<PAGE>
Annual Report
December 31, 1996
[Picture]
Horace Mann Life Insurance Company
Allegiance Separate Account A
This report is submitted
for the general information
of owners of Horace Mann Life
Insurance Company Separate
Account A contracts. The
report is not authorized for
distribution to prospective
purchasers of variable annuity
contracts.
Horace Mann Life Insurance Company
P.O. Box 4657
Springfield, Illinois 62708-4657
1-800-999-1030
<PAGE>
Life, Health, Homeowners, Annuity
Horace Mann auto and Group Insurance
- ----------- ---------------------------------
Insuring America's Educational Community 1 Horace Mann Plaza
Springfield, Illinois 62715-0001
217-789-2500
Dear Valued Customer:
I appreciate your confidence in Horace Mann Life Insurance Company and your
continuing participation in our retirement annuity program.
For the year ended December 31, 1996, the total annual return of your variable
annuity contract was at least 23.83%, bringing the average annual return for the
five- and ten-year periods then ended to at least 15.53% and 13.46%,
respectively. These returns reflect the performance of your underlying
investment in the Horace Mann Growth Fund, Inc., less separate account charges
for mortality and expense risk, which vary depending on the year your contract
was issued.
For more information about the Growth Fund, please read the enclosed Horace Mann
Family of Funds' Annual Report. If you have questions about the Growth Fund,
Horace Mann Life Insurance Company Separate Account A Annual Report or your
variable annuity contract, please call your Horace Mann representative or our
toll-free number, 1 (800) 999- 1030.
Sincerely,
Paul J. Kardos
President and Chief Executive Officer
The Horace Mann Companies
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
ALLEGIANCE SEPARATE ACCOUNT A
Statement of Net Assets
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at market value
Horace Mann Growth Fund, Inc.
306,818 shares @ $23.76 (cost $6,029,010) $7,289,995
------------------------------------------- ----------
NET ASSETS
Net Assets (Indefinite units authorized)
Active Contract Owners
Horace Mann Growth Fund, Inc.
292,665 account units @ $23.76 $6,953,720
Retired Contract Owners
Horace Mann Growth Fund, Inc.
14,153 account units @ $23.76 336,275
-------
TOTAL NET ASSETS $7,289,995
---------------- ----------
</TABLE>
See notes to the financial statements.
2
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
ALLEGIANCE SEPARATE ACCOUNT A
Statement of Operations
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividend income distribution $ 107,011
------------------------------ ----------
Net investment income 107,011
----------------------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Capital gains distribution 807,381
Net realized gain on sale of investments 298,005
Net unrealized appreciation on investments 427,077
-------------------------------------------- ---------
Net gain on investments 1,532,463
--------------------------- ---------
Net increase in net assets resulting from operations $1,639,474
---------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
3
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
AllEGIANCE SEPARATE ACCOUNT A
Statements of Changes in Net Assets
For the Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
OPERATIONS
Net investment income $ 107,011 $ 145,050
Capital gains distribution 807,381 420,611
Net realized gain on sale
of investments 298,005 85,465
Net unrealized appreciation
on investments 427,077 1,236,817
- ------------------- ----------- -----------
Net increase in net assets
resulting from operations 1,639,474 1,887,943
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments
received 5,007 6,535
Administrative expenses (Note 1) (266) (342)
-------------------------------- ------------ ------------
Net consideration received on
annuity contracts 4,741 6,193
Net transfer to fixed
accumulation account (98,016) (343,357)
Payments to Contract Owners (1,199,709) (474,216)
Mortality risk charge (Note 1) (19,205) (19,055)
Mortality guarantee adjustment (49,130) 15,138
------------------------------ ------------ -----------
Net increase in net assets
resulting from Contract Owners'
transactions (1,361,319) (815,297)
--------------- ------------ ------------
Total increase in net assets 278,155 1,072,646
Net assets, beginning of year 7,011,840 5,939,194
----------------------------- ----------- -----------
Net assets, end of year $7,289,995 $7,011,840
----------------------- ----------- -----------
</TABLE>
See notes to the financial statements.
4
<PAGE>
HORACE MANN LIFE INSURANCE COMPANY
ALLEGIANCE SEPARATE ACCOUNT A
Notes to the Financial Statements
December 31, 1996
- --------------------------------------------------------------------------------
1. NATURE OF SEPARATE ACCOUNT -- Horace Mann Life Insurance Company Allegiance
Separate Account A ("the Account"), formerly known as Allegiance Life Insurance
Company Separate Account A, registered as a unit investment trust under the
Investment Company Act of 1940, is used to fund variable annuity contracts. All
assets are invested in shares of the Horace Mann Growth Fund, Inc. ("the Fund").
Certain specified amounts, as described in the annuity contracts, are paid to
Horace Mann Life Insurance Company ("HMLIC") to cover death benefits and
administrative expenses. In addition, an annual mortality and expense risk
charge up to .29% of the net variable account value is deducted from the
Contract Owners' account, depending on year of issue of the contract.
2. SIGNIFICANT ACCOUNTING POLICIES -- The investments in the Fund are valued at
market ("net asset value"). The Account owns approximately 2% of the Fund.
Distributions from the Fund are recorded on the ex-dividend date. Realized gains
and losses are determined on the basis of average cost of shares owned for each
Contract Owner.
3. FEDERAL INCOME TAXES -- Investment income of the Account is included in the
tax return of HMLIC; however, no tax accrues on income attributable to
tax-deferred annuities which comprise the majority of the Account contracts.
4. PURCHASE AND SALES OF HORACE MANN FUND SHARES -- During the year ended
December 31, 1996, purchases and proceeds from sales of Fund shares were as
follows:
<TABLE>
<CAPTION>
1996
----
Active Retired
------ -------
<S> <C> <C>
Purchases $ 922,152 $ 42,270
---------- --------
Sales $1,326,854 $ 84,495
---------- --------
</TABLE>
5. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C> <C>
Active Retired Active Retired
---------------- --------------
Account units outstanding
at beginning of year 307,950 15,773 326,247 10,442
Net consideration received 200 0 312 5,383
Dividend distributions 35,724 1,761 24,481 1,284
Net transfers to fixed accumulation account (3,718) -- (16,328) --
Payments to Contract Owners (47,491) (3,381) (26,762)(1,336)
-------------------------------------------------
Account units outstanding
at end of year 292,665 14,153 307,950 15,773
-------------------------------------------------
</TABLE>
6. NET ASSETS -- At December 31, 1996, net assets of $7,289,995 were comprised
of the cost of mutual fund shares to contract owners of $6,029,010 and the
adjustment for appreciation to market value of $1,260,985.
5
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Contract Owners of Horace Mann
Life Insurance Company Allegiance Separate
Account A and the Board of Directors
of Horace Mann Life Insurance Company:
We have audited the accompanying statement of net assets of Horace Mann Life
Insurance Company Allegiance Separate Account A as of December 31, 1996, and the
related statement of operations for the year then end and statements of changes
in net assets for each of the years in the two year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 by correspondence with the
Horace Mann Funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Horace Mann Life Insurance
Company Allegiance Separate Account A as of December 31, 1996, and the results
of its operations for the year then ended and changes in its net assets for each
of the years in the two year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1997
6
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Horace Mann Family of Funds
Annual Report
December 31, 1996
[picture]
<PAGE>
Contents
- --------------------------------------------------------------------------------
1996 performance
Growth Fund 25.3%
Balanced Fund 18.3%
Income Fund 3.5%
Short-Term Fund 5.0%
For further information, see page 3.
This report must be preceded
or accompanied by a current
prospectus.
Letter from the Chairman of
the Board and the President............................................... 2
Average Annual Total Return
Horace Mann Family of Funds................................................ 3
Portfolio manager letters.................................................. 4
Fund performance graphs.................................................... 8
Financial statements...................................................... 10
<PAGE>
HORACE MANN INVESTORS, INC.
- --------------------------------------------------------------------------------
1 Horace Mann Plaza
Springfield, Illinois 62715
217-789-2500
Dear Shareholder:
We're pleased to report 1996 was another successful year for your investment in
the Horace Mann Family of Funds. In 1996, the funds' results were positive, and
your assets increased in value in excess of inflation. Our two largest funds,
the Growth Fund and Balanced Fund, performed very well.
Growth Fund and Balanced Fund investors saw these funds continue to outperform
relevant benchmarks for the year ended 12/31/96. These funds also outperformed
the benchmarks over the five-year period ended 12/31/96. The Income Fund and
the Short-Term Fund both underperformed their benchmarks over the one- and five-
year periods, yet they continued to add value in excess of inflation.
MARKET REVIEW
In the equity markets, 1996 represented another remarkable year as stock prices
continued their sharp rise. Wellington Management Company, LLP, the investment
advisor for the Horace Mann Family of Funds, believes the remarkable performance
of the equity market in 1996 reflects several positive factors: steady but
moderate economic growth, stable inflation, good earnings gains and massive cash
flows into mutual funds. Such large gains were not observed by fixed-income
investors in 1996; however, returns for this asset class were positive and
exceeded inflation for the year. While bond investors noted the positive
factors that contributed to the strong year in equities, their perception of
wage inflation pressures dampened the bond market outlook, and, thus, bond
prices stayed within a relatively tight trading range.
MARKET AND POLITICAL ISSUES
Wellington expects continued growth in the domestic economy while inflation
remains in check. The firm foresees Real Gross Domestic Product growing at a
2.3% rate for 1997, while inflation remains moderate, slightly increasing to
3.2% from 3.0% in 1996. Wellington does not see any meaningful increase in the
inflation rate on the horizon, despite Federal Reserve Chairman Alan Greenspan's
concern over "irrational exuberance" in the financial markets. Furthermore,
given the 1996 election indicating Americans' preference for divided government,
both Republicans and Democrats are taking a more conciliatory tone in their
deliberations over balancing the budget and other key economic issues.
PERSPECTIVE
We are continually reminded by our customers they are committed to long-term
investing to meet their retirement objectives. Therefore, at the Horace Mann
Family of Funds, we seek to provide sound investment vehicles that strive to
achieve your investment objectives and assist you in the accumulation of assets
over time in excess of inflation. We appreciate the opportunity to assist you
in planning for a secure retirement.
