<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Horace Mann Growth Fund, Inc. (FILE NOS. 2-13450 AND 811-778)
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
March 25, 1997
Notice to Annuity Contractholders:
Subject: Separate Account Voting Instructions
The variable portion of your annuity contract is invested through one of
Horace Mann Life Insurance Company's ("HMLIC") separate accounts. The separate
accounts invest in one or more of the following mutual funds: the Horace Mann
Growth Fund, Inc., the Horace Mann Balanced Fund, Inc., the Horace Mann Income
Fund, Inc., or the Horace Mann Short-Term Investment Fund, Inc. (collectively,
"the Funds").
Because you have a beneficial interest in a separate account, you're
entitled to receive information and provide voting instructions on issues
placed before the Shareholders of the Fund or Funds in which your account
value is invested. The Funds' Shareholders will consider the issues described
in the enclosed voting instruction/proxy materials. You can give voting
instructions to HMLIC's separate account based on your number of Fund shares.
Your shares, equivalent to the number of separate account units, are shown on
the enclosed voting instruction/proxy card(s). If you are invested in more
than one Fund, you will receive a card for each Fund. These cards may be
received separately.
HMLIC will vote shares of the Funds held by the separate accounts according
to instructions received from Annuity Contractholders who have separate
account units. If you don't give voting instructions to HMLIC, your shares
will be voted in proportion to the responses received from other Annuity
Contractholders. As provided in the prospectus, any Fund shares attributed to
investment by HMLIC will also be voted in proportion to the vote by Annuity
Contractholders.
Please complete and return the voting instruction/proxy card(s) in the
enclosed postage-paid envelope if you want to exercise your voting rights. You
may also cast your vote in person at the Joint Special Meeting of
Shareholders. (See enclosed Notice of Joint Special Meeting of Shareholders
for date, time and place.)
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK, DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED VOTING INSTRUCTIONS(S)/PROXY(IES). IF
YOU WISH TO ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOU MAY REVOKE YOUR
VOTING INSTRUCTION(S)/PROXY(IES) AT THE MEETING.
Horace Mann Life Insurance Company
Thomas Arisman, CLU
Senior Vice President
<PAGE>
HORACE MANN MUTUAL FUNDS
ONE HORACE MANN PLAZA
SPRINGFIELD, ILLINOIS 62715-0001
TELEPHONE: (217) 789-2500 or (800) 999-1030
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
AND PROXY STATEMENT
To the Shareholders:
You are invited to attend a Joint Special Meeting of the shareholders of
Horace Mann Growth Fund, Inc. ("Growth Fund"), Horace Mann Balanced Fund, Inc.
("Balanced Fund"), Horace Mann Income Fund, Inc. ("Income Fund") and Horace
Mann Short-Term Investment Fund, Inc. ("Short-Term Fund") (individually, a
"Fund" and collectively, the "Funds"). The meeting will be held on Wednesday,
April 23, 1997, at One Horace Mann Plaza, Springfield, Illinois at 9:00 a.m.,
Central Time, for the following purposes and to transact such other business,
if any, as may properly come before the Meeting:
1. To elect seven (7) Board Members to the Board of each Fund.
2. To approve the Management Agreement between each Fund and Horace Mann
Investors, Inc.
3. To approve the Investment Subadvisory Agreement between Horace Mann
Investors, Inc. and Wellington Management Company, LLP.
4. To approve an Agreement and Plan of Reorganization and the transactions
contemplated thereby, the net effect of which would be to reorganize the
Funds into series of Horace Mann Mutual Funds.
5. To approve a proposed change to the Balanced Fund's and Income Fund's
fundamental investment policy with respect to investments in illiquid
and restricted securities.
6. To approve a proposed change to the Income Fund's investment objective.
7. To transact such other business as may properly come before the Meeting.
The Board of each Fund has fixed the close of business on February 28, 1997
as the record date for determining the shareholders of each Fund entitled to
notice of and to vote at the Meeting. Shareholders are entitled to one vote
for each share held.
THE BOARD OF EACH FUND RECOMMENDS THAT YOU VOTE FOR ALL ITEMS.
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
SIGN, DATE AND RETURN IT IN THE ENVELOPE PROVIDED.
PLEASE MAIL YOUR PROXY PROMPTLY.
<PAGE>
The accompanying proxy is solicited by the Board of Directors of each Fund
for voting at the Joint Special Meeting of shareholders to be held on
Wednesday, April 23, 1997, and any and all adjournments thereof (the
"Meeting"). The shareholders of each Fund will vote separately on the items
presented at the Meeting. This Notice, Proxy Statement and the accompanying
voting instruction/proxy card(s) were first mailed to shareholders on or about
March 26, 1997.
Voting instructions/proxies are being solicited by the Board of Directors of
the Funds for use at the Meeting. For shareholders having account balances
invested in the Funds, HMLIC is the owner of the shares, but is soliciting
voting instructions from shareholders as to how such shares should be voted.
Consistent with interpretations of voting requirements by the staff of the
Securities and Exchange Commission, HMLIC will offer to shareholders the
opportunity to instruct HMLIC as to how it should vote shares held by it and
the separate accounts of HMLIC on the items to be considered at the Meeting.
In addition, proxies are being solicited from shareholders of the Growth Fund
who own shares directly. Voting instructions/proxies may be revoked at any
time by (a) submitting a subsequently dated voting instruction/proxy or (b) by
personally attending the Meeting and voting in person. The cost of holding the
shareholders' meeting, including the cost of proxy solicitation, will be paid
by Horace Mann Life Insurance Company.
The following table indicates which Fund's shareholders are solicited with
respect to each Item:
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME SHORT-TERM
ITEM FUND FUND FUND FUND
---- ------ -------- ------ ----------
<C> <S> <C> <C> <C> <C>
1. Elect Board Members................... X X X X
2. Approve Management Agreement.......... X X X X
Approve Investment Subadvisory
3. Agreement............................. X X X X
Approve Agreement and Plan of
4. Reorganization........................ X X X X
Approve Amended Fundamental Investment
5. Policy................................ X X
6. Approve Amended Investment Objective.. X
</TABLE>
THE APPROVAL OF ITEM 4 FOR EACH FUND IS CONTINGENT UPON THE APPROVAL OF
ITEMS 1, 2 AND 3 FOR SUCH FUND. THEREFORE, DESPITE ANY APPROVAL OF ITEM 4 FOR
A PARTICULAR FUND, THE REORGANIZATION WILL NOT BE EFFECTED UNLESS THE FUND
SHAREHOLDERS ALSO APPROVE ITEMS 1, 2 AND 3.
The Board of each Fund has fixed the close of business on February 28, 1997
as the record date for determination of shareholders entitled to notice of and
to vote at the Meeting. As of February 28, 1997, shares of the Funds were
issued and outstanding as follows:
<TABLE>
<CAPTION>
FUND SHARES
---- ----------
<S> <C>
Growth Fund............................ 18,625,518
Balanced Fund.......................... 16,190,224
Income Fund............................ 816,143
Short-Term Fund........................ 125,277
</TABLE>
2
<PAGE>
Capital Stock Ownership. The following table sets forth the holdings of the
shares of each Fund as of February 28, 1997, of each person known to own,
control, or hold with power to vote 5 percent or more of the Fund's
outstanding voting securities:
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME SHORT-TERM
NAME FUND FUND FUND FUND
---- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Horace Mann Life Insurance Company
("HMLIC")
Shares Owned.................... N/A N/A N/A 10,000
Percent of Shares Outstanding... N/A N/A N/A 7.98%
HMLIC
Separate Account
Shares Owned.................... 14,094,715 15,493,376 775,622 109,992
Percent of Shares Outstanding... 75.67% 95.70% 95.04% 87.80%
HMLIC
Separate Account B
Shares Owned.................... 977,683 N/A N/A N/A
Percent of Shares Outstanding... 5.25% N/A N/A N/A
</TABLE>
- --------
N/A indicates "not applicable."
Horace Mann Life Insurance Company and its separate accounts and affiliates
are located at One Horace Mann Plaza, Springfield, Illinois.
ITEM 1. ELECTION OF BOARD MEMBERS
It is intended that the proxies will be voted for the election as Board
Members of the nominees described below. Each Board Member so elected will
serve as a Board Member of the respective Fund until the next meeting of
shareholders, if any, called for the purpose of electing Board Members and
until the election and qualification of a successor or until such Board Member
sooner dies, resigns or is removed as provided in the organizational documents
of each Fund. A. Thomas Arisman, Larry K. Becker, A.L. Gallop and Harriet A.
Russell were last elected at the 1992 annual joint meeting of shareholders.
George J. Zock was appointed to the Board of each Fund in 1995.
3
<PAGE>
All nominees listed below have consented to serve as Board Members of the
respective Funds, if elected. In case any nominee shall be unable or shall
fail to stand for election as a Board Member by virtue of an unexpected
occurrence, the proxies may be voted for such other person(s) as shall be
determined by the persons acting under the proxies in their discretion.
<TABLE>
<CAPTION>
NAME (AGE), FUND SHARES BENEFICIALLY
POSITION(S) WITH OWNED AS OF PRINCIPAL OCCUPATION FOR
FUNDS, FEBRUARY 28, 1997**, LAST FIVE YEARS,
ADDRESS DIRECTOR SINCE DIRECTORSHIPS
---------------- ------------------------ ------------------------
<C> <C> <S>
A. THOMAS ARISMAN* Growth Fund Senior Vice President, Horace Mann Life
(50) 6,157 shares Insurance Company and Horace Mann
Director 1989 Service Corporation; Director and
President, Horace Mann Investors, Inc.;
and positions with Horace Mann Educators
Corporation and its subsidiaries.
One Horace Mann Plaza Balanced Fund
Springfield, IL 62715 No shares
1989
Income Fund
No shares
1989
Short-Term Fund
No shares
1989
- -----------------------------------------------------------------------------------------
LARRY K. BECKER* Growth Fund Director, Executive Vice President, and
(48) 15,582 shares Chief Financial Officer, Horace Mann
Director and Chairman 1989 Life Insurance Company and Horace Mann
Service Corporation; Director, Horace
Mann Investors, Inc.; and positions with
Horace Mann Educators Corporation and
its subsidiaries.
One Horace Mann Plaza Balanced Fund
Springfield, IL 62715 113
1989
Income Fund
No shares
1989
Short-Term Fund
No shares
1989
- -----------------------------------------------------------------------------------------
A. L. GALLOP Growth Fund Executive Director (Retired), Minnesota
(71) No shares Education Association; formerly
Director 1957 Director, Horace Mann Educators
Corporation (1968-1983).
1622 Pebble Beach Lane Balanced Fund
Lady Lake, FL 32159 No shares
1983
Income Fund
No shares
1983
Short-Term Fund
No shares
1983
- -----------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME (AGE), FUND SHARES BENEFICIALLY
POSITION(S) OWNED AS OF PRINCIPAL OCCUPATION FOR
WITH FUNDS, FEBRUARY 28, 1997**, LAST FIVE YEARS,
ADDRESS DIRECTOR SINCE DIRECTORSHIPS
----------- ------------------------ ------------------------
<S> <C> <C>
RICHARD D. Growth Fund Executive Director (Retired), Vermont
LANG 2,084 shares National Education Association; formerly
(65) Nominee member of Horace Mann Educators
Nominee Corporation's Educator Advisory Board.
2 Summer Balanced Fund
Street No shares
Montpelier, Nominee
VT 05602
Income Fund
No shares
Nominee
Short-Term Fund
No shares
Nominee
- --------------------------------------------------------------------------------
EDWARD L. Growth Fund Director and Executive Vice President,
NAJIM* No shares Horace Mann Life Insurance Company and
(53) Nominee Horace Mann Service Corporation; and
Nominee positions with Horace Mann Educators
Corporation and its subsidiaries.
One Horace Balanced Fund
Mann Plaza No shares
Springfield, Nominee
IL 61215
Income Fund
No shares
Nominee
Short-Term Fund
No shares
Nominee
- --------------------------------------------------------------------------------
HARRIET A. Growth Fund Trustee member, Cincinnati Board of
RUSSELL 992 shares Education; Director and Vice President,
(54) 1992 Greater Cincinnati School Employer
Director Credit Union; teacher (Retired), Walnut
Hills High School; former Director,
Horace Mann Growth Fund (1974-1983).
