-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NAfX1bmx5ABfeaFdlmlLCyD614C/W4qtdjfD6JPOE2NRy1U5IFpkOpHH3+aaOFgv fI4ZhCxkFgMBLczlNdCApA== 0000940180-02-000461.txt : 20020415 0000940180-02-000461.hdr.sgml : 20020415 ACCESSION NUMBER: 0000940180-02-000461 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANN HORACE LIFE INSURANCE CO SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000110698 IRS NUMBER: 370726637 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01343 FILM NUMBER: 02564829 BUSINESS ADDRESS: STREET 1: #1 HORACE MANN PLZ CITY: SPRINGFIELD STATE: IL ZIP: 62715-0001 BUSINESS PHONE: 2177892500 MAIL ADDRESS: STREET 1: PO BOX 4657 CITY: SPRINGFIELD STATE: IL ZIP: 62708-4657 N-30D 1 dn30d.txt HORACE MANN LIFE INSURANCE CO. SEPARATE ACCOUNT [PHOTO] Up Close Annual Report December 31, 2001 History shows patience is rewarded Agent-client relationship fueled by caring and trust Horace Mann Horace Mann Mutual Funds and Horace Mann Life Insurance Company Separate Account Annual Report [PHOTO] Enjoy "one-stop shopping" with Horace Mann It gives you confidence to have one doctor or one attorney you can count on. Having one insurance agent to handle your insurance portfolio can provide you the same convenience and peace of mind. Horace Mann offers you a full range of insurance products and services designed for educators and education support personnel, including: . Auto insurance . Life insurance . Homeowners, renters or . Disability insurance condominium insurance . Flood insurance If you'd like a full insurance review, contact your agent. Table of Contents [PHOTO] Features Agent-client relationship fueled by caring and trust ......... 3 Bourque's `I care' attitude propels his success .............. 8 History shows patience is rewarded ........................... 12 Departments Investment adviser letter .................................... 16 Financial statements ......................................... 21 On the cover: Horace Mann's Maurice Bourque helps guide client Susan Norton along her path toward retirement planning. [PHOTO] 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 Mutual Funds - -------------------------------------------------------------------------------- P.O. Box 4657 Springfield, IL 62708-4657 (217) 789-2500 Fellow Shareholders: One of the most important tasks you will undertake in the course of your career is investing for retirement, and Horace Mann is proud to serve you in your effort to cultivate long-term financial success. Thank you for your continued confidence in the Horace Mann Mutual Funds. Market Review The events of Sept. 11 cast a cloud on an already disappointing year for stock investors. While the nation rallied together following the attacks, the year proved difficult as the bull market of prior years became a distant memory. Companies continued to suffer under the weight of a lagging economy, and pockets of growth were few and far between. Investors continued to see losses in many technology-oriented stocks as 2001 proved especially difficult for this sector. Companies whose market values grew significantly in previous years pulled back and prior years' gains eroded. Long-term value stock investors were rewarded as the growth style of investing, which had enjoyed unmitigated success in recent years, fell behind their value counterparts. While 2001 provided investors with extreme challenges, the benefits of well-diversified investing were clearly apparent. As an example, bonds generally performed well in this environment, building on gains of the previous year. While 2001 was a down year in the stock market, there were some spots for encouragement in the Horace Mann Mutual Funds family: . The Equity Fund, though it posted a slightly negative return in 2001, significantly outperformed the S&P 500 Index, continuing a trend that began in early 2000; . The Balanced Fund also posted solid returns, picking up ground for the year and exceeding its benchmark; . The International Equity Fund performed in sympathy with a difficult environment for international stocks, yielding slightly to its benchmark; . Income Fund investors enjoyed gains that countered the decline in stock prices; and . The Short-Term Investment Fund produced positive returns in 2001. All of the Horace Mann Mutual Funds remain well positioned to provide you with appropriate investments for your long-term retirement needs. Wilshire Associates, in their role as Adviser, made two significant changes in the management of the funds in 2001. Mazama Capital Management was retained to manage a portion of the Small Cap Growth Fund, and Bernstein Investment Research & Management's assignment with the Horace Mann Mutual Funds was expanded to include the Socially Responsible Fund. Results have been encouraging in these funds so far, and Wilshire Associates will continue to monitor the management of the funds and take the necessary steps to strive to provide you with the best opportunity to succeed in your investment plan. With great appreciation for your dedication in educating our nation's schoolchildren during these difficult times, Horace Mann maintains its commitment to providing you with financial solutions that make sense for the long term. We look forward to working by your side in this challenging investment environment, and assisting you in reaching your long-term investment objectives. On behalf of Horace Mann, I thank you for your continued confidence in the Horace Mann Mutual Funds, and wish you the very best in 2002. Sincerely, /s/ George Zock George Zock Chairman Horace Mann Mutual Funds Agent-client relationship fueled by caring and trust [PHOTO] Fred Mailloux leads a comfortable life in Raynham, Mass. He's been a teacher for 31 years, and he recently retired as a lieutenant colonel in the Army Reserve. Some may think the teacher in him guides his daily life. But actually it's Mailloux's values that have shaped him while maturing in his professional life. As if preparing a daily lesson plan for in the classroom, where he teaches French and Spanish at Foxboro High School, Mailloux uses the same disciplined approach to adhering to his financial plan as when be began crafting it when he started his teaching career in 1972. "I'm sort of a traditionalist," said Mailloux. "I've had a financial plan in place for a long time. I don't or die by the daily market. When there's a downturn, like after Sept. 11, I take the punch, confident the market will be back up, as it has been. There's no need to panic." Mailloux has been a Horace Mann customer since 1975 and a client of agent Maurice R. Bourque, CLU, ChFC, LUTCF, since the early 1980s. "I know Maurice is an insurance agent," said Mailloux. "However, in many ways, he's my financial manager. I have two homeowner policies, two life insurance policies, my family insures six cars, an umbrella policy, and my 403(b) are through Horace Mann. I wouldn't want anybody else handling my insurance. "Maurice and I meet every summer, usually in July, and go over everything in detail. We know where we've been, where we're at and where we're going. I appreciate his advice and assistance very much. He always brings TLC to the discussion, and it's quite apparent. He treats me as Fred Mailloux, not a number." Fred Mailloux, right, of Raynham, Mass., and a Horace Mann client since 1975, enjoys a chat with his insurance representative Maurice Bourque. [PHOTO] 3 Changing needs Mailloux is nearing retirement, and his financial needs are changing. He's been married 28 years to Carol, a professor of nursing at the University of Massachusetts-Dartmouth. They have a daughter at home, Caroline, a junior in high school. Mailloux has two sons, Michael, a graduate of St. Michael's (Vermont) College and a first lieutenant airborne ranger stationed at Fort Bragg, N.C., and Peter, a graduate of St. Anselm's (New Hampshire) College, who works for a large food chain in the New England area. [PHOTO] "Carol and I have two kids through college and we have my daughter to go," said Mailloux. "Through the years that has been our focus, a college education for each child. We've planned for that, for all practical purposes, from the beginning of our marriage. "Now, we're shifting to retirement planning. That's always been in the back of our mind, but now with Caroline nearing college, our retirement planning has come more to the forefront. It's all part of our financial plan." The "traditional" Mailloux uses a conservative approach to his financial plan. His investment approach has always been long-term. "I like the strong, old companies who have been around for a long time, and you know they'll be in around for a long time," said Mailloux. "I go with the proven choices. I've never been in a hurry. It's not about timing. It's about staying in the race for the duration. The way to make money is not the fast way, but the patient way." The Massachusetts-born Mailloux earned a bachelor's degree from Providence College in modern language education and a master's in guidance counseling from Bridgewater (Mass.) State College. "I've been blessed with a wonderful family and occupation," said Mailloux. "It's a joy to be teaching young people, to connect with them and be an influence. I've met many wonderful people. The students are great, my colleagues are enthusiastic and energetic, and the administration has been helpful. It's through contacts at school I met Maurice Bourque. "Our relationship isn't personal to the point we share dinners or get-togethers, but it's not all professional, either. We know each other very well. Maurice always asks about the family. He has a very positive personality. He would have made a great teacher. He's patient and makes sure I understand everything. I have confidence in Maurice, but more importantly, I trust him. That's why he has all lines of my insurance. I can talk to him and not have to make three or four phone calls." Professor Carol Mailloux, wife of Fred Mailloux, discusses a policy with Maurice Bourque. "It's not about timing. It's about staying in the race for the duration. The way to make money is not the fast way, but the patient way." 4 The convenience of 'one-stop shopping' Susan Norton of Rochester, Mass., also appreciates the convenience of one-stop shopping. "One call to Maurice does it all," said Norton. "It makes so much sense to keep it together. We're pleased with Maurice. He's very professional and very accommodating. I've directed several families to him, and they're still with him. I think that speaks volumes." Norton's presence also speaks volumes at Rochester Memorial School, an elementary school of 515 students where she has presided as assistant principal since 1990 and where she began her teaching career in 1976. It was soon after that she met Bourque. "When I began teaching, I had another Horace Mann agent," said Norton, who earned bachelor's and master's degrees from Bridgewater (Mass.) State College. "He had been with the company a long time and moved out of state. Maurice took over for him, and we hit it off immediately. Since then, we meet every year and review the policies." [PHOTO] Susan Norton, an assistant principal from Rochester, Mass., enjoys the convenience of having her insurance policies with one agent. Norton has life, homeowners, four auto policies and two annuities. "My first policy was a life insurance policy on myself," said Norton. "As the years went by and I married and had children, the needs increased, and Maurice was always there. "My most recent purchase was another annuity. I had an annuity through school, and Stuart (her husband) had one through Maurice. Now I have an annuity through Maurice, and it's better than the one I have at school." Norton also has a life policy on each of her two daughters, Michelle, a nursing student at the University of Massachusetts-Dartmouth, and Kimberly, a senior at Old Rochester Regional High School who has been accepted at Stonehill (Mass.) College, where she will study psychology. [PHOTO] Kimberly Norton, daughter of Susan and Stuart Norton, intends to study psychology after graduating from high school this spring. "We're very happy the girls want to go to college. We're very lucky parents," said Norton, who has been married to her childhood sweetheart for nearly 27 years. "We had a romance in the third grade. Stuart gave me a red plastic heart pin on Valentine's Day. Who would have thought then we'd marry and have two wonderful daughters?" 5 "When I don't understand what he's saying, I'm never afraid to say you lost me. He takes the time to make sure I understand everything he has to say. I never feel rushed." [PHOTO] Maurice Bourque, seated, explains the asset allocation process to Susan and Stuart Norton. Norton's husband teaches mathematics and theory as it relates to carpentry at Old Colony Regional Vocational Technical High School in Rochester. "Stuart is a talented builder," said Norton. "He built the house we're living in. He used to work for a builder, but he didn't have retirement benefits. Maurice ensured that we got the services he didn't have in that profession." That, Norton said, is why Bourque has been her agent for so long. "He's honest," Norton said. "He cares about me and my family. I tend to be a doubting Thomas and somewhat skeptical, but I trust him. He's not scamming me. When I don't understand what he's saying, I'm never afraid to say you lost me. He takes the time to make sure I understand everything he has to say. I never feel rushed." More options for retirement planning Never had Norton appreciated Bourque more than in the last 18 months when Horace Mann added nearly 25 more variable annuity investment options to help her in her effort to achieve a more comfortable retirement. "We went through the asset allocation process and determined my risk tolerance," said Norton. "Maurice guided me every step of the way." Bourque helped Norton select which variable annuity investment options were right for her. "I rely on him because he is so knowledgeable," said Norton. "I just wish I had put money in an annuity sooner." Norton said she does not move from one variable annuity investment option to another variable annuity investment option, chasing what is -- or was - hot. "I learned early on from Maurice that the market balances itself out quite nicely," said Norton "Patience ultimately wins." 6 Agent advice includes Horace Mann scholarships Maria Queiroz of New Bedford, Mass., is raising her 9-year-old son Joey, whose dream and aspiration is to attend Massachusetts Institute of Technology and study archeology. Even with Bourque's help, Queiroz realizes she needs more. "Joey has a real expensive dream," said Queiroz. "I want him to dream his dreams. Naturally, I'll do everything I can to help him realize his dreams. I know I'll need some help in the form of scholarships. And even though Joey is only 9, Maurice has told us about the Horace Mann scholarships. I know there are several different denominations, including one for $20,000 over four years. That's impressive of him to let me know, even though I'm not going to be needing it for another nine or 10 years. But he's making me aware of my options." Bourque has been making Queiroz aware of her options since he sold her an annuity in 1996. Since then, Queiroz has purchased a life, homeowner and auto policy from him. "It was a package deal," laughed Queiroz. "Actually, I got the annuity first. He calls me every year for a review. He sends me birthday cards every year, and I get a card from him every year asking if I'm satisfied. "I wish I could do more with my annuity, but right now I'm unable to. But Maurice is there to let me know he's there with advice or just thinking of me. There isn't any pressure. He's down to earth. He is a kind and considerate gentleman." Queiroz has taught special education at Normandin Junior High School -- where she attended sixth through eighth grades -- for the past nine years. She earned a bachelor's of arts degree in sociology from the University of Massachusetts-Dartmouth and a master's in special education from Bridgewater (Mass.) State College. "Obviously, education is very important to me," said Queiroz. "It's a passion I have. It's one I'm passing to Joey. That is why it's important I make his dream come true. I want him to go to the best school possible. I want Joey to have the best education possible. Education creates opportunities and opens so many doors. I don't want any to be closed to him." Neither does Bourque. "Whether a family like Maria's is saving for college or retirement, I want to help them accomplish their objectives," said Bourque. "If I can do that, then I have succeeded far more than any awards I may receive." [PHOTO] New Bedford, Mass., teacher Maria Queiroz is happy and content trying to help students -- and her son Joey -- realize their dreams. 7 Bourque's `I care' attitude propels his success A simple credo guides Horace Mann agent Maurice Bourque's business: "The customer doesn't care how much I know until that person knows how much I care." That philosophy has served the Massachusetts agent since joining Horace Mann in 1979. It has earned him outstanding sales performance and recognition within the company and in the industry. It has also enabled him to easily fulfill the Horace Mann value proposition of providing lifelong, financial well-being for educators and their families through personalized service, advice and a full range of tailored insurance and financial products. "You have to care," said Bourque. "That is what insurance is all about. That is what I do, and what I do best. Before I design a program to meet my clients' objectives, I listen to them. I ask questions. Then I use my knowledge and experience to determine which of our products fit their needs best. Annuities in varied forms often work best. "Many of my clients have been with me since I started this business, and now their children are coming forward with families of their own. I'm very pleased to have my name passed from generation to generation." [PHOTO] Bourque's clients have many different annuity investment options, including a fixed account and several variable accounts. The number has more than doubled in the last 18 months, which has provided his clients much more flexibility in diversifying their holdings. "Many of my clients have been with me since I started this business, and now their children are coming forward with families of their own. I'm very pleased to have my name passed from generation to generation." [PHOTO] Maurice Bourque and his "I care" attitude have helped meet the insurance needs of his clients since 1979. 8 Helping educate the educators Part of being a good agent is being a good educator, and the irony is that many of Bourque's customers -- as is Horace Mann's target audience -- are teachers. To better educate and inform his customers, Bourque stays abreast of changing tax laws by staying current of new regulations. "My customers deserve to know I'm watching out for their interests," said Bourque. "I pride myself in knowing what's going on with laws and regulations. That enables me to provide better service to my customers. They deserve the best effort I can put forth. They deserve to have their agent be the most knowledgeable he or she can be." And like many of his educator clients who have gone back to school for advanced degrees, Bourque has expanded his insurance and financial knowledge with additional education. He has earned the Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC) and the Life Underwriting Training Council Fellow (LUTCF) designations. The courses Bourque has taken support his efforts to be the best financial services professional he can be for his clients. [PHOTO] "Call me old-fashioned, but this business is still a people's business," said Maurice Bourque, who meets with client Maria Queiroz and son Joey. "To me, these designations tell my customers I have gone the extra mile to be a better informed insurance professional," said Bourque. "I've advanced my studies to become an expert. Undoubtedly, it adds to my credibility. And it strengthens my reputation as a professional with experience and expertise to help my customers craft a financial plan. My relationship with my customers is one of loyalty and trust, and I've worked my life to create that. I take it seriously and would never betray their confidence." 9 Bourque has earned numerous company awards, and his industry honors have likewise been sterling, including earning membership to the President's Council of Life Millionaires (the highest level of sales production and service) for 21 consecutive years. He is also a life and qualifying member of the prestigious International Million Dollar Round Table. "Maurice is very professional and courteous, and he provides instantaneous service," said Fred Mailloux, a long-time Bourque client. "Whenever I speak to him, I feel I have his attention, and I'm important." "Maurice is an exceptionally wonderful man." Said Norton "He's accessible and accommodating. "He has always been there for my family." [PHOTO] Maurice Bourque chats with Susan Norton on one of his many visits to Rochester Memorial School. Internet a complement to agent But Bourque realizes customers are changing the way they do business. They want instant accessibility 24 hours a day, seven days a week, and that's through the Internet. "E-mail is becoming huge in our industry and will be the future of our business," said Bourque. "We get requests every week from clients and potential clients." The response cards Bourque sends on a regular basis to clients asking what he can do better is often returned with requests for Internet access. "Lately, that's a consistent theme," said Bourque. "I'm in the process of developing a Web page for the business." Horace Mann has a Web site, www.horacemann.com, and it is constantly being updated and upgraded to provide more information for its customers to access anytime from anywhere. "This site is a resource for all kinds of information," said Bourque. "It's constantly evolving, and eventually will be able to meet most of the customers' needs to do business with Horace Mann. My Web site will complement it. 10 "Call me old fashioned, but this business is still a people's business." [PHOTO] "The Internet is exciting and wonderful and necessary. It's a new way of doing business and one that you can't ignore. However, let's keep it in perspective that it's still just a tool. It's not an end-all, cure-all method of selling and servicing insurance and financial products. There's still the human factor I possess that you can't access on the computer or the Internet. I still want to meet with you. I want to sit across from you and look eye-to-eye with you. I want to see your face; I want you to see mine. Call me old fashioned, but this business is still a people's business." Bourque attributes much of his success to the professionals at Horace Mann. They have provided him the necessary resources to help his clients create solid plans. "Our customers and their habits are changing," said Bourque. "And we're changing to meet those needs. We've worked hard to bring to our customers more variable annuity investment options. We're working hard to enhance our Web site. We're working hard to meet our customers' needs." Equally dedicated to the success of Horace Mann and Bourque is his wife of 32 years, Germaine, who has worked side-by-side with him since they began the business. They have two daughters, Kendra and Michelle. "We're a service-oriented business," said Bourque. "We built this business on service. And we deliver impeccable service. That couldn't have happened without Germaine's support." [PHOTO] Maurice Bourque and his wife, Germaine, and office assistant Melinda McClain deliver quality service based on care and respect. 11 History shows patience is rewarded "When there's a downturn, like after Sept. 11, I take the punch, confident the market will be back up, as it has been. There's no need to panic." [PHOTO] Fred Mailloux understands focusing on long-term objectives provides the balance to a volatile market. Maintaining a long-term perspective is critical in weathering a short-term crisis. The initial drop in the stock market following the terrorist attacks of Sept. 11 was not unusual and not unexpected. The U.S. stock market has endured many crises including the Japanese attack on Pearl Harbor in 1941; the Kennedy assassination in 1963; the October crash of 1987; and the Iraqi invasion of Kuwait in 1990. Naturally, these events were defined by emotion and uncertainty. Stock prices fell, but were followed by significant recoveries within three to six months (see chart U.S. market reaction to tragic events). Massachusetts educator Fred Mailloux is a long-time Horace Mann annuity client and understands the market has its volatile moments. However, his long-term objectives remain steadfast and unyielding to short-term market fluctuations. "I don't live or die by the daily market," said Mailloux. "When there's a downturn, like after Sept. 11, I take the punch, confident the market will be back up, as it has been. There's no need to panic." S&P 500 recovery after Sept. 11 attacks [CHART] Source: Wilshire Associates Incorporated Investors like Mailloux were proven right when the market regained its value and closed above pre-attack levels just one month later. Historically, a pattern of recovery -- depicted in the chart U.S. market reaction to tragic events -- has recurrently emerged. In the case of Pearl Harbor, the market rose 1.6 percent in the first month following the initial market reaction. After the Kennedy assassination, the market gained 2.6 percent in the following month. It rose 2.2 percent after the February 1993 bombing of the World Trade Center. The Iraqi invasion of Kuwait caused the market to fall for a month; however, it rebounded after six months to post a higher periodic return than the same time period following the other tragic events mentioned. Investors have learned the U.S. stock market is resilient. The rebounds following drops in price levels reward patient investors. While it may be tempting to flee the stock market when it drops, emotional times may not be the best time to make dramatic investment decisions. "The market is volatile, and investors are tempted to trade on emotion," said Tom Goodrum Jr., vice president at Wilshire Associates Incorporated. "This leads them to buy when prices are high and sell when prices are low. A carefully crafted plan can protect an investor from 12 U.S. Market Reaction to Tragic Events [GRAPH] Source: Wilshire Associates Incorporated The above chart tracks the S&P Index, which measures the performance of a representative sample of 500 of the largest U.S. stocks. The chart does not reflect the performance of any Horace Mann product or investment option. making poor decisions due to emotion, thus increasing their chances of reaching their investment objectives." The chart (used in the fourth quarter edition of Horace Mann's "Up Close") shows the benefit of staying invested in the stock market after the Sept. 11 attacks. The chart is a hypothetical example based on the returns of the S&P 500 Index and the Lipper Money Market Index for the period of Sept. 10 through Dec. 31. "It's not about timing," said Mailloux about the market. "It's about staying in the race for the duration. The way to make money is not the fast way, but the patient way." Susan Norton, also a Massachusetts educator, concurred. "I learned early on that the market balances itself out quite nicely," she said. "Patience ultimately wins." Goodrum believes long-term investors know the value of patience, and many of them keep these points in mind: Have a plan: If your goals have not changed, keep the plan in place. Keep investing: The best way to ensure you will not buy in at the highest price is to continually purchase shares at regular intervals. You can do this on a paycheck deduction plan or through regular monthly payments into a tax-deferred annuity Diversify: Spread your investments among a variety of variable annuity investment options. Having investments in all sectors of the market gives you a better chance to participate in growth of the market. Ignore the hype: Don't chase trends. If you're comfortable with the plan you created and the mix of investments enable you to meet personal goals, stick to it. Stay the course: As Mailloux and Norton said, be patient. [GRAPH] Source: Wilshire Associates Incorporated Past performance is no guarantee of future results. The chart tracks the S&P 500 Index and the Lipper Money Market Index for the period Sept. 10, 2001-Dec. 31, 2001. The S&P 500 Index measures the performance of a representative sample of 500 of the largest U.S. stocks. The Lipper Money Market represents the average performance of the top 30 money market funds, as determined by asset size. It is not possible to invest in an index. The chart does not reflect the performance of any Horace Mann product or investment option. [PHOTO] "I learned early on from Maurice that the market balances itself out quite nicely. Patience ultimately wins." 13 For Annuity Alternatives Contract Owners and Public Shareholders Average annual total returns for the year ended December 31, 2001, for the Annuity Alternatives contracts are shown in the first two tables below. 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 is the Public Shareholder average annual total return for the year ended December 31, 2001, along with its comparable benchmark. Redemption has no effect on Public Shareholders. Returns if money remained invested, based on a $1,000 investment.