Sincerely,
<PAGE>
/s/ GEORGE ZOCK /s/ LARRY BECKER
George Zock Larry Becker
President Chairman
Horace Mann Family of Funds Horace Mann Family of Funds
2
<PAGE>
How the Funds measure up
For Growth Fund Public Shareholders and Participants in the Horace Mann Employee
401(k) Plan
Total average annualized returns for the period ended Dec. 31, 1996 for the
Horace Mann Funds and their comparable benchmark indices are shown in the
following table:
<TABLE>
<CAPTION>
Since
1 Year 5 Years 10 Years Inception 1
------ -------- --------- ------------
<S> <C> <C> <C> <C>
Horace Mann Growth Fund 25.28% 16.98% 14.92% 15.03%
S&P 500 Stock Index 22.96 15.22 15.29 14.76
Horace Mann Income Fund 3.50 6.13 7.47 7.53
Lehman Intermediate
Gov't/Corp. Bond Index 4.06 6.53 7.91 8.02
Horace Mann Balanced Fund 18.27 13.20 12.07 12.52
Stock/Bond Composite 2 15.16 11.74 12.56 12.16
Horace Mann Short-Term
Investment Fund 5.02 3.97 5.44 4.90
90-day Treasury Bills 5.16 4.24 5.64 5.02
</TABLE>
Returns of the Horace Mann Funds in the above table are shown net of fund
expenses. Certain fund expenses have been subsidized (assumed and/or waived)
since 1983 for the Income and Short-Term Investment Funds. Commission credits
were used to pay certain expenses of the Growth and Balanced Funds from 1994
through 1996. Certain Balanced Fund expenses were subsidized during 1987.
Subsidization and use of credits result in higher returns ranging up to 1%,
depending on the period subsidized for each fund. There is no guarantee that
subsidization and use of credits will continue in the future.
The performance data quoted represents past performance, and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate, and when redeemed, may be worth more or less than its original cost.
The benchmark indices indicated are unmanaged and have no expenses.
1 Since inception refers to Nov. 1, 1989, the date Wellington Management
Company, LLP became the Funds' investment adviser.
2 60% S&P 500, 40% Lehman Brothers Intermediate Government/Corporate Bond
Index, rebalanced monthly.
3
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Growth Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
After the remarkable year in the stock market of 1995 with the S&P 500
Index up +37.6%, many investors expected the stock market to post more
moderate returns in 1996. Nevertheless, continued improvement in corporate
profits and strong inflows into equity mutual funds were enough to overcome
a small rise in long-term interest rates and contribute to another
rewarding year of total returns for the S&P 500 Index. In 1996, the Horace
Mann Growth Fund provided a total return for the year of 25.3% versus 23.0%
for the benchmark S&P 500 Index.
Portfolio Review
Sector and stock selection were important this year as the market performed
very unevenly. While the S&P 500 Index returned 23% for the year,
utilities within the Index returned only about 3%, while technology stocks
returned more than 40%. Since the value orientation of the fund commonly
results in the fund being overweight in utilities and underweight in
technology, we were pleased the fund was still able to outperform the
market. Sector and security selection were critical components in this
year's performance.
Energy stocks were important contributors in the portfolio. The
portfolio's energy overweight versus the S&P 500 Index helped, as energy
stocks outperformed the broader market for the year. In addition, the
energy stocks in the fund outperformed the energy stocks in the S&P 500.
By the end of the year, we began reducing our position in energy stocks as
many holdings approached our target prices.
The portfolio's overweighting versus the S&P 500 Index in finance stocks
also boosted performance, as finance was the best performing sector, after
technology, returning almost 36% for the year. Although the fund's
underweight in technology was certainly a drag on relative performance, the
strong performance of our individual selections within the group resulted
in technology providing a net positive contribution to relative
performance. The fund's slight overweight in utilities was a small
negative.
Economic Outlook
For the coming year, we expect the U.S. economy to grow near its long-term
sustainable rate, about 2.5%. If 1996 is any guide, growth in 1997 could
vary considerably from quarter to quarter. Currently, many signals on the
economy are mixed while banks, on the margin, appear to be tightening their
lending criteria to those consumers who might be overextended.
Although inflation, as measured by the CPI, has broken the 3% level on a
trailing 12-month basis, it remains more controlled than we had expected,
and we do not see any meaningful increase in the inflation rate on the
horizon. Higher food and energy prices are already in the numbers, and
only a sharp ramp up in global growth would move inflation higher.
Corporations continue to find the pricing environment to be difficult due
to an increasingly competitive global economy and price-sensitive buyers.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN R. RYAN
John R. Ryan, CFA
Senior Vice President
Stock Portfolio Manager
Horace Mann Growth Fund, Inc.
4
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- --------------------------------------------------------------------------------
Horace Mann Income Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
For the 12 months ended December 31, 1996, the Horace mann Income Fund
provided shareholders with a net return of 3.5%, outperforming the Lipper
Intermediate Investment Grade Bond Index return of 3.1%. The Income Fund's
performance lagged the 4.1% return of the Lehman Brothers Intermediate
Government/Corporate Bond Index.
During 1996, the Income Fund maintained an overweight position in mortgage-
backed securities, with about 30-35% of the fund's holdings in this sector.
This contributed positively to the fund's performance, as the mortgage
sector outperformed corporates, Treasuries, and agencies during the year.
Overall, U.S. bond investors experienced modestly positive total returns in
1996 as interest rates moved higher during the year, causing bond prices to
decline, offsetting a portion of the coupon income earned on those
securities. Within the investment grade sectors, corporate bonds and
mortgage-backed securities each out-performed comparable duration
Treasuries by roughly one percentage point. Economic trends continued to
defy those expecting a slowdown, and inflation was stubbornly confined.
Portfolio Review
The primary objective of the Horace Mann Income Fund remains to maximize
current income consistent with prudent investment risk. A secondary
objective is the preservation of capital. In investing the assets of the
fund, we emphasize high-quality intermediate bonds and apply intensive
credit analysis and, in the case of mortgage securities, prepayment
analysis.
Individual bonds are selected from an approved universe of issues and are
purchased for their contribution to the fund's total return. We avoid
securities we determine to be excessively risky, although other investors
might be tempted by yields on these securities. Though preservation of
capital is secondary to the income objective, we take it very seriously.
Interest rates were mixed in the fourth quarter as market psychology
improved, bringing most fixed-income yields lower, while seasonal forces
put upward pressure on the shortest maturity instruments. The Fed, other
than some activity evidenced in January, remained inactive during the final
11 months of the year. Short-term interest rates remain anchored at 5.25%.
Within the fixed income market, exposure to the yield-enhancing sectors was
the most important factor in 1996. In terms of sector allocation, by the
end of 1996, we had reduced the fund's exposure to Treasuries, and, to a
lesser extent, asset-backed securities. At the same time, we added to the
fund's corporate and mortgage commitment. Mortgage securities and callable
agency securities slightly outperformed Treasuries with their extra yield
during the year.
Economic Outlook
We will continue to manage the Income Fund with the consistent strategy we
have employed in the past -- by maximizing current income consistent with
prudent investment risk.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN C. KEOGH
John C. Keogh
Senior Vice President
Bond Portfolio Manager
Horace Mann Income Fund, Inc.
5
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- -------------------------------------------------------------------------------
Horace Mann Balanced Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
The remarkable performance of the equity market in 1995 and 1996 reflects a
confluence of favorable factors: steady but moderate economic growth,
stable inflation, good earnings gains, and massive cash flows into mutual
funds. The S&P 500 Stock Index registered an impressive 23.0% total return
during 1996 on the heels of a 37.6% total return in 1995. Bond markets
returned modest absolute returns in 1996, and they were much below the
impressive gains realized during 1995. The Lehman Brothers Intermediate
Government/Corporate Bond Index turned in a total return of 4.1% for 1996
compared to the 1995 return of 15.3%. For the 12 months ended December 31,
1996, the Horace Mann Balanced Fund provided a net return of 18.3%. The
Balanced Fund holds stocks and bonds which are similar to the securities
held separately by the Growth Fund and the Income Fund. As expected, then,
the Balanced Fund's return of 18.3% for 1996 is between the Growth Fund's
25.3% return and the Income Fund's 3.5% return.
Portfolio Review
The Horace Mann Balanced Fund's strong performance in 1996 was attributable
to our allocation of assets and to the strong stock market at year end,
about 70% of assets were invested in stocks. The stock portfolio was
helped by our heavy weighting in surging financial stocks, as well as our
security selection in the energy, consumer, and technology sectors. Stock
portfolio performance was hindered somewhat by our investments in weaker
performing basic materials producers, as well as our underweighting in the
soaring technology sector. Our bond portfolio performed approximately in
line with fix income market returns.
Economic Outlook
For the coming year we expect the economy to grow about 2.5%. If 1996 is
any guide, growth in 1997 could vary considerably from quarter to quarter.
Currently, many signals on the economy are mixed while banks, on the
margin, appear to be tightening their lending criteria to those consumers
who might be overextended.
Although inflation, as measured by the Consumer Price Index (CPI), has
broken the 3% level on a trailing 12-month basis, it remains more
controlled than we had expected, and we do not see any meaningful increase
in the inflation rate on the horizon. Higher food and energy prices are
already in the numbers, and only a sharp ramp up in global growth would
move inflation higher.
Favorable forces are in place for the financial markets, but much of the
good news has been incorporated into investor expectations. Fiscal
policies are improving, and efforts to continue to reduce the deficit are
continuing. Global demand for financial assets remains strong, and pension
reforms create new sources of buying power. Finally, while it may be
viewed as tinkering, the possibility remains that the CPI, the standard
inflation measure, will be redefined, resulting in a lower reading on
inflation.
In summary, we will continue to manage the Balanced Fund with the
consistent strategy we have employed in the past and will try to exploit
unfolding investment opportunities.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN R. RYAN /s/ JOHN C. KEOGH
John R. Ryan, CFA John C. Keogh
Senior Vice President Senior Vice President
Stock Portfolio Manager Bond Portfolio Manager
Horace Mann Balanced Fund,Inc. Horace Mann Balanced
Fund,Inc.
6
<PAGE>
Wellington Management Company, LLP 75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
Telephone: FAX:
(617)951-5000 (617)951-5250
- -------------------------------------------------------------------------------
Horace Mann Short-Term Investment Fund
December 31, 1996
- --------------------------------------------------------------------------------
Performance
The objective of the Short-Term Investment Fund is to realize maximum
current income while maintaining liquidity. Preservation of principal is a
secondary objective. For the 12 months ended December 31, 1996, the Horace
Mann Short-Term Investment Fund provided shareholders with a net return of
5.0%, a positive, real return for investors in a low-inflation environment.
The IBC/Donoghue's All Taxable Money Market Average returned 4.9% for the
year.
After reducing short-term interest rates in January, the Federal Reserve
left them unchanged for the remaining 11 months of the year. With the
central bank anchoring short-term yields at 5.25%, yields on longer-
maturity instruments moved with the ebbs and flows of market psychology.
