N-30D 1 dn30d.txt HORACE MANN MUTUAL FUNDS [GRAPHIC APPEARS HERE] Up Close Horace Mann Mutual Funds Semi-Annual Report June 30, 2002 Dollar-cost averaging attempts to smooth the peaks and valleys Asset allocation is only the beginning [LOGO BELOW] Horace Mann Educated Financial Solutions Table of Contents Features Dollar-cost averaging attempts to smooth the peaks and valleys ..........................3 Asset allocation is only the beginning ......................4 Maximize contributions toward your retirement ...............6 Departments Investment adviser letter ...................................9 Financial statements ........................................11 [PHOTO APPEARS HERE] EDITOR'S NOTE: Nothing in these articles should be construed as a promise or guarantee of future performance. Investment decisions are very personal and should take into account many individual factors. More complete information on the funds can be found in the current prospectuses. This report must be preceded or accompanied by a current prospectus. Horace Mann Educated Financial Solutions [LOGO OF HORACE MANN MUTUAL FUNDS ABOVE] Fellow Shareholders: As the first half of 2002 comes to a close, it is clear this is a very emotional time for long-term investors. Recent returns in the stock market have created anxiety for investors, especially those who are nearing retirement. The Horace Mann Mutual Funds remain focused on the long term with the goal of keeping your hard-earned savings on track. By maintaining a long-term outlook, the short-term ups and downs of the markets can be more successfully navigated. We appreciate your continued confidence in the Horace Mann Mutual Funds. Market review The first quarter of 2002 demonstrated isolated pockets of promise as limited areas of the market staged a muted recovery. However, the second quarter ended hope of a large-scale turnaround as accounting issues, corporate ethics questions and uncertainty over national and global security drove markets lower. Stock price levels ended the first half of 2002 near the 2001 lows of post-Sept. 11. The market was unable to gain any momentum. Each piece of positive news was overwhelmed by equally disappointing news. The Wilshire 5000 Index and the S&P 500 Index were down significantly for the first half of 2002. International markets were unable to generate positive momentum during the second quarter as disappointing news from the U.S. stock market overshadowed the global markets. While Japan was able to manage slight gains over the first part of the year, it finished below its year-end levels. Europe -- the United Kingdom in particular -- suffered through the first part of the year as lowered productivity results dragged stocks lower. The bond market rallied for the first half of the year, bolstered by the Federal Reserve not raising interest rates. While 2002 has not shown signs of the recovery that some market observers expected, the investment managers of the Horace Mann Mutual Funds managed to preserve capital in a down market compared to their benchmarks. The value style of investing benefited the Equity Fund and the Socially Responsible Fund as both managed to limit shareholder losses. The Small Cap Growth Fund fell lower as that part of the market continued to experience high levels of volatility. The International Fund posted a negative return in a slumping global environment. The Short-Term Fund outpaced its benchmark and the Income Fund posted a positive return. Perspective This year has been challenging for stock market investors. The events of the past six months prove the need for a portfolio that is prudently diversified across several types of funds. As you continue to save for your goal of a comfortable retirement, it's nearly impossible to predict which area of the markets will perform the best from one year to the next. Staying invested in many different areas is essential. Achieving long-term financial stability and well-being for you and your family is our common goal. We thank you for your continued confidence as we weather these uncertain times and look toward economic recovery. We encourage you to remain true to your retirement plans and maintain a long-term outlook in order to meet your individual retirement objectives. Sincerely, /s/ George Zock /s/ Chris Fehr George Zock Chris Fehr Chairman President Horace Mann Mutual Funds Horace Mann Mutual Funds Horace Mann Mutual Funds P.O. Box 4657 Springfield, Illinois 62708-4657 217-789-2500 www.horacemann.com Dollar-cost averaging attempts -------------------------------------------------------------------------------- to smooth the peaks and valleys Nobody can correctly predict the beginning or ending of a bull or bear market. In fact, much money has been lost trying to "time" the market. The roller-coaster ride of the stock market can be made smoother using a dollar-cost averaging strategy. Dollar-cost averaging is simple: put a predetermined amount of money into a financial plan (tax-deferred annuity (TDA), retirement annuity, etc.) at regular intervals, such as monthly. When the market is down, you reap the benefits of purchasing more shares at a lower, more attractive cost. When the market is up, you purchase fewer shares, of course, because prices are higher. Date Investment Price Shares Jan. 15 $100 $10 10.0 Feb. 15 $100 $9 11.1 March 15 $100 $8 12.5 April 15 $100 $10 10.0 May 15 $100 $9 11.1 June 15 $100 $8 12.5 July 15 $100 $6 16.7 Aug. 15 $100 $8 12.5 Sept. 15 $100 $10 10.0 Oct. 15 $100 $8 12.5 Nov. 15 $100 $12 8.3 Dec. 15 $100 $10 10.0 ------------------------------------------------------------------ Totals: $1,200 137.2 Dollar-cost averaging encourages discipline and eliminates the guesswork of timing the market, which has brought few investors lasting success. However, it does not ensure a profit or protect against loss. As an investor, you must consider your emotional and financial ability to sustain a market decline or weather fluctuating price levels. [PHOTO APPEARS HERE] How does it work? Let's say you would like to invest $1,200 in a TDA. Of course, you could deposit $1,200 on Jan. 15 as a lump sum. In the above example it would be worth $1,200 on Dec. 15. Or you could use dollar-cost averaging and make 12 monthly payments of $100, buying shares at both highs and lows, as in the above example. By using dollar-cost averaging, the above example is worth $1,372, which is 17.2 more shares and $172 more than a lump-sum investment would have provided. 3 Asset allocation is only ---------------------------------------------------- the beginning Dollar-cost averaging is methodic and systematic. It's a disciplined approach that takes the emotion out of investing. And it works best when you have a lengthy period to invest. Dollar-cost averaging is also an approach that can be easily used with asset allocation. Your Horace Mann agent can assist you with dollar-cost averaging by using our asset allocation software. Many of you have reviewed the software with your agent and developed an asset allocation plan for your Horace Mann variable annuity. For others, this may be a new procedure. Simply, asset allocation is a step-by-step process that considers your risk tolerance, or comfort level, of investing, and uses that to suggest a portfolio using the different types of investment options available in your annuity. Asset allocation puts you at ease knowing your annuity investments are being appropriately managed specifically with your comfort level in mind. [PHOTO APPEARS HERE] Rebalancing As time goes by, and the markets experience their ups and downs, your portfolio may experience gains in some areas and losses in others, causing your portfolio and asset allocation plan to get out of sync. It's worthwhile to periodically make adjustments, or "rebalance," your portfolio. On a regular basis, whether it's every three, six or 12 months, you may want to rebalance your portfolio. This counters the fact that different assets have performed differently and now comprise different percentages of your Horace Mann variable annuity. The accompanying pie chart demonstrates the rebalancing process. [PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE] Rebalancing allows you to maintain your plan. In this graphic, Investment A experiences a good increase. Investment B also grows, but Investment C does not grow at all. To rebalance the portfolio, a portion of Investment A is sold and a relatively small amount of Investment B is sold. The money from the sale of A and B is used to purchase more C. The investments that increased in value over time were sold, locking in a gain. Investments that had decreased or not grown in value were bought, and bought at a lower price. 4 On a regular basis, whether it's every three, six or 12 months, you may want to rebalance your portfolio. The asset allocation software process helps you determine what investment options you should choose in your portfolio based on your investment style. The pie chart shows percentages of each investment style for your portfolio value. These percentage values should be maintained. For example, your plan may indicate the international investment option should comprise 15 percent of your portfolio. At your next review, the international portion makes up 20 percent of your investments. Simply pull the growth from the international option (5 percent) and add it to the investment option(s) that incurred a decrease. Rebalancing can be automatic Rebalancing can happen automatically in your Annuity Alternatives contract. This helps simplify the process and also discourages you from attempting to "time the market." You and your agent should agree on how often this automated rebalancing should occur, and you will not incur additional expense for this service. A common objection from investors is "why move money out of what's going great?" But look at the graphic (below) and see what happened when clients left too much money in their large growth stock in 1999 after a 34.73 percent gain. In 2000, it was the worst performing sector (-24.98 percent). [PHOTO APPEARS HERE]
1996 1997 1998 Best large growth 22.46 small value 33.89 large growth 42.32 Performance small value 21.16 large value 33.25 foreign 19.97 large value 21.92 large growth 32.78 large value 14.94 small growth 12.77 small growth 14.32 bonds 8.67 Worst foreign 6.05 bonds 9.68 small growth -6.90 performance bonds 3.61 foreign 1.77 small value -6.99 1999 2000 2001 Best Performance small growth 52.56 small value 23.21 bond 1.16 large growth 34.73 bonds 11.63 large growth -7.81 foreign 26.97 large value 1.09 large value -8.93 large value 8.27 foreign -14.16 foreign -10.13 Worst bonds -0.83 small growth -24.74 small value -13.01 performance small value -1.41 large growth -24.98 small growth -16.07
Volatility of different asset classes and the benefit of rebalancing For an example of how a portfolio can get off track, notice the volatility small growth stocks showed through 1998 and 1999. Small growth stocks finished down in 1998 (-6.90%) but rebounded to a resounding 52.56 percent growth rate the next year. With rebalancing, you would have bought small growth stocks in 1998 and reaped the gains the following year. 5 Remaining true to your plan has historically proven more successful than chasing performance. And for asset allocation to work, the Horace Mann variable annuity must not only be rebalanced, but at a predetermined time. You and your agent can determine a schedule. Remember, what goes up generally comes down. But when it will fall nobody for certain. Asset allocation rebalancing takes the guesswork out of retirement planning. Maximize contributions toward your retirement. [PHOTO APPEARS HERE] You can take advantage of revised contribution limits for traditional and Roth IRAs, 457s and 403(b)s. As a result of new tax laws that took effect as of Jan. 1, 2002, you will be able to contribute more to your retirement savings, with the contributions increasing through 2009. Below is a chart to help you understand and keep track of the rising contribution limits: 403(b),457 Roth and Traditional IRAs Tax year Under age 50 50 or above Under age 50 50 or above -------- ------------ ----------- ------------ ----------- 2002 $11,000 $12,000 $3,000 $3,500 2003 $12,000 $14,000 $3,000 $3,500 2004 $13,000 $16,000 $3,000 $3,500 2005 $14,000 $18,000 $4,000 $4,500 2006 $15,000 $20,000 $4,000 $5,000 2007 $15,000* $20,000** $4,000 $5,000 2008 $15,000* $20,000** $5,000 $6,000 2009 $15,000* $20,000** $5,000 $6,000 * Amounts are adjusted for inflation in $500 increments in these and subsequent years. ** The contribution amount and the catch-up contribution amount (both of which are combined to equal the limit shown in the chart) are separately adjusted for inflation in $500 increments in these and subsequent years. 6 For Annuity Alternatives Contract Owners and Public Shareholders The first two tables below reflect the six-month return and average annual rates of return for investment options within the Annuity Alternatives contract as of June 30, 2002. 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 effect on the variable account rates of return after the initial five-year contract period. The third table below reflects the six-month return and average annual rates of return for the Public Shareholders along with the comparable benchmark. Redemption has no effect on Public Shareholders. Returns if money remained invested, based on a $1,000 investment.
Since Variable Account Year to Date 1 Year 5 years 10 years Inception ------------- ------ ------- -------- --------- Equity Fund (9.96)% (13.68)% (2.42)% 7.21% 7.47%/1/ Balanced Fund (5.30) (5.83) 1.00 7.00 7.34 /1/ Income Fund 1.90 6.14 5.18 5.01 5.74 /1/ Short-Term Investment Fund 0.48 2.12 3.56 3.16 3.55 /1/ Small Cap Growth Fund (25.66) (35.44) (2.16) - (1.11)/2/ International Equity Fund (4.68) (16.64) (0.50) - 0.44 /2/ Socially Responsible Fund (4.83) (7.97) 3.90 - 5.42 /2/ Returns if money was withdrawn early, based on a $1,000 investment. Since Variable Account Year to Date 1 Year 5 years 10 years Inception ------------- ------ ------- -------- --------- Equity Fund (17.17)% (20.58)% (2.42)% 7.21% 7.47%/1/ Balanced Fund (12.88) (13.37) 1.00 7.00 7.34 /1/ Income Fund (6.25) (2.35) 5.18 5.01 5.74 /1/ Short-Term Investment Fund (7.56) (6.05) 3.56 3.16 3.55 /1/ Small Cap Growth Fund (31.61) (40.60) (2.16) - (1.11)/2/ International Equity Fund (12.31) (23.31) (0.50) - 0.44 /2/ Socially Responsible Fund (12.44) (15.33) 3.90 - 5.42 /2/ Since Public Shareholders Year to Date 1 Year 5 years 10 years Inception ------------- ------ ------- -------- --------- Equity Fund (9.40)% (12.58)% (1.16)% 8.57% 8.84%/1/ S&P 500 Stock Index (13.16) (17.97) 3.67 11.44 11.26
