<PAGE>
Up Close
Annual Report
December 31, 1996
Achieving
great results
the inside scoop
Exercise your options:
new fund choices coming
Now's a great time
to update your
retirement program
Take a closer look at how
your funds performed
Horace Mann Family of Funds and Horace Mann Life Insurance Company Separate
Account
[PICTURE APPEARS HERE]
<PAGE>
Contents
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1996 performance
Growth Fund 23.8%
Balanced Fund 16.9%
Income Fund 2.2%
Short-Term Fund 3.7%
For further information, see page 6.
Features
Achieving great results:
the inside scoop........................................................... 3
Over 50 and still going strong............................................. 8
Now's a great time to update
your retirement program.................................................... 9
Take a closer look at how
your funds performed...................................................... 12
Departments
Portfolio manager letters................................................. 13
Financial statements...................................................... 18
EDITOR'S NOTE: Nothing in these articles should be construed as a promise or
guarantee of future performance. Investment decisions are very personal and
should take into account many individual factors. More complete information on
the funds can be found in the current prospectuses.
This report must be preceded or accompanied by a current prospectus.
<PAGE>
HORACE MANN INVESTORS, INC.
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1 Horace Mann Plaza
Springfield, Illinois 62715
217-789-2500
Dear Shareholder:
We're pleased to report 1996 was another successful year for your investment in
the Horace Mann Family of Funds. In 1996, the funds' results were positive, and
your assets increased in value in excess of inflation. Our two largest funds,
the Growth Fund and Balanced Fund, performed very well.
Growth Fund and Balanced Fund investors saw these funds continue to outperform
relevant benchmarks for the year ended 12/31/96. These funds also outperformed
the benchmarks over the five-year period ended 12/31/96. The Income Fund and the
Short-Term Fund both underperformed their benchmarks over the one- and five-year
periods, yet they continued to add value in excess of inflation.
MARKET REVIEW
In the equity markets, 1996 represented another remarkable year as stock prices
continued their sharp rise. Wellington Management Company, LLP, the investment
advisor for the Horace Mann Family of Funds, believes the remarkable performance
of the equity market in 1996 reflects several positive factors: steady but
moderate economic growth, stable inflation, good earnings gains and massive cash
flows into mutual funds. Such large gains were not observed by fixed-income
investors in 1996; however, returns for this asset class were positive and
exceeded inflation for the year. While bond investors noted the positive factors
that contributed to the strong year in equities, their perception of wage
inflation pressures dampened the bond market outlook, and, thus, bond prices
stayed within a relatively tight trading range.
MARKET AND POLITICAL ISSUES
Wellington expects continued growth in the domestic economy while inflation
remains in check. The firm foresees Real Gross Domestic Product growing at a
2.3% rate for 1997, while inflation remains moderate, slightly increasing to
3.2% from 3.0% in 1996. Wellington does not see any meaningful increase in the
inflation rate on the horizon, despite Federal Reserve Chairman Alan Greenspan's
concern over "irrational exuberance" in the financial markets. Furthermore,
given the 1996 election indicating Americans' preference for divided government,
both Republicans and Democrats are taking a more conciliatory tone in their
deliberations over balancing the budget and other key economic issues.
PERSPECTIVE
We are continually reminded by our customers they are committed to long-term
investing to meet their retirement objectives. Therefore, at the Horace Mann
Family of Funds, we seek to provide sound investment vehicles that strive to
achieve your investment objectives and assist you in the accumulation of assets
over time in excess of inflation. We appreciate the opportunity to assist you in
planning for a secure retirement.
Sincerely,
<PAGE>
/s/ GEORGE ZOCK /s/ LARRY BECKER
George Zock Larry Becker
President Chairman
Horace Mann Family of Funds Horace Mann Family of Funds
<PAGE>
Funds Performance
Achieving great results
the inside scoop
Horace Mann's family of funds has
achieved impressive results. Our
[PICTURE APPEARS HERE] funds' performance means your
investment has great potential for
growth. And for 1997, we're adding
three new fund choices to give you
options in meeting your long-term
goals.
When you're looking at an investment, it all comes down to performance -- what
are your investments doing for you? The primary thing that matters is results.
And over the long term, Horace Mann's Family of Funds has delivered impressive
results for clients.
Since their inception, the Growth Fund & Balanced Fund have performed well above
industry averages. These results, in part, are the product of Horace Mann's
investment philosophy combined with outstanding fund management. The bottom line
is getting good results through quality investments. Wellington Management Co.,
LLP has provided sound management of our funds for the past eight years.
In 1989, Wellington Management Co. of Boston began advising the Horace Mann
funds. Wellington's philosophy of value-yield investments for our Growth and
Balanced Funds is a good match with the objectives of our educator clients. They
look to reduce risks by investing in a portfolio with low price/earnings ratios
and high earnings potential relative to the overall market. And since Wellington
was selected, our funds have performed very well.
We're expanding your investment options
In response to our clients' needs for a diversified retirement savings plan,
we'll now be offering a total of seven mutual fund choices. During 1997, the
Horace Mann fund family will grow again with the addition of an International
Fund and a Socially Responsible Fund, both managed by Scudder, Stevens & Clark,
Inc., and a Small Cap Growth Fund managed by PNC Equity Advisors Co. These new
funds expand the investment options available to our annuity customers.
. The Socially Responsible Fund will invest in firms exhibiting socially
responsible business practices (such as maintaining non-discriminating
employment practices, having acceptable environmental policies, and not
producing tobacco products, alcoholic beverages, nuclear weapons,
pornographic materials or casino gaming devices). This fund's long-term
objective is to achieve long-term capital growth with above-average
current income and growth of income.
3
<PAGE>
. The International Fund seeks
long-term capital growth by
investing in diversified companies
doing business primarily outside
the United States. Investors should
be able to tolerate above average
risk for this investment.
[PICTURE APPEARS HERE]
Both of these new funds will be managed by
Scudder, Stevens & Clark, Inc. Scudder was
founded in 1919, and today it manages over
$100 billion in total assets. The firm has
also managed international securities for
over 40 years, making it the oldest inter-
national investment manager in the country.
. The Small Cap Growth Fund's goal is to achieve long-term capital
appreciation through investment in emerging growth companies. This fund
aims for investors who seek substantial long-term growth and who can
stand some investment risk. PNC Equity Advisors Company will manage the
fund. PNC manages $2 billion in total assets, and over $1 billion in
small growth equity accounts.
These new funds, managed by two well-known investment companies, will continue
Horace Mann's tradition of providing our clients with high-quality investment
performance and sound fund management.
Find the right fund for you
Every fund investor is different -- he or she has certain goals, plans and
expectations about an annuity investment. When you invest in our funds, you
should choose the fund option that's right for you.
And choosing the right fund or right mix of funds depends on your investment
goals. If you are investing for a long period of time, or if want your
investment to have the best potential for growth and you can stand some risk,
you should consider stocks. The Growth Fund and Balanced Fund's greater
percentage of stock may be right for you. Historically, stocks have grown ahead
of the rate of inflation. These funds are for investors who are comfortable with
stock market price fluctuations.
These funds are for investors who are comfortable with stock market price
fluctuations.
The Growth Fund holds primarily common stock in many well-known companies,
including Ford Motor Co., Goodyear Tire & Rubber Co., BankAmerica Corp.,
Citicorp, AT&T Corp., and Eastman Kodak Co. This portfolio of stocks provides
the potential for a high return on your investment, but it also carries a
certain degree of risk should the stocks decrease in value. Because of the
historical performance of stocks, this fund is ideal for the longer-term
investor (who will not withdraw money for 10-15 years) seeking to maximize
growth.
4
<PAGE>
The Balanced Fund's investments include
bonds as well as stocks. Because of the mix
of both stocks and bonds, the Balanced Fund
carries less risk but may not offer as much
growth as the Growth Fund. This fund is also
ideal for the long-term investor.
If you will use your investment in the near
future, or you wish to lessen the risk of
investing in stocks, the Income Fund may be
a good alternative for some of your annuity
deposits. The Income Fund invests in
high-quality corporate and government bonds
that provide a great deal of safety and
security, although returns may not be as
great as those of a stock fund.
[PICTURE APPEARS HERE] The Short-Term Fund invests in short-term
debt instruments of the U.S. government. It
is not a money market fund, but it makes
similar types of investments. If you are
looking for a temporary investment, this
might be an option for you.
If you're seeking a guaranteed rate of
return without any risk of principle, then
you should look to the Fixed Account. The
Fixed Account guarantees a set rate of
return, and your principle is also
guaranteed. This fund is ideal for someone
who wants no investment market risk, such as
retirees who need guaranteed income.
Funds objectives
Here are the objectives of our current funds:
Growth Fund: The Growth Fund's objectives are long-term growth in
investments and dividend income by investing in common
stocks.
Balanced Fund: The Balanced Fund's objectives are long-term growth
and dividend income from common stocks combined with
total returns of high quality bonds.
Income Fund: The Income Fund's objectives are current income and
preservation of capital through high-quality bonds.
Short-Term Fund: The Short-Term Fund's objectives are current income
and preservation of principle through investing in
short-term debt instruments.
Fixed Account: The Fixed Account guarantees a return on investments
with a minimum guaranteed interest rate plus excess
interest rates
paid by Horace Mann.
5
<PAGE>
How the Funds measure up
For Annuity Alternatives Contract Owners
Average annual total returns for the period ended Dec. 31, 1996 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 Inception1
Without With With or Without With or Without With or Without
Redemption Redemption Redemption Redemption Redemption
<S> <C> <C> <C> <C> <C>
Growth Fund 23.83% 15.33% 15.53% 13.46% 13.59%
Income Fund 2.17 -6.01 4.77 6.10 6.16
Balanced Fund 16.86 8.36 11.79 10.65 11.10
Short-Term
Investment Fund 3.66 -4.63 2.62 4.08 3.54
</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 gurantee
future results of the subaccounts.
Total returns for the variable portion of the Annuity Alternatives contracts
include a reduction for 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 an $5,000 investment.
Commission credits were used to pay certain expenses of the Growth and Balanced
Funds from 1994 through 1996. Certain 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 during 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 Nov. 1, 1989, the date Wellington Management
Company, LLP became the Funds' investment adviser.
In addition to consistent returns, our funds are highly rated. Horace Mann's
Growth and Balanced funds were rated **** (Four stars) by Morningstar for the
investment period ending Dec. 31, 1996.*
*Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 12/31/96. The ratings are subject to change every month. Past performance is
no guarantee of future results. Morningstar ratings are calculated from the
subaccount's three-, five- and 10-year average annual returns in excess of 90-
day Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects subaccount performance below 90-day T-bill returns. Horace Mann
Growth Fund received *****, ****, and **** stars, and Horace Mann Balanced Fund
received *****, ****, and **** for the three-, five- and 10-year periods,
respectively. Horace Mann Growth Fund was rated among 1,013, 689 and 277 equity
variable annuity subaccounts, and Horace Mann Balanced Fund was rated among
1,726, 1,247 and 513 hybrid variable annuity subaccounts for the three-, five-
and 10-year periods, respectively. Ten percent of subaccounts in an investment
category receive five stars and the next 22.5 percent receive four stars.
