<PAGE>
File Nos. 2-24256
811-1343
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 57
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
------------------------------
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
---------------------------------------------------
(Exact Name of Registrant)
Horace Mann Life Insurance Company
----------------------------------
(Name of Depositor)
One Horace Mann Plaza, Springfield, Illinois 62715
---------------------------------------------------
(Address of Depositor's Principal Executive Offices)
(217) 789-2500
--------------
(Depositor's Telephone Number)
Ann M. Caparros
One Horace Mann Plaza
Springfield, Illinois 62715
----------------------------
(Name and Address of Agent for Service)
Copies of Communications to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
------------------------------
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b) of Rule 485
- ----
X On May 1, 1996 pursuant to paragraph (b) of Rule 485
- ----
60 days after filing pursuant to paragraph (a)(i) of Rule 485
- ----
On (date) pursuant to paragraph (a)(i) of Rule 485
- ----
75 days after filing pursuant to paragraph (a)(ii) of Rule 485
- ----
On (date) pursuant to paragraph (a)(ii) of Rule 485
- ----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
- ---- previously filed post-effective amendment.
The Registrant has registered an indefinite amount of securities in accordance
with Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the fiscal year ending December 31, 1995, was filed on February
21, 1996.
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Cross Reference Sheet Required by Rule 495(a)
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
Part A - Prospectus
-------------------
<S> <C>
1. Cover Page Cover
2. Definitions Definitions
3. Synopsis
(a) (b) (c) Synopsis
(d) *
4. Condensed Financial Information
(a) (b) (c) Condensed Financial
Information
5. General Description of
Registrant, Depositor, and
Portfolio Companies
(a) (b) (c) (d) (e) (f) Cover; Synopsis; Horace
Mann Life Insurance
Company; The Account and
The Horace Mann Funds;
Voting Rights
6. Deductions
(a) (b) (c) (d) (e) Synopsis; Offering of the
Contracts; Deductions and
Expenses
(f) *
7. General Description of Variable
Annuity Contracts
(a) (b) (c) (d) Synopsis; Rights of
Contract Owners; Offering
of the Contracts;
Transactions; Death
Benefit Proceeds;
Mandatory Minimum
Distribution Income
Payments; Modification of
the Contract; Tax
Consequences; Other
Information
8. Annuity Period
(a) (b) (c) (d) (e) (f) Income Payments; Mandatory
Minimum Distribution;
Transfers
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
Part A - Prospectus
-------------------
<S> <C>
9. Death Benefit
(a) (b) Death Benefit Proceeds;
Tax Consequences
10. Purchases and Contract Value
(a) (b) (c) (d) Synopsis; Offering of the
Contracts; Purchase
Payments
11. Redemptions
(a) (c) (e) Synopsis; Surrender
Before Commencement of
Annuity Period; Deferment
(b) (d) *
12. Taxes
(a) (b) (c) Surrender Before
Commencement of Annuity
Period; Tax Consequences
13. Legal Proceedings Other Information
14. Table of Contents of Statement Additional Information
of Additional Information
PART B - STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
15. Cover Page Cover
16. Table of Contents Table of Contents
17. General Information and History
(a) (b) *
(c) General Information and
History
18. Services
(c) Financial Statements
(a) (b) (d) (e) (f) *
19. Purchase of Securities
Being Offered
(a) Underwriter
(b) *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
20. Underwriters
(a) (b) (c) Underwriter
(d) *
21. Calculation of Performance Data
(b) Investment Experience
(a) *
22. Annuity Payments *
23. Financial Statements
(a) (b) Financial Statements
</TABLE>
PART C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
*Omitted from the Prospectus or Statement of Additional Information because
the Item is not applicable.
<PAGE>
PROSPECTUS
VARIABLE TAX DEFERRED ANNUITY CONTRACTS
QUALIFIED AND NON-QUALIFIED PLANS
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
MAY 1, 1996
<PAGE>
(This page intentionally left blank)
<PAGE>
INDIVIDUAL AND GROUP FLEXIBLE PAYMENT AND INDIVIDUAL SINGLE PAYMENT
VARIABLE TAX DEFERRED ANNUITY CONTRACTS ISSUED BY
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
This Prospectus offers combination fixed and variable annuity contracts to
individuals and groups, as flexible payment contracts, and to individuals as
single payment contracts, issued by Horace Mann Life Insurance Company in
connection with retirement plans or arrangements some of which may qualify for
special tax treatment under the Internal Revenue Code as amended. Amounts
transferred to Horace Mann Life Insurance Company Separate Account as directed
by a Participant or Contract Owner are invested in one or more of four Account
Divisions. Each Account Division in turn purchases shares of one of the
following open-end diversified management investment companies:
Horace Mann Growth Fund, Inc. - a fund investing primarily in common stocks.
Horace Mann Income Fund, Inc. - a fund investing primarily in debt securities.
Horace Mann Balanced Fund, Inc. - a fund investing in common stocks, debt
securities and money market instruments.
Horace Mann Short-Term Investment Fund, Inc. - a fund investing in short-term
debt instruments.
The funds listed above collectively are referred to as the "Funds."
This Prospectus sets forth concisely the information a prospective investor
should know before investing. Additional information about the Horace Mann Life
Insurance Company Separate Account has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated May 1, 1996,
which may be amended from time to time, and is incorporated herein by reference.
The Statement of Additional Information is available upon request, without
charge, by writing to Horace Mann Life Insurance Company, P.O. Box 4657,
Springfield, Illinois 62708-4657, by sending a telefacsimile (FAX) transmission
to (217) 527-2307, or by telephoning (217) 789-2500 or (800) 999-1030 (toll-
free). The Table of Contents of the Statement of Additional Information appears
on page 17 of this Prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
FUNDS.*
BOTH PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE INVESTING
AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996.
*The Funds' Prospectus follows page 17 of the Horace Mann Life Insurance Company
Separate Account Prospectus.
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOPIC PAGE
- ----- ----
<S> <C>
DEFINITIONS.............................................................. 1
SYNOPSIS................................................................. 2
CONDENSED FINANCIAL INFORMATION.......................................... 6
HORACE MANN LIFE INSURANCE COMPANY, THE ACCOUNT AND THE HORACE MANN
FUNDS................................................................... 8
Horace Mann Life Insurance Company..................................... 8
The Account............................................................ 8
The Horace Mann Funds.................................................. 8
THE CONTRACT............................................................. 8
Contract Owners' Rights................................................ 8
Purchasing the Contract................................................ 8
Purchase Payments...................................................... 9
Amount and Frequency of Purchase Payments........................... 9
Allocation of Purchase Payments..................................... 9
Accumulation Units and Accumulation Unit Value...................... 9
Transactions........................................................... 9
Transfers........................................................... 9
Changes in Allocation Instructions.................................. 9
Surrender Before Commencement of Annuity Period..................... 10
Deferment........................................................... 10
Confirmations....................................................... 10
Deductions and Expenses................................................ 11
Annual Maintenance Charge........................................... 11
Asset Charge for Mortality, Expense and Distribution Expense Risks.. 11
Operating Expenses of the Horace Mann Funds......................... 11
Premium Taxes...................................................... 11
Death Benefit Proceeds................................................. 11
Mandatory Minimum Distribution......................................... 12
Income Payments........................................................ 12
Income Payment Options.............................................. 12
Amount of Fixed and Variable Income Payments........................ 13
Misstatement of Age.................................................... 14
Modification of the Contract........................................... 14
TAX CONSEQUENCES......................................................... 14
Separate Account....................................................... 14
Contract Owners........................................................ 14
Contributions....................................................... 14
Distributions Under Qualified Contracts............................. 15
Distributions Under Non-Qualified Contracts......................... 15
Penalty Tax......................................................... 16
VOTING RIGHTS............................................................ 16
OTHER INFORMATION........................................................ 16
ADDITIONAL INFORMATION................................................... 17
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN OFFER
TO ACQUIRE, ANY INTEREST OR PARTICIPATION IN THE CONTRACTS OFFERED BY THIS
PROSPECTUS IN ANY STATE TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH STATE.
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT: Horace Mann Life Insurance Company Separate Account, a segregated
investment account consisting of four Account Divisions, established by Horace
Mann Life Insurance Company under Illinois law and registered as a unit
investment trust under the Investment Company Act of 1940.
ACCOUNT DIVISION: A division of the Account. The assets of an Account
Division consist of the shares of one of the four Horace Mann Funds.
ACCUMULATION UNIT: A unit of measurement used to determine the value of a
Contract Owner's interest in an Account Division before Income Payments begin.
ANNUITANT: The recipient of Income Payments.
ANNUITY PERIOD: The period beginning on the Maturity Date and ending on the
death of the Annuitant or the last surviving Joint Annuitant, if any, or a
specified period.
ANNUITY UNIT: A unit of measurement used in determining the amount of variable
Income Payments.
CERTIFICATE: Each Participant under a group Contract is issued a Certificate
summarizing the provisions of the Contract and showing participation in the
retirement plan adopted by the Contract Owner.
CONTRACT: This Prospectus offers combination fixed and variable annuity
Contracts to individuals and groups as flexible payment Contracts and to
individuals as single payment Contracts. The term "Contract" in this Prospectus
generally will be used to describe Contracts issued to individuals and
Certificates issued to Participants in a group plan.
CONTRACT OWNER: The individual or entity to whom the Contract is issued.
Under a group contract, all references to the Contract Owner refer to the
Participant in a group plan.
CONTRACT YEAR: A year measured from the date a Contract (or a Certificate) was
issued to an individual Contract Owner (or a Participant) and each anniversary
of this date.
FUNDS: The four Horace Mann Funds: 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"). Each Fund is an open-end, diversified, management
investment company registered under the Investment Company Act of 1940.
INCOME PAYMENTS: A series of payments that may be for life; for life with a
minimum number of payments; for the joint lifetimes of the Annuitant and another
person, and thereafter, during the lifetime of the survivor; or for some fixed
period. A fixed annuity provides a series of payments that will be
substantially equal in amount throughout the annuity payout period. A fixed
annuity does not participate in the investment experience of any Account
Division. A variable annuity provides a series of payments that vary in amount
depending upon the investment experience of the Account Divisions selected by
the Contract Owner.
MATURITY DATE: The date Income Payments begin. The individual Contracts
offered by this Prospectus describe the criteria for determining Maturity Dates.
In addition, tax qualified plans often place certain limitations upon election
of a Maturity Date. Generally, distributions under tax qualified plans must
begin by April 1 following the calendar year in which the Contract Owner or
Participant reaches age 70 1/2. See "The Contract - Mandatory Minimum
Distribution."
NET PURCHASE PAYMENT: The balance of each Purchase Payment received by Horace
Mann Life Insurance Company after deducting any applicable premium taxes, or the
balance of any transfer amount from other Account Divisions after applicable
charges, or dividends reinvested after applicable charges.
PARTICIPANT: A person to whom a Certificate showing participation under a
group Contract has been issued.
PURCHASE PAYMENT: An amount paid to Horace Mann Life Insurance Company, the
amount transferred from other Account Divisions, and any dividends reinvested to
provide benefits under a Contract.
QUALIFIED PLAN: A tax-sheltered annuity as defined in Section 403(b) or a
simplified employee pension plan as defined in Section 408(k) of the Internal
Revenue Code.
SURRENDER CHARGE: (a contingent deferred sales charge) An amount kept by
Horace Mann Life Insurance Company if a withdrawal is made or if the Contract is
surrendered and is intended to compensate Horace Mann Life Insurance Company for
the cost of selling the product.
VALUATION DATE: The Valuation Date ends at the earlier of 3:00 p.m. central
time or at the closing of the New York Stock Exchange. No valutions are made for
any day that the New York Stock Exchange is closed and for 1996 no valuations
are made for July 5 or the day after Thanksgiving.
VALUATION PERIOD: The period from the end of a Valuation Date to the end of
the next Valuation Date, excluding the day the period begins and including the
day it ends.
1
<PAGE>
SYNOPSIS
- --------------------------------------------------------------------------------
The Contracts offered by this Prospectus are individual and group flexible
payment and individual single payment combination fixed and variable annuity
Contracts. The Contracts may be used in connection with various types of
retirement plans or arrangements qualifying for special deferred tax treatment
under the Internal Revenue Code, as amended ("IRC"). See "Tax Consequences."
This Prospectus is intended to serve as a disclosure document for the variable
portion of the Contracts only. As used in this Prospectus, "variable" means
that value depends on the investment performance of the Horace Mann Fund(s)
selected. For information regarding the fixed portion, refer to the Contract.
Subject to various state insurance laws, generally the Contract Owner may
return the Contract to Horace Mann Life Insurance Company ("HMLIC") within 30
days of receipt of the Contract and will receive the market value of the assets
purchased by payments paid to the Account, less any taxes.
HMLIC established the Horace Mann Life Insurance Company Separate Account (the
"Account") to segregate assets dedicated to the variable portion of the
combination fixed and variable Contracts offered herein. The Account is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a unit investment trust. The Account is divided into
four Account Divisions, each investing solely in shares of one of the Horace
Mann Funds: Growth Fund, Income Fund, Balanced Fund, or Short-Term Fund.
Detailed information about the Funds is contained in the Funds' Prospectus
which immediately follows this Prospectus for the Horace Mann Life Insurance
Company Separate Account. Each Fund receives investment advice from Wellington
Management Company and is managed by Horace Mann Investors, Inc. ("Investors").
The Funds' expenses, including advisory and management fees, are found in the
Table of Annual Operating Expenses shown on page 4 of this Synopsis.
The minimum annual Purchase Payment under a flexible payment Contract during
any Contract Year is $225. The minimum Purchase Payment under a single payment
Contract is $5,000. No Purchase Payments are required after the first Contract
Year. Contract Owners may elect to allocate all or part of the Purchase
Payments to one or more Account Divisions. The minimum Purchase Payment
allocated to any Account Division within any given Contract Year must equal or
exceed $100.
Contracts are subject to deductions for applicable state or local government
premium taxes. Premium taxes presently range from 0 to 3.5%. No deduction for
sales expense is charged on Purchase Payments, but a surrender charge is
assessed against certain withdrawals and surrenders. An asset charge, computed
weekly, is deducted from the account value for mortality risk, expense risk, and
distribution risk. This charge will not exceed 1.35% of the Contract Owner's
average value in an Account Division(s), on an annual basis. A fixed annual
maintenance charge of $25 is assessed against the Contract on each anniversary,
unless the Contract value equals or exceeds $10,000, in which case such charge
is waived.
Unless restricted by his or her retirement plan or by the IRC, a Contract
Owner may surrender his or her Contract in whole or withdraw in part for cash at
any time before the Maturity Date. Partial withdrawals are subject to a $100
minimum. Each surrender or partial withdrawal is processed on the basis of the
net asset value(s) of an accumulation unit of the Account Division(s) from which
the value is being surrendered or withdrawn. Surrenders and withdrawals
generally are subject to the following Surrender Charges:
<TABLE>
<CAPTION>
DURING FLEXIBLE PAYMENT SINGLE PAYMENTS
CONTRACT YEAR CONTRACTS CONTRACTS
- ------------- ----------------- ----------------
<S> <C> <C>
1 8% 5%
2 8% 4%
3 6% 3%
4 4% 2%
5 2% 1%
Thereafter 0% 0%
</TABLE>
The charges shown above are taken from the Contract Owner's value in the
Account Division(s) from which the withdrawal is made. In no event will the
charges exceed 8.5% of the Net Purchase Payments to the Account Division(s).
In addition, the IRC provides penalties for premature distributions under
various retirement plans. Values may not be withdrawn from Section 403(b)
Contracts except under certain circumstances. See "Tax Consequences." This
Contract might not be suitable for short-term investment. See "The Contract-
Transactions-Surrender Before Commencement of Annuity Period."
Prior to the Maturity Date, amounts may be transferred from one Account
Division to another, and to and from the fixed portion of the Contract.
(Transfers from the fixed portion of the Contract into an Account Division are
treated like any other partial withdrawal from the fixed portion of the
Contract, except that no surrender charge is imposed.) The minimum amount that
can be transferred is $100 or the entire dollar value of the Account
Division(s), whichever is less. See "The Contract-Transactions-Transfers."
2
<PAGE>
Income Payments may be fixed or variable or a combination of fixed and
variable payments. Payments will begin on the Maturity Date selected by the
Contract Owner. Variable Income Payments are made in monthly installments. A
lump sum payment may be made, however, if the total Contract value is less than
$2,000 or if monthly Income Payments at the Maturity Date would be less than
$20. An optional Maturity Date and various income payment options are available
under the Contract. See "The Contract-Income Payments-Income Payment Options."
The Contract is offered and sold by HMLIC through its licensed life insurance
sales personnel, who are registered representatives of Investors. HMLIC has
entered into a distribution agreement with Investors, an affiliated broker-
dealer registered under the Securities and Exchange Act of 1934. Investors is a
member of the National Association of Securities Dealers, Inc. (NASD).
3
<PAGE>
TABLE OF ANNUAL OPERATING EXPENSES
- --------------------------------------------------------------------------------
The following is a summary of costs and expenses borne by the Contract Owner
in connection with an investment in the Account.
