 406
- --------------------------------------------------------------------------------
1,014
Utility 1.78%
Calpine Corp.* 16,800 1,076
- --------------------------------------------------------------------------------
Total Common Stock 92.46% $55,935
(Cost $34,078)
- --------------------------------------------------------------------------------
See notes to the financial statements.
47
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Small Cap Growth Fund
December 31, 1999
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
SHORT-TERM
INVESTMENTS
Federal Home Loan Bank Discount Note
1.50%, 01/03/00 $ 1,700 $ 1,700
International Bank for Recon & Dev
5.60%, 01/18/00 2,900 2,892
- --------------------------------------------------------------------------------
Total Short-Term Investment 7.59% 4,592
(Cost $4,592)
- --------------------------------------------------------------------------------
Total Investments 100.05%
(Cost $38,670) 60,527
Liabilities in Excess of
Cash and Other Assets (0.05%) (30)
- --------------------------------------------------------------------------------
Net Assets 100.00% $ 60,497
- --------------------------------------------------------------------------------
* Non-income producing for the year ended December 31, 1999, as this security
did not pay divdends.
See notes to the financial statements.
48
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[CHART]
North America 0.7%
Cash & Other Net Assets 8.0%
Pacific 35.9%
Europe 55.4%
Statement of Investments
International Equity Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
Australia 1.76%
Broken Hill Proprietary Co. Ltd. (Steel & Metals) 16,800 $ 221
WMC Ltd. (Steel & Metals) 30,600 169
Woodside Petro Ltd. (Oil Companies) 10,200 75
- --------------------------------------------------------------------------------
465
Canada 0.71%
Canadian National Railway Co. (Railroads) 7,074 187
Finland 3.51%
Nokia AB - A (Telecom Equipment) 3,350 608
Sonera OYJ (Telecommunications) 4,640 318
- --------------------------------------------------------------------------------
926
France 14.77%
AXA UAP (Insurance) 1,359 189
Aventis SA (Chemicals) 6,595 383
Bic SA (Consumer Products) 3,510 160
Carrefour Supermarche SA (Retail) 860 159
Casino Guichardo Perrach pfd. (Retail) 2,106 162
Christian Dior (Apparel) 852 211
Club Mediterranee (Entertainment)* 305 35
Dasault Systems (Business Services) 1,245 81
Eurotunnel EPLC (Construction)* 96,442 114
LaFarge SA (Building Materials) 1,821 212
Louis Vuitton Moet-Hennessy (Retail) 399 179
Pinault Printemps (Retail) 798 211
Renault SA (Automobiles) 1,990 96
Rhodia SA (Chemicals) 9,201 208
Schneider Electric SA (Industrial Specialty) 1,668 131
Stmcroelectronics (Electronic Components)* 2,914 449
Total Fina SA-B (Oil & Gas Production) 3,806 508
Union Assurance Federales (Insurance) 927 109
Usinor (Steel & Metals) 6,164 116
Vivendi (Water Supply) 2,087 188
- --------------------------------------------------------------------------------
3,901
Germany 12.47%
Allianz AG (Insurance) 570 191
BASF AG (Chemicals) 5,030 258
Bayer Hypo Vereins (Banking) 2,306 158
Celanese AG (Chemicals)* 458 8
CommerzBank AG (Banking) 2,430 89
Deutsche Telekom (Telecommunications) 2,047 146
Dresdner Bank AG (Banking) 3,134 171
Epcos (Electronic Components & Distribution)* 4,336 325
Heidelberger Druckmaschinen
(Printing & Publishing) 282 15
Mannesmann AG (Diversified Manufacturer) 3,352 809
SAP AG pfd. (Computer Software) 480 289
Siemens AG (Electrical Products) 3,105 395
Thyssen Krupp AG (Diversified Manufacturer) 8,909 272
Veba AG (Electric Utilities) 3,415 166
- --------------------------------------------------------------------------------
3,292
See notes to the financial statements.
49
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
International Equity Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
(continued)
Hong Kong 1.08%
Cheung Kong Hldgs. Ltd. (Real Estate) 11,000 $ 138
Citic Pacific (Financial) 17,000 64
New World China Land Ltd. (Construction) 158 1
New World Development (Real Estate) 31,647 71
New World Infrastructure (Diversified Manufacturer) 8,200 11
- --------------------------------------------------------------------------------
285
Italy 4.90%
Arnoldo Mondadori Editore (Printing & Publishing) 3,670 117
Banca Nazionale del Lavora (Banking) 37,900 126
Gruppo Editoriale L'espresso (Printing & Publishing)* 15,760 182
Gucci Group (Retail) 1,995 228
Mediaset Spa (Broadcasting & Entertainment) 12,920 201
Seat-Pagine Gialle Spa (Printing & Publishing) 198,800 439
- --------------------------------------------------------------------------------
1,293
Japan 30.11%
Advantest Corp. (Electronic Components) 900 238
Asahi Glass Co. (Building Materials) 12,000 93
Benesse Corp. (Computer Software) 800 193
Canon, Inc. (Office Equipment & Supplies) 3,000 119
CSK Corp. (Computer Software) 1,000 163
Daiwa Securities Co. Ltd. (Financial) 23,000 360
DDI Corp. (Telecommunications) 22 301
Fanuc Ltd. (Electronic Components) 2,000 255
Fuji Bank (Banking) 17,000 165
Fujisawa Pharmaceutical (Pharmaceuticals) 1,000 24
Fujitsu Ltd. (Electronic Components) 10,000 456
Fujitsu Support & Services (Computer Software) 300 147
Hitachi Ltd. (Electronic Components) 21,000 337
Kyocera Corp. (Electronic Componets) 2,000 519
Matsushita Electric Ind. Co.
