SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002.
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 [d] OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 1-10890
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HORACE MANN SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN
(Full title of the Plan)
HORACE MANN EDUCATORS CORPORATION
1 Horace Mann Plaza, Springfield, Illinois 62715
Registrant's telephone number, including area code:
(217) 789 - 2500
(Name, Address and Telephone Number of Issuer)
REQUIRED INFORMATION
Financial Statements:
Item 4. In lieu of the requirements of Items 1-3, audited statements and
schedule are prepared in accordance with the requirements of ERISA for the
Plan's fiscal years ended December 31, 2002 and 2001 are presented on pages 2
through 12.
Financial Statements and Supplemental Schedule
Horace Mann Service Corporation
Supplemental Retirement and Savings Plan
Years ended December 31, 2002 and 2001
with Report of Independent Auditors
Horace Mann Supplemental
Retirement and Savings Plan
Financial Statements
and Supplemental Schedule
Years ended December 31, 2002 and 2001
Contents
Report of Independent Auditors ..................................................... 1
Financial Statements
Statements of Net Assets Available for Benefits .................................... 2
Statements of Changes in Net Assets Available for Benefits ......................... 3
Notes to Financial Statements ...................................................... 4
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) ..................... 12
Report of Independent Auditors
Pension Committee and The Board of Directors
Horace Mann Educators Corporation
We have audited the accompanying statements of net assets available for benefits
of Horace Mann Supplemental Retirement and Savings Plan as of December 31, 2002
and 2001, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2002 and 2001, and the changes in its net assets available for
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying schedule of assets (held at end of
year) as of December 31, 2002, is presented for purposes of additional analysis
and is not a required part of the financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in our audits of the financial statements and, in our opinion, is fairly stated
in all material respects in relation to the financial statements taken as a
whole.
May 16, 2003
1
Horace Mann Supplemental Retirement and Savings Plan
Statements of Net Assets Available for Benefits
December 31
2002 2001
-------------------------------
Assets
Investments:
Group Annuity contract
Equity securities $26,589,916 $35,075,088
Fixed income securities 8,695,259 10,386,614
Fixed fund, at contract value 38,025,921 36,447,269
Horace Mann Educators Corporation Common Stock,
at fair value (cost $9,177,839 in 2002, $9,372,748
in 2001) 7,480,316 10,279,600
Participant loans 798,517 -
Cash 160,636 -
-------------------------------
Total assets 81,750,565 92,188,571
Liabilities
Accrued administrative expenses 12,412 -
-------------------------------
Net assets available for benefits $81,738,153 $92,188,571
===============================
See accompanying notes to financial statements.
2
Horace Mann Supplemental Retirement and Savings Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31
2002 2001
--------------------------------
Additions
Investment income (loss):
Net realized and unrealized
depreciation of investments $(10,953,263) $ (4,507,978)
Interest 2,084,571 2,001,458
Participant loan interest income 4,702 -
-------------------------------
(8,863,990) (2,506,520)
Contributions:
Employer 3,470,577 2,301,217
Employee 5,923,623 6,266,060
-------------------------------
Total additions 530,210 6,060,757
Deductions
Withdrawals by participants (10,658,688) (9,082,208)
Administrative fees (321,940) (240,327)
-------------------------------
Total deductions (10,980,628) (9,322,535)
-------------------------------
Net decrease (10,450,418) (3,261,778)
Net assets available for benefits
Beginning of year 92,188,571 95,450,349
-------------------------------
End of year $ 81,738,153 $ 92,188,571
===============================
See accompanying notes to financial statements.
3
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements
December 31, 2002
1. General Plan Information
Description of the Plan
The Horace Mann Supplemental Retirement and Savings Plan (the Plan) is sponsored
by Horace Mann Service Corporation (HMSC) which is a wholly owned subsidiary of
Horace Mann Educators Corporation (HMEC, HMSC and HMEC, collectively referred to
as the Company). The following brief description of the Plan is provided for
general information purposes. Readers should refer to the actual Plan Document
or the employee Summary Plan Description entitled for additional information.