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Contract Owner Transaction Expenses:/1/
Maximum Surrender Charge as a percentage of redemption proceeds/2/
- for Single Payment Contracts.................................... 5.00%
- for Flexible Payment Contracts.................................. 8.00%
Annual Maintenance Charge/3/................................................ $25
Separate Account Annual Asset Charge, as a percentage of average account value:
Mortality Risk........................................................ 0.45%
Expense Risk.......................................................... 0.15%
Distribution Expense Risk............................................. 0.75%
Total Separate Account Annual Asset Charge................................ 1.35%
Annual Operating Expenses of the Horace Mann Funds, as a percentage of average
daily net assets for the December 31, 1995 fiscal year (net of reimbursements
and fee waivers):
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------- ------- --------- -----------
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.34% 0.26% 0.31% 0.14%
Business Management Fees 0.21% 0.21% 0.21% 0.21%
Other Expenses:
Fund Pricing Fee 0.01% 0.06% 0.01% 0.42%
Custodian Fees 0.02% 0.12% 0.03% 0.53%
Misc. (audit, lgl, etc.) 0.05% 0.23% 0.03% 1.05%
Total Fund Gross Operating Expense 0.63% 0.88%/4/ 0.59% 2.35%/5/
Minus Expense Reimbursements and
Fee Waivers 0.02% 0.26%/4/ 0.00% 1.51%/5/
Net Fund Operating Expenses 0.61% 0.62% 0.59% 0.84%
</TABLE>
/1/Premium taxes, currently ranging between 0 and 3.5%, are not included. The
rate of the premium tax varies depending upon the state of residence, and not
all states impose premium taxes. Also, depending on the state, taxes are taken
from Purchase Payments or are levied at annuitization.
/2/In some cases, the Surrender Charge does not apply. See "The Contract-
Transactions-Surrender Before Commencement of Annuity Period."
/3/The annual maintenance charge equals $25 per year, unless the Contract value
equals or exceeds $10,000 at each anniversary. The annual maintenance charge
is not deducted after the Maturity Date.
/4/Total Fund Operating Expenses of the Income Fund for the year ended 1995,
without any waivers or expense reimbursements, were 0.88%. Net operating
expenses of the Income Fund, adjusted for business management and fund pricing
fees waived or paid by Investors, were 0.62%.
/5/Fund Operating Expenses of the Short-Term Fund for the year ended 1995,
without any waivers or expense reimbursements, were 2.35%. Net operating
expenses of the Short-Term Fund, adjusted for business management and fund
pricing fees waived or paid by Investors, were 0.84%.
4
<PAGE>
EXAMPLE/1/
- ---------
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------ ------ -------- ----------
<S> <C> <C> <C> <C>
FOR FLEXIBLE PAYMENT CONTRACTS
- ------------------------------
If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming
5% annual return on assets:
1 year $104 $104 $103 $106
3 years $131 $131 $131 $138
5 years $113 $113 $112 $125
10 years $243 $244 $241 $267
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment, assuming
5% annual return on assets:
1 year $ 21 $ 21 $ 21 $ 24
3 years $ 66 $ 66 $ 65 $ 73
5 years $113 $113 $112 $125
10 years $243 $244 $241 $267
FOR SINGLE PAYMENT CONTRACTS
- ----------------------------
If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming
5% annual return on assets:
1 year $ 73 $ 73 $ 73 $ 75
3 years $ 98 $ 99 $ 98 $105
5 years $113 $113 $112 $125
10 years $243 $244 $241 $267
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment, assuming
5% annual return on assets:
1 year $ 21 $ 21 $ 21 $ 24
3 years $ 66 $ 66 $ 65 $ 73
5 years $113 $113 $112 $125
10 years $243 $244 $241 $267
</TABLE>
/1/The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the "Other Expenses" shown on the fee
table and average cash value of the average number of annuity Contracts in the
accumulation phase during the 1995 calendar year. Actual expenses may be
greater or less than those shown. There is no assumption for premium taxes,
applicable in certain states, in these examples.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING THE
VARIOUS
COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS
EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE OF THE UNDERLYING
FUNDS. SEE "THE CONTRACT-DEDUCTIONS AND EXPENSES."
5
<PAGE>
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following information is taken from the Separate Account financial
statements. Please read the financial statements in conjunction with this
information and the Statement of Additional Information. Accumulation Unit
Values shown below are reduced annually for dividend distributions from each
underlying mutual fund. Dividend distributions are used to purchase additional
Accumulation Units.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION # UNITS
UNIT VALUE UNIT VALUE OUTSTANDING
BEGINNING OF END OF END OF
YEAR ENDED PERIOD PERIOD PERIOD
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
GROWTH FUND 12/31/95 $17.64 $21.66 9,499,642
12/31/94 19.85 17.64 7,444,937
12/31/93 19.49 19.85 5,271,528
12/31/92 19.15 19.49 3,847,269
12/31/91 16.64 19.15 3,244,626
12/31/90 18.88 16.64 2,748,244
12/31/89 17.30 18.88 2,349,405
12/31/88 16.00 17.30 2,110,447
12/31/87 21.29 16.00 1,959,967
12/31/86 25.85 21.29 1,217,096
INCOME FUND 12/31/95 $12.02 $13.03 776,272
12/31/94 13.06 12.02 746,535
12/31/93 12.95 13.06 694,843
12/31/92 12.92 12.95 566,223
12/31/91 12.26 12.92 473,423
12/31/90 12.35 12.26 415,716
12/31/89 11.64 12.35 346,639
12/31/88 11.59 11.64 279,341
12/31/87 13.96 11.59 207,215
12/31/86 13.04 13.96 70,273
BALANCED FUND 12/31/95 $15.26 $18.00 12,085,917
12/31/94 16.72 15.26 10,010,131
12/31/93 16.22 16.72 7,470,133
12/31/92 15.91 16.22 5,352,185
12/31/91 14.19 15.91 4,274,088
12/31/90 15.10 14.19 3,528,857
12/31/89 13.48 15.10 2,697,026
12/31/88 12.71 13.48 2,142,638
12/31/87 14.91 12.71 1,644,390
12/31/86 13.71 14.91 451,067
SHORT-TERM FUND 12/31/95 $10.08 $10.00 95,982
12/31/94 10.07 10.08 103,526
12/31/93 10.09 10.07 106,595
12/31/92 10.10 10.09 99,345
12/31/91 10.37 10.10 94,194
12/31/90 10.73 10.37 106,548
12/31/89 10.49 10.73 96,997
12/31/88 10.25 10.49 98,300
12/31/87 11.17 10.25 72,271
12/31/86 11.44 11.17 14,322
</TABLE>
6
<PAGE>
Financial statements of the Account and of HMLIC are available with the
Statement of Additional Information. A copy of the Statement of Additional
Information and of the financial statements may be obtained without charge by
mailing a written request to Horace Mann Life Insurance Company, P.O. Box 4657,
Springfield, Illinois 62708-4657, by sending a telefacsimile (FAX) transmission
request to (217) 527-2307, or by telephoning (217) 789-2500 or (800) 999-1030
(toll-free).
From time to time the Account may advertise total return for the Account
Divisions. Total return may be used for all four Account Divisions. Total
return performance figures represent past performance and are not intended to
indicate future performance. Investment return and the principal value of an
investment may fluctuate. A Contract Owner's shares, when redeemed, may be worth
more or less than their original cost. Total return is computed by finding the
average annual compounded rate of return that would equate the initial amount
invested to the ending redeemable value.
All recurring charges shown in the Table of Annual Operating Expenses are
reflected in the calculations of the performance figures. Total return may be
calculated to reflect the fact that certain expenses have been reimbursed or
waived. In addition, total return calculations assume redemption at the end of
the stated period and, therefore, reflect the applicable Surrender Charge.
However, comparative figures may be presented that do not assume redemption and
do not reflect the Surrender Charge.
7
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HORACE MANN LIFE INSURANCE COMPANY, THE ACCOUNT AND THE HORACE MANN FUNDS
HORACE MANN LIFE INSURANCE COMPANY
Horace Mann Life Insurance Company ("HMLIC") located at One Horace Mann Plaza,
Springfield, Illinois 62715-0001, is an Illinois stock life insurance company
organized in 1949. HMLIC is licensed to do business in 48 states and in the
District of Columbia. HMLIC writes group health insurance, individual and group
life insurance and annuity contracts on a nonparticipating basis.
HMLIC is an indirect wholly-owned subsidiary of Horace Mann Educators
Corporation ("HMEC"), a publicly-held insurance holding company traded on the
New York Stock Exchange.
THE ACCOUNT
On October 9, 1965, HMLIC established the Account under Illinois law. The
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Account and each
Account Division are administered and accounted for as a part of the business of
HMLIC. However, the income gains and losses, whether or not realized, of each
Account Division are credited to or charged against the amounts allocated to
that Account Division in accordance with the terms of the Contracts without
regard to other income, gains or losses of the remaining Account Divisions or of
HMLIC. The assets of the Account may not be charged with liabilities arising
out of any other business of HMLIC. All obligations arising under the
Contracts, including the promise to make Income Payments, are general corporate
obligations of HMLIC. Accordingly, all of HMLIC's assets are available to meet
its obligations and expenses under the Contracts. While HMLIC is obligated to
make payments under the Contracts, the amount of variable Income Payments are
not guaranteed since the payment amounts fluctuate in accordance with the
performance of the Account Divisions.
THE HORACE MANN FUNDS
Each Fund is an open-end, diversified, management investment company
registered under the Investment Company Act of 1940. The Funds issue shares of
common stock that are continually offered for sale. The Funds, advised by
Wellington Management Company, invest in securities of different issuers and
industry classifications in an attempt to spread and reduce the risks inherent
in all investing.
The primary investment objective of the GROWTH FUND is long-term capital
growth; conservation of principal and production of income are secondary
objectives. The Growth Fund invests primarily in common stocks.
The primary investment objective of the INCOME FUND is to maximize current
income consistent with prudent investment risk. A secondary objective is
preservation of capital. The Income Fund invests primarily in debt securities.
The investment objective of the BALANCED FUND is to realize high long-term
total rate of return consistent with prudent investment risks. The Balanced
Fund's assets are invested in a mix of common stocks, debt securities and money
market instruments.
The primary investment objective of the SHORT-TERM FUND is to realize maximum
current income to the extent consistent with liquidity. Preservation of
principal is a secondary objective. The Short-Term Fund attempts to realize its
objectives through investments in short-term debt instruments; it is not a money
market fund and does not maintain a stable net asset value per share.
Detailed information on the Funds is contained in the Funds' Prospectus which
accompanies this Prospectus.
THE CONTRACT
CONTRACT OWNERS RIGHTS
A Contract may be issued under a retirement plan on a qualified basis as
defined in the IRC or on a non-qualified basis. Qualified and non-qualified
contracts receive different tax treatment. See "Tax Consequences."
To participate in a qualified plan, the Contract Owner may be required to
forego certain rights granted by the Contract and should refer to the provisions
of his or her Contract, the provisions of the plan or trust instrument, and/or
applicable provisions of the IRC.
Unless otherwise provided by law, and subject to the terms of any governing
plan or trust, the Contract Owner may exercise all privileges of ownership, as
defined in the Contract, without the consent of any other person. These
privileges include the right during the period specified in the Contract to
change the beneficiary designated in the Contract, to designate a payee and to
agree to a modification of the Contract terms.
This Prospectus describes only the variable portions of the Contract. On the
Maturity Date, the Contract Owner has limited rights to acquire fixed annuity
payout options. See the Contract for details regarding fixed Income Payments.
PURCHASING THE CONTRACT
The Contract is offered and sold by HMLIC through its licensed life insurance
sales personnel who are also registered representatives of Investors. HMLIC has
entered into a distribution agreement with Investors, principal underwriter of
the Account. Investors, located at One Horace Mann Plaza, Springfield, Illinois
62715-0001, is a broker-dealer registered under the Securities Exchange Act of
1934. Investors is a member of the
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NASD and is a wholly-owned subsidiary of Horace Mann Educators Corporation.
In order to purchase a Contract offered by this Prospectus, an applicant must
complete an application bearing all requested signatures and a properly endorsed
suitability questionnaire. For a Contract issued pursuant to Section 403(b) of
the IRC, the applicant must also submit a signed acknowledgment of the IRC
restrictions on withdrawals applicable to such contracts. For an Individual
Retirement Annuity ("IRA") or a Contract issued under a simplified employee
pension plan, the applicant must also sign an IRA disclosure form.
Applications for Contracts are to be sent to HMLIC's Home Office. If an
incomplete application is received, HMLIC will promptly request that the
applicant furnish additional information needed to process the application. The
initial Purchase Payment will be held in a suspense account, without interest,
for a period not exceeding five business days. If the necessary information is
not received within these five business days HMLIC will return the initial
Purchase Payment, unless otherwise directed by the applicant.
Sales commissions are paid by HMLIC. Sales commissions typically range from
1% to 6% of Purchase Payments received.
PURCHASE PAYMENTS
AMOUNT AND FREQUENCY OF PURCHASE PAYMENTS - The minimum acceptable annual
Purchase Payment under a flexible payment Contract is $225. No Purchase
Payments are required after the first Contract Year. Payments may be made in
lump sum or installments. The minimum acceptable monthly Purchase Payment is
$25. The minimum acceptable Purchase Payment under a single payment Contract is
$5,000.
The IRC limits the amounts which may be contributed to qualified plans. See
"Tax Consequence--Contract Owners Contributions."
ALLOCATION OF PURCHASE PAYMENTS - All or part of the Purchase Payments made
may be allocated to one or more Account Divisions. The minimum Purchase Payment
amount allocated to any Account Division in any given Contract Year must equal
or exceed $100.
ACCUMULATION UNITS AND ACCUMULATION UNIT VALUE - The number of Accumulation
Units purchased by Purchase Payments is determined by dividing the dollar amount
credited to each Account Division by the applicable accumulation unit value next
determined following receipt of the payment by HMLIC.
Accumulation Units are valued on each Valuation Date. The accumulation unit
value of each Account Division is equal to the net asset value of the underlying
Fund (computed by dividing the net assets of a mutual fund by the outstanding
number of mutual fund shares on each Valuation Date). Dividends declared by the
underlying Fund of each Account Division, net of applicable deductions and
charges, are used to purchase additional Accumulation Units. To the extent that
deductions and charges exceed dividends, Accumulation Units will be surrendered.
The accumulation unit value of each Account Division other than the Growth Fund
Account Division was established at $10.00 on February 1, 1983. The
accumulation unit value of the Growth Fund Account Division was established at
$16.87 on October 9, 1965.
TRANSACTIONS
TRANSFERS - Amounts may be transferred from one Account Division to another,
and to and from the fixed portion of the Contract, prior to the Maturity Date.
(Transfers from the fixed portion of the Contract into an Account Division are
treated like any other partial withdrawal from the fixed portion, except that no
charges are imposed). The minimum amount that can be transferred is $100 or the
entire dollar value of the Account Division(s), whichever is less.
A Contract Owner may elect to transfer funds between Account Divisions by
submitting a written request to Horace Mann Life Insurance Company at P.O. Box
4657, Springfield, Illinois 62708-4657. Telefacsimile (FAX) transmissions of
the request also will be accepted if sent to (217) 527-2307. The request must:
(1) be signed by the Contract Owner, (2) include the name of the Contract Owner
and the Contract number, and (3) specifically state either the dollar amount or
the number of accumulation units to be transferred. The request also must
specify the Account Divisions from which and to which the transfer is to be
made. Transfers are effective either on a date specified in the request,
provided that date falls on or after receipt of the request at the Home Office,
or on the first Valuation Date following receipt of the request by the Home
Office.
Up to twelve transfers may be pre-scheduled at any point in time. A signed
written request or form must be completed. See "Other Information--Forms
Availability." If a Contract Owner decides to cancel a pre-scheduled transfer
arrangement, he or she should notify the Home Office in writing prior to the
next designated transfer date.
CHANGES IN ALLOCATION INSTRUCTIONS - A Contract Owner may elect to change the
allocation of future Purchase Payments at any time by mailing a written request
to Horace Mann Life Insurance Company at P.O. Box 4657, Springfield, Illinois
62708-4657 or by sending a telefacsimile (FAX) transmission to (217) 527-2307.
The request must: (1) be signed by the Contract Owner, (2) include the Contract
Owner's name and Contract number, and (3) specify the new allocation percentage
for each Account Division. If allocations are made to the fixed portion of the
Contract or to one or more Account Divisions, the percentages must total 100%.
Changes in
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allocation instructions are effective either on a date specified in the
request, provided that date falls on or after receipt of the request in the Home
Office, or on the first Valuation Date following receipt of the request by the
Home Office. See "Other Information--Forms Availability."
SURRENDER BEFORE COMMENCEMENT OF ANNUITY PERIOD - Values may not be withdrawn
from Section 403(b) Contracts except under certain circumstances. (See "Tax
Consequences.") However, if not restricted by the IRC or applicable retirement
plan under which the Contract is issued, a Contract Owner may surrender the
Contract in whole or withdraw in part for cash before Income Payments begin.
The surrender or partial withdrawal value is determined on the basis of the
accumulation unit value next computed following the receipt of the request for
surrender or partial withdrawal. A surrender or partial withdrawal may result
in adverse federal income tax consequences to the Contract Owner. These
consequences include current taxation of payments received, and may include
penalties resulting from premature distribution. See "Tax Consequences."
A Contract Owner eligible to surrender or request a partial withdrawal may
elect to do so by submitting a signed, written request to Horace Mann Life
Insurance Company at its Home Office at P.O. Box 4657, Springfield, Illinois
62708-4657. A surrender or partial withdrawal request must be in a form
acceptable to HMLIC; telefacsimile (FAX) transmissions of the request will not
be accepted. See "Tax Consequences and Other Information--Forms
Availability."
Partial withdrawals and surrenders will be processed either on a date
specified by you in a request, provided the date specified occurs on or after
receipt of the request at the Home Office, or on the first Valuation Date
following receipt of the request at the Home Office.
Any partial withdrawal is subject to a $100 minimum and may not reduce the
Contract Owner's interest in an Account Division to less than $100. A complete
surrender may be made at any time, unless otherwise restricted by the retirement
plan or the IRC.