6571 Edwood Balanced Fund
Cincinnati, No shares
OH 45224 1992
Income Fund
No shares
1992
Short-Term Fund
No shares
1992
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
NAME (AGE), FUND SHARES BENEFICIALLY
POSITION(S) OWNED AS OF PRINCIPAL OCCUPATION FOR
WITH FUNDS, FEBRUARY 28, 1997**, LAST FIVE YEARS,
ADDRESS DIRECTOR SINCE DIRECTORSHIPS
----------- ------------------------ ------------------------
<S> <C> <C>
GEORGE J. ZOCK* Growth Fund Director, Senior Vice President and
(46) 752 shares Treasurer, Horace Mann Life Insurance
Director and 1995 Company and Horace Mann Service
President Corporation; Director, Horace Mann
Investors, Inc.; and positions with
Horace Mann Educators Corporation and
its subsidiaries.
One Horace Mann Balanced Fund
Plaza No shares
Springfield, IL 1995
62715
Income Fund
No shares
1995
Short-Term Fund
No shares
1995
</TABLE>
- ---------
* Director is considered an "interested person" as that term is defined in the
Investment Company Act of 1940.
** As of February 28, 1997, the directors and nominees of the Trust held in the
aggregate directly and beneficially less than 1% of the outstanding shares
each Fund.
The Board of Directors of each Fund held 4 regular meetings during the Funds'
fiscal year ended December 31, 1996. In addition, the standing committees of
each Board of Directors are: the Securities Committee, Audit/Insurance
Committee and Nominating Committee. Each then current Board member attended 75%
or more of the respective meetings of the Board and the committees (if then a
member thereof) held during the 1996 fiscal year.
Unless otherwise provided by resolution of the Board or applicable law, and
with certain specified exceptions, the Executive Committee may exercise all the
powers of the Board when the Board is not in session. A. Thomas Arisman, Larry
K. Becker, and George J. Zock serve on this Committee. The Executive Committee
did not meet during the 1996 fiscal year.
The Securities Committee coordinates and communicates with the investment
adviser on behalf of the Board; reviews and oversees investment management
activities; recommends changes or adjustments to the investment advisory
agreement; creates and revises standards of investment performance and advises
the Board on investment related issues. A. Thomas Arisman, Larry K. Becker and
George J. Zock serve on the Securities Committee. The Securities Committee met
6 times during the 1996 fiscal year.
It is the function of the Audit/Insurance Committee to serve as the Board's
liaison with each Fund's independent public accountants, to review the
financial operations of the Fund and to make periodic reports of these reviews
to each Fund's Board along with appropriate recommendations regarding the
proper and efficient financial operation of the Fund. Additional
responsibilities include the review and assurance of the adequacy of insurance
coverage for the Fund. A. Thomas Arisman, A.L. Gallop and George J. Zock serve
on the Audit/Insurance Committee. The Audit/Insurance Committee met 1 time
during the 1996 fiscal year.
6
<PAGE>
The Nominating Committee is responsible for the selection of appropriate,
qualified persons as Director nominees to be presented to each Fund's
Shareholders for their consideration. The Nominating Committee has no formal
policy with respect to prospective Director nominees recommended by
Shareholders, but Shareholders are free to make recommendations. Larry K.
Becker and Harriet A. Russell served on the Nominating Committee. The
Nominating Committee did not meet during the 1996 fiscal year.
Each Fund pays Board Members who are not "interested persons" of such Fund a
$150 per diem fee for attendance at Board meetings and reimbursement for travel
expenses. As reflected above, several Board Members currently serve as board
members of Horace Mann Investors, Inc. Board Members or officers who are
"interested persons" receive no compensation from any Fund.
The table below shows, for each Board Member entitled to receive compensation
from the Funds, the aggregate compensation paid or accrued during each Fund's
fiscal year ended December 31, 1996 and the total compensation that the Horace
Mann fund complex paid or accrued during the calendar year ended December 31,
1996.
AGGREGATE COMPENSATION FROM FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUNDS AND FUND
GROWTH BALANCED INCOME SHORT-TERM COMPLEX PAID TO
NAME OF BOARD MEMBER FUND FUND FUND FUND BOARD MEMBERS
- -------------------- ------ -------- ------ ---------- -------------------
<S> <C> <C> <C> <C> <C>
A.L. Gallop............... $600 $600 $600 $600 $2,400
Richard D. Lang........... 0 0 0 0 0
Harriet A. Russell........ $600 $600 $600 $600 $2,400
</TABLE>
Fund Officers. Information about the executive officers of the Fund, with
their respective ages and terms as Fund officers indicated, is set forth below.
As of February 28, 1997, the executive officers of the Fund held in aggregate
directly and beneficially less than 1% of the outstanding shares of each Fund.
Ann M. Caparros (44), Secretary and Ethics Compliance Officer since 1995;
Director, Vice President and Corporate Secretary, Horace Mann Life Insurance
Company and Horace Mann Service Corporation; Secretary, Horace Mann Investors,
Inc.; and positions with Horace Mann Educators Corporation and its
subsidiaries; prior to March 1994, was associated with John Deere Insurance
Group and Affiliates serving as Vice President and General Counsel.
Roger W. Fisher (44), Controller since 1995; Vice President and Controller,
Horace Mann Life Insurance Company and Horace Mann Service Corporation;
Controller, Horace Mann Investors, Inc.; and positions with Horace Mann
Educators Corporation and its subsidiaries.
William J. Kelly (50), Treasurer since 1976 and Regulatory Compliance Officer
since 1995; Treasurer and Regulatory Compliance Officer, Horace Mann Investors,
Inc.; Vice President, Horace Mann Life Insurance Company; Vice President-
Transfer Agent, Horace Mann Service Corporation.
The officers of each Fund are elected by the Board of the Fund on an annual
basis to serve until their successors are elected and qualified.
7
<PAGE>
CURRENT CONTRACTURAL ARRANGEMENTS
Business Manager. Currently, Horace Mann Investors, Inc. ("Investors"),
serves as the business manager of each Fund pursuant to a Business Management
Agreement (the "Business Management Agreements"). Investors provides for the
management of the business affairs of each Fund including, but not limited to,
office space, secretarial and clerical services, bookkeeping services, wire and
telephone communications services and other services of this nature necessary
for the proper management of each Fund's business affairs.
Currently, Investors charges each Fund a pro rata fee computed on the
aggregate total net assets of all the Funds equal to 0.25% of the aggregate
total net assets of all Funds up to $100 million and 0.20% of aggregate total
net assets exceeding that amount. The management fee is accrued daily and paid
monthly based upon the aggregate daily total net assets determined as of the
close of business on each day during the month. For the fiscal year ended
December 31, 1996, the Growth Fund paid $741,749 and the Balanced Fund paid
$544,797 to Investors. Investors waived this fee for the Income and Short-Term
Funds.
The Business Management Agreements with Investors do not cover the Funds'
expenses related to legal, custodial, independent accounting and auditing,
transfer agent, registrars' and other agents' services; costs related to
reports, notices and proxy material; compensation and expenses of independent
directors; stock issuance expenses; brokers' commissions; taxes and fees
payable to governmental agencies; and expenses of shareholders' and directors'
meetings.
Investment Adviser. Under the current Investment Advisory Agreements, each
Fund employs Wellington Management Company, LLP ("Wellington Management") to
manage the investment and reinvestment of its assets and to continuously
review, supervise and administer its investment programs. The current
Investment Advisory Agreements, dated November 1, 1990, were each last approved
by the majority of the outstanding voting securities of each Fund on October
30, 1990 and each last approved by the Board of Directors on August 6, 1996.
Wellington Management, located at 75 State Street, Boston, Massachusetts 02109,
is a professional investment counseling firm which provides investment services
to investment companies, employee benefit plans, endowments, foundations, and
other institutions and individuals. As of February 28, 1997, Wellington
Management had discretionary management authority with respect to approximately
$140 billion of assets. Wellington Management and its predecessor organizations
have provided investment advisory services to investment companies since 1933
and to investment counseling clients since 1960.
Currently, each Fund pays Wellington Management advisory fees at the end of
each month. These fees are accrued daily and are calculated by applying a rate,
based on the following annual percentage rate, to the Fund's average daily net
assets for the respective month:
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
Growth Fund................................... On Initial $100 million 0.400%
On Next $100 million 0.300%
Over $200 million 0.250%
Balanced Fund................................. On Initial $100 million 0.325%
On Next $100 million 0.275%
On Next $300 million 0.225%
Over $500 million 0.200%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
Income Fund................................... On Initial $100 million 0.250%
On Next $100 million 0.200%
Over $200 million 0.150%
Short-Term Fund............................... On Initial $100 million 0.125%
On Next $100 million 0.100%
Over $200 million 0.075%
</TABLE>
For the fiscal year ended December 31, 1996, the Growth Fund paid $1,094,197,
the Income Fund paid $27,301 and the Balanced Fund paid $741,213 to Wellington
Management. The Short-Term Fund's fee of $1,397 was paid to Wellington
Management by Horace Mann Investors, Inc.
The current Investment Advisory Agreements authorize Wellington Management
(subject to the discretion and control of the Funds' Board of Directors) to
select the brokers or dealers that will execute the purchases and sales of
portfolio securities and require Wellington to use its best efforts to obtain
the best available price and most favorable execution.
PROPOSED CONTRACTUAL ARRANGEMENTS
As explained in Item 2 and Item 3 below, the Directors have approved the
adoption of, and recommend that the shareholders of each Fund approve and
adopt: (i) a new Management Agreement between the Fund and Investors in a form
substantially similar to Exhibit B, (the "New Management Agreement") and (ii) a
Subadvisory Agreement between Investors and Wellington Management in a form
substantially similar to Exhibit C (the "Subadvisory Agreement").
The Board of Directors has approved Investors becoming the investment manager
for each of the Funds. Under the New Management Agreements, Investors will be
responsible for providing a continuous investment program and for supervising
the subadviser. In addition, Investors will be responsible for the
administrative services that it previously performed under the Business
Management Agreements. For such services, Investors will retain as compensation
(after payment to Wellington Management of its subadvisory fee) the same
compensation as it is currently receiving under the current Business Management
Agreement. The Board of Directors also has approved Wellington Management's
becoming the subadviser for each Fund, subject to the supervision of Investors.
Under the Subadvisory Agreements, Wellington Management will have the same
responsibilities as it had under the current Investment Advisory Agreements for
the same compensation.
ITEM 2. APPROVAL OF MANAGEMENT AGREEMENT
Under the New Management Agreements, the Funds would employ Investors to
manage the investment and reinvestment of the assets of the Funds and to
continuously review, supervise and administer the Funds' investment programs.
Additionally, Investors would provide for the management of the business
affairs of each Fund including, but not limited to, office space, secretarial
and clerical services, bookkeeping services, wire and telephone communications
services and other services of this nature necessary for the proper management
of each Fund's business affairs. The New Management Agreement covers both the
services provided under the current Investment Advisory Agreement and the
current Business Management Agreement.
9
<PAGE>
Investors is a newly registered investment adviser and has not previously
advised a registered investment company; however, its personnel are responsible
for overseeing the investment of Horace Mann Life Insurance Company's $2.8
billion of assets. Investors is also registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Investors and Allegiance Life Insurance
Company ("ALIC") are wholly-owned subsidiaries of Horace Mann Educators
Corporation ("HMEC"). Horace Mann Life Insurance Company ("HMLIC"), which
sponsors HMLIC's separate accounts, is a wholly owned subsidiary of ALIC. HMEC
holds indirectly all of the stock of HMLIC. The registered separate accounts of
HMLIC hold 82.54% of the Growth Fund's shares, 95.70% of the Balanced Fund's
shares and 95.04% of the Income Fund's shares; HMLIC, together with its
registered separate accounts, holds 95.78% of the Short-Term Fund's shares.
Under each New Management Agreement, each Fund would pay Investors a fee
equal to the sum of the fees payable under both the current Investment Advisory
Agreement and the current Business Management Agreement for each Fund.
Accordingly, under the New Management Agreement, there would be no change in
the amount payable by shareholders for advisory and management services in the
aggregate. Each Fund would pay Investors a two-part advisory fee at the end of
each month. For part one, each Fund's advisory fee would be accrued daily and
would be calculated on a pro rata basis by applying the following annual
percentage rates to the aggregate of all four Funds' daily net assets for the
respective month:
PART 1
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
All Funds...................................... On initial $100 million .250%
Over $100 million .200%
</TABLE>
For part two, each Fund's advisory fee would be accrued daily and would be
calculated by applying the following annual percentage rates to the average
daily net assets of each Fund for the respective month:
PART 2
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
Growth Fund.................................... On initial $100 million .400%
On next $100 million .300%
Over $200 million .250%
Balanced Fund.................................. On initial $100 million .325%
On next $100 million .275%
On next $300 million .225%
Over $500 million .200%
Income Fund.................................... On initial $100 million .250%
On next $100 million .200%
Over $200 million .150%
Short-Term Fund................................ On initial $100 million .125%
On next $100 million .100%
Over $200 million .075%
</TABLE>
10
<PAGE>
The New Management Agreement authorizes Investors (subject to the discretion
and control of the Funds' Boards) to select the brokers or dealers that will
execute the purchases and sales of portfolio securities and requires Investors
to use its best efforts to obtain the best available price and most favorable
execution.
