<PAGE>
As filed with the Securities and Exchange Commission on March 1, 2000
File Nos. 2-24256
811-1343
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 67
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
------------------------------
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
---------------------------------------------------
(Exact Name of Registrant)
Horace Mann Life Insurance Company
----------------------------------
(Name of Depositor)
One Horace Mann Plaza, Springfield, Illinois 62715
---------------------------------------------------
(Address of Depositor's Principal Executive Offices)
(217) 789-2500
--------------
(Depositor's Telephone Number)
Ann M. Caparros
One Horace Mann Plaza
Springfield, Illinois 62715
----------------------------
(Name and Address of Agent for Service)
Copies of Communications to:
Cathy G. O'Kelly
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
---------------------------------
It is proposed that this filing will become effective:
___Immediately upon filing pursuant to paragraph (b) of Rule 485
X On May 1, 2000 pursuant to paragraph (b) of Rule 485
---
___60 days after filing pursuant to paragraph (a)(1) of Rule 485
___On May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
___this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Cross Reference Sheet Required by Rule 495(a)
Item Number in Form N-4 Caption
- ----------------------- -------
Part A - Prospectus
-------------------
1. Cover Page Cover
2. Definitions Definitions
3. Synopsis
(a) (b) (c) Summary
(d) *
4. Condensed Financial Information
(a) (b) (c) Condensed Financial Information
5. General Description of Registrant,
Depositor, and Portfolio Companies
(a) (b) (c) (d) (e) (f) Cover; Summary; Horace
Mann Life Insurance Company,
The Account and The Horace
Mann Mutual Funds; Voting Rights
6. Deductions
(a) (b) (c) (d) (e) Summary; Purchasing the
Contract; Deductions and Expenses
(f) *
7. General Description of Variable
Annuity Contracts
(a) (b) (c) (d) Summary; Contract Owners'
Rights; Purchasing the
Contract; Transactions; Death
Benefit Proceeds; Mandatory
Minimum Distribution; Income
Payments; Modification of the
Contract; Tax Consequences;
Other Information
8. Annuity Period
(a) (b) (c) (d) (e) (f) Income Payments;
Mandatory Minimum
Distribution; Transfers
9. Death Benefit
(a) (b) Death Benefit Proceeds;
Tax Consequences
10. Purchases and Contract Value
<PAGE>
(a) (b) (c) (d) Summary; Purchasing the
Contract; Purchase Payments
11. Redemptions
(a) (c) (e) Summary; Surrender Before
Commencement of Annuity
Period; Deferment
(b) (d) *
12. Taxes
(a) (b) (c) Surrender Before
Commencement of Annuity
Period; Tax Consequences
13. Legal Proceedings Other Information
14. Table of Contents of Additional Information
Statement of Additional Information
PART B - STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
15. Cover Page Cover
16. Table of Contents Table of Contents
17. General Information and History
(a) (b) *
(c) General Information and History
18. Services
(c) Financial Statements
(a) (b) (d) (e) (f) *
19. Purchase of Securities Being Offered
(a) Underwriter
(b) *
20. Underwriters
(a) (b) (c) Underwriter
(d) *
21. Calculation of Performance Data
(b) Investment Experience
(a) *
22. Annuity Payments *
23. Financial Statements
(a) (b) Financial Statements
<PAGE>
PART C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
*Omitted from the Prospectus or Statement of Additional Information because
the Item is not applicable.
<PAGE>
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
Horace Mann Life Insurance Company Separate Account
For Contracts Issued on
Forms 66-3A and 66-4A
The variable annuity Contracts issued by Horace Mann Life Insurance Company
on Forms 66-3A and 66-4A are no longer offered or sold by Horace Mann Life
Insurance Company. These earlier Contracts remain in effect but differ from
the Contracts described in the Prospectus in the following material respects.
Please refer to the Contracts on Forms 66-3A and 66-4A for a complete
description of their provisions.
1.In lieu of the Surrender Charge, 6% of each Purchase Payment (gross
stipulated payment) plus $.50, without any yearly limitation, is deducted for
sales and administrative expenses and death benefit charges. It is estimated
that of the 6% deduction, 4% is for sales expenses and 2% for the death
benefit risk. The additional $.50 deduction is for administrative expenses.
All Purchase Payments, net of applicable deductions, including premium taxes
if applicable, are invested by the Account in shares of Horace Mann Equity
Fund. There is no annual maintenance fee or transfer charge.
2.In lieu of the Mortality and Expense Risk Fee ("M&E Fee") described in
the Prospectus, a fee is deducted from all distributions paid by the Equity
Fund to the Account or, if the fee is accrued and unpaid, from the value of a
Participant's individual account upon withdrawal or transfer from the Account.
This fee is computed weekly at the rate of .0075% of the net assets of the
Account (not to exceed .39% on an annual basis). It is estimated that .31% is
for mortality risk and .08% is for expense risk.
3.The "present value factor" used in calculating the actuarial liability of
the Variable Retirement Annuity Account is computed using the Progressive
Annuity Mortality Table with interest at 4%.
4.With respect to the group Contract issued on Form 66-4A, if the Annuitant
is no longer in the class of eligible Participants or elects not to continue
to participate in the group Contract, the Annuitant may elect, within 31 days
after the date of termination, to purchase from Horace Mann Life Insurance
Company its individual annuity Contract most nearly similar in benefits and
provisions to the group Contract. The individual annuity Contract will be
issued at the then attained age of the Annuitant and at the same annual
Purchase Payment as the group Contract Certificate, unless otherwise agreed to
by Horace Mann Life Insurance Company.
Form 66-3A and 66-4A Contracts
<TABLE>
<S> <C> <C>
Contract Owner Transaction Expenses,(/1/) as a percentage of
Purchase Payments:
Sales Expense Charge.......................................... 4.00%
Death Benefit Risk Charge..................................... 2.00%
</TABLE>
<TABLE>
<S> <C>
Administration Expense Charge...... $.50 per payment plus $10.00 issuance fee
</TABLE>
<TABLE>
<S> <C>
Separate Account Annual M&E Fee, as a percentage of average
account value:
Mortality Risk.................................................. 0.31%
Expense Risk.................................................... 0.08%
Total Separate Account Annual M&E Fee................................. 0.39%
Annual Operating Expenses of Equity Fund,(/2/) as a percentage of
average net assets for the December 31, 1999 fiscal year:
Management Fees....................................................... 0.64%
Other Expenses........................................................ 0.18%
Total Equity Fund Operating Expenses.................................. 0.82%
</TABLE>
<PAGE>
Example(/3/)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of
the applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $72 $97 $123 $198
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate varies depending upon state of residence, and not all states impose
premium taxes. Also, depending on the state, taxes are taken from Purchase
Payments or are levied at annuitization.
(/2/)The Operating Expenses of the Equity Fund are borne indirectly by
Contract Owners.
(/3/)The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1999 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY.
THE TABLE REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE
OF THE EQUITY FUND.
--------------
The date of this Supplement is May 1, 2000.
<PAGE>
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
Horace Mann Life Insurance Company Separate Account
For Contracts Issued on
Form 66-2A
The variable annuity Contract issued by Horace Mann Life Insurance Company
on Form 66-2A is no longer offered or sold by Horace Mann Life Insurance
Company. This earlier Contract remains in effect but differs from the
Contracts described in the Prospectus in the following material respects.
Please refer to the Contract on Form 66-2A for a complete description of its
provisions.
1.In lieu of the Surrender Charge, 6% of each Purchase Payment (gross
stipulated payment) plus $.50, without any yearly limitation, is deducted for
sales and administrative expenses and death benefit charges.
It is estimated that of the 6% deduction, 4% is for sales expenses and 2%
for the death benefit risk. The additional $.50 deduction is for
administrative expenses.
All Purchase Payments, net of applicable deductions including premium taxes
if applicable, are invested by the Account in shares of Horace Mann Equity
Fund. There is no annual maintenance fee or transfer charge.
2.In lieu of the Mortality and Expense Risk Fee ("M&E Fee") described in
the Prospectus, a fee is deducted from distributions paid by the Equity Fund
to the Account or, if the fee is accrued and unpaid, from the value of a
Contract Owner's individual account upon withdrawal or transfer from the
Account. This fee is computed weekly at the rate of .0075% of the net assets
of the Account (not to exceed .39% on an annual basis). It is estimated that
.31% is for mortality risk and .08% is for expense risk.
Form 66-2A Contracts
<TABLE>
<S> <C> <C>
Contract Owner Transaction Expenses,(/1/) as a percentage of
Purchase Payments:
Sales Expense Charge.......................................... 4.00%
Death Benefit Risk Charge..................................... 2.00%
</TABLE>
<TABLE>
<S> <C>
Administration Expense Charge.............................. $.50 per payment
plus $10.00
issuance fee
</TABLE>
<TABLE>
<S> <C> <C>
Separate Account Annual M&E Fee, as a percentage of average
account value:
Mortality Risk.................................................. 0.31%
Expense Risk.................................................... 0.08%
Total Separate Account Annual M&E Fee................................. 0.39%
Annual Operating Expenses of Equity Fund,(/2/) as a percentage of
average net assets for the December 31, 1998 fiscal year:
Management Fees....................................................... 0.64%
Other Expenses........................................................ 0.18%
Total Equity Fund Operating Expenses.................................. 0.82%
</TABLE>
<PAGE>
Example(/3/)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of
the applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $72 $97 $123 $198
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate varies depending upon state of residence, and not all states impose
premium taxes. Also, depending on the state, taxes are taken from Purchase
Payments or are levied at annuitization.
(/2/)The Operating Expenses of the Equity Fund are borne indirectly by
Contract Owners.
(/3/)The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1999 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY.
THE TABLE REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE
OF THE EQUITY FUND.
--------------
The date of this Supplement is May 1, 2000.
<PAGE>
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
Horace Mann Life Insurance Company Separate Account
For Contracts Issued on
Form 527-GC
The group variable annuity Contract issued by Horace Mann Life Insurance
Company on Form 527-GC is no longer offered or sold by Horace Mann Life
Insurance Company. This earlier Contract remains in effect but differs from
the Contracts described in the Prospectus in the following material respects.
Please refer to the Contract on Form 527-GC for a complete description of its
provisions.
1.The Contract may be terminated or discontinued by the Group Contract
Owner upon written notice to Horace Mann Life Insurance Company. The written
notice must specify the date for termination which may not be earlier than 30
days following the date such notice is received by Horace Mann Life Insurance
Company. The Contract may be discontinued by Horace Mann Life Insurance
Company upon 90 days' written notice to the Group Contract Owner.
2.If the Contract is terminated or the Annuitant ceases to be in the class
of eligible Annuitants, the Annuitant may elect within 90 days thereafter to
purchase from Horace Mann Life Insurance Company the individual annuity
Contract most similar in benefits and provisions to those of the Annuitant's
Certificate.
3.At the end of each fiscal year, Horace Mann Life Insurance Company may,
in its discretion, determine an experience credit to be equitably applied
based on the mortality experience and administration costs of the Contract.
4.The Contract's minimum Purchase Payment is $10. Minimum annual Purchase
Payments that may be allocated to the Account are $200. In lieu of the
Surrender Charge, 5% of each Purchase Payment plus $.50 is deducted for sales
and administrative expenses and death benefit charges. The $.50 charge may not
exceed $6.00 in any Contract Year. If Purchase Payments are allocated to both
the Fixed Accumulation Account and the Separate Account, the per payment fee
is $.75, not to exceed $9.00 in any Contract Year. It is estimated that of the
5% deduction, 3.2% is for sales expenses, 0.2% is for the death benefit risk
and 1.6% is for administrative expenses. Premium taxes payable, if applicable,
are deducted from each payment. All Purchase Payments net of applicable
deductions, are invested by the Account in shares of the Equity Fund. There is
no annual maintenance charge or transfer charge.
5.In lieu of the Mortality and Expense Risk Fee ("M&E Fee") described in
the Prospectus, a fee for mortality and expense risk, computed weekly at the
rate of .005575% of the net assets of the Account (not to exceed .29% on an
annual basis), will be deducted from dividends and other distributions paid by
the Equity Fund to the Account or to the extent such distributions are accrued
and unpaid, from the value of a Participant's account upon withdrawal or
transfer of the Participant's interest out of the Account. It is estimated
that .24% is for mortality risk and .05% is for expense risk.
6.The "present value factor" used in calculating the actuarial liability of
the Variable Retirement Annuity Account is computed using the Progressive
Annuity Mortality Table with interest at 3.5%. Consequently, the interest rate
used to compute the value of a Variable Retirement Annuity Unit is 3.79% (of
which .29% represents the charge for mortality and expense risks).
Form 527-GC Contracts
<TABLE>
<S> <C> <C>
Contract Owner Transaction Expenses,(/1/) as a percentage of
Purchase Payments:
Sales Expense Charge.......................................... 3.20%
Death Benefit Risk Charge..................................... 0.20%
</TABLE>
Administration Expense Charge...... 1.60% and $.50 per payment plus $20.00
issuance fee
<TABLE>
<S> <C> <C>
Separate Account Annual M&E Fee, as a percentage of total net
assets:
Mortality Risk.................................................. 0.24%
Expense Risk.................................................... 0.05%
Total Separate Account Annual M&E Fee................................. 0.29%
Annual Operating Expenses of Equity Fund,(/2/) as a percentage of
average net assets for the December 31, 1999 fiscal year:
Management Fees....................................................... 0.64%
Other Expenses........................................................ 0.18%
Total Equity Fund Operating Expenses.................................. 0.82%
</TABLE>
<PAGE>
Example(/3/)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of
the applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $81 $103 $127 $196
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate varies depending upon state of residence, and not all states impose
premium taxes. Also, depending on the state, taxes are taken from Purchase
Payments or are levied at annuitization.
(/2/)The Operating Expenses of the Equity Fund are borne indirectly by
Contract Owners.
(/3/)The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1999 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY.
THE TABLE REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE
OF THE EQUITY FUND.
--------------
The date of this Supplement is May 1, 2000.
<PAGE>
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
Horace Mann Life Insurance Company Separate Account
For Contracts Issued on
Form 529
The individual variable annuity Contract issued by Horace Mann Life
Insurance Company on Form 529 is no longer offered or sold by Horace Mann Life
Insurance Company. These earlier Contracts remain in effect but differ from
the Contracts described in the Prospectus in the following material respects.
Please refer to the Contract on Form 529 for a complete description of its
provisions.
1.The Contract's minimum Purchase Payment (gross stipulated payment) is
$10. Minimum annual Purchase Payments that may be allocated to the Account are
$200. In lieu of the Surrender Charge, 5% of each Purchase Payment plus $.50
is deducted for sales and administrative expenses and death benefit charges.
The $.50 charge may not exceed $6.00 in any Contract Year. If Purchase
Payments are allocated to both the Fixed Accumulation Account and the Separate
Account, the per payment fee is $.75, not to exceed $9.00 per Contract Year.
It is estimated that of the 5% deduction, 3.2% is for sales expenses, 0.2% is
for the death benefit risk and 1.6% is for administrative expenses. Premium
taxes payable, if applicable, are deducted from each Purchase Payment. All
Purchase Payments, net of applicable deductions, are invested by the Account
in shares of the Equity Fund. There is no annual maintenance charge or
transfer charge.
2.In lieu of the Mortality and Expense Risk Fee ("M&E Fee") described in
the Prospectus, a fee for mortality and expense risk, computed weekly at the
rate of .005575% of the net assets of the Account (not to exceed .29% on an
annual basis), will be deducted from dividends and other distributions paid by
the Equity Fund to the Account, or to the extent such distributions are
accrued and unpaid, from the value of a Contract Owner's account upon
withdrawal or transfer of the Contract Owner's interest out of the Account. It
is estimated that .24% of such charge is for mortality risk and .05% is for
expense risk.
3.The "present value factor" used in calculating the actuarial liability of
the Variable Retirement Annuity Account is computed using the Progressive
Annuity Mortality Table with interest at 3.5%. Consequently, the interest rate
used to compute the value of a Variable Retirement Annuity Unit is 3.79% (of
which .29% represents the charge for mortality and expense risks).
Form 529 Contracts
<TABLE>
<S> <C>
Contract Owner Transaction Expenses,(/1/) as a percentage of
Purchase Payments:
Sales Expense Charge.......................................... 3.20%
Death Benefit Risk Charge..................................... 0.20%
</TABLE>
Administration Expense Charge...... 1.60% and $.50 per payment plus $20.00
issuance fee
Separate Account Annual M&E Fee, as a percentage of total net
assets:
Mortality Risk.................................................. 0.24%
Expense Risk.................................................... 0.05%
Total Separate Account Annual M&E Fee................................. 0.29%
Annual Operating Expenses of Equity Fund,(/2/) as a percentage of
average net assets for the December 31, 1999 fiscal year:
Management Fees....................................................... 0.64%
Other Expenses........................................................ 0.18%
Total Equity Fund Operating Expenses.................................. 0.82%
<PAGE>
Example(/3/)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of
the applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets: $81 $103 $127 $196
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate varies depending upon state of residence, and not all states impose
premium taxes. Also, depending on the state, taxes are taken from Purchase
Payments or are levied at annuitization.
(/2/)The Operating Expenses of the Equity Fund are borne indirectly by
Contract Owners.
(/3/)The EXAMPLE should not be considered a representation of past or future
expenses. Amounts shown are based on the average cash value of the average
number of annuity Contracts in the accumulation phase during the 1999 calendar
year. Actual expenses may be greater or less than those shown.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY.
THE TABLE REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE
OF THE EQUITY FUND.
--------------
The date of this Supplement is May 1, 2000.
<PAGE>
[PHOTO APPEARS HERE]
Prospectus
The Horace Mann Life Insurance Company
Separate Account Prospectus
Horace Mann Mutual Funds Prospectus
Offered by Horace Mann Investors, Inc.
May 1, 2000
Horace Mann(R)
----------------------------------------
Insuring America's Educational Community
Underwritten by Horace Mann Life Insurance Company
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Qualified Prospectus....................................................... A-1
Non-qualified Prospectus................................................... B-1
Horace Mann Mutual Funds Prospectus........................................ C-1
</TABLE>
<PAGE>
Prospectus
Qualified Variable Tax deferred annuity contracts Prospectus
Horace Mann Life Insurance Company
Separate accounts for Annuity Alternatives Contracts
May 1, 2000
<PAGE>
Individual Single Premium and Individual and Group Flexible Premium Variable
Deferred Annuity Contracts Issued By Horace Mann Life Insurance Company
Separate Account as Qualified Contracts
This prospectus offers combination fixed and variable, qualified annuity
contracts to individuals and groups. These contracts are issued by Horace Mann
Life Insurance Company ("HMLIC") and can be issued as flexible premium
contracts or, for individuals, as single premium contracts. They are issued in
connection with retirement plans or arrangements which may qualify for special
tax treatment under the Internal Revenue Code as amended. Amounts transferred
to Horace Mann Life Insurance Company Separate Account as directed by a
participant or contract owner are invested in one or more of nine subaccounts
(sometimes referred to as variable investment options or variable accounts).
Each subaccount purchases shares in a corresponding portfolio of the Horace
Mann Mutual Funds or the Wilshire Target Funds, Inc. The Horace Mann Mutual
Funds and Wilshire Target Funds, Inc. are registered investment companies. The
portfolios are:
Horace Mann Equity Fund--a fund investing primarily in common stocks of
domestic companies (previously called the Growth Fund).
Horace Mann Balanced Fund--a fund investing indirectly in a mix of common
stocks, debt securities and money market instruments through investments in
the Horace Mann Equity Fund and the Horace Mann Income Fund.
Horace Mann Income Fund--a fund investing primarily in investment grade
debt securities.
Horace Mann Short-Term Investment Fund--a fund investing in short-term debt
instruments.
Horace Mann Small Cap Growth Fund--a fund investing in equity securities of
small cap companies with earnings growth potential.
Horace Mann International Equity Fund--a fund investing in marketable
foreign equity securities.
Horace Mann Socially Responsible Fund--a fund investing primarily in
marketable equity securities of United States chartered companies which are
determined to be socially responsible pursuant to criteria set forth in the
fund's prospectus.
Wilshire 5000 Index Portfolio--a fund designed to replicate as closely as
possible the performance of the Wilshire 5000 Index before the deduction of
fund expenses.
Wilshire Large Company Growth Portfolio--a fund that focuses on the large
company growth segment of the U.S. equity market and invests in companies
with relatively high earnings, return on equity and sales growth.
This Prospectus sets forth the information an investor should know.
Additional information about the HMLIC Separate Account has been filed with
the Securities and Exchange Commission in a Statement of Additional
Information, dated May 1, 2000. The Statement of Additional Information is
incorporated by reference and is available upon request, without charge. You
may obtain the Statement of Additional Information by writing to Horace Mann
Life Insurance Company, P.O. Box 4657, Springfield, Illinois 62708-4657, by
sending a telefacsimile (FAX) transmission to (217) 535-7123, or by
telephoning (217) 789-2500 or (800) 999-1030 (toll-free). The table of
contents of the Statement of Additional Information appears on page 20 of this
prospectus.
THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE HORACE MANN
MUTUAL
FUNDS AND A CURRENT PROSPECTUS FOR THE WILSHIRE TARGET FUNDS.* PLEASE READ
THESE DOCUMENTS CAREFULLY AND KEEP THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ANNUITIES OFFERED BY HMLIC ARE NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT
AGENCY. THEY ARE NOT DEPOSITS, OBLIGATIONS, OR GUARANTEED BY ANY BANK. THEY
INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
The date of this Prospectus is May 1, 2000.
*The Horace Mann Mutual Funds' Prospectus follows page B-18 of the Non-
qualified Annuity Prospectus.
A-1
<PAGE>
Table of Contents
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions............................................................... 3
Summary................................................................... 4
Condensed Financial Information........................................... 8
Horace Mann Life Insurance Company, The Account and The Horace Mann Mutual
Funds.................................................................... 10
Horace Mann Life Insurance Company...................................... 10
The Account............................................................. 10
The Underlying Funds.................................................... 10
Administration.......................................................... 11
The Contract(s)........................................................... 12
Contract Owners' Rights................................................. 12
Purchasing the Contract................................................. 12
Purchase Payments....................................................... 12
Amount and Frequency of Purchase Payments............................. 12
Allocation of Purchase Payments....................................... 12
Accumulation Units and Accumulation Unit Value........................ 12
Transactions............................................................ 12
Transfers............................................................. 12
Changes in Allocation Instructions.................................... 13
Surrender Before Commencement of Annuity Period Deferment............. 13
Deferment............................................................. 14
Confirmations......................................................... 14
Deductions and Expenses................................................. 14
Annual Maintenance Charge............................................. 14
Mortality and Expense Risk Fee........................................ 14
Annuity Alternatives................................................ 14
Surrender Charge(s)................................................... 15
Annuity Alternatives 2.............................................. 15
Annuity Alternatives................................................ 15
Operating Expenses of the Horace Mann Mutual Funds.................... 15
Premium Taxes......................................................... 15
Death Benefit Proceeds.................................................. 15
Mandatory Minimum Distribution.......................................... 15
Income Payments......................................................... 16
Income Payment Options................................................ 16
Amount of Fixed and Variable Income Payments.......................... 17
Misstatement of Age..................................................... 18
Modification of the Contract............................................ 18
Tax Consequences.......................................................... 18
Separate Account........................................................ 18
Contract Owners......................................................... 18
Contributions......................................................... 18
Distributions Under Qualified Contracts............................... 19
Penalty Tax........................................................... 19
Voting Rights............................................................. 19
Other Information......................................................... 20
Additional Information.................................................... 20
Non-qualified Prospectus.................................................. B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN
OFFER TO ACQUIRE, ANY INTEREST OR PARTICIPATION IN THE CONTRACTS OFFERED BY
THIS PROSPECTUS IN ANY STATE TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH STATE.
A-2
<PAGE>
Definitions
- -------------------------------------------------------------------------------
Account: Horace Mann Life Insurance Company Separate Account, a segregated
variable investment account consisting of nine subaccounts each of which
invests in the corresponding portfolio of the Horace Mann Mutual Funds or the
Wilshire Target Funds, Inc. The Account was established by Horace Mann Life
Insurance Company under Illinois law and registered as a unit investment trust
under the Investment Company Act of 1940.
Accumulation Unit: A unit of measurement used to determine the value of a
contract owner's interest in a subaccount before income payments begin.
Annuitant: The recipient of income payments.
Annuity Period: The period during which income payments are made to the
annuitant or the last surviving joint annuitant, if any.
Annuity Unit: A unit of measurement used in determining the amount of
variable income payment during the annuity period.
Certificate: Each participant under a group contract is issued a
certificate summarizing the provisions of the contract and showing
participation in the retirement plan adopted by the contract owner.
Contract: This Prospectus offers combination fixed and variable annuity
contracts to individuals as single premium contracts and to both individuals
and groups as flexible premium contracts. The term "contract" in this
prospectus generally will be used to describe contracts issued to individuals
and certificates issued to participants in a group plan.
Contract Owner: The individual or entity to whom the contract is issued.
Under a group contract, all references to the contract owner refer to the
participant in a group plan.
Contract Year: A year measured from the date a contract (or a certificate)
was issued to an individual contract owner (or a participant) and each
anniversary of this date.
HM Funds: The Horace Mann Mutual Funds ("Trust") consist of seven
portfolios: Equity Fund, Balanced Fund, Income Fund, Short-Term Investment
Fund ("Short-Term Fund"), Small Cap Growth Fund, International Equity Fund and
Socially Responsible Fund. The Trust is an open-end, diversified, management
investment company registered under the Investment Company Act of 1940.
Wilshire Funds: The two portfolios of the Wilshire Target Funds, Inc.
offered include: Wilshire Large Company Growth Portfolio and the Wilshire 5000
Index Portfolio. Wilshire Target Funds, Inc. is an open-end, management
investment company registered under the Investment Company Act of 1940.
Income Payments: A series of payments that may be for life; for life with a
guaranteed number of payments; for the joint lifetimes of the annuitant and
another person, and thereafter, during the lifetime of the survivor; or for
some fixed period. A fixed annuity provides a series of payments that will be
substantially equal in amount throughout the annuity payout period. A fixed
annuity does not participate in the investment experience of any subaccount. A
variable annuity provides a series of payments that vary in amount depending
upon the investment experience of the subaccount(s) selected by the contract
owner.
Maturity Date: The date income payments begin. The individual contracts
offered by this prospectus describe the criteria for determining maturity
dates.
In addition, tax qualified plans often place certain limitations upon
election of a maturity date. Generally, distributions under tax qualified
plans must begin by April 1 following the calendar year in which the contract
owner or participant reaches age 70 1/2. See "The Contract--Mandatory Minimum
Distribution."
Net Purchase Payment: The balance of each purchase payment received by
Horace Mann Life Insurance Company after deducting any applicable premium
taxes, or the balance of any transfer amount from other subaccounts after
applicable charges, or dividends reinvested after applicable charges.
Participant: A person to whom a certificate showing participation under a
group contract has been issued.
Qualified Plan: A tax-sheltered annuity as defined in Section 403(b) or a
simplified employee pension plan as defined in Section 408(k) of the Internal
Revenue Code ("IRC"). IRAs as defined in Section 408 could be qualified in
some situations.
Subaccount: A division of the Separate Account of Horace Mann Life
Insurance Company which invests in shares of the corresponding portfolio of
the HM Funds or the Wilshire Funds.
Surrender Charge: (a contingent deferred sales charge) An amount kept by
Horace Mann Life Insurance Company if a withdrawal is made or if the contract
is surrendered. The charge is intended to compensate Horace Mann Life
Insurance Company for the cost of selling the product.