6
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How the Funds measure up
For Growth Fund Public Shareholders and Participants in the Horace Mann
Employee 401(k) Plan
Total average annualized returns for the period ended Dec. 31, 1996 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 25.28% 16.98% 14.92% 15.03%
S&P 500 Stock Index 22.96 15.22 15.29 14.76
Horace Mann Income Fund 3.50 6.13 7.47 7.53
Lehman Intermediate
Gov't/Corp. bond Index 4.06 6.53 7.91 8.02
Horace Mann Balanced Fund 18.27 13.20 12.07 12.52
Stock/Bond Composite 2 15.16 11.74 12.56 12.16
Horace Mann Short-Term
Investment Fund 5.02 3.97 5.44 4.90
90-day Treasury Bills 5.16 4.24 5.64 5.02
</TABLE>
Returns of the Horace Mann Funds in the above table are shown net of fund
expenses. Certain 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 from 1994
through 1996. Certain Balanced Fund expenses were subsidized during 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 Nov. 1, 1989, the date Wellington Management
Company, LLP became the Funds' investment adviser.
2 60% S&P 500, 40% Lehman Brothers Intermediate Government/Corporate Bond Index,
rebalanced monthly.
7
<PAGE>
History
Over 50 and still going strong
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[picture] Horace Mann has a long history of helping educators
with their insurance and retirement planning needs.
----------------------------------------------------
Horace Mann started with a simple mission: insuring a group of educators from
auto loss. And even though we've grown into a multiline insurance company
serving educators throughout the nation, we haven't forgotten our roots --
helping educators plan for the future.
Our founders, Les Nimmo and Carroll Hall, started a credit union for
Springfield, Ill. teachers in the 1930s. Through the credit union, Nimmo and
Hall organized an auto insurance business. When they learned the Illinois
Education Association (IEA) was seeking insurance for its members, Nimmo
approached the association about providing IEA's insurance. Horace Mann's late
co-founder Hall said in a 1970s interview, "They wanted to increase the benefits
to teachers, and they wanted not only automobile, but also health insurance. So
we reorganized as a mutual company." The company name was changed to IEA Mutual
Insurance Co.
Horace Mann needed agents to market the company's products. Initially, teachers
were recruited to be IEA mutual agents. Some worked full-time, but many were
part-time agents who taught school during the day. As more teachers heard about
IEA Mutual, other education associations inquired about the company. As we
started doing business in other states, we chose the Horace Mann in tribute to
the father of American public education.
Ready to market mutual funds
The company continued to grow, and in 1956, the founders considered a mutual
fund to assist educators in planning for retirement. We established our first
mutual fund investment for teachers in 1957. And in 1961, when lesgislation
granted the educational community ameans to save for retirement through
tax-deferred annuities, Horace Mann Life Insurance Co. became one of the first
companies to offer them.
In 1982, the Horace Mann Fund became the Horace Mann Growth Fund, and three new
funds were added -- the Balanced Fund, Income Fund and Short-Term Investment
Fund. In 1989, Horace Mann chose Wellington Management Co., LLP of Boston to
manage the investments of the funds. Wellington brought their vast mutual fund
management experience to Horace Mann's growing fund assets. Horace Mann chose
Wellington because of their expertise and historical investment performance.
Their philosophy and quality investment choices have meant favorable returns for
our investors.
Horace Mann's long tradition of service to the educator market continues today.
Our market focus continues to be educators. Horace Mann is a multiline company
offering life, auto, homeowner insurance and retirement annuities to our
clients. Our company works with state and local education associations and
school districts around the country to provide special benefits to their
members. We offer our 403(b) tax-deferred annuities to educators. And in many
areas, we offer our annuities through the convenience of payroll deduction.
8
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Successful investing
Now's a great time to update
your retirement program
Though your Horace Mann retirement plan continues to grow, are you sure your
retirement savings will meet your retirement goals? An increase today might help
put time on your side.
[picture]
When setting money aside for retirement, all investors look for a solid, stable
company with a past history of consistent fund performance, investment options,
account flexibility and someone at that company they can talk to about their
investments.
That's why people choose Horace Mann. But have you taken the time recently to
review your retirement program?
Starting now puts time on your side
The earlier you began planning and saving, the better the opportunity you have
to build an adequate retirement nest egg. Postponing retirement savings by 10
years can require more than twice the monthly investment to reach the same goal
than if you started saving a decade ago. Although you may have less money
available for saving when you are young, even small amounts deposited regularly
quickly add up. And getting in the habit of gradually increasing your deposits
will make your retirement fund grow even more rapidly.
Starting early arms you with a powerful advantage -- compound earnings. Compound
earnings silently boosts your retirement savings without requiring additional
dollars from your paychecks. Then you can gradually increase your contributions
to help you reach your savings goals faster.
It's easy to increase your contributions
If you'd like to increase your contributions, simply complete the response card
found with this mailing, and your agent or a customer service representative
will contact you.
We've made it easy for you to transfer money between our funds. Call 1-800-999-
1030 between 7:30 a.m. and 7 p.m. Central time, Monday through
9
<PAGE>
Did you know?
Your Annuity Alternatives contract guarantees you income for as long as you
live. Mutual funds don't provide this guarantee.
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Volatility can be managed . . .
through diversification
<TABLE>
<CAPTION>
Annual Return, 1960-1996(%)
<S> <C> <C> <C>
40 37.6% (Chart)
Best year
30 30.2% Worst year
20
12.2% 10.4%
10
0
- -10
-15.8%
- -20
-26.5%
- -30
100% 60% Stocks
Stocks 40% Bonds
Stock/Bond Mix
</TABLE>
From 1960 to 1996, investments in stocks have produced better returns than bonds
or a fixed account. But, many people are concerned about the year-to-year, ups
and downs of the market.
The chart above shows that from 1960 to 1996 people who put all of their
investments in stocks (100% stock) earned an average return of 12.2%. The return
in the best of those years was 37.6%, but in the worst year the value of the
investments dropped 26.5%.
On the other hand, people who invested 60% in stocks and 40% in bonds from 1960
to 1996 earned an average return of 10.4%. They did not realize as big a loss in
the worst year (down 15.8%), yet still earned a 30.8% return in the best year.
- ------------------------------------------------------------
Friday. Our life and annuity customer service personnel will take your request
and ask you a few questions. After the transfer has been made, we'll send
written confirmation showing you we've made the changes you requested. Or if you
prefer, complete an Annuity Change Request Form to reallocate your money. You
can reallocate or transfer funds up to 12 times per year. The form is available
from your agent.
Horace Mann offers flexibility
when you retire.
When your annuity contract matures, you may choose one or a combination of the
following income options for receiving your income. Your Horace Mann agent can
help you select the retirement income option(s) best for you.
Income for life -- You will receive an income for as long as you live.
Income for life with a guaranteed period -- This option allows you to select a
period of time during which we guarantee income payments will be made to you, or
in the event of your death, your beneficiary. You will receive income payments
as long as you live; if you die during the guaranteed period, your beneficiary
will receive income payments for the remainder of the guaranteed period.
Joint and survivor -- You and the person you select will receive income for as
long as you both live. When the first dies, the survivor will receive a
percentage of the original income payments.
Income for a specific period -- You select a specific time period, e.g. 10
years, 29 years.
Fixed amount -- You choose the amount of the income payment you want to receive.
You will receive income payments of this amount until the value of your annuity
is exhausted.
10
<PAGE>
Interest income payments -- Your income payments will equal the interest earned
on the value of your annuity. The principal remains intact until you choose
another option or withdraw. When your contract matures, you may increase your
retirement income by adding funds to your annuity from any source. For example,
you can increase your benefit with money from a Certificate of Deposit (CD),
savings account or inheritance.
You chose the tax-deferred advantage
You qualify for favorable tax treatment two ways with the money you invest in a
tax-deffered annuity (TDA). First, your contributions may be made on a pre-tax
basis. Second, taxes will be deferred on your earnings until you withdraw them.
Your savings can grow faster in a tax-deferred annuity than when invested in
taxable savings accounts because your contributions are subtracted from your
paycheck before you pay taxes. Therefore, you can save money while your
contributions actually lower your taxable income. And, your account
contributions and earnings grow tax-deferred until you withdraw them at
retirement.
Account for inflation
Don't forget about the effects of inflation. The Department of Labor's Consumer
Price Index Office expects inflation to average 4 percent in future years. Even
at this low annual inflation rate, today's dollar will only be worth 50 cents in
just 18 years.
Analysts recognize Horace Mann's strengths
Horace Mann's long history of financial strength, not only in our funds choices,
but also in our outstanding insurance coverage and underwriting, has not gone
unnoticed among insurance and financial industry analysts.
Horace Mann and its subsidiaries are highly rated. All Horace Mann Companies are
rated "Excellent" by A.M. Best, Standard & Poor's (S&P) and Duff & Phelps Credit
Rating Company. (These ratings do not apply to the Separate Account or the
underlying variable investment securities.)
Not sure what to do?
If now's the right time to review your retirement plan, but you're not sure what
to do next, simply contact your Horace Mann agent. He or she can help you
determine if you're saving enough to meet your retirement goals. You should also
contact an agent if you wish to begin a retirement savings plan or transfer your
retirement plan to Horace Mann. If your agent is unavailable, please call
1-800-999-1030 to talk to someone in our home office.
[picture]
11
<PAGE>
READING
REPORT
Take a closer look at how
your funds performed
The following pages give you an overview
of how your funds performed.
- --------------------------------------------------------------------------------
1 The first sections break down the assets
owned by each fund.
2 The next section details the assets and liabilities of each
fund with balance sheets for these listings. We've included
notes that explain some of the terms from the financial
statements.
3 Then, we list the financial highlights from each fund. Finally, Horace
Mann Life Insurance Company's Separate Account financial statements are
provided.
We invide you to review these pages and note what you've invested in.
We want you to be happy with the quality of our fund choices and the
return on your investment.
We've also included a postage-paid response card should you want more
information about any of Horace Mann's products or services.
12
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Growth Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
After the remarkable year in the stock market of 1995 with
the S&P 500 Index up +37.6%, many investors expected the
stock market to post more moderate returns in 1996.
Nevertheless, continued improvement in corporate profits and
strong inflows into equity mutual funds were enough to
overcome a small rise in long-term interest rates and
contribute to another rewarding year of total returns for
the S&P 500 Index. In 1996, the Horace Mann Growth Fund
provided a total return for the year of 25.3% versus 23.0%
for the benchmark S&P 500 Index.
Portfolio Review
Sector and stock selection were important this year as the
market performed very unevenly. While the S&P 500 Index
returned 23% for the year, utilities within the Index
returned only about 3%, while technology stocks returned
more than 40%. Since the value orientation of the fund
commonly results in the fund being overweight in utilities
and underweight in technology, we were pleased the fund was
still able to outperform the market. Sector and security
selection were critical components in this year's
performance.
Energy stocks were important contributors in the portfolio.
The portfolio's energy overweight versus the S&P 500 Index
helped, as energy stocks outperformed the broader market for
the year. In addition, the energy stocks in the fund
outperformed the energy stocks in the S&P 500. By the end of
the year, we began reducing our position in energy stocks as
many holdings approached our target prices.