The Funds would continue to bear the expenses related to their legal,
custodial, independent accounting and auditing, transfer agent, registrars' and
other agents' services; costs related to reports, notices and proxy material;
compensation and expenses of independent Directors; stock issuance expenses;
brokers' commissions; taxes and fees payable to governmental agencies; and
expenses of shareholders' and Directors' meetings.
At its meeting on February 6, 1997, the Directors, including each of the
Directors who is not an "interested person" (as defined in the Investment
Company Act of 1940 (the "1940 Act")) of the Funds (the "Independent
Directors"), considered the fact that under the New Management Agreement, the
level of fees would be the same as the current fee structure and the parties
providing services to the Funds and the nature of those services would remain
the same. In addition, they considered the nature and quality of the investment
services currently provided by Investors through its personnel serving on the
Securities Committee of the Board of Directors. These individuals currently
perform an oversight function of the advisory services provided by Wellington
Management, which function would be continued under the proposed Management
Agreement. The Board also considered Investors' cost in providing such
services, including the current subsidization of some of the Fund's expenses;
the extent to which Investors would realize economies of scale if the asset
size of a Fund grew larger and the extent to which these economies would be
shared with a Fund's shareholders. The Board considered the past investment
performance by Wellington Management, the Fund's expense ratios, and management
fees for comparable investment companies. The Directors received all
information they deemed necessary to their evaluation of the terms and
conditions of the current Business Management Agreement and the proposed New
Management Agreement.
Based upon the Directors' review and evaluations of these materials and their
considerations of all factors deemed relevant, the Directors determined that
the New Management Agreement is reasonable, fair, and in the best interests of
each Fund and its shareholders. Accordingly, the Directors, including all of
the Independent Directors, approved the adoption of the New Management
Agreement and its submission to each Fund's shareholders for approval and
adoption. If the New Management Agreement is adopted by shareholders of a Fund,
it will become effective April 30, 1997 and will remain in effect through
October 31, 1998, and will be thereafter subject to continuation by such Fund's
Board of Directors. If the New Management Agreement is not approved by any
Fund's shareholders, the current Investment Advisory Agreement between
Wellington Management and each Fund and the current Business Management
Agreement between Investors and each Fund will continue in effect through
October 31, 1997, and thereafter will be subject to continuation by each Fund's
Board of Directors.
The New Management Agreements are required to be approved annually by each
Fund's Board of Directors or by vote of a majority of such Fund's outstanding
voting securities (as defined in the 1940 Act). In either case, such annual
renewal must be approved by the vote of a majority of the Independent
Directors, cast in person at a meeting called for the purpose of voting on such
approval.
11
<PAGE>
The New Management Agreement is terminable, without penalty, on 60 days'
written notice by the Directors of a Fund, by vote of a majority of such Fund's
outstanding voting securities, or by Investors. In addition, the New Management
Agreement will terminate automatically in the event of assignment.
Transfer Agent and Dividend Disbursing Agent. Horace Mann Service
Corporation, One Horace Mann Plaza, Post Office Box 4657, Springfield, Illinois
62708-4657, acts as the transfer agent and dividend-paying agent to the Funds.
The fees received and the services provided as transfer agent and dividend-
disbursing agent are in addition to the fees received and services provided
under the New Management Agreement.
In addition to the foregoing services, Investors provides certain printing
and mailing services for the Funds, such as printing and mailing of shareholder
account statements, checks and tax forms. For all of the foregoing services in
1996, the Growth, Balanced, Income and Short-Term Investment Funds paid
$14,009, $5,662, $708 and $30, respectively.
Brokerage Allocation. The New Management Agreement and the Subadvisory
Agreement authorizes Investors and Wellington Management, respectively
(collectively, the "Advisers") (subject to the discretion and control of each
Fund's Board of Directors), to select the brokers or dealers that will execute
the purchases and sales of portfolio securities and direct the Advisers to use
their best efforts to obtain the best available price and most favorable
execution. Subject to policies established by the Directors of the Funds, each
of the Advisers may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or research
services provided, viewed in terms of either the particular transaction or the
Adviser's overall responsibilities with respect to each Fund and other clients.
In placing portfolio transactions, each of the Advisers will use its best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain best available price and most favorable execution. The full
range and quality of brokerage services available will be considered in making
these determinations. In those instances where it is reasonably determined that
more than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and other services in addition
to execution services. Such services may include factual and statistical
information or other items of supplementary research assistance. Each of the
Advisers considers such information useful in the performance of its
obligations under the advisory agreements, but is unable to determine the
amount by which such services may reduce its expenses. In addition, within the
parameters of achieving best price and execution, brokerage services may be
used to generate commission credits which are used to pay for pricing agent and
custodial services.
Some securities considered for investment by a Fund may also be appropriate
for other funds and/or clients served by the Advisers. To assure fair treatment
of each fund and all clients of the Advisers in situations in which two or more
clients' accounts participate simultaneously in a buy or sell program involving
the same security, such transactions will be allocated among the Funds and
clients in a manner deemed equitable by the Adviser.
12
<PAGE>
ITEM 3. APPROVAL OF INVESTMENT SUBADVISORY AGREEMENT
The Boards of Directors propose that the shareholders of each Fund approve
Wellington Management as the subadviser to the Funds pursuant to a subadvisory
agreement with Horace Mann Investors, Inc.
Under the Subadvisory Agreement, Wellington Management, a registered
investment adviser, would serve as the investment subadviser of each Fund.
Wellington Management would be responsible for managing the Fund, subject to
the direction of each Fund's Board of Directors and Investors.
Under the Subadvisory Agreement, the fee structure under which Wellington
Management would be compensated is identical to the fee structure under the
current Investment Advisory Agreements. THEREFORE, WELLINGTON MANAGEMENT WOULD
CONTINUE TO RECEIVE THE SAME FEES AS THEY WOULD HAVE UNDER THE CURRENT
INVESTMENT ADVISORY AGREEMENTS. Under the Subadvisory Agreement, Investors
would pay Wellington Management a percentage rate based on the Fund's average
daily net assets for the respective month. The rates are as follows:
<TABLE>
<CAPTION>
NET ASSETS RATE
----------------------- -----
<S> <C> <C>
Growth Fund................................... On initial $100 million 0.400%
On next $100 million 0.300%
Over $200 million 0.250%
Balanced Fund................................. On initial $100 million 0.325%
On next $100 million 0.275%
On next $300 million 0.225%
Over $500 million 0.200%
Income Fund................................... On initial $100 million 0.250%
On next $100 million 0.200%
Over $200 million 0.150%
Short-Term Fund............................... On initial $100 million 0.125%
On next $100 million 0.100%
Over $200 million 0.075%
</TABLE>
Wellington Management is a Massachusetts limited liability partnership with
principal offices at 75 State Street, Boston, Massachusetts 02109. Wellington
Management is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans,
endowments, foundations and other institutions and individuals. Wellington
Management's predecessor organizations have provided investment advisory
services for over 60 years. As of February 28, 1997, Wellington Management had
investment management authority with respect to approximately $140 billion in
assets and managed 84 investment companies.
Wellington Management is managed by its active partners. The managing
partners of Wellington Management as of February 28, 1997 were Robert W.
Doran, Duncan M. McFarland and John R. Ryan. Exhibit D identifies the
individuals who were general partners and Senior Vice Presidents of Wellington
Management as of February 28, 1997, each of whom may be reached at the
principal offices of the firm.
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<PAGE>
Wellington Management also serves as investment adviser or subadviser to
registered investment company portfolios which have investment objectives
similar to the Funds'. The following tables identify those portfolios, state
their approximate net assets (as of December 31, 1996) and indicate whether
Wellington Management has waived, reduced or otherwise agreed to reduce its
compensation.
COMPARISON OF ADVISORY FEE SCHEDULES*
HORACE MANN GROWTH FUND
<TABLE>
<CAPTION>
NET ASSETS ADVISORY FEE SCHEDULE
12/31/96 -----------------------------------
FUND ($ MILLIONS) NET ASSETS ANNUAL % RATE
- ---- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Hartford Dividend & Growth
Fund, Inc. (a) (b)........... $ 878.6 First $ 50,000,000 0.325%
Next 100,000,000 0.250%
Next 350,000,000 0.200%
Over 500,000,000 0.150%
NASL Series Growth & Income
Trust (a) (c)................ $ 1,038.6 First $ 50,000,000 0.325%
Next 150,000,000 0.275%
Next 300,000,000 0.225%
Over 500,000,000 0.150%
First Investors Growth &
Income Fund (d).............. $ 134.4 First $ 50,000,000 0.325%
Next 150,000,000 0.275%
Next 300,000,000 0.225%
Over 500,000,000 0.200%
HORACE MANN BALANCED FUND
<CAPTION>
NET ASSETS ADVISORY FEE SCHEDULE
12/31/96 -----------------------------------
FUND ($ MILLIONS) NET ASSETS ANNUAL % RATE
- ---- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Hartford Advisers Fund, Inc.
(a) (b)...................... $ 5,856.2 First $ 50,000,000 0.325%
Next 100,000,000 0.250%
Next 350,000,000 0.200%
Over 500,000,000 0.150%
Vanguard/Wellington Fund, Inc.
(g) (h)...................... $16,189.8 First $ 1,000,000,000 0.100%
Next 2,000,000,000 0.050%
Next 7,000,000,000 0.040%
Over 10,000,000,000 0.030%
Mentor Income & Growth
Portfolio.................... $ 103.6 First $ 50,000,000 0.325%
Next 150,000,000 0.275%
Next 300,000,000 0.225%
Over 500,000,000 0.200%
</TABLE>
14
<PAGE>
HORACE MANN INCOME FUND
<TABLE>
<CAPTION>
NET ASSETS ADVISORY FEE SCHEDULE
12/31/96 --------------------------------
FUND ($ MILLIONS) NET ASSETS ANNUAL % RATE
- ---- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Anchor Series Trust Fixed Income
Portfolio (a) (e)............... $ 22.8 First $ 50,000,000 0.225%
Next 50,000,000 0.125%
Over 100,000,000 0.100%
NASL Series Investment Quality
Bond
Trust (a) (c)................... $152.7 First $200,000,000 0.225%
Next 300,000,000 0.150%
Over 500,000,000 0.100%
</TABLE>
HORACE MANN SHORT-TERM FUND
<TABLE>
<CAPTION>
NET ASSETS ADVISORY FEE SCHEDULE
12/31/96 --------------------------------
FUND ($ MILLIONS) NET ASSETS ANNUAL % RATE
- ---- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Anchor Series Trust Money Market
Portfolio (a) (e)............... $74.0 First $500,000,000 0.075%
Over 500,000,000 0.020%
Prudential Target US Government
Money Market Portfolio (f)...... $23.3 All assets 0.125%
</TABLE>
- --------
* Source: Wellington Management Company, LLP
(a) Variable annuity.
(b) A fund in the Hartford group of funds. Wellington Management has
investment management authority over $14.3 billion of Hartford fund
assets.
(c) A fund in the North American Security Life group of funds. Wellington
Management has investment management authority over $1.3 billion of North
American Security Life affiliated fund assets.
(d) A fund in the First Investors group of funds. Wellington Management has
investment management authority over $507 million of First Investors fund
assets.
(e) A fund in the SunAmerica family of funds. Wellington Management has
investment management authority over $2.0 billion of SunAmerica fund
assets.
(f) A fund in the Prudential Target family of funds. Wellington Management
has investment management authority over $727 million of Prudential fund
assets.
(g) A fund in the Vanguard family of funds. Wellington Management has
investment management authority over $61.5 billion of Vanguard fund
assets.
(h) Plus or minus incentive fee.