(Electronic Components) 10,000 277
Murata Mfg. Co. (Electronic Components) 2,000 470
NEC Corp. (Electronic Components) 15,000 358
Nikko Securites (Financial) 22,000 278
Nippon Telephone & Telegraph Corp.
(Telecommunications) 22 377
Nissan Motor Co. Ltd. (Automobiles)* 30,000 118
Nomura Securities (Financial) 14,000 253
NSK (Diversified Manufacturer) 16,000 109
NTT Mobile Communications Network, Inc.
(Telecommunications) 15 577
Sakura Bank (Banking) 32,000 186
Sanwa Bank (Banking) 1,000 12
SMC Corp. (Machinery, Coupon & Controls) 300 66
Sony Corp. (Consumer Electronics) 1,400 415
Sony Corp. (ADR) (Consumer Electronics) 300 85
Sumitomo Trust & Banking (Banking) 24,000 162
Teijin Ltd. (Textiles) 3,000 11
THK Co. (Machinery, Coupon & Controls) 1,900 77
See notes to the financial statements.
50
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
International Equity Fund
December 31, 1999
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
(continued)
Tokyo Electron (Electronic Components) 3,000 $ 411
Toray Inds., Inc. (Textiles) 18,000 70
Toshiba Corp. (Electronic Components)* 26,000 198
Yamanouchi Pharmacy Co. LTD (Pharmaceuticals) 2,000 70
- --------------------------------------------------------------------------------
7,950
Netherlands 4.78%
Aegon N.V. (Insurance) 1,265 122
Akzo-Nobel N.V. (Chemicals) 2,800 141
Equant NV (Telecommunications)* 3,281 372
Fortis NV (Banking) 2,850 103
Kon KPN NV (Telecommunications) 1,770 173
Kpnqwest (Miscellaneous)* 1,040 69
Laurus NV (Retail) 4,340 78
United Pan-Europe Communications N.V.
(Cable Television)* 1,589 203
- --------------------------------------------------------------------------------
1,261
Singapore 0.44%
Development Bank Singapore Ltd. (Banking)* 4,652 76
Overseas Chinese Bank (Banking) 4,200 39
- --------------------------------------------------------------------------------
115
South Korea 1.43%
Samsung Electronics Ltd. (Electronic Components) 3,100 379
Spain 0.92%
Telefonica Publicidad E Informacion (Advertising) 17 --
Telefonica SA (Telecommunications) 9,683 242
- --------------------------------------------------------------------------------
242
Sweden 0.53%
L.M. Ericsson Telephone Co. - B (ADR)
(Telecom Equipment) 2,200 141
Switzerland 1.41%
Nestle SA (Food & Beverage) 89 163
Novartis AG (Pharmaceuticals) 70 103
Roche Hldgs. Basel AG (Pharmaceuticals) 9 107
- --------------------------------------------------------------------------------
373
Taiwan 1.04%
Taiwan Semiconductor-SP ADR
(Electronic Components)* 6,128 276
United Kingdom 11.55%
Billiton (Steel & Metals) 23,234 138
BOC Group PLC (Chemicals) 11,145 240
BP Amoco PLC (Oil Companies) 21,630 218
British Aerospace (Aerospace) 28,971 191
Glaxo Wellcome PLC (Pharmaceuticals) 4,206 119
Granada Group PLC (Business Services) 3,470 35
Marconi PLC (Telecommunications)* 7,051 124
Prudential Corp. PLC (Insurance) 15,481 302
Rentokil Group (Business Services) 27,074 99
See notes to the financial statements.
51
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
International Equity Fund
December 31, 1999
Number of Market
Shares (000)
================================================================================
COMMON AND
PREFERRED STOCK
(concluded)
Reuters Group PLC (Printing & Publishing) 24,500 $ 340
Rio Tinto-Zinc Corp. PLC (Steel & Metals) 20,140 484
Royal & Sun Alliance Insurance Group (Insurance) 17,926 134
Shell Transportation & Trading Co. PLC (Oil Companies) 37,920 315
SmithKline Beecham PLC (Pharmaceuticals) 8,241 105
Standard Chartered (Banking) 12,897 205
- --------------------------------------------------------------------------------
3,049
Total Common and Preferred Stock 91.41% 24,135
(Cost $16,412)
Principal
Amount Market
(000) (000)
================================================================================
CORPORATE NOTES
France
Eurotunnel (Construction)
Variable Rate, 04/30/40 $ -- $ 140
United Kingdom
British Aerospace (Aerospace)
7.45%, 11/30/03 2 4
Total Corporate Notes 0.54% 144
(Cost $150)
================================================================================
SHORT-TERM
INVESTMENT
Federal Home Loan Mortgage Discount Note 2,138 2,138
1.50%, 01/03/00
- --------------------------------------------------------------------------------
Total Short-Term Investment 8.10% 2,138
(Cost $2,138)
Total Investments 100.05% 26,417
(Cost $18,700)
Liabilities in Excess of
Cash and Other Assets (0.05%) (14)
- --------------------------------------------------------------------------------
Net Assets 100.00% $ 26,403
================================================================================
* Non-income producing for the year ended December 31, 1999, as this security
did not pay dividends.
See notes to the financial statements.