Surrenders and partial withdrawals from any variable Account Division are
subject to the following Surrender Charges:
<TABLE>
<CAPTION>
DURING FLEXIBLE SINGLE
CONTRACT PAYMENT PAYMENT
YEAR CONTRACTS CONTRACTS
<S> <C> <C>
1 8% 5%
2 8% 4%
3 6% 3%
4 4% 2%
5 2% 1%
Thereafter 0% 0%
</TABLE>
Partial withdrawals may be made without charge if (1) the withdrawal does not
exceed 15% of the Contract value; (2) the Contract has been in force for two or
more Contract Years; and (3) more than twelve months have passed since the date
of the last partial withdrawal. Contract value is computed on the first
Valuation Date following receipt of the request in good form by the Home Office.
If all three conditions are not met, partial withdrawals are subject to
Surrender Charges.
Any request for partial withdrawal, where the withdrawal is subject to a
Surrender Charge, will be increased by the amount of the Surrender Charge. For
example, a request to withdraw $3,000 at a 4% Surrender Charge will require a
withdrawal of $3,125. This withdrawal represents a cash distribution of $3,000
and a Surrender Charge of $125. Any taxes withheld will reduce the dollar
amount of the distribution.
The Surrender Charge is assessed on the basis of the amount surrendered or
withdrawn from the Account Division(s), but will never exceed 8.5% of Net
Purchase Payment(s) to an Account Division during the lifetime of the Contract.
For example, if a Contract Owner's Account Division value is $12,000 and
Purchase Payments to date equal $10,000 and the Contract Owner withdraws $2,000
(i.e., one sixth of the Account Division value), then the Surrender Charge may
not exceed 8.5% of $1,666.66 (one sixth of the Purchase Payment(s) to which the
withdrawal relates).
If premium taxes are deducted prior to surrender or partial withdrawal, any
reduction of HMLIC's premium tax liability due to the surrender or partial
withdrawal will be to HMLIC's benefit.
DEFERMENT - HMLIC ordinarily completes a transaction within seven calendar
days after receipt of a proper request to transfer, surrender, partially
withdraw or commence Income Payments. The value of the Contract is determined
as of the Valuation Date on which the request is received. However,
determination of Contract value and processing the transaction may be deferred
for (1) any period during which the New York Stock Exchange is closed for other
than customary weekend or holiday closings or during which trading is restricted
by the Securities and Exchange Commission; (2) any emergency period when it is
not reasonably practicable to sell securities or fairly determine accumulation
unit values or annuity unit values; or (3) any other period designated by the
Securities and Exchange Commission to protect persons with interests in the
Account.
CONFIRMATIONS - HMLIC mails written confirmations of Purchase Payments to
Contract Owners on a quarterly basis within five business days following the end
of each calendar quarter. Written confirmations of transfers, changes in
allocations, partial withdrawals, and surrenders, are mailed to Contract Owners
within seven
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calendar days of the date the transaction occurred.
If a Contract Owner believes that the confirmation statement contains an
error, the Contract Owner should notify HMLIC within three months after receipt
of the confirmation statement. Notice may be provided by writing to HMLIC, P.O.
Box 4657, Springfield, Illinois 62708-4657, by sending a telefacsimile (FAX)
transmission to (217) 527-2307, or by telephoning (217) 789-2500 or (800) 999-
1030 (toll free).
DEDUCTIONS AND EXPENSES
ANNUAL MAINTENANCE CHARGE - An annual maintenance charge of $25 is deducted
from each Contract on the Contract anniversary date unless the contract value
equals or exceeds $10,000. The annual maintenance charge is deducted from the
Account Division containing the greatest dollar amount or from the fixed portion
of the Contract when none of the variable Account Divisions have any value.
Charges for annual maintenance cease once Income Payments begin. No annual
maintenance charge is taken, in whole or in part, in the event of a complete
surrender unless the surrender occurs on the Contract anniversary date.
The annual maintenance charge is intended to reimburse HMLIC for actual
expenses incurred in administering the Contract. HMLIC does not expect to
profit from such annual maintenance charge and assumes the risk that this annual
maintenance charge may be insufficient to cover the actual costs of
administering the Contract. See below "Charges for Mortality, Expense and
Distribution Expense Risks."
ASSET CHARGE FOR MORTALITY, EXPENSE AND DISTRIBUTION EXPENSE RISKS - For
assuming mortality, expense, and distribution risks, HMLIC applies an asset
charge to the account value of each Contract. The asset charge for mortality,
expense and distribution expense risks, may not exceed the annual rate of 1.35%
of the average net variable account value based on the date of calculation
(0.45% for mortality risks, 0.15% for expense risks and 0.75% for distribution
expense risks); however, HMLIC reserves the right to change the asset charge
(subject to the 1.35% ceiling) in the future. The asset charge accumulates on a
weekly basis at a rate of .0257205% of the net variable account value as of the
date of the calculation. The accumulated value of the asset charge is deducted
from each Account Division upon any surrender, partial withdrawal or transfer of
value or when dividends are paid, with the necessary number of units, at the
then current accumulation unit value, being redeemed to equal the dollar amount
of the charges owed. The accumulated asset charge for mortality, expense, and
distribution expense risks is assessed when a variable Income Payment is
elected. Thereafter, the asset charge is factored into the calculation of the
variable income payment.
OPERATING EXPENSES OF THE HORACE MANN FUNDS - There are deductions from and
expenses paid out of the assets of the Funds that are described in the Funds'
Prospectus which accompanies this Prospectus.
PREMIUM TAXES - Certain state and local governments levy a premium tax,
presently ranging from 0 to 3.5%, on the amount of Purchase Payments made under
this Contract. The premium tax, if any, is deducted either when payments are
received or when an amount is applied to provide an annuity at the Maturity
Date, depending upon the applicable law.
DEATH BENEFIT PROCEEDS
If a Contract Owner dies before the Maturity Date, the Contract value, or the
amount of Purchase Payments less any withdrawals, whichever is greater, will be
applied toward the purchase of an income payment option payable to the
beneficiary designated by the Contract Owner. The Contract value is determined
as of the date proof of death is received by HMLIC from the beneficiary. Proof
of death includes a certified death certificate and a completed claimant's
statement. The option purchased will be one elected by the Contract Owner. If
no option was elected, the beneficiary may elect an income payment option.
All or part of the death benefit proceeds may be paid to the beneficiary in a
lump sum or under one of the income payment options described under "Income
Payments--Income Payment Options." If the form of Income Payment selected
requires that payment be made by HMLIC after the death of the beneficiary,
payments will be made to a payee designated by the beneficiary or, if no
subsequent payee has been designated, to the beneficiary's estate.
For all Contracts issued in connection with this Prospectus, if the Contract
Owner dies before Income Payments begin and the designated beneficiary is not a
surviving spouse, the IRC requires the complete distribution of proceeds by
December 31 of the calendar year of the fifth anniversary of the death; i.e.,
"the five-year rule." This requirement can be satisfied by an annuity for life
or a period certain not exceeding the life expectancy of a designated
beneficiary, provided the Income Payments begin no later than December 31 of the
calendar year following the Contract Owner's death. Any part of a Contract
Owner's interest payable to a minor child will be paid to the child's legal
guardian for the benefit of the child.
If the designated beneficiary is the Contract Owner's surviving spouse,
Income Payments may be deferred until April 1 following the calendar year in
which the Annuitant would have reached age 70 1/2. For non-qualified annuities,
a designated beneficiary which is a surviving spouse may defer distributions
until he or she reaches age 70 1/2. However, if the surviving spouse dies
before distributions begin under any non-qualified
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<PAGE>
Contract issued in connection with this Prospectus, the five-year rule and its
exceptions, explained in the preceding paragraph, will apply to his or her
beneficiary.
If the Contract Owner dies on or after the Maturity Date, the remaining
portion of the interest in the Contract undistributed at the time of the
Contract Owner's death must be distributed at least as rapidly as under the
method of distribution in force at the time of the Contract Owner's death.
MANDATORY MINIMUM DISTRIBUTION
Qualified plans are subject to distribution requirements of the IRC. A
distribution must occur each calendar year once a Contract Owner reaches age
70 1/2. The Contract Owner may elect to defer the first distribution until April
1 of the year following his or her attainment of age 70 1/2. Should the first
payment be deferred, the Contract Owner must take two distributions in the
calendar year following attainment of age 70 1/2.
Generally, the amount of the mandatory minimum distribution depends on the
Contract value and the life expectancy of the Contract Owner. Under Mandatory
Minimum Distribution requirements, distributions must be made for the life (or
lives) or a period not exceeding the life expectancy (or joint life expectancy)
of the Contract Owner (or the Contract Owner and a designated beneficiary). To
begin mandatory distributions the Contract Owner must contact the Home Office at
P. O. Box 4657, Springfield, Illinois 62708-4657.
The Internal Revenue Service has indicated that a Contract Owner who can
verify the December 31, 1986 balance in his or her Section 403(b) annuity, can
delay distribution of that amount until the end of the calendar year in which he
or she turns age 75. At that time, the December 31, 1986 balance is subject to
the minimum distribution requirements. The December 31, 1986 balance includes
deposits received and any interest earned as of December 31, 1986. Deposits
received after that date, interest on those deposits, and interest earned on the
December 31, 1986 balance are subject to the age 70 1/2 distribution
requirements.
Failure to take the required distributions results in the imposition of a
penalty tax equal to one-half (50%) of the difference between what was and what
should have been distributed. In addition, income tax is due on the full amount
that should have been distributed. Further, any distribution in excess of the
mandatory minimum distribution is subject to a 20% federal income tax
withholding. See "Tax Consequences."
INCOME PAYMENTS
INCOME PAYMENT OPTIONS
The Contract provides for fixed or variable income payment options or a
combination of both. The Contract Owner may elect to have Income Payments made
under any one or more of the options described below or may elect a lump sum
payment. To begin receiving Income Payments a properly completed request form
must be received in the Home Office. The request will be processed so that the
Income Payments begin on the first of the month following the month of receipt
unless a later date is requested and approved by the Company. If a fixed
payment option is elected, the variable account value will be transferred to the
fixed account on the date the request is received in the Home Office. In
addition, if a variable payment is elected, any money in the fixed account will
be transferred to the variable account on the date we received the request in
the Home Office. Generally, at the time an income payment option is selected, a
Contract Owner must elect whether to withhold for federal and state income
taxes. See "Other Information--Forms Availability" and "Tax Consequences."
In general, the longer Income Payments are guaranteed, the lower the amount of
each payment. Income Payments normally are made in monthly installments.
Variable Income Payments are paid only on a monthly basis. If the Contract
value to be applied under any one fixed or variable income payment option is
less than $2,000 or if the option chosen would provide Income Payments less
than $20 per month at the Maturity Date, then the Contract value may be paid in
a lump sum.
The following income payment options are available on a variable basis unless
otherwise stated.
LIFE ANNUITY WITH OR WITHOUT CERTAIN PERIOD - The life option guarantees
Income Payments for the lifetime of the Annuitant. If a certain period is
selected (5, 10, 15, 20 years) and the Annuitant dies before the end of the
period, Income Payments are guaranteed to the beneficiary until the end of the
period selected or the beneficiary may request the commuted value, if any, of
the remaining certain period payments. If no beneficiary is living at the time
of the Annuitant's death, the commuted value, if any, of the remaining certain
period payments will be paid in a single sum to the estate of the Annuitant.
Under the life without period certain option, it is possible that only one
Income Payment may be made if the Annuitant's death occurred before the due date
of the second Income Payment. This option usually provides the largest Income
Payments. The Annuitant cannot make unscheduled withdrawals or change to
another option after the first Income Payment has been made.
JOINT AND SURVIVOR LIFE ANNUITY - This life only option provides lifetime
Income Payments during the lifetimes of two Annuitants. After one annuitant
dies, the Income Payments will continue during the lifetime of the survivor in
an amount reduced to two-thirds of the monthly payments that would have been
paid had the joint lifetime of the two Annuitants continued. The
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<PAGE>
Income Payments cease after the last payment paid prior to the survivor's
death. It could be possible for only one payment to be made under this option
if both Annuitants die before the due date of the second payment. The
Annuitants cannot make unscheduled withdrawals or change to another income
option after the first Income Payment has been made.
INCOME FOR FIXED PERIOD - This option provides Income Payments for a fixed
period not less than one year nor exceeding 30 years; however, payments may not
extend beyond the life expectancy of the Annuitant. Upon the Annuitant's death,
the beneficiary will be paid the remaining Income Payments due, if any, or the
beneficiary may request the commuted value, if any, of the remaining certain
period payments. If no beneficiary is living at the time of the Annuitant's
death, the commuted value, if any, of the remaining Income Payments will be paid
in a lump sum to the estate of the Annuitant. The Annuitant has the right to
change to another income option or make unscheduled withdrawals from the
remaining commuted value subject to IRC requirements. This option is available
on a fixed payment basis only.
INCOME FOR FIXED AMOUNT - This option provides payments of a fixed amount
until the account value, with interest, has been paid; however, payments may not
extend beyond the life expectancy of the Annuitant. Upon the Annuitant's death,
the beneficiary will be paid the remaining Income Payments due, if any, or the
beneficiary may request the commuted value, if any, of the remaining Income
Payments. If no beneficiary is living at the time of the Annuitant's death, the
commuted value, if any, of the remaining Income Payments will be paid in a lump
sum to the estate of the Annuitant. The Annuitant has the right to change to
another income option or make unscheduled withdrawals from the remaining
commuted value subject to IRC requirements. This option is available on a fixed
payment basis only.
INTEREST INCOME PAYMENTS - This option provides Income Payments based on
interest earned from the proceeds of the Contract, at a rate determined by
HMLIC, but never less than the annual guaranteed interest rate. Interest will be
credited at the end of each payment period. Once the Annuitant reaches age 70
1/2, mandatory minimum distribution requirements will not allow Interest Income
Payments to continue. The Annuitant may elect another income option at the end
of any payment period, or subject to IRC requirements, may withdraw the Contract
value in whole or in part upon written request. The request must be made prior
to the end of the period that the Annuitant agreed to receive Income Payments.
See "Mandatory Minimum Distribution." This option is available on a fixed
payment basis only.
OTHER INCOME OPTIONS - If the Annuitant does not wish to elect one or more
income payment options, the Annuitant may:
a) receive the proceeds in a lump sum, or
b) leave the Contract with HMLIC and receive the value under the mandatory
minimum distribution requirements of IRC Section 401(a)(9), see "Mandatory
Minimum Distribution," or
c) elect any other option that HMLIC makes available.
AMOUNT OF FIXED AND VARIABLE INCOME PAYMENTS
In general, the dollar amount of Income Payments under the Contract depends on
Contract value. Contract value equals the value of the fixed portion of the
Contract plus the value of each Account Division. The value of each Account
Division is determined by multiplying the number of Accumulation Units credited
to each Account Division by its respective accumulation unit value, less any
accumulated asset charge. Contract value may be more or less than the amount of
Net Purchase Payments allocated to the Contract.
FIXED INCOME PAYMENTS - The amount of each payment under a fixed income
payment option is determined from the income option tables in the Contract.
These tables show the monthly payment for each $1,000 of Contract value
allocated to provide a fixed Income Payment. Guaranteed fixed Income Payments
will not change regardless of investment, mortality or expense experience.
Higher Income Payments may be made at the sole discretion of HMLIC.
VARIABLE INCOME PAYMENTS - The amount of the first monthly variable Income
Payment is determined from the income option tables in the Contract. The tables
show the amount of the Income Payment for each $1,000 of value allocated to
provide Income Payments. The income option tables vary with the form of
income option payment selected and adjusted age of the Annuitant(s).
The first monthly variable Income Payment is used to calculate the number of
variable annuity units for each subsequent monthly Income Payment. The number
of variable annuity units remains constant over the payment period except when a
joint and survivor option is chosen. The number of variable annuity units will
be reduced upon the death of either Annuitant by one-third.
The amount of monthly Income Payments following the first variable Income
Payment varies from month to month to reflect the investment experience of each
Account Division funding those payments. Income Payments are determined each
month by multiplying the variable annuity units by the applicable variable
annuity unit value at the date of payment. The variable annuity unit value will
change between Valuation Dates to reflect the investment experience of each
Account Division.
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ASSUMED INTEREST RATE - The selection of an assumed interest rate affects both
the first monthly variable Income Payment and the pattern of subsequent
payments. The sum of the assumed interest rate and the mortality and expense
risk charge, adjusted to a monthly rate, is the investment multiplier. If the
investment performance of an Account Division funding variable Income Payments
is the same as the investment multiplier, the monthly payments will remain
level. If its investment performance exceeds the investment multiplier, the
monthly payments will increase. Conversely, if investment performance is less
than the investment multiplier, the payments will decrease. Unless otherwise
provided, the assumed interest rate is 4.0% per annum.
ANNUITY UNIT VALUE - The variable annuity unit value for the Growth,
Balanced, and Income Fund Account Divisions was set at $10.00 as of the date
amounts first were allocated to provide Income Payments. The variable annuity
unit value for the Short-Term Fund's Account Division also has been set at
$10.00, however, no Income Payments have been paid from this Account Division.
The current variable annuity unit value is equal to the prior variable annuity
unit value on the Valuation Date when payments were last determined, multiplied
by the applicable net investment factor. The net investment factor reflects the
investment performance of the Account Division during the current month plus the
value of any dividends and distributions during the current month. This factor
is computed by dividing the net asset value of a share of the underlying Fund on
the last business day of the current month, plus any dividends or other
distributions, by the net asset value of a share on the last business day of the
preceding month, and dividing this result by the sum of one plus the investment
multiplier (or multiplying this result by .995666).
MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, any Income Payment amount
shall be adjusted to reflect the correct age. If the Income Payments were too
large because of a misstatement of age, HMLIC will deduct the difference with
interest, at an effective annual interest rate of 6%, from future payments until
totally repaid. If the Income Payments were too small, HMLIC will add the
difference with interest, at an effective annual interest rate of 6%, to the
next payment.
