<PAGE>
Retirement Annuities and
Life, Auto, Homeowners and
[LOGO OF HORACE MANN(R) APPEARS HERE] Group Insurance
- --------------------------------------------------------------------------------
Insuring America's Educational Community 1 Horace Mann Plaza
Springfield, Illinois 62715-0001
217-789-2500
Dear Valued Customer:
I appreciate your confidence in Horace Mann Life Insurance Company and your
continuing participation in our retirement annuity program.
For the year ended December 31, 1998, the total annual return of your variable
annuity contract was at least 6.22 percent, bringing the average annual return
for the five- and ten-year periods then ended to at least 15.81 percent and
14.83 percent, respectively. These returns reflect the performance of your
underlying investment in the Horace Mann Growth Fund, less separate account
charges for mortality and expense risk which vary depending on the year your
contract was issued.
For more information about the Growth Fund, please read the enclosed Horace Mann
Mutual Funds' Annual Report. If you have questions about the Growth Fund, Horace
Mann Life Insurance Company Separate Account B Annual Report or your variable
annuity contract, please call your Horace Mann representative or our toll-free
number, 1-800-999-1030.
Sincerely,
/s/ Paul J. Kardos
Paul J. Kardos
Chairman, President and Chief Executive Officer
The Horace Mann Companies
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
Statement of Net Assets
December 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments at market value
Horace Mann Growth Fund
1,016,979 shares @ $24.34 (cost $21,509,739) $ 24,753,269
========================================================================
NET ASSETS
Net Assets (Indefinite units authorized)
Active contract owners
Horace Mann Growth Fund
951,418 shares @ $24.34 $ 23,157,514
Retired contract owners
Horace Mann Growth Fund
65,561 shares @ $24.34 1,595,755
TOTAL NET ASSETS $ 24,753,269
================================================================================
See notes to the financial statements.
2
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income distribution $ 368,027
------------------------------------------------------------------
Net investment income 368,027
------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Capital gains distribution 2,517,813
Net realized gain on sale of investments 718,380
Net unrealized depreciation on investments (1,804,120)
------------------------------------------------------------------
Net gain on investments 1,432,073
------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,800,100
==================================================================
See notes to the financial statements.
3
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 368,027 $ 342,462
Capital gains distribution 2,517,813 2,826,647
Net realized gain on sale of investments 718,380 993,565
Net unrealized appreciation (depreciation) on investments (1,804,120) 1,128,831
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,800,100 5,291,505
- ------------------------------------------------------------------------------------------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments received 111,801 116,123
Sales and administrative expenses (Note 1) (3,080) (3,303)
- ------------------------------------------------------------------------------------------
Net consideration received on annuity contracts 108,721 112,820
Net transfer to fixed accumulation account (799,181) (790,532)
Payments to contract owners (2,150,465) (2,556,535)
Mortality risk charge (Note 1) (102,348) (101,849)
Mortality guarantee adjustment 86,074 (26,787)
- ------------------------------------------------------------------------------------------
Net decrease in net assets
resulting from contract owners' transactions (2,857,199) (3,362,883)
- ------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,057,099) 1,928,622
Net assets, beginning of year 25,810,368 23,881,746
- ------------------------------------------------------------------------------------------
Net assets, end of year $ 24,753,269 $ 25,810,368
==========================================================================================
</TABLE>
See notes to the financial statements.
4
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
Notes to the Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
1. NATURE OF SEPARATE ACCOUNT -- Horace Mann Life Insurance Company Separate
Account B ("the Account"), registered as a unit investment trust under the
Investment Company Act of 1940, is used to fund variable annuity contracts. All
assets are invested in shares of the Horace Mann Growth Fund ("the Fund").
Certain specified amounts, as described in the annuity contracts, are paid to
Horace Mann Life Insurance Company ("HMLIC") to cover death benefits and
administrative expenses. In addition, an annual mortality and expense risk
charge up to .60% of the net variable account value is deducted from the
contract owners' account, depending on year of issue of the contract.
2. SIGNIFICANT ACCOUNTING POLICIES -- The investments in the Fund are valued at
market ("net asset value"). The Account owns approximately 5% of the Fund.
Distributions from the Fund 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.
4. PURCHASE AND SALES OF HORACE MANN FUND SHARES -- During the year ended
December 31, 1998, purchases and proceeds from sales of fund shares were as
follows:
1998
------------------------
Active Retired
---------- --------
Purchases $3,706,531 $368,973
========================
Sales $3,058,672 $269,811
========================
5. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
Active Retired Active Retired
------- ------- ------- -------
<S> <C> <C> <C> <C>
Account units outstanding at beginning of year 942,351 63,509 939,089 66,035
Net consideration received 4,087 4,654 4,262 0
Dividend distributions 108,817 7,788 115,138 7,952
Net transfers to fixed accumulation account (30,878) 0 (29,205) 0
Payments to contract owners (72,959) (10,390) (86,933) (10,478)
-------------------------------------------
Account units outstanding at end of year 951,418 65,561 942,351 63,509
===========================================
</TABLE>
6. NET ASSETS -- At December 31, 1998, net assets of $24,753,269 were comprised
of the cost of mutual fund shares to contract owners of $21,509,739 and the
adjustment for unrealized appreciation of investments of $3,243,530.
5
<PAGE>
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Contract Owners of Horace Mann
Life Insurance Company Separate
Account B and the Board of Directors
of Horace Mann Life Insurance Company:
We have audited the accompanying statement of net assets of Horace Mann Life
Insurance Company Separate Account B as of December 31, 1998, and the related
statement of operations for the year then ended and the statements of changes in
net assets for each of the years in the two year period ended December 31, 1998.
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998 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 Horace Mann Life Insurance
Company Separate Account B as of December 31, 1998, and the results of its
operations for the year then ended and changes in its net assets for each of the
years in the two year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
January 29, 1999
6
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Annual Report
December 31, 1998
[ARTWORK APPEARS HERE]
Horace Mann Life Insurance Company
Separate Account B
- --------------------------------------------------------------------------------
This report is submitted for the general information of owners of Horace Mann
Life Insurance Company Separate Account B contracts. The report is not
authorized for distribution to prospective purchasers of variable annuity
contracts.
- --------------------------------------------------------------------------------
Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, Illinois 62708-4657
1-800-999-1030
<PAGE>
Horace Mann Mutual Funds
Annual Report
December 31, 1998
[GRAPHIC APPEARS HERE]
<PAGE>
Contents [GRAPHIC APPEARS HERE] Savings
Letter from the Chairman of
the Board and President ............................................... 2
Average Annual Total Return
Horace Mann Family of Funds ........................................... 3
Portfolio manager letters ............................................. 5
Financial statements .................................................. 13
Fund performance graphs ............................................... 64
This report must be preceded
or accompanied by a current
prospectus.
LONG-TERM GOALS
investments
<PAGE>
Horace Mann Mutual Funds
- --------------------------------------------------------------------------------
P.O. Box 4657
Springfield, IL 62708-4657
(217) 789-2500
Fellow Shareholders:
Horace Mann is pleased to be able to report on 1998 investment activity. Each of
our seven funds achieved positive returns for the year, and your assets once
again increased in value in excess of inflation. Most of the funds have
performed consistent with the relevant Lipper averages over the most recent
three-year period. Although the Growth and Balanced funds underperformed their
relevant benchmarks over the last year, they produced good absolute returns over
a three- and five-year period. You should be very confident that the officers
and trustees of the funds remain committed to delivering to you appropriate
returns for your investments over the long term.
In response to changing markets, Horace Mann is taking steps to enhance the
flexibility of our largest funds, the Growth Fund and the Balanced Fund, to meet
the objectives of shareholders. As of March 1, 1999, the Growth Fund employs a
multi-manager strategy that utilizes several subadvisers to manage the assets of
the portfolio. The equity portion of the Balanced Fund will also employ a
multi-manager strategy.
In our quest to deliver consistent performance, the Funds have elected to retain
Wilshire Associates Inc., a company Horace Mann has been doing business with for
10 years, to serve as investment adviser of the funds. To that end, Wilshire has
worked with the Funds Board to enlist a very talented team of investment
managers, including BlackRock Financial Management Inc., Brinson Partners Inc.,
Mellon Equity Associates, LLP, Scudder Kemper Investments, Inc., and Wellington
Management Company, LLP. Horace Mann and the Trustees appreciate your confidence
reflected in your overwhelming approval of the changes described above.
Market Review
The past year was a good one for both stock and bond markets in the United
States. Stock prices in the broad domestic market continued their successful run
over the past several years, despite a precipitous drop during the third
quarter. The bond market benefited from an economy with low inflation and
moderate growth. The international stock markets delivered strong results due to
excellent returns in the UK, Germany, and Europe overall, despite experiencing
difficulty in Asia and Russia.
Perspective
At the Horace Mann Family of Funds, we are committed to providing our
shareholders with investment options that provide competitive returns to meet
your long-term objectives. We strongly believe the changes we are making to our
family of funds will provide you with the options you need to achieve your goal
of a secure retirement, and we appreciate the opportunity to serve you.
Sincerely,
/s/ George Zock
George Zock
Chairman & President
<PAGE>
For Annuity Alternatives Contract Owners
Average annual total returns for the year ended December 31, 1998, for the
Annuity Alternatives contracts are shown in the following table. For
contributions which remained invested in an Annuity Alternatives contract,
returns are shown first. For contracts which were surrendered, returns are shown
second. Redemption has no affect on the variable account rates of return after
the initial five-year contract period.
Returns if money remained invested, based on a $1,000 investment.
1 Year 5 Years 10 Years Since inception
Growth Fund 6.22 15.81 14.83 13.64/1/
Balanced Fund 6.26 12.32 12.37 11.26/1/
Income Fund 6.67 5.21 7.18 6.42/1/
Short-Term Investment Fund 3.57 3.46 3.84 3.56/1/
Small Cap Growth Fund 4.56 -- -- 11.01/2/
International Equity Fund 17.49 -- -- 10.62/2/
Socially Responsible Fund 8.35 -- -- 16.36/2/
Returns if money was withdrawn early, based on a $1,000 investment.
1 Year 5 Years 10 Years Since inception
Growth Fund -2.28 15.81 14.83 13.64/1/
Balanced Fund -2.24 12.32 12.37 11.26/1/
Income Fund -1.83 5.21 7.18 6.42/1/
Short-Term Investment Fund -4.71 3.46 3.84 3.56/1/
Small Cap Growth Fund -3.81 -- -- 6.69/2/
International Equity Fund 8.99 -- -- 6.28/2/
Socially Responsible Fund -0.15 -- -- 12.22/2/
================================================================================
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.
Total returns for the variable portion of the Annuity Alternatives contracts
include a reduction for fund expenses and contract charges of 1.35% annually for
mortality and expense risk. Annuity contracts issued prior to January 1984 have
mortality and expense charges or sales fees that differ from those of the
Annuity Alternatives contracts. Such other charges and fees do not exceed those
reflected in the table above.
Annuity Alternatives contracts require a $25 annual maintenance charge on the
contract anniversary when the contract value is less than $10,000. This charge,
which is not reflected in the returns above, after the first contract year would
reduce the total rates of return by 2.5 percent on a $1,000 investment or .5
percent on a $5,000 investment.
During the first five contract years, redemption charges range from 2 to 8
percent for the flexible premium contracts and 1 to 5 percent for single premium
contracts. The average annual total returns with redemption are calculated using
flexible premium redemption charges.
Commission credits were used to pay certain expenses of the Growth and Balanced
funds from 1994 through 1998. Certain Balanced and Income fund expenses were
subsidized (assumed and/or waived) through 1987 and 1996, respectively. Certain
Short-Term Investment Fund expenses have been subsidized (assumed and/or waived)
since 1983. Certain fund expenses have been subsidized (assumed and/or waived)
for the Small Cap Growth, International Equity, and Socially Responsible funds
since their inception, March 10, 1997. Subsidization and use of credits resulted
in higher actual returns and for some funds exceeded 1 percent, depending on the
period subsidized for each fund. There is no guarantee that subsidization and
use of credits will continue in the future.
/1/ Since inception for the Growth, Balanced, Income, and Short-Term Investment
funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment adviser. Effective May 1, 1997, Wellington Management Company,
LLP became the funds' subadviser.
/2/ Since inception for the Small Cap Growth, International Equity and Socially
Responsible funds refers to their beginning date, March 10, 1997. The investment
subadvisers are BlackRock Financial Management, Inc. for the Small Cap Growth
Fund and Scudder Kemper Investments, Inc. for the International Equity and
Socially Responsible funds.
3
<PAGE>
For Growth Fund Public Shareholders and Participants in the Horace Mann Employee
401(k) Plan
Average annual total return for Horace Mann Mutual Funds
Total average annualized returns for the year ended December 31, 1998, for the
Horace Mann Mutual Funds and their comparable benchmark indices are shown in the
following table:
1 Year 5 Years 10 Years Since inception
------ ------- -------- ----------------
Growth Fund 7.64 17.27 16.28 15.09/1/
S&P 500 Stock Index 28.58 24.08 19.20 18.12
Balanced Fund 7.68 13.75 13.80 12.68/1/
Stock/Bond Composite/4/ 21.33 17.23 15.10 14.30
Income Fund 8.09 6.57 8.56 7.80/1/
Lehman Intermediate/Aggregate/5/ 8.67 7.25 8.74 8.43
Short-Term Investment Fund 4.97 4.82 5.20 4.92/1/
90-day Treasury Bills 5.35 5.31 5.72 5.42
Small Cap Growth Fund 5.81 -- -- 12.35/2/
Russell 2000 Growth 1.23 -- -- 9.81
International Equity Fund 18.95 -- -- 11.99/3/
MSCI EAFE 19.97 -- -- 12.71/6/
Socially Responsible Fund 9.80 -- -- 17.78/3/
S&P 500 Stock Index 28.58 -- -- 28.24
================================================================================
Returns of the Horace Mann Mutual Funds in the above table are shown net of fund
expenses. Commission credits were used to pay certain expenses of the Growth and
Balanced funds from 1994 through 1998. Certain Balanced and Income fund expenses
were subsidized (assumed and/or waived) through 1987 and 1996, respectively.
Certain Short-Term Investment Fund expenses have been subsidized (assumed and/or
waived) since 1983. Certain fund expenses have been subsidized (assumed and/or
waived) for the Small Cap Growth, International Equity, and Socially Responsible
funds since their beginning March 10, 1997. Subsidization and use of credits
resulted in higher actual returns and for some funds exceeded 1 percent
depending on the period subsidized for each fund. There is no guarantee that
subsidization and use of credits will continue in the future.
The performance data quoted represents past performance and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate and when redeemed, may be worth more or less than its original cost.
The indices listed are unmanaged industry benchmarks, not funds, and as such
they have no expenses.
/1/ Since inception for the Growth, Balanced, Income, and Short-Term Investment
funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became
their investment 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 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,
1998.
4
<PAGE>
- --------------------------------------------------------------------------------
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
Telephone: Fax:
(617) 951-5000 (617) 951-5250
GROWTH FUND AND BALANCED FUND (EQUITY PORTION)
December 31, 1998
Performance
The U.S. financial markets continued their impressive performance for the fourth
year in a row, though 1998 saw an increase in volatility. Although many analysts
expressed caution at the beginning of the year following the exceptionally
strong returns of 1995, 1996 and 1997, lower interest rates, benign inflation,
continued growth in the economy and liquidity helped push equity returns over 20
percent for the fourth consecutive year.
During the year ending December 31, 1998, the Horace Mann Growth Fund returned
7.6 percent, trailing the lofty performance of 28.58 percent for the S&P 500
index. The Horace Mann Balanced Fund, which is made up of between 50 percent and
75 percent equities managed in the same style as the Horace Mann Growth Fund and
the remainder in fixed income securities, returned 7.7 percent for the year,
also below its market index. The lack of market breadth last year is captured by
the following statistics: fully 70 percent of the stocks in the S&P 500
underperformed the index return, and 40 percent of the S&P 500 stocks actually
declined for the year.
Portfolio Review
The performance of the Growth Fund and the equity portion of the Balanced Fund
was negatively influenced by three sectors: industrial and commercial, consumer
discretionary and information technology. Within the industrial and commercial
sector, stocks related to agriculture, such as Deere and New Holland, were hit
hard, while aerospace and defense firms such as Boeing and Northrop Grumman fell
on negative earnings developments and management shortcomings. In the consumer
discretionary sector, the underperformance was due to poor results in holdings
of retailers such as Toys R Us and J.C.Penney. Goodyear Tire & Rubber, a
significant holding through most of 1998, also negatively impacted performance.
In the technology sector, stock selection proved beneficial to fund performance,
but because the fund was underweighted in this sector compared to the index, and
since technology was by far the best performing sector last year, relative
performance was negatively impacted.
Several other holdings within the fund, including Noble Drilling, USX-Marathon
Group and Union Pacific Resources, were hurt by the diminished outlook in the
energy sector as the price of crude oil continued to fall.
Substantial winners in the portfolio were relatively limited, but included
stocks such as Wellpoint Health Networks, AT&T, MCI WorldCom, Pharmacia &
Upjohn, SBC Communications, CIGNA and Fannie Mae.