52
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[CHART]
Cash & Other Net Assets 3.6%
Common & Preferred Stock 96.4%
Statement of Investments
Socially Responsible Fund
December 31, 1999
Number of Market
Shares (000)
================================================================================
COMMON STOCK
Aerospace 0.92%
Rockwell International Corp. 11,450 $ 548
Automotive 2.07%
Ford Motor Co. 11,100 593
Meritor Automotive, Inc. 19,516 378
PACCAR, Inc. 5,900 261
- --------------------------------------------------------------------------------
1,232
Banks & Financial Services 13.04%
Bank of America Corp. 8,450 424
Chase Manhattan Corp. 6,600 513
Citigroup, Inc. 28,000 1,556
Equity Office Properties Trust 18,400 453
Federal National Mortgage Association 13,750 858
FleetBoston Financial Group 20,300 707
Lehman Brothers Hldgs, Inc. 20,300 1,719
PNC Bank Corp. 12,000 534
SLM Holding Corp. 12,900 545
US Bancorp 19,100 455
- --------------------------------------------------------------------------------
7,764
Business Machines 1.82%
Hewlett-Packard Co. 9,500 1,082
Business Services 4.49%
Computer Associates Int'l, Inc. 38,200 2,672
Chemicals 1.08%
Air Products & Chemicals, Inc. 7,600 255
Lyondell Petrochemical Co. 30,396 388
- --------------------------------------------------------------------------------
643
Communication Services 14.50%
Alltel Corp. 10,700 885
AT&T Corp. 14,400 731
Bell Atlantic Corp. 41,722 2,569
BellSouth Corp. 32,500 1,521
Global Crossing Ltd.* 17,170 857
SBC Communications, Inc. 25,522 1,244
Sprint FON Group 12,300 828
- --------------------------------------------------------------------------------
8,635
Computer Software & Services 2.88%
Oracle Corp.* 15,300 1,714
Consumer Products 1.03%
Colgate-Palmolive Co. 9,400 611
Electrical Equipment & Services 0.84%
Cadence Design Systems, Inc.* 14,500 348
Thomas & Betts Corp. 4,700 150
- --------------------------------------------------------------------------------
498
Energy 5.54%
Burlington Resources, Inc. 14,900 493
See notes to the financial statements.
53
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Socially Responsible Fund
December 31, 1999
Number of Market
Shares (000)
================================================================================
COMMON STOCK
(continued)
Conoco, Inc.- A 17,100 $ 423
Conoco, Inc.- B 15,233 379
Royal Dutch Petroleum Co. 16,700 1,009
Texaco, Inc. 12,000 652
Williams Companies, Inc. (The) 11,300 345
- --------------------------------------------------------------------------------
3,301
Food & Beverage 3.43%
Heinz (H.J.) Co. 11,500 458
PepsiCo, Inc. 44,900 1,583
- --------------------------------------------------------------------------------
2,041
Health Care & Pharmaceuticals 6.07%
American Home Products Corp. 28,000 1,104
Bristol-Myers Squibb Co. 18,200 1,168
Glaxo Wellcome PLC (ADR) 24,000 1,341
- --------------------------------------------------------------------------------
3,613
Insurance 6.77%
Allstate Corp. 35,700 857
Lincoln National Corp. 17,200 688
Marsh & McLennan Cos., Inc. 8,700 832
SAFECO Corp. 3,750 93
St. Paul Cos., Inc. 17,900 603
XL Capital Ltd. - A 18,491 959
- --------------------------------------------------------------------------------
4,032
Manufacturing (Diversified) 6.03%
Emerson Electric Co. 11,000 631
Koninklijke Philips Electronics NV (ADR) 15,900 2,147
Parker Hannafin Corp. 15,800 811
- --------------------------------------------------------------------------------
3,589
Media 2.49%
McGraw Hill Cos., Inc. 24,100 1,485
Metals & Mining 0.19%
Oregon Steel Mills, Inc. 14,400 114
Optical & Photo 5.33%
Corning, Inc. 24,600 3,172
Other 4.79%
Standard & Poor's Depository Receipts 19,400 2,849
Paper & Forest Products 1.92%
Georgia-Pacific Corp. 7,500 381
Weyerhaeuser Co. 10,600 761
- --------------------------------------------------------------------------------
1,142
Railroad & Shipping 2.96%
Canadian National Railway Co. 20,200 532
CSX Corp. 28,150 883
Norfolk Southern Corp. 17,000 348
- --------------------------------------------------------------------------------
1,763
See notes to the financial statements.
54
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Socially Responsible Fund
December 31, 1999
Number of Market
Shares (000)
================================================================================
COMMON STOCK
(concluded)
Real Estate 0.65%
Boston Properties, Inc. 12,400 $ 386
Retail 4.49%
Albertson's, Inc. 10,763 347
Dayton Hudson Corp. 31,700 2,328
- --------------------------------------------------------------------------------
2,675
Utilities 2.67%
Cinergy Corp. 16,800 405
Scottish Power PLC (ADR) 18,734 525
Unicom Corp. 19,650 658
- --------------------------------------------------------------------------------
1,588
Total Common Stock 96.00% 57,149
(Cost $53,066)
================================================================================
PREFERRED STOCK
Chemicals 0.42%
Monsanto Co.* 7,600 252
(Cost $334)
- --------------------------------------------------------------------------------
Total Common and Preferred Stock 96.42% 57,401
(Cost $53,400)
================================================================================
Principal
Amount Market
(000) (000)
================================================================================
SHORT-TERM
INVESTMENT
Federal Home Loan Mortgage Discount Note
3.50%, 01/03/00 $ 2,080 $ 2,080
- --------------------------------------------------------------------------------
Total Short-Term Investment 3.49% 2,080
(Cost $2,080)
Total Investments 99.91% 59,481
(Cost $55,480)
Cash and Other Assets in
Excess of Liabilities 0.09% 52
- --------------------------------------------------------------------------------
Net Assets 100.00% $ 59,533
================================================================================
* Non-income producing for the year ended December 31, 1999, as this security
did not pay dividends.
See notes to the financial statements.