Valuation Date: The valuation date ends at 3:00 p.m. central time. No
valuations are made for any day that the New York Stock Exchange is closed and
for 2000 no valuations are made for July 3rd or the day after Thanksgiving.
Valuation Period: The period from the end of a valuation date to the end of
the next valuation date, excluding the day the period begins and including the
day it ends.
A-3
<PAGE>
Summary
- -------------------------------------------------------------------------------
This summary is intended to provide a brief overview of the more
significant aspects of the contract. Further information can be found in this
Prospectus, the HMLIC Separate Account Statement of Additional Information,
and the contract. This Prospectus is intended to serve as a disclosure
document for the variable portion of the contracts only. As used in this
prospectus, "variable" means that value varies based on the investment
performance of the subaccount selected. For information regarding the fixed
portion, refer to the Contract.
Detailed information about the HM Funds is contained in the HM Funds'
Prospectus which immediately follows the HMLIC Separate Account Non-qualified
Annuity Prospectus. Additional information about the HM Funds can be found in
the HM Fund's Statement of Additional Information. Detailed information about
the Wilshire Funds is contained in the Wilshire Funds' Prospectus which must
accompany this Prospectus. Additional information about the Wilshire Funds can
be found in the Wilshire Funds Statement of Additional Information.
The expenses for both the HM Funds and Wilshire Funds, including advisory
and management fees, are found in the Table of Annual Operating Expenses shown
on page 6 of this Summary.
What is "the Separate Account"?
The Horace Mann Life Insurance Company Separate Account (the "Account")
segregates assets dedicated to the variable portion of the combination fixed
and variable contracts offered herein. The account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as
a unit investment trust. The account consists of nine subaccounts, each
investing in shares of the corresponding portfolio of either the HM Funds;
Equity Fund, Balanced Fund, Income Fund, Short-Term Investment Fund, Small Cap
Growth Fund, International Equity Fund, and Socially Responsible Fund or the
Wilshire Funds; Wilshire 5000 Index Portfolio and Wilshire Large Company
Growth Portfolio.
Who may purchase a Horace Mann Annuity offered by this Prospectus?
Individuals, as well as groups, may purchase the combination fixed and
variable flexible premium annuity. Individuals may also purchase the single
premium plan. The contracts offered by this prospectus are designed to provide
retirement benefits in connection with Section 403(b) Annuities, Individual
Retirement Annuities ("IRAs"), Roth IRAs, and Simplified Employee Pension
Plans ("SEPs").
The contract is offered and sold by HMLIC through its licensed life
insurance sales personnel. These insurance sales personnel are registered
representatives of Horace Mann Investors, Inc. ("HM Investors"). HM Investors
is a broker/dealer registered under the Securities and Exchange Act of 1934.
HMLIC has entered into a distribution agreement with HM Investors. HM
Investors, is a member of the National Association of Securities Dealers, Inc.
("NASD").
Is there a minimum Purchase Payment?
The minimum annual purchase payment under a flexible premium contract
during any contract year is $225. Certain Individual Flexible Premium
contracts may have larger minimums. The minimum purchase payment under a
single premium contract is $2,000. Contract owners may elect to allocate all
or part of the net purchase payments to one or more subaccount(s). The minimum
purchase payment allocated to any subaccount within any given contract year
must equal or exceed $100. No purchase payments are required after the first
contract year. Under certain group plans the minimum may be reduced or
eliminated.
What are my investment choices?
(a) Separate Account
Includes nine subaccounts each of which invests in one of the following
funds:
HM Funds
Equity Fund--a fund investing primarily in common stocks of domestic
companies (previously known as the Growth Fund).
Balanced Fund--a fund investing indirectly in a mix of common stocks, debt
securities and money market instruments through investments in the Equity Fund
and the Income Fund.
Income Fund--a fund investing primarily in investment grade debt
securities.
Short-Term Investment Fund--a fund investing in short-term debt
instruments.
Small Cap Growth Fund--a fund investing primarily in small cap equity
securities with earnings growth potential.
International Equity Fund--a fund investing in marketable foreign equity
securities.
Socially Responsible Fund--a fund investing primarily in marketable equity
securities of United States chartered companies which are determined to be
socially responsible pursuant to criteria set forth in the HM Funds
Prospectus.
Wilshire Funds
Wilshire 5000 Index Portfolio--a fund designed to replicate as closely as
possible the performance of the Wilshire 5000 Index before the deduction of
fund expenses.
Wilshire Large Company Growth Portfolio--a fund that focuses on the large
company growth segment of the U.S. equity market and invests in companies with
relatively high earnings, return on equity and sales growth.
A-4
<PAGE>
(b) Fixed Account (See the Contract)
At anytime before the contract's maturity date, amounts may be transferred
from one subaccount to another, and to and from the fixed account of the
contract. Transfers from the fixed account of the contract into a subaccount
could be subject to certain charges if the transferred amount is withdrawn or
surrendered. The minimum amount that can be transferred is $100 or the entire
dollar value of the subaccount(s), whichever is less. For complete details see
"The Contract--Transactions--Transfers."
May I withdraw all or part of the Contract value before the Maturity Date?
Unless restricted by his or her retirement plan or by the Internal Revenue
Code ("IRC"), a contract owner may at any time before the maturity date
surrender his or her contract in whole or withdraw in part for cash. Partial
withdrawals are subject to a $100 minimum. Each surrender or partial
withdrawal is processed on the basis of the net asset value of an accumulation
unit of the subaccount(s) from which the value is being surrendered or
withdrawn. Surrenders and withdrawals may be subject to surrender charges as
described in "Deductions and Expenses--Surrender Charges".
What are the charges or deductions?
Contracts may be subject to deductions for applicable state or local
government premium taxes. Premium taxes presently range from 0 to 3.5%.
A mortality and expense risk fee (M&E Fee), computed and accrued weekly, is
deducted from the account value. This fee will not exceed 1.25% of the
contract owner's average value in a subaccount on an annual basis but may be
lower on some group plans and certain individual flexible premium products.
A fixed annual maintenance charge of $25 is assessed against the contract
on each anniversary, unless the contract value equals or exceeds $10,000, in
which case such charge is waived. This charge may be waived or lowered on
certain group plans. Certain individual flexible premium products do not
include this charge.
No deduction for sales expense is charged on purchase payments, but a
decreasing surrender charge is assessed against certain withdrawals and
surrenders during the first five or eight contract years depending on the
contract you purchase. The charge may be lower on certain individual and group
plans. In the first contract year the charge is 8% for the Flexible Premium
Contract and 5% for the Single Premium Contract. The charge is taken from the
contract owner's value in the subaccount(s) from which the withdrawal is made.
In no event will the charges exceed 8.5% of the net purchases payments to the
subaccount(s). See "The Contract--Transactions--Surrender Before Commencement
of Annuity Period."
What are the federal income tax consequences of investing in this contract?
The IRC provides penalties for premature distributions under various
retirement plans. Values may not be withdrawn from Section 403(b) contracts
except under certain circumstances. See "Tax Consequences." This contract
might not be suitable for short-term investment. See "The Contract--
Transactions--Surrender Before Commencement of Annuity Period."
If I receive my Contract and am dissatisfied, may I return it?
Subject to various state insurance laws, generally the contract owner may
return the contract to HMLIC within 30 days of receipt of the contract. The
market value of the assets purchased by payments paid to the account, less any
taxes, if applicable, will be refunded.
When can I begin receiving Income Payments, and what options are available?
Payments will begin on the maturity date selected by the contract owner.
Variable income payments are made in monthly installments. A lump sum payment
may be made if the total contract value is less than $2,000 or if monthly
income payments at the maturity date would be less than $20. An optional
maturity date and various income payment options are available under the
contract.
Income payments may be fixed or variable or a combination of fixed and
variable payments. The following options are available for receiving Income
Payments:
Life Annuity with or without Certain Period, Joint and Survivor Life
Annuity, Income for Fixed Period, Income for Fixed Amount, and Interest
Income Payments.
A-5
<PAGE>
Table of Annual Operating Expenses
- -------------------------------------------------------------------------------
The following is a summary of costs and expenses borne by the Contract
Owner in connection with an investment in the account. A contract owner who
invests in the Fixed Account would be subject to the annual maintenance charge
and surrender charges.
Horace Mann Life Insurance Company Separate Account Contract Owner Transaction
Expenses:(/1/)
<TABLE>
<S> <C>
Maximum Surrender Charge as a percentage of amount surrendered(/2/)
--for Single Payment Contracts...................................... 5.00%
--for Flexible Premium Contracts.................................... 8.00%
Annual Maintenance Charge(/3/).......................................... $25
Separate Account annual expenses, as a percentage of average account
value:
Mortality Risk........................................................ 0.45%
Expense Risk.......................................................... 0.80%
Total Separate Account M&E Fee.......................................... 1.25%
</TABLE>
Mutual Funds
Annual Operating Expenses of the HM Mutual Funds and Wilshire Funds, as a
percentage of average daily net assets:
<TABLE>
<CAPTION>
Inter-
Short- Small Cap national Socially Wilshire Lg.
Equity Balanced Income Term Growth Equity Responsible Wilshire 5000 Co. Growth
Fund(/4/) Fund(/4/) Fund(/4/) Fund(/4/) Fund(/4/) Fund(/4/) Fund(/4/) Portfolio(/5/)(/7/) Portfolio(/5/)
--------- --------- --------- --------- --------- --------- ----------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fee(/6/)....... 0.64% 0.64% 0.64% 0.37% 1.39% 1.09% 0.94% 0.10% 0.25%
Other Expenses.. 0.18% 0.18% 0.43% 1.58% 0.53% 0.67% 0.22% 0.25% 0.35%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund
Operating
Expense........ 0.82% 0.82% 1.07% 1.95% 1.71% 1.76% 1.16% 0.35% 0.60%
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate of the premium tax varies depending upon the state of residence, and
not all states impose premium taxes. Also, depending on the state, taxes are
deducted at the time of purchase or are levied at annuitization.
(/2/)In some cases, the surrender charge does not apply. See "The Contract--
Transactions--Surrender Before Commencement of Annuity Period."
(/3/)The annual maintenance charge equals $25 per year, unless the contract
value equals or exceeds $10,000 at each anniversary. The annual maintenance
charge is not deducted after the maturity date. This charge may be reduced or
eliminated on certain individual contracts and group plans.
(/4/)The Other Expenses for the HM Funds are shown based on actual amounts for
the fiscal year ended December 31, 1999 except for the Support Services
agreement which went into effect March 1, 1999 which is reflected at the
contractual amount for the full calendar year. The subadvisers seek the best
price and execution on each transaction an negotiate 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 HM Funds part of the commissions paid(Commission Credits).
Horace Mann Investors, voluntarily waived a portion of its Management Fee on
the Short-Term Fund and subsidized specific expenses for certain funds during
1999. The Fund's advisor, Wilshire Associates, Inc. waived a portion of its
advisory fee during 1999 for each fund. With these waivers, commission credits
or subsidization the management Fee, Other Expenses and Total Fund Operating
Expenses, respectively, were: 0.64%, 0.16% and 0.80% for the Equity Fund;
0.64%, 0.16% and 0.80% for the Balanced Fund; 0.64%, 0.43% and 1.07% for the
Income Fund; 0.37%, 1.26% and 1.63% for the Short-Term Fund; 1.39%, 0.23% and
1.62% for the Small Cap Fund; 1.09%, 0.28% and 1.37% for the International
Fund; and 0.94%, 0.16% and 1.10% for the Socially Responsible Fund.
(/5/)The Total Expenses for the Wilshire Funds are based on the Calendar year
1999 and are unaudited, Wilshire Funds fiscal year ends on August 31.
(/6/)The "Management Fees" include both the advisory fee payable to Wilshire
Associates, Inc. and the administration fee payable to Horace Mann Investors,
Inc for the HM Funds.
(/7/)Wilshire Associates, Inc. has agreed to reimburse expenses to maintain
the Portfolios total expenses (other than 12(b)-1 fees) at 0.35% of the
Portfolios average daily net assets until at least September 30, 2000 ,
subject to later recoupment. Without this agreement the "other expenses" would
be 0.42% and "Total Fund operating expenses" would be 0.67%.
A-6
<PAGE>
Example(/1/)
- -------
<TABLE>
<CAPTION>
Inter- Wilshire Wilshire
Short- Small national Socially 5000 Lg. Co.
Equity Balanced Income Term Cap Equity Responsible Index Growth
Fund Fund Fund Fund Fund Fund Fund Fund Portfolio
------ -------- ------ ------ ----- -------- ----------- -------- ---------
For Flexible Payment
Contracts
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If you surrender your
Contract at the end of
the applicable time
period:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year 104 104 106 114 112 113 107 141 124
3 years 143 143 150 174 168 169 153 257 204
5 years 184 184 196 236 225 228 200 380 288
10 years 247 247 273 357 335 339 282 669 472
If you do not surrender
your Contract:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year 22 22 24 33 31 31 25 58 41
3 years 67 67 75 101 94 95 77 180 127
5 years 115 115 128 171 159 162 132 309 219
10 years 247 247 273 357 335 339 282 669 472
<CAPTION>
For Single Payment
Contracts
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If you surrender your
Contract at the end of
the applicable time
period:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year 73 73 76 84 82 82 76 110 93
3 years 100 100 107 132 125 127 110 213 160
5 years 126 126 139 182 170 173 143 321 230
10 years 247 247 273 357 335 339 282 669 472
If you do not surrender
your Contract:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year 22 22 24 33 31 31 25 58 41
3 years 67 67 75 101 94 95 77 180 127
5 years 115 115 128 171 159 162 132 309 289
10 years 247 247 273 357 335 339 282 669 472
</TABLE>
(/1/)The Example should not be considered a representation of past or future
expenses. Amounts shown are based on the "Total Expenses" shown on the fee
table and average cash value of the average number of annuity contracts in the
accumulation phase during the 1999 calendar year. Actual expenses may by
greater or less than those shown. There is no assumption for premium taxes,
applicable in certain states, in these examples.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING THE
VARIOUS
COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY. THE TABLE REFLECTS
EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE OF THE UNDERLYING
FUNDS. SEE "THE CONTRACT--DEDUCTIONS AND EXPENSES."
A-7
<PAGE>
Condensed Financial Information
- -------------------------------------------------------------------------------
The following information is taken from the Separate Account financial
statements and is covered by the report of the Separate Account Independent
Auditors. A copy of the financial statements and reports are contained in the
Annual Report for the Separate Account and are incorporated herein by
reference and may be obtained by calling or writing Horace Mann Life Insurance
Company. The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund each commenced operations on March 10, 1997. The Wilshire
5000 Index Portfolio and the Wilshire Large Company Growth Portfolio
subaccounts were added to the Separate Account on May 1, 2000.
<TABLE>
<CAPTION>
Accumulation Accumulation # Units
Unit Value Unit Value Outstanding
Account Beginning of End of End of
Division Year Ended Period Period Period
-------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Equity Fund 12/31/99 $24.34 $21.92 23,495,939
12/31/98 25.66 24.34 22,401,337
12/31/97 23.76 25.66 18,317,985
12/31/96 21.66 23.76 13,503,527
12/31/95 17.64 21.66 9,499,642
12/31/94 19.85 17.64 7,444,937
12/31/93 19.49 19.85 5,271,528
12/31/92 19.15 19.49 3,847,269
12/31/91 16.64 19.15 3,244,626
12/31/90 18.88 16.64 2,748,244
12/31/89 17.30 18.88 2,349,405
Balanced Fund 12/31/99 $18.90 $17.27 22,591,194
12/31/98 19.82 18.90 21,781,222
12/31/97 18.94 19.82 18,709,483
12/31/96 18.00 18.94 15,151,785
12/31/95 15.26 18.00 12,085,917
12/31/94 16.72 15.26 10,010,131
12/31/93 16.22 16.72 7,470,133
12/31/92 15.91 16.22 5,352,185
12/31/91 14.19 15.91 4,274,088
12/31/90 15.10 14.19 3,528,857
12/31/89 13.48 15.10 2,697,026
Income Fund 12/31/99 $13.24 $12.24 1,032,770
12/31/98 13.00 13.24 1,006,166
12/31/97 12.69 13.00 718,041
12/31/96 13.03 12.69 817,803
12/31/95 12.02 13.03 776,272
12/31/94 13.06 12.02 746,535
12/31/93 12.95 13.06 694,843
12/31/92 12.92 12.95 566,223
12/31/91 12.26 12.92 473,423
12/31/90 12.35 12.26 415,716
12/31/89 11.64 12.35 346,639
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
Accumulation Accumulation # Units
Unit Value Unit Value Outstanding
Beginning of End of End of
Year Ended Period Period Period
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Short-Term Fund 12/31/99 $ 9.98 $ 9.89 143,624
12/31/98 9.99 9.98 125,460
12/31/97 10.03 9.99 114,103
12/31/96 10.00 10.03 112,004
12/31/95 10.08 10.00 95,982
12/31/94 10.07 10.08 103,526
12/31/93 10.09 10.07 106,595
12/31/92 10.10 10.09 99,345
12/31/91 10.37 10.10 94,194
12/31/90 10.73 10.37 106,548
12/31/89 10.49 10.73 96,997
Small Cap Growth Fund 12/31/99 $12.38 $19.76 2,731,955
12/31/98 11.70 12.38 2,063,019
12/31/97 10.00 11.70 1,219,124
International Equity
Fund 12/31/99 $12.13 $17.52 1,298,573
12/31/98 10.27 12.13 758,622
12/31/97 10.00 10.27 451,401
Socially Responsible
Fund 12/31/99 $12.99 $13.81 4,001,791
12/31/98 12.10 12.99 2,513,258
12/31/97 10.00 12.10 692,571
</TABLE>
Accumulation unit values shown above are reduced annually for dividend
distributions from each underlying mutual fund. Dividend distributions are
used to purchase additional accumulation units.
Financial statements of the Account and of HMLIC are available with the
Statement of Additional Information. A copy of the Statement of Additional
Information and of the financial statements may be obtained without charge by
mailing a written request to Horace Mann Life Insurance Company, P.O. Box
4657, Springfield, Illinois 62708-4657, by sending a telefacsimile (FAX)
transmission request to (217) 535-7123, or by telephoning (217) 789-2500 or
(800) 999-1030 (toll-free).
From time to time the account may advertise total return for the
subaccount. Total return may be used for all nine subaccounts. Total return
performance figures represent past performance and are not intended to
indicate future performance. Investment return and the principal value of an
investment may fluctuate. A contract owner's shares, when redeemed, may be
worth more or less than their original cost. Total return is computed by
finding the average annual compounded rate of return that would equate the
initial amount invested to the ending redeemable value.
To the extent required, all charges shown in the Table of Annual Operating
Expenses are reflected in the calculations of the performance figures. Because
the median contract value exceeds $10,000, the annual maintenance charge of
$25 has not been deducted. However, contracts with a value of less than
$10,000 would be subject to the annual maintenance fee, which would reduce
performance. Total return may be calculated to reflect the fact that certain
expenses have been reimbursed or waived. In addition, total return
calculations assume redemption at the end of the stated period and, therefore,
reflect the applicable surrender charge. However, comparative figures may be
presented that do not assume redemption.
A-9
<PAGE>
Horace Mann Life Insurance Company,
The Account and
The Underlying Mutual Funds
Horace Mann Life Insurance Company
Horace Mann Life Insurance Company ("HMLIC") located at One Horace Mann
Plaza, Springfield, Illinois 62715-0001, is an Illinois stock life insurance
company organized in 1949. HMLIC is licensed to do business in 48 states and
in the District of Columbia. HMLIC writes individual and group life insurance
and annuity contracts on a nonparticipating basis.
HMLIC is an indirect wholly-owned subsidiary of Horace Mann Educators
Corporation ("HMEC"), a publicly-held insurance holding company traded on the
New York Stock Exchange.
The Account
On October 9, 1965, HMLIC established the account under Illinois law. The
account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The account and
each subaccount are administered and accounted for as a part of the business
of HMLIC. However, the income gains and losses, whether or not realized, of
each subaccount are credited to or charged against the amounts allocated to
that subaccount in accordance with the terms of the contracts without regard
to other income, gains or losses of the remaining subaccounts or of HMLIC. The
assets of the account may not be charged with liabilities arising out of any
other business of HMLIC. All obligations arising under the contracts,
including the promise to make income payments, are general corporate
obligations of HMLIC. Accordingly, all of HMLIC's assets are available to meet
its obligations and expenses under the contracts. While HMLIC is obligated to
make payments under the contracts, the amount of variable income payments are
not guaranteed since the payment amounts fluctuate in accordance with the
performance of the subaccounts.
The account is divided into subaccounts. Horace Mann Life Insurance Company
uses the assets of each subaccount to buy shares of the underlying mutual
funds based on contract owner instructions.
The Underlying Mutual Funds.
The following mutual funds are available for investment by the subaccounts
which are a part of the contracts offered in this prospectus.
HM Funds
The HM Mutual Funds ("Trust") is an open-end, diversified, management
investment company registered under the Investment Company Act of 1940. The
Trust is made up of a series of portfolios ("HM Funds"). The Trust issues
shares of beneficial interest that are continually offered for sale. The HM
Funds, advised by Wilshire Associates Incorporated ("Wilshire"), invest in
securities of different issuers and industry classifications in an attempt to
spread and reduce the risks inherent in all investing. Wilshire has entered
into an agreement with investment subadviser(s) for each of the HM Funds
whereby the subadviser(s) manage the investment and reinvestment of the assets
of a fund.
The primary investment objective of the Equity Fund is long-term capital
growth; conservation of principal and production of income are secondary
objectives. The Equity Fund invests substantially all of its assets in common
stocks of domestic companies. Wellington Management Company, LLP ("Wellington
Management"), Sanford C. Bernstein and Co., Inc. ("Sanford Bernstein") and
Mellon Equity Associates, LLP ("Mellon Equity") serve as the investment
subadvisers to the Equity Fund. This fund was referred to as the Growth Fund
prior to May 1, 2000.
The primary investment objective of the Balanced Fund is to realize high
long-term total rate of return consistent with prudent investment risks. The
Balanced Fund's assets are invested in a mix of common stocks, debt securities
and money market instruments through investments in the Equity Fund and Income
Fund.
The primary investment objective of the Income Fund is to achieve a long-
term total rate of return in excess of the U.S. bond market over a full market
cycle. The Income Fund invests primarily in U.S. investment grade fixed income
securities. Wellington Management, Western Asset Management Company, and
Western Asset Management Limited (WAML) serve as the investment subadvisers to
the Income Fund.
The primary investment objective of the Short-Term Fund is to realize
maximum current income to the extent consistent with liquidity. Preservation
of principal is a secondary objective. The Short-Term Fund attempts to realize
its objectives through investments in short-term debt instruments; it is not a
money market fund and does not maintain a stable net asset value per share.
Wellington Management serves as the investment subadviser to the Short-Term
Fund.
The investment objective of the Small Cap Growth Fund is long-term capital
appreciation through small cap stocks with earnings growth potential. The
Small Cap Growth Fund invests primarily in small cap stocks, which the
subadviser considers to have favorable and above-average earnings growth
prospects. Accordingly, their stock prices may rise faster, but can also
decline more in unfavorable business climates. As a result of these "higher
highs" and "lower lows," they are more volatile. BlackRock Financial
Management, Inc. ("BlackRock") serves as investment subadviser to the Small
Cap Growth Fund.
The primary investment objective of the International Equity Fund is long
term capital growth primarily through diversified holding of marketable
foreign equity investments. The International Equity Fund invests primarily in
equity securities of established companies, listed on foreign exchanges, which
the subadviser believes have favorable characteristics. It may also invest in
fixed income securities of foreign governments and companies. Investing in
foreign securities may involve a greater degree of risk than investing in
domestic securities due to the possibility of currency fluctuations, more
A-10
<PAGE>
volatile markets, less securities regulation and political instability.
Scudder Kemper Investments, Inc. ("Scudder Kemper") serves as the investment
subadviser to the International Equity Fund.
The investment objective of the Socially Responsible Fund is long-term
growth of capital, current income and growth of income. The Socially
Responsible Fund invests primarily in marketable equity securities (including
common stocks, preferred stocks, and debt securities convertible into common
stocks of seasoned financially strong U.S.-based companies). Investments in
equity securities are limited to issuers which the subadviser determines:
1.Do not produce tobacco products;
2.Do not produce alcoholic beverages;
3. Do not own and/or operate casinos or manufacture gaming devices;
4.Do not produce pornographic materials;
5. Do not produce nuclear weapons or guidance and/or delivery systems,
specifically for nuclear weapons;
6. By popular standards, maintain non-discriminatory employment
practices throughout a company's facilities; and
7. By popular standards, maintain environmental policies, practices and
procedures which are currently acceptable, or which are exhibiting
improvement.
Because this fund invests in companies with socially responsible business
practices, it has limitations that may have an impact on performance. Scudder
Kemper serves as the investment subadviser to the Socially Responsible Fund.
Detailed information on the HM Funds is contained in the HM Funds'
Prospectus which accompanies this Prospectus.
Wilshire Funds
Wilshire Target Funds, Inc (Wilshire Funds), is an open-end, management
investment company registered under the Investment Company Act of 1940. The
Wilshire Funds are made up of a series of portfolios. The Wilshire Funds
issues shares that are continually offered for sale. The Wilshire Funds are
advised by Wilshire Associates Incorporated.
The investment objective of the Wilshire Large Company Growth Portfolio is
to provide investment results of a portfolio of publicly traded common stocks
of companies in the large company growth sub-category of the Wilshire 5000
Index. The Wilshire Large Company Growth Portfolio focuses on the large
company segment of the U.S. equity market and invests in companies with above
average earnings and sales growth. Typically such companies will have above
average price/book ratios. The Wilshire Large Company Growth Portfolio
primarily invests in stocks of companies with the largest market
capitalization (extending down to $2.1 billion). Because this fund invests in
large growth style companies it may be more volatile than a fund that invests
in a broader market segment.
The investment objective of the Wilshire 5000 Index Portfolio is to
replicate as closely as possible the performance of the Wilshire 5000 Index
before the deduction of fund expenses. This Portfolio is an index fund and
primarily invests in the common stocks of companies included in the Index that
are representative of the entire Index. The Wilshire 5000 Index Portfolio
normally holds stocks representing at least 90% of the total market value of
the Index. Since the Portfolio does not invest in all of the stocks included
in the Index it may be more volatile than the Index.
Detailed information on the Wilshire Funds is contained in the Wilshire
Target Funds Prospectus which accompanies this Prospectus if you are
purchasing a qualified annuity contract.
Administrator: Horace Mann Investors, Inc.
HM Investors, a wholly-owned subsidiary of Horace Mann Educators
Corporation which is the indirect owner of Horace Mann Life Insurance Company
("HMLIC"), serves as administrator to the HM Funds pursuant to an
Administration Agreement dated March 1, 1999 with the Trust (the
"Administration Agreement"). HM Investors provides for the management of the
business affairs of each HM Fund, including, but not limited to, office space,
secretarial and clerical services, bookkeeping services, wire and telephone
communications services, and other similar services necessary for the proper
management of each HM Fund's business affairs. Under the current
administration agreement, the HM Funds agree to assume and pay the charges and
expenses of its operations, including, by way of example, the compensation of
Trustees other than those affiliated with HM Investors, charges and expenses
of independent auditors, of legal counsel, of any transfer or dividend
disbursing agent, of the custodian, all costs of acquiring and disposing of
portfolio securities, interest, if any, on obligations incurred by the HM
Funds, reports and notices to shareholders, other like miscellaneous expenses,
and all taxes and fees to federal, state, or other governmental agencies.