5
<PAGE>
Portfolio Outlook
The outlook for the economy has improved during the past quarter because of
meaningful international efforts to prevent the worldwide economic slowdown from
becoming a global meltdown. Central banks collectively cut interest rates over
60 times during the past four months to avoid a global credit crunch and to
override financial market turbulence. It now appears the global economy will
experience a soft landing rather than a global meltdown.
In the domestic economy, the manufacturing sector has shouldered most of the
impact from the weakened overseas demand. Commodity prices continue to decline
and capital spending, which had fueled the strong economic growth, is
decelerating. Consumer spending remains strong and has sustained the firm
domestic environment. Over the next year, the domestic real Gross Domestic
Product index should experience a number of cross currents, but should expand
2.0 percent or better. Growth in the world economy should be more modest at just
1.5 to 2.0 percent. We also expect inflation domestically to rebound to about
2.0 percent in 1999.
Liquidity has pushed equity valuations into record territory. The gains
generally have been disproportionately concentrated in a narrow list of
large-capitalization, growth-oriented names or Internet-related companies. The
average stock remains more reasonably valued, and many long-term investment
opportunities have developed as the market lurches back and forth between fear
and exuberance.
During the last quarter, we capitalized on specific opportunities and added
positions in health care, non-bank financial services and utilities. We reduced
exposure to technology due to price appreciation, to banks where eroding margins
will crimp profits in 1999, and to metals given the diminished outlook for
commodity pricing.
Respectfully,
Wellington Management Company, LLP
/s/ John R. Ryan
John R. Ryan, CFA
Senior Vice President
Stock Portfolio Manager
6
<PAGE>
- --------------------------------------------------------------------------------
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
Telephone: Fax:
(617) 951-5000 (617) 951-5250
BALANCED FUND (BOND PORTION), INCOME FUND,
AND SHORT-TERM INVESTMENT FUND
December 31, 1998
Performance
The investment climate for fixed income securities was strong during 1998, as is
reflected by the 8.1 percent (net of expenses) one-year total return for the
Income Fund. The fixed income portion of the Balanced Fund, which makes up
approximately 40 percent of the fund, was not materially different from the
Income Fund. The funds outperformed the Lipper Corporate Debt A Rated funds
average return of 7.5 percent for the same period. However, the funds
underperformed, on a net basis, the unmanaged Lehman Brothers Aggregate Bond
index return of 8.7 percent as the second half of 1998 hurt the funds'
performance.
Performance comparisons for 1998 were largely dependent on the duration of the
funds relative to that of the benchmark index. For the year 1998 as a whole, our
longer-than-market duration decision proved to be the correct call as yields for
longer maturity (5- to 30-year) securities declined significantly more than did
the yields of shorter maturity securities. However, during the second half of
the year, performance was hurt by the funds' relatively high weighting in the
non-investment grade corporate sector, a result of the extraordinary rally in
U.S. Treasuries and the "flight to quality" stemming from the Asian crisis, the
Russian debt default and the Federal Reserve-brokered bailout of Long Term
Capital Management.
The Short-Term Fund's return of 5.0 percent (net of expenses) matched the 5.0
percent return of the average of all of IBC/Donoghue's taxable money market
funds and was slightly below the 90-Day Treasury Bill Average return for the
year.
Portfolio Review
The year ended much the way it began, with confident and strong spending by
consumers, low unemployment, low inflation and the U.S. economy with positive
momentum. However, the summer's global crisis was more than just a quick
interruption as the equity market collapse and stampede to the safety and
liquidity of Treasury securities sent financial markets into a tailspin. The
Federal Reserve responded to the fear gripping the markets by providing
much-needed liquidity, easing the panic in the marketplace and confirming their
reputation as the leading central bank worldwide. Following the cut at the end
of the third quarter, the Fed lowered short-term interest rates twice more in
the fourth quarter for a total reduction of .75 percent, leaving the Fed Funds
rate at 4.75 percent.
In particular, the first of the fourth quarter's cuts was a surprise to the
markets because it came between Fed meetings and was undoubtedly the principal
catalyst for the broad market recovery. Stocks began to rally, Treasury yields
rose, and the credit risk-spreads began to narrow. Importantly, corporations
once again were able to borrow again in the long-term markets.
Sector performance for the year was led by U.S. governments, which rallied
dramatically in the second half of 1998 with the aforementioned "flight to
quality" stampede. Mortgage sector returns trailed both governments and
corporates as falling interest rates heightened prepayment fears. The high-yield
sector was the worst performing sector as investors shunned lower-quality issues
and headed to the safety of Treasuries in the second half of the year.
7
<PAGE>
Portfolio Outlook
We expect that U.S. economic growth will slow in 1999 versus 1998 as consumer
spending moderates given an anticipated slower rate of job gains, slower income
growth, and a negative personal savings rate. We also expect declining profits
growth to retard capital spending. These factors, together with a Federal budget
surplus, support our case for slowing overall growth.
With slower economic growth, low (1-2 percent Consumer Price Index) inflation, a
Federal budget surplus, and some additional easing by the Federal Reserve, we
see a generally positive backdrop for the bond market. We note, however, yields
for Treasury securities have already declined substantially over the course of
1998 and may already incorporate a large part of our positive outlook at current
levels. We expect some modest decline in Treasury yields but nothing
substantial.
We judge the "flight to quality" trades that were established during the market
turmoil of the past few months have not all been "unwound," and that Treasuries
should be underweighted in the portfolio versus corporates and mortgages.
In the Short-Term Fund, the holdings remain concentrated in government agency
securities due to the size of the fund. Unlike commercial paper, agency discount
notes can be purchased in small lots without materially compromising liquidity
and transaction costs while providing attractive incremental yield over
comparable maturity Treasury bills. The average holding in the fund currently
matures in 37 days. We expect the domestic economy to slow in the coming months
as consumer spending, which propelled growth last year, is likely to slow from
its robust pace. We will maintain our current maturity stance in this
environment, and we continue to favor agency securities for their yield and
liquidity.
Respectfully,
Wellington Management Company, LLP
/s/ Robert D. Payne
Robert D. Payne, CFA
Senior Vice President
Bond Portfolio Manager
8
<PAGE>
1600 Market Street
27th Floor
Philadelphia, PA 19103
phone 215-561-6000
215-585-7900
www.blackrock.com
SMALL CAP GROWTH FUND
December 31, 1998
Performance
U.S. equities were characterized by extreme volatility during 1998, and
investors responded with a sharp preference for larger, more liquid companies.
The Horace Mann Small Cap Growth Fund gained 5.81 percent during the year while
its benchmark, the Russell 2000 Growth Index, gained 1.23 percent. The fund's
outperformance relative to the benchmark was due to our stock selection process
focusing on companies with dynamic earnings growth and strong relative price
momentum.
Portfolio Review
1998 was a fairly tumultuous year for the small cap investor. Technology and
consumer stocks were the strongest performers during the first half of the year,
boosted by strong demand, low interest rates and low unemployment. Small growth
companies lagged somewhat throughout the period, due both to the low exposure to
financial stocks which performed extremely well in the low interest rate
environment and investor preference for liquidity and stability in earnings.
Small cap growth stocks were the hardest hit during the market's sharp declines
of the third quarter. Investors' preference for larger, more liquid companies
with stable earnings became even more pronounced. Investor sentiment improved
during the last three months of the year, boosted by Federal Reserve rate cuts
and evidence of economic resilience. Initially value stocks led the recovery,
but interest quickly shifted to traditional growth companies. The Russell 2000
Growth Index gained 23.64 percent, behind the 26.74 percent return of the
Russell 1000 Growth Index and this represented a substantial rebound following a
decline of more than 20 percent during the third quarter.
The fund's strategy during the first half of the year called for significant
overweights in technology, health, industrial and consumer services and retail
trade stocks where we have found above average rates of earning growth and
relative price strength. Toward the end of the year, the allocation to
technology services stocks was reduced while electronic technology and
Internet-related companies were selectively added.
Portfolio Outlook
Looking forward, we are cautiously optimistic about the small cap growth market.
The relative valuations remain compelling. The price/earnings ratio of the
Russell 2000 Growth Index hit a historic low relative to that of the S&P 500
Index during the year and remains significantly below the mean. With the sales
and earnings growth figures of large cap companies expected to moderate in the
upcoming year, we believe small cap companies will become more attractive to
investors.
Respectfully,
BlackRock Financial Management, Inc.
/s/ William J. Wykle
William J. Wykle
Managing Director
Senior Portfolio Manager
9
<PAGE>
Scudder Kemper Investments
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
212 326 6200 telephone
INTERNATIONAL EQUITY FUND
December 31, 1998
Performance
The International Equity Fund returned 19.0 percent for the 12 months of 1998.
We performed well relative to our peers, beating the 13.0 percent return
averaged by all International Funds as calculated by Lipper Analytical Services.
Market Review
While the past year turned in the strongest performance from international
markets since 1993, it also marked a period of heightened volatility and
uncertainty. Global market psychology seesawed from extreme confidence and
complacency to total risk aversion and fear, and then back again. During the
first half of the year the European markets climbed steadily higher, repeatedly
setting new records on the basis of lower interest rates, economic acceleration,
merger activity and optimism towards the European Monetary Union. In late July
all this ground to an abrupt halt. The problems initially emanating from
emerging Asia had spread to a debt default in Russia, shaking banking
institutions in the developed world, destabilizing Brazilian finances, and
nearly collapsing a U.S. hedge fund. The global financial markets corrected
savagely downward in response.
Then just as suddenly, the start of the fourth quarter marked a sharp rebound in
the global markets. Largely in response to a concerted drop in interest rates
around the world, led by the Fed, confidence quickly returned to the financial
markets. All the problems that so frightened investors in August and September
were now perceived as well-contained. Funds flowed back into the equity markets,
and prices and valuations rebounded to their pre-correction highs. Throughout
all this activity in the rest of the world, the Japanese market continued to
grind downwards in fits and starts. Rising bond yields and the surging yen
towards the latter part of the year were further evidence of the failure of
government efforts to pull the country out of its economic disarray.
Performance Review
Over the course of the past year, your portfolio's performance was driven
largely by its holdings in Europe, which represented on average about three
quarters of the overall assets. Stock and sector selection were key. The
telecommunications sector in particular offered astronomical returns. We had an
overweight position, with portfolio holdings like Olivetti up 487 percent, Nokia
up 220 percent, Orange up 165 percent, Mannesmann up 110 percent, and France
Telecom up 103 percent in local currencies. The insurance sector was also quite
strong. Large holdings like Aegon rose 155 percent, Axa 74 percent, and Skandia
66 percent. Detracting from these gains were weak sector holdings like energy
and commodity metals, where valuations are compelling and the macro backdrop is
near its worst. Also unhelpful were our holdings in Japan and the emerging
markets. The Japanese market in aggregate had only a strong yen to speak for it,
while our holdings in Hong Kong were basically flat on the year. Emerging Asia
and Latin America were better unheld.
10
<PAGE>
In the fourth quarter our positions in Europe continued to contribute heavily to
the strong absolute returns, but we didn't keep pace with the dramatic rise in
the markets overall. We had been light on the financials since their late summer
collapse, and this was the sector that rebounded back again most sharply. At the
same time, our underexposure to Japanese equities prohibited a full
participation in a yen that surged during the quarter. Finally, the devastated
smaller markets of emerging Asia staged a spectacular fourth quarter rally. Our
participation in the upswing was largely limited to our holdings in Hong Kong.
Portfolio Outlook
As many equity markets are breaking through to new all-time highs against an
environment of weak prices and slowing global growth, valuations have
increasingly become a challenge. The global liquidity that is driving prices
today could once again whipsaw the financial markets in 1999. The deep-seated
structural problems that rocked the markets in the summer of 1998 still remain
with us not yet solved. The only certainty going forward is volatility and
uncertain capital markets are likely to remain with us for awhile. Against this
backdrop, our fundamental strategy for your portfolio strategy remains unshaken.
Our focus continues to be on those companies that are likely to sustain their
profitability, as they benefit from the constructive processes of long-term
change underway in the global economies.
Respectfully,
Scudder Kemper Investments, Inc.
/s/ Irene T. Cheng
Irene T. Cheng
Managing Director
Lead Portfolio Manager
11
<PAGE>
SCUDDER KEMPER INVESTMENTS
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
212 326 6200 telephone
SOCIALLY RESPONSIBLE FUND
December 31, 1998
Performance 1998 truly was a "Jekyll and Hyde" year for the U.S. equity
market. On the one hand, the S&P 500 Index returned a
remarkable 28.6 percent, the fourth consecutive year of
returns in excess of 20 percent. On the other hand, it was an
extraordinarily difficult period for value-oriented
strategies, such as those employed by the Horace Mann
Socially Responsible Fund. The strongest returns were limited
to a narrow subset of the U.S. market, mostly the largest
capitalization growth technology stocks. Unfortunately, these
returns did not percolate down to most other stocks in the
S&P 500. The lack of market breadth last year is captured by
the following statistics: fully 70 percent of the stocks in
the S&P 500 underperformed the reported index return, and 40
percent of S&P 500 stocks actually declined for the year.
While the market generally did not favor value stocks, the
Horace Mann Socially Responsible Fund was able to post a 9.8
percent total return for the year.
Portfolio Review Other than the headwind of large-cap growth stock dominance,
the primary negative influence resulted from our overweight
in industrial cyclicals; largely chemical, paper/forest
product, and metals stocks. This overweight had been in place
since 1997, having been driven by the stocks' recession level
valuations. But commodity deflation, in combination with
operating (and in a few cases, financial) leverage caused
such severe pressure on earnings that even historically low
valuations were not able to mitigate the downward movement of
stocks such as Imperial Chemical, Witco, and Oregon Steel.
One bright spot in the chemical sector was the third quarter
announcement that BetzDearborn would be acquired by Hercules,
leading to a 20 percent total return for the stock for the
ten months of 1998 until acquisition. The paper stocks fared
better, largely because of their year-end rally which had
each of the fund's paper holdings outperforming the fourth
quarter S&P 500 return of 21 percent. This rally was driven
by a positive sentiment shift that occurred at the depths of
the September market. The global oversupply of pulp had
become so severe that U.S. companies began to respond with
meaningful closings of capacity in an attempt to stabilize
pricing. Further positive news was the surprise announcement
in November that International Paper was seeking to acquire
Union Camp, which drove the entire sector higher.
The greatest source of performance was the fund's overweight
in telecommunication stocks, which rose in aggregate 48
percent. Standout performers were BellSouth (+81 percent),
Sprint (+64 percent), Alltel (+50 percent), and Frontier (+46
percent). Low relative valuations at the beginning of the
year, and the increasing recognition that local telephone
companies' earnings were being enhanced by the growth in
value-added services catalyzed the outperformance of many of
these stocks. Our underweight in the consumer staple sector,
as well as specific stock selection, also added value as our
value discipline enabled us to avoid the weakness in Coke,
Proctor & Gamble, and Gillette. Instead, our portfolio was
led by standout performers Avon (+47 percent) and Unilever
(+35 percent). The fund also benefited from the fact many of
our best performing stocks were top holdings. These included
Ford (+87 percent), BellSouth (+81 percent), Sprint (+64
percent), Xerox (+62 percent), American Home Products (+50
percent), Bristol-Myers Squibb (+43 percent), and Chase
Manhattan (+33 percent). And finally, the tremendous level of
merger and acquisition activity in the U.S. market helped the
fund last year. Stocks we held that were acquired during the
year (or which are pending final completion) included
MidOcean, Mercantile Stores, Firstar, Echlin, BetzDearborn,
and Mobil.
Portfolio Outlook We continue to focus on our relative dividend yield
discipline which seeks to identify opportunities in
undervalued and misunderstood companies. While this
discipline does not add value in every year, it has proven
itself over market cycles. We cannot control the normal
cyclical shifts between growth and value, but we are
confident that adhering to our time-tested stock selection
discipline will prove beneficial over time.
Respectfully,
Scudder Kemper Investments, Inc.
/s/ Lori Ensinger
Lori Ensinger
Senior Vice President
Lead Portfolio Manager
12
<PAGE>
Annual Report
December 31, 1998
Horace Mann Mutual Funds
Growth Fund
Balanced Fund
Income Fund
Short-Term Investment Fund
Small Cap Growth Fund
International Equity Fund
Socially Responsible Fund
Board of Trustees
A.L. Gallop
Donald G. Heth
Richard A. Holt
Richard D. Lang
Harriet A. Russell
George J. Zock
Officers of the Funds
George J. Zock
President and Chairman
Ann Caparros
Secretary and
Ethics Compliance Officer
William Kelly
Treasurer and Regulatory
Compliance Officer
Linda L. Sacco
Assistant Secretary
Roger Fisher
Controller
Diane M. Barnett
Tax Compliance Officer
------------------------------------------------------------
Investment Adviser and Manager
Horace Mann Investors, Inc.