55
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL SOCIALLY
GROWTH BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE
FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 1,458 $ -- $ 233 $ 4,339 $ 44,132 $ 1,090 $ 926
Investments at market value* 624,458,735 400,228,936 13,007,086 1,739,581 60,526,534 26,416,531 59,481,124
Dividends and interest receivable 1,116,862 2,966,317 202,268 -- -- 2,409 88,613
Receivable-foreign taxes 9,966 3,780 -- -- -- 18,445 11,793
Receivable-fund shares sold 20,785 450 -- -- -- 2,294 14,213
Other assets -- 20,891 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets 625,607,806 403,220,374 13,209,587 1,743,920 60,570,666 26,440,769 59,596,669
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Bank overdraft-- foreign currency -- -- -- -- -- 9,068 --
Payable-fund
shares redeemed 47,078 29,582 -- -- -- 783 133
Bank overdraft -- 377,919 -- -- -- -- --
Payable-advisory and
related fees 423,826 274,357 8,879 -- 68,234 24,424 52,955
Accrued expenses 4,311 -- 26,037 1,213 4,985 3,113 10,903
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 475,215 681,858 34,916 1,213 73,219 37,388 63,991
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $625,132,591 $ 402,538,516 $ 13,174,671 $ 1,742,707 $ 60,497,447 $26,403,381 $59,532,678
===================================================================================================================================
NET ASSETS CONSIST OF:
Par value of common shares 28,522,316 2,330,996 107,633 17,625 -- -- --
Paid in surplus 591,249,373 405,903,681 13,714,593 1,723,917 38,697,453 18,687,738 55,560,689
Accumulated undistributed
net investment income 409,373 325,867 15,711 1,167 -- -- 35,867
Accumulated distributions
in excess of
net realized gain (loss)
from investments and foreign
currency transactions (1,077,738) (438,602) (45,815) (2) (56,665) (260) (65,001)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities in foreign currency 6,029,267 (5,583,426) (617,451) -- 21,856,659 7,715,903 4,001,123
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $625,132,591 $ 402,538,516 $ 13,174,671 $ 1,742,707 $ 60,497,447 $26,403,381 $59,532,678
===================================================================================================================================
Number of shares outstanding: 28,522,316 23,309,966 1,076,328 176,253 3,061,607 1,507,147 4,309,783
(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 $ 21.92 $ 17.27 $ 12.24 $ 9.89 $ 19.76 $ 17.52 $ 13.81
===================================================================================================================================
*Cost of Securities:
Investments $618,429,468 $ 405,815,112 $ 13,624,537 $ 1,739,581 $ 38,669,875 $18,699,887 $55,480,001
</TABLE>
See notes to the financial statements.
56
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL SOCIALLY
GROWTH BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE
FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 11,577,905 $ 4,488,818 $ -- $ -- $ 7,904 $ 255,726 $ 1,056,971
Interest 464,397 12,693,524 955,812 94,700 161,889 65,880 69,364
- -----------------------------------------------------------------------------------------------------------------------------------
12,042,302 17,182,342 955,812 94,700 169,793 321,606 1,126,335
Foreign taxes withheld (50,128) (40,829) -- -- -- (28,173) (12,555)
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 11,992,174 17,141,513 955,812 94,700 169,793 293,433 1,113,780
EXPENSES:
Advisory and related fees 4,874,209 3,110,493 102,665 8,737 531,462 186,479 509,660
Fund pricing fees 31,940 41,875 11,940 12,000 8,470 16,947 8,470
Professional fees 74,190 53,462 15,075 8,525 8,240 7,343 8,847
Custodian fees 74,151 61,725 11,263 3,871 43,678 55,414 14,277
Transfer agent fees 39,803 24 24 24 24 24 24
Shareholder reports 24,064 9,596 522 191 2,910 1,502 3,575
Trustees' fees and expenses 2,476 2,449 2,433 2,432 3,510 3,510 3,510
Other expenses 2,419 413 118 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 5,123,252 3,280,037 144,040 35,780 598,294 271,219 548,363
- -----------------------------------------------------------------------------------------------------------------------------------
Less advisory and related
fees waived (219,253) (109,519) (5,622) (6,771) (34,308) (7,896) (54,549)
Less expenses paid by Horace Mann
Investors, Inc. -- -- -- (22,682) (13,500) (55,000) (3,000)
Less earnings credits on
cash balances (11,045) (7,204) (485) (268) (2,580) (414) (1,072)
Less expenses paid by commission
credits (94,947) (96,511) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 4,798,007 3,066,803 137,933 6,059 547,906 207,909 489,742
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 7,194,167 14,074,710 817,879 88,641 (378,113) 85,524 624,038
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain (loss) from:
Investments 39,294,615 16,474,526 (43,081) 566 8,265,660 1,232,134 511,178
Foreign currency transactions (9) (4,439) (303) -- -- (50,090) 377
===================================================================================================================================
Net realized gain (loss)
on investments and foreign
currency transactions 39,294,606 16,470,087 (43,384) 566 8,265,660 1,182,044 511,555
Change in unrealized appreciation
or (depreciation) on:
Investments (63,032,326) (35,399,930) (1,004,707) (318) 15,565,211 6,620,760 2,587,979
Translation of assets
and liabilities in
foreign currencies -- (3,587) (249) -- -- (1,590) --
Net realized and unrealized
gain (loss) from investments
and foreign currency
transactions (23,737,720) (18,933,430) (1,048,340) 248 23,830,871 7,801,214 3,099,534
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS $(16,543,553) $ (4,858,720) $ (230,461) $ 88,889 $23,452,758 $7,886,738 $ 3,723,572
===================================================================================================================================
</TABLE>
See notes to the financial statements.
