<PAGE>
Up Close
Annual Report
December 31, 1999
A new outlook
on retirement
[PHOTOS]
Agents serve
as educators
New funds
Fund structures planned for
change 2000!
- --------------------------------------------------------------------------------
Horace Mann
Horace Mann Mutual Funds and Horace Mann Life Insurance Company Separate Account
Annual Report
<PAGE>
Contents
[PHOTO]
A new outlook on retirement
Even though we live in a technologically
enhanced society, what matters to many
Horace Mann customers is the personal
relationship they have with their Horace
Mann agent. Technology helps us cement
those relationships in new and changing
ways.
FEATURES
A new look at retirement ............................ 3
Review the basics of investing ...................... 4
A new outlook for our market
and our company ..................................... 8
Establishing a connection: feedback
leads to changes, new products ......................10
How the funds measure up ............................13
Take a closer look at your funds ....................15
DEPARTMENTS
Investment subadviser letter ........................16
Financial statements ................................21
EDITOR'S NOTE: Nothing in these articles should be construed as a promise or
guarantee of future performance. Investment decisions are very personal and
should take into account many individual factors. More complete information on
the funds can be found in the current prospectuses.
This report must be preceded or accompanied by a current prospectus.
<PAGE>
Horace Mann Mutual Funds
- --------------------------------------------------------------------------------
P.O.Box 4657
Springfield, IL 62708-4657
217-789-2500
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>
A new look at retirement; a new look at saving
[PHOTO]
Americans' notion of retirement continues to change. We're not just saving for a
few years of life after age 65. We're living longer, and our idea of retirement
has evolved into an active time of independence, travel and activity -- and we
don't want money worries. So we're concerned with our sources of retirement
income and trying to make sure we'll have enough money saved to meet our goals
throughout retirement.
What does this mean? It means workers who want to retire are realizing they'll
have to be responsible for saving most (if not all) of the money they'll need to
fund their retirement years. And that's where Horace Mann's agents and products
can make the difference.
[PHOTO]
Americans living longer, but not accumulating for retirement
Even though investing for retirement is becoming more important to Americans,
many people still don't take advantage of 401(k), 403(b), individual retirement
accounts (IRAs) and Tax-free (Roth) IRAs early enough. A Department of Labor
study reports only 66 percent of full-time employees participate in one or more
employer-provided retirement plans.
Americans are also seeing increases in life expectancy. According to the
National Center for Health Statistics, the average life expectancy of U.S.
residents was 76.5 years in 1997, and it continues to increase. Males who reach
age 65 can expect to live almost 16 more years, and females can expect to live
an additional 19 years. So if they retire, Americans can expect to spend at
least 15-20 years in retirement.
Americans who wait to start retirement planning may not have the resources for a
comfortable retirement. According to a study conducted by the U.S. Department of
Commerce, only 5 percent of all Americans are financially independent at age 65.
This study further indicates 75 percent of all retirees are forced to depend on
family, friends, and Social Security as their only sources of income at some
point during retirement.
3
<PAGE>
Agents see their role as educators
Even though many of our customers are educators, agents usually find themselves
in a role reversal when it comes to insurance and annuity products. Clients want
their Horace Mann agent to counsel them and explain insurance and retirement
planning. Successful agents are ones who succeed in the role.
[PHOTO]
One such agent is North Indiana Senior Account Executive Tom Grzesik. Grzesik
has been a Horace Mann agent for 20 years, and he finds many clients look to him
for information as they start retirement planning.
"Retirement planning is a topic most clients ask me about, rather than the other
way around," Grzesik says. "By the time people reach age 35 or 40, they start to
become pretty concerned about it. But whenever someone asks me, I try to do a
thorough needs analysis for all their insurance needs. I also find out what
they've done so far. I ask them
The following steps can give you the beginnings of an overall retirement plan.
Review the basics of investing
Start now and develop a plan. Starting now puts time on your side. The earlier
you begin planning and saving, the better opportunity you'll have to accumulate
enough money for a comfortable retirement. If you postpone retirement savings by
10 years, you may have to contribute twice the monthly investment to reach the
same goal than if you started 10 years earlier. Starting early also arms you
with a powerful advantage --compounded earnings.
Take the tax-deferred advantage. If you qualify, a 403(b) tax-deferred annuity
(TDA) allows you to set aside pre-tax money for retirement. That money not only
reduces your taxable income now, it continues to accumulate with no taxes taken
out. Then, after age 591/2 or when you retire, you can withdraw money from your
TDA for your retirement needs without IRS penalties.
Supplement with IRAs. If you're not participating in a qualified retirement plan
(where you contribute money), you can start an individual retirement account
(IRA). Up to $2,000 in IRA contributions can be deducted from taxable income
every year if you meet income limits. You can set aside money now to supplement
pension or Social Security benefits.
If you already participate in a qualified retirement plan, you can still put up
to $2,000 away each year in a Horace Mann Tax-free (Roth) IRA even though you
can't deduct this IRA contribution from your taxable income. After age 59 1/2
(and the IRA has been held five years), you can withdraw the money tax-free for
retirement income. Provisions allow for withdrawing money for first-time home
purchase or your children's college education expenses.
Look at the long term. It's important to remember you're investing for the
long-term. Start contributing as early as possible into an investment program
you feel comfortable with. Diversify your investments to lessen your risk during
market downturns or when some market sectors are out of favor.
Increase your contributions when you can. Getting in the habit of gradually
increasing your deposits can make your retirement fund grow even more rapidly.
If you'd like to increase your annuity contributions, contact your Horace Mann
agent. Or, see your payroll department to adjust your payroll deduction.
Work with your Horace Mann agent. It all starts with your Horace Mann agent. He
or she can help you define your goals, put together a plan, and start on it. To
get the ball rolling, contact your Horace Mann agent today.
4
<PAGE>
what they know, and then we start from there.
"As we get into the process, they start to learn about planning, and they also
start realizing what we do," he continues. "By getting them involved in
accumulating knowledge, we can build their plan around what they feel
comfortable with. They can look through the funds we offer and make choices
about their investment options."