#1 Horace Mann Plaza
Springfield, IL 62715
Investment Subadvisers
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154-0010
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Financial Highlights
December 31, 1998
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income1 Gains (Losses)1 Operations1 Income Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------
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
1994 19.85 0.49 (0.57) (0.08) 0.45 1.68 2.13
BALANCED FUND
- -------------------------------------------------------------------------------------------------------------------
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
1994 16.72 0.62 (0.81) (0.19) 0.55 0.72 1.27
INCOME FUND5
- -------------------------------------------------------------------------------------------------------------------
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
1994 13.06 0.75 (1.04) (0.29) 0.75 -- 0.75
</TABLE>
1 The "Net Investment Income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations.
2 The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
3 If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
See notes to the financial statements.
14
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of Ratio of
Year Net Asset Net Assets Expenses Net Income Portfolio Ratio of
Ended Value End Total End of Period to Average to Average Turnover Ratio of Net Investment
12/31 of Period Return2,3 (in thousands) Net Assets4 Net Assets Rate Expenses Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
1998 $24.34 7.64% $670,731 0.51% 1.57% 59.63% -- --
1997 25.66 23.45 598,502 0.53 1.50 54.56 -- --
1996 23.76 25.28 430,556 0.59 1.79 67.63 -- --
1995 21.66 33.67 297,100 0.63 2.50 64.59 -- --
1994 17.64 (0.35) 202,103 0.69 2.36 69.42 -- --
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
1998 $18.90 7.68% $427,920 0.50% 3.60% 63.69% -- --
1997 19.82 19.04 387,110 0.51 3.12 77.54 -- --
1996 18.94 18.27 300,551 0.56 3.12 72.10 -- --
1995 18.00 27.12 228,193 0.59 3.79 64.80 -- --
1994 15.26 (1.12) 160,815 0.63 3.59 121.82 -- --
INCOME FUND5
- ------------------------------------------------------------------------------------------------------------------------------
1998 $13.24 8.09% $13,959 0.88% 5.85% 46.60% -- --
1997 13.00 9.42 9,658 0.92 6.09 96.80 -- --
1996 12.69 3.50 10,848 0.70 5.88 112.60 0.91% 5.67%
1995 13.03 14.93 10,532 0.62 6.16 74.53 0.88 5.89
1994 12.02 (2.21) 9,259 0.61 5.85 205.35 0.92 5.54
</TABLE>
4 Ratios of Expenses to Average Net Assets do not reflect commission credits.
5 Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996.
15
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Financial Highlights (concluded)
December 31, 1998
PER SHARE DATA
<TABLE>
<CAPTION>
Less Distribution From:
Net Asset Total Income
Year Value Net Net Realized (Loss) From Net Net
Ended Beginning Investment and Unrealized Investments Investment Realized Total
12/31 of Period Income1 Gains (Losses)1 Operations1 Income Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM FUND4
- -------------------------------------------------------------------------------------------------------------------------
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
1994 10.07 0.39 -- 0.39 0.38 -- 0.38
SMALL CAP
GROWTH FUND5
- -------------------------------------------------------------------------------------------------------------------------
1998 $11.70 $(0.07) $ 0.75 $0.68 $ -- $ -- $ --
1997 10.00 (0.02) 1.72 1.70 -- -- --
INTERNATIONAL
EQUITY FUND5
- -------------------------------------------------------------------------------------------------------------------------
1998 $10.27 $0.11 $ 1.84 $1.95 $0.09 $ -- $ 0.09
1997 10.00 0.08 0.27 0.35 0.08 -- 0.08
SOCIALLY
RESPONSIBLE FUND5
- -------------------------------------------------------------------------------------------------------------------------
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
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations.
2 The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
3 If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
See notes to the financial statements.
16
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
RATIO/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Ratio to Average Net
Assets Before Waived &
Reimbursed Expenses
Ratio of Ratio of
Year Net Asset Net Assets Expenses Net Income Portfolio Ratio of
Ended Value End Total End of Period to Average to Average Turnover Ratio of Net Investment
12/31 of Period Return2,3 (in thousands) Net Assets Net Assets Rate Expenses Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM FUND5,6
- -------------------------------------------------------------------------------------------------------------------------
1998 $ 9.98 4.97% $1,331 0.69% 4.78% 0.00% 2.59% 2.88%
1997 9.99 5.09 1,151 0.50 4.98 0.00 2.52 2.96
1996 10.03 5.02 1,229 0.53 4.93 0.00 2.44 3.02
1995 10.00 5.25 1,006 0.84 5.11 0.00 2.35 3.60
1994 10.08 3.89 1,114 0.49 3.78 0.00 2.36 1.91
SMALL CAP
GROWTH FUND5
- -------------------------------------------------------------------------------------------------------------------------
1998 $12.38 5.81% $28,655 1.11% (0.59)% 168.31% 1.75% (1.23)%
1997 11.70 17.01 6 16,525 0.78 (0.19) 91.49 1.44 (0.85)
INTERNATIONAL
EQUITY FUND5
- -------------------------------------------------------------------------------------------------------------------------
1998 $12.13 18.95% $10,311 1.03% 0.99% 57.71% 2.06% (0.04)%
1997 10.27 3.46 6 5,214 0.46 1.29 31.99 1.82 (0.07)
SOCIALLY
RESPONSIBLE FUND5
- -------------------------------------------------------------------------------------------------------------------------
1998 $12.99 9.80% $35,564 0.64% 2.10% 41.63% 1.12% 1.62%
1997 12.10 23.04 6 9,213 0.49 1.65 20.85 1.16 0.98
</TABLE>
4 Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1998.
5 Certain expenses for the Small Cap Growth, International Equity and Socially
Responsible funds were assumed and/or waived by Horace Mann Investors since
their beginning, March 10, 1997.
6 The returns are not annualized.
17
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPEARS HERE] Statement of Investments
Growth Fund
Cash & Other
Net Assets 1% December 31, 1998
Common & Preferred
Stock 99% Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
Aerospace/Defense 1.47%
Northrop Grumman Corp. 92,000 $ 6,728
Precision Castparts Corp. (Rts.) 71,500 3,164
- --------------------------------------------------------------------------------
9,892
Automotive 4.02%
Goodyear Tire & Rubber Co. (The) 306,500 15,459
General Motors Corp. 148,000 10,591
Hertz Corp. - A 19,600 894
- --------------------------------------------------------------------------------
26,944
Banks/Financial Services 14.57%
Associates First Capital Corp. - A 434,200 18,399
CIT Group, Inc. (The) - A 347,800 11,064
Citigroup, Inc. 368,262 18,229
Coast Federal Litigation Trust* 89,400 587
Federal National Mortgage Association 136,300 10,086
First Union Corp. 295,426 17,966
Heller Financial Inc. - A 138,300 4,063
National City Corp. 233,200 16,907
Washington Mutual, Inc. 11,785 450
- --------------------------------------------------------------------------------
97,751
Business Services 0.21%
Foster Wheeler Corp. 109,000 1,437
Chemicals 1.32%
IMC Global Inc. 413,000 8,828
Communication Services 9.45%
Ameritech Corp. 151,500 9,601
AT&T Corp. 145,400 10,941
Bell Atlantic Corp. 324,492 17,198
GTE Corp. 85,200 5,538
MCI WorldCom Inc.* 79,100 5,675
SBC Communications Inc. 269,100 14,430
- --------------------------------------------------------------------------------
63,383
Computer Services/Equipment 5.82%
Compaq Computer Corp. 112,600 4,722
First Data Corp. 420,700 13,331
Harris Corp. 147,700 5,410
Hewlett-Packard Co. 227,900 15,568
- --------------------------------------------------------------------------------
39,031
Consumer Products 3.15%
Corn Products International, Inc. 152,400 4,629
Flowers Industries, Inc. 359,950 8,616
Kimberly Clark Corp. 144,200 7,859
- --------------------------------------------------------------------------------
21,104
See notes to the financial statements.
18
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Growth Fund
December 31, 1998
Number of Market
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK
(continued)
Energy 11.33%
Amoco Corp. 175,100 $ 10,572
Ashland Inc. 136,600 6,608
Burlington Resources Inc. 84,800 3,037
Conoco Inc. - A* 71,800 1,499
Equitable Resources, Inc. 217,000 6,320
National Fuel Gas Co. 88,300 3,990
Noble Drilling Corp.* 152,500 1,973
Shell Transport & Trading Co. PLC 134,600 5,005
Texaco Inc. 196,200 10,374
Union Pacific Resources Group Inc. 774,900 7,023
Unocal Corp. 18,300 534
USX-Marathon Group 632,000 19,039
- --------------------------------------------------------------------------------
75,974
Entertainment Products 2.74%
Brunswick Corp. 262,400 6,494
Eastman Kodak Co. 165,100 11,887
- --------------------------------------------------------------------------------
18,381
Health Care/Pharmaceuticals 15.23%
American Home Products Corp. 153,200 8,627
Baxter International Inc. 326,100 20,972
Columbia/HCA Healthcare Corp. 450,400 11,147
Healthsouth Corp.* 287,000 4,431
Pharmacia & Upjohn Inc. 333,600 18,890
Tenet Healthcare Corp.* 512,600 13,456
United Healthcare Corp. 116,000 4,995
Wellpoint Health Networks, Inc. - A* 225,800 19,645
- --------------------------------------------------------------------------------
102,163
Insurance 4.63%
Aetna Inc. 92,500 7,273
CIGNA Corp. 145,200 11,226
Marsh & McLennan Cos. Inc. 121,700 7,112
NAC Re Corp. 115,300 5,412
- --------------------------------------------------------------------------------
31,023
Manufacturing (Diversified) 4.48%
Chart Industries Inc. 271,200 2,068
Cooper Industries Inc. 33,300 1,588
Deere & Co. 279,000 9,242
Eaton Corp. 101,800 7,196
Milacron Inc. 228,200 4,393
New Holland N.V. 402,300 5,532
- --------------------------------------------------------------------------------
30,019
Metals & Mining 1.93%
Aluminum Co. of America 173,500 12,937
See notes to the financial statements.
19
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Growth Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Paper & Forest Products 1.74%
Bowater Inc. 60,400 $ 2,503
Georgia Pacific Corp. (Timber Group) 287,500 6,846
Sonoco Products Co. 43,130 1,278
Temple-Inland, Inc. 17,800 1,056
- -------------------------------------------------------------------------------
11,683
Printing/Publishing 0.91%
Gannett Inc. 95,000 6,128
Retail/Apparel 2.59%
May Department Stores Co. (The) 151,900 9,171
Penney (J.C.) Co., Inc. 139,600 6,544
Sports Authority, Inc. (The)* 310,700 1,631
- -------------------------------------------------------------------------------
17,346
Transportation 4.03%
Canadian National Railway Co. 143,700 7,454
CSX Corp. 105,300 4,370
Delta Air Lines, Inc. 225,800 11,742
Ryder Systems, Inc. 133,800 3,479
- -------------------------------------------------------------------------------
27,045
Utilities 7.29%
American Electric Power Company, Inc. 127,900 6,019
Central & South West Corp. 204,000 5,597
Consolidated Edison Co. 72,100 3,812
GPU, Inc. 308,500 13,632
New England Electric System 143,500 6,906
Pinnacle West Capital Corp. 195,800 8,297
Scana Corp. 144,400 4,657
- -------------------------------------------------------------------------------
48,920
Waste Services 0.92%
Waste Management Inc. 132,500 6,178
- -------------------------------------------------------------------------------
Total Common Stock 97.83% 656,167
(Cost $589,680)
================================================================================
PREFERRED STOCK
Printing/Publishing 1.30%
News Corp. Ltd. (The) (ADR) 353,800 8,734
(Cost $6,159)
Total Common and Preferred Stock 99.13% 664,901
(Cost $595,839)
See notes to the financial statements.
20
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (concluded)
Growth Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Repurchase Agreement
Lehman Brothers
4.875%, 01/04/99, (secured
by $5,360, US Treasury
Strip, 05/15/21) $ 5,221 $ 5,221
- -------------------------------------------------------------------------------
Total Short-Term Investment 0.78% 5,221 5,221
(Cost $5,221)
================================================================================
Total Investments 99.91% 670,122
(Cost $601,060)
Cash and Other Assets in
Excess of Liabilities 0.09% 609
- -------------------------------------------------------------------------------
Net Assets 100.00% $670,731
================================================================================
* Non-income producing during the twelve months ended December 31, 1998 as
this security did not pay dividends.
See notes to the financial statements.
21
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPEARS HERE] Statement of Investments
Balanced Fund
Municipal Bonds 1.7%
December 31, 1998
U.S. & Foreign Corporate
Bonds/Notes 18.7%
U.S. & Foreign Government
& Agency
Obligations 18.2%
Common & Preferred
Stock 60.3%
Cash & Other
Net Assets 1.1%
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
Aerospace/Defense 0.87%
Northrop Grumman Corp. 35,400 $ 2,589
Precision Castparts Corp. (Rts.) 25,400 1,124
- -------------------------------------------------------------------------------
3,713
Automotive 2.48%
Goodyear Tire & Rubber Co. (The) 122,300 6,169
General Motors Corp. 57,400 4,108
Hertz Corp. - A 7,600 347
- -------------------------------------------------------------------------------
10,624
Banks/Financial Services 8.87%
Associates First Capital Corp.- A 180,400 7,644
CIT Group, Inc. (The) - A 125,700 3,999
Citigroup, Inc. 136,997 6,781
Coast Federal Litigation Trust* 38,300 251
Federal National Mortgage Association 56,200 4,159
First Union Corp. 120,182 7,309
Heller Financial Inc. - A 52,700 1,548
National City Corp. 83,700 6,068
Washington Mutual, Inc. 5,002 191
- -------------------------------------------------------------------------------
37,950
Business Services 0.12%
Foster Wheeler Corp. 38,600 509
Chemicals 0.91%
IMC Global Inc. 182,300 3,897
Communication Services 5.82%
American Mobile Satellite Corp. (warrants) 25 --
Ameritech Corp. 59,300 3,758
AT&T Corp. 57,700 4,342
Bell Atlantic Corp. 126,948 6,728
GTE Corp. 33,100 2,152
KMC Telecom Holdings Inc.* 475 --
MCI WorldCom Inc.* 30,100 2,160
SBC Communications Inc. 107,200 5,749
- -------------------------------------------------------------------------------
24,889
Computer Services/Equipment 3.32%
Compaq Computer Corp. 43,400 1,820
First Data Corp. 164,400 5,209
Harris Corp. 33,200 1,216
Hewlett-Packard Co. 87,400 5,970
- -------------------------------------------------------------------------------
14,215
Consumer Products 2.00%
Corn Products International, Inc. 59,600 1,810
Flowers Industries, Inc. 156,400 3,744
Kimberly Clark Corp. 55,300 3,014
- -------------------------------------------------------------------------------
8,568
See notes to the financial statements.
22
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(continued)
Energy 7.12%
Amoco Corp. 67,500 $ 4,075
Ashland Inc. 58,000 2,806
Burlington Resources Inc. 32,600 1,167
Conoco Inc. - A* 27,600 576
Equitable Resources, Inc. 87,900 2,560
National Fuel Gas Co. 33,500 1,514
Noble Drilling Corp.* 108,100 1,398
Shell Transport & Trading Co. PLC 50,900 1,893
Texaco Inc. 81,000 4,283
Union Pacific Resources Group Inc. 298,800 2,708
Unocal Corp. 7,000 204
USX-Marathon Group 242,200 7,296
- -------------------------------------------------------------------------------
30,480
Entertainment Products 1.40%
Brunswick Corp. 105,000 2,599
Eastman Kodak Co. 47,000 3,384
- -------------------------------------------------------------------------------
5,983
Health Care/Pharmaceuticals 9.10%
American Home Products Corp. 58,600 3,300
Baxter International Inc. 125,600 8,078
Columbia/HCA Healthcare Corp. 169,000 4,183
Healthsouth Corp.* 159,200 2,458
Pharmacia & Upjohn Inc. 125,100 7,084
Tenet Healthcare Corp.* 192,700 5,058
United Healthecare Corp. 43,600 1,878
Wellpoint Health Networks, Inc. - A* 79,400 6,908
- -------------------------------------------------------------------------------
38,947
Insurance 2.71%
Aetna Inc. 39,800 3,129
CIGNA Corp. 42,600 3,294
Marsh & McLennan Cos. Inc. 47,200 2,758
NAC Re Corp. 51,200 2,403
- -------------------------------------------------------------------------------
11,584
Manufacturing (Diversified) 2.82%
Chart Industries Inc. 117,900 899
Cooper Industries Inc. 16,300 777
Deere & Co. 110,500 3,660
Eaton Corp. 40,500 2,863
Milacron Inc. 84,400 1,625
New Holland NV 163,300 2,245
- -------------------------------------------------------------------------------
12,069
Metals & Mining 1.16%
Aluminum Co. of America 66,600 4,966
See notes to the financial statements.