57
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Changes in Net Assets
For the Periods Ended December 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
GROWTH FUND BALANCED FUND INCOME FUND
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 7,194,167 $ 10,007,420 $ 14,074,710 $ 14,764,905 $ 817,879 $ 666,683
Net realized short-term gain
(loss) on investments and
foreign currency transactions 21,084,618 14,562,659 10,118,367 8,676,359 (60,131) 99,971
Net realized long-term gain
on investments and
foreign currency transactions 18,209,988 54,561,961 6,351,720 25,140,067 16,747 20,410
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currency (63,032,326) (33,476,219) (35,403,517) (18,716,891) (1,004,956) 88,631
- -----------------------------------------------------------------------------------------------------------------------------------
Change in net assets
from operations (16,543,553) 45,655,821 (4,858,720) 29,864,440 (230,461) 875,695
- -----------------------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income (6,784,785) (10,018,267) (13,824,667) (15,358,192) (809,484) (687,301)
Net realized short-term gain
from investments and
foreign currency transactions (22,394,051) (14,547,126) (11,439,972) (8,675,538) -- (101,781)
Net realized long-term gain
from investments and
foreign currency transactions (18,035,067) (54,910,150) (5,491,362) (24,989,848) -- (20,356)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (47,213,903) (79,475,543) (30,756,001) (49,023,578) (809,484) (809,438)
- -----------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares sold 87,663,401 115,739,024 54,172,750 69,434,528 5,904,109 7,592,036
Net asset value of shares issued
in reinvestment of dividends and
capital gains distributions 40,836,339 72,586,255 26,157,173 44,166,154 677,102 683,334
- -----------------------------------------------------------------------------------------------------------------------------------
128,499,740 188,325,279 80,329,923 113,600,682 6,581,211 8,275,370
Cost of shares redeemed (110,340,201) (82,277,370) (70,096,336) (53,631,448) (6,325,480) (4,041,073)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets from fund
share transactions 18,159,539 106,047,909 10,233,587 59,696,234 255,731 4,234,297
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (45,597,917) 72,228,187 (25,381,134) 40,810,096 (784,214) 4,300,554
NET ASSETS:
Beginning of period 670,730,508 598,502,321 427,919,650 387,109,554 13,958,885 9,658,331
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 625,132,591 $670,730,508 $ 402,538,516 $ 427,919,650 $ 13,174,671 $ 13,958,885
===================================================================================================================================
Undistributed net
investment income $ 409,373 $ -- $ 325,867 $ 166,101 $ 15,711 $ 4,841
===================================================================================================================================
</TABLE>
See notes to the financial statements.
58
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL SOCIALLY
SHORT-TERM FUND GROWTH FUND EQUITY FUND RESPONSIBLE FUND
1999 1998 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 88,641 $ 64,925 $ (378,113) $ (127,182) $ 85,524 $ 77,849 $ 624,038 $ 462,240
566 76 6,491,975 (3,685,694) 162,747 (168,371) (1,312,194) 34,007
-- -- 1,773,685 340,349 1,019,297 213,770 1,823,749 254,639
(318) 318 15,565,211 5,176,382 6,619,170 1,072,261 2,587,979 831,361
- ----------------------------------------------------------------------------------------------------------------------------
88,889 65,319 23,452,758 1,703,855 7,886,738 1,195,509 3,723,572 1,582,247
- ----------------------------------------------------------------------------------------------------------------------------
(88,097) (64,809) -- -- (35,937) (73,256) (595,585) (451,693)
(566) (76) (2,351,737) -- (198,226) -- -- (54,547)
-- -- (1,751,269) -- (1,015,137) -- (525,965) (281,334)
- ----------------------------------------------------------------------------------------------------------------------------
(88,663) (64,885) (4,103,006) -- (1,249,300) (73,256) (1,121,550) (787,574)
- ----------------------------------------------------------------------------------------------------------------------------
5,024,777 3,937,144 16,140,492 14,868,359 11,068,737 5,127,635 29,403,215 27,958,456
70,018 48,742 3,415,007 -- 1,003,619 14,646 606,069 528,490
- ----------------------------------------------------------------------------------------------------------------------------
5,094,795 3,985,886 19,555,499 14,868,359 12,072,356 5,142,281 30,009,284 28,486,946
(4,683,329) (3,806,298) (7,062,340) (4,442,570) (2,617,563) (1,167,294) (8,642,459) (2,930,660)
- ----------------------------------------------------------------------------------------------------------------------------
411,466 179,588 12,493,159 10,425,789 9,454,793 3,974,987 21,366,825 25,556,286
- ----------------------------------------------------------------------------------------------------------------------------
411,692 180,022 31,842,911 12,129,644 16,092,231 5,097,240 23,968,847 26,350,959
1,331,015 1,150,993 28,654,536 16,524,892 10,311,150 5,213,910 35,563,831 9,212,872
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,742,707 $ 1,331,015 $ 60,497,447 $ 28,654,536 $ 26,403,381 $ 10,311,150 $ 59,532,678 $ 35,563,831
============================================================================================================================
$ 1,167 $ 623 $ -- $ -- $ -- $ (938) $ 35,867 $ 10,968
============================================================================================================================
</TABLE>
See notes to the financial statements.
59
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements
December 31, 1999
1. BUSINESS ORGANIZATION -- The Horace Mann Mutual Funds (the "Trust") is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, which offers units of beneficial ownership
(shares) in seven separate investment portfolios: Growth Fund, Balanced Fund,
Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund. These funds collectively are referred
to as the "Funds." Shares are presently offered to Horace Mann Life Insurance
Company (HMLIC) Separate Account and the HMLIC 401(k) Separate Account. The
Growth Fund shares also may be purchased under the dividend reinvestment plans
by certain shareholders.
FUND INVESTMENT OBJECTIVES:
A. Growth Fund -- primary, long-term capital growth; secondary,
conservation of principal and production of income.
B. Balanced Fund -- realization of high long-term total rate of return
consistent with prudent investment risks.