For the services and facilities furnished to the HM Funds, HM Investors
receives a fee based upon the combined assets of the HM Funds as follows:
0.25% of the first $1 billion of assets and 0.20% of assets in excess of $1
billion. An administration fee is charged directly against all assets in the
Balanced Fund. However, in order to avoid duplication of charges under the
fund of funds structure, HM Investors has indicated that it intends to waive
the majority of the administrative fees charged to the Balanced Fund directly.
In addition, Balanced Fund shareholders will indirectly pay the administration
fee of the assets invested in the Equity Fund and Income Fund under the fund
of funds structure. Therefore, the aggregate administration fees directly and
indirectly borne by shareholders of the Balanced Fund will be higher than the
fees shareholders would bear if they invested directly in the Equity and
Income Fund.
A-11
<PAGE>
The Contract
Contract Owners' Rights
A Contract may be issued under a retirement plan on a qualified basis as
defined in the IRC. Qualified contracts are subject to certain tax
restrictions. See "Tax Consequences."
To participate in a qualified plan, the contract owner may be required to
forego certain rights granted by the contract and should refer to the
provisions of his or her contract, the provisions of the plan or trust
instrument, and/or applicable provisions of the IRC.
Unless otherwise provided by law, and subject to the terms of any governing
plan or trust, the contract owner may exercise all privileges of ownership, as
defined in the contract, without the consent of any other person. These
privileges include the right during the period specified in the contract to
change the beneficiary designated in the contract, to designate a payee and to
agree to a modification of the contract terms.
This prospectus describes only the variable portions of the contract. On
the maturity date, the contract owner has certain rights to acquire fixed
annuity payout options. See the contract for details regarding fixed income
payments.
Purchasing the Contract
The contract is offered and sold by HMLIC through its licensed life
insurance sales personnel who are also registered representatives of HM
Investors. HMLIC has entered into a distribution agreement with HM Investors,
principal underwriter of the Account. HM Investors, located at One Horace Mann
Plaza, Springfield, Illinois 62715-0001, is a broker-dealer registered under
the Securities Exchange Act of 1934. HM Investors is a member of the NASD and
is a wholly-owned subsidiary of Horace Mann Educators Corporation.
In order to purchase a contract offered by this prospectus, an applicant
must complete an application bearing all requested signatures and a properly
endorsed suitability questionnaire. For a contract issued pursuant to Section
403(b) of the IRC, the applicant must sign an acknowledgment of the IRC
restrictions on withdrawals applicable to such contracts. For an IRA, Roth
IRA, SIMPLE or a contract issued under a SEP plan, the applicant must
acknowledge receipt of the IRA disclosure form.
Applications for contracts are to be sent to HMLIC's Home Office. If an
incomplete application is received, HMLIC will promptly request that the
applicant furnish additional information needed to process the application.
The initial purchase payment will be held in a suspense account, without
interest, for a period not exceeding five business days. If the necessary
information is not received within these five business days HMLIC will return
the initial purchase payment, unless otherwise directed by the applicant.
Sales commissions are paid by HMLIC. Sales commissions typically range from
2% to 6% of purchase payments received.
Purchase Payments
Amount and Frequency of Purchase Payments--The minimum annual purchase
payment under a flexible premium contract is $225. Payments may be made in a
lump sum or installments. The minimum monthly purchase payment is $25. No
purchase payments are required after the first contract year. The minimum
purchase payment under a single premium contract is $2,000. Under certain
individual contracts and group plans the minimum may be reduced or eliminated.
In addition, some individual contracts require a minimum purchase payment of
$50,000, $100,000 or $250,000.
The IRC limits the amounts which may be contributed to qualified plans. See
"Tax Consequence--Contract Owners Contributions."
Allocation of Purchase Payments--All or part of the net purchase payments
made may be allocated to one or more subaccounts. The minimum purchase payment
amount allocated to any subaccount in any given contract year must equal or
exceed $100.
Accumulation Units and Accumulation Unit Value--The number of accumulation
units purchased by net purchase payments is determined by dividing the dollar
amount credited to each subaccount by the applicable accumulation unit value
next determined following receipt of the payment by HMLIC. The value of an
accumulation unit is based on the investment experience of the underlying
Fund.
Accumulation units are valued on each valuation date. The accumulation unit
value of each subaccount is equal to the net asset value of the underlying
Fund (computed by dividing the net assets of a mutual fund by the outstanding
number of mutual fund shares on each valuation date). Dividends declared by
the underlying Fund of each subaccount, net of applicable deductions and
charges, are used to purchase additional accumulation units. To the extent
that deductions and charges exceed dividends, accumulation units will be
surrendered. The accumulation unit value of the Equity Fund subaccount was
established at $16.87 on October 9, 1965. The accumulation unit value of the
Balanced Fund subaccount, Income Fund subaccount and Short-Term Funds
subaccount was established at $10.00 on February 1, 1983. The accumulation
unit value of the Small Cap Growth Fund subaccount, International Equity Fund
subaccount and Socially Responsible Fund subaccounts was established at $10.00
on March 10, 1997. The accumulation unit value of the Wilshire 5000 Index
Portfolio subaccount and the Wilshire Large Company Growth Portfolio
subaccount will be established on May 1, 2000.
Transactions
Transfers--Amounts may be transferred from one subaccount to another, and
to and from the fixed account of the contract, prior to the maturity date.
A-12
<PAGE>
On Annuity Alternatives products for transfers from the fixed portion of
the contract into a subaccount the early withdrawal penalty is being waived.
If an amount transferred from the fixed account is surrendered or withdrawn
within 365 days, the amount transferred will be subject to the applicable
early withdrawal penalty as if the money had been withdrawn from the fixed
account. The penalty will not be charged if (1) the transfer occurred on a
Scheduled Update (renewal date) or (2) if the Scheduled Update occurred
between the transfer and withdrawal or surrender date(s).
On Annuity Alternatives Plus products if you transfer money from the fixed
portion of the contract into a subaccount and withdraw or surrender within 365
days of the transfer you will be charged the early withdrawal penalty. The
early withdrawal penalty will not be charged if (1) the transfer occurred on a
Scheduled Update or (2) if the Scheduled Update occurred between the transfer
and withdrawal or surrender date(s).
The minimum amount that can be transferred is $100 or the entire dollar
value of the subaccount(s), whichever is less.
A contract owner may elect to transfer funds between subaccounts and the
fixed account by submitting a written request to Horace Mann Life Insurance
Company at P.O. Box 4657, Springfield, Illinois 62708-4657 or by calling (800)
999-1030. Telefacsimile (FAX) transmissions of the request also will be
accepted if sent to (217) 527-2307. The request must: (1) be signed by the
contract owner, or for telephone transactions, be made by the contract owner,
(2) include the name of the contract owner and the contract number, and (3)
specifically state either the dollar amount or the number of accumulation
units to be transferred. The request also must specify the subaccounts from
which and to which the transfer is to be made. Transfers are effective either
on a date specified in the request, provided that date falls on or after
receipt of the request at the Home Office, or on the first valuation date
following receipt of the request by the Home Office.
Up to twelve transfers (not extending beyond a twelve month period) may be
pre-scheduled at any point in time. Transfers can be pre-scheduled by
following the procedures in the paragraph above. See "Other Information--Forms
Availability." If the contract owner decides to cancel a pre-scheduled
transfer arrangement, he or she must notify the Home Office either in writing
or by calling (800) 999-1030 or telefacsimile (FAX) (217) 527-2307 prior to
the next designated transfer date.
Changes in Allocation Instructions--A contract owner may elect to change
the allocation of future net purchase payments at any time by mailing a
written request to Horace Mann Life Insurance Company at P.O. Box 4657,
Springfield, Illinois 62708-4657 or by calling (800) 999-1030. Telefacsimile
(FAX) transmissions of the request also will be accepted if sent to (217) 527-
2307. The request must: (1) be signed by the contract owner, (2) include the
contract owners's name and contract number, and (3) specify the new allocation
percentage for each subaccount. If allocations are made to the fixed portion
of the contract or to one or more subaccounts, the percentages must total
100%. Changes in allocation instructions are effective either on a date
specified in the request, provided that date falls on or after receipt of the
request in the Home Office, or on the first valuation date following receipt
of the request by the Home Office. See "Other Information--Forms
Availability."
Surrender Before Commencement of Annuity Period--Values may not be
withdrawn from Section 403(b) contracts except under certain circumstances.
(See "Tax Consequences.") However, if not restricted by the IRC or applicable
retirement plan under which the contract is issued, a contract owner may
surrender the contract in whole or withdraw in part for cash before income
payments begin.
The surrender or partial withdrawal value is determined on the basis of the
accumulation unit value next computed following the receipt of the request for
surrender or partial withdrawal in the Home Office. A surrender or partial
withdrawal may result in adverse federal income tax consequences to the
contract owner. These consequences include current taxation of payments
received, and may include penalties resulting from premature distribution. See
"Tax Consequences."
A contract owner eligible to surrender or request a partial withdrawal may
elect to do so by submitting a signed, written request to Horace Mann Life
Insurance Company at its Home Office at P.O. Box 4657, Springfield, Illinois
62708-4657. A partial withdrawal request must be in a form acceptable by
HMLIC; telefaxsimile (FAX) transmissions of the request will be accepted if
the proceeds are sent to the Contract Owner. A surrender request must be in a
form acceptable by HMLIC; telefaxsimile (FAX) transmissions of the request
will not be accepted. See "Tax Consequences and Other Information--Forms
Availability."
Partial withdrawals and surrenders will be processed either on a date
specified by you in a request, provided the date specified occurs on or after
receipt of the request at the Home Office, or on the first valuation date
following receipt of the request at the Home Office.
Any partial withdrawal is subject to a $100 minimum and may not reduce the
contract owner's interest in a subaccount to less than $100. A complete
surrender may be made at any time, unless otherwise restricted by the
retirement plan or the IRC.
Surrenders and partial withdrawals from any variable subaccount are subject
to the surrender charges shown in "Deductions and Expenses--Surrender
Charges".
HMLIC surrender charges are applied to the withdrawals based on the date
the account is opened and not on the date the purchase payment is paid. Under
certain group plans the surrender charges may be reduced.
A-13
<PAGE>
Partial withdrawals may be made without charge if (1) the withdrawal does
not exceed 15% of the contract value; and (2) the contract has been in force
for two or more contract years; and (3) more than twelve months have passed
since the date of the last partial withdrawal. Contract value is computed on
the first valuation date following receipt of the request in good form by the
Home Office. If all three conditions are not met, partial withdrawals may be
subject to surrender charges.
Any request for partial withdrawal, where the withdrawal is subject to a
surrender charge, will be increased by the amount of the surrender charge. For
example, a request to withdraw $3,000 at a 4% surrender charge will require a
withdrawal of $3,125. This withdrawal represents a cash distribution of $3,000
and a surrender charge of $125. Any taxes withheld will reduce the dollar
amount of the distribution.
The surrender charge is assessed on the basis of the amount surrendered or
withdrawn from the subaccount(s), but will never exceed 8.5% of net purchase
payment(s) to a subaccount during the lifetime of the contract. For example,
if a contract owner's subaccount value is $12,000 and net purchase payments to
date equal $10,000 and the contract owner withdraws $2,000 (i.e., one sixth of
the subaccount value), then the surrender charge may not exceed 8.5% of
$1,666.66 (one sixth of the purchase payment(s) to which the withdrawal
relates).
If premium taxes are deducted prior to surrender or partial withdrawal, any
reduction of HMLIC's premium tax liability due to the surrender or partial
withdrawal will be to HMLIC's benefit.
Deferment--HMLIC ordinarily completes a transaction within seven calendar
days after receipt of a proper request to transfer, surrender, partially
withdraw or commence income payments. The value of the contract is determined
as of the valuation date on which the request is received. However,
determination of contract value and processing the transaction may be deferred
for (1) any period during which the New York Stock Exchange is closed for
other than customary weekend or holiday closings or during which trading is
restricted by the Securities and Exchange Commission; (2) any emergency period
when it is not reasonably practicable to sell securities or fairly determine
accumulation unit values or annuity unit values; or (3) any other period
designated by the Securities and Exchange Commission to protect persons with
interests in the account.
Confirmations--HMLIC mails written confirmations of purchase payments to
contract owners on a quarterly basis within five business days following the
end of each calendar quarter. Written confirmations of transfers, changes in
allocations, partial withdrawals, and surrenders, are mailed to contract
owners within seven calendar days of the date the transaction occurred.
If a contract owner believes that the confirmation statement contains an
error, the contract owner should notify HMLIC as soon as possible after
receipt of the confirmation statement. Notice may be provided by writing to
HMLIC, P.O. Box 4657, Springfield, Illinois 62708-4657, by sending a
telefacsimile (FAX) transmission to (217) 527-2307, or by telephoning (217)
789-2500 or (800) 999-1030 (toll free).
Deductions and Expenses
Annual Maintenance Charge--An annual maintenance charge of $25 is deducted
from each contract on the contract anniversary date unless the contract value
equals or exceeds $10,000. This charge may be reduced or eliminated on certain
individual contracts and on some group plans. The annual maintenance charge is
deducted from the subaccount containing the greatest dollar amount or from the
fixed portion of the contract when none of the variable subaccount(s) have any
value.
Charges for annual maintenance cease on the maturity date. No annual
maintenance charge is taken, in whole or in part, in the event of a complete
surrender unless the surrender occurs on the contract anniversary date.
The annual maintenance charge is intended to reimburse HMLIC for actual
expenses incurred in administering the contract. HMLIC does not expect to
profit from such annual maintenance charge and assumes the risk that this
annual maintenance charge may be insufficient to cover the actual costs of
administering the contract.
Mortality and Expense Risk Fee--For assuming mortality and expense risk,
HMLIC applies an asset charge to the account value of each contract. The fee
for mortality and expense risk may not exceed the annual rate of 1.25% of the
average net variable account value based on the date of calculation (0.45% for
mortality risk, and 0.80% for expense risk); however, HMLIC reserves the right
to change the fee (subject to the 1.25% ceiling) in the future. The fee
accumulates on a weekly basis at a rate of .0238268% (for a fee of 1.25, see
below for other rates) of the net variable account value as of the date of the
calculation. The accumulated value of the fee is deducted annually (usually at
the time the Trust or Wilshire Funds declares dividends) from each subaccount
or upon any surrender, partial withdrawal or transfer of value accruing before
such annual deduction with the necessary number of units, at the then current
accumulation unit value, being redeemed to equal the dollar amount of the
charges owed.
Annuity Alternatives
<TABLE>
<CAPTION>
Mortality and Expense Weekly
Contract value at issue Risk Fee Factor
- ---------------------------------------------- --------------------- ---------
<S> <C> <C>
Less than $50,000............................. 1.25% .0238268%
$50,000+*..................................... 1.15% .0219313%
$100,000+*.................................... 1.05% .0200340%
$250,000+*.................................... 0.95% .0181348%
</TABLE>
* HMLIC started selling these products on September 1, 1999 where state
approvals have been received.
A-14
<PAGE>
Surrender charges--Values may not be withdrawn from Section 403(b)
contracts except under certain circumstances. (See "Tax Consequences.")
However, if not restricted by the IRC or applicable retirement plan under
which the contract is issued, a contract owner may surrender the contract in
whole or withdraw in part for cash before income payments begin.
The products reflected below may not be available in all states.
Annuity Alternatives 2
The Annuity Alternatives 2 contracts are issued only as qualified
contracts. These contracts can be issued as a 403(b), IRA, SEP, ROTH or any
other type of contract considered as qualified by the Internal Revenue Code.
<TABLE>
<CAPTION>
Flexible Premium
(based on cash value at issue)
---------------------------------------------------------------------------------
Under age 55 (age at issue)
During ---------------------------------------------------------------------------------
Contracts Under
Year $50,000 $50,000+* $100,000+* $250,000+*
---------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1 8% 7% 6% 6%
2 8% 6% 5% 5%
3 7% 5% 5% 5%
4 7% 5% 5% 5%
5 6% 5% 5% 5%
Thereafter 0% 0% 0% 0%
<CAPTION>
Age 55+ (age at issue)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 8% 7% 6% 6%
2 7% 6% 5% 5%
3 6% 5% 4% 4%
4 5% 4% 3% 3%
5 4% 3% 2% 2%
6 3% 2% 1% 1%
7 2% 1% 0% 0%
8 1%
Thereafter 0% 0% 0% 0%
</TABLE>
* HMLIC started selling these products on September 1, 1999 where state
approvals have been received.
Annuity Alternatives
Annuity alternatives contracts have been issued since 1982.
<TABLE>
<CAPTION>
Flexible Single
Premium Premium
-------- -------
<S> <C> <C>
1 8% 5%
2 8% 4%
3 6% 3%
4 4% 2%
5 2% 1%
Thereafter 0% 0%
</TABLE>
For further information regarding surrender or partial withdrawals see
"Surrender Before Commencement of Annuity Period."
Operating expenses of the HM Funds--There are deductions from and expenses
paid out of the assets of the HM Funds that are described in the HM Funds'
Prospectus which accompanies this prospectus.
Premium Taxes--Certain state and local governments levy a premium tax,
presently ranging from 0 to 3.5%, on the amount of purchase payments made
under this contract. The premium tax, if any, is deducted either when payments
are received or when an amount is applied to provide an annuity at the
maturity date, depending upon the applicable law.
Death Benefit Proceeds
If a contract owner dies before the maturity date, the contract value, or
the amount of net purchase payments less any withdrawals, whichever is
greater, will be paid to the beneficiary designated by the contract owner. The
contract value is determined as of the date proof of death is received by
HMLIC from the beneficiary. Under some group plans and certain individual
flexible premium products the death benefit may include an annual increase in
value. Proof of death includes a certified death certificate and a completed
claimant's statement.
All or part of the death benefit proceeds may be paid to the beneficiary
under one of the income payment options described under "Income Payments--
Income Payment Options." If the form of income payment selected requires that
payment be made by HMLIC after the death of the beneficiary, payments will be
made to a payee designated by the beneficiary or, if no subsequent payee has
been designated, to the beneficiary's estate.
For all contracts issued in connection with this prospectus, except Roth
IRAs, if the contract owner dies before income payments begin and the
designated beneficiary is not a surviving spouse, the IRC requires the
complete distribution of proceeds by December 31 of the calendar year of the
fifth anniversary of the death; i.e., "the five-year rule." This requirement
can be satisfied by an annuity for life or a period certain not exceeding the
life expectancy of a designated beneficiary, provided the income payments
begin no later than December 31 of the calendar year following the contract
owner's death. Any part of a contract owner's interest payable to a minor
child will be paid to the child's legal guardian for the benefit of the child.
If the designated beneficiary is the contract owner's surviving spouse,
income payments may be deferred until April 1 following the calendar year in
which the Annuitant would have reached age 70 1/2.
If the contract owner dies on or after the maturity date, the remaining
portion of the interest in the contract undistributed at the time of the
contract owner's death must be distributed at least as rapidly as under the
method of distribution in force at the time of the contract owner's death.
Mandatory Minimum Distribution
Qualified plans are subject to distribution requirements of the IRC. A
distribution must occur each calendar year once a contract owner reaches age
70 1/2. The contract owner may elect to defer the first distribution until
April 1 of the year following his or her attainment of age 70 1/2. Should the
first payment be deferred, the contract owner must take two distributions in
the calendar year following attainment of age 70 1/2.
A-15
<PAGE>
Generally, the amount of the mandatory minimum distribution depends on the
contract value and the life expectancy of the contract owner. Under mandatory
minimum distribution requirements, distributions must be made for the life (or
lives) or a period not exceeding the life expectancy (or joint life
expectancy) of the contract owner (or the contract owner and a designated
beneficiary). To begin mandatory distributions the contract owner must contact
the Home Office at P. O. Box 4657, Springfield, Illinois 62708-4657.
The Internal Revenue Service has indicated that a contract owner who can
verify the December 31, 1986 balance in his or her Section 403(b) annuity, can
delay distribution of that amount until the end of the calendar year in which
he or she turns age 75. At that time, the December 31, 1986 balance is subject
to the minimum distribution requirements. The December 31, 1986 balance
includes deposits received and any interest earned as of December 31, 1986.
Deposits received after that date, interest on those deposits, and interest
earned on the December 31, 1986 balance are subject to the age 70 1/2
distribution requirements. Also, 403(b) contract owner's who have not
separated from service can delay their distributions until after they separate
from service (ie. quit teaching).
Failure to take the required distributions results in the imposition of a
penalty tax equal to one-half (50%) of the difference between what was and
what should have been distributed. In addition, income tax is due on the full
amount that should have been distributed. Further, any distribution from a
403(b) contract in excess of the mandatory minimum distribution is subject to
a 20% federal income tax withholding. Roth IRA's are not subject to Mandatory
Distribution. See "Tax Consequences."
Income Payments
The contract provides for fixed or variable income payment options or a
combination of both. The contract owner may elect to have income payments made
under any one or more of the options described below or may elect a lump sum
payment. Under some individual contracts if the contract owner selects a
lifetime option the company will pay a bonus which equals a percentage of the
amount placed on the settlement option. To begin receiving income payments a
properly completed request form must be received in the Home Office. The
request will be processed so that the income payments begin on the first of
the month following the month of receipt unless a later date is requested and
approved by the company. If a fixed payment option is elected, the variable
account value will be transferred to the fixed account on the date the request
is received in the Home Office. In addition, if a variable payment is elected,
any money in the fixed account will be transferred to the variable account on
the date we received the request in the Home Office. Generally, at the time an
income payment option is selected, a contract owner must elect whether to
withhold for federal and state income taxes. See "Other Information--Forms
Availability" and "Tax Consequences."
In general, the longer income payments are guaranteed, the lower the amount
of each payment. Fixed income payments are paid in monthly, quarterly, semi-
annual and annual installments. Variable income payments are paid only on a
monthly basis. If the contract value to be applied under any one fixed or
variable income payment option is less than $2,000 or if the option chosen
would provide income payments less than $20 per month at the maturity date,
then the contract value may be paid in a lump sum.
Income Payment Options
The following income payment options are available on a variable basis
unless otherwise stated.
Life Annuity with or without Period Certain--The life option guarantees
income payments for the lifetime of the annuitant. If a certain period is
selected (5, 10, 15, 20 years) and the annuitant dies before the end of the
period, income payments are guaranteed to the beneficiary until the end of the
period selected. If no beneficiary is living at the time of the annuitant's
death, the present value, if any, of the remaining certain period payments
will be paid in a single sum to the estate of the annuitant. Under the life
without period certain option, it is possible that only one income payment may
be made if the annuitant's death occurred before the due date of the second
income payment. This option usually provides the largest income payments. The
annuitant cannot make unscheduled withdrawals or change to another option
after the first income payment has been made.
Joint and Survivor Life Annuity--This life only option provides lifetime
income payments during the lifetimes of two annuitants. After one annuitant
dies, the income payments will continue during the lifetime of the survivor
based on the survivor percentage elected (ie, 100%, 50%, etc.). The income
payments cease after the last payment paid prior to the survivor's death. It
could be possible for only one payment to be made under this option if both
annuitants die before the due date of the second payment. The annuitants
cannot make unscheduled withdrawals or change to another income option after
the first income payment has been made.
Income for Fixed Period--This option provides income payments for a fixed
period not less than one year nor exceeding 30 years; however, payments may
not extend beyond the life expectancy of the annuitant. Upon the annuitant's
death, the beneficiary will be paid the remaining income payments due, if any.
If no beneficiary is living at the time of the annuitant's death, the present
value, if any, of the remaining income payments will be paid in a lump sum to
the estate of the annuitant. The annuitant has the right to change to another
income option or make unscheduled withdrawals subject to surrender penalties,
if applicable, from the remaining present value subject to IRC requirements.
To determine the surrender penalty rate, contract years are counted from the
original effective date of the accumulation contract. Refer to "Deduction and
Expenses--Surrender Changes" for the appropriate rate. This option is
available on a fixed payment basis only.
A-16
<PAGE>
Income for Fixed Amount--This option provides payments of a fixed amount
until the account value, with interest, has been paid; however, payments may
not extend beyond the life expectancy of the annuitant. Upon the annuitant's
death, the beneficiary will be paid the remaining income payments due, if any,
or the beneficiary may request the present value, if any, of the remaining
income payments. If no beneficiary is living at the time of the annuitant's
death, the present value, if any, of the remaining income payments will be
paid in a lump sum to the estate of the annuitant. The annuitant has the right
to change to another income option or make unscheduled withdrawals subject to
surrender penalties, if applicable, from the remaining present value subject
to IRC requirements. To determine the surrender penalty rate, contract years
are counted from the original effective date of the accumulation contract.
Refer to "Deduction and Expenses--Surrender Changes" for the appropriate rate.
This option is available on a fixed payment basis only.
Interest Income Payments--This option provides income payments based on
interest earned from the proceeds of the contract, at a rate determined by
HMLIC, but never less than the annual guaranteed interest rate. Interest will
be credited at the end of each payment period. Once the annuitant reaches age
70 1/2, interest income payments may continue, however, the total annual
distribution must meet the minimum mandatory distribution requirements of the
IRC. The annuitant may elect another income option at the end of any payment
period, or subject to IRC requirements, may withdraw the contract value in
whole or in part upon written request subject to surrender penalties if
applicable. The request must be made prior to the end of the period that the
annuitant agreed to receive income payments. See "Mandatory Minimum
Distribution." This option is available on a fixed payment basis only.
Other Income Options--If the annuitant does not wish to elect one or more
income payment options, the annuitant may:
a) receive the proceeds in a lump sum, or
b) leave the Contract with HMLIC and receive the value under the
mandatory minimum distribution requirements of IRC Section 401(a)(9), see
"Mandatory Minimum Distribution," or
c) elect any other option that HMLIC makes available.
Amount of Fixed and Variable Income Payments
In general, the dollar amount of income payments under the contract depends
on contract value. Contract value equals the value of the fixed portion of the
contract plus the value of each subaccount. The value of each subaccount is
determined by multiplying the number of accumulation units credited to each
subaccount by its respective accumulation unit value, less any accumulated
Mortality & Expense Risk fee. Contract value may be more or less than the
amount of net purchase payments allocated to the contract.
Fixed Income Payments--The amount of each payment under a fixed income
payment option is determined from the income option tables in the contract.
These tables show the monthly payment for each $1,000 of contract value
allocated to provide a fixed income payment. Guaranteed fixed income payments
will not change regardless of investment, mortality or expense experience.
Higher income payments may be made at the sole discretion of HMLIC.
Variable Income Payments--The amount of the first monthly variable income
payment is determined from the income option tables in the contract. The
tables show the amount of the income payment for each $1,000 of value
allocated to provide income payments. The income option tables vary with the
form of income option payment selected and adjusted age of the annuitant(s).
The first monthly variable income payment is used to calculate the number
of variable annuity units for each subsequent monthly income payment. The
number of variable annuity units remains constant over the payment period
except when a joint and survivor option is chosen. The number of variable
annuity units will be reduced upon the death of either annuitant by the
survivor percentage elected.
The amount of monthly income payments following the first variable income
payment varies from month to month to reflect the investment experience of
each subaccount funding those payments. Income payments are determined each
month by multiplying the variable annuity units by the applicable variable
annuity unit value at the date of payment. The variable annuity unit value
will change between valuation dates to reflect the investment experience of
each subaccount.
Assumed Interest Rate--The selection of an assumed interest rate affects
both the first monthly variable income payment and the pattern of subsequent
payments. One divided by the sum of the assumed interest rate and the
mortality and expense risk charge, adjusted to a monthly rate, is the
investment multiplier. If the investment performance of a subaccount funding
variable income payments is the same as the investment multiplier, the monthly
payments will remain level. If its investment performance exceeds the
investment multiplier, the monthly payments will increase. Conversely, if
investment performance is less than the investment multiplier, the payments
will decrease. Unless otherwise provided, the assumed interest rate is 3.0%
per annum.
