<PAGE>
HORACE MANN FAMILY OF FUNDS AND
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
[PHOTO APPEARS HERE]
ANNUAL REPORT, DECEMBER 31, 1995
<PAGE>
[PHOTO APPEARS HERE] MAP OUT YOUR FUTURE
You can never start making your future plans too soon. The earlier you begin
building a retirement nest egg, the more time you'll have to set aside the
income you'll need. By following a well-developed plan, your lifestyle can
remain as it is today.
At Horace Mann, we offer a variety of retirement planning products designed to
meet your needs now and in the future. Together, we can design a retirement
strategy that will help you attain your financial goals.
<PAGE>
HORACE MANN FAMILY OF FUNDS
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Letter from the Chairman of the Board and the President,
Horace Mann Family of Funds.................................... 2
Letters from the Investment Adviser with
Fund Performance Graphs........................................ 4
Average Annual Total Return
Horace Mann Annuity Alternatives Contracts..................... 13
Horace Mann Family of Funds.................................... 14
Audited Financial Statements
Horace Mann Family of Funds.................................... 16
Horace Mann Life Insurance Company Separate Account............ 38
</TABLE>
1
<PAGE>
DEAR SHAREHOLDER,
1995 was an exceptional year for investment in the U.S. stock and bond markets.
We are pleased to report that the Horace Mann Funds participated in this rally.
The exhibit below shows that the Growth Fund produced a return of 33.7%. This
return, which was just below the return of the S&P 500 Stock Index, is
consistent with the conservative nature of the management of the Fund. The
Income Fund also posted a solid return of 14.9%. The Balanced Fund, which
combines the investment disciplines of the Growth and Income Funds, produced a
return of 27.1%, falling right between these two components.
12 month period ended 12/31/95
[GRAPH APPEARS HERE]
Growth Fund 33.7%
Stock Index/1/ 37.6%
Income Fund 14.9%
Bond Index/2/ 15.3%
Balanced Fund 27.1%
Stock/Bond Index/3/ 28.3%
Short-Term Fund 5.3%
Treasury Bill Index/4/ 5.5%
Past performance does not assure future results.
The degree of successful performance of your Horace Mann Funds are consistently
judged in relation to comparative market benchmarks. While the Funds' 1995
results fall short of the one-year performance of market benchmarks, longer-term
performance remains in line with market indices. The total rate of return of
each Horace Mann Fund relative to its period ended December 31, 1995, is
discussed in the Letters from the Investment Advisers, pages 4 - 11, and shown
along with annualized long-term performance in the Table found on page 14.
REVIEWING THE YEAR
1995 was a refreshing change compared to 1994. While 1994 was not the worst year
in the stock market, it was a year when several changes in direction made it
particularly difficult to consistently stay ahead in the market. Happily, this
trend did not continue into 1995. Investors seemed to have made up their minds
in 1995 that the economic growth was indeed back and that inflation was under
control. The Federal Reserve was quite active in trying to manage economic
activity through interest rate changes in 1994 and 1995. Fortunately, investors
seem to believe that the Fed's management of the economy is working.
Specifically, interest rates fell, which fueled both positive corporate
activity, leading to stock market gains, and increased returns on bond
investments. Jack Ryan, portfolio manager for the Funds' stock investments, and
John Keogh, portfolio manager for the Funds' bond investments, describe these
activities in their letters that follow.
MARKET AND POLITICAL ISSUES
One single factor that exerted a dominant influence on how both the stock and
bond markets acted in 1995, was falling interest rates. As mentioned above, the
Federal Reserve lowered rates during the year. In 1994, rates were raised in an
effort to slow economic growth and to control inflation. This seemed to have
worked. Later in 1995, the Fed was able to lower interest rates, which tends to
increase economic activity through lower capital costs for corporations. This
translates to better corporate earnings which results in increased stock prices.
Individuals benefit too. For example, lower interest rates often lead more
people to purchase homes, which is beneficial to them and a boost to home
builders and other service providers in this area.
/1/Stock Index: S&P 500, Standard and Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks.
/2/Bond Index: Lehman Bros. Intermediate Government/Corporate Bond Index, an
unmanaged index consisting of U.S. Treasury Bonds, U.S. agency bonds and
investment grade corporate bonds with intermediate maturities.
/3/Stock/Bond Index: Weighted 60% S&P 500 and 40% Lehman Bros. Intermediate
Government/Corporate Bond Index, rebalanced monthly.
/4/Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90-day maturities.
2
<PAGE>
Lower rates also benefit the bond market. As a direct result of lower rates, the
prices of bonds increased in 1995 so that returns exceeded the level earned
through interest income alone. However, like the housing activity mentioned
above, many mortgage borrowers decided to refinance their loans in 1995, which
requires them to pay off their existing loans. These early repayments, known as
"prepayments" in the investing world, have a negative impact on securities
backed by these mortgages. Thus, these mortgage-backed securities underperformed
the general bond market in 1995. The Funds' fixed income investments reflect
conservative levels of these securities, so that performance was not too
significantly impacted by this prepayment activity.
1995 proved to be a pre-cursor to a likely politically charged 1996 campaign
year. The markets were most cautious about the budget debate between the
Clinton administration and the republican Congress. Late in the year, there was
even some questioning of the Federal government's "creditworthiness." However,
the relative stability of the stock and bond markets during this period is an
indication that investors generally believe that the situation will be resolved
without impacting the holders of treasury securities. The Funds' Investment
Advisor employs experts in political and economic research, and shareholders can
be assured that they are following the situation closely.
PERSPECTIVE
Even after such a good year in the markets, it is still important to remember
that investment market returns should be viewed over longer time periods to help
shareholders accumulate assets in excess of inflation. At the Horace Mann Family
of Funds, we recognize your commitment to long-term investing to accumulate
assets for your retirement, and we take a conservative approach to managing your
money. Although 1994 was a year of lower market returns, 1995 showed us that the
markets tend to bounce back from these tougher periods to produce good long term
returns. The same basic tenants apply to solid investing:
. Save for your retirement.
. Invest carefully in a conservative way.
. Invest for the long term.
We appreciate your continuing confidence in the Horace Mann Family of Funds.
Sincerely,
/s/ George J. Zock
George Zock
President
Horace Mann Family of Funds
/s/ Larry K. Becker
Larry Becker
Chairman
Horace Mann Family of Funds
3
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN GROWTH FUND
PERFORMANCE
Strong corporate earnings and a favorable interest rate environment helped the
U.S. stock market and the Horace Mann Growth Fund post robust returns for the
twelve months ended December 31, 1995. The Growth Fund provided a solid 1995
return to shareholders of 33.7%.
To put in perspective the relative strength of this year's U.S. stock market,
the S&P 500 Stock Index return of 37.6% for 1995 was its best year since the
43.4% return of 1958. The historical average for the S&P 500 Stock Index is
roughly 12% measured over the period 1970-1995. 1958 was also a year marked by
large cash flows into stocks, low inflation, and declining short-term rates much
like 1995. For the stock market, it seemed to be a case of everything that
needed to go right did. The Federal Reserve seems to have managed to engineer a
"soft landing" in which overall economic growth slowed, but corporate earnings
continued to increase, albeit at a lower pace.
PORTFOLIO REVIEW
Over the year, we have reduced our weighting in the finance sector as these
stocks soared in reaction to declining interest rates and hit the price targets
we had set for them. While we have reduced our overall weighting in the banking
sector this year, the portfolio continues to maintain a material weighting in
this sector. Citicorp, BankAmerica Corp., and First Chicago NBD represent
several banks that we believe will maintain positive earnings momentum heading
into the new year. Despite the strong relative performance of banks throughout
the year, their balance sheets and earnings power should allow robust dividend
growth going forward. We have also selectively added several insurance company
positions to the portfolio on the belief that the fundamental valuations in the
insurance industry are strong and will continue to improve in the future.
We added to our energy position in the second half of the year, anticipating
that a return to a more normal winter versus an unusually warm winter last year
would reveal that natural gas markets are tightly balanced and that buyers are
complacent about reliance on the spot market. The colder than average winter
this year has already pushed natural gas prices up sharply, with near-term
natural gas futures trading at their highest levels since they began trading in
1990.
We continue to be opportunistic in our purchases within out-of-favor industries.
For example, although the portfolio remains underweighted in Health Care, we
were able to sell US Healthcare at a good profit and reinvest the sales proceeds
in Value Health, another well-managed health care provider, under a temporary
cloud.
The deterioration of the global grain markets due to adverse weather in South
American grain belts has led to price appreciation in our fertilizer and farm
equipment holdings. We believe that, given the rapid growth in many developing
economies, the era of tame food and energy prices, which has lasted about 10
years, could be drawing to a close.
At current price levels, we are not adding to our positions in economically
sensitive commodity stocks, but are changing the composition of our holdings in
response to relative price moves in some of these securities. Paper stocks sold
off sharply on negative short-term developments, but we believe that the
industry's favorable long-term fundamentals remain in place. Accordingly, we
have taken profits in some of our better performing aluminum holdings and have
reinvested the proceeds in well-positioned paper companies.
The stock market rally continues, certain segments of the market are frothy, and
stock market valuations are above historical norms on an earnings basis.
Although the breadth of the rally has left few sectors of the market
undervalued, we continue to find investment opportunities on the basis of
company-specific considerations as opposed to broader themes.
ECONOMIC OUTLOOK
We believe that the U.S. economy is in the latter stages of a soft landing, and
the probability of a major recession next year is low. In the absence of any
external shocks that destroy business and consumer confidence, we believe that
the economy should grow by 2.5% in 1996, that is, near its long-term sustainable
growth rate.
Admittedly, economic signals are mixed. Recessionary concerns seem centered on
relatively slow job creation and weakness in retail. Job growth has slowed as
manufacturers and retailers, faced with lower than expected sales, are reducing
inventories. We believe that this process of inventory correction,
4
<PAGE>
which started in the first half of 1995, is almost over, and in 1996, production
and job creation should grow in line with underlying demand. Demand for housing
already has picked up in response to lower interest rates, and the Federal
Reserve is poised to cut interest rates more vigorously if a balanced budget
deal is signed into law. A middle-income tax cut, likely to be enacted during
the coming election year, would further enhance consumer confidence and spending
power. As for the perceived weakness in retailing, we believe it represents the
inevitable winnowing out of the weaker companies in an overcrowded industry.
While a resurgence in inflation has thus far been avoided, upward price
pressures remain on the horizon, particularly in agricultural commodities and
energy. For 1996, we expect consumer price inflation of 3%, versus slightly less
than 3% in 1995. Given that long-term interest rates have declined nearly 2% in
1995, and bond market expectations are optimistic, long-term rates are likely
near a bottom. Short-term rates, however, will likely move lower.
Corporate profits will continue to grow in 1996, but at a slower, probably
single-digit pace. Companies continue to use the significant increases in cash
flows being generated by improved profits to fund acquisitions and capital
investments, stock repurchases, debt reduction, and, to a lesser extent,
dividend increases. Productivity improvements from capital investments and
corporate restructurings will continue to contribute significantly to profit
growth.
The Fund's shareholders have benefited from the rising market in 1995 to achieve
strong absolute performance for the year. We are obliged, however, to point out
that 1995 was an exceptional year for the stock market and, as such, it is
unlikely to be repeated. We will continue to manage the Growth Fund with the
consistent strategy that we have employed in the past -- with an eye toward
purchasing stocks that, in aggregate, have an above average yield, strong
earnings prospects, and are priced at attractive valuations.
Respectfully,
WELLINGTON MANAGEMENT COMPANY
/s/ John R. Ryan
John R. Ryan
Senior Vice President
Stock Portfolio Manager
Horace Mann Growth Fund, Inc.
5
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN INCOME FUND
PERFORMANCE
For the twelve months ended December 31, 1995, the Horace Mann Income Fund
provided shareholders with a return of 14.9%, a considerable contrast to last
year's return to shareholders of -2.2%. The Lehman Brothers Intermediate
Government/Corporate Bond Index returned 15.3% during 1995.
After raising rates to combat inflation six times in 1994 and again in early
February, the Federal Reserve lowered short-term interest rates in July and
December by 0.25% each time. This reversed the 0.50% increase in early
February. The easing move came in response to continued slow economic growth
with a favorable inflation backdrop. This environment provided an ample cushion
in real interest rates for the central bank to stimulate growth modestly.
Market psychology was also supported by progress made toward a budget resolution
and long-term deficit reduction.
Throughout 1995 the maturity (or duration) of an investor's bonds was a primary
contributor to performance. Yields on longer-term bonds declined more than
yields on shorter-term securities, reflecting the fact that the markets
anticipated additional easing by the Fed in the months ahead. Positions in
corporate securities were beneficial to returns, as corporate bonds outperformed
Treasury bonds. Broadly speaking, mortgage securities underperformed as lower
rates increased mortgage prepayments and refinancing activity.