Signs of stronger economic growth, even without the shadow of inflation,
prompted the Fed to shift their bias toward raising rates later in the
year.
With stronger economic trends, the credit cycle remains healthy. Short-
term bond funds sailed smoothly through the year without exposure to credit
defaults. Two of the more interesting developments involved the U.S.
Treasury. First, Congress shut down the government temporarily and put the
Treasury at risk of defaulting on its maturing debt. Cooler heads
prevailed, and the markets returned to normal. Second, the Treasury
developed plans to issue its first-ever Inflation Indexed bond, a floating
rate security whose return is tied to changes in the rate of U.S.
inflation. On the surface, although floating rate securities are
appropriate for short-term bond mutual funds, we do not anticipate using
these new securities for the Short-Term Fund at this time.
Portfolio Review
The Horace Mann Short-Term Investment Fund emphasizes safety and liquidity.
The Fund invests in short-term debt instruments issued by the U.S.
government, as well as high quality commercial paper issued by
corporations, and high quality short-term instruments issued by banks. We
continue to emphasize government agency securities due to the high-credit
quality and comparable yields to other short-term investments. In
addition, the size of the fund renders agency securities more cost
effective than the corporate short-term alternative, commercial paper.
Unlike commercial paper, agency discount notes can be purchased in small
lots without materially compromising liquidity and transaction costs while
providing attractive incremental yield over comparable maturity Treasury
bills.
Economic Outlook
Entering the new year, consensus expectations are for a continuation of
growth and inflation at similar levels as 1996. A steady manufacturing
sector combined with high consumer confidence and tight labor markets point
to no significant slowdown from the estimated 2.9% growth from 1996.
Consumer spending remains a focal point for activity as reduced spending
during last summer cooled the growth seen earlier in the year. As long as
inflation remains in check in the coming months, the Fed is likely to keep
short-term interest rates on hold.
We will continue to emphasize quality and liquidity in the Short-Term Fund,
and the fund should retain its ability to provide a safe harbor for those
assets that shareholders do not want committed to volatile stock and bond
markets.
Respectfully,
WELLINGTON MANAGEMENT COMPANY, LLP
/s/ JOHN C. KEOGH
John C. Keogh
Senior Vice President
Bond Portfolio Manager
Horace Mann Short-Term Investment Fund, Inc.
7
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN GROWTH FUND AND A STOCK INDEX /1/
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATES GROWTH FUND S&P 500 Index
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,432 10,449
03/30/90 10,206 10,135
06/29/90 10,543 10,774
09/30/90 9,346 9,293
12/30/90 9,852 10,125
03/28/91 11,084 11,595
06/28/91 11,505 11,569
09/30/91 11,766 12,188
12/31/91 12,464 13,209
03/31/92 12,269 12,876
06/30/92 12,862 13,121
09/30/92 13,004 13,534
12/31/92 13,659 14,216
03/31/93 14,807 14,837
06/30/93 15,248 14,908
09/30/93 15,837 15,292
12/31/93 16,354 15,648
03/31/94 15,975 15,055
06/30/94 16,329 15,118
09/30/94 17,054 15,857
12/31/94 16,353 15,855
03/31/95 17,628 17,396
06/30/95 19,051 19,057
09/30/95 20,233 20,572
12/29/95 21,787 21,811
03/29/96 23,306 22,982
06/28/96 24,060 24,014
09/30/96 24,935 24,756
12/31/96 27,295 26,820
</TABLE>
Horace Mann Growth Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
25.28% 16.98% 15.03%
Past performance is not predictive of future performance.
/1/ Stock Index: S&P 500, Standard and Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks. The rate of return shown above for the
unmanaged index has no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Growth Fund. Previous periods during which the
Growth Fund received investment advice from CIGNA Investments, Inc., are not
shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN INCOME FUND AND A BOND INDEX /1/
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATES INCOME FUND LEHMAN BROS. INTERM.
GOVT/CORP BOND INDEX
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,110 10,123
03/30/90 9,971 10,109
06/29/90 10,306 10,433
09/30/90 10,544 10,616
12/30/90 10,875 11,052
03/28/91 11,096 11,330
06/28/91 11,363 11,532
09/30/91 11,913 12,088
12/31/91 12,499 12,668
03/31/92 12,393 12,552
06/30/92 12,857 13,050
09/30/92 13,409 13,625
12/31/92 13,399 13,576
03/31/93 13,855 14,115
06/30/93 14,143 14,419
09/30/93 14,443 14,744
12/31/93 14,480 14,768
03/31/94 14,147 14,469
06/30/94 14,047 14,382
09/30/94 14,157 14,499
12/31/94 14,135 14,483
03/31/95 14,747 15,118
06/30/95 15,430 15,874
09/30/95 15,713 16,135
12/29/95 16,259 16,699
03/29/96 16,109 16,560
06/28/96 16,160 16,664
09/30/96 16,422 16,961
12/31/96 16,828 17,376
</TABLE>
Horace Mann Income Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
3.50% 6.13% 7.53%
Past performance is not predictive of future performance.
/1/ Bond Index: Lehman Bros. Intermediate Government/Corporate Bond Index, an
unmanaged index consisting of U.S. Treasury bonds, U.S. agency bonds and
investment grade corporate bonds with intermediate maturities. The rate of
return shown above for the unmanaged index has no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Income Fund. Previous periods during which the
Income Fund received investment advice from CIGNA Investments, Inc., are not
shown.
8
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN BALANCED FUND AND STOCK/BOND INDICES /1/
[graph appears here]
<TABLE>
<CAPTION>
DATES BALANCED FUND S&P 500 INDEX LEHMAN BROS. INTERM.
GOVT/CORP BOND INDEX
<S> <C> <C> <C>
11/01/89 $10,000 $10,000 $10,000
12/31/89 10,358 10,449 10,123
03/30/90 10,146 10,135 10,109
06/29/90 10,454 10,774 10,433
09/30/90 9,803 9,293 10,616
12/30/90 10,309 10,125 11,052
03/28/91 11,138 11,595 11,330
06/28/91 11,480 11,569 11,532
09/30/91 11,858 12,188 12,088
12/31/91 12,534 13,209 12,668
03/31/92 12,392 12,876 12,552
06/30/92 12,904 13,121 13,050
09/30/92 13,204 13,534 13,625
12/31/92 13,583 14,216 13,576
03/31/93 14,496 14,837 14,115
06/30/93 14,873 14,908 14,419
09/30/93 15,342 15,292 14,744
12/31/93 15,683 15,648 14,768
03/31/94 15,327 15,055 14,469
06/30/94 15,496 15,118 14,382
09/30/94 15,975 15,857 14,499
12/31/94 15,539 15,855 14,483
03/31/95 16,566 17,396 15,118
06/30/95 17,704 19,057 15,874
09/30/95 18,557 20,572 16,135
12/29/95 19,704 21,811 16,699
03/29/96 20,591 22,982 16,560
06/28/96 21,051 24,014 16,664
09/30/96 21,698 24,756 16,961
12/31/96 23,305 26,820 17,376
</TABLE>
Horace Mann Balanced Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
18.27% 13.20% 12.52%
Past performance is not predictive of future performance.
/1/ Stock/Bond Indices: S&P 500 Index and Lehman Bros. Intermediate
Government/Corporate Bond Index. Rate of returns shown above for the unmanaged
indices have no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Balanced Fund. Previous periods during which the
Balanced Fund received investment advice from CIGNA Investments, Inc., are not
shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN SHORT-TERM INVESTMENT FUND AND A TREASURY BILL INDEX /1/
[graph appears here]
<TABLE>
<CAPTION>
DATES SHORT-TERM FUND TREASURY BILL INDEX
<S> <C> <C>
11/01/89 $10,000 $10,000
12/31/89 10,141 10,130
03/30/90 10,330 10,335
06/29/90 10,528 10,544
09/30/90 10,736 10,743
12/30/90 10,943 10,933
03/28/91 11,122 11,100
06/28/91 11,291 11,260
09/30/91 11,450 11,415
12/31/91 11,592 11,541
03/31/92 11,694 11,658
06/30/92 11,797 11,766
09/30/92 11,888 11,857
12/31/92 11,972 11,951
03/31/93 12,044 12,041
06/30/93 12,128 12,132
09/30/93 12,200 12,224
12/31/93 12,278 12,321
03/31/94 12,376 12,415
06/30/94 12,474 12,529
09/30/94 12,597 12,660
12/31/94 12,757 12,797
03/31/95 12,922 12,964
06/30/95 13,087 13,144
09/30/95 13,252 13,324
12/29/95 13,416 13,510
03/29/96 13,577 13,681
06/28/96 13,725 13,854
09/30/96 13,900 14,032
12/31/96 14,090 14,208
</TABLE>
Horace Mann Short-Term Investment Fund
Average Annual Total Return
1 year 5 year Since Inception /2/
5.02% 3.97% 4.90%
Past performance is not predictive of future performance.
/1/ Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90-day maturities. The rate of return shown above for the unmanaged index
has no expenses.
/2/ Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Short-Term Investment Fund. Previous periods during
which the Short-Term Investment Fund received investment advice from CIGNA
Investments, Inc. are not shown.
9
<PAGE>
(Picture)
<PAGE>
Annual Report
December 31, 1996
Horace Mann Family of Funds
Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment Fund, Inc.
Directors of the Funds
A. Thomas Arisman
Larry K. Becker, Chairman
A.L. Gallop
Harriet A. Russell
George J. Zock
Officers of the Funds
George J. Zock
President
Ann Caparros
Secretary and
Ethics Compliance Officer
William J. Kelly
Treasurer and Regulatory
Compliance Officer
Linda L. Sacco
Assistant Secretary
Roger Fisher
Controller
Diane M. Barnett
Tax Compliance Officer
----------------------------------------------
Investment Adviser
Wellington Management Company
75 State Street
Boston, MA 02109
Custodian
First National Bank of Boston
150 Royall Street
Canton, MA 02021
Business Manager
Horace Mann Investors, Inc.
One Horace Mann Plaza
Springfield, IL 62715-0001
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
[pie chart]
Cash & Short-Term Statement of Investments
Investments 3.5% Horace Mann Growth Fund, Inc.