Variable Account 1 Year 5 years 10 years Since Inception ------ ------- -------- --------------- Equity Fund -5.41 2.11 8.61 8.72/1/ Balanced Fund 0.12 4.01 7.83 8.13/1/ Income Fund 7.53 5.32 5.04 5.81/1/ Short-Term Investment Fund 3.86 3.83 3.22 3.65/1/ Small Cap Growth Fund -30.70 - - 5.06/2/ International Equity Fund -27.29 - - 1.50/2/ Socially Responsible Fund -8.47 - - 7.09/2/ Returns if money was withdrawn early, based on a $1,000 investment. Variable Account 1 Year 5 years 10 years Since Inception ------ ------- -------- --------------- Equity Fund -12.98 2.11 8.61 8.72/1/ Balanced Fund -7.89 4.01 7.83 8.13/1/ Income Fund -0.97 5.32 5.04 5.81/1/ Short-Term Investment Fund -4.45 3.83 3.22 3.65/1/ Small Cap Growth Fund -36.25 - - 4.62/2/ International Equity Fund -33.11 - - 1.07/2/ Socially Responsible Fund -15.79 - - 6.64/2/ Public Shareholders 1 Year 5 years 10 years Since Inception ------ ------- -------- --------------- Equity Fund -4.21 3.42 9.99 10.11/1/ S&P 500 Stock Index -11.88 10.70 12.94 13.08
[PHOTO] 14 [PHOTO] The average annual total rates of return assume contributions were made on the first business day of the period indicated. Total return measures the past performance of each fund subaccount and does not represent the actual experience of investments made by a particular contract owner. The total return and principal value of an account will fluctuate. The value of an account may be worth more or less than its original cost, when redeemed, depending upon market fluctuations. Past performance does not guarantee future results of the subaccounts. The average annual rates of return of each variable subaccount of the Annuity Alternatives contracts were adjusted for a 1.35 percent mortality and expense fee until March 1, 1999, when the fee was reduced to 1.25 percent. Annuity contracts issued prior to January 1984 have mortality and expense charges or sales fees that differ from those of the Annuity Alternatives contracts. Such other charges and fees do not exceed those reflected in the table above. Annuity Alternatives contracts require a $25 annual maintenance charge on the contract anniversary when the contract value is less than $10,000. This charge, which is not reflected in the returns above, after the first contract year would reduce the total rates of return by 2.5 percent on a $1,000 investment or .5 percent on a $5,000 investment. During the first five contract years, redemption charges range from 2 to 8 percent for the flexible premium contracts and 1 to 5 percent for single premium contracts. The average annual total returns with redemption are calculated using flexible premium redemption charges. Distributions from an annuity may be subject to federal taxes and a 10 percent IRS penalty if withdrawn before age 59 1/2. On August 10, 2001, Bernstein Investment Research and Management Unit (Bernstein) replaced Zurich Scudder Investments, Inc. as the sub-adviser on the Socially Responsible Fund. Effective October 19, 2001, Small Cap Growth Fund employed a multi-manger strategy using two sub-advisers BlackRock Financial Management, Inc. and Mazama Capital Management. Returns of the Horace Mann Mutual Funds in the above table are shown net of fund expenses. For the year ended December 31, 2001, 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 December 31, 2001, and for the Balanced Fund from 1994 through January 19, 2000. For the year ended December 31, 2001, certain expenses were assumed/waived for all Funds. In addition, certain Balanced and Income Funds expenses were assumed/waived through 1987 and 1996, respectively. Certain Short-Term Investment Fund expenses have been assumed/waived since 1983. Certain expenses for the Small Cap Growth, International Equity, and Socially Responsible Funds have been assumed/waived since their inception, March 10, 1997. Assumed expenses and the use of credits resulted in higher actual returns and for some funds exceeded 1 percent depending on the expenses assumed. There is no guarantee that certain expenses will be assumed/waived or the use of credits will continue in the future. /1/ Since inception for the Equity, Balanced, Income, and Short-Term Investment Funds refers to Nov. 1, 1989, the date Wellington Management Company, LLP became their investment adviser. Effective May 1, 1997, Wellington Management Company, LLP became the funds' sub-adviser. On March 1, 1999 Wilshire Associates, Inc. became the investment adviser for the Funds. Wilshire employs sub-advisers 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 sub-advisers are BlackRock Financial Management, Inc. and Mazama Capital Management for the Small Cap Growth Fund, Zurich Scudder Investments, Inc. for the International Equity Fund and Bernstein for the Socially Responsible Fund. 15 [LOGO] WILSHIRE WILSHIRE ASSOCIATES 1299 Ocean Avenue, Suite 700 Santa Monica, CA 90401-1085 TEL 310.451.3051 FAX 310.458.0520 www.wilshire.com To the Shareholders of the Horace Mann Mutual Funds: We appreciate this opportunity to report on the Horace Mann Mutual Funds and their performance in 2001. The importance of planning for retirement is critical, and we join Horace Mann in its commitment to helping you attain your retirement goals. Wilshire constantly monitors each of the funds to ensure the most skilled sub-advisers are working to add value for you. We strive to help provide you with excellent investment options, and appreciate your continued confidence in our work as you plan for retirement. Discussion of the capital markets in 2001 Results were mainly negative for equity investors. A series of interest rate reductions, which included an unprecedented 11th cut in December, were instituted to stimulate the economy. Despite these interest rate reductions, the economy's continued weakness dragged the stock markets into negative territory for the year. The retreat from equities benefited bond investors, however, and fixed income returns were generally positive. International markets were victim of slowing economic growth as well and followed U.S. markets lower. Technology stocks, which led the markets to new highs in previous years, were hardest hit. Investors sought companies with a proven stream of steady earnings and avoided stocks with only recent revenue and profit growth. The result of this trend was the continuing downward spiral of these "new economy" stock prices during the year. In many instances, companies whose stock prices had risen astronomically as the technology boom drove markets higher, suffered heavily and fell to new lows. Growth stocks, generally characterized by high price-to-earnings (P/E) ratios, dropped sharply, with Internet and technology shares bearing the brunt of the market's wrath. The pessimistic outlook was exacerbated by the continued failure of companies to achieve earnings targets. Many companies that were the darlings of the stock market two years ago fell victim to the slowdown. Many blue chip tech stocks, such as Cisco and Merck, companies with substantial profits and proven track records, experienced negative returns in which the stocks lost in excess of one-third of their value. Value stocks performed better than growth stocks. Value stocks provided a defensive stance protecting investors against incurring future losses. While technology stocks may be out of favor in the short term, many of these companies remain in various investment portfolios because of their long-term viability and superior growth potential. Funds Performance 2001 The following paragraphs describe the performance of the Horace Mann Mutual Funds over the past year: Domestic Equity The Equity Fund and the Socially Responsible Fund each outperformed its respective benchmark. The Small Cap Growth Fund encountered difficulty in an extreme environment. Equity Fund Investment management companies Bernstein Investment Research and Management Unit, Wellington Management Company, LLP and Mellon Equity Associates, LLP act as sub-advisers to the Fund. The combined management team outperformed the benchmark, preserving value for shareholders in a down market. The Fund's 16 value-oriented approach focuses on companies with proven track records of stable earnings. The manager combination has been successful while providing diversification within a single fund. Since the management change in March 2000, the Equity Fund has achieved a favorable positive return while the benchmark, the S&P 500 Index, has lost significant value. A key to the outperformance was effective stock selection. In addition, the fund took advantage of value stocks' strong performance versus growth stocks, which fell from favor. Although value stocks were out of favor during the technology boom of the late 1990s, they have outperformed growth stocks recently. Microsoft and IBM posted strong earnings and outperformed the market to bolster the Fund's performance. However, the Equity Fund was not fully immune to the Internet and technology slump, as some holdings came under significant pressure. In particular, the Equity Fund was hurt by holdings in Cisco Systems and EMC Corporation, both bellwether stocks in the technology sector. The Fund was able to offset technology losses by posting strong returns in more traditional industry categories such as Consumer Cyclicals. Winners in this category included Whirlpool Corporation and Zale Corporation. The sub-advisers believe they have positioned the portfolio for a 2002 recovery. The economy has slowed and is showing some limited signs of recovery. The sub-advisers believe defensive stocks that exist within the value sectors may benefit from this current economic condition. Socially Responsible Fund Wilshire Associates elected to replace Zurich Scudder Investments as the sub-adviser despite what was a good year for this Fund. The team that had managed the portfolio since inception departed Scudder, and Wilshire hired Bernstein Investment Research & Management Unit as their replacement. Like the Equity Fund, the Socially Responsible Fund is heavily invested in value stocks and benefited from their performance. The Fund's emphasis on value-oriented sectors, such as capital goods, contributed to the strong performance. In addition, strong stock selection in the mostly depressed technology sector benefited returns. The portfolio profited from stable consumer spending -- retail holdings in the portfolio performed well -- despite an overall weakening economic condition. Discount retailers posted consistent earnings and home improvement retailers experienced positive returns. Lowe's (up 18 percent), Federated Department Stores (up 28 percent) and Target Corporation (up 20 percent) boosted portfolio performance. Communications companies provided safe haven to investors, particularly in light of Sept. 11 when businesses opted to use telecommunication rather than travel. AT&T, a strong performer within the Socially Responsible Fund, gained 22 percent. Transportation stocks fell drastically after Sept. 11 and continued to be a drag on performance. The Fund's focus on socially responsible companies detracted from performance slightly as many prohibited stocks had good years. A significant example is tobacco giant Philip Morris, who posted a generous 46 percent return. Although 2001 was a down year in the stock market, the Socially Responsible Fund held up well. Bernstein Investment Research and Management Unit positioned the portfolio to take advantage of any recovery that may be forthcoming. The disciplined approach the manager uses in management of the portfolio should serve shareholders well in the coming year. 17 Small Cap Growth Fund In October, Wilshire changed the manager mix of the Small Cap Growth Fund as Mazama Capital Management joined BlackRock Financial Management as sub-adviser to the Fund. This strategy provides investors a strong combination with a disciplined approach while offering diversification benefits. The Fund's results since the combination have stabilized, yet the environment continues to be difficult for small-cap growth stock investors. The Small Cap Growth Fund invests in the stocks of smaller companies that may possess greater growth potential than their larger equivalents. The Fund allows investors access to a sector of emerging companies that are ignored by funds focused on larger capitalization objectives. These stocks are typically more volatile than those of large companies, and may gain or lose a significant portion of their market value in a short amount of time. However, the potential for strong returns may be beneficial to investors with an above-average risk tolerance and long-time goals. It was a difficult year for the Fund as growth stocks fell from favor and investors grew wary of emerging companies. The Small Cap Growth Fund fell almost 30 percent while the Russell 2000 Growth Index fell more than 9 percent. The portfolio was helped by strong performance in the technology sector as Red Hat (up 50 percent), Pixelworks, Inc. (up 59 percent), and Digimarc (up 52 percent) advanced significantly. Additionally, gaming and entertainment technology boosted performance as Activision Inc. gained 104 percent and THQ Incorporated picked up 85 percent. The portfolio was hurt by the pharmaceutical sector, as the sub-advisers anticipated a boost in new biotech developments. However, this area did not produce the gains expected by management. Vertex Pharmaceuticals (down 66 percent) and Osi Pharmaceuticals (down 43 percent) were primary drags on the Fund's performance. Mazama selected stocks that excelled in the fourth quarter and positioned the portfolio to continue to take advantage of opportunities in the small-cap growth area, particularly in the technology sector. BlackRock believes the current portfolio construction is designed to capture the significant growth opportunities as they occur. Domestic Fixed Income During the year, the Income Fund and the Short-Term Investment Fund each outperformed their relevant benchmarks. The Income Fund Western Asset Management returned 8.9 percent to slightly outperform the Lehman Aggregate Index, which returned 8.4 percent. Western Asset held bonds with maturity dates greater than the average of their relevant benchmark index. Management's strategy stressed weathering short-term uncertainty by holding these longer duration bonds. Additionally, management favored intermediate- and long-term government bonds, high-quality corporate bonds and mortgage-backed bonds, such as those offered by Ginnie Mae and Freddie Mac. Approximately 50 percent of the Fund was invested in securities issued by various agencies of the U.S. government. 18 In limited instances, management selected high-yield corporate debt and sovereign foreign bonds. The high-yield bonds added to the return of the Fund versus the benchmark. Western also found value in limited exposure to Emerging Markets bonds. The sub-adviser's favorable performance versus the benchmark was due to its holdings in highly rated credits. Management believes these will offer the best returns for investors in times of uncertainty. During the year, the Fund was hurt by its mortgage-backed holdings as these bonds underperformed the index. Western Asset is confident its strategy of holding longer-term bonds will benefit investors in 2002. Because management limits high-yield holdings to select issues, it mitigated losses experienced in this sector. If current market conditions continue, so will its conservative allocation to high yield corporate bonds in 2002. Short-Term Investment Fund This Fund generated reasonable returns in a year that experienced the most interest rate cuts in history. Short-term rates fell throughout the year and the Fund's yield to investors fell in concert with the Federal Reserve's actions. The Fund seeks to preserve invested capital and succeeded in outpacing inflation during the course of the year. Western emphasized short-term agency notes. This strategy allows the Fund to take advantage of yield opportunities while maintaining a high level of liquidity. The Fund will continue to be impacted by the Federal Reserve's interest rate policy. Balanced Portfolios Balanced Fund The Balanced Fund is designed to provide a stock/bond mix that is appropriate for long-term investors. The Balanced Fund buys "units" of the Equity Fund -- 60 percent -- and the Income Fund -- 40 percent -- to replicate the target weightings. During the year, the Balanced Fund significantly outperformed its benchmark, a blend of the S&P 500 Index and Lehman Aggregate Index. The Fund was boosted by the solid performance of the Income Fund. International Equity Global markets fell dramatically in 2001 as a synchronized downturn occurred, largely because of slowing economic conditions in the United States. The International Equity Fund significantly underperformed its benchmark during 2001. International Equity Fund Just as strong performers in the domestic stock market returned previous years' gains, so, too, did the rising stars of the international markets retreat. International markets languished throughout the year as lowered expectations in domestic markets coupled with earnings disappointments globally spelled falling stock prices for investors. A strong dollar exacerbated the slowdown in foreign markets. Japan underperformed its Asian neighbors as the Pacific Rim market as a whole fell rapidly. Canada was a lone bright spot as its stocks performed well along with its strengthening dollar. 19 The economic recovery in Japan never came to fruition despite continued governmental attempts to stimulate its recovery. Many European markets traded down for the year, as well. Finland led Europe lower as telecommunications stocks were badly hurt by the slowdown in consumer spending. While the Fund had a light exposure to technology, its tech investments in Europe constrained performance. The United Kingdom experienced pockets of growth in the retail sector as its consumers continued to spend at traditionally high rates. The Fund holds an underweighted position in the United Kingdom and was not able to fully capture these gains. The Fund's performance was hurt because of its focus on communications, which was under significant pressure during the year. Deutsche Telekom (down 47 percent) and Cable & Wireless (down 56 percent) were primary disappointments on the portfolio. Zurich Scudder, sub-adviser for the International Equity Fund, sees continued volatility in the markets for 2002. While the manager anticipates economic uncertainty to continue in 2002, the portfolio is offensively positioned with a modest overweight in information technology, materials and industrials. Zurich Scudder holds a long-term stance that Japan will recover and maintain a neutral position. Final Comments 2001 was a troubling year in many respects for investors. The fragile economic condition was worsened by the attacks of Sept. 11. The performance of the stock market and the uncertainty of the economy in general were troubling short-term events. In light of the conditions that exist today, long-term diversification in your retirement portfolio is clearly necessary. The reversal of leadership in investment styles demonstrates this need for diversification. The emergence of value stocks rewarded investors who were diversified. Investors whose portfolio was diversified across the Horace Mann Mutual Funds gave themselves the opportunity to preserve capital in this down market. We thank you for your continued confidence in the Horace Mann Mutual Funds. Wilshire strives to provide you with the best investment opportunities available, and we are committed to our long-term philosophy, a belief we share with Horace Mann. /s/ Michael P. O'Keeffe /s/ Thomas M. Goodrum, Jr. Michael P. O'Keeffe, CFA Thomas M. Goodrum, Jr., CFA Managing Director & Principal Vice President Wilshire Associates Incorporated Wilshire Associates Incorporated 20 Annual Report December 31, 2001 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.L. Gallop Richard A. Holt Richard D. Lang Harriet A. Russell George J. Zock, Chairman Officers of the Funds A. Thomas Arisman President Ann Caparros Secretary and Ethics Compliance Officer William Kelly Treasurer and Regulatory Compliance Officer Linda L. Sacco Assistant Secretary Diane M. Barnett Tax Compliance Officer Administrator Horace Mann Investors, Inc. #1 Horace Mann Plaza Springfield, IL 62715 Investment Adviser Wilshire Associates Incorporated 1299 Ocean Avenue Santa Monica, CA 90401-1085 Custodian State Street Bank and Trust Company 801 Pennsylvania Avenue Kansas City, MO 64105 Independent Auditors KPMG LLP 303 East Wacker Drive Chicago, IL 60601 Investment Subadvisers Bernstein Investment Research and Management Unit 767 Fifth Avenue New York, NY 10153 BlackRock Financial Management, Inc. 345 Park Avenue New York, NY 10154-0010 Mazama Capital Management One South West Columbia Suite 1860 Portland, OR 97258 Mellon Equity Associates, LLP 500 Grant Street, Suite 4200 Pittsburgh, PA 15258 Wellington Management Company, LLP 75 State Street Boston, MA 02109 Western Asset Management Company 117 E. Colorado Blvd., Suite 600 Pasadena, CA 91105 Zurich Scudder Investments, Inc. 345 Park Avenue New York, NY 10154-0010 21 Horace Mann Mutual Funds 2001 Funds Annual Report Financial Highlights December 31, 2001 PER SHARE DATA
Less Distribution From: Net Asset Total Income Year Value Net Net Realized (Loss) From Net Net Ended Beginning Investment and Unrealized Investments Investment Realized Total 12/31 of Period Income /1/ Gain (Loss) /1/ Operations /1/ Income Gains Distributions EQUITY FUND/6/ - ----------------------------------------------------------------------------------------------------------------------- 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/ - ----------------------------------------------------------------------------------------------------------------------- 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/ - ----------------------------------------------------------------------------------------------------------------------- 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. 22 Horace Mann Mutual Funds 2001 Funds Annual Report
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/ - --------------------------------------------------------------------------------------------------------------------- $ 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 -- -- - --------------------------------------------------------------------------------------------------------------------- $ 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 -- -- - --------------------------------------------------------------------------------------------------------------------- $ 12.30 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 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. for years ending December 31, 1999, 2000 and 2001. /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 and 2001. 23 Horace Mann Mutual Funds 2001 Funds Annual Report Financial Highlights (concluded) December 31, 2001 PER SHARE DATA
Less Distribution From: Net Asset Net Total Income Year Value Investment Net Realized (Loss) From Net Net Ended Beginning Income /1/ and Unrealized Investments Investment Realized Total 12/31 of Period (Loss) Gain (Loss) /1/ Operations /1/ Income Gains Distributions SHORT-TERM FUND/4/ - ------------------------------------------------------------------------------------------------------------------------- 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/ - ------------------------------------------------------------------------------------------------------------------------- 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/ - ------------------------------------------------------------------------------------------------------------------------- 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/ - ------------------------------------------------------------------------------------------------------------------------- 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. 24 Horace Mann Mutual Funds 2001 Funds Annual Report
RATIO/SUPPLEMENTAL DATA Ratio to Average Net Assets Before Waived & Reimbursed Expenses Ratio of Ratio of Net Asset Net Assets Expenses Net Income (Loss) 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/ - ---------------------------------------------------------------------------------------------------------------------------------- $ 10.08 5.17% $ 2,796 0.33% 4.20% - 1.36% 3.17% 9.92 5.81 1,982 0.49 5.62 - 1.81 4.30 9.89 4.77 1,743 0.32 4.71 - 1.90 3.13 9.98 4.97 1,331 0.69 4.78 - 2.59 2.88 9.99 5.09 1,151 0.50 4.98 - 2.52 2.96 - ---------------------------------------------------------------------------------------------------------------------------------- $ 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) - ---------------------------------------------------------------------------------------------------------------------------------- $ 10.52 (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) - ---------------------------------------------------------------------------------------------------------------------------------- $ 12.75 (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 December 31, 2001. /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 to Average Net Assets do not reflect earnings credits on cash balances. 25 Horace Mann Mutual Funds 2001 Funds Annual Report Cash & Other Net Assets 1.1% [CHART] Statement of Investments Equity Fund Common & Preferred Stock 98.9% December 31, 2001
Number of Market Shares (000) - ---------------------------------------------------------------------------------------------------- COMMON STOCK Aerospace 1.35% Boeing Co. 82,400 $ 3,195 Goodrich Corp. 52,800 1,406 Lockheed Martin Corp. 40,700 1,899 United Technologies Corp. 24,500 1,583 ------------------------------------------------------------------- 8,083 Apparel 0.69% Jones Apparel Group, Inc.* 38,900 1,290 Nike, Inc. 17,100 962 VF Corp. 48,400 1,888 ------------------------------------------------------------------- 4,140 Automotive 1.39% Cooper Tire & Rubber Co. 31,800 507 Dana Corp. 64,700 898 Ford Motor Co. 58,447 919 Genuine Parts Co. 70,600 2,591 Goodyear Tire & Rubber Co. 65,600 1,562 Lear Corp.* 30,200 1,152 Magna International, Inc. 11,500 730 ------------------------------------------------------------------- 8,359 Banks & Financial Services 17.84% Americredit Corp.* 17,300 546 AmSouth Bancorporation 135,600 2,563 Bank of America Corp. 143,300 9,021 Bank of New York Company, Inc. 11,300 461 Bank One Corp. 145,200 5,670 Bear Stearns Companies, Inc. 26,500 1,554 Charter One Financial, Inc. 80,640 2,189 Citigroup, Inc. 389,781 19,676 Countrywide Credit Industries, Inc. 26,000 1,065 Federal Home Loan Mortgage Corp. 14,600 955 Federal National Mortgage Association 29,800 2,369 First Tennessee National Corp. 27,600 1,001 FleetBoston Financial Corp. 96,401 3,519 Golden West Financial Corp. 23,600 1,389 Goldman Sachs Group, Inc. 23,100 2,143 Greenpoint Financial Corp. 22,400 801 Household International, Inc. 25,000 1,449 J.P. Morgan Chase & Co. 136,290 4,954 KeyCorp 125,300 3,050 Lehman Brothers Holdings, Inc. 42,900 2,866 MBNA Corp. 49,700 1,749 Merrill Lynch & Company, Inc. 87,400 4,555 Morgan Stanley Dean Witter & Co. 25,700 1,438 National City Corp. 86,300 2,523 North Fork Bancorporation 28,900 925 Regions Financial Corp. 48,500 1,457 Southtrust Corp. 148,600 3,657 State Street Corp. 8,500 444 SunTrust Banks, Inc. 23,400 1,467 Union Planters Corp. 74,900 3,380 U.S. Bancorp 235,367 4,926
See notes to the financial statements. 26 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------ COMMON STOCK Wachovia Corp. 128,100 $ 4,017 (continued) Washington Mutual, Inc. 107,700 3,522 Wells Fargo & Co. 111,700 4,853 Zions Bancorporation 17,300 909 -------------------------------------------------------------------- 107,063 Business Machines 2.74% Dell Computer Corp.* 61,100 1,659 Hewlett-Packard Co. 241,100 4,952 International Business Machines Corp. 73,100 8,842 Xerox Corp. 97,200 1,013 -------------------------------------------------------------------- 16,466 Business Services 2.15% Accenture Ltd.* 41,600 1,120 AOL-Time Warner, Inc.* 183,100 5,877 Automatic Data Processing, Inc. 46,400 2,733 Electronic Data Systems Corp. 39,000 2,673 ITT Educational Services, Inc.* 14,000 516 -------------------------------------------------------------------- 12,919 Chemicals 3.05% Air Products & Chemicals, Inc. 19,500 915 Cabot Corp. 27,500 982 Dow Chemical Co. 127,598 4,310 Du Pont (E.I.) de Nemours & Co. 130,500 5,547 Eastman Chemical Co. 32,700 1,276 Lubrizol Corp. 22,400 786 PPG Industries, Inc. 16,000 828 Praxair, Inc. 21,000 1,160 Sherwin Williams Co. 67,300 1,851 Sigma-Aldrich Corp. 16,600 654 -------------------------------------------------------------------- 18,309 Communication Equipment & Services 5.66% AT&T Corp. 156,100 2,832 AT&T Wireless Services, Inc.* 59,502 855 BellSouth Corp. 58,700 2,239 Garmin Ltd.* 17,400 368 Nokia Corp. 20,600 505 Nortel Networks Corp. 5,300 40 Qwest Communications International, Inc.* 174,000 2,459 SBC Communications, Inc. 191,000 7,481 Sprint Corp. 65,300 1,311 Tellabs, Inc.* 95,700 1,431 Verizon Communications, Inc. 166,958 7,924 WorldCom Group* 463,750 6,530 -------------------------------------------------------------------- 33,975 Computer Software & Services 5.00% Adaptec, Inc.* 34,600 502 Apple Computer, Inc.* 39,000 854 Check Point Software* 10,000 399 Cisco Systems, Inc.* 294,300 5,330 Compuware Corp.* 64,800 764 EMC Corp.* 81,700 1,098 IMS Health, Inc. 29,700 579 Ingram Micro, Inc. - A* 58,000 1,005