Annuity Unit Value--The variable annuity unit value for the Equity,
Balanced, and Income Fund subaccount was set at $10.00 as of the date amounts
first were allocated to provide income payments. The variable annuity unit
value for the Short-Term Fund, International Fund, Small Cap Fund and Socially
Responsible Fund subaccounts also have been set at $10.00, however, no income
payments have been paid from these subaccounts. The Variable Annuity Unit
Value for the Wilshire Large Company Growth and the Wilshire 5000 will be
established on the first date payments are made. The current
A-17
<PAGE>
variable annuity unit value is equal to the prior variable annuity unit value
on the valuation date when payments were last determined, multiplied by the
applicable net investment factor. The net investment factor reflects the
investment performance of the subaccount during the current month plus the
value of any dividends and distributions during the current month. This factor
is computed by dividing the net asset value of a share of the underlying fund
on the last business day of the current month, plus any dividends or other
distributions, by the net asset value of a share on the last business day of
the preceding month, and multiplying this result by the investment multiplier.
Misstatement of Age
If the age of the annuitant has been misstated, any income payment amount
shall be adjusted to reflect the correct age. If the income payments were too
large because of a misstatement of age, HMLIC will deduct the difference with
interest, at an effective annual interest rate of 6%, from future payments
until totally repaid. If the income payments were too small, HMLIC will add
the difference with interest, at an effective annual interest rate of 6%, to
the next payment.
Modification of the Contract
The contract provides that it may be modified by HMLIC to maintain
continued compliance with applicable state and federal laws. Contract owners
will be notified of any modification. Only officers designated by HMLIC may
modify the terms of the contract.
HMLIC reserves the right to offer contract owners, at some future date and
in accordance with the requirements of the Investment Company Act of 1940, the
option to direct that their net purchase payments be allocated to a subaccount
within the Account other than one or more of the nine currently offered. If
shares of the nine portfolios underlying the subaccounts are not available for
purchase by the Account, or if in the judgment of HMLIC further investment in
these shares is no longer appropriate in view of the purposes of the Account
or subaccount, then (i) shares of another portfolio may be substituted for
existing fund shares held in the affected subaccount and/or (ii) payments
received after a date specified by HMLIC may be applied to the purchase of
shares of another portfolio. No substitution will be made without prior
approval of the Securities and Exchange Commission. Any substitution would be
for shares of a portfolio with investment objectives similar to those of the
fund it replaces.
Tax Consequences
Separate Account
The operations of the Account form part of the operations of HMLIC;
however, the IRC provides that no federal income tax will be payable by HMLIC
on the investment income and capital gains of the Account if certain
conditions are met. Provided the investments of the underlying funds continue
to meet the diversification requirements of IRC Section 817(h), the contract
owner will not pay federal income tax on the investment income and capital
gains under a contract until income payments begin or a full or partial
withdrawal is made.
Contract Owners
Contributions--Under IRC Section 403(b), purchase payments made by public
school systems, churches, or certain tax-exempt organizations to purchase
annuities for their employees are excludable from the gross income of the
employee to the extent that aggregate purchase payments for the employee do
not exceed certain limitations imposed by the IRC. Further, any amounts
credited to the contract owner's account are not taxable until such amounts
are distributed. If the contract is used for a tax-sheltered annuity described
in IRC Section 403(b) or Simplified Employee Pension Plan described in IRC
Section 408(k) or ("qualified plans"), contributions made by an employer
through a salary reduction plan are permitted up to prescribed limits.
Generally, IRC Section 403(b) imposes a limitation on the amount of tax-
deferred purchase payments that may be made in a calendar year equal to 20% of
an employee's compensation includable in gross income for that year.
Adjustments to this limitation are made based upon the contract owner's years
of service with his or her employer and take into account the contract owner's
prior and current contributions to qualified plans. The Section 403(b)
limitation also is adjusted for any amounts deferred in prior taxable years
under an eligible deferred compensation plan as defined by IRC Section 457. In
addition, IRC Section 415 imposes a 25% limitation on total pre-tax
contributions to all tax-qualified plans.
If the contract is used as a traditional IRA, subject to certain
limitations, all or a portion of the contribution up to $2,000 ($4,000 for a
spousal IRA) may be deducted from gross income. The same contribution limits
apply to the Roth IRA, however, it is funded with after tax dollars. The
maximum annual contributions for all IRAs (including Roth IRAs) is $2,000.
Contributions to a Simplified Employee Pension Plan contract generally may not
exceed 15% of compensation or $26,000, whichever is less. Until a taxable
distribution occurs, no federal income tax is payable by the Contract Owner on
purchase payments and investment earnings of a contract purchased for a
qualified plan or a deductible IRA.
Effective January 1, 1989, the IRC imposes restrictions on distributions
(i.e., partial withdrawals or surrenders) from annuity contracts qualified
under IRC Section 403(b). IRC Section 403(b)(11) requires that for these
annuity contracts to receive tax-deferred treatment, the following
distribution restrictions must be applied to contributions and all earnings
credited after December 31, 1988.
Distributions may be paid only:
(1) When the employee attains age 59 1/2, separates from service, dies,
or becomes disabled (within the meaning of IRC Section 72(m)(7)), or
A-18
<PAGE>
(2) In hardship cases and cannot exceed contributions made through a
salary reduction agreement. Distribution of any income attributable to
these contributions is prohibited (IRC 403(b)(11)(B)).
Distributions Under Qualified Contracts--The IRC subjects qualified plans
to certain mandatory minimum distribution requirements. See "The Contract--
Mandatory Minimum Distribution."
If certain requirements are met, full or partial distributions other than
mandatory minimum distributions, either may be rolled over or exchanged on a
tax-free basis from one plan to another in accordance with IRC Section 1035 or
Revenue Ruling 90-24. Distributions from an IRC Section 403(b) contract may be
rolled over to another IRC Section 403(b) contract or to an IRA. Distributions
from an IRA may be rolled over to another IRA or to an IRC Section 403(b)
contract if the IRA contains only amounts rolled over from a 403(b) plan. Roth
IRA's can only accept rollover money from a traditional IRA or another Roth.
Effective January 1, 1993, federal tax law requires HMLIC to withhold for
ordinary income tax purposes, 20% of any distributions from annuity Contracts
or plans qualified under IRC Section 403 with the exception of the following:
(1) eligible rollover distributions made directly to another trustee,
(2) periodic payments received over the Contract Owner's lifetime,
(3) periodic payments received under the minimum required distribution
rules, or
(4) periodic payments received over a period of ten years or more.
The contract owner, after receiving a distribution that is subject to the
20% withholding tax, may elect to rollover the distribution within 60 days of
receiving it. However, in order to qualify the entire distribution as a
rollover, the contract owner must replace the 20% withheld when making the
rollover payment. If the 20% is not replaced, the amount withheld will be
subject to ordinary income taxes and a possible 10% tax penalty if the
distribution occurred before age 59 1/2.
All distributions, with the exception of a return of nondeductible employee
contributions and certain Roth distributions, received from a qualified plan
or an IRA are includable in gross income in the year paid. Once income
payments begin, any nondeductible contributions are recovered tax-free as a
portion of each income payment. Under certain limited circumstances, an
individual may elect forward averaging with respect to a lump sum
distribution.
For any distribution not subject to the 20% withholding, HMLIC is required
to withhold federal income tax unless the contract owner elects not to have
federal income tax withheld. After an election is made with respect to income
payments, a contract owner may revoke the election at any time. HMLIC will
notify the contract owner at least annually of his or her right to revoke the
election. Contract owners are required by law to provide their correct
taxpayer identification numbers ("TIN") to HMLIC. If the contract owner is an
individual, the TIN is his or her Social Security number.
If the designated beneficiary is not the contract owner's spouse, then at
least 50% of the present value of the amount available for distribution must
be paid within the life expectancy of the contract owner of an IRA or a
qualified plan. Each payment to the beneficiary must be no less than each
payment to the contract owner.
Penalty Tax--Distributions to a contract owner under a qualified plan or
IRA are subject to a 10% penalty tax unless the distributions are received:
(1) on or after age 59 1/2,
(2) on account of death,
(3) on account of disability, as defined in IRC Section 72(m)(7),
(4) pursuant to a qualified domestic relations order, as defined in IRC
414(p),
(5) for deductible medical expenses in excess of 7 1/2% of adjusted
gross income,
(6) on account of separation from service after age 55, or
(7) as a series of substantially equal payments for the life or a period
not exceeding life expectancy of the contract owner, or the lives or a
period not exceeding the joint life expectancy of the contract owner and a
designated beneficiary.
Roth IRAs are not subject to the 10% penalty if;
The contract has been in force for five years, and;
The annuitant has attained age 59 1/2; or
when used to purchase a first home not to exceed $10,000 (as adjusted by
the IRA); or
The annuitant becomes disabled as defined in IRC Section 72(m)(7); or
The distribution is made after the death of the annuitant.
The preceding discussion is informational only and is not to be considered
tax advice. Contract owners are urged to consult a competent tax adviser
before taking any action that could have tax consequences.
Voting Rights
Unless otherwise restricted by the plan under which a contract is issued,
each contract owner has the right to instruct
A-19
<PAGE>
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- --
HMLIC with respect to voting his or her interest in the shares of the Funds
held by the Separate Account at all shareholder meetings.
The number of votes that may be cast by a contract owner is based on the
number of units owned as of the record date of the meeting. Shares for which
no instructions are received are voted in the same proportion as the shares
for which instructions have been received. Any fund shares attributable to
investment by HMLIC will be voted in proportion to the vote by contract owners
who have Separate Account units. Contract owners receive various materials,
such as proxy materials and voting instruction forms, that relate to voting
fund shares.
Other Information
Legal Proceedings--There are no legal proceedings to which the Separate
Account is a party or to which the assets of the Separate Account are subject.
HMLIC is engaged in various kinds of routine litigation that, in HMLIC's
judgment, are not material to its financial condition. None of this litigation
relates to the Separate Account.
Registration Statement--A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 with
respect to the contract. This Prospectus does not contain all information set
forth in the registration statement, its amendments and exhibits. Statements
contained in this Prospectus as to the content of the contract and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to these instruments as filed.
Contract Owner Communications--To ensure receipt of communications, contract
owners must notify HMLIC of address changes. Notice of a change in address may
be sent to Horace Mann Life Insurance Company, Annuity Customer Service, P.O.
Box 4657, Springfield, Illinois 62708-4657. Contract owners may also provide
notice of an address change by sending a telefacsimile (FAX) transmission to
(217) 527-2307 or by calling (217) 789-2500 or (800) 999-1030 (toll free).
HMLIC will attempt to locate contract owners for whom no current address is
on file. In the event HMLIC is unable to locate a contract owner, HMLIC may be
forced to surrender the value of the contract to the contract owner's last
known state of residence in accordance with the state's abandoned property
laws.
Contract Owner Inquiries--A toll free number, (800) 999-1030, is available
to telephone HMLIC's Annuity Customer Service Department. Written questions
should be sent to Horace Mann Life Insurance Company, Annuity Customer
Service, P.O. Box 4657, Springfield, Illinois 62708-4657.
Forms Availability--Specific forms are available from HMLIC to aid the
contract owner in affecting many transactions allowed under the contract.
These forms may be obtained by calling the Annuity Customer Service Department
toll free at (800) 999-1030.
NASD Regulation's Public Disclosure Program--Information about Horace Mann
Investors, Inc. and your agent is available from the National Association of
Securities Dealers (NASD) at www.nasdr.com or by calling (800) 289-9999.
Additional Information
A copy of the Statement of Additional Information providing more detailed
information about the Account is available, without charge, upon request. The
Table of Contents of this Statement follows:
<TABLE>
<CAPTION>
Topic Page
- ----- ----
<S> <C>
General Information and History............................................ 2
Investment Experience...................................................... 2
Underwriter................................................................ 3
Financial Statements....................................................... 4
</TABLE>
To receive, without charge, a copy of the 1999 Annual Report of the Horace
Mann Mutual Funds and the Horace Mann Life Insurance Company Separate Account
and/or a copy of the Statement of Additional Information for Horace Mann Life
Insurance Company Separate Account and/or the Horace Mann Mutual Funds, please
complete the following request form and mail it to the address indicated
below, or send it by telefacsimile (FAX) transmission to (217) 535-7123 or
telephone (217) 789-2500 or (800) 999-1030 (toll-free).
Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, Illinois 62708-4657
Please provide free of charge the following information:
1999 Annual Report of the Horace Mann Mutual Funds and the Horace Mann Life
Insurance Company Separate Account
Statement of Additional Information dated May 1, 2000 for the Horace Mann
Mutual Funds.
Statement of Additional Information dated May 1, 2000 for the Horace Mann
Life Insurance Company Separate Account.
Statement of Additional Information dated December 22, 1999 for the Wilshire
Target Funds, Inc.
Please mail the above documents to:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(City/State/Zip)
A-20
<PAGE>
Prospectus
Non-qualified Variable Tax deferred
annuity contract Prospectus
Horace Mann Life Insurance Company
Separate accounts for non-qualified annuity plans
May 1, 2000
<PAGE>
Individual Single Premium and Individual and Group Flexible Premium
Variable Deferred Annuity Contracts Issued By Horace Mann Life Insurance
Company Separate Account as Non-Qualified Contracts
This prospectus offers combination fixed and variable, non-qualified
annuity contracts to individuals and groups. These contracts are issued by
Horace Mann Life Insurance Company ("HMLIC") and can be issued as flexible
premium contracts or, for individuals, as single premium contracts. Amounts
transferred to Horace Mann Life Insurance Company Separate Account as directed
by a participant or contract owner are invested in one or more of seven
subaccounts (sometimes referred to as variable investment options or variable
accounts). Each subaccount purchases shares in a corresponding portfolio of
the Horace Mann Mutual Funds. The Horace Mann Mutual Funds are a registered
investment company. The portfolios are:
Horace Mann Equity Fund--a fund investing primarily in common stocks of
domestic companies (previously known as the Growth fund prior to May 1,
2000).
Horace Mann Balanced Fund--a fund investing indirectly in a mix of common
stocks, debt securities and money market instruments through investments in
the Horace Mann Equity Fund and the Horace Mann Income Fund.
Horace Mann Income Fund--a fund investing primarily in investment grade
debt securities.
Horace Mann Short-Term Investment Fund--a fund investing in short-term debt
instruments.
Horace Mann Small Cap Growth Fund--a fund investing in equity securities of
small cap companies with earnings growth potential.
Horace Mann International Equity Fund--a fund investing in marketable
foreign equity securities.
Horace Mann Socially Responsible Fund--a fund investing primarily in
marketable equity securities of United States chartered companies which are
determined to be socially responsible pursuant to criteria set forth in the
fund's prospectus.
This Prospectus sets forth the information an investor should know.
Additional information about the HMLIC Separate Account has been filed with
the Securities and Exchange Commission in a Statement of Additional
Information, dated May 1, 2000. The Statement of Additional Information is
incorporated by reference and is available upon request, without charge. You
may obtain the Statement of Additional Information by writing to Horace Mann
Life Insurance Company, P.O. Box 4657, Springfield, Illinois 62708-4657, by
sending a telefacsimile (FAX) transmission to (217) 535-7123, or by
telephoning (217) 789-2500 or (800) 999-1030 (toll-free). The table of
contents of the Statement of Additional Information appears on page 17 of this
prospectus.
THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE HORACE MANN
MUTUAL FUNDS.* PLEASE READ THESE DOCUMENTS CAREFULLY AND KEEP THEM FOR FUTURE
REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ANNUITIES OFFERED BY HMLIC ARE NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. THEY ARE NOT DEPOSITS, OBLIGATIONS, OR GUARANTEED BY ANY
BANK. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
The date of this Prospectus is May 1, 2000.
*The Horace Mann Mutual Funds' Prospectus follows page B-18 of the Non-
Qualified Annuity Prospectus.
B-1
<PAGE>
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions............................................................... 3
Summary................................................................... 4
Condensed Financial Information........................................... 8
Horace Mann Life Insurance Company, The Account and The Horace Mann Mutual
Funds.................................................................... 10
Horace Mann Life Insurance Company...................................... 10
The Account............................................................. 10
The Horace Mann Mutual Funds............................................ 10
Administration.......................................................... 11
The Contract(s)........................................................... 11
Contract Owners' Rights................................................. 11
Purchasing the Contract................................................. 11
Purchase Payments....................................................... 12
Amount and Frequency of Purchase Payments............................. 12
Allocation of Purchase Payments....................................... 12
Accumulation Units and Accumulation Unit Value........................ 12
Transactions............................................................ 12
Transfers............................................................. 12
Changes in Allocation Instructions.................................... 12
Surrender Before Commencement of Annuity Period Deferment............. 13
Confirmations......................................................... 13
Deductions and Expenses................................................. 13
Annual Maintenance Charge............................................. 13
Mortality and Expense Risk Fee........................................ 14
Surrender Charge...................................................... 14
New Non-Qualified................................................... 14
Annuity Alternatives................................................ 14
Operating Expenses of the Horace Mann Mutual Funds.................... 14
Premium Taxes......................................................... 14
Death Benefit Proceeds.................................................. 14
Income Payments......................................................... 15
Income Payment Options................................................ 15
Amount of Fixed and Variable Income Payments.......................... 16
Misstatement of Age..................................................... 16
Modification of the Contract............................................ 16
Tax Consequences.......................................................... 17
Separate Account........................................................ 17
Contract Owners......................................................... 17
Contributions......................................................... 17
Distributions Under Non-Qualified Contracts........................... 17
Penalty Tax........................................................... 17
Voting Rights............................................................. 17
Other Information......................................................... 17
Additional Information.................................................... 18
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN
OFFER TO ACQUIRE, ANY INTEREST OR PARTICIPATION IN THE CONTRACTS OFFERED BY
THIS PROSPECTUS IN ANY STATE TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH STATE.
B-2
<PAGE>
Definitions
- -------------------------------------------------------------------------------
Account: Horace Mann Life Insurance Company Separate Account, a segregated
variable investment account consisting of seven subaccounts each of which
invests in the corresponding portfolios of the Horace Mann Mutual Funds. The
Account was established by Horace Mann Life Insurance Company under Illinois
law and registered as a unit investment trust under the Investment Company Act
of 1940.
Accumulation Unit: A unit of measurement used to determine the value of a
contract owner's interest in a subaccount before income payments begin.
Annuitant: The recipient of income payments.
Annuity Period: The period during which income payments are made to the
annuitant or the last surviving joint annuitant, if any.
Annuity Unit: A unit of measurement used in determining the amount of
variable income payment during the annuity period.
Certificate: Each participant under a group contract is issued a
certificate summarizing the provisions of the contract and showing
participation in the retirement plan adopted by the contract owner.
Contract: This Prospectus offers combination fixed and variable annuity
contracts to individuals as single premium contracts and to both individuals
and groups as flexible premium contracts. The term "contract" in this
prospectus generally will be used to describe contracts issued to individuals
and certificates issued to participants in a group plan.
Contract Owner: The individual or entity to whom the contract is issued.
Under a group contract, all references to the contract owner refer to the
participant in a group plan.
Contract Year: A year measured from the date a contract (or a certificate)
was issued to an individual contract owner (or a participant) and each
anniversary of this date.
Funds: The Horace Mann Mutual Funds ("Trust") consist of seven portfolios:
Equity Fund, Balanced Fund, Income Fund, Short-Term Investment Fund ("Short-
Term Fund"), Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund. The Trust is an open-end, diversified, management investment
company registered under the Investment Company Act of 1940.
Income Payments: A series of payments that may be for life; for life with a
guaranteed number of payments; for the joint lifetimes of the annuitant and
another person, and thereafter, during the lifetime of the survivor; or for
some fixed period. A fixed annuity provides a series of payments that will be
substantially equal in amount throughout the annuity payout period. A fixed
annuity does not participate in the investment experience of any subaccount. A
variable annuity provides a series of payments that vary in amount depending
upon the investment experience of the subaccount(s) selected by the contract
owner.
Maturity Date: The date income payments begin. The individual contracts
offered by this prospectus describe the criteria for determining maturity
dates.
Net Purchase Payment: The balance of each purchase payment received by
Horace Mann Life Insurance Company after deducting any applicable premium
taxes, or the balance of any transfer amount from other subaccounts after
applicable charges, or dividends reinvested after applicable charges.
Participant: A person to whom a certificate showing participation under a
group contract has been issued.
Subaccount: A division of the Separate Account of Horace Mann Life
Insurance Company which invests in shares of the corresponding portfolio of
the Horace Mann Mutual Funds.
Surrender Charge: (a contingent deferred sales charge) An amount kept by
Horace Mann Life Insurance Company if a withdrawal is made or if the contract
is surrendered. The charge is intended to compensate Horace Mann Life
Insurance Company for the cost of selling the product.
Valuation Date: The valuation date ends at 3:00 p.m. central time. No
valuations are made for any day that the New York Stock Exchange is closed and
for 2000 no valuations are made for July 3rd or the day after Thanksgiving.
Valuation Period: The period from the end of a valuation date to the end of
the next valuation date, excluding the day the period begins and including the
day it ends.
B-3
<PAGE>
Summary
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This summary is intended to provide a brief overview of the more
significant aspects of the contract. Further information can be found in this
Prospectus, the HMLIC Separate Account Statement of Additional Information,
and the contract. This Prospectus is intended to serve as a disclosure
document for the variable portion of the contracts only. As used in this
prospectus, "variable" means that value varies based on the investment
performance of the subaccount selected. For information regarding the fixed
portion, refer to the contract.
Detailed information about the Funds is contained in the Funds' Prospectus
which immediately follows the HMLIC Separate Account Non-qualified Annuity
Prospectus. Additional information about the Funds can be found in the Fund's
Statement of Additional Information. The Funds' expenses, including advisory
and management fees, are found in the Table of Annual Operating Expenses shown
on page 6 of this Summary.
What is "the Separate Account"?
The Horace Mann Life Insurance Company Separate Account (the "Account")
segregates assets dedicated to the variable portion of the combination fixed
and variable contracts offered herein. The account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as
a unit investment trust. The account consists of seven subaccounts, each
investing in shares of the corresponding portfolio of the Horace Mann Mutual
Funds; Equity Fund, Balanced Fund, Income Fund, Short-Term Investment Fund,
Small Cap Growth Fund, International Equity Fund, and Socially Responsible
Fund.
Who may purchase a Horace Mann Annuity offered by this Prospectus?
Individuals, as well as groups, may purchase the combination fixed and
variable flexible premium annuity. Individuals may also purchase the single
premium plan. The contracts offered by this prospectus are designed to provide
non-qualified retirement annuities.
The contract is offered and sold by HMLIC through its licensed life
insurance sales personnel. These insurance sales personnel are registered
representatives of Horace Mann Investors, Inc. ("HM Investors"). HM Investors
is a broker/dealer registered under the Securities and Exchange Act of 1934.
HMLIC has entered into a distribution agreement with HM Investors. HM
Investors, is a member of the National Association of Securities Dealers, Inc.
("NASD").
Is there a minimum Purchase Payment?
The minimum annual purchase payment under a flexible premium contract
during any contract year is $1,200. The minimum purchase payment under a
single premium contract is $2,000. Contract owners may elect to allocate all
or part of the net purchase payments to one or more Subaccount(s). The minimum
purchase payment allocated to any subaccount within any given contract year
must equal or exceed $100. No purchase payments are required after the first
contract year.
What are my investment choices?
(a) Separate Account
Includes seven subaccounts each of which invests in one of the following
funds:
Horace Mann Funds
Equity Fund--a fund investing primarily in common stocks of domestic
companies. (referred to as Growth Fund prior to May 1, 2000)
Balanced Fund--a fund investing indirectly in a mix of common stocks, debt
securities and money market instruments through investments in the Equity Fund
and the Income Fund.
Income Fund--a fund investing primarily in investment grade debt
securities.
Short-Term Investment Fund--a fund investing in short-term debt
instruments.
Small Cap Growth Fund--a fund investing primarily in small cap equity
securities with earnings growth potential.
International Equity Fund--a fund investing in marketable foreign equity
securities.
Socially Responsible Fund--a fund investing primarily in marketable equity
securities of United States chartered companies which are determined to be
socially responsible pursuant to criteria set forth in the Funds prospectus.
(b) Fixed Account (See the Contract)
At anytime before the contract's maturity date, amounts may be transferred
from one subaccount to another, and to and from the fixed account of the
contract. Transfers from the fixed account of the contract into a subaccount
could be subject to certain charges if the transferred amount is withdrawn or
surrendered. The minimum amount that can be transferred is $100 or the entire
dollar value of the subaccount(s), whichever is less. For full details see
"The Contract--Transactions--Transfers."
May I withdraw all or part of the Contract value before the Maturity Date?
Unless restricted by the Internal Revenue Code ("IRC"), a contract owner
may at any time before the maturity date surrender his or her contract in
whole or withdraw in part for cash. Partial withdrawals are subject to a $100
minimum. Each surrender or partial withdrawal is processed on the basis of the
net asset value of an accumulation unit of the subaccount(s) from which the
value is being surrendered or withdrawn. Surrenders and withdrawals may be
subject to surrender charges as described in "Deductions and Expenses--
Surrender Charges".
B-4
<PAGE>
What are the charges or deductions?
Contracts may be subject to deductions for applicable state or local
government premium taxes. Premium taxes presently range from 0 to 3.5%.
A mortality and expense risk fee (M&E Fee), computed and accrued weekly, is
deducted from the account value. This fee will not exceed 1.25% of the
contract owner's average value in a subaccount on an annual basis.
A fixed annual maintenance charge of $25 is assessed against the contract
on each anniversary, unless the contract value equals or exceeds $50,000, in
which case such charge is waived.
No deduction for sales expense is charged on net purchase payments, but a
decreasing surrender charge is assessed against certain withdrawals and
surrenders during the first five or ten contract years depending on the
contract you purchase. The charge in the first contract year on flexible
premium contracts is 8% and on a single payment contract the charge is 5%. The
charge is taken from the contract owner's value in the subaccount(s) from
which the withdrawal is made. In no event will the charges exceed 8.5% of the
net purchases payments to the subaccount(s). See "The Contract--Transactions--
Surrender Before Commencement of Annuity Period."
What are the federal income tax consequences of investing in this Contract?
The IRC provides penalties for premature distributions under various
investment plans. See "Tax Consequences." This contract might not be suitable
for short-term investment. See "The Contract--Transactions--Surrender Before
Commencement of Annuity Period."
If I receive my Contract and am dissatisfied, may I return it?
Subject to various state insurance laws, generally the contract owner may
return the contract to HMLIC within 30 days of receipt of the contract. The
market value of the assets purchased by payments paid to the account, less any
taxes, if applicable, will be refunded.
When can I begin receiving income payments, and what options are available?
Payments will begin on the maturity date selected by the contract owner.
Variable income payments are made in monthly installments. A lump sum payment
may be made if the total contract value is less than $2,000 or if monthly
income payments at the maturity date would be less than $20. An optional
maturity date and various income payment options are available under the
contract.
Income payments may be fixed or variable or a combination of fixed and
variable payments. The following options are available for receiving Income
Payments:
Life Annuity with or without Certain Period, Joint and Survivor Life
Annuity, Income for Fixed Period, Income for Fixed Amount, and Interest Income
Payments.
B-5
<PAGE>
Table of Annual Operating Expenses
- -------------------------------------------------------------------------------
The following is a summary of costs and expenses borne by the Contract
Owner in connection with an investment in the account. A contract owner who
invests in the Fixed Account would be subject to the annual maintenance charge
and surrender charges.