The Plan is a defined-contribution plan covering all employees of the Company.
It is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
Contributions and Vesting
Participating employees may contribute up to 20% of eligible compensation,
including salary, overtime, commissions, and certain incentive bonuses on a
before-tax basis to one or more of twenty available investment funds. Prior to
April 1, 2002, participants were able to contribute 10% of eligible
compensation.
Participating employees who reached age 50 or older during the 2002 Plan year
had the opportunity to make pre-tax-catch-up contributions subject to federal
limits.
Prior to January 1, 2002, the Company contributed an amount equal to 50% of the
first 6% of eligible compensation contributed by participating employees.
Employer contributions and earnings thereon vested 20% for each year of service,
with full vesting occurring after five years of service. In addition, employer
contributions generally become fully vested in the event of disability or death.
Forfeitures of nonvested employer contributions serve to reduce future Company
matching contributions. Participant contributions and earnings thereon are fully
vested at all times. Effective January 1, 2002, an automatic 3% Company
contribution replaced the 50% Company match of the first 6% contributed. The 3%
Companycontribution is 100% vested at the time the contribution is made and is
participant-directed.Company match contributions made prior to January 1, 2002,
will continue to vest at the rate of 20% per year of service.
In accordance with the Omnibus Budget Reconciliation Act of 1993, eligible
compensation for purposes of contributions were limited to $200,000 and $170,000
in 2002 and 2001, respectively. Prior to January 1, 2002, highly compensated
employees were limited to 6% participant contributions and 3% Company matching
contributions. However, effective January 1, 2002, with the adoption of the
Company's "safe harbor" contribution, highly compensated employees may
contribute up to 20% of eligible compensation.
4
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
1.General Plan Information (continued)
Participant Accounts and Benefits
Each participant's account is credited with the participant's contribution, the
Company's contribution, and an allocation of Plan investment earnings and
charged with an allocation of administrative expenses. The benefit to which a
given participant is entitled is the benefit that can be provided from that
participant's vested account. A participant subaccount is maintained in each of
the investment funds in which a participant chooses to invest. There were 2,612
and 2,160 participants at December 31, 2002 and 2001, respectively. At December
31, 2002 and 2001, the number of participants' subaccounts in the respective
investment funds were as follows:
2002 2001
-----------------
HMLIC Mutual Funds
Equity Fund 1,073 1,234
Balanced Fund 738 841
Small Cap Growth Fund 802 956
Socially Responsible Fund 583 689
International Equity Fund 644 793
Income Fund 279 221
Short-Term Investment Fund 117 100
Other Mutual Funds
Wilshire Large Company Growth Portfolio 377 335
Wilshire 5000 Index Portfolio 333 391
T. Rowe Price Small Cap Value Fund 331 190
Fidelity VIP Mid Cap Growth Portfolio 273 185
Strong Opportunity Fund II 206 153
Fidelity VIP Growth Portfolio 224 169
T. Rowe Price Small Cap Stock Fund 269 167
Putnam VT Vista Fund 131 110
Davis Value Portfolio 93 76
J.P. Morgan U.S. Disciplined Equity Portfolio 79 58
Fidelity VIP Overseas Portfolio 83 56
Horace Mann Fixed Fund 2,273 1,214
HMEC Common Stock Fund 845 914
5
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
1. General Plan Information (continued)
Trust Agreement
All plan assets are in a Master Trust held by The Northern Trust Quantitative
Advisors, Inc. The Master Trust also includes the assets of the HMSC Money
Purchase Pension Plan. The assets of the Plan represent 44% of the total assets
in the Master Trust. The assets of the Plan are participant-directed investments
and are deposited in a Horace Mann Life Insurance (HMLIC) Group Annuity Contract
(Fixed and Separate Accounts) or an HMEC Common Stock Fund. Investments are
available through the HMLIC Group Annuity Contract Separate Account that
consists of any of seven Horace Mann Mutual Funds, the Wilshire Large Company
Growth Portfolio and the Wilshire 5000 Index portfolio (collectively the
Wilshire Funds), the Fidelity VIP Mid Cap Growth Portfolio, the Fidelity VIP
Growth Portfolio, the Fidelity VIP Overseas Portfolio (collectively the
"Fidelity Funds"), T. Rowe Price Small Cap Stock Fund and the T. Rowe Price
Small Cap Value Fund, the Davis Value Portfolio, the Strong Opportunity Fund II,
the J.P. Morgan U.S. Disciplined Equity Portfolio, the Putnam VT Vista Fund.