See notes to the financial statements. 27 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------------ COMMON STOCK Microsoft Corp.* 211,400 $ 14,005 (continued) NCR Corp.* 15,400 568 Oracle Corp.* 177,700 2,454 Quantum-DLT & Storage Systems Group* 95,300 939 Tech Data Corp.* 21,400 923 VeriSign, Inc.* 15,667 596 -------------------------------------------------------------------- 30,016 Construction 0.22% Centex Corp. 9,300 531 Lennar Corp. 16,500 773 -------------------------------------------------------------------- 1,304 Consumer Products 3.88% Archer Daniels Midland Co. 168,500 2,418 ConAgra Foods, Inc. 147,200 3,499 Crown Cork & Seal Company, Inc. 54,300 138 Fortune Brands, Inc. 66,600 2,637 Gillette Co. (The) 47,100 1,573 Mohawk Industries, Inc.* 8,200 450 Newell Rubbermaid, Inc. 70,600 1,946 Owens-Illinois, Inc.* 61,500 614 Philip Morris Companies, Inc. 168,300 7,717 Procter & Gamble Co. (The) 29,100 2,303 -------------------------------------------------------------------- 23,295 Electronic Equipment & Services 4.15% Acuity Brands, Inc. 24,900 301 Arrow Electronics, Inc.* 40,300 1,205 Avnet, Inc. 47,900 1,220 AVX Corp. 33,800 797 Cooper Industries, Inc. 36,000 1,257 Intel Corp. 210,300 6,612 Intersil Corp.* 13,500 435 ITT Industries, Inc. 40,400 2,040 Maxim Integrated Products, Inc.* 7,800 410 Motorola, Inc. 227,300 3,414 Novellus Systems, Inc.* 32,000 1,262 Rockwell International Corp. 49,300 880 Solectron Corp.* 220,800 2,491 Texas Instruments, Inc. 51,100 1,431 Thomas & Betts Corp. 23,700 501 Vishay Intertechnology, Inc.* 33,200 647 -------------------------------------------------------------------- 24,903 Energy 8.45% Amerada Hess Corp. 43,800 2,737 Ashland, Inc. 38,800 1,788 BJ Services Co.* 28,500 925 ChevronTexaco Corp. 98,759 8,850 CONSOL Energy, Inc. 36,700 912 Devon Energy Corp. 14,300 553 Ensco International, Inc. 36,000 895 Equitable Resources, Inc. 8,800 300 Exxon Corp. 508,100 19,968 Newfield Exploration Co.* 18,700 664 Noble Drilling Corp.* 24,200 824
See notes to the financial statements. 28 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------------------ COMMON STOCK Occidental Petroleum Corp. 14,100 $ 374 (continued) Phillips Petroleum Co. 65,400 3,941 Royal Dutch Petroleum Co. 65,600 3,216 Schlumberger Ltd. 47,200 2,594 Ultramar Diamond Shamrock Corp. 11,600 574 USX-Marathon Group 30,000 900 Valero Energy Corp. 18,100 690 -------------------------------------------------------------------------- 50,705 Entertainment & Recreation 0.71% Starwood Hotels & Resorts Worldwide, Inc. - B 28,100 839 Viacom, Inc. - B* 76,881 3,394 -------------------------------------------------------------------------- 4,233 Food & Beverage 2.70% Brinker International, Inc.* 30,450 906 Coca-Cola Co. 86,100 4,060 Darden Restaurants, Inc. 28,300 1,002 Dean Foods Co.* 6,349 433 McDonald's Corp. 68,100 1,803 PepsiCo, Inc. 74,200 3,613 Sara Lee Corp. 92,700 2,060 Tyson Foods, Inc. 199,200 2,301 -------------------------------------------------------------------------- 16,178 Health Care & Pharmaceuticals 8.35% Abbott Laboratories 158,000 8,809 American Home Products Corp. 72,900 4,473 Amgen, Inc.* 30,900 1,744 Bristol-Myers Squibb Co. 30,900 1,576 Cardinal Health, Inc. 6,600 427 Eli Lilly & Co. 21,600 1,696 HCA-Healthcare Co. 43,200 1,665 HEALTHSOUTH Corp.* 43,600 646 Johnson & Johnson 84,200 4,976 Merck & Company, Inc. 90,700 5,333 Pfizer, Inc. 220,150 8,773 Pharmacia Corp. 112,548 4,800 Schering-Plough Corp. 111,400 3,989 Tenet Healthcare Corp.* 20,700 1,216 -------------------------------------------------------------------------- 50,123 Insurance 5.88% Allstate Corp. 36,600 1,233 AMBAC Financial Group, Inc. 12,100 700 American International Group, Inc. 101,425 8,053 Aon Corp. 57,900 2,057 Berkshire Hathaway, Inc. - A* 33 2,495 Chubb Corp. 31,300 2,160 CIGNA Corp. 10,300 954 Health Net, Inc.* 51,100 1,113 John Hancock Financial Services, Inc. 13,300 549 Loews Corp. 10,600 587 Marsh & McLennan Companies, Inc. 35,800 3,847 MBIA, Inc. 48,600 2,606 MGIC Investment Corp. 22,500 1,389 Radian Group, Inc. 17,600 756
See notes to the financial statements. 29 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------------------- COMMON STOCK St. Paul Companies, Inc. 30,100 $ 1,323 (continued) Torchmark Corp. 77,800 3,060 WellPoint Health Networks, Inc.* 7,400 865 XL Capital Ltd. 16,700 1,526 --------------------------------------------------------------------------------- 35,273 Manufacturing (Diversified) 6.46% Black & Decker Corp. 23,400 883 Briggs & Stratton Corp. 9,400 401 Caterpillar, Inc. 25,800 1,348 Dover Corp. 22,800 845 Emerson Electric Co. 22,400 1,279 Engelhard Corp. 26,300 728 FMC Corp.* 23,200 1,380 General Electric Co. 369,300 14,801 General Motors Corp. 23,500 1,142 Honeywell International, Inc. 38,700 1,309 Illinois Tool Works, Inc. 13,800 935 Johnson Controls, Inc. 6,300 509 Leggett & Platt, Inc. 80,100 1,842 Minnesota Mining & Manufacturing Co. 17,000 2,010 SPX Corp.* 5,400 739 Tyco International Ltd. 112,169 6,607 Whirlpool Corp. 27,300 2,002 --------------------------------------------------------------------------------- 38,760 Media & Media Services 2.21% Clear Channel Communications, Inc.* 25,600 1,303 Fox Entertainment Group, Inc.* 34,100 905 Gannett Company, Inc. 62,400 4,195 Liberty Media Corp. - A* 209,500 2,933 Readers Digest Association, Inc. 23,800 549 Tribune Co. 26,300 984 USA Networks, Inc.* 47,000 1,284 Westwood One, Inc.* 36,600 1,100 --------------------------------------------------------------------------------- 13,253 Metals & Mining 0.62% Aluminum Co. of America 104,700 3,722 Paper & Forest Products 2.28% Georgia-Pacific Corp. 46,047 1,271 International Paper Co. 39,312 1,586 Kimberly-Clark Corp. 66,000 3,947 Louisana-Pacific Corp. 65,800 555 Mead Corp. 42,100 1,300 Smurfit-Stone Container Corp.* 89,100 1,422 Sonoco Products Co. 41,800 1,111 Temple-Inland, Inc. 22,900 1,299 Westvaco Corp. 41,100 1,169 --------------------------------------------------------------------------------- 13,660 Railroad & Shipping 1.86% Burlington Northern Santa Fe Corp. 117,300 3,347 CSX Corp. 69,700 2,443 Norfolk Southern Corp. 117,400 2,152 Teekay Shipping Corp. 20,300 707 Union Pacific Corp. 43,600 2,485 --------------------------------------------------------------------------------- 11,134
See notes to the financial statements. 30 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Equity Fund December 31, 2001
Number of Market Shares (000) - -------------------------------------------------------------------------------------------- COMMON STOCK Retail 5.08% (continued) CVS Corp. 60,700 $ 1,797 Federated Department Stores, Inc.* 58,500 2,393 Home Depot, Inc. 82,800 4,224 J.C. Penney Company, Inc. 23,100 621 Kroger Co.* 30,500 637 May Department Stores Co. (The) 66,400 2,455 Safeway, Inc.* 39,700 1,657 Sears, Roebuck and Co. 77,300 3,683 Supervalu, Inc. 57,200 1,265 Talbot's, Inc. 23,700 859 Wal-Mart Stores, Inc. 175,000 10,071 Winn Dixie Stores, Inc. 58,600 835 ---------------------------------------------------------------------------- 30,497 Transportation 0.37% FedEx Corp.* 15,100 783 SouthWest Airlines Co. 77,300 1,429 ---------------------------------------------------------------------------- 2,212 Utilities 5.47% Allegheny Energy, Inc. 19,300 699 Ameren Corp. 53,700 2,272 American Electric Power, Inc. 56,220 2,447 Cinergy Corp. 66,700 2,230 Consolidated Edison, Inc. 58,800 2,373 Constellation Energy Group, Inc. 28,800 765 DTE Energy Co. 20,100 843 El Paso Energy Corp. 44,000 1,963 Exelon Corp. 39,200 1,877 FPL Group, Inc. 58,400 3,294 KeySpan Corp. 14,600 506 Mirant Corp.* 35,300 566 PG&E Corp. 74,800 1,439 Pinnacle West Capital Corp. 30,100 1,260 PPL Corp. 25,900 903 Progress Energy, Inc. 12,000 540 Reliant Energy, Inc. 41,800 1,109 Sempra Energy 33,400 820 TXU Corp. 22,500 1,061 Western Resources, Inc. 39,400 678 Williams Companies, Inc. 34,300 875 Wisconsin Energy Corp. 48,300 1,090 Xcel Energy, Inc. 115,450 3,203 ---------------------------------------------------------------------------- 32,813 Waste Management 0.34% Allied Waste Industries, Inc.* 37,800 531 Republic Services, Inc. - A* 27,100 541 Waste Management, Inc. 29,900 954 ---------------------------------------------------------------------------- 2,026 Total Common Stock 98.90% 593,421 (Cost $602,311) ============================================================================
See notes to the financial statements. 31 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (concluded) Equity Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - --------------------------------------------------------------------------------------------------------------- SHORT-TERM Paribas -- Repurchase Agreement INVESTMENTS (secured by $2,101 US Treasury Bond, 7.25%, 08/15/22) 1.67% 01/02/02 $ 2,041 $ 2,041 State Street Bank -- Repurchase Agreement (secured by $466 US Treasury Note, 5.625%, 11/30/02) 0.85% 01/02/02 455 455 State Street Bank -- Repurchase Agreement (secured by $3,715 US Treasury Bill, 1.64%, 05/02/02) 0.85% 01/02/02 3,638 3,638 ------------------------------------------------------------------------------------------------- Total Short-Term Investments 1.02% 6,134 (Cost $6,134) ================================================================================================= Total Investments 99.92% 599,555 (Cost $608,445) Cash and Other Assets in Excess of Liabilities 0.08% 461 ------------------------------------------------------------------------------------------------- Net Assets 100.00% $600,016 =================================================================================================
* Non-income producing during the year ended December 31, 2001 as this security did not pay dividends. See notes to the financial statements. 32 Horace Mann Mutual Funds 2001 Funds Annual Report Investments, Cash & Other Net Assets 100% [CHART] Statement of Investments Balanced Fund December 31, 2001 Number of Market Shares (000) - -------------------------------------------------------------------------------- INVESTMENTS Horace Mann Equity Fund 9,180,496 $ 179,662 Horace Mann Income Fund 9,110,774 112,063 ------------------------------------------------------------ Total Investments 99.85% 291,725 (Cost $304,935) Cash and Other Assets in Excess of Liabilities 0.15% 451 ------------------------------------------------------------ Net Assets 100.00% $ 292,176 ============================================================ See notes to the financial statements. 33 Horace Mann Mutual Funds 2001 Funds Annual Report U.S. & Foreign Corporate Bonds/Notes, Cash & Other Net Assets 37.8% [PIE CHART] Statement of Investments Income Fund December 31, 2001
U.S. & Foreign Government & Number of Market Agency Obligations 62.2% Shares (000) - ---------------------------------------------------------------------------------------------------- COMMON STOCK Food & Beverage 0.01% Aurora Foods, Inc. * 1,771 $ 9 ------------------------------------------------------------------------------------- Total Common Stock 0.01% 9 (Cost $5) Principal Rate Maturity Amount Market Date (000) (000) - ---------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Treasury Bonds/Notes 3.38% 04/15/32 $ 1,722 $ 1,698 GOVERNMENT United States Treasury Bond 3.63% 04/15/28 549 560 AND AGENCY United States Treasury Bond 3.88% 04/15/29 5,276 5,618 OBLIGATIONS United States Treasury Bond 6.75% 08/15/26 100 113 United States Treasury Bond 5.82% 11/15/27 2,400 533 United States Treasury Bond*** 3.50% 11/15/06 220 212 United States Treasury Notes 5.75% 08/15/10 70 73 United States Treasury Notes 5.91% 05/15/17 870 348 United States Treasury Strip*** 4.57% 11/15/21 2,790 856 United States Treasury Strip*** U.S. Government Agencies Federal Home Loan Banks 5.91% 03/27/08 1,000 1,039 Federal Home Loan Banks 5.93% 04/09/08 100 104 Federal Home Loan Mortgage Corp. 5.50% 09/15/11 480 470 Federal Home Loan Mortgage Corp. 5.88% 03/21/11 480 474 Federal Home Loan Mortgage Corp.# 6.50% 12/01/99 2,200 2,203 Federal Home Loan Mortgage Corp. 6.75% 03/15/31 2,250 2,386 Federal National Mortgage Association 5.38% 11/15/11 40 39 Federal National Mortgage Association 6.25% 02/01/11 420 427 Federal National Mortgage Association 6.32% 03/16/09 150 152 Federal National Mortgage Association 6.63% 11/15/10 600 638 Mortgage-Backed Securities (U.S. Government Agencies) Federal National Mortgage Association 5.85% 01/01/09 196 198 Federal National Mortgage Association 5.98% 01/01/09 164 167 Federal National Mortgage Association 6.00% 06/01/18 757 757 Federal National Mortgage Association 6.00% 12/01/18 104 104 Federal National Mortgage Association 6.00% 01/01/19 115 115 Federal National Mortgage Association# 6.00% 12/01/99 1,600 1,564 Federal National Mortgage Association 6.21% 08/01/08 526 543 Federal National Mortgage Association 6.23% 07/01/08 96 99 Federal National Mortgage Association 6.23% 01/01/09 183 185 Federal National Mortgage Association 6.25% 07/01/08 548 567
See notes to the financial statements. 34 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ---------------------------------------------------------------------------------------------- U.S. AND FOREIGN Federal National Mortgage Association 6.27% 06/01/08 $ 96 $ 100 GOVERNMENT Federal National Mortgage Association 6.31% 07/01/08 67 70 AND AGENCY Federal National Mortgage Association 6.34% 06/01/08 115 120 OBLIGATIONS Federal National Mortgage Association 6.42% 06/01/08 144 150 (continued) Federal National Mortgage Association 6.44% 01/01/08 330 344 Federal National Mortgage Association 6.47% 02/01/08 249 260 Federal National Mortgage Association 6.50% 01/01/08 60 63 Federal National Mortgage Association 6.50% 11/01/12 431 441 Federal National Mortgage Association 6.50% 06/01/29 879 881 Federal National Mortgage Association 6.50% 07/01/29 2,546 2,551 Federal National Mortgage Association 6.50% 08/01/29 901 902 Federal National Mortgage Association 6.50% 02/01/30 426 426 Federal National Mortgage Association 6.50% 03/01/30 804 805 Federal National Mortgage Association# 6.50% 12/01/99 900 900 Federal National Mortgage Association 6.51% 01/01/08 41 43 Federal National Mortgage Association 6.58% 01/01/08 49 52 Federal National Mortgage Association 6.62% 12/01/07 196 206 Federal National Mortgage Association 6.62% 01/01/08 67 71 Federal National Mortgage Association 6.79% 11/01/07 537 570 Federal National Mortgage Association 6.85% 10/01/07 931 989 Federal National Mortgage Association 7.00% 08/01/19 215 221 Federal National Mortgage Association 7.00% 04/01/30 350 356 Federal National Mortgage Association 7.00% 05/01/30 757 772 Federal National Mortgage Association 7.04% 07/01/06 495 529 Federal National Mortgage Association 7.10% 10/01/09 67 72 Federal National Mortgage Association 7.50% 10/01/22 157 164 Federal National Mortgage Association 7.50% 07/01/23 74 77 Federal National Mortgage Association 7.50% 04/01/30 2,545 2,626 Federal National Mortgage Association 7.75% 04/01/17 46 48 Federal National Mortgage Association 8.00% 08/01/14 200 211 Federal National Mortgage Association 8.00% 10/01/14 13 13 Federal National Mortgage Association 8.00% 01/01/17 15 16 Federal National Mortgage Association 8.00% 08/01/29 431 452 Federal National Mortgage Association 8.00% 03/01/30 541 567 Federal National Mortgage Association 8.00% 04/01/30 1,391 1,457 Federal National Mortgage Association 8.50% 09/01/14 125 134 Federal National Mortgage Association 8.50% 01/01/15 28 30 Federal National Mortgage Association 8.50% 03/01/15 84 89 Federal National Mortgage Association 8.50% 03/01/30 266 283 Federal National Mortgage Association 8.75% 02/01/10 92 98 Federal National Mortgage Association 10.25% 07/01/13 2 2 Government National Mortgage Association 6.00% 02/15/14 45 45 Government National Mortgage Association 6.00% 03/15/14 167 168 Government National Mortgage Association# 6.00% 12/15/99 1,900 1,865 Government National Mortgage Association 6.50% 12/15/12 87 90 Government National Mortgage Association 6.50% 02/15/13 152 156 Government National Mortgage Association 6.50% 05/15/13 271 279 Government National Mortgage Association 6.50% 08/15/13 155 159 Government National Mortgage Association 6.50% 10/15/13 81 84 Government National Mortgage Association 6.50% 02/15/14 109 112
See notes to the financial statements. 35 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ----------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Government National Mortgage Association 6.50% 03/15/28 $ 112 $ 112 GOVERNMENT Government National Mortgage Association 6.50% 04/15/28 242 243 AND AGENCY Government National Mortgage Association 6.50% 06/15/28 203 204 OBLIGATIONS Government National Mortgage Association 6.50% 07/15/28 196 197 (continued) Government National Mortgage Association 6.50% 08/15/28 406 408 Government National Mortgage Association 6.50% 09/15/28 140 141 Government National Mortgage Association 6.50% 10/15/28 20 20 Government National Mortgage Association 6.50% 11/15/31 458 459 Government National Mortgage Association# 6.50% 12/15/99 12,100 12,142 Government National Mortgage Association 7.00% 08/15/28 32 32 Government National Mortgage Association# 7.00% 12/15/99 5,800 5,923 Government National Mortgage Association 7.50% 01/15/23 316 329 Government National Mortgage Association 7.50% 02/15/23 9 10 Government National Mortgage Association 7.50% 05/15/23 313 326 Government National Mortgage Association 7.50% 06/15/23 378 394 Government National Mortgage Association 7.50% 08/15/23 190 198 Government National Mortgage Association 7.50% 09/15/23 196 204 Government National Mortgage Association 7.50% 11/15/23 238 248 Government National Mortgage Association 7.50% 12/15/23 1,027 1,073 Government National Mortgage Association 7.50% 10/15/29 599 620 Government National Mortgage Association 7.50% 11/15/29 78 80 Government National Mortgage Association 7.50% 06/15/30 171 177 Government National Mortgage Association 8.00% 05/20/22 67 71 Government National Mortgage Association 8.25% 05/15/06 16 17 Government National Mortgage Association 8.50% 01/15/20 8 8 Government National Mortgage Association 8.50% 02/15/21 22 23 Government National Mortgage Association 8.50% 06/15/21 16 18 Government National Mortgage Association 8.50% 08/15/21 3 4 Government National Mortgage Association 8.50% 04/15/23 41 44 Government National Mortgage Association 9.50% 12/20/02 2 2 Government National Mortgage Association 9.50% 01/20/03 2 2 Government National Mortgage Association 9.50% 02/20/03 2 2 Government National Mortgage Association 9.50% 05/20/03 5 5 Government National Mortgage Association 9.50% 08/20/03 4 4 Government National Mortgage Association 9.50% 09/20/03 10 11 Government National Mortgage Association 9.50% 11/20/03 6 6 Government National Mortgage Association 9.50% 09/20/04 3 3 Government National Mortgage Association 9.50% 08/15/17 13 15 Government National Mortgage Association 11.50% 03/15/10 5 5 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 Tennessee Valley Authority 7.13% 05/01/30 850 938
See notes to the financial statements. 36 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ----------------------------------------------------------------------------------------------- U.S. AND FOREIGN Foreign Government Securities GOVERNMENT Brazil (Republic of) 8.00% 04/15/14 $ 1,743 $ 1,327 AND AGENCY Brazil (Republic of) 11.00% 08/17/40 89 69 OBLIGATIONS Bulgaria (Republic of) 4.56% 07/28/11 20 17 (concluded) Bulgaria (Republic of) 4.56% 07/28/12 350 316 Colombia (Republic of) 11.75% 02/25/20 320 322 Germany (Republic of) 5.25% 01/04/11 3,412 3,090 Germany (Republic of) 5.50% 01/04/31 2,490 2,245 Italy (Republic of) 6.00% 05/01/31 2,000 1,893 Panama (Republic of) 4.63% 07/17/16 300 244 Panama (Republic of) 10.75% 05/15/20 70 75 Peru (Republic of) 3.75% 03/07/17 60 43 Peru (Republic of) 4.50% 03/07/17 405 315 Philippines (Republic of) 9.50% 10/21/24 95 99 Philippines (Republic of) 9.88% 01/15/19 255 241 ----------------------------------------------------------------------------- Total U.S. and Foreign Government and Agency Obligations 62.20% 78,403 (Cost $76,650) - ------------------------------------------------------------------------------------------------ U.S. AND FOREIGN Corporate Securities CORPORATE Adelphia Communications Corp. 10.88% 10/01/10 53 54 BONDS/NOTES AES Corp. 9.38% 09/15/10 39 34 AES Corp. 9.50% 06/01/09 23 19 AES Corp. 10.25% 07/15/06 118 104 AGCO Corp. 9.50% 05/01/08 31 32 Allied Waste North America, Inc. 7.63% 01/01/06 72 71 Allied Waste North America, Inc. 8.88% 04/01/08 129 133 American Axle & Manufacturing, Inc. 9.75% 03/01/09 48 49 American Standard, Inc. 7.38% 04/15/05 70 72 American Standard, Inc. 7.63% 02/15/10 50 50 American Tower Corp. 9.38% 02/01/09 64 51 Anchor Gaming 9.88% 10/15/08 58 64 Anheuser Busch Companies, Inc. 6.80% 08/20/32 200 210 ARMCO, Inc. 9.00% 09/15/07 138 141 Associates Corp. of North America 7.95% 02/15/10 55 61 AT&T Corp.** 8.00% 11/15/31 650 680 Avis Group Holdings, Inc. 11.00% 05/01/09 57 61 Banc One Corp. 9.88% 03/01/09 75 90 Bank One Capital 8.75% 09/01/30 400 444 Bear Stearns Companies, Inc. 2.95% 03/28/03 190 190 Bell Atlantic Financial Services 4.25% 09/15/05 990 998 Bio-Rad Laboratories, Inc. 11.63% 02/15/07 81 90 Bristol Myers Squibb Co. 5.75% 10/01/11 270 266 Burlington Resources Financial** 6.50% 12/01/11 60 59 Calpine Corp. 7.88% 04/01/08 75 68 Calpine Corp. 8.50% 02/15/11 25 22 Century Communications Corp.*** 11.36% 01/15/08 225 115 Chancellor Media Corp. 8.00% 11/01/08 25 26
See notes to the financial statements. 37 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Chancellor Media Corp. 8.13% 12/15/07 $ 132 $ 137 CORPORATE Charter Communications Holdings, LLC 8.63% 04/01/09 93 89 BONDS/NOTES Charter Communications Holdings, LLC 10.75% 10/01/09 150 157 (continued) CIT Holdings Group, Inc. 6.50% 02/07/06 750 778 CMS Energy Corp. 9.88% 10/15/07 201 211 Columbia/HCA Healthcare Corp. 6.91% 06/15/05 20 20 Columbia/HCA Healthcare Corp. 7.25% 05/20/08 52 53 Commercial Credit Group, Inc. 10.00% 05/15/09 1,121 1,360 Conoco Funding Co. 6.35% 10/15/11 120 122 Constellation Brands, Inc. 8.00% 02/15/08 88 89 Crown Castle International Corp. 9.38% 08/01/11 61 56 CSC Holdings, Inc. 7.25% 07/15/08 150 149 CSC Holdings, Inc. 7.63% 04/01/11 70 70 Daimler Chrysler North America Holdings 7.40% 01/20/05 750 776 Deere (John) Capital Corp. 2.27% 05/06/02 1,400 1,400 Du Pont (E.I.) De Nemours & Co. 8.13% 03/15/04 75 82 EchoStar DBS Corp. 9.13% 01/15/09 20 20 EchoStar DBS Corp. 9.38% 02/01/09 130 133 El Paso Corp.*** 7.84% 02/28/21 1,050 432 El Paso Energy 7.80% 08/01/31 1,190 1,180 Electronic Data System Corp. 7.45% 10/15/29 650 675 Emmis Communications Corp. 8.13% 03/15/09 25 24 First Energy Corp. 6.45% 11/15/11 160 157 First Energy Corp. 7.38% 11/15/31 150 146 Ford Motor Co. 8.90% 01/15/32 240 257 Ford Motor Credit Co. 7.38% 02/01/11 990 977 Fox Liberty Networks, LLC 8.88% 08/15/07 26 27 Fuji JGB Investment, LLC** 9.87% 12/31/49 400 316 General Electric Capital Corp. 8.70% 05/21/07 50 58 General Electric Capital Corp. 8.85% 04/01/05 500 568 General Motors Acceptance Corp. 6.13% 09/15/06 580 574 General Motors Acceptance Corp. 6.75% 01/15/06 120 122 General Motors Acceptance Corp. 7.25% 03/02/11 750 755 Georgia Gulf Corp. 10.38% 11/01/07 5 5 Goldman Sachs Group, Inc. 7.80% 01/28/10 750 811 Harrahs Operations, Inc. 7.88% 12/15/05 122 127 HCA Healthcare Co. 7.13% 06/01/06 40 41 HCA Healthcare Co. 8.75% 09/01/10 79 86 HEALTHSOUTH Corp.** 8.38% 10/01/11 91 94 HEALTHSOUTH Corp. 8.50% 02/01/08 90 94 HEALTHSOUTH Corp. 10.75% 10/01/08 58 64 Heller Financial, Inc. 8.00% 06/15/05 1,000 1,088 Hercules, Inc. 11.13% 11/15/07 2 2 HMH Properties, Inc. 8.45% 12/01/08 8 8 Host Marriott Corp. 9.25% 10/01/07 4 4 Household Financial Corp. 6.40% 06/17/08 750 749 Huntsman ICI Holdings, LLC*** 16.59% 12/31/09 28 7 IBJ Preferred Capital Co., LLC** 8.79% 12/29/49 400 299 ICN Pharmaceuticals, Inc.** 8.75% 11/15/08 45 50 IMC Global, Inc.** 10.88% 06/01/08 37 39 Insight Midwest LP 10.50% 11/01/10 64 69
See notes to the financial statements. 38 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ U.S. AND FOREIGN Kansas City Southern RY Co. 9.50% 10/01/08 $ 10 $ 11 CORPORATE Lear Corp. 7.96% 05/15/05 40 40 BONDS/NOTES Lehman Brothers Holdings, Inc. 8.25% 06/15/07 510 568 (continued) Lockheed Martin Corp. 8.50% 12/01/29 220 263 Lyondell Chemical Co. 9.63% 05/01/07 41 41 Manor Care, Inc. 8.00% 03/01/08 69 71 Mediacom, LLC 9.50% 01/15/13 69 72 Mohegan Tribal Gaming Authority 8.13% 01/01/06 10 10 Mohegan Tribal Gaming Authority 8.75% 01/01/09 42 44 Nabisco, Inc. 7.55% 06/15/15 300 331 NCNB Corp. 10.20% 07/15/15 774 990 News America Holdings, Inc. 7.30% 04/30/28 420 391 News America Holdings, Inc. 8.00% 10/17/16 600 627 Nextel Communications, Inc. 9.38% 11/15/09 24 19 Nextel Communications, Inc.+** 18.29% 10/31/07 200 142 Norfolk Southern Corp. 6.20% 04/15/09 600 593 Nortek, Inc. 8.88% 08/01/08 69 69 Nortek, Inc. 9.13% 09/01/07 100 101 Ocean Energy, Inc. 8.38% 07/01/08 40 42 Ocean Energy, Inc. 8.88% 07/15/07 60 63 Omnicare, Inc. 8.13% 03/15/11 93 96 Orion Power Holdings, Inc. 12.00% 05/01/10 53 64 P & L Coal Holdings Corp. 9.63% 05/15/08 150 161 Packaging Corp. of America 9.63% 04/01/09 50 55 Park Place Entertainment Corp. 9.38% 02/15/07 100 104 Parker & Parsley Petroleum Co. 8.25% 08/15/07 20 20 PDVSA Finance Ltd. 8.50% 11/16/12 270 246 Pepsi Bottling Group, Inc. 7.00% 03/01/29 650 689 Philip Morris Capital Corp. 7.20% 02/01/07 500 529 Philip Morris Capital Corp. 7.50% 07/16/09 500 528 Pioneer National Resource Co. 9.63% 04/01/10 26 28 Pulte Homes, Inc.** 7.88% 08/01/11 61 61 Raytheon Co. 6.75% 08/15/07 220 226 Reynolds (RJ) Tobacco Holdings, Inc. 7.75% 05/15/06 800 834 Ryland Group, Inc. 8.00% 08/15/06 54 54 Ryland Group, Inc. 8.25% 04/01/08 10 10 Scholer Homes** 9.38% 07/15/09 70 72 Schuler Homes 9.38% 07/15/09 10 10 Six Flags, Inc. 9.50% 02/01/09 34 34 Smithfield Foods, Inc.** 8.00% 10/15/09 29 30 Station Casinos, Inc. 8.88% 12/01/08 150 147 TeeKay Shipping Corp.** 8.88% 07/15/11 46 47 TeeKay Shipping Corp. 8.88% 07/15/11 20 21 Telecorp PCS, Inc. 10.63% 07/15/10 10 11 Tenet Healthcare Corp. 8.13% 12/01/08 232 249 Terex Corp. 8.88% 04/01/08 100 99 Textron Financial Corp. 2.66% 03/18/02 200 200 TRW, Inc. 3.05% 03/25/02 700 699 UBS Funding Trust I 8.62% 10/01/99 700 779 Unilever Capital 7.13% 11/01/10 360 389 Union Pacific Corp. 6.63% 02/01/29 70 67
See notes to the financial statements. 39 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - --------------------------------------------------------------------------------------------------------------------------- U.S. AND FOREIGN Union Pacific Corp. 6.65% 01/15/11 $ 100 $ 102 CORPORATE Unisys Corp. 7.25% 01/15/05 76 74 BONDS/NOTES US Bank National Association MN 6.38% 08/01/11 70 71 (continued) Vintage Petroleum, Inc. 7.88% 05/15/11 70 70 Vintage Petroleum, Inc. 9.00% 12/15/05 8 8 Visteon Corp. 8.25% 08/01/10 415 429 Voicestream Wireless Corp. 10.38% 11/15/09 21 24 Waste Management, Inc. 6.88% 05/15/09 425 423 Waste Management, Inc. 7.38% 05/15/29 500 488 WMX Technologies, Inc. 7.00% 10/15/06 125 130 Worldcom, Inc. 7.50% 05/15/11 200 205 Worldcom, Inc. 8.25% 05/15/10 400 428 Worldcom, Inc. 8.25% 05/15/31 270 285 Zurich Capital Trust Co.** 8.38% 06/01/37 600 595 Corporate Asset and Mortgage Backed Securities AESOP Funding II, LLC** 6.14% 05/20/06 500 519 Americredit Automobile Receivables Trust 6.70% 03/05/04 714 725 California Infrastructure PG&E-1 6.22% 03/25/04 683 688 California Infrastructure SCE-1 6.25% 06/25/04 1,030 1,044 Capital Lease Funding Securitization** 7.35% 06/22/24 800 842 Chase Funding Loan Acquisition 2.76% 12/25/15 926 926 Commercial Mortgage Asset Trust 6.59% 07/17/08 1,000 1,039 Commercial Mortgage Asset Trust 7.55% 01/17/10 180 195 Conseco Finance Securitizations Corp. 6.99% 07/01/32 2,700 2,638 Contimortgage Home Equity Loan 6.37% 02/25/26 1,201 1,228 Credit Suisse First Boston 6.55% 11/17/07 675 700 Delta Funding Home Equity Loan Trust 5.98% 02/15/23 302 302 Financing Corp. Strip+ 6.59% 04/05/19 130 42 GMAC Commercial Mortgage Securities, Inc. 6.95% 09/15/33 400 419 GMAC Mortgage Corp. Loan Trust 2.55% 05/25/24 16 16 Green Tree Home Improvement Loan Trust 7.45% 09/15/28 1,500 1,503 Green Tree Recreational Equipment 7.25% 03/15/29 151 100 Holmes Financing PLC 4.01% 07/15/15 400 400 Home Loan Trust** 4.93% 01/25/12 239 241 Household Home Equity Loan Trust 2.75% 05/20/31 1,041 1,042 Nomura Asset Securities Corp. 7.12% 04/13/36 1,000 1,061 Onyx Acceptance Auto Trust 6.67% 07/15/03 303 305 Salomon Brothers Mortgage Services 2.91% 01/25/29 1,308 1,314 Security National Mortgage Loan Trust** 8.80% 04/25/24 600 631 Systems 2001 Asset Trust, LLC** 6.66% 09/15/13 652 669 WFS Financial Owner Trust 7.01% 08/20/03 95 96 Corporate Foreign Securities Alliance Atlantis Communications 13.00% 12/15/09 20 22 Compagnie Generale De Geophysique 10.63% 11/15/07 53 54 Flextronics International Ltd. 9.88% 07/01/10 53 56 France Telecom SA** 7.75% 03/01/11 500 535