C. Income Fund -- long-term total rate of return in excess of the U.S. bond
market over a full market cycle.
D. Short-Term 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 December 31, 1999.
60
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1999
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 carryforward for tax purposes of $45,805 which
will expire on December 31, 2007.
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 Growth 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.
61
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1999
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 -- Brinson Partners, Inc., Mellon Equity Associates,
LLP and Wellington Management Company, LLP, subadvisers for the Growth 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 1999 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.
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 Balanced Fund, Income Fund and
International Equity Fund may enter into forward currency contracts in
order to reduce their exposure to changes in foreign currency exchange
rates on their foreign portfolio holdings and to lock in the U.S. dollar
cost of assets and liabilities denominated in foreign currencies. A forward
currency exchange contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. The gain or loss
arising from the differences between the U.S. dollar cost of the original
contract and the value of the foreign currency in U.S. dollars upon closing
of such contract is included in net realized gain or loss from foreign
currency transactions. At December 31, 1999, there were no open forward
currency contracts in the funds.
62
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1999
4. FUND SHARE TRANSACTIONS -- The Funds are each a series of a diversified,
open-end management investment company registered under the Investment Company
Act of 1940. Shares are presently offered to HMLIC Separate Account and the
HMLIC 401K Separate Account. The Growth Fund shares also may be purchased under
the dividend reinvestment plan by certain shareholders.
Transactions in capital stock for the years ended 1999 and 1998:
<TABLE>
<CAPTION>
Shares issued
to shareholders
in reinvestment
of dividends
Shares sold and distributions Shares redeemed Net increase
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund
12/31/99 3,611,627 1,894,078 (4,540,277) 965,428
12/31/98 4,347,997 3,020,651 (3,139,417) 4,229,231
Balanced Fund
12/31/99 2,862,259 1,529,659 (3,717,525) 674,393
12/31/98 3,374,120 2,359,303 (2,626,417) 3,107,006
Income Fund
12/31/99 449,741 55,319 (482,758) 22,302
12/31/98 555,983 51,885 (296,718) 311,150
Short-Term Fund
12/31/99 497,191 7,087 (461,455) 42,823
12/31/98 386,446 4,889 (373,069) 18,266
Small Cap Growth Fund
12/31/99 1,082,285 178,329 (513,865) 746,749
12/31/98 1,300,098 -- (397,477) 902,621
International Equity Fund
12/31/99 789,300 59,176 (191,589) 656,887
12/31/98 443,238 1,217 (102,098) 342,357
Socially Responsible Fund
12/31/99 2,157,301 44,827 (630,771) 1,571,357
12/31/98 2,167,784 41,128 (232,154) 1,976,758
</TABLE>
63
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1999
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 Growth,
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 beared 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 Growth, 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>
Growth Fund Balanced Fund Income Fund Short-Term Fund Average Net Assets
<S> <C> <C> <C> <C>
0.400% 0.325% 0.250% 0.125% initial $100 million
0.300% 0.275% 0.200% 0.100% next $100 million
0.250% 0.225% 0.150% 0.075% next $300 million
0.250% 0.200% 0.150% 0.075% over $500 million
</TABLE>
As compensation for its services, the Small Cap Growth, 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%.
64
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1999
On March 1, 1999, Wilshire Associates, Inc. became the investment adviser for
the Funds. The Growth Fund and equity portion to the Balanced Fund now employ
a multi-manager strategy using three subadvisers -- Brinson Partners, Mellon
Equity Associates, and a new team of fund managers at Wellington Management
Co., LLP.
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 subadvisers 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 March 1, 1999 to December 31, 1999, 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:
Fund Rate Fees waived
Growth Fund 0.400% $219,253
Balanced Fund 0.400% 109,519
Income Fund 0.400% 5,622
Short-Term Investment Fund 0.125% --
Small Cap Growth Fund 1.150% 15,639
International Equity Fund 0.850% 850
Socially Responsible Fund 0.700% 30,509
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 March 1, 1999 to December 31, 1999, 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
Serparate Account of HMLIC other than the administrative agreement. For the
period March 1, 1999 to December 31, 1999, 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 year ended December 31, 1999
were $39,803 for the Growth 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. Four meetings were held in 1999. For the year ended
December 31, 1999, the fees, excluding travel expenses, for independent
trustees totaled $23,200. The Trust does not compensate interested officers
and trustees (those who are also officers and/or directors of Horace Mann).
65
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Notes to the Financial Statements (concluded)
December 31, 1999
6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term
investments, for the year ended December 31, 1999 were:
Purchases Proceeds from sales
--------- -------------------
Growth Fund $1,332,724,052 $1,356,966,485
Balanced Fund 643,389,133 645,777,711
Income Fund 5,750,559 4,499,150
Short-Term Fund -- --
Small Cap Growth Fund 61,649,069 56,687,144
International Equity Fund 18,158,479 11,127,770
Socially Responsible Fund 47,635,430 28,139,629
The following table shows investments, excluding foreign currency, at cost and
unrealized appreciation (depreciation) for federal income tax purposes by fund
at December 31, 1999.