In recent months, the government has avoided defaulting on its debt as Congress
and the Administration played "chicken" during budget negotiations. A default,
while not ultimately a matter of creditworthiness, would have created
significant problems for investors who had maturities and coupon payments due,
for investors who used Treasuries as collateral for loans and repurchase
agreements, and for investors with strict guidelines regarding the use of non-
accruing securities. In the long run the budget impasse will get resolved, but
in the short run the political posturing in Washington creates investor
nervousness and to a lessor degree, market volatility.
PORTFOLIO REVIEW
The primary objective of the Horace Mann Income Fund remains to maximize current
income consistent with prudent investment risk. A secondary objective is the
preservation of capital. In investing the assets of the Fund, we emphasize
high-quality intermediate bonds and apply intensive credit analysis and, in the
case of mortgage securities, prepayment analysis.
Individual bonds are selected from an approved universe of issues and are
purchased for their contribution to the Fund's total return. We avoid
securities that we determine to be excessively risky, although other investors
might be tempted by yields on these securities. Despite the fact that
preservation of capital is secondary to the income objective, we take it very
seriously.
In a declining interest rate environment such as 1995, the maturity and duration
of the portfolio become the primary drivers of performance. In general, the
longer the term-to-maturity of a bond, the better the performance as rates
decline. We lengthened the maturity of the Fund during the year from 4.3 years
to 5.0 years. The maturity of the Lehman Intermediate Government/Corporate Bond
Index remained relatively steady, lengthening from 4.1 years to 4.3 years.
In terms of sector allocation, by the end of 1995, we had reduced the Fund's
exposure to corporates and, to a lesser extent, asset-backed securities versus a
year earlier and added to the Fund's government and mortgage commitment. Within
the Treasury sector, we sold short-maturity Treasuries and added longer-maturity
Treasuries in order to offset the decline in maturity caused by mortgage
holdings which naturally shorten as interest rates decline.
ECONOMIC OUTLOOK
We expect that the Fed will continue to lower short-term interest rates over the
next few months, but that the moves will be in small increments and will be
infrequent. The central bank's actions will follow continued slow domestic
growth and a continued decline in long-term inflation expectations. While the
Fed works at the short end of the yield curve, we do not envision yield declines
on bonds comparable to the 1995 experience which brought, for example, a 2.25%
decline in the yield on the ten-year Treasury note.
As market prices have already anticipated additional Fed easing, this leads us
to believe that maturity may not be the primary contributor to enhanced returns
in upcoming quarters. The best opportunities to enhance returns will be through
the incremental yield offered by mortgages, corporates, asset-backed securities,
and
6
<PAGE>
other relevant sectors. Within the mortgage sector, we continue to favor
discounted securities. Within the corporate sector, we are biased toward the
high end of the quality spectrum. Therefore, we are likely to increase the
Fund's exposure to these sectors of the market as we try to enhance shareholder
returns in 1996. In short, sector allocation will play a more important role in
1996 as the Fund's ability to add incremental return vis a vis a bullish
maturity stance becomes more difficult with short-term interest rates as low as
they are today. As always, we will examine the variety of alternative
structures in the marketplace, including mortgages and corporates, for selective
opportunities to add yield in conjunction with prudent investment risk.
The greatest risk to our outlook is our optimistic inflation forecast. Recent
commodity pricing pressures, notably metals, natural gas, and food, suggest that
near-term inflation will actually be above trend and may give the markets reason
to pause. Longer-term, we continue to believe inflation will be tame.
The Fund's shareholders have benefited from the rising market in 1995 to achieve
strong absolute performance for the year. We are obliged, however, to point out
that 1995 was an exceptional year for the bond market and, as such, it is
unlikely to be repeated. We will continue to manage the Income Fund with the
consistent strategy that we have employed in the past - by maximizing current
income consistent with prudent investment risk.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN INCOME FUND, INC.
7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN GROWTH FUND AND A STOCK INDEX /1/
[WITH THE FOLLOWING INFORMATION APPEARS HERE]
[GRAPH APPEARS HERE]
HORACE MANN GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
33.67% 17.20% 13.45%
-----------------------------------
Growth Fund Index
By quarter (solid line) (broken line)
- ---------- ------------ -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,432.94 10,448.90
30-Mar-90 10,206.62 10,135.17
29-Jun-90 10,543.34 10,773.71
28-Sep-90 9,345.49 9,292.68
28-Dec-90 9,831.25 10,125.28
28-Mar-91 11,082.62 11,595.15
28-Jun-91 11,502.96 11,568.65
30-Sep-91 11,763.45 12,187.71
31-Dec-91 12,461.55 13,209.30
31-Mar-92 12,266.33 12,876.06
30-Jun-92 12,858.49 13,121.10
30-Sep-92 13,001.65 13,534.29
31-Dec-92 13,656.03 14,216.13
31-Mar-93 14,805.12 14,837.10
30-Jun-93 15,246.55 14,907.71
30-Sep-93 15,835.11 15,292.16
31-Dec-93 16,351.28 15,647.50
31-Mar-94 15,972.36 15,054.74
30-Jun-94 16,326.57 15,117.81
30-Sep-94 17,051.46 15,857.24
31-Dec-94 16,293.79 15,855.07
31-Mar-95 17,623.90 17,395.88
30-Jun-95 19,046.37 19,057.19
30-Sep-95 20,228.69 20,572.23
31-Dec-95 21,780.18 21,810.68
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Growth Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Stock Index: S&P 500, Standard and Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks. The rate of return shown above for the unmanaged
index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Growth Fund. Previous periods during which the Growth
Fund received investment advice from CIGNA Investments, Inc., are not shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN INCOME FUND AND A BOND INDEX /1/
[GRAPH APPEARS HERE]
HORACE MANN INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
14.93% 8.40% 8.22%
-----------------------------------
Income Fund Index
By quarter (solid line) (broken line)
- ---------- ------------ -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,109.78 10,123,27
30-Mar-90 9,970.62 10,108.82
29-Jun-90 10,306.25 10,433.01
28-Sep-90 10,412.67 10,615.77
28-Dec-90 10,846.53 11,051.51
28-Mar-91 11,097.70 11,330.07
28-Jun-91 11,363.83 11,531.50
30-Sep-91 11,913.84 12,087.77
31-Dec-91 12,500.07 12,667.89
31-Mar-92 12,393.64 12,552.43
30-Jun-92 12,858.04 13,049.48
30-Sep-92 13,409.51 13,625.07
31-Dec-92 13,368.89 13,576.36
31-Mar-93 13,886.26 14,114.64
30-Jun-93 14,144.95 14,419.14
30-Sep-93 14,445.03 14,743.76
31-Dec-93 14,481.59 14,768.41
31-Mar-94 14,148.93 14,468.60
30-Jun-94 14,049.14 14,381.71
30-Sep-94 14,160.02 14,499.40
31-Dec-94 14,161.13 14,483.22
31-Mar-95 14,632.38 15,117.59
30-Jun-95 15,433.51 15,873.47
30-Sep-95 15,716.26 16,135.38
31-Dec-95 16,275.88 16,698.45
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Income Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Bond Index: Lehman Bros. Intermediate Government/Corporate Bond Index, an
unmanaged index consisting of U.S. Treasury bonds, U.S. agency bonds and
investment grade corporate bonds with intermediate maturities. The rate of
return shown above for the unmanaged index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Income Fund. Previous periods during which the Income
Fund received investment advice from CIGNA Investments, Inc., are not shown.
8
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN BALANCED FUND AND STOCK/BOND INDICES /1/
[GRAPH APPEARS HERE]
HORACE MANN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
27.12% 13.84% 11.63%
-----------------------------------
Balanced Fund Stock Index Bond Index
By quarter (solid black line) (broken line) (solid grey line)
- ---------- ------------------ ------------- -----------------
31-Oct-89 10,000.00 10,000.00 10,000.00
29-Dec-89 10,357.50 10,448.90 10,123.27
30-Mar-90 10,145.00 10,135.17 10,108.82
29-Jun-90 10,453.46 10,773.71 10,433.01
28-Sep-90 9,802.26 9,292.68 10,615.77
28-Dec-90 10,282.10 10,125.28 11,051.51
28-Mar-91 11,136.13 11,595.15 11,330.07
28-Jun-91 11,477.55 11,568.65 11,531.50
30-Sep-91 11,855.29 12,187.71 12,087.77
31-Dec-91 12,531.33 13,209.30 12,667.89
31-Mar-92 12,389.55 12,876.06 12,552.43
30-Jun-92 12,901.52 13,121.10 13,049.48
30-Sep-92 13,200.82 13,534.29 13,625.07
31-Dec-92 13,580.79 14,216.13 13,576.36
31-Mar-93 14,493.44 14,837.10 14,114.64
30-Jun-93 14,870.21 14,907.71 14,419.14
30-Sep-93 15,339.10 15,292.16 14,743.76
31-Dec-93 15,680.70 15,647.50 14,768.41
31-Mar-94 15,324.32 15,054.74 14,468.60
30-Jun-94 15,493.13 15,117.81 14,381.71
30-Sep-94 15,971.43 15,857.24 14,499.40
31-Dec-94 15,505.11 15,855.07 14,483.22
31-Mar-95 16,561.82 17,395.88 15,117.59
30-Jun-95 17,699.81 19,057.19 15,873.47
30-Sep-95 18,553.30 20,572.23 16,135.38
31-Dec-95 19,709.85 21,810.68 16,698.45
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Balanced Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Stock/Bond Indices: S&P 500 Index and Lehman Bros. Intermediate
Government/Corporate Bond Index. Rate of returns shown above for the unmanaged
indices have no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Balanced Fund. Previous periods during which the
Balanced Fund received investment advice from CIGNA Investments, Inc., are not
shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN SHORT-TERM INVESTMENT FUND AND A TREASURY BILL INDEX /1/
[GRAPH APPEARS HERE]
HORACE MANN SHORT-TERM INVESTMENT FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
5.25% 4.17% 4.89%
-----------------------------------
Short-Term Fund Index
By quarter (solid line) (broken line)
- ---------- --------------- -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,141.03 10,130.42
30-Mar-90 10,329.87 10,335.41
29-Jun-90 10,528.16 10,543.50
28-Sep-90 10,735.89 10,742.96
28-Dec-90 10,934.18 10,933.15
28-Mar-91 11,120.99 11,100.18
28-Jun-91 11,289.81 11,259.67
30-Sep-91 11,448.07 11,414.63
31-Dec-91 11,590.83 11,540.65
31-Mar-92 11,694.12 11,657.60
30-Jun-92 11,797.40 11,766.36
30-Sep-92 11,889.21 11,857.19
31-Dec-92 11,973.10 11,951.11
31-Mar-93 12,044.30 12,040.96
30-Jun-93 12,127.36 12,131.50
30-Sep-93 12,198.56 12,223.93
31-Dec-93 12,275.81 12,320.75
31-Mar-94 12,373.33 12,414.63
30-Jun-94 12,470.86 12,529.19
30-Sep-94 12,592.76 12,659.95
31-Dec-94 12,753.04 12,797.17
31-Mar-95 12,917.51 12,963.53
30-Jun-95 13,081.99 13,143.72
30-Sep-95 13,246.46 13,323.79
31-Dec-95 13,422.97 13,510.37
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Short-Term Investment Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 13.
/1/Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90-day maturities. The rate of return shown above for the unmanaged
index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Short-Term Investment Fund. Previous periods during
which the Short-Term Investment Fund received investment advice from CIGNA
Investments, Inc., are not shown.
9
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN BALANCED FUND
PERFORMANCE
The S&P 500 Stock Index registered an impressive 37.6% gain during 1995,
supported by strong earnings gains and an improved interest rate environment.
Bond markets rallied in 1995 as well, with the Lehman Brothers Intermediate
Government/Corporate Bond Index gaining 15.3% for the year. For the twelve
months ended December 31, 1995, the Horace Mann Balanced Fund provided a solid
return to shareholders of 27.1%. The Balanced Fund holds the same kinds of
stocks and bonds held separately by the Growth Fund and the Income Fund. As
expected, then, the Balanced Fund's return to shareholders of 27.1% for 1995 is
between the Growth Fund's 33.7% return and the Income Fund's 14.9% return.
PORTFOLIO REVIEW
Investor sentiment turned sharply positive during 1995, as signals from several
economic indicators suggested a slowing in the pace of GDP growth which dampened
the inflation fears that undermined stock and bond markets in 1994. Supported
by the Federal Reserves "soft landing" scenario of moderate economic growth, low
inflation, declining interest rates, and good corporate profitability, U.S.
equity and fixed income markets rallied throughout the year. The 27.1% total
return provided to shareholders of the Balanced Fund underscores the strength
exhibited by both markets throughout 1995.
ECONOMIC OUTLOOK
We believe that the U.S. economy is in the latter stages of a soft landing, and
the probability of a major recession next year is low. In the absence of any
external shocks that destroy business and consumer confidence, we believe that
the economy should grow by 2.5% in 1996, that is, near its long-term sustainable
growth rate.