See notes to the financial statements. 40 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (concluded) Income Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ---------------------------------------------------------------------------------------------------------- U.S. AND FOREIGN France Telecom SA** 8.50% 03/01/31 $ 200 $ 228 CORPORATE Hydro Quebec 6.30% 05/11/11 100 102 BONDS/NOTES Mexico (Utd Mex St) 11.50% 05/15/26 1,420 1,807 (concluded) Norske Skog Canada Ltd. 8.63% 06/15/11 34 35 Pacifica Papers, Inc. 10.00% 03/15/09 20 21 Quebec Providence 7.50% 09/15/29 750 838 Royal Bank Scotland Group PLC 8.82% 03/31/49 300 332 SB Treasury Co., LLC+** 9.40% 12/29/49 580 557 Spintab AB 5.75% 06/15/05 665 680 Tembec Finance Corp. 9.88% 09/30/05 14 14 Tembec Industries, Inc. 8.50% 02/01/11 148 153 Triton Energy Ltd. 8.88% 10/01/07 20 22 United Mexican States 8.38% 01/14/11 595 616 -------------------------------------------------------------------------------------- Total Corporate Bonds 46.80% 58,997 (Cost $56,714) - ---------------------------------------------------------------------------------------------------------- SHORT-TERM Merrill Lynch -- Repurchase Agreement INVESTMENT (secured by $11,219, FHLB, 5.125%, 01/13/03) 1.75% 01/02/02 11,000 11,000 -------------------------------------------------------------------------------------- Total Short-Term Invesments 8.73% 11,000 (Cost $ 11,000) ====================================================================================== Total Investments 117.74% 148,409 (Cost $ 144,369) Foreign Currency 0.03% 43 Canadian Dollar (Cost $ 43) Liabilities in Excess of Cash and Other Assets (17.77%) (22,407) -------------------------------------------------------------------------------------- Net Assets 100.00% $ 126,045 ======================================================================================
* Non-income producing for the year ended December 31, 2001, as this security did not pay dividends. ** Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold, in transactions exempt from registration to qualified institutional buyers. At December 31, 2001, these securities amounted to $6,706 or 5.3 percent of net assets. # Securities purchased on a when issued or delayed delivery basis. + 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. See notes to the financial statements. 41 Horace Mann Mutual Funds 2001 Funds Annual Report [PIE CHART] Statement of Investments Cash & Other Short-Term Investment Fund Net Assets 1.1% Short-Term December 31, 2001 Investments 6.4% U.S. Government Agency Obligations 92.5%
Principal Rate Maturity Amount Market Date (000) (000) - ------------------------------------------------------------------------------------------- U.S. GOVERNMENT Federal Farm Credit Bank AND AGENCY Discount Note 6.25% 12/02/02 $ 400 $ 413 OBLIGATIONS 6.40% 10/28/02 300 309 Federal Home Loan Mortgage Corp. Discount Note 4.50% 06/15/03 180 185 Federal National Mortgage Association Discount Note 4.00% 08/15/03 220 224 6.75% 08/15/02 400 412 Tennessee Valley Authority 6.00% 09/24/02 437 445 United States Treasury Bill 1.73% 05/30/02 500 496 United States Treasury Note 5.75% 10/31/02 100 103 ------------------------------------------------------------------------ Total U.S. Government and Agency Obligations 92.53% 2,587 (Cost $2,575) - ------------------------------------------------------------------------------------------ SHORT-TERM State Street Bank - Repurchase INVESTMENT Agreement (secured by $185, US Treasury Bond, 6.875%, 08/15/25) 0.85% 01/02/02 179 179 ----------------------------------------------------------------------- Total Repurchase Agreement 6.40% 179 (Cost $ 179) Total Investments 98.93% 2,766 (Cost $ 2,754) Cash and Other Assets in Excess of Liabilities 1.07% 30 ----------------------------------------------------------------------- Net Assets 100.00% $ 2,796 =======================================================================
See notes to the financial statements. 42 Horace Mann Mutual Funds 2001 Funds Annual Report [PIE CHART] Statement of Investments Cash & Other Small Cap Growth Fund Net Assets 3.7% Common Stock 96.3% December 31, 2001
Number of Market Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK Aerospace 1.01% FLIR Systems, Inc.* 15,600 $ 591 Apparel 1.37% Polo Ralph Lauren Corp.* 29,814 798 Automotive 0.30% Keystone Automotive Industries, Inc.* 10,350 175 Banks & Financial Services 2.95% BankAtlantic Bancorp, Inc. 28,700 264 First American Corp. 16,300 305 Friedman, Billings, Ramsey Group, Inc.* 58,000 301 Investment Technology Group, Inc.* 6,225 243 Metris Companies, Inc. 19,300 496 Silicon Valley Bancshares* 2,800 75 Southwest Bancorporation of Texas, Inc.* 1,400 42 ---------------------------------------------------------- 1,726 Business Services 2.48% Administaff, Inc.* 3,200 88 Advisory Board Co.* 1,800 50 Exult, Inc.* 10,789 172 Fair, Isaac and Company, Inc. 10,900 687 Getty Images, Inc.* 9,600 221 Sangamo Biosciences, Inc.* 4,000 37 Visionics Corp.* 13,800 199 ---------------------------------------------------------- 1,454 Chemicals 1.04% IMC Global, Inc. 9,300 121 Symyx Technologies, Inc.* 22,900 486 ---------------------------------------------------------- 607 Communication Equipment & Services 3.68% Alamosa Holdings, Inc.* 2,200 26 Centillium Communications, Inc.* 4,700 37 Extreme Networks, Inc.* 4,600 59 Foundry Networks, Inc.* 22,500 183 Gentner Communications Corp. 16,100 269 Polycom, Inc.* 27,100 923 SonicWALL, Inc.* 11,400 222 Sonus Networks, Inc.* 39,800 183 US Unwired, Inc.* 8,800 89 ViaSat, Inc.* 10,300 161 ---------------------------------------------------------- 2,152 Computer Hardware 0.80% Handspring, Inc.* 1,400 9 RadiSys Corp.* 3,900 77 Riverstone Networks, Inc.* 22,800 380 ---------------------------------------------------------- 466 Computer Software & Services 22.01% Activision, Inc.* 6,374 166 Advanced Digital Information Corp.* 17,000 272 Avid Technology, Inc.* 7,897 96 Avocent Corp.* 14,500 352 Borland Software Corp.* 12,300 192
See notes to the financial statements. 43 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Small Cap Growth Fund December 31, 2001
Number of Market Shares (000) - -------------------------------------------------------------------------- COMMON STOCK CACI International, Inc.* 8,600 $ 339 (Continued) Carreker Corp.* 8,200 48 Corillian Corp.* 125,794 603 Digimarc Corp.* 83,300 1,548 Digital Insight Corp.* 31,900 715 Documentum, Inc.* 6,900 150 Echelon Corp.* 10,000 142 Emulex Corp.* 11,100 439 Enterasys Networks, Inc.* 9,000 80 Entrust, Inc.* 7,200 73 F5 Networks, Inc.* 1,200 26 Identix, Inc.* 24,900 363 Immersion Corp.* 79,688 526 Informatica Corp.* 8,600 125 J.D.Edwards & Co.* 16,475 271 JDA Software Group, Inc.* 11,300 253 Kronos, Inc.* 3,525 171 Lawson Software, Inc.* 4,400 69 Legato Systems, Inc.* 19,600 254 Macromedia, Inc.* 4,533 81 Magma Design Automation, Inc.* 1,800 54 Manugistics Group, Inc.* 4,300 91 MatrixOne, Inc.* 2,000 26 McAfee.com Corp.* 12,750 433 Midway Games, Inc.* 6,800 102 Moldflow Corp.* 2,600 37 Nassda Corp.* 2,200 49 NetIQ Corp.* 8,800 310 Numerical Technologies, Inc.* 2,800 98 Onyx Software Corp.* 155,400 598 PEC Solutions, Inc.* 3,700 138 Precise Software Solutions Ltd.* 2,600 54 Read-Rite Corp.* 5,000 33 Red Hat, Inc.* 205,700 1,456 Roxio, Inc.* 11,600 192 SeaChange International, Inc.* 6,200 211 Secure Computing Corp.* 10,900 223 Stellent, Inc.* 5,200 155 Storage Technology Corp.* 17,900 370 The Titan Corp.* 5,100 127 THQ, Inc.* 5,400 262 United Online, Inc.* 36,700 154 Vastera, Inc.* 4,700 78 WebEx Communications, Inc.* 9,421 234 Websense, Inc.* 800 26 ------------------------------------------------------------ 12,865 Construction 1.46% Applied Films Corp.* 5,300 166 Granite Construction, Inc. 4,350 105 Maverick Tube Corp.* 2,400 31 The Shaw Group, Inc.* 23,500 552 ------------------------------------------------------------ 854
See notes to the financial statements. 44 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Small Cap Growth Fund December 31, 2001 Number of Market Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK Consumer Products 2.15% (Continued) Ball Corp. 7,200 $ 509 Coach, Inc.* 7,300 285 Mobile Mini, Inc.* 1,000 39 Quiksilver, Inc.* 4,500 77 Reebok International Ltd.* 13,000 345 ------------------------------------------------------------ 1,255 Education 1.49% Career Education Corp.* 11,000 377 Education Management Corp.* 800 29 Princeton Review, Inc.* 41,300 316 Sylvan Learning Systems, Inc.* 6,750 149 ------------------------------------------------------------ 871 Electronic Equipment & Services 5.23% O2Micro International Ltd.* 15,800 379 Active Power, Inc.* 18,000 122 Axcelis Technologies, Inc.* 19,900 256 FEI Co.* 7,600 239 Kopin Corp.* 15,400 215 LTX Corp.* 8,900 186 Pixelworks, Inc.* 90,900 1,450 Plexus Corp.* 57 2 Teleflex, Inc. 4,400 208 ------------------------------------------------------------ 3,057 Energy 2.69% Arch Coal, Inc. 7,900 179 Core Laboratories N.V.* 17,100 240 Evergreen Resources, Inc.* 6,100 236 Key Energy Services, Inc.* 20,400 188 Patterson-UTI Energy, Inc.* 19,200 447 Swift Energy Co.* 5,500 111 Western Gas Resources, Inc. 1,900 61 XTO Energy, Inc. 6,250 109 ------------------------------------------------------------ 1,571 Entertainment & Recreation 2.44% Action Performance Companies, Inc.* 8,907 272 Ameristar Casinos, Inc.* 6,700 168 Aztar Corp.* 3,004 55 JAKKS Pacific, Inc.* 4,000 76 Pixar Animation Studios* 23,700 851 ------------------------------------------------------------ 1,422 Food & Beverage 0.40% CBRL Group, Inc. 4,700 138 The Smith & Wollensky Restaurant Group* 25,000 95 ------------------------------------------------------------ 233 Health Care & Pharmaceuticals 23.80% Abgenix, Inc.* 8,200 276 Accredo Health, Inc.* 5,400 214 AeroGen, Inc.* 73,600 247 Albany Molecular Research, Inc.* 2,600 69 Alkermes, Inc.* 43,400 1,144 See notes to the financial statements. 45 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Small Cap Growth Fund December 31, 2001 Number of Market Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK American Pharmaceutical Partners, Inc.* 4,100 $ 85 (Continued) AmeriPath, Inc.* 7,400 237 Amylin Pharmaceuticals, Inc.* 27,600 250 ArQule, Inc.* 1,300 22 AtheroGenics, Inc.* 43,600 264 Atrix Laboratories, Inc.* 6,200 128 Bioject Medical Technologies, Inc.* 15,500 197 Celgene Corp.* 14,300 456 Cell Genesys, Inc.* 27,400 634 Cell Therapeutics, Inc.* 9,700 234 Corixa Corp.* 46,000 693 Cubist Pharmaceuticals, Inc.* 2,600 93 Dendreon Corp.* 3,300 33 Digene Corp.* 8,900 263 DUSA Pharmaceuticals, Inc.* 9,400 73 Emisphere Technologies, Inc.* 10,000 319 Endo Pharmaceuticals Holdings, Inc.* 53,700 627 Esperion Therapeutics* 2,800 21 First Horizon Pharmaceutical Corp.* 7,100 209 Gene Logic, Inc.* 10,700 201 Genta, Inc.* 2,600 37 Immunogen, Inc.* 10,850 179 Incyte Genomics, Inc.* 17,300 336 InterMune, Inc.* 5,350 263 ISIS Pharmaceuticals, Inc.* 11,962 265 KOS Pharmaceuticals, Inc.* 4,000 138 Lifepoint Hospitals, Inc.* 3,450 117 Medicis Pharmaceutical Corp.* 3,000 194 MGI Pharma, Inc.* 13,600 208 Myriad Genetics, Inc.* 4,650 245 Neose Technologies, Inc.* 3,800 138 Neurocrine Biosciences, Inc.* 7,900 405 NPS Pharmaceuticals, Inc.* 5,250 201 OSI Pharmaceuticals, Inc.* 3,100 142 Paradigm Genetics, Inc.* 148,400 844 Pharmaceutical Resources, Inc.* 4,200 142 Pharmacopeia, Inc.* 13,600 189 Protein Design Labs, Inc.* 5,400 177 Renal Care Group, Inc.* 4,650 149 SangStat Medical Corp.* 3,700 73 Scios, Inc.* 17,941 426 Taro Pharmaceutical Industries Ltd.* 9,650 385 Telik, Inc.* 2,600 35 TheraSense, Inc.* 5,000 123 Third Wave Technologies, Inc.* 59,900 440 Transkaryotic Therapies, Inc.* 15,150 646 Trimeris, Inc.* 3,500 157 ViroPharma, Inc.* 11,500 264 ------------------------------------------------------------- 13,907 Insurance 0.65% Hilb, Rogal and Hamilton Co. 1,850 104 Mid Atlantic Medical Services, Inc.* 6,600 150 RenaissanceRe Holdings Ltd. 1,300 124 ------------------------------------------------------------- 378 See notes to the financial statements. 46 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Small Cap Growth Fund December 31, 2001
Number of Market Shares (000) - -------------------------------------------------------------------------------------- COMMON STOCK Internet Services 0.38% (continued) Overture Services, Inc.* 6,200 $ 220 Manufacturing (Diversified) 0.70% Grant Prideco, Inc.* 3,000 35 Hanover Compressor Co.* 5,700 144 National Oilwell, Inc.* 6,300 130 Rowan Companies, Inc.* 5,300 103 ------------------------------------------------------------------ 412 Media & Media Services 1.13% Cumulus Media, Inc.* 9,400 152 Macrovision Corp.* 6,000 211 Radio One, Inc.* 7,900 146 XM Satellite Radio Holdings, Inc.* 8,100 149 ------------------------------------------------------------------ 658 Printing & Publishing 0.33% Scholastic Corp.* 3,800 191 Railroad & Shipping 0.43% Wabtec Corp. 5,050 62 Werner Enterprises, Inc. 7,900 191 ------------------------------------------------------------------ 253 Retail 5.03% 99 Cents Only Stores * 900 34 Abercrombie & Fitch Co.* 10,500 279 American Eagle Outfitters, Inc.* 8,700 228 Ann Taylor Stores Corp.* 7,900 277 Chico's FAS, Inc.* 1,600 64 Columbia Sportswear Co.* 2,100 70 Copart, Inc.* 7,200 262 Cost Plus, Inc.* 6,400 168 Electronics Boutique Holdings Corp.* 5,750 229 Insight Enterprises, Inc.* 9,900 244 Linens'n Things, Inc.* 5,076 129 O'Reilly Automotive, Inc.* 11,000 401 Tweeter Home Entertainment Group, Inc.* 1,100 32 Williams-Sonoma, Inc.* 10,000 429 Zale Corp.* 2,200 92 ------------------------------------------------------------------ 2,938 Scientific Instruments 1.47% Bruker AXS, Inc.* 24,600 161 Illumina, Inc.* 7,900 93 MKS Instruments, Inc.* 7,800 211 Orbotech Ltd.* 2,200 68 Transgenomic, Inc.* 30,000 328 ------------------------------------------------------------------ 861 Semiconductors 7.92% Aeroflex, Inc.* 14,500 274 ASM International, N.V.* 11,250 219 Elantec Semiconductor, Inc.* 912 35 EMCORE Corp.* 4,000 182 ESS Technology, Inc.* 11,800 251 Fairchild Semiconductor International, Inc.* 13,350 376
See notes to the financial statements. 47 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (concluded) Small Cap Growth Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------- COMMON STOCK Genesis Microchip, Inc.* 6,200 $ 409 (concluded) Lattice Semiconductor Corp.* 22,000 452 Microtune, Inc.* 17,700 415 Monolithic System Technology, Inc.* 10,400 214 OmniVision Technologies, Inc.* 25,200 224 PDF Solutions, Inc.* 4,100 86 Photon Dynamics, Inc.* 7,952 363 Photronics, Inc.* 8,800 275 Power Integrations, Inc.* 4,900 112 Silicon Laboratories, Inc.* 3,800 128 TriQuint Semiconductor, Inc.* 50,200 615 ----------------------------------------------------------------------- 4,630 Transportation 2.00% Arkansas Best Corp.* 8,850 255 Hawaiian Airlines, Inc.* 61,100 244 Knight Transportation, Inc.* 6,900 130 Landstar System, Inc.* 3,900 282 Yellow Corp.* 10,250 257 ----------------------------------------------------------------------- 1,168 Waste Management 0.98% Stericycle, Inc.* 4,100 250 Waste Connections, Inc.* 10,387 322 ----------------------------------------------------------------------- 572 Total Common Stock 96.32% 56,285 (Cost $49,819) =======================================================================
Principal Rate Maturity Amount Market Date (000) (000) - ------------------------------------------------------------------------------------- SHORT-TERM Federal Home Loan Bank INVESTMENT Discount Note 1.43% 01/02/02 $ 2,400 $ 2,400 ----------------------------------------------------------------------- Total Short-Term Investment 4.11% 2,400 (Cost $2,400) ======================================================================= Total Investments 100.43% 58,685 (Cost $52,219) Liabilities in Excess of Cash and Other Assets (0.43%) (248) ----------------------------------------------------------------------- Net Assets 100.00% $58,437 =======================================================================
* Non-income producing during the year ended December 31, 2001 as this security did not pay dividends. See notes to the financial statements. 48 Horace Mann Mutual Funds 2001 Funds Annual Report [PIE CAHRT] Cash & Other Statement of Investments Net Assets 5.4% International Equity Fund North America 2.5% December 31, 2001 Pacific 23.6% Europe 68.5%
Number of Market Shares (000) - ----------------------------------------------------------------------------------------------------------------------------- COMMON AND Australia 2.45% PREFERRED STOCK BHP Billiton Ltd. (Steel & Metals) 92,643 $ 498 WMC Ltd. (Steel & Metals) 65,835 322 ----------------------------------------------------------------------------------------------------------- 820 Belgium 0.88% Interbrew (Food & Beverage) 10,800 296 Canada 2.47% Canadian National Railway Co. (Railroads) 14,966 721 Nortel Networks Corp. (Telecommunications)* 14,200 106 ----------------------------------------------------------------------------------------------------------- 827 Denmark 0.79% Novo Nordisk-B (Health Services) 6,500 266 Finland 0.94% Sonera OYJ (Telecommunications) 26,400 134 UPM-Kymmene OY (Containers & Paper) 5,500 182 ----------------------------------------------------------------------------------------------------------- 316 France 17.40% Alcatel Alsthom Cge (Telecommunications) 4,619 79 Aventis SA (Pharmaceuticals) 8,333 592 BNP Paribas (Banking) 7,179 642 Carrefour Supermarche SA (Specialty Retail) 7,270 378 CGIP-Comp Gen D'Ind & D'Particip (Containers & Paper) 1,950 65 CGIP-Comp Gen D'Ind & D'Particip (Containers & Paper) warrants* 1,950 1 Credit Lyonnais (Banking) 9,553 319 Danone (Food & Beverage) 1,820 222 Eurotunnel EPLC (Construction)* 274,247 276 France Telecom (Telecommunications) 4,393 176 Lafarge SA (Building Materials) 4,054 379 Orange SA (Telecommunications)* 13,547 123 Rhodia SA (Chemicals) 6,316 51 Sanofi-Synthelabo SA (Pharmaceuticals) 4,558 340 Schneider Electric SA (Industrial Specialty) 8,606 414 SCOR SA (Insurance) 2,062 65 Stmicroelectronics (Electronic Components) 10,108 324 Suez Lyonnaise Des Eaux (Water Supply) 17,449 528 Technip Coflexip SA (Building Materials) 811 108 Total Fina Elf SA-B (Oil & Gas Companies) 5,272 753 ----------------------------------------------------------------------------------------------------------- 5,835 Germany 12.75% Allianz AG (Insurance) 1,431 339 Altana AG DEM (Pharmaceuticals) 1,743 87 AMB Generali Holding AG (Insurance) 244 26 BASF AG (Chemicals) 6,549 243 Bayer AG (Chemicals) 19,174 611 Beiersdorf AG (Cosmetics) 792 90 Deutsche Bank AG (Banking) 2,934 207 E.On AG Corporation (Utilities) 12,481 646 Heidelberger Druckmaschinen (Printing & Publishing) 282 11 Karstadt Quelle AG (Department & Chain Stores) 6,897 272 Man AG (Machinery) 4,858 103 Merck KGAA (Medical Supply & Specialty) 2,673 99
See notes to the financial statements. 49 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) International Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------------------------------- COMMON AND Metro AG (Department & Chain Stores) 7,017 $ 249 PREFERRED STOCK Munich Reinsurance (Insurance) 1,548 420 (continued) SAP AG (Computer Software) 2,129 277 Siemens AG NPV (Electronic Components) 9,036 598 ------------------------------------------------------------------------------------------ 4,278 Italy 3.09% Gucci Group (Retail) 2,552 217 Mediobanca SPA (Banking) 44,100 494 Ras (Insurance) 27,550 324 ------------------------------------------------------------------------------------------ 1,035 Japan 19.55% Asahi Glass Co. (Building Materials) 36,000 213 Canon, Inc. (Office Equipment & Supplies) 6,000 207 DAI Nippon Printing (Printing & Publishing) 5,000 50 Daiwa Securities Group (Financial) 29,000 153 Fast Retailing Co. (Apparel & Shoes) 900 80 Hitachi Ltd. (Electronic Components) 16,000 117 ITO-Yokado Company Ltd. (Department & Chain Stores) 3,000 136 Kajima Corp. (Energy Engineering) 30,000 82 Matsushita Communications Industries (Telecommunications) 5,000 136 Matsushita Electric Industries Co. (Electronic Components) 19,000 244 Mitsubishi Corp. (Wholesale Distribution) 31,000 201 Mitsubishi Estate (Real Estate) 38,000 278 Mitsui & Co. (Miscellaneous) 38,000 188 Mitsui Fudosan (Real Estate) 45,000 344 Mizuho Holdings, Inc. (Financial) 14 29 Murata Manufacturing Co. (Electronic Components) 2,300 138 NEC Corp. (Electronic Components) 44,000 449 Nikko Cordial Corp. (Other Financial)* 67,000 299 Nippon Telephone & Telegraph Corp. (Telecommunications) 35 114 Nippon Unipac Holding (Printing/Publishing) 26 116 Nissan Motor Company Ltd. (Automobiles) 80,000 424 Nomura Holdings (Financial) 32,000 410 NTT Docomo (Telecommunications) 19 223 OJI Paper Co. (Forest Products) 23,000 91 Sankyo Company Ltd. (Pharmaceuticals) 18,000 308 Sega Enterprises (Recreational Products)* 7,800 156 Sharp Corp. (Electronic Components) 44,000 515 SMC Corp. (Machinery/Compon/Comtrols) 1,000 102 Sony Corp. (Consumer Electronics) 9,600 439 Taisei Corp. (Energy Engineering) 41,000 89 Takeda Chemical Industries Ltd.(Pharmaceuticals) 5,000 226 ------------------------------------------------------------------------------------------ 6,557 Netherlands 2.73% Asm Lithography Holdings NV (Computers)* 7,200 125 DSM NV (Chemicals) 5,600 204 Elsevier NV (Print Media) 12,100 143 Heineken NV (Alcohol & Tobacco) 4,350 165 IHC Caland NV (Oilfield Services/Equipment) 2,000 93 Koninklijke KPN NV (Telecommunications) 36,600 186 ------------------------------------------------------------------------------------------ 916
See notes to the financial statements. 50 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) International Equity Fund December 31, 2001
Number of Market Shares (000) - ------------------------------------------------------------------------------------------------------------ COMMON AND Spain 2.18% PREFERRED STOCK Inditex (Retail Specialty)* 13,700 $ 261 (concluded) Telefonica SA (Telecommunications)* 35,129 470 --------------------------------------------------------------------------------------- 731 Sweden 2.37% L.M. Ericsson Telephone Co.- B (Telecommunications) 146,000 796 Switzerland 6.84% Credit Suisse Group (Banking)* 10,633 454 Nestle SA (Food & Beverage) 1,754 374 Roche Holdings AG (Biotechnology) 2,358 168 Serono SA (Pharmaceuticals) 377 329 Swiss Reinsurance (Insurance) 4,067 409 Syngenta AG (Chemicals)* 4,203 218 UBS AG (Banking) 6,798 343 --------------------------------------------------------------------------------------- 2,295 Taiwan 1.62% Taiwan Semiconductor Manufacturing Co. Ltd. (Semiconductors)* 31,700 544 United Kingdom 18.19% Anglo American PLC (Steel Metals) 8,261 125 BAE Systems (Aerospace) 74,838 337 BP Amoco PLC (Oil & Gas Companies) 117,068 909 Compass Group PLC (Food & Beverage) 23,447 175 GlaxoSmithKline PLC (Pharmaceuticals) 23,275 583 Pearson PLC (Print Media) 28,185 324 Reed International (Print Media) 54,583 452 Reuters Group PLC (Printing & Publishing) 48,112 476 Rio Tinto-Zinc Corp. PLC (Steel & Metals) 28,094 537 Sainsbury (J) (Department & Chain Stores) 62,570 333 Shell Transportation & Trading Co. PLC (Oil & Gas Companies) 67,695 465 Vodafone Group Public Ltd. (Telecommunications) 530,737 1,387 --------------------------------------------------------------------------------------- 6,103 Total Common and Preferred Stock 94.25% 31,615 (Cost $34,285) =======================================================================================
See notes to the financial statements. 51 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (concluded) International Equity Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - -------------------------------------------------------------------------------------------------------------- CORPORATE NOTE France 0.34% Eurotunnel (Construction) 1.00% 04/03/40 $ 100 $ 113 ------------------------------------------------------------------------------------------ Total Corporate Note 0.34% 113 (Cost $149) ========================================================================================== - -------------------------------------------------------------------------------------------------------------- SHORT-TERM State Street Bank - Repurchase Agreement INVESTMENT (secured by $1,127, US Treasury Bond 6.125%, 11/15/27) 1.62% 01/02/02 1,100 1,100 ------------------------------------------------------------------------------------------ Total Short-Term Investment 3.28% 1,100 (Cost $1,100) ========================================================================================== Total Investments 97.87% 32,828 (Cost $35,534) Foreign Currency 1.70% 572 (Various Denominations) (Cost $575) Cash and Other Assets In Excess of Liabilities 0.43% 144 ------------------------------------------------------------------------------------------ Net Assets 100.00% $ 33,544 ==========================================================================================
* Non-income producing during the year ended December 31, 2001 as this security did not pay dividends. See notes to the financial statements. 52 Horace Mann Mutual Funds 2001 Funds Annual Report [PIE CHART] Statement of Investments Cash & Other Socially Responsible Fund Net Assets 3.4% December 31, 2001 Common Stock 96.6%
Number of Market Shares (000) - -------------------------------------------------------------------------------------------- COMMON STOCK Aerospace 0.61% Goodrich Corp. 16,400 $ 437 Apparel 0.57% Jones Apparel Group, Inc.* 12,200 405 Automotive 4.39% Autoliv, Inc. 17,200 349 Dana Corp. 17,100 237 Delphi Automotive Systems Corp. 30,400 415 Ford Motor Co. 4,400 69 General Motors Corp. 7,300 355 Genuine Parts Co. 13,300 488 Goodyear Tire & Rubber Co. 15,200 362 Lear Corp.* 9,800 374 PACCAR, Inc. 7,600 499 ---------------------------------------------------------------------------- 3,148 Banks & Financial Services 27.39% American Express Co. 7,000 250 AmSouth Bancorporation 23,200 438 Bank of America Corp. 27,200 1,712 Bank One Corp. 25,100 980 Charter One Financial, Inc. 15,225 413 Citigroup, Inc. 52,566 2,654 Countrywide Credit Industries, Inc. 8,600 352 Federal Home Loan Mortgage Corp. 7,600 497 Federal National Mortgage Association 16,000 1,272 FleetBoston Financial Corp. 24,100 880 Golden West Financial Corp. 7,500 441 Huntington Bancshares, Inc. 20,200 347 J.P. Morgan Chase & Co. 17,700 643 KeyCorp 19,100 465 Lehman Brothers Holdings, Inc. 8,600 574 Merrill Lynch & Company, Inc. 4,200 219 Morgan Stanley Dean Witter & Co. 7,400 414 National City Corp. 19,400 567 Regions Financial Corp. 14,500 434 SouthTrust Corp. 18,700 460 SunTrust Banks, Inc. 8,600 539 U.S. Bancorp 45,600 954 Union Planters Corp. 9,800 442 UnionBanCal Corp. 10,400 395 Wachovia Corp. 38,700 1,214 Washington Mutual, Inc. 23,000 752 Wells Fargo & Co. 30,300 1,317 ---------------------------------------------------------------------------- 19,625 Business Machines 1.04% Hewlett-Packard Co. 36,400 748 Capital Goods 0.68% W.W. Grainger, Inc. 10,200 490