[PHOTO APPEARS HERE] 7 [PHOTO APPEARS HERE] 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. The rates of return of each variable subaccount of the Annuity Alternatives contracts were adjusted for a 1.35 percent mortality and expense fee until March 1, 1999, when the fee was reduced to 1.25 percent. Annuity contracts issued prior to January 1984 have mortality and expense charges or sales fees that differ from those of the Annuity Alternatives contracts. Such other charges and fees do not exceed those reflected in the tables 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 on the previous page, after the first contract year would reduce the total rates of return by 2.5 percent on a $1,000 investment or .5 percent on a $5,000 investment. During the first five contract years, redemption charges range from 2 to 8 percent for the flexible premium contracts and 1 to 5 percent for single premium contracts. The average annual total returns with redemption are calculated using flexible premium redemption charges. Distributions from an annuity may be subject to federal taxes and a 10 percent IRS penalty if withdrawn before age 59 1/2. On Feb. 19, 2002 Oechsle International Advisors, LLC replaced Zurich Scudder Investments, Inc. as the subadviser of the International Equity Fund. Returns in the tables are shown net of expenses of the underlying Horace Mann Mutual Funds. For the six months ended June 30, 2002, the funds received credits on overnight cash balances resulting in a reduction of custody expenses. Commission credits were used to pay certain expenses for the Equity Fund from 1994 through June 30, 2002, and for the Balanced Fund from 1994 through Jan. 19, 2000. For the six months ended June 30, 2002, certain expenses were assumed/waived for all funds. In addition, certain Balanced and Income Funds' expenses were assumed/waived through 1987 and 1996, respectively. Certain Short-Term Investment Fund expenses have been assumed/waived since 1983. Certain expenses for the Small Cap Growth, International Equity and Socially Responsible Funds have been assumed/waived since their inception, March 10, 1997. Assumed/waived expenses and the use of credits resulted in higher actual returns and for some funds exceeded 1 percent depending on the expenses assumed/waived. There is no guarantee that certain expenses will be assumed/waived or the use of credits will continue in the future. /1/ Since inception for the Equity, Balanced, Income and Short-Term Investment Funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became their investment adviser. Effective May 1, 1997, Wellington Management Company, LLP became the funds' subadviser. On March 1, 1999 Wilshire Associates, Inc. became the investment adviser for the Funds. Wilshire employs subadvisers to manage the Funds. /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. and Mazama Capital Management for the Small Cap Growth Fund, Oechsle International Advisors, LLC for the International Equity Fund and Bernstein Investment Research and Management Unit of Alliance Capital Management, L.P. for the Socially Responsible Fund. 8 [LOGO OF WILSHIRE ASSOCIATES] Wilshire Associates 1299 Ocean Avenue, Suite 700 Santa Monica, CA 90401-1085 TEL 310.451.3051 FAX 310.458.0520 www.wilshire.com Management's Discussion and Analysis Horace Mann Mutual Funds First Half 2002 To the Shareholders of the Horace Mann Mutual Funds: With the close of the first half of 2002, we are pleased to write to you about the Horace Mann Mutual Funds. The markets have continued to fall since we last reported in December. Corporate scandals, bleak earnings, a sluggish economic recovery and the war on terror caused equity markets to spiral down. We continue to believe that keeping perspective on short-term market swings is critical for long-term investors. Short-term turbulence is an expected and integral part of the way markets work, and long-term investors must exercise patience in order to attain their objectives. The Horace Mann Mutual Funds are managed to seek to provide investors with an excellent opportunity to save for retirement. This philosophy remains true despite the recent short-term pullback in the equity market. As the current economic slowdown continues, we sincerely appreciate your confidence in the Horace Mann Mutual Funds. We believe the funds are superior investment options that will provide you the opportunity for capital growth or stable income in the long term. We are honored to serve as adviser to the funds and work diligently to ensure the funds provide appropriate results. Market environment Investors were hoping for a second-half recovery at the start of the year. However, the first half of 2002 continued to provide challenges to equity investors and gave little evidence the economy was turning for the better. Investors continued to lose confidence in the stock market as revelations about accounting improprieties and ethical issues involving senior executives at several prominent companies surfaced. As investors continue to seek stable earnings, value stocks continue to outperform growth stocks. There was not any sizable difference between the returns of the stocks of small companies versus those of large companies. Only the small value equity style managed gains. Technology stocks continued to slide, causing significant pressure on the markets. The telecommunications sector within technology was particularly disappointing as earnings suffered and capital spendings increased. Bonds fared better than stocks. Government bonds posted solid positive returns as investors sought the security of agency issues. Corporate bonds were tainted with the same negative news that hurt stocks as earnings disappointments increased the risk of default and bankruptcy. High yield bonds rose in the first quarter but fell by approximately the same amount in the second quarter to produce a relatively flat first half. International equities fell with U.S. equities. Slowing economic growth was seen throughout the world, and many international equity markets slumped as a result. Europe -- the United Kingdom in particular -- finished the first half of the year at levels lower than at the end of 2001. Japan managed to produce marginal gains as the Pacific Basin was the only bright spot among global markets. Emerging markets also withstood the first-half pressure fairly well, producing favorable gains in Korea and China. On an investment-style basis, value outperformed growth globally. Funds results Domestic Equities Though the broad market came under significant pressure, the Equity Fund outperformed its benchmark and protected capital for its shareholders because of its value style orientation. The fund was able to weather the storm of the equity market by holding a number of "old economy" stocks that performed well versus their "new economy" counterparts. The financial services sector, a classic value sector, was the strongest performer. Additionally, the fund's underweight in 9 technology holdings helped it limit losses as compared to the broad market. However, the fund's holdings in the communications services sector hurt performance. The overall performance benefited investors in the Balanced Fund, which is comprised of units of the Equity Fund and the Income Fund. The Socially Responsible Fund benefited from its value style orientation as it protected shareholder assets in a down market. The Socially Responsible Fund generated positive returns from the technology area due to a significant underweight in holdings. Additionally, the fund added value with strong selections in consumer staples and consumer discretionary stocks. However, overall the fund did post a negative return. The impact of the social screens used in the investment process was marginal. The Small Cap Growth Fund continued to experience pressure, posting a negative return. In a period characterized by sharp volatility, the Small Cap Growth Fund held a number of stocks that disappointed. The biotechnology area continued to be a source of pressure. Despite the recent performance, Wilshire is confident in the philosophy of the managers and will remain vigilant in its oversight of the Small Cap Growth Fund. International Equities As the international markets fell in concert with domestic stocks, the International Equity Fund posted a negative return. The slowdown suffered by the United States economy also impacted foreign markets, and the fund was not able to capture the benefits of a weakening dollar. The fund benefited from its holdings in emerging markets, as Korea and Taiwan generated healthy returns. Japanese holdings also managed to post strong returns, reversing their recent downward trend. Though the fund's performance fell short of expectations, the long-term results remain favorable. Domestic Fixed Income The Income Fund generated a positive return. The solid returns were a boon to those investors who properly diversified their portfolios. Despite strong performance in the first quarter, bonds fell in concert with equities in the second quarter. The Federal Reserve did not adjust interest rates during the first six months of 2002. Investors were unwilling to hold longer-term bonds and sought the safety of intermediate term issues. Accordingly, the Fund was hurt by its holdings in long-term bonds. Credit quality was a key in the environment and the fund was hurt by several of its corporate holdings as multiple issues were downgraded. Conclusion Long-term investors continued to be tested in the first six months of 2002. Heading into the second half of 2002, Wilshire will continue to apply our time-tested process to attempt to add value for you as you plan for retirement. We believe that investors who take on acceptable risks within their portfolio will benefit in the long term. Through a strong partnership with Horace Mann, we believe we can provide an excellent selection of funds that will enable you to construct a balanced, diversified approach to reaching your financial goals. Thank you again for your confidence in the Horace Mann Mutual Funds. Sincerely, /s/ Michael P. O'Keeffe /s/ Thomas M. Goodrum, Jr. ------------------------ --------------------------- Michael P. O'Keeffe, CFA Thomas M. Goodrum, Jr., CFA Managing Director Vice President 10 Semi-Annual Report June 30, 2002 Horace Mann Mutual Funds Equity Fund Balanced Fund Income Fund Short-Term Investment Fund Small Cap Growth Fund International Equity Fund Socially Responsible Fund Board of Trustees A. Thomas Arisman Richard D. Lang Roger Formisano Harriet A. Russell A. L. Gallop George J. Zock, Chairman Richard A. Holt Officers of the Funds Christopher M. Fehr Linda L. Sacco President Assistant Secretary Bret A. Conklin Elizabeth E. Arthur Controller Anti-Money Laundering Compliance Officer J. Michael Henderson Diane M. Barnett Treasurer Tax Compliance Officer Ann Caparros Secretary and Ethics Compliance Officer -------------------------------------- ---------------------------------------- Administrator Investment Subadvisers Horace Mann Investors, Inc. Bernstein Investment Research and 1 Horace Mann Plaza Management Unit of Alliance Springfield, IL 62715 Capital Management, L.P. 767 Fifth Avenue Investment Adviser New York, NY 10153 Wilshire Associates Incorporated 1299 Ocean Avenue BlackRock Financial Management, Inc. Santa Monica, CA 90401-1085 345 Park Avenue New York, NY 10154-0010 Custodian State Street Bank and Trust Company Mazama Capital Management 801 Pennsylvania Avenue One SouthWest Columbia Kansas City, MO 64105 Suite 1860 Portland, OR 97258 Independent Auditors KPMG LLP Mellon Equity Associates, LLP 303 East Wacker Drive 500 Grant Street, Suite 4200 Chicago, IL 60601 Pittsburgh, PA 15258 Oechsle International Advisors, LLC One International Place Boston, MA 02110 Wellington Management Company, LLP 75 State Street Boston, MA 02109 Western Asset Management Company 117 E. Colorado Blvd., Suite 600 Pasadena, CA 91105 11 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Financial Highlights June 30, 2002
PER SHARE DATA Less Distribution From: Net Asset Total Income Value Net Net Realized (Loss) From Net Net Period Beginning Investment and Unrealized Investments Investment Realized Total Ended of Period Income/1/ Gain (Loss)/1/ Operations/1/ Income Gains Distributions EQUITY FUND/6/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $19.57 $0.10 $(1.94) $(1.84) $ -- $ -- $ -- 2001 20.65 0.21 (1.08) (0.87) 0.21 -- 0.21 2000 21.92 0.21 (1.23) (1.02) 0.25 -- 0.25 1999 24.34 0.26 (0.91) (0.65) 0.25 1.52 1.77 1998 25.66 0.41 1.51 1.92 0.41 2.83 3.24 1997 23.76 0.40 5.09 5.49 0.39 3.20 3.59 BALANCED FUND/6/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $16.34 $ -- $(0.78) $(0.78) $ -- $ -- $ -- 2001 16.76 0.65 (0.41) 0.24 0.66 -- 0.66 2000 17.27 0.58 (0.42) 0.16 0.67 -- 0.67 1999 18.90 0.62 (0.84) (0.22) 0.63 0.78 1.41 1998 19.82 0.73 0.77 1.50 0.74 1.68 2.42 1997 18.94 0.65 2.92 3.57 0.62 2.07 2.69 INCOME FUND/5/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $12.30 $0.32 $(0.03) $ 0.29 $ -- $ -- $ -- 2001 12.39 0.78 0.33 1.11 0.85 0.35 1.20 2000 12.24 0.82 0.27 1.09 0.94 -- 0.94 1999 13.24 0.76 (0.97) (0.21) 0.79 -- 0.79 1998 13.00 0.78 0.27 1.05 0.69 0.12 0.81 1997 12.69 0.81 0.39 1.20 0.85 0.04 0.89
/1/The "Net Investment Income" per share and the "Net Realized and Unrealized Gain (Loss)" per share represent a proportionate share respective to the increase in net assets as presented in the Statement of Operations and are calculated using the average outstanding share balance for the year. Distributions from "Net Investment Income" and "Net Realized Gains" are based on actual outstanding shares on the ex-date. /2/The total return is determined by the ratio of ending net asset value to beginning net asset value, adjusted for reinvestment of dividends from net investment income and net realized capital gains. /3/If you are an annuity contract owner, the above total return does not reflect expenses that apply to the separate account or related policies. The inclusion of these charges would reduce the total return figures for all periods shown. See notes to the financial statements. 12 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED)
RATIO/SUPPLEMENTAL DATA Ratio to Average Net Assets Before Waived & Reimbursed Expenses Ratio of Ratio of Net Asset Net Assets Expenses Net Income Portfolio Ratio of Value End Total End of Period to Average to Average Turnover Ratio of Net Investment of Period Return/2,3/ (in thousands) Net Assets Net Assets Rate Expenses/4/ Income/4/ ------------------------------------------------------------------------------------------------ $17.73 (9.40)%/7/ $528,376 0.41% 0.50% 15.41% 0.45% 0.46% 19.57 (4.21) 600,016 0.82 1.04 38.13 0.87 0.99 20.65 (4.64) 667,731 0.82 1.05 116.56 0.87 0.98 21.92 (2.54) 625,133 0.73 1.09 205.70 0.79 1.04 24.34 7.64 670,731 0.51 1.57 59.63 -- -- 25.66 23.45 598,502 0.53 1.50 54.56 -- -- ------------------------------------------------------------------------------------------------ $15.56 (4.72)%/7/ $269,475 (0.01)% (0.01)% 2.50% (0.01)% (0.01)% 16.34 1.39 292,176 0.05 3.79 9.81 0.05 3.79 16.76 0.93 314,728 0.06 3.38 120.51 0.07 3.37 17.27 (1.11) 402,539 0.75 3.30 155.53 0.77 3.28 18.90 7.68 427,920 0.50 3.60 63.69 -- -- 19.82 19.04 387,110 0.51 3.12 77.54 -- -- ------------------------------------------------------------------------------------------------ $12.59 2.52%/7/ $124,842 0.43% 2.53% 154.07% 0.46% 2.50% 12.30 8.88 126,045 0.81 5.96 348.18 0.88 5.89 12.39 8.89 137,184 0.88 7.02 422.38 0.92 6.98 12.24 (1.57) 13,175 0.99 5.83 33.09 1.03 5.79 13.24 8.09 13,959 0.88 5.85 46.60 -- -- 13.00 9.42 9,658 0.92 6.09 96.80 -- --
/4/Ratios of Expenses and Net Investment Income to Average Net Assets do not reflect commissions credits and earnings credits on cash balances. /5/Certain expenses for the Income Fund were assumed or waived by Horace Mann Investors, Inc. through December 31, 1996, for years ending December 31, 1999, 2000, 2001 and for the period ending June 30, 2002. /6/Certain expenses for the Equity and Balanced Funds were assumed or waived by Horace Mann Investors, Inc. for the years ending December 31, 1999, 2000, 2001 and for the period ending June 30, 2002. /7/The returns for the six month period ended June 30, 2002 are not annualized. 13 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Financial Highlights (concluded) June 30, 2002
PER SHARE DATA Less Distribution From: Net Asset Net Total Income Value Investment Net Realized (Loss) From Net Net Period Beginning Income and Unrealized Investments Investment Realized Total Ended of Period (Loss)/1/ Gain (Loss)/1/ Operations/1/ Income Gains Distributions SHORT-TERM FUND/4/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $10.08 $ 0.10 $ 0.01 $ 0.11 $ -- $ -- $ -- 2001 9.92 0.39 0.12 0.51 0.33 0.02 0.35 2000 9.89 0.57 0.01 0.58 0.55 -- 0.55 1999 9.98 0.47 0.01 0.48 0.56 0.01 0.57 1998 9.99 0.49 0.01 0.50 0.51 -- 0.51 1997 10.03 0.51 -- 0.51 0.55 -- 0.55 SMALL CAP GROWTH FUND/5/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $12.15 $(0.08) $(2.98) $(3.06) $ -- $ -- $ -- 2001 17.31 (0.12) (5.04) (5.16) -- -- -- 2000 19.76 (0.12) (2.03) (2.15) -- 0.30 0.30 1999 12.38 (0.15) 8.96 8.81 -- 1.43 1.43 1998 11.70 (0.07) 0.75 0.68 -- -- -- 1997 10.00 (0.02) 1.72 1.70 -- -- -- INTERNATIONAL EQUITY FUND/5/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $10.52 $ 0.02 $(0.46) $(0.44) $ -- $ -- $ -- 2001 14.27 -- (3.75) (3.75) -- -- -- 2000 17.52 0.03 (3.10) (3.07) -- 0.18 0.18 1999 12.13 0.08 6.18 6.26 0.03 0.84 0.87 1998 10.27 0.11 1.84 1.95 0.09 -- 0.09 1997 10.00 0.08 0.27 0.35 0.08 -- 0.08 SOCIALLY RESPONSIBLE FUND/5/ ----------------------------------------------------------------------------------------------------- June 30, 2002 $12.75 $ 0.07 $(0.61) $(0.54) $ -- $ -- $ -- 2001 14.11 0.14 (1.17) (1.03) 0.14 0.19 0.33 2000 13.81 0.13 1.07 1.20 0.14 0.76 0.90 1999 12.99 0.17 0.91 1.08 0.14 0.12 0.26 1998 12.10 0.27 0.91 1.18 0.17 0.12 0.29 1997 10.00 0.10 2.20 2.30 0.10 0.10 0.20
/1/The "Net Investment Income (Loss)" per share and the "Net Realized and Unrealized Gain (Loss)" per share represent a proportionate share respective to the increase in net assets as presented in the Statement of Operations and are calculated using the average outstanding share balance for the year. Distributions from "Net Investment Income" and "Net Realized Gains" are based on actual outstanding shares on the ex-date. /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 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED)