MODIFICATION OF THE CONTRACT
The Contract provides that it may be modified by HMLIC to maintain continued
compliance with applicable state and federal laws. Contract Owners will be
notified of any modification. Only officers designated by HMLIC may modify the
terms of the Contract.
HMLIC reserves the right to offer Contract Owners, at some future date and in
accordance with the requirements of the Investment Company Act of 1940, the
option to direct that their Purchase Payments be allocated to a registered,
open-end, diversified, management investment company ("mutual fund") other than
one or more of the four currently offered Horace Mann Funds. If shares of a
Horace Mann Fund are not available for purchase by the Account, or if in the
judgment of HMLIC further investment in these shares is no longer appropriate in
view of the purposes of the Account or Account Division, then (i) shares of
another mutual fund may be substituted for existing Fund shares held in the
affected Account Division and/or (ii) payments received after a date specified
by HMLIC may be applied to the purchase of shares of another mutual fund. No
substitution will be made without prior approval of the Securities and Exchange
Commission. Any substitution would be for shares of a mutual fund with
investment objectives similar to those of the Fund it replaces.
TAX CONSEQUENCES
SEPARATE ACCOUNT
The operations of the Account form part of the operations of HMLIC; however,
the IRC provides that no federal income tax will be payable by HMLIC on the
investment income and capital gains of the Account if certain conditions are
met. Provided the investments of the underlying Funds continue to meet the
diversification requirements of IRC Section 817(h), the Contract Owner will not
pay federal income tax on the investment income and capital gains under a
Contract until Income Payments begin or a full or partial withdrawal is made.
CONTRACT OWNERS
CONTRIBUTIONS - Under IRC Section 403(b), Purchase Payments made by public
school systems, churches, or certain tax-exempt organizations to purchase
annuities for their employees are excludable from the gross income of the
employee to the extent that aggregate Purchase Payments for the employee do not
exceed certain limitations imposed by the IRC. Further, any amounts credited
to the Contract Owner's account are not taxable until such amounts are
distributed. If the Contract is used for a tax-sheltered annuity described in
IRC Section 403(b) or a simplified employee pension plan described in IRC
Section 408(k) ("qualified plans"), contributions made by an employer through a
salary reduction plan are permitted up to prescribed limits.
Generally, IRC Section 403(b) imposes a limitation on the amount of tax-
deferred Purchase Payments that may be made in a calendar year equal to 20% of
an employee's compensation includable in gross income for that year. Adjustments
to this limitation are made based upon the Contract Owner's years of service
with his or her employer and take into account the Contract Owner's prior and
current contributions to qualified plans. The Section 403(b) limitation also is
adjusted for any amounts deferred in prior taxable years under an eligible
deferred
14
<PAGE>
compensation plan as defined by IRC Section 457. In addition, IRC Section 415
imposes a 25% limitation on total pre-tax contributions to all tax-qualified
plans. No limitations are imposed on the amount of contributions made to a non-
qualified contract.
If the Contract is used as an IRA, subject to certain limitations, all or a
portion of the contribution up to $2,000 ($2,250 for a spousal IRA) may be
deducted from gross income. Contributions to a simplified employee pension plan
Contract generally may not exceed 15% of compensation or $30,000, whichever is
less. Until a taxable distribution occurs, no federal income tax is payable by
the Contract Owner on Purchase Payments and investment earnings of a Contract
purchased for a qualified plan or an IRA.
Effective January 1, 1989, the IRC imposes restrictions on distributions
(i.e., partial withdrawals or surrenders) from annuity contracts qualified under
IRC Section 403(b). IRC Section 403(b)(11) requires that for these annuity
contracts to receive tax-deferred treatment, the following distribution
restrictions must be applied to contributions and all earnings credited after
December 31, 1988.
Distributions may be paid only:
(1) When the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (within the meaning of IRC Section 72(m)(7)), or
(2) In hardship cases and cannot exceed contributions made through a
salary reduction agreement. Distribution of any income attributable to these
contributions is prohibited.
DISTRIBUTIONS UNDER QUALIFIED CONTRACTS - The IRC subjects qualified plans to
certain mandatory minimum distribution requirements. See "The Contract-
Mandatory Minimum Distribution."
If certain requirements are met, full or partial distributions other than
mandatory minimum distributions, either may be rolled over or exchanged on a
tax-free basis from one plan to another in accordance with IRC Section 1035 or
Revenue Ruling 90-24. See "The Contract - Mandatory Minimum Distribution."
Distributions from an IRC Section 403(b) Contract may be rolled over to another
IRC Section 403(b) Contract or to an IRA. Distributions from an IRA may be
rolled over to another IRA or to an IRC Section 403(b) Contract if the IRA
contains only amounts rolled over from a 403(b) plan.
Effective January 1, 1993, federal tax law requires HMLIC to withhold for
ordinary income tax purposes, 20% of any distributions from annuity Contracts or
plans qualified under IRC Section 403 with the exception of the following:
(1) eligible rollover distributions made directly to another trustee,
(2) periodic payments received over the Contract Owner's lifetime,
(3) periodic payments received under the minimum required distribution
rules, or
(4) periodic payments received over a period of ten years or more.
The Contract Owner, after receiving a distribution that is subject to the 20%
withholding tax, may elect to rollover the distribution within 60 days of
receiving it. However, in order to qualify the entire distribution as a
rollover, the Contract Owner must replace the 20% withheld when making the
rollover payment. If the 20% is not replaced, the amount withheld will be
subject to ordinary income taxes and a possible 10% tax penalty if the
distribution occurred before age 59 1/2.
All distributions, with the exception of a return of nondeductible employee
contributions, received from a qualified plan or an IRA are includable in gross
income in the year paid. Once Income Payments begin, any nondeductible
contributions are recovered tax-free as a portion of each Income Payment.
Under certain limited circumstances, an individual may elect forward averaging
with respect to a lump sum distribution.
For any distribution not subject to the 20% withholding, HMLIC is required to
withhold federal income tax unless the Contract Owner elects not to have federal
income tax withheld. After an election is made with respect to Income Payments,
a Contract Owner may revoke the election at any time. HMLIC will notify the
Contract Owner at least annually of his or her right to revoke the election.
Contract Owners are required by law to provide their correct taxpayer
identification numbers ("TIN") to HMLIC. If the Contract Owner is an
individual, the TIN is his or her Social Security number.
If the designated beneficiary is not the Contract Owner's spouse, then at
least 50% of the present value of the amount available for distribution must be
paid within the life expectancy of the Contract Owner of an IRA or a qualified
plan. Each payment to the beneficiary must be no less than each payment to the
Contract Owner.
DISTRIBUTIONS UNDER NON-QUALIFIED CONTRACTS - Contract Owners of non-qualified
Contracts are not subject to federal income tax on earnings until Income
Payments are received under the Contract.
A distribution by surrender or partial withdrawal during the accumulation
period may subject the Contract Owner to federal income tax. For this purpose,
an assignment or pledge (or agreement to assign or pledge) is considered a
distribution.
15
<PAGE>
If the distribution is a full surrender, the Contract Owner is taxed on the
amount distributed, less Purchase Payments reduced by any prior partial
withdrawals which were not subject to income tax.
A distribution by partial withdrawal is deemed to come first from any
previously untaxed accumulation and then from principal. The Contract Owner is
subject to income tax on any previously untaxed accumulation which is
distributed.
Purchase Payments may be made by means of a full or partial tax free exchange
of annuity contracts under IRC Section 1035. Contracts exchanged under IRC
Section 1035 after January 18, 1985 will be subject to the annuity income tax
rules of IRC Section 72 in effect after that date, with exceptions set forth
below regarding the first-in first-out treatment of contracts issued prior to
August 14, 1982. See below "Penalty Tax."
If distributions are made pursuant to an income payment option, that portion
of each Income Payment which represents the Contract Owner's investment in the
Contract is excluded from gross income for federal income tax purposes. The
"investment in the Contract" is equal to total Purchase Payments to the Contract
less the portion of any periodic distributions that were excluded from the
individual's gross income. Once the Contract Owner's investment is returned in
full, the entire amount of each Income Payment is taxable as ordinary income.
PENALTY TAX - Distributions to a Contract Owner under a qualified plan are
subject to a 10% penalty tax unless the distributions are received:
(1) on or after age 59 1/2,
(2) on account of death,
(3) on account of disability, as defined in IRC Section 72(m)(7),
(4) pursuant to a qualified domestic relations order, as defined in IRC
414(p),
(5) for deductible medical expenses in excess of 7 1/2% of adjusted gross
income,
(6) on account of separation from service after age 55, or
(7) as a series of substantially equal payments for the life or a period
not exceeding life expectancy of the Contract Owner, or the lives or a period
not exceeding the joint life expectancy of the Contract Owner and a
designated beneficiary.
The 10% penalty tax also applies to distributions from IRAs before the
Contract Owner attains age 59 1/2, dies, or becomes disabled.
Taxable distributions from non-qualified Contracts received prior to age 59
1/2 are also subject to a 10% penalty tax unless the distribution is made after
the Contract Owner's death or disability, received as part of substantially
equal periodic payments for the Contract Owner's lifetime, or attributable to
Purchase Payments made prior to August 14, 1982. In addition, for non-qualified
Contracts issued during the period August 14, 1982 through January 18, 1985 and
for additional Purchase Payments to non-qualified Contracts issued prior to
August 14, 1982, the penalty tax will not apply to distributions attributable to
Purchase Payments paid ten years or more prior to the distribution. For this
purpose, distributions will be attributed to Purchase Payments on a "first-in
first-out" basis (i.e. to the earliest Purchase Payment which has not been fully
allocated to prior distributions.)
The preceding discussion is informational only and is not to be considered tax
advice. Contract Owners are urged to consult a competent tax adviser before
taking any action that could have tax consequences.
VOTING RIGHTS
Unless otherwise restricted by the plan under which a Contract is issued, each
Contract Owner has the right to instruct HMLIC with respect to voting his or her
interest in the shares of the Funds held by the Separate Account at all
shareholder meetings.
The number of votes that may be cast by a Contract Owner is based on the
number of units owned as of the record date of the meeting. Shares for which no
instructions are received are voted in the same proportion as the shares for
which instructions have been received. Any Fund shares attributable to
investment by HMLIC will be voted in proportion to the vote by Contract Owners
who have Separate Account units. Contract Owners receive various materials,
such as proxy materials and voting instruction forms, that relate to voting Fund
shares.
OTHER INFORMATION
LEGAL PROCEEDINGS - There are no legal proceedings to which the Separate
Account is a party or to which the assets of the Separate Account are subject.
HMLIC is engaged in various kinds of routine litigation that, in HMLIC's
judgment, are not material to its financial condition. None of this litigation
relates to the Separate Account.
16
<PAGE>
REGISTRATION STATEMENT - A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the Contract. This Prospectus does not contain all information set forth in
the registration statement, its amendments and exhibits. Statements contained in
this Prospectus as to the content of the Contract and other legal instruments
are summaries. For a complete statement of the terms thereof, reference is made
to these instruments as filed.
CONTRACT OWNER COMMUNICATIONS - To ensure receipt of communications, Contract
Owners must notify HMLIC of address changes. Notice of a change in address may
be sent to Horace Mann Life Insurance Company, Annuity Customer Service, P.O.
Box 4657, Springfield, Illinois 62708-4657. Contract Owners may also provide
notice of an address change by sending a telefacsimile (FAX) transmission to
(217) 527-2307 or by calling (217) 789-2500 or (800) 999-1030 (toll free).
HMLIC will attempt to locate Contract Owners for whom no current address is on
file. In the event HMLIC is unable to locate a Contract Owner, HMLIC may be
forced to surrender the value of the Contract to the Contract Owner's last known
state of residence in accordance with the state's abandoned property laws.
CONTRACT OWNER INQUIRIES - A toll free number, (800) 999-1030, is available to
telephone HMLIC's Annuity Customer Service Department. Written questions
should be sent to Horace Mann Life Insurance Company, Annuity Customer Service,
P.O. Box 4657, Springfield, Illinois 62708-4657.
FORMS AVAILABILITY - Specific forms are available from HMLIC to aid the
Contract Owner in affecting many transactions allowed under the Contract. These
forms may be obtained by calling the Annuity Customer Service Department toll
free at (800) 999-1030.
ADDITIONAL INFORMATION
A copy of the Statement of Additional Information providing more detailed
information about the Account is available, without charge, upon request. The
Table of Contents of this Statement follows:
<TABLE>
<CAPTION>
TOPIC PAGE
- ----- ----
<S> <C>
General Information and History.. 2
Investment Experience............ 2
Underwriter...................... 3
Financial Statements............. 3
</TABLE>
To receive, without charge, a copy of the 1995 Annual Report of the Horace
Mann Family of Funds and the Horace Mann Life Insurance Company Separate Account
and/or a copy of the Statement of Additional Information for Horace Mann Life
Insurance Company Separate Account and/or the Horace Mann Family of Funds,
please complete the following request form and mail it to the address indicated
below, or send it by telefacsimile (FAX) transmission to (217) 527-2307 or
telephone (217) 789-2500 or (800) 999-1030 (toll-free).
HORACE MANN LIFE INSURANCE COMPANY
P.O. BOX 4657
SPRINGFIELD, ILLINOIS 62708-4657
- --------------------------------------------------------------------------------
Please provide free of charge the following information:
________ 1995 Annual Report of the Horace Mann Family of Funds and the Horace
Mann Life Insurance Company Separate Account.
________ Statement of Additional Information dated May 1, 1996 for the Horace
Mann Family of Funds.
________ Statement of Additional Information dated May 1, 1996 for the Horace
Mann Life Insurance Company Separate Account.
Please mail the above documents to:
_________________________________________________
(Name)
_________________________________________________
(Address)
_________________________________________________
(City/State/Zip)
17
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1996
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
FOR CONTRACTS ISSUED ON FORM 527 -- GC
MAY 1, 1996
The group variable annuity Contract issued by Horace Mann Life Insurance Company
on Form 527-GC is no longer offered or sold by Horace Mann Life Insurance
Company. This earlier Contract remains in effect but differs from the Contracts
described in the Prospectus in the following material respects. Please refer to
the Contract on Form 527-GC for a complete description of its provisions.
1. The Contract may be terminated or discontinued by the Group Contract Owner
upon written notice to Horace Mann Life Insurance Company. The written notice
must specify the date for termination which may not be earlier than 30 days
following the date such notice is received by Horace Mann Life Insurance
Company. The Contract may be discontinued by Horace Mann Life Insurance
Company upon 90 days written notice to the Group Contract Owner.
2. If the Contract is terminated or the Annuitant ceases to be in the class of
eligible Annuitants, the Annuitant may elect within 90 days thereafter to
purchase from Horace Mann Life Insurance Company the individual annuity
Contract most similar in benefits and provisions to those of the Annuitant's
Certificate.
3. At the end of each fiscal year Horace Mann Life Insurance Company may, in its
discretion, determine an experience credit to be equitably applied based on
the mortality experience and administration costs of the Contract.
4. The Contract's minimum Purchase Payment is $10. Minimum annual Purchase
Payments that may be allocated to the Account are $200. In lieu of the
Surrender Charge, 5% of each Purchase Payment plus $.50 is deducted for sales
and administrative expenses and death benefit charges. The $.50 charge may
not exceed $6.00 in any Contract Year. If Purchase Payments are allocated to
both the Fixed Accumulation Account and the Separate Account, the per payment
fee is $.75, not to exceed $9.00 in any Contract Year. It is estimated that
of the 5% deduction, 3.2% is for sales expenses, 0.2% is for the death
benefit risk and 1.6% is for administrative expenses. Premium taxes payable,
if applicable, are deducted from each payment. All Purchase Payments net of
applicable deductions, are invested by the Account in shares of Horace Mann
Growth Fund, Inc. There is no annual maintenance charge or transfer charge.
5. In lieu of the Asset Charge for mortality, expense and distribution expense
risk described in the Prospectus, a charge for mortality and expense risks,
computed weekly at the rate of .005575% of the net assets of the Account
(approximately .29% on an annual basis), will be deducted from dividends and
other distributions paid by Horace Mann Growth Fund, Inc. to the Account or
to the extent such distributions are accrued and unpaid, from the value of a
Participant's account upon withdrawal or transfer of the Participant's
interest out of the Account. It is estimated that .24% is for mortality risk
and .05% is for expense risk.
6. The "present value factor" used in calculating the actuarial liability of the
Variable Retirement Annuity Account is computed using the Progressive Annuity
Mortality Table with interest at 3.5%. Consequently, the interest rate used
to compute the value of a Variable Retirement Annuity Unit is 3.79% (of which
.29% represents the charge for mortality and expense risks).
(continued)
<PAGE>
FORM 527 -- GC CONTRACTS
Contract Owner Transaction Expenses,/1/ as a percentage of Purchase Payments:
Sales Expense Charge.................................................... 3.20%
Death Benefit Risk Charge............................................... 0.20%
Administration Expense Charge................................... $1.60 and $.50
per payment
plus $20.00
issuance fee
Separate Account Annual Asset Charge, as a percentage of total net assets:
Mortality Risk.................................................... 0.24%
Expense Risk...................................................... 0.05%
Total Separate Account Annual Asset Charge............................... 0.29%
Annual Operating Expenses of Growth Fund,/2/ as a percentage of average
net assets for the December 31, 1995 fiscal year:
Investment Advisory Fees................................................ 0.34%
Business Management Fees................................................ 0.21%
Other Expenses.......................................................... 0.08%
Fund Pricing Fee................................................ 0.01%
Custodian Fees.................................................. 0.02%
Miscellaneous (audit, legal, etc.).............................. 0.05%
Total Growth Fund Operating Expenses..................................... 0.63%
Minus Expense Reimbursements and Fee Waivers............................. 0.02%
Net Fund Operating Expenses.............................................. 0.61%
<TABLE>
<CAPTION>
EXAMPLE/3/
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:........................... $79 $97 $117 $173
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:........................... $79 $97 $117 $173
</TABLE>
/1/Premium taxes, currently ranging between 0 and 3.5%, are not included. The
rate varies depending upon state of residence, and not all states impose premium
taxes. Also, depending on the state, taxes are taken from Purchase Payments or
are levied at annuitization.