Common Stock 96.5% December 31, 1996
Number of Market
Shares (000)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Aerospace/Defense 5.03%
Boeing Co. 111,800 $ 11,893
Northrop Grumman Corp. 49,800 4,121
Precision Castparts Corp. 113,800 5,647
-------------------------- ------- -------
21,661
Auto/Accessories 5.07%
Ford Motor Co. 110,600 3,525
Goodyear Tire & Rubber Co. (The) 356,300 18,305
----------------------------------- ------- -------
21,830
Banks/Financial Services 8.98%
BankAmerica Corp. 56,400 5,626
Citicorp 62,365 6,424
Firstar Corp. 43,000 2,257
First Union Corp. 61,000 4,514
Lehman Brothers Holdings Inc. 38,000 1,192
MoneyGram Payment Systems, Inc.* 77,100 1,022
Morgan Stanley Group, Inc. 145,700 8,323
National City Corp. 116,400 5,223
NationsBank Corp. 41,800 4,086
------------------ ------- -------
38,667
Building & Construction 0.26%
Ryland Group Inc. 81,500 1,121
Business Services 0.82%
Foster Wheeler Corp. 95,100 3,531
Chemicals 6.45%
Air Products & Chemicals, Inc. 124,300 8,592
Ferro Corp. 98,500 2,795
Geon Co. 65,100 1,278
IMC Global Inc. 265,100 10,372
Nalco Chemical Co. 131,500 4,750
------------------- ------- -------
27,787
Communications 4.81%
AT & T Corp. 146,000 6,096
NYNEX Corp. 91,600 4,408
SBC Communications Inc. 81,000 4,192
Sprint Corp. 151,000 6,021
------------- ------- -------
20,717
Consumer Staples 4.62%
Flowers Industries, Inc. 276,300 5,940
Kimberly-Clark Corp. 108,100 10,297
Universal Corp. (Va.) 113,700 3,653
---------------------- ------- -------
19,890
See notes to the financial statements.
</TABLE>
12
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Horace Mann Growth Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Energy 10.64%
(continued) Amoco Corp. 51,000 $ 4,105
Enron Oil & Gas Co. 180,800 4,565
Equitable Resources, Inc. 160,700 4,781
MCN Corp. 105,400 3,043
Noble Drilling Corp.* 210,000 4,174
Seagull Energy Corp.* 192,000 4,224
Transocean Offshore Inc. 64,200 4,021
Union Texas Petroleum Holdings Inc. 259,100 5,797
USX-Marathon Group 371,900 8,879
Westcoast Energy Inc. 132,700 2,223
---------------------- ------- -------
45,812
Entertainment Products 2.19%
Brunswick Corp. 142,400 3,418
Eastman Kodak Co. 74,900 6,011
------------------ ------- -------
9,429
Health Care 7.47%
Baxter International Inc. 92,400 3,788
Bristol-Myers Squibb Co. 42,000 4,568
DePuy, Inc.* 121,400 2,458
Mallinckrodt, Inc. 128,600 5,674
Pharmacia & Upjohn Inc. 253,100 10,029
Value Health, Inc.* 290,200 5,659
-------------------- ------- -------
32,176
Information Technology/Equipment 4.00%
Bay Networks, Inc.* 62,700 1,309
Harris Corp. (Del.) 65,000 4,461
International Business Machines Corp. 74,100 11,189
NCR Corp.* 7,619 254
----------- ------- -------
17,213
Insurance 7.78%
ACE Limited 117,000 7,035
Allstate Corp. 221,890 12,842
Chubb Corp. 127,200 6,837
Integon Corp. 161,400 2,865
NAC Re Corp. 115,300 3,906
------------- ------- -------
33,485
Manufacturing (Diversified) 7.59%
Caterpillar Inc. 51,800 3,898
Cooper Industries Inc. 72,900 3,071
Deere & Co. 218,500 8,876
Kennametal Inc. 64,700 2,515
Minnesota Mining & Manufacturing 105,400 8,735
New Holland NV 62,900 1,313
UCAR Intl. Inc.* 113,700 4,278
----------------- ------- -------
32,686
Metals & Mining 3.92%
Alcan Aluminum Ltd. 78,900 2,653
Alumax Inc.* 164,500 5,490
Aluminum Co. of America 97,600 6,222
Reynolds Metals Co. 44,600 2,514
-------------------- ------- -------
16,879
See notes to the financial statements.
</TABLE>
13
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Concluded)
Horace Mann Growth Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Paper & Wood Products 3.31%
(concluded) Champion International Corp. 128,500 $ 5,558
Mead Corp. 149,400 8,684
----------- ------- --------
14,242
Retail 3.75%
Linen 'N Things, Inc.* 78,000 1,531
May Department Stores Co. 125,900 5,886
Penney (J.C.) Co., Inc. 74,800 3,646
Rite-Aid Corp. 128,000 5,088
--------------- ------- --------
16,151
Transportation/Travel 5.50%
America West Holdings Corp. - B* 263,500 4,183
Caliber Systems, Inc. 131,300 2,527
Canadian National Railway Co. 53,000 2,014
CSX Corp. 123,300 5,209
Delta Air Lines, Inc. 74,000 5,245
Pittston Burlington Group 64,650 1,293
Ryder Systems, Inc. 113,500 3,192
-------------------- ------- --------
23,663
Utilities/Other 4.35%
Central & South West Corp. 177,000 4,536
General Public Utilities Corp. 144,400 4,855
New England Electric System 117,100 4,084
New York State Electric & Gas Corp. 107,000 2,314
Pacific Gas & Electric Co. 139,100 2,921
--------------------------- ------- --------
18,710
--------
Total Common Stocks 96.54% $415,650
(Cost $345,826)
--------------------------------------------------------------------------
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------
SHORT-TERM Repurchase Agreement
INVESTMENTS Swiss Bank Capital Mkts, Inc.
6.70%, 01/02/97, (secured
by $14,197,427 US Treasury
Bond, 4.75%, 08/31/98 and
by $1,235,925 US Treasury
Bond, 5.125%, 04/30/98) $ 15,130 $ 15,130
----------------------------------- -------- ---------
Total Short-Term Investments 3.51% 15,130 15,130
(Cost $15,130)
--------------------------------------------------------------------------
Total Investments 100.05% 430,780
(Cost $360,956)
Securities Sold Short (.06%) (7,400) (247)
NCR Corp. (Proceeds $267)
Cash and Other Assets in Excess
of Liabilities 0.01% 23
---------------------- --------
Net Assets 100.00% $430,556
------------------- --------
* Non-income producing during the twelve months ended December 31, 1996 as
this security did not pay dividends.
See notes to the financial statements.
</TABLE>
14
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
[Pie Chart]
Cash & Short-Term Investments 1.7%
Corporate Bonds/Notes 29.7%
U.S. & Foreign Government & Agency Obligations 68.6%
<TABLE>
<CAPTION>
Statement of Investments
Horace Mann Income Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Treasury Bond/Notes
GOVERNMENT 6.125%, 08/31/98 $ 1,000 $ 1,005
AND AGENCY 6.250%, 10/31/01 400 400
OBLIGATIONS
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.500%, 03/01/01 38 40
9.500%, 06/01/01 14 15
9.500%, 08/01/01 14 14
9.500%, 10/01/01 12 12
7.000%, 11/01/03 47 47
7.000%, 07/01/10 527 527
7.000%, 12/01/10 47 47
7.000%, 01/01/11 415 414
6.500%, 03/01/11 378 372
7.000%, 03/01/11 713 713
7.000%, 04/01/11 826 826
7.000%, 07/01/11 193 193
8.000%, 12/01/11 15 15
Federal National Mortgage Association
(Mortgage Backed Securities)
6.625%, 04/18/01 1,500 1,513
8.000%, 11/01/09 20 20
7.500%, 05/01/25 724 724
Government National Mortgage Association
(Mortgage Backed Securities)
11.500%, 03/15/10 14 15
12.500%, 06/15/10 9 10
12.000%, 03/15/14 5 6
12.000%, 04/15/14 4 4
12.000%, 12/15/14 17 19
12.000%, 02/15/15 3 4
12.000%, 03/15/15 14 16
12.000%, 04/15/15 8 9
12.500%, 04/15/15 4 5
12.000%, 06/15/15 13 14
12.000%, 07/15/15 13 15
12.000%, 11/15/15 15 16
Collateralized Mortgage Obligation
(Planned Amortization Class)(Note 3)
FHLMC 1737-E PAC
6.000%, 12/15/17 220 218
Foreign (U.S. dollar denominated)
Republic of Iceland
6.125%, 02/01/04 200 193
----------------- ------ ------
Total U.S. and Foreign Government and
Agency Obligations 68.59% 7,422 7,441
(cost $7,390)
See notes to the financial statements.
</TABLE>
15
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Concluded)
Horace Mann Income Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE Banponce Corp.
BONDS/NOTES 6.75%, 12/15/05 $ 200 $ 194
BankAmerica Corp.
6.85%, 03/01/03 150 150
Boeing Co.
6.35%, 06/15/03 200 197
BP America Inc. Euro
9.75%, 03/01/99 100 106
Citicorp
6.75%, 08/15/05 200 197
Disney, Walt Co. B
6.75%, 03/30/06 200 199
duPont (E.I.) de Nemours & Co., Inc.
9.15%, 04/15/00 130 140
First Financial Caribbean
7.84%, 10/10/06 100 100
Gannett Co.
5.85%, 05/01/00 200 197
Honeywell Inc.
6.60%, 04/15/01 175 175
Husky Oil Ltd.
7.125%, 11/15/06 200 198
Southwestern Bell Telephone Co.
5.55%, 03/10/98 100 99
TCI Communications Inc.
6.875%, 02/15/06 200 181
Asset Backed
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 148 150
Ford Credit Grantor Trust 93-B A
4.30%, 07/15/98 17 17
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 157 157
GMAC Grantor Trust 92-D
5.625%, 02/15/01 200 193
Government Backed Trust
9.625%, 05/15/02 119 129
IBM Credit Trust 93-1A
4.55%, 11/15/00 115 114
Nations Bank Credit Trust 93-2 A
6.00%, 12/15/05 200 194
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 53 52
Premier Auto Trust 94-1 A3
4.75%, 02/02/00 83 82
---------------- ----- -----
Total Corporate Bonds/Notes 29.69% 3,247 3,221
(cost $3,224)
--------------------------------------------------------------------------
Total Investments 98.28% 10,662
(Cost $10,614)
Cash and Other Assets in Excess
of Liabilities 1.72% 186
-------------------------------------------------------------------------
Net Assets 100.00% $10,848
-------------------------------------------------------------------------
See notes to the financial statements.