<TABLE>
<CAPTION>
Cost for federal Aggregate gross Aggregate gross Net unrealized
income tax unrealized unrealized appreciation
purposes appreciation (depreciation) (depreciation)
-------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Growth Fund 619,611,032 $ 75,921,562 $(71,073,859) $ 4,847,703
Balanced Fund 406,272,041 30,497,160 (36,537,515) (6,040,355)
Income Fund 13,624,537 24,581 (642,032) (617,451)
Short-Term Fund 1,739,581 -- -- --
Small Cap Growth Fund 38,774,666 22,351,472 (569,604) 21,781,868
International Equity Fund 18,701,727 7,983,166 (268,402) 7,714,764
Socially Responsible Fund 55,551,229 8,440,935 (4,511,040) 3,929,895
</TABLE>
66
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GROWTH FUND AND A STOCK INDEX 1
[GRAPH]
Growth Fund Stock Index
----------- -----------
11/1/1989 10,000 10,000
12/31/1989 10,432 10,449
10,206 10,134
10,543 10,772
9,346 9,291
12/31/1990 9,852 10,124
11,084 11,595
11,505 11,568
11,766 12,187
12/31/1991 12,464 13,209
12,269 12,875
12,862 13,120
13,004 13,534
12/31/1992 13,659 14,215
14,807 14,836
15,248 14,908
15,837 15,293
12/31/1993 16,354 15,648
15,975 15,055
16,329 15,118
17,054 15,857
12/31/1994 16,353 15,855
17,628 17,399
19,051 19,059
20,233 20,574
12/31/1995 21,787 21,813
23,306 22,983
24,060 24,015
24,935 24,757
12/31/1996 27,295 26,821
27,421 27,540
31,016 32,348
34,060 34,771
12/31/1997 33,695 35,769
37,651 40,728
35,710 42,077
31,766 37,927
12/31/1998 36,267 46,015
35,205 48,267
38,712 51,620
34,166 48,449
12/31/1999 35,336 55,690
- --------------------------------------------------------------------------------
Growth Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
-2.54% 16.67% 13.22%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Growth Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
1 Stock: S&P 500 Standard and Poor's 500 Composite Index, an unmanaged index
consisting of 500 stocks. Rate of returns shown above for the unmanaged
indices have no expenses.
2 Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Growth Fund. Wellington Management Company, LLP,
became the fund's subadviser May 1, 1997. Previous periods during which the
Growth Fund received investment advice from CIGNA Investments, Inc., are
not shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE BALANCED FUND AND A STOCK/BOND INDICES1
[GRAPH]
Balanced Fund Stock Fund Bond Fund
------------- ---------- ---------
11/1/1989 10,000 10,000 10,000
12/31/1989 10,358 10,449 10,123
10,146 10,135 10,109
10,454 10,774 10,433
9,803 9,293 10,616
12/31/1990 10,309 10,125 11,052
11,138 11,595 11,330
11,480 11,569 11,532
11,858 12,188 12,088
12/31/1991 12,534 13,209 12,668
12,392 12,876 12,552
12,904 13,112 13,049
13,204 13,534 13,625
12/31/1992 13,583 14,216 13,576
14,496 14,837 14,115
14,873 14,908 14,419
15,342 15,292 14,744
12/31/1993 15,683 15,648 14,768
15,327 15,055 14,469
15,496 15,118 14,382
15,975 15,857 14,499
12/31/1994 15,539 15,855 14,483
16,566 17,396 15,118
17,704 19,057 15,873
18,557 20,572 16,135
12/31/1995 19,704 21,811 16,698
20,591 22,982 16,560
21,051 24,014 16,664
21,698 24,756 16,961
12/31/1996 23,305 26,820 17,376
23,428 27,540 17,358
25,729 32,348 17,940
27,772 34,771 18,538
12/31/1997 27,741 35,769 19,085
29,971 40,728 19,412
29,219 42,077 19,830
27,514 37,927 20,663
12/31/1998 29,872 46,015 20,734
29,440 48,267 20,745
31,089 51,620 20,694
28,886 48,449 20,712
12/31/1999 29,534 55,690 20,684
- --------------------------------------------------------------------------------
Balanced Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
-1.11% 13.71% 11.24%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Balanced Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
1 Stock/Bond Indices: through April 30, 1997, S & P 500 Index and Lehman
Bros. Intermediate Government/Corporate Bond Index, an unmanaged index
consisting of U.S. Treasury bonds, U.S. agency bonds and investment grade
corporate bonds with intermediate maturities. Lehman Bros. Aggregate Bond
Index thereafter. Rates of return shown above for the unmanaged indices
have no expenses.
2 Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Balanced Fund. Wellington Management Company,
LLP, became the fund's subadviser May 1, 1997. Previous periods during
which the Balanced Fund received investment advice from CIGNA Investment,
Inc., are not shown.
67
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE INCOME FUND AND BOND INDEX1
[GRAPH]
Income Fund Bond Index
----------- ----------
11/1/1989 10,000 10,000
12/31/1989 10,110 10,123
9,971 10,109
10,306 10,433
10,544 10,616
12/31/1990 10,875 11,052
11,096 11,330
11,363 11,532
11,913 12,088
12/31/1991 12,499 12,668
12,393 12,552
12,857 13,049
13,409 13,625
12/31/1992 13,399 13,576
13,855 14,115
14,143 14,419
14,443 14,744
12/31/1993 14,480 14,768
14,147 14,469
14,047 14,382
14,157 14,499
12/31/1994 14,135 14,483
14,747 15,118
15,430 15,873
15,713 16,135
12/31/1995 16,259 16,698
16,109 16,560
16,160 16,664
16,422 16,961
12/31/1996 16,828 17,376
16,815 17,358
17,372 17,940
17,968 18,538
12/31/1997 18,412 19,085
18,773 19,412
19,235 19,830
19,895 20,663
12/31/1998 19,907 20,734
19,950 20,745
19,566 20,694
19,670 20,712
12/31/1999 19,594 20,684
- --------------------------------------------------------------------------------
Income Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
-1.57% 6.75% 6.84%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Income Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
1 Bond index; through April 30, 1997, Lehman Bros. Intermediate
Government/Corporate Bond Index, an unmanaged index consisting of U.S.
Treasury bonds, U.S. agency bonds and investment grade corporate bonds with
intermediate maturities. Lehman Bros. Aggregate Bond Index thereafter. The
rate of return shown above for the unmanaged index has no expenses.