RATIO/SUPPLEMENTAL DATA Ratio to Average Net Assets Before Waived & Reimbursed Expenses Ratio of Ratio of Net Asset Net Assets Expenses Net Income Portfolio Ratio of Value End Total End of Period to Average to Average Turnover Ratio of Net Investment of Period Return/2,3/ (in thousands) Net Assets Net Assets Rate Expenses/7/ Income/7/ -------------------------------------------------------------------------------------------------- $10.19 1.09%/8/ $ 4,093 0.12% 1.04% 0.00% 0.53% 0.63% 10.08 5.17 2,796 0.33 4.20 0.00 1.36 3.17 9.92 5.81 1,982 0.49 5.62 0.00 1.81 4.30 9.89 4.77 1,743 0.32 4.71 0.00 1.90 3.13 9.98 4.97 1,331 0.69 4.78 0.00 2.59 2.88 9.99 5.09 1,151 0.50 4.98 0.00 2.52 2.96 -------------------------------------------------------------------------------------------------- $ 9.09 (25.19)%/8/ $43,259 0.83% (0.79)% 113.21% 0.92% (0.88)% 12.15 29.81 58,437 1.54 1.14 318.83 1.71 1.31 17.31 (10.84) 83,597 1.50 (0.57) 233.11 1.67 (0.74) 19.76 71.55 60,497 1.50 (1.03) 172.20 1.64 (1.17) 12.38 5.81 28,655 1.11 (0.59) 168.31 1.75 (1.23) 11.70 17.01/6/ 16,525 0.78 (0.19) 91.49 1.44 (0.85) -------------------------------------------------------------------------------------------------- $10.08 (4.09)%/8/ $32,326 0.80% 0.17% 100.35% 0.81% 0.16% 10.52 (26.35) 33,544 1.53 0.00 103.42 1.54 (0.01) 14.27 (17.51) 42,689 1.47 0.18 69.30 1.51 0.14 17.52 51.83 26,403 1.30 0.53 77.74 1.69 0.14 12.13 18.95 10,311 1.03 0.99 57.71 2.06 (0.04) 10.27 3.46 /6/ 5,214 0.46 1.29 31.99 1.82 (0.07) -------------------------------------------------------------------------------------------------- $12.21 (4.24)%/8/ $68,849 0.51% 0.57% 15.87% 0.61% 0.47% 12.75 (7.30) 71,644 1.04 1.05 141.96 1.20 0.89 14.11 8.79 76,011 1.07 0.96 99.11 1.20 0.83 13.81 8.39 59,533 1.00 1.28 60.46 1.12 1.16 12.99 9.80 35,564 0.64 2.10 41.63 1.12 1.62 12.10 23.04/6/ 9,213 0.49 1.65 20.85 1.16 0.98
/4/Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann Investors, Inc. through June 30, 2002. /5/Certain expenses for the Small Cap Growth, International Equity and Socially Responsible Funds were assumed or waived by Horace Mann Investors, Inc. since their inception, March 10, 1997. /6/The returns are not annualized. /7/Ratios of Expenses and Net Investment Income to Average Net Assets do not reflect earnings credits on cash balances. /8/The returns for the six month period ended June 30, 2002 are not annualized. 15 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Cash & Other Net Assets 1.6% Common Stock 98.4% Statement of Investments Equity Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------- COMMON STOCK Aerospace 1.52% Boeing Co. 43,300 $ 1,949 General Dynamics Corp. 13,900 1,478 Goodrich Corp. 13,300 363 Lockheed Martin Corp. 28,000 1,946 Rockwell Collins, Inc. 22,600 620 United Technologies Corp. 24,400 1,657 ----------------------------------------------------------- 8,013 Automotive 1.92% Cooper Tire & Rubber Co. - A 31,800 653 Dana Corp. 64,700 1,199 Ford Motor Co. 58,100 930 General Motors Corp. 33,500 1,791 Genuine Parts Co. 62,600 2,183 Goodyear Tire & Rubber Co. 65,600 1,227 Lear Corp.* 30,200 1,397 Magna International, Inc. - A 11,400 785 ----------------------------------------------------------- 10,165 Banks & Financial Services 19.76% Americredit Corp.* 29,000 813 AmSouth Bancorporation 135,300 3,028 Bank of America Corp. 128,000 9,006 Bank One Corp. 145,200 5,587 Bear Stearns Companies, Inc. 20,600 1,261 Charter One Financial, Inc. 74,110 2,548 Citigroup, Inc. 385,181 14,926 Countrywide Credit Industries, Inc. 25,900 1,250 Federal Home Loan Mortgage Corp. 14,500 887 Federal National Mortgage Association 14,800 1,091 First Tennessee National Corp. 27,400 1,049 FleetBoston Financial Corp. 149,101 4,823 Golden West Financial Corp. 23,600 1,623 Goldman Sachs Group, Inc. 23,100 1,694 Greenpoint Financial Corp. 22,300 1,094 Household International, Inc. 54,900 2,729 J.P. Morgan Chase & Co. 103,340 3,505 KeyCorp 159,900 4,365 Lehman Brothers Holdings, Inc. 42,800 2,676 Marshall & Ilsley Corp. 20,400 631 MBNA Corp. 49,400 1,634 Merrill Lynch & Company, Inc. 66,600 2,697 Morgan Stanley Dean Witter & Co. 54,700 2,356 National City Corp. 79,500 2,643 North Fork Bancorporation 28,700 1,143 Regions Financial Corp. 48,500 1,705 Southtrust Corp. 139,700 3,649 Union Planters Corp. 103,200 3,341 U.S. Bancorp 146,611 3,423 Wachovia Corp. 185,700 7,090 Washington Mutual, Inc. 107,400 3,986 Wells Fargo & Co. 122,500 6,132 ----------------------------------------------------------- 104,385
16 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Equity Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------------ COMMON STOCK Business Machines 2.44% (continued) Dell Computer Corp.* 79,100 $ 2,071 Hewlett-Packard Co. 302,316 4,619 International Business Machines Corp. 70,300 5,062 Storage Technology Corp.* 28,700 458 Xerox Corp.* 96,700 674 --------------------------------------------------------------- 12,884 Business Services 1.14% Accenture Ltd.* - A 56,800 1,079 ALLETE, Inc. 14,900 404 Automatic Data Processing, Inc. 43,400 1,890 Cendant Corp.* 38,700 615 Electronic Data Systems Corp. 39,000 1,449 ITT Educational Services, Inc.* 27,800 606 --------------------------------------------------------------- 6,043 Chemicals 3.70% Air Products & Chemicals, Inc. 12,200 616 Cabot Corp. 27,500 788 Dow Chemical Co. 133,098 4,576 Du Pont (E.I.) de Nemours & Co. 130,300 5,785 Eastman Chemical Co. 32,700 1,534 FMC Corp.* 13,100 395 H.B. Fuller Co. 19,500 571 Lubrizol Corp. 22,400 750 Monsanto Co. 17,800 317 PPG Industries, Inc. 15,900 984 Praxair, Inc. 21,000 1,196 Sherwin Williams Co. 67,300 2,014 --------------------------------------------------------------- 19,526 Communication Equipment & Services 4.44% AT&T Corp. 15,000 161 BellSouth Corp. 94,500 2,977 Corning, Inc.* 106,700 379 Garmin Ltd.* 17,300 381 Nokia Corp. (ADR) 20,500 297 Nortel Networks Corp.* 705,300 1,023 Polycom, Inc.* 28,800 345 Qwest Communications International, Inc.* 294,500 825 SBC Communications, Inc. 271,200 8,272 Sprint Corp. 129,800 1,377 Tellabs, Inc.* 130,000 805 Verizon Communications, Inc. 162,458 6,523 WorldCom Inc./WorldCom Group* 792,200 79 --------------------------------------------------------------- 23,444 Computer Software & Services 4.43% Adaptec, Inc.* 34,600 275 Apple Computer, Inc.* 38,800 687 Check Point Software Technologies Ltd.* 9,900 134 Cisco Systems, Inc.* 294,300 4,103 Computer Sciences Corp.* 18,000 860 Compuware Corp.* 64,400 390 First Data Corp. 17,000 632
17 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Equity Fund June 30, 2002
Number of Market Shares (000) ----------------------------------------------------------------------- COMMON STOCK IMS Health, Inc. 29,500 $ 530 (continued) Ingram Micro, Inc.* - A 64,300 884 Microsoft Corp.* 211,400 11,564 NCR Corp.* 15,300 529 Oracle Corp.* 170,400 1,614 Quantum Corp.* 95,300 400 Tech Data Corp.* 21,400 810 --------------------------------------------------------- 23,412 Construction 0.54% Centex Corp. 31,700 1,832 Lennar Corp. 16,400 1,004 --------------------------------------------------------- 2,836 Consumer Products 4.58% Archer Daniels Midland Co. 168,500 2,155 ConAgra Foods, Inc. 135,000 3,733 Crown Cork & Seal Company, Inc. 54,300 372 Fortune Brands, Inc. 57,500 3,220 Gillette Co. (The) 47,100 1,595 Masco Corp. 41,700 1,130 Mohawk Industries, Inc.* 8,200 505 Newell Rubbermaid, Inc. 11,900 417 Owens-Illinois, Inc.* 61,500 845 Pactiv Corp.* 34,400 819 Philip Morris Companies, Inc. 167,900 7,334 Procter & Gamble Co. (The) 17,300 1,545 York International Corp. 15,500 524 --------------------------------------------------------- 24,194 Electronic Equipment & Services 3.42% Arrow Electronics, Inc.* 40,300 836 Avnet, Inc. 47,900 1,053 AVX Corp. 33,600 549 Cooper Industries, Inc. 36,000 1,415 Intel Corp. 251,100 4,588 Integrated Circuit Systems, Inc.* 27,700 559 Intersil Corp.* - A 28,700 613 ITT Industries, Inc. 11,600 819 Maxim Integrated Products, Inc.* 7,800 299 Micron Technology, Inc.* 22,100 447 Motorola, Inc. 210,300 3,033 National Semiconductor Corp.* 16,100 470 Novellus Systems, Inc.* 15,400 523 Rockwell Automation, Inc. 22,500 450 Solectron Corp.* 100,800 620 Texas Instruments, Inc. 57,200 1,356 Thomas & Betts Corp.* 23,700 441 --------------------------------------------------------- 18,071 Energy 9.54% Amerada Hess Corp. 42,700 3,523 Ashland, Inc. 10,200 413 ChevronTexaco Corp. 108,188 9,575 Devon Energy Corp. 17,200 848 Ensco International, Inc. 23,400 638
18 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Equity Fund June 30, 2002
Number of Market Shares (000) -------------------------------------------------------------------------- COMMON STOCK Equitable Resources, Inc. 8,700 $ 298 (continued) Exxon Corp. 506,900 20,742 FMC Technologies, Inc.* 27,669 574 Marathon Oil Corp. 29,800 808 Noble Drilling Corp.* 24,100 930 Occidental Petroleum Corp. 50,000 1,500 Phillips Petroleum Co. 65,300 3,845 Royal Dutch Petroleum Co. 82,300 4,549 Schlumberger Ltd. 47,100 2,190 ----------------------------------------------------------- 50,433 Food & Beverage 2.81% Coca-Cola Co. 34,800 1,949 Darden Restaurants, Inc. 42,150 1,041 Dean Foods Co.* 12,498 466 Dole Food Co., Inc. 11,600 335 McDonald's Corp. 100,300 2,854 PepsiCo, Inc. 74,200 3,576 Sara Lee Corp. 73,700 1,521 Tyson Foods, Inc. - A 198,700 3,082 ----------------------------------------------------------- 14,824 Health Care & Pharmaceuticals 7.56% Abbott Laboratories 141,700 5,335 Amgen, Inc.* 33,900 1,420 Bristol-Myers Squibb Co. 30,800 792 Genzyme General Division* 20,700 398 Eli Lilly & Co. 38,300 2,160 HCA-Healthcare Co. 43,200 2,052 HEALTHSOUTH Corp.* 43,400 555 Johnson & Johnson 77,600 4,055 Merck & Company, Inc. 79,000 4,001 Pfizer, Inc. 220,150 7,705 Pharmacia Corp. 129,548 4,852 Schering-Plough Corp. 78,900 1,941 Tenet Healthcare Corp.* 20,600 1,474 Wyeth 62,800 3,215 ----------------------------------------------------------- 39,955 Insurance 4.90% Allstate Corp. 16,200 599 AMBAC Financial Group, Inc. 12,000 806 American International Group, Inc. 91,825 6,265 Berkshire Hathaway, Inc.* - A 33 2,204 Chubb Corp. 31,300 2,216 Health Net, Inc.* 51,100 1,368 John Hancock Financial Services, Inc. 13,200 465 Loews Corp. 10,500 556 Marsh & McLennan Companies, Inc. 30,400 2,937 MBIA, Inc. 29,800 1,685 MGIC Investment Corp. 22,500 1,525 Radian Group, Inc. 17,500 855 RenaissanceRe Holdings Ltd. 14,700 538 Torchmark Corp. 77,700 2,968 XL Capital Ltd. - A 10,800 915 ----------------------------------------------------------- 25,902
19 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Equity Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------- COMMON STOCK Manufacturing (Diversified) 4.79% (continued) Bemis Co., Inc. 13,000 $ 618 Black & Decker Corp. 23,400 1,128 Caterpillar, Inc. 25,300 1,238 Emerson Electric Co. 20,000 1,070 Engelhard Corp. 26,200 742 General Electric Co. 386,800 11,237 Honeywell International, Inc. 38,500 1,356 Illinois Tool Works, Inc. 13,800 943 Johnson Controls, Inc. 6,300 514 Leggett & Platt, Inc. 80,100 1,874 Minnesota Mining & Manufacturing Co. 7,200 886 Parker-Hannifin Corp. 19,800 946 SPX Corp.* 5,400 634 Tyco International Ltd. 24,200 327 Whirlpool Corp. 27,300 1,784 ---------------------------------------------------------- 25,297 Media & Media Services 4.03% AOL-Time Warner, Inc.* 204,500 3,008 Comcast Corp.* - A 130,000 3,099 Gannett Company, Inc. 61,600 4,675 Readers Digest Association, Inc. - A 23,700 444 Tribune Co. 26,200 1,140 USA Interactive 31,400 736 Viacom, Inc.* - B 116,981 5,190 Walt Disney 95,400 1,803 Westwood One, Inc.* 36,400 1,216 ---------------------------------------------------------- 21,311 Metals & Mining 0.40% Aluminum Co. of America 63,900 2,118 Paper & Forest Products 2.30% Georgia-Pacific Corp. 46,047 1,132 International Paper Co. 53,712 2,341 Kimberly-Clark Corp. 40,100 2,486 MeadWestvaco Corp. 68,967 2,315 Smurfit-Stone Container Corp.* 89,100 1,373 Sonoco Products Co. 41,800 1,184 Temple-Inland, Inc. 22,900 1,325 ---------------------------------------------------------- 12,156 Railroad & Shipping 2.25% Burlington Northern Santa Fe Corp. 117,100 3,513 CSX Corp. 61,700 2,163 Norfolk Southern Corp. 102,400 2,394 Teekay Shipping Corp. 20,200 746 Union Pacific Corp. 48,600 3,075 ---------------------------------------------------------- 11,891 Retail & Apparel 6.23% Barnes & Noble, Inc.* 22,900 605 Costco Wholesale Corp.* 19,300 745 CVS Corp. 65,100 1,992 Federated Department Stores, Inc.* 58,400 2,318
20 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Equity Fund June 30, 2002
Number of Market Shares (000) --------------------------------------------------------------------- COMMON STOCK Home Depot, Inc. 90,500 $ 3,324 (concluded) J.C. Penney Company, Inc. 23,000 506 Kroger Co.* 30,300 603 Limited Brands, Inc. 32,100 684 May Department Stores Co. (The) 66,400 2,187 Nike, Inc. - B 17,000 912 Ross Stores, Inc. 20,500 835 Safeway, Inc.* 43,900 1,281 Sears, Roebuck and Co. 70,900 3,850 SuperValu, Inc. 57,200 1,403 VF Corp. 48,400 1,898 Wal-Mart Stores, Inc. 161,500 8,884 Winn Dixie Stores, Inc. 58,300 909 ------------------------------------------------------ 32,936 Transportation 0.28% FedEx Corp. 27,700 1,479 Utilities 4.68% Allegheny Energy, Inc. 56,000 1,442 Ameren Corp. 53,700 2,310 American Electric Power, Inc. 56,220 2,250 Cinergy Corp. 54,100 1,947 Constellation Energy Group, Inc. 28,600 839 DTE Energy Co. 20,000 893 El Paso Energy Corp. 44,000 907 Entergy Corp. 19,300 819 Exelon Corp. 36,400 1,904 FPL Group, Inc. 40,000 2,400 KeySpan Corp. 14,500 546 Mirant Corp.* 35,100 256 Pinnacle West Capital Corp. 17,500 691 PPL Corp. 32,900 1,088 Progress Energy, Inc. 11,900 619 Reliant Energy, Inc. 41,600 703 Reliant Resources, Inc.* 50,000 438 Sempra Energy 33,200 735 Weststar Energy, Inc. 39,400 605 Williams Companies, Inc. 34,100 204 Wisconsin Energy Corp. 48,300 1,221 Xcel Energy, Inc. 115,250 1,933 ------------------------------------------------------ 24,750 Waste Management 0.38% Allied Waste Industries, Inc.* 37,600 361 Republic Services, Inc.* - A 27,000 515 Waste Management, Inc. 43,800 1,141 ------------------------------------------------------ 2,017 Total Common Stock 98.04% 518,042 (Cost $569,966) ------------------------------------------------------
21 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (concluded) Equity Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ---------------------------------------------------------------------------------------- SHORT-TERM Swiss Bank -- Repurchase Agreement INVESTMENTS (secured by $9,036, US Treasury Bond, 11.25%, 12/15/15) 1.89% 07/01/02 $ 5,811 $ 5,811 State Street Bank -- Repurchase Agreement (secured by $4,064, US Treasury Bond, 8.875%, 08/15/19) 0.85% 07/01/02 3,982 3,982 State Street Bank -- Repurchase Agreement (secured by $1,168, US Treasury Bond, 8.875%, 08/15/17) 0.85% 07/01/02 1,141 1,141 --------------------------------------------------------------------------- Total Short-Term Investments 2.07% 10,934 (Cost $10,934) --------------------------------------------------------------------------- Total Investments 100.11% 528,976 (Cost $580,900) Liabilities in Excess of Cash and Other Assets (0.11%) (600) --------------------------------------------------------------------------- Net Assets 100.00% $528,376 ---------------------------------------------------------------------------
*Non-income producing during the six months ended June 30, 2002 as this security did not pay dividends. 22 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Investments, Cash & Other Net Assets 100% Statement of Investments Balanced Fund June 30, 2002
Number of Market Shares (000) -------------------------------------------------------------- INVESTMENTS Horace Mann Equity Fund 9,033,820 $160,170 Horace Mann Income Fund 8,685,817 109,354 ------------------------------------------------- Total Investments 100.02% 269,524 (Cost $295,942) Liabilities in Excess of Cash and Other Assets (0.02%) (49) ------------------------------------------------- Net Assets 100.00% $269,475 -------------------------------------------------
23 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] U.S. & Foreign Corporate Bonds/Notes, Cash & Other Net Assets 37.3% U.S. & Foreign Government & Agency Obligations 62.7% Statement of Investments Income Fund June 30, 2002
Number of Market Shares (000) ----------------------------------------------------------------------------- COMMON AND Food & Beverage 0.00% PREFERRED STOCK Aurora Foods, Inc. 2 $ 3 Health Care 0.05% Fresenius Medical Care Capital Trust Pfd. 1 63 ------------------------------------------------------------ Total Common and Preferred Stock 0.05% 66 (Cost $74)