Transfers and Withdrawals
Participants may transfer all or a portion of their account balance between the
various investment funds on a daily basis. Participant withdrawals (as allowed
under the Plan) are permitted on a weekly basis.
Loans
Effective October 1, 2002, participants may borrow a minimum of $1,000 up to a
maximum of 50% of their vested account balance, but no more than $50,000. The
minimum term for a loan is 12 months and the maximum is 60 months (180 months
for primary residence loans). Participants may have up to two active loans at
one time. A $65 loan administration fee is deducted from the participant's loan
proceeds. Loans totaling $798,517 from 104 active participants were outstanding
at December 31, 2002. 5.75% interest was charged on participant loans.
Termination
Although it has not expressed any intent to do so, the Company has the right to
terminate the Plan at any time, subject to the provisions of ERISA. In the event
of Plan termination, participants become fully vested in the Company's pre-
January 1, 2002 matching contributions and related investment earnings.
2. Investments
HMLIC Group Annuity Contract - (Fixed and Separate Accounts)
Fixed Account
Within the HMLIC Group Annuity Contract plan participants may invest in a fixed
interest rate fund. Plan assets invested in this contract are guaranteed by
HMLIC and, as a result, are presented in the financial
6
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Investments (continued)
statements at contract value. Contract value represents contributions made under
the contract, plus interest at the contract rate, less withdrawals by
participants. The fair value of the group annuity contract is approximately
equal to contract value.
The actual credited interest rate on the group annuity contract was 5.00% and
5.25% for the years ended December 31, 2002 and 2001, respectively.
The minimum guaranteed annual interest rate per the group annuity contract is
4.5%. The actual credited interest rate may be reset by HMLIC with 30 days
advance notice, but is generally changed once at the beginning of each Plan
year. On November 1, 2002, the credited interest rate was changed from 5.25% to
5.00%. Beginning January 1, 2003 the actual crediting rate was continued at
5.00%, until March 1, 2003. The actual crediting rate on March 1, 2003 was
changed to 4.75%.
Separate Account
Within the HMLIC Group Annuity Contract, a separate account is available for the
purpose of separately investing Plan assets in one or more of seven HMLIC mutual
funds, (Equity Fund, Balanced Fund, Small Cap Growth Fund, Socially Responsible
Fund, International Equity Fund, Income Fund, and Short-Term Investment Fund)
and eleven additional mutual fund options including the Wilshire Funds, the
Fidelity Funds, T. Rowe Price Small Cap Stock Fund and the T. Rowe Price Small
Cap Value Fund, the Davis Value Portfolio, the Strong Opportunity Fund II, the
J.P. Morgan U.S. Disciplined Equity Portfolio, and the Putnam VT Vista Fund.
The investments in mutual funds are valued at quoted market prices, which
represent the net asset values of shares held by the Plan at year-end. The
investments of the underlying mutual funds are primarily common stocks, U.S.
government and corporate bonds, and short-term commercial paper. The common
stocks and bonds are presented at fair value, based on quoted market prices, and
the short-term commercial paper is presented at cost, which approximates fair
value.