</TABLE>
16
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
[pie chart]
Cash & Short-Term Investments 1.1%
Corporate Bonds/Notes 7.0%
U.S. & Foreign Government & Agency Obligations 22.5%
Common Stock 69.4%
Statement of Investments
Horace Mann Balanced Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Aerospace/Defense 3.57%
Boeing Co. 55,900 $5,946
Northrop Grumman Corp. 23,900 1,978
Precision Castparts Corp. 56,400 2,799
-------------------------- ------- ------
10,723
Auto/Accessories 3.73%
Ford Motor Co. 57,600 1,836
Goodyear Tire & Rubber Co. (The) 182,300 9,366
--------------------------------- ------- ------
11,202
Banks/Financial Services 6.44%
BankAmerica Corp. 27,300 2,723
Citicorp 30,659 3,158
Firstar Corp. 22,000 1,155
First Union Corp. 34,000 2,516
Lehman Brothers Holdings Inc. 19,300 606
MoneyGram Payment Systems, Inc.* 28,700 380
Morgan Stanley Group, Inc. 72,000 4,113
National City Corp. 57,900 2,598
NationsBank Corp. 21,600 2,111
------------------ ------- ------
19,360
Building & Construction 0.18%
Ryland Group Inc. 38,900 535
Business Services 0.58%
Foster Wheeler Corp. 47,200 1,752
Chemicals 4.61%
Air Products & Chemicals, Inc. 61,900 4,279
Ferro Corp. 49,600 1,407
Geon Co. 33,700 661
IMC Global Inc. 133,900 5,239
Nalco Chemical Co. 63,200 2,283
------------------- ------- ------
13,869
Communications 3.44%
AT & T Corp. 71,500 2,985
NYNEX Corp. 45,800 2,204
SBC Communications Inc. 41,000 2,122
Sprint Corp. 75,800 3,023
------------- ------- ------
10,334
Consumer Staples 3.42%
Flowers Industries, Inc. 150,800 3,242
Kimberly-Clark Corp. 55,700 5,305
Universal Corp. (Va.) 53,700 1,725
---------------------- ------- ------
10,272
See notes to the financial statements.
</TABLE>
17
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Energy 7.69%
(continued) Amoco Corp. 27,000 $2,173
Enron Oil & Gas Co. 92,100 2,326
Equitable Resources, Inc. 76,600 2,279
MCN Corp. 53,700 1,551
Noble Drilling Corp.* 104,000 2,067
Seagull Energy Corp.* 94,300 2,075
Transocean Offshore Inc. 32,800 2,054
Union Texas Petroleum Holdings Inc. 131,200 2,936
USX-Marathon Group 189,100 4,515
Westcoast Energy Inc. 68,300 1,144
---------------------- ------- ------
23,120
Entertainment Products 1.53%
Brunswick Corp. 70,300 1,687
Eastman Kodak Co. 36,400 2,921
------------------ ------- ------
4,608
Health Care 5.26%
Baxter International Inc. 37,800 1,550
Bristol-Myers Squibb Co. 20,000 2,175
DePuy, Inc.* 60,800 1,231
Mallinckrodt, Inc. 67,700 2,987
Pharmacia & Upjohn Inc. 127,400 5,048
Value Health, Inc.* 144,000 2,808
-------------------- ------- ------
15,799
Information Technology/Equipment 2.77%
Bay Networks, Inc.* 13,400 280
Harris Corp. (Del.) 33,800 2,320
International Business Machines Corp. 37,100 5,602
NCR Corp.* 3,725 124
----------- ------ -------
8,326
Insurance 5.64%
ACE Limited 59,800 3,595
Allstate Corp. 116,002 6,714
Chubb Corp. 60,800 3,268
Integon Corp. 81,700 1,450
NAC Re Corp. 57,200 1,938
------------- ------- -------
16,965
Manufacturing (Diversified) 5.41%
Caterpillar Inc. 24,800 1,866
Cooper Industries Inc. 37,400 1,575
Deere & Co. 107,500 4,367
Kennametal Inc. 33,400 1,298
Minnesota Mining & Manufacturing 52,700 4,368
New Holland NV 31,500 658
UCAR Intl Inc.* 56,900 2,141
---------------- ------- ------
16,273
Metals & Mining 2.84%
Alcan Aluminum Ltd. 40,300 1,355
Alumax Inc.* 80,400 2,683
Aluminum Co. of America 49,700 3,168
Reynolds Metals Co. 23,500 1,325
-------------------- ------- ------
8,531
See notes to the financial statements.
</TABLE>
18
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
Number of Market
Shares (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS Paper & Wood Products 2.36%
(continued) Champion International Corp. 64,100 $2,772
Mead Corp. 74,200 4,313
----------- ------- -----
Retail 2.75%
Linens 'N Things, Inc.* 38,900 763
May Department Stores Co. 65,300 3,053
Penney (J.C.) Co., Inc. 37,400 1,823
Rite-Aid Corp. 66,000 2,623
--------------- ------ ------
8,262
Transportation/Travel 3.94%
America West Holdings Corp. - B* 132,200 2,099
Caliber System, Inc. 65,600 1,263
Canadian National Railway Co. 27,100 1,030
CSX Corp. 60,500 2,556
Delta Air Lines, Inc. 37,000 2,622
Pittston Burlington Group 33,600 672
Ryder Systems, Inc. 56,800 1,598
-------------------- ------ ------
11,840
Utilities/Other 3.26%
Central & South West Corp. 89,000 2,281
General Public Utilities Corp. 71,400 2,401
New England Electric System 61,300 2,138
New York State Electric & Gas Corp. 68,700 1,486
Pacific Gas & Electric Co. 71,100 1,493
--------------------------- ------ ------
9,799
Total Common Stock 69.42% 208,655
(cost $173,242)
<CAPTION>
--------------------------------------------------------------------------
Principal
Amount Market
(000) (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Treasury Bonds/Notes
GOVERNMENT 5.250%, 12/31/97 $ 6,750 $ 6,726
AND AGENCY 6.125%, 08/31/98 5,000 5,023
OBLIGATIONS 6.250%, 10/31/01 4,000 4,002
Federal Home Loan Bank
(Mortgage Backed Securities)
6.670%, 04/06/01 1,500 1,515
Federal Home Loan Mortgage Corporation
(Mortgage Backed Securities)
9.500%, 07/01/01 9 10
9.500%, 08/01/01 7 8
9.500%, 09/01/01 12 13
9.500%, 10/01/01 26 27
8.500%, 06/01/02 44 45
9.250%, 11/01/02 64 67
8.250%, 10/01/07 69 71
See notes to the financial statements.
</TABLE>
19
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Federal Home Loan Mortgage Corporation
GOVERNMENT (Mortgage Backed Securities)
AND AGENCY 8.250%, 11/01/07 $ 76 $ 78
OBLIGATIONS 8.750%, 05/01/08 75 78
(Continued) 8.500%, 08/01/08 98 100
9.000%, 09/01/08 78 82
8.000%, 09/01/09 63 64
8.000%, 04/01/10 83 85
7.000%, 07/01/10 83 83
7.000%, 09/01/10 23 23
7.000%, 10/01/10 623 623
7.000%, 11/01/10 307 307
7.000%, 12/01/10 137 137
7.000%, 01/01/11 2,582 2,581
7.000%, 02/01/11 3,546 3,545
6.500%, 03/01/11 4,735 4,654
7.000%, 03/01/11 6,049 6,048
7.000%, 04/01/11 1,961 1,961
7.000%, 07/01/11 1,558 1,557
Federal National Mortgage Association
(Mortgage Backed Securities)
8.000%, 07/01/98 92 94
6.625%, 04/18/01 18,000 18,152
8.750%, 02/01/10 358 373
10.250%, 07/01/13 34 38
7.500%, 07/01/23 414 413
7.500%, 04/01/24 603 602
7.500%, 05/01/24 190 190
7.500%, 06/01/24 481 481
7.500%, 08/01/24 625 624
7.500%, 09/01/24 841 840
7.500%, 10/01/24 656 656
7.500%, 02/01/25 164 164
7.500%, 04/01/25 1,226 1,226
Government National Mortgage Association
(Mortgage Backed Securities)
11.000%, 12/15/00 37 39
9.500%, 08/20/01 56 59
9.500%, 10/20/01 45 47
9.500%, 07/20/02 72 75
9.500%, 12/20/02 58 61
9.500%, 01/20/03 32 34
9.500%, 02/20/03 43 45
9.500%, 05/20/03 78 81
9.500%, 08/20/03 83 87
9.500%, 09/20/03 123 129
9.500%, 11/20/03 47 49
9.500%, 09/20/04 30 31
8.250%, 05/15/06 125 128
12.000%, 03/15/15 37 41
8.500%, 01/15/20 40 42
8.500%, 02/15/21 248 256
8.500%, 06/15/21 178 183
8.500%, 08/15/21 28 28
8.500%, 04/15/23 266 276
See notes to the financial statements.
</TABLE>
20
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Horace Mann Balanced Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AND FOREIGN Collateralized Mortgage Obligation
GOVERNMENT (Planned Amortization Class) (Note 3)
AND AGENCY FHLMC G42-D
OBLIGATIONS 8.000%, 08/17/17 $ 1,462 $ 1,501
(Continued)
Foreign (U.S. dollar denominated)
Republic of Iceland
6.125%, 02/01/04 1,000 965
----------------- ------- -------
Total U.S. and Foreign Government and
Agency Obligations 22.47% 67,330 67,523
(cost $67,285)
- --------------------------------------------------------------------------------------------
CORPORATE Associates Corp. NA
BONDS/NOTES 5.25%, 09/01/98 315 311
Associates Corp. NA
6.00%, 06/15/00 500 492
Bankers Trust
8.25%, 05/01/05 1,500 1,603
Banponce Corp.
5.75%, 12/15/05 1,460 1,416
Beneficial Corp.
12.875%, 08/01/13 261 296
Boeing Co.
6.35%, 06/15/03 750 739
Citicorp
6.75%, 08/15/05 1,000 982
Disney, Walt Co. B
6.75%, 03/30/06 1,500 1,489
First Financial Caribbean
7.84%, 10/10/06 665 667
Ford Motor Credit Corp.
5.75%, 01/25/01 1,500 1,451
Gannett Co.
5.85%, 05/01/00 750 737
GMAC
5.62%, 02/15/01 1,000 966
Honeywell Inc.
6.60%, 04/15/01 1,315 1,312
Husky Oil Ltd.
7.125%, 11/15/06 1,000 991
Southwestern Bell Telephone Co.
5.55%, 03/10/98 400 397
TCI Communications
6.875%, 02/15/06 1,500 1,355
ASSET BACKED
Banc One Auto Grantor Trust 96-B A
6.55%, 02/15/03 1,114 1,121
Ford Credit Grantor Trust 93-B A
4.30%, 07/15/98 43 43
Ford Credit Grantor Trust 95-B A
5.90%, 10/15/00 1,255 1,254
IBM Credit Trust 93-1 A
4.55%, 11/15/00 785 778
See notes to the financial statements.