Admittedly, economic signals are mixed. Recessionary concerns seem centered on
relatively slow job creation and weakness in retail. Job growth has slowed as
manufacturers and retailers, faced with lower than expected sales, are reducing
inventories. We believe that this process of inventory correction, which
started in the first half of 1995, is almost over, and in 1996, production and
job creation should grow in line with underlying demand. Demand for housing
already has picked up in response to lower interest rates, and the Federal
Reserve is poised to cut interest rates more vigorously if a balanced budget
deal is signed into law. The federal budget deficit is of particular concern to
the Federal Reserve because the government's large borrowing tends to imply
higher future taxes and also creates competition with other borrowers for funds,
conditions that cause upward pressure on interest rates. A balanced budget
agreement would lessen this concern. A middle-income tax cut, likely to be
enacted during the coming election year, would further enhance consumer
confidence and spending power.
For 1996, we expect consumer price inflation of 3%, versus slightly less than 3%
in 1995. Given that long-term interest rates have declined nearly 2% in 1995,
and bond market expectations are optimistic, long-term rates are likely near a
bottom. Short-term rates, however, will likely move lower.
The Fund's shareholders have benefited from the rising U.S. stock and bond
markets in 1995 to achieve strong absolute performance for the year. We are
obliged, however, to point out that 1995 was an exceptional year for both the
stock and bond markets and, as such, it is unlikely to be repeated. We will
continue to manage the Balanced Fund with the consistent strategy that we have
employed in the past - a diversified list of allocating approximately 60% of
assets to a diversified list of stocks with an above-average market yield, and
approximately 40% of assets in high quality intermediate-term bonds.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN R. RYAN
JOHN R. RYAN
SENIOR VICE PRESIDENT,
STOCK PORTFOLIO MANAGER
HORACE MANN BALANCED FUND, INC.
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN BALANCED FUND, INC.
10
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN SHORT-TERM
INVESTMENT FUND
PERFORMANCE
The objective of the Short-Term Fund is to realize maximum current income while
maintaining liquidity. Preservation of principal is a secondary objective. For
the twelve months ended December 31, 1995, the Horace Mann Short-Term Investment
Fund provided shareholders with a total return of 5.3%, a positive real return
for investors in a low inflation environment. The IBC/Donoghue's All Taxable
Money Market Average returned 5.5% for the year.
In sharp contrast to 1994, 1995 was a year of declining interest rates. After
the Federal Reserve increased short-term rates six times in 1994, they tightened
just once in 1995, raising key rates in February by 0.50%. A policy reversal
late in the year resulted in two short-term rate cuts by 0.25%, completely off-
setting the February increase. In a declining interest rate environment, such
as 1995, long-term bonds outperform shorter instruments such as money markets.
This is in sharp contrast to last year when returns on intermediate and long-
term bond funds were largely negative and money market instruments outperformed
them.
More importantly, we have continued our policy to avoid the more risky
strategies followed by some short-term funds which produced large negative
returns for investors in 1994. While we strive to achieve high investment
yields, we also remain careful about the risk assumed to obtain those yields.
PORTFOLIO REVIEW
The Horace Mann Short-Term Investment Fund emphasizes safety and liquidity. The
Fund invests in short-term debt instruments issued by the U.S. Government, as
well as high quality commercial paper issued by corporations and high quality
short-term instruments issued by banks. We continue to emphasize government
agency securities due to the high credit quality and comparable yields to other
short-term investments. In addition, the size of the Fund renders agency
securities more cost effective than the corporate short-term alternative,
commercial paper. This results from the fact that agency discount notes can be
purchased in small lots without materially impacting liquidity and transaction
costs. Such lower costs result in more attractive incremental yields over
comparable maturity treasury bills.
The portfolio's average maturity was increased over the course of the year to 48
days at year end versus 33 days one year ago. This longer maturity was
maintained in order to lock in prevailing yields. This is, again, a sharp
contrast to 1994 when we shortened the average maturity so that portfolio
holdings could be more quickly reinvested at higher market yields as the Fed
raised interest rates.
ECONOMIC OUTLOOK
We expect that the Fed will continue to lower short-term interest rates over the
next few months but that the moves will be in small increments and will be
infrequent. The central bank's actions will follow continued slow domestic
growth and continued decline in long-term inflation expectations.
We will continue to emphasize quality and liquidity in the Short-Term Fund, and
the Fund should retain its ability to provide a safe harbor for those assets
that shareholders do not want committed to volatile stock and bond markets.
Shareholders should be aware that the returns on all short-term investments,
including the Horace Mann Short-Term Fund, will be lower over the next few
months than they were over the course of 1995.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN SHORT-TERM
INVESTMENT FUND, INC.
11
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
12
<PAGE>
[LOGO]
AVERAGE ANNUAL TOTAL RETURN
HORACE MANN ANNUITY ALTERNATIVES CONTRACTS December 31, 1995
================================================================================
FOR ANNUITY ALTERNATIVES CONTRACT OWNERS
Average annual total returns for the period ended December 31, 1995 for the
Annuity Alternatives contracts are shown in the following table. FOR
CONTRIBUTIONS WHICH REMAINED INVESTED IN AN ANNUITY ALTERNATIVES CONTRACT,
RETURNS ARE SHOWN IN THE "WITHOUT REDEMPTION" COLUMNS. FOR CONTRACTS WHICH WERE
SURRENDERED, RETURNS ARE SHOWN IN THE "WITH REDEMPTION" COLUMNS. REDEMPTION HAS
NO AFFECT ON THE VARIABLE ACCOUNT RATES OF RETURN AFTER THE INITIAL FIVE-YEAR
CONTRACT PERIOD.
<TABLE>
<CAPTION>
1 YEAR 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION/1/
WITHOUT WITH WITH OR WITHOUT WITH OR WITHOUT WITH OR WITHOUT
REDEMPTION REDEMPTION REDEMPTION REDEMPTION REDEMPTION
----------- ---------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Growth Fund.................. 31.89% 21.34% 15.61% 12.08% 11.89%
Income Fund.................. 13.40 4.33 6.96 7.38 6.78
Balanced Fund................ 25.43 15.39 12.31 10.40 10.12
Short-Term Investment Fund... 3.85 -4.46 2.78 4.16 3.49
</TABLE>
The average annual total rates of return assume contributions were made on the
first business day of the period indicated.
Total return measures the past performance of each Fund subaccount and does not
represent the actual experience of investments made by a particular contract
owner. The total return and principal value of an account will fluctuate. The
value of an account may be worth more or less than its original cost, when
redeemed, depending upon market fluctuations. Past performance does not
guarantee future results of the subaccounts.
Total returns for the variable portion of the Annuity Alternatives contracts
include a reduction for mutual fund expenses and contract charges of 1.35%
annually for mortality and expense risk. Annuity contracts issued prior to
January 1984 have mortality and expense charges or sales fees that differ from
those of the Annuity Alternatives contracts. Such other charges and fees do not
exceed those reflected in the table above.
During the first five contract years, redemption charges range from 2 to 8% for
the flexible premium contracts and 1 to 5% for single premium contracts. The
average annual total returns with redemption are calculated using flexible
premium redemption charges.
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, reduces total rates of return by
2.5% on a $1,000 investment or .5% on a $5,000 investment.
Commission credits were used to pay certain expenses of the Growth and Balanced
Funds during 1994 and 1995. Certain mutual fund expenses have been subsidized
(assumed and/or waived) since 1983 for the Income and Short-Term Investment
Funds. Certain Balanced Fund expenses were subsidized from 1983 through 1987.
Subsidization and use of credits result in higher returns ranging up to 1%,
depending on the period subsidized for each Fund. There is no guarantee that
subsidization and use of credits will continue in the future.
/1/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Funds.
13
<PAGE>
[LOGO]
AVERAGE ANNUAL TOTAL RETURN
HORACE MANN FAMILY OF FUNDS December 31, 1995
================================================================================
FOR GROWTH FUND PUBLIC SHAREHOLDERS AND PARTICIPANTS IN THE HORACE MANN EMPLOYEE
401(k) PLAN
Total average annualized returns for the period ended December 31, 1995 for the
Horace Mann Funds and their comparable benchmark indices are shown in the
following table:
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION/1/
------- -------- --------- ------------
<S> <C> <C> <C> <C>
Horace Mann Growth Fund..................... 33.67% 17.20% 13.61% 13.45%
S&P 500 Stock Index......................... 37.58 16.59 14.88 13.48
Horace Mann Income Fund..................... 14.93 8.40 8.84 8.22
Lehman Intermediate Gov't/Corp. Bond Index.. 15.31 8.61 8.82 8.67
Horace Mann Balanced Fund................... 27.12 13.84 11.90 11.63
Stock/Bond Composite/2/..................... 28.27 13.44 12.71 11.68
Horace Mann Short-Term Investment Fund...... 5.25 4.17 5.57 4.89
90-day Treasury Bills....................... 5.52 4.32 5.75 5.00
</TABLE>
Returns of the Horace Mann Funds in the above table are shown net of mutual fund
expenses. Certain mutual fund expenses have been subsidized (assumed and/or
waived) since 1983 for the Income and Short-Term Investment Funds. Commission
credits were used to pay certain expenses of the Growth and Balanced Funds
during 1994 and 1995. Certain Balanced Fund expenses were subsidized from 1983
through 1987. Subsidization and use of credits result in higher returns ranging
up to 1%, depending on the period subsidized for each Fund. There is no
guarantee that subsidization and use of credits will continue in the future.
The performance data quoted represents past performance, and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate, and when redeemed, may be worth more or less than its original cost.
The benchmark indices indicated are unmanaged and have no expenses.
/1/Since inception refers to November 1, 1989 the date Wellington Management
Company began advising the Funds./
/2/60% S&P 500, 40% Lehman Brothers Intermediate Government/Corporate Bond
Index, rebalanced monthly.
14
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1995
================================================================================
HORACE MANN FAMILY OF FUNDS
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
DIRECTORS OF THE FUNDS
A. THOMAS ARISMAN LARRY K. BECKER, CHAIRMAN A.L. GALLOP
HARRIET A. RUSSELL GEORGE J. ZOCK
OFFICERS OF THE FUNDS
GEORGE J. ZOCK WILLIAM J. KELLY ROGER FISHER
President Treasurer and Regulatory Controller
Compliance Officer
ANN CAPARROS LINDA L. SACCO DIANE M. BARNETT
Secretary and Assistant Secretary Tax Compliance Officer
Ethics Compliance Officer
Investment Adviser Business Manager
WELLINGTON MANAGEMENT COMPANY HORACE MANN INVESTORS, INC.
75 State Street One Horace Mann Plaza
Boston, MA 02109 Springfield, IL 62715-0001
Custodian
FIRST NATIONAL BANK OF BOSTON
150 Royall Street
Canton, MA 02021
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN GROWTH FUND, INC. December 31, 1995
================================================================================
[PIE CHART APPEARS HERE]
CASH & SHORT-TERM INVESTMENTS 3%
COMMON STOCK 97%
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS
AUTO/ACCESSORIES 5.30%
Ford Motor Company................ 98,600 $ 2,859
Goodyear Tire & Rubber Co. (The).. 284,000 12,887
-------
15,746
BANKS/FINANCIAL SERVICES 6.90%
BankAmerica Corp.................. 129,500 8,385
Citicorp.......................... 25,365 1,706
Corestates Financial Corp......... 71,700 2,716
First Chicago NBD Corp............ 70,900 2,801
First Union Corp.................. 45,000 2,503
Morgan Stanley Group.............. 29,700 2,395
-------
20,506
BUILDING & CONSTRUCTION 1.94%
Foster Wheeler Corp............... 109,000 4,633
Ryland Group Inc.................. 81,500 1,141
-------
5,774
CHEMICALS 5.18%
Air Products & Chemicals, Inc..... 65,800 3,471
Betz Laboratories................. 51,600 2,116
Ferro Corp........................ 89,000 2,069
Geon Company...................... 65,100 1,587
IMC Global Inc.................... 32,800 1,341
Vigoro Group...................... 77,600 4,792
-------
15,376
COMMUNICATION 3.40%
AT & T Corp....................... 67,000 4,338
BCE Inc........................... 76,400 2,636
COMSAT Corporation................ 52,200 972
NYNEX Corp........................ 40,000 2,160
-------
10,106
ENTERTAINMENT 0.25%
King World Productions Inc.*...... 19,100 743
FOOD/GROCERY PRODUCTS 1.68%
Flowers Industries, Inc........... 185,100 2,244
Interstate Bakeries Corp.......... 122,500 2,741
-------
4,985
HEALTH CARE 2.65%
Mallinckrodt Group................ 108,600 3,950
Value Health, Inc................. 142,700 3,924
-------
7,874
INSURANCE 6.82%
ACE Limited....................... 137,700 5,474
Allstate Corporation.............. 137,390 5,650
Chubb Corp........................ 63,600 6,153
Integon Corp...................... 113,500 2,341
Old Republic International Corp... 17,900 635
-------
20,253
IRON & STEEL 0.07%
Bethlehem Steel Corp.*............ 16,200 227
MANUFACTURING (DIVERSIFIED) 7.77%
Brunswick Corp.................... 32,700 785
Caterpillar Inc................... 82,000 4,817
Cooper Industries Inc............. 72,900 2,679
Deere & Co........................ 118,800 4,188
Johnson Controls, Inc............. 36,800 2,530
Minnesota Mining & Manufacturing.. 122,100 8,089
-------
23,088
METALS & MINING 5.05%
Alcan Aluminum Ltd................ 94,200 2,932
Aluminum Co. of America........... 180,500 9,544
Reynolds Metals Co................ 44,600 2,525
-------
15,001
OIL/GAS 22.42%
Amerada Hess Corp................. 58,300 3,090
Apache Corp....................... 50,000 1,475
</TABLE>
See notes to the financial statements.