The following presents investments that represent 5 percent or more of the
Plan's net assets:
December 31
2002 2001
---------------------------------
Equity Fund $10,921,692 $15,559,955
Balanced Fund 7,487,099 9,535,942
Small Cap Growth Fund - 4,948,649
HMLIC group annuity contract - Fixed Account 38,025,921 36,447,269
Horace Mann Educators Corporation common stock 7,480,316 10,279,600
7
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Investments (continued)
The Plan's investments (including gains and losses on investments bought and
sold, as well as held during the year) depreciated in value during 2002 and 2001
as follows:
Net Realized and Unrealized Depreciation
in Fair Value of Investments
2002 2001
Mutual funds $ (8,244,116) $(3,493,605)
Common stock (2,709,147) (168,236)
----------------------------------------
Total $(10,953,263) $(3,661,841)
========================================
Total annual returns for each of the mutual funds were as follows:
Annual Investment Returns
------------------------------------------------------------
Period ended
1 Year December 31, 2002
------------------------------------------------------------
2002 2001 5 year 10 year
------------------------------------------------------------
HMLIC Mutual Funds:
Equity Fund (19.43)% (5.41)% (5.04)% 7.45%
Balanced Fund (8.27) 0.12 (0.01) 8.05
Small Cap Growth Fund (38.93) (30.70) (7.05) -
Socially Responsible Fund (13.48) (8.47) (.76) -
International Equity Fund (20.99) (27.29) (2.81) -
Income Fund 9.20 7.53 6.61 7.31
Short-Term Investment Fund 1.72 3.86 4.48 4.75
Other Mutual Funds
Wilshire Large Company
Growth Portfolio (21.73) (16.62) - -
Wilshire 5000 Index Portfolio (21.35) (11.50) - -
T. Rowe Price Small Cap Value Fund (2.04) (21.84) - -
Fidelity VIP Mid Cap Portfolio (10.03) (3.49) - -
Strong Opportunity Fund II (26.82) (3.92) - -
Fidelity VIP Growth Portfolio (16.84) (17.85) - -
T. Rowe Price Small Cap Stock
Fund (14.41) 6.60 - -
Putnam VT Vista Fund (30.58) (33.53) - -
Davis Value Portfolio (16.26) (10.38) - -
J.P. Morgan U.S. Disciplined Equity
Portfolio (24.62) (11.92) - -
Fidelity VIP Overseas Portfolio (20.45) (21.15) - -
8
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Investments (continued)
The composition of the underlying investments in each of the mutual funds at
December 31, 2002 and 2001, was as follows:
2002 2001
---------------
Equity Fund:
Common and preferred stock 99% 99%
Cash and short-term investments 1 1
Balanced Fund:
Equity Fund 60 62
Income Fund 40 38
Small Cap Growth Fund:
Common stock 98 96
Cash and short-term investments 2 4
Socially Responsible Fund:
Common and preferred stock 98 97
Cash and short-term investments 2 3
International Equity Fund:
Common and preferred stock 98 95
Cash and short-term investments 2 5
Income Fund:
U.S. and foreign government and agency obligations 50 62
Corporate bonds/notes 46 38
Cash and short-term investments 4 -
Short-Term Investment Fund:
U.S. and foreign government and agency obligations 43 92
Repurchase agreements 48 -
Cash and short-term investments 9 8
Wilshire Large Company Growth Portfolio:
Common and preferred stocks 100 100
T. Rowe Price Small Cap Value Fund:
Common and preferred stocks 100 100
9
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Investments (continued)
2002 2001
---------------
Wilshire 5000 Index Portfolio:
Common and preferred stocks 100% 100%
Fidelity VIP Mid Cap Portfolio:
Common and preferred stocks 100 100
T. Rowe Price Small Cap Stock Fund:
Common and preferred stocks 100 100
Fidelity VIP Growth Portfolio:
Common and preferred stocks 100 100
Strong Opportunity Fund II:
Common and preferred stocks 100 100
Putnam VT Vista Fund:
Common and preferred stocks 97 97
Short-term investments 3 3
Davis Value Portfolio:
Common and preferred stocks 100 100
Fidelity VIP Overseas Portfolio
Common and preferred stocks 100 100
J.P. Morgan U.S. Disciplined Equity Portfolio:
Common and preferred stocks 100 100
HMEC Common Stock Fund
The Plan's HMEC Common Stock Fund at December 31, 2002 and 2001, consisted of a
pooled investment in 487,953 shares and 484,430 shares, respectively, of HMEC
common stock, which is traded on the New York Stock Exchange under the symbol
HMN. This investment is presented in the financial statements at fair value with
a quoted market price of $15.33 and $21.22 per share, respectively.