Horace Mann Life Insurance Company Separate Account
<TABLE>
<S> <C>
Contract Owner Transaction Expenses:(1)
Maximum Surrender Charge as a percentage of amount surrendered(2)
--for Single Payment Contracts..................................... 5.00%
--for Flexible Premium Contracts................................... 8.00%
Annual Maintenance Charge(3)........................................... $ 25
Separate Account annual expenses, as a percentage of average account
value:
Mortality Risk....................................................... 0.45%
Expense Risk......................................................... 0.80%
Total Separate Account M&E Fee......................................... 1.25%
</TABLE>
Horace Mann Mutual Funds
Annual Operating Expenses of the Horace Mann Mutual Funds, as a percentage of
average daily net assets:
<TABLE>
<CAPTION>
Short Small Cap International Socially
Equity Balanced Income Term Growth Equity Responsible
Fund Fund Fund Fund Fund Fund Fund
------ -------- ------ ----- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee(/5/)..... 0.64% 0.64% 0.64% 0.37% 1.39% 1.09% 0.94%
Other Expenses:......... 0.18% 0.18% 0.43% 1.58% 0.32% 0.67% 0.22%
----- ----- ----- ----- ----- ----- -----
Total Fund(/4/)
Operating Expense....... 0.82% 0.82% 1.07% 1.95% 1.71% 1.76% 1.16%
</TABLE>
(/1/)Premium taxes, currently ranging between 0 and 3.5%, are not included.
The rate of the premium tax varies depending upon the state of residence, and
not all states impose premium taxes. Also, depending on the state, taxes are
deducted at the time of purchase or are levied at annuitization.
(/2/)In some cases, the surrender charge does not apply. See "The Contract--
Transactions--Surrender Before Commencement of Annuity Period."
(/3/)The annual maintenance charge equals $25 per year, unless the contract
value equals or exceeds $50,000 at each anniversary. The annual maintenance
charge is not deducted after the maturity date. This charge or the dollar
value for the waiver may be reduced or eliminated on certain individual
contracts and group plans.
(/4/)The Other Expenses for the Funds are shown based on actual amounts for
the fiscal year ended December 31, 1999 except for the Support Services
agreement which went into effect March 1, 1999 which is reflected at the
contractual amount for the full calendar year. The subadvisers seek the best
price and execution on each transaction and negotiate 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 (Commission Credits). Horace
Mann Investors, voluntarily waived a portion of its Management Fee on the
Short-Term Fund and subsidized specific expenses for certain funds during
1999. The Fund's advisor, Wilshire Associates, Inc. waived a portion of its
advisory fee during 1999 for each fund. With these waivers, commission credits
or subsidization the Management Fee, Other Expenses and Total Fund Operating
Expenses, respectively, were: 0.64%, 0.16% and 0.80% for the Equity Fund;
0.64%, 0.16% and 0.80% for the Balanced Fund; 0.64%, 0.43% and 1.07% for the
Income Fund; 0.37%, 1.26% and 1.63% for the Short-Term Fund; 1.39%, 0.23% and
1.62% for the Small Cap Fund; 1.09%, 0.28% and 1.37% for the International
Fund; and 0.94%, 0.16% and 1.10% for the Socially Responsible Fund.
(/5/)The "Management Fees" include both the advisory fee payable to Wilshire
Associates, Inc. and the administration fee payable to Horace Mann Investors,
Inc.
B-6
<PAGE>
Example(/1/)
<TABLE>
<CAPTION>
Short Small Cap International Socially
Equity Balanced Income Term Growth Equity Responsible
Fund Fund Fund Fund Fund Fund Fund
------ -------- ------ ----- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
For Flexible Payment
Contracts
- --------------------
If you surrender your
Contract at the end of
the applicable time pe-
riod:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year $104 $104 $106 $114 $112 $112 $107
3 years $133 $133 $139 $163 $157 $159 $142
5 years $172 $172 $184 $225 $214 $217 $189
10 years $313 $313 $337 $416 $395 $400 $346
If you do not surrender
your Contract:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year $ 22 $ 22 $ 24 $ 33 $ 31 $ 31 $ 25
3 years $ 67 $ 67 $ 74 $101 $ 94 $ 95 $ 77
5 years $115 $115 $128 $171 $159 $162 $132
10 years $247 $247 $273 $357 $335 $339 $282
For Single Payment Con-
tracts
- -----------------------
If you surrender your
Contract at the end of
the applicable time pe-
riod:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year $ 73 $ 73 $ 76 $ 84 $ 82 $ 82 $ 76
3 years $100 $100 $107 $132 $125 $127 $110
5 years $126 $126 $139 $182 $170 $173 $143
10 years $247 $247 $273 $357 $335 $339 $282
If you do not surrender
your Contract:
You would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
1 year $ 22 $ 22 $ 24 $ 33 $ 31 $ 31 $ 25
3 years $ 67 $ 67 $ 75 $101 $ 94 $ 95 $ 77
5 years $115 $115 $128 $171 $159 $162 $132
10 years $247 $247 $273 $357 $335 $339 $282
</TABLE>
(/1/)The Example should not be considered a representation of past or future
expenses. Amounts shown are based on the "Total Expenses" shown on the fee
table and average cash value of the average number of annuity contracts in the
accumulation phase during the 1999 calendar year. Actual expenses may by
greater or less than those shown. There is no assumption for premium taxes,
applicable in certain states, in these examples.
THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT THEY BEAR DIRECTLY OR INDIRECTLY. THE TABLE
REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AS WELL AS THOSE OF THE UNDERLYING
FUNDS. SEE "THE CONTRACT--DEDUCTIONS AND EXPENSES."
B-7
<PAGE>
Condensed Financial Information
- -------------------------------------------------------------------------------
The following information is taken from the Separate Account financial
statements and is covered by the report of the Separate Account Independent
Auditors. A copy of the financial statements and reports are contained in the
Annual Report for the Separate Account and are incorporated herein by
reference and may be obtained by calling or writing Horace Mann Life Insurance
Company. The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund each commenced operations on March 10, 1997.
<TABLE>
<CAPTION>
Accumulation Accumulation # Units
Unit Value Unit Value Outstanding
Account Year Beginning of End of End of
Division Ended Period Period Period
-------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Equity Fund 12/31/99 $24.34 $21.92 23,495,939
12/31/98 25.66 24.34 22,401,337
12/31/97 23.76 25.66 18,317,985
12/31/96 21.66 23.76 13,503,527
12/31/95 17.64 21.66 9,499,642
12/31/94 19.85 17.64 7,444,937
12/31/93 19.49 19.85 5,271,528
12/31/92 19.15 19.49 3,847,269
12/31/91 16.64 19.15 3,244,626
12/31/90 18.88 16.64 2,748,244
12/31/89 17.30 18.88 2,349,405
Balanced Fund 12/31/99 $18.90 $17.27 22,591,194
12/31/98 19.82 18.90 21,781,222
12/31/97 18.94 19.82 18,709,483
12/31/96 18.00 18.94 15,151,785
12/31/95 15.26 18.00 12,085,917
12/31/94 16.72 15.26 10,010,131
12/31/93 16.22 16.72 7,470,133
12/31/92 15.91 16.22 5,352,185
12/31/91 14.19 15.91 4,274,088
12/31/90 15.10 14.19 3,528,857
12/31/89 13.48 15.10 2,697,026
Income Fund 12/31/99 $13.24 $12.24 1,032,770
12/31/98 13.00 13.24 1,006,166
12/31/97 12.69 13.00 718,041
12/31/96 13.03 12.69 817,803
12/31/95 12.02 13.03 776,272
12/31/94 13.06 12.02 746,535
12/31/93 12.95 13.06 694,843
12/31/92 12.92 12.95 566,223
12/31/91 12.26 12.92 473,423
12/31/90 12.35 12.26 415,716
12/31/89 11.64 12.35 346,639
Short-Term Fund 12/31/99 $ 9.98 $ 9.89 143,624
12/31/98 9.99 9.98 125,460
12/31/97 10.03 9.99 114,103
12/31/96 10.00 10.03 112,004
12/31/95 10.08 10.00 95,982
12/31/94 10.07 10.08 103,526
12/31/93 10.09 10.07 106,595
12/31/92 10.10 10.09 99,345
12/31/91 10.37 10.10 94,194
12/31/90 10.73 10.37 106,548
12/31/89 10.49 10.73 96,997
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
Accumulation Accumulation # Units
Unit Value Unit Value Outstanding
Year Beginning of End of End of
Account Division Ended Period Period Period
---------------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Small Cap Growth Fund 12/31/99 $12.38 $19.76 2,731,955
12/31/98 11.70 12.38 2,063,019
12/31/97 10.00 11.70 1,219,124
International Equity
Fund 12/31/99 $12.13 $17.52 1,298,573
12/31/98 10.27 12.13 758,622
12/31/97 10.00 10.27 451,401
Socially Responsible
Fund 12/31/99 $12.99 $13.81 4,001,791
12/31/98 12.10 12.99 2,513,258
12/31/97 10.00 12.10 692,571
</TABLE>
Accumulation unit values shown above are reduced annually for dividend
distributions from each underlying mutual fund. Dividend distributions are
used to purchase additional accumulation units.
Financial statements of the Account and of HMLIC are available with the
Statement of Additional Information. A copy of the Statement of Additional
Information and of the financial statements may be obtained without charge by
mailing a written request to Horace Mann Life Insurance Company, P.O. Box
4657, Springfield, Illinois 62708-4657, by sending a telefacsimile (FAX)
transmission request to (217) 535-7123, or by telephoning (217) 789-2500 or
(800) 999-1030 (toll-free).
From time to time the account may advertise total return for the
subaccount. Total return may be used for all seven subaccounts. Total return
performance figures represent past performance and are not intended to
indicate future performance. Investment return and the principal value of an
investment may fluctuate. A contract owner's shares, when redeemed, may be
worth more or less than their original cost. Total return is computed by
finding the average annual compounded rate of return that would equate the
initial amount invested to the ending redeemable value.
To the extent required, all charges shown in the Table of Annual Operating
Expenses are reflected in the calculations of the performance figures. Total
return may be calculated to reflect the fact that certain expenses have been
reimbursed or waived. In addition, total return calculations assume redemption
at the end of the stated period and, therefore, reflect the applicable
surrender charge. However, comparative figures may be presented that do not
assume redemption.
B-9
<PAGE>
Horace Mann Life Insurance Company, The Account and The Horace Mann Mutual
Funds
Horace Mann Life Insurance Company
Horace Mann Life Insurance Company ("HMLIC") located at One Horace Mann
Plaza, Springfield, Illinois 62715-0001, is an Illinois stock life insurance
company organized in 1949. HMLIC is licensed to do business in 48 states and
in the District of Columbia. HMLIC writes individual and group life insurance
and annuity contracts on a nonparticipating basis.
HMLIC is an indirect wholly-owned subsidiary of Horace Mann Educators
Corporation ("HMEC"), a publicly-held insurance holding company traded on the
New York Stock Exchange.
The Account
On October 9, 1965, HMLIC established the account under Illinois law. The
account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The account and
each subaccount are administered and accounted for as a part of the business
of HMLIC. However, the income gains and losses, whether or not realized, of
each subaccount are credited to or charged against the amounts allocated to
that subaccount in accordance with the terms of the contracts without regard
to other income, gains or losses of the remaining subaccounts or of HMLIC. The
assets of the account may not be charged with liabilities arising out of any
other business of HMLIC. All obligations arising under the contracts,
including the promise to make income payments, are general corporate
obligations of HMLIC. Accordingly, all of HMLIC's assets are available to meet
its obligations and expenses under the contracts. While HMLIC is obligated to
make payments under the contracts, the amount of variable income payments are
not guaranteed since the payment amounts fluctuate in accordance with the
performance of the subaccounts.
The account is divided into subaccounts. HMLIC uses the assets of each
subaccount to buy shares of the underlying mutual funds based on contract
owner instructions.
The Horace Mann Mutual Funds
The Horace Mann Mutual Funds ("Trust") is an open-end, diversified,
management investment company registered under the Investment Company Act of
1940. The Trust is made up of a series of portfolios ("Funds"). The Trust
issues shares of beneficial interest that are continually offered for sale.
The Funds, advised by Wilshire Associates Incorporated ("Wilshire"), invest in
securities of different issuers and industry classifications in an attempt to
spread and reduce the risks inherent in all investing. Wilshire has entered
into an agreement with investment subadviser(s) for each of the Funds whereby
the subadviser(s) manage the investment and reinvestment of the assets of a
Fund.
The primary investment objective of the Equity Fund is long-term capital
growth; conservation of principal and production of income are secondary
objectives. The Equity Fund invests substantially all of its assets in common
stocks of domestic companies. Wellington Management Company, LLP ("Wellington
Management"), Sanford C. Bernstein and Co., Inc. ("Sanford Bernstein") and
Mellon Equity Associates, LLP ("Mellon Equity") serve as the investment
subadvisers to the Equity Fund. This fund was referred to as the Growth Fund
prior to May 1, 2000.
The primary investment objective of the Balanced Fund is to realize high
long-term total rate of return consistent with prudent investment risks. The
Balanced Fund's assets are indirectly invested in a mix of common stocks, debt
securities and money market instruments through investments in the Equity Fund
and Income Fund.
The primary investment objective of the Income Fund is to achieve a long-
term total rate of return in excess of the U.S. bond market over a full market
cycle. The Income Fund invests primarily in U.S. investment grade fixed income
securities. Wellington Management, Western Asset Management Company, and
Western Asset Management Limited ("WAML") serve as the investment subadvisers
to the Income Fund.
The primary investment objective of the Short-Term Fund is to realize
maximum current income to the extent consistent with liquidity. Preservation
of principal is a secondary objective. The Short-Term Fund attempts to realize
its objectives through investments in short-term debt instruments; it is not a
money market fund and does not maintain a stable net asset value per share.
Wellington Management serves as the investment subadviser to the Short-Term
Fund.
The investment objective of the Small Cap Growth Fund is long-term capital
appreciation through small cap stocks with earnings growth potential. The
Small Cap Growth Fund invests primarily in small cap stocks, which the
subadviser considers to have favorable and above-average earnings growth
prospects. Accordingly, their stock prices may rise faster, but can also
decline more in unfavorable business climates. As a result of these "higher
highs" and "lower lows," they are more volatile. BlackRock Financial
Management, Inc. ("BlackRock") serves as investment subadviser to the Small
Cap Growth Fund.
The primary investment objective of the International Equity Fund is long
term capital growth primarily through diversified holding of marketable
foreign equity investments. The International Equity Fund invests primarily in
equity securities of established companies, listed on foreign exchanges, which
the subadviser believes have favorable characteristics. It may also invest in
fixed income securities of foreign governments and companies. Investing in
foreign securities may involve a greater degree of risk than investing in
domestic securities due to the possibility of currency fluctuations, more
volatile markets, less securities regulation and political instability.
Scudder Kemper Investments, Inc. ("Scudder Kemper") serves as the investment
subadviser to the International Equity Fund.
B-10
<PAGE>
The investment objective of the Socially Responsible Fund is long-term
growth of capital, current income and growth of income. The Socially
Responsible Fund invests primarily in marketable equity securities (including
common stocks, preferred stocks, and debt securities convertible into common
stocks of seasoned financially strong U.S.-based companies). Investments in
equity securities are limited to issuers which the subadviser determines:
1. Do not produce tobacco products;
2. Do not produce alcoholic beverages;
3. Do not own and/or operate casinos or manufacture gaming devices;
4. Do not produce pornographic materials;
5. Do not produce nuclear weapons or guidance and/or delivery systems,
specifically for nuclear weapons;
6. By popular standards, maintain non-discriminatory employment practices
throughout a company's facilities; and
7. By popular standards, maintain environmental policies, practices and
procedures which are currently acceptable, or which are exhibiting
improvement.
Because this fund invests in companies with socially responsible business
practices, it has limitations that may have an impact on performance. Scudder
Kemper serves as the investment subadviser to the Socially Responsible Fund.
Detailed information on the Funds is contained in the Funds' Prospectus
which accompanies this Prospectus.
Administrator: Horace Mann Investors, Inc.
HM Investors, a wholly-owned subsidiary of Horace Mann Educators
Corporation which is the indirect owner of Horace Mann Life Insurance Company
("HMLIC"), serves as administrator to the Funds pursuant to an Administration
Agreement dated March 1, 1999 with the Trust (the "Administration Agreement").
HM Investors provides for the management of the business affairs of each fund,
including, but not limited to, office space, secretarial and clerical
services, bookkeeping services, wire and telephone communications services,
and other similar services necessary for the proper management of each fund's
business affairs. Under the current administration agreement, the Funds agree
to assume and pay the charges and expenses of its operations, including, by
way of example, the compensation of Trustees other than those affiliated with
HM Investors, charges and expenses of independent auditors, of legal counsel,
of any transfer or dividend disbursing agent, of the custodian, all costs of
acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Funds, reports and notices to shareholders, other
like miscellaneous expenses, and all taxes and fees to federal, state, or
other governmental agencies.
For the services and facilities furnished to the Funds, HM Investors
receives a fee based upon the combined assets of the Funds as follows: 0.25%
of the first $1 billion of assets and 0.20% of assets in excess of $1 billion.
An administration fee is charged directly against all assets in the Balanced
Fund. However, in order to avoid duplication of charges under the fund of
funds structure, HM Investors has indicated that it intends to waive the
majority of the administrative fees charged to the Balanced Fund directly. In
addition, Balanced Fund shareholders will indirectly pay the administration
fee of the assets invested in the Equity Fund and Income Fund under the fund
of funds structure. Therefore, the aggregate administration fees directly and
indirectly borne by shareholders of the Balanced Fund will be higher than the
fees shareholders would bear if they invested directly in the Equity and
Income Fund.
The Contract
Contract Owners' Rights
A Contract may be issued on a non-qualified basis. Non-qualified contracts
are subject to certain tax restrictions. See "Tax Consequences."
Unless otherwise provided by law, and subject to the terms of any governing
plan or trust, the contract owner may exercise all privileges of ownership, as
defined in the contract, without the consent of any other person. These
privileges include the right during the period specified in the contract to
change the beneficiary designated in the contract, to designate a payee and to
agree to a modification of the contract terms.
This prospectus describes only the variable portions of the contract. On
the maturity date, the contract owner has certain rights to acquire fixed
annuity payout options. See the contract for details regarding fixed income
payments.
Purchasing the Contract
The contract is offered and sold by HMLIC through its licensed life
insurance sales personnel who are also registered representatives of HM
Investors. HMLIC has entered into a distribution agreement with Investors,
principal underwriter of the Account. HM Investors, located at One Horace Mann
Plaza, Springfield, Illinois 62715-0001, is a broker-dealer registered under
the Securities Exchange Act of 1934. HM Investors is a member of the NASD and
is a wholly-owned subsidiary of Horace Mann Educators Corporation.
In order to purchase a contract offered by this prospectus, an applicant
must complete an application bearing all requested signatures and a properly
endorsed suitability questionnaire.
Applications for contracts are to be sent to HMLIC's Home Office. If an
incomplete application is received, HMLIC will promptly request that the
applicant furnish additional information needed to process the application.
The initial purchase payment will be held in a suspense account, without
interest, for a period not exceeding five business days. If the necessary
information is not received within these five business
B-11
<PAGE>
days HMLIC will return the initial purchase payment, unless otherwise directed
by the applicant.
Sales commissions are paid by HMLIC. Sales commissions typically range from
2% to 6% of purchase payments received.
Purchase Payments
Amount and Frequency of Purchase Payments--The minimum annual purchase
payment under flexible premium contracts is $1,200. Payments may be made in a
lump sum or installments. The minimum monthly purchase payment is $100. No
purchase payments are required after the first contract year. The minimum
purchase payment under a single premium contract is $2,000. In certain
Individual and group contracts these minimums may be lowered.
Allocation of Purchase Payments--All or part of the purchase payments made
may be allocated to one or more subaccounts. The minimum purchase payment
amount allocated to any subaccount in any given contract year must equal or
exceed $100.
Accumulation Units and Accumulation Unit Value--The number of accumulation
units purchased by net purchase payments is determined by dividing the dollar
amount credited to each subaccount by the applicable accumulation unit value
next determined following receipt of the payment by HMLIC. The value of an
accumulation unit is based on the investment experience of the underlying
Fund.
Accumulation units are valued on each valuation date. The accumulation unit
value of each subaccount is equal to the net asset value of the underlying
Fund (computed by dividing the net assets of a mutual fund by the outstanding
number of mutual fund shares on each valuation date). Dividends declared by
the underlying Fund of each subaccount, net of applicable deductions and
charges, are used to purchase additional accumulation units. To the extent
that deductions and charges exceed dividends, accumulation units will be
surrendered. The accumulation unit value of the Equity Fund subaccount was
established at $16.87 on October 9, 1965. The accumulation unit value of the
Balanced Fund, Income Fund and Short-Term Funds subaccounts was established at
$10.00 on February 1, 1983. The accumulation unit value of the Small Cap
Growth Fund, International Equity Fund and Socially Responsible Fund
subaccounts was established at $10.00 on March 10, 1997.
Transactions
Transfers--Amounts may be transferred from one subaccount to another, and
to and from the fixed account of the contract, prior to the maturity date.
For Annuity Alternatives contracts transfers from the fixed portion of the
contract into a subaccount are treated like any other partial withdrawal from
the fixed account, except that no surrender charge is imposed and the early
withdrawal penalty is being waived. If an amount transferred from the fixed
account is surrendered or withdrawn within 365 days, the amount transferred
will be subject to the applicable surrender charge and early withdrawal
penalty as if the money had been withdrawn from the fixed account. The penalty
will not be charged if (1) the transfer occurred on a Scheduled Update
(renewal date) or (2) if the Scheduled Update occurred between the transfer
and withdrawal or surrender date(s).
For Non-qualified plus contracts if you transfer money from the fixed
portion of the contract into a subaccount and withdraw or surrender within 365
days of the transfer you will be charged the early withdrawal penalty. The
early withdrawal penalty will not be charged if (1) the transfer occurred on a
Scheduled Update or (2) if the Scheduled Update occurred between the transfer
and withdrawal or surrender date(s).
The minimum amount that can be transferred is $100 or the entire dollar
value of the subaccount(s), whichever is less.
A contract owner may elect to transfer funds between subaccounts and the
fixed account by submitting a written request to Horace Mann Life Insurance
Company at P.O. Box 4657, Springfield, Illinois 62708-4657 or by calling (800)
999-1030. Telefacsimile (FAX) transmissions of the request also will be
accepted if sent to (217) 527-2307. The request must: (1) be signed by the
contract owner, or for telephone transactions, be made by the contract owner,
(2) include the name of the contract owner and the contract number, and (3)
specifically state either the dollar amount or the number of accumulation
units to be transferred. The request also must specify the subaccounts from
which and to which the transfer is to be made. Transfers are effective either
on a date specified in the request, provided that date falls on or after
receipt of the request at the Home Office, or on the first valuation date
following receipt of the request by the Home Office.
Up to twelve transfers (not extending beyond a twelve month period) may be
pre-scheduled at any point in time. Transfers can be pre-scheduled by
following the procedures in the paragraph above. See "Other Information--Forms
Availability." If the contract owner decides to cancel a pre-scheduled
transfer arrangement, he or she must notify the Home Office either in writing
or by calling (800) 999-1030 or telefacsimile (FAX) (217) 527-2307 prior to
the next designated transfer date.
Changes in Allocation Instructions--A contract owner may elect to change
the allocation of future net purchase payments at any time by mailing a
written request to Horace Mann Life Insurance Company at P.O. Box 4657,
Springfield, Illinois 62708-4657 or by calling (800) 999-1030. Telefacsimile
(FAX) transmissions of the request also will be accepted if sent to (217) 527-
2307. The request must: (1) be signed by the contract owner, (2) include the
contract owners's name and contract number, and (3) specify the new allocation
percentage for each subaccount. If allocations are made to the fixed portion
of the contract or to one or more subaccounts, the percentages must total
100%. Changes in allocation instructions are effective either on a date
specified in the request, provided that date falls on or after receipt of the
request in the Home Office, or on the
B-12
<PAGE>
first valuation date following receipt of the request by the Home Office. See
"Other Information--Forms Availability."
Surrender Before Commencement of Annuity Period--If not restricted by the
IRC, a contract owner may surrender the contract in whole or withdraw in part
for cash before income payments begin.
The surrender or partial withdrawal value is determined on the basis of the
accumulation unit value next computed following the receipt of the request for
surrender or partial withdrawal in the Home Office. A surrender or partial
withdrawal may result in adverse federal income tax consequences to the
contract owner. These consequences include current taxation of payments
received, and may include penalties resulting from premature distribution. See
"Tax Consequences."
A contract owner eligible to surrender or request a partial withdrawal may
elect to do so by submitting a signed, written request to Horace Mann Life
Insurance Company at its Home Office at P.O. Box 4657, Springfield, Illinois
62708-4657. A partial withdrawal request must be in a form acceptable by
HMLIC; telefaxsimile (FAX) transmissions of the request will be accepted if
the proceeds are sent to the Contract Owner. A surrender request must be in a
form acceptable by HMLIC; telefaxsimile (FAX) transmissions of the request
will not be accepted. See "Tax Consequences and Other Information--Forms
Availability."
Partial withdrawals and surrenders will be processed either on a date
specified by you in a request, provided the date specified occurs on or after
receipt of the request at the Home Office, or on the first valuation date
following receipt of the request at the Home Office.
Any partial withdrawal is subject to a $100 minimum and may not reduce the
contract owner's interest in a subaccount to less than $100. A complete
surrender may be made at any time, unless otherwise restricted by the
retirement plan or the IRC.
Surrenders and partial withdrawals from any variable subaccount are subject
to the surrender charges shown in "Deductions and Expenses--Surrender
Charges".
HMLIC surrender charges are applied to the withdrawals based on the date
the account is opened and not on the date the purchase payment is paid.
Partial withdrawals may be made without charge if (1) the withdrawal does
not exceed 15% of the contract value; and (2) the contract has been in force
for two or more contract years; and (3) more than twelve months have passed
since the date of the last partial withdrawal. Contract value is computed on
the first valuation date following receipt of the request in good form by the
Home Office. If all three conditions are not met, partial withdrawals may be
subject to surrender charges. The Non-qualified plus contract will allow a
withdrawal without charge if the withdrawal value does not exceed 10% of the
contract value and all of the other conditions are met.
Any request for partial withdrawal, where the withdrawal is subject to a
surrender charge, will be increased by the amount of the surrender charge. For
example, a request to withdraw $3,000 at a 4% surrender charge on cash value
will require a withdrawal of $3,125. This withdrawal represents a cash
distribution of $3,000 and a surrender charge of $125. Any taxes withheld will
reduce the dollar amount of the distribution.
The surrender charge is assessed on the basis of the amount surrendered or
withdrawn from the subaccount(s), but will never exceed 8.5% of net purchase
payment(s) to a subaccount during the lifetime of the contract. For example,
if a contract owner's subaccount value is $12,000 and net purchase payments to
date equal $10,000 and the contract owner withdraws $2,000 (i.e., one sixth of
the subaccount value), then the surrender charge may not exceed 8.5% of
$1,666.66 (one sixth of the purchase payment(s) to which the withdrawal
relates).
If premium taxes are deducted prior to surrender or partial withdrawal, any
reduction of HMLIC's premium tax liability due to the surrender or partial
withdrawal will be to HMLIC's benefit.
Deferment--HMLIC ordinarily completes a transaction within seven calendar
days after receipt of a proper request to transfer, surrender, partially
withdraw or commence income payments. The value of the contract is determined
as of the valuation date on which the request is received. However,
determination of contract value and processing the transaction may be deferred
for (1) any period during which the New York Stock Exchange is closed for
other than customary weekend or holiday closings or during which trading is
restricted by the Securities and Exchange Commission; (2) any emergency period
when it is not reasonably practicable to sell securities or fairly determine
accumulation unit values or annuity unit values; or (3) any other period
designated by the Securities and Exchange Commission to protect persons with
interests in the account.