16
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN GROWTH FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- --------
<S> <C> <C>
OIL/GAS (CONTINUED)
Ashland Inc.......................... 87,500 $ 3,073
Burlington Resources Inc............. 55,200 2,167
Camco International Inc.............. 63,200 1,770
Enron Oil & Gas Co................... 121,500 2,916
ENSCO International, Inc.*........... 173,100 3,981
Equitable Resources, Inc............. 148,700 4,647
Noble Affiliates, Inc................ 139,100 4,156
Noble Drilling Corp.*................ 99,200 893
Oryx Energy Co.*..................... 94,600 1,265
Parker & Parsley Petroleum Co........ 151,800 3,340
Seagull Energy Corp.*................ 188,400 4,192
Sonat, Inc........................... 135,300 4,820
Total S.A. ADR....................... 104,100 3,539
Ultramar Corp........................ 70,900 1,826
Union Texas Petroleum Holdings Inc... 170,600 3,305
Unocal Corp.......................... 281,800 8,207
USX-Marathon Group................... 215,200 4,196
Weatherford Enterra, Inc.*........... 129,500 3,739
--------
66,597
PAPER & WOOD PRODUCTS 9.41%
Champion Internation Corp............ 90,100 3,784
Federal Paper Board Co., Inc......... 111,500 5,784
International Paper Co............... 204,600 7,749
Kimberly-Clark Corp.................. 62,400 5,164
Mead Corporation..................... 104,900 5,481
--------
27,962
PHOTOGRAPHY 1.28%
Eastman Kodak Co..................... 56,900 3,812
RETAIL & FOOD STORES 3.61%
May Department Stores Co............. 103,900 4,390
Penney (J.C.) Co., Inc............... 58,800 2,800
Sears Roebuck & Co................... 91,000 3,549
--------
10,739
SERVICES 1.61%
Browning-Ferris Industries, Inc...... 135,000 3,982
Red Lion Hotels*..................... 45,400 795
--------
4,777
TOBACCO 1.25%
Schweitzer-Maudit Int'l.............. 6,240 144
Universal Corp.(Va.)................. 146,300 3,566
--------
3,710
TRANSPORTATION 4.94%
America West Airlines B*............. 92,200 1,567
Canadian National Railway Co.*....... 27,800 417
Conrail Inc.......................... 41,400 2,898
CSX Corporation...................... 66,000 3,011
Pittston Services Group.............. 129,300 4,057
Rollins Truck Leasing Corp........... 65,300 726
Trinity Industries................... 63,400 1,997
--------
14,673
UTILITIES/OTHER 5.47%
General Public Utilities Corp........ 144,400 4,910
New England Electric System.......... 79,500 3,150
New York State Electric & Gas Corp... 107,000 2,769
Pacific Gas & Electric Co............ 150,100 4,259
SCE Corp............................. 65,100 1,156
--------
16,244
TOTAL COMMON STOCKS.............97.00% 288,193
(Cost $245,950,600)
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96, (secured
by $9,825,315, US Treasury
Bill, 4.97%, 11/14/96)............... $ 9,629 $ 9,629
-------- --------
TOTAL SHORT-TERM
INVESTMENTS.....................3.24% 9,629 9,629
(Cost $9,629,000) --------
TOTAL INVESTMENTS..............100.24% 297,822
(Cost $255,579,600)
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS..............(0.24%) (722)
--------
NET ASSETS.....................100.00% $297,100
========
</TABLE>
______________
* Non-income producing during the twelve months ended December 31, 1995.
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
17
<PAGE>
[LOGO] STATEMENT OF INVESTMENTS
HORACE MANN INCOME FUND, INC. December 31, 1995
=======================================================================
[GRAPH APPEARS HERE]
Cash & Short-Term Investments 4%
U.S. & Foreign Government &
Agency Obligations 70%
Corporate Bonds/Notes 26%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
TREASURY BONDS/NOTES
7.125%, 02/29/00.................... $2,300 $ 2,449
7.250%, 08/15/04.................... 1,000 1,112
FEDERAL HOME LOAN BANK
(MORTGAGE BACKED SECURITIES)
7.310%, 06/16/04.................... 350 383
FEDERAL HOME LOAN MORTGAGE
CORPORATION (MORTGAGE BACKED
SECURITIES)
9.500%, 03/01/01.................... 54 57
9.500%, 06/01/01.................... 35 36
9.500%, 08/01/01.................... 18 19
9.500%, 10/01/01.................... 20 21
7.000%, 11/01/03.................... 62 62
8.000%, 12/01/11.................... 19 19
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
8.875%, 07/10/01.................... 100 102
8.000%, 11/01/09.................... 26 27
7.500%, 05/01/25.................... 790 810
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
11.500%, 03/15/10................... 16 17
12.500%, 06/15/10................... 9 10
12.000%, 03/15/14................... 8 10
12.000%, 04/15/14................... 6 7
12.000%, 12/15/14................... 23 27
12.000%, 02/15/15................... 6 7
12.000%, 03/15/15................... 15 17
12.000%, 04/15/15................... 13 14
12.500%, 04/15/15................... 4 5
12.000%, 06/15/15................... 17 19
12.000%, 07/15/15................... 18 20
12.000%, 11/15/15................... 22 24
9.000%, 11/15/16................... 165 174
9.000%, 07/15/19................... 99 105
8.500%, 09/15/24................... 326 342
9.000%, 01/15/25................... 30 31
9.000%, 03/15/25................... 271 287
9.000%, 05/15/25................... 714 756
COLLATERALIZED MORTGAGE OBLIGATION
(PLANNED AMORTIZATION CLASS) (NOTE 3)
FHLMC 1737-E PAC
6.000%, 12/15/17.................... 220 220
FOREIGN (U.S. DOLLAR DENOMINATED)
Iceland (Rep. of)
6.125%, 02/01/04.................... 200 198
------ -------
TOTAL U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS........70.14% 6,956 7,387
(Cost $7,084,732)
CORPORATE BONDS/NOTES
BankAmerica Corp.
6.85%, 03/01/03..................... 150 155
Boeing Co.
6.35%, 06/15/03..................... 200 205
BP America Inc. Euro
9.75%, 03/01/99..................... 100 111
Citicorp
6.750%, 08/15/05.................... 200 205
Du Pont (E.I.) de Nemours & Co., Inc.
9.15%, 04/15/00..................... 130 147
Gannett Co.
5.85%, 05/01/00..................... 200 199
Hertz Corp.
7.00%, 04/15/01..................... 200 208
Penney (J.C.) Co., Inc.
5.375%, 11/15/98.................... 200 198
</TABLE>
See notes to the financial statements.
18
<PAGE>
[LOGO] STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN INCOME FUND, INC. December 31, 1995
=======================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
CORPORATE BONDS/NOTES (CONTINUED)
Pacific Gas and Electric Euro
12.00%, 01/09/00.................... $ 100 $ 106
Southwestern Bell Telephone Co.
5.55%, 03/10/98..................... 100 100
ASSET BACKED
Ford Credit Grantor Trust 93-B
4.30%, 07/15/98..................... 50 50
Ford Credit Grantor Trust 95-B
5.90%, 10/15/00..................... 243 244
GMAC Grantor Trust 92-D
5.55%, 05/15/97..................... 5 5
GMAC Grantor Trust 92-E
4.75%, 08/15/97..................... 14 14
Government Backed Trust
9.625%, 05/15/02.................... 125 142
IBM Credit Trust 93-1
4.55%, 11/15/00..................... 68 67
Nations Bank Credit Trust 93-2
6.00%, 12/15/05..................... 200 201
Premier Auto Trust 92-3
5.90%, 11/17/97..................... 11 11
Premier Auto Trust 92-4
5.05%, 01/15/98..................... 15 15
Premier Auto Trust 93-6 A2
4.65%, 11/02/99..................... 104 102
Premier Auto Trust 94-1
4.75%, 02/02/00..................... 189 187
------ -------
TOTAL CORPORATE BONDS/NOTES.......25.37% 2,604 2,672
(Cost $2,602,162)
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96 (secured
by $430,097 US Treasury
Bill, 4.97%, 11/14/96)................ 422 422
------ -------
TOTAL SHORT-TERM INVESTMENTS.......4.01% 422 422
(Cost $422,000)
TOTAL INVESTMENTS.................99.52% 10,481
(Cost $10,108,894)
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES............0.48% 51
-------
NET ASSETS.......................100.00% $10,532
=======
</TABLE>
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
19
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
[GRAPH APPEARS HERE]
U.S. & Foreign Government & Agency Obligations 25%
Corporate Bonds/Notes 7%
Cash & Short-Term Investments 3%
Common Stock 65%
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS
AUTO/ACCESSORIES 3.56%
Ford Motor Company............... 51,600 $ 1,496
Goodyear Tire & Rubber Co. (The) 145,900 6,620
------
8,116
BANKS/FINANCIAL SERVICES 4.62%
BankAmerica Corp................. 67,000 4,338
Boatmen's Bancshares, Inc........ 1,000 41
Citicorp......................... 12,659 851
CoreStates Financial Corp........ 36,300 1,375
First Chicago NBD Corp........... 35,900 1,418
First Union Corp................. 23,000 1,279
Morgan Stanley Group, Inc........ 15,300 1,234
-------
10,536
BUILDING & CONSTRUCTION 1.26%
Foster Wheeler Corp.............. 55,000 2,337
Ryland Group Inc................. 38,900 545
------ -------
2,882
CHEMICALS 3.43%
Air Products & Chemicals, Inc.... 32,900 1,735
Betz Laboratories................ 26,600 1,091
Ferro Corp....................... 44,900 1,044
Geon Company..................... 33,700 821
IMC Global Inc................... 17,000 695
Vigoro Group..................... 39,700 2,451
-------
7,837
COMMUNICATION 2.21%
AT & T Corp...................... 33,000 2,137
BCE Inc.......................... 37,800 1,304
COMSAT Corporation............... 27,700 516
NYNEX Corp....................... 20,000 1,080
-------
5,037
ENTERTAINMENT 0.17%
King World Productions Inc.*..... 9,900 385
FOOD/GROCERY PRODUCTS 1.14%
Flowers Industries, Inc.......... 108,000 1,309
Interstate Bakeries Corp......... 58,100 1,300
-------
2,609
HEALTH CARE 1.75%
Mallinckrodt Group............... 56,700 2,062
Value Health, Inc................ 70,400 1,936
-------
3,998
INSURANCE 4.57%
ACE Limited...................... 72,200 2,870
Allstate Corporation............. 71,402 2,936
Chubb Corp....................... 32,400 3,135
Integon Corp..................... 57,900 1,194
Old Republic International Corp.. 8,400 298
-------
10,433
IRON & STEEL 0.06%
Bethlehem Steel Corp.*........... 9,000 126
MANUFACTURING (DIVERSIFIED) 5.20%
Brunswick Corp................... 16,600 398
Caterpillar Inc.................. 42,000 2,468
Cooper Industries Inc............ 37,400 1,374
Deere & Co. (Del)................ 62,400 2,200
Johnson Controls, Inc............ 20,100 1,382
Minnesota Mining & Manufacturing. 61,000 4,041
-------
11,863
METALS & MINING 3.40%
Alcan Aluminum Ltd............... 48,500 1,510
Aluminum Co. of America.......... 93,000 4,917
Reynolds Metals Co............... 23,500 1,331
-------
7,758
OIL/GAS 15.10%
Amerada Hess Corp................ 29,700 1,574
Apache Corp...................... 25,000 737
Ashland Inc...................... 44,700 1,570
Burlington Resources Inc......... 29,900 1,174
Camco International Inc.......... 34,100 955
Enron Oil & Gas Co............... 62,400 1,498
ENSCO International, Inc.*....... 93,500 2,151
Equitable Resources, Inc......... 76,600 2,394
Noble Affiliates, Inc............ 71,400 2,133
Noble Drilling Corp.*............ 48,400 436
Oryx Energy Co.*................. 48,200 645
</TABLE>
See notes to the financial statements.