See notes to the financial statements. 53 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Socially Responsible Fund December 31, 2001 Number of Market Shares (000) - ------------------------------------------------------------------------------- COMMON STOCK Chemicals 3.98% (continued) Cabot Corp. 10,300 $ 368 Dow Chemical Co. 23,100 780 Eastman Chemical Co. 9,600 375 Lubrizol Corp. 9,000 316 PPG Industries, Inc. 9,000 465 Praxair, Inc. 9,900 547 ------------------------------------------------------------- 2,851 Communication Equipment & Services 11.17% AT&T Corp. 25,100 455 BellSouth Corp. 34,200 1,305 Corning, Inc. 31,400 280 Nortel Networks Corp. 46,500 349 SBC Communications, Inc. 43,522 1,705 Sprint Corp. 27,200 546 Tellabs, Inc.* 25,200 376 Verizon Communications, Inc. 43,100 2,046 WorldCom Group* 66,600 938 ------------------------------------------------------------- 8,000 Computer Software & Services 1.87% Electronic Data Systems Corp. 6,600 452 Ingram Micro, Inc. - A* 11,900 206 Quantum Corp.* 27,600 272 Tech Data Corp.* 9,500 410 ------------------------------------------------------------- 1,340 Construction 0.64% Pulte Homes, Inc. 10,200 456 Consumer Products 3.55% Black & Decker Corp. 10,200 385 ConAgra Foods, Inc. 24,300 578 Masco Corp. 16,200 397 Newell Rubbermaid, Inc. 18,900 521 Procter & Gamble Co. (The) 8,350 661 ------------------------------------------------------------- 2,542 Electronic Equipment & Services 2.77% Acuity Brands, Inc. 7,300 88 Arrow Electronics, Inc.* 15,900 475 Avnet, Inc. 15,100 385 Cooper Industries, Inc. 11,100 388 Hubbell, Inc. 8,600 253 Motorola, Inc. 7,000 105 Solectron Corp.* 25,700 290 ------------------------------------------------------------- 1,984 Energy 4.63% Amerada Hess Corp. 5,700 356 Ashland, Inc. 10,000 461 Conoco, Inc. 15,000 425 Massey Energy Co. 12,100 251 Occidental Petroleum Corp. 17,800 472 Sunoco, Inc. 11,600 433 See notes to the financial statements. 54 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Socially Responsible Fund December 31, 2001 Number of Market Shares (000) - ----------------------------------------------------------------------------- COMMON STOCK Ultramar Diamond Shamrock Corp. 4,300 $ 213 (continued) Valero Energy Corp. 5,300 202 Xcel Energy, Inc. 18,200 505 ---------------------------------------------------------- 3,318 Food & Beverage 3.67% Kellogg Co. 12,200 367 McDonald's Corp. 4,400 116 PepsiCo, Inc. 17,800 418 Sara Lee Corp. 25,300 562 TRICON Global Restaurants* 6,000 295 Tyson Foods, Inc. 37,619 435 Wendy's International, Inc. 14,900 435 ---------------------------------------------------------- 2,628 Health Care & Pharmaceuticals 2.57% American Home Products Corp. 6,500 399 Eli Lilly & Co. 5,800 456 Johnson & Johnson 2,500 148 Merck & Company, Inc. 6,300 370 Pharmacia Corp. 8,200 350 Schering-Plough Corp. 3,200 115 ----------------------------------------------------------- 1,838 Insurance 7.56% Allstate Corp. 20,200 681 American International Group, Inc 1,100 87 Aon Corp. 9,500 337 Chubb Corp. 7,600 524 CIGNA Corp. 4,100 380 Health Net, Inc.* 17,300 377 Humana, Inc.* 29,900 353 MBIA, Inc. 6,500 349 MetLife, Inc.* 16,900 535 MGIC Investment Corp. 7,600 469 Old Republic International Corp. 15,000 420 St Paul Companies, Inc. 11,100 488 Torchmark Corp. 10,500 413 ---------------------------------------------------------- 5,413 Manufacturing (Diversified) 3.80% FMC Corp.* 5,000 298 Ingersoll-Rand Co. 9,400 393 Leggett & Platt, Inc. 18,100 416 Parker Hannafin Corp. 9,800 450 Snap-On, Inc. 10,200 343 TRW, Inc. 9,900 367 Whirlpool Corp. 6,200 455 ---------------------------------------------------------- 2,722 Media & Media Services 1.48% Disney (Walt) Co. 14,400 298 Gannett Company, Inc. 8,900 598 Liberty Media Corp. - A* 11,600 162 ---------------------------------------------------------- 1,058 See notes to the financial statements. 55 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (continued) Socially Responsible Fund December 31, 2001 Number of Market Shares (000) - ------------------------------------------------------------------------------ COMMON STOCK Paper & Forest Products 2.76% (concluded) Boise Cascade Corp. 10,100 $ 344 Georgia-Pacific Group 13,200 364 Smurfit-Stone Container Corp.* 24,200 386 Westvaco Corp. 15,100 430 Willamette Industries, Inc. 8,700 453 ------------------------------------------------------------ 1,977 Printing & Publishing 0.58% R.R. Donnelley & Sons Co. 13,900 413 Railroad & Shipping 2.70% Burlington Northern Santa Fe Corp. 19,100 545 CSX Corp. 11,400 400 Norfolk Southern Corp. 23,100 423 Union Pacific Corp. 10,000 570 ------------------------------------------------------------ 1,938 Retail 3.42% Federated Department Stores, Inc.* 12,700 519 Liz Claiborne, Inc. 7,700 383 May Department Stores Co. (The) 15,200 562 Sears, Roebuck and Co. 12,100 576 TJX Companies, Inc. 10,300 411 ------------------------------------------------------------ 2,451 Transportation 0.18% FedEx Corp.* 2,500 130 Utilities 4.60% Ameren Corp. 11,100 470 Cinergy Corp. 13,700 458 Consolidated Edison, Inc. 11,600 468 FirstEnergy Corp. 15,100 528 NiSource, Inc. 17,300 399 Potomac Electric Power Co. 16,800 379 Western Resources, Inc. 12,400 213 Wisconsin Energy Corp. 17,000 384 ------------------------------------------------------------ 3,299 Total Common Stock 96.61% 69,211 (Cost $70,184) ============================================================ See notes to the financial statements. 56 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Investments (concluded) Socially Responsible Fund December 31, 2001
Principal Rate Maturity Amount Market Date (000) (000) - ------------------------------------------------------------------------------------------------------------ SHORT-TERM State Street Bank -- Repurchase Agreement INVESTMENT (secured by $2,405, US Treasury Bill, 1.68%, 05/23/02) 0.85% 01/02/02 $ 2,337 $ 2,337 -------------------------------------------------------------------------------------------- Total Short-Term Investment 3.26% 2,337 (Cost $2,337) ============================================================================================ Total Investments 99.87% 71,548 (Cost $72,521) Cash and Other Assets In Excess of Liabilities 0.13% 96 -------------------------------------------------------------------------------------------- Net Assets 100.00% $71,644 ============================================================================================
* Non-income producing during the year ended December 31, 2001 as this security did not pay dividends. See notes to the financial statements. 57 Horace Mann Mutual Funds 2001 Funds Annual Report Statements of Assets and Liabilities December 31, 2001
SMALL CAP INTERNATIONAL SOCIALLY EQUITY BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE FUND FUND FUND FUND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 312,494 $ 3,525 $ 820,505 $ 569 $ 508,473 $ 480 $ 820 Due from bank -- -- 178,362 -- -- 38,886 -- Investments at market value* 599,554,988 291,724,826 148,409,208 2,765,591 58,684,674 32,827,947 71,547,719 Foreign currency at value* -- -- 42,942 -- -- 572,005 -- Forward currency contracts -- -- 126,498 -- -- 66,508 -- Dividends and interest receivable 850,138 582,555 1,599,426 27,088 2,593 14,672 122,843 Receivable-foreign taxes 3 1 -- -- -- 44,511 57 Receivable-fund shares sold 214,304 137,231 38,588 7,191 87,396 66,006 86,995 Receivable-investments sold -- -- -- -- 283,368 7,861 -- Other Assets -- 292 -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets 600,931,927 292,448,430 151,215,529 2,800,439 59,566,504 33,638,877 71,758,434 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividend payable -- -- 586,067 -- -- -- -- Forward currency contracts -- -- 24,830 -- -- 19 -- Payable-fund shares redeemed 371,271 255,731 12,836 213 18,097 15,065 16,326 Payable-investments purchased -- -- 24,421,522 -- 989,904 -- -- Payable-advisory and related fees 534,311 -- 104,970 -- 91,821 48,709 90,992 Accrued expenses 10,701 17,163 20,483 4,305 29,781 30,981 7,485 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 916,283 272,894 25,170,708 4,518 1,129,603 94,774 114,803 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $600,015,644 $292,175,536 $126,044,821 $ 2,795,921 $ 58,436,901 $ 33,544,102 $ 71,643,631 =================================================================================================================================== NET ASSETS CONSIST OF: Par Value of Common Shares 30,658,767 1,788,588 1,024,956 27,739 -- -- -- Paid in Surplus 640,377,249 314,695,377 121,144,512 2,755,839 75,089,723 45,617,995 72,931,056 Accumulated undistributed net investment income (loss) 180,103 18,875 (91,585) 1,000 -- (72,325) 21,569 Accumulated undistributed net realized gain (loss) from investments and foreign currency transactions (62,310,919) (11,117,099) (172,674) 11 (23,118,915) (9,359,815) (335,875) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currency (8,889,558) (13,210,207) 4,139,612 11,332 6,466,093 (2,641,753) (973,119) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $600,015,644 $292,175,536 $126,044,821 $ 2,795,921 $ 58,436,901 $ 33,544,102 $ 71,643,631 =================================================================================================================================== Number of shares outstanding: 30,658,767 17,885,880 10,249,568 277,398 4,810,131 3,189,383 5,619,767 (Authorized 50,000,000 shares each) Par Value $ 1.00 $ 0.10 $ 0.10 $ 0.10 $ -- $ -- $ -- =================================================================================================================================== NET ASSET VALUE PER SHARE $ 19.57 $ 16.34 $ 12.30 $ 10.08 $ 12.15 $ 10.52 $ 12.75 =================================================================================================================================== *Cost of Securities: Investments $608,444,546 $304,935,033 $144,368,904 $ 2,754,259 $ 52,218,581 $ 35,533,494 $ 72,520,838 Foreign Currency -- -- $ 43,155 -- -- $ 575,147 --
See notes to the financial statements. 58 Horace Mann Mutual Funds 2001 Funds Annual Report Statements of Operations For the Year Ended December 31, 2001
SMALL CAP INTERNATIONAL SOCIALLY EQUITY BALANCED INCOME SHORT-TERM GROWTH EQUITY RESPONSIBLE FUND FUND FUND FUND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 11,102,041 $ 11,433,114 $ 720 $ -- $ 67,568 $ 522,545 $ 1,401,263 Interest 274,396 3,537 8,784,451 104,995 188,544 100,580 88,069 Miscellaneous income 35,133 8,202 132,785 -- -- -- 29,378 - ----------------------------------------------------------------------------------------------------------------------------------- 11,411,570 11,444,853 8,917,956 104,995 256,112 623,125 1,518,710 Foreign taxes withheld (19,231) -- (3,194) -- (174) (60,948) (13,523) - ----------------------------------------------------------------------------------------------------------------------------------- Total investment income 11,392,339 11,444,853 8,914,762 104,995 255,938 562,177 1,505,187 EXPENSES: Advisory fees 2,465,002 -- 525,847 2,812 707,987 310,266 502,567 Administrative and 2,523,411 -- 518,166 9,277 252,125 149,379 294,923 support fees Professional fees 59,710 29,444 29,149 11,318 13,481 12,897 14,233 Fund Pricing fees 48,779 22,851 24,209 520 26,524 24,592 9,636 Custodian fees 99,038 46,395 49,152 1,057 53,852 49,930 19,565 Transfer agent fees 31,486 24 24 24 24 24 24 Shareholder reports 33,697 17,518 2,462 19 10,288 9,389 12,566 Registration Fees 571 -- -- -- -- -- -- Trustees' fees and 6,350 6,350 6,350 6,350 6,350 6,350 6,350 expenses Insurance 26,029 18,031 781 139 4,369 2,197 3,423 - ----------------------------------------------------------------------------------------------------------------------------------- Total expenses 5,294,073 140,613 1,156,140 31,516 1,075,000 565,024 863,287 - ----------------------------------------------------------------------------------------------------------------------------------- Less advisory and related fees waived (230,687) -- (66,726) (9,277) (102,708) (1,091) (111,802) Less expenses paid by Horace Mann Investors, Inc. -- -- -- (14,289) -- -- -- Less earnings credits on cash balances (2,963) (38) (26,006) (220) (1,788) (2,527) (823) Less expenses paid by commission credits (144,855) -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net Expenses 4,915,568 140,575 1,063,408 7,730 970,504 561,406 750,662 - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6,476,771 11,304,278 7,851,354 97,265 (714,566) 771 754,525 - ----------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS): Realized gain (loss) from: Investments 6,852,294 1,625,459 3,720,637 6,245 (22,878,360) (9,284,748) 826,092 Foreign currency transactions 15 -- (77,939) -- -- (71,068) (75) - ----------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments and foreign currency transactions 6,852,309 1,625,459 3,642,698 6,245 (22,878,360) (9,355,816) 826,017 Change in unrealized appreciation (depreciation) on: Investments (39,792,198) (54,528) 8,132 (1,039,235) (2,218,644) (7,169,042) Translation of assets and liabilities in foreign currencies -- -- 99,309 -- -- 63,183 -- Net realized and unrealized gain (loss) from investments and foreign currency transactions (32,939,889) 3,687,479 14,377 (23,917,595) (6,343,025) - ----------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $(26,463,118) $ 3,960,139 $ 11,538,833 $ 111,642 $(24,632,161) $(11,510,506) $ (5,588,500) ===================================================================================================================================
See notes to the financial statements. 59 Horace Mann Mutual Funds 2001 Funds Annual Report Statement of Changes in Net Assets For the Years Ended December 31, 2001 and December 31, 2000
EQUITY FUND BALANCED FUND INCOME FUND 2001 2000 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 6,476,771 $ 7,584,632 $ 11,304,278 $ 11,773,473 $ 7,851,354 $ 9,679,360 Net realized short-term gain (loss) on investments and foreign currency transactions (8,401,237) (46,318,081) 555,974 (10,444,140) 3,096,895 (232,179) Net realized long-term gain (loss) on investments and foreign currency transactions 15,253,546 (21,661,868) 1,069,485 (1,847,924) 545,803 (248,440) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currency (39,792,198) 24,873,373 (8,969,598) 1,345,567 44,781 4,712,282 - ------------------------------------------------------------------------------------------------------------------------------------ Change in net assets from operations (26,463,11 (35,521,944) 3,960,139 826,976 11,538,833 13,911,023 - ------------------------------------------------------------------------------------------------------------------------------------ FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income (6,403,440) (7,885,552) (11,343,163) (12,038,144) (7,597,565) (9,671,251) Net realized short-term gain from investments and foreign currency transactions - (57,559) - (5,423) (3,100,447) - Net realized long-term gain from investments and foreign currency transactions - (47,965) - (12,653) (557,685) - - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions to shareholders (6,403,440) (7,991,076) (11,343,163) (12,056,220) (11,255,697) (9,671,251) ==================================================================================================================================== FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 46,039,181 298,523,202 22,053,789 33,277,399 8,676,908 155,410,030 Net asset value of shares issued in reinvestment of dividends and capital gains distributions 6,361,221 7,936,809 11,343,163 12,056,220 10,669,630 9,671,251 - ------------------------------------------------------------------------------------------------------------------------------------ 52,400,402 306,460,011 33,396,952 45,333,619 19,346,538 165,081,281 Cost of shares redeemed (87,248,872) (220,348,910) (48,566,697) (121,914,586) (30,769,005) (45,311,572) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from fund share transactions (34,848,470) 86,111,101 (15,169,745) (76,580,967) (11,422,467) 119,769,709 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (67,715,028) 42,598,081 (22,552,769) (87,810,211) (11,139,331) 124,009,481 NET ASSETS: Beginning of period 667,730,672 625,132,591 314,728,305 402,538,516 137,184,152 13,174,671 - ------------------------------------------------------------------------------------------------------------------------------------ End of period $600,015,644 $ 667,730,672 $292,175,536 $ 314,728,305 $126,044,821 $137,184,152 ==================================================================================================================================== Undistributed net investment income (loss) $ 180,103 $ 106,757 $ 18,875 $ 57,760 $ (91,585) $ 29,197 - ------------------------------------------------------------------------------------------------------------------------------------
See notes to the financial statements. 60 Horace Mann Mutual Funds 2001 Funds Annual Report
SMALL CAP INTERNATIONAL SOCIALLY SHORT-TERM FUND GROWTH FUND EQUITY FUND RESPONSIBLE FUND 2001 2000 2001 2000 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- $ 97,265 $ 110,293 $ (714,566) $ (510,672) $ 771 $ 73,304 $ 754,525 $ 687,409 6,245 (1,092) (23,462,409) ( 6,995,411) (5,953,035) (2,298,028) (611,825) 2,288,851 - - 584,049 8,224,770 (3,402,781) 2,670,523 1,437,842 1,493,457 8,132 3,200 (1,039,235) (14,351,331) (2,155,461) (8,202,195) (7,169,042) 2,194,800 ------------------------------------------------------------------------------------------------------------------ 111,642 112,401 (24,632,161) (13,632,644) 11,510,506) (7,756,396) (5,588,500) 6,664,517 ------------------------------------------------------------------------------------------------------------------ (98,187) (109,538) - (13,744) - - (739,646) (716,080) (5,140) - - (1,399,506) - - - (2,341,012) - - - - - (522,634) (1,048,499) (1,490,194) - -------------------------------------------------------------------------------------------------------------------- (103,327) (109,538) - (1,413,250) - (522,634) (1,788,145) (4,547,286) ==================================================================================================================== 5,872,379 11,049,588 15,149,801 61,242,800 11,534,620 36,455,429 13,316,445 32,193,495 103,327 109,538 - 1,413,250 - 522,634 1,788,145 4,547,286 - -------------------------------------------------------------------------------------------------------------------- 5,975,706 11,159,126 15,149,801 62,656,050 11,534,620 36,978,063 15,104,590 36,740,781 (5,170,353) (10,922,443) (15,678,077) (24,510,265) (9,169,309) (12,413,117) (12,095,496) (22,379,508) - -------------------------------------------------------------------------------------------------------------------- 805,353 236,683 (528,276) 38,145,785 2,365,311 24,564,946 3,009,094 14,361,273 - -------------------------------------------------------------------------------------------------------------------- 813,668 239,546 (25,160,437) 23,099,891 (9,145,195) 16,285,916 (4,367,551) 16,478,504 1,982,253 1,742,707 83,597,338 60,497,447 42,689,297 26,403,381 76,011,182 59,532,678 - -------------------------------------------------------------------------------------------------------------------- $2,795,921 $ 1,982,253 $58,436,901 $ 83,597,338 $33,544,102 $ 42,689,297 $ 71,643,631 $ 76,011,182 ==================================================================================================================== $ 1,000 $ 1,922 $ - $ - $ (72,325) $ (2,028) $ 21,569 $ 7,100 - --------------------------------------------------------------------------------------------------------------------
61 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements December 31, 2001 1. BUSINESS ORGANIZATION -- The Horace Mann Mutual Funds (the "Trust") is an open-end, diversified management investment company registered under the Investment Company Act of 1940, which offers units of beneficial ownership (shares) in seven separate investment portfolios: Equity Fund (formally Growth Fund), Balanced Fund, Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International Equity Fund and Socially Responsible Fund. These funds collectively are referred to as the "Funds." Shares are presently offered to Horace Mann Life Insurance Company (HMLIC) Separate Account and the HMLIC 401(k) Separate Account. The Equity Fund shares also may be purchased under the dividend reinvestment plans by certain shareholders. FUND INVESTMENT OBJECTIVES: A.Equity Fund -- primary, long-term capital growth; secondary, conservation of principal and production of income. B.Balanced Fund -- realization of high long-term total rate of return consistent with prudent investment risks. C.Income Fund -- long-term total rate of return in excess of the U.S. bond market over a full market cycle. D.Short-Term Investment Fund -- primary, realize maximum current income to the extent consistent with liquidity; secondary, preservation of principal. E.Small Cap Growth Fund -- long-term capital appreciation through investing primarily in equity securities of small cap companies with earnings growth potential. F.International Equity Fund -- long-term growth of capital through a diversified portfolio of marketable foreign equity securities. G.Socially Responsible Fund -- long-term growth of capital, current income and growth of income through investing primarily in a diversified portfolio of equity securities of United States-based companies which are determined to be socially responsible. 2. SIGNIFICANT ACCOUNTING POLICIES: A.Security valuation -- A security listed or traded on U.S. or foreign stock exchanges is valued at its last sales price on the exchange where it is principally traded. In the absence of a current quotation, the security is valued at the mean between the last bid and asked prices on that exchange. If there are no such bid and ask quotations the most recent bid quotation is used. Securities quoted on the National Association of Securities Dealers Automatic Quotation (NASDAQ) System, for which there have been sales, are valued at the most recent sale price reported on such system. If there are no such sales, the value is the high or "inside" bid quotation. Securities traded over-the-counter are valued at the last current bid price. Debt securities that have a remaining maturity of 60 days or less are valued at cost, plus or minus any unamortized premium or discount. Foreign securities are converted to United States dollars using exchange rates at the close of the New York Stock Exchange. In the event market quotations would not be available, securities would be valued at fair value as determined in good faith by the Board of Trustees; no such securities were owned by the Funds at December 31, 2001. 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 Fund 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 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 62 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (continued) December 31, 2001 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. 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. 63 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (continued) December 31, 2001 3. OPERATING POLICIES: A.Repurchase Agreements -- Securities pledged as collateral for repurchase agreements are held by State Street Bank and Trust Company and are designated as being held on each fund's behalf by its custodian under a book-entry system. Each fund monitors the adequacy of the collateral on a daily basis and can require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment adviser to be credit worthy pursuant to guidelines established by the Trustees. B.Asset Backed Securities -- These securities are secured by installment loans or leases or by revolving lines of credit. They often include credit enhancements that help limit investors exposure to the underlying credit. These securities are valued on the basis of the timing and certainty of the cash flows compared to investments with similar durations. C.Collateralized Mortgage Obligations -- Planned Amortization Class (PAC) -- These securities have a 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, 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, they place, under a directed brokerage arrangement, common stock trades with a broker/dealer who credits to the funds part of the commissions paid. F.Earnings Credits on Cash Balances -- During 2001, the Funds' custody fee was reduced as a result of credits earned on overnight cash balances. G.Foreign Currency Transactions -- The books and records of the funds are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: . market value of investment securities, other assets and other liabilities at the daily rates of exchange, and . purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized gain (loss) from foreign currency related transactions includes gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of foreign currency, and gains and losses between the ex-dividend and payment dates on dividends, interest and foreign withholding taxes. The effect of changes in foreign exchange rates on realized and unrealized gains or losses is reflected as a component of such gains or losses. 64 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (continued) December 31, 2001 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 December 31, 2001 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: Canadian Dollar, 2,306,771 expiring 01/23/02 $1,448,464 $ 8,838 Short Contracts: Australian Dollar, 2,772,211 expiring 01/23/02 $1,416,744 15,130 Canadian Dollar, 2,306,771 expiring 01/23/02 $1,448,464 15,957 Euro Dollar, 8,464,587 expiring 01/23/02 $7,527,654 86,573 -------- $126,498 ======== Long Contracts: Australian Dollar, 2,772,211 expiring 01/23/02 $1,416,744 $ (4,624) Euro Dollar, 977,724 expiring 02/20/02 $ 866,313 (7,648) Short Contracts: Euro Dollar, 3,563,102 expiring 01/23/02 - 02/20/02 $3,167,285 (6,912) Swedish Krona, 7,121,993 expiring 01/23/02 $ 680,422 (5,646) -------- $(24,830) ======== INTERNATIONAL EQUITY FUND Short Contracts: Japanese Yen, 382,808,700 expiring 03/19/02 $2,933,493 $ 66,508 ======== Short Contracts: Euro Dollar, 7,758 expiring 01/02/02 $ 6,906 $ (19) ========
65 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (continued) December 31, 2001 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 years ended 2001 and 2000:
Shares issued to shareholders in reinvestment of dividends Net increase Shares sold and distributions Shares redeemed (decrease) - ------------------------------------------------------------------------------------ Equity Fund 12/31/2001 2,375,752 325,549 (4,370,630) (1,669,329) 12/31/2000 14,036,233 388,803 (10,619,256) 3,805,780 Balanced Fund 12/31/2001 1,318,213 697,183 (2,905,713) (890,317) 12/31/2000 1,976,765 723,823 (7,234,357) (4,533,769) Income Fund 12/31/2001 670,476 874,560 (2,364,284) (819,248) 12/31/2000 12,826,661 779,022 (3,613,195) 9,992,488 Short-Term Fund 12/31/2001 575,879 10,271 (508,562) 77,588 12/31/2000 1,085,679 11,037 (1,073,159) 23,557 Small Cap Growth Fund 12/31/2001 1,157,554 -- (1,177,212) (19,658) 12/31/2000 2,868,348 84,152 (1,184,318) 1,768,182 International Equity Fund 12/31/2001 964,473 -- (767,265) 197,208 12/31/2000 2,248,863 37,508 (801,343) 1,485,028 Socially Responsible Fund 12/31/2001 1,004,836 141,132 (911,576) 234,392 12/31/2000 2,357,040 326,835 (1,608,283) 1,075,592
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 August 10, 2001 Bernstein Investment Research and Management Unit (Bernstein) replaced Zurich Scudder Investments, Inc. as the subadviser on the Socially Responsible Fund. Effective October 19, 2001 Small Cap Growth Fund employed a multi-manager strategy using two subadvisers -- BlackRock Financial Management, Inc. and Mazama Capital Management. 66 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (continued) December 31, 2001 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 year ended December 31, 2001, 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% $230,687 Balanced Fund* 0.400 -- Income Fund 0.400 66,726 Short-Term Investment Fund 0.125 -- Small Cap Growth Fund 1.150 102,708 International Equity Fund 0.850 1,091 Socially Responsible Fund 0.700 111,802
*EffectiveJanuary 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 year ended December 31, 2001, 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 year ended December 31, 2001, HMLIC received a fee, accrued daily and paid monthly, based upon the combined assets for the Funds as follows:
Net Assets Rate On initial $1 billion 0.150% Over $ 1 billion 0.100%
D.Transfer and dividend disbursing agent services are provided by HMSC on a per account basis. The transfer agent fees for the year ended December 31, 2001 were $31,486 for the Equity Fund, $24 each for the Balanced, Income, Short-Term, Small Cap Growth, International Equity and Socially Responsible Funds. E.The Trust pays each independent trustee a $1,000 annual retainer, $1,000 per board meeting attended, $200 for each committee meeting and $500 for each telephonic meeting. For the year ended December 31, 2001, the fees, excluding travel expenses, for independent trustees totaled $27,700. There were seven 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). 67 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Notes to the Financial Statements (concluded) December 31, 2001 6. SECURITY TRANSACTIONS -- Security transactions, excluding short-term investments, for the year ended December 31, 2001 were:
Purchases Proceeds from sales ---------------------------------------------------------- Equity Fund $232,407,679 $268,157,560 Balanced Fund 29,287,310 44,676,542 Income Fund 502,644,440 502,590,368 Short-Term Fund -- -- Small Cap Growth Fund 189,258,700 187,859,656 International Equity Fund 39,719,010 35,210,700 Socially Responsible Fund 99,818,287 99,311,334
The following table shows investments, excluding foreign currency, at cost and unrealized appreciation (depreciation) for federal income tax purposes by fund at December 31, 2001.