Principal Maturity Amount Market Rate Date (000) (000) ------------------------------------------------------------------------------------------- U.S. AND FOREIGN Treasury Bonds/Notes GOVERNMENT United States Treasury Strip /^/ 5.98% 11/15/27 $ 3,670 $ 823 AND AGENCY United States Treasury Bond 3.63% 04/15/28 556 600 OBLIGATIONS United States Treasury Bond 3.88% 04/15/29 6,453 7,273 United States Treasury Bond 3.38% 04/15/32 415 439 U.S. Government Agencies Federal Home Loan Banks 5.91% 03/27/08 1,000 1,062 Federal Home Loan Banks 5.93% 04/09/08 100 106 Federal Home Loan Mortgage Corp. 5.75% 01/15/12 80 82 Federal National Mortgage Association 6.32% 03/16/09 150 156 Federal National Mortgage Association 5.38% 11/15/11 40 40 Federal National Mortgage Association 6.02% 09/25/28 829 847 Mortgage-Backed Securities (U.S. Government Agencies) Federal National Mortgage Association 7.04% 07/01/06 473 509 Federal National Mortgage Association 6.85% 10/01/07 926 1,000 Federal National Mortgage Association 6.79% 11/01/07 533 576 Federal National Mortgage Association 6.62% 12/01/07 195 209 Federal National Mortgage Association 6.44% 01/01/08 327 348 Federal National Mortgage Association 6.50% 01/01/08 59 63 Federal National Mortgage Association 6.51% 01/01/08 40 43 Federal National Mortgage Association 6.58% 01/01/08 49 52 Federal National Mortgage Association 6.62% 01/01/08 67 71 Federal National Mortgage Association 6.47% 02/01/08 247 263 Federal National Mortgage Association 6.26% 06/01/08 95 101 Federal National Mortgage Association 6.34% 06/01/08 115 121 Federal National Mortgage Association 6.42% 06/01/08 143 152 Federal National Mortgage Association 6.23% 07/01/08 95 101 Federal National Mortgage Association 6.25% 07/01/08 544 574 Federal National Mortgage Association 6.31% 07/01/08 67 71 Federal National Mortgage Association 6.21% 08/01/08 520 548 Federal National Mortgage Association 5.85% 01/01/09 194 201 Federal National Mortgage Association 6.00% 01/01/09 163 170 Federal National Mortgage Association 6.23% 01/01/09 181 189 Federal National Mortgage Association 7.33% 10/01/09 66 73 Federal National Mortgage Association 8.75% 02/01/10 79 84 Federal National Mortgage Association 6.50% 11/01/12 348 363 Federal National Mortgage Association 8.00% 08/01/14 188 201
24 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ----------------------------------------------------------------------------------------------- U.S. AND FOREIGN Federal National Mortgage Association 8.50% 09/01/14 $ 94 $ 101 GOVERNMENT Federal National Mortgage Association 8.00% 10/01/14 10 11 AND AGENCY Federal National Mortgage Association 8.50% 01/01/15 12 13 OBLIGATIONS Federal National Mortgage Association 8.50% 03/01/15 75 80 (continued) Federal National Mortgage Association 8.00% 01/01/17 15 16 Federal National Mortgage Association 7.75% 04/01/17 45 48 Federal National Mortgage Association 6.00% 06/01/18 665 670 Federal National Mortgage Association 6.00% 12/01/18 102 102 Federal National Mortgage Association 6.00% 01/01/19 103 104 Federal National Mortgage Association 7.00% 08/01/19 178 184 Federal National Mortgage Association 7.50% 10/01/22 120 127 Federal National Mortgage Association 7.50% 07/01/23 50 53 Federal National Mortgage Association 6.50% 06/01/29 784 801 Federal National Mortgage Association 6.50% 07/01/29 2,275 2,323 Federal National Mortgage Association 6.50% 08/01/29 783 799 Federal National Mortgage Association 8.00% 08/01/29 276 294 Federal National Mortgage Association 6.50% 02/01/30 317 324 Federal National Mortgage Association 6.50% 03/01/30 536 548 Federal National Mortgage Association 8.00% 03/01/30 367 390 Federal National Mortgage Association 8.50% 03/01/30 207 221 Federal National Mortgage Association 7.00% 04/01/30 273 282 Federal National Mortgage Association 7.50% 04/01/30 1,704 1,787 Federal National Mortgage Association 8.00% 04/01/30 933 991 Federal National Mortgage Association 7.00% 05/01/30 500 518 Federal National Mortgage Association 6.00% 07/01/32 2,000 1,995 Federal National Mortgage Association 7.00% 07/01/32 400 414 Government National Mortgage Association 9.50% 01/20/03 1 1 Government National Mortgage Association 9.50% 02/20/03 1 1 Government National Mortgage Association 9.50% 05/20/03 2 2 Government National Mortgage Association 9.50% 08/20/03 3 3 Government National Mortgage Association 9.50% 09/20/03 6 6 Government National Mortgage Association 9.50% 11/20/03 3 4 Government National Mortgage Association 9.50% 09/20/04 2 2 Government National Mortgage Association 8.25% 05/15/06 13 14 Government National Mortgage Association 11.50% 03/15/10 3 3 Government National Mortgage Association 6.50% 12/15/12 70 74 Government National Mortgage Association 6.50% 02/15/13 130 135 Government National Mortgage Association 6.50% 05/15/13 350 261 Government National Mortgage Association 6.50% 08/15/13 103 108 Government National Mortgage Association 6.50% 10/15/13 76 79 Government National Mortgage Association 6.00% 02/15/14 43 44 Government National Mortgage Association 6.50% 02/15/14 99 104 Government National Mortgage Association 6.00% 03/15/14 140 144 Government National Mortgage Association 12.00% 03/15/14 1 1 Government National Mortgage Association 12.00% 04/15/14 1 1 Government National Mortgage Association 12.00% 03/15/15 2 2 Government National Mortgage Association 12.00% 04/15/15 2 2 Government National Mortgage Association 12.00% 06/15/15 3 5 Government National Mortgage Association 12.00% 07/15/15 2 2 Government National Mortgage Association 12.00% 11/15/15 13 15 Government National Mortgage Association 9.50% 08/15/17 7 8 Government National Mortgage Association 8.50% 01/15/20 6 7
25 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) -------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Government National Mortgage Association 8.50% 02/15/21 $ 21 $ 23 GOVERNMENT Government National Mortgage Association 8.50% 06/15/21 12 13 AND AGENCY Government National Mortgage Association 8.50% 08/15/21 3 4 OBLIGATIONS Government National Mortgage Association 8.00% 05/20/22 58 61 (continued) Government National Mortgage Association 7.50% 01/15/23 266 283 Government National Mortgage Association 7.50% 02/15/23 9 10 Government National Mortgage Association 8.50% 04/15/23 20 22 Government National Mortgage Association 7.50% 05/15/23 266 282 Government National Mortgage Association 7.50% 06/15/23 286 304 Government National Mortgage Association 7.50% 08/15/23 174 185 Government National Mortgage Association 7.50% 09/15/23 166 176 Government National Mortgage Association 7.50% 11/15/23 197 209 Government National Mortgage Association 7.50% 12/15/23 814 867 Government National Mortgage Association 6.50% 03/15/28 97 99 Government National Mortgage Association 6.50% 04/15/28 194 199 Government National Mortgage Association 6.50% 06/15/28 186 190 Government National Mortgage Association 6.50% 07/15/28 173 178 Government National Mortgage Association 6.50% 08/15/28 356 365 Government National Mortgage Association 7.00% 08/15/28 22 23 Government National Mortgage Association 6.50% 09/15/28 122 125 Government National Mortgage Association 6.50% 10/15/28 17 17 Government National Mortgage Association 7.50% 10/15/29 470 495 Government National Mortgage Association 7.50% 11/15/29 50 53 Government National Mortgage Association 7.50% 06/15/30 142 149 Government National Mortgage Association 6.50% 10/15/31 391 399 Government National Mortgage Association 6.50% 07/01/32 17,800 18,156 Government National Mortgage Association 6.00% 07/01/32 1,900 1,898 Government National Mortgage Association 7.00% 07/01/32 5,800 6,019 Tennessee Valley Authority 7.13% 05/01/30 850 943 Foreign Government Securities Brazil (Republic of) 3.13% 04/15/09 165 103 Brazil (Republic of) 14.50% 10/15/09 200 150 Brazil (Republic of) 12.00% 04/15/10 130 86 Brazil (Republic of) 3.13% 04/15/12 450 239 Brazil (Republic of) + 8.00% 04/15/14 1,570 979 Brazil (Republic of) 11.00% 08/17/40 419 235 Bulgaria (Republic of) 2.83% 07/28/11 490 436 Bulgaria (Republic of) 2.83% 07/28/12 550 491 Colombia (Republic of) 11.75% 02/25/20 520 509 Germany (Republic of) 5.25% 01/04/11 1,705 1,720 Germany (Republic of) 5.00% 01/04/12 1,605 1,588 Germany (Republic of) 5.50% 01/04/31 1,490 1,517 Italy (Republic of) 6.00% 05/01/31 1,000 1,062 Mexico United Mexican States 8.38% 01/14/11 595 619 Mexico United Mexican States 11.50% 05/15/26 1,430 1,812 Panama (Republic of) 9.63% 02/08/11 60 58 Panama (Republic of) 4.75% 07/17/14 93 76 Panama (Republic of) 2.63% 07/17/16 564 444 Panama (Republic of) 10.75% 05/15/20 70 70 Peru (Republic of) ** 9.13% 02/21/12 130 118 Peru (Republic of) 3.75% 03/07/17 320 211
26 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ------------------------------------------------------------------------------------------------ U.S. AND FOREIGN Peru (Republic of) 4.50% 03/07/17 $ 365 $ 265 GOVERNMENT Philippines (Republic of) 9.88% 01/15/19 365 358 AND AGENCY Philippines (Republic of) 10.63% 03/16/25 310 317 OBLIGATIONS Quebec Providence of Canada 7.13% 02/09/24 410 447 (concluded) Quebec Providence of Canada 7.50% 09/15/29 340 390 Russian Federation 8.25% 03/31/10 230 226 Russian Federation + 5.00% 03/31/30 330 229 ------------------------------------------------------------------------------ Total U.S. and Foreign Government and Agency Obligations 62.67% 78,237 (Cost $74,863) ------------------------------------------------------------------------------------------------ U.S. AND FOREIGN Corporate and Foreign Securities CORPORATE AES Corp. 8.75% 12/15/02 30 28 BONDS/NOTES AES Corp. 9.50% 06/01/09 62 40 AGCO Corp. 9.50% 05/01/08 31 33 Alliance Atlantis Communications, Inc. 13.00% 12/15/09 20 22 Allied Waste North America, Inc. 7.63% 01/01/06 72 70 Allied Waste North America, Inc. 8.88% 04/01/08 129 126 American Axle & Manufacturing, Inc. 9.75% 03/01/09 48 51 American Standard, Inc. 7.38% 04/15/05 70 71 American Standard, Inc. 7.63% 02/15/10 50 50 Anadarko Financial Co. 7.50% 05/01/31 620 660 Anchor Gaming 9.88% 10/15/08 58 68 Anheuser Busch Companies, Inc. 6.80% 08/20/32 200 210 Anheuser Busch Companies, Inc. 6.50% 05/01/42 250 250 AOL Time Warner, Inc. 7.70% 05/01/32 380 335 Apache Corp. 6.25% 04/15/12 200 207 ARMCO, Inc. 9.00% 09/15/07 138 141 Associates Corp. of North America 7.95% 02/15/10 55 62 AT&T Corp. 6.50% 03/15/29 390 254 AT&T Corp. ** 8.00% 11/15/31 260 189 Avis Group Holdings, Inc. 11.00% 05/01/09 123 137 Banc One Corp. 9.75% 03/01/09 75 91 Bank One Capital 8.75% 09/01/30 400 456 Bear Stearns Companies, Inc. 2.40% 03/28/03 190 190 Beazer Homes USA, Inc. ** 8.38% 04/15/12 34 34 Bell Atlantic Financial Services 4.25% 09/15/05 800 841 BellSouth Corp. 6.88% 10/15/31 600 590 Bio-Rad Laboratories, Inc. 11.63% 02/15/07 81 90 Bristol Myers Squibb Co. 5.75% 10/01/11 270 269 Burlington Resources Financial ** 6.50% 12/01/11 60 62 Calpine Corp. 7.88% 04/01/08 75 49 Calpine Corp. 8.50% 02/15/11 125 82 Chancellor Media Corp. 8.13% 12/15/07 132 128 Chancellor Media Corp. 8.00% 11/01/08 25 24 Charter Communications Holdings, LLC 8.63% 04/01/09 93 62 Charter Communications Holdings, LLC 10.75% 10/01/09 31 21 CIT Holdings Group, Inc. 6.50% 02/07/06 750 728 CMS Energy Gorp. 9.88% 10/15/07 201 151 Columbia/HCA Healthcare Corp. 6.91% 06/15/05 20 21
27 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Columbia/HCA Healthcare Corp. 7.25% 05/20/08 $ 52 $ 54 CORPORATE Commerical Credit Group, Inc. 10.00% 05/15/09 1,121 1,359 BONDS/NOTES Compagnie Generale De Geophysique 10.63% 11/15/07 53 54 (continued) Conoco Funding Co. 6.35% 10/15/11 400 415 Conoco Funding Co. 7.25% 10/15/31 120 128 Conoco, Inc. 6.95% 04/15/29 250 256 Constellation Brands, Inc. 8.00% 02/15/08 88 91 Coventry Health Care, Inc. 8.13% 02/15/12 42 43 Credit Suisse First Boston USA 5.75% 04/15/07 350 358 Crown Castle International Corp. 9.38% 08/01/11 24 15 CSC Holdings, Inc. 7.25% 07/15/08 150 121 CSC Holdings, Inc. 7.63% 04/01/11 91 72 Daimler Chrysler North America Holdings 7.40% 01/20/05 750 795 Du Pont (E.I.) de Nemours & Co. 8.13% 03/15/04 75 81 Dynegy Holdings, Inc. 8.75% 02/15/12 400 299 Echostar DBS Corp. 9.38% 02/01/09 130 118 Echostar DBS Corp. ** 9.13% 01/15/09 20 18 El Paso Corp. ^ 7.84% 02/28/21 1,050 429 El Paso Energy Corp. 7.80% 08/01/31 990 924 El Paso Energy Corp. 7.75% 01/15/32 200 185 Electronic Data Systems Corp. 7.45% 10/15/29 650 682 Emmis Communications Corp. 8.13% 03/15/09 25 25 First Energy Corp. 6.45% 11/15/11 210 201 First Energy Corp. 7.38% 11/15/31 370 347 Fleming Companies, Inc. 9.25% 06/15/10 28 28 Flextronics International Ltd. 9.88% 07/01/10 53 55 Ford Motor Co. 8.90% 01/15/32 240 258 Ford Motor Credit Co. 7.38% 10/28/09 200 203 Ford Motor Credit Co. 7.38% 02/01/11 790 799 Forest Oil Corp. ** 7.75% 05/01/14 70 67 Fox Liberty Networks LLC 8.88% 08/15/07 46 47 France Telecom SA 7.75% 03/01/11 130 115 Fuji JGB Investment, LLC ** 8.75% 12/31/49 400 347 General Electric Capital Corp. 8.85% 04/01/05 500 561 General Electric Capital Corp. 8.70% 05/21/07 50 58 General Motors Acceptance Corp. 6.75% 01/15/06 120 124 General Motors Acceptance Corp. 6.13% 09/15/06 580 590 General Motors Acceptance Corp. 7.25% 03/02/11 750 767 Georgia Gulf Corp. 10.38% 11/01/07 5 5 Georgia Pacific Corp. 9.50% 12/01/11 20 20 Georgia Pacific Corp. 8.88% 05/15/31 49 45 Goldman Sachs Group, Inc. 6.60% 01/15/12 850 864 HCA/Healthcare Co. 7.13% 06/01/06 40 42 HCA/Healthcare Co. 8.75% 09/01/10 79 88 Harrahs Operations, Inc. 7.88% 12/15/05 122 126 Hasbro, Inc. 5.60% 11/01/05 61 58 HEALTHSOUTH Corp. 8.50% 02/01/08 90 94 HEALTHSOUTH Corp. 10.75% 10/01/08 58 63 HEALTHSOUTH Corp. 8.38% 10/01/11 91 95 HEALTHSOUTH Corp. 7.63% 06/01/12 50 50 Heller Financial, Inc. 8.00% 06/15/05 1,000 1,106 Hercules, Inc. 11.13% 11/15/07 2 2
28 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) --------------------------------------------------------------------------------------------- U.S. AND FOREIGN HMH Properties, Inc. 7.88% 08/01/08 $ 50 $ 48 CORPORATE HMH Properties, Inc. 8.45% 12/01/08 8 8 BONDS/NOTES Host Marriott Corp. 9.25% 10/01/07 4 4 (continued) Household Financial Corp. 6.40% 06/17/08 250 251 Household Financial Corp. 6.50% 11/15/08 463 461 Hydro Quebec 6.30% 05/11/11 330 350 IBJ Preferred Capital Co., LLC ** 8.79% 12/29/49 380 313 IMC Global, Inc. 10.88% 06/01/08 37 40 Insight Midwest LP 10.50% 11/01/10 64 60 J.P. Morgan Chase & Co. 6.63% 03/15/12 640 659 Kansas City Southern RY Co. 9.50% 10/01/08 23 25 Kellogg Co. 6.60% 04/01/11 190 199 L 3 Communications Corp. 7.63% 06/15/12 54 54 Lear Corp. 7.96% 05/15/05 40 41 Lear Corp. 8.11% 05/15/09 80 82 Lehman Brothers Holdings, Inc. 8.25% 06/15/07 510 576 Liberty Media Corp. 3.75% 02/15/30 200 94 Lockheed Martin Corp. 8.50% 12/01/29 220 263 Lyondell Chemical Co. 9.63% 05/01/07 10 9 Macdermid, Inc. 9.13% 07/15/11 42 44 Manor Care, Inc 7.50% 06/15/06 52 53 Manor Care, Inc 8.00% 03/01/08 69 71 MeadWestvaco Corp. 6.85% 04/01/12 230 238 Mediacom LLC / Mediacom Capital Co. 9.50% 01/15/13 49 42 Mirage Resorts, Inc. 6.63% 02/01/05 56 57 Mirant Americas Generations LLC 9.13% 05/01/31 140 100 Mohegan Tribal Gaming Authority 8.13% 01/01/06 10 10 Mohegan Tribal Gaming Authority 8.75% 01/01/09 42 43 Mohegan Tribal Gaming Authority 8.00% 04/01/12 5 5 Nabisco, Inc 7.55% 06/15/15 300 337 NCNB Corp. 10.20% 07/15/15 774 1,017 News America Holdings, Inc. 8.00% 10/17/16 600 610 News America Holdings, Inc. 7.30% 04/30/28 420 370 Nextel Communications, Inc. /^/ 14.39% 10/31/07 200 100 Norfolk Southern Corp. 6.20% 04/15/09 600 620 Norske Skog CDA Ltd. ** 8.63% 06/15/11 11 11 Nortek, Inc. 9.13% 09/01/07 100 101 Nortek, Inc. 8.88% 08/01/08 69 70 Ocean Energy, Inc. 8.88% 07/15/07 60 63 Ocean Energy, Inc. 8.38% 07/01/08 40 42 Omnicare, Inc. 8.13% 03/15/11 93 96 Orion Power Holdings, Inc. 12.00% 05/01/10 53 45 P & L Coal Holdings Corp. 9.63% 05/15/08 150 159 Pacifica Papers, Inc. 10.00% 03/15/09 20 21 Packaging Papers, Inc. 9.63% 04/01/09 50 54 Panamsat Corp. ** 8.50% 02/01/12 70 64 Park Place Entertainment Corp. 8.50% 11/15/06 22 23 Park Place Entertainment Corp. 9.38% 02/15/07 100 106 Parker & Parsley Petroleum Co. 8.25% 08/15/07 20 21 PDVSA Finance Ltd. 8.50% 11/16/12 300 262 Pepsi Bottling Group, Inc. 7.00% 03/01/29 650 690 Philip Morris Companies, Inc. 7.20% 02/01/07 500 542
29 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ---------------------------------------------------------------------------------------------- U.S. AND FOREIGN Philip Morris Companies, Inc. 7.50% 07/16/09 $ 500 $ 540 CORPORATE Pioneer National Resource Co. 9.63% 04/01/10 36 40 BONDS/NOTES Pioneer National Resource Co. 7.50% 04/15/12 31 32 (continued) Premier Parks, Inc. /^/ 12.17% 04/01/08 14 13 Pulte Homes, Inc. 7.88% 08/01/11 61 65 Raytheon Co. 6.75% 08/15/07 220 233 Reynolds (RJ) Tobacco Holdings, Inc. 7.75% 05/15/06 800 848 Royal Bank Scotland Group PLC 8.82% 03/31/49 300 326 Ryland Group, Inc. 8.00% 08/15/06 54 54 Ryland Group, Inc. 8.25% 04/01/08 10 10 Sara Lee Corp. 6.25% 09/15/11 640 662 SB Treasury Co. ** /^/ 9.40% 12/29/49 580 577 Schuler Homes 9.38% 07/15/09 80 82 Six Flags, Inc. 9.50% 02/01/09 20 20 Smithfield Foods, Inc. 8.00% 10/15/09 44 45 Spintab AB 5.75% 06/15/05 7,000 768 Sprint Capital Corp. 6.13% 11/15/08 290 233 Station Casinos, Inc. 8.88% 12/01/08 150 152 Target Corp. 5.88% 03/01/12 360 366 Teekay Shipping Corp. 8.88% 07/15/11 66 69 Telecorp PCS, Inc. 10.63% 07/15/10 7 6 Tembec Corp. 8.50% 02/01/11 100 103 Terex Corp. 8.88% 04/01/08 100 101 Triton Financial Corp. 8.88% 10/01/07 20 22 Tyco International Group 6.88% 09/05/02 310 305 Tyco International Group 2.37% 07/30/03 40 32 Tyco International Group 5.88% 11/01/04 20 17 Tyco International Group 6.13% 11/01/08 40 31 Tyco International Group 6.38% 10/15/11 360 275 Tyco International Group 7.00% 06/15/28 320 227 Tyco International Group 8.68% 01/15/29 490 348 UBS Preferred Funding Trust 8.62% 10/29/49 700 802 Unilever Captial 7.13% 11/01/10 360 396 Union Pacific Corp. 6.65% 01/15/11 100 105 Union Pacific Corp. 6.63% 02/01/29 70 68 Unisys Corp. 7.25% 01/15/05 76 75 Ventras Realty Ltd. ** 8.75% 05/01/09 20 20 Ventras Realty Ltd. ** 9.00% 05/01/12 10 10 Verizon Global Funding Corp. 5.75% 04/01/03 420 426 Verizon Global Funding Corp. /^/ 4.30% 05/15/21 400 217 Vintage Petroleum, Inc. 9.00% 12/15/05 3 3 Vintage Petroleum, Inc. 7.88% 05/15/11 70 63 Vintage Petroleum, Inc. 8.25% 05/01/12 24 24 Waste Management, Inc. 6.88% 05/15/09 425 429 Waste Management, Inc. 7.38% 05/15/29 500 480 Western Oil Sands, Inc. ** 8.38% 05/01/12 58 58 Weyerhaeuser Co. ** 6.75% 03/15/12 310 319 Weyerhaeuser Co. ** 7.38% 03/15/32 560 567 Williams Companies, Inc. 7.50% 01/15/31 100 72 Williams Companies, Inc. 7.75% 06/15/31 80 59 Williams Companies, Inc. ** 8.75% 03/15/32 440 356 WMX Technologies, Inc 7.00% 10/15/06 125 131