23
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Paper & Forest Products 1.16%
Bowater Inc. 32,100 $ 1,330
Georgia-Pacific Corp. (Timber Group) 112,500 2,679
Sonoco Products Co. 17,900 530
Temple-Inland, Inc. 7,000 415
- -------------------------------------------------------------------------------
4,954
Printing/Publishing 0.54%
Gannett Inc. 35,600 2,296
Retail/Apparel 1.69%
May Department Stores Co. (The) 65,300 3,942
Penney (J.C.) Co., Inc. 56,200 2,634
Sports Authority, Inc. (The)* 128,000 672
- -------------------------------------------------------------------------------
7,248
Transportation 2.54%
Canadian National Railway Co. 58,400 3,029
CSX Corp. 42,100 1,747
Delta Air Lines, Inc. 87,600 4,555
Ryder Systems, Inc. 59,800 1,555
- -------------------------------------------------------------------------------
10,886
Utilities 4.37%
American Electric Power Company, Inc. 38,400 1,807
Central & South West Corp. 89,000 2,442
Consolidated Edison Co. 30,100 1,592
GPU, Inc. 117,500 5,192
New England Electric System 62,600 3,013
Pinnacle West Capital Corp. 68,200 2,890
Scana Corp. 54,600 1,761
- -------------------------------------------------------------------------------
18,697
Waste Services 0.56%
Waste Management Inc. 51,300 2,392
Total Common Stock 59.56% 254,867
(Cost $228,062)
================================================================================
PREFERRED STOCK
Printing/Publishing 0.75%
News Corp. Ltd. (The) ADR 129,700 3,202
Telecommunications 0.00%
Viatel Inc. 66 --
- -------------------------------------------------------------------------------
Total Preferred Stock 0.75% 3,202
(Cost $2,170)
- -------------------------------------------------------------------------------
Total Common and Preferred Stock 60.31% 258,069
(Cost $230,232)
================================================================================
See notes to the financial statements.
24
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
Treasury Bonds/Notes
10.375%, 11/15/09 $ 5,000 $ 6,386
10.375%, 11/15/12 1,500 2,070
12.00%, 08/15/13 10,000 15,267
Federal National Mortgage Association
6.42%, 02/27/08 1,500 1,512
6.50%, 04/25/08 1,800 1,822
6.60%, 05/01/08 1,500 1,523
6.46%, 06/26/08 1,000 1,012
6.36%, 08/14/08 1,215 1,226
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 08/01/01 3 4
9.50%, 09/01/01 3 3
9.50%, 10/01/01 13 13
9.25%, 11/01/02 21 21
8.25%, 10/01/07 45 47
8.25%, 11/01/07 44 48
8.75%, 05/01/08 52 54
8.50%, 08/01/08 36 37
9.00%, 09/01/08 48 51
8.00%, 09/01/09 39 40
8.00%, 04/01/10 50 52
7.00%, 09/01/10 15 16
7.00%, 10/01/10 91 94
7.00%, 12/01/10 85 87
7.00%, 01/01/11 1,680 1,721
7.00%, 02/01/11 2,358 2,409
6.50%, 03/01/11 3,418 3,472
7.00%, 03/01/11 3,817 3,899
7.00%, 04/01/11 1,316 1,344
7.00%, 07/01/11 986 1,007
6.00%, 08/01/12 91 91
6.00%, 09/01/12 75 75
6.00%, 01/01/13 35 35
6.00%, 02/01/13 842 845
6.00%, 06/01/13 126 126
6.00%, 10/01/13 841 843
6.00%, 11/01/13 971 974
6.50%, 10/01/18 1,123 1,143
Federal National Mortgage Association
(Mortgage Backed Securities)
6.85%, 10/01/07 1,702 1,827
6.62%, 12/01/07 406 425
6.50%, 01/01/08 124 127
6.51%, 01/01/08 86 89
6.44%, 01/01/08 594 624
6.58%, 01/01/08 104 109
6.62%, 01/01/08 60 63
See notes to the financial statements.
25
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
(continued)
Federal National Mortgage Association
(Mortgage Backed Securities)
6.47%, 02/01/08 $ 446 $ 469
6.42%, 06/01/08 298 309
6.34%, 06/01/08 239 247
6.23%, 07/01/08 199 204
6.25%, 07/01/08 996 1,034
6.265%, 06/01/08 199 207
6.21%, 08/01/08 970 1,004
5.845%, 01/01/09 405 407
5.98%, 01/01/09 339 343
6.31%, 07/01/08 139 144
8.75%, 02/01/10 253 265
10.25%, 07/01/13 7 8
6.50%, 02/01/14 774 783
8.00%, 08/01/14 930 966
8.50%, 09/01/14 443 466
8.50%, 01/01/15 237 249
8.50%, 03/01/15 334 350
6.50%, 08/01/15 425 430
6.50%, 03/01/18 831 840
6.50%, 04/01/18 713 725
6.50%, 05/01/18 837 851
6.00%, 06/01/18 1,955 1,953
7.50%, 10/01/22 656 674
7.50%, 07/01/23 242 249
Government National Mortgage Association
(Mortgage Backed Securities)
11.00%, 12/15/00 13 13
9.50%, 08/20/01 18 17
9.50%, 10/20/01 21 22
9.50%, 07/20/02 30 31
9.50%, 12/20/02 23 24
9.50%, 01/20/03 17 18
9.50%, 02/20/03 22 22
9.50%, 05/20/03 39 41
9.50%, 08/20/03 27 28
9.50%, 09/20/03 54 57
9.50%, 11/20/03 23 24
9.50%, 09/20/04 13 14
8.25%, 05/15/06 86 90
8.50%, 01/15/20 28 30
8.50%, 02/15/21 125 133
8.50%, 06/15/21 93 99
8.50%, 08/15/21 14 15
8.00%, 05/20/22 309 322
8.50%, 04/15/23 165 175
7.50%, 12/15/23 3,773 3,890
See notes to the financial statements.
26
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
(concluded)
Collateralized Mortgage Obligation
(Planned Amortization Class) (Note 3)
GE Cap Mortgage Services Inc.
6.00%, 04/25/09 $ 1,000 $ 989
FNMA 1993-182 Class H
5.00%, 09/25/23 1,709 1,654
FNMA 1994-19 Class B
5.00%, 01/25/24 1,538 1,490
Foreign (U.S. dollar denominated)
Canada Government
7.50%, 03/01/01 2,150 1,483
SCL Term Aereo Santiago
6.95%, 07/01/12 1,500 1,499
- --------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 18.23% 68,972 77,990
(Cost $75,840)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS
California Hsg Fin Agy Rev
8.16%, 02/01/28 1,120 1,233
Denver CO City & County Sch Dist
6.79%, 12/15/08 930 1,003
Horry Cnty SC Arpt Rev
7.38%, 07/01/12 1,450 1,595
Ohio State Taxable Dev Assistance
7.60%, 10/01/16 1,250 1,393
Oxnard CA Un High Sch Dist
7.78%, 08/01/17 1,000 1,074
San Bernardino County
7.09%, 08/01/11 1,000 1,112
- --------------------------------------------------------------------------------
Total Municipal Bonds 1.73% 6,750 7,410
(Cost $7,046)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
Advanced Micro Devices Inc.
11.00%, 08/01/03 435 461
Abraxas Petroleum Corp.
11.50%, 11/01/04 200 152
Accuride Corp.
9.25%, 02/01/08 300 300
Adelphia Communications Corp.
8.375%, 02/01/08 150 155
AK Steel Corp.
9.125%, 12/15/06 250 262
Akzo Nobel Inc.**
6.00%, 11/15/03 1,430 1,420
Allbritton Communication Co.
9.75%, 11/30/07 200 212
See notes to the financial statements.
27
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Allbritton Communication Co.
8.875%, 02/01/08 $ 325 $ 328
Allied Waste**
7.625%, 01/01/06 145 147
AMC Entertainment Inc.
9.50%, 03/15/09 200 204
American Pad & Paper Co.
13.00%, 11/15/05 315 181
American Standard Inc.
7.625%, 02/15/10 70 70
Ameristeel Corp.
8.75%, 04/15/08 125 120
Amphenol Corp.
9.875%, 05/15/07 250 255
AMR Corp.
9.00%, 09/15/16 1,550 1,768
Amresco Inc.
9.875%, 06/17/29 300 210
AMSC Acquisition Inc.
12.25%, 03/31/08 75 46
ARCO Chemical Co.
9.80%, 02/01/20 170 171
Argo-Tech Corp.
8.625%, 10/01/07 250 237
Argosy Gaming Co.
13.25%, 06/01/04 390 437
Armco Inc.
9.00%, 09/15/07 215 217
Armco Inc.
8.875%, 12/01/08 100 101
Associates Corp. North America
7.95%, 02/15/10 1,500 1,758
Aurora Foods Inc.
9.875%, 02/15/07 100 109
Aurora Foods Inc.
8.75%, 07/01/08 100 104
Banponce Corp.
6.75%, 12/15/05 1,760 1,748
Bayou Steel Corp.
9.50%, 05/15/08 335 315
Beckman Industries Inc.
7.45%, 03/04/08 1,500 1,505
Big Flower Press Holding Inc.**
8.875%, 07/01/07 50 51
Big Flower Press Holding Inc.
8.625%, 12/01/08 85 86
Boise Cascade Office Products Co.
7.05%, 05/15/05 1,650 1,549
BTI Telecom Corp.
10.50%, 09/15/07 400 302
Buckeye Cellulose Corp.
8.50%, 12/15/05 150 152
See notes to the financial statements.
28
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Capstar Hotel Co.
8.75%, 08/15/07 $ 200 $ 196
Century Communications Corp.
8.875%, 01/15/07 65 72
Century Communications Corp.
0.00%, 01/15/08 800 410
Chancellor Media Corp.
9.375%, 10/01/04 170 178
Chevy Chase Bank F.S.B.
9.25%, 12/01/08 150 150
Classic Cable Inc.**
9.875%, 08/01/08 175 182
Collins & Aikman Products Co.
11.50%, 04/15/06 50 52
Columbia/HCA Healthcare Corp.
7.25%, 05/20/08 175 168
Comcast Corp.
9.375%, 05/15/05 100 107
Computer Association Int'l Inc.
6.50%, 04/15/08 2,000 1,973
Concentric Network Corp.
12.75%, 12/15/07 200 204
Conseco Inc.
6.80%, 06/15/05 1,600 1,468
Container Corp. of America
9.75%, 04/01/03 170 173
Container Corp. of America
10.75%, 05/01/02 80 83
Contifinancial Corp.
8.125%, 04/01/08 350 245
Costilla Energy Inc.
10.25%, 10/01/06 350 245
Cross Timbers Oil Co.
9.25%, 04/01/07 300 277
CSC Holdings Inc.
9.25%, 11/01/05 150 161
CSC Holdings Inc.
8.125%, 08/15/09 100 107
Dailey International Inc.
9.50%, 02/15/08 450 207
Decision Holdings Corp.
9.75%, 08/01/07 200 92
Del Monte Foods Co.+
0.00%, 12/15/07 250 171
Delta Air Lines Inc.
10.125%, 05/15/10 886 1,108
Delta Air Lines Inc.
9.75%, 05/15/21 250 309
Dime Capital Trust
9.33%, 05/06/27 1,500 1,620
Duane Reade Inc.
9.25%, 12/15/08 575 592
See notes to the financial statements.
29
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
e. spire Communications Inc.+
0.00%, 04/01/06 250 $ 150
e. spire Communications Inc.+
0.00%, 07/01/08 400 156
EchoStar DBS Corp.
12.50%, 07/01/02 175 201
Echostar Satellite Broadcast Corp.+
0.00%, 03/15/04 250 249
Energy Corp of America
9.50%, 05/15/07 300 280
Engle Homes Inc.
9.25%, 02/01/08 285 285
Fairchild Semiconductor Corp.
10.125%, 03/15/07 250 250
Falcon Building Products Inc.+
0.00%, 06/15/07 300 172
Falcon Building Products Inc.
9.50%, 06/15/07 150 131
Falcon Holdings Group LP+
0.00%, 04/15/10 255 175
Falcon Holdings Group LP
8.375%, 04/15/10 250 251
Farmers Ins. Exch.**
8.625%, 05/01/24 1,500 1,789
Federal-Mogul Co.
8.80%, 04/15/07 200 214
First Republic Bank
7.75%, 09/15/12 1,500 1,468
Fisher Scientific Int'l Inc.
9.00%, 02/01/08 250 247
Fitzgeralds Gaming Corp.
12.25%, 12/15/04 110 59
Fonda Group Inc.
9.50%, 03/01/07 250 214
Frontiervision Holding LP+
0.00%, 09/15/07 225 188
Galey & Lord Inc.
9.125%, 03/01/08 200 174
Gaylord Container Corp.
9.375%, 06/15/07 300 255
GCI Inc.
9.75%, 08/01/07 550 544
Globalstar Capital Corp.
10.75%, 11/01/04 350 252
Granite Broadcasting Corp.
10.375%, 05/15/05 150 151
Granite Boradcasting Corp.
8.875%, 05/15/08 300 285
Grove Worldwide LLC
9.25%, 05/01/08 160 144
GST Networks FDG Inc.+
0.00%, 05/01/08 250 110
GST Telecommunications Inc.**
12.75%, 11/15/07 60 56
See notes to the financial statements.
30
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Hammon, John Q Hotels
8.875%, 02/15/04 $ 250 $ 233
Hayes Wheels Int'l Inc.
9.125%, 07/15/07 150 157
Hyperion Telecommunications Inc.
12.25%, 09/01/04 200 202
ICI Wilmington Inc.
6.75%, 09/15/02 1,500 1,510
Intermedia Communications Inc.
8.875%, 11/01/07 200 193
Intermedia Communications Inc.
8.50%, 01/15/08 350 332
Intermedia Communications Inc.
8.60%, 06/01/08 150 143
International Wire Group Inc.
11.75%, 06/01/05 100 105
Interpool Inc.
7.35%, 08/01/07 1,800 1,714
Iridium Cap Corp.
11.25%, 07/15/05 350 299
Iron Mountain Inc.
8.75%, 09/30/09 215 221
ITC Deltacom Inc.
8.875%, 03/01/08 270 263
ITC Deltacom Inc.**
9.75%, 11/15/08 45 47
IXC Communications Inc.
9.00%, 04/15/08 275 276
Jacor Communications Co.
9.75%, 12/15/06 250 276
JCAC Inc.
10.125%, 06/15/06 100 111
Johnstown America Inds. Inc.
11.75%, 08/15/05 235 248
K & F Industries Inc.
9.25%, 10/15/07 425 429
Kaufman & Broad Home Corp.
9.625%, 11/15/06 250 260
Key Plastics Inc.
10.25%, 03/15/07 85 79
KMC Telecom Holdings Inc.**+
0.00%, 02/15/08 475 228
K N Energy Inc.
6.65%, 03/01/05 1,500 1,516
L-3 Communications Corp.
8.50%, 05/15/08 50 51
L-3 Communications Corp.**
8.00%, 08/01/08 90 90
Laroche Industries Inc.
9.50%, 09/15/07 150 120
LDM Technologies Inc.
10.75%, 01/15/07 210 204
See notes to the financial statements.
31
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Level 3 Comm Inc.
9.125%, 05/01/08 $ 455 $ 451
Liberty Financial Cos. Inc.
6.75%, 11/15/08 1,205 1,240
Lin Holdings Corp.+
0.00%, 03/01/08 650 455
Loews Ciniplex Entertainment Corp.
8.875%, 08/01/08 230 237
Lumberman's Mutual Casualty Co.**
9.15%, 07/01/26 2,000 2,337
Mark IV Inds. Inc.
7.75%, 02/01/08 150 149
Mastec Inc.
7.75%, 02/01/08 100 97
McLeodUSA Inc.
9.25%, 07/15/07 50 52
McLeodUSA Inc.
8.375%, 03/15/08 100 100
MGC Communications Inc.
13.00%, 10/01/04 100 67
MJD Communications Inc.
9.50%, 05/01/08 150 148
Moog Inc.
10.00%, 05/01/16 120 123
Morgan Stanley Group Inc.
8.33%, 01/15/07 1,500 1,727
MTL Inc.**
10.00%, 06/15/06 200 194
Muzak LP/Muzak Capital
10.00%, 10/01/03 115 119
Nash Finch Corp.
8.50%, 05/01/08 150 142
Neenah Corp.**
11.125%, 05/01/07 220 226
Newfield Exploration Co.
7.45%, 10/15/07 1,550 1,510
News America Holdings Inc.
8.00%, 10/17/16 2,000 2,203
Nextel Communications Inc.
0.00%, 10/31/07 1,100 671
NEXTLINK Communications Inc.
9.45%, 04/15/08 615 354
Nortek Inc.
9.125%, 09/01/07 250 258
Nortek Inc.**
8.875, 08/01/08 55 56
NRG Energy Inc.
7.50%, 06/15/07 1,550 1,633
Numatics Inc.
9.625%, 04/01/08 200 187
Olympic Financial LTD
11.50%, 03/15/07 100 76
Olympic Financial LTD (Wt.)
11.50%, 03/15/07 100 74
See notes to the financial statements.
32
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Owens & Minor Inc.
10.875%, 06/01/06 $ 415 $ 445
Paging Network Inc.
10.125%, 08/01/07 250 240
Pierce Leahy Corp.
9.125%, 07/15/07 250 263
Pioneer Americas Acquisition Corp.
9.25%, 06/15/07 200 160
Plains Resources Inc.
10.25%, 03/15/06 300 300
P & L Coal Holdings Corp.
9.625%, 05/15/08 650 657
PP & L Capital Funding Inc.
6.79%, 11/22/04 1,510 1,523
Price Communications Wireless Inc.**
9.125%, 12/15/06 150 151
Pride Petroleum Services Inc.