20
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONTINUED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
OIL/GAS (CONTINUED)
Parker & Parsley Petroleum Co........ 80,300 $ 1,767
Seagull Energy Corp.*................ 100,400 2,234
Sonat, Inc........................... 69,500 2,476
Total S.A. ADR....................... 52,600 1,788
Ultramar Corp........................ 36,100 930
Union Texas Petroleum Holdings Inc... 87,700 1,699
Unocal Corp.......................... 143,400 4,177
USX-Marathon Group................... 113,400 2,211
Weatherford Enterra, Inc.*........... 66,000 1,906
-------
34,455
PAPER & WOOD PRODUCTS 6.38%
Champion International Corp.......... 44,500 1,869
Federal Paper Board Co., Inc......... 58,000 3,009
International Paper Co............... 108,100 4,094
Kimberly-Clark Corp.................. 32,500 2,689
Mead Corporation..................... 55,600 2,905
-------
14,566
PHOTOGRAPHY 0.81%
Eastman Kodak Co..................... 27,500 1,842
RETAIL & FOOD STORES 2.45%
May Department Stores Co............. 55,300 2,336
Penney (J.C.) Co. Inc................ 29,600 1,410
Sears Roebuck & Co................... 47,500 1,852
-------
5,598
SERVICES 1.08%
Browning-Ferris Industries, Inc...... 70,000 2,065
Red Lion Hotels*..................... 22,700 397
-------
2,462
TOBACCO 0.78%
Schweitzer-Maudit Int'l.............. 3,250 75
Universal Corp. (Va)................. 70,000 1,706
-------
1,781
TRANSPORTATION 3.33%
America West Airlines B*............. 45,600 775
Canadian National Railway Co......... 14,500 218
Conrail Inc.......................... 22,400 1,568
CSX Corporation...................... 33,000 1,506
Pittston Services Group.............. 67,200 2,108
Rollins Truck Leasing Corp........... 34,400 383
Trinity Industries................... 33,200 1,046
-------
7,604
UTILITIES/OTHER 3.82%
General Public Utilities Corp........ 71,400 2,428
New England Electric System.......... 43,200 1,712
New York State Electric & Gas Corp... 68,700 1,778
Pacific Gas & Electric Co............ 76,500 2,171
SCE Corp............................. 35,300 627
-------
8,716
-------
TOTAL COMMON STOCK..............65.12% 148,604
(Cost $126,854,794)
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- -------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
TREASURY BONDS/NOTES
7.875%, 11/15/99.................... $ 500 $ 544
7.125%, 02/29/00.................... 20,250 21,559
7.250%, 08/15/04.................... 7,500 8,342
FEDERAL HOME LOAN BANK
(MORTGAGE BACKED SECURITIES)
6.67%, 04/06/01..................... 1,500 1,574
7.31%, 06/16/04..................... 1,650 1,807
FEDERAL HOME LOAN MORTGAGE
CORPORATION (MORTGAGE BACKED
SECURITIES)
9.500%, 07/01/01.................... 18 19
9.500%, 08/01/01.................... 9 9
9.500%, 09/01/01.................... 26 28
9.500%, 10/01/01.................... 32 33
8.500%, 06/01/02.................... 54 55
9.250%, 11/01/02.................... 72 75
8.250%, 11/01/07.................... 93 96
8.750%, 05/01/08.................... 108 112
8.500%, 08/01/08.................... 128 132
9.000%, 09/01/08.................... 95 99
8.250%, 10/01/08.................... 85 88
8.000%, 09/01/09.................... 72 74
8.000%, 04/01/10.................... 121 125
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE BACKED SECURITIES)
8.000%, 07/01/98.................... 157 161
8.875%, 07/10/01.................... 500 508
8.750%, 02/01/10.................... 430 450
</TABLE>
See notes to the financial statements.
21
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONTINUED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- -------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES) (CONTINUED)
10.250%, 07/01/13....................... $ 36 $ 39
7.500%, 07/01/23....................... 428 439
7.500%, 04/01/24....................... 663 663
7.500%, 05/01/24....................... 209 214
7.500%, 06/01/24....................... 531 544
7.500%, 08/01/24....................... 673 690
7.500%, 09/01/24....................... 971 996
7.500%, 10/01/24....................... 730 748
7.500%, 02/01/25....................... 184 189
7.500%, 04/01/25....................... 1,364 1,399
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
11.000%, 12/15/00...................... 60 64
9.500%, 08/20/01...................... 76 80
9.500%, 10/20/01...................... 62 65
9.500%, 07/20/02...................... 94 98
9.500%, 12/20/02...................... 83 87
9.500%, 01/20/03...................... 49 51
9.500%, 02/20/03...................... 55 58
9.500%, 05/20/03...................... 103 108
9.500%, 08/20/03...................... 122 127
9.500%, 09/20/03...................... 141 147
9.500%, 11/20/03...................... 61 63
9.500%, 09/20/04...................... 47 49
8.250%, 05/15/06...................... 159 165
12.000%, 01/15/15..................... 12 13
12.000%, 03/15/15..................... 59 66
9.000%, 04/15/16...................... 83 88
9.000%, 06/15/16...................... 564 595
9.000%, 09/15/16...................... 190 200
9.000%, 01/15/17...................... 39 41
8.500%, 01/15/20...................... 44 46
8.500%, 02/15/21...................... 358 375
8.500%, 06/15/21...................... 217 227
8.500%, 08/15/21...................... 41 42
8.500%, 04/15/23...................... 308 323
9.000%, 07/15/24...................... 847 897
8.500%, 09/15/24...................... 720 755
9.000%, 09/15/24...................... 411 436
9.000%, 10/15/24...................... 577 612
9.000%, 12/15/24...................... 552 584
9.000%, 01/15/25...................... 2,909 3,077
9.000%, 02/15/25...................... 82 87
9.000%, 03/15/25...................... 33 35
9.000%, 04/15/25...................... 208 220
9.000%, 05/15/25...................... 1,520 1,609
COLLATERALIZED MORTGAGE OBLIGATION
(PLANNED AMORTIZATION CLASS) (NOTE 3)
FHLMC G42-D
8.000%, 08/17/17.................... 1,461 1,534
FOREIGN (U.S. DOLLAR DENOMINATED)
Iceland (Rep. of)
6.125%, 02/01/04.................... 1,000 990
------ -------
TOTAL U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS..........24.46% 52,536 55,825
(Cost $53,559,598)
CORPORATE BONDS/NOTES
Associate Corp. NA
5.25%, 09/01/98....................... 315 312
Associate Corp. NA
6.00%, 06/15/00....................... 500 501
BankAmerica Corp.
6.85%, 03/01/03....................... 500 517
Bankers Trust
8.25%, 05/01/05....................... 1,500 1,680
Beneficial Corp.
12.875%, 08/01/13..................... 261 314
Boeing Co.
6.35%, 06/15/03....................... 750 769
BP America Inc.
9.50%, 01/01/98....................... 500 536
Citicorp
6.75%, 08/15/05....................... 1,000 1,026
Ford Motor Credit Corp.
7.50%, 06/15/04....................... 200 215
Gannett Co.
5.85%, 05/01/00....................... 750 747
Hertz Corp.
7.00%, 04/15/01....................... 1,000 1,041
Pacific Gas and Electric Euro
12.00%, 01/09/00...................... 400 424
</TABLE>
See notes to the financial statements.
22
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
CORPORATE BONDS/NOTES (CONTINUED)
Penney (J.C.) Co., Inc.
5.375%, 11/15/98....................... $1,000 $ 990
Southwestern Bell Telephone Co.
5.550%, 03/10/98....................... 400 399
United Technologies Corp.
9.625%, 05/15/99....................... 400 406
ASSET BACKED
Ford Credit Grantor Trust 93-B
4.30%, 07/15/98........................ 126 125
Ford Credit Grantor Trust 95-B
5.90%, 10/15/00........................ 1,945 1,955
GMAC Grantor Trust 92-D
5.55%, 05/15/97........................ 23 23
GMAC Grantor Trust 92-E
4.75%, 08/15/97........................ 73 73
IBM Credit Trust 93-1
4.55%, 11/15/00........................ 341 336
Nations Bank Credit Trust 93-2
6.00%, 12/15/05........................ 1,000 1,005
Premier Auto Trust 92-3
5.90%, 11/17/97........................ 56 56
Premier Auto Trust 92-4
5.05%, 01/15/98........................ 77 76
Premier Auto Trust 93-6 A2
4.65%, 11/02/99........................ 517 512
Premier Auto Trust 94-1
4.75%, 02/02/00........................ 1,889 1,874
Premier Auto Trust 94-2
6.35%, 05/02/00........................ 1,000 1,013
------- --------
TOTAL CORPORATE BONDS/
NOTES..............................7.42% 16,523 16,925
(Cost $16,462,400)
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96, (secured
by $7,399,249 US Treasury
Bill, 4.99%, 11/14/96).................. 7,254 7,254
------- --------
TOTAL SHORT-TERM INVESTMENTS........3.18% 7,254 7,254
(Cost $7,254,000) --------
TOTAL INVESTMENTS.................100.18% 228,608
(Cost $204,130,792)
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS.............(.18%) (415)
--------
NET ASSETS........................100.00% $228,193
========
</TABLE>
________________
*Non-income producing during the twelve months ended December 31, 1995
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
23
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN SHORT-TERM INVESTMENT FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 100%
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
FEDERAL FARM CREDIT BANK DISCOUNT NOTES
5.50%, 01/03/96......................................... $ 20 $ 20
5.70%, 01/18/96......................................... 50 50
5.70%, 01/23/96......................................... 85 85
5.58%, 02/06/96......................................... 15 15
5.50%, 02/22/96......................................... 20 20
5.55%, 03/20/96......................................... 50 49
5.55%, 03/26/96......................................... 60 59
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT NOTES
5.53%, 01/16/96......................................... 55 55
5.62%, 01/22/96......................................... 35 35
5.63%, 01/24/96......................................... 41 41
5.53%, 01/31/96......................................... 45 45
5.52%, 03/06/96......................................... 65 64
5.52%, 03/11/96......................................... 45 44
5.52%, 03/14/96......................................... 41 41
FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT NOTES
5.79%, 01/19/96......................................... 20 20
5.63%, 01/24/96......................................... 45 45
5.58%, 02/12/96......................................... 70 69
5.74%, 02/16/96......................................... 50 50
5.41%, 02/20/96......................................... 50 49
5.50%, 02/22/96......................................... 30 30
5.44%, 02/28/96......................................... 50 50
5.54%, 03/04/96......................................... 50 49
5.54%, 03/08/96......................................... 35 35
------- ------
TOTAL INVESTMENTS (COST $1,019,857) - 101.39%............. 1,027 1,020
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS - (1.39%).. (14)
------
NET ASSETS.........................................100.00% $1,006
======
</TABLE>
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
24
<PAGE>
[LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
HORACE MANN FAMILY OF FUNDS December 31, 1995
================================================================================
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Cash..................................................... $ 500 $ 367 $ 296 $ 4,245
Investments at market value*............................. 297,822,235 10,481,283 228,608,282 1,019,700
Dividends and interest receivable........................ 578,414 160,248 1,435,779 -
Accounts receivable-fund shares sold..................... 255,352 13,073 136,131 984
Accounts receivable-investments sold..................... 1,156,629 4,916 590,592 -
Prepaid expenses......................................... 35,270 2,137 27,446 -
------------ ----------- ------------ ----------
TOTAL ASSETS............................................. 299,848,400 10,662,024 230,798,526 1,024,929
------------ ----------- ------------ ----------
LIABILITIES
Accounts payable-fund shares redeemed.................... 43,439 - 3,283 -
Accounts payable-investments purchased................... 280,239 - 134,377 -
Accrued expenses......................................... 160,346 15,274 135,550 3,056
Dividend payable......................................... 2,264,562 115,227 2,332,397 16,094
------------ ----------- ------------ ----------
TOTAL LIABILITIES........................................ 2,748,586 130,501 2,605,607 19,150
------------ ----------- ------------ ----------
NET ASSETS................................................ $297,099,814 $10,531,523 $228,192,919 $1,005,779
============ =========== ============ ==========
NET ASSETS CONSIST OF:
Par value of common shares............................... 13,718,610 80,850 1,267,975 10,062
Paid in surplus.......................................... 241,044,346 10,128,053 202,357,744 995,330
Accumulated undistributed net investment income.......... 48,210 5,639 65,902 543
Accumulated undistributed net realized gain (loss)
on investments.......................................... 46,013 (55,408) 23,808 1
Net unrealized appreciation (depreciation) on
investments............................................. 42,242,635 372,389 24,477,490 (157)
------------ ----------- ------------ ----------
NET ASSETS................................................ $297,099,814 $10,531,523 $228,192,919 $1,005,779
============ =========== ============ ==========
NUMBER OF SHARES OUTSTANDING:
(Authorized 50,000,000 shares each; $1.00 par
value for Growth Fund; $.10 par value capital
stock for Income Fund, Balanced Fund, and
Short-Term Fund)........................................ 13,718,610 808,503 12,679,749 100,622
============ =========== ============ ==========
NET ASSET VALUE PER SHARE................................. $ 21.66 $ 13.03 $ 18.00 $ 10.00
============ =========== ============ ==========
*Cost of investments...................................... $255,579,600 $10,108,894 $204,130,792 $1,019,857
</TABLE>
See notes to the financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
STATEMENTS OF OPERATIONS For the Year Ended
HORACE MANN FAMILY OF FUNDS December 31, 1995
==========================================================================================================================
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 6,899,317 $ -- $ 3,594,644 $ --
Interest & amortization...................................... 821,072 668,528 4,850,307 68,196
------------ ---------- ------------ ----------
Total investment income...................................... 7,720,389 668,528 8,444,951 68,196
EXPENSES:
Investment advisory and related fees......................... 841,937 25,691 599,709 1,568
Management fees.............................................. 521,885 20,885 408,591 2,440
Fund pricing fees............................................ 26,846 5,664 22,050 4,845
Professional fees............................................ 26,765 17,034 26,765 7,404
Custodian fees............................................... 45,019 11,680 49,880 6,022
Transfer agent fee (Note 5).................................. 30,519 24 24 24
Shareholder reports.......................................... 3,498 62 691 --
Directors' fees and expenses................................. 3,468 3,468 3,468 3,468
Other expenses............................................... 25,277 636 15,554 350
Insurance expenses........................................... 24,742 2,127 19,703 799
------------ ---------- ------------ ----------
Total expenses............................................. 1,549,956 87,271 1,146,435 26,920
Less management fees waived (Note 5)......................... -- (20,885) -- (2,440)
Less expenses paid by Horace Mann Investors, Inc. (Note 5)... -- (5,664) -- (14,866)
Less expenses paid by commission credits (Note 3)............ (56,114) -- (14,386) --
------------ ---------- ------------ ----------
Net expenses............................................... 1,493,842 60,722 1,132,049 9,614
------------ ---------- ------------ ----------
NET INVESTMENT INCOME...................................... 6,226,547 607,806 7,312,902 58,582
------------ ---------- ------------ ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments:
Proceeds from sales........................................ 151,321,733 6,432,555 117,675,479 3,305,417
Cost of securities sold.................................... 133,379,836 6,349,567 108,451,982 3,305,357
------------ ---------- ------------ ----------
Net realized gain on investments............................. 17,941,897 82,988 9,223,497 60
Unrealized appreciation (depreciation) on investments:
Beginning of period........................................ (5,276,008) (302,098) (5,263,648) (284)
End of period.............................................. 42,242,635 372,389 24,477,490 (157)
------------ ---------- ------------ ----------
Net unrealized appreciation on investments during the period. 47,518,643 674,487 29,741,138 127
------------ ---------- ------------ ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............. 65,460,540 757,475 38,964,635 187
------------ ---------- ------------ ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $ 71,687,087 $1,365,281 $ 46,277,537 $ 58,769
============ ========== ============ ==========
</TABLE>
See notes to the financial statements.