30 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) -------------------------------------------------------------------------------------------------- U.S. AND FOREIGN WorldCom, Inc. 8.25% 05/15/10 $ 400 $ 64 CORPORATE WorldCom, Inc. 7.50% 05/15/11 200 32 BONDS/NOTES WorldCom, Inc. 8.25% 05/15/31 270 43 (concluded) XL Captial Financial Europe, PLC 6.50% 01/15/12 460 477 XTO Energy, Inc. 7.50% 04/15/12 31 32 Yum Brands, Inc. 7.70% 07/01/12 33 33 Zurich Capital Trust Co. ** 8.38% 06/01/37 600 565 Corporate Asset and Mortgage Backed Securities American Express Master Trust 1.93% 10/15/05 1,990 1,993 Americredit Automobile Receivable Trust 6.70% 03/05/04 169 170 Capital Lease Funding Securitization 7.35% 06/22/24 800 863 Chase Funding Loan Acquisition 2.76% 12/25/15 618 618 Commerical Mortgage Asset Trust 6.59% 07/17/08 1,000 1,068 Commerical Mortgage Asset Trust 7.55% 01/17/10 180 201 Conseco Financial Securitizations 8.50% 06/01/10 900 318 Conseco Financial Securitizations 6.99% 07/01/32 700 731 Contimortgage Home Equity Loan 6.37% 02/25/26 1,201 1,224 Credit Suisse First Boston Mortgage 2.24% 03/25/32 1,018 1,021 Credit Suisse First Boston Mortgage 6.55% 01/17/35 675 715 CWABS, Inc. 2.17% 04/25/32 1,237 1,237 Delta Airlines, Inc. 6.72% 01/02/23 140 143 Financing Corp. FICO Strip ^ 6.42% 04/05/19 130 45 FirstPlus Home Loan Owner Trust 7.58% 04/10/23 595 605 GMAC Commerical Mortgage Securities, Inc. 6.95% 09/15/33 400 435 Green Tree Financial Corp. 9.15% 01/15/18 100 97 Green Tree Financial Corp. 7.45% 09/15/28 1,500 1,518 Green Tree Recreational Equipment 7.25% 03/15/29 151 99 Holmes Financing PLC 2.17% 07/15/15 400 401 Home Loan Trust 4.93% 01/25/12 6 7 Household Home Equity Loan Trust 2.15% 05/20/31 770 771 Household Home Equity Loan Trust 2.21% 12/22/31 991 993 Nomura Asset Securities Corp. 7.12% 04/13/39 1,000 1,084 Salomon Brothers Mortgage Services, Inc. 2.33% 01/25/30 549 552 Salomon Brothers Mortgage Services, Inc. 2.14% 03/25/32 1,277 1,277 Security National Mortgage Loan Trust ** 8.80% 04/25/24 600 627 Systems 2001 Asset Trust, LLC ** 6.66% 09/15/13 616 655 -------------------------------------------------------------------------------- Total Corporate Bonds/Notes 49.87% 62,260 (Cost $62,283)
31 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (concluded) Income Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) -------------------------------------------------------------------------------------------- SHORT-TERM Merrill Lynch -- Repurchase Agreement (secured INVESTMENT by $12,008, RFCO Strips 5.58%, 07/15/11) 1.97% 07/01/02 $11,700 $ 11,700 -------------------------------------------------------------------------------- Total Short-Term Investment 9.37% 11,700 (Cost $11,700) -------------------------------------------------------------------------------- Total Investments 121.96% 152,263 (Cost $148,846) Foreign Currency 0.08% 100 Various Denominations (Cost $94) Liabilities in Excess of Cash and Other Assets (22.04%) (27,521) -------------------------------------------------------------------------------- Net Assets 100.00% $124,842 --------------------------------------------------------------------------------
**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 June 30, 2002, these securities amounted to $5,027 or 4.0 percent of net assets. +Denotes a step bond: a zero coupon bond that converts to a fixed or variable rate at a future date. The rate reflects the securities yield to maturity. ^A zero coupon bond. The rate reflects the securities yield to maturity. 32 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Short-Term Investments, Cash & Other Assets 43.5% U.S. Government Agency Obligations 56.5% Statement of Investments Short-Term Investment Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ----------------------------------------------------------------------------------------------- U.S. GOVERNMENT Federal Agriculture Mortgage Corp. Discount AND AGENCY Note^ OBLIGATIONS 1.80% 07/03/02 $ 56 $ 56 Federal Farm Credit Bank Discount Note^ 6.40% 10/28/02 300 304 6.25% 12/02/02 400 407 Federal Home Loan Bank Discount Note^ 2.08% 09/13/02 100 100 Federal Home Loan Mortgage Corp. Discount Note^ 1.73% 07/30/02 76 76 2.15% 09/25/02 14 14 4.50% 06/15/03 180 184 Federal National Mortgage Association Discount Note^ 1.73% 07/24/02 61 61 1.73% 07/31/02 45 45 6.75% 08/15/02 400 402 2.12% 09/18/02 90 90 2.35% 11/01/02 10 10 4.00% 08/15/03 220 224 Tennessee Valley Authority 6.00% 09/24/02 237 239 United States Treasury Note 5.75% 10/31/02 100 101 ------------------------------------------------------------------------------ Total U.S. Government and Agency Obligations 56.51% 2,313 (Cost $2,300) ----------------------------------------------------------------------------------------------- REPURCHASE State Street Bank--Repurchase Agreement AGREEMENT (secured by $1,845, US Treasury Bond 8.875%, 08/15/17) 0.85% 07/01/02 1,806 1,806 ------------------------------------------------------------------------------ Total Repurchase Agreement 44.12% 1,806 (Cost $1,806) Total Investments 100.63% 4,119 (Cost $4,106) Liabilities in Excess of Assets and Other Cash (0.63%) (26) ------------------------------------------------------------------------------ Net Assets 100.00% $4,093 ------------------------------------------------------------------------------
^The rate reflects the securities yield to maturity 33 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Cash & Other Net Assets 1.6% Common Stock 98.4% Statement of Investments Small Cap Growth Fund June 30, 2002
Number of Market Shares (000) ---------------------------------------------------------------------------- COMMON STOCK Aerospace 1.91% DRS Technologies, Inc.* 2,700 $ 115 FLIR Systems, Inc.* 11,700 491 Integrated Defense Technologies, Inc.* 7,495 221 -------------------------------------------------------------- 827 Automotive 0.58% ArvinMeritor, Inc. 10,400 250 Banks & Financial Services 2.31% BankAtlantic Bancorp, Inc. 10,400 129 E*TRADE Group* 42,800 234 Friedman, Billings, Ramsey Group* 19,400 247 Metris Companies, Inc. 15,500 129 Provident Financial Group 1,700 49 Southwest Bancorporation of Texas, Inc.* 5,800 210 -------------------------------------------------------------- 998 Biotechnology 8.75% Abgenix, Inc.* 16,007 157 Alkermes, Inc.* 25,300 402 Amylin Pharmaceuticals, Inc.* 24,900 272 ArQule, Inc.* 4,300 28 AVI BioPharma, Inc.* 5,400 16 Celgene Corp.* 26,100 399 Cell Genesys, Inc.* 27,428 377 Corixa Corp.* 35,900 242 Cubist Pharmaceuticals, Inc.* 17,700 166 Dendreon Corp.* 29,300 59 Diversa Corp.* 6,100 61 Gene Logic, Inc.* 4,400 62 Genta, Inc.* 25,000 207 Incyte Genomics, Inc.* 28,400 207 La Jolla Pharmaceutical Co.* 26,200 162 Lexicon Genetics, Inc 9,300 38 Neose Technologies, Inc.* 5,400 59 Paradigm Genetics, Inc.* 128,300 180 Sangamo Biosciences, Inc.* 3,200 19 SangStat Medical Corp.* 8,100 186 Telik, Inc.* 23,200 289 Third Wave Technologies, Inc.* 44,100 99 Tularik, Inc.* 10,800 98 -------------------------------------------------------------- 3,785 Business Services 6.52% AMN Healthcare Services, Inc.* 13,600 476 Computer Programs and Systems, Inc.* 2,900 62 Cross Country, Inc.* 12,700 480 DoubleClick, Inc.* 59,100 428 Heidrick & Struggles International, Inc.* 7,100 141 InVision Technologies, Inc.* 3,700 89 Jacobs Engineering Group* 6,200 216 Kroll, Inc.* 26,000 562 Medical Staffing Network Holdings, Inc.* 5,700 140
34 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Small Cap Growth Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------ COMMON STOCK MTC Technologies, Inc.* 1,800 $ 31 (continued) Resources Connection, Inc.* 7,300 197 ----------------------------------------------------------- 2,822 Capital Goods 0.83% Engineered Support Systems, Inc.* 2,500 130 Flowserve Corp.* 7,700 229 ----------------------------------------------------------- 359 Chemicals 1.08% Scotts Co.* 5,000 227 Symyx Technologies, Inc.* 17,400 242 ----------------------------------------------------------- 469 Communication Equipment & Services 3.64% ClearOne Communications, Inc.* 15,000 219 Foundry Networks, Inc.* 20,900 147 Metro One Telecommunications, Inc.* 17,600 245 Plantronics, Inc.* 9,000 171 Polycom, Inc.* 52,300 626 Sonus Networks, Inc.* 84,600 168 ----------------------------------------------------------- 1,576 Computer Hardware & Peripherals 1.50% Identix, Inc.* 48,600 355 Immersion Corp.* 78,488 83 Pinnacle Systems, Inc.* 21,100 212 ----------------------------------------------------------- 650 Computer Software & Services 16.40% Activision, Inc.* 10,474 304 Advent Software, Inc.* 14,700 378 Anteon International Corp.* 10,700 270 Carreker Corp.* 4,700 54 Cerner Corp.* 6,800 325 Checkfree Corp.* 15,300 239 Corillian Corp.* 98,594 224 Digimarc Corp.* 75,200 781 Digital Insight Corp.* 26,400 434 Echelon Corp.* 3,200 41 GTECH Holdings Corp.* 18,400 470 HPL Technologies, Inc.* 8,800 132 LendingTree, Inc.* 7,900 100 Macromedia, Inc.* 2,933 26 MatrixOne, Inc.* 10,700 65 Mentor Graphics Corp.* 2,100 30 NetIQ Corp.* 10,300 232 Onyx Software Corp.* 164,900 557 QuadraMed Corp.* 8,700 61 Red Hat, Inc.* 191,900 1,126 Roxio, Inc.* 13,000 92 ScanSoft, Inc.* 42,600 315 SRA International, Inc.* 4,900 132 Take-Two Interactive Software, Inc.* 6,600 136 Veridian Corp.* 7,200 163 Viewpoint Corp.* 22,600 109
35 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Small Cap Growth Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------- COMMON STOCK VitalWorks, Inc.* 32,700 $ 267 (continued) WebEx Communications, Inc.* 2,000 32 ------------------------------------------------------------ 7,095 Construction 0.47% Shaw Group* 6,600 203 Consumer Products 1.64% Harman International Industries, Inc. 7,900 389 Moore Corporation Ltd.* 27,900 320 ------------------------------------------------------------ 709 Containers & Packaging 1.29% Crown Cork & Seal Company, Inc. 7,400 51 Silgan Holdings, Inc.* 12,600 505 ------------------------------------------------------------ 556 Education Services 2.36% Career Education Corp.* 6,700 301 Princeton Review, Inc.* 33,100 302 Strayer Education, Inc. 3,800 242 Sylvan Learning Systems, Inc.* 8,750 175 ------------------------------------------------------------ 1,020 Electronic Equipment/Semiconductors 9.58% Actel Corp.* 5,900 124 Active Power, Inc.* 17,000 61 Asyst Technologies, Inc.* 6,300 128 CoorsTek, Inc.* 3,600 111 Credence Systems Corp.* 6,200 110 Cubic Corp. 4,400 104 DuPont Photomasks, Inc.* 2,700 89 Exar Corp.* 6,700 132 FEI Co.* 2,300 56 KEMET Corp.* 24,000 429 Lattice Semiconductor Corp.* 49,900 434 Microsemi Corp.* 5,200 34 Mykrolis Corp.* 3,900 46 OmniVision Technologies, Inc.* 16,700 238 Pixelworks, Inc.* 119,100 996 Power Integrations, Inc.* 10,500 190 Rudolph Technologies, Inc.* 5,700 142 Silicon Storage Technology, Inc.* 43,200 336 Skyworks Solutions, Inc.* 2,100 12 TriQuint Semiconductor, Inc.* 58,100 372 ------------------------------------------------------------ 4,144 Energy 1.79% Arch Coal, Inc. 4,400 100 Core Laboratories N.V. 6,000 72 Grant Prideco, Inc.* 8,300 113 Key Energy Services, Inc.* 10,600 111 Patterson-UTI Energy, Inc.* 6,700 189 Pride International, Inc.* 12,100 189 ------------------------------------------------------------ 774
36 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Small Cap Growth Fund June 30, 2002
Number of Market Shares (000) -------------------------------------------------------------------------- COMMON STOCK Entertainment & Recreation 2.04% (continued) JAKKS Pacific, Inc.* 4,100 $ 73 Scientific Games Corp.* 32,949 263 Station Casinos, Inc.* 30,600 546 ------------------------------------------------------------ 882 Food & Beverage 3.03% American Italian Pasta Co.* 700 36 Bob Evans Farms, Inc. 6,800 213 Fresh Del Monte Produce, Inc. 4,800 120 Interstate Bakeries Corp. 9,000 260 Landry's Restaurants, Inc. 9,000 230 Panera Bread Co.* 7,930 273 Ryan's Family Steakhouses, Inc.* 10,500 138 Smith & Wollensky Restaurant Group* 7,100 40 ------------------------------------------------------------ 1,310 Health Care & Pharmaceuticals 10.60% Accredo Health, Inc.* 3,200 148 Advanced Neuromodulation Systems, Inc.* 4,000 122 AeroGen, Inc.* 61,200 53 Align Technology, Inc.* 10,100 40 Alliance Imaging, Inc.* 7,300 99 AtheroGenics, Inc.* 21,400 153 Atrix Laboratories, Inc.* 2,900 64 Axcan Pharma, Inc.* 16,300 238 Bioject Medical Technologies, Inc.* 33,700 118 Bruker AXS, Inc.* 13,479 20 Bruker Daltonics, Inc.* 17,300 70 Conceptus, Inc.* 8,200 135 CTI Molecular Imaging, Inc.* 6,700 154 DIANON Systems, Inc.* 2,000 107 Endo Pharmaceuticals Holdings, Inc.* 30,500 214 Esperion Therapeutics 9,500 51 First Horizon Pharmaceutical Corp.* 23,200 478 Henry Schein, Inc.* 6,300 280 Illumina, Inc.* 5,700 38 Inhale Therapeutic Systems, Inc.* 5,800 55 Inverness Medical Innovations, Inc.* 4,900 99 Kyphon, Inc.* 14,400 210 Noven Pharmaceuticals, Inc.* 9,100 231 Odyssey Healthcare, Inc.* 8,900 323 Scios, Inc.* 15,941 488 Transgenomic, Inc.* 33,400 83 Trimeris, Inc.* 5,200 231 Tripos, Inc.* 5,600 122 Versicor, Inc.* 12,100 163 ------------------------------------------------------------ 4,587 Insurance 0.76% American Medical Security Group* 1,700 41 Centene Corp.* 2,900 90 First American Corp. 8,600 198 ------------------------------------------------------------ 329
37 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Small Cap Growth Fund June 30, 2002
Number of Market Shares (000) ---------------------------------------------------------------------- COMMON STOCK Media & Media Services 7.15% (continued) Cumulus Media, Inc.* 25,100 $ 345 Entravision Communications Corp.* 14,900 183 LIN TV Corp.* 18,600 503 Macrovision Corp.* 36,500 481 Pixar Animation Studios 24,100 1,068 Sinclair Broadcast Group* 28,900 420 Spanish Broadcasting System, Inc.* 9,100 91 -------------------------------------------------------- 3,091 Paper & Forest Products 0.28% Albany International Corp. 4,500 121 Retail & Apparel 9.70% Abercrombie & Fitch Co.* 8,800 212 Aeropostale, Inc.* 20,000 547 American Eagle Outfitters, Inc.* 7,000 148 Big 5 Sporting Goods Corp.* 12,800 179 Blue Rhino Corp.* 8,500 117 Chico's FAS, Inc.* 1,200 44 Coach, Inc.* 8,834 485 Cost Plus, Inc.* 4,300 132 CSK Auto Corp.* 11,700 163 Insight Enterprises, Inc.* 7,400 186 Kenneth Cole Productions, Inc.* 3,600 102 Linens 'n Things, Inc.* 11,276 370 Petco Animal Supplies, Inc.* 9,300 232 Polo Ralph Lauren Corp.* 15,500 347 Quiksilver, Inc.* 14,200 352 Stage Stores, Inc.* 5,200 181 Too, Inc.* 8,600 265 United Auto Group, Inc.* 6,500 136 -------------------------------------------------------- 4,198 Transportation 2.29% Hawaiian Airlines, Inc.* 17,000 62 Heartland Express, Inc.* 4,201 100 J.B. Hunt Transport Services, Inc.* 9,600 283 JetBlue Airways Corp.* 1,059 48 Landstar System, Inc.* 2,900 308 Werner Enterprises, Inc. 4,400 94 Yellow Corp.* 2,900 94 -------------------------------------------------------- 989 Waste Management 1.88% Stericycle, Inc.* 15,000 533 Waste Connections, Inc.* 8,966 280 -------------------------------------------------------- 813 Total Common Stock 98.38% 42,557 (Cost $48,651) --------------------------------------------------------
38 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (concluded) Small Cap Growth Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ----------------------------------------------------------------------------- SHORT-TERM U.S. Treasury Bill/^/ 1.64% 07/18/02 $ 400 $ 400 INVESTMENT ------------------------------------------------------------------ Total Short-Term Investment 0.92% 400 (Cost $400) ------------------------------------------------------------------ Total Investments 99.30% 42,957 (Cost $49,051) Cash and Other Assets in Excess of Liabilities 0.70% 302 ------------------------------------------------------------------ Net Assets 100.00% $43,259 ------------------------------------------------------------------