/2/The Operating Expenses of the Growth Fund are borne indirectly by Contract
Owners.
/3/The EXAMPLE, should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1995 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR
DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS EXPENSES OF THE
SEPARATE ACCOUNT AS WELL AS THOSE OF THE GROWTH FUND.
_______________
The date of this Supplement is May 1, 1996.
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1996
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
FOR CONTRACTS ISSUED ON FORM 529
MAY 1, 1996
The individual variable annuity Contract issued by Horace Mann Life Insurance
Company on Form 529 is no longer offered or sold by Horace Mann Life Insurance
Company. These earlier Contracts remain in effect but differ from the Contracts
described in the Prospectus in the following material respects. Please refer to
the Contract on Form 529 for a complete description of its provisions.
1. The Contract's minimum Purchase Payment (gross stipulated payment) is $10.
Minimum annual Purchase Payments that may be allocated to the Account are
$200. In lieu of the Surrender Charge, 5% of each Purchase Payment plus $.50
is deducted for sales and administrative expenses and death benefit charges.
The $.50 charge may not exceed $6.00 in any Contract Year. If Purchase
Payments are allocated to both the Fixed Accumulation Account and the
Separate Account, the per payment fee is $.75, not to exceed $9.00 per
Contract Year. It is estimated that of the 5% deduction, 3.2% is for sales
expenses, 0.2% is for the death benefit risk and 1.6% is for administrative
expenses. Premium taxes payable, if applicable, are deducted from each
Purchase Payment. All Purchase Payments, net of applicable deductions, are
invested by the Account in shares of Horace Mann Growth Fund, Inc. There is
no annual maintenance charge or transfer charge.
2. In lieu of the Asset Charge for mortality, expense and distribution expense
risk described in the Prospectus, a charge for mortality and expense risks,
computed weekly at the rate of .005575% of the net assets of the Account
(approximately .29% on an annual basis), will be deducted from dividends and
other distributions paid by Horace Mann Growth Fund, Inc. to the Account, or
to the extent such distributions are accrued and unpaid, from the value of a
Contract Owner's account upon withdrawal or transfer of the Contract Owner's
interest out of the Account. It is estimated that .24% of such charge is for
mortality risk and .05% is for expense risk.
3. The "present value factor" used in calculating the actuarial liability of the
Variable Retirement Annuity Account is computed using the Progressive Annuity
Mortality Table with interest at 3.5%. Consequently, the interest rate used
to compute the value of a Variable Retirement Annuity Unit is 3.79% (of which
.29% represents the charge for mortality and expense risks).
FORM 529 CONTRACTS
Contract Owner Transaction Expenses,/1/ as a percentage of Purchase Payments:
Sales Expense Charge................................................... 3.20%
Death Benefit Risk Charge.............................................. 0.20%
Administration Expense Charge................................... $1.60 and $.50
per payment
plus $20.00
issuance fee
Separate Account Annual Asset Charge, as a percentage of total net assets:
Mortality Risk................................................... 0.24%
Expense Risk..................................................... 0.05%
Total Separate Account Annual Asset Charge............................... 0.29%
Annual Operating Expenses of Growth Fund,/2/ as a percentage of average
net assets for the December 31, 1995 fiscal year:
Investment Advisory Fees............................................... 0.34%
Business Management Fees............................................... 0.21%
Other Expenses......................................................... 0.08%
Fund Pricing Fee............................................... 0.01%
Custodian Fees................................................. 0.02%
Miscellaneous (audit, legal, etc.)............................. 0.05%
Total Growth Fund Operating Expenses..................................... 0.63%
Minus Expense Reimbursements and Fee Waivers............................. 0.02%
Net Fund Operating Expenses.............................................. 0.61%
(continued)
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE/3/
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $79 $97 $117 $173
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $79 $97 $117 $173
</TABLE>
/1/Premium taxes, currently ranging between 0 and 3.5%, are not included. The
rate varies depending upon state of residence, and not all states impose premium
taxes. Also, depending on the state, taxes are taken from Purchase Payments or
are levied at annuitization.
/2/The Operating Expenses of the Growth Fund are borne indirectly by Contract
Owners.
/3/The EXAMPLE, should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1995 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR
DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS EXPENSES OF THE
SEPARATE ACCOUNT AS WELL AS THOSE OF THE GROWTH FUND.
_______________
The date of this Supplement is May 1, 1996.
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1996
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
FOR CONTRACTS ISSUED ON FORM 66 -- 2A
MAY 1, 1996
The variable annuity Contract issued by Horace Mann Life Insurance Company on
Form 66-2A is no longer offered or sold by Horace Mann Life Insurance Company.
This earlier Contract remains in effect but differs from the Contracts described
in the Prospectus in the following material respects. Please refer to the
Contract on Form 66-2A for a complete description of its provisions.
1. In lieu of the Surrender Charge, 6% of each Purchase Payment (gross
stipulated payment) plus $.50, without any yearly limitation, is deducted for
sales and administrative expenses and death benefit charges.
It is estimated that of the 6% deduction, 4% is for sales expenses and 2% for
the death benefit risk. The additional $.50 deduction is for administrative
expenses.
All Purchase Payments, net of applicable deductions, including premium taxes
if applicable, are invested by the Account in shares of Horace Mann Growth
Fund, Inc. There is no annual maintenance fee or transfer charge.
2. In lieu of the Asset Charge for mortality, expense and distribution expense
risks described in the Prospectus, a charge is deducted from distributions
paid by Horace Mann Growth Fund, Inc. to the Account or, if the charge is
accrued and unpaid, from the value of a Contract Owner's individual account
upon withdrawal or transfer from the Account. This charge is computed weekly
at the rate of .0075% of the net assets of the Account (.39% on an annual
basis). It is estimated that .31% is for mortality risk and .08% is for
expense risk.
FORM 66 -- 2A CONTRACTS
Contract Owner Transaction Expenses,/1/ as a percentage of Purchase Payments:
Sales Expense Charge.................................................... 4.00%
Death Benefit Risk Charge............................................... 2.00%
Administration Expense Charge................................. $.50 per payment
plus $10.00
issuance fee
Separate Account Annual Asset Charge, as a percentage of average account value:
Mortality Risk.................................................... 0.31%
Expense Risk...................................................... 0.08%
Total Separate Account Annual Asset Charge............................... 0.39%
Annual Operating Expenses of Growth Fund,/2/ as a percentage of average
net assets for the December 31, 1995 fiscal year:
Investment Advisory Fees................................................ 0.34%
Business Management Fees................................................ 0.21%
Other Expenses.......................................................... 0.08%
Fund Pricing Fee................................................ 0.01%
Custodian Fees.................................................. 0.02%
Miscellaneous (audit, legal, etc.).............................. 0.05%
Total Growth Fund Operating Expenses..................................... 0.63%
Minus Expense Reimbursements and Fee Waivers............................. 0.02%
Net Fund Operating Expenses.............................................. 0.61%
(continued)
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE/3/
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $80 $100 $122 $184
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $80 $100 $122 $184
</TABLE>
/1/Premium taxes, currently ranging between 0 and 3.5%, are not included. The
rate varies depending upon state of residence, and not all states impose premium
taxes. Also, depending on the state, taxes are taken from Purchase Payments or
are levied at annuitization.
/2/The Operating Expenses of the Growth Fund are borne indirectly by Contract
Owners.
/3/The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1995 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR
DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS EXPENSES OF THE
SEPARATE ACCOUNT AS WELL AS THOSE OF THE GROWTH FUND.
_______________
The date of this Supplement is May 1, 1996.
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1996
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
FOR CONTRACTS ISSUED ON FORM 66 -- 3A AND 66 -- 4A
MAY 1, 1996
The variable annuity Contracts issued by Horace Mann Life Insurance Company on
Forms 66-3A and 66-4A are no longer offered or sold by Horace Mann Life
Insurance Company. These earlier Contracts remain in effect but differ from the
Contracts described in the Prospectus in the following material respects. Please
refer to the Contracts on Forms 66-3A and 66-4A for a complete description of
their provisions.
1. In lieu of the Surrender Charge, 6% of each Purchase Payment (gross
stipulated payment) plus $.50, without any yearly limitation, is deducted for
sales and administrative expenses and death benefit charges. It is estimated
that of the 6% deduction, 4% is for sales expenses and 2% for the death
benefit risk. The additional $.50 deduction is for administrative expenses.
All Purchase Payments, net of applicable deductions, including premium taxes
if applicable, are invested by the Account in shares of Horace Mann Growth
Fund, Inc. There is no annual maintenance fee or transfer charge.
2. In lieu of the Asset Charge for mortality, expense and distribution expense
risks described in the Prospectus, a charge is deducted from all
distributions paid by Horace Mann Growth Fund, Inc. to the Account or, if the
charge is accrued and unpaid, from the value of a Participant's individual
account upon withdrawal or transfer from the Account. This charge is computed
weekly at the rate of .0075% of the net assets of the Account (.39% on an
annual basis). It is estimated that .31% is for mortality risk and .08% is
for expense risk.
3. The "present value factor" used in calculating the actuarial liability of the
Variable Retirement Annuity Account is computed using the Progressive Annuity
Mortality Table with interest at 4%.
4. With respect to the group Contract issued on Form 66-4A, if the Annuitant is
no longer in the class of eligible Participants or elects not to continue to
participate in the group Contract, the Annuitant may elect, within 31 days
after the date of termination, to purchase from Horace Mann Life Insurance
Company its individual annuity Contract most nearly similar in benefits and
provisions to the group Contract. The individual annuity Contract will be
issued at the then attained age of the Annuitant and at the same annual
Purchase Payment as the group Contract Certificate, unless otherwise agreed
to by Horace Mann Life Insurance Company.
FORM 66-3A AND 66-4A CONTRACTS
Contract Owner Transaction Expenses,/1/ as a percentage of Purchase Payments:
Sales Expense Charge.................................................... 4.00%
Death Benefit Risk Charge............................................... 2.00%
Administration Expense Charge................................. $.50 per payment
plus $10.00
issuance fee
Separate Account Annual Asset Charge, as a percentage of average account value:
Mortality Risk.................................................... 0.31%
Expense Risk...................................................... 0.08%
Total Separate Account Annual Asset Charge............................... 0.39%
Annual Operating Expenses of Growth Fund,/2/ as a percentage of average
net assets for the December 31, 1995 fiscal year:
Investment Advisory Fees................................................ 0.34%
Business Management Fees................................................ 0.21%
Other Expenses.......................................................... 0.08%
Fund Pricing Fee................................................ 0.01%
Custodian Fees.................................................. 0.02%
Miscellaneous (audit, legal, etc.).............................. 0.05%
Total Growth Fund Operating Expenses..................................... 0.63%
Minus Expense Reimbursements and Fee Waivers............................. 0.02%
Net Fund Operating Expenses.............................................. 0.61%
(continued)
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE/3/
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $80 $100 $122 $184
If you do not surrender your Contract:
You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:.......................... $80 $100 $122 $184
</TABLE>
/1/Premium taxes, currently ranging between 0 and 3.5%, are not included. The
rate varies depending upon state of residence, and not all states impose premium
taxes. Also, depending on the state, taxes are taken from Purchase Payments or
are levied at annuitization.
/2/The Operating Expenses of the Growth Fund are borne indirectly by Contract
Owners.
/3/The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1995 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR
DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS EXPENSES OF THE
SEPARATE ACCOUNT AS WELL AS THOSE OF THE GROWTH FUND.
_______________
The date of this Supplement is May 1, 1996.
<PAGE>
Statement of Additional Information
Variable tax deferred annuity contracts
Qualified and non-qualified plans
Horace Mann Life Insurance Company
Separate Account
May 1, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
------------------------------
HORACE MANN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT
------------------------------
Individual and Group
Flexible Payment and Individual Single Payment Variable tax
Deferred Annuity Contracts
------------------------------
Horace Mann Life Insurance Company
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Prospectus, dated May 1, 1996, for Horace Mann Life
Insurance Company Separate Account. A copy of the Prospectus may be obtained by
writing to Horace Mann Life Insurance Company, P.O. Box 4657, Springfield,
Illinois 62708-4657, by sending a telefacsimile (FAX) transmission to (217) 527-
2307, or by telephoning toll-free (800) 999-1030.
May 1, 1996
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Topic Page
----- ----
<S> <C>
General Information and History................................. 2
Investment Experience........................................... 2
Underwriter..................................................... 3
Financial Statements............................................ 4
</TABLE>
GENERAL INFORMATION AND HISTORY
Horace Mann Life Insurance Company ("HMLIC") sponsors the Horace Mann Life
Insurance Company Separate Account (the "Account"). HMLIC is an indirect
wholly-owned subsidiary of Horace Mann Educators Corporation ("HMEC"), a
publicly-held insurance holding company traded on the New York Stock Exchange.
INVESTMENT EXPERIENCE
(Applies to Annuity Alternative Contracts Only)
December 31, 1995
TOTAL RETURN DATA
<TABLE>
<CAPTION>
ACTUAL PERFORMANCE/1/
-------------------------
(Based on a $1,000
investment)/2/ 1 YR 5 YRS 10 YRS
-------------------------
<S> <C> <C> <C>
Growth Fund Account Division
With Redemption/3/ 21.20% 15.47% 11.94%
Without Redemption 31.75% 15.47% 11.94%
Income Fund Account Division
With Redemption/3/ 4.19% 6.82% 7.24%
Without Redemption 13.26% 6.82% 7.24%
Balanced Fund Account Division
With Redemption/3/ 15.25% 12.17% 10.26%
Without Redemption 25.29% 12.17% 10.26%
Short-Term Fund Account Division
With Redemption/3/ (4.60%) 2.64% 4.02%
Without Redemption 3.71% 2.64% 4.02%
</TABLE>
2
<PAGE>
- -----------
/1/In some cases, actual performance reflects subsidization where total return
has been enhanced due to expenses of each Fund being waived or paid by
affiliates of the Funds.
/2/The performance shown above is reduced by the $25 annual maintenance charge
as a percentage 0.14% of the average contract value as of December 31, 1995.
/3/With redemption reflects performance of a surrendered contract. Redemption
has no effect on return after the initial five-year contract period.
This performance data represents past performance. Investment return and the
principal value of an investment may fluctuate. An investor's shares, when
redeemed, may be worth more or less than their original cost. All charges as
shown in the Prospectus fee tables are reflected in this data, with the
exception of premium taxes.
The total return quotations are based on the average annual compounded rates of
return over one, five, and ten year periods ended December 31, 1995.
Total return is computed by finding the average annual compounded rates of
return that would equate the initial amount invested to the ending redeemable
value.
The performance data contained in this Statement of Additional Information is
based on the fees and charges for the flexible payment Contracts currently
offered by the Company. Prior Contracts have different fees and charges;
therefore these performance calculations are not valid for those contracts.
UNDERWRITER
HMLIC offers and sells the Contract on a continuous basis through its licensed
life insurance sales personnel who are also registered representatives of
Investors, a broker/dealer registered with the Securities and Exchange
Commission and a member of the National Association of Securities
Dealers, Inc. (NASD). HMLIC contracts with Horace Mann Investors, Inc.
("Investors"), principal underwriter of the Account, to distribute the variable
contracts of HMLIC. Investors, located at One Horace Mann Plaza, Springfield,
Illinois 62715-0001, is an affiliate of HMLIC and a wholly-owned subsidiary of
HMEC.
Commissions paid to Investors were $1,526,373, $2,019,137 and $2,657,025 for the
years ended 1993, 1994 and 1995, respectively. Investors does not retain any of
these commissions. Commissions received by Investors are paid to registered
representatives who sell contracts offered by this Prospectus.
3
<PAGE>
FINANCIAL STATEMENTS
KPMG Peat Marwick LLP, independent auditors for the Account and HMLIC, has
offices at 303 East Wacker Drive, Chicago, Illinois 60601. KPMG Peat Marwick LLP
representatives perform an audit of the financial statements of the Account
annually and provide accounting advice and services related to Securities and
Exchange Commission filings throughout the year and perform an annual audit of
the statutory financial statements of HMLIC.
The financial statements of the Account, including the auditors' reports
thereon, are incorporated herein by reference from the Annual Report for the
Account for the year ended December 31, 1995. A copy of this Annual
Report accompanied or proceeded the delivery of the Prospectus. Additional
copies may be obtained, upon request and without charge, by contacting Horace
Mann Life Insurance Company, P.O. Box 4657, Springfield, Illinois 62708-4657, or
by telephoning (217) 789-2500 or (800) 999-1030 (toll-free). The statutory
financial statements for HMLIC, including the auditors' reports thereon, are
presented herein, but should be considered only as bearing upon the ability of
HMLIC to meet its obligations under the Contracts.