2 Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Income Fund. Wellington Management Company, LLP,
became the fund's subadvisor May 1, 1997. Previous periods during which the
Income Fund received investment advice from CIGNA Investments, Inc., are
not shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SHORT-TERM
INVESTMENT FUND AND A TREASURY BILL INDEX 1
[GRAPH]
Short-Term Treasury
Investment Fund Bill Index
--------------- ----------
11/1/1989 10,000 10,000
12/31/1989 10,141 10,130
10,330 10,335
10,528 10,544
10,736 10,743
12/31/1990 10,943 10,933
11,122 11,100
11,291 11,260
11,450 11,415
12/31/1991 11,592 11,541
11,694 11,658
11,797 11,766
11,888 11,857
12/31/1992 11,972 11,951
12,044 12,041
12,128 12,132
12,200 12,224
12/31/1993 12,278 12,321
12,376 12,415
12,474 12,529
12,597 12,660
12/31/1994 12,757 12,797
12,922 12,964
13,087 13,144
13,252 13,324
12/31/1995 13,416 13,510
13,577 13,681
13,725 13,854
13,900 14,032
12/31/1996 14,090 14,208
14,258 14,387
14,440 14,568
14,622 14,757
12/31/1997 14,805 14,952
14,994 15,612
15,175 15,822
15,359 16,046
12/31/1998 15,531 16,228
15,690 16,406
15,879 16,592
16,085 16,777
12/31/1999 16,279 16,971
- --------------------------------------------------------------------------------
Short-Term Investment Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
4.77% 5.00% 4.91%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Short-Term Investment Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 3.
1 Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90 - day maturities. The rate of return shown above for the unmanaged
index has no expenses.
2 Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Short-Term Investment Fund. Wellington
Management Company, LLP, became the fund's subadviser May 1, 1997. Previous
periods during which the Short-Term Investment Fund received investment
advice from CIGNA Investments, Inc., are not shown.
68
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN THE SMALL CAP GROWTH FUND AND A STOCK INDEX1
[GRAPH]
Small Cap Growth Fund Stock Index
--------------------- -----------
3/10/97 10,000 10,000
9,040 9,139
10,550 10,744
12,740 12,562
12/31/97 11,700 11,532
12,851 12,120
12,360 12,365
10,040 9,601
12/31/98 12,380 11,871
12,810 11,673
13,540 13,216
14,679 12,756
12/31/1999 21,237 17,005
- --------------------------------------------------------------------------------
Small Cap Growth Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
71.55% 30.45%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the Small Cap Growth Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 3.
1 Stock Index: Russell 2000, an unmanaged index composed of those Russell
2000 securities with a greater-than-average growth orientation. The Russell
2000 return shown to the left reflects the reinvestment of dividends and
capital gain distributions, if any, but does not reflect fees, brokerage
commissions or other expenses of investing.
2 Since inception refers to its inception of investment operations March 10,
1997. Black Rock Financial Management, Inc. is the fund's subadviser.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE INTERNATIONAL EQUITY
FUND AND AN EQUITY INDEX1
[GRAPH]
International Equity Fund Equity Index
------------------------- ------------
3/10/97 10,000 10,000
9,750 10,036
10,540 11,297
10,820 11,218
12/31/97 10,352 10,339
11,733 11,902
12,378 12,028
10,706 10,318
12/31/98 12,313 12,453
12,557 12,623
13,289 12,952
14,546 13,514
12/31/1999 18,695 15,816
- --------------------------------------------------------------------------------
International Equity Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
51.83% 24.71%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the International Equity Fund
returns. Returns under the Annuity Alternatives contracts are shown on page 3.
1 Equity Index: MSCI EAFE Index is an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia and the Far East. The rate of
return shown to the left for the unmanaged index has no expenses.
The index reflects performance from February 28, 1997 through December 31,
1999.
2 Since inception refers to its inception of investment operations March 10,
1997. Scudder Kemper Investments, Inc. is the fund's subadviser.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SOCIALLY RESPONSIBLE
FUND AND A STOCK INDEX1
[GRAPH]
Socially Responsible Fund Stock Index
------------------------- -----------
3/10/97 10,000 10,000
9,380 9,415
10,970 11,058
12,040 11,887
12/31/97 12,308 12,228
13,935 13,933
13,661 14,394
12,013 12,961
12/31/98 13,516 15,733
13,670 16,756
15,189 19,132
13,463 16,831
12/31/1999 14,647 19,064
- --------------------------------------------------------------------------------
Socially Responsible Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
8.39% 14.42%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the Socially Responsible Fund
returns. Returns under the Annuity Alternatives contracts are shown on page 3.
1 Stock Index: S & P 500, Standard & Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks. The rate of return shown to the left for
the unmanaged index has no expenses.
2 Since inception refers to its inception of investment operations March 10,
1997. Scudder Kemper Investments, Inc. is the fund's subadviser.
69
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Horace Mann Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of the Horace Mann Mutual Funds (the Funds),
consisting of the Growth Fund, Balanced Fund, Income Fund, Short-Term Investment
Fund, Small Cap Growth Fund, International Equity Fund, and Socially Responsible
Fund as of December 31, 1999, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the years
presented in the two-year period then ended and the financial highlights for
each of the periods presented in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds as of December 31, 1999, the results of their operations for the
period then ended, the changes in their net assets for each of the years
presented in the two-year period then ended and the financial highlights for
each of the periods presented in the five-year period then ended, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
January 28, 2000
70
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Horace Mann Mutual Funds
P.O. Box 4657
Springfield, IL 62708-4657
1-800-999-1030
Business Manager
Horace Mann Investors, Inc.
One Horace Mann Plaza Springfield, IL 62715-0001
IA-004388 (2/00)