*Non-income producing during the six months ended June 30, 2002 as this security did not pay dividends. /^/The rate reflects the securities yield to maturity. 39 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Cash & Other Net Assets 1.5% Asia 8.6% Europe 63.4% Pacific 26.5% Statement of Investments International Equity Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------------------------------ COMMON AND Australia 1.61% PREFERRED STOCK BHP Billiton Ltd. (Metals & Mining) 89,731 $ 520 Finland 1.02% Stora Enso OYJ (Paper & Forest Products) 23,559 330 France 17.37% Accor (Hotels, Restaurants & Lesisure) 9,173 371 Arcelor (Metals & Mining)* 12,242 174 Aventis SA (Pharmaceuticals) 12,116 857 Cie De St Gobain (Building Products) 11,744 526 LVHM Moet Hennessy (Apparel) 9,930 499 Pernod Ricard (Beverages) 1,988 194 Sanofi-Synthelabo SA (Pharmaceuticals) 8,471 514 Schneider Electric SA (Electrical Equipment) 10,218 548 Suez Lyonnaise Des Eaux (Utilities) 17,003 453 Total Fina Elf SA-B (Oil & Gas) 4,454 722 Valeo (Automotive) 11,422 474 Vivendi Universal (Media) 13,103 283 ------------------------------------------------------------------------------- 5,615 Germany 5.15% Allianz AG (Insurance) 3,016 608 Muenchener Ruckvers AG (Insurance) 2,490 589 Volkswagen AG (Automobiles) 9,705 467 ------------------------------------------------------------------------------- 1,664 Hong Kong 3.47% China Mobile (Telecommunications)* 173,500 513 Hutchison Whampoa (Industrial Conglomerates) 37,000 276 Sun Hung Kai Properties (Real Estate) 44,000 334 ------------------------------------------------------------------------------- 1,123 Italy 6.27% Intesasbci (Financial) 224,184 683 Mediaset (Media) 85,433 660 ENI (Oil & Gas) 43,007 683 ------------------------------------------------------------------------------- 2,026 Japan 20.50% Bridgestone Corp. (Automotive) 54,000 743 Canon, Inc. (Office Equipment & Supplies) 18,000 680 East Japan Railway (Railroads) 72 337 Fanuc (Machinery) 8,600 432 ITO-Yokado Company Ltd. (Retail) 10,000 501 Matsushita Electric Industries Co. (Electronic Components) 45,000 614 Murata Manufacturing Co. (Electronic Components) 4,900 315 Nissan Motor Compnay Ltd. (Automobiles) 87,000 602 Nomura Holdings (Financial) 30,000 440 Orix Corp. (Financial) 4,500 363 Rohm C. (Electronic Components) 4,300 642 Shin Etsu Chem Co. (Chemicals) 13,500 580 Tokyo Electron (Electronic Components) 5,800 378 ------------------------------------------------------------------------------- 6,627
40 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) International Equity Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------------------------------- COMMON AND Korea 5.14% PREFERRED STOCK Kookmin Bank (ADR) (Financial) 6,493 $ 319 (concluded) Samsung Electronics Ltd. (Electronic Components) 7,259 997 SK Telecom Ltd. (ADR) (Telecommunications) 13,910 345 -------------------------------------------------------------------------------- 1,661 Netherlands 7.97% Koninklijke KPN NV (Telecommunications) 59,786 279 Philips Electronic (Household Durables) 23,028 642 Unilver NV (Food Products) 8,033 525 VNU NV (Media) 24,246 673 Wolters Kluwer (Media) 24,238 459 -------------------------------------------------------------------------------- 2,578 Singapore 2.37% DBS Group Holdings (Financial) 65,000 456 United O/Seas Bank (Financial) 43,000 309 -------------------------------------------------------------------------------- 765 Spain 1.72% BCO Sant Cent Hisp (Financial) 37,421 297 Telefonica SA (Telecommunications) 30,750 258 -------------------------------------------------------------------------------- 555 Switzerland 3.32% Credit Suisse Group (Financial) 6,781 511 Roche Holdings AG (Pharmaceuticals) 17,731 562 -------------------------------------------------------------------------------- 1,073 Taiwan 1.98% Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) 25,810 336 (Electronic Components)* United Microelectronics Corp. (ADR) (Electronic Components)* 41,335 304 -------------------------------------------------------------------------------- 640 Turkey 0.03% Turkcell Iletisim Hizmetleri (ADR) (Telecommunications)* 829 10 United Kingdom 20.54% Astrazenca (Pharmaceuticals) 12,159 503 BAA (Transportation) 35,913 328 BAE Systems (Aerospace) 180,911 924 British Sky Broadcast (Media) 65,069 624 BT Group (Telecommunications) 88,041 338 Cadbury Schweppes (Food Products) 12,517 94 GlaxoSmithKline PLC (Pharmaceuticals) 14,076 304 HSBC Holdings (Financial) 57,334 660 Imperial Tobacco (Tobacco) 19,984 325 Imperial Tobacco (Tobacco) 8,529 135 Marks & Spencer (Retail) 86,027 489 Reed Elsevier PLC (Media) 114,968 1,093 Royal Bank of Scotland Group (Financial) 18,436 523 Vodafone Group Public Ltd. (Telecommunications) 219,689 301 -------------------------------------------------------------------------------- 6,641 Total Common and Preferred Stock 98.46% 31,828 (Cost $32,188) --------------------------------------------------------------------------------
41 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (concluded) International Equity Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) --------------------------------------------------------------------------------------------- SHORT-TERM State Street Bank - Repurchase Agreement (secured INVESTMENT by $441, US Treasury Note, 7.875%, 11/15/04) 0.85% 07/01/02 $429 $ 429 ---------------------------------------------------------------------------------- Total Short-Term Investment 1.33% 429 (Cost $429) ---------------------------------------------------------------------------------- Total Investments 99.79% 32,257 (Cost $32,617) Foreign Currency 0.20% 67 (Various Denominations) (Cost $67) Cash and Other Assets In Excess of Liabilities 0.01% 2 ---------------------------------------------------------------------------------- Net Assets 100.00% $32,326 ----------------------------------------------------------------------------------
*Non-income producing during the six months ended June 30, 2002 as this security did not pay dividends. 42 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) [CHART] Cash & Other Net Assets 3.0% Common Stock 97.0% Statement of Investments Socially Responsible Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------------ COMMON STOCK Aerospace 0.16% Goodrich Corp. 4,100 $ 112 Automotive 5.29% Autoliv, Inc. 17,200 433 Dana Corp. 19,200 356 Delphi Automotive Systems Corp. 30,400 401 General Motors Corp. 14,000 748 Genuine Parts Co. 13,300 464 Goodyear Tire & Rubber Co. 15,200 284 Lear Corp.* 9,800 453 PACCAR, Inc. 11,400 506 ---------------------------------------------------------- 3,645 Banks & Financial Services 29.41% American Express Co. 7,000 254 AmSouth Bancorporation 23,200 519 Bank of America Corp. 27,200 1,914 Bank One Corp. 25,100 966 Charter One Financial, Inc. 13,200 454 CitiGroup 52,566 2,037 Countrywide Credit Industries, Inc. 5,800 280 Federal Home Loan Mortgage Corp. 7,600 465 Federal National Mortgage Association 10,500 774 FleetBoston Financial Corp. 24,100 780 Golden West Financial Corp. 7,500 516 Huntington Bancshares, Inc. 24,400 474 J.P. Morgan Chase & Co. 17,700 600 KeyCorp 19,100 521 Lehman Brothers Holdings, Inc. 8,600 538 Merrill Lynch & Company, Inc. 4,000 162 Morgan Stanley Dean Witter & Co. 20,700 892 National City Corp. 19,400 645 Regions Financial Corp. 14,500 510 SouthTrust Corp. 18,700 488 SunTrust Banks, Inc. 8,600 582 U.S. Bancorp 45,600 1,065 Union Planters Corp. 14,700 476 UnionBanCal Corp. 10,400 487 Wachovia Corp. 38,700 1,478 Washington Mutual, Inc. 23,000 854 Wells Fargo & Co. 30,300 1,517 ---------------------------------------------------------- 20,248 Business Machines 0.89% Hewlett-Packard Co. 40,100 613 Capital Goods 0.26% W.W. Grainger, Inc. 3,600 180 Chemicals 4.99% Cabot Corp. 10,300 295 Dow Chemical Co. 23,100 794 Eastman Chemical Co. 9,600 450 Lubrizol Corp. 9,000 302
43 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Socially Responsible Fund June 30, 2002
Number of Market Shares (000) ---------------------------------------------------------------------------- COMMON STOCK PPG Industries, Inc. 9,000 $ 557 (continued) Praxair, Inc. 9,900 564 Sherwin-Williams Co. 15,900 476 -------------------------------------------------------------- 3,438 Communication Equipment & Services 9.05% AT&T Corp. 76,800 822 BellSouth Corp. 34,200 1,077 Corning, Inc.* 89,100 316 Nortel Networks Corp.* 221,500 321 SBC Communications, Inc. 45,922 1,401 Sprint Corp. 27,200 289 Tellabs, Inc.* 25,200 156 Verizon Communications, Inc. 45,100 1,811 WorldCom Inc./WorldCom Group* 349,600 35 -------------------------------------------------------------- 6,228 Computer Software & Services 1.69% Electronic Data Systems Corp. 6,600 245 Ingram Micro, Inc.* - A 15,800 217 Quantum Corp.* 27,600 116 Quest Communications International, Inc.* 81,300 228 Tech Data Corp.* 9,500 359 -------------------------------------------------------------- 1,165 Construction 0.85% Pulte Homes, Inc. 10,200 586 . Consumer Products 3.73% ConAgra Foods, Inc. 24,300 672 Eastman Kodak Co. 16,500 481 Masco Corp. 6,900 187 Newell Rubbermaid, Inc. 18,900 663 Procter & Gamble Co. (The) 6,350 567 -------------------------------------------------------------- 2,570 Electronic Equipment & Services 2.41% Arrow Electronics, Inc.* 15,900 330 Avnet, Inc. 15,100 332 Cooper Industries, Inc. - A 11,100 436 Hubbell, Inc. 8,600 294 Motorola, Inc. 7,000 101 Solectron Corp.* 27,200 167 -------------------------------------------------------------- 1,660 Energy 4.21% Amerada Hess Corp. 5,700 470 Ashland, Inc. 10,000 405 Kerr-McGee Corp. 7,500 402 Marathon Oil Corp. 17,100 464 Unocal Corp. 13,300 491 Valero Energy Corp. 9,700 363 Xcel Energy, Inc. 18,200 305 -------------------------------------------------------------- 2,900
44 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Socially Responsible Fund June 30, 2002
Number of Market Shares (000) ------------------------------------------------------------------- COMMON STOCK Food & Beverage 3.28% (continued) Kellogg Co. 12,200 $ 437 McDonald's Corp. 4,400 125 Sara Lee Corp. 25,300 522 Tyson Foods, Inc. - A 37,619 583 Wendy's International, Inc. 14,900 593 ------------------------------------------------------ 2,260 Health Care & Pharmaceuticals 2.57% Bristol Myers Squibb Co. 5,000 129 Eli Lilly & Co. 5,800 327 Merck & Company, Inc. 6,300 319 Pfizer, Inc. 7,900 276 Pharmacia Corp. 8,200 307 Schering-Plough Corp. 3,200 79 Wyeth 6,500 333 ------------------------------------------------------ 1,770 Insurance 7.93% Allstate Corp. 20,200 747 American International Group 6,600 450 Aon Corp. 4,400 130 Chubb Corp. 7,600 538 CIGNA Corp. 4,100 399 Health Net, Inc.* 17,300 463 Humana, Inc.* 12,200 191 MBIA, Inc. 6,500 367 MetLife, Inc. 16,900 487 MGIC Investment Corp. 7,600 515 Old Republic International Corp. 10,700 337 St. Paul Companies, Inc. 11,100 432 Torchmark Corp. 10,500 401 ------------------------------------------------------ 5,457 Manufacturing (Diversified) 3.12% Black & Decker Corp. 10,200 492 FMC Corp.* 3,100 94 Ingersoll-Rand Co. - A 9,400 429 Leggett & Platt, Inc. 18,100 424 Snap-On, Inc. 10,200 303 Whirlpool Corp. 6,200 405 ------------------------------------------------------ 2,147 Media & Media Services 2.26% Comcast Corp.* - A 22,900 546 Disney (Walt) Co. 14,400 272 Gannett Company, Inc. 8,900 676 Liberty Media Corp.* - A 5,900 59 ------------------------------------------------------ 1,553 Paper & Forest Products 1.76% Boise Cascade Corp. 10,100 349 MeadWestvaco Corp. 14,647 492 Smurfit-Stone Container Corp.* 24,200 373 ------------------------------------------------------ 1,214
45 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (continued) Socially Responsible Fund June 30, 2002
Number of Market Shares (000) -------------------------------------------------------------------- COMMON STOCK Printing & Publishing 0.56% (concluded) R.R. Donnelley & Sons Co. 13,900 $ 383 Railroad & Shipping 3.12% Burlington Northern Santa Fe Corp. 19,100 573 CSX Corp. 11,400 400 Norfolk Southern Corp. 23,100 540 Union Pacific Corp. 10,000 633 ------------------------------------------------------ 2,146 Retail & Apparel 4.47% Albertson's, Inc. 17,000 518 Federated Department Stores, Inc.* 12,700 504 Liz Claiborne, Inc. 15,400 490 May Department Stores Co. (The) 15,200 501 Sears, Roebuck and Co. 12,100 657 TJX Companies, Inc. 20,600 404 ------------------------------------------------------ 3,074 Utilities 5.02% Ameren Corp. 11,100 477 Cinergy Corp. 13,700 493 Consolidated Edison, Inc. 11,600 484 Constellation Energy Group 15,900 467 Entergy Corp. 11,100 471 Puget Energy, Inc. 11,175 231 Reliant Resources, Inc.* 24,500 214 Western Resources, Inc. 12,400 190 Wisconsin Energy Corp. 17,000 430 ------------------------------------------------------ 3,457 Total Common Stock 97.03% 66,806 (Cost $71,826) ------------------------------------------------------
46 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Investments (concluded) Socially Responsible Fund June 30, 2002
Principal Maturity Amount Market Rate Date (000) (000) ------------------------------------------------------------------------------------- SHORT TERM State Street Bank -- Repurchase Agreement INVESTMENT (secured by $2,059, US Treasury Bond, 8.875%, 08/15/17) 0.85% 07/01/02 $ 2,014 $ 2,014 -------------------------------------------------------------------------- Total Short-Term Investment 2.93% 2,014 (Cost $2,014) -------------------------------------------------------------------------- Total Investments 99.96% 68,820 (Cost $73,840) Cash & Other Assets In Excess of Liabilities 0.04% 29 -------------------------------------------------------------------------- Net Assets 100.00% $68,849 --------------------------------------------------------------------------
*Non-income producing during the six months ended June 30, 2002 as this security did not pay dividends. 47 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Assets and Liabilities June 30, 2002
SMALL CAP INTERNATIONAL SOCIALLY EQUITY BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE FUND FUND FUND FUND FUND FUND FUND --------------------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 895 $ -- $ 470,663 $ 15 $ 198,023 $ 117 $ 899 Investments at market value* 528,976,157 269,524,063 152,262,747 4,119,430 42,957,139 32,256,559 68,820,037 Foreign currency at value* -- -- 100,157 -- -- 67,284 -- Forward currency contracts -- -- 131,888 -- -- 243 -- Dividends and interest receivable 761,696 -- 1,432,273 24,256 1,046 32,987 129,332 Receivable-foreign taxes -- -- -- -- -- 45,319 -- Receivable-fund shares sold 87,843 64,823 26,058 2,142 54,697 40,391 46,715 Receivable-investments sold -- -- 2,745,968 -- 612,401 225,213 -- Other Assets -- 292 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total Assets 529,826,591 269,589,178 157,169,754 4,145,843 43,823,306 32,668,113 68,996,983 -------------------------------------------------------------------------------------------------------------------------- LIABILITIES Forward currency contracts -- -- 859,297 -- -- 95 -- Payable-fund shares redeemed 191,095 92,303 33,762 47,890 36,800 3,661 31,379 Payable-investments purchased 678,305 -- 31,278,778 -- 421,593 240,395 -- Payable-foreign taxes -- -- 1,321 -- -- -- -- Payable-advisory and related fees 538,605 -- 123,553 -- 78,063 50,765 95,746 Accrued expenses 42,205 21,747 30,840 4,701 27,992 47,624 20,591 -------------------------------------------------------------------------------------------------------------------------- Total Liabilities 1,450,210 114,050 32,327,551 52,591 564,448 342,540 147,716 -------------------------------------------------------------------------------------------------------------------------- NET ASSETS $ 528,376,381 $269,475,128 $124,842,203 $4,093,252 $ 43,258,858 $ 32,325,573 $68,849,267 -------------------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Par Value of Common Shares 29,798,765 1,731,665 991,751 40,159 -- -- -- Paid in Surplus 624,258,503 305,518,426 116,931,624 4,002,843 75,325,433 45,786,245 73,172,172 Accumulated undistributed net investment income (loss) 3,069,934 (9,316) 3,156,811 36,579 (403,349) (16,949) 431,620 Accumulated undistributed net realized gain (loss) from investments and foreign currency transactions (76,826,736) (11,347,423) 1,054,220 466 (25,569,823) (13,088,953) 265,259 Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currency (51,924,085) (26,418,224) 2,707,797 13,205 (6,093,403) (354,770) (5,019,784) -------------------------------------------------------------------------------------------------------------------------- NET ASSETS $ 528,376,381 $269,475,128 $124,842,203 $4,093,252 $ 43,258,858 $ 32,325,573 $68,849,267 -------------------------------------------------------------------------------------------------------------------------- Number of shares outstanding: (Authorized 50,000,000 shares each) 29,798,765 17,316,650 9,917,519 401,598 4,759,429 3,205,992 5,638,060 Par Value $ 1.00 $ 0.10 $ 0.10 $ 0.10 $ -- $ -- $ -- -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE $ 17.73 $ 15.56 $ 12.59 $ 10.19 $ 9.09 $ 10.08 $ 12.21 -------------------------------------------------------------------------------------------------------------------------- *Cost of Securities: Investments $580,900,242 $295,942,287 $148,846,146 $4,106,225 $ 49,050,542 $ 32,616,527 $73,839,821 Foreign Currency -- -- $ 94,320 -- -- $ 66,569 --