[PHOTO]
GRZESIK AND OFFICE ASSISTANT STEPHANIE MOORE
Grzesik stresses retirement plans are dynamic, and changes may be needed as
clients age and markets change. "One strategy won't suffice for a client's
lifetime," he explains. "We may need to look at readjusting or coming up with a
new strategy if their needs change or their comfort level changes. But I want
them to stay involved."
[PHOTO]
LEHMAN-RIOS RESPONDS TO CLIENT NANCY GUEDRI`S QUESTION.
The process of educating clients is not lost on newer agents, either. Richmond
Agency Representative Manuel Lehman-Rios has been with the company only two
years, yet his experiences and thoughts are similar to Grzesik's -- give
information and keep clients' best interests at heart.
"Essentially, every person I talk to realizes he or she needs to start planning
for retirement," Lehman-Rios explains. "I go through the advantages of the
403(b) with educators, explaining how it can be especially useful for them.
After they know what they can do, the question with them usually isn't whether
to start, but how much they should start with.
"When I was a teacher, I didn't know anything about retirement planning or
tax-deferred savings programs," Lehman-Rios adds. "As I learned about it while
becoming an agent, I said to myself, `I didn't realize this was available!' So I
know there are many educators out there like that. The 403(b) is an excellent
way for them to save for retirement."
Lehman-Rios agrees he also finds himself in the familiar role of teacher. "One
of the first questions I ask clients is, `What do you know about retirement
planning?' Then I can help clear up some of the myths and misconceptions. One
client thought that a tax-deferred annuity program would diminish her eligible
retirement benefits. I assured her it wouldn't. But they want to talk about it,
and they want me to
5
<PAGE>
help educate them about it. I want to try to help them make sense out of
retirement planning," he says.
Advice: "Be a long-term investor"
Both Grzesik and Lehman-Rios say clients continue to look to them for advice,
even after they have a plan in place. Clients consult with them on a variety of
questions, including how the current market is affecting their investments. Both
agents caution clients not to get lost chasing the big numbers some funds are
reporting these days.
"The market will not favor just one type of investment over the long term."
"I always try to remind clients to `stay with the program,'" Grzesik says. "It
never hurts to take a look at the strategies they've chosen, or even to readjust
them if needed. But I tell them to invest in funds that have a good long-term
outlook, and not to chase yesterday's performance leader. Lately value funds are
out of favor, but unless there's a big change in the market, they'll find favor
again."
Grzesik reminds clients they're long-term investors. "Some people are
short-sighted -- they see the big returns and wonder if they're missing out. My
advice is that it's not market timing that will help them, but how much time
they stay invested in the markets. I remind them their money is what they're
depending on for retirement," he adds.
[PHOTO]
"I can't really help someone who's interested in short, quick phenomenal returns
- --that's a speculator. My clients are long-term investors who go into this with
a plan and try to stick with it. That's what Horace Mann provides -- a good plan
and an agent who can help them carry it out. I can help them find a strategy,
and give them a long-term relationship with someone they can trust," Grzesik
states.
Lehman-Rios agrees the market climate has created investors with high
expectations. "The grass always looks greener on the other side," he says. "One
client was disappointed with her return. I told her to take a look at the stock
market from a historical perspective. Historically speaking, the market has
returned about 12 percent on average. The market will not favor just one type of
investment over the long term. I always ask `Do you think the market will
continue with this trend forever?' If not, my advice is to `stay the course.'
"If you're always chasing the numbers, you'll always be behind. It doesn't make
sense to do that. So the best thing for clients to do is invest in the stock
market and take advantage of what history tells them," Lehman-Rios explains.
[PHOTO]
Staying involved
Grzesik stresses it's important to him, and to his clients, that he remain
involved with them and their retirement plans. "It's important to me that I
monitor their programs as time goes on, helping to make sure we're following
their plan and offering suggestions that may help them," he says.
6
<PAGE>
Grzesik's involvement and dedication to his clients has resulted in many
satisfied, long-term customers. And because of his efforts, they understand the
importance of saving for long-term goals.
The Lewis family is a good example. Gordon Lewis is the principal at Rensselaer
Central Middle School, and his wife Carolyn teaches at Van Rensselaer Elementary
School. Grzesik describes the Lewises as loyal, long-term clients who not only
have retirement savings programs, but also life, auto and homeowners insurance
with Horace Mann.
[PHOTO]
CAROLYN LEWIS SHOWS DAUGHTER, JENNIFER, THE ADVANTAGES OF PLANNING AHEAD
Gordon Lewis knows the importance of having a long-term retirement savings
program, and he encourages others to start as soon as possible. "It's an
excellent way for people to plan ahead," he says. "It's great for younger people
to get involved early.
[PHOTO]
GRZESIK REVIEWS GORDON AND CAROLYN LEWIS' RETIREMENT PLAN.
We talk to kids a lot about planning for their careers, and to be prepared for
uncertainty. You're never too young to begin a savings program."
"In fact, we started a program with Tom for our daughter, Jennifer," Lewis adds.
"We'll be using those funds for her college education."
Lewis is also very appreciative of the attentive service Grzesik has provided to
his family. "I not only feel comfortable with Tom reviewing our insurance, but
he's always been very personable," Lewis explains. "He stays on top of things,
and he's great to work with. We've known him for years, and we've had lots of
success with Tom and Horace Mann. We consider him a good friend. It's nice to
have an agent like Tom who's competent and knows what he's doing. We trust his
expertise and sound advice."
One of Lehman-Rios' clients, Nancy Guedri, says his personal service is an
important reason she switched to Horace Mann. "Manuel is one of the reasons I
switched my annuity. The agent with my previous company didn't stay in touch
with me very much. We hadn't discussed my annuity since I'd started it. Manuel
stays on top of things. He's very good at keeping in touch with you and keeping
you informed, and that's important to me," she says.
7
<PAGE>
A new outlook for our market and our company
Changes in education, technology redefining the marketplace
[PHOTO]
LEHMAN-RIOS FINDS HIS COMPUTER AND CELL PHONE ARE ESSENTIAL TOOLS FOR HELPING
HIS CLIENTS.