Aggregate gross Aggregate gross Net unrealized Cost for Federal unrealized unrealized appreciation income tax purposes appreciation (depreciation) (depreciation) - -------------------------------------------------------------------------------------------- Equity Fund $608,927,791 $63,968,589 $(73,341,392) $ (9,372,803) Balanced Fund 305,551,814 1,158,148 (14,985,137) (13,826,989) Income Fund 144,541,568 4,836,429 (968,789) 3,867,640 Short-Term Fund 2,754,259 15,270 (3,938) 11,332 Small Cap Growth Fund 52,436,497 7,434,794 (1,186,617) 6,248,177 International Equity Fund 35,874,821 1,066,530 (4,113,404) (3,046,874) Socially Responsible Fund 72,862,696 3,011,041 (4,326,018) (1,314,977)
68 Independent Auditors' Report The Board of Trustees and Shareholders of The Horace Mann Mutual Funds: We have audited the accompanying statements of assets and liabilities, including the statements of investments, of the Horace Mann Mutual Funds (the Funds), consisting of the Equity Fund, Balanced Fund, Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International Equity Fund, and Socially Responsible Fund as of December 31, 2001, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years presented in the period then ended and the financial highlights for each of the periods presented in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned at December 31, 2001, by correspondence with the custodian and brokers and by the application of alternative auditing procedures where broker replies were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2001, the results of their operations for the period then ended, the changes in their net assets for each of the years presented in the period then ended and the financial highlights for each of the periods presented in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America. [SIG] KPMG LLP Chicago, Illinois January 28, 2002 69 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE EQUITY FUND AND A STOCK INDEX/1 / [CHART] - ----------------------------------- Equity Fund Average Annual Total Return - ----------------------------------- 1 year 5 years 10 years - ----------------------------------- - -4.21% 3.42% 9.99% - ----------------------------------- Stock Index Equity Index ----------- ------------ 3/31/1992 $9,745 $9,843 6/30/1992 9,936 10,319 9/30/1992 10,244 10,433 12/31/1992 10,768 10,178 3/31/1993 11,231 11,881 6/30/1993 11,288 12,235 9/30/1993 11,578 12,707 12/31/1993 11,846 13,122 3/31/1994 11,394 12,818 6/30/1994 11,442 13,102 9/30/1994 12,005 13,684 12/31/1994 12,002 13,121 3/31/1995 13,171 14,144 6/30/1995 14,423 15,285 9/30/1995 15,571 16,234 12/31/1995 16,499 17,350 3/31/1996 17,396 18,698 6/30/1996 18,181 19,303 9/30/1996 18,737 20,005 12/31/1996 20,306 21,899 3/31/1997 20,836 22,001 6/30/1997 24,466 24,886 9/30/1997 26,305 27,328 12/31/1997 27,057 27,035 3/31/1998 30,835 30,206 6/30/1998 31,856 28,647 9/30/1998 28,715 25,497 12/31/1998 34,838 29,101 3/31/1999 36,562 28,252 6/30/1999 39,107 31,050 9/30/1999 36,690 27,415 12/31/1999 42,150 28,363 3/31/2000 43,178 27,340 6/30/2000 41,965 26,331 9/30/2000 41,566 27,172 12/31/2000 38,303 27,047 3/31/2001 33,765 25,292 6/30/2001 35,743 26,850 9/30/2001 30,492 23,681 12/31/2001 33,752 25,909 Past performance is not predictive of future performance. Annuity contract fees are not reflected in Equity Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Stock: S&P 500 Standard and Poor's 500 Composite Index, an unmanaged index consisting of 500 stocks. Rate of returns shown above for the unmanaged indices have no expenses. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE BALANCED FUND AND A STOCK/BOND INDICES/1 / [CHART] - ----------------------------------- Balanced Fund Average Annual Total Return - ----------------------------------- 1 year 5 years 10 years - ----------------------------------- 1.39% 5.34% 9.20% - ----------------------------------- Bond Balanced Stock Index ---- -------- ----------- 12/31/1991 $10,000 $10,000 $10,000 3/31/1992 9,810.42 9,887 9,744.80 6/30/1992 10,081.50 10,295 9,936.33 9/30/1992 10,446.94 10,534 10,244.44 12/31/1992 10,752.38 10,195 10,768.06 3/31/1993 11,200.00 11,566 11,230.55 6/30/1993 11,331.22 11,866 11,288.33 9/30/1993 11,607.81 12,240 11,578.15 12/31/1993 11,776.74 12,513 11,846.08 3/31/1994 11,411.55 12,228 11,394.18 6/30/1994 11,412.78 12,363 11,441.83 9/30/1994 11,787.29 12,745 12,005.18 12/31/1994 11,780.23 12,397 12,002.13 3/31/1995 12,674.57 13,216 13,170.62 6/30/1995 13,651.09 14,124 14,423.16 9/30/1995 14,393.03 14,805 15,571.33 12/31/1995 15,109.74 15,641 16,499.25 3/31/1996 15,552.46 16,428 17,396.09 6/30/1996 16,012.67 16,795 18,181.47 9/30/1996 16,420.33 17,310 18,737.71 12/31/1996 17,406.24 18,593 20,306.32 3/31/1997 17,670.51 18,691 20,835.50 6/30/1997 19,726.41 20,527 24,466.19 9/30/1997 20,879.18 22,156 26,305.32 12/31/1997 21,483.31 22,131 27,057.23 3/31/1998 23,415.64 23,918 30,835.01 6/30/1998 24,099.99 23,315 31,856.48 9/30/1998 23,081.48 21,964 28,714.99 12/31/1998 26,065.67 23,831 34,838.03 3/31/1999 26,786.64 23,490 36,562.51 6/30/1999 27,810.97 24,802 39,107.26 9/30/1999 26,855.38 23,049 36,690.43 12/31/1999 29,240.14 23,565 42,149.97 3/31/2000 29,926.70 23,196 43,178.43 6/30/2000 29,629.23 22,801 41,965.12 9/30/2000 29,818.26 23,456 41,566.45 12/31/2000 28,915.96 23,785 38,303.48 3/31/2001 27,210.13 23,160 33,764.52 6/30/2001 28,227.59 24,097 35,743.12 9/30/2001 26,260.74 22,749 30,492.46 12/31/2001 27,948.76 24,115 33,751.70 Past performance is not predictive of future performance. Annuity contract fees are not reflected in Balanced Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Stock/Bond Indices: through April 30, 1997, S&P 500 Index and Lehman Brothers Intermediate Government/Corporate Bond Index, an unmanaged index consisting of U.S. Treasury bonds, U.S. agency bonds and investment grade corporate bonds with intermediate maturities. Lehman Brothers Aggregate Bond Index thereafter. Rates of return shown above for the unmanaged indices have no expenses. 70 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE INCOME FUND AND BOND INDEX/1 / [Chart] - --------------------------------- Income Fund Average Annual Total Return - -------------------------------- 1 year 5 years 10 years - -------------------------------- 8.88% 6.66% 6.39% - -------------------------------- Income Bond Index ---------- ---------- 3/10/1992 $10,000 $10,000 3/31/1992 9,910 9,910.66 6/30/1992 10,286 10,304.12 9/30/1992 10,728 10,714.30 12/31/1992 10,023 10,708.32 3/31/1993 11,109 11,100.17 6/30/1993 11,316 11,329.92 9/30/1993 11,556 11,545.04 12/31/1993 11,585 11,588.65 3/31/1994 11,319 11,344.14 6/30/1994 11,239 11,275.98 9/30/1994 11,328 11,370.10 12/31/1994 11,310 11,375.56 3/31/1995 11,800 11,901.33 6/30/1995 12,346 12,503.25 9/30/1995 12,573 12,725.13 12/31/1995 12,990 13,165.30 3/31/1996 12,890 13,070.81 6/30/1996 12,930 13,159.51 9/30/1996 13,140 13,403.68 12/31/1996 13,465 13,749.47 3/31/1997 13,455 13,743.50 6/30/1997 13,900 14,222.05 9/30/1997 14,378 14,696.23 12/31/1997 14,734 15,129.18 3/31/1998 15,017 15,362.64 6/30/1998 15,391 15,721.74 9/30/1998 15,924 16,386.24 12/31/1998 15,925 16,441.47 3/31/1999 15,961 16,357.62 6/30/1999 15,661 16,213.67 9/30/1999 15,733 16,323.93 12/31/1999 15,675 16,304.34 3/31/2000 15,803 16,664.66 6/30/2000 15,995 16,952.96 9/30/2000 16,367 17,464.94 12/31/2000 17,068 18,200.22 3/31/2001 17,619 18,751.68 6/30/2001 17,730 18,856.36 9/30/2001 18,418 19,726.65 12/31/2001 18,585 19,733.91 Past performance is not predictive of future performance. Annuity contract fees are not reflected in Income Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Bondindex; through April 30, 1997, Lehman Brothers Intermediate Government/Corporate Bond index, an unmanaged index consisting of U.S. Treasury bonds, U.S. agency bonds and investment grade corporate bonds with intermediate maturities. Lehman Brothers Aggregate Bond Index thereafter. The rate of return shown above for the unmanaged index has no expenses. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SHORT-TERM INVESTMENT FUND AND A TREASURY BILL INDEX/1 / [CHART] - -------------------------------------------- Short-Term Investment Fund Average Annual Total Return - -------------------------------------------- 1 year 5 years 10 years - -------------------------------------------- 5.17% 5.16% 4.56% - -------------------------------------------- Short-Term Treasury Bill Index ---------- ------------------- 3/10/1992 $10,000 $10,000.00 3/31/1992 10,089 10,096.31 6/30/1992 10,178 10,205.74 9/30/1992 10,257 10,311.22 12/31/1992 9,990 10,388.74 3/31/1993 10,391 10,472.07 6/30/1993 10,463 10,551.85 9/30/1993 10,524 10,638.61 12/31/1993 10,591 10,725.02 3/31/1994 10,675 10,804.58 6/30/1994 10,759 10,910.81 9/30/1994 10,864 11,034.57 12/31/1994 11,002 11,179.75 3/31/1995 11,144 11,346.03 6/30/1995 11,286 11,522.80 9/30/1995 11,428 11,689.52 12/31/1995 11,569 11,864.56 3/31/1996 11,708 12,013.48 6/30/1996 11,835 12,172.76 9/30/1996 11,986 12,340.29 12/31/1996 12,150 12,500.16 3/31/1997 12,295 12,664.63 6/30/1997 12,452 12,841.48 9/30/1997 12,610 13,018.21 12/31/1997 12,767 13,185.56 3/31/1998 12,934 13,363.04 6/30/1998 13,087 13,542.91 9/30/1998 13,253 13,734.75 12/31/1998 13,401 13,890.53 3/31/1999 13,535 14,044.72 6/30/1999 13,696 14,203.42 9/30/1999 13,871 14,359.66 12/31/1999 14,039 14,521.93 3/31/2000 14,224 14,725.23 6/30/2000 14,408 14,949.06 9/30/2000 14,621 15,174.79 12/31/2000 14,855 15,422.14 3/31/2001 15,110 15,655.01 6/30/2001 15,275 15,830.35 9/30/2001 15,529 16,001.31 12/31/2001 15,623 16,102.33 Past performance is not predictive of future performance. Annuity contract fees are not reflected in Short-Term Investment Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills with 90-day maturities. The rate of return shown above for the unmanaged index has no expenses. 71 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SMALL CAP GROWTH FUND AND A STOCK INDEX/1 / Past performance is not predictive of future performance. Annuity contract fees are not reflected in the Small Cap Growth Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Stock Index: Russell 2000 Growth, an unmanaged index composed of those Russell 2000 Growth securities with a greater-than-average growth orientation. The Russell 2000 Growth return shown to the left reflects the reinvestment of dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions or other expenses of investing. /2/Since inception refers to its inception of investment operations March 10, 1997. Black Rock Financial Management, Inc. and Mazama Capital Management are the fund's subadviser. [CHART] - ----------------------------------------------------- Small Cap Growth Fund Return - ----------------------------------------------------- 1 year Since inception/2/ - ----------------------------------------------------- (29.81%) 6.09% - ----------------------------------------------------- Small Cap Growth Fund Stock Index --------------------- ----------- 3/10/1997 $10,000 $10,000 3/31/1997 9,040 9,294.00 6/30/1997 10,550 10,925.09 9/30/1997 12,740 12,772.94 12/31/1997 11,700 11,726.59 3/31/1998 12,850 13,119.93 6/30/1998 12,360 12,365.18 9/30/1998 10,040 9,601.02 12/31/1998 12,380 11,871.31 3/31/1999 12,810 11,671.88 6/30/1999 13,540 13,393.48 9/30/1999 14,680 12,735.86 12/31/1999 21,238 16,988.36 3/31/2000 25,064 18,566.58 6/30/2000 22,818 17,196.37 9/30/2000 22,936 16,513.67 12/31/2000 18,935 13,177.91 3/31/2001 14,603 11,173.55 6/30/2001 15,205 13,198.20 9/30/2001 10,808 9,492.14 12/31/2001 13,291 11,975.80 - -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE INTERNATIONAL EQUITY FUND AND AN EQUITY INDEX/1 / Past performance is not predictive of future performance. Annuity contract fees are not reflected in the International Equity Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Equity Index: MSCI EAFE Index is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia and the Far East. The rate of return shown to the left for the unmanaged index has no expenses. The index reflects performance from February 28, 1997 through December 31, 2001. /2/Since inception refers to its inception of investment operations March 10, 1997. Zurich Scudder Investments, Inc. is the fund's subadviser. [Chart] - --------------------------------------------------- International Equity Fund Total Return - --------------------------------------------------- 1 year Since inception/2/ - --------------------------------------------------- (26.35%) 2.68% - --------------------------------------------------- International Equity MSCI EAFE index -------------------- --------------- 3/10/1997 $10,000 $10,000 3/31/1997 9,750 10,036.00 6/30/1997 10,540 11,338.10 9/30/1997 10,820 11,258.12 12/31/1997 10,352 10,375.86 3/31/1998 11,733 11,902.24 6/30/1998 12,378 12,028.21 9/30/1998 10,705 10,317.57 12/31/1998 12,314 12,447.82 3/31/1999 12,558 12,620.84 6/30/1999 13,289 12,941.41 9/30/1999 14,548 13,509.54 12/31/1999 18,698 15,804.81 3/31/2000 18,570 15,789.01 6/30/2000 17,364 15,163.76 9/30/2000 15,656 13,941.56 12/31/2000 15,423 13,566.54 3/31/2001 13,002 11,706.56 6/30/2001 12,905 11,583.65 9/30/2001 11,057 9,961.93 12/31/2001 11,360 10,656.47 - -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE SOCIALLY RESPONSIBLE FUND AND A STOCK INDEX/1 / Past performance is not predictive of future performance. Annuity contract fees are not reflected in the Socially Responsible Fund returns. Returns under the Annuity Alternatives contracts are shown on page 14. /1/Stock Index: S&P 500, Standard & Poor's 500 Composite Index, an unmanaged index consisting of 500 stocks. The rate of return shown to the left for the unmanaged index has no expenses. /2/Since inception refers to its inception of investment operations March 10, 1997. Bernstein is the fund's subadviser. [CHART] - ----------------------------------------------------- Socially Responsible Fund Total Return - ----------------------------------------------------- 1 year Since inception/2/ - ----------------------------------------------------- (7.30%) 8.44% - ----------------------------------------------------- Socially Responsible Stock Index -------------------- ----------- 3/10/1997 $10,000 $10,000 3/31/1997 9,380 9,414.77 6/30/1997 10,970 11,055.34 9/30/1997 12,040 11,886.37 12/31/1997 12,308 12,226.13 3/31/1998 13,935 13,933.17 6/30/1998 13,661 14,394.73 9/30/1998 12,013 12,975.21 12/31/1998 13,514 15,741.98 3/31/1999 13,670 16,521.21 6/30/1999 15,189 17,671.08 9/30/1999 13,462 16,579.01 12/31/1999 14,648 19,045.97 3/31/2000 14,669 19,510.69 6/30/2000 14,478 18,962.44 9/30/2000 15,210 18,782.29 12/31/2000 15,936 17,307.88 3/31/2001 14,761 15,256.99 6/30/2001 15,179 16,150.95 9/30/2001 13,733 13,778.38 12/31/2001 14,772 15,251.11 72 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT Management of the Funds (UNAUDITED) 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.
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.L. Gallop, 76 Trustee Since 1996; Executive Director, Minnesota 7 N/A Trustee of Education Association Predecessor (Retired); formerly Director, Funds from Horace Mann Educators 1957 to 1996 Corporation (1968-1983) Richard A. Holt, 60 Trustee Since 1998 Senior Relationship Manager 7 N/A (Retired), Scudder Insurance Asset Management Richard D. Lang, 70 Trustee Since 1997 Executive Director (Retired), 7 N/A Vermont National Education Association; formerly member of Horace Mann Educators Corporation Educator Advisory Board Harriet A. Russell, 60 Trustee Since 1996; Member and Vice President, 7 Greater Trustee of President, Cincinnati Board of Cincinnati Predecessor Education; President, Greater School Funds from Cincinnati School Employer Employer 1992 to 1996 Credit Union; teacher Credit Union (Retired), Walnut Hills High Board School; formerly Director, Horace Mann Growth Fund (1974-1983) George J. Zock, 51 Trustee and Since 1996; Executive Vice President 7 Horace Mann Chairman Trustee of President, Horace Mann Life Life Insurance Predecessor Insurance Company and Company; Funds from Horace Mann Service Horace Mann 1995-1996 Corporation; (positions with) Service Horace Mann Educators Corporation Corporation and its Horace Mann subsidiaries Investors, Inc. A. Thomas Arisman, 55 President Since 2000 Senior Vice President, Horace N/A Horace Mann Mann Life Insurance Company and Horace Mann Service Corporation; Director and President, Horace Mann Investors, Inc.; (positions with) Horace Mann Educators Corporation and its subsidiaries; former Trustee, Horace Mann Mutual Funds (1989-1997)
73 HORACE MANN MUTUAL FUNDS 2001 FUNDS ANNUAL REPORT
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 - --------------------------------------------------------------------------------------------------------- Ann M Caparros, 49 Secretary and Since 1996 Director, Vice President, and N/A N/A Ethics 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 William J. Kelly, 55 Treasurer and Since 1996 Treasurer, Horace Mann N/A N/A Regulatory Investors Inc.; Vice President Compliance and Compliance Officer, Officer Horace Mann Life Insurance Company; and Vice President -- Transfer Agent, Horace Mann Service Corporation
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. 74 Annual Report December 31, 2001 Horace Mann Life Insurance Company Separate Account Sponsor Horace Mann Life Insurance Company P.O. Box 4657 Springfield, IL 62708-4657 1-800-999-1030 75 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Net Assets December 31, 2001
ACCOUNT DIVISION ----------------------------------------------------------------- Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Short-Term Small Cap Equity Balanced Income Investment Growth Fund Fund Fund Fund Fund - --------------------------------------------------------------------------------------------------------------------- ASSETS Investments at market value $342,035,348 $282,607,688 $13,375,200 $2,568,007 $ 53,478,020 - -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $342,035,348 $282,607,688 $13,375,200 $2,568,007 $ 53,478,020 - -------------------------------------------------------------------------------------------------------------------- NET ASSETS Net Assets (Indefinite units authorized) Active Contract Owners 340,080,929 281,521,253 13,314,345 2,568,007 53,478,020 Retired Contract Owners 1,954,419 1,086,435 60,855 -- -- - -------------------------------------------------------------------------------------------------------------------- TOTAL NET ASSETS $342,035,348 $282,607,688 $13,375,200 $2,568,007 $ 53,478,020 - -------------------------------------------------------------------------------------------------------------------- Total units 17,361,722 16,254,478 936,292 237,129 4,399,005 Blended unit value (Net assets divided by total units held) $ 19.70 $ 17.39 $ 14.29 $ 10.83 $ 12.16 Investments Cost of investments $407,096,582 $314,713,037 $14,025,405 $2,626,978 $ 74,171,387 Unrealized appreciation (depreciation) on investments $(65,061,234) $(32,105,349) $ (650,205) $ (58,971) $(20,693,367) Number of shares in underlying mutual funds 17,483,305 17,301,974 1,088,025 254,853 4,402,958 Total Net Assets Represented by: Number of units outstanding: M&E Rate .0000 19,859 11,412 8 10 10,888 M&E Rate .0029 603,060 -- -- -- -- M&E Rate .0039 141,302 -- -- -- -- M&E Rate .0095 22,694 27,817 34,651 27,535 44,751 M&E Rate .0105 -- -- -- -- -- M&E Rate .0115 -- -- -- -- -- M&E Rate .0125 16,474,939 16,148,760 896,685 209,584 4,343,366 Retired Payout 99,868 66,489 4,948 -- -- Unit Value (Net assets divided by units outstanding) M&E Rate .0000 $20.02 $17.68 $14.55 $11.01 $12.37 M&E Rate .0029 $19.95 $ -- $ -- $ -- $ -- M&E Rate .0039 $19.92 $ -- $ -- $ -- $ -- M&E Rate .0095 $19.77 $17.46 $14.35 $10.87 $12.21 M&E Rate .0105 $ -- $ -- $ -- $ -- $ -- M&E Rate .0115 $ -- $ -- $ -- $ -- $ -- M&E Rate .0125 $19.69 $17.39 $14.29 $10.82 $12.16 Retired Payout $19.57 $16.34 $12.30 $ -- $ --
See notes to the financial statements. 76 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - -------------------------------------------------------------------------------------- Horace Mann Horace Mann Wilshire Wilshire Wilshire Wilshire International Socially 5000 Index Large Co. Growth 5000 Index Large Co. Growth Equity Responsible Portfolio- Portfolio- Portfolio- Portfolio- Fund Fund Institutional Institutional Investment Investment - --------------------------------------------------------------------------------------- $ 30,723,465 $68,083,188 $15,924,589 $17,920,506 $1,942,448 $3,003,890 - --------------------------------------------------------------------------------------- $ 30,723,465 $68,083,188 $15,924,589 $17,920,506 $1,942,448 $3,003,890 - --------------------------------------------------------------------------------------- 30,723,465 68,083,188 15,924,589 17,920,506 1,942,448 3,003,890 -- -- -- -- -- -- - --------------------------------------------------------------------------------------- $ 30,723,465 $68,083,188 $15,924,589 $17,920,506 $1,942,448 $3,003,890 - --------------------------------------------------------------------------------------- 2,935,800 4,970,814 1,735,539 587,742 213,861 99,528 $ 10.47 $ 13.70 $ 9.18 $ 30.49 $ 9.08 $ 30.18 $ 43,311,268 $71,756,226 $19,294,353 $23,456,187 $2,031,305 $3,190,331 $(12,587,803) $(3,673,038) $(3,369,764) $(5,535,681) $ (88,857) $ (186,441) 2,924,238 5,341,672 1,752,476 587,374 213,760 99,466 5,190 9,859 2,122 1,698 17 4 -- -- -- -- -- -- -- -- -- -- -- -- 52,642 29,034 36,238 4,308 29,246 14,979 -- -- -- -- -- -- -- -- -- -- -- -- 2,877,968 4,931,921 1,697,179 581,736 184,598 84,545 -- -- -- -- -- -- $10.64 $13.93 $9.33 $31.01 $9.28 $30.69 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $10.51 $13.75 $9.21 $30.61 $9.17 $30.24 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $10.46 $13.70 $9.17 $30.49 $9.07 $30.17 $ -- $ -- $ -- $ -- $ -- $ --
77 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Net Assets December 31, 2001
ACCOUNT DIVISION ---------------------------------------------------------------------------- Wilshire Wilshire Wilshire T.Rowe Price T.Rowe Price Large Co. Value Small Co. Value Small Co. Growth Small-Cap Small-Cap Portfolio- Portfolio- Portfolio- Value Fund Stock Fund Investment Investment Investment Advisor Class Advisor Class - ------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at market value $5,546,423 $1,278,594 $428,488 $3,846,970 $4,809,801 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $5,546,423 $1,278,594 $428,488 $3,846,970 $4,809,801 - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS Net Assets (Indefinite units authorized) Active Contract Owners 5,546,423 1,278,594 428,488 3,846,970 4,809,801 Retired Contract Owners -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS $5,546,423 $1,278,594 $428,488 $3,846,970 $4,809,801 - ------------------------------------------------------------------------------------------------------------------------ Total units 266,320 80,507 28,130 151,942 172,268 Blended unit value (Net assets divided by total units held) $ 20.83 $ 15.88 $ 15.23 $ 25.32 $ 27.92 Investments Cost of investments $5,813,636 $1,163,496 $410,494 $3,582,626 $4,504,444 Unrealized appreciation (depreciation) on investments $ (267,213) $ 115,098 $ 17,994 $ 264,344 $ 305,357 Number of shares in underlying mutual funds 282,209 80,644 32,131 169,973 190,024 Total Net Assets Represented by: Number of units outstanding: M&E Rate .0000 273 677 11 6,057 7 M&E Rate .0029 -- -- -- -- -- M&E Rate .0039 -- -- -- -- -- M&E Rate .0095 12,739 2,710 2,303 6,115 8,412 M&E Rate .0105 -- -- -- -- -- M&E Rate .0115 -- -- -- -- -- M&E Rate .0125 253,308 77,120 25,816 139,770 163,849 Retired Payout -- -- -- -- -- Unit Value (Net assets divided by units outstanding) M&E Rate .0000 $21.17 $16.14 $15.84 $25.72 $28.38 M&E Rate .0029 $ -- $ -- $ -- $ -- $ -- M&E Rate .0039 $ -- $ -- $ -- $ -- $ -- M&E Rate .0095 $20.89 $15.88 $15.67 $25.35 $27.95 M&E Rate .0105 $ -- $ -- $ -- $ -- $ -- M&E Rate .0115 $ -- $ -- $ -- $ -- $ -- M&E Rate .0125 $20.82 $15.88 $15.19 $25.30 $27.92 Retired Payout $ -- $ -- $ -- $ -- $ --
See notes to the financial statements. 78 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION ---------------------------------------------------------------------------- Fidelity VIP Growth & Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Income Index 500 Mid Cap Growth Overseas High Income Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------------------------------------------------------------------------- $3,152,138 $12,105,188 $10,656,212 $14,256,514 $3,251,692 $406,217 ----------------------------------------------------------------------------- $3,152,138 $12,105,188 $10,656,212 $14,256,514 $3,251,692 $406,217 ----------------------------------------------------------------------------- 3,152,138 12,105,188 10,656,212 14,256,514 3,251,692 406,217 -- -- -- -- -- -- ----------------------------------------------------------------------------- $3,152,138 $12,105,188 $10,656,212 $14,256,514 $3,251,692 $406,217 ----------------------------------------------------------------------------- 230,640 93,943 551,984 404,152 209,742 57,319 $ 13.67 $ 128.86 $ 19.31 $ 35.28 $ 15.50 $ 7.09 $3,278,370 $12,996,430 $10,156,764 $16,377,598 $3,962,497 $480,898 $ (126,232) $ (891,242) $ 499,448 $(2,121,084) $ (710,805) $(74,681) 241,251 93,566 546,935 427,754 235,537 63,892 4,212 526 1,155 595 9 20 -- -- -- -- -- -- -- -- -- -- -- -- 14,848 3,528 20,979 13,526 9,673 4,470 -- -- -- -- -- -- -- -- -- -- -- -- 211,580 89,889 529,850 390,031 200,060 52,829 -- -- -- -- -- -- $13.89 $131.14 $19.62 $35.86 $15.76 $7.20 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $13.71 $125.50 $19.36 $35.30 $15.56 $7.13 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $13.66 $128.98 $19.30 $35.27 $15.50 $7.08 $ -- $ -- $ -- $ -- $ -- $ --
79 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Net Assets December 31, 2001
ACCOUNT DIVISION --------------------------------------------------------------------- J.P. Morgan Fidelity VIP Strong Strong Mid U.S. Disciplined Investment Grade Davis Value Opportunity Cap Growth Equity Bond Portfolio Portfolio Fund II Fund II Portfolio - ------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at market value $3,797,088 $3,270,039 $4,456,119 $ 4,918,618 $5,592,767 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $3,797,088 $3,270,039 $4,456,119 $ 4,918,618 $5,592,767 - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS Net Assets (Indefinite units authorized) Active Contract Owners 3,797,088 3,270,039 4,456,119 4,918,618 5,592,767 Retired Contract Owners -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS $3,797,088 $3,270,039 $4,456,119 $ 4,918,618 $5,592,767 - ------------------------------------------------------------------------------------------------------------------------ Total units 283,612 333,527 169,801 279,260 431,258 Blended unit value (Net assets divided by total units held) $ 13.39 $ 9.80 $ 26.24 $ 17.61 $ 12.97 Investments Cost of investments $3,718,465 $3,446,064 $5,232,866 $ 6,964,432 $6,035,083 Unrealized appreciation (depreciation) on investments $ 78,623 $ (176,025) $ (776,747) $(2,045,814) $ (442,316) Number of shares in underlying mutual funds 296,280 331,421 229,183 300,382 428,381 Total Net Assets Represented by: Number of units outstanding: M&E Rate .0000 17 1,190 7 2,963 12 M&E Rate .0029 -- -- -- -- -- M&E Rate .0039 -- -- -- -- -- M&E Rate .0095 42,626 11,198 6,725 11,330 20,830 M&E Rate .0105 -- -- -- 0 -- M&E Rate .0115 -- -- -- 0 -- M&E Rate .0125 240,969 321,139 163,069 264,967 410,416 Retired Payout -- -- -- -- -- Unit Value (Net assets divided by units outstanding) M&E Rate .0000 $13.61 $10.04 $26.61 $17.92 $13.18 M&E Rate .0029 $ -- $ -- $ -- $ -- $ -- M&E Rate .0039 $ -- $ -- $ -- $ -- $ -- M&E Rate .0095 $13.40 $ 9.92 $26.23 $17.62 $13.02 M&E Rate .0105 $ -- $ -- $ -- $ -- $ -- M&E Rate .0115 $ -- $ -- $ -- $ -- $ -- M&E Rate .0125 $13.39 $ 9.80 $26.24 $17.61 $12.97 Retired Payout $ -- $ -- $ -- $ -- $ --
See notes to the financial statements. 80 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ------------------------------------------------------------------------------------------ Rainier Neuberger Credit Suisse Small/Mid Cap Berman Alliance Putnam Small Co. Ariel Equity Genesis Premier Growth VT Vista Growth Appreciation Portfolio Fund Portfolio Fund Portfolio Ariel Fund Fund - ------------------------------------------------------------------------------------------ $3,578,878 $4,368,759 $ 9,270,208 $ 4,184,721 $2,926,283 $2,498,583 $4,350,556 - ------------------------------------------------------------------------------------------ $3,578,878 $4,368,759 $ 9,270,208 $ 4,184,721 $2,926,283 $2,498,583 $4,350,556 - ------------------------------------------------------------------------------------------ 3,578,878 4,368,759 9,270,208 4,184,721 2,926,283 2,498,583 4,350,556 -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------ $3,578,878 $4,368,759 $ 9,270,208 $ 4,184,721 $2,926,283 $2,498,583 $4,350,556 - ------------------------------------------------------------------------------------------ 135,479 228,309 357,364 326,406 165,082 65,549 115,976 $ 26.42 $ 19.14 $ 25.94 $ 12.82 $ 17.73 $ 38.12 $ 37.51 $3,859,477 $4,093,175 $10,954,679 $ 5,997,100 $3,565,872 $2,344,200 $4,127,290 $ (280,599) $ 275,584 $(1,684,471) $(1,812,379) $ (639,589) $ 154,383 $ 223,266 163,250 254,524 370,933 369,145 208,941 66,262 117,556 7 12 440 818 7 86 185 -- -- -- -- -- -- -- -- -- -- -- -- -- -- 6,305 24,204 12,501 13,012 5,760 4,458 10,787 -- -- -- -- -- -- -- -- -- -- -- -- -- -- 129,167 204,093 344,423 312,576 159,315 61,005 105,004 -- -- -- -- -- -- -- $26.84 $19.46 $26.37 $13.03 $18.02 $38.42 $37.80 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $26.50 $19.07 $25.91 $12.87 $17.75 $38.17 $37.56 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $26.41 $19.14 $25.94 $12.82 $17.73 $38.11 $37.51 $ -- $ -- $ -- $ -- $ -- $ -- $ --