9.375%, 05/01/07 100 91
PSINet Inc.
10.00%, 02/15/05 400 396
PSINet Inc.**
11.50%, 11/01/08 125 131
Purina Mills Inc.
9.00%, 03/15/10 45 46
Qwest Communications Int'l Inc.**
7.50%, 11/01/08 165 170
Republic NY Corp.
9.30%, 06/01/21 1,700 2,259
Resource America Inc.
12.00%, 08/01/04 120 103
Revlon Consumer Products Corp.
8.625%, 02/01/08 50 46
Revlon Worldwide Parent
0.00%, 03/15/01 435 250
Rifkin ACQ Partners LP
11.125%, 01/15/06 50 55
Scotsman Group Inc.
8.625%, 12/15/07 110 113
Silgan Corp.
9.00%, 06/01/09 300 304
Sovereign Specialty Chemicals
9.50%, 08/01/07 350 348
Sprint Captial Corp.
5.70%, 11/15/03 935 935
Standard PAC Corp.
8.50%, 06/15/07 450 457
Staples Inc.
7.125%, 08/15/07 1,000 1,014
Stater Brothers Holdings Inc.
9.00%, 07/01/04 55 53
Station Casinos Inc.**
8.875%, 12/01/08 300 305
Sullivan Graphics Inc.
12.75%, 08/01/05 295 299
TCI Communications Inc.
8.00%, 08/01/05 1,000 1,126
See notes to the financial statements.
33
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(continued)
Telecommunications Tech. Co.
9.75%, 05/15/08 $ 280 $ 276
Terra Industries
10.50%, 06/15/05 150 154
Tesoro Petroleum Corp.
9.00%, 07/01/08 275 267
Texas Petrochemicals Corp.
11.125%, 07/01/06 100 98
Time Warner Telecom LLC
9.75%, 07/15/08 250 262
Toll Corp.
7.75%, 09/15/07 100 100
Toyota Motor Credit Corp.
5.625%, 11/13/03 750 754
Trico Marine Services Inc.
8.50%, 08/01/05 125 108
Tricon Global Restraurants Inc.
7.65%, 05/15/08 150 157
True Temper Sports Inc.**
10.875%, 12/01/08 215 214
Tuboscope Vetco Int'l Inc.
7.50%, 02/15/08 250 230
UNICCO Services Corp.
9.875%, 10/15/07 250 241
Unisys Corp.
11.75%, 10/15/04 100 116
United Air Lines Inc.
10.67%, 05/01/04 672 795
United Air Lines Inc.
9.125%, 01/15/12 843 990
Universal Hospital Services
10.25%, 03/01/08 150 129
USA Networks Inc.**
6.75%, 11/15/05 1,500 1,506
Verio Inc.
10.375%, 04/01/05 250 244
Verio Inc.**
11.25%, 12/01/08 150 151
Viatel Inc.**
11.25%, 04/15/08 131 134
Weirton Steel Corp.
11.375%, 07/01/04 265 236
WESCO Distribution Inc.
9.125%, 06/01/08 350 350
Western Financial BK-FSB
8.875%, 08/01/07 385 277
World Color Press Inc.**
8.375%, 11/15/08 175 175
See notes to the financial statements.
34
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (concluded)
Balanced Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE
BONDS/NOTES
(concluded)
Asset Backed
AESOP Funding II LLC**
6.14%, 05/20/06 $ 825 $ 825
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 256 258
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 291 291
IBM Credit Trust 93-1 A
4.55%, 11/15/00 41 41
- -------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 18.68% 82,770 79,945
(Cost $80,479)
================================================================================
SHORT-TERM
INVESTMENT
Repurchase Agreement
Lehman Brothers
4.875%, 01/04/99, (secured by
$1,578, US Treasury Strip, 08/15/21) 1,547 1,547
- -------------------------------------------------------------------------------
Total Short-Term Investment 0.36% 1,547 1,547
(Cost $1,547)
- -------------------------------------------------------------------------------
Total Investments 99.31% 424,961
(Cost $395,144)
Cash and Other Assets in
Excess of Liabilities 0.69% 2,959
- -------------------------------------------------------------------------------
Net Assets 100.00% $427,920
================================================================================
* Non-income producing during the twelve months ended December 31, 1998 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, 1998 these
securities amounted to $10,585,000 or 2.5 percent of net assets.
+ 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.
35
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPPEARS HERE] Statement of Investments
Income Fund
Municipal Bonds 6.2%
December 31,1998
U.S. & Foreign
Corporate
Bonds/Notes 43.9%
U.S. & Foreign Government
& Agency Obligations 47.0%
Cash & Other
Net Assets 2.9%
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
Treasury Bonds/Notes
10.375%, 11/15/09 $ 300 $ 383
10.375%, 11/15/12 350 483
12.00%, 08/15/13 750 1,145
Federal National Mortgage Association
6.56%, 02/05/08 100 101
6.50%, 04/25/08 100 101
6.60%, 05/01/08 100 103
6.59%, 05/21/08 120 122
6.29%, 06/20/08 100 100
6.36%, 08/14/08 150 151
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.50%, 03/01/01 14 15
9.50%, 06/01/01 7 7
9.50%, 08/01/01 7 7
9.50%, 10/01/01 6 6
7.00%, 11/01/03 26 27
7.00%, 01/01/11 278 284
7.00%, 03/01/11 517 529
7.00%, 04/01/11 545 557
7.00%, 07/01/11 81 83
8.00%, 12/01/11 9 9
6.00%, 01/01/14 136 137
6.50%, 10/01/18 147 149
Federal National Mortgage Association
(Mortgage Backed Securities)
6.85%, 10/01/07 223 239
6.44%, 01/01/08 89 94
6.47%, 02/01/08 69 73
6.25%, 07/01/08 140 145
6.21%, 08/01/08 139 144
8.00%, 11/01/09 7 7
8.00%, 10/01/14 43 45
8.00%, 01/01/17 89 92
7.75%, 04/01/17 174 181
6.50%, 04/01/18 95 97
6.50%, 05/01/18 93 95
6.00%, 06/01/18 98 98
Government National Mortgage Association
(Mortgage Backed Securities)
11.50%, 03/15/10 9 10
12.00%, 03/15/14 2 2
12.00%, 04/15/14 1 2
12.00%, 12/15/14 10 12
12.00%, 03/15/15 7 7
12.00%, 04/15/15 3 4
12.50%, 04/15/15 1 1
12.00%, 06/15/15 6 6
12.00%, 07/15/15 2 2
12.00%, 11/15/15 14 16
9.50%, 08/15/17 64 69
See notes to the financial statements.
36
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Income Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
(continued)
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
FHLMC 1737-Class E
6.00%, 12/15/17 $ 220 $ 221
FNMA 1993 119-Class H
6.50%, 07/25/23 145 146
Foreign (U.S. dollar denominated)
Canada Government
7.50%, 03/01/01 150 103
SCL Term Aereo Santiago
6.95%, 07/01/12 150 150
- -------------------------------------------------------------------------------
Total U.S. and Foreign Government and
Agency Obligations 47.00% 5,736 6,560
(Cost $6,393)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS
Baltimore MD Taxable Cons Public Series B
7.25%, 10/15/17 125 130
California Hsg Fin Agy Rev
8.16%, 02/01/28 125 138
Horry Cnty SC Arpt Rev
7.38%, 07/01/12 120 132
Ohio State Taxable Dev Assistance
7.60%,10/01/16 100 111
Orange Cnty CA Pension Oblg Taxable Ref-A
7.16%, 09/01/06 100 108
San Bernardino County
7.09%, 08/01/11 100 111
San Diego Cnty CA Pension Taxable Series A
6.59%, 08/15/07 125 133
- --------------------------------------------------------------------------------
Total Municipal Bonds 6.18% 795 863
(Cost $831)
- --------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
AMR Corp.
9.00%, 09/15/16 126 144
Associates Corp. North America
7.95%, 02/15/10 110 129
Banc One Corp.
9.875%, 03/01/09 150 196
Banponce Corp.
6.75%, 12/15/05 200 199
Beckman Industries Inc.
7.45%, 03/04/08 100 100
Boise Cascade Office Products Co.
7.05%, 05/15/05 100 94
Citicorp
8.625%, 12/01/02 119 131
Coltec Industries Inc.
7.50%, 04/15/08 100 106
See notes to the financial statements.
37
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Income Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(continued)
Computer Association Int'l Inc.
6.50%, 04/15/08 $100 $ 99
Conseco Inc.
6.80%, 06/15/05 130 119
CSC Holdings Inc.
7.25%, 07/15/08 150 150
Delta Air Lines Inc.
9.75%, 05/15/21 150 185
Dime Capital Trust
9.33%, 05/06/27 160 173
Donaldson Lufkin and Jenrette
6.90%, 10/01/07 130 137
Du Pont E I De Nemours & Co.
8.125%, 03/15/04 150 170
Farmers Ins. Exch.**
8.625%, 05/01/24 150 179
First Union Corp.
8.125%, 06/24/02 150 162
First Republic Bank
7.75%, 09/15/12 150 147
General Electric Cap Corp.
8.70%, 05/21/07 100 121
Heller Financial Inc.
5.875%, 11/01/00 150 150
ICI Wilmington Inc.
6.75%, 09/15/02 150 151
Interpool Inc.
7.35%, 08/01/07 150 143
K N Energy Inc.
6.65%, 03/01/05 100 101
Lumberman's Mutual Casualty Co.**
9.15%, 07/01/26 200 234
Morgan Stanley Group Inc.
6.375%, 08/01/02 150 153
NCNB Corp.
10.20%, 07/15/15 135 185
Newfield Exploration Co.
7.45%, 10/15/07 150 146
News America Holdings Inc.
8.00%, 10/17/16 200 220
NRG Energy Inc.
7.50%, 06/15/07 150 158
Pitney Bowes Credit Corp.
8.55%, 09/15/09 91 112
PP & L Capital Funding Inc.
6.79%, 11/22/04 150 151
Praxair Inc.
6.75%, 03/01/03 150 152
Quaker Oats Co.
7.51%, 05/02/05 160 174
Republic NY Corp.
9.30%, 06/01/21 165 219
Sprint Capital Corp.
5.70%, 11/15/03 100 100
See notes to the financial statements.
38
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Income Fund
December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AND FOREIGN
CORPORATE BONDS/NOTES
(concluded)
Staples Inc.
7.125%, 08/15/07 $ 100 $ 101
TCI Communications Inc.
8.00%, 08/01/05 150 169
Toyota Motor Credit Corp.
5.625%, 11/13/03 75 75
Transamerica Financial Corp.
6.125%, 11/01/01 150 151
United Air Lines Inc.
10.67%, 05/01/04 100 118
USA Networks Inc.**
6.75%, 11/15/05 150 151
Asset Backed
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 34 34
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 37 36
IBM Credit Trust 93-1 A
4.55%, 11/15/00 6 6
- ------------------------------------------------------------------------------
Total U.S. and Foreign Corporate
Bonds/Notes 43.92% 5,828 6,131
(Cost $5,943)
- --------------------------------------------------------------------------------
SHORT-TERM
INVESTMENT
Repurchase Agreement
Lehman Brothers
4.875%, 01/04/99 (secured by $275
US Treasury Strip, 08/15/20) 267 267
- -------------------------------------------------------------------------------
Total Short-Term Investment 1.91% 267 267
(Cost $267)
- -------------------------------------------------------------------------------
Total Investments 99.01% 13,821
(Cost $13,434)
Cash and Other Assets in
Excess of Liabilities 0.99% 138
- -------------------------------------------------------------------------------
Net Assets 100.00% $13,959
================================================================================
** 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, 1998 these
securities amounted to $564,000 or 4.0 percent of net assets.
See notes to the financial statements
39
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPEARS HERE] Statement of Investments (continued)
Short-Term Investment Fund
U.S. Agency Obligations, Cash
& Other Net Assets 100% December 31, 1998
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Farm Credit Bank Discount Notes
4.75%, 01/12/99 $ 45 $ 45
5.05%, 01/15/99 115 115
4.94%, 03/03/99 167 166
Federal Home Loan Bank Discount Notes
4.90%, 02/10/99 105 104
4.90%, 03/04/99 100 99
Federal Home Loan Mortgage Corp. Discount Notes
5.00%, 01/25/99 160 159
5.12%, 01/26/99 30 30
5.01%, 01/28/99 70 70
Federal National Mortgage Association Discount Notes
4.73%, 02/12/99 60 60
4.85%, 03/23/99 150 148
4.90%, 04/23/99 36 36
Student Loan Marketing Discount Note
4.70%, 01/04/99 300 300
- -------------------------------------------------------------------------------
Total Investments 100.08% 1,338 1,332
(Cost $1,331)
Liabilities in Excess of
Cash and Other Assets (0.08%) (1)
- -------------------------------------------------------------------------------
Net Assets 100.00% $ 1,331
================================================================================
See notes to the financial statements.
40
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPEARS HERE] Statement of Investments
Small Cap Growth Fund
Cash & Other
Net Assets 5.4% December 31, 1998
Common Stock 94.6% Number of Market
Shares (000)
- ----------------------------------------------------------------------------
COMMON STOCK
Auto/Accessories 0.73%
Gentex Corp.* 3,000 $ 60
Kroll-O'Gara Co.* 3,800 149
- -----------------------------------------------------------------------------
209
Biotechnology/Pharmaceuticals 8.80%
Biomatrix, Inc.* 2,700 157
Catalytica, Inc.* 19,100 345
Coulter Pharmaceutical, Inc.* 9,400 277
Incyte Pharmaceutical, Inc.* 6800 253
MiniMed Inc.* 3,300 346
PathoGenesis Corp.* 7,200 410
Roberts Pharmaceutical Corp.* 3,500 76
Serologicals Corp.* 12,450 369
Shire Pharmaceuticals Group PLC (ADR)* 14,700 288
- -----------------------------------------------------------------------------
2,521
Broadcasting 0.41%
CD Radio Inc.* 3,500 119
Business Services 9.52%
Abacus Direct Corp.* 4,400 201
Bright Horizons, Inc. 7,436 201
Catalina Marketing Corp.* 3,700 253
CSG Systems International, Inc.* 7,400 583
Imax Corp.* 4,800 152
Lason, Inc.* 6,900 401
Metzler Group, Inc. (The)* 9,700 472
NCO Group, Inc.* 9,450 425
Profit Recovery Group International Inc. (The)* 1,100 41
- -----------------------------------------------------------------------------
2,729
Communication Services/Equipment 4.52%
Aware, Inc.* 2,900 79
Carrier Access Corp.* 6,300 215
Concord Communications, Inc.* 9,100 519
Excel Switching Corp.* 1,600 61
Polycom, Inc.* 7100 158
STAR Telecommunications, Inc.* 148 2
Superior Telecom Inc. 5,500 260
- -----------------------------------------------------------------------------
1,294
Computer Services/Equipment 13.67%
Affiliated Computer Services, Inc. - A* 6,300 284
C-Cube Microsystems Inc.* 3,900 106
Data General Corp.* 6,500 107
International Network Services * 11,200 743
Jack Henry & Associates 5,100 254
MedQuist Inc.* 14,800 585
Metromedia Fiber Network, Inc. - A* 21,600 718
Mips Technologies, Inc.* 10,300 329
National Computer Systems, Inc. 10,700 393
Whittman-Hart, Inc.* 14,400 399
- -----------------------------------------------------------------------------
3,918
See notes to the financial statements.
41
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(continued)
Computer Software 21.96%
Acclaim Entertainment, Inc.* 4,400 $ 54
Advantage Learning Systems, Inc.* 2,500 164
Ardent Software, Inc.* 2,500 57
Aspect Development, Inc.* 10,200 455
BindView Development Corp.* 1,400 38
Checkpoint Software Technoligies Ltd.* 2,800 128
Clarify, Inc.* 6,000 146
Dendrite International Inc.* 10,800 267
Eclipsys Corp.* 5,600 161
Factset Research Systems Inc.* 900 56
Geotel Communications Corp.* 13,300 492
Great Plains Software, Inc.* 2,200 106
INSpire Insurance Solutions, Inc.* 3,300 60
International Telecommunication Sys., Inc.* 5,250 76
ISS Group, Inc.* 1,900 105
Macromedia, Inc.* 15,500 520
Mapics, Inc.* 8,100 134
Mercury Interactive Corp.* 8,900 562
New Era of Networks, Inc.* 11,100 486
Peregrine Systems Inc.* 11,200 519
Progress Software Corp.* 8,150 275
VeriSign, Inc.* 5,500 325
Veritas Software Corp.* 5,150 308
Vitesse Semiconductor Corp.* 8,700 396
Wind River Systems, Inc.* 8,600 403
- -------------------------------------------------------------------------
6,293
Educational Services 1.85%
Devry, Inc.* 5,300 162
Strayer Education, Inc. 4,050 142
Sylvan Learning Systems, Inc.* 7,450 227
- -------------------------------------------------------------------------
531
Electrical Equipment/Electronics 9.44%
Cytyc Corp.* 4,400 113
Flextronics International Ltd.* 6,000 513
PMC-Sierra, Inc.* 7,900 498
Power Integrations, Inc.* 4,700 118
Qlogic Corp.* 2,700 351
RF Micro Devices, Inc.* 2,000 92
Semtech Corp.* 5,600 199
Sipex Corp.* 6,800 239
Transwitch Corp.* 11,300 439
Veeco Instruments, Inc. 2,700 142
- -------------------------------------------------------------------------
2,704
See notes to the financial statements.