Technically, the century ends at the end of the year 2000. But it only seems
fitting that many people see 2000 as the start of the new millennium. Technology
is speeding the pace of life, seemingly making it move quicker, and these
changes affect not only our customers and potential customers, but they are
affecting us as a company, too.
Perhaps the biggest change is the information age led by the personal computer
and the Internet. In June 1999, CommerceNet reported 92 million Internet users
aged 16 and older in the United States. Estimates at the end of 1999 from Nua
Internet were 106.3 million users in the United States, or almost 40 percent of
the population. That compares to only 18 million in 1995.
We've seen this evolution in our customers and the way they view the world. More
and more educators are using the computer as one of their essential teaching
tools. As Lehman-Rios' client Nancy
8
<PAGE>
www.reacheverychild.com
Horace Mann continues to support the work of our nation's educators. One of our
most recent efforts has been to develop a resource database for educators
accessible through the Internet.
The original idea came from National Teachers Hall of Fame inductee Alan
Haskvitz. He told us about a number of resources he'd gathered to make lesson
plans. From those, Haskvitz and Horace Mann staff developed the Internet site
reacheverychild.com. The site debuted in 1999, and it lists more than 5,000
educational resources for all academic subjects, including free, inexpensive and
valuable resources for teachers and parents. Additionally, the site provides
sample lesson plans to show teachers how they can use these resources in the
classroom, and an e-mail link to a nationally recognized educator for ideas and
feedback.
The site has proven very popular with over 24,000 visitors its inaugural year,
and it continues to grow with more features and resources being added.
Guedri noted, "The computer is having a tremendous influence in the classroom.
Even in my first grade class, it's amazing how much kids know these days. Even
the kindergartners use the computer lab in our school. You can use the Internet
for all kinds of information and reference. You find what you need and pull it
right up on the screen," she says.
[PHOTO]
THE INTERNET AND WWW.HORACEMANN.COM
The Internet has literally seen explosive growth over the past several years.
Horace Mann's Web site also continues to grow, and now includes product
information, annuity fund pricing and the history of The Horace Mann Companies.
The site had over 116,000 visitors in 1999.
[PHOTO]
You can find a variety of information and resources on the site. You can ask
questions and receive service on policies and claims, making it yet another
useful way to communicate with us. There's also a page giving asset values of
Annuity Alternatives investment options, as well as the funds' performance over
the previous quarter. You will even be able to find the articles and financial
sections of this report.
Potential customers can find important information, too, such as the nearest
Horace Mann agent or agency office. Look for additional enhancements in 2000.
9
<PAGE>
Establishing a connection: feedback leads to changes, new products
Today, customers and potential customers are better informed, and they want
quick, courteous service and information. When changes are needed, our clients
want them made quickly.
Consider differences between growth and value investing
Wilshire Vice President and Principal Michael O'Keeffe explains the importance
of investment approach when investing in the U.S. stock market.
[PHOTO]
"Most investment managers employ a specific approach when investing in stocks,"
explains O'Keeffe. "For example, one manager might focus on a company's future
ability to grow its earnings while another manager might focus on finding
low-priced stocks today with the expectation of selling them when the price goes
up."
O'Keeffe says many investment professionals think the latter investment approach
may come back into favor in the next few years. He notes it's human nature to be
tempted by short-term performance, though. "For instance, many individual
investors observed the strong performance of stocks with high earnings growth in
1990-1991 and decided to buy those stocks instead of low-priced alternatives.
When the trend shifted to favor low-priced stocks in 1992-1993, those investors
who had switched missed this better performance," he explains.
"Some investment managers are also guilty of drifting to the better performing
style," O'Keeffe continues. "The 1999 rush to technology stocks is an example.
Managers who changed their approach and bought into the Internet euphoria by
purchasing high-priced technology stocks (even some without any earnings!)
looked good for the year. However, these managers could be hurt if a correction
in technology occurs."
"In strong bull markets, the strategies with an emphasis on earnings growth
often perform better and are therefore more popular," notes O'Keeffe. "However,
this approach can also be more volatile. Investing in low-priced stocks is more
conservative. In choppy or bear markets, these stocks tend to provide better
downside protection by not declining as much."
All of the Horace Mann funds are invested by subadvisers who stay true to the
fund's investment approach, O'Keeffe explains. "Wilshire works diligently to
ensure proper structures are in place in each fund and the subadvisers are
adhering to their long-term strategies," explains O'Keeffe. "For example, the
Horace Mann Growth Fund uses three managers who have not changed their approach
of seeking low-priced stocks in spite of the turmoil of the last couple of
years. Although they under-performed in 1998 and 1999, they are positioned for
better performance when their approach returns to favor."
10
<PAGE>
FUNDS' STRUCTURES CHANGE
In early 1999, the board approved changes to the structure of the funds to help
improve performance. It appointed Wilshire Associates as adviser to the funds
and gave Wilshire the authority to make changes to the funds' subadvisers to
help maximize fund performance. Wilshire subsequently added Brinson Partners and
Mellon Equity Advisors, LLP to Wellington Management Co., LLP as subadvisers for
the Growth Fund and equity portion of the Balanced Fund.
INCOME FUND ADDS SUBADVISER
In October 1999, the board approved the use of a multi-manager investment
strategy using two subadvisers for the Income Fund. In January 2000, Western
Asset Management will join Wellington Management Co., LLP, in managing the
fund's assets.
Western Asset Management was founded in 1971, and it manages about $60 billion
in fixed-income assets for over 160 institutional clients. It is planned that
Western Asset will manage roughly 50 percent of the assets of the Income Fund
after the Balanced Fund becomes a "fund-of-funds." The Funds Board and Wilshire
Associates believe dividing assets between the two firms will help make the fund
more diversified while seeking to provide a more consistent return.
[PHOTO]
In early 1999, the board approved changes to the structure of the funds to help
improve performance.
ADDITIONAL FUND CHOICES PLANNED FOR 2000!
And yet another example of responding to your needs will be seen at mid-year
when we add two additional fund choices to our qualified annuity products. Two
new funds will complement the existing investment mix and offer you some
distinctive retirement investment options.
The Wilshire 5000 Index Portfolio can offer you the opportunity to match the
returns of the total stock market. The fund is managed by Wilshire Associates.