4
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Financial Statements
December 31, 1995 and 1994
5
<PAGE>
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601-5255
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Horace Mann Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital and surplus of Horace Mann Life Insurance Company as of
December 31, 1995 and 1994, and related statutory statements of operations,
capital and surplus, and cash flow for each of the years in the three 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 amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in note 1, the accompanying financial statements have been prepared
in conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Illinois. These practices differ in some respects
from generally accepted accounting principles (note 7). Accordingly, the
financial statements referred to above are not intended to present, and in our
opinion do not present fairly, the financial position, results of operations and
cash flow in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and capital and
surplus of Horace Mann Life Insurance Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flow for each of the years in the
three year period ended December 31, 1995, on the basis of accounting described
in note 1.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
February 16, 1996
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus
December 31, 1995 and 1994
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------
ADMITTED ASSETS 1995 1994
- -----------------------------------------------------------------
Cash and investments:
<S> <C> <C>
Bonds $1,872,725 $1,772,407
Common stocks 1,691 2,101
Mortgage loans on real estate 80,486 111,674
Real estate 10,063 19,732
Policy loans 39,897 36,609
Cash 861 97
Short-term investments 27,277 7,878
Other invested assets 149 177
- -----------------------------------------------------------------
Total cash and investments 2,033,149 1,950,675
Life insurance premiums deferred
and uncollected 37,026 34,241
Accident and health premiums due
and unpaid 3,399 2,868
Investment income due and accrued 32,550 30,750
Federal income tax recoverable 2,923 4,342
Other assets 9,991 4,661
Variable annuity assets 487,543 334,145
- -----------------------------------------------------------------
Total admitted assets $2,606,581 $2,361,682
- -----------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
3
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus
December 31, 1995 and 1994
<TABLE>
<CAPTION>
(In thousands, except share data)
- -----------------------------------------------------------------
Liabilities and Capital and Surplus 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Policy liabilities:
Aggregate reserves:
Life and annuity $1,781,435 $1,702,237
Accident and health 22,088 21,055
Unpaid benefits:
Life 6,092 6,370
Accident and health 7,864 8,591
Policyholder funds on deposit 106,557 106,698
Policyholder dividends payable
in the following year 1,293 1,336
Provision for accident and health
experience rating refunds 1,147 -
Remittances not allocated 269 3,162
- -----------------------------------------------------------------
Total policy liabilities 1,926,745 1,849,449
Accrued expenses 5,378 3,268
Asset valuation reserve 27,769 26,586
Interest maintenance reserve 17,622 17,633
Other liabilities 7,686 7,850
Variable annuity liabilities 487,543 334,145
- -----------------------------------------------------------------
Total liabilities 2,472,743 2,238,931
- -----------------------------------------------------------------
Capital and surplus:
Capital stock, $1 par value.
Authorized 5,000,000 shares,
2,500,000 shares outstanding 2,500 2,500
Additional paid-in and contributed surplus 22,704 22,704
Special surplus fund - contingent
variable annuity reserve 625 625
Unassigned surplus 108,009 96,922
- -----------------------------------------------------------------
Total capital and surplus 133,838 122,751
- -----------------------------------------------------------------
Total liabilities and capital and surplus $2,606,581 $2,361,682
- -----------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years ended December 31, 1995, 1994 and 1993
(In thousands)
==============================================================================
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
Revenue:
Premiums, annuity and supplementary
contract considerations:
Life $ 97,837 $ 94,643 $ 92,785
Annuity 142,870 136,640 123,369
Accident and health 49,718 56,525 59,015
Supplementary contracts 26,329 22,476 26,091
==============================================================================
Total premiums, annuity and supplementary
contract considerations 316,754 310,284 301,260
Net investment income 149,997 140,852 142,210
Amortization of interest maintenance
reserve 2,903 3,580 3,213
Other 429 478 438
==============================================================================
Total revenue 470,083 455,194 447,121
==============================================================================
Benefits and expenses:
Provisions for claims and benefits:
Life 79,787 76,953 74,725
Annuity 199,982 190,302 183,145
Accident and health 41,394 47,143 47,460
Supplementary contracts 36,842 32,691 36,998
==============================================================================
Total claims and benefits 358,005 346,089 342,328
Commissions 23,263 21,982 20,704
General and other expenses 48,289 48,523 45,994
==============================================================================
Total benefits and expenses 429,557 416,594 409,026
==============================================================================
Net gain before dividends to policyholders
and federal income tax 40,526 38,600 38,095
Dividends to policyholders 1,385 1,445 1,586
==============================================================================
Net gain before federal income tax 39,141 37,155 36,509
Federal income tax expense 12,581 14,179 15,401
==============================================================================
Net gain from operations 26,560 22,976 21,108
Realized investment gains (losses)
net of tax and transfers to IMR (3,331) (441) 932
==============================================================================
Net income $ 23,229 $ 22,535 $ 22,040
==============================================================================
</TABLE>
See accompanying notes to statutory financial statements.
5
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Capital and Surplus
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock $ 2,500 $ 2,500 $ 2,500
- ------------------------------------------------------------------------
Additional paid-in capital and
contributed surplus 22,704 22,704 22,704
- ------------------------------------------------------------------------
Special surplus fund-
contingent variable annuity reserve 625 625 625
- ------------------------------------------------------------------------
Unassigned surplus :
Balance at beginning of year 96,922 98,549 85,884
Net income 23,229 22,535 22,040
Change in net unrealized capital
gains (losses) 4,564 (3,003) 457
Change in non-admitted assets 477 121 (472)
Change in asset valuation reserves (1,183) (280) (2,360)
Dividends to parent (16,000) (21,000) (7,000)
- ------------------------------------------------------------------------
Balance at end of year 108,009 96,922 98,549
- ------------------------------------------------------------------------
Total capital and surplus $133,838 $122,751 $124,378
- ------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
6
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided:
From operations:
Revenue received:
Premiums, considerations
and deposits $ 315,197 $309,335 $ 297,857
Investment income received 146,996 141,336 142,671
Other income received 428 478 437
- ------------------------------------------------------------------------------
Total revenue received 462,621 451,149 440,965
- ------------------------------------------------------------------------------
Benefits and expenses paid:
Claims, benefits and
net transfers paid 275,256 276,361 248,822
Expenses paid 72,952 70,522 66,927
Dividends to policyholders paid 1,436 1,516 2,855
Federal income taxes paid 16,713 14,683 12,602
Net increase in policy loans 3,288 2,296 1,747
- ------------------------------------------------------------------------------
Total benefits and expenses paid 369,645 365,378 332,953
- ------------------------------------------------------------------------------
Net cash from operations 92,976 85,771 108,012
- ------------------------------------------------------------------------------
From investments sold or matured:
Bonds 1,099,397 871,293 905,371
Common stock 566 1,436 256
Preferred stock - 1,967 -
Mortgage loans 32,724 24,024 32,424
Real estate and other 9,552 554 (5)
- ------------------------------------------------------------------------------
Total investment proceeds 1,142,239 899,274 938,046
Tax on capital gains (losses) 5,788 (2,526) (9,555)
- ------------------------------------------------------------------------------
Other cash provided 1,233 5,935 1,271
- ------------------------------------------------------------------------------
Total cash provided $1,242,236 $ 988,454 $1,037,774
- ------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash applied:
For investments acquired:
Bonds $1,195,111 $1,027,004 $967,562
Common stock - 26 441
Preferred stock - 981 -
Mortgage loans 495 2,027 4,371
Real estate 600 1,142 377
Other Invested Assets (28) - -
- ------------------------------------------------------------------------------
Total investments acquired 1,196,178 1,031,180 972,751
- ------------------------------------------------------------------------------
Dividends to parent 16,000 21,000 7,000
Other applications 9,895 2,740 4,880
- ------------------------------------------------------------------------------
Total cash applied 1,222,073 1,054,920 984,631
- ------------------------------------------------------------------------------
Net change in cash and
short-term investments 20,163 (66,466) 53,143
Cash and short-term investments
at beginning of year 7,975 74,441 21,298
- ------------------------------------------------------------------------------
Cash and short-term investments
at end of year $ 28,138 $ 7,975 $ 74,441
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
8
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1995, 1994 and 1993
(In thousands)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Horace Mann Life Insurance Company (the Company), which operates in one industry
(life insurance), is a subsidiary of Horace Mann Educators Corporation (HMEC),
which indirectly owns 100% of the outstanding shares. The Company is a wholly
owned subsidiary of Allegiance Life Insurance Company (ALIC).
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Illinois and includes some amounts that are based upon management's
best estimates and judgements. Statutory accounting practices differ materially
in some respects from generally accepted accounting principles as more fully
discussed in note 7. The significant statutory accounting practices follow.
The company sells and underwrites tax-qualified retirement annuities, individual
life, group medical, group disability income, and group life insurance product
primarily to educators and other employees of public schools.
INVESTMENTS
Investments are valued in accordance with the requirements of the NAIC. Bonds
are generally carried at amortized cost. Common stocks are carried at market.
Mortgage loans are carried at the unpaid principal balance less unamortized
discount and were issued at the value of no more than 80% of the appraised value
of the mortgaged property. No material new commercial mortgage loans have been
issued since 1988. Real estate is carried at the lower of fair market value
cost. Policy loans are carried at the unpaid principal balance.
The Company does not have any investments in derivative financial instruments.
The Asset Valuation Reserve (AVR) was calculated as prescribed and required by
the NAIC. This reserve is maintained for the purpose of stabilizing surplus
against the effects of fluctuations in the value of certain bond, stock,
mortgage loan and real estate investments. Changes in the AVR reserve are
charged or credited to surplus.
The Interest Maintenance Reserve (IMR) was calculated as prescribed by the NAIC.
This reserve is designed to capture the realized capital gains and (losses)
which result from changes in the overall level of interest retes and amortize
them into income over the approximate remaining life of the investment sold.
9
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1995, 1994 and 1993
(In thousands)
- --------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS
Amounts represent cash and short-term securities having a maturity of 30 days or
less. Short-term investments are carried at cost which approximates market
value.
The balance of the AVR by components as of December 31, 1995 and 1994, is
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds, preferred stock and
short-term investments $23,419 $19,859
Mortgage loans 3,058 6,097
Common stock 507 630
Real Estate and Other investments 785 -
- --------------------------------------------------------------------------------
Total AVR $27,769 $26,586
- --------------------------------------------------------------------------------
</TABLE>
The AVR is held at a level equal to 93% of the maximum reserve level
allowed by the NAIC.
10
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
VARIABLE ANNUITIES ASSETS AND LIABILITIES
Assets held in trust for purchasers of variable annuity contracts and the
related liabilities are included in the statutory statements of admitted
assets, liabilities and capital and surplus. Variable annuity assets,
carried at market value, and liabilities represent tax-qualified variable
annuity funds invested in the Horace Mann mutual funds. Variable annuity
assets were invested in the Horace Mann mutual funds as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Horace Mann Growth Fund $248,320 $163,569
Horace Mann Balanced Fund 227,705 160,242
Horace Mann Income Fund 10,513 9,250
Horace Mann Short-Term Fund 1,005 1,084
- --------------------------------------------------------------------------------
Total $487,543 $334,145
- --------------------------------------------------------------------------------
</TABLE>
The investment income, gains and losses of these accounts accrue directly
to the policyholders and are not included in the operations of the
Company.
AGGREGATE RESERVES
Applicable state insurance laws require that the Company set up reserves in
accordance with statutory regulations, carried as liabilities to meet
future obligations under outstanding policies. These reserves are the
amount that, with the additional premiums to be received and interest
thereon compounded annually at certain rates, is calculated to be
sufficient to meet the various policy and contract obligations as they
occur.
11
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Aggregate reserves for life policies, annuity contracts, and supplementary
contracts with life contingencies are based on statutory mortality tables
and interest assumptions using either the net level or commissioners'
reserve valuation method. The annuity reserves include the current declared
interest rates through the valuation date. The composition of these
liabilities at December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Aggregate reserves Mortality Interest
1995 1994 table rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Life $ 292,680 $ 255,674 1980 CSO 4.0-7.0 %
6,170 5,919 1958 CET 2.5-5.5
171,165 170,609 1958 CSO 2.5-4.5
25,226 22,946 Various 2.5-5.5
10,922 11,363 1941 CSO 2.5-3.0
Annuity 1,054,357 1,006,923 1971 IAM 3.0-7.5
145,897 159,830 1949 PAT 3.0-5.5
1,878 2,016 1937 SAT 3.0
2,456 1,194 Various 3.0
Supplementary
contracts with
life contingencies 60,788 54,983 1983a 8.0-11.0
6,439 6,880 1971 IAM 4.5-11.25
3,457 3,900 1937 SAT 3.5
- --------------------------------------------------------------------------------
Total $1,781,435 $1,702,237
- --------------------------------------------------------------------------------
</TABLE>
Aggregate reserves for accident and health policies include the present
value of amounts not yet due on existing claims and unearned premiums at
December 31 as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Aggregate reserves
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Present value of amounts not yet
due on claims (3% interest rate) $16,543 $16,261
Reserve for rate credits 3,670 2,774
Additional contract reserves 1,353 1,420
Unearned premiums 552 631
Other (30) (31)
- --------------------------------------------------------------------------------
Aggregate accident and health reserves $22,088 $21,055
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
UNPAID BENEFITS
Unpaid benefits consists of case basis reserves and estimates of losses
incurred but not reported. Estimates for losses incurred but not reported
are based on prior experience modified for current trends.
Accident and health claim reserves and liabilities include the following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accident and Health Claim
Reserves and Liabilities
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggregate reserves for accident and health $22,088 $21,055
Unpaid benefits accident and health 7,864 8,591
Less: Reserve for rate credits (3,670) (2,774)
Additional contract reserves (1,353) (1,420)
Unearned premiums and other (522) (600)
- --------------------------------------------------------------------------------
Accident and health claim reserves
and liabilities $24,407 $24,852
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth an analysis of accident and health claim
reserves and liabilities and provides a reconciliation of beginning and
ending reserves for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net balance at beginning of year $24,852 $25,095
- --------------------------------------------------------------------------------
Incurred related to:
Current year 41,367 47,510
Prior years (725) (1,904)
- --------------------------------------------------------------------------------
Total incurred 40,642 45,606
- --------------------------------------------------------------------------------
Paid related to:
Current year 30,025 35,293
Prior years 11,062 10,556
- --------------------------------------------------------------------------------
Total paid 41,087 45,849
- --------------------------------------------------------------------------------
Balance at December 31 24,407 $24,852
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
_______________________________________________________________________________
RESERVES FOR SUPPLEMENTARY CONTRACTS
WITHOUT LIFE CONTINGENCIES
This reserve represents the present value of future payments discounted with
interest only. At December 31, 1995 and 1994 this liability was
$101,942 and $102,001, respectively, based on average credited interest
rates of 5.5% and 5.4% in 1995 and 1994, respectively and is
included in "policyholder funds on deposit."
POLICYHOLDER DIVIDENDS PAYABLE IN THE
FOLLOWING YEAR
Dividends expected to be paid on anniversary dates in the following year are
estimated and accrued based on current dividend scales approved by the Board of
Directors.
PREMIUMS
Life premiums are reflected as earned on the policy anniversary date. Annuity
and supplementary contract premiums are reflected as earned when collected.
Accident and health premiums are reported as revenue when due and earned on a
pro rata basis over the period covered by the policy.
Deferred life premiums represent modal premiums (other than annual) to be
billed in the year subsequent to the commencement of the policy year.
Uncollected premiums represent premiums due less accident and health premiums
over 90 days past due. Both deferred and uncollected premiums have been reduced
by the estimated cost of collection.
ACQUISITION EXPENSES
The cost of acquiring new business, principally commissions, underwriting
salaries, and related expenses, is charged to expense as incurred.
NON-ADMITTED ASSETS
Assets prescribed by the Illinois Insurance Code as "non-admitted" (principally
over 90-day accident and health due and unpaid premiums) are charged to
unassigned surplus.
14
<PAGE>
<TABLE>
<CAPTION>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
_____________________________________________________________________________
(2) INVESTMENTS
NET INVESTMENT INCOME
The components of net investment income are as follows:
_____________________________________________________________________________
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Interest on bonds $136,186 $126,446 $ 125,643
Interest on mortgage loans 10,782 11,645 15,235
Dividends from common stock - 3 1
Interest on short-term investments 1,620 1,302 1,256
Interest on policy loans 2,418 2,152 2,032
Real estate income 1,071 2,028 1,109
Miscellaneous investment income 287 176 (46)
_____________________________________________________________________________
Gross investment income 152,364 143,752 145,230
Investment expenses 2,367 2,900 3,020
_____________________________________________________________________________
Net investment income $149,997 $140,852 $142,210
_____________________________________________________________________________
REALIZED INVESTMENT GAINS (LOSSES) NET OF TAX AND TRANSFERS TO IMR
Realized investment gains and losses are determined on the basis of specific
identification. Realized investment gains on most fixed income securities are
transferred on an after tax basis to an (IMR) and amortized into income over the
average remaining lives of the assets sold. Only realized investment gains
(losses) which did result from changes in the overall level of interest rates
are transferred to IMR. These gains (losses) are not included in net income in
the year they occurred.
The IMR at December 31 is as follows:
_____________________________________________________________________________
1995 1994
------- -------
<S> <C> <C>
Reserve balance, beginning of year $17,633 $22,943
Current year capital gains (losses),
net of tax 2,892 (1,730)
Amortization of interest maintenance reserve (2,903) (3,580)
_____________________________________________________________________________
Reserve balance, end of year $17,622 $17,633
_____________________________________________________________________________
</TABLE>
15
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
________________________________________________________________________________
Realized investment gains reported in the statutory statement of operations net
of tax and transfers to IMR are as follows:
________________________________________________________________________________
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Bonds $4,450 $ 471 $ 20,656
Real estate (5,387) 1 -
Mortgage loans - (4,432) -
Common stock 262 974 -
Short-term investments - (340) -
Other - (14) 33
________________________________________________________________________________
(675) (3,340) 20,689
Less Federal income tax (236) (1,169) 7,236
Transferred to interest maintenance
reserve (2,892) 1,730 (12,521)
_______________________________________________________________________________
Realized investment gains (losses)
net of tax and transfers to IMR (3,331) $ (441) $ 932
_______________________________________________________________________________
</TABLE>
CHANGE IN NET UNREALIZED CAPITAL GAINS (LOSSES)
Certain investments are required to be carried at market. The resulting
unrealized gains or losses are reflected as credits or charges to unassigned
surplus.