At its meeting on February 6, 1997, the Directors, including each of the
Directors who is not an "interested person" (as defined in the 1940 Act) of
the Funds or Investors (the "Independent Directors"), considered the fact that
under the Subadvisory Agreement the fee paid to Wellington Management would be
the same as the fees currently paid and that the nature of the services
provided by Wellington Management would be the same. They also considered (i)
information regarding the
15
<PAGE>
nature and quality of the services provided by Wellington Management,
including the compliance by Wellington Management with investment policies and
regulatory requirements and the below-average trading costs achieved by
Wellington Management; and (ii) the investment performance, expense ratios,
and management fees for comparable investment companies. The Board also
considered the fact that the subadvisory fees were equivalent to the most
favorable rates that Wellington Management provided to similarly situated
clients. The Directors received all information they deemed necessary to their
evaluation of the terms and conditions of the Subadvisory Agreement. Based
upon the Directors' review and evaluations of these materials and their
consideration of all factors deemed relevant, the Directors determined that
the Subadvisory Agreement is reasonable, fair, and in the best interests of
each Fund and its shareholders. Accordingly, the Directors, including all of
the Independent Directors, approved the Subadvisory Agreement and its
submission to each Fund's shareholders for approval and adoption. If the
Subadvisory Agreement is not approved and adopted by a Fund's shareholders,
the current Investment Advisory Agreement between Wellington Management and
each Fund and the current Business Management Agreement between Investors and
each Fund will continue in effect through October 31, 1997, and thereafter
will be subject to continuation by each Fund's Directors.
Additional Information Concerning the Subadvisory Agreement and Subadvisor.
The Subadvisory Agreement is required to be approved annually by each Fund's
Board of Directors or by vote of a majority of each Fund's outstanding voting
securities (as defined in the 1940 Act). In either case, such annual renewal
must be approved by the vote of a majority of each Fund's Directors who are
Independent Directors, cast in person at a meeting called for the purpose of
voting on such approval. On February 6, 1997, the Board of Directors of each
Fund, including all Independent Directors, voted unanimously to initially
approve the Subadvisory Agreement for each Fund, commencing April 30, 1997,
subject to approval of each Fund's shareholders. The Subadvisory Agreement may
be terminated at any time, without payment of any penalty, by a vote of the
Directors of a Fund or by a vote of a majority of the outstanding voting
securities of a Fund on 60 days' written notice to Wellington Management. The
Subadvisory Agreement may be terminated by Wellington Management upon 60 days'
notice for any reason. The Subadvisory Agreement will terminate automatically
in the event of assignment.
Under the terms of the Subadvisory Agreement, Wellington Management
furnishes investment advisory and portfolio management services to the Fund
with respect to its investments. Wellington Management is responsible for
decisions to buy and sell the Fund's investments and all other transactions
related to investment therein and the negotiation of brokerage commissions, if
any. During the term of the Subadvisory Agreement, Wellington Management will
bear all expenses incurred by it in connection with its services under such
agreement.
ITEM 4. APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of each Fund unanimously approved an Agreement and Plan of
Reorganization (the "Reorganization Agreement") for each Fund in the form
attached hereto as Exhibit A. The Reorganization Agreement provides for the
reorganization (the "Reorganization") of each Fund into a new series of Horace
Mann Mutual Funds.
The purpose of the Reorganization is to assimilate each Fund into a single
mutual fund in order to eliminate differing forms of charter documents and to
eliminate duplicative regulatory filings. This type of reorganization may be
referred to as a "change in domicile reorganization." The Board of
16
<PAGE>
each Fund believes that such changes will help to promote operational
efficiencies and allow for the future addition of other portfolios in the most
efficient manner, which should benefit the Funds. The Board considered all
material issues associated with the Reorganization and determined that the
Reorganization is in the best interest of shareholders. The table below shows
the structure of the Funds before and after the Reorganization:
<TABLE>
<CAPTION>
BEFORE AFTER
- ------ -----
<S> <C>
Horace Mann Mutual Funds
Horace Mann Growth Fund, Inc. Growth Fund
Horace Mann Balanced Fund, Inc. Balanced Fund
Horace Mann Income Fund, Inc. Income Fund
Horace Mann Short-Term Investment Fund, Inc. Short-Term Investment Fund
</TABLE>
Each Reorganization contemplates that (i) the Fund will transfer all its
assets to a series ("New Fund") of Horace Mann Mutual Funds, a Delaware
business trust (the "Trust"), in exchange for shares of the same class of the
New Fund and the assumption by the New Fund of all of the liabilities of the
Fund; (ii) the Fund will distribute to each shareholder of the Fund a number of
New Fund shares of the same class (including any fractional shares) equal in
value and number to such shareholder's Fund shares in exchange for such Fund
shares; and (iii) the Fund will liquidate and dissolve and all outstanding
shares of the Fund will be cancelled.
If shareholders of a Fund do not approve the Reorganization, the Fund will
continue in business in its current corporate form.
Procedures for Reorganization. In connection with the Reorganization, after
the close of business on the date of effectiveness of the Reorganization (the
"Effective Date"), but prior to its completion, one share of a New Fund will be
issued to the corresponding Fund. The Fund, as the sole shareholder of the New
Fund, will then take the following actions:
(1) approve a proposed Management Agreement and Subadvisory Agreement on
behalf of the respective New Fund on substantially the same terms as the
New Management and Subadvisory Agreements described in Items 2 and 3 above;
(2) ratify the selection of KPMG Peat Marwick LLP as auditors for the New
Fund; and
(3) ratify the election as board members of the Trust the same persons
who are nominated as Board Members in Item 1.
Thereafter, on the Effective Date, each Fund will transfer all its assets to
each corresponding New Fund in exchange for shares of each New Fund and the
assumption by each corresponding New Fund of all the liabilities of the Fund;
the Fund will distribute to each of its shareholders, in exchange for Fund
shares held by such shareholder, New Fund shares in a number equal to the
number of shares (including any fractional share) of the Fund then owned by
such shareholder and having the same net asset value per share as the net asset
value per share of the Fund on the Effective Date; the shares of the Fund owned
by the shareholder will be cancelled; and the Fund will then dissolve. A
shareholder of the Fund will therefore acquire the same pro rata interest in
the New Fund as of the Effective Date of the Reorganization as the shareholder
had in the Fund immediately prior to the Reorganization. The New Fund will then
operate in the same manner and with the same investment objectives and policies
as the Fund, giving effect to the results of the shareholder votes on the other
items included in this proxy, including any change of fundamental investment
policies.
17
<PAGE>
Confirmations of the shares of the New Fund received in the Reorganization in
exchange for shares of the Fund will not be issued to shareholders because the
number and value of shares held by a shareholder will not be changed by the
Reorganization. It will not be necessary for a shareholder holding certificates
of a Fund to exchange those certificates for new certificates representing
shares of the New Fund following consummation of the Reorganization.
Certificates for shares of a Fund issued prior to the Reorganization will
represent shares of the New Fund after the Reorganization.
If approved by shareholders of the Fund, it is expected that the
Reorganization will be made effective on April 30, 1997, but it may be
effective at a different time.
Certain Comparative Information about the Trust and the Funds. As a Delaware
business trust, the Trust's operations are governed by the Declaration of
Trust, Bylaws (collectively, the "Trust's governing documents") and applicable
Delaware law. As Maryland corporations, the Funds' operations are governed by
each individual Fund's Articles of Incorporation, Bylaws (collectively, the
"Funds' governing documents") and applicable Maryland law. If the
Reorganization is approved, the operations of the Trust will continue to be
subject to the provisions of the 1940 Act and the rules and regulations of the
Securities and Exchange Commission thereunder and applicable state securities
laws. Set forth below is a discussion of the major differences between the
Trust and the Funds.
Shareholder Meetings. The Trust's governing documents provide that
shareholder meetings (i) may be called at any time by a majority of the
Board Members and (ii) must be called by any Board Member upon the written
request of shareholders holding, in the aggregate, not less than 10% of the
shares (or series or class thereof). By comparison, the Funds' governing
documents provide that shareholder meetings (i) may be called at any time
by the Chairman of the Board, (ii) under most circumstances, must be called
upon the written request of shareholders entitled to cast at least 25% of
all the votes entitled to be cast at the meeting and (iii) if the purpose
of the meeting is to vote on the removal of a Board Member from office,
must be called upon the written request of shareholders entitled to cast at
least 10% of all the votes entitled to be cast at the meeting.
Quorum. The Trust's governing documents provide that, for most purposes,
one-third of the outstanding shares constitutes a quorum for shareholder
meetings. By comparison, the Funds' governing documents provide that a
majority of shares entitled to vote constitutes a quorum for shareholder
meetings.
Election of Board Members. The Trust's governing documents provide that
Board Members are elected by (i) a plurality of shares entitled to vote at
any shareholder meeting or (ii) to the extent permitted by the 1940 Act, a
majority of the Board Members continuing in office acting by written
instrument or instruments. By comparison, the Funds' governing documents
provide that Board Members are elected by vote of a majority of the shares
present at any shareholder meeting in person or by proxy and entitled to
vote for the election of Board Members.
Removal of Board Members. The Trust's governing documents provide that
Board Members may be removed (i) by the shareholders with or without cause
by the affirmative vote of two-thirds of the shareholders at any
shareholder meeting or (ii) by the Board Members (a) with cause by the
action of two-thirds of the remaining Board Members or (b) without cause by
the action of eighty percent of the remaining Board Members. By comparison,
the Funds'
18
<PAGE>
governing documents provide that the shareholders may remove any Board
Member or members from office with or without cause by the affirmative vote
of the holders of a majority of the shares entitled to cast votes on the
matter at any shareholder meeting.
Amendment of Governing Documents. The Trust's Declaration of Trust
provides that it may be amended (i) by an instrument in writing signed by a
majority of the Board Members or (ii) by an officer of the Trust pursuant
to the vote of a majority of such Board Members. However, if the proposed
amendment would change any rights with respect to any interest in the Trust
(i) by reducing the amount payable thereon upon liquidation of the Trust,
(ii) by repealing the limitations on personal liability of any shareholder
or Board Member or (iii) by diminishing or eliminating any voting rights
pertaining thereto, then such amendment requires the vote of the lesser of
either 67% or more of the shares present or represented at any
shareholders' meeting (provided that the holders of more than 50% of the
shares are present or represented by proxy) or more than 50% of the shares.
The Trust's Bylaws provide that they may be amended (i) by a majority of
the Board Members then in office at any Board meeting or (ii) by one or
more writings signed by such majority. By comparison, the Funds' Articles
of Incorporation provide that they may be amended by the shareholders by
the affirmative vote of a majority of the aggregate number of the votes
entitled to be cast on the matter at any shareholder meeting. The Funds'
Bylaws provide that they may be amended (i) by the Board or (ii) by the
shareholders by the affirmative vote of the holders of a majority of the
outstanding shares at any shareholder meeting. In addition, the Funds'
Bylaws provide that the shareholders have the power to modify or rescind a
Board-initiated amendment by the affirmative vote of the holders of a
majority of the outstanding shares at any shareholder meeting.
Dissolution. The Trust's governing documents provide that the Trust may
be terminated (i) by the affirmative vote of not less than two-thirds of
the shareholders, (ii) by an instrument in writing, without a meeting,
signed by a majority of the Board Members and consented to by not less than
two-thirds of the shareholders or (iii) by the Board Members by written
notice to shareholders. By contrast, the Funds' governing documents and
Maryland law provide that the Funds may be terminated by the shareholders
by the affirmative vote of a majority of the shares entitled to vote on the
matter at any shareholder meeting.
Federal Income Tax Consequences. Each Fund has received an opinion of Vedder,
Price, Kaufman & Kammholz that under the Internal Revenue Code of 1986, as
amended, the Reorganization of the Fund into the New Fund pursuant to the
Reorganization Agreement will not result in the recognition of gain or loss for
federal income tax purposes to the Fund or the New Fund. Shareholders of the
Fund will not recognize any gain or loss for federal income tax purposes on the
exchange of Fund Shares for New Fund Shares pursuant to the Reorganization. A
shareholder's adjusted basis for federal income tax purposes in shares of the
New Fund after the Reorganization will be the same as his or her adjusted basis
for tax purposes in the shares of the Fund immediately before the
Reorganization. The holding period of the shares of the New Fund received by
the shareholders of the Fund will include the holding period of shares of the
Fund exchanged therefor, provided that at the time of the exchange the shares
of the Fund were held as capital assets.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL FEDERAL
INCOME TAX CONSEQUENCES OF THE REORGANIZATION AND SHOULD NOT BE CONSIDERED TAX
ADVICE. THERE CAN BE NO ASSURANCES THAT THE
19
<PAGE>
INTERNAL REVENUE SERVICE WILL CONCUR ON ALL OR ANY OF THE ISSUES DISCUSSED
ABOVE. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE FOREGOING AND ANY OTHER
CONSIDERATIONS THAT MAY BE APPLICABLE TO THEM.
Approval of the Reorganization for each Fund requires approval by the
affirmative vote of a majority of the aggregate number of the votes entitled
to be cast on the matter.
Each Reorganization is contingent upon the shareholders of the applicable
Fund electing those persons who are nominated as Board Members in Item 1,
approving the New Management Agreement in Item 2 and approving the Subadvisory
Agreement in Item 3.