If you want to invest in stocks and want a well-diversified position
(investments in all segments of the stock market), you might want to consider
allocating money to this fund. Because this fund provides broad exposure to the
U.S. stock market rather than focusing on a distinct market segment, it may be
less volatile than a fund which provides exposure to a particular segment.
The Wilshire Large Company Growth Portfolio provides you the opportunity to
invest in bigger companies with a strong growth orientation. This investment
might appeal to you if you want to invest in companies with higher-than-average
growth potential. Because this fund invests in the large company segment of the
market, it may be more volatile than a fund which provides a broader market
exposure.
These two funds can become an important component in your retirement plan.
11
<PAGE>
Current Annuity Alternatives fund choices
Here is a brief description of each of Horace Mann's funds and its investment
strategy. For information on diversifying your investments with Annuity
Alternatives, you may obtain a prospectus by calling your agent or our Customer
Service Department at 1-800-999-1030. The prospectus will provide complete
information on Annuity Alternatives, including charges and expenses. You should
read the prospectus carefully before you invest. Our annuities are underwritten
by Horace Mann Life Insurance Company and distributed by the broker/dealer,
Horace Mann Investors, Inc.
Small Cap Growth Fund (high risk) -- Deposits are invested in a diversified
portfolio of the stock of smaller U.S. companies that have the potential for
more growth. Accordingly, their stock prices may rise faster but can also
decline more in unfavorable business climates. As a result of the "higher highs"
and "lower lows," they are more volatile. This is an aggressive investment.
International Equity Fund (moderately high risk) -- Deposits are primarily
invested in the stock of large, well-managed non-U.S. companies. Investing in
foreign securities may involve a greater degree of risk than investing in
domestic securities due to the possibility of currency fluctuations, more
volatile markets, less securities regulation and political instability. This is
a moderately aggressive investment.
Growth Fund (moderate risk) -- Deposits are invested in a diversified portfolio
of stock of U.S. companies that vary by size. The managers use a "value yield"
style. The managers buy the stock of quality companies with above average
dividends, selling at reasonable prices compared to the overall market. This is
a moderate investment.
[PHOTO]
Socially Responsible Fund (moderate risk) -- Deposits are invested in stocks of
large, well-managed U.S. companies exhibiting socially responsible business
practices using a "growth and income" style. Managers then exclude companies
that are not "socially responsible" including those associated with the
production of alcoholic beverages, tobacco products, nuclear weapons,
pornographic materials, casino gaming devices, or companies that have
discriminatory hiring practices or unacceptable environmental policies. Because
this fund invests in companies with socially responsible business practices, it
has limitations that may have an impact on performance. This is a moderate
investment.
Balanced Fund (moderate risk) -- Deposits are invested in a combination of large
company stocks and high-quality bonds similar to those in the Growth and Income
funds described here. The investment mix usually included 60 percent or more in
stocks. The fund manager does not make sudden shifts from one asset class to
another based on market conditions (market timing). The combination of bonds and
stocks reduces investment risk. This is a moderate investment.
Income Fund (low to moderate risk) -- Deposits are invested in a diversified
portfolio of corporate and government bonds and other debt-type investments that
pay interest. The value of those bonds may also rise, adding to the return (when
interest rates go down). The value may also decline, reducing return (as
interest rates rise). This is a conservative to moderate investment.
Short-Term Investment Fund (low risk) -- Deposits are invested in short-term
investments that typically provide a modest return. This is not a money market
fund, but Horace Mann's alternative to a money market fund. This is a
conservative investment.
12
<PAGE>
FUND PERFORMANCE
How the funds measure up
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.
13
<PAGE>
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.
14
<PAGE>
Take a closer look at how your funds performed
[PHOTO]
The following pages give you an overview of how your funds performed.
By having a Horace Mann annuity, you've already taken the first step toward your
investment goals. If you've wondered what you're invested in, the following
pages detail the investments of each fund.
If you have questions about your retirement plan or other investment options,
you should talk to your Horace Mann agent. He or she can help you determine if
you're saving enough to meet your goals.
Customer service
If your agent is unavailable, contact Horace Mann's customer service area at 1-
800-999-1030. Or visit our website at www.horacemann.com for more information
about our funds and fund prices and insurance products. We also offer special
information just for educators.
15
<PAGE>
W W I L S H I R E WILSHIRE ASSOCIATES
1299 Ocean Avenue, Suite 700 Santa Monica, CA 90401-1085
TEL 310.451.3051 FAX 310.458.0520 www.wilshire.com
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.
16
<PAGE>
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.
17
<PAGE>
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.
18
<PAGE>
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.
19
<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/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
------------------------------ -----------------------------
Michael P. O'Keeffe, CFA Thomas M. Goodrum, Jr., CFA
Vice President & Principal Vice President
Wilshire Associates Incorporated Wilshire Associates Incorporated
20
<PAGE>
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
21
<PAGE>
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/ Operations/1/ 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.
22
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio of
Year Net Asset Net Assets Expenses
Ended Value End Total End of Period to Average
12/31 of Period Return/2/,/3/ (in thousands) Net Assets/4/
GROWTH FUND/6/
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $21.92 (2.54)% $625,133 0.73%
1998 24.34 7.64 670,731 0.51
1997 25.66 23.45 598,502 0.53
1996 23.76 25.28 430,556 0.59
1995 21.66 33.67 297,100 0.63
BALANCED FUND/6/
- --------------------------------------------------------------------------
1999 $17.27 (1.11)% $402,539 0.75%
1998 18.90 7.68 427,920 0.50
1997 19.82 19.04 387,110 0.51
1996 18.94 18.27 300,551 0.56
1995 18.00 27.12 228,193 0.59
INCOME FUND/5/
- --------------------------------------------------------------------------
1999 $12.24 (1.57)% $13,175 0.99%
1998 13.24 8.09 13,959 0.88
1997 13.00 9.42 9,658 0.92
1996 12.69 3.50 10,848 0.70
1995 13.03 14.93 10,532 0.62
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of
Year Net Income Portfolio Ratio of
Ended to Average Turnover Ratio of Net Investment
12/31 Net Assets/4/ Rate Expenses Income
GROWTH FUND/6/
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 1.09% 205.70% 0.79% 1.04%
1998 1.57 59.63 -- --
1997 1.50 54.56 -- --
1996 1.79 67.63 -- --
1995 2.50 64.59 -- --
BALANCED FUND/6/
- ---------------------------------------------------------------------------
1999 3.30% 155.53% 0.77% 3.28%
1998 3.60 63.69 -- --
1997 3.12 77.54 -- --
1996 3.12 72.10 -- --
1995 3.79 64.80 -- --
INCOME FUND/5/
- ---------------------------------------------------------------------------
1999 5.83% 33.09% 1.03% 5.79%
1998 5.85 46.60 -- --
1997 6.09 96.80 -- --
1996 5.88 112.60 0.91 5.67
1995 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.