26
<PAGE>
[LOGO] STATEMENTS OF CHANGES IN NET ASSETS For the Years Ended
HORACE MANN FAMILY OF FUNDS December 1995 and 1994
================================================================================
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
-------------------------- ------------------------ -------------------------- ------------------------
1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income. $ 6,226,547 $ 4,633,805 $ 607,806 $ 546,558 $ 7,312,902 $ 5,412,433 $ 58,582 $ 42,191
Net realized short-
term gain (loss) on
investments.......... 6,813,495 5,618,163 81,252 (150,531) 3,958,147 1,772,739 60 (19)
Net realized long-term
gain on investments.. 11,128,402 11,667,280 1,736 12,149 5,265,350 5,270,846 -- --
Net increase (decrease)
in unrealized
appreciation......... 47,518,643 (23,106,773) 674,487 (619,886) 29,741,138 (14,444,485) 127 (231)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
CHANGE IN NET ASSETS
FROM OPERATIONS..... 71,687,087 (1,187,525) 1,365,281 (211,710) 46,277,537 (1,988,467) 58,769 41,941
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income. (6,197,557) (4,631,244) (603,044) (550,014) (7,291,835) (5,400,025) (58,578) (41,965)
Net realized short-
term gain from
investment
transactions......... (6,823,150) (5,625,272) -- (293) (3,955,981) (1,781,006) (39) (11)
Net realized long-term
gain from investment
transactions......... (11,159,155) (11,689,359) -- (367) (5,271,078) (5,287,975) -- --
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
TOTAL DISTRIBUTIONS
TO SHAREHOLDERS...... (24,179,862) (21,945,875) (603,044) (550,674) (16,518,894) (12,469,006) (58,617) (41,976)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares
sold.................. 45,758,350 40,423,151 2,091,642 2,121,796 40,388,246 42,208,931 7,294,612 4,954,081
Net asset value of
shares issued in
reinvestment of
dividends and capital
gains distributions... 21,915,300 20,210,696 487,817 443,428 14,186,497 10,650,675 42,523 27,818
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
67,673,650 60,633,847 2,579,459 2,565,224 54,574,743 52,859,606 7,337,135 4,981,899
Cost of shares
redeemed.............. (20,184,351) (13,776,416) (2,069,527) (1,952,760) (16,955,246) (9,962,967) (7,445,081) (4,978,263)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
FUND SHARE
TRANSACTIONS.......... 47,489,299 46,857,431 509,932 612,464 37,619,497 42,896,639 (107,946) 3,636
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 94,996,524 23,724,031 1,272,169 (149,920) 67,378,140 28,439,166 (107,794) 3,601
NET ASSETS:
BEGINNING OF PERIOD.... 202,103,290 178,379,259 9,259,354 9,409,274 160,814,779 132,375,613 1,113,573 1,109,972
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
END OF PERIOD.......... $297,099,814 $202,103,290 $10,531,523 $ 9,259,354 $228,192,919 $160,814,779 $ 1,005,779 $ 1,113,573
============ ============ =========== =========== ============ ============ =========== ===========
Undistributed net
investment income..... $ 48,210 $ 19,220 $ 5,639 $ 877 $ 65,902 $ 44,835 $ 543 $ 539
============ ============ =========== =========== ============ ============ =========== ===========
</TABLE>
See notes to the financial statements.
27
<PAGE>
HOURGLASS LOGO NOTES TO THE FINANCIAL STATEMENTS
APPEARS HORACE MANN FAMILY OF FUNDS December 31, 1995
HERE ===============================================================
1. BUSINESS ORGANIZATION -- Horace Mann Growth Fund, Inc. ("Growth Fund"),
Horace Mann Income Fund, Inc. ("Income Fund"), Horace Mann Balanced Fund, Inc.
("Balanced Fund"), and Horace Mann Short-Term Investment Fund, Inc. ("Short-Term
Fund") are open-end, diversified, management investment companies registered
under the Investment Company Act of 1940. On January 31, 1983, Income Fund,
Balanced Fund and Short-Term Fund each sold 10,000 shares of $.10 par value
capital stock to Horace Mann Life Insurance Company ("HMLIC") for $100,000. The
funds listed above collectively are referred to as the "Funds".
FUND INVESTMENT OBJECTIVES:
A. GROWTH FUND -- primary, long-term capital growth; secondary,
conservation of principal and production of income.
B. INCOME FUND -- primary, maximization of current income consistent with
prudent investment risks; secondary, preservation of capital.
C. BALANCED FUND -- realization of high long-term total rate of return
consistent with prudent investment risks.
D. SHORT-TERM FUND -- primary, realize maximum current income to the extent
consistent with liquidity; secondary, preservation of principal.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. SECURITY VALUATION -- A security listed or traded on an exchange 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.
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.
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
Directors; no such securities were owned by the Funds at December 31,
1995.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
recorded on the trade date. Dividend income is recorded on the ex-
dividend date. Interest income including level yield, premium and
discount amortization is recorded on the accrual basis. Securities gains
and losses are determined on the basis of identified cost.
C. FEDERAL INCOME TAXES -- Since it is the Funds' policy to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders, no provision has been made for federal income or excise
taxes. Dividends and distributions payable to shareholders are recorded
by the Funds on the record date. The Income Fund intends to utilize
provisions of the federal income tax laws which allow them to carry
realized capital losses forward for eight years following the year of
the loss and offset such losses against any future realized capital
gains. At December 31, 1995, the Income Fund has accumulated capital
loss carry forwards for tax purposes of $55,408 which will expire on
December 31, 2002.
28
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
D. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increase and
decrease in net assets from operations during the period. Actual results
could differ from those estimates.
3. OPERATING POLICIES:
A. REPURCHASE AGREEMENTS -- The Funds, through their custodian, receive
delivery of the underlying securities, whose market value is required to
be at least 102% of the resale price at the time of purchase. Wellington
Management Company, the Funds' investment adviser, is responsible for
assuring that the value of these underlying securities remains at least
equal to the resale price.
B. ASSET BACKED SECURITIES -- These securities are secured by installment
loans or leases or by revolving lines of credit. They usually include
credit enhancements that 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 -- (PAC), (PLANNED AMORTIZATION
CLASS) -- These securities have a pre-determined schedule for principal
repayment coupled with an enhanced degree of cash-flow certainty. A PAC
security is a specific class of mortgages which usually carry the most
stable cash flows and the lowest amount of prepayment risk. These
securities are valued on the basis of the timing and certainty of the
cash flows compared to investments with similar durations.
D. COMMISSION CREDITS -- Wellington Management Company, the Funds'
investment adviser, seeks the best price and execution on each
transaction and negotiates commission rates solely on the execution
requirements of each trade. Occasionally, they place, under a directed
brokerage arrangement, common stock trades with a broker/dealer who
credits to the funds part of the commissions paid. The use of these
commission credits is left to the discretion of the Funds' management.
4. FUND SHARE TRANSACTIONS -- The Funds are registered as diversified, open-end
management investment companies under the Investment Company Act of 1940. Shares
are presently offered only to the HMLIC Separate Account and the HMLIC 401K
Separate Account for the Income Fund, Balanced Fund, and Short-Term Fund. The
Growth Fund's shares may be purchased by the separate accounts of HMLIC, by
certain tax-qualified trusteed retirement plans, and by the general public in
the case of reinvestment of dividends and distributions in accordance with
Revenue Ruling 82-55.
29
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
Transactions in capital stock for the years ended December 1995 and 1994 were:
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
--------------------- -------------------- --------------------- -------------------
1995 1994 1995 1994 1995 1994 1995 1994
--------- --------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.................... 2,225,947 2,003,521 161,927 165,517 2,341,881 2,517,999 709,737 479,077
Shares issued to shareholders
in reinvestment of dividends
and distributions............. 1,019,316 1,150,951 37,525 36,891 792,542 700,242 4,257 2,763
Shares redeemed................ (985,932) (680,037) (161,458) (152,384) (995,005) (593,492) (723,887) (481,511)
--------- --------- -------- -------- --------- --------- -------- --------
Net increase (decrease)........ 2,259,331 2,474,435 37,994 50,024 2,139,418 2,624,749 (9,893) 329
========= ========= ======== ======== ========= ========= ======== ========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES -- Horace Mann Educators Corporation ("HMEC") is
the parent company of Horace Mann Investors, Inc. ("Investors") and Horace Mann
Service Corporation ("HMSC") and indirectly owns HMLIC. Collectively these
companies are referred to as Horace Mann.
Pursuant to management agreements between the Funds and Investors, Investors
receives a monthly management fee based on a pro rata share from each Fund equal
to 0.25% of the aggregate average net assets of the Funds up to $100,000,000 and
0.20% of such assets exceeding that amount. Investors also serves as the
principal underwriter and distributor of the HMLIC Separate Account. Investors'
management fee is reduced by the amount, if any, that the total annual expenses
of any Fund (exclusive of taxes, interest, extraordinary items and brokers'
commissions and other charges related to the purchase and sale of portfolio
securities) exceed 1.5% of the first $30,000,000 of the average daily net assets
and 1% of the average daily net assets in excess of $30,000,000 of that Fund.
The pro rata share is determined by the relative net asset values for each Fund.
For the year ended December 31, 1995, the Growth Fund paid $521,885 and the
Balanced Fund paid $408,591 for management fees to Investors. During the same
period, Investors waived the management fees for the Income Fund and Short-Term
Fund.
Investors paid expenses for advisory fees, professional fees, insurance fees,
and other taxes and fees for the year ended December 31, 1995 of $14,866 for the
Short-Term Fund. Investors paid expenses for pricing of $5,664 for the Income
Fund for the year ended December 31, 1995.