The portfolio's overweighting versus the S&P 500 Index in
finance stocks also boosted performance, as finance was the
best performing sector, after technology, returning almost
36% for the year. Although the fund's underweight in
technology was certainly a drag on relative performance, the
strong performance of our individual selections within the
group resulted in technology providing a net positive
contribution to relative performance. The fund's slight
overweight in utilities was a small negative.
Economic Outlook
For the coming year, we expect the U.S. economy to grow near
its long-term sustainable rate, about 2.5%. If 1996 is any
guide, growth in 1997 could vary considerably from quarter
to quarter. Currently, many signals on the economy are mixed
while banks, on the margin, appear to be tightening their lending
criteria to those consumers who might be overextended.
Although inflation, as measured by the CPI, has broken the
3% level on a trailing 12-month basis, it remains more
controlled than we had expected, and we do not see any
meaningful increase in the inflation rate on the horizon.
Higher food and energy prices are already in the numbers,
and only a sharp ramp up in global growth would move
inflation higher. Corporations continue to find the pricing
environment to be difficult due to an increasingly
competitive global economy and price-sensitive buyers.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN R. RYAN
John R. Ryan, CFA
Senior Vice President
Stock Portfolio Manager
Horace Mann Growth Fund, Inc.
13
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Income Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
For the 12 months ended December 31, 1996, the Horace mann
Income Fund provided shareholders with a net return of 3.5%,
outperforming the Lipper Intermediate Investment Grade Bond
Index return of 3.1%. The Income Fund's performance lagged
the 4.1% return of the Lehman Brothers Intermediate
Government/Corporate Bond Index.
During 1996, the Income Fund maintained an overweight
position in mortgage-backed securities, with about 30-35% of
the fund's holdings in this sector. This contributed
positively to the fund's performance, as the mortgage sector
outperformed corporates, Treasuries, and agencies during the
year.
Overall, U.S. bond investors experienced modestly positive
total returns in 1996 as interest rates moved higher during
the year, causing bond prices to decline, offsetting a
portion of the coupon income earned on those securities.
Within the investment grade sectors, corporate bonds and
mortgage-backed securities each outperformed comparable
duration Treasuries by roughly one percentage point.
Economic trends continued to defy those expecting a
slowdown, and inflation was stubbornly confined.
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 we determine to be
excessively risky, although other investors might be tempted
by yields on these securities. Though preservation of
capital is secondary to the income objective, we take it
very seriously.
Interest rates were mixed in the fourth quarter as market
psychology improved, bringing most fixed-income yields
lower, while seasonal forces put upward pressure on the
shortest maturity instruments. The Fed, other than some
activity evidenced in January, remained inactive during the
final 11 months of the year. Short-term interest rates
remain anchored at 5.25%.
Within the fixed income market, exposure to the
yield-enhancing sectors was the most important factor in
1996. In terms of sector allocation, by the end of 1996, we
had reduced the fund's exposure to Treasuries, and, to a
lesser extent, asset-backed securities. At the same time, we
added to the fund's corporate and mortgage commitment.
Mortgage securities and callable agency securities slightly
outperformed Treasuries with their extra yield during the
year.
Economic Outlook
We will continue to manage the Income Fund with the
consistent strategy we have employed in the past -- by
maximizing current income consistent with prudent investment
risk.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN C. KEOGH
John C. Keogh
Senior Vice President
Bond Portfolio Manager
Horace Mann Income Fund, Inc.
14
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Balanced Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
The remarkable performance of the equity market in 1995 and
1996 reflects a confluence of favorable factors: steady but
moderate economic growth, stable inflation, good earnings
gains, and massive cash flows into mutual funds. The S&P 500
Stock Index registered an impressive 23.0% total return
during 1996 on the heels of a 37.6% total return in 1995.
Bond markets returned modest absolute returns in 1996, and
they were much below the impressive gains realized during
1995. The Lehman Brothers Intermediate Government/Corporate
Bond Index turned in a total return of 4.1% for 1996
compared to the 1995 return of 15.3%. For the 12 months
ended December 31, 1996, the Horace Mann Balanced Fund
provided a net return of 18.3%. The Balanced Fund holds
stocks and bonds which are similar to the securities held
separately by the Growth Fund and the Income Fund. As
expected, then, the Balanced Fund's return of 18.3% for 1996
is between the Growth Fund's 25.3% return and the Income
Fund's 3.5% return.
Portfolio Review
The Horace Mann Balanced Fund's strong performance in 1996
was attributable to our allocation of assets and to the
strong stock market at year end, about 70% of assets were
invested in stocks. The stock portfolio was helped by our
heavy weighting in surging financial stocks, as well as our
security selection in the energy, consumer, and technology
sectors. Stock portfolio performance was hindered somewhat
by our investments in weaker performing basic materials
producers, as well as our underweighting in the soaring
technology sector. Our bond portfolio performed
approximately in line with fix income market returns.
Economic Outlook
For the coming year we expect the economy to grow about
2.5%. If 1996 is any guide, growth in 1997 could vary
considerably from quarter to quarter. Currently, many
signals on the economy are mixed while banks, on the margin,
appear to be tightening their lending criteria to those
consumers who might be overextended.
Although inflation, as measured by the Consumer Price Index
(CPI), has broken the 3% level on a trailing 12-month basis,
it remains more controlled than we had expected, and we do
not see any meaningful increase in the inflation rate on the
horizon. Higher food and energy prices are already in the
numbers, and only a sharp ramp up in global growth would
move inflation higher.
Favorable forces are in place for the financial markets, but
much of the good news has been incorporated into investor
expectations. Fiscal policies are improving, and efforts to
continue to reduce the deficit are continuing. Global demand
for financial assets remains strong, and pension reforms
create new sources of buying power. Finally, while it may be
viewed as tinkering, the possibility remains that the CPI,
the standard inflation measure, will be redefined, resulting
in a lower reading on inflation.
In summary, we will continue to manage the Balanced Fund
with the consistent strategy we have employed in the past
and will try to exploit unfolding investment opportunities.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN R. RYAN /s/ JOHN C. KEOGH
John R. Ryan, CFA John C. Keogh
Senior Vice President Senior Vice President
Stock Portfolio Manager Bond Portfolio Manager
Horace Mann Balanced Fund,Inc. Horace Mann Balanced
Fund,Inc.
15
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Short-Term Investment Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
The objective of the Short-Term Investment Fund is to
realize maximum current income while maintaining liquidity.
Preservation of principal is a secondary objective. For the
12 months ended December 31, 1996, the Horace Mann
Short-Term Investment Fund provided shareholders with a net
return of 5.0%, a positive, real return for investors in a
low-inflation environment. The IBC/Donoghue's All Taxable
Money Market Average returned 4.9% for the year.
After reducing short-term interest rates in January, the
Federal Reserve left them unchanged for the remaining 11
months of the year. With the central bank anchoring
short-term yields at 5.25%, yields on longer-maturity
instruments moved with the ebbs and flows of market
psychology. Signs of stronger economic growth, even without
the shadow of inflation, prompted the Fed to shift their
bias toward raising rates later in the year.
With stronger economic trends, the credit cycle remains
healthy. Short-term bond funds sailed smoothly through the
year without exposure to credit defaults. Two of the more
interesting developments involved the U.S. Treasury. First,
Congress shut down the government temporarily and put the
Treasury at risk of defaulting on its maturing debt. Cooler
heads prevailed, and the markets returned to normal. Second,
the Treasury developed plans to issue its first-ever
Inflation Indexed bond, a floating rate security whose
return is tied to changes in the rate of U.S. inflation. On
the surface, although floating rate securities are
appropriate for short-term bond mutual funds, we do not
anticipate using these new securities for the Short-Term
Fund at this time.
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. Unlike
commercial paper, agency discount notes can be purchased in
small lots without materially compromising liquidity and
transaction costs while providing attractive incremental
yield over comparable maturity Treasury bills.
Economic Outlook
Entering the new year, consensus expectations are for a
continuation of growth and inflation at similar levels as
1996. A steady manufacturing sector combined with high
consumer confidence and tight labor markets point to no
significant slowdown from the estimated 2.9% growth from
1996. Consumer spending remains a focal point for activity
as reduced spending during last summer cooled the growth
seen earlier in the year. As long as inflation remains in
check in the coming months, the Fed is likely to keep
short-term interest rates on hold.
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.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN C. KEOGH
John C. Keogh
Senior Vice President
Bond Portfolio Manager
Horace Mann Short-Term Investment Fund, Inc.
16
<PAGE>
Annual Report
December 31, 1996
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
President
Ann Caparros
Secretary and
Ethics Compliance Officer
William J. Kelly
Treasurer and Regulatory
Compliance Officer
Linda L. Sacco
Assistant Secretary
Roger Fisher
Controller
Diane M. Barnett
Tax Compliance Officer
----------------------------------------------
Investment Adviser
Wellington Management Company
75 State Street
Boston, MA 02109
Custodian
First National Bank of Boston
150 Royall Street
Canton, MA 02021
Business Manager
Horace Mann Investors, Inc.
One Horace Mann Plaza
Springfield, IL 62715-0001
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
[pie chart]
Cash & Short-Term Statement of Investments
Investments 3.5% Horace Mann Growth Fund, Inc.
Common Stock 96.5% December 31, 1996
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Aerospace/Defense 5.03%
Boeing Co. 111,800 $ 11,893
Northrop Grumman Corp. 49,800 4,121
Precision Castparts Corp. 113,800 5,647
--------------------------- ------- --------
21,661
Auto/Accessories 5.07%
Ford Motor Co. 110,600 3,525
Goodyear Tire & Rubber Co. (The) 356,300 18,305
------------------------------------- ------- -------
21,830
Banks/Financial Services 8.98%
BankAmerica Corp. 56,400 5,626
Citicorp 62,365 6,424
Firstar Corp. 43,000 2,257
First Union Corp. 61,000 4,514
Lehman Brothers Holdings Inc. 38,000 1,192
MoneyGram Payment Systems, Inc.* 77,100 1,022
Morgan Stanley Group, Inc. 145,700 8,323
National City Corp. 116,400 5,223
NationsBank Corp. 41,800 4,086
------------------- ------- -------
38,667
Building & Construction 0.26%
Ryland Group Inc. 81,500 1,121
Business Services 0.82%
Foster Wheeler Corp. 95,100 3,531
Chemicals 6.45%
Air Products & Chemicals, Inc. 124,300 8,592
Ferro Corp. 98,500 2,795
Geon Co. 65,100 1,278
IMC Global Inc. 265,100 10,372
Nalco Chemical Co. 131,500 4,750
-------------------- ------- -------
27,787
Communications 4.81%
AT & T Corp. 146,000 6,096
NYNEX Corp. 91,600 4,408
SBC Communications Inc. 81,000 4,192
Sprint Corp. 151,000 6,021
-------------- ------- -------
20,717
Consumer Staples 4.62%
Flowers Industries, Inc. 276,300 5,940
Kimberly-Clark Corp. 108,100 10,297
Universal Corp. (Va.) 113,700 3,653
----------------------- ------- -------
19,890
</TABLE>
See notes to the financial statements.