Total annual returns for investments in the HMEC Common Stock Fund were as
follows:
Annual Investment Returns
-------------------------------------------------
1 Year Since inception
-----------------------------
2002 2001 (November 1991)
----------------------------- ------------------
(26.06)% 1.5% 6.47%
10
Horace Mann Supplemental Retirement and Savings Plan
Notes to Financial Statements (continued)
3. Administrative Expenses
The Plan pays for its own administrative fees, consisting primarily of trustee,
audit, and legal fees. All investment fees have been included in the quarterly
performance gains or losses reported for individual Plan funds.
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
(IRS) dated May 17, 1994, stating that the Plan is qualified under Section
401(a) of the Internal Revenue Code (the "Code"), and therefore, the related
trust is exempt from taxation. On February 28, 2002, the Plan was amended and
restated to conform with the plan changes effective January 1, 2002, the series
of tax acts collectively referred to as "GUST" and the Economic Growth and Tax
Relief Reconciliation Act (EGTRRA), and submitted to the IRS for favorable
determination. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The Plan administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan, as amended, is qualified and the
related trust is tax exempt.
11
Supplemental Schedule
EIN: 37-0972590
Plan: 004
Horace Mann Supplemental Retirement and Savings Plan
Schedule H, Line 4i - Schedule of Assets (Held at End or Year)
December 31, 2002
Number
of Shares Contract or
or Units Description of Investment Cost Fair Value
--------------------------------------------------------------------------------------------------------
Separate Account - Horace Mann Mutual
Funds*:
676,941 Equity Fund $15,117,102 $10,921,692
461,813 Balanced Fund 8,255,547 7,487,099
364,405 Small Cap Growth Fund 5,281,554 2,751,946
227,665 Socially Responsible Fund 2,992,767 2,743,183
241,035 International Equity Fund 3,269,527 2,027,009
64,472 Income Fund 930,345 1,021,668
16,659 Short-Term Investment Fund 182,496 186,492
--------------------------------
Total separate account - Horace Mann
Mutual Funds 36,029,338 27,139,089
Other Mutual Funds:
64,274 Wilshire Large Company Growth Portfolio 3,234,497 1,563,457
61,850 T. Rowe Price Small Cap Value Fund 1,615,561 1,558,162
208,230 Wilshire 5000 Index Portfolio 1,888,376 1,533,570
53,420 Fidelity VIP Mid Cap Portfolio 1,013,034 943,026
26,900 T. Rowe Price Small Cap Stock Fund 714,258 653,498
23,230 Fidelity VIP Growth Portfolio 752,657 580,755
27,512 Strong Opportunity Fund II 675,077 535,681
27,842 Putnam VT Vista Fund 320,427 251,810
26,696 Davis Value Portfolio 255,225 224,499
13,110 Fidelity VIP Overseas Portfolio 212,665 164,369
13,815 J.P. Morgan U.S. Disciplined Equity Portfolio 166,698 137,259
--------------------------------
Total other mutual funds 10,848,475 8,146,086
N/A HMLIC Fixed Account* 38,025,921 38,025,921
487,953 Horace Mann Educators Corporation Common Stock* 9,177,839 7,480,316
Participant loans - 798,517
--------------------------------
$94,081,573 $81,589,929
================================
*Represents a party in interest
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Pension
Plan Committee of the Horace Mann Supplemental Retirement and Savings Plan has
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date 27 June 2003 HORACE MANN SUPPLEMENTAL RETIREMENT AND
----------------- SAVINGS PLAN
/s/ Kathryn E. Karr
-----------------------------------
Kathryn E. Karr
Plan Administrator
Vice President,
Corporate Benefits Administration
13