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Unrealized capital losses
Beginning of period $(10,421) $(7,418) $(7,875)
End of period (5,857) (10,421) (7,418)
_______________________________________________________________________________
Decrease (increase) for the period $ 4,564 $(3,003) $ 457
_______________________________________________________________________________
</TABLE>
16
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
BONDS
The estimated market value of bonds at December 31, 1995 and 1994 was
$1,954,738 and $1,683,130, respectively. At December 31, 1995 and 1994,
approximately 2.7% and 1.5%, respectively, of the total bond portfolio (at
amortized cost) consisted of private placement bonds. The market value of
private placement bonds is estimated based upon factors including credit
quality, interest rates and maturity dates.
The carrying value and estimated market value of investments in bonds as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Excess of Excess of
market carrying
value over value over Estimated
Carrying carrying market market
December 31, 1995 value value value value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and
agency obligations:
Mortgage-backed
securities $ 519,473 $17,428 $ (398) $ 536,503
Other 208,365 9,453 (179) 217,639
Municipal bonds 16,413 1,080 - 17,493
Foreign government bonds 39,065 3,334 - 42,399
Corporate bonds 899,785 52,492 (6,691) 945,586
Other mortgage-backed
securities 189,624 7,007 (1,513) 195,118
- ------------------------------------------------------------------------------
Total $1,872,725 $ 90,794 $(8,781) $1,954,738
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Excess of Excess of
market carrying
value over value over Estimated
Carrying carrying market market
December 31, 1994 value value value value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and
agency obligations:
Mortgage-backed
securities $ 537,178 $ 356 $(29,567) $ 507,967
Other 246,623 171 (10,239) 236,555
Municipal bonds 7,800 52 (77) 7,775
Foreign government bonds 38,444 16 1,603) 36,857
Corporate bonds 789,822 3,094 (45,410) 747,506
Other mortgage-backed
securities 152,540 747 (6,817) 146,470
- -------------------------------------------------------------------------------
Total $1,772,407 $ 4,436 $(93,713) $1,683,130
- -------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
At December 31, 1995, approximately 1.25% of the Company's investment portfolio
was invested in collateralized mortgage obligations ("CMOs") excluding mortgage
obligations of United States governmental agencies. At December 31, 1995, the
average credit quality rating of the Company's investment in CMOs was AAA and
NAIC 1 - the highest ratings. The market value of CMOs at December 31, 1995 was
$146,248 compared to a $141,199 carrying value. The average duration of the
Company's investment in CMOs was 3.1 years at December 31, 1995.
The carrying value and estimated market value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Estimated
Carrying market
December 31, 1995 Value value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 87,411 $ 87,953
Due after one year through five years 592,463 604,562
Due after five years through ten years 583,589 612,116
Due after ten years 609,262 650,107
- --------------------------------------------------------------------------------
Total bonds $1,872,725 $1,954,738
- --------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in bonds during 1995, 1994 and 1993 were
$965,703, $717,717 and $715,071, respectively. Gross gains of $11,646, $13,021
and $20,747 and gross losses of $7,869, $10,611 and $1,909 were realized on
those sales for 1995, 1994 and 1993, respectively.
MORTGAGE LOANS AND REAL ESTATE
The Company's investment in commercial mortgage loans has been declining since
1989 as a result of the Company's strategy to reduce its holdings in such
investments. The Company has made no new significant investments in commercial
mortgage loans since 1988.
18
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
<TABLE>
<CAPTION>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
__________________________________________________________________________
The following table sets forth the geographic concentration of collateral
properties for mortgage loans (excluding a loan of $10,951 to HMEC on the
HMEC home office building) at December 31, 1995:
__________________________________________________________________________
Principal Percent
value at of
State Dec. 31, 1995 total
__________________________________________________________________________
<S> <C> <C>
New Jersey $13,903 20.0%
Texas 12,725 18.3
Georgia 10,616 15.3
Ohio 9,290 13.4
Massachusetts 8,485 12.2
Connecticut 3,487 5.0
All Others (1) 11,029 15.8
__________________________________________________________________________
Total $69,535 100.0%
__________________________________________________________________________
(1) No other state accounted for more than 5%.
All outstanding commercial mortgages are secured by completed, income-
producing properties. There were no past-due, renegotiated or non-accrual
mortgage loans as of December 31, 1995.
The following table sets forth the diversification of mortgage loans (ex-
cluding a loan of $10,951 to HMEC on the HMEC home office building) at
December 31, 1995 by type of collateral property:
________________________________________________________________________
Principal Percent
value at of
Property type Dec. 31, 1995 total
________________________________________________________________________
<S> <C> <C>
Office buildings $ 26,098 37.6%
Shopping centers/malls 19,615 28.2
Warehouses 5,001 7.1
Residential 6,474 9.3
Hotels/motels 12,347 17.8
________________________________________________________________________
Total $ 69,535 100.0%
________________________________________________________________________
</TABLE>
20
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
(IN THOUSANDS)
================================================================================
DEPOSITS
The carrying value of securities on deposit with governmental authorities, as
required by law, as of December 31 were as follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Held for all policyholders $1,679 $1,687 $1,076
Held for policyholders in certain states 590 592 595
================================================================================
$2,269 $2,279 $1,671
================================================================================
</TABLE>
INVESTMENTS IN ENTITIES EXCEEDING 10% OF CAPITAL AND SURPLUS
The names of entities (other than the U.S. Government and government agencies
and authorities) in which the total amount invested exceeds 10% of total
capital and surplus at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
================================================================================
Standard & Poors Carrying
Bonds: Rating: Value
================================================================================
<S> <C> <C>
Green Tree Financial Corporation A/AA+/BBB- $35,085
Nations Bank Corporation A/A-/A+ 24,799
Golden West Financial A- 23,959
General Motors Corporation A- 21,824
Commercial Credit Group A+ 20,152
American General Finance Corporation A+ 20,039
Associates Corp. of North America AA- 19,208
Chemical Bank A 16,823
Ford Motor Credit/Capital A+/AAA 15,944
Cox Communications Inc. A- 15,149
Prime Credit Card Master Trust AAA 14,999
Boeing Company AA 14,962
Bank of New York A- 14,924
First Bank System A- 14,907
Dean Witter Discover A 14,848
Shawnut Bank A- 14,768
Mellon Financial A 14,440
Mid-State Trust AAA 13,643
Chevron Corporation Esop. AA 13,418
================================================================================
</TABLE>
21
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(3) RELATED PARTIES
The Company has common management and shares office facilities with HMEC and
other affiliates and is a party to several intercompany service agreements.
Under these agreements, the Company paid $66,620, $66,684, and $62,478 for
management, administrative, data processing, commissions and agency
services, utilization of personnel, and investment advisory services in
1995, 1994 and 1993, respectively.
The Company had balances payable to affiliates of $1,422 and $1,558 at
December 31, 1995 and 1994, respectively included in "accrued expenses" and
"other liabilities" in the statutory statements of admitted assets,
liabilities and capital and surplus. Also, the Company had balances
receivable from affiliates of $396 and $607 at December 31, 1995 and 1994,
respectively, included in "other assets."
ALIC reinsures all of the Company's life insurance business in the state of
Arizona.
(4) FEDERAL INCOME TAXES
Beginning in 1995, the Company is included in the consolidated federal
income tax return of its parent, ALIC and its ultimate parent, HMEC and its
subsidiaries. Prior to 1995 the Company participated in a tax sharing
agreement with its parent, ALIC. Tax sharing agreements provide for tax
payments by the Company equal to the amount the Company would compute if it
filed a separate federal income tax return. In calculating the separate
federal income tax return amount, tax benefits resulting from the
acquisition of the Company by ALIC are realized by ALIC. Intercompany tax
balances are settled quarterly with a subsequent final annual
settlement.
The following is a reconciliation of federal income tax on reported gains
before federal income tax at the current corporate rate of 35% for
1995, 1994 and 1993:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
"Expected" federal income tax
on reported gain from operations $13,699 $13,004 $12,778
Add (deduct) tax effects of:
Reserve adjustments (1,442) 531 3,367
Policy acquisition costs 910 1,129 1,435
Other, net (586) (485) (1,670)
Utilization of net operating
loss carryforward - - (509)
================================================================================
Federal income tax $12,581 $14,179 $15,401
================================================================================
</TABLE>
22
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
Included in other assets in December 1995 and 1994 are federal income taxes
receivable of $2,923 and $4,342, respectively .
(5) RESTRICTIONS OF SURPLUS
The Company generates cash flow from premium and investment income well in
excess of its immediate needs for policy obligations, expenses, and other
requirements. Cash flow from operations is used to fund growth in the
business and maintain strong capital and surplus.
The amount of dividends which can be paid by Illinois insurance companies
without prior approval of the State Insurance Commissioner is subject to
restrictions relating to profitability and statutory surplus. Dividends
which may be paid by the Company during 1996 without prior approval are
approximately $23,200. Dividend payments were $16,000, $21,000 and $7,000 in
1995, 1994 and 1993, respectively.
The Company is required by the Maryland Insurance Department to provide a
minimum reserve of $625 for guaranteed minimum death benefits under variable
annuity contracts issued by the Company.
Under applicable Illinois insurance laws and regulations, the Company is
required to maintain a minimum capital and surplus of $1,500.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 107 (Disclosure about Fair Value of Financial Instruments)
requires the disclosure of estimated fair values for certain financial
instruments. Fair values of the Company's insurance contracts other than
annuity contracts are not required to be disclosed. However, the fair values
of liabilities under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, through the matching
of investment maturities with amounts due under insurance contracts. The
following methods and assumptions were used to estimate the fair value of
financial instruments.
23
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
Investments - For fixed maturities and short-term investments, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities,
adjusted for differences between the quoted securities and the securities being
valued. The fair value of mortgage loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and the same remaining maturities. The
fair value of policy loans is based on estimates using discounted cash flow
analysis and current interest rates being offered for new loans. The carrying
value of real estate of $10,063 is a reasonable estimate of fair
value.
Annuity Contract Liabilities and Policyholder Account Balances on Interest-
sensitive Life Contracts - The fair values of annuity contract liabilities and
policyholder account balances on interest-sensitive life contracts are equal to
the discounted estimated future cash flows (using the Company's current interest
rates earned on its investments) including an adjustment for risk that the
timing or amount of cash flows will vary from management's estimate.
Other Policyholder Funds - Other policyholder funds are supplementary contract
reserves and dividend accumulations which represent deposits that do not have
defined maturities. The carrying value of these funds is used as a reasonable
estimate of fair value.
24
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
The carrying amounts and fair values of financial instruments at December 31,
1995 consisted of the following:
================================================================================
Carrying Fair
December 31, 1995 Amount Value
================================================================================
<TABLE>
<CAPTION>
Financial Assets
<S> <C> <C>
Investments and asset valuation reserve
Bonds $1,872,725 $1,954,738
Mortgage loans 80,486 82,305
Real estate 10,063 10,063
Short-term 27,277 27,277
Policy loans and other 41,737 41,737
================================================================================
Total investments $2,032,288 $2,116,120
Asset valuation reserve 27,769 -
================================================================================
Total investments less asset
valuation reserve 2,004,519 2,116,120
Cash 861 861
Financial Liabilities
Policyholder account
balances on interest-sensitive
life contracts 88,141 82,494
Annuity contract liabilities 1,275,271 1,132,742
Other policyholder funds 107,850 107,850
================================================================================
</TABLE>
Fair value estimates shown above are dependent upon subjective assumptions and
involve significant uncertainties resulting in variability in estimates with
changes in assumptions. Fair value assumptions are based upon subjective
estimates of market conditions and perceived risks of financial instruments at a
certain point in time. The disclosed fair values do not reflect any premium or
discount that could result from offering for sale at one time an entire holding
of a particular financial instrument. In addition, potential taxes and other
expenses that would be incurred in an actual sale or settlement are not
reflected in amounts disclosed.
25
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(7) DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND STATUTORY ACCOUNTING PRACTICES
Statutory accounting practices differ in some respects from generally
accepted accounting principles. Under generally accepted accounting
principles, the following applies:
(a) Aggregate reserves for future life benefits are computed on the net
level premium method using estimates of future investment yield,
mortality, and withdrawal.
(b) Policyholder dividends, based on dividend scales in effect at the time
the policies were issued, are accrued ratably over the premium paying
period of the policies.
(c) Life premiums are reflected as earned when due. Annuity considerations
and other fund deposits are reflected as deposits rather than revenue.
(d) Acquisition costs are deferred and amortized generally over the premium
paying period for individual life contracts and the estimated contract
life for interest-sensitive life and investment contracts.
(e) Deferred income taxes are provided on all significant temporary
differences between values of assets and liabilities for book and tax
reporting purposes.
(f) Non-admitted assets less applicable allowance accounts are restored to
the balance sheet.
(g) Asset valuation and interest maintenance reserves are not provided.
(h) The assets and liabilities are revalued as of the date of acquisition
of HMEC and its subsidiaries in August, 1989.
(i) Realized investment gains (losses) resulting from changes in interest
rates are recognized in income when the related security is sold.
(j) Reinsurance ceded credits are recognized as assets in GAAP basis
financial statements.
(k) Fixed maturity investments (bonds) are categorized as available for
sale. Such investments are carried at market with changes in market
value charged or credited to unassigned surplus, net of deferred income
taxes.
The aggregate effect of the foregoing differences has not been determined
separately for the Company.
26
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(8) REINSURANCE
Information with respect to reinsurance ceded and assumed by the Company is
set forth below.
<TABLE>
<CAPTION>
===============================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Life insurance premiums ceded:
To ALIC $1,019 $1,001 $ 955
To other companies 807 792 659
Life insurance reserves ceded:
To ALIC 5,986 5,595 5,084
To other companies 1,366 1,249 922
Life insurance premiums assumed:
From other companies - - -
Group accident and health premiums ceded:
To other companies 943 1,251 1,253
Amounts recoverable from reinsurers
on paid losses 201 448 1,074
================================================================================
</TABLE>
The maximum amount of direct ordinary insurance retained on any standard
life is $200. Amounts in excess of $200 are ceded on a yearly renewable term
basis of reinsurance. The Company reinsures on a treaty basis for each
accident and health claim up to $1 million over a prescribed retention
amount. Although reinsurance agreements transfer risk for amounts over a
certain retention limit, the Company has not relieved its primary obligation
to the policyholders. For the years ended December 31, 1995 and 1994, the
accident and health retention amount was $300 each year.
(9) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
PENSION PLANS
The Company is a member of the Horace Mann group of insurance companies. All
the Company's personnel are employees of Horace Mann Service Corporation, an
affiliated company. Salaries, pension and related benefits are allocated to
the Company for these services.
Employees are covered under a defined benefit plan and a defined
contribution plan, and certain employees participate in supplemental
retirement plans.
Benefits under the defined benefit and supplemental retirement plans are
based on employees' years of service and compensation for the highest 36
consecutive months of earnings under the plan. Under the defined
contribution plan, contributions are made to employees' accounts based on a
percentage of compensation that is determined by employees' years of
service. Retirement benefits to employees are paid first from their
accumulated accounts under the defined contribution plan with the balance
funded by the defined benefit and supplemental retirement plans.
27
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
________________________________________________________________________________
Employees are also eligible to participate in the Supplemental Retirement and
Savings Plan, a 401(k) plan, and may generally contribute up to 10% of eligible
compensation on a before tax basis. The employer contributes an amount equal to
50% of the first 6% of eligible compensation contributed each month by
participating employees.
Total allocated pension expense was $3,306, $3,402 and $3,083 for 1995, 1994 and
1993, respectively.
POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company also provides certain
health care and life insurance benefits to retired employees and eligible
dependents. Employees with ten years of service are eligible to receive these
benefits upon retirement. The allocated cost of these benefits totaled $683,
$773, and $696 for the years ended December 31, 1995, 1994, and 1993,
respectively.
(10) RISK-BASED CAPITAL
The insurance departments of various states, including the Company's domiciliary
state of Illinois impose risk-based capital (RBC) requirements on insurance
enterprises. The RBC calculation serves as a benchmark for the regulation of
life insurance companies by state insurance regulators. The requirements apply
various weighted factors to financial balances or activity levels based on their
perceived degree of risk.
The RBC guidelines define specific capital levels where regulatory intervention
is required based on the ratio of the Company's actual total adjusted capital
(sum of capital and surplus and asset valuation reserve) to control levels
determined by the RBC formula. At December 31, 1995, the Company's actual total
adjusted capital was $162,253 and the authorized control level risk-based
capital was $25,724.
28
<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.
<PAGE>
PART C
OTHER INFORMATION
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
-------------------------
Part A
Condensed financial information of the Account
Part B
Financial statements of the Account:
-Reports of Independent Accountants
-Statements of Net Assets - December 31, 1995
-Statements of Operations - For the Year Ended December 31, 1995
-Statements of Changes in Net Assets - For the Year Ended
December 31, 1995
-Statements of Changes in Net Assets - For the Year Ended
December 31, 1994
-Notes to Financial Statements - December 31, 1995
Financial statements for Horace Mann Life Insurance Company:
-Report of Independent Auditors
-Statutory Statements of Admitted Assets, Liabilities and Capital
and Surplus - As of December 31, 1995 and 1994
-Statutory Statements of Operations - For the Years Ended
December 31, 1995, 1994 and 1993
-Statutory Statements of Capital and Surplus - For the Years Ended
December 31, 1995, 1994 and 1993
-Statutory Statements of Cash Flow - For the Years Ended
December 31, 1995, 1994 and 1993
-Notes to Statutory Financial Statements - December 31, 1995,
1994 and 1993
(b) Exhibits Filed
- ------------- -----
( 9) Consent of Counsel.................... Not Applicable
(10) Consent of Independent Auditors....... Herewith
(11) Financial Statement Schedules for
Horace Mann Life Insurance Company
and the Independent Auditors' Report
thereon............................... Herewith
(13) Performance Quotation Computations.... Herewith
(14) Financial Data Schedule............... Herewith
(15) Horace Mann Educators Corporation
and its Subsidiaries.................. Herewith
<PAGE>
- A -
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The directors and officers of Horace Mann Life Insurance Company, who are
engaged directly or indirectly in activities relating to the registrant or the
variable annuity contracts offered by the registrant, are listed below. Their
principal business address is One Horace Mann Plaza, Springfield, Illinois
62715.