18
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Continued)
Horace Mann Growth Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Energy 10.64%
(continued) Amoco Corp. 51,000 $ 4,105
Enron Oil & Gas Co. 180,800 4,565
Equitable Resources, Inc. 160,700 4,781
MCN Corp. 105,400 3,043
Noble Drilling Corp.* 210,000 4,174
Seagull Energy Corp.* 192,000 4,224
Transocean Offshore Inc. 64,200 4,021
Union Texas Petroleum Holdings Inc. 259,100 5,797
USX-Marathon Group 371,900 8,879
Westcoast Energy Inc. 132,700 2,223
----------------------- ------- -------
45,812
Entertainment Products 2.19%
Brunswick Corp. 142,400 3,418
Eastman Kodak Co. 74,900 6,011
------------------- ------- -------
9,429
Health Care 7.47%
Baxter International Inc. 92,400 3,788
Bristol-Myers Squibb Co. 42,000 4,568
DePuy, Inc.* 121,400 2,458
Mallinckrodt, Inc. 128,600 5,674
Pharmacia & Upjohn Inc. 253,100 10,029
Value Health, Inc.* 290,200 5,659
--------------------- ------- -------
32,176
Information Technology/Equipment 4.00%
Bay Networks, Inc.* 62,700 1,309
Harris Corp. (Del.) 65,000 4,461
International Business Machines Corp. 74,100 11,189
NCR Corp.* 7,619 254
------------ ------- --------
17,213
Insurance 7.78%
ACE Limited 117,000 7,035
Allstate Corp. 221,890 12,842
Chubb Corp. 127,200 6,837
Integon Corp. 161,400 2,865
NAC Re Corp. 115,300 3,906
-------------- ------- -------
33,485
Manufacturing (Diversified) 7.59%
Caterpillar Inc. 51,800 3,898
Cooper Industries Inc. 72,900 3,071
Deere & Co. 218,500 8,876
Kennametal Inc. 64,700 2,515
Minnesota Mining & Manufacturing 105,400 8,735
New Holland NV 62,900 1,313
UCAR Intl. Inc.* 113,700 4,278
------------------ ------- -------
32,686
Metals & Mining 3.92%
Alcan Aluminum Ltd. 78,900 2,653
Alumax Inc.* 164,500 5,490
Aluminum Co. of America 97,600 6,222
Reynolds Metals Co. 44,600 2,514
--------------------- ------- -------
16,879
</TABLE>
See notes to the financial statements.
19
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Concluded)
Horace Mann Growth Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Paper & Wood Products 3.31%
(concluded) Champion International Corp. 128,500 $ 5,558
Mead Corp. 149,400 8,684
------------ ------- --------
14,242
Retail 3.75%
Linen 'N Things, Inc.* 78,000 1,531
May Department Stores Co. 125,900 5,886
Penney (J.C.) Co., Inc. 74,800 3,646
Rite-Aid Corp. 128,000 5,088
---------------- ------- -------
16,151
Transportation/Travel 5.50%
America West Holdings Corp. - B* 263,500 4,183
Caliber Systems, Inc. 131,300 2,527
Canadian National Railway Co. 53,000 2,014
CSX Corp. 123,300 5,209
Delta Air Lines, Inc. 74,000 5,245
Pittston Burlington Group 64,650 1,293
Ryder Systems, Inc. 113,500 3,192
--------------------- ------- -------
23,663
Utilities/Other 4.35%
Central & South West Corp. 177,000 4,536
General Public Utilities Corp. 144,400 4,855
New England Electric System 117,100 4,084
New York State Electric & Gas Corp. 107,000 2,314
Pacific Gas & Electric Co. 139,100 2,921
--------------------------- ------- -------
18,710
-------
Total Common Stocks 96.54% $415,650
(Cost $345,826)
-----------------------------------------------------------------------
<CAPTION>
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM Repurchase Agreement
INVESTMENTS Swiss Bank Capital Mkts, Inc.
6.70%, 01/02/97, (secured
by $14,197,427 US Treasury
Bond, 4.75%, 08/31/98 and
by $1,235,925 US Treasury
Bond, 5.125%, 04/30/98) $15,130 $ 15,130
------------------------- ------- --------
Total Short-Term Investments 3.51% 15,130 15,130
(Cost $15,130)
------------------------------------------------------------------------
Total Investments 100.05% 430,780
(Cost $360,956)
Securities Sold Short (.06%) (7,400) (247)
NCR Corp. (Proceeds $267)
Cash and Other Assets in Excess
of Liabilities 0.01% 23
----------------------- --------
Net Assets 100.00% $430,556
------------------- --------
</TABLE>
* Non-income producing during the twelve months ended
December 31, 1996 as this security did not pay
dividends.
See notes to the financial statements.
20
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
[Pie Chart]
Cash & Short-Term Investments 1.7%
Corporate Bonds/Notes 29.7%
U.S. & Foreign Government & Agency Obligations 68.6%
Statement of Investments
Horace Mann Income Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Treasury Bond/Notes
GOVERNMENT 6.125%, 08/31/98 $ 1,000 $ 1,005
AND AGENCY 6.250%, 10/31/01 400 400
OBLIGATIONS
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.500%, 03/01/01 38 40
9.500%, 06/01/01 14 15
9.500%, 08/01/01 14 14
9.500%, 10/01/01 12 12
7.000%, 11/01/03 47 47
7.000%, 07/01/10 527 527
7.000%, 12/01/10 47 47
7.000%, 01/01/11 415 414
6.500%, 03/01/11 378 372
7.000%, 03/01/11 713 713
7.000%, 04/01/11 826 826
7.000%, 07/01/11 193 193
8.000%, 12/01/11 15 15
Federal National Mortgage Association
(Mortgage Backed Securities)
6.625%, 04/18/01 1,500 1,513
8.000%, 11/01/09 20 20
7.500%, 05/01/25 724 724
Government National Mortgage Association
(Mortgage Backed Securities)
11.500%, 03/15/10 14 15
12.500%, 06/15/10 9 10
12.000%, 03/15/14 5 6
12.000%, 04/15/14 4 4
12.000%, 12/15/14 17 19
12.000%, 02/15/15 3 4
12.000%, 03/15/15 14 16
12.000%, 04/15/15 8 9
12.500%, 04/15/15 4 5
12.000%, 06/15/15 13 14
12.000%, 07/15/15 13 15
12.000%, 11/15/15 15 16
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
FHLMC 1737-E PAC
6.000%, 12/15/17 220 218
Foreign (U.S. dollar denominated)
Republic of Iceland
6.125%, 02/01/04 200 193
------------------ ------ ------
Total U.S. and Foreign Government and
Agency Obligations 68.59% 7,422 7,441
(cost $7,390)
</TABLE>
See notes to the financial statements.
21
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Concluded)
Horace Mann Income Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE Banponce Corp.
BONDS/NOTES 6.75%, 12/15/05 $ 200 $ 194
BankAmerica Corp.
6.85%, 03/01/03 150 150
Boeing Co.
6.35%, 06/15/03 200 197
BP America Inc. Euro
9.75%, 03/01/99 100 106
Citicorp
6.75%, 08/15/05 200 197
Disney, Walt Co. B
6.75%, 03/30/06 200 199
duPont (E.I.) de Nemours & Co., Inc.
9.15%, 04/15/00 130 140
First Financial Caribbean
7.84%, 10/10/06 100 100
Gannett Co.
5.85%, 05/01/00 200 197
Honeywell Inc.
6.60%, 04/15/01 175 175
Husky Oil Ltd.
7.125%, 11/15/06 200 198
Southwestern Bell Telephone Co.
5.55%, 03/10/98 100 99
TCI Communications Inc.
6.875%, 02/15/06 200 181
Asset Backed
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 148 150
Ford Credit Grantor Trust 93-B A
4.30%, 07/15/98 17 17
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 157 157
GMAC Grantor Trust 92-D
5.625%, 02/15/01 200 193
Government Backed Trust
9.625%, 05/15/02 119 129
IBM Credit Trust 93-1 A
4.55%, 11/15/00 115 114
Nations Bank Credit Trust 93-2 A
6.00%, 12/15/05 200 194
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 53 52
Premier Auto Trust 94-1 A3
4.75%, 02/02/00 83 82
----------------- ----- -----
Total Corporate Bonds/Notes 29.69% 3,247 3,221
(cost $3,224)
---------------------------------------------------------------------------------
Total Investments 98.28% 10,662
(Cost $10,614)
Cash and Other Assets in Excess
of Liabilities 1.72% 186
---------------------------------------------------------------------------------
Net Assets 100.00% $10,848
---------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
22
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
[PIE CHART APPEARS HERE]
Cash & Short-Term Investments 1.1%
Corporate Bonds/Notes 7.0%
U.S. & Foreign Government & Agency Obligations 22.5%
Common Stock 69.4%
<TABLE>
<CAPTION>
Statement of Investments
Horace Mann Balanced Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Aerospace/Defense 3.57%
Boeing Co. 55,900 $5,946
Northrop Grumman Corp. 23,900 1,978
Precision Castparts Corp. 56,400 2,799
--------------------------- ------- ------
10,723
Auto/Accessories 3.73%
Ford Motor Co. 57,600 1,836
Goodyear Tire & Rubber Co. (The) 182,300 9,366
---------------------------------- ------- ------
11,202
Banks/Financial Services 6.44%
BankAmerica Corp. 27,300 2,723
Citicorp 30,659 3,158
Firstar Corp. 22,000 1,155
First Union Corp. 34,000 2,516
Lehman Brothers Holdings Inc. 19,300 606
MoneyGram Payment Systems, Inc.* 28,700 380
Morgan Stanley Group, Inc. 72,000 4,113
National City Corp. 57,900 2,598
NationsBank Corp. 21,600 2,111
------------------- ------- ------
19,360
Building & Construction 0.18%
Ryland Group Inc. 38,900 535
Business Services 0.58%
Foster Wheeler Corp. 47,200 1,752
Chemicals 4.61%
Air Products & Chemicals, Inc. 61,900 4,279
Ferro Corp. 49,600 1,407
Geon Co. 33,700 661
IMC Global Inc. 133,900 5,239
Nalco Chemical Co. 63,200 2,283
-------------------- ------- ------
13,869
Communications 3.44%
AT & T Corp. 71,500 2,985
NYNEX Corp. 45,800 2,204
SBC Communications Inc. 41,000 2,122
Sprint Corp. 75,800 3,023
-------------- ------- ------
10,334
Consumer Staples 3.42%
Flowers Industries, Inc. 150,800 3,242
Kimberly-Clark Corp. 55,700 5,305
Universal Corp. (Va.) 53,700 1,725
----------------------- ------- ------
10,272
</TABLE>
See notes to the financial statements.