23
<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/ Operations/1/ Income Gains Distributions
SHORT-TERM FUND/4/
- --------------------------------------------------------------------------------------------------------------------
<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 FUND/5/
- --------------------------------------------------------------------------------------------------------------------
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 FUND/5/
- --------------------------------------------------------------------------------------------------------------------
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 FUND/5/
- --------------------------------------------------------------------------------------------------------------------
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.
24
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
Ratio of
Year Net Asset Net Assets Expenses
Ended Value End Total End of Period to Average
12/31 of Period Return/2/,/3/ (in thousands) Net Assets
SHORT-TERM FUND/4/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ 9.89 4.77% $1,743 0.32%
1998 9.98 4.97 1,331 0.69
1997 9.99 5.09 1,151 0.50
1996 10.03 5.02 1,229 0.53
1995 10.00 5.25 1,006 0.84
SMALL CAP
GROWTH FUND/5/
- --------------------------------------------------------------------------------
1999 $19.76 71.55% $60,497 1.50%
1998 12.38 5.81 28,655 1.11
1997 11.70 17.016 16,525 0.78
INTERNATIONAL
EQUITY FUND/5/
- --------------------------------------------------------------------------------
1999 $17.52 51.83% $26,403 1.30%
1998 12.13 18.95 10,311 1.03
1997 10.27 3.466 5,214 0.46
SOCIALLY
RESPONSIBLE FUND/5/
- --------------------------------------------------------------------------------
1999 $13.81 8.39% $59,533 1.00%
1998 12.99 9.80 35,564 0.64
1997 12.10 23.046 9,213 0.49
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of
Year Net Income Portfolio Ratio of
Ended to Average Turnover Ratio of Net Investment
12/31 Net Assets Rate Expenses Income
SHORT-TERM FUND/4/
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 4.71% 0.00% 1.90% 3.13%
1998 4.78 0.00 2.59 2.88
1997 4.98 0.00 2.52 2.96
1996 4.93 0.00 2.44 3.02
1995 5.11 0.00 2.35 3.60
SMALL CAP
GROWTH FUND/5/
- ---------------------------------------------------------------------------
1999 (1.03)% 172.20% 1.64% (1.17)%
1998 (0.59) 168.31 1.75 (1.23)
1997 (0.19) 91.49 1.44 (0.85)
INTERNATIONAL
EQUITY FUND/5/
- ---------------------------------------------------------------------------
1999 0.53% 77.74% 1.69% 0.14%
1998 0.99 57.71 2.06 (0.04)
1997 1.29 31.99 1.82 (0.07)
SOCIALLY
RESPONSIBLE FUND/5/
- ---------------------------------------------------------------------------
1999 1.28% 60.46% 1.12% 1.16%
1998 2.10 41.63 1.12 1.62
1997 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.
25
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
Growth Fund
December 31, 1999
[PIE CHART]
Cash & Other Net Assets 1.3%
Common & Preferred Stock 98.7%
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.
26
<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.
27
<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.
28
<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)
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 Products 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
See notes to the financial statements.
29
<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.
30
<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.
31
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
[PIE CHART]
Cash & Other Net Assets 2.2%
Muncipal Bonds 1.6%
U.S. & 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.
32
<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.
33
<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)
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.
34
<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.
35
<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
(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.
36
<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.
37
<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)
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.
38
<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
(concluded)
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.
39
<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.o
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.
40
<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. ***
9.25%, 11/01/05 200 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.
41
<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 +
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.
42
<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. o
0.00%, 05/01/08 250 121
GST Telecommunications, Inc. o
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. o
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. o
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.
43
<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. +
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.
44
<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.
45
<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.
46
<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 the financial statements.
47
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
Income Fund
December 31, 1999
[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%
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.
48
<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.
49
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Income Fund
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
<S> <C> <C>
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
</TABLE>
See notes to the financial statements.
50
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Income Fund
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE
BONDS/NOTES
(concluded)
<S> <C> <C>
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)
</TABLE>
See notes to the financial statements.
51
<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.
52
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
Short-Term Investment Fund
December 31, 1999
[PIE CHART]
U.S. Agency Obligations, Cash & Other Net Assets 100%
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------
U.S. GOVERNMENT
AND AGENCY
OBLIGATI0NS
<S> <C> <C>
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
==================================================================================
</TABLE>
See notes to the financial statements.
53
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
Small Cap Growth Fund
December 31, 1999
[PIE CHART]
Cash & Other Net Assets 7.5%
Common Stock 92.5%
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------
COMMON STOCK
<S> <C> <C>
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
</TABLE>
See notes to the financial statements.
54
<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.
55
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------
COMMON STOCK
(continued)
<S> <C> <C>
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
</TABLE>
See notes to the financial statements.
56
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(concluded)
<S> <C> <C>
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)
================================================================================
</TABLE>
See notes to the financial statements.
57
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Small Cap Growth Fund
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
SHORT-TERM
INVESTMENTS
<S> <C> <C>
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
================================================================================
</TABLE>
* Non-income producing for the year ended December 31, 1999, as this security
did not pay divdends.
See notes to the financial statements.
58
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
International Equity Fund
December 31, 1999
[PIE CHART]
North America 0.7%
Cash & Other Net Assets 8.0
Pacific 35.9%
Europe 55.4%
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
<S> <C> <C>
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
</TABLE>
See notes to the financial statements.