81 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Operations For The Year Ended December 31, 2001
ACCOUNT DIVISION --------------------------------------------------------------- Horace Mann Horace Mann Short-Term Horace Mann Horace Mann Balanced Horace Mann Investment Small Cap Equity Fund Fund Income Fund Fund Growth Fund - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividend income distribution $ 3,650,069 $10,973,518 $1,186,605 $ 95,813 $ -- - ------------------------------------------------------------------------------------------------------------------ Net investment income $ 3,650,069 $10,973,518 $1,186,605 $ 95,813 $ -- - ------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gain distribution -- -- 1,571 -- -- Net realized gain (loss) on investments (6,125,085) (2,784,533) (11,536) (6,077) (1,319,083) Net unrealized appreciation (depreciation) on investments (13,764,542) (4,329,827) (143,183) 19,718 (21,015,528) - ------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments (19,889,627) (7,114,360) (153,148) 13,641 (22,334,611) - ------------------------------------------------------------------------------------------------------------------ EXPENSES Mortality and expense risk charge (Note 1) (4,374,351) (3,677,667) (151,436) (27,215) (721,623) - ------------------------------------------------------------------------------------------------------------------ Total Expenses (4,374,351) (3,677,667) (151,436) (27,215) (721,623) - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets Resulting from Operations $(20,613,909) $ 181,491 $ 882,021 $ 82,239 $(23,056,234) - ------------------------------------------------------------------------------------------------------------------
See notes to the financial statements. 82 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ------------------------------------------------------------------------------------ Horace Mann Horace Mann Wilshire Wilshire Wilshire Wilshire International Socially 5000 Index Large Co. Growth 5000 Index Large Co. Growth Equity Responsible Portfolio- Portfolio- Portfolio- Portfolio- Fund Fund Institutional Institutional Investment Investment - ------------------------------------------------------------------------------------- $ -- $ 1,699,808 $ 120,351 $ -- $ 9,387 $ -- - ------------------------------------------------------------------------------------- $ -- $ 1,699,808 $ 120,351 $ -- $ 9,387 $ -- - ------------------------------------------------------------------------------------- -- -- 82,391 43,546 1,111 6,925 (678,024) (25,138) (270,239) (318,002) (16,225) (46,516) (9,742,956) (6,861,554) (1,746,461) (2,718,182) (67,130) (131,757) - ------------------------------------------------------------------------------------- (10,420,980) (6,886,692) (1,934,309) (2,992,638) (82,244) (171,348) - ------------------------------------------------------------------------------------- (423,261) (866,280) (194,899) (215,434) (14,006) (21,621) - ------------------------------------------------------------------------------------- (423,261) (866,280) (194,899) (215,434) (14,006) (21,621) - ------------------------------------------------------------------------------------- $(10,844,241) $(6,053,164) $(2,008,857) $(3,208,072) $(86,863) $(192,969) - -------------------------------------------------------------------------------------
83 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Operations For The Year Ended December 31, 2001
ACCOUNT DIVISION --------------------------------------------------------------------------- Wilshire Wilshire Wilshire T.Rowe Price T.Rowe Price Large Co. Value Small Co. Value Small Co. Growth Small-cap Small-cap Portfolio- Portfolio- Portfolio- Value Fund Stock Fund Investment Investment Investment Advisor Class Advisor Class - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividend income distribution $ 77,717 $ 12,070 $ -- $ 402 $ -- - ---------------------------------------------------------------------------------------------------------------------- Net investment income $ 77,717 $ 12,070 $ -- $ 402 $ -- - ---------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gain distribution 240,566 -- -- 101,485 25,591 Net realized gain (loss) on investments 4,105 9,263 (20,504) 3,970 (16,591) Net unrealized appreciation (depreciation) on investments (295,601) 107,352 32,871 274,448 374,415 - ---------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (50,930) 116,615 12,367 379,903 383,415 - ---------------------------------------------------------------------------------------------------------------------- EXPENSES Mortality and expense risk charge (Note 1) (35,588) (8,398) (3,011) (22,675) (37,048) - ---------------------------------------------------------------------------------------------------------------------- Total Expenses (35,588) (8,398) (3,011) (22,675) (37,048) - ---------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ (8,801) $120,287 $ 9,356 $357,630 $346,367 - ----------------------------------------------------------------------------------------------------------------------
See notes to the financial statements. 84 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION ---------------------------------------------------------------------------- Fidelity VIP Growth & Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Income Index 500 Mid Cap Growth Overseas High Income Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------------------------------------------------------------------------- $ 14,376 $ 64,822 $ 18,816 $ 5,929 $ 84,295 $ 32,918 ----------------------------------------------------------------------------- $ 14,376 $ 64,822 $ 18,816 $ 5,929 $ 84,295 $ 32,918 ----------------------------------------------------------------------------- 46,155 -- -- 557,288 133,240 -- (59,986) (329,487) (248,375) (899,246) (119,105) (33,834) (103,663) (640,108) 321,144 (1,441,189) (640,542) (40,488) ----------------------------------------------------------------------------- (117,494) (969,595) 72,769 (1,783,147) (626,407) (74,322) ----------------------------------------------------------------------------- (25,100) (106,467) (101,272) (133,925) (30,910) (4,176) ----------------------------------------------------------------------------- (25,100) (106,467) (101,272) (133,925) (30,910) (4,176) ----------------------------------------------------------------------------- $(128,218) $(1,011,240) $ (9,687) $(1,911,143) $(573,022) $(45,580) -----------------------------------------------------------------------------
85 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Operations For The Year Ended December 31, 2001
ACCOUNT DIVISION -------------------------------------------------------------------- Strong J.P. Morgan Fidelity VIP Davis Strong Mid Cap U.S. Disciplined Investment Grade Value Opportunity Growth Equity Bond Portfolio Portfolio Fund II Fund II Portfolio - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividend income distribution $ 27,248 $ 13,481 $ 18,960 $ -- $ 25,485 - ----------------------------------------------------------------------------------------------------------------------- Net investment income $ 27,248 $ 13,481 $ 18,960 $ -- $ 25,485 - ----------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gain distribution -- 4,368 653,166 -- -- Net realized gain (loss) on investments 10,313 (34,508) (51,180) (248,371) (39,879) Net unrealized appreciation (depreciation) on investments 69,139 (205,995) (672,039) (1,225,597) (344,099) - ----------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments 79,452 (236,135) (70,053) (1,473,968) (383,978) - ----------------------------------------------------------------------------------------------------------------------- EXPENSES Mortality and expense risk charge (Note 1) (20,869) (31,073) (36,492) (53,183) (47,200) - ----------------------------------------------------------------------------------------------------------------------- Total Expenses (20,869) (31,073) (36,492) (53,183) (47,200) - ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 85,831 $(253,727) $ (87,585) $(1,527,151) $(405,693) - -----------------------------------------------------------------------------------------------------------------------
* Period from May 01, 2001 (commencement of operations) to December 31, 2001. See notes to the financial statements. 86 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ---------------------------------------------------------------------------------------- Rainier Neuberger Credit Suisse Small/Mid Cap Berman Alliance Putnam Small Co. Ariel Equity Genesis Premier Growth VT Vista Growth Ariel Appreciation Portfolio Fund Portfolio Fund Portfolio Fund* Fund* - ---------------------------------------------------------------------------------------- $ -- $ -- $ -- $ 370,842 $ -- $ 6,309 $ 6,666 - ---------------------------------------------------------------------------------------- $ -- $ -- $ -- $ 370,842 $ -- $ 6,309 $ 6,666 - ---------------------------------------------------------------------------------------- 156,489 115,789 365,483 -- 374,768 30,497 72,584 (42,977) 6,646 (176,263) (191,740) (97,392) 349 328 (94,914) 272,636 (1,258,480) (1,458,755) (519,893) 154,383 223,267 - ---------------------------------------------------------------------------------------- 18,598 395,071 (1,069,260) (1,650,495) (242,517) 185,229 296,179 - ---------------------------------------------------------------------------------------- (31,790) (27,037) (85,243) (44,002) (27,652) (7,522) (14,358) - ---------------------------------------------------------------------------------------- (31,790) (27,037) (85,243) (44,002) (27,652) (7,522) (14,358) - ---------------------------------------------------------------------------------------- $(13,192) $368,034 $(1,154,503) $(1,323,655) $(270,169) $184,016 $288,487 - ----------------------------------------------------------------------------------------
87 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2001
ACCOUNT DIVISION ------------------------------------------------------------------ Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Short-term Small Cap Equity Balanced Income Investment Growth Fund Fund Fund Fund Fund - ---------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 3,650,069 $ 10,973,518 $ 1,186,605 $ 95,813 $ -- Capital gain distribution -- -- 1,571 -- -- Net realized gain (loss) on investments (6,125,085) (2,784,533) (11,536) (6,077) (1,319,083) Net unrealized appreciation (depreciation) on investments (13,764,542) (4,329,827) (143,183) 19,718 (21,015,528) Mortality and expense risk charge (Note 1) (4,374,351) (3,677,667) (151,436) (27,215) (721,623) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (20,613,909) 181,491 882,021 82,239 (23,056,234) - --------------------------------------------------------------------------------------------------------------------- CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 28,234,444 18,660,955 969,373 129,195 10,538,109 Sales and administrative expenses (Note 1) (7,440) (5,062) (267) (57) (3,246) - --------------------------------------------------------------------------------------------------------------------- Net consideration received on annuity contracts 28,227,004 18,655,893 969,106 129,138 10,534,863 Net transfer from (to) fixed accumulation account (8,642,841) (8,105,549) 947,951 901,043 (897,177) Transfers from (to) other Divisions (16,078,466) (10,016,973) 554,910 713,774 (3,718,768) Payments to contract owners (29,796,908) (22,411,438) (941,319) (1,389,127) (4,424,200) Annual maintenance charge (Note 1) (446,745) (286,841) (10,589) (1,225) (68,710) Surrender charges (Note 1) (176,909) (92,705) (4,990) (5,069) (57,249) Mortality guarantee adjustment (15,571) (8,117) (2,451) -- -- - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from contract owners' transactions (26,930,436) (22,265,730) 1,512,618 348,534 1,368,759 - --------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (47,544,345) (22,084,239) 2,394,639 430,773 (21,687,475) Net Assets: Beginning of period 389,579,693 304,691,927 10,980,561 2,137,234 75,165,495 - --------------------------------------------------------------------------------------------------------------------- End of period $342,035,348 $282,607,688 $13,375,200 $ 2,568,007 $ 53,478,020 - ---------------------------------------------------------------------------------------------------------------------
See notes to the financial statements. 88 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - -------------------------------------------------------------------------------------- Horace Mann Horace Mann Wilshire Wilshire Wilshire Wilshire International Socially 5000 Index Large Co. Growth 5000 Index Large Co. Growth Equity Responsible Portfolio- Portfolio- Portfolio- Portfolio- Fund Fund Institutional Institutional Investment Investment - -------------------------------------------------------------------------------------- $ -- $ 1,699,808 $ 120,351 $ -- $ 9,387 $ -- -- -- 82,391 43,546 1,111 6,925 (678,024) (25,138) (270,239) (318,002) (16,225) (46,516) (9,742,956) (6,861,554) (1,746,461) (2,718,182) (67,130) (131,757) (423,261) (866,280) (194,899) (215,434) (14,006) (21,621) - -------------------------------------------------------------------------------------- (10,844,241) (6,053,164) (2,008,857) (3,208,072) (86,863) (192,969) - -------------------------------------------------------------------------------------- 7,492,228 10,178,939 2,991,136 4,025,719 804,488 1,384,780 (2,171) (2,431) (868) (1,173) (104) (260) - -------------------------------------------------------------------------------------- 7,490,057 10,176,508 2,990,268 4,024,546 804,384 1,384,520 605,521 (727,132) 575,464 443,260 817,153 1,215,449 (2,050,242) (2,077,831) 565,051 984,144 38,442 38,946 (2,556,074) (4,282,347) (1,034,637) (943,131) (36,773) (49,718) (36,100) (207,852) (20,720) (18,289) (7,927) (10,259) (37,023) (82,211) (9,260) (9,496) (2,230) (3,441) -- -- -- -- -- -- - -------------------------------------------------------------------------------------- 3,416,139 2,799,135 3,066,166 4,481,034 1,613,049 2,575,497 - -------------------------------------------------------------------------------------- (7,428,102) (3,254,029) 1,057,309 1,272,962 1,526,186 2,382,528 38,151,567 71,337,217 14,867,280 16,647,544 416,262 621,362 - -------------------------------------------------------------------------------------- $ 30,723,465 $68,083,188 $15,924,589 $17,920,506 $1,942,448 $3,003,890 - --------------------------------------------------------------------------------------
89 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2001
ACCOUNT DIVISION --------------------------------------------------------------------------- Wilshire Wilshire Wilshire T.Rowe Price T.Rowe Price Large Co. Value Small Co. Value Small Co. Growth Small-Cap Small-Cap Portfolio- Portfolio- Portfolio- Value Fund Stock Fund Investment Investment Investment Advisor Class Advisor Class - -------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 77,717 $ 12,070 $ -- $ 402 $ -- Capital gain distribution 240,566 -- -- 101,485 25,591 Net realized gain (loss) on investments 4,105 9,263 (20,504) 3,970 (16,591) Net unrealized appreciation (depreciation) on investments (295,601) 107,352 32,871 274,448 374,415 Mortality and expense risk charge (Note 1) (35,588) (8,398) (3,011) (22,675) (37,048) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (8,801) 120,287 9,356 357,630 346,367 - ------------------------------------------------------------------------------------------------------------------------- CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 1,482,898 172,455 118,962 711,518 1,084,499 Sales and administrative expenses (Note 1) (298) (32) (19) (186) (309) - ------------------------------------------------------------------------------------------------------------------------- Net consideration received on annuity contracts 1,482,600 172,423 118,943 711,332 1,084,190 Net transfer from (to) fixed accumulation account 1,148,646 156,004 94,231 651,776 842,810 Transfers from (to) other Divisions 2,564,505 777,423 103,995 1,850,505 1,410,008 Payments to contract owners (135,407) (17,372) (25,570) (64,033) (120,005) Annual maintenance charge (Note 1) (4,108) (425) (300) (2,575) (2,675) Surrender charges (Note 1) (1,229) (218) (126) (1,020) (1,755) Mortality guarantee adjustment -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from contract owners' transactions 5,055,007 1,087,835 291,173 3,145,985 3,212,573 - ------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 5,046,206 1,208,122 300,529 3,503,615 3,558,940 Net Assets: Beginning of period 500,217 70,472 127,959 343,355 1,250,861 - ------------------------------------------------------------------------------------------------------------------------- End of period $5,546,423 $1,278,594 $428,488 $3,846,970 $4,809,801 - -------------------------------------------------------------------------------------------------------------------------
See notes to the financial statements. 90 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION ---------------------------------------------------------------------------- Fidelity VIP Growth & Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Income Index 500 Mid Cap Growth Overseas High Income Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------------------------------------------------------------------------- $ 14,376 $ 64,822 $ 18,816 $ 5,929 $ 84,295 $ 32,918 46,155 -- -- 557,288 133,240 -- (59,986) (329,487) (248,375) (899,246) (119,105) (33,834) (103,663) (640,108) 321,144 (1,441,189) (640,542) (40,488) (25,100) (106,467) (101,272) (133,925) (30,910) (4,176) ----------------------------------------------------------------------------- (128,218) (1,011,240) (9,687) (1,911,143) (573,022) (45,580) ----------------------------------------------------------------------------- 943,514 3,270,135 2,411,021 4,128,164 1,116,175 90,939 (379) (759) (675) (837) (260) (102) ----------------------------------------------------------------------------- 943,135 3,269,376 2,410,346 4,127,327 1,115,915 90,837 835,982 2,657,987 1,604,347 2,344,758 790,286 118,308 801,370 2,612,032 2,495,257 3,085,658 646,426 10,951 (115,950) (314,351) (509,040) (405,251) (134,458) (29,137) (3,820) (17,988) (14,614) (16,727) (1,545) (300) (905) (5,685) (10,368) (9,311) (1,876) (116) -- -- -- -- -- -- ----------------------------------------------------------------------------- 2,459,812 8,201,371 5,975,928 9,126,454 2,414,748 190,543 ----------------------------------------------------------------------------- 2,331,594 7,190,131 5,966,241 7,215,311 1,841,726 144,963 820,544 4,915,057 4,689,971 7,041,203 1,409,966 261,254 ----------------------------------------------------------------------------- $3,152,138 $12,105,188 $10,656,212 $14,256,514 $3,251,692 $406,217 -----------------------------------------------------------------------------
91 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2001
ACCOUNT DIVISION ----------------------------------------------------------------- Fidelity VIP Strong J.P. Morgan Investment Davis Strong Mid Cap U.S. Disciplined Grade Bond Value Opportunity Growth Equity Portfolio Portfolio Fund II Fund II Portfolio - -------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 27,248 $ 13,481 $ 18,960 $ -- $ 25,485 Capital gain distribution -- 4,368 653,166 -- -- Net realized gain (loss) on investments 10,313 (34,508) (51,180) (248,371) (39,879) Net unrealized appreciation (depreciation) on investments 69,139 (205,995) (672,039) (1,225,597) (344,099) Mortality and expense risk charge (Note 1) (20,869) (31,073) (36,492) (53,183) (47,200) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 85,831 (253,727) (87,585) (1,527,151) (405,693) - ------------------------------------------------------------------------------------------------------------------------- CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 675,574 590,469 1,036,088 1,653,505 1,822,786 Sales and administrative expenses (Note 1) (190) (52) (256) (390) (709) - ------------------------------------------------------------------------------------------------------------------------- Net consideration received on annuity contracts 675,384 590,417 1,035,832 1,653,115 1,822,077 Net transfer from (to) fixed accumulation account 1,201,265 796,333 990,452 736,357 1,397,561 Transfers from (to) other Divisions 1,688,733 802,311 1,332,314 811,387 1,116,550 Payments to contract owners (164,081) (149,385) (109,383) (146,354) (171,077) Annual maintenance charge (Note 1) (1,475) (2,834) (1,993) (1,890) (8,916) Surrender charges (Note 1) (238) (1,592) (2,140) (3,863) (2,765) Mortality guarantee adjustment -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from contract owners' transactions 3,399,588 2,035,250 3,245,082 3,048,752 4,153,430 - ------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 3,485,419 1,781,523 3,157,497 1,521,601 3,747,737 Net Assets: Beginning of period 311,669 1,488,516 1,298,622 3,397,017 1,845,030 - ------------------------------------------------------------------------------------------------------------------------- End of period $3,797,088 $3,270,039 $4,456,119 $ 4,918,618 $5,592,767 - -------------------------------------------------------------------------------------------------------------------------
* Period from May 01, 2001 (commencement of operations) to December 31, 2001. See notes to the financial statements. 92 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ------------------------------------------------------------------------------------------- Rainier Neuberger Credit Suisse Small/Mid Cap Berman Alliance Putnam Small Co. Ariel Equity Genesis Premier Growth VT Vista Growth Ariel Appreciation Portfolio Fund Portfolio Fund Portfolio Fund* Fund* - -------------------------------------------------------------------------------------------- $ -- $ -- $ -- $ 370,842 $ -- $ 6,309 $ 6,666 156,489 115,789 365,483 -- 374,768 30,497 72,584 (42,977) 6,646 (176,263) (191,740) (97,392) 349 328 (94,914) 272,636 (1,258,480) (1,458,755) (519,893) 154,383 223,267 (31,790) (27,037) (85,243) (44,002) (27,652) (7,522) (14,358) - -------------------------------------------------------------------------------------------- (13,192) 368,034 (1,154,503) (1,323,655) (270,169) 184,016 288,487 - -------------------------------------------------------------------------------------------- 856,508 974,464 2,551,595 1,213,430 690,281 582,375 998,635 (190) (180) (943) (242) (245) (105) (167) - -------------------------------------------------------------------------------------------- 856,318 974,284 2,550,652 1,213,188 690,036 582,270 998,468 644,323 1,112,569 2,388,695 726,770 383,707 612,976 898,195 721,049 1,779,151 1,649,793 894,535 543,809 1,136,109 2,210,910 (70,192) (114,124) (289,041) (188,603) (58,199) (15,800) (43,544) (2,349) (1,463) (9,816) (1,375) (1,021) (775) (940) (1,359) (1,318) (7,734) (4,702) (2,374) (213) (1,020) -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------- 2,147,790 3,749,099 6,282,549 2,639,813 1,555,958 2,314,567 4,062,069 - -------------------------------------------------------------------------------------------- 2,134,598 4,117,133 5,128,046 1,316,158 1,285,789 2,498,583 4,350,556 1,444,280 251,626 4,142,162 2,868,563 1,640,494 -- -- - -------------------------------------------------------------------------------------------- $3,578,878 $4,368,759 $ 9,270,208 $ 4,184,721 $2,926,283 $2,498,583 $4,350,556 - --------------------------------------------------------------------------------------------
93 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2000
ACCOUNT DIVISION ------------------------------------------------------------------- Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Short-Term Small Cap Equity Balanced Income Investment Growth Fund Fund Fund Fund Fund - ----------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 4,595,974 $ 11,645,813 $ 773,155 $ 102,087 $ -- Capital gain distribution 78,479 18,288 -- (2) 1,283,929 Net realized gain (loss) on investments (19,908,256) (9,683,974) (214,508) (68,682) 2,663,450 Net unrealized appreciation (depreciation) on investments (9,756,037) (1,322,975) 370,993 (32,624) (18,542,650) Mortality and expense risk charge (Note 1) (1,477,689) (1,184,229) (40,719) (7,844) (304,403) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (26,467,529) (527,077) 888,921 (7,065) (14,899,674) - ---------------------------------------------------------------------------------------------------------------------- CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 42,968,129 26,148,604 983,816 132,236 12,964,519 Sales and administrative expenses (Note 1) (12,626) (7,081) (300) (30) (4,592) - ---------------------------------------------------------------------------------------------------------------------- Net consideration received on annuity contracts 42,955,503 26,141,523 983,516 132,206 12,959,927 Net transfer from (to) fixed accumulation account (7,324,749) (12,194,339) (172,006) 1,535,106 6,493,450 Transfers from (to) other Divisions (57,062,178) (40,680,013) (1,123,155) 872,459 25,577,903 Payments to contract owners (72,852,507) (54,701,663) (2,114,434) (1,794,423) (8,083,027) Mortality and expense risk charge (Note 1) (3,747,813) (2,973,809) (98,114) (14,124) (666,159) Annual maintenance charge (Note 1) (476,630) (265,426) (8,436) (1,375) (109,412) Surrender charges (Note 1) (520,570) (240,216) (15,641) (5,991) (90,944) Mortality guarantee adjustment 45,183 (16,974) (1,195) -- -- - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from contract owners' transactions (98,983,761) (84,930,917) (2,549,465) 723,858 36,081,738 - ---------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (125,451,290) (85,457,994) (1,660,544) 716,793 21,182,064 Net Assets Beginning of period 515,030,983 390,149,921 12,641,105 1,420,441 53,983,431 - ---------------------------------------------------------------------------------------------------------------------- End of period $ 389,579,693 $304,691,927 $10,980,561 $ 2,137,234 $ 75,165,495 - ----------------------------------------------------------------------------------------------------------------------
* Period from September 5, 2000 (commencement of operations) to December 31, 2000. ** Period from May 1, 2000 (commencement of operations) to December 31, 2000. See notes to the financial statements. 94 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ---------------------------------------------------------------------------------------- Horace Mann Horace Mann Wilshire Wilshire Wilshire Wilshire International Socially 5000 Index Large Co. Growth 5000 Index Large Co. Growth Equity Responsible Portfolio- Portfolio- Portfolio- Portfolio- Fund Fund Institutional** Institutional** Investment* Investment* - ----------------------------------------------------------------------------------------- $ 84 $ 674,349 $ 184,711 $ 215,245 $ 3,825 $ 5,412 471,935 3,606,801 -- -- -- -- 388,081 581,000 4,984 1,242 (2,954) (4,368) (9,357,456) (19,822) (1,623,303) (2,817,500) (21,727) (54,684) (140,974) (261,518) (52,072) (57,367) (648) (950) - ----------------------------------------------------------------------------------------- (8,638,330) 4,580,810 (1,485,680) (2,658,380) (21,504) (54,590) - ----------------------------------------------------------------------------------------- 8,571,047 13,907,318 1,854,723 2,027,339 344,262 433,620 (2,890) (4,081) (488) (525) (42) (50) - ----------------------------------------------------------------------------------------- 8,568,157 13,903,237 1,854,235 2,026,814 344,220 433,570 5,283,288 3,174,755 3,895,759 3,395,145 89,532 226,702 14,246,545 2,036,567 10,965,400 14,127,117 4,652 16,604 (3,700,936) (6,766,863) (323,503) (211,389) (587) (850) (289,853) (542,374) (27,434) (26,507) -- -- (19,913) (174,049) (3,275) (3,419) -- -- (48,390) (139,600) (8,222) (1,837) (51) (74) -- -- -- -- -- -- - ----------------------------------------------------------------------------------------- 24,038,898 11,491,673 16,352,960 19,305,924 437,766 675,952 - ----------------------------------------------------------------------------------------- 15,400,568 16,072,483 14,867,280 16,647,544 416,262 621,362 22,750,999 55,264,734 -- -- -- -- - ----------------------------------------------------------------------------------------- $38,151,567 $71,337,217 $14,867,280 $16,647,544 $416,262 $621,362 - -----------------------------------------------------------------------------------------