48 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Operations For the Six Months Ended June 30, 2002
SMALL CAP INTERNATIONAL EQUITY BALANCED INCOME SHORT-TERM GROWTH EQUITY FUND FUND FUND FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 5,168,492 $ -- $ -- $ -- $ 12,770 $ 355,320 Interest 46,775 -- 3,725,887 39,685 12,013 (700) Miscellaneous income 33,061 -- 84,485 -- -- -- ------------------------------------------------------------------------------------------------------------------------- 5,248,328 -- 3,810,372 39,685 24,783 354,620 Foreign taxes withheld (12,808) -- (6,525) -- -- (35,928) ------------------------------------------------------------------------------------------------------------------------- Total investment income 5,235,520 -- 3,803,847 39,685 24,783 318,692 EXPENSES: Advisory fees 1,147,714 -- 256,571 1,994 293,674 139,532 Administrative and support fees 1,204,468 -- 276,645 6,744 107,419 69,864 Professional fees 45,340 15,918 20,796 5,257 9,572 8,020 Fund Pricing fees 41,084 1,964 11,782 196 18,888 14,728 Custodian fees 84,657 3,987 23,922 399 38,348 29,903 Transfer agent fees 17,847 24 24 24 24 24 Shareholder reports 16,207 2,703 376 -- 2,161 1,350 Trustees' fees and expenses 3,620 3,620 3,620 3,620 3,620 3,620 ------------------------------------------------------------------------------------------------------------------------- Total expenses 2,560,937 28,216 593,736 18,234 473,706 267,041 ------------------------------------------------------------------------------------------------------------------------- Less advisory and related fees waived (106,894) -- (31,828) (6,744) (36,583) (3,617) Less expenses paid by Horace Mann Investors, Inc. -- -- -- (7,251) -- -- Less earnings credits on cash balances (1,244) (25) (6,457) (133) (8,991) (108) Less expenses paid by commission credits (107,110) -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net Expenses 2,345,689 28,191 555,451 4,106 428,132 263,316 ------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2,889,831 (28,191) 3,248,396 35,579 (403,349) 55,376 ------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS): Realized gain (loss) from: Investments (14,517,515) (231,126) 1,226,894 454 (1,736,343) (3,785,258) Foreign currency transactions -- -- -- -- -- 56,190 Net realized gain (loss) on investments and foreign currency transactions (14,517,515) (231,126) 1,226,894 454 (1,736,343) (3,729,068) Change in unrealized appreciation (depreciation) on: Investments (43,034,527) (13,208,017) (623,702) 1,873 (12,559,496) 2,345,579 Translation of assets and liabilities in foreign currencies -- -- (808,113) -- -- (58,596) Net realized and unrealized gain (loss) from investments and foreign currency transactions (57,552,042) (13,439,143) (204,921) 2,327 (14,295,839) (1,442,085) ------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $(54,662,211) $(13,467,334) $3,043,475 $37,906 $(14,699,188) $(1,386,709) -------------------------------------------------------------------------------------------------------------------------
SOCIALLY RESPONSIBLE FUND ------------------------------------------------------ INVESTMENT INCOME: Dividends $ 772,702 Interest 6,542 Miscellaneous income -- ------------------------------------------------------ 779,244 Foreign taxes withheld (58) ------------------------------------------------------ Total investment income 779,186 EXPENSES: Advisory fees 252,194 Administrative and support fees 151,793 Professional fees 9,555 Fund Pricing fees 6,990 Custodian fees 14,193 Transfer agent fees 24 Shareholder reports 2,161 Trustees' fees and expenses 3,620 ------------------------------------------------------ Total expenses 440,530 ------------------------------------------------------ Less advisory and related fees waived (71,330) Less expenses paid by Horace Mann Investors, Inc. -- Less earnings credits on cash balances (65) Less expenses paid by commission credits -- ------------------------------------------------------ Net Expenses 369,135 ------------------------------------------------------ Net investment income (loss) 410,051 ------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS): Realized gain (loss) from: Investments 601,134 Foreign currency transactions -- Net realized gain (loss) on investments and foreign currency transactions 601,134 Change in unrealized appreciation (depreciation) on: Investments (4,046,665) Translation of assets and liabilities in foreign currencies -- Net realized and unrealized gain (loss) from investments and foreign currency transactions (3,445,531) ------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $(3,035,480) ------------------------------------------------------
49 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Changes in Net Assets For the Periods Ended June 30, 2002 and December 31, 2001
EQUITY FUND BALANCED FUND INCOME FUND 2002 2001 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 2,889,831 $ 6,476,771 $ (28,191) $ 11,304,278 $ 3,248,396 $ 7,851,354 Net realized short-term gain (loss) on investments and foreign currency transactions (4,853,419) (8,401,237) -- 555,974 1,027,748 3,096,895 Net realized long-term gain (loss) on investments and foreign currency transactions (9,664,096) 15,253,546 (231,126) 1,069,485 199,146 545,803 Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currency (43,034,527) (39,792,198) (13,208,017) (8,969,598) (1,431,815) 44,781 ------------------------------------------------------------------------------------------------------------------------------- Change in net assets from operations (54,662,211) (26,463,118) (13,467,334) 3,960,139 3,043,475 11,538,833 ------------------------------------------------------------------------------------------------------------------------------- FROM DISTRIBUTION TO SHAREHOLDERS: Net investment income -- (6,403,440) -- (11,343,163) -- (7,597,565) Net realized short-term gain (loss) from investments and foreign currency transactions -- -- -- -- -- -- Net realized long-term gain (loss) from investments and foreign currency transactions -- -- -- -- -- (3,658,132) ------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders -- (6,403,440) -- (11,343,163) -- (11,255,697) ------------------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 17,448,008 46,039,181 10,192,026 22,053,789 6,592,041 8,676,908 Net asset value of shares issued in reinvestment of dividends and capital gain distributions -- 6,361,221 -- 11,343,163 -- 10,669,630 ------------------------------------------------------------------------------------------------------------------------------- 17,448,008 52,400,402 10,192,026 33,396,952 6,592,041 19,346,538 Cost of shares redeemed (34,425,060) (87,248,872) (19,425,100) (48,566,697) (10,838,134) (30,769,005) ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from fund share transactions (16,977,052) (34,848,470) (9,233,074) (15,169,745) (4,246,093) (11,422,467) ------------------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (71,639,263) (67,715,028) (22,700,408) (22,552,769) (1,202,618) (11,139,331) NET ASSETS: Beginning of period 600,015,644 667,730,672 292,175,536 314,728,305 126,044,821 137,184,152 ------------------------------------------------------------------------------------------------------------------------------- End of period $528,376,381 $600,015,644 $269,475,128 $292,175,536 $124,842,203 $126,044,821 ------------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (loss) $ 3,069,934 $ 180,103 $ (9,316) $ 18,875 $ 3,156,811 $ (91,585) -------------------------------------------------------------------------------------------------------------------------------
50 See notes to the financial statements. HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Statement of Changes in Net Assets For the Period Ended June 30, 2002 and December 31, 2001
SHORT-TERM SMALL CAP INTERNATIONAL SOCIALLY FUND GROWTH FUND EQUITY FUND RESPONSIBLE FUND 2002 2001 2002 2001 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------------------ $ 35,579 $ 97,265 $ (403,349) $ (714,566) $ 55,376 $ 771 $ 410,051 $ 754,525 454 6,245 (1,639,962) (23,462,409) (2,090,630) (5,953,035) 454,193 (611,825) -- -- (96,381) 584,049 (1,638,438) (3,402,781) 146,941 1,437,842 1,873 8,132 (12,559,496) (1,039,235) 2,286,983 (2,155,461) (4,046,665) (7,169,042) ---------------------------------------------------------------------------------------------------------- 37,906 111,642 (14,699,188) (24,632,161) (1,386,709) (11,510,506) (3,035,480) (5,588,500) ---------------------------------------------------------------------------------------------------------- -- (98,187) -- -- -- -- -- (737,826) -- (5,140) -- -- -- -- -- -- -- -- -- -- -- -- -- (1,050,319) ---------------------------------------------------------------------------------------------------------- -- (103,327) -- -- -- -- -- (1,788,145) ---------------------------------------------------------------------------------------------------------- 3,631,316 5,872,379 5,209,424 15,149,801 4,013,347 11,534,620 5,580,056 13,316,445 -- 103,327 -- -- -- -- -- 1,788,145 ---------------------------------------------------------------------------------------------------------- 3,631,316 5,975,706 5,209,424 15,149,801 4,013,347 11,534,620 5,580,056 15,104,590 (2,371,891) (5,170,353) (5,688,279) (15,678,077) (3,845,167) (9,169,309) (5,338,940) (12,095,496) ---------------------------------------------------------------------------------------------------------- 1,259,425 805,353 (478,855) (528,276) 168,180 2,365,311 241,116 3,009,094 ---------------------------------------------------------------------------------------------------------- 1,297,331 813,668 (15,178,043) (25,160,437) (1,218,529) (9,145,195) (2,794,364) (4,367,551) 2,795,921 1,982,253 58,436,901 83,597,338 33,544,102 42,689,297 71,643,631 76,011,182 ---------------------------------------------------------------------------------------------------------- $ 4,093,252 $ 2,795,921 $ 43,258,858 $ 58,436,901 $32,325,573 $ 33,544,102 $68,849,267 $ 71,643,631 ---------------------------------------------------------------------------------------------------------- $ 36,579 $ 1,000 $ (403,349) $ -- $ (16,949) $ (72,325) $ 431,620 $ 21,569 ----------------------------------------------------------------------------------------------------------
51 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements June 30, 2002 1. BUSINESS ORGANIZATION -- The Horace Mann Mutual Funds (the "Trust") is an open-end, diversified management investment company registered under the Investment Company Act of 1940, which offers units of beneficial ownership (shares) in seven separate investment portfolios: Equity Fund (formally Growth Fund), Balanced Fund, Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International Equity Fund and Socially Responsible Fund. These funds collectively are referred to as the "Funds." Shares are presently offered to Horace Mann Life Insurance Company (HMLIC) Separate Account and the HMLIC 401(k) Separate Account. The Equity Fund shares also may be purchased under the dividend reinvestment plans by certain shareholders. FUND INVESTMENT OBJECTIVES: A. Equity Fund -- primary, long-term capital growth; secondary, conservation of principal and production of income. B. Balanced Fund -- high long-term total rate of return consistent with prudent investment risks. C. Income Fund -- long-term total rate of return in excess of the U.S. bond market over a full market cycle. D. Short-Term Investment Fund -- primary, realize maximum current income to the extent consistent with liquidity; secondary, preservation of principal. E. Small Cap Growth Fund -- long-term capital appreciation. F. International Equity Fund -- long-term growth of capital primarily through diversified holdings of marketable foreign equity investments. G. Socially Responsible Fund -- long-term growth of capital, current income and growth of income. 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 ask 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; one such security was owned by the Equity Fund and Socially Responsible Fund at June 30, 2002. 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. The Income, International Equity, Small Cap Growth and Socially Responsible Funds may purchase or sell securities on a when-issued or delayed-delivery basis and make contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time. Securities purchased or sold on a when-issued, delayed-delivery or forward commitment basis involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Although a Fund would generally purchase securities on a when-issued, delayed-delivery or forward commitment basis with the intention of acquiring the securities, a 52 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (continued) June 30, 2002 Fund may dispose of such securities prior to settlement if its Sub-Investment Adviser deems it appropriate to do so. The Funds may dispose of or negotiate a when-issued or forward commitment after entering into these transactions. Such transactions are generally considered to be derivative transactions. The Funds will normally realize a capital gain or loss in connection with these transactions. When a Fund purchases securities on a when-issued, delayed delivery or forward commitment basis, the Fund's Custodian will maintain in a segregated account cash or liquid securities having a value (determined daily) at least equal to the amount of the Fund's purchase commitments. In the case of a forward commitment to sell portfolio securities, the Custodian will hold the portfolio securities themselves in a segregated account while the commitment is outstanding. These procedures are designed to ensure that the Fund will maintain sufficient assets at all times to cover its obligations under when-issued purchases, forward commitments and delayed delivery transactions. C. Federal income taxes -- It is the Funds' policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all taxable income to their shareholders. No provision has been made for federal income or excise taxes. Dividends and distributions payable to shareholders are recorded by the Funds on the record date. Net investment income for federal income tax purposes includes paydown gains and losses on mortgage backed securities and gains and losses realized on foreign currency transactions. These gains and losses are reclassified as net realized gains and losses for financial reporting purposes. The Equity Fund, Balanced Fund, Small Cap Growth Fund, and International Equity 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, 2001 the Equity Fund had an accumulated capital loss carry forward for tax purposes of $61,825,975 which will expire on December 31, 2008. At December 31, 2001 the Balanced Fund, Small Cap Growth Fund and International Equity Fund, had an accumulated capital loss carry forward for tax purposes of $10,503,078, $22,900,999, and $9,018,487, respectively, which will expire on December 31, 2009. Net realized gains or losses differ for financial reporting and tax purposes as a result of losses from wash sales and the mark to market of foreign currency contracts and passive foreign investment companies. 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. Due to inherent differences in the recognition of income, expenses and realized gains/losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences arise between book and tax basis reporting for the year ending December 31, 2001. For tax purposes, the Income Fund had a reclassification for MBS paydowns from accumulated undistributed net investment income to accumulated net gain(loss) in the amount of $190,000. The Equity Fund, Income Fund, International Equity Fund, and Socially Responsible Fund had a reclassification for foreign currency transactions from accumulated net gain(loss) to accumulated undistributed net investment income in the amount of $15, $184,571, $71,068, and $75, respectively. The Small Cap Growth Fund generated a net operating loss which has been reclassified from accumulated undistributed net investment loss to paid in capital in the amount of $714,566. The Income Fund had a reclassification of distributions from accumulated net investment income to accumulated net gain(loss) in the amount of $394,364. The Socially Responsible Fund had a reclassification of distributions from accumulated net gain(loss) to accumulated undistributed net investment income in the amount of $910. Additionally, the Socially Responsible Fund had a reclassification from the sale of a REIT from accumulated undistributed net investment income to accumulated net gain(loss) in the amount of $335. 