42
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
Small Cap Growth Fund
December 31, 1998
Number of Market
Shares (000)
- ------------------------------------------------------------------------
COMMON STOCK
(continued)
Financial Services 0.95%
Investors Financial Services Corp. 800 $ 48
Nova Corp.* 6,500 225
- ------------------------------------------------------------------------
273
Food Services 1.26%
Merkert American Corp.* 4000 61
Papa John's International, Inc.* 6,800 299
- ------------------------------------------------------------------------
360
Health Care/Services 8.82%
Hanger Orthopedic Group, Inc.* 8,700 196
Orthodontic Centers of America, Inc.* 14,000 272
Osteotech, Inc.* 700 33
Patterson Dental Co.* 15,350 666
Perclose, Inc.* 500 17
Province Healthcare Co.* 9,496 335
Renal Care Group, Inc.* 19,275 559
Sunrise Assisted Living, Inc.* 6,400 330
Veterinary Centers of America, Inc.* 6,000 119
- ------------------------------------------------------------------------
2,527
Internet Services 4.25%
EarthLink Network, Inc.* 3,100 176
Excite, Inc.* 2,400 101
Infoseek Corp.* 3,600 177
Inktomi Corp.* 2,300 299
Lycos, Inc.* 3,100 172
MindSpring Enterprises, Inc.* 2,500 153
PSINet Inc.* 3,800 79
Secure Computing Corp.* 2,900 55
Ticketmaster Online-Citysearch, Inc. - B* 100 6
- ------------------------------------------------------------------------
1,218
Recreational/Entertainment 3.03%
Action Performance Companies, Inc.* 1,100 39
Championship Auto Racing Teams, Inc.* 7,900 234
Cinar Films, Inc. - B* 18,000 450
Dover Downs Entertainment, Inc. 1,100 13
Speedway Motorsports, Inc.* 4,600 131
- ------------------------------------------------------------------------
867
See notes to the financial statements.
43
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (Concluded)
Small Cap Growth Fund
December 31, 1998
Number of Market
Shares (000)
- ------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail/Apparel 5.38%
AnnTaylor Stores Corp.* 11,200 $ 442
Children's Place Retail Stores, Inc. (The)* 3,900 98
Duane Reade Inc.* 3,200 123
Hollywood Entertainment Corp.* 5,300 143
Insight Enterprises, Inc.* 6,001 305
Linens 'N Things. Inc.* 9,400 372
Select Comfort Corp.* 2,200 58
- ------------------------------------------------------------------------------
1,541
Total Common Stock 94.59% 27,104
(Cost $20,812)
==============================================================================
Principal
Amount Market
- -------------- (000) (000)
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Federal Home Loan Mortgage Discount Note
4.30%, 01/04/99 $ 1,529 $1,529
- ------------------------------------------------------------------------------
Total Short-Term Investment 5.33% 1,529 1,529
(Cost $1,529)
- ------------------------------------------------------------------------------
Total Investments 99.92% 28,633
(Cost $22,341)
Cash and Other Assets in
Excess of Liabilities 0.08% 22
- ------------------------------------------------------------------------------
Net Assets 100.00% $28,655
==============================================================================
. Non-income producing during the twelve months ended December 31, 1998 as
this security did not pay divdends.
See notes to the financial statements.
44
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
[PIE CHART APPEARS HERE] Statement of Investments
International Equity Fund
Europe 71.0%
Pacific 16.7% December 31, 1998
Cash & Other
Net Assets 10.4%
North America 1.3%
Latin America 0.6%
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
Argentina 0.64%
YPF Associadad-D Spons (ADR) (Oil Companies) 2,353 $ 66
Australia 1.49%
AMP Limited (Insurance)* 1,600 20
Broken Hill Proprietary (Steel & Metals) 7,900 58
WMC Ltd. (Steel & Metals) 15,600 47
Woodside Petro Ltd. (Oil Companies) 6,200 28
- -------------------------------------------------------------------------------
153
Canada 1.25%
Canadian National Railway Co. (Railroads) 2,462 128
China 0.60%
Anhui Expressway Co Ltd. - H (Trucking) 62,000 7
China Telecom - Local (Telecommunications)* 6,000 10
GZI Transport Limited (Trucking) 25,000 5
Jiangsu Expressway (Trucking) 50,000 11
Shenzhen Expressway (Trucking) 52,000 12
Sichuan Expressway (Trucking) 57,000 5
Zhejiang Expressway (Trucking) 54,000 11
- -------------------------------------------------------------------------------
61
Denmark 0.26%
Unidanmark-6 (Banking) 300 27
Finland 3.27%
Fortum Oyj (Oil Companies)* 6,900 42
Nokia AB - A (Telecom Equipment) 1,730 210
PohJola Insurance Co., Ltd. - B (Insurance) 1,566 85
- -------------------------------------------------------------------------------
337
France 15.40%
ACCOR SA (Hotels & Casinos) 640 139
AXA UAP (Insurance) 839 122
Bic SA (Office Supplies) 788 44
Carrefour Supermarche SA (Food & Beverage) 65 49
Casino Guichardo Perrach pfd. (Retail) 1,335 86
Christian Dior (Apparel) 571 63
Credit Coml De France CCF (Banking) 751 70
CSF(Thomson) (Aerospace) 2,547 109
France Telecom SA (Telecommunications) 7 1
Groupe Danone (Food & Beverage) 290 83
L'air Liquide (Chemicals) 259 48
Lagardere Groupe (Diversified Manufacturer) 2,809 119
Louis Vuitton Moet-Hennessy (Retail) 446 88
Michelin Cgde - B (Diversified Manufacturer) 1,560 62
Pernod Ricard (Alcohol & Tobacco) 438 28
Rhone-Poulenc SA - A (Chemicals) 1,674 86
Societe Elf Aquitane SA (Oil Companies) 1,010 117
Suez Lyonnaise Des Eaux (Water Supply) 738 152
Stmicroelectronics (Electronic Components)* 797 63
Valeo SA (Automobiles) 777 61
- -------------------------------------------------------------------------------
1,590
See notes to the financial statements.
45
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
International Equity Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
(continued)
Germany 17.85%
Allianz AG (Insurance) 416 $ 153
BASF AG (Chemicals) 2,666 102
Bayerische Hypo-Und Vereinsbank AG
(Banking) 1,407 110
Duetsche Telekom ADR (Telecommunications) 5,374 177
Duetsche Telekon AG (Telecommunications) 400 13
Heidelberger Druckmaschinen (Printing &
Publishing) 235 17
Hoechst AG (Chemicals) 4,350 180
Mannesmann AG (Diversified Manufacturer) 1,573 180
Metro AG (Retail) 1,735 138
Munchener Ruckers (Wts.) (Insurance) 9 --
Munchener Ruckers (Insurance) 304 147
RWE (Natural Gas) 1,254 69
SAP AG pfd. (Computer Software) 216 103
Schering AG (Pharmaceuticals) 1,201 151
Siemens AG (Electrical Products) 1,174 76
VEBA AG (Electric Utilities) 2,257 135
Viag AG (Diversified Manufacturer) 152 89
- -------------------------------------------------------------------------------
1,840
Hong Kong 3.41%
Cheung Kong Hlds Ltd. (Real Estate) 11,000 79
Citic Pacific (Financial) 28,000 60
Cosco Pacific Ltd. (Investment Company) 35,000 15
Hutchison Whampoa, Ltd. (Diversified
Manufacturer) 8,000 57
Kerry Properties (Real Estate) 16,405 13
New World Development (Real Estate) 26,434 67
New World Infrastructure (Diversified
Manufacturer)* 21,600 32
Sun Hung Kai Properties (Diversified
Manufacturer) 4,000 29
- -------------------------------------------------------------------------------
352
Italy 7.14%
Arnoldo Mondadori Editore (Printing &
Publishing) 2,300 30
Banca Commerciale Italiana (Banking) 9,800 68
Banca Di Roma (Banking)* 34,500 58
Bca Naz Del Lavora (Banking)* 17,200 51
Finmeccanica (Diversified Manufacturing)* 66,200 68
Gruppo Editoriale L'espresso (Printing
& Publishing) 3,500 31
Istituto Nazionale (Insurance) 18,000 48
Olivetti & C (Data Processing)* 22,400 78
Rinascente (Retail) 2,900 30
San Paolo Ima (Banking) 1,900 34
Seat-Pagine Gialle (Printing & Publishing)* 89,900 69
Telecom Italia (Telecommunications) 12,400 106
Telecom Italia Di Risp (Telecommunications) 9,200 58
Unione Immobiliare (Real Estate)* 16,000 8
- -------------------------------------------------------------------------------
737
See notes to the financial statements.
46
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (continued)
International Equity Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
(continued)
Japan 11.24%
Canon Inc. (Office Equipment & Supplies) 2,000 $ 43
Chugoco Electric Power Co. Ltd. (Utilities) 1,000 18
Daiwa Securities Co. Ltd. (Financial) 11,000 38
Fujitsu Ltd. (Electronic Components) 5,000 67
Kyushe Electric Power (Utilities) 1,000 19
Matsushita Electric Ind. (Electronic
Components) 4,000 71
Minebea Company Ltd. (Electronic
Components) 4,000 46
Murata Mfg. Co. (Electronic Components) 2,000 83
Nichiei Co. (Banking) 400 32
Nikko Securites (Financial) 12,000 33
Nintendo Co. Ltd. Kyoto
(Recreational Products) 500 48
Nippon Telephone & Telegraph
(Telecommunications) 5 39
NTT Mobile Communication
(Telecommunications) 2 82
Sony Corp. (Consumer Electronics) 400 29
Sumitomo Electric Inds. (Electronic
Components) 2,000 22
Taisho Pharmacy Co. Ltd. (Pharmaceuticals) 2,000 55
TDK Corp. (Electronic Components) 1,000 91
Teijin Limited (Textiles) 14,000 52
Tepco (Electronic Components) 2,000 49
Tokyo Electron (Semiconductors) 1,000 38
Toshiba Corp. (Electronic Components) 18,000 107
Yamanouchi Pharmacy Co. LTD
(Pharmaceuticals) 3,000 97
- -------------------------------------------------------------------------------
1,159
Netherlands 4.62%
AEGON (Insurance) 840 103
Ahold Koninlijke (Retail) 1,520 56
Akzo-Nobel NV (Chemicals) 1,720 78
Elsevier (Printing/Publishing) 5,136 72
Heineken Hldgs - A (Alcohol & Tobacco) 2,862 137
Royal Dutch Petrol (Oil Companies) 590 29
- -------------------------------------------------------------------------------
475
Portugal 0.61%
Jeronimo Martins E Filho (Food & Beverage) 1,150 63
Sweden 0.26%
AGA AB - B (Chemicals) 2,075 27
Switzerland 4.87%
Clariant AG (Chemicals) 67 31
Nestle SA (Food & Beverage) 73 159
Novartis AG (Pharmaceuticals) 91 179
Swisscom AG (Telecommunications) 317 133
- -------------------------------------------------------------------------------
502
See notes to the financial statements.
47
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statement of Investments (concluded)
International Equity Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
(concluded)
United Kingdom 16.64%
BOC Group PLC (Chemicals) 8,656 $ 124
BP Amoco PLC (Oil Companies) 6,255 93
British Airways PLC (ADR) (Airlines) 4,417 30
Carlton Communications PLC
(Broadcasting & Ent) 6,274 58
Enterprise Oil (Oil Companies) 4,880 24
General Electric Co., PLC (Electrical
Products) 15,285 138
Glaxo Wellcome PLC (Pharmaceuticals) 4,240 146
Granada Group PLC (Consumer Services) 1,735 30
Imperial Chemical Inds PLC (Chemicals) 8,916 77
Lasmo PLC (Oil Companies) 17,469 29
Monument Oil & Gas PLC (Oil Companies)* 24,429 14
Orange PLC (Telecommunications)* 13,927 160
Pearson PLC (Printing & Publishing) 6,092 121
Reed International (Printing & Publishing) 4,636 37
Reuters Group PLC (Printing & Publishing) 16,935 179
Rio Tinto - Zinc Corp. PLC (Steel & Metals) 10,688 124
Shell Transportation & Trading Co. PLC
(Steel & Metals) 18,862 116
SmithKline Beecham PLC (Pharmaceuticals) 10,442 145
Zeneca Group PLC (Pharmaceuticals) 1,622 71
- -------------------------------------------------------------------------------
1,716
Total Common and Preferred Stock 89.55% $ 9,233
(Cost $8,137)
================================================================================
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Repurchase Agreement
State Street Bank
4.85%, 01/04/99 (secured by $1,109 $ 1,086 $ 1,086
US Treasury Note, 6.25%, 08/31/00)
- -------------------------------------------------------------------------------
Total Short-Term Investment 10.53% 1,086 1,086
(Cost $1,086)
- -------------------------------------------------------------------------------
Total Investments 100.08% 10,319
(Cost $9,223)
Foreign Currency 0.06% (Various Denominations) 6
(Cost $6)
Liabilities in Excess of
Cash and Other Assets (0.14%) (14)
- -------------------------------------------------------------------------------
Net Assets 100.00% $10,311
================================================================================
* Non-income producing during the twelve months ended December 31, 1998 as
this security did not pay dividends.
See notes to the financial statements.
48
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
[PIE CHART APPEARS HERE]
Common & Preferred Stock 97.9%
Cash & Other Net Assets 2.1%
Statement of Investments
Socially Responsible Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
Aerospace/Defense 0.67%
Rockwell International Corp. 4,950 $ 240
Automotive 4.09%
Dana Corp. 6,950 284
Ford Motor Co. 12,500 734
Goodyear Tire & Rubber Co. (The) 4,300 217
Meritor Automotive, Inc. 5,316 113
PACCAR Inc. 2,600 106
- -------------------------------------------------------------------------------
1,454
Banks/Financial Services 14.28%
BankAmerica Corporation 11,650 701
Bank One Corp. 5,990 306
Bankers Trust New York Corp. 3,650 312
Chase Manhattan Corp. 7,500 510
Exel Limited Class - A 7,891 592
Federal National Mortgage Association 9,750 722
First Union Corp. 11,911 724
Fleet Financial Group, Inc. 6,100 273
Keycorp 12,000 384
PROLOGIS Trust 13,954 290
U.S. Bancorp 7,500 266
- -------------------------------------------------------------------------------
5,080
Chemicals 6.05%
Akzo Nobel N.V. (ADR) 7,400 330
Dow Chemical Co. 3,300 300
Eastman Chemical Co. 6,500 291
Imperial Chemical Industries PLC (ADR) 15,950 557
Lyondell Petrochemical Co. 23,896 430
Olin Corp. 8,600 244
- -------------------------------------------------------------------------------
2,152
Communication Services 11.15%
Alltel Corp. 10,700 640
Bell Atlantic Corp. 21,422 1,135
BellSouth Corp. 13,100 653
Frontier Corp. 18,100 615
Sprint Corp. 7,800 656
Telesp Participacpoes SA (ADR) 12,000 266
- -------------------------------------------------------------------------------
3,965
Computer Services/Equipment 4.30%
Xerox Corp. 12,950 1,528
Consumer Products 4.58%
Avon Products, Inc. 13,600 602
Heinz (H.J.) Co. 13,000 736
Unilever N.V. PLC 3,500 290
- -------------------------------------------------------------------------------
1,628
See notes to financial statements.
49
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Socially Responsible Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(continued)
Energy 8.06%
British Petroleum Co. PLC (ADR) 31 $ 3
Conoco Inc.* 12,000 251
Elf Aquitaine (ADR) 5,950 337
Mobil Corp. 9,500 828
Phelps Dodge Corp. 3,900 198
Texaco Inc. 10,400 550
Williams Companies, Inc. (The) 14,400 449
YPF SA Sociedad Anonima (ADR) 8,900 249
- -------------------------------------------------------------------------------
2,865
Health Care/Pharmaceuticals 6.21%
American Home Products Corp. 16,700 940
Bristol-Myers Squibb Co. 5,500 736
SmithKline Beecham PLC - A (ADR) 5,200 361
Zeneca Group PLC (ADR) 3,800 171
- -------------------------------------------------------------------------------
2,208
Index Security 4.39%
Standard & Poor's Depository Receipts 12,700 1,562
Insurance 0.96%
Lincoln National Corp. 2,200 180
SAFECO Corp. 3,750 161
- -------------------------------------------------------------------------------
341
Manufacturing (Diversified) 9.13%
Boise Cascade Corp. 10,520 326
Corning Inc. 31,600 1,422
Dupont E.I. De Nemours 10,300 547
Emerson Electric Co. 4,000 242
Parker Hannafin Corp. 7,500 246
Thomas & Betts Corp. 7,300 316
Witco Corp. 9,300 148
- -------------------------------------------------------------------------------
3,247
Metals & Mining 0.99%
Oregon Steel Mills, Inc. 29,700 353
Paper & Forest Products 5.10%
Georgia Pacific Corp. 9,500 556
Georgia Pacific Corp. (Timber Group) 7,600 181
Temple-Inland, Inc. 6,800 403
Westvaco Corp. 3,300 88
Weyerhaeuser Co. 11,500 584
- -------------------------------------------------------------------------------
1,812
Real Estate 3.28%
Arden Realty, Inc. 6,700 155
Boston Properties, Inc. 7,700 235
Equity Office Properties Trust 9,600 230
Equity Residential Properties Trust 5,300 214
Health Care Property Investors, Inc. 5,050 155
Nationwide Health Properties, Inc. 8,300 179
- -------------------------------------------------------------------------------
1,168
See notes to the financial statements.