ADOPTION OF CERTAIN INVESTMENT LIMITATIONS
This section discusses the following items that require shareholder
approval: (i) a proposed change to the Balanced and Income Funds' fundamental
investment policy related to these Funds' ability to invest in restricted and
illiquid securities (Item 5) and (ii) a proposed change to the Income Fund's
investment objective (Item 6). If approved by shareholders, these proposed
changes will become effective on or about May 1, 1997. If one or both of these
proposed changes are not approved by shareholders, the Balanced and Income
Funds' fundamental investment policy and/or the Income Fund's current
investment objective will remain in effect.
Item 5 pertains to a proposed change in the Balanced and Income Funds'
fundamental investment policy regarding each Fund's ability to invest in
restricted and illiquid securities. The primary purpose of the proposed change
is to allow each Fund to invest in securities that are eligible for resale
under Rule 144A of the Securities Act of 1933 and, to a limited extent, in
illiquid securities. Item 6 pertains to a proposed change in the Income Fund's
investment objective. The purpose of the proposed objective is to allow the
Fund to pursue a long-term total rate of return in excess of the U.S. bond
market over a full market cycle, which is usually considered to be ten years.
In connection with the proposed change in the Income Fund's investment
objective, the Fund's Board of Directors has adopted or modified certain of
the Income Fund's non-fundamental investment policies. The 1940 Act permits
the Board to make such changes without shareholder approval, and the Board did
so by written consent on March 10, 1997. Provided that the Income Fund's
shareholders approve the proposed change to the Income Fund's investment
objective, the Fund's new non-fundamental investment policies will become
effective on or about May 1, 1997. The Board implemented these changes to take
advantage of current market conditions and to broaden the Fund's permissible
types of investments and investment techniques. The new non-fundamental
investment policies adopted by the Income Fund's Board of Directors are as
follows:
1. The Fund added a policy that permits it to invest up to 15% of its total
assets in non-U.S. dollar-denominated debt obligations of foreign
issuers that are rated in the highest ratings category provided such
securities are fully hedged back into U.S. dollars;
2. The Fund increased the percentage of total assets that it may invest in
U.S. dollar-denominated debt obligations of foreign issuers that are
rated in the three highest ratings categories from 10% to 15% of total
assets;
3. The Fund decreased from 80% to 75% of total assets the percentage of
assets required to be invested in investment grade debt securities;
20
<PAGE>
4. The Fund increased from 20% of total assets to 25% of total assets the
percentage of assets permitted to be invested in preferred stocks and
other non-debt securities, including convertible securities and warrants
to purchase equity securities;
5. As part of the 25% of the Income Fund's total assets that it may invest
in non-debt securities pursuant to number 4 above, the Fund may invest
in U.S. dollar-denominated non-investment grade debt obligations of U.S.
and non-U.S. issuers;
6. The Fund may enter into forward foreign currency exchange contracts,
foreign currency futures contracts and forward currency options each to
the extent of 15% of its total assets for hedging purposes; and
7. The Fund changed its temporary defensive position policy by increasing
from 20% of total assets to 25% of total assets the Fund's ability to
invest in short-term obligations and equity securities.
The Balanced Fund invests between 25% and 50% of its total assets in fixed
income securities in which the Income Fund is permitted to invest. On March 10,
1997, the Fund's Board approved, by written consent, corresponding changes to
the non-fundamental policies for the Balanced Fund. Therefore, the changes in
investments for the Income Fund described above will apply to the portion of
the Balanced Fund that is invested in fixed income securities effective on or
about May 1, 1997, provided that the Income Fund's shareholders approve the
proposed change in investment objectives.
ITEM 5. PROPOSED CHANGE IN FUNDAMENTAL INVESTMENT POLICY (BALANCED FUND AND
INCOME FUND ONLY)
The Board of Directors has proposed that the Balanced Fund's and Income
Fund's fundamental investment policy regarding investment in illiquid and
restricted securities be amended. The primary purpose of this proposal is to
allow each Fund to invest in illiquid and restricted securities to a limited
extent. Restricted securities are unregistered securities issued under an
exemption from the Securities Act. Restricted securities generally cannot be
resold without registration and, subject to certain exceptions, they are
considered to be illiquid. However, in certain cases, the SEC has allowed
restricted securities that may be resold to institutional investors under Rule
144A of the Securities Act (a "Rule 144A security") to be deemed liquid under
guidelines adopted by a fund's board of directors. In determining whether a
Rule 144A security is liquid, the following factors may be considered: (i) the
frequency of trades or quotes for the security; (ii) the number of dealers
willing to purchase or sell the security and the number of potential buyers;
(iii) the willingness of dealers to undertake to make a market in the security;
(iv) the nature of the security and the nature of the marketplace trades, such
as the time needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer; and (v) the likelihood that the security's
marketability will be maintained throughout the anticipated holding period. As
a matter of operating policy, each Fund will purchase only Rule 144A securities
that carry registration rights, will invest only in Rule 144A securities that
are deemed to be liquid and will limit its investment in Rule 144A securities
to 20% of each Fund's net assets. Each Fund's current fundamental investment
policy on purchasing restricted securities is as follows:
The Fund may not "underwrite the securities of other issuers, purchase
securities subject to restrictions on disposition under the Securities Act
of 1933 (so called "restricted securities") or purchase securities not
freely marketable."
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Under the proposal, the fundamental limitation on restricted securities for
each Fund would be replaced with the following fundamental policy:
"Each Fund may not underwrite the securities of other issuers, invest
more than 10% of its net assets in illiquid securities or invest in
securities subject to restriction on disposition under the Securities Act
of 1933, except for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933."
Under the proposal, the Balanced Fund and Income Fund would each be able to
invest up to 10% of its total net assets in illiquid securities. An illiquid
investment is a security or other position that cannot be disposed of quickly
in the normal course of business without adversely affecting its price. The
lack of a liquid secondary market may have an adverse impact on the market
price of the security. As a result, a Fund's net asset value and ability to
dispose of particular securities, when necessary to meet a Fund's liquidity
needs or in response to a specific economic event, may be impacted. The lack
of a liquid secondary market may also make it more difficult for a Fund to
obtain accurate market quotations for purposes of valuing a Fund's portfolio.
In addition, the Balanced Fund and Income Fund would be able to purchase
securities which are not registered under the Securities Act but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under
the Securities Act. Any such security will not be considered illiquid so long
as it is determined by the Subadviser that an adequate trading market exists
for that security. This investment practice could have the effect of
increasing the level of illiquidity in a Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
ITEM 6. PROPOSED CHANGE IN INVESTMENT OBJECTIVE (INCOME FUND ONLY)
The Directors unanimously recommend that the shareholders of the Income Fund
vote to replace the Fund's current investment objectives as noted below.
The Fund's current investment objectives state:
"The primary investment objective of the Income Fund is to maximize current
income consistent with prudent investment risk. A secondary objective is
preservation of capital."
The Fund's proposed investment objective states:
"The investment objective of the Income Fund is to achieve a long-term total
rate of return in excess of the U.S. bond market over a full market cycle."
The purpose of the proposed objective is to provide for a more aggressive
investment management style that is designed to achieve a long-term total rate
of return in excess of the U.S. bond market over a full market cycle, which is
usually considered to be 10 years. For this purpose, the Fund will use the
Lehman Brothers Aggregate Bond Index to represent the U.S. bond market. The
Lehman Brothers Aggregate Index (the "Index") covers the U.S. investment grade
fixed rate bond market, including government and corporate securities, agency
mortgage pass-through securities, and asset-backed securities. The Index
includes only investment grade instruments, while the Income Fund may invest
up to 25% of its assets in non-investment grade instruments. The proposed
investment objective focuses on the pursuit of total return over the long term
instead of the pursuit of current income and preservation of capital. The
Fund's current investment objectives
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suggest that a relatively low level of risk will be taken in pursuit of
current income, while the proposed investment objective compares the Fund's
overall performance to a different objective measure of return with a higher
degree of risk.
If shareholders approve the proposed investment objective, the Income Fund
would invest in a broader range of debt instruments. In order to pursue its
investment objective, the Fund would invest in high yield (high risk)
securities; however, the Fund would be required to maintain an average
portfolio quality of A (the third highest rating category) or better and, as
an investment policy, at least 75% of the Fund's total assets would be
invested in investment grade debt (the four highest rating categories) under
normal market conditions. High yield securities, also referred to as "junk
bonds," are those securities that are rated lower than investment grade and
unrated securities of comparable quality. Although these securities generally
offer higher yields than investment grade securities with similar maturities,
lower quality securities involve greater risks, including the possibility of
default or bankruptcy. In general, they are regarded to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. As with any other asset in the Fund's portfolio, any reduction in
the value of such securities would be reflected in the net asset value of the
Fund. The Fund may incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal and interest on its
holdings. As a result of the associated risks, successful investment in high
yield securities will be more dependent on the subadviser's credit analysis
than generally would be the case with investment in investment grade
securities. Lower quality securities tend to be less liquid than higher
quality debt securities because the market for them is not as broad or active.
The lack of a liquid secondary market may have an adverse effect on market
price and the Fund's ability to sell particular securities.
In addition, in pursuit of its investment objective the Fund would invest
(i) a greater percentage of its total assets in U.S. dollar-denominated debt
obligations of foreign issuers rated A or higher (the three highest rating
categories), (ii) up to 25% of its total assets in U.S. dollar-denominated
debt obligations of foreign issuers rated below investment grade and (iii) up
to 15% of its total assets in non-U.S. dollar denominated debt obligations of
foreign issuers that are rated AAA (the highest rating category) that are
fully hedged back into U.S. dollars. Global investing involves economic and
political considerations not typically found in U.S. markets. These
considerations, which may favorably or unfavorably affect the Fund's
performance, include non-negotiable brokerage commissions, different
accounting standards, lower trading volume and greater market volatility, the
difficulty of enforcing obligations in other countries, less securities
regulation, different tax provisions, war, expropriation, political and social
instability, and diplomatic developments. For non-U.S. dollar denominated
obligations, the risks also include changes in exchange rates and exchange
rate controls and the costs incurred in conversion between currencies. All
these considerations generally are more of a concern in developing countries.
The subadviser seeks to mitigate the risks associated with these
considerations through diversification and active professional management. In
conjunction with its investments in foreign obligations, the Fund may enter
into forward foreign currency exchange contracts, foreign currency futures
contracts and foreign currency options each up to 15% of its total assets for
hedging purposes. Unanticipated changes in currency prices may result in
poorer overall performance for a Fund than if it had not engaged in these
transactions.
While the Fund currently invests at least 80% of its total assets in
intermediate term fixed income securities with effective maturities of two to
ten years, in pursuit of the proposed investment
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objective the Fund generally would maintain a portfolio duration of +/- 25% of
the Index's duration and there would be no maximum maturity limits on
individual portfolio securities.
MISCELLANEOUS
General. The cost of preparing, printing and mailing the enclosed proxy,
accompanying notice and proxy statement and all other costs in connection with
solicitation of proxies will be paid by Horace Mann Life Insurance Company,
including any additional solicitation made by letter, telephone or telegraph.
In addition to solicitation by mail, certain officers and representatives of
the Funds and officers and employees of Investors and its affiliates who will
receive no extra compensation for their services, may solicit proxies by
telephone, telegram or personally. Failure of a quorum to be present at the
Meeting for a Fund will necessitate adjournment for that Fund and may subject
that Fund to additional expense. A copy of the Fund's annual report is
available without charge upon request by writing to such Fund, One Horace Mann
Plaza, Springfield, Illinois 62715-0001 or by calling 1-800-999-1030.
Proposals of Shareholders. The Funds are not required to hold annual
shareholder meetings. However, each Fund will hold special meetings as required
or deemed desirable. Because the Funds do not hold regular shareholder
meetings, the anticipated date of the next annual shareholder meeting cannot be
provided. Any shareholder proposal that may properly be included in the proxy
solicitation material for a special shareholder meeting must be received by the
applicable Fund within a reasonable time before the solicitation is made, which
generally will be construed to mean no later than four months prior to the date
that the proxy solicitation material is mailed to shareholders.
Other Matters to Come Before the Meeting. The Boards are not aware of any
matters that will be presented for action at the Meeting other than those set
forth herein. Should any other matters requiring a vote of shareholders arise,
the proxy in the accompanying form will confer upon the person or persons
entitled to vote the shares represented by such proxy the discretionary
authority to vote the shares with respect to any such other matters in
accordance with their best judgment in the interest of the Fund.