59
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (continued)
International Equity Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
(continued)
<S> <C> <C>
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. (Automobilies)* 30,000 118
Nomura Securities (Financial) 14,000 253
NSK (Diversified Manufactuer) 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
</TABLE>
See notes to the financial statements.
60
<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.
61
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
International Equity Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK
(concluded)
<S> <C> <C>
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)
<CAPTION>
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
CORPORATE NOTES
<S>
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
================================================================================
</TABLE>
* Non-income producing for the year ended December 31, 1999, as this security
did not pay dividends.
See notes to the financial statements.
62
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments
Socially Responsible Fund
December 31, 1999
[PIE CHART]
Cash & Other Net Assets 3.6%
Common & Preferred Stock 96.4%
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ---------------------------------------------------------------------------------
COMMON STOCK
<S> <C> <C>
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
</TABLE>
See notes to the financial statements.
63
<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.
64
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
Statement of Investments (concluded)
Socially Responsible Fund
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ---------------------------------------------------------------------------------
COMMON STOCK
(concluded)
<S> <C> <C>
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)
<CAPTION>
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
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
=================================================================================
</TABLE>
* Non-income producing for the year ended December 31, 1999, as this security
did not pay dividends.
See notes to the financial statements.
65
<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.
66
<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.
67
<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.
68
<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>
69
<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.
70
<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.
71
<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.
72
<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>
73
<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%.
74
<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).
75
<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>
76
<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 13.
/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 INDICES/1/
[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 13.
/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.
77
<PAGE>
HORACE MANN MUTUAL FUNDS 1999 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE INCOME FUND AND BOND INDEX/1/
[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 13.
/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 13.
/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.
78
<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 INDEX/1/
[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 13.
/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 INDEX/1/
[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 13.
/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 INDEX/1/
[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 13.
/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.
79
<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
<PAGE>
Annual Report
December 31, 1999
Horace Mann Life Insurance Company
Separate Account
Sponsor
Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, IL 62708-4657
1-800-999-1030
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Statements of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
ACCOUNT DIVISION
--------------------------------------------------------------------------------------------------------
SOCIALLY
GROWTH BALANCED RESPONSIBLE SMALL CAP INTERNATIONAL INCOME SHORT-TERM
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in Horace Mann
Funds at market value $ 515,030,983 $ 390,149,921 $ 55,264,734 $ 53,983,431 $ 22,750,999 $ 12,641,105 $ 1,420,441
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 515,030,983 $ 390,149,921 $ 55,264,734 $ 53,983,431 $ 22,750,999 $ 12,641,105 $ 1,420,441
====================================================================================================================================
NET ASSETS
Net Assets (Indefinite
units authorized)
Active Contract Owners 512,678,901 389,090,406 55,264,734 53,983,431 22,750,999 12,577,628 1,420,441
Retired Contract Owners 2,352,082 1,059,515 0 0 0 63,477 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 515,030,983 $ 390,149,921 $ 55,264,734 $ 53,983,431 $ 22,750,999 $ 12,641,105 $ 1,420,441
====================================================================================================================================
Total units 23,495,939 22,591,194 4,001,791 2,731,955 1,298,573 1,032,770 143,624
Net unit value
(Net assets divided by
total units held) $ 21.92 $ 17.27 $ 13.81 $ 19.76 $ 17.52 $ 12.24 $ 9.89
Investments
Cost of investments $ 556,571,637 $ 416,612,076 $ 52,048,321 $ 35,118,616 $ 16,238,396 $ 13,519,116 $ 1,466,504
Unrealized appreciation
(depreciation) of
investments $ (41,540,654) $ (26,462,155) $ 3,216,413 $ 18,864,815 $ 6,512,603 $ (878,011) $ (46,063)
Number of shares held in
Horace Mann Funds 23,495,939 22,591,194 4,001,791 2,731,955 1,298,573 1,032,770 143,624
</TABLE>
See notes to the financial statements.
82
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Statements of Operations
For The Year Ended December 31, 1999
<TABLE>
<CAPTION>
ACCOUNT DIVISION
----------------------------------------------------------------------------------------------
SOCIALLY
GROWTH BALANCED RESPONSIBLE SMALL CAP INTERNATIONAL INCOME SHORT-TERM
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income distribution $ 5,603,816 $ 13,348,875 $ 561,248 $ -- $ 32,238 $ 763,037 $ 77,541
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 5,603,816 $ 13,348,875 $ 561,248 $ -- $ 32,238 $ 763,037 $ 77,541
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gain distribution 33,401,778 16,365,604 495,062 3,694,434 1,062,632 -- 496
Net realized gain (loss) on
investments 2,734,923 1,648,962 397,378 859,840 282,107 (89,624) 12,265
Net unrealized appreciation
(depreciation) on investments (55,323,815) (35,986,834) 1,997,171 16,655,522 5,593,118 (898,736) (8,691)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (19,187,114) (17,972,268) 2,889,611 21,209,796 6,937,857 (988,360) 4,070
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $(13,583,298) $ (4,623,393) $3,450,859 $21,209,796 $6,970,095 $(225,323) $ 81,611
====================================================================================================================================
</TABLE>
See notes to the financial statements.