50
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Investments (continued)
Socially Responsible Fund
December 31, 1998
Number of Market
Shares (000)
- -------------------------------------------------------------------------------
COMMON STOCK
(concluded)
Retail/Apparel 2.15%
May Department Stores Co. 8,000 $ 483
Sears, Roebuck and Co. 6,650 283
- -------------------------------------------------------------------------------
766
Transportation 4.84%
CSX Corp. 20,450 849
Norfolk Southern Corp. 27,500 871
- -------------------------------------------------------------------------------
1,720
Utilities 6.80%
Allegheny Energy Inc. 13,600 469
CINergy Corp. 12,100 416
Duke Energy Corp. 4,525 290
Pacificorp 17,100 360
Southern Co. 10,400 302
Unicom Corp. 9,850 380
Wisconsin Energy Corp. 6,400 201
- -------------------------------------------------------------------------------
2,418
Waste Services 0.23%
Browning Ferris Industries, Inc. 2,900 83
Total Common Stock 97.26% 34,590
(Cost $33,213)
- -------------------------------------------------------------------------------
Manufacturing 0.61%
Monsanto Co.* 4,400 216
Total Preferred Stock 0.61%
(Cost $180) 216
- -------------------------------------------------------------------------------
Total Common and Preferred Stock 97.87%
(Cost $33,393) 34,806
================================================================================
Principal Market
Amount (000) (000)
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT
Repurchase Agreement
State Street Bank
4.85%, 01/04/99, (secured by $742,
US Treasury Note, 6.25%, 08/31/00) $ 726 $ 726
- -------------------------------------------------------------------------------
Total Short-Term Investment 2.04% 726 726
(Cost $726)
- -------------------------------------------------------------------------------
Total Investments 99.91% 35,532
(Cost $34,119)
Cash and Other Assets in
Excess of Liabilities 0.09% 32
- -------------------------------------------------------------------------------
Net Assets 100.00% $35,564
================================================================================
* Non-income producing during the twelve months ended December 31, 1998 as
this security did not pay dividends.
See notes to financial statements.
51
<PAGE>
Horace Mann MUTUAL FUNDS 1998 FUNDS ANNUAL Report
Statements of Assets and Liabilities
December 31, 1998
<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 $ 134 $ 842 $ 197 $ 2,202 $ 45,822 $ 533 $ 1,309
Investments at
market value* 670,121,876 424,960,775 13,821,342 1,331,676 28,632,912 10,318,959 35,532,340
Foreign currency at
value* -- -- -- -- -- 6,319 --
Forward currency
contract -- 20,967 1,464 -- -- -- --
Dividends and
interest receivable 760,436 2,981,999 206,152 -- 470 2,448 52,109
Receivable-foreign
taxes -- -- -- -- -- 13,275 1,474
Receivable-fund
shares sold 315,739 336,756 6,547 1,071 27,657 12,473 66,798
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 671,198,185 428,301,339 14,035,702 1,334,949 28,706,861 10,354,007 35,654,030
====================================================================================================================================
LIABILITIES
Forward currency
contracts -- 17,587 1,229 -- -- 3 --
Payable-fund
shares redeemed 190,750 105,788 43,713 -- 4,642 531 31,474
Payable-investments
purchased -- 71,855 -- -- 22,225 15,625 2,745
Payable-management,
adviser and
related fees 275,063 170,200 5,359 -- 21,579 21,188 51,966
Accrued expenses** 1,864 16,259 26,516 3,934 3,879 5,510 4,014
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 467,677 381,689 76,817 3,934 52,325 42,857 90,199
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $670,730,508 $ 427,919,650 $13,958,885 $ 1,331,015 $ 28,654,536 $ 10,311,150 $ 35,563,831
NET ASSETS CONSIST OF:
====================================================================================================================================
Par value of common
shares 27,556,888 2,263,557 105,403 13,343 -- -- --
Paid in surplus 574,055,262 395,737,533 13,461,092 1,316,733 26,204,294 9,232,945 34,193,864
Accumulated undis-
tributed net invest-
ment income -- 166,101 4,841 623 -- (938) 10,968
Accumulated undis-
tributed net realized
gain (loss) from
investments and
foreign currency
transactions 56,765 (67,632) 44 (2) (3,841,206) (17,590) (54,145)
Net unrealized appre-
ciation on invest-
ments and translation
of assets and
liabilities in
foreign currency 69,061,593 29,820,091 387,505 318 6,291,448 1,096,733 1,413,144
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $670,730,508 $ 427,919,650 $13,958,885 $ 1,331,015 $ 28,654,536 $ 10,311,150 $ 35,563,831
====================================================================================================================================
Number of shares
outstanding: 27,556,888 22,635,573 1,054,026 133,430 2,314,858 850,260 2,738,426
(Authorized 50,000,000
shares each)
Par Value $ 1.00 $ 0.10 $ .10 $ 0.10 $ 0.00 $ 0.00 $ 0.00
====================================================================================================================================
NET ASSET VALUE
PER SHARE $ 24.34 $ 18.90 $ 13.24 $ 9.98 $ 12.38 $ 12.13 $ 12.99
====================================================================================================================================
*Cost of Securities:
Investments $601,060,283 $ 395,144,271 $13,434,086 $ 1,331,358 $ 22,341,464 $ 9,223,075 $ 34,119,196
Foreign Currency -- -- -- -- -- 6,324 --
</TABLE>
** Accrued expenses for the Income Fund include $11,662 for custody fees and
$7,085 for legal fees. For the Short-Term investment Fund accrued expenses
include $1,444 for custody fees and $2,490 for trustee fees.
52
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statements of Operations
For the Year Ended
December 31, 1998
<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 $ 12,480,275 $ 4,837,768 $ -- $ -- $ 4,512 $ 126,669 $ 558,538
Interest &
amortization 871,315 11,987,215 767,278 74,335 109,245 48,479 47,147
- ------------------------------------------------------------------------------------------------------------------------------------
13,351,590 16,824,983 767,278 74,335 113,757 175,148 605,685
Foreign taxes
withheld (69,482) (23,955) (331) -- -- (15,742) (3,262)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment
income 13,282,108 16,801,028 766,947 74,335 113,757 159,406 602,423
EXPENSES:
Management, adviser
and related fees
(Note 5) 3,119,207 1,918,958 51,426 4,501 297,498 83,098 195,348
Fund pricing fees 12,001 12,001 12,001 12,000 5,731 11,463 5,732
Professional fees 24,154 24,154 15,505 8,527 8,704 9,911 8,704
Custodian fees 23,999 32,000 11,001 3,599 53,906 47,564 20,825
Transfer agent fee
(Note 5) 36,001 24 24 24 24 24 24
Shareholder reports 61,711 35,408 1,877 -- 7,814 4,040 8,582
Trustees' fees and
expenses 5,787 5,787 5,787 5,787 5,787 5,787 5,787
Insurance expenses 74,796 49,497 1,842 688 2,324 803 1,893
Other expenses 33,828 20,604 801 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,391,484 2,098,433 100,264 35,126 381,788 162,690 246,895
Less management
and related fees
waived (Note 5) -- -- -- (2,801) (85,095) (30,811) (84,039)
Less expenses paid
by Horace Mann
Investors, Inc.
(Note 5) -- -- -- (22,915) (55,754) (50,322) (22,673)
Less expenses paid
by commission
credits (Note 3) (116,796) (62,310) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,274,688 2,036,123 100,264 9,410 240,939 81,557 140,183
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment
income (loss) 10,007,420 14,764,905 666,683 64,925 (127,182) 77,849 462,240
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND
UNREALIZED GAIN (LOSS):
Realized gain (loss)
from:
Investments 69,124,570 33,427,073 89,683 76 (3,345,345) 50,930 288,646
Foreign currency
transactions 50 389,353 30,698 -- -- (5,531) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain
(loss) on invest-
ments and foreign
currency
transactions 69,124,620 33,816,426 120,381 76 (3,345,345) 45,399 288,646
Change in unrealized
appreciation or
(depreciation) on:
Investments (33,476,219) (18,635,400) 95,58 318 5,176,382 1,070,954 831,361
Translation of
assets and
liabilities in
foreign currencies -- (81,491) (6,955) -- -- 1,307 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
from investments
and foreign cur-
rency transactions 35,648,401 15,099,535 209,012 394 1,831,037 1,117,660 1,120,007
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE
IN NET ASSETS
FROM OPERATIONS $ 45,655,821 $ 29,864,440 $ 875,695 $ 65,319 $ 1,703,855 $ 1,195,509 $ 1,582,247
====================================================================================================================================
</TABLE>
See notes to the financial statements.
53
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Changes in Net Assets
For the Periods Ended
December 1998 and 1997
<TABLE>
<CAPTION>
GROWTH FUND BALANCED FUND INCOME FUND
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment
income (loss) $ 10,007,420 $ 7,876,390 $ 14,764,905 $ 10,897,731 $ 666,683 $ 610,405
Net realized short-
term gain (loss)
on investments
and foreign
currency
transactions 14,562,659 21,364,681 8,676,359 10,725,081 99,971 67,503
Net realized long-
term gain (loss)
on investments
and foreign
currency
transactions 54,561,961 44,841,048 25,140,067 25,302,862 20,410 (35,919)
Net unrealized
appreciation
(depreciation)
on investments
and translation
of assets and
liabilities in
foreign currency (33,476,219) 32,693,552 (18,716,891) 12,890,553 88,631 251,848
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net
assets from
operations 45,655,821 106,775,671 29,864,440 59,816,227 875,695 893,837
- ---------------------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment
income (10,018,267) (7,988,420) (15,358,192) (10,749,508) (687,301) (598,770)
Net realized short-
term gain from
investments and
foreign currency
transactions (14,547,126) (21,154,178) (8,675,538) (10,548,453) (101,781) (23,198)
Net realized long-
term gain from
investments and
foreign currency
transactions (54,910,150) (44,781,697) (24,989,848) (25,268,797) (20,356) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (79,475,543) (73,924,295) (49,023,578) (46,566,758) (809,438) (621,968)
- ---------------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from
shares sold 115,739,024 117,493,277 69,434,528 66,288,140 7,592,036 2,109,144
Net asset value of
shares issued in
reinvestment of
dividends and
capital gains
distributions 72,586,255 68,291,933 44,166,154 42,410,448 683,334 516,971
---------------------------------------------------------------------------------------------------------------------------------
188,325,279 185,785,210 113,600,682 108,698,588 8,275,370 2,626,115
Cost of shares
redeemed (82,277,370) (50,690,435) (53,631,448) (35,389,537) (4,041,073) (4,087,751)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets from fund
share transactions 106,047,909 135,094,775 59,696,234 73,309,051 4,234,297 (1,461,636)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN
NET ASSETS 72,228,187 167,946,151 40,810,096 86,558,520 4,300,554 (1,189,767)
NET ASSETS:
Beginning of period 598,502,321 430,556,170 387,109,554 300,551,034 9,658,331 10,848,098
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 670,730,508 $ 598,502,321 $ 427,919,650 $ 387,109,554 $ 13,958,885 $ 9,658,331
=================================================================================================================================
Undistributed net
investment income $ -- $ 10,797 $ 166,101 $ 416,092 $ 4,841 $ 27,269
=================================================================================================================================
</TABLE>
See notes to the financial statements.
54
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Statement of Changes in Net Assets
For the Periods Ended
December 1998 and 1997
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
SHORT-TERM FUND GROWTH FUND EQUITY FUND
1998 1997 1998 1997 1998 1997
since inception/1/ since inception/1/
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment
income (loss) $ 64,925 $ 62,980 $ (127,182) $ (15,134) $ 77,849 $ 43,515
Net realized short-
term gain (loss)
on investments
and foreign
currency
transactions 76 127 (3,685,694) (495,861) (168,371) (70,944)
Net realized long-
term gain (loss)
on investments
and foreign
currency
transactions -- -- 340,349 -- 213,770 --
Net unrealized
appreciation
(depreciation)
on investments
and translation
of assets and
liabilities in
foreign currency 318 485 5,176,382 1,115,066 1,072,261 24,472
- ---------------------------------------------------------------------------------------------------------------------
Change in net
assets from
operations 65,319 63,592 1,703,855 604,071 1,195,509 (2,957)
- ---------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment
income (64,809) (63,479) -- -- (73,256) (41,091)
Net realized short-
term gain from
investments and
foreign currency
transactions (76) (127) -- -- -- --
Net realized long-
term gain from
investments and
foreign currency
transactions -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (64,885) (63,606) -- -- (73,256) (41,091)
- ---------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from
shares sold 3,937,144 3,660,289 14,868,359 17,210,060 5,127,635 5,781,865
Net asset value of
shares issued in
reinvestment of
dividends and
capital gains
distributions 48,742 48,626 -- -- 14,646 14,368
- ---------------------------------------------------------------------------------------------------------------------
3,985,886 3,708,915 14,868,359 17,210,060 5,142,281 5,796,233
Cost of shares
redeemed (3,806,298) (3,786,735) (4,442,570) (1,329,239) (1,167,294) (578,275)
- ---------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets from fund
share transactions 179,588 (77,820) 10,425,789 15,880,821 3,974,987 5,217,958
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN
NET ASSETS 180,022 (77,834) 12,129,644 16,484,892 5,097,240 5,173,910
NET ASSETS:
Beginning of period 1,150,993 1,228,827 16,524,892 40,000 5,213,910 40,000
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 1,331,015 $ 1,150,993 $ 28,654,536 $ 16,524,892 $ 10,311,150 $ 5,213,910
=====================================================================================================================
Undistributed net
investment income 623 $ 507 $ -- $ -- $ (938) $ --
=====================================================================================================================
<CAPTION>
SOCIALLY
RESPONSIBLE FUND
1998 1997
since inception/1/
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment
income (loss) $ 462,240 $ 73,696
Net realized short-
term gain (loss)
on investments
and foreign
currency
transactions 34,007 72,720
Net realized long-
term gain (loss)
on investments
and foreign
currency
transactions 254,639 --
Net unrealized
appreciation
(depreciation)
on investments
and translation
of assets and
liabilities in
foreign currency 831,361 581,783
- -----------------------------------------------------------
Change in net
assets from
operations 1,582,247 728,199
- -----------------------------------------------------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment
income (451,693) (73,275)
Net realized short-
term gain from
investments and
foreign currency
transactions (54,547) 79,630)
Net realized long-
term gain from
investments and
foreign currency
transactions (281,334) --
- -----------------------------------------------------------
Total distributions
to shareholders (787,574) (152,905)
- -----------------------------------------------------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from
shares sold 27,958,456 8,945,404
Net asset value of
shares issued in
reinvestment of
dividends and
capital gains
distributions 528,490 101,875
- -----------------------------------------------------------
28,486,946 9,047,279
Cost of shares
redeemed (2,930,660) (449,701)
- -----------------------------------------------------------
Net increase
(decrease) in net
assets from fund
share transactions 25,556,286 8,597,578
- -----------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN
NET ASSETS 26,350,959 9,172,872
NET ASSETS:
Beginning of period 9,212,872 40,000
- -----------------------------------------------------------
End of period $ 35,563,831 $ 9,212,872
===========================================================
Undistributed net
investment income $ 10,968 $ 421
===========================================================
</TABLE>
1 Since inception refers to March 10, 1997, the day investment operations
began.
See notes to financial statements.
55
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements
December 31, 1998
1. BUSINESS ORGANIZATION-- The Horace Mann Mutual Funds (the "Trust") is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, which offers units of beneficial ownership
("shares") in seven separate investment portfolios: Growth Fund, Balanced Fund,
Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund. These funds collectively are referred
to as the "Funds." Shares are presently offered to Horace Mann Life Insurance
Company (HMLIC) Separate Account and the HMLIC 401(k) Separate Account. The
Growth Fund shares also may be purchased under the dividend reinvestment plans
by certain shareholders.
FUND INVESTMENT OBJECTIVES:
A. Growth Fund -- primary, long-term capital growth; secondary,
conservation of principal and production of income.
B. Balanced Fund -- realization of high long-term total rate of return
consistent with prudent investment risks.
C. Income Fund -- long-term total rate of return in excess of the U.S.
bond market over a full market cycle.
D. Short-Term Fund -- primary, realize maximum current income to the
extent consistent with liquidity; secondary, preservation of
principal.
E. Small Cap Growth Fund -- long-term capital appreciation through
investing primarily in equity securities of small cap companies with
earnings growth potential.