Confirmations--HMLIC mails written confirmations of purchase payments to
contract owners on a quarterly basis within five business days following the
end of each calendar quarter. Written confirmations of transfers, changes in
allocations, partial withdrawals, and surrenders, are mailed to contract
owners within seven calendar days of the date the transaction occurred.
If a contract owner believes that the confirmation statement contains an
error, the contract owner should notify HMLIC as soon as possible after
receipt of the confirmation statement. Notice may be provided by writing to
HMLIC, P.O. Box 4657, Springfield, Illinois 62708-4657, by sending a
telefacsimile (FAX) transmission to (217) 527-2307, or by telephoning (217)
789-2500 or (800) 999-1030 (toll free).
Deductions and Expenses
Annual Maintenance Charge--An annual maintenance charge of $25 is deducted
from each contract on the contract anniversary date unless the contract value
equals or exceeds $50,000. On certain group and individual plans the fee will
be
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<PAGE>
stopped when the contract value equals or exceeds $10,000. The annual
maintenance charge is deducted from the subaccount containing the greatest
dollar amount or from the fixed portion of the contract when none of the
variable subaccount(s) have any value.
Charges for annual maintenance cease on the maturity date. No annual
maintenance charge is taken, in whole or in part, in the event of a complete
surrender unless the surrender occurs on the contract anniversary date.
The annual maintenance charge is intended to reimburse HMLIC for actual
expenses incurred in administering the contract. HMLIC does not expect to
profit from such annual maintenance charge and assumes the risk that this
annual maintenance charge may be insufficient to cover the actual costs of
administering the contract.
Mortality and Expense Risk Fee--For assuming mortality and expense risk,
HMLIC applies an asset charge to the account value of each contract. The fee
for mortality and expense risk may not exceed the annual rate of 1.25% of the
average net variable account value based on the date of calculation (0.45% for
mortality risk, and 0.80% for expense risk); however, HMLIC reserves the right
to change the fee (subject to the 1.25% ceiling) in the future. The fee
accumulates on a weekly basis at a rate of .0238268% of the net variable
account value as of the date of the calculation. The accumulated value of the
fee is deducted annually (usually at the time the Trust declares dividends)
from each subaccount or upon any surrender, partial withdrawal or transfer of
value accruing before such annual deduction with the necessary number of
units, at the then current accumulation unit value, being redeemed to equal
the dollar amount of the charges owed.
Surrender Charges--If not restricted by the IRC, a contract owner may
surrender the contract in whole or withdraw in part for cash before income
payments begin.
The products reflected below may not be available in all states.
New Non-qualified
<TABLE>
<CAPTION>
During Flexible Premium Age 55+
Contract Under age 55 at at
Years issue issue
- ---------- ---------------- -------
<S> <C> <C>
1 8% 8%
2 7% 7%
3 6% 6%
4 5% 5%
5 5% 4%
6 5% 3%
7 5% 2%
8 5% 1%
9 5% 0%
10 5% 0%
Thereafter 0% 0%
</TABLE>
Annuity Alternatives
Annuity alternatives contracts have been issued since 1982.
<TABLE>
<CAPTION>
Flexible Single
Premium Premium
-------- -------
<S> <C> <C>
1 8% 5%
2 8% 4%
3 6% 3%
4 4% 2%
5 2% 1%
Thereafter 0% 0%
</TABLE>
For further information regarding surrender or partial withdrawals see
"Surrender Before Commencement of Annuity Period."
Operating Expenses of the Horace Mann Mutual Funds--There are deductions
from and expenses paid out of the assets of the Funds that are described in
the Funds' Prospectus which accompanies this prospectus.
Premium Taxes--Certain state and local governments levy a premium tax,
presently ranging from 0 to 3.5%, on the amount of purchase payments made
under this contract. The premium tax, if any, is deducted either when payments
are received or when an amount is applied to provide an annuity at the
maturity date, depending upon the applicable law.
Death Benefit Proceeds
If a contract owner dies before the maturity date, the contract value, or
the amount of net purchase payments less any withdrawals, whichever is
greater, will be paid to the beneficiary designated by the contract owner. The
contract value is determined as of the date proof of death is received by
HMLIC from the beneficiary. Proof of death includes a certified death
certificate and a completed claimant's statement.
All or part of the death benefit proceeds may be paid to the beneficiary
under one of the income payment options described under "Income Payments--
Income Payment Options." If the form of income payment selected requires that
payment be made by HMLIC after the death of the beneficiary, payments will be
made to a payee designated by the beneficiary or, if no subsequent payee has
been designated, to the beneficiary's estate.
For all contracts issued in connection with this prospectus if the contract
owner dies before income payments begin and the designated beneficiary is not
a surviving spouse, the IRC requires the complete distribution of proceeds by
December 31 of the calendar year of the fifth anniversary of the death; i.e.,
"the five-year rule." This requirement can be satisfied by an annuity for life
or a period certain not exceeding the life expectancy of a designated
beneficiary, provided the income payments begin no later than December 31 of
the calendar year following the contract owner's death. Any part of a contract
owner's interest payable to a minor child will be paid to the child's legal
guardian for the benefit of the child.
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<PAGE>
For non-qualified annuities, a designated beneficiary which is a surviving
spouse may defer distributions until he or she reaches age 70 1/2. However, if
the surviving spouse dies before distributions begin under any non-qualified
contract issued in connection with this prospectus, the five-year rule and its
exceptions, explained in the preceding paragraph, will apply to his or her
beneficiary.
If the contract owner dies on or after the maturity date, the remaining
portion of the interest in the contract undistributed at the time of the
contract owner's death must be distributed at least as rapidly as under the
method of distribution in force at the time of the contract owner's death.
Income Payments
The contract provides for fixed or variable income payment options or a
combination of both. The contract owner may elect to have income payments made
under any one or more of the options described below or may elect a lump sum
payment. To begin receiving income payments a properly completed request form
must be received in the Home Office. The request will be processed so that the
income payments begin on the first of the month following the month of receipt
unless a later date is requested and approved by the company. If a fixed
payment option is elected, the variable account value will be transferred to
the fixed account on the date the request is received in the Home Office. In
addition, if a variable payment is elected, any money in the fixed account
will be transferred to the variable account on the date we received the
request in the Home Office. Generally, at the time an income payment option is
selected, a contract owner must elect whether to withhold for federal and
state income taxes. See "Other Information--Forms Availability" and "Tax
Consequences."
In general, the longer income payments are guaranteed, the lower the amount
of each payment. Fixed income payments are paid in monthly, quarterly, semi-
annual & annual installments. Variable income payments are paid only on a
monthly basis. If the contract value to be applied under any one fixed or
variable income payment option is less than $2,000 or if the option chosen
would provide income payments less than $20 per month at the maturity date,
then the contract value may be paid in a lump sum.
Income Payment Options
The following income payment options are available on a variable basis
unless otherwise stated.
Life Annuity with or without Period Certain--The life option guarantees
income payments for the lifetime of the annuitant. If a certain period is
selected (5, 10, 15, 20 years) and the annuitant dies before the end of the
period, income payments are guaranteed to the beneficiary until the end of the
period selected. If no beneficiary is living at the time of the annuitant's
death, the present value, if any, of the remaining certain period payments
will be paid in a single sum to the estate of the annuitant. Under the life
without period certain option, it is possible that only one income payment may
be made if the annuitant's death occurred before the due date of the second
income payment. This option usually provides the largest income payments. The
annuitant cannot make unscheduled withdrawals or change to another option
after the first income payment has been made.
Joint and Survivor Life Annuity--This life only option provides lifetime
income payments during the lifetimes of two annuitants. After one annuitant
dies, the income payments will continue during the lifetime of the survivor
based on the survivor percentage elected (i.e., 100%, 50%, etc.). The income
payments cease after the last payment paid prior to the survivor's death. It
could be possible for only one payment to be made under this option if both
annuitants die before the due date of the second payment. The annuitants
cannot make unscheduled withdrawals or change to another income option after
the first income payment has been made.
Income for Fixed Period--This option provides income payments for a fixed
period not less than one year nor exceeding 30 years; however, payments may
not extend beyond the life expectancy of the annuitant. Upon the annuitant's
death, the beneficiary will be paid the remaining income payments due, if any.
If no beneficiary is living at the time of the annuitant's death, the present
value, if any, of the remaining income payments will be paid in a lump sum to
the estate of the annuitant. The annuitant has the right to change to another
income option or make unscheduled withdrawals subject to surrender penalties,
if applicable, from the remaining present value subject to IRC requirements.
To determine the surrender penalty rate, contract years are counted from the
original effective date of the accumulation contract. Refer to "Deduction and
Expenses--Surrender Changes" for the appropriate rate. This option is
available on a fixed payment basis only.
Income for Fixed Amount--This option provides payments of a fixed amount
until the account value, with interest, has been paid; however, payments may
not extend beyond the life expectancy of the annuitant. Upon the annuitant's
death, the beneficiary will be paid the remaining income payments due, if any,
or the beneficiary may request the present value, if any, of the remaining
income payments. If no beneficiary is living at the time of the annuitant's
death, the present value, if any, of the remaining income payments will be
paid in a lump sum to the estate of the annuitant. The annuitant has the right
to change to another income option or make unscheduled withdrawals subject to
surrender penalties, if applicable, from the remaining present value subject
to IRC requirements. To determine the surrender penalty rate, contract years
are counted from the original effective date of the accumulation contract.
Refer to "Deduction and Expenses--Surrender Changes" for the appropriate rate.
This option is available on a fixed payment basis only.
Interest Income Payments--This option provides income payments based on
interest earned from the proceeds of the contract, at a rate determined by
HMLIC, but never less than the annual guaranteed interest rate. Interest will
be
B-15
<PAGE>
credited at the end of each payment period. The annuitant may elect another
income option at the end of any payment period, or may withdraw the contract
value in whole or in part upon written request subject to surrender penalties
if applicable. The request must be made prior to the end of the period that
the annuitant agreed to receive income payments. This option is available on a
fixed payment basis only.
Other Income Options--If the annuitant does not wish to elect one or more
income payment options, the annuitant may:
a) receive the proceeds in a lump sum, or
b) leave the Contract with HMLIC, or
c) elect any other option that HMLIC makes available.
Amount of Fixed and Variable Income Payments
In general, the dollar amount of income payments under the contract depends
on contract value. Contract value equals the value of the fixed portion of the
contract plus the value of each subaccount. The value of each subaccount is
determined by multiplying the number of accumulation units credited to each
subaccount by its respective accumulation unit value, less any accumulated
Mortality & Expense Risk fee. Contract value may be more or less than the
amount of net purchase payments allocated to the contract.
Fixed Income Payments--The amount of each payment under a fixed income
payment option is determined from the income option tables in the contract.
These tables show the monthly payment for each $1,000 of contract value
allocated to provide a fixed income payment. Guaranteed fixed income payments
will not change regardless of investment, mortality or expense experience.
Higher income payments may be made at the sole discretion of HMLIC.
Variable Income Payments--The amount of the first monthly variable income
payment is determined from the income option tables in the contract. The
tables show the amount of the income payment for each $1,000 of value
allocated to provide income payments. The income option tables vary with the
form of income option payment selected and adjusted age of the annuitant(s).
The first monthly variable income payment is used to calculate the number
of variable annuity units for each subsequent monthly income payment. The
number of variable annuity units remains constant over the payment period
except when a joint and survivor option is chosen. The number of variable
annuity units will be reduced upon the death of either annuitant by the
survivor percentage elected.
The amount of monthly income payments following the first variable income
payment varies from month to month to reflect the investment experience of
each subaccount funding those payments. Income payments are determined each
month by multiplying the variable annuity units by the applicable variable
annuity unit value at the date of payment. The variable annuity unit value
will change between valuation dates to reflect the investment experience of
each subaccount.
Assumed Interest Rate--The selection of an assumed interest rate affects
both the first monthly variable income payment and the pattern of subsequent
payments. One divided by the sum of the assumed interest rate and the
mortality and expense risk charge, adjusted to a monthly rate, is the
investment multiplier. If the investment performance of a subaccount funding
variable income payments is the same as the investment multiplier, the monthly
payments will remain level. If its investment performance exceeds the
investment multiplier, the monthly payments will increase. Conversely, if
investment performance is less than the investment multiplier, the payments
will decrease. Unless otherwise provided, the assumed interest rate is 3.0%
per annum.
Annuity Unit Value--The variable annuity unit value for the Equity,
Balanced, and Income Fund subaccount was set at $10.00 as of the date amounts
first were allocated to provide income payments. The variable annuity unit
value for the Short-Term Fund, International Fund, Small Cap Fund and Socially
Responsible Fund subaccounts also have been set at $10.00, however, no income
payments have been paid from these subaccounts. The current variable annuity
unit value is equal to the prior variable annuity unit value on the valuation
date when payments were last determined, multiplied by the applicable net
investment factor. The net investment factor reflects the investment
performance of the subaccount during the current month plus the value of any
dividends and distributions during the current month. This factor is computed
by dividing the net asset value of a share of the underlying fund on the last
business day of the current month, plus any dividends or other distributions,
by the net asset value of a share on the last business day of the preceding
month, and multiplying this result by the investment multiplier.
Misstatement of Age
If the age of the annuitant has been misstated, any income payment amount
shall be adjusted to reflect the correct age. If the income payments were too
large because of a misstatement of age, HMLIC will deduct the difference with
interest, at an effective annual interest rate of 6%, from future payments
until totally repaid. If the income payments were too small, HMLIC will add
the difference with interest, at an effective annual interest rate of 6%, to
the next payment.
Modification of the Contract
The contract provides that it may be modified by HMLIC to maintain
continued compliance with applicable state and federal laws. Contract owners
will be notified of any modification. Only officers designated by HMLIC may
modify the terms of the contract.
HMLIC reserves the right to offer contract owners, at some future date and
in accordance with the requirements of the Investment Company Act of 1940, the
option to direct that their net purchase payments be allocated to a subaccount
within
B-16
<PAGE>
the Trust other than one or more of the seven currently offered Horace Mann
Mutual Funds. If any shares of the Trust's seven portfolios are not available
for purchase by the Account, or if in the judgment of HMLIC further investment
in these shares is no longer appropriate in view of the purposes of the
Account or subaccount, then (i) shares of another portfolio may be substituted
for existing fund shares held in the affected subaccount and/or (ii) payments
received after a date specified by HMLIC may be applied to the purchase of
shares of another portfolio. No substitution will be made without prior
approval of the Securities and Exchange Commission. Any substitution would be
for shares of a portfolio with investment objectives similar to those of the
fund it replaces.
Tax Consequences
Separate Account
The operations of the Account form part of the operations of HMLIC;
however, the IRC provides that no federal income tax will be payable by HMLIC
on the investment income and capital gains of the Account if certain
conditions are met. Provided the investments of the underlying funds continue
to meet the diversification requirements of IRC Section 817(h), the contract
owner will not pay federal income tax on the investment income and capital
gains under a contract until income payments begin or a full or partial
withdrawal is made.
Contract Owners
Contributions--No limitations are imposed on the amount of contributions
made to a non-qualified contract.
Distributions Under Non-Qualified Contracts--Contract owners of non-
qualified contracts are not subject to federal income tax on earnings until
income payments are received under the contract. Contract owners of non-
qualified contracts are not subject to the minimum distribution requirements.
A distribution by surrender or partial withdrawal during the accumulation
period may subject the contract owner to federal income tax. For this purpose,
an assignment or pledge (or agreement to assign or pledge) is considered a
distribution.
If the distribution is a full surrender, the contract owner is taxed on the
amount distributed, less net purchase payments reduced by any prior partial
withdrawals which were not subject to income tax.
A distribution by partial withdrawal is deemed to come first from any
previously untaxed accumulation and then from principal. The contract owner is
subject to income tax on any previously untaxed accumulation which is
distributed.
Purchase payments may also be made by means of a full tax free exchange of
annuity contracts under IRC Section 1035. Contracts exchanged under IRC
Section 1035 after January 18, 1985 will be subject to the annuity income tax
rules of IRC Section 72 in effect after that date, with exceptions set forth
below regarding the first-in first-out treatment of contracts issued prior to
August 14, 1982. See below "Penalty Tax."
If distributions are made pursuant to an income payment option, that
portion of each income payment which represents the contract owner's
investment in the contract is excluded from gross income for federal income
tax purposes. The "investment in the Contract" is equal to total purchase
payments to the contract less the portion of any periodic distributions that
were excluded from the individual's gross income. Once the contract owner's
investment is returned in full, the entire amount of each income payment is
taxable as ordinary income.
Penalty Tax--Taxable distributions from non-qualified contracts received
prior to age 59 1/2 are also subject to a 10% penalty tax unless the
distribution is made after the contract owner's death or disability, received
as part of substantially equal periodic payments for the contract owner's
lifetime, or attributable to purchase payments made prior to August 14, 1982.
In addition, for non-qualified contracts issued during the period August 14,
1982 through January 18, 1985 and for additional purchase payments to non-
qualified contracts issued prior to August 14, 1982, the penalty tax will not
apply to distributions attributable to purchase payments paid ten years or
more prior to the distribution. For this purpose, distributions will be
attributed to purchase payments on a "first-in first-out" basis (i.e., to the
earliest purchase payment which has not been fully allocated to prior
distributions.)
The preceding discussion is informational only and is not to be considered
tax advice. Contract owners are urged to consult a competent tax adviser
before taking any action that could have tax consequences.
Voting Rights
Unless otherwise restricted by the plan under which a contract is issued,
each contract owner has the right to instruct HMLIC with respect to voting his
or her interest in the shares of the Funds held by the Separate Account at all
shareholder meetings.
The number of votes that may be cast by a contract owner is based on the
number of units owned as of the record date of the meeting. Shares for which
no instructions are received are voted in the same proportion as the shares
for which instructions have been received. Any Fund shares attributable to
investment by HMLIC will be voted in proportion to the vote by contract owners
who have Separate Account units. Contract owners receive various materials,
such as proxy materials and voting instruction forms, that relate to voting
Fund shares.
Other Information
Legal Proceedings--There are no legal proceedings to which the Separate
Account is a party or to which the assets of the Separate Account are subject.
HMLIC is engaged in various kinds of routine litigation that, in HMLIC's
judgment, are not
B-17
<PAGE>
- ------------------------------------------------------------------------------
- ------
- --------------------------------------------------------------------------
material to its financial condition. None of this litigation relates to the
Separate Account.
Registration Statement--A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 with
respect to the contract. This prospectus does not contain all information set
forth in the registration statement, its amendments and exhibits. Statements
contained in this prospectus as to the content of the contract and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to these instruments as filed.
Contract Owner Communications--To ensure receipt of communications, contract
owners must notify HMLIC of address changes. Notice of a change in address may
be sent to Horace Mann Life Insurance Company, Annuity Customer Service, P.O.
Box 4657, Springfield, Illinois 62708-4657. Contract owners may also provide
notice of an address change by sending a telefacsimile (FAX) transmission to
(217) 527-2307 or by calling (217) 789-2500 or (800) 999-1030 (toll free).
HMLIC will attempt to locate contract owners for whom no current address is
on file. In the event HMLIC is unable to locate a contract owner, HMLIC may be
forced to surrender the value of the contract to the contract owner's last
known state of residence in accordance with the state's abandoned property
laws.
Contract Owner Inquiries--A toll free number, (800) 999-1030, is available
to telephone HMLIC's Annuity Customer Service Department. Written questions
should be sent to Horace Mann Life Insurance Company, Annuity Customer
Service, P.O. Box 4657, Springfield, Illinois 62708-4657.
Forms Availability--Specific forms are available from HMLIC to aid the
contract owner in affecting many transactions allowed under the contract.
These forms may be obtained by calling the Annuity Customer Service Department
toll free at (800) 999-1030.
NASD Regulation's Public Disclosure Program--Information about Horace Mann
Investors, Inc. and your agent is available from the National Association of
Securities Dealers (NASD) at www.nasdr.com or by calling (800) 289-9999.
Additional Information
A copy of the Statement of Additional Information providing more detailed
information about the Account is available, without charge, upon request. The
Table of Contents of this Statement follows:
<TABLE>
<CAPTION>
Topic Page
- ----- ----
<S> <C>
General Information and History............................................ 2
Investment Experience...................................................... 2
Underwriter................................................................ 3
Financial Statements....................................................... 4
</TABLE>
To receive, without charge, a copy of the 1999 Annual Report of the Horace
Mann Mutual Funds and the Horace Mann Life Insurance Company Separate Account
and/or a copy of the Statement of Additional Information for Horace Mann Life
Insurance Company Separate Account and/or the Horace Mann Mutual Funds, please
complete the following request form and mail it to the address indicated
below, or send it by telefacsimile (FAX) transmission to (217) 535-7123 or
telephone (217) 789-2500 or (800) 999-1030 (toll-free).
Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, Illinois 62708-4657
Please provide free of charge the following information:
1999 Annual Report of the Horace Mann Mutual Funds and the Horace Mann Life
Insurance Company Separate Account.
Statement of Additional Information dated May 1, 2000 for the Horace Mann
Mutual Funds.
Statement of Additional Information dated May 1, 2000 for the Horace Mann
Life Insurance Company Separate Account.
Please mail the above documents to:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(City/State/Zip)
B-18
<PAGE>
The Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, Illinois 62708-4657
1-800-999-1030
Horace Mann(R)
- ----------------------------------------
Insuring America's Educational Community
www.horacemann.com
www.reacheverychild.com
<PAGE>
Statement of Additional Information
Variable tax deferred annuity contracts
Qualified and non-qualified plans
Horace Mann Life Insurance Company
Separate Account
May 1, 2000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Individual and Group Flexible Payment and Individual Single Payment Variable Tax
Deferred Annuity Contracts
Horace Mann Life Insurance Company
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Prospectuses, dated May 1, 2000, for Horace Mann Life
Insurance Company Separate Account. A copy of the Prospectuses may be obtained
by writing to Horace Mann Life Insurance Company, P.O. Box 4657, Springfield,
Illinois 62708-4657, by sending a telefacsimile (FAX) transmission to (217) 535-
7123, or by telephoning toll-free (800) 999-1030.
May 1, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Topic Page
<S> <C>
General Information and History.................. 2
Investment Experience............................ 2
Underwriter...................................... 3
Financial Statements............................. 4
</TABLE>
1
<PAGE>
GENERAL INFORMATION AND HISTORY
Horace Mann Life Insurance Company ("HMLIC") sponsors the Horace Mann Life
Insurance Company Separate Account (the "Account"). HMLIC is an indirect wholly-
owned subsidiary of Horace Mann Educators Corporation ("HMEC"), a publicly-held
insurance holding company traded on the New York Stock Exchange.
INVESTMENT EXPERIENCE
(Applies to Annuity Alternative Contracts Only)(5)
December 31, 1999
<TABLE>
<CAPTION>
TOTAL RETURN DATA
AVERAGE ANNUAL TOTAL RETURN(1)
(Based on a $1,000
investment)(2) 1 YR 5 YRS 10 YRS
<S> <C> <C> <C>
Equity Fund Account Division
With Redemption(3) (11.50)% 15.23% 11.55%
Without Redemption (3.81)% 15.23% 11.55%
Balanced Fund Account Division
With Redemption(3) (10.19)% 12.29% 9.64%
Without Redemption (2.38)% 12.29% 9.64%
Income Fund Account Division
With Redemption(3) (10.58)% 5.39% 5.48%
Without Redemption (2.81)% 5.39% 5.48%
Short-Term Fund Account Division
With Redemption(3) (4.79)% 3.65% 3.49%
Without Redemption 3.49 % 3.65% 3.49%
Small Cap Growth Fund Account Division(4)
With Redemption(3) 63.09 %
Without Redemption 71.59 %
International Equity Fund Account Division(4)
With Redemption(3) 42.47 %
Without Redemption 50.77 %
Socially Responsible Fund Account Division(4)
With Redemption(3) (1.45)%
Without Redemption 7.05 %
</TABLE>
1 In some cases, actual performance reflects subsidization where total return
has been enhanced due to expenses of each Fund being waived or paid by
affiliates of the Funds.
<PAGE>
2 To the extent required, all charges shown in the Table of Annual Operating
Expenses are reflected in the calculations of the performance figures. Because
the median Qualified contract value exceeds $10,000, the annual maintenance
charge of $25 has not been deducted. However, contracts with a value of less
than $10,000 and Non-qualified contracts would be subject to the annual
maintenance charge, which would reduce performance. Total return may be
calculated to reflect the fact that certain expenses have been reimbursed or
waived. In addition, total return calculations assume redemption at the end of
the stated period and, therefore, reflect the applicable Surrender Charge.
However, comparative figures may be presented that do not assume redemption.
3 With redemption reflects performance of a surrendered contract. Redemption has
no effect on return after the initial five-year contract period for qualified
contracts and 10 years for Non-qualified contracts.
4 Small Cap Growth Fund, International Equity Fund and Socially Responsible Fund
each commenced operations on March 10, 1997.
5 Annuity Alternatives refers to the Qualified Combination Annuity Contract
offered by Horace Mann Life Insurance Co.
This performance data represents past performance. Investment return and the
principal value of an investment may fluctuate. An investor's shares, when
redeemed, may be worth more or less than their original cost. All charges as
shown in the Prospectus fee tables are reflected in this data, with the
exception of the annual maintenance charge and premium taxes.
The total return quotations are based on the average annual compounded rates of
return over one, five, and ten year periods ended December 31, 1999. Small Cap
Growth, International Equity and Socially Responsible Funds commenced operations
on March 10, 1997. Total return is computed by finding the average annual
compounded rates of return that would equate the initial amount invested to the
ending redeemable value.
The performance data contained in this Statement of Additional Information is
based on the fees and charges for the flexible payment Qualified Contracts
currently offered by the Company. Prior Contracts, single premium contracts, and
certain Individual and group plans have different fees and charges; therefore
these performance calculations are not valid for those contracts.
UNDERWRITER
HMLIC offers and sells the Contract on a continuous basis through its licensed
life insurance sales personnel who are also registered representatives of Horace
Mann Investors, Inc. ("HM Investors"), a broker/dealer registered with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc. (NASD). HMLIC contracts with HM Investors, principal
underwriter of the Account, to distribute the variable contracts of HMLIC.
<PAGE>
HM Investors, located at One Horace Mann Plaza, Springfield, Illinois 62715-
0001, is an affiliate of HMLIC and a wholly-owned subsidiary of HMEC.
Commissions paid to HM Investors were $5,781,260, $7,465,597,and $5,811,107 for
the years ended 1997, 1998 and 1999, respectively. HM Investors does not retain
any of these commissions. Commissions received by HM Investors are paid to
registered representatives who sell contracts offered by this Prospectus.
FINANCIAL STATEMENTS
KPMG LLP, independent auditors for the Account and HMLIC, has offices at 303
East Wacker Drive, Chicago, Illinois 60601. KPMG LLP representatives perform an
audit of the financial statements of the Account annually and provide accounting
advice and services related to Securities and Exchange Commission filings
throughout the year and perform an annual audit of the statutory financial
statements of HMLIC.
The financial statements of the Account, including the auditors' reports
thereon, are incorporated herein by reference from the Annual Report for the
Account for the year ended December 31, 1999. A copy of this Annual Report
accompanies the Statement of Additional Information. Additional copies may be
obtained, upon request and without charge, by contacting Horace Mann Life
Insurance Company, P.O. Box 4657, Springfield, Illinois 62708-4657, or by
telephoning (217) 789-2500 or (800) 999-1030 (toll-free). The statutory
financial statements for HMLIC, including the auditors' reports thereon, which
are included herein, should be considered only as bearing upon the ability of
HMLIC to meet its obligations under the Contracts.