23
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Energy 7.69%
(continued) Amoco Corp. 27,000 $2,173
Enron Oil & Gas Co. 92,100 2,326
Equitable Resources, Inc. 76,600 2,279
MCN Corp. 53,700 1,551
Noble Drilling Corp.* 104,000 2,067
Seagull Energy Corp.* 94,300 2,075
Transocean Offshore Inc. 32,800 2,054
Union Texas Petroleum Holdings Inc. 131,200 2,936
USX-Marathon Group 189,100 4,515
Westcoast Energy Inc. 68,300 1,144
----------------------- ------- ------
23,120
Entertainment Products 1.53%
Brunswick Corp. 70,300 1,687
Eastman Kodak Co. 36,400 2,921
------------------- ------- ------
4,608
Health Care 5.26%
Baxter International Inc. 37,800 1,550
Bristol-Myers Squibb Co. 20,000 2,175
DePuy, Inc.* 60,800 1,231
Mallinckrodt, Inc. 67,700 2,987
Pharmacia & Upjohn Inc. 127,400 5,048
Value Health, Inc.* 144,000 2,808
--------------------- ------- ------
15,799
Information Technology/Equipment 2.77%
Bay Networks, Inc.* 13,400 280
Harris Corp. (Del.) 33,800 2,320
International Business Machines Corp. 37,100 5,602
NCR Corp.* 3,725 124
------------ ------- ------
8,326
Insurance 5.64%
ACE Limited 59,800 3,595
Allstate Corp. 116,002 6,714
Chubb Corp. 60,800 3,268
Integon Corp. 81,700 1,450
NAC Re Corp. 57,200 1,938
-------------- ------- ------
16,965
Manufacturing (Diversified) 5.41%
Caterpillar Inc. 24,800 1,866
Cooper Industries Inc. 37,400 1,575
Deere & Co. 107,500 4,367
Kennametal Inc. 33,400 1,298
Minnesota Mining & Manufacturing 52,700 4,368
New Holland NV 31,500 658
UCAR Intl Inc.* 56,900 2,141
----------------- ------- ------
16,273
Metals & Mining 2.84%
Alcan Aluminum Ltd. 40,300 1,355
Alumax Inc.* 80,400 2,683
Aluminum Co. of America 49,700 3,168
Reynolds Metals Co. 23,500 1,325
--------------------- ------- ------
8,531
</TABLE>
See notes to the financial statements.
24
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Paper & Wood Products 2.36%
(continued) Champion International Corp. 64,100 $2,772
Mead Corp. 74,200 4,313
------------ ------- ------
7,085
Retail 2.75%
Linens 'N Things, Inc.* 38,900 763
May Department Stores Co. 65,300 3,053
Penney (J.C.) Co., Inc. 37,400 1,823
Rite-Aid Corp. 66,000 2,623
---------------- ------- ------
8,262
Transportation/Travel 3.94%
America West Holdings Corp. - B* 132,200 2,099
Caliber System, Inc. 65,600 1,263
Canadian National Railway Co. 27,100 1,030
CSX Corp. 60,500 2,556
Delta Air Lines, Inc. 37,000 2,622
Pittston Burlington Group 33,600 672
Ryder Systems, Inc. 56,800 1,598
--------------------- ------- ------
11,840
Utilities/Other 3.26%
Central & South West Corp. 89,000 2,281
General Public Utilities Corp. 71,400 2,401
New England Electric System 61,300 2,138
New York State Electric & Gas Corp. 68,700 1,486
Pacific Gas & Electric Co. 71,100 1,493
---------------------------- ------- ------
9,799
------
Total Common Stock 69.42% 208,655
(cost $173,242)
----------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Treasury Bonds/Notes
GOVERNMENT 5.250%, 12/31/97 $ 6,750 $ 6,726
AND AGENCY 6.125%, 08/31/98 5,000 5,023
OBLIGATIONS 6.250%, 10/31/01 4,000 4,002
Federal Home Loan Bank
(Mortgage Backed Securities)
6.670%, 04/06/01 1,500 1,515
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.500%, 07/01/01 9 10
9.500%, 08/01/01 7 8
9.500%, 09/01/01 12 13
9.500%, 10/01/01 26 27
8.500%, 06/01/02 44 45
9.250%, 11/01/02 64 67
8.250%, 10/01/07 69 71
</TABLE>
See notes to the financial statements.
25
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Federal Home Loan Mortgage Corporation
GOVERNMENT (Mortgage Backed Securities)
AND AGENCY 8.250%, 11/01/07 $ 76 $ 78
OBLIGATIONS 8.750%, 05/01/08 75 78
(Continued) 8.500%, 08/01/08 98 100
9.000%, 09/01/08 78 82
8.000%, 09/01/09 63 64
8.000%, 04/01/10 83 85
7.000%, 07/01/10 83 83
7.000%, 09/01/10 23 23
7.000%, 10/01/10 623 623
7.000%, 11/01/10 307 307
7.000%, 12/01/10 137 137
7.000%, 01/01/11 2,582 2,581
7.000%, 02/01/11 3,546 3,545
6.500%, 03/01/11 4,735 4,654
7.000%, 03/01/11 6,049 6,048
7.000%, 04/01/11 1,961 1,961
7.000%, 07/01/11 1,558 1,557
Federal National Mortgage Association
(Mortgage Backed Securities)
8.000%, 07/01/98 92 94
6.625%, 04/18/01 18,000 18,152
8.750%, 02/01/10 358 373
10.250%, 07/01/13 34 38
7.500%, 07/01/23 414 413
7.500%, 04/01/24 603 602
7.500%, 05/01/24 190 190
7.500%, 06/01/24 481 481
7.500%, 08/01/24 625 624
7.500%, 09/01/24 841 840
7.500%, 10/01/24 656 656
7.500%, 02/01/25 164 164
7.500%, 04/01/25 1,226 1,226
Government National Mortgage Association
(Mortgage Backed Securities)
11.000%, 12/15/00 37 39
9.500%, 08/20/01 56 59
9.500%, 10/20/01 45 47
9.500%, 07/20/02 72 75
9.500%, 12/20/02 58 61
9.500%, 01/20/03 32 34
9.500%, 02/20/03 43 45
9.500%, 05/20/03 78 81
9.500%, 08/20/03 83 87
9.500%, 09/20/03 123 129
9.500%, 11/20/03 47 49
9.500%, 09/20/04 30 31
8.250%, 05/15/06 125 128
12.000%, 03/15/15 37 41
8.500%, 01/15/20 40 42
8.500%, 02/15/21 248 256
8.500%, 06/15/21 178 183
8.500%, 08/15/21 28 28
8.500%, 04/15/23 266 276
</TABLE>
See notes to the financial statements.
26
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. AND FOREIGN Collateralized Mortgage Obligation
GOVERNMENT (Planned Amortization Class) (Note 3)
AND AGENCY FHLMC G42-D
OBLIGATIONS 8.000%, 08/17/17 $ 1,462 $ 1,501
(Continued)
Foreign (U.S. dollar denominated)
Republic of Iceland
6.125%, 02/01/04 1,000 965
------------------ ------- -------
Total U.S. and Foreign Government and
Agency Obligations 22.47% 67,330 67,523
(cost $67,285)
- -------------------------------------------------------------------------------------------
CORPORATE Associates Corp. NA
BONDS/NOTES 5.25%, 09/01/98 315 311
Associates Corp. NA
6.00%, 06/15/00 500 492
Bankers Trust
8.25%, 05/01/05 1,500 1,603
Banponce Corp.
5.75%, 12/15/05 1,460 1,416
Beneficial Corp.
12.875%, 08/01/13 261 296
Boeing Co.
6.35%, 06/15/03 750 739
Citicorp
6.75%, 08/15/05 1,000 982
Disney, Walt Co. B
6.75%, 03/30/06 1,500 1,489
First Financial Caribbean
7.84%, 10/10/06 665 667
Ford Motor Credit Corp.
5.75%, 01/25/01 1,500 1,451
Gannett Co.
5.85%, 05/01/00 750 737
GMAC
5.62%, 02/15/01 1,000 966
Honeywell Inc.
6.60%, 04/15/01 1,315 1,312
Husky Oil Ltd.
7.125%, 11/15/06 1,000 991
Southwestern Bell Telephone Co.
5.55%, 03/10/98 400 397
TCI Communications
6.875%, 02/15/06 1,500 1,355
ASSET BACKED
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 1,114 1,121
Ford Credit Grantor Trust 93-B A
4.30%, 07/15/98 43 43
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 1,255 1,254
IBM Credit Trust 93-1 A
4.55%, 11/15/00 785 778
</TABLE>
See notes to the financial statements.
27
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statement of Investments (Concluded)
Horace Mann Balanced Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE ASSET BACKED (Continued)
BONDS/NOTES Nations Bank Credit Trust 93-2 A
(Continued) 6.00%, 12/15/05 $ 1,000 $ 967
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 264 262
Premier Auto Trust 94-1 A3
4.75%, 02/02/00 827 823
Premier Auto Trust 94-2 A3
6.35%, 05/02/00 584 587
----------------- ------- --------
Total Corporate Bonds/Notes 7.00% 21,288 21,039
(cost $21,053)
- -----------------------------------------------------------------------------------------
SHORT-TERM Repurchase Agreement
INVESTMENTS Swiss Bank Capital Mkts, Inc.
6.70%, 01/02/97, (secured
by $2,383,997 US Treasury
Bond, 9.875%, 11/15/15) 2,341 2,341
------------------------- ------- --------
Total Short-Term Investments 0.78% 2,341 2,341
---------------------------------- ------- --------
(cost $2,341)
Total Investments 99.67% 299,558
(Cost $263,921)
Securities Sold Short (.04%) (3,600) (120)
NCR Corp. (Proceeds $130)
Cash and Other Assets
in Excess of Liabilities 0.37% 1,113
--------------------------------- --------
Net Assets 100.00% $300,551
------------------ --------
</TABLE>
*Non-income producing during the twelve months ended December 31, 1996
as this security did not pay dividends.
See notes to the financial statements.
28
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
[pie chart]
Cash & Short-Term Investments 1%
U.S Government & Agency Obligations 99%
Statement of Investments
Horace Mann Short-Term Investment Fund, Inc.
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT Treasury Bonds/Notes
AND AGENCY 7.50%, 01/31/97 $ 100 $ 100
OBLIGATIONS
Federal Farm Credit Bank Discount Notes
5.26%, 01/23/97 20 20
5.25%, 02/04/97 100 99
5.39%, 03/24/97 55 54
Federal Home Loan Bank Discount Notes
5.23%, 01/13/97 110 110
Federal Home Loan Mortgage Corp.
Discount Notes
5.33%, 02/06/97 85 85
5.51%, 02/14/97 70 70
5.47%, 02/20/97 48 48
5.34%, 03/04/97 88 87
Federal National Mortgage Association
Discount Notes
5.19%, 01/12/97 30 30
5.38%, 01/17/97 140 140
4.59%, 01/24/97 55 55
5.24%, 01/29/97 15 15
5.35%, 02/18/97 15 15
5.32%, 03/04/97 105 104
5.34%, 03/24/97 50 49
5.39%, 06/13/97 40 39
Tennessee Valley Authority Discount Note
6.41%, 04/09/97 100 98
----------------- ------ ------
Total Investments 99.10% 1,226 1,218
(Cost $1,218)
Cash and Other Assets in Excess
of Liabilities 0.90% 11
---------------------- ------
Net Assets 100.00% $1,229
------------------- ------
</TABLE>
See notes to the financial statements.