83
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Statements of Changes in Net Assets
For The Year Ended December 31, 1999
<TABLE>
<CAPTION>
ACCOUNT DIVISION
---------------------------------------------------------------------------------------------------
SOCIALLY
GROWTH BALANCED RESPONSIBLE SMALL CAP INTERNATIONAL INCOME SHORT-TERM
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 5,603,816 $ 13,348,875 $ 561,248 $ -- $ 32,238 $ 763,037 $ 77,541
Capital gain distribution 33,401,778 16,365,604 495,062 3,694,434 1,062,632 -- 496
Net realized gain (loss)
on investments 2,734,923 1,648,962 397,378 859,840 282,107 (89,624) 12,265
Net unrealized appreciation
(depreciation) on investments (55,323,815) (35,986,834) 1,997,171 16,655,522 5,593,118 (898,736) (8,691)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations (13,583,298) (4,623,393) 3,450,859 21,209,796 6,970,095 (225,323) 81,611
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated
payments received 60,257,053 37,836,816 13,897,279 6,286,861 3,720,690 1,332,317 117,330
Sales and administrative
expenses (Note 1) (21,163) (12,105) (4,666) (1,928) (1,019) (370) (20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net consideration received
on annuity contracts 60,235,890 37,824,711 13,892,613 6,284,933 3,719,671 1,331,947 117,310
Net transfer from (to)
fixed accumulation account (1,465,003) (2,220,170) 5,881,820 1,301,974 1,766,470 919,976 2,501,728
Transfers from (to)
other Divisions (5,380,014) (5,398,487) 4,524,784 3,112,645 2,368,854 (371,579) 1,143,797
Payments to contract owners (62,514,618) (41,492,821) (4,401,319) (2,587,681) (989,091) (2,154,435) (3,632,211)
Mortality and expense
risk charge (Note 1) (6,539,328) (5,127,348) (567,880) (775,608) (260,753) (163,752) (26,397)
Annual maintenance
charge (Note 1) (529,260) (240,231) (97,310) (50,518) (8,083) (6,044) (1,175)
Surrender charges (Note 1) (440,028) (209,771) (66,054) (52,285) (18,249) (11,701) (16,313)
Mortality guarantee adjustment (1,901) (27,665) -- -- -- 378 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
contract owners' transactions (16,634,262) (16,891,782) 19,166,654 7,233,460 6,578,819 (455,210) 86,739
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (30,217,560) (21,515,175) 22,617,513 28,443,256 13,548,914 (680,533) 168,350
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year 545,248,543 411,665,096 32,647,221 25,540,175 9,202,085 13,321,638 1,252,091
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year $ 515,030,983 $ 390,149,921 $ 55,264,734 $ 53,983,431 $ 22,750,999 $ 12,641,105 $ 1,420,441
====================================================================================================================================
</TABLE>
See notes to the financial statements.
84
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Statements of Changes in Net Assets
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
ACCOUNT DIVISION
-------------------------------------------------------------------------------------------------
SOCIALLY
GROWTH BALANCED RESPONSIBLE SMALL CAP INTERNATIONAL INCOME SHORT-TERM
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income $8,264,646 $14,558,887 $418,383 $ -- $66,010 $657,519 $61,379
Capital gain distribution 56,559,537 32,776,490 311,493 -- -- 116,719 73
Net realized gain (loss)
on investments 6,907,236 5,324,917 31,623 (106,427) 63,880 102,467 365
Net unrealized appreciation
(depreciation) on investments (35,358,294) (23,977,886) 661,248 1,656,161 950,618 (27,322) 1,607
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $36,373,125 $28,682,408 $1,422,747 $1,549,734 $1,080,508 $849,383 $63,424
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS'
TRANSACTIONS
Gross stipulated
payments received 68,716,450 42,202,391 9,257,570 6,538,353 1,931,720 1,426,075 72,780
Sales and administrative
expenses (Note 1) (24,253) (13,105) (3,369) (1,683) (379) (401) (23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net consideration received
on annuity contracts 68,692,197 42,189,286 9,254,201 6,536,670 1,931,341 1,425,674 72,757
Net transfer from
fixed accumulation account 13,065,806 6,733,572 8,240,868 4,089,352 1,410,267 645,869 2,069,787
Transfers from (to)
other Divisions (4,097,370) (5,829,657) 6,167,171 29,075 384,323 2,613,153 733,305
Payments to contract owners (31,533,087) (25,310,895) (517,897) (866,217) (168,484) (1,392,774) (2,799,017)
Mortality and expense
risk charge (Note 1) (6,559,530) (5,284,843) (272,279) (38,748) (65,275) (145,537) (21,327)
Annual maintenance
charge (Note 1) (483,634) (224,517) (21,362) (10,450) (3,175) (4,932) (875)
Surrender charges (Note 1) (215,153) (122,068) (6,337) (12,992) (3,308) (4,454) (5,852)
Mortality guarantee adjustment (33,306) 9,857 -- -- -- 723 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
contract owners' transactions 38,835,923 12,160,735 22,844,365 9,726,690 3,485,689 3,137,722 48,778
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase
in net assets 75,209,048 40,843,143 24,267,112 11,276,424 4,566,197 3,987,105 112,202
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, beginning of year 470,039,495 370,821,953 8,380,109 14,263,751 4,635,888 9,334,533 1,139,889
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year $545,248,543 $411,665,096 $32,647,221 $25,540,175 $9,202,085 $13,321,638 $1,252,091
====================================================================================================================================
</TABLE>
See notes to the financial statements.
85
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Notes to the Financial Statements
December 31, 1999
1. NATURE OF SEPARATE ACCOUNT -- Horace Mann Life Insurance Company Separate
Account ("the Account"), registered as a unit investment trust under the
Investment Company Act of 1940, is used to fund variable annuity contracts. All
assets of the Account are invested in shares of the Horace Mann Growth Fund
("Growth Fund"), Horace Mann Balanced Fund ("Balanced Fund"), Horace Mann
Socially Responsible Fund ("Socially Responsible Fund"), Horace Mann Small Cap
Growth Fund ("Small Cap Fund"), Horace Mann International Equity Fund
("International Fund"), Horace Mann Income Fund ("Income Fund"), and Horace Mann
Short-Term Investment Fund ("Short-Term Fund"). The funds collectively are
referred to as the "Funds".
Certain specified amounts, as described in the annuity contracts, are paid to
Horace Mann Life Insurance Company ("HMLIC") to cover death benefits, surrender
charges, sales and administrative expenses and maintenance charges. In addition,
an annual mortality risk charge up to .45% and expense risk charge up to .90% of
the net variable account value is deducted from the contract owner's account,
depending on the year of issue of the contract.
2. SIGNIFICANT ACCOUNTING POLICIES -- The investments in the funds are valued at
market (net asset value). The Account owns approximately 82%, 96%, 93%, 90%,
87%, 96% and 88% of the Growth Fund, Balanced Fund, Socially Responsible Fund,
Small Cap Fund, International Fund, Income Fund and Short-Term Fund,
respectively. Distributions from the Funds are recorded on the ex-dividend date.