3
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
4
<PAGE>
[LETTERHEAD OF KPMG]
Independent Auditors' Report
The Board of Directors
Horace Mann Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital and surplus of Horace Mann Life Insurance Company as of
December 31, 1999 and 1998, and the related statutory statements of operations,
capital and surplus, and cash flow for each of the years in the three-year
period ended December 31, 1999. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in notes 1 and 7 to the statutory financial statements,
the Company prepared these statutory financial statements using accounting
practices prescribed or permitted by the Department of Insurance of the State of
Illinois, which practices differ from generally accepted accounting principles.
The effects on the statutory financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Horace Mann Life Insurance Company as of December 31, 1999
and 1998, or the results of its operations or its cash flows for each of the
years in the three-year period ended December 31, 1999.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and capital and
surplus of Horace Mann Life Insurance Company as of December 31, 1999 and 1998,
and the results of its operations and its cash flow for each of the years in the
three-year period ended December 31, 1999, on the basis of accounting described
in note 1.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
the accompanying Schedule is presented for purposes of additional analysis and
is not a required part of the basic financial statements. Such information has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
April 7, 2000
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus
December 31, 1999 and 1998
(In thousands)
- --------------------------------------------------------------------------------
Admitted Assets 1999 1998
- --------------------------------------------------------------------------------
Cash and investments:
Bonds $2,043,743 $2,009,455
Common stocks 418 78
Mortgage loans on real estate 34,293 38,429
Real estate 154 173
Policy loans 58,121 54,027
Cash 8,838 4,166
Short-term investments 24,508 101,439
Receivable for securities - 3,305
Other invested assets 70 70
- --------------------------------------------------------------------------------
Total cash and investments 2,170,145 2,211,142
Life insurance premiums deferred
and uncollected 45,461 43,218
Accident and health premiums due
and unpaid 270 797
Investment income due and accrued 31,288 29,706
Other assets 3,484 4,576
Variable annuity assets 1,131,713 1,122,739
- --------------------------------------------------------------------------------
Total admitted assets $3,382,361 $3,412,178
- --------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
6
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus
December 31, 1999 and 1998
(In thousands, except share data)
- --------------------------------------------------------------------------------
Liabilities and Capital and Surplus 1999 1998
- --------------------------------------------------------------------------------
Policy liabilities:
Aggregate reserves:
Life and annuity $1,891,572 $1,856,379
Accident and health 16,047 17,619
Unpaid benefits:
Life 8,475 6,822
Accident and health 812 1,227
Policyholder funds on deposit 118,856 116,012
Policyholder dividends payable
in the following year 57 80
Remittances not allocated 1,079 2,901
- --------------------------------------------------------------------------------
Total policy liabilities 2,036,898 2,001,040
Accrued expenses 2,660 2,764
Asset valuation reserve 17,980 16,153
Interest maintenance reserve 10,741 18,619
Funds held for loaned securities - 87,217
Payable to parent, subsidiaries and affiliates 864 -
Transfer from separate accounts (7,392) (9,451)
Other liabilities 7,703 7,760
Variable annuity liabilities 1,126,505 1,118,890
- --------------------------------------------------------------------------------
Total liabilities 3,195,959 3,242,992
- --------------------------------------------------------------------------------
Capital and surplus:
Capital stock, $1 par value.
Authorized 5,000,000 shares,
2,500,000 shares outstanding 2,500 2,500
Additional paid-in and contributed surplus 22,704 22,704
Special surplus fund - contingent
variable annuity reserve - 625
Unassigned surplus 161,198 143,357
- --------------------------------------------------------------------------------
Total capital and surplus 186,402 169,186
- --------------------------------------------------------------------------------
Total liabilities and capital and surplus $3,382,361 $3,412,178
- --------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
7
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years ended December 31, 1999, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Premiums, annuity and supplementary
contract considerations:
Life $110,942 $107,863 $104,684
Annuity 205,684 223,325 199,189
Accident and health 8,598 12,108 32,395
Supplementary contracts 31,441 32,832 30,455
- --------------------------------------------------------------------------------
Total premiums, annuity and supplementary
contract considerations 356,665 376,128 366,723
Net investment income 151,385 152,416 156,570
Amortization of interest maintenance
reserve 2,416 2,592 2,581
Management fee income from Separate Accounts 14,805 14,015 -
Mutual fund service fee income 1,420 - -
Other 441 481 916
- --------------------------------------------------------------------------------
Total revenue 527,132 545,632 526,790
- --------------------------------------------------------------------------------
Benefits and expenses:
Provisions for claims and benefits:
Life 98,630 89,651 86,110
Annuity 259,189 281,411 250,910
Accident and health 3,682 9,978 32,228
Supplementary contracts 43,880 45,097 42,643
- --------------------------------------------------------------------------------
Total claims and benefits 405,381 426,137 411,891
Commissions 25,388 28,868 26,864
General and other expenses 52,800 49,775 55,742
- --------------------------------------------------------------------------------
Total benefits and expenses 483,569 504,780 494,497
- --------------------------------------------------------------------------------
Net gain before dividends to policyholders
and federal income tax 43,563 40,852 32,293
Dividends to policyholders 139 254 (540)
- --------------------------------------------------------------------------------
Net gain before federal income tax 43,424 40,598 32,833
Federal income tax expense 11,955 17,788 10,549
- --------------------------------------------------------------------------------
Net gain from operations 31,469 22,810 22,284
Realized investment gains (losses)
net of tax and transfers to IMR 627 (3,256) (1,241)
- --------------------------------------------------------------------------------
Net income $ 32,096 $ 19,554 $ 21,043
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
8
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Capital and Surplus
Years ended December 31, 1999, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital stock $ 2,500 $ 2,500 $ 2,500
- --------------------------------------------------------------------------------
Additional paid-in capital and
contributed surplus 22,704 22,704 22,704
- --------------------------------------------------------------------------------
Special surplus fund-
Beginning balance of contingent variable
annuity reserve 625 625 625
Release of contingent variable annuity
reserve (625) - -
- --------------------------------------------------------------------------------
Balance at end of year - 625 625
- --------------------------------------------------------------------------------
Unassigned surplus:
Balance at beginning of year 143,357 139,136 122,797
Net income 32,096 19,554 21,043
Change in net unrealized
capital gains 340 2,079 2,706
Change in non-admitted assets 167 14 (237)
Change in reserve valuation
basis (note 1) 10,712 - (2,020)
Change in asset valuation reserves (1,826) 331 10,440
Surplus contributed to Separate
Accounts - - (3,100)
Other changes in surplus in Separate
Account Statement 1,358 343 3,507
Dividends to parent (24,000) (18,100) (16 000)
Change in reserve on account of assumption
changes (1,631) - -
Release of contingent variable annuity
reserve 625 - -
-------------------------------------------------------------------------------
Balance at end of year 161,198 143,357 139,136
- --------------------------------------------------------------------------------
Total capital and surplus $186,402 $169,186 $164,965
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
9
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1999, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Cash from operations:
Revenue received:
Premiums, considerations
and deposits $357,071 $374,448 $367,166
Investment income 145,928 151,124 152,195
Management fee income from Separate Accounts 15,275 13,715 -
Mutual fund service fee income 1,420 - -
Other income 441 482 916
- --------------------------------------------------------------------------------
Total revenue received 520,135 539,769 520,277
- --------------------------------------------------------------------------------
Benefits and expenses paid:
Claims, benefits and
net transfers 357,166 391,531 416,022
Expenses 80,121 82,334 82,078
Dividends to policyholders 163 278 622
Federal income taxes 12,311 18,038 11,541
- --------------------------------------------------------------------------------
Total benefits and expenses paid 449,761 492,181 510,263
- --------------------------------------------------------------------------------
Net cash from operations 70,374 47,588 10,014
- --------------------------------------------------------------------------------
Cash from investments:
From investments sold or matured:
Bonds 825,118 1,131,927 1,291,350
Common and preferred stock 725 748 -
Mortgage loans 20,325 5,034 4,799
Real estate and other 21 5,608 1,628
- --------------------------------------------------------------------------------
Total investment proceeds 846,189 1,143,317 1,297,777
Tax on capital gains (losses) (1,952) 2,807 903
- --------------------------------------------------------------------------------
Total from investment proceeds 848,141 1,140,510 1,296,874
- --------------------------------------------------------------------------------
Cost of investments acquired:
Bonds 863,848 1,171,384 1,265,726
Mortgage loans 16,041 404 186
Real estate and other 4 26 1,301
- --------------------------------------------------------------------------------
Total investments acquired 879,893 1,171,814 1,267,213
Net increase in policy loans 4,094 5,387 4,918
- --------------------------------------------------------------------------------
Total from investments acquired 883,987 1,177,201 1,272,131
- --------------------------------------------------------------------------------
Net cash from investments (35,846) (36,691) 24,743
- --------------------------------------------------------------------------------
10 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years ended December 31, 1999, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Cash from financing and miscellaneous:
Cash provided:
Securities lending - 30,779 56,438
Other cash 7,028 3,053 8,743
- --------------------------------------------------------------------------------
Total cash provided 7,028 33,832 65,181
- --------------------------------------------------------------------------------
Cash applied:
Dividends to parent 24,000 18,100 16,000
Funds held for loaned securities 87,217 - -
Other applications 2,598 10,325 7,614
- --------------------------------------------------------------------------------
Total cash applied 113,815 28,425 23,614
- --------------------------------------------------------------------------------
Net cash from financing
and miscellaneous (106,787) 5,407 41,567
- --------------------------------------------------------------------------------
Net change in cash and
short-term investments (72,259) 16,304 76,324
Cash and short-term investments
at beginning of year 105,605 89,301 12,977
- --------------------------------------------------------------------------------
Cash and short-term investments
at end of year $ 33,346 $ 105,605 $ 89,301
- --------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
11 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1999, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
Organization
Horace Mann Life Insurance Company (the Company) is a wholly owned
subsidiary of Allegiance Life Insurance Company (ALIC). The Company's
ultimate parent is Horace Mann Educators Corporation (HMEC).
The Company sells and underwrites tax-qualified retirement annuities,
individual life, group disability income, and group life insurance products
primarily to educators and other employees of public schools and their
families. In December 1996, the Company announced its strategic decision to
withdraw from the group medical insurance business over the following two
years. The Company terminated 95% of that business by December 1997 and
terminated the remaining group medical insurance policies by September,
1998.
Basis of Presentation
The accompanying statutory financial statements have been prepared in
conformity with the accounting practices prescribed or permitted by the
Department of Insurance of the State of Illinois and the National
Association of Insurance Commissioners (NAIC), which differ materially in
some respects from generally accepted accounting principles as more fully
discussed in note 7. The significant statutory accounting practices follow.
Prescribed and Permitted Statutory Accounting Practices
Prescribed statutory accounting practices include state laws, regulations,
and general administrative rules, as well as a variety of publications of
the NAIC. Permitted statutory accounting practices encompass all accounting
practices that are not prescribed; such practices differ from state to
state, may differ from company to company within a state, and may change in
the future. All statutory accounting practices of the Company are
prescribed.
In March 1998, the NAIC adopted the codification of Statutory Accounting
Principles (Codification) as the NAIC supported basis of accounting.
Codification will likely change the definitions of what comprises prescribed
versus permitted statutory accounting practices, and may result in changes
to the accounting policies that insurance enterprises use to prepare their
statutory financial statements. Codification was adopted by the State of
Illinois in 1999 and will become effective January 1, 2001 The Company is
currently evaluating the impact of the Codification on their statutory
financial statements.
12 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Investments
Investments are valued in accordance with the requirements of the NAIC.
Bonds are generally carried at amortized cost. Common stocks are carried at
market. Mortgage loans are carried at the unpaid principal balance less
unamortized discount and were issued at a value of no more than 75% of the
appraised value of the mortgaged property. No significant new commercial
mortgage loans have been issued since 1988. Real estate is carried at the
lower of fair market value or cost. Policy loans are carried at the unpaid
principal balance.
The Company does not have any investments in derivative financial
instruments.
Asset Valuation Reserve
The Asset Valuation Reserve (AVR) was calculated as prescribed and required
by the NAIC. This reserve is maintained for the purpose of stabilizing
surplus against the effects of fluctuations in the value of certain bond,
stock, mortgage loan and real estate investments. Changes in the AVR reserve
are charged or credited to surplus.
The balance of the AVR by component as of December 31, 1999 and 1998, is as
follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Bonds, preferred stock and
short-term investments $17,010 $16,102
Mortgage loans 188 2
Common stock 756 22
Real estate and other investments 26 27
- --------------------------------------------------------------------------------
Total AVR $17,980 $16,153
- --------------------------------------------------------------------------------
The AVR is held at a level equal to 95.1% of the maximum reserve level allowed
by the NAIC.
Interest Maintenance Reserve
The Interest Maintenance Reserve (IMR) was calculated as prescribed by the
NAIC. This reserve is designed to capture the realized capital gains and losses
which result from changes in the overall level of interest rates and amortize
them into income over the approximate remaining life of the investment sold.
Cash and Short-Term Investments
Amounts represent cash and short-term securities having a maturity of 30 days
or less. Short-term investments are carried at cost which approximates market
value.
13 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Variable Annuities Assets and Liabilities
Assets held in trust for purchasers of variable annuity contracts and the
related liabilities are included in the statutory statements of admitted
assets, liabilities and capital and surplus. Variable annuity assets, carried
at market value, and liabilities represent tax-qualified variable annuity funds
invested in the Horace Mann mutual funds.
Variable annuity assets were invested in the Horace Mann mutual funds as
follows:
- --------------------------------------------------------------------------------
December 31, 1999 1998
- --------------------------------------------------------------------------------
Horace Mann Growth Fund $ 566,932 $ 605,803
Horace Mann Balanced Fund 404,712 427,368
Horace Mann Small Cap Fund 60,042 28,629
Horace Mann Socially Responsible Fund 59,129 35,368
Horace Mann International Equity Fund 26,040 10,290
Horace Mann Income Fund 13,237 13,952
Horace Mann Short-Term Fund 1,621 1,329
- --------------------------------------------------------------------------------
Total $1,131,713 $1,122,739
- --------------------------------------------------------------------------------
The investment income, gains and losses of these accounts accrue directly to
the policyholders and are not included in the operations of the Company.
Aggregate Reserves
Applicable state insurance laws require that the Company set up reserves in
accordance with statutory regulations, carried as liabilities to meet future
obligations under outstanding policies. These reserves are the amount that,
with the additional premiums to be received and interest thereon compounded
annually at certain rates, is calculated to be sufficient to meet the various
policy and contract obligations as they occur.
In 1999, with the approval of the Department of Insurance of the State of
Illinois, the Company changed the basis of valuation for individual annuities
to reflect the assumption changes for actuarial guideline 33. The change in
valuation basis decreased individual annuity reserves and increased surplus by
$10,712.
In 1997, the Company changed the basis of valuation for supplementary contracts
with life contingencies from guarantee of payments at issue to guarantee of
current payments. The change in valuation basis increased supplementary
contracts with life contingencies reserves and decreased surplus by $2,020.
14 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Aggregate reserves for life policies, annuity contracts, and supplementary
contracts with life contingencies are based on statutory mortality tables and
interest assumptions using either the net level, or commissioners' reserve
valuation method or CARVM. The annuity reserves include the current declared
interest rates through the valuation date. The composition of these liabilities
at December 31 was as follows:
- --------------------------------------------------------------------------------
Aggregate reserves Mortality Interest
---------------------
1999 1998 table rate
- --------------------------------------------------------------------------------
Life $ 455,857 $ 410,557 1980 CSO 4.0-7.0%
7,568 7,193 1958 CET 2.5-5.5
167,021 168,893 1958 CSO 2.5-4.5
30,102 28,202 Various 2.5-5.5
10,021 10,010 1941 CSO 2.5-3.0
Annuity 1,021,932 1,026,991 1971 IAM 3.0-5.5
99,802 108,707 1949 PAT 3.0-5.5
1,353 1,393 1937 SAT 3.0
5,741 5,048 Various 3.0-3.5
Supplementary
contracts with
life contingencies 77,433 81,790 1983a 6.5-11.0
7,953 - a-2000 6.25
4,796 5,269 1971 IAM 4.5-11.25
1,993 2,326 1937 SAT 3.5
- --------------------------------------------------------------------------------
Total $1,891,572 $1,856,379
- --------------------------------------------------------------------------------
Aggregate reserves for accident and health policies include the present value
of amounts not yet due on existing claims and unearned premiums at December 31
as follows:
- --------------------------------------------------------------------------------
Aggregate reserves
------------------
1999 1998
- --------------------------------------------------------------------------------
Present value of amounts not yet
due on claims (3% interest rate) $14,821 $16,223
Additional contract reserves 968 1,087
Unearned premiums and other 258 309
- --------------------------------------------------------------------------------
Aggregate accident and health reserves $16,047 $17,619
- --------------------------------------------------------------------------------
15 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Unpaid Benefits
Unpaid benefits consists of case basis reserves and estimates of losses
incurred but not reported. Estimates for losses incurred but not reported are
based on prior experience modified for current trends.
Accident and health claim reserves and liabilities include the following:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Aggregate reserves for accident
and health $16,047 $17,619 $17,497
Unpaid benefits accident and health 812 1,227 4,521
Less: Reserve for rate credits - - 29
Additional contract reserves (968) (1,087) (1,163)
Unearned premiums and other (258) (309) (321)
- -------------------------------------------------------------------------------
Accident and health claim reserves
and liabilities $15,633 $17,450 $20,563
- -------------------------------------------------------------------------------
The following table sets forth an analysis of accident and health claim
reserves and liabilities and provides a reconciliation of beginning and
ending reserves for the periods indicated.
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Net balance at January 1 $17,450 $20,563 $23,489
Incurred related to:
Current year 5,833 11,429 34,827
Prior years (1,981) (1,392) 1,516
- -------------------------------------------------------------------------------
Total incurred 3,852 10,037 36,343
- -------------------------------------------------------------------------------
Paid related to:
Current year 1,632 6,981 27,591
Prior years 4,037 6,169 11,678
- -------------------------------------------------------------------------------
Total paid 5,669 13,150 39,269
- -------------------------------------------------------------------------------
Net balance at December 31 $15,633 $17,450 $20,563
- -------------------------------------------------------------------------------
16 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- -------------------------------------------------------------------------------
Reserves for Supplementary Contracts
Without Life Contingencies
This reserve represents the present value of future payments discounted with
interest only. At December 31, 1999 and 1998 this liability was $114,683 and
$111,816 respectively, based on average credited interest rates of 5.1% and
5.7% in 1999 and 1998, respectively and is included in "policyholder funds on
deposit."
Premiums
Life premiums are reflected as earned on the policy anniversary date. Annuity
and supplementary contract premiums are reflected as earned when collected.
Accident and health premiums are reported as revenue when due and earned on a
pro rata basis over the period covered by the policy.
Deferred life premiums represent modal premiums (other than annual) to be
billed in the year subsequent to the commencement of the policy year.
Uncollected premiums represent premiums due less accident and health premiums
over 90 days past due.
Management Fee Income from Separate Accounts
Effective beginning in 1998, the NAIC requires the reporting of management
fee income from separate account as a revenue rather than as a reduction to
annuity benefits in the statutory statements of operations. Restatement of
prior period financial statements to show consistent presentation in earlier
years is not permitted.
Mutual Fund Service Fee Income
In 1999, the Company entered into a support service agreement where the
Company provides certain services to the Horace Mann Mutual Funds (Funds)
necessary to coordinate the Funds activities with those of the separate
account of the Company other than the administrative agreement. For the
period March 1, 1999 to December 31, 1999, the Company received a fee,
accrued daily and paid monthly, based upon the combined assets for the Funds.
Income Taxes
Income taxes were provided based upon the calculation of income taxes
currently payable or benefits recoverable. The Company is included in the
consolidated federal income tax return of its ultimate parent, HMEC.
Acquisition Expenses
The cost of acquiring new business, principally commissions, underwriting
salaries, and related expenses, is charged to expense as incurred.
Non-admitted Assets
Assets prescribed by the Illinois Insurance Code as "non-admitted"
(principally over 90-day accident and health due and unpaid premiums) are
charged to unassigned surplus.
Use of Estimates
The preparation of statutory financial statements requires management to make
estimates and assumptions that affect the reported financial statements
balances as well as the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
17 (Continued)
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
(2) Investments
Net Investment Income
The components of net investment income are as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Interest on bonds $145,134 $145,743 $148,451
Interest on mortgage loans 3,402 4,310 5,601
Interest on short-term investments 1,645 1,698 1,591
Interest on policy loans 3,561 3,298 2,945
Real estate income 1 404 602
Miscellaneous investment income 28 (17) 11
- --------------------------------------------------------------------------------
Gross investment income 153,771 155,436 159,201
Investment expenses 2,386 3,020 2,631
- --------------------------------------------------------------------------------
Net investment income $151,385 $152,416 $156,570
- --------------------------------------------------------------------------------
Realized Investment Gains (Losses) Net of Tax and Transfers to IMR
Realized investment gains and losses are determined on the basis of specific
identification. Realized investment gains (losses) on most fixed income
securities are transferred on an after tax basis to IMR and amortized into
income over the average remaining lives of the assets sold. Only realized
investment gains (losses) which result from changes in the overall level of
interest rates are transferred to IMR. These gains (losses) are not
included in net income in the year they occurred.
The IMR at December 31 is as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Reserve balance, beginning of year $18,619 $15,331 $15,882
Current year capital gains (losses),
net of tax 5,462 5,880 2,030
Amortization of interest maintenance
reserve (2,416) (2,592) (2,581)
- --------------------------------------------------------------------------------
Reserve balance, end of year $10,741 $18,619 $15,331
- --------------------------------------------------------------------------------
18
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Realized investment gains (losses) reported in the statutory statement of
operations net of tax and transfers to IMR are as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Bonds $(8,161) $ 8,162 $ 3,092
Real estate 2 (2,551) (1,904)
Common stock 724 747 (6)
Mortgage Loans - (2,290) -
Short-term investments - - 31
Other (4) (31) -
-------------------------------------------------------------------------------
Realized investment gains (losses) (7,439) 4,037 1,213
Less federal income tax (2,604) 1,413 424
Transferred to interest maintenance
reserve 5,462 (5,880) (2,030)
- --------------------------------------------------------------------------------
Realized investment gain (losses)
net of tax and transfers to IMR $ 627 $(3,256) $(1,241)
- --------------------------------------------------------------------------------
Change in Net Unrealized Capital Losses
Certain investments are required to be carried at market. The resulting
change in the unrealized gains or losses are reflected as credits or charges
to unassigned surplus, as follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Unrealized capital losses
Beginning of period $ 78 $(2,001) $(4,707)
End of period 418 78 (2,001)
- --------------------------------------------------------------------------------
Decrease for the period $340 $ 2,079 $ 2,706
- --------------------------------------------------------------------------------
19
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
- --------------------------------------------------------------------------------
Bonds
At December 31, 1999 and 1998, 6.0% and 4.9%, respectively, of the total
bond portfolio (at amortized cost) consisted of private placement bonds.
The market value of private placement bonds is estimated based upon factors
including credit quality, interest rates and maturity dates.
The carrying value and estimated market value of investments in bonds as of
December 31, 1999 and 1998 are as follows:
- --------------------------------------------------------------------------------
Carrying Unrealized Unrealized Market
December 31, 1999 value gains losses value
- --------------------------------------------------------------------------------
U.S. government and
agency obligations:
Mortgage-backed
securities $ 447,165 $ 2,874 $(10,992) $ 439,047
Other 124,044 317 (5,110) 119,251
Municipal bonds 36,913 136 (504) 36,545
Foreign government bonds 21,875 439 (327) 21,987
Corporate bonds 1,025,540 6,267 (45,164) 986,643
Other mortgage-backed
securities 388,206 1,226 (10,763) 378,669
- --------------------------------------------------------------------------------
Total $2,043,743 $11,259 $(72,860) $1,982,142
- --------------------------------------------------------------------------------
Carrying Unrealized Unrealized Market
December 31, 1998 value gains losses value
- --------------------------------------------------------------------------------
U.S. government and
agency obligations:
Mortgage-backed
securities $ 426,086 $13,778 $ (23) $ 439,841
Other 175,110 6,685 (244) 181,551
Municipal bonds 36,941 3,338 - 40,279
Foreign government bonds 21,829 2,827 (706) 23,950
Corporate bonds 1,011,087 48,555 (9,248) 1,050,394
Other mortgage-backed
securities 338,402 8,291 (1,074) 345,619
- --------------------------------------------------------------------------------
Total $2,009,455 $83,474 $(11,295) $2,081,634
- --------------------------------------------------------------------------------
20
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
At December 31, 1999, 1.8% of the Company's investment portfolio was
invested in collateralized mortgage obligations ("CMOs") excluding mortgage
obligations of United States governmental agencies. The average credit
quality rating of the Company's investment in CMOs was AAA and NAIC 1 -the
highest ratings. The market value of CMOs at December 31, 1999 was $101,900
compared to a $101,057 carrying value. The average duration of the Company's
investment in CMOs was 4.05 years at December 31, 1999.
The carrying value and estimated market value of bonds by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
================================================================================
Estimated
Carrying market
December 31, 1999 value value
================================================================================
Due in one year or less $ 135,823 $ 135,582
Due after one year through five years 653,708 647,607
Due after five years through ten years 594,051 572,725
Due after ten years 660,161 626,228
- --------------------------------------------------------------------------------
Total bonds $2,043,743 $1,982,142
================================================================================
Proceeds from sales of investments in bonds during 1999, 1998 and 1997 were
$577,098, $838,908 and $1,102,340, respectively. Gross gains of $2,341,
$10,194 and $9,115 and gross losses of $10,812, $4,977 and $7,412 were
realized on those sales for 1999, 1998 and 1997, respectively.
Deposits
The carrying value of securities on deposit with governmental authorities,
as required by law, as of December 31 were as follows:
================================================================================
1999 1998 1997
================================================================================
Held for all policyholders $1,704 $1,685 $1,685
Held for policyholders in certain states 603 591 611
- --------------------------------------------------------------------------------
$2,307 $2,276 $2,296
================================================================================
Securities Lending
Beginning in 1997, the Company entered into a securities lending program
whereby fixed income securities are loaned to third parties, primarily major
brokerage firms. Fixed maturities with a fair value of $0 and $87,217 were
loaned as of December 31, 1999 and 1998 respectively. Proceeds from
securities lending program are held in short term investments. At December
31, 1998 the Company was in compliance with agreements with custodian banks
facilitating the lending program that require a minimum of 100% of the value
of the loaned securities to be separately maintained as collateral for each
loan. At December 31, 1999 the Company did not have a lending agreement
with a custodian bank and is in the process of establishing a new agreement.
21
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
Investments in Entities Exceeding 10% of Capital and Surplus
The names of entities (other than the U.S. Government and government
agencies and authorities) in which the total amount invested exceeds 10% of
total capital and surplus at December 31, 1999 is as follows:
================================================================================
Standard & Poors Carrying
Bonds: rating: value
================================================================================
Associates Corp of North America AAA/AA-/A+ $58,155
Premier Auto AAA 30,844
First Union AAA/A- 25,492
Time Warner Entertainment BBB 23,541
Green Tree A/AAA 22,177
News America BBB- 22,061
Citibank AAA 21,662
Solomom Brothers A 21,010
General Motors A/AAA 19,287
===============================================================================
(3) Related Party Transactions
The Company has common management and shares office facilities with HMEC
and other affiliates and is a party to several intercompany service
agreements. Under these agreements, the Company paid $75,279, $78,326,
and $76,826 for management, administrative, data processing, commissions
and agency services, utilization of personnel, and investment advisory
services in 1999, 1998 and 1997, respectively.