29
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 66,467 $ 59,174 $ 211,738 $ 3,751
Investments at market value* 430,780,486 10,661,515 299,557,716 1,217,588
Dividends and interest receivable 442,977 123,850 1,126,467 --
Accounts receivable-fund shares sold 369,737 18,953 282,065 9,323
Accounts receivable-investments sold 266,865 4,493 154,570 3,139
Prepaid expenses 18,313 1,301 14,312 --
- ------------------ ------ ----- ------ --
Total Assets 431,944,845 10,869,286 301,346,868 1,233,801
- ---------------- ----------- ---------- ----------- ---------
LIABILITIES
Accounts payable-fund shares redeemed 56,631 232 88,357 1,295
Accounts payable-investments purchased 880,131 -- 434,628 --
Accrued expenses 204,938 20,956 152,699 3,679
Securities sold short at value 246,975 -- 120,150 --
(Proceeds $266,865 for Growth Fund and
$129,820 for Balanced Fund)
----------------------------------------------------------------------------------------------------------------
Total Liabilities 1,388,675 21,188 795,834 4,974
----------------- --------- ------ ------- -----
NET ASSETS $ 430,556,170 $10,848,098 $300,551,034 $1,228,827
- ---------- - ----------- ----------- ------------ ----------
NET ASSETS CONSIST OF:
Par value of common shares 18,118,135 85,511 1,586,973 12,252
Paid in surplus 342,351,331 10,708,323 263,135,832 1,216,056
Accumulated undistributed net investment
income 123,253 7,248 117,809 1,006
Accumulated undistributed net realized
gain (loss) on investments 119,191 (10) 63,991 (2)
Net unrealized appreciation
(depreciation) on investments 69,844,260 47,026 35,646,429 (485)
------------------------------- ---------- ------ ---------- -----
NET ASSETS $ 430,556,170 $10,848,098 $300,551,034 $1,228,827
- ---------- - ----------- ----------- ------------ ----------
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) 18,118,135 855,109 15,869,731 122,522
---------------- ---------- ------- ---------- -------
NET ASSET VALUE PER SHARE $ 23.76 $ 12.69 $ 18.94 $ 10.03
- ------------------------- - ----- - ----- - ----- - -----
*Cost of Investments $ 360,956,116 $10,614,489 $263,920,957 $1,218,073
</TABLE>
The identified cost of investments owned at December 31, 1996 was the same for
federal income tax and book purposes.
See notes to the financial statements.
30
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statements of Operations
For the Year Ended
December 31, 1996
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 7,565,184 $ -- $ 3,881,005 $ --
Interest & amortization 912,081 717,368 5,739,050 60,705
- ------------------------- ------- ------- --------- ------
Total investment income 8,477,265 717,368 9,620,055 60,705
EXPENSES:
Investment advisory and related fees 1,129,812 28,392 767,373 1,509
Management fees 741,749 22,734 544,797 2,355
Fund pricing fees 26,919 6,002 22,110 4,934
Professional fees 28,519 23,381 26,839 11,449
Custodian fees 54,343 10,400 50,018 2,307
Transfer agent fee (Note 5) 32,394 24 24 24
Shareholder reports 14,009 708 5,662 30
Directors' fees and expenses 3,477 3,477 3,477 3,477
Other expenses 40,931 1,638 24,191 450
Insurance expenses 26,011 1,911 20,598 619
- -------------------- ------ ----- ------ ---
Total expenses 2,098,164 98,667 1,465,089 27,154
Less management fees waived (Note 5) -- (22,734) -- (2,355)
Less expenses paid by Horace Mann
Investors, Inc. (Note 5) -- -- -- (18,891)
Less expenses paid by commission credits
(Note 3) (73,583) -- (64,442) --
---------- -------- -- -------- --
Net expenses 2,024,581 75,933 1,400,647 5,908
- ---------------- --------- ------ --------- -----
Net investment income 6,452,684 641,435 8,219,408 54,797
- ------------------------- --------- ------- --------- ------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments:
Proceeds from sales 230,369,962 10,524,425 175,705,678 2,568,987
Cost of securities sold 182,168,009 10,465,846 150,238,274 2,568,967
- --------------------------- ----------- ---------- ----------- ---------
Net realized gain on investments 48,201,953 58,579 25,467,404 20
Unrealized appreciation (depreciation) on
investments:
Beginning of period 42,242,635 372,389 24,477,490 (157)
End of period 69,844,260 47,026 35,646,429 (485)
- ------------------- ---------- ------ ---------- -----
Net unrealized appreciation (depreciation)
on investments during the period 27,601,625 (325,363) 11,168,939 (328)
-------------------------------- ---------- --------- ---------- -----
Net realized and unrealized gain
(loss) on investments 75,803,578 (266,784) 36,636,343 (308)
--------------------- ---------- --------- ---------- -----
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 82,256,262 $ 374,651 $ 44,855,751 $ 54,489
---------- - - ---------- - ------- - ---------- - ------
</TABLE>
See notes to the financial statements.
31
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Statements of Changes in Net Assets
For the Years Ended
December 1996 and 1995
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
--------------------- ---------------------- --------------------- -------------------
1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income $ 6,452,684 $6,226,547 $ 641,435 $ 607,806 $8,219,408 $7,312,902 $ 54,797 $ 58,582
Net realized short-term gain
(loss) on investments 27,750,104 6,813,495 (29,132) 81,252 13,881,249 3,958,147 20 60
Net realized long-term gain
on investments 20,451,849 11,128,402 87,711 1,736 11,586,155 5,265,350 -- --
Net increase (decrease) in
unrealized appreciation 27,601,625 47,518,643 (325,363) 674,487 11,168,939 29,741,138 (328) 127
- --------------------------- ---------- ---------- --------- ------- ---------- ---------- ----- ---
Change in net assets
from operations 82,256,262 71,687,087 374,651 1,365,281 44,855,751 46,277,537 54,489 58,769
- -------------------- ---------- ---------- ------- --------- ---------- ---------- ------ ------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income (6,377,641) (6,197,557) (639,826) (603,044) (8,167,501) (7,291,835) (54,334) (58,578)
Net realized short-term gain
from investment transactions (27,699,455) (6,823,150) -- -- (13,856,450) (3,955,981) (23) (39)
Net realized long-term gain
from investment transactions (20,429,320) (11,159,155) (3,181) -- (11,570,771) (5,271,078) -- --
----------------------------- ------------ ----------- -------- -- ----------- ----------- -- --
Total distributions
to shareholders (54,506,416) (24,179,862) (643,007) (603,044) (33,594,722) (16,518,894) (54,357) (58,617)
- ------------------- ------------ ----------- -------- --------- ----------- ----------- -------- --------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares sold 88,560,885 45,758,350 2,897,949 2,091,642 55,024,353 40,388,246 4,547,550 7,294,612
Net asset value of shares issued
in reinvestment of
dividends and capital gains
distributions 50,813,674 21,915,300 523,445 487,817 30,441,049 14,186,497 40,250 42,523
- ----------------- ---------- ----------- ------- ------- ---------- ---------- ------ ------
139,374,559 67,673,650 3,421,394 2,579,459 85,465,402 54,574,743 4,587,800 7,337,135
Cost of shares redeemed (33,668,049) (20,184,351) (2,836,463) (2,069,527) (24,368,316) (16,955,246)(4,364,884)(7,445,081)
- ------------------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- ----------
Net increase (decrease) in net
assets from fund
share transactions 105,706,510 47,489,299 584,931 (509,932) 61,097,086 37,619,497 222,916 (107,946)
------------------ ----------- ----------- ------- --------- ---------- ---------- ------- --------
TOTAL INCREASE
(DECREASE) IN NET ASSETS 133,456,356 94,996,524 316,575 1,272,169 72,358,115 67,378,140 223,048 (107,794)
NET ASSETS:
Beginning 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
- --------------------- ----------- ----------- ---------- --------- ----------- ----------- --------- ---------
End of period $430,556,170 $297,099,814 $10,848,098 $10,531,523 $300,551,034 $228,192,919 $1,228,827 $1,005,779
- --------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- ---------
Undistributed net
investment income $ 123,253 $ 48,210 $ 7,248 $ 5,639 $ 117,809 $ 65,902 $ 1,006 $ 543
- ------------------- - ------- - ------ - ----- - ----- - ------- - ------ - ----- ---
</TABLE>
See notes to the financial statements.
32
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements
December 31, 1996
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. 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, 1996.
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. Net investment income for federal income tax purposes includes
gains and losses realized on foreign currency transactions. These gains and
losses are included as net realized gains and losses for financial reporting
purposes.
33
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Continued)
December 31, 1996
D. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
3. OPERATING POLICIES:
A. Repurchase Agreements - The Funds, through their custodian, receive
delivery of the underlying securities, whose market value is normally
required to be at least 102% of the resale price at the time of purchase.
Wellington Management Company, LLP, 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, LLP, 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.
34
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Continued)
December 31, 1996
Transactions in capital stock for the years ended 1996 and 1995 were:
<TABLE>
<CAPTION>
Growth Fund Income Fund Balanced Fund Short-Term Fund
-------------- --------------- --------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,682,495 2,225,947 222,424 161,927 2,851,756 2,341,881 441,345 709,737
Shares issued to shareholders in
reinvestment of dividends
and distributions 2,117,237 1,019,316 41,119 37,525 1,594,607 792,542 4,017 4,257
Shares redeemed (1,400,207) (985,932) (216,937) (161,458) (1,256,381) (995,005) (423,462) (723,887)
- --------------- ----------- --------- --------- --------- ----------- --------- --------- ---------
Net increase (decrease) 4,399,525 2,259,331 46,606 37,994 3,189,982 2,139,418 21,900 (9,893)
- ----------------------- --------- --------- ------ ------ --------- --------- ------ -------
</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 twelve months ended December 31, 1996, the Growth Fund paid $741,749 and
the Balanced Fund paid $544,797 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 twelve months ended December 31, 1996 of
$18,891 for the Short-Term Fund.
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 twelve months
ended December 31, 1996 were $32,394 for the Growth Fund and $24 each for the
Income, Balanced and Short-Term Funds.
The two outside directors were compensated $150 per diem for each Board meeting
attended. Four meetings were held in 1996. For the twelve months ended December
31, 1996, the per diem fees, excluding travel expenses, for outside directors
totaled $1,200 for each Fund. No compensation is paid to interested officers and
directors (those who are also officers and/or directors of Horace Mann).
35
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Concluded)
December 31, 1996
6. TRANSACTIONS WITH INVESTMENT ADVISER - Pursuant to the investment advisory
agreements with Wellington Management Company, LLP (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, 1996 are:
<TABLE>
<CAPTION>
Growth Income Balanced Short-Term
Fund Fund Fund Fund
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Purchases $282,043,388 $12,358,365 $222,412,038 $ --
- --------- ------------ ----------- ------------ - --
Proceeds from sales $230,369,962 $10,524,425 $175,705,678 $ 2,568,987
- ------------------- ------------ ----------- ------------ - ---------
</TABLE>
The following table is based on the difference between cost and market value of
securities owned by each Fund at December 31, 1996.
