<PAGE>
[LETTERHEAD OF HORACE MANN APPEARS HERE]
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, 1997, the total annual return of your variable
annuity contract was at least 21.90%, bringing the average annual return for the
five- and ten-year periods then ended to at least 16.57 and 13.62%,
respectively. These returns reflect the performance of your underlying
investment in the Horace Mann Growth Fund, 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
Mutual 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,
/s/ Paul J. Kardos
Paul J. Kardos
President and Chief Executive Officer
The Horace Mann Companies
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HORACE MANN LIFE INSURANCE COMPANY ALLEGIANCE SEPARATE ACCOUNT A
Statement of Net Assets
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments at market value
Horace Mann Growth Fund
326,889 shares @ $25.66 (cost $6,686,213) $8,387,972
-------------------------------------------------------------------------
NET ASSETS
Net Assets (Indefinite units authorized)
Active Contract Owners
Horace Mann Growth Fund
311,879 shares @ $25.66 $ 8,002,815
Retired Contract Owners
Horace Mann Growth Fund
15,010 shares @ $25.66 385,157
---------
TOTAL NET ASSETS $8,387,972
=========================================================================
See notes to the financial statements.
2
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HORACE MANN LIFE INSURANCE COMPANY ALLEGIANCE SEPARATE ACCOUNT A
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income distribution $ 111,153
----------------------------------------------------------------------
Net investment income 111,153
----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Capital gains distribution 917,446
Net realized gain on sale of investments 201,750
Net unrealized appreciation on investments 440,774
----------------------------------------------------------------------
Net gain on investments 1,559,970
----------------------------------------------------------------------
Net increase in net assets resulting from operations $1,671,123
======================================================================
See notes to the financial statements.
3
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HORACE MANN LIFE INSURANCE COMPANY ALLEGIANCE SEPARATE ACCOUNT A
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income $ 111,153 $ 107,011
Capital gains distribution 917,446 807,381
Net realized gain on sale of investments 201,750 298,005
Net unrealized appreciation (depreciation) on investments 440,774 427,077
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,671,123 1,639,474
----------------------------------------------------------------------------------------------
CONTRACT OWNERS' TRANSACTIONS
Gross stipulated payments received 21,595 5,007
Administrative expenses (Note 1) (1,017) (266)
----------------------------------------------------------------------------------------------
Net consideration received on annuity contracts 20,578 4,741
Net transfer to fixed accumulation account 35,611 (98,016)
Payments to Contract Owners (624,395) (1,199,709)
Mortality risk charge (Note 1) (22,724) (19,205)
Mortality guarantee adjustment 17,784 (49,130)
----------------------------------------------------------------------------------------------
Net decrease in net assets
resulting from Contract Owners' transactions (573,146) (1,361,319)
----------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,097,977 278,155
Net assets, beginning of year 7,289,995 7,011,840
----------------------------------------------------------------------------------------------
Net assets, end of year $ 8,387,972 $ 7,289,995
==============================================================================================
</TABLE>
See notes to the financial statements.
4
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HORACE MANN LIFE INSURANCE COMPANY ALLEGIANCE SEPARATE ACCOUNT A
Notes to the Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
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 ("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 1% 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, 1997, purchases and proceeds from sales of Fund shares were as
follows:
<TABLE>
<CAPTION>
1997
----------------------
Active Retired
---------- --------
<S> <C> <C>
Purchases $1,291,646 $ 77,578
======================
Sales $ 668,484 $ 43,537
======================
</TABLE>
5. CHANGE IN CONTRACT OWNERS' ACCOUNT UNITS
<TABLE>
<CAPTION>
1997 1996
-------------------- -------------------
Active Retired Active Retired
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Account units outstanding at beginning of year 292,665 14,153 307,950 15,773
Net consideration received 712 614 200 0
Dividend distributions 38,462 1,879 35,724 1,761
Net transfers to fixed accumulation account 1,635 0 (3,718) 0
Payments to Contract Owners (21,595) (1,636) (47,491) (3,381)
---------------------------------------------
Account units outstanding at end of year 311,879 15,010 292,665 14,153
=============================================
</TABLE>
6. NET ASSETS -- At December 31, 1997 net assets of $8,387,972 were comprised of
the cost of mutual fund shares to contract owners of $6,686,213 and the
adjustment for appreciation to market value of $1,701,759.
5
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Independent Auditor's 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, 1997, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-year period ended
December 31, 1997. 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, 1997 by correspondence with the
Horace Mann Mutual 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, 1997, 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, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 23, 1998
6
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[PICTURE OF MAGNIFYING GLASS APPEARS HERE]
Annual Report
December 31, 1997
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