F. International Equity Fund -- long-term growth of capital through a
diversified portfolio of marketable foreign equity securities.
G. Socially Responsible Fund -- long-term growth of capital, current
income and growth of income through investing primarily in a
diversified portfolio of equity securities of United States-based
companies which are determined to be socially responsible.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. Security valuation -- A security listed or traded on U.S. or foreign
stock exchanges is valued at its last sales price on the exchange
where it is principally traded. In the absence of a current quotation,
the security is valued at the mean between the last bid and asked
prices on that exchange. If there are no such bid and ask quotations
the most recent bid quotation is used. Securities quoted on the
National Association of Securities Dealers Automatic Quotation
("NASDAQ") System, for which there have been sales, are valued at the
most recent sale price reported on such system. If there are no such
sales, the value is the high or "inside" bid quotation. Securities
traded over-the-counter are valued at the last current bid price. Debt
securities that have a remaining maturity of 60 days or less are
valued at cost, plus or minus any unamortized premium or discount.
Foreign securities are converted to United States dollars using
exchange rates at the close of the New York Stock Exchange. In the
event market quotations would not be available, securities would be
valued at fair value as determined in good faith by the Board of
Trustees; no such securities were owned by the Funds at December 31,
1998.
56
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1998
B. Security transactions and investment income-- Security transactions
are recorded on the trade date. Dividend income is recorded on the
ex-dividend date or, for certain foreign dividends, as soon as they
become available. Interest income including level yield, premium and
discount amortization is recorded on the accrual basis. Securities
gains and losses are determined on the basis of identified cost.
C. Federal income taxes -- Since it is the Funds' policy to comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders, no provision has been made for federal income or excise
taxes. Dividends and distributions payable to shareholders are
recorded by the Funds on the record date. Net investment income for
federal income tax purposes includes paydown gains and losses on
mortgage backed securities and gains and losses realized on foreign
currency transactions. These gains and losses are included as net
realized gains and losses for financial reporting purposes.
The International Equity Fund and Small Cap Growth Fund intend to
utilize provisions of the federal income tax laws which allow them to
carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized
capital gains. At December 31, 1998, the International Equity Fund and
Small Cap Growth Fund had an accumulated capital loss carryforward for
tax purposes of $15,284, and $3,772,187, respectively, which will
expire in fiscal year ending December 31, 2005 and December 31, 2006.
C. 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 purposes, a net operating loss recognized in
the current year cannot be used to offset future years' net investment
income. Therefore, $127,182 of net operating loss generated by Small
Cap Growth Fund has been reclassified from accumulated net investment
loss to paid in surplus. For the year ended December 31, 1998, the
Growth, Balanced, Income and Socially Responsible funds paid long-term
capital gains of $54,910,150, $24,989,848, $20,356 and $281,334,
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.
57
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1998
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 -- Wellington Management Company, LLP, subadviser
for the Growth and Balanced funds, seeks the best price and execution
on each transaction and negotiates commission rates solely on the
execution requirements of each trade. Occasionally, they place, under
a directed brokerage arrangement, common stock trades with a
broker/dealer who credits to the funds part of the commissions paid.
F. Foreign Currency Transactions -- The books and records of the Funds
are maintained in U.S. dollars. Foreign currency transactions are
translated into U.S. dollars on the following basis:
. market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and
. purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement
dates on securities transactions, gains and losses arising from the
sales of foreign currency, and gains and losses between the
ex-dividend and payment dates on dividends, interest and foreign
withholding taxes. The effect of changes in foreign exchange rates on
realized and unrealized gains or losses is reflected as a component of
such gains or losses.
G. Forward Currency Contracts -- The Balanced Fund, Income Fund and
International Equity Fund may enter into forward currency contracts in
order to reduce their exposure to changes in foreign currency exchange
rates on their foreign portfolio holdings and to lock in the U.S.
dollar cost of assets and liabilities denominated in foreign
currencies. A forward currency exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated
forward rate. The gain or loss arising from the differences between
the U.S. dollar cost of the original contract and the value of the
foreign currency in U.S. dollars upon closing of such contract is
included in net realized gain or loss from foreign currency
transactions.
58
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1998
At December 31, 1998 the Funds have the following open forward currency
contracts:
Current Unrealized
Foreign Value Appreciation
Currency U.S. Dollar (Depreciation)
- --------------------------------------------------------------------------------
BALANCED FUND
Short Contracts:
Canadian Dollar,
4,550,000 expiring 01/05/99 $2,976,806 $ (17,587)
Long Contracts:
Canadian Dollar,
2,257,000 expiring 01/05/99 $1,476,627 $ 20,967
INCOME FUND
Short Contracts:
Canadian Dollar,
318,000 expiring 01/05/99 $ 208,050 $ (1,229)
Long Contracts:
Canadian Dollar,
157,000 expiring 02/05/99 $ 102,722 $ 1,464
INTERNATIONAL EQUITY FUND
Long Contracts:
Australian Dollar,
3,088 expiring 01/04/99 - 01/07/99 $ 1,893 $ (3)
Hong Kong Dollar,
33,768 expiring 01/05/99 4,359 --
---------
$ (3)
=========
59
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1998
4. FUND SHARE TRANSACTIONS-- The funds are each a series of a diversified,
open-end management investment company registered under the Investment Company
Act of 1940. Shares are presently offered to HMLIC Separate Account and the
HMLIC 401K Separate Account. The Growth Fund shares also may be purchased under
the dividend reinvestment plans by certain shareholders.
Transactions in capital stock for the years ended 1998 and 1997 were:
<TABLE>
<CAPTION>
Shares issued
to shareholders
in reinvestment
of dividends and Net increase
Shares sold distribution Shares redeemed (decrease)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund
12/31/98 4,347,997 3,020,651 (3,139,417) 4,229,231
12/31/97 4,363,953 2,722,964 (1,877,395) 5,209,522
Balanced Fund
12/31/98 3,374,120 2,359,303 (2,626,417) 3,107,006
12/31/97 3,173,556 2,170,443 (1,685,163) 3,658,836
Income Fund
12/31/98 555,983 51,885 (296,718) 311,150
12/31/97 160,116 39,736 (312,085) (112,233)
Short-Term Fund
12/31/98 386,446 4,889 (373,069) 18,266
12/31/97 356,190 4,867 (368,415) (7,358)
Small Cap Growth Fund
12/31/98 1,300,098 -- (397,477) 902,621
12/31/97 1,527,761 -- (115,524) 1,412,237
International Equity Fund
12/31/98 443,238 1,217 (102,098) 342,357
12/31/97 561,643 1,402 (55,142) 507,903
Socially Responsible Fund
12/31/98 2,167,784 41,128 (232,154) 1,976,758
12/31/97 791,585 8,575 (38,492) 761,668
</TABLE>
60
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (continued)
December 31, 1998
5. MANAGEMENT AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES -- Horace Mann
Educators Corporation ("HMEC") is the parent company of Horace Mann Investors,
Inc. ("Investors") and Horace Mann Service Corporation ("HMSC") and indirectly
owns HMLIC. Collectively these companies are referred to as Horace Mann.
As of May 1, 1997, Investors acts as the Trust's adviser, manages its
investments, and administers its business affairs pursuant to a management
agreement. Also on this date 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 is compensated by Investors (not the Trust)
and bears all of its own expenses in providing subadvisory services.
For the Growth, Balanced, Income and Short-Term funds, Investors receives
separate management and advisory fees. For management services, the fee which is
accrued daily and paid monthly, is calculated on a pro rata basis by applying
the following annual percentage rates to the aggregate of all four 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 is accrued daily and calculated by applying the
following annual percentage rates to the average daily net assets of each fund
for the respective month:
Growth Fund Balanced Fund Income Fund Short-Term Fund Average Net Assets
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
As compensation for its services, the Small Cap Growth, International Equity and
Socially Responsible funds each pay Investors a combined monthly management and
advisory fee. The contractual fees are as follows:
Small Cap Growth Fund 1.40% of Net Assets
International Equity Fund 1.10% of Net Assets
Socially Responsible Fund 0.95% of Net Assets
During 1998, Investors is voluntarily reducing these management fees by 0.40%.
The actual management fees are accrued daily and paid monthly based on the
following annual percentage rate to the Funds' average daily net assets for the
respective month. The fees net of waivers are:
Small Cap Growth Fund
1.00% on the first $25 million
0.75% on all assets over $25 million
International Equity Fund
0.70% on the first $40 million
0.50% on the next $60 million
0.45% on all assets over $100 million
Socially Responsible Fund
0.55% on the first $20 million
0.45% on the next $20 million
0.30% on the next $60 million
0.275% on all assets over $100 million
61
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Concluded)
December 31, 1998
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, 1998 were
$36,001 for the Growth Fund, $24 each for the Balanced, Income, Short-Term,
Small Cap Growth, International Equity and Socially Responsible funds.
The Trust pays each independent trustee a $1,000 annual retainer, $1,000 per
Board meeting attended, $200 for each committee meeting and $500 for each
telephonic meeting. Two meetings were held in 1998. For the year ended December
31, 1998, the fees, excluding travel expenses, for independent trustees totaled
$20,200. The Trust does not compensate interested officers and trustees (those
who are also officers and/or directors of Horace Mann).
6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term
investments, for the year ended December 31, 1998 were:
Purchases Proceeds from sales
--------- -------------------
Growth Fund $417,334,378 $370,519,282
Balanced Fund 289,836,462 255,664,511
Income Fund 9,994,555 5,122,998
Short-Term Fund -- --
Small Cap Growth Fund 42,817,712 32,659,232
International Equity Fund 7,372,888 3,952,188
Socially Responsible Fund 33,103,108 8,458,060
The following table shows investments, excluding foreign currency, at cost and
unrealized appreciation (depreciation) for federal income tax purposes by fund
at December 31, 1998.
<TABLE>
<CAPTION>
Cost for federal Aggregate gross Aggregate gross
income tax unrealized unrealized Net unrealized
purposes appreciation (depreciation) appreciation
-------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Growth Fund $601,060,283 $105,194,559 $(36,445,528) $ 68,749,031
Balanced Fund 395,275,796 47,295,496 (17,610,517) 29,684,979
Income Fund 13,434,086 418,515 (31,259) 387,256
Short-Term Fund 1,331,358 318 -- 318
Small Cap Growth Fund 22,410,483 6,506,098 (283,669) 6,222,429
International Equity Fund 9,225,381 1,445,179 (351,601) 1,093,578
Socially Responsible Fund 34,174,341 3,148,742 (1,790,743) 1,357,999
</TABLE>
62
<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, 1998, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the periods
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, 1998, by correspondence with the custodian and brokers and by the
application of alternative auditing procedures where broker replies were not
received. 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, 1998, the results of their operations for the
period then ended, the changes in their net assets for each of the periods
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.
KPMG LLP
Chicago, Illinois
January 29, 1999
63
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GROWTH FUND AND A STOCK INDEX 1
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
- --------------------------------------------------------------------------------
Growth Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
7.64% 17.27% 15.09%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Growth Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
/1/ Stock index: 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 and BOND INDex/1/
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
- --------------------------------------------------------------------------------
Balanced Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
7.68% 13.75% 12.68%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Balanced Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
/1/ Stock/Bond indices: through April 30, 1997, S & P 500 Index and Lehman Bros.
Intermediate Government/Corporate Bond Index, an unmanaged index consisting of
U.S. Treasury bonds, U.S. agency bonds and investment grade corporate bonds with
intermediate maturities. Lehman Bros. Aggregate Bond Index thereafter. Rates of
return shown above for the unmanaged indices have no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Balanced Fund. Wellington Management Company, LLP,
became the fund's subadviser May 1, 1997. Previous periods during which the
balanced Fund received investment advice from CIGNA Investment, Inc., are not
shown.
64
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE INCOME FUND AND A BOND INDEX/1/
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
- --------------------------------------------------------------------------------
Income Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
8.09% 6.57% 7.80%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Income Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 3.
/1/ Bond index; through April 30, 1997, Lehman Bros. Intermediate
Government/Corporate Bond index, an unmanaged index consisting of U.S. Treasury
bonds, U.S. agency bonds and investment grade corporate bonds with intermediate
maturities. Lehman Bros. Aggregate Bond Index thereafter. The rate of return
shown above for the unmanaged index has no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Income Fund. Wellington Management Company, LLP,
became the fund's subadvisor May 1, 1997. Previous periods during which the
Income Fund received investment advice from CIGNA Investments, Inc., are not
shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE SHORT-TERM INVESTMENT FUND AND A TREASURY BILL INDEX/1/
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
- --------------------------------------------------------------------------------
Short-Term Investment Fund
Average Annual Total Return
- --------------------------------------------------------------------------------
1 year 5 year Since Inception/2/
- --------------------------------------------------------------------------------
4.97% 4.82% 4.92%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Short-Term Investment Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 3.
/1/ Treasury Bill index: An unmanaged index consisting of U.S. Treasury bills
with 90 - day maturities. The rate of return shown above for the unmanaged index
has no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Short-Term Investment Fund. Wellington Management
Company, LLP, became the fund's subadviser May 1, 1997. Previous periods during
which the Short-Term Investment Fund received investment advice from CIGNA
Investments, Inc., are not shown.
65
<PAGE>
HORACE MANN MUTUAL FUNDS 1998 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN THE SMALL CAP GROWTH FUND AND A STOCK INDEX/1/
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
- --------------------------------------------------------------------------------
Small Cap Growth Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
5.81% 12.35%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the Small Cap Growth Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 3.
/1/ Stock index: Russell 2000 Growth, an unmanaged index composed of those
Russell 2000 Growth securities with a greater-than-average growth orientation.
The Russell 2000 Growth 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. BlackRock 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/
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
- --------------------------------------------------------------------------------
International Equity Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
18.95% 11.99%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the International Equity Fund
returns. Returns under the Annuity Alternatives contracts are shown on page 3.
/1/ Equity index: MSCI EAFE Index is an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia and the Far East. The rate of
return shown to the left for the unmanaged index has no expenses.
The index reflects performance from February 28, 1997 through December 31, 1998.
/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/
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
- --------------------------------------------------------------------------------
Socially Responsible Fund Total Return
- --------------------------------------------------------------------------------
1 year Since Inception/2/
- --------------------------------------------------------------------------------
9.80% 17.78%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in the Socially Responsible Fund
returns. Returns under the Annuity Alternatives contracts are shown on page 3.
/1/ Stock index: S & P 500, Standard & Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks. The rate of return shown to the left for the
unmanaged index has no expenses.
/2/ Since inception refers to its inception of investment operations March 10,
1997. Scudder Kemper Investments, Inc. is the fund's subadviser.
66
<PAGE>
Results of the Shareholder Votes
A special meeting of the shareholders of the Trust was held January 13, 1999,
where shareholders voted on the following items:
1) The election for the following trustees by the shareholders:
# of Shares
In Favor Withheld
A. Thomas Arisman 48,448,652 1,410,486
A. L. Gallop 48,302,854 1,556,283
Richard A. Holt 48,422,216 1,436,922
Richard D. Lang 48,438,311 1,420,827
Harriet A. Russell 48,456,155 1,302,983
George J. Zock 48,422,183 1,416,954
2) The ratification of KPMG LLP as independent public accountants for its
current fiscal year, 48,140,153 shares voted for the proposal, 629,715
voted against and 1,089,269 shares abstained.
3) Approving or disapproving an investment advisory agreement with Wilshire
Associates Incorporated, 44,001,819 voted for the proposal, 3,927,531 voted
against and 1,829,789 shares abstained.
4) Approving or disapproving a proposal to permit Wilshire Associates
Incorporated to replace subadvisers or add subadvisers to the Funds, and to
enter into subadvisory agreement with those subadvisers without further
shareholder approval, 40,471,771 voted for the proposal, 6,517,913 voted
against and 2,869,452 shares abstained.
5) The shareholders of the International Equity Fund and Socially Responsible
Fund voting to approve or disapprove a new subadvisory agreement with
Scudder Kemper Investments, Inc., 3,156,204 voted for the proposal, 57,035
voted against and 163,610 abstained.
6a) The shareholders of the Growth Fund voting to approve or disapprove a
subadvisory agreement with Mellon Equity Associates, LLP, 21,566,272 voted
for the proposal, 160,524 voted against and 1,224,314 abstained.
6b) The shareholders of the Growth Fund voting to approve or disapprove a
subadvisory agreement with Brinson Partners, Inc., 20,386,883 voted for the
proposal, 1,277,764 voted against and 1,286,463 abstained.
7a) The shareholders of the Balanced Fund voting to approve or disapprove a
change to the fund's fundamental investment restriction with respect to
allowing the fund to hold larger investments in fewer companies, 19,504,569
voted for the proposal, 0 voted against and 672,240 abstained.
7b) The shareholders of the Balanced Fund voting to approve or disapprove a
change to the fund's fundamental investment restriction with respect to
allowing the fund to invest in other investment companies, 17,768,682 voted
for the proposal, 1,735,867 voted against and 672,240 abstained.
67
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Horace Mann Mutual Funds
P.O. Box 4657
Springfield, IL 62708-4657
1-800-999-1030
Business Manager
Horace Mann Investors, Inc.
One Horace Mann Plaza
Springfield, IL 62715-0001