Voting, Quorum. Shareholders may vote only on matters that concern the Fund
or Funds in which they hold shares. The record holders of outstanding shares of
each Fund are entitled to one vote per share (and a fractional vote per
fractional share) on all matters presented before the Meeting. Each valid proxy
will be voted in accordance with the instructions on the proxy and as the
persons named in the proxy determine on such other business as may come before
the Meeting. If no instructions are given, the proxy will be voted for the
election as Board Members of the persons who have been nominated for such Fund
and as recommended by the Board on each other item. Interests of shareholders
for which no proxy card/voting instructions are received will be voted in
proportion to the instructions that are timely received. Shareholders who
execute proxies may revoke them at any time before they are voted, either by
writing to the Fund or in person at the time of the Meeting. If not so revoked,
the shares represented by the proxy will be voted at the Meeting and any
adjournments thereof. Attendance by a shareholder at the Meeting does not in
itself revoke a proxy. Proxies given by telephone or electronically transmitted
instruments may be counted if obtained pursuant to procedures designed to
verify that such instructions have been authorized. Item 1, election of Board
Members for a Fund, requires the vote of the holders of a majority of the
shares of each Fund present in person or by proxy and entitled to vote on the
election of directors. Items 2, 3,
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5 and 6, approval of the New Management Agreement and Subadvisory Agreement and
approval of the investment objective and investment policy each require the
affirmative vote of "a majority of the outstanding voting securities" of a Fund
as defined in the 1940 Act, which means the affirmative vote of the lesser of
(1) 67% of the voting securities of a Fund present at the meeting if more than
50% of the outstanding shares of a Fund are present in person or by proxy or
(2) more than 50% of the outstanding shares of a Fund. Item 4, approval of the
Agreement and Plan of Reorganization, requires the affirmative vote of a
majority of the aggregate number of the votes entitled to be cast on the
matter.
At least 50% of the shares of a Fund must be present, in person or by proxy,
in order to constitute a quorum for that Fund. Thus, the meeting for a
particular Fund could not take place on its scheduled date if less than 50% of
the shares of that Fund were represented. In the event that a quorum is present
at the Meeting but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment
will be approved if the votes cast in favor of such adjournment exceed the
votes cast opposing such adjournment. It is anticipated that the persons named
as proxies would vote in favor of such adjournment. In tallying shareholder
votes, abstentions and broker non-votes (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the
beneficial owners or persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter) will be
counted for determining whether a quorum is present for purposes of convening
the Meeting and will be considered present at the Meeting. On Item 1,
abstentions and broker non-votes will have no effect on any matter voted on at
the Meeting. On Items 2, 3, 4, 5 and 6, abstentions and broker non-votes will
have the effect of a vote against the proposal.
THE BOARD OF EACH FUND RECOMMENDS AN AFFIRMATIVE VOTE ON ALL ITEMS APPLICABLE
TO THAT FUND.
Please complete, sign and return the enclosed proxy promptly. No postage is
required if mailed in the United States.
By order of the Boards,
Ann M. Caparros
Secretary
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Horace Mann Growth Fund, Inc.; Horace Mann Income Fund, Inc.; Horace Mann
Balanced Fund, Inc.; Horace Mann Short-Term Investment Fund, Inc., each a
Maryland corporation (each referred to herein as a "Company"), and Horace Mann
Mutual Funds (the "Trust"), a Delaware business trust, on behalf of its series
of shares designated as the Growth Fund, the Income Fund, the Balanced Fund and
the Short-Term Investment Fund (each a "New Fund"), agree upon the following
plan of reorganization (the "Plan") with regard to each Company:
1. Prior to the closing provided for in section 4 below, the Company and the
Trust will execute and file articles of transfer with respect to the
transactions contemplated hereby with the Department of Assessments and
Taxation of the State of Maryland. The Company shall transfer to the
corresponding New Fund all of the assets of the Company (including the share of
the New Fund owned by the Company, which shall immediately thereafter be
cancelled), in exchange for which the New Fund shall simultaneously assume all
of the liabilities of the Company, and shall issue to the Company a number of
New Fund shares equal in number and net asset value to the number and net asset
value of shares (including fractional shares) of the Company then outstanding.
The Company then will distribute to each registered shareholder of the Company
shares of the New Fund in a number and net asset value equal to the number and
net asset value of shares (including any fractional share) of the Company then
owned by the shareholder, in liquidation of the Company and in exchange for and
cancellation of the shareholder's shares of the Company.
2. The distribution to the shareholders of the Company shall be accomplished
by establishing an account on the share records of the New Fund in the name of
each registered shareholder of the Company, and crediting that account with a
number of shares of the New Fund equal to the number of shares (including any
fractional share) of the Company owned of record by the shareholder at the time
of the distribution. Outstanding certificates representing shares of the
Company shall thereafter represent an equal number of shares of the same class
of the New Fund.
3. Promptly thereafter, the Company shall be liquidated and dissolved
pursuant to the Maryland General Corporation Law.
4. The transaction in section 1 above shall occur at the close of business on
April 30, 1997, at the offices of the Trust, or at such other date, time or
place as may be agreed upon by the parties (the "Closing").
5. The obligations of each Company and the Trust to effect the transactions
contemplated hereunder shall be subject to the satisfaction of each of the
following conditions:
a. All necessary filings shall have been made with the Securities and
Exchange Commission and state securities commissions and no order or
directive shall have been received that any other or further action is
required to permit the parties to carry out the transactions contemplated
by this Plan.
b. The Company and the Trust shall have received an opinion from its
legal counsel substantially to the effect that for federal income tax
purposes: (i) no gain or loss will be recognized by the Company upon the
transfer of its assets and liabilities to the corresponding New Fund or
upon the distribution to its shareholders of shares of the New Fund
received as a
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result of such transfer; (ii) the tax basis of the assets of the Company in
the hands of the corresponding New Fund will be the same as the tax basis
of such assets in the hands of the Company immediately prior to the
transfer; (iii) the holding period of the assets of the Company transferred
to the corresponding New Fund will include the period during which such
assets were held by the Company; (iv) no gain or loss will be recognized by
the New Fund upon the receipt of the assets of the Company in exchange for
shares of the New Fund and the assumption by the New Fund of the
liabilities and obligations of the Company; (v) no gain or loss will be
recognized by the shareholders of the Company upon receipt of the shares of
the New Fund; (vi) the basis of the shares of the New Fund received by the
shareholders of the Company will be the same as the basis of the shares of
the Company exchanged therefor; and (vii) the holding period of shares of
the New Fund received by the shareholders of the Company will include the
holding period of the shares of the Company exchanged therefor, provided
that at the time of the exchange the shares of the Company were held as
capital assets; and as to such other matters as it may reasonably request.
c. This Plan and the reorganization contemplated hereby shall have been
adopted and approved by the affirmative vote of the holders of the
requisite number of the outstanding shares of the Company entitled to vote
thereon as required by law at the time such vote is taken.
d. The Trustees of the Trust shall have authorized, and the New Fund
shall have issued, one share of the New Fund to the corresponding Company
in consideration of the payment equal to the net asset value of one share
of the Company on the day of the Closing for the purpose of enabling the
Company to approve as sole shareholder of the New Fund the investment
management between the Trust and Horace Mann Investors, Inc. and a
subadvisory agreement between Horace Mann Investors, Inc. and Wellington
Management Company, LLP, for the New Fund; such approval shall have taken
place and the New Fund shall have become subject to said in accordance with
the terms thereof.
At any time prior to the Closing, any of the foregoing conditions may be
waived by the Company and the Trust if such a waiver will not have a material
adverse effect on the interests of the shareholders of the Company or the
Trust, as the case may be.
6. This Plan may be amended at any time, and may be terminated at any time
before the completion of the transaction in section 1, regardless of whether or
not this Plan has been approved by the shareholders of the Company, by
agreement of the Company and the Trust, provided that no amendment shall have a
material adverse effect upon the interests of shareholders of the Company. In
any case, this Plan may be terminated by either the Company or the Trust, if
the transaction in section 1 has not occurred by the close of business on
December 31, 1997.
7. A copy of the Trust's Certificate of Trust is on file with the Secretary
of the State of Delaware, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Trust as the Trustees of the Trust
and not individually and that the obligations under this instrument are not
binding upon any of the Trustees, officers or shareholders of the Trust
individually, but binding only upon the assets and property of the New Fund.
8. At any time after the completion of the transaction in section 1, the
Company acting through its officers, or if then dissolved through its last
officers, shall execute and deliver to the New Trust, such additional
instruments of transfer or other written assurances as the Trust may reasonably
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request in order to vest in the Trust, acting for the New Fund, title to the
assets transferred by the Company under this Plan.
9. This Plan shall be construed in accordance with applicable federal law and
the laws of the State of Illinois, except as to the provisions of section 7
hereof, which shall be construed in accordance with the laws of the State of
Delaware.
10. The distribution of shares of the New Fund to the Company's shareholders
and the cancellation of the Company's shares will be effected pursuant to an
amendment to the articles of incorporation of the Company in accordance with
the Maryland General Corporation Law.
Dated February 6, 1997
Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment
Fund, Inc.
/s/ George J. Zock
By: ______________________________
President
Horace Mann Mutual Funds
/s/ George J. Zock
By: ______________________________
President
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EXHIBIT B
FORM OF MANAGEMENT AGREEMENT
This Management Agreement is made as of this , 199 between
, a Maryland corporation (herein called the "Company"), and
HORACE MANN INVESTORS, INC., a Delaware corporation (herein called the
"Manager").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Company wishes to retain the Manager under this Agreement to
render investment advisory and management services to the Company; and
WHEREAS, the Company desires to retain the Manager to provide management and
administrative services for the Company, and the Manager is willing to render
such services;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
1. Appointment of Manager. The Company hereby appoints the Manager as
manager on the terms and for the period set forth in this Agreement and the
Manager hereby accepts such appointment and agrees to perform the services and
duties set forth herein on the terms herein provided. The Manager may, in its
discretion, provide such services through its own employees or the employees
of one or more affiliated companies that are qualified to provide such
services under applicable law and are under common control with the Manager
provided (i) that all persons, when providing services hereunder, are
functioning as part of an organized group of persons, and (ii) that such
organized group of persons is managed at all times by authorized officers of
the Manager.
2. Administrative Services and Duties. Subject to the supervision and
control of the Company's Board of Directors, the Manager shall provide to the
Company facilities, equipment, statistical and research data, clerical,
accounting and bookkeeping services, internal auditing and legal services, and
personnel to carry out all management services required for operation of the
business and affairs of the Company other than those services to be performed
by a distributor of the Company's shares pursuant to a Distribution Agreement,
those services to be performed by the Company's custodian pursuant to the
Company's Custody Agreement, those services to be performed by the Company's
transfer agent pursuant to the Company's Transfer Agency Agreement, those
accounting services to be provided pursuant to an accounting agreement or
custody agreement and those services normally performed by the Company's
counsel and auditors.
(A) The Manager's oversight responsibilities shall include:
(1) Overseeing the performance of the Custodian under the Custody
Agreement; and
(2) Overseeing the performance of the Transfer Agent under the Transfer
Agency Agreement.
(B) The Manager shall participate in the periodic updating of the Company's
prospectuses and statements of additional information and shall accumulate
information for and, subject to approval
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by the Company's Treasurer and legal counsel, coordinate the preparation,
filing, printing and dissemination of reports to the Company's shareholders and
the Securities and Exchange Commission (the "Commission"), including but not
limited to annual reports and semi-annual reports on Form N-SAR, notices
pursuant to Rule 24f-2 and proxy materials pertaining to the Company.
(C) The Manager shall calculate dividends and capital gain distributions to
be paid by the Company in conformity with subchapter M of the Internal Revenue
Code of 1986, as amended.
(D) The Manager shall pay all costs and expenses of maintaining the offices
of the Company, wherever located, and shall arrange for payment by the Company
of all expenses payable by the Company.
(E) The Manager shall maintain such other books and records with respect to
the Company as may be required by law or may be required for the proper
operation of the business and affairs of the Company, other than those required
to be maintained under the Fund Accounting Agreement and by the Manager under
Section 3 of this Agreement. Without limiting the foregoing, the Manager shall
be responsible for the proper maintenance of the records to be maintained by
it, throughout the term of this Agreement.
(F) The Manager shall prepare the Company's federal, state and local income
tax returns.
(G) The Manager shall prepare and, subject to approval of the Company's
Treasurer, disseminate to the Company's trustees each Company's quarterly
financial statements and schedules of investments, and shall prepare such other
reports relating to the business and affairs of the Company (not otherwise
appropriately prepared by the Company's counsel, auditors or other Company
service providers) as the officers and trustees of the Company may from time to
time reasonably request in connection with performance of their duties.
(H) The Manager shall assist the Custodian, Transfer Agent, counsel and
auditors as required to carry out the business and operations of the Company.