53 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (continued) June 30, 2002 For the year ended December 31, 2001, the Income Fund and Socially Responsible Fund paid long-term capital gains of $557,685 and $1,049,409, respectively. E. Use of estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 increases and decreases in net assets from operations 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. 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 predetermined 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 -- Bernstein Investment Research and Management Unit of Alliance Capital Management, L.P., Mellon Equity Associates, LLP and Wellington Management Company, LLP, subadvisers for the Equity Fund, seek the best price and execution on each transaction and negotiates commission rates solely on the execution requirements of each trade. Occasionally, the subadvisers place, under a directed brokerage arrangement, common stock trades with an affiliated broker/dealer who credits to the Funds part of the commissions paid. F. Earnings Credits on Cash Balances -- During the first six months ended 2002, the Funds' custody fee was reduced as a result of credits earned on overnight cash balances. G. Foreign Currency Transactions -- The books and records of the funds are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: . market value of investment securities, other assets and other liabilities at the daily rates of exchange, and . purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized gain (loss) from foreign currency related transactions includes gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of foreign currency, and gains and losses between the ex-dividend and payment dates on dividends, interest and foreign 54 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (continued) June 30, 2002 withholding taxes. The effect of changes in foreign exchange rates on realized and unrealized gains or losses is reflected as a component of such gains or losses. H. Forward Currency Contracts -- The Income Fund and International Equity Fund may enter into forward currency contracts in order to reduce their exposure to changes in foreign currency exchange rates on their foreign portfolio holdings and to lock in the U.S. dollar cost of assets and liabilities denominated in foreign currencies. A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the differences between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing of such contract is included in net realized gain or loss from foreign currency transactions. At June 30, 2002 the Income and International Equity Funds had the following open forward currency contracts:
Current Unrealized Foreign Value Appreciation Currency U.S. Dollar (Depreciation) ------------------------------------------------------------------------------------- INCOME FUND Long Contracts: Euro Dollar 2,069,585 expiring 05/01/02 - 07/25/02 $ 2,037,614 $ 131,888) =========== Short Contracts: Euro Dollar 6,376,976 expiring 04/18/02 - 08/22/02 6,277,894 (634,728) Swedish Krona 7,121,993 expiring 04/18/02 - 07/25/02 771,577 (83,847) New Zealand Dollar 3,178,788 expiring 04/18/02 - 07/25/02 1,542,567 (140,722) ----------- $(859,297) =========== INTERNATIONAL EQUITY FUND Long Contracts: Euro Dollar 150,802 expiring 06/26/02 - 07/01/02 $ 148,653 $ 189 Pound Sterling 17,833 expiring 06/26/02 - 07/01/02 27,188 13 Short Contracts: Euro Dollar 32,628 expiring 06/28/02 - 07/03/02 32,163 41 ---------- $ 243 ========== Long Contracts: Pound Sterling 42,340 expiring 06/27/02 - 07/03/02 64,553 $ (95) ==========
55 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (continued) June 30, 2002 4. FUND SHARE TRANSACTIONS -- The Trust is an open-end, diversified management investment company registered under the Investment Company Act of 1940. Shares are presently offered to HMLIC Separate Account and the HMLIC 401K Separate Account. The Equity Fund shares also may be purchased under the dividend reinvestment plan by certain shareholders. Transactions in capital stock for the periods ended June 30, 2002 and December 31, 2001:
Shares issued to shareholders in reinvestment of dividends Net increase Shares sold and distributions Shares redeemed (decrease) ----------- ----------------- --------------- ------------ Equity Fund 06/30/2002 924,296 -- (1,784,298) (860,002) 12/31/2001 2,375,752 325,549 (4,370,630) (1,669,329) Balanced Fund 06/30/2002 627,455 -- (1,196,685) (569,230) 12/31/2001 1,318,213 697,183 (2,905,713) (890,317) Income Fund 06/30/2002 531,504 -- (863,553) (332,049) 12/31/2001 670,476 874,560 (2,364,284) (819,248) Short-Term Fund 06/30/2002 357,985 -- (233,785) 124,200 12/31/2001 575,879 10,271 (508,562) 77,588 Small Cap Growth Fund 06/30/2002 488,570 -- (539,272) (50,702) 12/31/2001 1,157,554 -- (1,177,212) (19,658) International Equity Fund 06/30/2002 388,305 -- (371,696) 16,609 12/31/2001 964,473 -- (767,265) 197,208 Socially Responsible Fund 06/30/2002 432,976 -- (414,683) 18,293 12/31/2001 1,004,836 141,132 (911,576) 234,392
5. MANAGEMENT AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES A. Horace Mann Educators Corporation (HMEC) is the parent company of Horace Mann Investors, Inc. (Investors) and Horace Mann Service Corporation (HMSC) and indirectly owns HMLIC. Collectively, these companies are referred to as Horace Mann. On February 19, 2002 Oechsle International Advisors, LLC replaced Zurich Scudder Investments, Inc. as the subadviser on the International Equity Fund. 56 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (continued) June 30, 2002 Each subadviser's fees are paid by the adviser out of the advisory fees that it receives from each of the funds. Fees paid to a subadviser of a fund with multiple subadvisers depends upon the fee rate negotiated with the adviser and upon the percentage of the fund's assets allocated to that subadviser by the adviser, which may vary from time to time. Thus, the basis for fees paid to any such subadviser is not constant, and the relative amounts of fees paid to the various subadvisers of a fund will fluctuate. These internal fluctuations, however, will not affect the total advisory fees paid by a fund, which will remain fixed on the terms described below. The adviser may, however, determine in its discretion to waive a portion of its fee if internal fluctuations in the fee to be paid to the subadvisers results in excess profit to the adviser. Because the adviser will pay each subadviser's fees out of its own fees from the Funds, there will not be any "duplication" of advisory fees paid by the Funds. For the six months ended June 30, 2002, services provided and expenses assumed pursuant to the Investment Advisory Agreement, the Adviser received a fee based on each fund's average daily net assets, computed daily and payable monthly, at the following annual rates. For the same period, the adviser waived fees in the amounts listed below. Fund Rate Fees waived Equity Fund 0.400% $106,894 Balanced Fund* 0.400 -- Income Fund 0.400 31,828 Short-Term Investment Fund 0.125 -- Small Cap Growth Fund 1.150 36,583 International Equity Fund 0.850 3,617 Socially Responsible Fund 0.700 71,330 *Effective January 19, 2000, the Balanced Fund began operating under a "fund of funds" structure, primarily investing in shares of the Equity Fund and the Income Fund. Under the "fund of funds" arrangement, the Adviser receives directly from the Balanced Fund a fee of 0.400% of the average daily net assets of the Balanced Fund that are not invested in another Fund. B. Pursuant to an Administration Agreement with the Funds, Investors provides for the management of the business affairs of each fund, including, but not limited to, office space, clerical services, bookkeeping and other similar services. For the six months ended June 30, 2002, Investors received a fee, accrued daily and paid monthly, based upon the combined assets for the Funds as follows: Net Assets Rate On initial $1 billion 0.250% Over $1 billion 0.200% C. Pursuant to a Support Services Agreement, HMLIC provides certain services to the Funds necessary to coordinate the Funds' activities with those of the Separate Account of HMLIC other than the administrative agreement. For the six months ended June 30, 2002, HMLIC received a fee, accrued daily and paid monthly, based upon the combined assets for the Funds as follows: Net Assets Rate On initial $1 billion 0.150% Over $1 billion 0.100% D. Transfer and dividend disbursing agent services are provided by HMSC on a per account basis. The transfer agent fees for the six months ended June 30, 2002 were $17,847 for the Equity Fund, $24 each for the Balanced, Income, Short-Term, Small Cap Growth, International Equity and Socially Responsible Funds. 57 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Notes to the Financial Statements (concluded) June 30, 2002 E. The Trust pays each independent trustee a $1,000 annual retainer, $1,000 per board meeting attended, $200 for each committee meeting and $500 for each telephonic meeting. For the six months ended June 30, 2002, the fees, excluding travel expenses, for independent trustees totaled $16,800. There were three meetings held during this period. The Trust does not compensate interested officers and trustees (those who are also officers and/or trustees of Horace Mann). 6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term investments, for the six months ended June 30, 2002 were:
Purchases Proceeds from sales ----------------------------------------------------------------------- Equity Fund $87,338,794 $105,165,583 Balanced Fund 7,136,090 15,897,711 Income Fund 33,221,479 31,723,485 Short-Term Fund -- -- Small Cap Growth Fund 56,988,178 56,448,299 International Equity Fund 227,479,012 215,489,845 Socially Responsible Fund 12,283,060 11,243,211
The following table shows investments, excluding foreign currency, at cost and unrealized appreciation (depreciation) for federal income tax purposes by fund at June 30, 2002.
Aggregate gross Aggregate gross Net unrealized unrealized unrealized appreciation appreciation (depreciation) (depreciation) ----------------------------------------------------------------------------------------------- Equity Fund $52,614,807 $(104,538,892) $(51,924,085) Balanced Fund 3,548,596 (29,966,820) (26,418,224) Income Fund 5,938,221 (3,230,424) 2,707,797 Short-Term Fund 13,205 -- 13,205 Small Cap Growth Fund 2,718,710 (8,812,113) (6,093,403) International Equity Fund 1,475,462 (1,830,232) (354,770) Socially Responsible Fund 4,798,466 (9,818,250) (5,019,784)
58 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Management of the Funds A listing of the Trustees and Officers of the Trust, their ages, their principal occupations for the past five years and their affiliation with other companies affiliated with Horace Mann Life Insurance Company is presented below. The address of each Trustee and Officer is P.O. Box 4657, Springfield, Illinois 62708-4657. Non-Interested Trustees
Number of Term of Portfolios in Other Position(s) Office and Fund Complex Directorships Held with Length of Principal Occupation(s) Overseen Held by Name and Age Fund Time Served During Past 5 Years by Director Director ------------------------------------------------------------------------------------------------------------------------------------ A. Thomas Arisman, 55(2) Trustee Since 2002 Formerly President, Horace Mann 7 N/A Mutual Funds; formerly Senior Vice President, Horace Mann Life Insurance Company and Horace Mann Service Corporation; formerly Director and President, Horace Mann Investors, Inc.; formerly held positions with Horace Mann Educators Corporation and its subsidiaries; formerly Trustee, Horace Mann Mutual Funds (1989-1997, 1999-2000) Roger A. Formisano, 53 Trustee Since 2002 Professor of Executive Education, 7 Integrity UW-Madison School of Business; Mutual Principal, R.A. Formisano & Company, Insurance LLC; Executive Vice President and Company Chief Operating Officer, United Wisconsin Services, Inc. (1992-1999) A.L. Gallop, 76 Trustee Since 1996; Retired; formerly Executive Director, 7 N/A Trustee of Minnesota Education Association; Predecessor formerly Director, Horace Mann Funds from Educators Corporation 1957 to 1996 (1968-1983) Richard A. Holt, 60(1) Trustee Since 1998 Retired; formerly Senior Relationship 7 N/A Manager, Scudder Insurance Asset Management Richard D. Lang, 70(2) Trustee Since 1997 Retired; formerly Executive Director, 7 N/A Vermont National Education Association; formerly member of Horace Mann Educators Corporation Educator Advisory Board Harriet A. Russell, 61 Trustee Since 1996; Member, Cincinnati Board of Education; 7 Greater Trustee of President, Greater Cincinnati Credit Cincinnati Predecessor Union; formerly teacher, Walnut Credit Funds from Hills High School; formerly Director, Union Board 1992 to 1996 Horace Mann Growth Fund (1974-1983) George J. Zock, 51(3) Trustee Since 1996; Executive Vice President, 7 Horace Mann and Trustee of Horace Mann Life Insurance Life Insurance Chairman Predecessor Company and Horace Mann Company; Funds from Service Corporation; positions Horace Mann 1995 to 1996 with Horace Mann Educators Service Corp.; Corporation and its subsidiaries Horace Mann Investors, Inc.
(1) Mr. Holt employs the Bernstein Unit of Alliance Capital Management, subadviser to the Equity Fund and the Socially Responsible Fund, to manage assets that he controls. (2) Mr. Arisman and Mr. Lang are shareholders of an affiliate of the Administrator of the Trust. (3) Mr. Zock is an employee and shareholder of an affiliate of the Administrator of the Trust and, therefore, is considered an affiliate of the Administrator. 59 HORACE MANN MUTUAL FUNDS 2002 FUNDS SEMI-ANNUAL REPORT (UNAUDITED) Officers
Position(s) Term of Office Held with and Length Principal Occupation(s) Name and Age Fund of Time Served During Past 5 Years ----------------------------------------------------------------------------------------------------------------------- Christopher Fehr, 32 President Since 2002 President and Director, Horace Investors Inc.; Compliance Officer for Advance Trading, Inc. (2000-2002); Compliance Analyst for State Farm Insurance Company (1994-2000) Ann M. Caparros, 49 Secretary and Ethics Since 1996 Director, Vice President, General Counsel, Compliance Officer Chief Compliance Officer and Corporate Secretary, Horace Mann Life Insurance Company and Horace Mann Service Corporation; Secretary, Horace Mann Investors, Inc.; and positions with Horace Mann Educators Corporation and its subsidiaries J. Michael Henderson, 60 Treasurer Since 2002 Treasurer, Horace Mann Investors, Inc,; Vice President and Treasurer, Horace Mann Life Insurance Company and Horace Mann Service Corporation; and positions with Horace Mann Educators Corporation and its subsidiaries Linda Sacco, 58 Assistant Secretary Since 1987 Assistant Corporate Secretary, Horace Mann Life Insurance Company, Horace Mann Service Corporation, Horace Mann Investors, Inc.; and positions with Horace Mann Educators Corporation and its subsidiaries Bret Conklin, 38 Controller Since 2002 Senior Vice President and Controller, Horace Mann Life Insurance Company, Horace Mann Service Corporation, Horace Mann Investors, Inc.; and positions with Horace Mann Educators Corporation and its subsidiaries; Vice President Accounting Services, Kemper Insurance (2000-2002); Vice President and Controller, Horace Mann Educators Corporation and Horace Mann Life Insurance Company (1998-2000); Vice President and Controller, Pekin Insurance (1992-1998) Diane Barnett, 48 Tax Compliance Since 1995 Assistant Vice President, Tax Compliance Officer, Officer Horace Mann Life Insurance Company, Horace Mann Service Corporation, Horace Mann Investors, Inc.; and positions with Horace Mann Educators Corporation and its subsidiaries
The Statement of Additional Information for the Horace Mann Mutual Funds includes additional information about the Trustees and Officers and is available without charge by calling 1-800-999-1030. 60 Horace Mann Value proposition Provide lifelong financial well-being for educators and their families through personalized service, advice and a full range of tailored insurance and financial products. [PHOTO APPEARS HERE] [LOGO OF HORACE MANN MUTUAL FUNDS] The Horace Mann Companies 1 Horace Mann Plaza Springfield, Illinois 62715-0001 --------------- PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT NO. 1910 --------------- IA-004359 (8/02)