<TABLE>
<CAPTION>
Name Position & Office with Depositor
- ---- --------------------------------
<S> <C>
Larry K. Becker Director and Executive Vice
President & Chief Financial Officer
Gerald F. Bonnett Director and Senior Vice President
Ann M. Caparros Director, Vice President, General Counsel &
Corporate Secretary
H. Albert Inkel Director
Paul J. Kardos Director and President & Chief
Executive Officer
Edward L. Najim Director and Executive Vice
President
George J. Zock Director and Senior Vice President
& Treasurer
A. Thomas Arisman Senior Vice President
Roger W. Fisher Vice President & Controller
John H. Leitermann Vice President & Life Actuary
</TABLE>
Item 26. Controlled by or Under Common Control with the Depositor or Registrant
- --------------------------------------------------------------------------------
The Registrant is a separate account of Horace Mann Life Insurance Company.
Horace Mann Life Insurance Company is a wholly owned subsidiary of Allegiance
Life Insurance Company. Allegiance Life Insurance Company and Horace Mann
Investors, Inc., principal underwriter of the Registrant, are wholly-owned
subsidiaries of Horace Mann Educators Corporation, a publicly held corporation.
See Exhibit No. 15.
Item 27. Number of Contract Owners
- -----------------------------------
As of March 24, 1995, the number of Contract Owners of Horace Mann
Life
<PAGE>
- B -
Insurance Company Separate Account was 39,131 of which 37,907 were qualified
Contract Owners and 1,224 were non-qualified Contract Owners.
- C -
<PAGE>
Item 28. Indemnification
- -------------------------
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriters
- --------------------------------
Horace Mann Investors, Inc., the underwriter of Horace Mann Life Insurance
Company Separate Account, acts as principal underwriter for Horace Mann Life
Insurance Company Separate Account B and Horace Mann Life Insurance Company
Allegiance Separate Account A.
The following are the directors and officers of Horace Mann Investors, Inc.
Their principal business is One Horace Mann Plaza, Springfield, Illinois 62715.
<TABLE>
<CAPTION>
Name Position with Underwriter
- ---- -------------------------
<S> <C>
A. Thomas Arisman Director and President
Larry Becker Director
Ann Caparros Secretary
Roger Fisher Controller
William J. Kelly Treasurer
Diane M. Barnett Tax Compliance Officer
Richard D. Wilson Marketing Officer
</TABLE>
- C -
<PAGE>
<TABLE>
<S> <C>
George Zock Director
</TABLE>
<TABLE>
<CAPTION>
Net Underwriting Compensation
Name of Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation
- ----------------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Horace Mann
Investors, Inc. $2,657,025
</TABLE>
Item 30. Location of Accounts and Records
- ------------------------------------------
Horace Mann Investors, Inc., underwriter of the Registrant, is located at
One Horace Mann Plaza, Springfield, Illinois 62715. It maintains those accounts
and records required to be maintained pursuant to Section 31(a) of the
Investment Company Act and the rules promulgated thereunder.
Horace Mann Life Insurance Company, the depositor, is located at One Horace
Mann Plaza, Springfield, Illinois 62715. It maintains those accounts and records
required to be maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder.
Item 31. Management Services
- -----------------------------
Not applicable.
Item 32. Undertakings
- ----------------------
(a) Registrant undertakes to file a Post-Effective Amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under variable annuity Contracts may be accepted.
(b) Registrant undertakes to include a written communication in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
(d) Horace Mann Life Insurance Company and the Registrant are relying on a
no-action letter from the Securities and Exchange Commission that was issued to
the American Council of Life Insurance and made publicly available on November
28, 1988. That letter outlines conditions that must be met if a company offering
registered annuity contracts imposes the limitations on
- D -
<PAGE>
surrenders and withdrawals on section 403(b) contracts as required by the
Internal Revenue Code. Horace Mann Life Insurance Company and the Registrant
are in compliance with the conditions of that no-action letter.
- E -
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of the Registration Statement and has caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf of the City of Springfield and State of Illinois, on this 24th day of
April, 1996.
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
By: Horace Mann Life Insurance Company
--------------------------------------
(Depositor)
Attest: s/ANN M. CAPARROS By: s/PAUL J. KARDOS
------------------ -----------------------------
Ann M. Caparros Paul J. Kardos, President and
Corporate Secretary Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
s/PAUL J. KARDOS Director, President April 24, 1996
- ----------------------------- and Chief Executive --------------
Paul J. Kardos Officer
s/LARRY K. BECKER Director, Executive April 24, 1996
- ----------------------------- Vice President and --------------
Larry K. Becker Chief Financial Officer
s/GERARD F. BONNETT Director and Senior April 24, 1996
- ----------------------------- Vice President --------------
Gerard F. Bonnett
s/ANN M. CAPARROS Director, Vice President, April 24, 1996
- ----------------------------- General Counsel and --------------
Ann M. Caparros Corporate Secretary
s/ROGER W. FISHER Vice President, April 24, 1996
- ----------------------------- Controller and --------------
Roger W. Fisher Principal Accounting
Officer
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
s/H. ALBERT INKEL Director April 24, 1996
- ------------------------------- --------------
H. Albert Inkel
s/EDWARD L. NAJIM Director April 24, 1996
- ------------------------------- --------------
Edward L. Najim
s/GEORGE J. ZOCK Director April 24, 1996
- ------------------------------- --------------
George J. Zock
s/JOHN H. LEITERMANN Vice President and April 24, 1996
- ------------------------------ Life Actuary --------------
John H. Leitermann
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit No. Title Page
- ----------- ----- -----
<C> <S> <C>
(10) Consent of Independent
Auditors
(11) Financial Statement Schedules
for Horace Mann Life Insurance
Company and the Independent
Auditors' Report thereon
(13) Performance Quotation Computations
(14) Financial Data Schedule
(15) Horace Mann Educators Corporation
and its Subsidiaries
</TABLE>
<PAGE>
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Horace Mann Life Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Financial Statements" in the Registration Statement and
Prospectus for Horace Mann Life Insurance Company Separate Account.
Our report dated February 16, 1996, covering the financial statements of Horace
Mann Life Insurance Company, contains an explanatory paragraph which states that
the financial statements are presented in conformity with accounting practices
prescribed or permitted by the Insurance Department of the State of Illinois.
These practices differ in some respects from generally accepted accounting
principles. The financial statements do not include any adjustment that might
result from the differences.
/S/ KPMG PEAT MARWICK LLP
Chicago, Illinois
April 27, 1996
<PAGE>
EXHIBIT 11
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601-5255
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Horace Mann Life Insurance Company:
Under dates of February 16, 1996, we reported on the statutory statements of
admitted assets, liabilities and capital and surplus of Horace Mann Life
Insurance Company as of December 31, 1995 and 1994 and the related statutory
statements of operations, capital and surplus, and cash flow for each of the
years in the three year period ended December 31, 1995. In connection with our
audits of the aforementioned statutory financial statements, we also have
audited the related financial statement schedules included in the registration
statement. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedules based on our audits.
The statutory financial statements and financial statement schedules of Horace
Mann Life Insurance Company referred to above have been prepared in conformity
with accounting practices prescribed or permitted by the Department of Insurance
of the State of Illinois, as described in note 1 to the statutory financial
statements. These practices differ in some respects from generally accepted
accounting principles. Accordingly, the statutory financial statements and
financial statement schedules are not intended to present, and in our opinion do
not present fairly, the financial position, results of operations and cash flow
in conformity with generally accepted accounting principles.
However, in our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities and
capital and surplus of Horace Mann Life Insurance Company as of December 31,
1995 and 1994, and results of its operations and its cash flow for each of the
years in the three year period ended December 31, 1995, on the basis of
accounting described in note 1 to such financial statements.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Chicago, Illinois
February 16, 1996
<PAGE>
Schedule I
HORACE MANN LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT
SHOWN IN
BALANCE
TYPE OF INVESTMENTS COST(1) MARKET VALUE SHEET
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Bonds:
U.S. Government and government
agencies and authorities $1,460,601 $1,523,147 $1,460,601
State, municipalities and
political subdivisions 395,305 413,369 395,305
Foreign government bonds 16,407 17,825 16,407
Public utilities 412 397 412
Other corporate bonds - - -
Preferred stocks:
Public utilities - - -
---------- ---------- ----------
Total debt securities $1,872,725 $1,954,738 $1,872,725
---------- ========== ----------
Equity securities:
Common stocks:
Industrial and miscellaneous 568 1,691 1,691
---------- ---------- ----------
Total equity securities 568 $ 1,691 1,691
---------- ========== ----------
Mortgage loans on real estate 80,486 XXX 80,486
Real estate 17,045 XXX 10,063
Policy loans 39,897 XXX 39,897
Short-term investments 27,277 XXX 27,277
Other investments 149 XXX 149
---------- ---------- ----------
Total investments $2,038,146 XXX $2,032,287
========== ==========
</TABLE>
(1) Debt securities are carried at amortized cost or investment values
prescribed by the National Association of Insurance Commissioners.
(2) Real estate acquired in satisfaction of indebtedness is $9,757.
(3) Differences between cost and amounts shown in the balance sheet for
investments, other than equity securities, represent non-admitted
investments.
27
<PAGE>
Schedule III
HORACE MANN LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------------
Future policy
Deferred benefits Other policy
policy losses, claims claims and
acquisition and loss Unearned benefits
Segment cost(1) expenses (3) premiums (3) payable
<S> <C> <C> <C> <C>
1995:
Life $ 511,145 $ 5,727
Annuity 1,205,426 106
Supplementary
Contracts 70,956 101,942
Accident and
Health 29,952 75
---------- ---------- ----------- --------
Total $1,817,479 $107,850
========== ========== =========== ========
1994:
Life $ 471,424 $ 5,805
Annuity 1,170,998 110
Supplementary
Contracts 66,185 102,001
Accident and
Health 29,646 118
---------- ---------- ---------- --------
Total $1,738,253 $108,034
========== ========== ========== ========
1993:
Life $ 435,846 $ 5,834
Annuity 1,140,534 121
Supplementary
Contracts 61,911 102,688
Accident and
Health 29,353 53
---------- ---------- ---------- --------
Total $1,667,644 $108,696
========== ========== ========== ========
For the years ended December 31,
---------------------------------------------------------------------------------------------------------
Premium revenue Amortization
and annuity, Benefits, of deferred
pension and Net claims, losses policy Other
other contract investment and settlement acquisition operating Premiums
considerations income expenses costs(1) expenses written(2)
1995:
Life $ 97,837 $ 36,159 $ 79,787 $42,638
Annuity 142,870 98,086 199,982 16,010
Supplementary
Contracts 26,329 12,196 36,842 593
Accident and
Health 49,719 3,556 41,394 12,311
-------- -------- -------- --------- -------- ---------
Total 316,755 $149,997 $358,005 $71,552
======== ======== ======== ========= ======== =========
1994:
Life $ 94,643 $ 32,598 $ 76,953 $42,893
Annuity 136,640 92,633 190,302 14,290
Supplementary
Contracts 22,476 12,407 32,691 579
Accident and
Health 56,525 3,214 46,143 12,743
-------- -------- -------- --------- -------- ---------
Total $310,284 $140,852 $346,089 $70,505
======== ======== ======== ========= ======== =========
1993:
Life $ 92,785 $ 33,193 $ 74,725 $40,904
Annuity 123,369 93,388 183,145 12,592
Supplementary
Contracts 26,091 12,742 36,998 581
Accident and
Health 59,015 2,887 47,460 12,621
-------- -------- -------- --------- -------- ---------
Total $301,260 $142,210 $342,328 $66,698
======== ======== ======== ========= ======== =========
</TABLE>
(1) Does not apply to financial statements of life insurance companies which
are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and loss expenses.
28 (Continued)
<PAGE>
Schedule IV
HORACE MANN LIFE INSURANCE COMPANY
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995: Life insurance in force $10,316,420 $355,596 -- $9,960,824 0.0%
=========== ======== ======== ========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 99,663 $ 1,826 $ -- $ 97,837 0.0%
Annuity 142,870 -- -- 142,870 0.0%
Supplementary contracts 26,329 -- -- 26,329
Accident and health 50,662 943 -- 49,719 0.0%
----------- -------- -------- ---------- ---
Total premiums $ 319,524 $ 2,769 $ -- $ 316,755 0.0%
=========== ======== ======== ========== ===
1994: Life insurance in force $ 9,784,009 $329,449 -- $9,454,563 0.0%
=========== ======== ======== ========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 96,436 $ 1,793 $ -- $ 94,643 0.0%
Annuity 136,640 -- -- 136,640 0.0%
Supplementary contracts 22,476 -- -- 22,476
Accident and health 57,776 1,251 -- 56,525 0.0%
----------- -------- -------- ---------- ---
Total premiums $ 313,328 $ 3,044 $ -- $ 310,284 0.0%
=========== ======== ======== ========== ===
1993: Life insurance in force $ 9,343,705 $320,865 -- $9,022,840 0.0%
=========== ======== ======== ========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 94,398 $ 1,613 $ -- $ 92,785 0.0%
Annuity 123,369 -- -- 123,369 0.0%
Supplementary contracts 26,901 -- -- 26,091
Accident and health 60,268 1,253 -- 59,015 0.0%
----------- -------- -------- ---------- ---
Total premiums $ 304,126 $ 2,866 $ -- $ 301,260 0.0%
=========== ======== ======== ========== ===
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit 13
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
GROWTH DIVISION
PERFORMANCE QUOTATIONS COMPUTATIONS
As of December 31, 1995
One Year One Year
- -------- --------
<S> <C> <C> <C>
Without redemption Without redemption
Beginning Value BV ........................ 1,000.00 Beginning Value BV............ 1,000.00
Ending Redeemable Value ERV................ 1,318.90 Ending Redeemable Value ERV .. 1,213.40
Annual Fee AF* ............................ 0.14% Annual Fee AF*................ 0.14%
((ERV/BV)-1-AF X 100% ..................... 31.75% ((ERV/BV)-1-AF X 100%......... 21.20%
Five Years
- ----------
With and Without redemption
Beginning Value BV ........................ 1,000.00
Ending Redeemable Value ERV ............... 2,065.27
Annual Fee AF* ............................ 0.14%
((ERV/BV) (1/5)-1-AF) X 100% .............. 15.47%
Ten Years
- ---------
With and Without redemption
Beginning Value BV ........................ 1,000.00
Ending Redeemable Value ERV................ 3,128.10
Annual Fee AF* ............................ 0.14%
((ERV/BV) (1/10)-1-AF) X 100%.............. 11.94%
</TABLE>
*as a percentage of average contract cash value
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> SEPARATE ACCOUNT - GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 189,573
<INVESTMENTS-AT-VALUE> 205,762
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 205,762
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 205,762
<DIVIDEND-INCOME> 4,321
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 4,321
<REALIZED-GAINS-CURRENT> 13,099
<APPREC-INCREASE-CURRENT> 31,175
<NET-CHANGE-FROM-OPS> 48,596
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> SEPARATE ACCOUNT - INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10,001
<INVESTMENTS-AT-VALUE> 10,115
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10,115
<DIVIDEND-INCOME> 582
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 582
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 743
<NET-CHANGE-FROM-OPS> 1,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> SEPARATE ACCOUNT - BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 198,154
<INVESTMENTS-AT-VALUE> 217,547
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217,547
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 217,547
<DIVIDEND-INCOME> 6,976
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 6,976
<REALIZED-GAINS-CURRENT> 9,738
<APPREC-INCREASE-CURRENT> 27,597
<NET-CHANGE-FROM-OPS> 44,310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> SEPARATE ACCOUNT - SHORT-TERM FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 995
<INVESTMENTS-AT-VALUE> 960
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 960
<DIVIDEND-INCOME> 56
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 56
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> (3)
<NET-CHANGE-FROM-OPS> 53
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 15
<TABLE>
<CAPTION>
----------------
HORACE
MANN
EDUCATORS
CORPORATION
Delaware
Corporation
100%
----------------
|
|
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLEGIANCE ALLEGIANCE EDUCATORS ASSOCIATION HORACE WELL-CARE, HORACE HORACE TEACHERS SENIOR AIC
INSURANCE LIFE LIFE & CONSUMER MANN INC. MANN MANN INSURANCE MARKETING ACQUISITION
COMPANY INSURANCE INSURANCE MARKETING SERVICE Illinois INVESTORS, INSURANCE COMPANY INSURANCE CORPORATION
California COMPANY COMPANY SERVICES CORPORATION Corporation INC. COMPANY Illinois SERVICE Delaware
Corporation Illinois OF AMERICA CORP. Illinois Maryland Illinois Corporation CORPORATION Corporation
Corporation Arizona Illinois Corporation Corporation Corporation Delaware
100% Corporation Corporation Corporation
====================================================================================================================================
|
|
--------------
HORACE
MANN
LIFE
INSURANCE
COMPANY
Illinois
Corporation
---------------
</TABLE>
As of 31 December 1995