3. Investment Services and Duties. Subject to the supervision of the
Company's Board of Directors, the Manager shall provide a continuous investment
program for the Company, including investment, research and management with
respect to all securities and investments and cash equivalents in the Company.
The Manager shall determine from time to time what securities and other
investments will be purchased, retained or sold by the Company with respect to
the Company. The Manager shall provide the services under this Section 3 in
accordance with the Company's investment objectives, policies and restrictions
as stated in the Company's then current registration statement and resolutions
of the Company's Board of Directors.
(A) The Manager shall place all orders for the purchase and sale of portfolio
securities for the account of the Company with brokers or dealers selected by
the Manager. In executing portfolio transactions and selecting brokers or
dealers, the Manager will use its best efforts to seek on behalf of each Fund
the best overall terms available. In assessing the best overall terms available
for any transaction the Manager shall consider all facts it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker
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or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker or dealer to execute a particular
transaction, the Manager may also consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Company and/or other accounts over which the Manager or
any affiliate of the Manager exercise investment discretion. The Manager is
authorized to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for any
Company which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the Manager
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of that particular transaction or in terms of the overall
responsibilities of the Manager to the Company. In no instance may portfolio
securities be purchased from or sold to the Manager, any sub-adviser, or an
affiliated person of any of them acting as principal or as broker, except as
permitted by law. In executing portfolio transactions for the Company the
Manager may, to the extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be sold or purchased
with those of other investment portfolios and its other clients where such
aggregation is not inconsistent with the policies set forth in the Company's
registration statement. In such event, the Manager shall allocate the
securities so purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Company and such other clients.
(B) In performing the investment advisory services hereunder, the Manager is
authorized to purchase, sell or otherwise deal with securities or other
instruments for which (i) the Manager, (ii) any affiliate of the Manager, (iii)
an entity in which the Manager has a direct or indirect interest, and (iv)
another member of a syndicate or other intermediary (where an entity referred
to in (i), (ii) or (iii) above was a member of the syndicate), has acted, now
acts or in the future will act as an underwriter, syndicate member, market-
maker, dealer, broker or in any other similar capacity, whether the purchase,
sale or other dealing occurs during the life of the syndicate or after the
close of the syndicate, provided such purchase, sale or dealing is permitted
under the 1940 Act and the rules thereunder. Insofar as permitted by law, any
rules of or under applicable law prohibiting or restricting in any way an agent
or fiduciary from dealing with itself or from dealing with respect to any
matter in which it may or does have a personal interest shall not apply to the
Manager, to the extent its actions are authorized under this paragraph.
(C) The Manager shall maintain books and records with respect to the
securities transactions of the Fund, and furnish the Company's Board of
Directors such periodic special reports as the Board may request.
(D) The Manager shall review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any sub-adviser
appointed by the Board of Directors, and shall assist and consult with any sub-
adviser in connection with the Company's continuous investment program.
4. Compliance with Governing Instruments and Laws. In performing its duties
as Manager, the Manager shall act in conformity with the Company's Declaration
of Trust, Bylaws, prospectuses and statements of additional information, and
the instructions and directions of the Board of Directors of the Company. In
addition, the Manager shall conform to and comply with the requirements of the
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1940 Act, the Rules and Regulations of the Commission, the requirements of
subchapter M and Section 817(h) of the Internal Revenue Code of 1986, as
amended, and all other applicable federal or state laws and regulations.
5. Services Not Exclusive. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Directors from time to time, have
no authority to act for or represent the Company in any way or otherwise be
deemed its agent. The services furnished by the Manager hereunder are not
deemed exclusive, and the Manager shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
6. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Manager hereby agrees that all records which it maintains for
the Company are the property of the Company and further agrees to surrender
promptly to the Company any such records upon the Company's request. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
the 1940 Act.
7. Subcontractors. It is understood that the Manager may from time to time
employ or associate with itself such person or persons as the Manager may
believe to be particularly fitted to assist in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by the Manager and that the Manager shall be as fully responsible
to the Company for the acts and omissions of any subcontractor as it is for its
own acts and omissions. Without limiting the generality of the foregoing, it is
understood that the Manager and the Company intend to enter into an agreement
with the Fund Accountant under which said institution will provide certain
accounting, bookkeeping, pricing and dividend and distribution calculation
services with respect to the Company at its expense.
8. Expenses Assumed as Manager. Except as otherwise stated in this Agreement,
the Manager shall pay all expenses incurred by it in performing its services
and duties hereunder as Manager (other than the cost of securities purchased
for the Company). The Company shall bear other expenses incurred in the
operation of the Company, including without limitation taxes, interest,
brokerage fees and commissions, if any, fees of directors who are not officers,
directors, partners, employees or holders of 5 percent or more of the
outstanding voting securities of the Manager or any of its affiliates,
Commission fees and state blue sky registration and qualification fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining the
corporation's existence, costs of preparing and printing prospectuses or any
supplements or amendments thereto necessary for the continued effective
registration of the Shares under federal or state securities laws, costs of
printing and distributing any prospectus, supplement or amendment thereto for
existing shareholders of the Company described therein, costs of shareholders'
reports and meetings, and any extraordinary expenses. It is understood that
certain advertising, marketing, shareholder servicing, administration and/or
distribution expenses to be incurred in connection with the Shares may be paid
by the Company as provided in any plan which may in the sole discretion of the
Company be adopted in accordance with Rule 12b-1 under the 1940 Act, and that
such expenses shall be paid apart from any fees paid under this Agreement.
B-4
<PAGE>
9. Compensation. For the services provided and the expenses assumed pursuant
to this Agreement, the Company shall pay the Manager a fee, computed daily and
payable monthly, at the annual rate as set forth in the attached fee schedule
based on the average net assets of the Company. Notwithstanding anything to the
contrary herein, if in any fiscal year the aggregate expenses of the Company
(as defined under the securities regulations of any state having jurisdiction
over the Company) exceed the expense limitations of any such state, the Company
may deduct from the fees to be paid pursuant to this Agreement, or the Manager
shall bear such excess, to the extent required by state law. Such deduction or
payment, if any, will be estimated and accrued daily and paid on a monthly
basis. The Company shall reduce the advisory fee to be paid to the Manager by
the amount of any advisory fees paid to other investment companies relating to
the Company's investment in such investment company's securities.
10. Confidentiality. The Manager shall treat confidentially and as
proprietary information of the Company all records and other information
relative to the Company and prior or present shareholders or those persons or
entities who respond to the Distributor's inquiries concerning investment in
the Company, and shall not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder or under
any other agreement with the Company except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Manager may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Company. Nothing contained herein, however, shall prohibit the Manager from
advertising to or soliciting the public generally with respect to other
products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons
or entities who have responded to inquiries with respect to the Company.
11. Limitations of Liability. Subject to the provisions of Section 7 hereof
concerning the Manager's responsibility for the acts and omissions of persons
employed or associated with the Manager, the Manager shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or by the Company in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under
this Agreement. Any person, even though also an officer, director, employee or
agent of the Manager, who may be or become an officer, director, employee or
agent of the Company, shall be deemed when rendering services to the Company,
or acting on any business of the Company (other than services or business in
connection with the Manager's duties as Manager hereunder or under any other
agreement with the Company) to be rendering such services to or acting solely
for the Company and not as an officer, director, employee or agent or one under
the control or direction of the Manager even though paid by the Manager.
The Manager acknowledges and agrees that the Articles of Incorporation of the
Company provides that the Directors of the Company and the officers of the
Company executing this Agreement on behalf of the Company shall not be
personally bound hereby or liable hereunder, nor shall resort be had to their
private property or the private property of the shareholders of the Company for
the satisfaction of any claim or obligation under this Agreement.
B-5
<PAGE>
12. Duration or Termination. This Agreement shall become effective as of the
date first written above and, unless sooner terminated as provided herein,
shall continue until October 31, 19 . Thereafter, this Agreement will be
extended with respect to a particular Fund for successive one-year periods
ending on October 31st of each year provided each such extension is
specifically approved at least annually (a) by vote of a majority of those
members of the Company's Board of Directors who are not interested persons of
any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval and (b) by the Company's Board of Directors
or by vote of a majority of the outstanding voting securities of the Company.
This Agreement may be terminated by the Company at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Company or by a vote of a majority of the outstanding voting securities
of the Company on 60 days' written notice to the Manager, or by the Manager at
any time, without payment of penalty, on 60 days' written notice to the
Company. This Agreement will immediately terminate in the event of its
assignment. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meanings as such terms have in the 1940 Act.
13. Names. The name "Horace Mann Fund" refers to the Company created and the
directors, as directors but not individually or personally, acting from time
to time under the Articles of Incorporation dated , 19 , as
amended, which is hereby referred to and a copy of which is on file at the
principal office of the Company. The directors, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the directors or by any officer, employee or agent of
the Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any series or class of shares of the Company may
enforce claims against the Company only against the assets belonging to such
series or class.
14. Notices. Notices of any kind to be given to the Company hereunder by the
Manager shall be in writing and shall be duly given if mailed or delivered to
the Company at the following:
With a copy to:
Cathy G. O'Kelly, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, 26th Floor
Chicago, Illinois 60601
or at such other address or to such individual as shall be so specified by the
Company to the Manager. Notices of any kind to be given to the Manager
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to the Manager at:
or at such other address or to such individual as shall be so specified by the
Manager to the Company.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court
B-6
<PAGE>
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 12 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Delaware law
(without regard to principles of conflicts of law); provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Horace Mann Fund, Inc.
By: _______________________
(name) ____________________
(title) ___________________
Attest: _____________________________
(name) _________________________
(title) ________________________
HORACE MANN INVESTORS, INC.
By: _______________________
(name) ____________________
(title) ___________________
Attest: _____________________________
(name) _________________________
(title) ________________________
B-7
<PAGE>
FEE SCHEDULE
PART 1
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
All Funds......................................... On initial $100 million .250%
Over $100 million .200%
</TABLE>
PART 2
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C> <C>
Growth Fund....................................... On initial $100 million .400%
On next $100 million .300%
Over $200 million .250%
Balanced Fund..................................... On initial $100 million .325%
On next $100 million .275%
On next $300 million .225%
Over $500 million .200%
Income Fund....................................... On initial $100 million .250%
On next $100 million .200%
Over $200 million .150%
Short-Term Fund................................... On initial $100 million .125%
On next $100 million .100%
Over $200 million .075%
</TABLE>
B-8
<PAGE>
EXHIBIT C
INVESTMENT SUB-ADVISORY AGREEMENT
This Agreement (Agreement) made this day of 1997 by and
between Horace Mann Investors, Inc., a Delaware Corporation and registered
investment adviser (Adviser) and Wellington Management Company, LLP, a
Massachusetts limited liability partnership and registered investment adviser
(Sub-Adviser).
Whereas Adviser is the investment adviser and business manager for 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),
each an open-end diversified, management investment company registered
under the Investment Company Act of 1940, as amended (1940 Act);
Whereas Adviser desires to retain the Sub-Adviser to furnish investment
advisory services for the Funds, upon the terms and conditions set forth;
Now Therefore, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser to provide certain sub-
investment advisory services to the Funds for the period and on the terms set
forth in this Agreement. Sub-Adviser accepts such appointment and agrees to
furnish the services set forth for the compensation herein provided. Sub-
Adviser represents that it is registered as an Investment Adviser under
federal laws and any applicable state laws.
2. Sub-Adviser Services. Subject always to the supervision of each Fund's
Board of Directors and the Adviser, Sub-Adviser will furnish an investment
program in respect of, and make investment decisions for, all assets of the
Funds and place all orders for the purchase and sale of securities, all on
behalf of the Funds. In the performance of its duties, Sub-Adviser will
satisfy its fiduciary duties to the Funds and will monitor each Fund's
investments, and will comply with the provisions of each Fund's Articles of
Incorporation and By-laws, as amended from time to time, and the stated
investment objectives, policies and restrictions of the Funds as set forth in
the prospectus and Statement of Additional Information for the Funds, as
amended from time to time, as well as any other objectives, policies or
limitations provided by the Adviser from time to time.
Sub-Adviser will provide reports at least quarterly to the Board of
Directors and to Adviser. Sub-Adviser will make its officers and employees
available to Adviser and the Board of Directors from time to time at
reasonable times to review investment policies of the Funds and to consult
with Adviser regarding the investment affairs of the Funds.