<TABLE>
<CAPTION>
Growth Income Balanced Short-Term
Fund Fund Fund Fund
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation $73,799,237 $ 116,448 $38,123,963 $ 16
Aggregate gross unrealized
(depreciation) (3,954,977) (69,422) (2,477,534) (501)
- -------------- ----------- -------- ----------- -----
Net unrealized appreciation
(depreciation) $69,844,260 $ 47,026 $35,646,429 $ (485)
- -------------- ----------- - ------ ----------- - -----
</TABLE>
36
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Growth Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $21.66 $17.64 $19.85 $19.49 $19.15 $16.64 $18.88 $17.30 $16.00 $21.29
Income From Investment
Operations:
Net Investment Income 0.43 0.52 0.49 0.54 0.53 0.60 0.70 0.56 0.42 0.50
Net Gains (Losses) on
Securities -- realized and
unrealized 5.08 5.41 (0.57) 3.32 1.31 3.76 (1.74) 4.58 1.37 0.74
------------ ---- ---- ------ ---- ---- ---- ------ ---- ---- ----
Total Income (Loss) From
Investment Operations 5.51 5.93 (0.08) 3.86 1.84 4.36 (1.04) 5.14 1.79 1.24
Less Distributions:
From net investment
income 0.40 0.49 0.45 0.52 0.51 0.60 0.70 0.62 0.40 0.51
From net realized gains 3.01 1.42 1.68 2.98 0.99 1.25 0.50 2.94 0.09 6.02
----------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Distributions 3.41 1.91 2.13 3.50 1.50 1.85 1.20 3.56 0.49 6.53
Net Asset Value, End of
Period $23.76 $21.66 $17.64 $19.85 $19.49 $19.15 $16.64 $18.88 $17.30 $16.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return 25.28% 33.67% (0.35)% 19.74% 9.59% 26.50% (5.48)% 29.88% 11.23% 6.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $430,556 $297,100 $202,103 $178,379 $140,257 $124,140 $97,610 $102,956 $86,755 $81,159
Ratio of Expenses
to Average Net Assets 0.59% 0.63% 0.69% 0.69% 0.73% 0.76% 0.78% 0.64% 0.64% 0.67%
Ratio of Net Investment Income
to Average Net Assets 1.79% 2.50% 2.36% 2.48% 2.65% 3.13% 3.86% 2.69% 2.41% 2.06%
Portfolio Turnover Rate 67.63% 64.59% 69.42% 47.39% 31.78% 51.01% 52.97% 71.25% 41.57% 86.50%
Average Commission Paid per
Equity Shares Traded $0.05 -- -- -- -- -- -- -- -- --
</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.
"Average Commission Paid per Equity Shares Traded" represents the average
brokerage commission paid on equity transactions entered into during the period
for trades where commissions were applicable. This disclosure is not applicable
for years beginning prior to December 31, 1995.
37
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $13.03 $12.02 $13.06 $12.95 $12.92 $12.26 $12.35 $11.64 $11.59 $13.96
Income From Investment
Operations:
Net Investment Income 0.76 0.80 0.75 0.82 0.94 1.12 1.14 1.04 1.00 1.23
Net Gains (Losses) on
Securities -- realized and
unrealized (0.31) 0.99 (1.04) 0.23 (0.01) 0.71 (0.21) 0.75 (0.11) (1.32)
------------- ------ ---- ------ ---- ------ ---- ------ ---- ------ ------
Total Income (Loss) From
Investment Operations 0.45 1.79 (0.29) 1.05 0.93 1.83 0.93 1.79 0.89 (0.09)
Less Distributions:
From net investment
income 0.79 0.78 0.75 0.75 0.87 1.17 1.02 0.96 0.84 2.28
From net realized gains -- -- -- 0.19 0.03 -- -- 0.12 -- --
------------------------ -- -- -- ---- ---- -- -- ---- -- --
Total Distributions 0.79 0.78 0.75 0.94 0.90 1.17 1.02 1.08 0.84 2.28
Net Asset Value, End of
Period $12.69 $13.03 $12.02 $13.06 $12.95 $12.92 $12.26 $12.35 $11.64 $11.59
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return 3.50% 14.93% (2.21)% 8.07% 7.20% 14.93% 7.58% 15.43% 7.64% (0.62)%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $10,848 $10,532 $9,259 $9,409 $7,668 $6,396 $5,552 $4,457 $3,390 $2,567
Ratio of Expenses
to Average Net Assets 0.70% 0.62% 0.61% 0.41% 0.19% 0.17% 0.20% 0.29% 0.24% 0.14%
Ratio of Net Investment Income
to Average Net Assets 5.88% 6.16% 5.85% 5.92% 6.94% 8.62% 8.86% 8.13% 7.97% 7.96%
Portfolio Turnover Rate 112.60% 74.53% 205.35% 74.16% 35.11% 44.82% 62.40% 92.94% 174.32% 53.28%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses 0.91% 0.88% 0.92% 0.87% 1.21% 1.49% 1.64% 1.52% 0.92% 0.87%
Ratio of Net Investment Income 5.67% 5.89% 5.54% 5.46% 5.92% 7.30% 7.42% 6.90% 7.29% 7.23%
</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 though
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.
38
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Balanced Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of
Period $18.00 $15.26 $16.72 $16.22 $15.91 $14.19 $15.10 $13.48 $12.71 $14.91
Income From Investment
Operations:
Net Investment Income 0.60 0.67 0.62 0.65 0.66 0.78 0.86 0.77 0.66 1.05
Net Gains (Losses) on
Securities -- realized and
unrealized 2.70 3.46 (0.81) 1.87 0.68 2.25 (0.92) 2.77 0.72 (1.20)
------------ ---- ---- ------ ---- ---- ---- ------ ---- ---- ------
Total Income (Loss) From
Investment Operations 3.30 4.13 (0.19) 2.52 1.34 3.03 (0.06) 3.54 1.38 (0.15)
Less Distributions:
From net investment
income 0.57 0.61 0.55 0.56 0.59 0.74 0.74 0.70 0.61 2.05
From net realized gains 1.79 0.78 0.72 1.46 0.44 0.57 0.11 1.22 -- --
------------------------ ---- ---- ---- ---- ---- ---- ---- ---- -- --
Total Distributions 2.36 1.39 1.27 2.02 1.03 1.31 0.85 1.92 0.61 2.05
Net Asset Value, End of
Period $18.94 $18.00 $15.26 $16.72 $16.22 $15.91 $14.19 $15.10 $13.48 $12.71
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return 18.27% 27.12% (1.12)% 15.46% 8.37% 21.57% (0.41)% 26.31% 10.57% (0.87)%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $300,551 $228,193 $160,815 $132,376 $92,463 $72,343 $53,289 $42,214 $29,223 $21,493
Ratio of Expenses
to Average Net Assets 0.56% 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.08%
Ratio of Net Investment
Income to Average
Net Assets 3.12% 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.56%
Portfolio Turnover Rate 72.10% 64.80% 121.82% 52.43% 27.06% 42.09% 47.62% 56.80% 27.68% 84.74%
Average Commission Paid per
Equity Shares Traded $0.05 -- -- -- -- -- -- -- -- --
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses 0.56% 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.64%
Ratio of Net Investment Income 3.12% 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.00%
</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.
"Average Commission Paid per Equity Shares Traded" represents the average
brokerage commission paid on equity transactions entered into during the period
for trades where commissions were applicable. This disclosure is not applicable
for years beginning prior to December 31, 1995.
39
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Short-Term Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17
Income From Investment
Operations:
Net Investment Income 0.50 0.53 0.39 0.26 0.33 0.61 0.85 0.85 0.69 0.65
Net Gains (Losses) on
Securities -- realized and
unrealized (0.01) -- -- -- -- -- 0.01 -- -- --
------------- ------ -- -- -- -- -- ---- -- -- --
Total Income (Loss) From
Investment Operations 0.49 0.53 0.39 0.26 0.33 0.61 0.86 0.85 0.69 0.65
Less Distributions:
From net investment
income 0.46 0.61 0.38 0.28 0.34 0.88 1.22 0.60 0.45 1.57
From net realized gains -- -- -- -- -- -- -- 0.01 -- --
------------------------ -- -- -- -- -- -- -- ---- -- --
Total Distributions 0.46 0.61 0.38 0.28 0.34 0.88 1.22 0.61 0.45 1.57
Net Asset Value, End of
Period $10.03 $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return 5.02% 5.25% 3.89% 2.53% 3.30% 5.93% 7.89% 8.27% 6.74% 5.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $1,229 $1,006 $1,114 $1,110 $1,131 $1,076 $1,195 $1,175 $1,140 $ 852
Ratio of Expenses
to Average Net Assets 0.53% 0.84% 0.49% 0.61% 0.51% 0.43% 0.38% 0.46% 0.37% 0.21%
Ratio of Net Investment Income
to Average Net Assets 4.93% 5.11% 3.78% 2.56% 3.16% 5.88% 7.57% 7.83% 6.50% 5.68%
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 2.44% 2.35% 2.36% 2.42% 3.44% 4.45% 4.46% 3.29% 1.48% 1.53%
Ratio of Net Investment Income 3.02% 3.60% 1.91% 0.75% 0.23% 1.86% 3.49% 5.00% 5.39% 4.36%
</TABLE>
Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996. 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.
40
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN GROWTH FUND AND A STOCK INDEX /1/
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATES GROWTH FUND S&P 500 Index
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,432 10,449
03/30/90 10,206 10,135
06/29/90 10,543 10,774
09/30/90 9,346 9,293
12/30/90 9,852 10,125
03/28/91 11,084 11,595
06/28/91 11,505 11,569
09/30/91 11,766 12,188
12/31/91 12,464 13,209
03/31/92 12,269 12,876
06/30/92 12,862 13,121
09/30/92 13,004 13,534
12/31/92 13,659 14,216
03/31/93 14,807 14,837
06/30/93 15,248 14,908
09/30/93 15,837 15,292
12/31/93 16,354 15,648
03/31/94 15,975 15,055
06/30/94 16,329 15,118
09/30/94 17,054 15,857
12/31/94 16,353 15,855
03/31/95 17,628 17,396
06/30/95 19,051 19,057
09/30/95 20,233 20,572
12/29/95 21,787 21,811
03/29/96 23,306 22,982
06/28/96 24,060 24,014
09/30/96 24,935 24,756
12/31/96 27,295 26,820
</TABLE>
Horace Mann Growth Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
25.28% 16.98% 15.03%
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 6.
/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]
<TABLE>
<CAPTION>
DATES INCOME FUND LEHMAN BROS. INTERM.
GOVT/CORP BOND INDEX
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,110 10,123
03/30/90 9,971 10,109
06/29/90 10,306 10,433
09/30/90 10,544 10,616
12/30/90 10,875 11,052
03/28/91 11,096 11,330
06/28/91 11,363 11,532
09/30/91 11,913 12,088
12/31/91 12,499 12,668
03/31/92 12,393 12,552
06/30/92 12,857 13,050
09/30/92 13,409 13,625
12/31/92 13,399 13,576
03/31/93 13,855 14,115
06/30/93 14,143 14,419
09/30/93 14,443 14,744
12/31/93 14,480 14,768
03/31/94 14,147 14,469
06/30/94 14,047 14,382
09/30/94 14,157 14,499
12/31/94 14,135 14,483
03/31/95 14,747 15,118
06/30/95 15,430 15,874
09/30/95 15,713 16,135
12/29/95 16,259 16,699
03/29/96 16,109 16,560
06/28/96 16,160 16,664
09/30/96 16,422 16,961
12/31/96 16,828 17,376
</TABLE>
Horace Mann Income Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
3.50% 6.13% 7.53%
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 6.
/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.