95 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2000
ACCOUNT DIVISION ----------------------------------------------------------------------------- Wilshire Wilshire Wilshire T.Rowe Price T.Rowe Price Large Co. Value Small Co. Value Small Co. Growth Small-Cap Small-Cap Portfolio- Portfolio- Portfolio- Value Fund Stock Fund Investment* Investment* Investment* Advisor Class* Advisor Class* - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ -- $ -- $ 13,369 $ 29,370 $ 116,973 Capital gain distribution -- -- -- -- -- Net realized gain (loss) on investments (51) 15 (88) (746) (264) Net unrealized appreciation (depreciation) on investments 28,388 7,745 (14,878) (10,104) (69,058) Mortality and expense risk charge (Note 1) (757) (138) (220) (453) (2,296) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 27,580 7,622 (1,817) 18,067 45,355 - -------------------------------------------------------------------------------------------------------------------------------- CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 48,677 3,690 8,628 44,247 119,307 Sales and administrative expenses (Note 1) (6) -- (4) (2) (16) - -------------------------------------------------------------------------------------------------------------------------------- Net consideration received on annuity contracts 48,671 3,690 8,624 44,245 119,291 Net transfer from (to) fixed accumulation account 71,250 13,956 30,860 42,058 202,698 Transfers from (to) other Divisions 352,841 45,204 90,342 247,964 890,100 Payments to contract owners -- -- -- (8,951) (6,323) Mortality and expense risk charge (Note 1) -- -- -- -- -- Annual maintenance charge (Note 1) (125) -- (50) (25) (100) Surrender charges (Note 1) -- -- -- (3) (160) Mortality guarantee adjustment -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from contract owners' transactions 472,637 62,850 129,776 325,288 1,205,506 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 500,217 70,472 127,959 343,355 1,250,861 Net Assets Beginning of period -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- End of period $500,217 $70,472 $127,959 $343,355 $1,250,861 - --------------------------------------------------------------------------------------------------------------------------------
* Period from September 5, 2000 (commencement of operations) to December 31, 2000. ** Period from May 1, 2000 (commencement of operations) to December 31, 2000. See notes to the financial statements. 96 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION ---------------------------------------------------------------------------- Fidelity VIP Growth & Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Income Index 500 Mid Cap Growth Overseas High Income Portfolio* Portfolio* Portfolio* Portfolio* Portfolio* Portfolio* ----------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- (184) (7,541) (423) (2,576) (2,007) (975) (22,569) (251,134) 178,304 (679,895) (70,263) (34,193) (1,510) (9,111) (7,915) (14,024) (2,622) (643) ----------------------------------------------------------------------------- (24,263) (267,786) 169,966 (696,495) (74,892) (35,811) ----------------------------------------------------------------------------- 87,480 563,127 415,482 868,988 215,795 34,567 (8) (274) (61) (233) (86) (127) ----------------------------------------------------------------------------- 87,472 562,853 415,421 868,755 215,709 34,440 156,735 995,346 648,175 1,190,160 202,389 67,996 609,368 3,655,147 3,476,781 5,754,363 1,080,306 194,729 (8,708) (29,807) (19,528) (73,647) (13,148) -- -- -- -- -- -- -- (60) (601) (675) (1,400) (75) (100) -- (95) (169) (533) (323) -- -- -- -- -- -- -- ----------------------------------------------------------------------------- 844,807 5,182,843 4,520,005 7,737,698 1,484,858 297,065 ----------------------------------------------------------------------------- 820,544 4,915,057 4,689,971 7,041,203 1,409,966 261,254 -- -- -- -- -- -- ----------------------------------------------------------------------------- $820,544 $4,915,057 $4,689,971 $7,041,203 $1,409,966 $261,254 -----------------------------------------------------------------------------
97 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Statements of Changes in Net Assets For The Year Ended December 31, 2000
ACCOUNT DIVISION ---------------------------------------------------------------- Fidelity VIP Strong J.P. Morgan Investment Davis Strong Mid Cap U.S. Disciplined Grade Bond Value Opportunity Growth Equity Portfolio* Portfolio* Fund II* Fund II* Portfolio* - ------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ -- $ 12,902 $ 142,434 $ 233,780 $ 7,232 Capital gain distribution -- -- -- -- -- Net realized gain (loss) on investments 653 (2,771) (4,993) (3,720) (451) Net unrealized appreciation (depreciation) on investments 9,483 29,970 (104,709) (820,217) (98,217) Mortality and expense risk charge (Note 1) (635) (2,841) (2,367) (7,060) (3,247) - ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 9,501 37,260 30,365 (597,217) (94,683) - ------------------------------------------------------------------------------------------------------------------------ CONTRACT OWNERS' TRANSACTIONS Gross stipulated payments received 50,714 123,312 116,611 484,813 267,528 Sales and administrative expenses (Note 1) (4) (4) (89) (121) (94) - ------------------------------------------------------------------------------------------------------------------------ Net consideration received on annuity contracts 50,710 123,308 116,522 484,692 267,434 Net transfer from (to) fixed accumulation account 34,027 155,571 226,047 497,268 366,833 Transfers from (to) other Divisions 227,159 1,174,938 926,218 3,032,226 1,305,770 Payments to contract owners (9,728) (2,245) (467) (19,541) (22) Mortality and expense risk charge (Note 1) -- -- -- -- -- Annual maintenance charge (Note 1) -- (275) (25) (275) (300) Surrender charges (Note 1) -- (41) (38) (136) (2) Mortality guarantee adjustment -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from contract owners' transactions 302,168 1,451,256 1,268,257 3,994,234 1,939,713 - ------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets 311,669 1,488,516 1,298,622 3,397,017 1,845,030 Net Assets Beginning of period -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------ End of period $311,669 $1,488,516 $1,298,622 $3,397,017 $1,845,030 - ------------------------------------------------------------------------------------------------------------------------
* Period from September 5, 2000 (commencement of operations) to December 31, 2000. ** Period from May 1, 2000 (commencement of operations) to December 31, 2000. See notes to the financial statements. 98 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION ---------------------------------------------------------------- Rainier Neuberger Credit Suisse Small/Mid Cap Berman Alliance Putnam Small Co. Equity Genesis Premier Growth VT Vista Growth Portfolio* Fund* Portfolio* Fund* Portfolio* ---------------------------------------------------------------- $ 193,168 $ 19,200 $ -- $ -- $ -- -- -- -- -- -- (1,525) (16) (2,476) (1,528) (1,540) (185,686) 2,948 (425,991) (353,624) (119,695) (2,547) (392) (8,101) (5,420) (3,077) ---------------------------------------------------------------- 3,410 21,740 (436,568) (360,572) (124,312) ---------------------------------------------------------------- 127,307 21,003 687,882 304,543 247,552 (24) (3) (177) (32) (46) ---------------------------------------------------------------- 127,283 21,000 687,705 304,511 247,506 181,276 32,606 688,939 433,342 267,515 1,147,259 176,280 3,257,652 2,516,911 1,265,736 (14,848) -- (54,519) (25,222) (15,830) -- -- -- -- -- (100) -- (725) (250) (50) -- -- (322) (157) (71) -- -- -- -- -- ---------------------------------------------------------------- 1,440,870 229,886 4,578,730 3,229,135 1,764,806 ---------------------------------------------------------------- 1,444,280 251,626 4,142,162 2,868,563 1,640,494 -- -- -- -- -- ---------------------------------------------------------------- $1,444,280 $251,626 $4,142,162 $2,868,563 $1,640,494 ----------------------------------------------------------------
99 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Notes to the Financial Statements December 31, 2001 1. NATURE OF SEPARATE ACCOUNT -- Horace Mann Life Insurance Company Separate Account ("the Account"), registered as a unit investment trust under the Investment Company Act of 1940, is used to fund variable annuity contracts. All assets are invested in shares of the Horace Mann Equity Fund, Horace Mann Balanced Fund, Horace Mann Income Fund, Horace Mann Short-Term Investment Fund, Horace Mann Small Cap Growth Fund, Horace Mann International Equity Fund, Horace Mann Socially Responsible Fund, Wilshire 5000 Index Portfolio-Institutional, Wilshire Large Co. Growth Portfolio-Institutional, Wilshire 5000 Index Portfolio-Investment, Wilshire Large Co. Growth Portfolio-Investment, Wilshire Large Co. Value Portfolio-Investment, Wilshire Small Co. Value Portfolio-Investment, Wilshire Small Co. Growth Portfolio-Investment, T. Rowe Price Small-Cap Value Fund Advisor Class, T. Rowe Price Small-Cap Stock Fund Advisor Class, Fidelity VIP Growth & Income Portfolio, Fidelity VIP Index 500 Portfolio, Fidelity VIP Mid Cap Portfolio, Fidelity VIP Growth Portfolio, Fidelity VIP Overseas Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Investment Grade Bond Portfolio, Davis Value Portfolio, Strong Opportunity Fund II, Strong Mid Cap Growth Fund II, J.P. Morgan U.S. Disciplined Equity Portfolio, Rainier Small/Mid Cap Equity Portfolio, Neuberger Berman Genesis Fund, Alliance Premier Growth Portfolio, Putnam VT Vista Fund, Credit Suisse Small Co. Growth Portfolio, Ariel Fund and Ariel Appreciation Fund. The funds collectively are referred to as the "Funds". Certain specified amounts, as described in the annuity contracts, are paid to Horace Mann Life Insurance Company ("HMLIC") to cover death benefits, surrender charges, sales and administrative expenses and maintenance charges. An annual contract maintenance charge of $25 is deducted from each contract unless the contract value equals or exceeds $10,000 to reimburse HMLIC for expenses incurred in administering the contract. The contract maintenance charge is assessed on the contract anniversary date. This charge may be reduced or eliminated on certain individual contracts and on some group plans. The annual maintenance charge is paid through a redemption of units and is deducted from the subaccount containing the greatest dollar amount or from the fixed portion of the contract when none of the variable subaccount(s) have any value. Charges for the annual maintenance charge cease on the maturity date. No annual maintenance charge is taken, in whole or in part, in the event of a complete surrender unless the surrender occurs on the contract anniversary date. HMLIC deducts a daily mortality and expense risk charge from the Separate Account for the assumption of mortality and expense risks. The fee for the mortality and expense risk may not exceed the annual rate of 1.25% of the daily net assets of the Separate Account (0.45% for mortality risk, and 0.80% for expense risk). In certain circumstances in the event of a contract being surrendered or withdrawn from the subaccount, surrender charges are assessed by HMLIC and withheld from the proceeds of the withdrawals on the basis of the amount surrendered or withdrawn from the subaccount(s). 2. SIGNIFICANT ACCOUNTING POLICIES -- Investments in the Fund are reported at market value using the accumulated unit value method (AUV). The Account owns approximately 81%, 97%, 96%, 93%, 92%, 92%, and 95% of the Horace Mann Equity Fund, Horace Mann Balanced Fund, Horace Mann Income Fund, Horace Mann Short-Term Investment Fund, Horace Mann Small Cap Growth Fund, Horace Mann International Equity Fund, and Horace Mann Socially Responsible Fund, respectively. Distributions from the funds are recorded on the ex-dividend date. Realized gains and losses are determined on the basis of average cost of shares owned by the Account. 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 revenue and expenses during the period. Actual results could differ from those estimates. 3. FEDERAL INCOME TAXES -- Investment income of the Account is included in the tax return of HMLIC; however, no tax accrues on income attributable to tax-deferred annuities which comprise the majority of the Account contracts. Income attributable to non tax-deferred annuities is not significant. 100 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT 4. PURCHASE AND SALES OF SEPARATE ACCOUNT FUND SHARES -- During the year ended December 31, 2001, purchases and proceeds from sales of fund shares were as follows:
ACCOUNT DIVISION - --------- ------------------------------------------------------------------------------------------------- Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Horace Mann Short-Term Small Cap International Socially Equity Balanced Income Investment Growth Equity Responsible Fund Fund Fund Fund Fund Fund Fund - ----------------------------------------------------------------------------------------------------------- Purchases $35,778,790 $33,083,633 $4,627,053 $5,611,515 $14,630,974 $11,123,864 $14,775,724 - ----------------------------------------------------------------------------------------------------------- Sales $69,558,593 $50,838,045 $2,089,230 $5,200,460 $15,302,921 $8,809,010 $11,168,198 - ----------------------------------------------------------------------------------------------------------- Wilshire Wilshire Wilshire Wilshire Wilshire Wilshire Large Co. Wilshire Large Co. Large Co. Small Co. Small Co. 5000 Index Growth 5000 Index Growth Value Value Growth Portfolio- Portfolio- Portfolio- Portfolio- Portfolio- Portfolio- Portfolio- Institutional Institutional Investment Investment Investment Investment Investment - ----------------------------------------------------------------------------------------------------------- Purchases $6,021,092 $7,466,899 $1,730,609 $2,742,719 $5,767,470 $1,210,805 $417,572 - ----------------------------------------------------------------------------------------------------------- Sales $3,217,332 $3,475,756 $137,293 $228,434 $425,663 $110,035 $149,915 - ----------------------------------------------------------------------------------------------------------- T.Rowe Price T.Rowe Price Fidelity VIP Small-Cap Small-Cap Growth & Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Value Fund Stock Fund Income Index 500 Mid Cap Growth Overseas Advisor Class Advisor Class Portfolio Portfolio Portfolio Portfolio Portfolio - ----------------------------------------------------------------------------------------------------------- Purchases $3,521,399 $3,547,408 $2,791,070 $9,602,557 $7,350,236 $11,314,721 $2,975,681 - ----------------------------------------------------------------------------------------------------------- Sales $292,231 $362,883 $355,813 $1,772,318 $1,705,140 $2,658,221 $493,413 - ----------------------------------------------------------------------------------------------------------- Fidelity VIP Strong J.P. Morgan Rainier Fidelity VIP Investment Davis Strong Mid Cap U.S. Disciplined Small/Mid High Income Grade Value Opportunity Growth Equity Cap Equity Portfolio Bond Portfolio Portfolio Fund II Fund II Portfolio Portfolio - ----------------------------------------------------------------------------------------------------------- Purchases $330,849 $3,897,585 $2,441,170 $4,369,394 $4,001,402 $4,626,737 $2,642,822 - ----------------------------------------------------------------------------------------------------------- Sales $145,398 $481,306 $453,652 $539,858 $1,254,204 $534,901 $413,311 - -----------------------------------------------------------------------------------------------------------
Alliance Credit Suisse Neuberger Premier Putnam Small Co. Ariel Berman Growth VT Vista Growth Ariel Appreciation Genesis Fund Portfolio Fund Portfolio Fund Fund - ---------------------------------------------------------------------------------- Purchases $4,162,506 $7,799,770 $3,554,062 $2,216,359 $2,434,981 $4,248,963 - ---------------------------------------------------------------------------------- Sales $318,009 $1,413,244 $779,149 $410,677 $90,781 $121,673 - ----------------------------------------------------------------------------------
101 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Notes to the Financial Statements (Continued) December 31, 2001 5. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
ACCOUNT DIVISION -------------------------------------------------------------------------------------------------- Horace Mann Horace Mann Horace Mann Horace Mann Wilshire Horace Mann Horace Mann Horace Mann Short-Term Small Cap International Socially 5000 Index Equity Balanced Income Investment Growth Equity Responsible Portfolio- Fund Fund Fund Fund Fund Fund Fund Institutional - -------------------------------------------------------------------------------------------------------------------- Account units outstanding at 01/01/2000 23,693,305 22,621,955 1,034,296 132,903 2,619,220 1,187,606 3,893,389 -- Consideration received 2,187,813 1,573,281 79,776 13,151 640,546 546,683 1,016,254 162,562 Net transfers (3,244,195) (3,165,815) (105,689) 239,484 1,455,504 1,179,267 410,043 1,288,936 Payments to contract owners (3,923,855) (3,476,005) (180,844) (180,483) (430,444) (262,618) (552,234) (31,525) - -------------------------------------------------------------------------------------------------------------------- Account units outstanding at 12/31/2000 18,713,068 17,553,416 827,539 205,055 4,284,826 2,650,938 4,767,452 1,419,973 Consideration received 1,417,809 1,084,524 70,075 12,095 801,753 627,787 728,735 315,775 Net transfers (1,258,708) (1,065,248) 107,455 150,941 (347,777) (124,512) (199,107) 112,286 Payments to contract owners (1,510,447) (1,318,214) (68,777) (130,962) (339,797) (218,413) (326,266) (112,495) Account units outstanding at 12/31/2001 17,361,722 16,254,478 936,292 237,129 4,399,005 2,935,800 4,970,814 1,735,539 - --------------------------------------------------------------------------------------------------------------------
102 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ---------------------------------------------------------------------------------------------------------------------- Wilshire Wilshire Wilshire Wilshire Wilshire Wilshire Large Co. Small Co. Small Co. T.Rowe Price T.Rowe Price Fidelity VIP Large Co. Growth 5000 Index Large Co. Growth Value Value Growth Small-Cap Small-Cap Growth & Portfolio- Portfolio- Portfolio- Portfolio- Portfolio- Portfolio- Value Fund Stock Fund Income Institutional Investment Investment Investment Investment Investment Advisor Class Advisor Class Portfolio - ---------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- 48,265 31,187 10,751 2,386 300 543 2,213 4,709 5,641 408,660 8,897 6,235 21,055 4,838 7,521 14,573 42,717 48,891 (5,831) (60) (24) (6) -- (3) (455) (262) (552) - ---------------------------------------------------------------------------------------------------------------------- 451,094 40,024 16,962 23,435 5,138 8,061 16,331 47,164 53,980 126,932 86,043 44,018 71,371 11,932 8,285 30,460 42,178 68,210 40,636 92,959 40,698 178,371 64,681 13,612 108,106 87,851 117,580 (30,920) (5,165) (2,150) (6,857) (1,244) (1,828) (2,955) (4,925) (9,130) 587,742 213,861 99,528 266,320 80,507 28,130 151,942 172,268 230,640 - ----------------------------------------------------------------------------------------------------------------------
103 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Notes to the Financial Statements (Continued) December 31, 2001
ACCOUNT DIVISION -------------------------------------------------------------------------------------------------- Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP High Investment Davis Strong Index 500 Mid Cap Growth Overseas Income Grade Bond Value Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fund II - ------------------------------------------------------------------------------------------------------------------------ Account units outstanding at 01/01/2000 -- -- -- -- -- -- -- -- Consideration received 3,626 21,323 18,714 10,465 3,771 4,107 11,300 4,356 Net transfers 29,573 211,344 144,899 61,009 28,304 21,531 123,299 42,829 Payments to contract owners (200) (1,112) (1,676) (664) (11) (787) (236) (20) - ------------------------------------------------------------------------------------------------------------------------ Account units outstanding at 12/31/2000 32,999 231,555 161,937 70,810 32,064 24,851 134,363 47,165 Consideration received 24,508 129,536 111,704 65,604 11,849 51,366 59,000 39,688 Net transfers 39,012 219,495 142,485 81,627 17,333 219,947 156,034 87,392 Payments to contract owners (2,576) (28,602) (11,974) (8,299) (3,927) (12,552) (15,870) (4,444) Account units outstanding at 12/31/2001 93,943 551,984 404,152 209,742 57,319 283,612 333,527 169,801 - ------------------------------------------------------------------------------------------------------------------------
104 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT
ACCOUNT DIVISION - ---------------------------------------------------------------------------------------------------- Strong J.P. Morgan Rainier Neuberger Alliance Credit Suisse Mid Cap U.S. Disciplined Small/Mid Berman Premier Putnam Small Co. Ariel Growth Equity Cap Equity Genesis Growth VT Vista Growth Ariel Appreciation Fund II Portfolio Portfolio Fund Portfolio Fund Portfolio Fund Fund - ---------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- 17,157 17,295 4,635 1,308 19,873 14,372 11,123 -- -- 115,504 106,522 47,816 13,199 112,005 133,868 66,550 -- -- (793) (21) (567) -- (1,646) (1,307) (913) -- -- - ---------------------------------------------------------------------------------------------------- 131,868 123,796 51,884 14,507 130,232 146,933 76,760 -- -- 82,817 135,797 33,558 54,577 93,286 85,904 40,036 16,348 28,472 72,277 185,219 52,935 165,769 145,330 108,014 52,016 49,674 88,815 (7,702) (13,554) (2,898) (6,544) (11,484) (14,445) (3,730) (473) (1,311) 279,260 431,258 135,479 228,309 357,364 326,406 165,082 65,549 115,976 - ----------------------------------------------------------------------------------------------------
105 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Notes to the Financial Statements (Continued) December 31, 2001 6. FINANCIAL HIGHLIGHTS (Continued)
Expense as a % Investment Unit Net of Average Net Income Total Account Division Units Value Assets Assets* Ratio Return** - ---------------------------------------------------------------------------------------------------------------- Horace Mann Equity 17,361,722 $19.57 to $20.02 $342,035,348 0.00% to 1.25% 01.00% (5.43%) to (4.21%) Horace Mann Balanced 16,254,478 16.34 to 17.68 282,607,688 0.00% to 1.25% 03.74% (2.85) to 1.43 Horace Mann Income Fund 936,292 12.30 to 14.55 13,375,200 0.00% to 1.25% 09.74% (0.73) to 9.15 Horace Mann Short-Term Investments Fund 237,129 10.82 to 11.01 2,568,007 0.00% to 1.25% 04.07% 3.84 to 5.56 Horace Mann Small Cap Fund 4,399,005 12.16 to 12.37 53,478,020 0.00% to 1.25% -- (30.67) to (29.80) Horace Mann International Equity Fund 2,935,800 10.46 to 10.64 30,723,465 0.00% to 1.25% -- (27.31) to (26.37) Horace Mann Socially Responsible Fund 4,970,814 13.70 to 13.93 68,083,188 0.00% to 1.25% 02.44% (8.42) to (7.26) Wilshire 5000 Index Portfolio-Institutional 1,735,539 9.17 to 9.33 15,924,589 0.00% to 1.25% 00.78% (12.42) to (11.23) Wilshire Large Co. Growth Portfolio-Institutional 587,742 30.49 to 31.01 17,920,506 0.00% to 1.25% -- (17.37) to (16.32) Wilshire 5000 Index Portfolio-Investment 213,861 9.07 to 9.28 1,942,448 0.00% to 1.25% 00.80% (12.62) to (11.45) Wilshire Large Co. Growth Portfolio-Investment 99,528 30.17 to 30.69 3,003,890 0.00% to 1.25% -- (17.64) to (16.60) Wilshire Large Co. Value Portfolio-Investment 266,320 20.82 to 21.17 5,546,423 0.00% to 1.25% 02.57% (2.44) to (1.21) Wilshire Small Co. Value Portfolio-Investment 80,507 15.88 to 16.14 1,278,594 0.00% to 1.25% 01.79% 15.91 to 17.21 Wilshire Small Co. Growth Portfolio-Investment 28,130 15.19 to 15.84 428,488 0.00% to 1.25% -- (4.28) to (3.06) T. Rowe Price Small-Cap Value Fund Advisor Class 151,942 25.30 to 25.72 3,846,970 0.00% to 1.25% 00.02% 20.36 to 21.84 T. Rowe Small-Cap Fund Advisor Class 172,268 27.92 to 28.38 4,809,801 0.00% to 1.25% -- 5.28 to 6.57 Fidelity VIP Growth & Income Portfolio 230,640 13.66 to 13.89 3,152,138 0.00% to 1.25% 00.72% (10.13) to (8.98) Fidelity VIP Index 500 Portfolio 93,943 125.50 to 131.14 12,105,188 0.00% to 1.25% 00.76% (15.23) to (12.31) Fidelity VIP Mid Cap Portfolio 551,984 19.30 to 19.62 10,656,212 0.00% to 1.25% 00.25% (4.69) to (3.49) Fidelity VIP Growth Portfolio 404,152 35.27 to 35.86 14,256,514 0.00% to 1.25% 00.06% (18.88) to (17.85) Fidelity VIP Overseas Portfolio 209,742 15.50 to 15.76 3,251,692 0.00% to 1.25% 03.62% (22.15) to (21.16) Fidelity VIP High Income Portfolio 57,319 7.08 to 7.20 406,217 0.00% to 1.25% 09.86% (13.13) to (11.98) Fidelity VIP Investment Grade Portfolio 283,612 13.39 to 13.61 3,797,088 0.00% to 1.25% 01.33% 6.78 to 8.10 Davis Value Portfolio 333,527 9.80 to 10.04 3,270,039 0.00% to 1.25% 00.57% (11.55) to (10.44) Strong Opportunity Fund II 169,801 26.23 to 26.61 4,456,119 0.00% to 1.25% 00.66% (4.72) to (3.69) Strong Mid Cap Growth Fund II 279,260 17.61 to 17.92 4,918,618 0.00% to 1.25% -- (31.65) to (30.76)
106 HORACE MANN LIFE INSURANCE COMPANY 2001 ANNUAL REPORT SEPARATE ACCOUNT Notes to the Financial Statements (Concluded) December 31, 2001 6. FINANCIAL HIGHLIGHTS (Concluded)
Expense as a % Investment Unit of Average Net Income Total Account Division Units Value Net Assets Assets* Ratio Return** - ------------------------------------------------------------------------------------------------------------- J. P. Morgan U.S. Disciplined Equity Portfolio 431,258 $12.97 to $13.18 $5,592,767 0.00% to 1.25% 00.69% (12.95%) to (11.78%) Rainier Small/Mid Cap Equity Portfolio 135,479 26.41 to 26.84 3,578,878 0.00% to 1.25% -- (5.14) to (3.94) Neuberger Berman Genesis Fund 228,309 19.07 to 19.46 4,368,759 0.00% to 1.25% -- 9.98 to 11.77 Alliance Premier Growth Portfolio 357,364 25.91 to 26.37 9,270,208 0.00% to 1.25% -- (18.45) to (17.41) Putnam VT Vista Fund 326,406 12.82 to 13.03 4,184,721 0.00% to 1.25% 10.52% (34.32) to (33.52) Credit Suisse Small Co. Growth Portfolio 165,082 17.73 to 18.02 2,926,283 0.00% to 1.25% -- (17.03) to (16.03) Ariel Fund*** 65,549 38.11 to 38.42 2,498,583 0.00% to 1.25% 00.25% 10.05 to 10.94 Ariel Appreciation Fund*** 115,976 37.51 to 37.80 4,350,556 0.00% to 1.25% 00.16% 10.29 to 11.14
* These ratios represent the annualized contract expenses of the active contract owners of the separate account, consisting primarily of mortality and expense charges, for the period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded. ** These amounts represent the total return for the period indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. *** The total return is calculated from May 1, 2001, the effective date of the investment option in the variable account, through December 31, 2001. 107 Independent Auditors' Report The Contract Owners of Horace Mann Life Insurance Company Separate Account and the Board of Directors of Horace Mann Life Insurance Company: We have audited the accompanying statements of net assets of each of the thirty-four portfolios comprising the Horace Mann Life Insurance Company Separate Account as of December 31, 2001, and the related statements of operations and the financial highlights for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the thirty-four portfolios comprising the Horace Mann Life Insurance Company Separate Account as of December 31, 2001, the results of their operations and financial highlights for the year then ended, and changes in their net assets for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. [SIG] KPMG LLP Chicago, Illinois February 21, 2002 108 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] Horace Mann(R) Insuring America's Educational Community www.horacemann.com www.reacheverychild.com The Horace Mann Companies 1 Horace Mann Plaza Springfield, Illinois 62715-0001 PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT NO. 1910 -----END PRIVACY-ENHANCED MESSAGE-----