Transfer and dividend disbursing agent services are provided by HMSC on a per
share basis for the Growth Fund and on a per account basis for the Income,
Balanced and Short-Term Funds. The transfer agent fees for the year ended
December 31, 1995 were $30,519 for the Growth Fund and $24 each for the Income,
Balanced and Short-Term Funds.
Outside directors were compensated $150 per diem for each Board meeting
attended. No compensation is paid to interested officers and directors (those
who are also officers and/or directors of Horace Mann). For the year ended
December 31, 1995, the per diem fees, excluding travel expenses, for outside
directors totaled $1,500 for each Fund.
30
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONCLUDED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
6. TRANSACTIONS WITH INVESTMENT ADVISER -- Pursuant to the investment advisory
agreements with Wellington Management Company (WMC), effective November 1, 1993,
the adviser receives a fee based on the Funds' monthly average net assets as
follows: Growth Fund, 0.400% on the initial $100,000,000, 0.300% on the next
$100,000,000 and 0.250% over $200,000,000; Income Fund, 0.250% on the initial
$100,000,000, 0.200% on the next $100,000,000 and 0.150% over $200,000,000;
Balanced Fund, 0.325% on the initial $100,000,000, 0.275% on the next
$100,000,000, 0.225% on the next $300,000,000 and 0.200% over $500,000,000;
Short-Term Fund, 0.125% on the initial $100,000,000, 0.100% on the next
$100,000,000 and 0.075% over $200,000,000.
7. INVESTMENT TRANSACTIONS -- Investment transactions, excluding short-term
investments, for the year ended December 31, 1995 are:
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Purchases.................................... $177,499,775 $7,964,354 $149,989,796 $ -
============ ========== ============ ======
Proceeds from sales.......................... $151,321,733 $6,432,555 $117,675,479 $ -
============ ========== ============ ======
</TABLE>
The following table is based on the difference between cost and market value of
securities owned by each Fund at December 31, 1995.
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Aggregate gross unrealized appreciation...... $ 44,954,142 $ 381,806 $ 25,965,975 $ 9
Aggregate gross unrealized (depreciation).... (2,711,507) (9,417) (1,488,485) (166)
------------ ---------- ------------ -----
Net unrealized appreciation (depreciation)... $ 42,242,635 $ 372,389 $ 24,477,490 $(157)
============ ========== ============ =====
</TABLE>
31
<PAGE>
[LOGO] GROWTH FUND
FINANCIAL HIGHLIGHTS
=======================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 17.64 $ 19.85 $ 19.49 $ 19.15 $ 16.64 $ 18.88 $ 17.30 $ 16.00 $ 21.29 $ 25.85
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.... 0.52 0.49 0.54 0.53 0.60 0.70 0.56 0.42 0.50 0.49
Net Gains (Losses) on
Securities -- realized
and unrealized.......... 5.41 (0.57) 3.32 1.31 3.76 (1.74) 4.58 1.37 0.74 2.28
-------- -------- -------- -------- -------- ------- -------- ------- ------- -------
Total Income (Loss) From
Investment Operations.. 5.93 (0.08) 3.86 1.84 4.36 (1.04) 5.14 1.79 1.24 2.77
LESS DISTRIBUTIONS:
From net investment
income.................. 0.49 0.45 0.52 0.51 0.60 0.70 0.62 0.40 0.51 1.17
From net realized gains.. 1.42 1.68 2.98 0.99 1.25 0.50 2.94 0.09 6.02 6.16
-------- -------- -------- -------- -------- ------- -------- ------- ------- -------
Total Distributions..... 1.91 2.13 3.50 1.50 1.85 1.20 3.56 0.49 6.53 7.33
NET ASSET VALUE, END OF
PERIOD.................... $ 21.66 $ 17.64 $ 19.85 $ 19.49 $ 19.15 $ 16.64 $ 18.88 $ 17.30 $ 16.00 $ 21.29
======== ======== ======== ======== ======== ======= ======== ======= ======= =======
TOTAL RETURN............... 33.67% (0.35)% 19.74% 9.59% 26.50% (5.48)% 29.88% 11.23% 6.23% 11.68%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period............ $297,100 $202,103 $178,379 $140,257 $124,140 $97,610 $102,956 $86,755 $81,159 $77,630
Ratio of Expenses
to Average Net Assets.... 0.63% 0.69% 0.69% 0.73% 0.76% 0.78% 0.64% 0.64% 0.67% 0.69%
Ratio of Net Investment
Income to Average
Net Assets............... 2.50% 2.36% 2.48% 2.65% 3.13% 3.86% 2.69% 2.41% 2.06% 1.94%
Portfolio Turnover Rate... 64.59% 69.42% 47.39% 31.78% 51.01% 52.97% 71.25% 41.57% 86.50% 52.88%
</TABLE>
The "Net Investment Income" per share and the "Net gains (losses) on Securities-
realized and unrealized" per share represent a proportionate share respective to
the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
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.
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.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
32
<PAGE>
[LOGO] INCOME FUND
FINANCIAL HIGHLIGHTS
=======================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 12.02 $ 13.06 $12.95 $12.92 $12.26 $12.35 $11.64 $ 11.59 $ 13.96 $13.04
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.80 0.75 0.82 0.94 1.12 1.14 1.04 1.00 1.23 1.44
Net Gains (Losses) on
Securities -- realized and
unrealized........................ 0.99 (1.04) 0.23 (0.01) 0.71 (0.21) 0.75 (0.11) (1.32) 0.71
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
Total Income (Loss) From
Investment Operations............ 1.79 (0.29) 1.05 0.93 1.83 0.93 1.79 0.89 (0.09) 2.15
LESS DISTRIBUTIONS:
From net investment
income............................ 0.78 0.75 0.75 0.87 1.17 1.02 0.96 0.84 2.28 1.21
From net realized gains............ - - 0.19 0.03 - - 0.12 - - 0.02
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
Total Distributions............... 0.78 0.75 0.94 0.90 1.17 1.02 1.08 0.84 2.28 1.23
NET ASSET VALUE, END OF
PERIOD.............................. $ 13.03 $ 12.02 $13.06 $12.95 $12.92 $12.26 $12.35 $ 11.64 $ 11.59 $13.96
======= ======= ====== ====== ====== ====== ====== ======= ======= ======
TOTAL RETURN......................... 14.93% (2.21)% 8.07% 7.20% 14.93% 7.58% 15.43% 7.64% (0.62)% 17.33%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $10,532 $ 9,259 $9,409 $7,668 $6,396 $5,552 $4,457 $ 3,390 $ 2,567 $1,170
Ratio of Expenses
to Average Net Assets.............. 0.62% 0.61% 0.41% 0.19% 0.17% 0.20% 0.29% 0.24% 0.14% 0.03%
Ratio of Net Investment
Income to Average
Net Assets......................... 6.16% 5.85% 5.92% 6.94% 8.62% 8.86% 8.13% 7.97% 7.96% 7.65%
Portfolio Turnover Rate............. 74.53% 205.35% 74.16% 35.11% 44.82% 62.40% 92.94% 174.32% 53.28% 8.17%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 0.88% 0.92% 0.87% 1.21% 1.49% 1.64% 1.52% 0.92% 0.87% 0.60%
Ratio of Net Investment Income...... 5.89% 5.54% 5.46% 5.92% 7.30% 7.42% 6.90% 7.29% 7.23% 7.08%
</TABLE>
Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1995. The investment advisory expenses for
the Income Fund were waived by CIGNA Investments from January 1, 1984 through
October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- - realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
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.
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.
33
<PAGE>
[HOURGLASS LOGO BALANCED FUND
APPEARS FINANCIAL HIGHLIGHTS
HERE] =============================================================
<TABLE>
CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71 $ 14.91 $13.71
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.67 0.62 0.65 0.66 0.78 0.86 0.77 0.66 1.05 1.18
Net Gains (Losses) on
Securities -- realized and
unrealized........................ 3.46 (0.81) 1.87 0.68 2.25 (0.92) 2.77 0.72 (1.20) 1.05
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
Total Income (Loss) From
Investment Operations............ 4.13 (0.19) 2.52 1.34 3.03 (0.06) 3.54 1.38 (0.15) 2.23
LESS DISTRIBUTIONS:
From net investment
income............................ 0.61 0.55 0.56 0.59 0.74 0.74 0.70 0.61 2.05 0.63
From net realized gains............ 0.78 0.72 1.46 0.44 0.57 0.11 1.22 - - 0.40
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
Total Distributions............... 1.39 1.27 2.02 1.03 1.31 0.85 1.92 0.61 2.05 1.03
NET ASSET VALUE, END OF
PERIOD.............................. $ 18.00 $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71 $14.91
======== ======== ======== ======= ======= ======= ======= ======= ======= ======
TOTAL RETURN......................... 27.12% (1.12)% 15.46% 8.37% 21.57% (0.41)% 26.31% 10.57% (0.87)% 16.79%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $228,193 $160,815 $132,376 $92,463 $72,343 $53,289 $42,214 $29,223 $21,493 $6,974
Ratio of Expenses
to Average Net Assets.............. 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.08% 0.03%
Ratio of Net Investment
Income to Average
Net Assets......................... 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.56% 5.12%
Portfolio Turnover Rate............. 64.80% 121.82% 52.43% 27.06% 42.09% 47.62% 56.80% 27.68% 84.74% 45.48%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.64% 0.61%
Ratio of Net Investment Income...... 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.00% 4.54%
</TABLE>
Expenses for the Balanced Fund were assumed or waived by Horace Mann Investors,
Inc. and CIGNA Investments through 1987.
The "Net Investment Income" per share and the "Net gains(losses) on Securities-
realized and unrealized" per share represent a proportionate share respective to
the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
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.
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.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
34
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
SHORT-TERM FUND
FINANCIAL HIGHLIGHTS
====================================================================================================================================
Year Ended December 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17 $11.44
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.53 0.39 0.26 0.33 0.61 0.85 0.85 0.69 0.65 0.68
Net Gains (Losses) on
Securities -- realized and
unrealized........................ -- -- -- -- -- 0.01 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (Loss) From
Investment Operations............ 0.53 0.39 0.26 0.33 0.61 0.86 0.85 0.69 0.65 0.68
LESS DISTRIBUTIONS:
From net investment
income............................ 0.61 0.38 0.28 0.34 0.88 1.22 0.60 0.45 1.57 0.95
From net realized gains............ -- -- -- -- -- -- 0.01 -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............... 0.61 0.38 0.28 0.34 0.88 1.22 0.61 0.45 1.57 0.95
NET ASSET VALUE, END OF
PERIOD.............................. $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN......................... 5.25% 3.89% 2.53% 3.30% 5.93% 7.89% 8.27% 6.74% 5.80% 6.26%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $1,006 $1,114 $1,110 $1,131 $1,076 $1,195 $1,175 $1,140 $ 852 $ 356
Ratio of Expenses
to Average Net Assets.............. 0.84% 0.49% 0.61% 0.51% 0.43% 0.38% 0.46% 0.37% 0.21% 0.14%
Ratio of Net Investment
Income to Average
Net Assets......................... 5.11% 3.78% 2.56% 3.16% 5.88% 7.57% 7.83% 6.50% 5.68% 5.94%
Portfolio Turnover Rate............. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 2.35% 2.36% 2.42% 3.44% 4.45% 4.46% 3.29% 1.48% 1.53% 0.61%
Ratio of Net Investment Income...... 3.60% 1.91% 0.75% 0.23% 1.86% 3.49% 5.00% 5.39% 4.36% 5.47%
</TABLE>
Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1995. The investment advisory expenses for
the Short-Term Investment Fund were waived by CIGNA Investments from January 1,
1984 through October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- -realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
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.
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.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Directors and Shareholders of
Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment Fund, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Horace Mann Growth Fund, Inc., Horace Mann
Income Fund, Inc., Horace Mann Balanced Fund, Inc., and Horace Mann Short-Term
Investment Fund, Inc. (the "Funds") as of December 31, 1995, and the related
statements of operations for the year then ended and the statements of changes
in net assets and the financial highlights for each of the two years in the
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. The accompanying financial highlights for the eight years ended December
31, 1993 were audited by other auditors whose report thereon dated January 21,
1994, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31, 1995, by correspondence with the custodian and brokers. 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, 1995, the results of their operations for the
year then ended and the changes in their net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
36
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1995
================================================================================
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
37
<PAGE>
HOURGLASS LOGO STATEMENTS OF NET ASSETS
APPEARS HORACE MANN LIFE INSURANCE COMPANY
HERE SEPARATE ACCOUNT December 31, 1995
================================================================================
<TABLE>
<CAPTION>
ACCOUNT DIVISION
------------------------------------------------------
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Investments in Horace Mann Funds at market value....... $205,762,246 $10,114,824 $217,546,506 $959,820
------------ ----------- ------------ --------
TOTAL ASSETS..................................... $205,762,246 $10,114,824 $217,546,506 $959,820
============ =========== ============ ========
NET ASSETS
Net Assets (Indefinite units authorized)
Active Contract Owners............................... $204,213,556 $10,073,232 $216,982,926 $959,820
Retired Contract Owners.............................. 1,548,690 41,592 563,580 -
------------ ----------- ------------ --------
TOTAL NET ASSETS................................. $205,762,246 $10,114,824 $217,546,506 $959,820
============ =========== ============ ========
TOTAL UNITS.......................................... 9,499,642 776,272 12,085,917 95,982
NET UNIT VALUE (NET ASSETS DIVIDED BY TOTAL UNITS)... $21.66 $13.03 $18.00 $10.00
INVESTMENTS
Cost of investments.................................... $189,572,550 $10,000,680 $198,153,931 $995,052
Unrealized appreciation (depreciation) of investments.. $ 16,189,696 $ 114,144 $ 19,392,575 $(35,232)
Number of shares held in Horace Mann Funds............. 9,499,642 776,272 12,085,917 95,982
</TABLE>
See notes to the financial statements.