The Company had balances payable to affiliates of $1,304 and $1,663 at
December 31, 1999 and 1998, respectively included in "accrued expenses"
and "other liabilities" in the statutory statements of admitted assets,
liabilities and capital and surplus. Also, the Company had balances
receivable from affiliates of $888 at December 31, 1998, which were
included in "other assets".
ALIC reinsures all of the Company's life insurance business in the state
of Arizona. In 1998, with the approval of the Illinois Department of
Insurance the Company entered into an assumptive reinsurance agreement
with ALIC whereby the Company assumed all life insurance policies written
by ALIC (See Note 8).
22
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(4) Federal Income Taxes
The Company is included in the consolidated federal income tax return of
its parent, ALIC and its ultimate parent, HMEC and its subsidiaries. Tax
sharing agreements between the Company and HMEC, as approved by the Board
of Directors of the Company, provides that tax on operating income is
charged to the Company as if it were filing a separate federal income tax
return. The Company receives the benefits of any losses or tax credits to
the extent utilized in the consolidated return. Intercompany tax balances
are settled quarterly with a subsequent final annual settlement.
Deferred income taxes are not provided on temporary differences between
financial statement and tax bases of assets and liabilities.
The following is a reconciliation of federal income tax expense on income
from operations with income tax computed by applying the federal
corporate rate of 35% for 1999, 1998 and 1997:
================================================================================
1999 1998 1997
================================================================================
"Expected" federal income tax expense
on reported income from operations $15,198 $14,209 $11,491
Add (deduct) tax effects of:
Reserve adjustments (2,584) 2,971 (1,853)
Policy acquisition costs 314 753 707
Other, net (973) (145) 204
-------------------------------------------------------------------------------
Federal income tax expense $11,955 $17,788 $10,549
================================================================================
23
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(5) Restrictions of Surplus
The amount of dividends which can be paid by Illinois insurance companies
without prior approval of the State Insurance Commissioner is subject to
restrictions relating to profitability and statutory surplus. Dividends
which may be paid by the Company during 2000 without prior approval are
approximately $32,000. Dividend payments were $24,000, $18,100 and
$16,000 in 1999, 1998 and 1997, respectively.
Under applicable Illinois insurance laws and regulations, the Company is
required to maintain a minimum capital and surplus of $1,500.
(6) Fair Value of Financial Instruments
Generally accepted accounting principles require that the Company
disclose estimated fair values for certain financial instruments. The
following methods and assumptions were used to estimate the fair value of
financial instruments.
Investments - For fixed maturities and short-term investments, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities, adjusted for differences between the quoted securities and
the securities being valued. The fair value of mortgage loans is
estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit
ratings and the same remaining maturities. The fair value of policy loans
is based on estimates using discounted cash flow analysis and current
interest rates being offered for new loans. The carrying value of real
estate is an estimate of fair value based on discounted cash flow from
operations.
24
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
Annuity Contract Liabilities and Policyholder Account Balances on Interest-
sensitive Life Contracts - The fair values of annuity contract liabilities
and policyholder account balances on interest-sensitive life contracts are
equal to the discounted estimated future cash flows (using the Company's
current interest rates earned on its investments) including an adjustment
for risk that the timing or amount of cash flows will vary from management's
estimate.
Other Policyholder Funds - Other policyholder funds are supplementary
contract reserves and dividend accumulations which represent deposits that
do not have defined maturities. The carrying value of these funds is used as
a reasonable estimate of fair value.
The carrying amounts and fair values of financial instruments at December
31, 1999 consisted of the following:
================================================================================
Carrying Fair
amount value
================================================================================
Financial Assets
Bonds $2,043,743 $1,982,142
Mortgage loans 34,293 34,400
Real estate 154 154
Short-term investments 24,508 24,508
Policy loans and other 58,609 59,041
================================================================================
Total investments $2,161,307 $2,100,245
Asset valuation reserve 17,980 -
================================================================================
Total investments less asset
valuation reserve $2,143,327 $2,100,245
Cash 8,838 8,838
================================================================================
Financial Liabilities
Policyholder account
balances on interest-sensitive
life contracts $ 94,141 $ 92,048
Annuity contract liabilities 1,221,003 1,052,732
Other policyholder funds 118,913 118,913
===============================================================================
Fair value estimates shown above are dependent upon subjective assumptions
and involve significant uncertainties resulting in variability in estimates
with changes in assumptions. Fair value assumptions are based upon
subjective estimates of market conditions and perceived risks of financial
instruments at a certain point in time. The disclosed fair values do not
reflect any premium or discount that could result from offering for sale at
one time an entire holding of a particular financial instrument. In
addition, potential taxes and other expenses that would be incurred in an
actual sale or settlement are not reflected in amounts disclosed.
25
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(7) Differences Between Generally Accepted Accounting
Principles and Statutory Accounting Practices
Statutory accounting practices differ in some respects from generally
accepted accounting principles. Under generally accepted accounting
principles, the following applies:
(a) Aggregate reserves for future life benefits are computed on the net
level premium method using estimates of future investment yield,
mortality, and withdrawal.
(b) Aggregate reserve for annuity contracts are carried at accumulated
policyholder values without reduction for potential surrender or
withdrawal charges.
(C) Policyholder dividends, based on dividend scales in effect at the time
the policies were issued, are accrued ratably over the premium paying
period of the policies.
(d) Life premiums are reflected as earned when due. Annuity considerations
and other fund deposits are reflected as deposits rather than revenue.
(e) Acquisition costs are deferred and amortized in proportion to
anticipated premiums over the terms of the insurance policies for
individual life contracts and amortized over 20 years in proportion to
estimated gross profits for interest-sensitive life and investment
(annuity) contracts.
(f) Deferred income taxes are provided on all significant temporary
differences between values of assets and liabilities for book and tax
reporting purposes.
(g) Non-admitted assets less applicable allowance accounts are restored to
the balance sheet.
(h) Asset valuation and interest maintenance reserves are not provided.
(i) The assets and liabilities are revalued as of the date of acquisition
of HMEC and its subsidiaries in August, 1989.
(j) Realized investment gains (losses) resulting from changes in interest
rates are recognized in income when the related security is sold.
(k) Reinsurance ceded credits are recognized as assets in GAAP basis
financial statements.
(l) Fixed maturity investments (bonds) are categorized as available for
sale. Such investments are carried at market with changes in market
value charged or credited to unassigned surplus, net of deferred income
taxes.
The aggregate effect of the foregoing differences has not been determined
separately for the Company.
26
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
(8) Reinsurance
Information with respect to reinsurance ceded and assumed by the Company is
set forth below.
================================================================================
1999 1998 1997
================================================================================
Life insurance premiums ceded:
To ALIC $1,215 $1,170 $1,147
To other companies 1,587 1,331 1,066
Life insurance reserves ceded:
To ALIC 8,116 7,495 6,933
To other companies 2,694 2,220 1,983
Life insurance premiums assumed:
From ALIC - 790 -
From other companies - - -
Group accident and health premiums ceded:
To other companies 509 709 1,228
Individual accident and health premiums assumed:
From ALIC - 6 -
Amounts recoverable from reinsurers
on paid losses 102 70 197
================================================================================
The maximum amount of direct ordinary insurance retained on any standard
life is $200. Amounts in excess of $200 are ceded on a yearly renewable term
basis of reinsurance. The Company reinsures on a treaty basis for each
accident and health claim up to $1 million over a prescribed retention
amount. Although reinsurance agreements transfer risk for amounts over a
certain retention limit, the Company has not relieved its primary obligation
to the policyholders. For the years ended December 31, 1999, 1998 and 1997,
the accident and health retention amount was $300 each year.
(9) Pension Plans and Other Postretirement Benefits
The Company is a member of the Horace Mann group of insurance companies. All
the Company's personnel are employees of Horace Mann Service Corporation
("HMSC"), an affiliated company. Salaries, pension and related benefits are
allocated to the Company for these services.
Pension Plans
All employees are covered under a defined benefit plan and are elegible to
participate in Supplemental Retirement Savings (401(K)) Plan. Certain
employees also participate in a supplemental defined contribution plan.
Employees hired on or before December 31, 1998 are also covered under a
defined benefit plan, with certain employees covered under a supplemental
defined benefit plan.
Benefits under the defined benefit and supplemental retirement plans are
based on employees' years of service and compensation for the highest 36
consecutive months of earnings under the plan. Under the defined
contribution plan, contributions are made to employees' accounts based on a
percentage of compensation that is determined by employees' years of
service. Retirement benefits to employees are paid first from their
accumulated accounts under the defined contribution plan with the balance
funded by the defined benefit and supplemental retirement plans.
27
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(In thousands)
================================================================================
Employees are also eligible to participate in the Supplemental Retirement
and Savings Plan, a 401(k) plan, and may generally contribute up to 10% of
eligible compensation on a before tax basis. The employer contributes an
amount equal to 50% of the first 6% of eligible compensation contributed
each month by participating employees.
Total allocated pension expense was $3,984, $3,997 and $3,934 for 1999,
1998 and 1997, respectively.
Postemployment Benefits
In addition to providing pension benefits, HMSC also provides certain
health care and life insurance benefits to retired employees and eligible
dependents. Employees with ten years of service are eligible to receive
these benefits upon retirement. The allocated cost of these benefits
totaled $993, and $803 for the years ended December 31, 1999, 1998, and
1997, respectively.
(10) Risk-Based Capital
The insurance departments of various states, including the Company's
domiciliary state of Illinois impose risk-based capital (RBC) requirements
on insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. The
requirements apply various weighted factors to financial balances or
activity levels based on their perceived degree of risk.
The RBC guidelines define specific capital levels where regulatory
intervention is required based on the ratio of the Company's actual total
adjusted capital (sum of capital and surplus and AVR) to control levels
determined by the RBC formula. At December 31, 1999, the Company's actual
total adjusted capital was $204,410 and the authorized control level risk-
based capital was $26,132.
28
<PAGE>
Schedule I
HORACE MANN LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Amount
shown in
Balance
Type of investments Cost(1) Market Value Sheet
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Bonds:
U.S. Government and government
agencies and authorities $ 571,209 $ 558,298 $ 571,209
State, municipalities and
political subdivisions 36,913 36,545 36,913
Foreign government bonds 21,875 21,987 21,875
Public utilities 10,663 10,489 10,663
Other corporate bonds 1,403,083 1,354823 1,403,083
----------- ---------- ----------
Total debt securities $ 2,043,743 $1,982,142 $2,043,743
----------- ========== ----------
Equity securities:
Common stocks:
Industrial and miscellaneous - 418 418
----------- ---------- ----------
Total equity securities - $ 418 418
----------- ========== ----------
Mortgage loans on real estate 34,293 XXX 34,293
Real estate 154 XXX 154
Policy loans 58,121 XXX 58,121
Short-term investments 24,508 XXX 24,508
Other investments 70 XXX 70
----------- ----------
Total investments $ 2,160,889 XXX $2,170,144
=========== ==========
</TABLE>
(1) Debt securities are carried at amortized cost or investment values
prescribed by the National Association of Insurance Commissioners.
(2) Real estate acquired in satisfaction of indebtedness is $0.
(3) Differences between cost and amounts shown in the balance sheet for
investments, other than equity securities, represent non-admitted
investments.
See accompanying independent auditors' report.
29
<PAGE>
Schedule III
HORACE MANN LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
For the years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------- ---------
Future policy Premium revenue
Deferred benefits Other policy and annuity,
policy losses, claims claims and pension and
acquisition and loss Unearned benefits other contract
Segment cost(1) expenses(3) premiums(3) payable considerations
<S> <C> <C> <C> <C> <C>
1999:
Life $ 676,666 $ 4,119 $ 110,942
Annuity 1,130,771 57 205,684
Supplementary
Contracts 92,610 114,683 31,441
Accident and
Health 16,859 54 8,598
----------- ---------- ----------- ---------- ----------
Total $1,916,906 $ 118,913 $ 356,665
=========== ========== =========== ========== ==========
1998:
Life $ 629,924 $ 4,179 $ 107,863
Annuity 1,143,472 80 223,325
Supplementary
Contracts 89,805 111,816 32,832
Accident and
Health 18,846 17 12,108
----------- ---------- ----------- ---------- ----------
Total $1,882,047 $ 116,092 $ 376,128
=========== ========== =========== ========== ==========
1997:
Life $ 590,132 $ 4,338 $ 104,684
Annuity 1,153,739 100 199,189
Supplementary
Contracts 84,670 107,606 30,455
Accident and
Health 22,018 33 32,395
----------- ---------- ----------- ---------- ----------
Total $1,850,559 $ 112,077 $ 366,723
=========== ========== =========== ========== ==========
<CAPTION>
For the years ended December 31,
------------------------------------------------------------------
Amortization
Benefits, of deferred
Net claims, losses policy Other
investment and settlement acquisition operating Premiums
Segment income expenses costs(1) expenses written(2)
<S> <C> <C> <C> <C> <C>
1999:
Life $ 44,617 $ 98,630 $45,939
Annuity 90,462 259,189 24,411
Supplementary
Contracts 14,738 43,880 1,451
Accident and
Health 1,568 3,682 6,387
-------- -------- ------------ ------- ----------
Total $151,385 $405,381 $78,188
======== ======== ============ ======= ==========
1998:
Life $ 42,918 $ 89,651 $45,279
Annuity 93,681 281,411 24,653
Supplementary
Contracts 13,999 45,097 1,470
Accident and
Health 1,818 9,978 7,241
-------- -------- ------------ ------- ----------
Total $152,416 $426,137 $78,643
======== ======== ============ ======= ==========
1997:
Life $ 41,237 $ 86,110 $48,476
Annuity 100,663 251,455 22,556
Supplementary
Contracts 12,464 42,098 725
Accident and
Health 2,206 32,228 10,849
-------- -------- ------------ ------- ----------
Total $156,570 $411,891 $82,606
======== ======== ============ ======= ==========
</TABLE>
(1) Does not apply to financial statements of life insurance companies which
are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and loss expenses.
See accompanying independent auditors' report.
30
<PAGE>
Schedule IV
HORACE MANN LIFE INSURANCE COMPANY
REINSURANCE
For the years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies assumed amount To net
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999: Life insurance in force $12,300,704 $900,993 $ - $11,399,711 0.0%
=========== ======== ========== =========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 113,744 $ 2,802 $ - $ 110,942 0.0%
Annuity 205,684 - - 205,684 0.0%
Supplementary contracts 31,441 - - 31,441
Accident and health 9,107 509 - 8,598 0.0%
----------- -------- ---------- ----------- ---
Total premiums $ 359,976 $ 3,311 $ - $ 356,665 0.0%
=========== ======== ========== =========== ===
1998: Life insurance in force $11,796,537 $762,100 $ 2,076 $11,036,513 0.0%
=========== ======== ========== =========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 109,574 $ 2,501 $ 790 $ 107,863 0.0%
Annuity 223,325 - - 223,325 0.0%
Supplementary contracts 32,832 - - 32,832
Accident and health 12,811 709 6 12,108 0.0%
----------- -------- ---------- ----------- ---
Total premiums $ 378,542 $ 3,210 $ 796 $ 376,128 0.0%
=========== ======== ========== =========== ===
1997: Life insurance in force $11,287,605 $528,096 $ - $10,759,509 0.0%
=========== ======== ========== =========== ===
Premiums and annuity,
pension and other
contract considerations:
Life insurance $ 106,897 $ 2,213 $ - $ 104,684 0.0%
Annuity 199,189 - - 199,189 0.0%
Supplementary contracts 30,455 - - 30,455
Accident and health 33,623 1,228 - 32,395 0.0%
----------- -------- ---------- ----------- ---
Total premiums $ 370,164 $ 3,441 $ - $ 366,723 0.0%
=========== ======== ========== =========== ===
</TABLE>
See accompanying independent auditors' report.
31
<PAGE>
PART C
OTHER INFORMATION
HORACE MANN LIFE INSURANCE COMPANY SEPARATE ACCOUNT
Item 24. Financial Statements and Exhibits
- -----------------------------------------------
(a) Financial Statements
-------------------------
Part A
Condensed financial information of the Account
Part B
The following Financial statements of the Account which were filed on or
about March 02, 2000 are incorporated by reference into this Post Effective
Amendment 67
-the Annual Report for the Registrant:
-Report of Independent Auditors
-Statements of Net Assets - December 31, 1999
-Statements of Operations - For the Year Ended December 31, 1999
-Statements of Changes in Net Assets For the Year Ended December 31, 1999
-Statements of Changes in Net Assets For the Year Ended December 31, 1998
-Notes to Financial Statements - December 31, 1999
Financial statements for Horace Mann Life Insurance Company
-Report of Independent Auditors
-Statutory Statements of Admitted Assets, Liabilities and Capital and
Surplus - As of December 31, 1999 and 1998
-Statutory Statements of Operations - For the Years Ended December 31,
1999, 1998 and 1997
-Statutory Statements of Capital and Surplus - For the ears Ended
December 31, 1999, 1998 and 1997
-Statutory Statements of Cash Flow - For the Years Ended December 31,
1999, 1998 and 1997
-Notes to Statutory Financial Statements - December 31, 1999, 1998 and
1997
(b) Exhibits
-------------
(1) Resolution of Board of Directors........... Post Effective Amendment 63
(2) Agreements for custody.................................. Not Applicable
(3) Underwriting Agreement..................... Post Effective Amendment 63
(4) Form of Variable Annuity Contract.......... Post Effective Amendment 65
(5) Form of application........................ Post Effective Amendment 63
(6) Certificate of incorporation and bylaws..Initial Registration Statement
(7) Contract of Reinsurance................................. Not Applicable
(8) Other Contracts......................................... Not Applicable
(9) Opinion and Consent of Counsel.......................... filed herewith
(10) Consent of Independent Auditors......................... filed herewith
(11) Financial Statement Schedules for Horace Mann Life Insurance Company an
the Independent Auditors' Report thereon................ filed herewith
(12) Agreement regarding initial capital..... Initial Registration Statement
(13) Performance Quotation Computations........ Post-Effective Amendment #57
(14) Power of Attorney....................................... Not Applicable
(15) Horace Mann Educators Corporation and its
Subsidiaries.............................. Post-Effective Amendment #57
(16) Financial Data Schedule................................. Filed Herewith
C-1
<PAGE>
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The directors and officers of Horace Mann Life Insurance Company, who are
engaged directly or indirectly in activities relating to the registrant or the
variable annuity contracts offered by the registrant, are listed below. Their
principal business address is One Horace Mann Plaza, Springfield, Illinois
62715.
Name Position & Office with Depositor
- ---- --------------------------------
Larry K. Becker Director and Executive Vice President,
Chief Financial Officer
Ann M. Caparros Director, Vice President, General Counsel &
Corporate Secretary
Valerie A. Chrisman Director and Senior Vice President
Paul J. Kardos Director and President & Chief Executive Officer
Michael R. Vignola Senior Vice President
George J. Zock Director and Executive Vice President
A. Thomas Arisman Senior Vice President
J. Michael Henderson Vice President & Treasurer
John H. Leitermann Vice President & Life Actuary
William J. Kelly Vice President
Item 26. Controlled by or Under Common Control with the Depositor or Registrant
- --------------------------------------------------------------------------------
The Registrant is a separate account of Horace Mann Life Insurance Company.
Horace Mann Life Insurance Company is a wholly owned subsidiary of Allegiance
Life Insurance Company. Allegiance Life Insurance Company and Horace Mann
Investors, Inc., principal underwriter of the Registrant, are wholly-owned
subsidiaries of Horace Mann Educators Corporation, a publicly held corporation.
See Exhibit No. 15.
Item 27. Number of Contract Owners
- -----------------------------------
As of March 31 2000, the number of Contract Owners of Horace Mann Life
Insurance Company Separate Account was 69,508 of which 65,645 were qualified
Contract Owners and 3,863 were non-qualified Contract Owners.
C-2
<PAGE>
Item 28. Indemnification
- -------------------------
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriters
- --------------------------------
Horace Mann Investors, Inc., the underwriter of Horace Mann Life Insurance
Company Separate Account, acts as principal underwriter for Horace Mann Life
Insurance Company Separate Account B and Horace Mann Life Insurance Company
Allegiance Separate Account A.
The following are the directors and officers of Horace Mann Investors, Inc.
Their principal business address is One Horace Mann Plaza, Springfield, Illinois
62715.
Name Position with Underwriter
- ---- -------------------------
A. Thomas Arisman Director and President
Larry K. Becker Director
George J. Zock Director
Ann M. Caparros Secretary
William J. Kelly Treasurer and Broker/dealer Compliance
Officer
Diane M. Barnett Tax Compliance Officer
Richard D. Wilson Marketing Officer
The following is a listing of the commissions and other compensation
received by the principal underwriter from the Registrant during the fiscal year
ended December 31, 1999:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Name of Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation
- ----------------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Horace Mann $5,811,107 N/A N/A N/A
Investors, Inc.
</TABLE>
C-3
<PAGE>
Item 30. Location of Accounts and Records
- ------------------------------------------
Horace Mann Investors, Inc., underwriter of the Registrant, is located at
One Horace Mann Plaza, Springfield, Illinois 62715. It maintains those accounts
and records associated with its duties as underwriter required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
Horace Mann Life Insurance Company, the depositor, is located at One Horace Mann
Plaza, Springfield, Illinois 62715. It maintains those accounts and records
required to be maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder that are not maintained by
Horace Mann Investors, Inc.
Item 31. Management Services
- -----------------------------
Not applicable.
Item 32. Undertakings
- ----------------------
(a) Registrant undertakes to file a Post-Effective Amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under variable annuity Contracts may be accepted.
(b) Registrant undertakes to include a written communication in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
(d) Horace Mann Life Insurance Company and the Registrant are relying on a
no-action letter from the Securities and Exchange Commission that was issued to
the American Council of Life Insurance and made publicly available on November
28, 1988. That letter outlines conditions that must be met if a company offering
registered annuity contracts imposes the limitations on surrenders and
withdrawals on section 403(b) contracts as required by the Internal Revenue
Code. Horace Mann Life Insurance Company and the Registrant are in compliance
with the conditions of that no-action letter.
(e) Horace Mann Life Insurance Company represents that the fees and
charges deducted under the Variable Annuity Contract in the aggregrate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.
C-4
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Title
- ------ -----
(1) Resolution of Board of Directors.............Post Effective Amendment 63
(2) Agreements for custody................................... Not Applicable
(3) Underwriting Agreement.......................Post Effective Amendment 63
(4) Form of Variable Annuity Contract............Post Effective Amendment 65
(5) Form of application..........................Post Effective Amendment 63
(6) Certificate of incorporation and bylaws...Initial Registration Statement
(7) Contract of Reinsurance...................................Not Applicable
(8) Other Contracts...........................................Not Applicable
(9) Opinion and Consent of Counsel............................filed herewith
(10) Consent of Independent Auditors...........................filed herewith
(11) Financial Statement Schedules for Horace Mann Life Insurance Company and
the Independent Auditors' Report thereon..................filed herewith
(12) Agreement regarding initial capital.......Initial Registration Statement
(13) Performance Quotation Computations..........Post-Effective Amendment #57
(14) Power of Attorney.........................................Not Applicable
(15) Horace Mann Educators Corporation and its
Subsidiaries................................Post-Effective Amendment #57
(16) Financial Data Schedule...................................Filed Herewith
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned,thereto duly authorized in the City of Springfield
and State of Illinois, on this 17th day of April, 2000.
HORACE MANN INSURANCE COMPANY SEPARATE ACCOUNT
By: Horace Mann Life Insurance Company
----------------------------------
(Depositor)
Attest: /s/ ANN M. CAPARROS By: /s/ PAUL J. KARDOS
--------------------------- ----------------------------
Ann M. Caparros Paul J. Kardos, President and
Corporate Secretary Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ PAUL J. KARDOS Director, President and April 17, 2000
- ------------------------- Chief Executive Officer
Paul J. Kardos
/s/ LARRY K. BECKER Director, Executive Vice April 17, 2000
- ------------------------- President and Chief
Larry K. Becker Financial Officer
/s/ ANN M. CAPARROS Director, Vice President, April 17, 2000
- ------------------------- General Counsel and
Ann M. Caparros Corporate Secretary
/s/ VALERIE A. CHRISMAN Director, April 17, 2000
- ------------------------- Senior Vice President
Valerie A. Chrisman
/s/ ROGER W. FISHER Senior Vice President April 17, 2000
- ------------------------- Officer
Roger W. Fisher
/s/ GEORGE J. ZOCK Director and Executive April 17, 2000
- ------------------------- Vice President
George J. Zock
/s/ THOMAS A. ARISMAN Senior Vice President April 17, 2000
- -------------------------
Thomas A. Arisman
C-6
<PAGE>
[LETTERHEAD OF HORACE MANN]
24 April 2000
Board of Directors
Horace Mann Life Insurance Company
1 Horace Mann Plaza
Springfield, IL 62715
Directors:
I have acted as counsel to Horace Mann Life Insurance Company (the "Company"),
an Illinois insurance company, and Horace Mann Life Insurance Company Separate
Account (the "Account") in connection with the registration of an indefinite
amount of securities in the form of flexible premium variable annuity contracts
(the "Contracts") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. I have examined such documents (including
post-effective amendment number sixty-seven to the Form N-4 registration
statement (File No. 811-1343)) and reviewed such questions of law as I
considered necessary and appropriate, and on the basis of such examination and
review, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a stock
life insurance company under the laws of the State of Illinois and is duly
authorized to by the Insurance Department of the State of Illinois to issue
the Contracts.
2. The Account is a duly authorized and existing separate account established
pursuant to the provisions of the Illinois Insurance Code.
3. To the extent so provided under the Contracts, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising out
of any other business that the Company may conduct.
4. The Contracts, when issued as contemplated by the Form N-4 registration
statement, will constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to post-effective
amendment number sixty-six to the Form N-4 registration statement for the
Contracts and the Account.
Sincerely,
/s/ Ann Caparros
Ann Caparros
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INVESTMENTS-AT-VALUE> 624,459
<RECEIVABLES> 1,148
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,029
<NET-ASSETS> 625,133
<DIVIDEND-INCOME> 11,528
<INTEREST-INCOME> 464
<OTHER-INCOME> 0
<EXPENSES-NET> 4,798
<NET-INVESTMENT-INCOME> 7,194
<REALIZED-GAINS-CURRENT> 39,294
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<NET-CHANGE-FROM-OPS> (16,544)
<EQUALIZATION> 0
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<ACCUMULATED-GAINS-PRIOR> 57
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,524
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,123
<AVERAGE-NET-ASSETS> 623,366
<PER-SHARE-NAV-BEGIN> 24.34
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> (.91)
<PER-SHARE-DIVIDEND> (.65)
<PER-SHARE-DISTRIBUTIONS> 1.77
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.92
<EXPENSE-RATIO> .73
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INVESTMENTS-AT-VALUE> 400,229
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<ASSETS-OTHER> 21
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<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 3,067
<NET-INVESTMENT-INCOME> 14,075
<REALIZED-GAINS-CURRENT> 16,470
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<NET-CHANGE-FROM-OPS> (4,859)
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<DISTRIBUTIONS-OF-INCOME> 13,825
<DISTRIBUTIONS-OF-GAINS> 16,931
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<PER-SHARE-NII> .62
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<PER-SHARE-DIVIDEND> (.22)
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<RETURNS-OF-CAPITAL> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> DEC-31-1999
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<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> 412
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36
<AVERAGE-NET-ASSETS> 1,669
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> .57
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 38,670
<INVESTMENTS-AT-VALUE> 60,526
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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