</TABLE>
21
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statement of Investments (Concluded)
Horace Mann Balanced Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE ASSET BACKED (Continued)
BONDS/NOTES Nations Bank Credit Trust 93-2 A
(Continued) 6.00%, 12/15/05 $ 1,000 $ 967
Premier Auto Trust 93-6 A2
4.65%, 11/02/99 264 262
Premier Auto Trust 94-1 A3
4.75%, 02/02/00 827 823
Premier Auto Trust 94-2 A3
6.35%, 05/02/00 584 587
---------------- ------ --------
Total Corporate Bonds/Notes 7.00% 21,288 21,039
(cost $21,053)
- ---------------------------------------------------------------------------------------------
SHORT-TERM Repurchase Agreement
INVESTMENTS Swiss Bank Capital Mkts, Inc.
6.70%, 01/02/97, (secured
by $2,383,997 US Treasury
Bond, 9.875%, 11/15/15) 2,341 2,341
------------------------ ------- -------
Total Short-Term Investments 0.78% 2,341 2,341
---------------------------------- ------- -------
(cost $2,341)
Total Investments 99.67% 299,558
(Cost $263,921)
Securities Sold Short (.04%) (3,600) (120)
NCR Corp. (Proceeds $130)
Cash and Other Assets
in Excess of Liabilities 0.37% 1,113
-------------------------------- -------
Net Assets 100.00% $300,551
------------------ --------
* Non-income producing during the twelve months ended December 31, 1996 as
this security did not pay dividends.
See notes to the financial statements.
</TABLE>
22
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
[pie chart]
Cash & Short-Term Investments 1%
<TABLE>
<CAPTION>
U.S Government & Agency Obligations 99%
Statement of Investments
Horace Mann Short-Term Investment Fund, Inc.
December 31, 1996
Principal
Amount Market
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT Treasury Bonds/Notes
AND AGENCY 7.50%, 01/31/97 $ 100 $ 100
OBLIGATIONS
Federal Farm Credit Bank Discount Notes
5.26%, 01/23/97 20 20
5.25%, 02/04/97 100 99
5.39%, 03/24/97 55 54
Federal Home Loan Bank Discount Notes
5.23%, 01/13/97 110 110
Federal Home Loan Mortgage Corp.
Discount Notes
5.33%, 02/06/97 85 85
5.51%, 02/14/97 70 70
5.47%, 02/20/97 48 48
5.34%, 03/04/97 88 87
Federal National Mortgage Association
Discount Notes
5.19%, 01/12/97 30 30
5.38%, 01/17/97 140 140
4.59%, 01/24/97 55 55
5.24%, 01/29/97 15 15
5.35%, 02/18/97 15 15
5.32%, 03/04/97 105 104
5.34%, 03/24/97 50 49
5.39%, 06/13/97 40 39
Tennessee Valley Authority Discount Note
6.41%, 04/09/97 100 98
--------------- ------ ------
Total Investments 99.10% 1,226 1,218
(Cost $1,218)
Cash and Other Assets in Excess
of Liabilities 0.90% 11
--------------------- ------
Net Assets 100.00% $1,229
------------------- ------
</TABLE>
See notes to the financial statements.
23
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
December 31, 1996
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 66,467 $ 59,174 $ 211,738 $ 3,751
Investments at market value* 430,780,486 10,661,515 299,557,716 1,217,588
Dividends and interest receivable 442,977 123,850 1,126,467 --
Accounts receivable-fund shares sold 369,737 18,953 282,065 9,323
Accounts receivable-investments sold 266,865 4,493 154,570 3,139
Prepaid expenses 18,313 1,301 14,312 --
- ----------------- ------ ----- ------ --
Total Assets 431,944,845 10,869,286 301,346,868 1,233,801
- -------------- ----------- ---------- ----------- ---------
LIABILITIES
Accounts payable-fund shares redeemed 56,631 232 88,357 1,295
Accounts payable-investments purchased 880,131 -- 434,628 --
Accrued expenses 204,938 20,956 152,699 3,679
Securities sold short at value 246,975 -- 120,150 --
(Proceeds $266,865 for Growth Fund and
$129,820 for Balanced Fund)
-------------------------------------------------------------------------------------------------------------
Total Liabilities 1,388,675 21,188 795,834 4,974
----------------- --------- ------ ------- -----
NET ASSETS $430,556,170 $10,848,098 $300,551,034 $1,228,827
- ---------- ------------ ----------- ------------ ----------
NET ASSETS CONSIST OF:
Par value of common shares 18,118,135 85,511 1,586,973 12,252
Paid in surplus 342,351,331 10,708,323 263,135,832 1,216,056
Accumulated undistributed net investment
income 123,253 7,248 117,809 1,006
Accumulated undistributed net realized
gain (loss) on investments 119,191 (10) 63,991 (2)
Net unrealized appreciation
(depreciation) on investments 69,844,260 47,026 35,646,429 (485)
------------------------------- ---------- ------ ---------- ----
NET ASSETS $430,556,170 $10,848,098 $300,551,034 $1,228,827
- ---------- ------------ ----------- ------------ ----------
Number of shares outstanding:
(Authorized 50,000,000 shares each; $1.00 par
value for Growth Fund; $.10 par value capital
stock for Income Fund, Balanced Fund, and
Short-Term Fund) 18,118,135 855,109 15,869,731 122,522
---------------- ---------- ------- ---------- -------
NET ASSET VALUE PER SHARE $ 23.76 $ 12.69 $ 18.94 $ 10.03
- ------------------------- - ----- - ----- - ----- - -----
*Cost of Investments $360,956,116 $10,614,489 $263,920,957 $1,218,073
</TABLE>
The identified cost of investments owned at December 31, 1996 was the same for
federal income tax and book purposes.
See notes to the financial statements.
24
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statements of Operations
For the Year Ended
December 31, 1996
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 7,565,184 $ -- $ 3,881,005 $ --
Interest & amortization 912,081 717,368 5,739,050 60,705
- ------------------------ ------- ------- --------- ------
Total investment income 8,477,265 717,368 9,620,055 60,705
EXPENSES:
Investment advisory and related fees 1,129,812 28,392 767,373 1,509
Management fees 741,749 22,734 544,797 2,355
Fund pricing fees 26,919 6,002 22,110 4,934
Professional fees 28,519 23,381 26,839 11,449
Custodian fees 54,343 10,400 50,018 2,307
Transfer agent fee (Note 5) 32,394 24 24 24
Shareholder reports 14,009 708 5,662 30
Directors' fees and expenses 3,477 3,477 3,477 3,477
Other expenses 40,931 1,638 24,191 450
Insurance expenses 26,011 1,911 20,598 619
- ------------------- ------ ----- ------ ---
Total expenses 2,098,164 98,667 1,465,089 27,154
Less management fees waived (Note 5) -- (22,734) -- (2,355)
Less expenses paid by Horace Mann
Investors, Inc. (Note 5) -- -- -- (18,891)
Less expenses paid by commission credits
(Note 3) (73,583) -- (64,442) --
------------ ------- -- ------- --
Net expenses 2,024,581 75,933 1,400,647 5,908
- -------------- --------- ------ --------- -----
Net investment income 6,452,684 641,435 8,219,408 54,797
- ----------------------- --------- ------- --------- ------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments:
Proceeds from sales 230,369,962 10,524,425 175,705,678 2,568,987
Cost of securities sold 182,168,009 10,465,846 150,238,274 2,568,967
- ------------------------- ----------- ---------- ----------- ---------
Net realized gain on investments 48,201,953 58,579 25,467,404 20
Unrealized appreciation (depreciation) on investments:
Beginning of period 42,242,635 372,389 24,477,490 (157)
End of period 69,844,260 47,026 35,646,429 (485)
- ---------------- ---------- ------ ---------- ----
Net unrealized appreciation (depreciation)
on investments during the period 27,601,625 (325,363) 11,168,939 (328)
-------------------------------- ---------- -------- ---------- ----
Net realized and unrealized gain
(loss) on investments 75,803,578 (266,784) 36,636,343 (308)
--------------------- ---------- -------- ---------- ----
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 82,256,262 $ 374,651 $ 44,855,751 $ 54,489
---------- - ---------- - ------- - ---------- - ------
</TABLE>
See notes to the financial statements.
25
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Years Ended
December 1996 and 1995
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
-------------------------- ------------------------ -------------------------- -------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment
income $ 6,452,684 $ 6,226,547 $ 641,435 $ 607,806 $ 8,219,408 $ 7,312,902 $ 54,797 $ 58,582
Net realized
short-term gain
(loss) on
investments 27,750,104 6,813,495 (29,132) 81,252 13,881,249 3,958,147 20 60
Net realized
long-term gain
on investments 20,451,849 11,128,402 87,711 1,736 11,586,155 5,265,350 -- --
Net increase
(decrease) in
unrealized
appreciation 27,601,625 47,518,643 (325,363) 674,487 11,168,939 29,741,138 (328) 127
- ----------------- ---------- ---------- -------- ------- ---------- ---------- ---- ---
Change in net
assets from
operations 82,256,262 71,687,087 374,651 1,365,281 44,855,751 46,277,537 54,489 58,769
- ------------------ ---------- ---------- ------- --------- ---------- ---------- ------ ------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment
income (6,377,641) (6,197,557) (639,826) (603,044) (8,167,501) (7,291,835) (54,334) (58,578)
Net realized
short-term gain
from investment
transactions (27,699,455) (6,823,150) -- -- (13,856,450) (3,955,981) (23) (39)
Net realized
long-term gain
from investment
transactions (20,429,320) (11,159,155) (3,181) -- (11,570,771) (5,271,078) -- --
- --------------- ----------- ----------- ------ -- ----------- ---------- -- --
Total
distributions
to shareholders (54,506,416) (24,179,862) (643,007) (603,044) (33,594,722) (16,518,894) (54,357) (58,617)
- ------------------ ----------- ----------- -------- -------- ----------- ----------- ------- -------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from
shares sold 88,560,885 45,758,350 2,897,949 2,091,642 55,024,353 40,388,246 4,547,550 7,294,612
Net asset value
of shares issued
in reinvestment
of dividends and
capital gains
distributions 50,813,674 21,915,300 523,445 487,817 30,441,049 14,186,497 40,250 42,523
- ---------------- ---------- ---------- ------- ------- ---------- ---------- ------ ------
139,374,559 67,673,650 3,421,394 2,579,459 85,465,402 54,574,743 4,587,800 7,337,135
Cost of shares
redeemed (33,668,049) (20,184,351) (2,836,463) (2,069,527) (24,368,316) (16,955,246) (4,364,884) (7,445,081)
- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Net increase
(decrease) in net
assets from fund
share transactions 105,706,510 47,489,299 584,931 (509,932) 61,097,086 37,619,497 222,916 (107,946)
------------------ ----------- ---------- ------- -------- ---------- ---------- ------- --------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 133,456,356 94,996,524 316,575 1,272,169 72,358,115 67,378,140 223,048 (107,794)
NET ASSETS:
Beginning of
period 297,099,814 202,103,290 10,531,523 9,259,354 228,192,919 160,814,779 1,005,779 1,113,573
- --------- ----------- ----------- ---------- --------- ----------- ----------- --------- ---------
End of period $430,556,170 $297,099,814 $10,848,098 $10,531,523 $300,551,034 $228,192,919 $1,228,827 $1,005,779
- --------------- ------------ ------------ ----------- ----------- ------------ ------------ ---------- ----------
Undistributed net
investment income $ 123,253 $ 48,210 $ 7,248 $ 5,639 $ 117,809 $ 65,902 $ 1,006 $ 543
- ------------------- - ------- - ------ - ----- - ----- - ------- - ------ - ----- - ---
</TABLE>
See notes to the financial statements.