Realized gains and losses are determined on the basis of average cost of shares
owned for each contract owner.
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. FEDERAL INCOME TAXES -- Investment income of the Account is included in the
tax return of HMLIC; however, no tax accrues on income attributable to tax-
deferred annuities which comprise the majority of the Account contracts. Income
attributable to non tax-deferred annuities is not significant.
4. INVESTMENTS OF THE SEPARATE ACCOUNTS -- In 1983, HMLIC, through the Account,
purchased 10,000 shares of the Short-Term Fund. The investment income and
unrealized appreciation/depreciation resulting from this investment inure to the
benefit of HMLIC. As of December 31, 1999, the shares have a net asset value of
$98,900. In 1996, HMLIC purchased 4,000 shares each from the Socially
Responsible Fund, the Small Cap Fund, and the International Fund. Subsequent to
this initial purchase, HMLIC purchased an additional 96,000 shares each from the
Socially Responsible Fund, the Small Cap Fund, and the International Fund in
1997. As of December 31, 1999, the shares have net asset values of $1,381,000,
$1,976,000, and $1,752,000, respectively.
5. PURCHASE AND SALES OF HORACE MANN FUND SHARES -- During the year ended
December 31, 1999, purchases and proceeds from sales of Horace Mann Fund shares
were as follows:
<TABLE>
<CAPTION>
ACCOUNT DIVISION
---------------------------------------------------------------------------------------------------------------------
SOCIALLY
RESP. SMALL CAP INTERNATIONAL INCOME SHORT-TERM
GROWTH FUND BALANCED FUND FUND FUND FUND FUND FUND
ACTIVE RETIRED ACTIVE RETIRED ACTIVE ACTIVE ACTIVE ACTIVE RETIRED ACTIVE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $122,810,918 $756,977 $82,596,347 $223,199 $29,098,406 $17,878,061 $10,143,908 $5,898,763 $4,238 $4,777,718
Sales $ 98,181,121 $280,518 $68,240,117 $107,771 $ 8,478,065 $ 6,090,328 $ 2,188,111 $5,679,909 $4,890 $4,600,677
</TABLE>
86
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1999 ANNUAL REPORT
SEPARATE ACCOUNT
Notes to the Financial Statements (Concluded)
December 31, 1999
6. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
<TABLE>
<CAPTION>
ACCOUNT DIVISION
- ------------------------------------------------------------------------------------------------------------------------------------
SOC. RESP. SMALL CAP INTERNATIONAL SHORT-TERM
GROWTH FUND BALANCED FUND FUND FUND FUND INCOME FUND FUND
ACTIVE RETIRED ACTIVE RETIRED ACTIVE ACTIVE ACTIVE ACTIVE RETIRED ACTIVE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Account units
outstanding
at 01/01/98 18,239,300 78,685 18,669,424 40,059 692,571 1,219,124 451,401 714,461 3,580 114,103
Consideration
received 2,584,220 8,746 2,051,726 11,954 718,292 577,578 168,481 104,827 1,707 7,219
Dividend
distributions 2,430,935 10,422 2,257,957 6,267 36,458 -- 578 48,832 301 4,518
Net transfers 292,617 -- 18,964 -- 1,108,749 346,560 153,515 237,351 -- 271,024
Payments to
contract owners (1,233,469) (10,119) (1,271,615) (3,514) (42,812) (80,243) (15,353) (104,521) (372) (271,404)
- ------------------------------------------------------------------------------------------------------------------------------------
Account units
outstanding
at 12/31/98 22,313,603 87,734 21,726,456 54,766 2,513,258 2,063,019 758,622 1,000,950 5,216 125,460
Consideration
received 2,478,673 25,346 1,997,579 8,326 1,021,642 452,360 274,749 101,822 29 11,533
Dividend
distributions 1,525,327 8,155 1,460,890 4,714 39,464 156,994 50,025 52,045 315 5,991
Net transfers (295,214) -- (417,112) -- 761,952 255,749 290,120 40,950 -- 362,090
Payments to
contract owners (2,633,753) (13,932) (2,237,969) (6,456) (334,525) (196,167) (74,943) (168,183) (374) (361,450)
- ------------------------------------------------------------------------------------------------------------------------------------
Account units
outstanding
at 12/31/99 23,388,636 107,303 22,529,844 61,350 4,001,791 2,731,955 1,298,573 1,027,584 5,186 143,624
====================================================================================================================================
</TABLE>
87
<PAGE>
Independent Auditor's Report
The Contract owners of Horace Mann
Life Insurance Company Separate
Account and the Board of Directors
of Horace Mann Life Insurance Company:
We have audited the accompanying statement of net assets of the Growth,
Balanced, Socially Responsible, Small Cap, International, Income, and Short-Term
Fund Divisions within the Horace Mann Life Insurance Company Separate Account as
of December 31, 1999, and the related statement of operations for the year then
ended and the statements of changes in net statements for each of the years in
the two-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999 by correspondence with the
Horace Mann Mutual Funds. 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 referred to above present fairly, in
all material respects, the financial position of the Growth, Balanced, Socially
Responsible, Small Cap, International, Income, and Short-Term Fund Divisions as
of December 31, 1999, and the results of their operations for the year then
ended and changes in their net assets for each of the years in the two-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
January 25, 2000
<PAGE>
They're watching their dreams take shape
They know Horace Mann will help them every step of the way
As their dream home is built, they're glad to have someone they can
rely on to oversee the process. It's the same kind of trust they place
in Horace Mann and their Horace Mann agent.
[PHOTO]
This couple has relied on our products and
services to protect their homes, cars, incomes and
lives. And while they look over house plans, they
haven't overlooked our retirement annuities and
funding for their son's college education. When
they need expert advice, they know their Horace
Mann agent will provide it.
[LOGO OF HORACE MANN] We can help make your dreams take shape, too. For
- ---------------------- your insurance and retirement planning needs, talk
Insuring America's to your Horace Mann agent.
Educational Community
The Horace Mann Companies
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
217-789-2500
www.horacemann.com IA-004358 (2/00)
www.reacheverychild.com