41
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN BALANCED FUND AND STOCK/BOND INDICES /1/
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATES BALANCED FUND S&P 500 INDEX LEHMAN BROS. INTERM.
GOVT/CORP BOND INDEX
<S> <C> <C> <C>
11/01/89 $10,000 $10,000 $10,000
12/31/89 10,358 10,449 10,123
03/30/90 10,146 10,135 10,109
06/29/90 10,454 10,774 10,433
09/30/90 9,803 9,293 10,616
12/30/90 10,309 10,125 11,052
03/28/91 11,138 11,595 11,330
06/28/91 11,480 11,569 11,532
09/30/91 11,858 12,188 12,088
12/31/91 12,534 13,209 12,668
03/31/92 12,392 12,876 12,552
06/30/92 12,904 13,121 13,050
09/30/92 13,204 13,534 13,625
12/31/92 13,583 14,216 13,576
03/31/93 14,496 14,837 14,115
06/30/93 14,873 14,908 14,419
09/30/93 15,342 15,292 14,744
12/31/93 15,683 15,648 14,768
03/31/94 15,327 15,055 14,469
06/30/94 15,496 15,118 14,382
09/30/94 15,975 15,857 14,499
12/31/94 15,539 15,855 14,483
03/31/95 16,566 17,396 15,118
06/30/95 17,704 19,057 15,874
09/30/95 18,557 20,572 16,135
12/29/95 19,704 21,811 16,699
03/29/96 20,591 22,982 16,560
06/28/96 21,051 24,014 16,664
09/30/96 21,698 24,756 16,961
12/31/96 23,305 26,820 17,376
</TABLE>
Horace Mann Balanced Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
18.27% 13.20% 12.52%
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 6.
/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]
<TABLE>
<CAPTION>
DATES SHORT-TERM FUND TREASURY BILL INDEX
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,141 10,130
03/30/90 10,330 10,335
06/29/90 10,528 10,544
09/30/90 10,736 10,743
12/30/90 10,943 10,933
03/28/91 11,122 11,100
06/28/91 11,291 11,260
09/30/91 11,450 11,415
12/31/91 11,592 11,541
03/31/92 11,694 11,658
06/30/92 11,797 11,766
09/30/92 11,888 11,857
12/31/92 11,972 11,951
03/31/93 12,044 12,041
06/30/93 12,128 12,132
09/30/93 12,200 12,224
12/31/93 12,278 12,321
03/31/94 12,376 12,415
06/30/94 12,474 12,529
09/30/94 12,597 12,660
12/31/94 12,757 12,797
03/31/95 12,922 12,964
06/30/95 13,087 13,144
09/30/95 13,252 13,324
12/29/95 13,416 13,510
03/29/96 13,577 13,681
06/28/96 13,725 13,854
09/30/96 13,900 14,032
12/31/96 14,090 14,208
</TABLE>
Horace Mann Short-Term Investment Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
5.02% 3.97% 4.90%
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 6.
/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.
42
<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, 1996, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two year period then ended and the
financial highlights for each of the three 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 seven 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, 1996, 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, 1996, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two year period then ended and the financial highlights for each of the three
years in the period then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 23, 1997
43
<PAGE>
[picture]
44
<PAGE>
Annual Report
December 31, 1996
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
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Statements Of Net Assets
December 31, 1996
<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 $320,843,802 $10,377,920 $286,974,808 $1,123,400
--------------- ------------ ----------- ------------ ----------
TOTAL ASSETS $320,843,802 10,377,920 $286,974,808 $1,123,400
------------ ------------ ---------- ------------ ----------
NET ASSETS
Net Assets (Indefinite units authorized)
Active Contract Owners 319,081,594 10,340,675 286,302,495 1,123,400
Retired Contract Owners 1,762,208 37,245 672,313 --
----------------------- --------- ------ ------- --
TOTAL NET ASSETS $320,843,802 $10,377,920 $286,974,808 $1,123,400
---------------- ------------ ----------- ------------ ----------
Total units 13,503,527 817,803 15,151,785 112,004
Net unit value
(Net assets divided by total units held) $ 23.76 $ 12.69 $ 18.94 $ 10.03
Investments
Cost of investments $288,323,401 $10,541,854 $260,042,976 $1,159,055
Unrealized appreciation
(depreciation) of investments $ 32,520,401 $ (163,934) $ 26,931,832 $ (35,655)
Number of shares held in Horace
Mann Funds 13,503,527 817,803 15,151,785 112,004
</TABLE>
See notes to the financial statements.
46
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Statements Of Operations
For The Year Ended December 31, 1996
<TABLE>
<CAPTION> ACCOUNT DIVISION
------------------------------------------------------------------
Growth Income Balanced Short-Term
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income distribution $ 4,779,231 $ 612,558 $ 7,828,617 $ 45,861
---------------------------- - --------- - ------- - --------- - ------
Net investment income 4,779,231 612,558 7,828,617 45,861
--------------------- --------- ------- --------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gain distribution 36,028,769 3,042 24,350,075 18
Net realized gain on sale of investments 2,651,655 20,208 3,218,666 1,178
Net unrealized appreciation (depreciation)
on investments 16,330,705 (278,078) 7,539,257 (423)
--------------- ---------- --------- --------- -----
Net gain (loss) on investments 55,011,129 (254,828) 35,107,998 773
------------------------------- ---------- --------- ---------- ---
Net increase in net assets resulting from
operations $ 59,790,360 $ 357,730 $ 42,936,615 $ 46,634
---------- - ---------- - ------- - ---------- - ------
</TABLE>
See notes to the financial statements.
47
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Statements of Changes in Net Assets
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
ACCOUNT DIVISION
---------------------------------------------------------------
Growth Income Balanced Short-Term
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 4,779,231 $ 612,558 $ 7,828,617 $ 45,861
Capital gain distribution 36,028,769 3,042 24,350,075 18
Net realized gain on sale of investments 2,651,655 20,208 3,218,666 1,178
Net unrealized appreciation (depreciation)
on investments 16,330,705 (278,078) 7,539,257 (423)
--------------- ---------- --------- --------- -----
Net increase in net assets resulting from
operations 59,790,360 357,730 42,936,615 46,634
----------- ---------- ------- ---------- ------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments received 42,594,385 1,145,206 33,980,802 122,775
Sales and administrative expenses
(Note 1) (13,529) (338) (8,274) (12)
-------- -------- ----- ------- ----
Net consideration received on annuity
contracts 42,580,856 1,144,868 33,972,528 122,763
Net transfer from fixed accumulation
account 23,673,552 717,292 12,201,480 1,180,650
Transfers from (to) other Divisions 3,575,053 (744,792) (2,971,237) 140,976
Payments to Contract Owners (10,948,201) (1,062,633) (13,088,894) (1,309,998)
Mortality and expense risk charge
(Note 1) (3,168,991) (139,714) (3,340,727) (11,289)
Annual maintenance charge (Note 1) (284,408) (4,873) (194,576) (700)
Surrender charges (Note 1) (105,435) (1,861) (83,377) (5,456)
Mortality guarantee adjustment (31,230) (2,921) (3,510) 0
------------------------------ -------- ------- ------- -
Net increase (decrease) in net
assets resulting from contract
owners' transactions 55,291,196 (94,634) 26,491,687 116,946
---------------------- ---------- -------- ---------- -------
Total increase in net assets 115,081,556 263,096 69,428,302 163,580
Net assets, beginning of year 205,762,246 10,114,824 217,546,506 959,820
- ----------------------------- ----------- ---------- ----------- -------
Net assets, end of year $320,843,802 $10,377,920 $286,974,808 $ 1,123,400
- ----------------------- ------------ ----------- ------------ - ---------
</TABLE>
See notes to the financial statements.
48
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Statements Of Changes In Net Assets
For The Year Ended 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
49
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Notes To Financial Statements
December 31, 1996
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 75%, 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, 1996, the shares have a net asset value
of $100,300.
5. PURCHASE AND SALES OF HORACE MANN FUND SHARES -- During the year ended
December 31, 1996, 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 $114,997,538 $286,764 $2,997,144 $2,180 $81,281,256 $125,312 $4,318,906
Sales $ 18,965,769 $219,337 $2,472,665 $5,693 $22,688,181 $ 48,008 $4,156,081
</TABLE>
50
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY 1996 ANNUAL REPORT
SEPARATE ACCOUNT
Notes To Financial Statements (Concluded)
December 31, 1996
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, 1995 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 (419,798) (10,370) (51,822) (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
Consideration
received 1,777,764 2,667 87,719 -- 1,766,863 2,771 12,016
Dividend
distributions 1,563,400 9,230 38,746 171 1,515,269 3,901 3,777
Net transfers 1,135,533 -- (2,458) -- 480,686 -- 128,861
Payments to
contract owners (475,479) (9,230) (82,219) (428) (701,137) (2,485) (128,632)
- ---------------- --------- ------- -------- ----- --------- ------- ---------
Account units
outstanding at
December 31, 1996 13,429,360 74,167 814,868 2,935 15,116,288 35,497 112,004
- ------------------- ---------- ------ ------- ----- ---------- ------ -------
</TABLE>
51
<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, Income,
Balanced, and Short-Term Fund Divisions within Horace Mann Life Insurance
Company Separate Account as of December 31, 1996, 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, 1996. 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 securities owned at December 31, 1996 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, Income, Balanced,
and Short-Term Fund Divisions within Horace Mann Life Insurance Company Separate
Account as of December 31, 1996, 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, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1997
52
<PAGE>
How can we help?
Are there additional insurance products and services you'd like to learn more
about? If so, just fill in the information below and put this card in the mail.
We'll have your agent contact you.
Please tell me more about these insurance coverages:
[ ] Auto
[ ] Homeowner, renter or condominium
[ ] Life
[ ] Mortgage life
[ ] Individual retirement account (IRA)
[ ] Disability income
[ ] Please have my agent contact me about my
annuity program.
[ ] Please have my agent contact me about increasing my annuity contribution.
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---------------------------------
Address
---------------------------------
City State ZIP
------------------------ ----------- ----------
Date of birth
------------------------
Home phone ( )
------------------
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------------------
School
------------------------------------
School district
---------------------------------------------
Auto insurance renewal date
------------------------------
Homeowner insurance renewal date
----------------------------
Agent
---------------------------------
Please note: Returning this interest card does not obligate you to buy anything.
Horace Mann
Insuring America's Educational Community
The Horace Mann Companies
<PAGE>
No matter how much protection you need, we've got you covered.
(Picture)
Protection comes in all shapes and sizes. Take insurance: there are a lot of
companies out there. You're just looking for one that fits you like a nice, warm
coat against the surprising elements life can throw at you. How do you find
someone to tailor insurance protection and retirement annuities to fit your
needs? Look to the company that has provided insurance to educators for over
half a century -- Horace Mann.
We offer:
. Auto insurance to protect your vehicles
. Homeowners insurance to guard your home
. Life and disability insurance for your family's income security
. Annuities to help give you a comfortable retirement
Let your agent help you design a program to cover all your insurance needs. Just
complete the enclosed postage-paid response card. For protection you can count
on, we've got you covered.
Horace Mann
- ------------------------------
Insuring America's Educational Community
Horace Mann Life Insurance Company
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
217-789-2500
Printed on recycled paper
www.horacemann.com
IA-004358(2/97)