26
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements
December 31, 1996
1. BUSINESS ORGANIZATION - Horace Mann Growth Fund, Inc. ("Growth Fund"),
Horace Mann Income Fund, Inc. ("Income Fund"), Horace Mann Balanced Fund, Inc.
("Balanced Fund "), and Horace Mann Short-Term Investment Fund, Inc. ("Short-
Term Fund") are open-end, diversified, management investment companies
registered under the Investment Company Act of 1940. The funds listed above
collectively are referred to as the "Funds".
FUND INVESTMENT OBJECTIVES:
A. Growth Fund - primary, long-term capital growth; secondary, conservation
of principal and production of income.
B. Income Fund - primary, maximization of current income consistent with
prudent investment risks; secondary, preservation of capital.
C. Balanced Fund - realization of high long-term total rate of return
consistent with prudent investment risks.
D. Short-Term Fund - primary, realize maximum current income to the extent
consistent with liquidity; secondary, preservation of principal.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. Security valuation - A security listed or traded on an exchange is valued
at its last sales price on the exchange where it is principally traded. In
the absence of a current quotation, the security is valued at the mean
between the last bid and asked prices on that exchange. Securities traded
over-the-counter are valued at the last current bid price. Debt securities
that have a remaining maturity of 60 days or less are valued at cost, plus
or minus any unamortized premium or discount. In the event market quotations
would not be available, securities would be valued at fair value as
determined in good faith by the Board of Directors; no such securities were
owned by the Funds at December 31, 1996.
B. Security transactions and investment income - Security transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend
date. Interest income including level yield, premium and discount
amortization is recorded on the accrual basis. Securities gains and losses
are determined on the basis of identified cost.
C. Federal income taxes - Since it is the Funds' policy to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all taxable income to their shareholders, no
provision has been made for federal income or excise taxes. Dividends and
distributions payable to shareholders are recorded by the Funds on the
record date. Net investment income for federal income tax purposes includes
gains and losses realized on foreign currency transactions. These gains and
losses are included as net realized gains and losses for financial reporting
purposes.
27
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Continued)
December 31, 1996
D. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
3. OPERATING POLICIES:
A. Repurchase Agreements - The Funds, through their custodian, receive
delivery of the underlying securities, whose market value is normally
required to be at least 102% of the resale price at the time of purchase.
Wellington Management Company, LLP, the Funds' investment adviser, is
responsible for assuring that the value of these underlying securities
remains at least equal to the resale price.
B. Asset Backed Securities - These securities are secured by installment
loans or leases or by revolving lines of credit. They usually include credit
enhancements that limit investors exposure to the underlying credit. These
securities are valued on the basis of the timing and certainty of the cash
flows compared to investments with similar durations.
C. Collateralized Mortgage Obligations - (PAC), (Planned Amortization Class)
- These securities have a pre-determined schedule for principal repayment
coupled with an enhanced degree of cash-flow certainty. A PAC security is a
specific class of mortgages which usually carry the most stable cash flows
and the lowest amount of prepayment risk. These securities are valued on the
basis of the timing and certainty of the cash flows compared to investments
with similar durations.
D. Commission Credits - Wellington Management Company, LLP, the Funds'
investment adviser, seeks the best price and execution on each transaction
and negotiates commission rates solely on the execution requirements of each
trade. Occasionally, they place, under a directed brokerage arrangement,
common stock trades with a broker/dealer who credits to the Funds part of
the commissions paid. The use of these commission credits is left to the
discretion of the Funds' management.
4. FUND SHARE TRANSACTIONS - The Funds are registered as diversified, open-end
management investment companies under the Investment Company Act of 1940. Shares
are presently offered only to the HMLIC Separate Account and the HMLIC 401K
Separate Account for the Income Fund, Balanced Fund, and Short-Term Fund. The
Growth Fund's shares may be purchased by the separate accounts of HMLIC, by
certain tax-qualified trusteed retirement plans, and by the general public in
the case of reinvestment of dividends and distributions in accordance with
Revenue Ruling 82-55.
28
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Continued)
December 31, 1996
Transactions in capital stock for the years ended 1996 and 1995 were:
<TABLE>
<CAPTION>
Growth Fund Income Fund Balanced Fund Short-Term Fund
---------------- ----------------- ------------------- ---------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,682,495 2,225,947 222,424 161,927 2,851,756 2,341,881 441,345 709,737
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 2,117,237 1,019,316 41,119 37,525 1,594,607 792,542 4,017 4,257
Shares redeemed (1,400,207) (985,932) (216,937) (161,458) (1,256,381) (995,005) (423,462) (723,887)
- --------------- ---------- --------- -------- -------- ---------- --------- -------- --------
Net increase
(decrease) 4,399,525 2,259,331 46,606 37,994 3,189,982 2,139,418 21,900 (9,893)
- ----------- ---------- --------- -------- -------- ---------- --------- -------- --------
</TABLE>
5. TRANSACTIONS WITH AFFILIATES - Horace Mann Educators Corporation ("HMEC") is
the parent company of Horace Mann Investors, Inc. ("Investors") and Horace Mann
Service Corporation ("HMSC") and indirectly owns HMLIC. Collectively these
companies are referred to as Horace Mann.
Pursuant to management agreements between the Funds and Investors, Investors
receives a monthly management fee based on a pro rata share from each Fund equal
to 0.25% of the aggregate average net assets of the Funds up to $100,000,000 and
0.20% of such assets exceeding that amount. Investors also serves as the
principal underwriter and distributor of the HMLIC Separate Account. Investors'
management fee is reduced by the amount, if any, that the total annual expenses
of any Fund (exclusive of taxes, interest, extraordinary items and brokers'
commissions and other charges related to the purchase and sale of portfolio
securities) exceed 1.5% of the first $30,000,000 of the average daily net assets
and 1% of the average daily net assets in excess of $30,000,000 of that Fund.
The pro rata share is determined by the relative net asset values for each Fund.
For the twelve months ended December 31, 1996, the Growth Fund paid $741,749 and
the Balanced Fund paid $544,797 for management fees to Investors. During the
same period, Investors waived the management fees for the Income Fund and Short-
Term Fund.
Investors paid expenses for advisory fees, professional fees, insurance fees,
and other taxes and fees for the twelve months ended December 31, 1996 of
$18,891 for the Short-Term Fund.
Transfer and dividend disbursing agent services are provided by HMSC on a per
share basis for the Growth Fund and on a per account basis for the Income,
Balanced and Short-Term Funds. The transfer agent fees for the twelve months
ended December 31, 1996 were $32,394 for the Growth Fund and $24 each for the
Income, Balanced and Short-Term Funds.
The two outside directors were compensated $150 per diem for each Board meeting
attended. Four meetings were held in 1996. For the twelve months ended
December 31, 1996, the per diem fees, excluding travel expenses, for outside
directors totaled $1,200 for each Fund. No compensation is paid to interested
officers and directors (those who are also officers and/or directors of Horace
Mann).
29
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Notes to the Financial Statements (Concluded)
December 31, 1996
6. TRANSACTIONS WITH INVESTMENT ADVISER - Pursuant to the investment advisory
agreements with Wellington Management Company, LLP (WMC), effective November 1,
1993, the adviser receives a fee based on the Funds' monthly average net assets
as follows: Growth Fund, 0.400% on the initial $100,000,000, 0.300% on the next
$100,000,000 and 0.250% over $200,000,000; Income Fund, 0.250% on the initial
$100,000,000, 0.200% on the next $100,000,000 and 0.150% over $200,000,000;
Balanced Fund, 0.325% on the initial $100,000,000, 0.275% on the next
$100,000,000, 0.225% on the next $300,000,000 and 0.200% over $500,000,000;
Short-Term Fund, 0.125% on the initial $100,000,000, 0.100% on the next
$100,000,000 and 0.075% over $200,000,000.
7. INVESTMENT TRANSACTIONS - Investment transactions, excluding short-term
investments, for the year ended December 31, 1996 are:
<TABLE>
<CAPTION>
Growth Income Balanced Short-Term
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Purchases $282,043,388 $12,358,365 $222,412,038 $ --
- --------- ------------ ----------- ------------ - ---
Proceeds from sales $230,369,962 $10,524,425 $175,705,678 $2,568,987
- ------------------- ------------ ----------- ------------ ----------
</TABLE>
The following table is based on the difference between cost and market value of
securities owned by each Fund at December 31, 1996.