38
<PAGE>
HOURGLASS LOGO STATEMENTS OF OPERATIONS
APPEARS HORACE MANN LIFE INSURANCE COMPANY For The Year Ended
HERE SEPARATE ACCOUNT December 31, 1995
================================================================================
<TABLE>
<CAPTION>
ACCOUNT DIVISION
----------------------------------------------------
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income distribution............................... $ 4,321,284 $ 581,709 $ 6,975,918 $56,016
----------- ---------- ----------- -------
Net investment income...................................... 4,321,284 581,709 6,975,918 56,016
----------- ---------- ----------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gain distribution.................................. 12,543,651 - 8,827,551 37
Net realized gain (loss) on sale of investments............ 555,604 (1,301) 910,342 746
Net unrealized appreciation (depreciation) on investments.. 31,175,296 742,670 27,596,597 (3,350)
----------- ---------- ----------- -------
Net gain (loss) on investments........................... 44,274,551 741,369 37,334,490 (2,567)
----------- ---------- ----------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $48,595,835 $1,323,078 $44,310,408 $53,449
=========== ========== =========== =======
</TABLE>
See notes to the financial statements.
39
<PAGE>
HOURGLASS LOGO STATEMENTS OF CHANGES IN NET ASSETS
APPEARS HORACE MANN LIFE INSURANCE COMPANY For The Year Ended
HERE SEPARATE ACCOUNT December 31, 1995
================================================================================
<TABLE>
<CAPTION>
ACCOUNT DIVISION
------------------------------------------------------
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income...................................... $ 4,321,284 $ 581,709 $ 6,975,918 $ 56,016
Capital gain distribution.................................. 12,543,651 - 8,827,551 37
Net realized gain (loss) on sale of investments............ 555,604 (1,301) 910,342 746
Net unrealized appreciation (depreciation) on investments.. 31,175,296 742,670 27,596,597 (3,350)
------------ ----------- ------------ ----------
Net increase in net assets resulting from operations....... 48,595,835 1,323,078 44,310,408 53,449
------------ ----------- ------------ ----------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments received......................... 27,507,606 1,038,385 28,592,883 83,169
Sales and administrative expenses (Note 1)................. (9,863) (342) (7,746) (9)
------------ ----------- ------------ ----------
Net consideration received on annuity contracts............ 27,497,743 1,038,043 28,585,137 83,160
Net transfer from (to) fixed accumulation account.......... 8,066,147 (21,649) 4,507,963 443,707
Transfers from (to) other Divisions........................ 955,340 (401,445) (595,799) 41,904
Payments to Contract Owners................................ (8,381,718) (662,283) (9,297,299) (690,035)
Mortality and expense risk charge (Note 1)................. (1,973,187) (124,964) (2,435,173) (12,934)
Annual maintenance charge (Note 1)......................... (216,771) (6,761) (215,174) (775)
Surrender charges (Note 1)................................. (60,931) (2,687) (70,315) (2,198)
Mortality guarantee adjustment............................. (48,901) 141 2,159 -
------------ ----------- ------------ ----------
Net increase (decrease) in net assets resulting from
Contract Owners' transactions........................ 25,837,722 (181,605) 20,481,499 (137,171)
------------ ----------- ------------ ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS................. 74,433,557 1,141,473 64,791,907 (83,722)
NET ASSETS, BEGINNING OF YEAR................................ 131,328,689 8,973,351 152,754,599 1,043,542
------------ ----------- ------------ ----------
NET ASSETS, END OF YEAR...................................... $205,762,246 $10,114,824 $217,546,506 $ 959,820
============ =========== ============ ==========
</TABLE>
See notes to the financial statements.
40
<PAGE>
HOURGLASS LOGO STATEMENTS OF CHANGES IN NET ASSETS
APPEARS HORACE MANN LIFE INSURANCE COMPANY For The Year Ended
HERE SEPARATE ACCOUNT December 31, 1994
================================================================
<TABLE>
<CAPTION>
ACCOUNT DIVISION
-----------------------------------------------------
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income............................................ $ 3,026,965 $ 537,743 $ 5,160,040 $ 38,981
Capital gain distribution........................................ 11,321,604 1,647 6,762,682 7
Net realized gain (loss) on sale of investments.................. 309,000 (15,853) 401,684 (3,401)
Net unrealized appreciation (depreciation) on investments........ (15,589,059) (729,940) (14,176,194) 6,602
------------ ---------- ------------ ----------
Net increase (decrease) in net assets resulting from operations.. (931,490) (206,403) (1,851,788) 42,189
------------ ---------- ------------ ----------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments received............................... 22,124,860 1,342,701 28,228,940 257,754
Sales and administrative expenses (Note 1)....................... (16,335) (148) (2,495) (3,012)
------------ ---------- ------------ ----------
Net consideration received on annuity contracts.................. 22,108,525 1,342,553 28,226,445 254,742
Net transfer from (to) fixed accumulation account................ 11,106,368 165,004 9,109,014 (94,611)
Transfers from (to) other Divisions.............................. 1,270,854 (599,814) (589,944) (81,096)
Payments to Contract Owners...................................... (5,267,772) (675,588) (4,902,015) (133,050)
Mortality and expense risk charge (Note 1)....................... (1,381,990) (118,221) (1,890,818) (16,215)
Annual maintenance charge (Note 1)............................... (154,640) (6,100) (196,600) (1,200)
Surrender charges (Note 1)....................................... (33,605) (2,451) (50,320) (926)
Mortality guarantee adjustment................................... (27,396) (274) 3 -
------------ ---------- ------------ ----------
Net increase (decrease) in net assets resulting from
Contract Owners' transactions.............................. 27,620,344 105,109 29,705,765 (72,356)
------------ ---------- ------------ ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS....................... 26,688,854 (101,294) 27,853,977 (30,167)
NET ASSETS, BEGINNING OF YEAR...................................... 104,639,835 9,074,645 124,900,622 1,073,709
------------ ---------- ------------ ----------
NET ASSETS, END OF YEAR............................................ $131,328,689 $8,973,351 $152,754,599 $1,043,542
============ ========== ============ ==========
</TABLE>
See notes to the financial statements.
41
<PAGE>
HOURGLASS LOGO NOTES TO THE FINANCIAL STATEMENTS
APPEARS HORACE MANN LIFE INSURANCE COMPANY
HERE SEPARATE ACCOUNT December 31, 1995
================================================================
1. NATURE OF SEPARATE ACCOUNT - Horace Mann Life Insurance Company Separate
Account ("the Account"), registered as a unit investment trust under the
Investment Company Act of 1940, is used to fund variable annuity contracts. All
assets of the Account are invested in shares of the Horace Mann Growth Fund,
Inc. ("Growth Fund"), Horace Mann Income Fund, Inc. ("Income Fund"), Horace Mann
Balanced Fund, Inc. ("Balanced Fund") and Horace Mann Short-Term Investment
Fund, Inc. ("Short-Term Fund"). The funds collectively are referred to as the
"Funds".
Certain specified amounts, as described in the annuity contracts, are paid to
Horace Mann Life Insurance Company ("HMLIC") to cover death benefits, surrender
charges, sales and administrative expenses and maintenance charges. In addition,
an annual mortality risk charge up to .45% and expense risk charge up to .90% of
the net variable account value is deducted from the Contract Owner's account,
depending on year of issue of the contract.
2. SIGNIFICANT ACCOUNTING POLICIES - The investments in the Funds are valued at
market (net asset value). The Account owns approximately 69%, 96%, 96% and 95%
of the Growth Fund, Income Fund, Balanced Fund and Short-Term Fund,
respectively. Distributions from the Funds are recorded on the ex-dividend
date. Realized gains and losses are determined on the basis of average cost of
shares owned for each Contract Owner.
3. FEDERAL INCOME TAXES - Investment income of the Account is included in the
tax return of HMLIC; however, no tax accrues on income attributable to tax-
deferred annuities which comprise the majority of the Account contracts. Income
attributable to non tax-deferred annuities is not significant.
4. INVESTMENTS OF THE SEPARATE ACCOUNTS - In 1983, HMLIC, through the Account,
purchased 10,000 shares of the Short-Term Fund. The investment income and
unrealized appreciation/depreciation resulting from this investment inures to
the benefit of HMLIC. As of December 31, 1995, the shares have a net asset
value of $100,000.
5. PURCHASES AND SALES OF HORACE MANN FUND SHARES - During the year ended
December 31, 1995, purchases and proceeds from sales of Horace Mann Fund shares
were as follows:
<TABLE>
<CAPTION>
ACCOUNT DIVISION
-------------------------------------------------------------------------------
SHORT-TERM
GROWTH FUND INCOME FUND BALANCED FUND FUND
-------------------- ------------------- ---------------------- -----------
ACTIVE RETIRED ACTIVE RETIRED ACTIVE RETIRED ACTIVE
----------- -------- ---------- ------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases.. $56,372,994 $187,990 $2,346,167 $2,499 $51,427,945 $305,268 $7,319,862
=========== ======== ========== ====== =========== ======== ==========
Sales...... $13,651,343 $206,984 $1,945,840 $2,722 $15,417,006 $ 31,239 $7,400,980
=========== ======== ========== ====== =========== ======== ==========
</TABLE>
42
<PAGE>
HOURGLASS LOGO NOTES TO THE FINANCIAL STATEMENTS (CONCLUDED)
APPEARS HORACE MANN LIFE INSURANCE COMPANY
HERE SEPARATE ACCOUNT December 31, 1995
================================================================
6. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
<TABLE>
<CAPTION>
ACCOUNT DIVISION
------------------------------------------------------------------------
SHORT-TERM
GROWTH FUND INCOME FUND BALANCED FUND FUND
------------------- ---------------- ------------------- ---------
ACTIVE RETIRED ACTIVE RETIRED ACTIVE RETIRED ACTIVE
--------- ------- ------ ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Account units outstanding
at January 1, 1994.......... 5,216,889 54,639 694,843 - 7,462,232 7,901 106,595
Consideration received....... 1,093,747 23,881 104,176 3,237 1,679,194 6,583 24,835
Dividend distributions....... 732,995 7,897 35,740 189 662,673 1,128 2,616
Net transfers................ 609,461 - (34,450) - 504,057 - (16,694)
Payments to Contract Owners.. (281,143) (13,429) (56,986) (214) (312,680) (957) (13,826)
--------- ------- ------- ----- ---------- ------ -------
Account units outstanding
at December 31, 1994........ 7,371,949 72,988 743,323 3,212 9,995,476 14,655 103,526
Consideration received....... 1,352,168 3,061 80,249 10 1,667,738 16,208 8,064
Dividend distributions....... 689,455 5,821 35,608 181 749,604 2,257 4,000
Net transfers................ 434,368 - (34,278) - 218,038 - 46,585
Payments to Contract Owners.. (419,799) (10,370) (51,821) (211) (576,249) (1,810) (66,193)
--------- ------- ------- ----- ---------- ------ -------
Account units outstanding
at December 31, 1995........ 9,428,142 71,500 773,080 3,192 12,054,607 31,310 95,982
========= ======= ======= ===== ========== ====== =======
</TABLE>
43
<PAGE>
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 the Growth Fund,
Income Fund, Balanced Fund, and Short-Term Fund Account Divisions within Horace
Mann Life Insurance Company Separate Account as of December 31, 1995, and the
related statements of operations for the year then ended and statements of
changes in net assets for each of the years in the two year period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned at December 31, 1995 by correspondence with
the Horace Mann Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Growth Fund, Income Fund,
Balanced Fund, and Short-Term Fund Account Divisions within Horace Mann Life
Insurance Company Separate Account as of December 31, 1995, and the results of
their operations for the year then ended and changes in their net assets for
each of the years in the two year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
44
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
45
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
P.O. Box 4657
Springfield, IL 62708-4657
1-800-999-1030
This report is not to be distributed unless preceded or accompanied by a
current prospectus.