Sub-Adviser agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission in all material respects and in addition
will conduct its activities under this Agreement in accordance with any
applicable regulations of any governmental authority pertaining to its
investment advisory activities, including all requirements necessary for
the Funds to comply with subchapter M and section 817(h) of the Internal
Revenue Code;
C-1
<PAGE>
Page 2--Wellington Agreement
(c) is authorized to and will select the brokers or dealers that will
execute the purchases and sales of portfolio securities for each Fund and
is directed to use its best efforts to obtain best execution, which
includes most favorable net results and execution of each Fund's orders,
taking into account all appropriate factors including price, dealer spread
or commission, size and difficulty of the transaction and research or other
services provided. It is understood that the Sub-Adviser will not be deemed
to have acted unlawfully, or to have breached a fiduciary duty to a Fund or
be in breach of any obligation owing to a Fund under this Agreement, or
otherwise, solely by reason of its having caused a Fund to pay a member of
a securities exchange, a broker or a dealer a commission for effecting a
securities transaction of the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was
reasonable in relation to the brokerage and research services provided by
such member, broker, or dealer, viewed in terms of that particular
transaction or the Sub-Adviser's overall responsibilities with respect to
its accounts, including the Fund, as to which it exercises investment
discretion. Some securities considered for investment by a Fund may also be
appropriate for other funds and or clients served by the Sub-Adviser. To
assure fair treatment of each Fund and all clients of the Sub-Adviser in
situations in which two or more clients' accounts participate
simultaneously in a buy or sell program involving the same security, such
transactions will be allocated among the Funds and clients in a manner
deemed equitable by the Sub-Adviser;
(d) will report regularly to Adviser and to the Board of Directors and
will make appropriate persons available for the purpose of reviewing with
representatives of Adviser and the Board of Directors on a regular basis at
reasonable times the management of the Funds, including without limitation,
review of the general investment strategies of each Fund, the performance
of each Fund in relation to standard industry indices, interest rate
considerations and general conditions affecting the marketplace and will
provide various other reports from time to time as reasonably requested by
Adviser;
(e) will prepare such books and records with respect to a Fund's
securities transactions as requested by the Adviser and will furnish
Adviser and each Fund's Board of Directors such periodic and special
reports as the Board or Adviser may reasonably request;
(f) will act upon reasonable instructions from Adviser which, in the
reasonable determination of Sub-Adviser, are not inconsistent with Sub-
Adviser's fiduciary duties under this Agreement;
3. Expenses. During the terms of this Agreement, Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commission, if any),
purchased for a Fund.
4. Compensation. For the services provided and the expenses assumed under
this Agreement for each Fund, Adviser will pay Sub-Adviser, and Sub-Adviser
agrees to accept as full compensation therefor, at the end of each calendar
month a sub-advisory fee computed at the annual rate set forth in Exhibit 1--
Fee Schedule, applied to the average daily net assets of a Fund during that
calendar month.
5. Services to Others. Adviser understands and has advised each Fund's Board
of Directors, that Sub-Adviser acts as an investment adviser or sub-investment
adviser to other investment companies and other advisory clients.
C-2
<PAGE>
Page 3--Wellington Agreement
6. Limitation of Liability. Neither the Sub-Adviser nor any of its directors,
officers, stockholders, agents or employees shall have any liability to the
Adviser, a Fund or any shareholder of a Fund for any error of judgment, mistake
of law, or any loss arising out of any investment, or for any other act or
omission in the performance by the Sub-Adviser of its duties hereunder except
for liability resulting from willful misfeasance, bad faith, or negligence on
Sub-Adviser's part in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement.
7. Term, Termination, Amendment. This Agreement shall become effective with
respect to each Fund on April , 1997, provided that it has been approved by a
vote of a majority of the outstanding voting securities of each Fund in
accordance with the requirement of the 1940 Act and shall remain in full force
until November 30, 1998, unless sooner terminated as hereinafter provided. This
Agreement shall continue in force from year to year thereafter with respect to
each Fund, but only as long as such continuance is specifically approved for
each Fund at least annually in the manner required by the 1940 Act and the
rules and regulations thereunder, provided, however, that if the continuation
of this Agreement is not approved for a Fund the Sub-Adviser may continue to
serve in such capacity for such Fund in the manner and to the extent permitted
by the 1940 Act and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its assignment
and may be terminated at any time without the payment of any penalty by the
Adviser or by the Sub-Adviser on sixty days written notice to the other party.
This Agreement may also be terminated by a Fund by action of the Board of
Directors or by a vote of a majority of the outstanding voting securities of
such Fund Portfolio on sixty days written notice to Sub-Adviser by the Fund.
This Agreement may be terminated with respect to any Fund any time without
the payment of any penalty by the Adviser, the Board of Directors or by a vote
of majority of the outstanding voting securities of such Fund in the event the
Sub-Adviser or any officer or director of the Sub-Adviser has taken any action
which results in a material breach of the covenants of the Sub-Adviser under
this Agreement.
Termination of this Agreement shall not affect the right of the Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 4 earned prior to such termination.
This Agreement shall automatically terminate with respect to a Fund in the
event the Investment Management Agreement between Adviser and that Fund is
terminated, assigned or not renewed.
8. Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
9. Limitations on Liability. All parties are expressly put on notice of each
Fund's Articles of Incorporation and all amendments thereto, all of which are
on file with the Maryland Department of Assessments and Taxation and the
limitation of shareholder and director liability contained therein. The
obligations of a Fund entered in the name or on behalf thereof by any of the
Directors, representatives or agents are made not individually but only in such
capacities and are not binding upon any of the Directors, officers, or
shareholders of a Fund individually but are binding upon only
C-3
<PAGE>
Page 4--Wellington Agreement
the assets and property of such Fund, and persons dealing with the Fund must
look solely to the assets of the Fund and those assets belonging to the
subject Fund for the enforcement of any claims.
10. Adviser Responsibility. Adviser will provide Sub-Adviser with copies of
each Fund's Articles of Incorporation, By-laws, prospectus, and Statement of
Additional Information and any amendment thereto, and any objectives, policies
or limitations not appearing therein as they may be relevant to Sub-Adviser's
performance under this Agreement.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be
affected thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties and their respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 9 above which will be
construed in accordance with Maryland law) the laws of the state of Illinois.
The Adviser and the Sub-Adviser have caused this Agreement to be executed as
of the date and year first above written.
Horace Mann Investors, Inc. Wellington Management Company, LLP
By_________________________________ By_____________________________________
Title _____________________________ Title _________________________________
By_________________________________ By_____________________________________
Title _____________________________ Title _________________________________
C-4
<PAGE>
EXHIBIT 1
SUB-ADVISORY FEE SCHEDULE
GROWTH FUND
.400% on the First $100,000,000
.300% on the Next $100,000,000
.250% on all assets over $200,000,000
INCOME FUND
.250% on the First $100,000,000
.200% on the Next $100,000,000
.150% on all assets over $200,000,000
BALANCED FUND
.325% on the First $100,000,000
.275% on the Next $100,000,000
.225% on the Next $300,000,000
.200% on all assets over $500,000,000
SHORT-TERM INVESTMENT FUND
.125% on the First $100,000,000
.100% on the Next $100,000,000
.075% on all assets over $200,000,000
C-5
<PAGE>
EXHIBIT D
LIST OF PARTNERS OF WELLINGTON CAPITAL MANAGEMENT, LLP
AS OF 12/31/96
<TABLE>
<S> <C>
Kenneth L. Abrams.................... Senior Vice President(Partner)
Nicholas C. Adams.................... Senior Vice President(Partner)
Rand L. Alexander.................... Senior Vice President(Partner)
Deborah L. Allinson.................. Senior Vice President(Partner)
Nancy T. August...................... Senior Vice President(Partner)
James H. Averill..................... Senior Vice President(Partner)
Marie-Claude Bernal.................. Senior Vice President(Partner)
William N. Booth..................... Senior Vice President(Partner)
Paul Braverman....................... Senior Vice President & Chief Financial
Officer(Partner)
William D. Dilanni................... Senior Vice President(Partner)
Pamela Dippel........................ Senior Vice President & Director of Mutual
Fund Business Group(Partner)
Robert W. Doran...................... Chairman(Managing Partner)
Charles T. Freeman................... Senior Vice President(Partner)
Laurie A. Gabriel.................... Senior Vice President(Partner)
Frank J. Gilday...................... Senior Vice President(Partner)
John H. Gooch........................ Senior Vice President(Partner)
Nicholas P. Greville................. Senior Vice President & Director of
International Business Development
(Partner)
William C.S. Hicks................... Senior Vice President(Partner)
Paul D. Kaplan....................... Senior Vice President(Partner)
John C. Keogh........................ Senior Vice President(Partner)
Mark T. Lynch........................ Senior Vice President(Partner)
Nancy T. Lukitsh..................... Senior Vice President(Partner) & Director
of Marketing
Christine S. Manfredi................ Senior Vice President(Partner)
Patrick J. McCloskey................. Senior Vice President(Partner)
Earl E. McEvoy....................... Senior Vice President(Partner)
Duncan M. McFarland.................. President & Chief Executive Officer
(Managing Partner)
Paul M. Mecray, III.................. Senior Vice President(Partner)
Matthew E. Megargel.................. Senior Vice President(Partner)
James N. Mordy....................... Senior Vice President(Partner)
Diane C. Nordin...................... Senior Vice President(Partner)
Edward P. Owens...................... Senior Vice President(Partner)
Saul J. Pannell...................... Senior Vice President(Partner)
Thomas L. Pappas..................... Senior Vice President(Partner)
David M. Parker...................... Senior Vice President(Partner)
</TABLE>
D-1
<PAGE>
<TABLE>
<S> <C>
Jonathan M. Payson................... Senior Vice President & Director of
Institutional Client Services Group
(Partner)
Stephen M. Pazuk..................... Senior Vice President & Treasurer(Partner)
Robert D. Rands...................... Senior Vice President(Partner)
Eugene E. Record, Jr................. Senior Vice President(Partner)
John R. Ryan......................... Senior Vice President(Managing Partner)
Joseph H. Schwartz................... Senior Vice President(Partner)
David W. Scudder..................... Senior Vice President(Partner)
Binkley C. Shorts.................... Senior Vice President(Partner)
Trond Skramstad...................... Senior Vice President(Partner)
Catherine A. Smith................... Senior Vice President(Partner)
Stephen A. Soderberg................. Senior Vice President(Partner)
Harriett Tee Taggart................. Senior Vice President(Partner)
Perry M. Traquina.................... Senior Vice President(Partner)
Gene R. Tremblay..................... Senior Vice President(Partner)
Mary Ann Tynan....................... Senior Vice President & Secretary(Partner)
Ernst H. von Metzsch................. Senior Vice President(Partner)
Clare Villari........................ Senior Vice President(Partner)
James L. Walters..................... Senior Vice President & Director of
Business Planning(Partner)
Kim Williams......................... Senior Vice President(Partner)
Frank V. Wisneski.................... Senior Vice President(Partner)
</TABLE>
D-2
<PAGE>
VOTING INSTRUCTION/PROXY
Horace Mann Growth Fund, Inc.
Shareholder Meeting of April 23, 1997
This Voting Instruction/Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints George J. Zock and A.L. Gallop, individually or
jointly, proxies, each with the power of substitution, to vote all Fund shares
of the undersigned at the Special Meeting of Shareholders, to be held at One
Horace Mann Plaza, Springfield, IL on April 23, 1997 at 9:00 a.m. CT, or at any
adjournment thereof, upon the matters set forth in the Voting Instruction/Proxy
Statement for such meeting, and in their discretion, on such other business as
may properly come before the meeting.
1. ELECTION OF DIRECTORS FOR
All nominees listed below
(Except as marked to the contrary below)
WITHHOLD AUTHORITY
to vote for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee
- ------------ strike a line through the nominee's name in the list below:
A. Thomas Arisman, Larry K. Becker, A.L. Gallop, Richard D. Lang, Edward L.
Najim, Harriet A. Russell, George J. Zock
2. Approval of Management Agreement with Horace Mann Investors, Inc.
FOR AGAINST ABSTAIN
3. Approval of Management Subadvisory Agreement with Wellington Management
Company, LLP
FOR AGAINST ABSTAIN
4. Approval of Agreement and Plan Reorganization
FOR AGAINST ABSTAIN
(BACK SIDE)
Share Balance as of Dated ________________________1997
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
NOTE: When shares are held by joint
tenants, both must sign. Persons
signing as Executor, Administrator,
Trustee, etc. should so indicate.
Please sign exactly as the name
appears on the voting
instruction/proxy.
PLEASE MARK, DATE, SIGN AND PROMPTLY
RETURN THIS VOTING INSTRUCTION/PROXY
CARD USING THE ENCLOSED ENVELOPE.
IF NO CONTRARY SPECIFICATION IS MADE, THIS VOTING INSTRUCTION/
PROXY WILL BE VOTED FOR THE PROPOSALS IN ITEMS 1, 2, 3 AND 4.