<TABLE>
<CAPTION>
Growth Income Balanced Short-Term
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation $73,799,237 $116,448 $38,123,963 $ 16
Aggregate gross unrealized
(depreciation) (3,954,977) (69,422) (2,477,534) (501)
- -------------- ----------- -------- ----------- -----
Net unrealized appreciation
(depreciation) $69,844,260 $ 47,026 $35,646,429 $ (485)
- -------------- ----------- - ------ ----------- - -----
</TABLE>
30
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
<TABLE>
<CAPTION>
Growth Fund
Financial Highlights
Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $ 21.66 $ 17.64 $ 19.85 $ 19.49 $ 19.15
Income From Investment
Operations:
Net Investment Income 0.43 0.52 0.49 0.54 0.53
Net Gains (Losses) on
Securities -- realized and
unrealized 5.08 5.41 (0.57) 3.32 1.31
----------- -------- -------- -------- -------- --------
Total Income (Loss) From
Investment Operations 5.51 5.93 (0.08) 3.86 1.84
Less Distributions:
From net investment
income 0.40 0.49 0.45 0.52 0.51
From net realized gains 3.01 1.42 1.68 2.98 0.99
----------------------- -------- -------- -------- -------- --------
Total Distributions 3.41 1.91 2.13 3.50 1.50
Net Asset Value, End of
Period $ 23.76 $ 21.66 $ 17.64 $ 19.85 $ 19.49
------ -------- -------- -------- -------- --------
Total Return 25.28% 33.67% (0.35)% 19.74% 9.59%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $430,556 $297,100 $202,103 $178,379 $140,257
Ratio of Expenses
to Average Net Assets 0.59% 0.63% 0.69% 0.69% 0.73%
Ratio of Net Investment Income
to Average Net Assets 1.79% 2.50% 2.36% 2.48% 2.65%
Portfolio Turnover Rate 67.63% 64.59% 69.42% 47.39% 31.78%
Average Commission Paid per
Equity Shares Traded $ 0.05 -- -- -- --
<CAPTION>
Growth Fund
Financial Highlights
Year Ended December 31,
-------------------------------------------------------------
1991 1990 1989 1988 1987
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $ 16.64 $ 18.88 $ 17.30 $ 16.00 $ 21.29
Income From Investment
Operations:
Net Investment Income 0.60 0.70 0.56 0.42 0.50
Net Gains (Losses) on
Securities -- realized and
unrealized 3.76 (1.74) 4.58 1.37 0.74
----------- -------- ------- -------- ------- -------
Total Income (Loss) From
Investment Operations 4.36 (1.04) 5.14 1.79 1.24
Less Distributions:
From net investment
income 0.60 0.70 0.62 0.40 0.51
From net realized gains 1.25 0.50 2.94 0.09 6.02
----------------------- -------- ------- -------- ------- -------
Total Distributions 1.85 1.20 3.56 0.49 6.53
Net Asset Value, End of
Period $ 19.15 $ 16.64 $ 18.88 $ 17.30 $ 16.00
------ -------- ------- -------- ------- -------
Total Return 26.50% (5.48)% 29.88% 11.23% 6.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $124,140 $97,610 $102,956 $86,755 $81,159
Ratio of Expenses
to Average Net Assets 0.76% 0.78% 0.64% 0.64% 0.67%
Ratio of Net Investment Income
to Average Net Assets 3.13% 3.86% 2.69% 2.41% 2.06%
Portfolio Turnover Rate 51.01% 52.97% 71.25% 41.57% 86.50%
Average Commission Paid per
Equity Shares Traded -- -- -- -- --
</TABLE>
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- - realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
"Average Commission Paid per Equity Shares Traded" represents the average
brokerage commission paid on equity transactions entered into during the period
for trades where commissions were applicable. This disclosure is not applicable
for years beginning prior to December 31, 1995.
31
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $ 13.03 $ 12.02 $ 13.06 $12.95 $12.92 $12.26 $12.35 $11.64 $ 11.59 $ 13.96
Income From Investment
Operations:
Net Investment Income 0.76 0.80 0.75 0.82 0.94 1.12 1.14 1.04 1.00 1.23
Net Gains (Losses) on
Securities -- realized
and unrealized (0.31) 0.99 (1.04) 0.23 (0.01) 0.71 (0.21) 0.75 (0.11) (1.32)
------------------ ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
Total Income (Loss)
From Investment
Operations 0.45 1.79 (0.29) 1.05 0.93 1.83 0.93 1.79 0.89 (0.09)
Less Distributions:
From net investment
income 0.79 0.78 0.75 0.75 0.87 1.17 1.02 0.96 0.84 2.28
From net realized
gains -- -- -- 0.19 0.03 -- -- 0.12 -- --
------------------ ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
Total Distributions 0.79 0.78 0.75 0.94 0.90 1.17 1.02 1.08 0.84 2.28
Net Asset Value, End of
Period $ 12.69 $ 13.03 $ 12.02 $13.06 $12.95 $12.92 $12.26 $12.35 $ 11.64 $ 11.59
------ ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
Total Return 3.50% 14.93% (2.21)% 8.07% 7.20% 14.93% 7.58% 15.43% 7.64% (0.62)%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's
omitted),
End of Period $10,848 $10,532 $ 9,259 $9,409 $7,668 $6,396 $5,552 $4,457 $ 3,390 $ 2,567
Ratio of Expenses
to Average Net Assets 0.70% 0.62% 0.61% 0.41% 0.19% 0.17% 0.20% 0.29% 0.24% 0.14%
Ratio of Net
Investment Income
to Average Net Assets 5.88% 6.16% 5.85% 5.92% 6.94% 8.62% 8.86% 8.13% 7.97% 7.96%
Portfolio Turnover Rate 112.60% 74.53% 205.35% 74.16% 35.11% 44.82% 62.40% 92.94% 174.32% 53.28%
Ratio to Average Net
Assets before waived
and reimbursed expenses:
Ratio of Expenses 0.91% 0.88% 0.92% 0.87% 1.21% 1.49% 1.64% 1.52% 0.92% 0.87%
Ratio of Net
Investment Income 5.67% 5.89% 5.54% 5.46% 5.92% 7.30% 7.42% 6.90% 7.29% 7.23%
</TABLE>
Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1995. The investment advisory expenses for
the Income Fund were waived by CIGNA Investments from January 1, 1984 though
October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- - realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
32
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Balanced Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value,
Beginning of
Period $ 18.00 $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71 $ 14.91
Income From Investment
Operations:
Net Investment Income 0.60 0.67 0.62 0.65 0.66 0.78 0.86 0.77 0.66 1.05
Net Gains (Losses) on
Securities --
realized and
unrealized 2.70 3.46 (0.81) 1.87 0.68 2.25 (0.92) 2.77 0.72 (1.20)
---------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total Income (Loss)
From
Investment
Operations 3.30 4.13 (0.19) 2.52 1.34 3.03 (0.06) 3.54 1.38 (0.15)
Less Distributions:
From net investment
income 0.57 0.61 0.55 0.56 0.59 0.74 0.74 0.70 0.61 2.05
From net realized
gains 1.79 0.78 0.72 1.46 0.44 0.57 0.11 1.22 -- --
----------------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total Distributions 2.36 1.39 1.27 2.02 1.03 1.31 0.85 1.92 0.61 2.05
Net Asset Value, End of
Period $ 18.94 $ 18.00 $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71
------ -------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total Return 18.27% 27.12% (1.12)% 15.46% 8.37% 21.57% (0.41)% 26.31% 10.57% (0.87)%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's
omitted),
End of Period $300,551 $228,193 $160,815 $132,376 $92,463 $72,343 $53,289 $42,214 $29,223 $21,493
Ratio of Expenses
to Average Net Assets 0.56% 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.08%
Ratio of Net Investment
Income to Average
Net Assets 3.12% 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.56%
Portfolio Turnover Rate 72.10% 64.80% 121.82% 52.43% 27.06% 42.09% 47.62% 56.80% 27.68% 84.74%
Average Commission
Paid per Equity
Shares Traded $ 0.05 -- -- -- -- -- -- -- -- --
Ratio to Average Net
Assets before waived
and reimbursed
expenses:
Ratio of Expenses 0.56% 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.64%
Ratio of Net
Investment Income 3.12% 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.00%
</TABLE>
Expenses for the Balanced Fund were assumed or waived by Horace Mann Investors,
Inc. and CIGNA Investments through 1987.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- -- realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
"Average Commission Paid per Equity Shares Traded" represents the average
brokerage commission paid on equity transactions entered into during the period
for trades where commissions were applicable. This disclosure is not applicable
for years beginning prior to December 31, 1995.
33
<PAGE>
HORACE MANN FAMILY OF FUNDS 1996 FUNDS ANNUAL REPORT
Short-Term Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning
of Period $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17
Income From Investment
Operations:
Net Investment Income 0.50 0.53 0.39 0.26 0.33 0.61 0.85 0.85 0.69 0.65
Net Gains (Losses) on
Securities --
realized and
unrealized (0.01) -- -- -- -- -- 0.01 -- -- --
- -------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (Loss)
From
Investment Operations 0.49 0.53 0.39 0.26 0.33 0.61 0.86 0.85 0.69 0.65
Less Distributions:
From net investment
income 0.46 0.61 0.38 0.28 0.34 0.88 1.22 0.60 0.45 1.57
From net realized gains -- -- -- -- -- -- -- 0.01 -- --
- -------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions 0.46 0.61 0.38 0.28 0.34 0.88 1.22 0.61 0.45 1.57
Net Asset Value, End of
Period $10.03 $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return 5.02% 5.25% 3.89% 2.53% 3.30% 5.93% 7.89% 8.27% 6.74% 5.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets (000's omitted),
End of Period $1,229 $1,006 $1,114 $1,110 $1,131 $1,076 $1,195 $1,175 $1,140 $ 852
Ratio of Expenses
to Average Net Assets 0.53% 0.84% 0.49% 0.61% 0.51% 0.43% 0.38% 0.46% 0.37% 0.21%
Ratio of Net Investment
Income to Average Net
Assets 4.93% 5.11% 3.78% 2.56% 3.16% 5.88% 7.57% 7.83% 6.50% 5.68%
Portfolio Turnover Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio to Average Net
Assets before waived
and reimbursed expenses:
Ratio of Expenses 2.44% 2.35% 2.36% 2.42% 3.44% 4.45% 4.46% 3.29% 1.48% 1.53%
Ratio of Net Investment
Income 3.02% 3.60% 1.91% 0.75% 0.23% 1.86% 3.49% 5.00% 5.39% 4.36%
</TABLE>
Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996. The investment advisory expenses for
the Short-Term Investment Fund were waived by CIGNA Investments from January 1,
1984 through October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- - realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
34
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders of
Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment Fund, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Horace Mann Growth Fund, Inc., Horace Mann
Income Fund, Inc., Horace Mann Balanced Fund, Inc., and Horace Mann Short-Term
Investment Fund, Inc. (the "Funds") as of December 31, 1996, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two year period then ended and the
financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
accompanying financial highlights for the seven years ended December 31, 1993
were audited by other auditors whose report thereon dated January 21, 1994,
expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds as of December 31, 1996, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two year period then ended and the financial highlights for each of the three
years in the period then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 23, 1997
35
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
36
<PAGE>
Horace Mann Funds
P.O. Box 4657
Springfield, IL 62708-4657
1-800-999-1030
Business Manager
Horace Mann Investors, Inc.
One Horace Mann Plaza
Springfield, IL 62715-0001
IA-004388(2/97)
